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Colgate-Palmolive's Earnings Rise Y/Y - Analyst Blog

Posted
4/25/2013 11:17:00 AM
By: Zacks.com
Referenced Stocks:CL;CSV;FLO;LWAY

Colgate-Palmolive Company ( CL ), a global dealer in consumer goods, reported first-quarter 2013 adjusted earnings of $1.32 per share, rising 6% from the year-ago quarter's adjusted earnings of $1.24 and in line with the Zacks Consensus Estimate.

Global sales of $4,315 million increased nearly 2.7% from the prior-year quarter's level of $4,200 million, primarily benefiting from a 4.0% increase in global unit volumes and 1.5% upside in pricing, partially offset by a negative impact of 3.0% from foreign exchange. Quarterly revenue also surpassed the Zacks Consensus Estimate of $4,299 million.

On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 6%.

Adjusted gross profit margin expanded 40 basis points (bps) to 58.6%, 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 increased cost of sales in Venezuela due to currency devaluation.

Adjusted selling, general and administrative expenses, as a percentage of revenue grew 40 bps to 35.4% on account of a rise in advertising and overhead costs as the company ramped up investments in customer development initiatives.

First-quarter adjusted operating profit of $985 million climbed 4% compared to the year-ago period, while operating margin expanded 20 bps to 22.8%.

Colgate-Palmolive's market share of global toothpaste and manual toothbrushes reached 45.6% and 33.4%, respectively. Global toothpaste and manual toothbrushes share represented an increase of 0.1 and 0.4 share points from the year-ago period.

Segment Discussion

North America sales (18% of total sales) rose 5.5% in the quarter, driven by a 2.0% upside in prices and a 3.5% rise in unit volume. On an organic basis, sales increased 5.5%.

Segment operating profit surged 22% to $215 million, while operating margin expanded nearly 370 bps to 28.1%. The year-over-year increase in operating profit margin was primarily driven by increased gross profit margin, offset by higher selling, general and administrative expenses as a percentage of net sales.

Latin America sales (28% of total sales) inched up 1.0% year over year, primarily driven by a 3.0% increase in pricing and 5.5% volume growth, partially offset by negative foreign exchange impact of 7.5%. Volume gains were most prominent in Mexico, Brazil, Venezuela and the Southern Cone region. On an organic basis, sales increased 9%.

However, operating profit declined 11% to $312 million from the prior-year quarter. Moreover, operating margin contracted 340 bps to 25.7%, primarily due to lower gross profit margin and increased selling, general and administrative expenses as a percentage of sales.

Europe/South Pacific sales (20% of total sales) declined 0.5% year over year, driven by flat unit volume and pricing as well as a 0.5% negative impact from foreign currency exchange. Volume gains were primarily led by better performance in Australia, Holland and Germany, offset by declines in Greece and the United Kingdom. Organic sales for the region were up 0.5%.

Operating profit increased 9% year over year to $200 million. Furthermore, the operating profit margin in the region expanded 220 bps to 23.6%, driven by higher gross profit margin and lower SG&A expenses as a percentage of sales.

Greater Asia/Africa sales (22% of total sales) climbed 8.5%, with an 11% increase in unit volume, offset by a 1% decline in pricing and 1.5% negative impact from foreign currency. Volume growth was primarily led by gains in India, Russia, the Greater China region, Turkey, the Philippines and South Africa. On an organic basis, sales grew 10.0%.

Operating profit jumped 13% to $248 million on account of improved gross profit, offset by increased selling, general and administrative expenses, as a percentage of sales. Operating margin expanded 100 bps to 26.0%.

Hill's Pet Nutrition sales (12% of total sales) inched down 1.5%. Unit volume decreased 3.0% as volume declines in the U.S., Europe and Japan overshadowed the volume gains in Russia, Canada, Australia and Brazil. Pricing had a 3.5% positive impact on sales growth, while foreign exchange negatively impacted sales by 2.0%. On an organic basis, sales rose marginally by 0.5% from the year-ago quarter.

Operating profit dipped 8% to $136 million. However, the operating profit margin contracted 180 bps to 25.5%, since the rise in gross profit margin was more than offset by an increase in selling, general and administrative expenses, as a percentage of net sales.

Other Financial Details

Colgate-Palmolive ended the quarter with cash and cash equivalents of $932 million, total debt of $5,357 million and shareholders' equity of $1,772 million. Net cash provided by operating activities came in at $777 million for the first quarter.

Guidance

Looking ahead, Colgate-Palmolive anticipates its growth momentum to continue into fiscal 2013 as it remains on track with its global restructuring program. Further, the company's stringent focus on the funding-the-growth programs and strategic worldwide pricing initiatives should help boost its bottom line.

As a result, the company expects strong organic sales as well as gross margin expansion in fiscal 2013. Further, the company projects 5.5% to 6.5% growth in earnings per share for fiscal 2013. The company's earnings for the year are expected to be impacted by currency devaluation in Venezuela throughout 2013. The company estimates an impact of about 5 cents to 7 cents in every quarter in 2013 from the currency devaluation.

Other Stocks to Consider

Colgate-Palmolive carries a Zacks Rank #3 (Hold). Other stocks in the same industry that are worth considering include Lifeway Foods Inc. ( LWAY ), Flowers Foods Inc. ( FLO ) and Carriage Services Inc. ( CSV ), all of which carry a Zacks Rank #1 (Strong Buy).



COLGATE PALMOLI (CL): Free Stock Analysis Report

CARRIAGE SVCS-A (CSV): Free Stock Analysis Report

FLOWERS FOODS (FLO): Free Stock Analysis Report

LIFEWAY FOODS (LWAY): Free Stock Analysis Report

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