Colgate Q1 Earnings in Line - Analyst Blog

Colgate-Palmolive Co. CL, a global dealer in consumer goods, reported first-quarter 2013 adjusted earnings of 68 cents per share. This was in line with the Zacks Consensus Estimate and up 3.0% from the year-ago quarter's adjusted earnings of 66 cents per share.

Global sales of $4,325 million were almost flat as compared with the prior-year figure of $4,215 million, as the benefit from 5% growth in volume and 1.5% rise in prices was fully offset by a negative foreign exchange rate of 6.5%. Moreover, quarterly revenues missed the Zacks Consensus Estimate of $4,342 million.

On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 6.5%.

Adjusted gross profit margin remained flat at 58.6% year over year, as the benefit from cost saving initiatives under funding-the-growth and 2012 Restructuring Program and higher pricing were fully offset by increased raw material and packaging costs.

Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenues, fell 10 basis points (bps) to 35.3% from the year-ago quarter.  The decline was mainly due to lower overhead costs, partially offset by higher advertising investment, both as a percentage of sales.

In the quarter, adjusted operating profit of $1,033 million increased 2% from $985 million from the year-ago period. Consequently, operating margin improved 40 bps to 23.2%.

On a year-to-date basis, Colgate-Palmolive's market share of global toothpaste and manual toothbrushes reached 44.3% and 33.1%, respectively. Additionally, the company's mouthwash business made significant progress, with its global market share reaching a record of 17.3% in the year-to-date period, a 60 bps improvement from the comparable period in 2013.

Segment Discussion

North America sales (18% of total sales) rose 2.5% in the quarter, driven by a 4.5% rise in unit volume, partly offset by the negative impact of 1% each from lower pricing and foreign exchange. On an organic basis, sales increased 3.5%.

The segment's operating profit remained flat year over year at $216 million while operating margin contracted 60 bps to 27.5%. The year-over-year decline in operating profit margin was chiefly due to lower gross profit margin and higher SG&A expenses as a percentage of net sales.

Latin America sales (27% of total sales) declined 5% year over year, as the benefit of a 6.5% increase in pricing and 4.5% unit volume growth was more than offset by a negative foreign exchange impact of 16.0%. Volume gains were most prominent in Venezuela, Brazil, Mexico and Colombia. On an organic basis, sales increased 11%.

Operating profit decreased 7% to $290 million while as a percentage of sales, it contracted 50 bps to 25.2% primarily due to a decline in gross profit margin, which was partially offset by lower SG&A expenses as a percentage of sales.

Europe/South Pacific sales (20% of total sales) grew 2% year over year, primarily benefiting from a 3.5% rise in unit volume and a 1% positive impact from foreign exchange. However, these were partially offset by a 2.5% fall in pricing. Volume gains were primarily led by the United Kingdom, Australia, France and Poland. Organic sales for the region were down 1.5%.

Operating profit increased 9% year over year to $217 million. Furthermore, the operating profit margin in the region expanded 150 bps to 25.1% primarily attributable to higher gross profit margin, partially offset by increased SG&A expenses as a percentage of sales.

Asia sales (15% of total sales) climbed 2.5%, with a 7% increase in unit volume and a 0.5% rise in pricing. These were partially offset by a 5% negative impact from foreign currency. Volume growth was primarily led by gains in India, the Greater China region, Malaysia and the Philippines. On an organic basis, sales grew 7.5%.

Operating profit rose 4% to $193 million. Operating margin expanded 30 bps to 28.7%, on account of improved gross margin.

Africa/Eurasia sales (7% of total sales) dropped 0.5% year over year due to a 10.5% negative impact from foreign currency exchange, which more than offset the benefit of 9.5% growth in unit volume and 0.5% increase in prices. Volume gains were primarily led by Russia, South Africa, Turkey and the Central Asia/Caucasus region. Organic sales for the region rose 10%.

Operating profit decreased 5% year over year to $59 million in the quarter while as a percentage of sales, it contracted 90 bps to 19.8%. The decrease was mainly due to lower gross profit margin, partially offset by fall in SG&A expenses as a percentage of sales.

Hill's Pet Nutrition sales (13% of total sales) grew 3.5%. Unit volume increased 3.5% due to volume gains in the U.S., Russia, France and Japan, partly offset by volume declines in Canada. Pricing had a 2% positive impact on sales growth while foreign exchange negatively impacted sales by 2%. On an organic basis, sales rose 5.5% from the year-ago quarter.

Operating profit improved 6% to $144 million, while operating profit margin expanded 50 bps to 26.0%. The rise in operating margin was due to reduced SG&A expenses as a percentage of net sales partially offset by lower gross profit margin.

Other Financial Details

Colgate-Palmolive, which competes with The Procter & Gamble Co. PG, ended the quarter with cash and cash equivalents of $1,795 million, total debt of $6,659 million and shareholders' equity of $1,630 million. Net cash provided by operating activities came in at $820 million for the period.

Guidance

Looking ahead, Colgate-Palmolive anticipates the growth momentum to continue throughout 2014 as it remains on track with its global restructuring program. Further, the company's increased focus on funding-the-growth programs and strategic worldwide pricing endeavors should help boost its bottom line.

Other Stocks to Consider

Currently, Colgate-Palmolive carries a Zacks Rank #3 (Hold). However, some other better-ranked stocks in the consumer staples sector include Coty Inc. COTY and International Flavors & Fragrances Inc. IFF. Both of these have a Zacks Rank #2 (Buy).