Colgate Beats, Margins Lag On Costs

Zacks Investment Research
updated | Zacks.com

Colgate-Palmolive Company (NYSE:CL) posted fourth-quarter 2011 adjusted earnings of $1.30 per share, beating the Zacks Consensus Estimate by a penny. Adjusted earnings also surpassed the prior-year quarter level of $1.24 per share by approximately 5%.

Global net sales increased nearly 5% year over year to $4,172 million based on a 3% surge in pricing and 4% upside in global unit volume, partially offset by a 2% negative impact from foreign exchange. On an organic basis (excluding foreign exchange, acquisitions and divestitures), sales increased 6% in the quarter. Global net sales, however, missed the Zacks Consensus Revenue Estimate of $4,215 million.

Gross profit increased 1.8% to $2,393 million. However, gross profit margin declined 170 basis points year over year to 57.4%, as higher material and packaging costs hurt the cost savings benefits of the company’s funding-the-growth initiatives. Operating profit margin contracted 70 basis points year over year to 22.1%.

Colgate-Palmolive stated that its share of the global toothpaste market has increased to 44.3% year to date, representing an increase of 0.3 share points from the year-ago period. Colgate’s market share in manual tooth brushes increased to 31.7%, representing an increase of 0.5 share point from a year ago.

Segment Discussion

North America sales (18% of total sales) increased 3.5% in the quarter. The growth was primarily driven by 3% rise in unit volume and 0.5% upside in prices. On an organic basis, sales increased 3.5%.

However, operating profit decreased 11% to $192 million due to lower gross profit and higher selling, general and administrative expenses as a percentage of net sales.

Latin America sales (28% of total sales) grew 6.5% during the quarter as unit volume increased 3%, partially offset by negative foreign exchange impact of 5%. Volume gains were most prominent in Brazil, Colombia and Mexico. In addition, pricing contributed 8.5% to the growth. On an organic basis, sales increased 14.5%.

Consequently, operating profit climbed 14% to $364 million from the prior-year quarter. Moreover, operating margin expanded 190 basis points to 30.2%, primarily due to a decline in selling, general and administrative expenses as a percentage of net sales that more than offset the lower gross profit as a percentage of net sales.

Europe/South Pacific sales (21% of total sales) upped 5% as unit volume made a positive contribution of 7.5% while pricing had a 3% negative impact on growth. Sanex acquisition contributed 6.5% to sales during the quarter. Volume gains were primarily led by better performance in the United Kingdom, Spain and France. However, organic sales for Europe/South Pacific inched down 2%.

Operating profit during the quarter declined 4% year over year to $164 million. Further, operating profit margin in the region contracted 170 basis points to 19.4%. The decline in operating profit margin was primarily attributable to lower gross profit margin and higher selling, general and administrative expenses as a percentage of net sales.

Greater Asia/Africa sales (20% of total sales) climbed 5%, with 6% increase in volume, primarily led by volume gains in the India, Thailand, Russia and Malaysia, partially offset by volume decline in Greater China region. Pricing contributed 3.5% to the growth while Sanex acquisition added 1%.

On an organic basis, sales grew 8.5%. Consequently, operating profit rose 5% to $203 million. However, operating profit margin remained flat year over year at 25.5%, as lower gross profit margin was fully offset by lower selling, general and administrative expenses as a percentage of net sales.

Hill’s sales (13% of total sales) upped 2%. Unit volume decreased 1.5% due to lower volume in the U.S and Japan. On an organic basis, sales inched up 1.5% from the year-ago quarter. Operating profit increased by 4% to $152 million. Further, operating profit margin improved by 60 basis points to 27%, primarily due to decreased selling, general and administrative expenses, as a percentage of net sales that more than offset the negative impact of lower gross profit margin.

Other Financial Details

Colgate-Palmolive ended the fiscal year 2011 with cash and cash equivalents of $878 million, total debt of $4,810 million and shareholders’ equity of $2,375 million. Net cash provided by operating activities came in at $2,896 million.

Colgate-Palmolive, which competes with Procter & Gamble Company (NYSE:PG) and Church & Dwight Company Inc. (NYSE:CHD), retains a Zacks #4 Rank, which translates into a short-term Sell rating. Our long-term recommendation on the stock remains Neutral.

 
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