Colgate's 1Q Meets Consensus - Analyst Blog

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Colgate-Palmolive Company ( CL ) reported first-quarter 2012 adjusted earnings of $1.24 per share, which rose 7% from the year-ago quarter while meeting the Zacks Consensus Estimate.

Global sales of $4,200 million surged nearly 5% from the prior-year quarter, breezing past the Zacks Consensus Estimate of $4,168 million. Sales growth in the quarter mainly resulted from a 3.5% upside in both pricing and global unit volumes, partially offset by a 2% negative impact from foreign exchange. On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 6% in the quarter.

Adjusted gross profit margin for the quarter dipped 20 basis points to 58.2%, as higher material and packaging costs hurt the cost savings benefits of the company's funding-the-growth initiatives throughout the second half of 2011. On a reported basis, including costs associated with the business realignments, other cost-saving initiatives and the sale of land in Mexico, gross profit increased $106 million to $2,437 million while gross margin dipped 40 basis points to 58.0%.

First quarter adjusted operating profit of $950 million rose 4% compared to last year. On a reported basis, including costs associated with the business realignments and the sale of land in Mexico, operating profit increased 3% to $938 million while operating margin contracted 60 basis points to 22.3%.

Colgate-Palmolive stated that its market share of global toothpaste and manual toothbrushes are at record highs year to date at 45.2% and 32.7%, respectively. The global toothpaste share represented an increase of 0.8 share points from the year-ago period while the share of manual tooth brushes increased 0.5 share point from a year ago.

Segment Discussion

North America sales (18% of total sales) increased 5% in the quarter. The growth was primarily driven by a 5% rise in unit volume, 0.5% upside in prices and a 0.5% negative foreign exchange. On an organic basis, sales increased 5.5%.

However, operating profit decreased 5% to $183 million with operating margin contracting 24.2%, due to lower gross margin 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 inched up 1% and pricing rose 10%, partially offset by negative foreign exchange impact of 4.5%. Volume gains were most prominent in Brazil, Mexico and Central America, slightly offset by declines in Venezuela. On an organic basis, sales increased 13.5%.

Consequently, operating profit climbed 6% to $344 million from the prior-year quarter. Moreover, operating margin contracted to 30.2%, primarily due to an increase in selling, general and administrative expenses and other expenses, both as a percentage of sales, partially offset by higher gross profit margin.

Europe/South Pacific sales (20% of total sales) rose 2.5% as unit volume made a positive contribution of 7.5% while pricing and foreign exchange had a 2.5% and 2% 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 the United Kingdom, France, Iberia and Australia. However, organic sales for Europe/South Pacific inched down 2%.

Operating profit during the quarter declined 1% year over year to $183 million. Furthermore, the operating profit margin in the region contracted to 21.4%, primarily due to an increase in other expenses because of higher amortization of intangible assets related to the Sanex acquisition, partially offset by a rise in gross profit margin.

Greater Asia/Africa sales (21% of total sales) climbed 8%, with a 6% increase in unit volume, primarily led by volume gains in the Greater China region, India and the Philippines, partially offset by volume decline in South Africa. Pricing contributed 5% to growth while the Sanex acquisition added 0.5%, which was offset by a 3% negative impact from foreign currency. On an organic basis, sales grew 10.5%.

Operating profit rose 8% to $220 million on account of strong sales growth. However, operating profit margin remained flat year over year at 25%, as lower gross profit margin was fully offset by lower selling, general and administrative expenses as a percentage of net sales.

Hill's Pet Nutrition sales (13% of total sales) increased 1.5%. Unit volume decreased 1.5% as volume declines in the U.S. overshadowed the volume gains in Australia. Pricing had a 3.5% positive impact on sales growth while foreign exchange negatively impacted sales by 0.5%. On an organic basis, sales rose 2% from the year-ago quarter.

Operating profit increased by 5% to $148 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 first-quarter 2012 with cash and cash equivalents of $1,044 million, total debt of $4,967 million and shareholders' equity of $2,290 million. Net cash provided by operating activities came in at $662 million in the first three months of 2012.

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.



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Referenced Stocks: CHD , CL , PG

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