Colgate In Line, Revs Down - Analyst Blog

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Colgate-Palmolive Company ( CL ), a global dealer in consumer goods, came up with second-quarter 2012 adjusted earnings of $1.33 per share, which was in line with the Zacks Consensus Estimate. However, earnings per share increased 6% from the year-ago quarter.

Global sales of $4,267 million surged nearly 2% from the prior-year quarter, up $18 million from the Zacks Consensus Estimate of $4,249 million. Sales in the quarter mainly benefited from a 3.5% upside in pricing and 5.5% increase in global unit volumes (excluding divested businesses), offset by a 6.5% negative impact from foreign exchange. On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 8%.

Adjusted gross profit margin expanded 50 basis points to 57.9%, driven by increased prices as well as cost savings from the company's funding-the-growth initiatives. This was offset in part by higher raw and packaging material expenses and negative foreign exchange transaction costs. Selling, general and administrative expenses, as a percentage of revenue, rose 20 basis points to 34.2%, on account of a 4% rise in advertising costs.

Second quarter adjusted operating profit of $1,001 million rose 3% compared to last year. On a reported basis, including costs associated with the business realignments and the sale of land in Mexico, operating profit inched up 1% to $982 million while operating margin contracted 10 basis points to 23.0%.

Colgate-Palmolive's market share of global toothpaste and manual toothbrushes are at record highs year to date at 45.0% and 32.8%, respectively. Both global toothpaste and manual toothbrushes share represented an increase of 0.6 share points from the year-ago period.

Segment Discussion

North America sales (18% of total sales) increased 2% in the quarter. The growth was primarily driven by a 3.0% upside in prices, offset a 0.5% decline in unit volume and 0.5% currency impact.

On an organic basis, sales increased 2.5%. Segment operating profit inched up 1% to $196 million while operating margin contracted 25.9%, due to higher selling, general and administrative expenses as a percentage of net sales, offset by lower gross profit margin.

Latin America sales (29% of total sales) grew 3.0% as unit volume jumped 9.5% and pricing rose 6.0%, partially offset by negative foreign exchange impact of 9.5%. Volume gains were most prominent in Brazil, Venezuela, Mexico and Colombia. On an organic basis, sales increased 15.5%.

Consequently, operating profit climbed 2% to $367 million from the prior-year quarter. Moreover, operating margin contracted to 28.9%, primarily due to an increase in advertising expenses as a percentage of sales, and lower gross profit margin.

Europe/South Pacific sales (20% of total sales) dipped 1.0%, given a solid 9.5% upside in unit volume while pricing and foreign exchange had a 1.5% and 9.0% negative impact on growth, respectively. The Sanex acquisition contributed 6.5% to sales during the quarter.

Volume gains were primarily led by better performance in France, Iberia, Australia, the United Kingdom and the GABA business. Organic sales for the region were up 1.5%.

Operating profit rose 5% year over year to $179 million. Furthermore, the operating profit margin in the region increased to 21.1%, driven by higher gross profit margin and lower SG&A expenses as a percentage of sales.

Greater Asia/Africa sales (20% of total sales) climbed 5%, with a 7.5% increase in unit volume, primarily led by volume gains in India, Russia, South Africa, the Philippines and Thailand. Pricing contributed 5.0% to growth while the Sanex acquisition added 0.5%, which was offset by a 7.5% negative impact from foreign currency. On an organic basis, sales grew 12.0%.

Operating profit rose 11% to $220 million on account of improved gross margins, which came from higher prices and cost benefits from the company's funding-the-growth initiatives. Operating profit margin also rose to 25.6%.

Hill's Pet Nutrition sales (13% of total sales) inched down 1.0%. Unit volume decreased 3.0% as volume declines in the U.S. overshadowed the volume gains in France. Pricing had a 5.0% positive impact on sales growth while foreign exchange negatively impacted sales by 3.0%. On an organic basis, sales rose 2.0% from the year-ago quarter.

Operating profit increased 4% to $145 million. Furthermore, the operating profit margin increased to 27.3%, primarily due to a rise in gross profit margin, which is offset by an increase in selling, general and administrative expenses, as a percentage of net sales.

Other Financial Details

Colgate-Palmolive ended second-quarter 2012 with cash and cash equivalents of $995 million, total debt of $5,363 million and shareholders' equity of $2,306 million. Net cash provided by operating activities came in at $1,193 million for the six months ended June 30, 2012.

Guidance

Looking ahead, Colgate-Palmolive expects to register double-digit earnings per share growth for fiscal 2012, excluding the impact of foreign currency translation. Assuming average currency rates at current spot prices, the company expects currency translation to reduce fiscal 2012 earnings per share growth by 6% to 7%.

Colgate-Palmolive competes with Procter & Gamble Company ( PG ) and Church & Dwight Company Inc. ( CHD ). The company retains a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CHD , CL , PG

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