Colgate-Palmolive Company (CL, Financial) is a consumer products company whose products are marketed in more than 200 countries and territories throughout the world. It operates in two segments: Oral, Personal and Home Care and Pet Nutrition.
Under the oral care segment it has the following flagship brands: Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Optic White and Colgate Luminous White toothpastes, Colgate 360° manual toothbrushes and Colgate and Colgate Plax mouth rinses. Colgate's Oral Care business also includes dental floss and pharmaceutical products for dentists and oral health professionals.
The personal care segment includes the likes of Palmolive, Softsoap, Sanex brand shower gels, Palmolive, Irish Spring and Protex bar soaps.
Fourth-quarter results
CL reported worldwide Net sales of $4,221 million in fourth quarter 2014, a decrease of 3.0% versus fourth quarter 2013. Global unit volume grew 2.5%, pricing increased 3.5% and foreign exchange was negative 9.0%. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 6.0%.
Net income and diluted earnings per share in fourth quarter 2014 were $628 million and $0.68, respectively. Net income in fourth quarter 2014 included $71 million ($0.08 per diluted share) of after tax charges resulting from the implementation of the Company's four-year Global Growth and Efficiency Program (the "2012 Restructuring Program") and a charge for a previously disclosed European competition law matter.
Net income and diluted earnings per share in fourth quarter 2013 were $564 million and $0.60, respectively. Net income in fourth quarter 2013 included aftertax charges of $133 million ($0.15 per diluted share) resulting from the items described in Table 8.
Excluding the above noted items in both periods. Net income in fourth quarter 2014 was $699 million, even with fourth quarter 2013, and diluted earnings per share in fourth quarter 2014 was $0.76, an increase of 1% versus fourth quarter 2013, reflecting a double-digit increase on a currency neutral basis.
Gross profit margin was 58.6% in fourth quarter 2014 versus 58.9% in the year ago quarter. Excluding the above noted items in both periods, Gross profit margin was 58.8% in fourth quarter 2014, a decrease of 30 basis points versus the year ago quarter, primarily as a result of higher raw and packaging material costs, which included significant foreign exchange transaction costs, which were partially offset by the benefits from cost savings from the Company's funding-the-growth initiatives and the 2012 Restructuring Program and higher pricing.
Selling, general and administrative expenses were 34.0% of net sales in fourth quarter 2014 versus 37.0% of net sales in fourth quarter 2013. Excluding the above noted items in both periods, selling, general and administrative expenses decreased by 100 basis points to 33.5% of net sales in fourth quarter 2014, due to lower overhead expenses and decreased advertising investment, both as a percentage of Net sales. Worldwide advertising investment decreased 8% to $410 million versus the year ago quarter.
Operating profit increased 12% to $995 million in fourth quarter 2014 compared to $892 million in fourth quarter 2013. Excluding the above noted items in both periods, Operating profit increased 1% to $1,080 million.
Net cash provided by operations for the full year 2014 was $3,298 million compared to $3,204 million for the full year 2013, primarily due to strong operating earnings and a continued tight focus on working capital. Free cash flow before dividends exceeded 100% of Net income. Working capital as a percentage of Net sales was 0.8%, roughly even with the year ago period.
For the full year 2014, worldwide net sales were $17,277 million, a decrease of 1.0% versus full year 2013. Global unit volume grew 3.0%, pricing increased 2.0% and foreign exchange was negative 6.0%. Organic sales grew 5.0%.
Net income and diluted earnings per share for full year 2014 were $2,180 million and $2.36, respectively. Full year 2014 results include $532 million ($0.57 per diluted share) of aftertax charges resulting from the implementation of the 2012 Restructuring Program, Venezuela remeasurement charges, charges for previously disclosed European competition law matters, costs related to the sale of land in Mexico and a previously disclosed charge for a foreign tax matter.
Net income and ddiluted earnings per share for full year 2013 were $2,241 million and $2.38, respectively. As previously disclosed, full year 2013 results included aftertax charges of $424 million ($0.46 per diluted share) resulting from the items described in Table 9.
Excluding the items noted above in both periods, Net income for full year 2014 increased 2% versus full year 2013, and diluted earnings per share increased 3% versus full year 2013, reflecting a double-digit increase on a currency neutral basis.
Gross profit margin was 58.5% for full year 2014 versus 58.6% in full year 2013. Excluding the items noted above in both periods, gross profit margin was 58.7% in full year 2014, a decrease of 10 basis points versus full year 2013, primarily as a result of higher raw and packaging material costs, which included foreign exchange transaction costs, which were largely offset by the benefits from cost savings from the company's funding-the-growth initiatives and the 2012 Restructuring Program and higher pricing.
Ian Cook, chairman, president and chief executive officer, commented on the fourth quarter results and outlook for 2015, excluding the 2014 and 2013 items noted above, "We are very pleased to have finished the year with strong, broad-based organic sales growth and higher profitability. Operating profit and net income as a percent to sales both increased versus the year ago period.
"All operating divisions contributed to the 6.0% organic sales growth, driven by positive unit volume growth and, in most divisions, higher pricing. Organic sales grew 9.5% in emerging markets, despite economic challenges in certain countries.
"Colgate's leading global market shares in toothpaste and manual toothbrushes remain strong at 44.5% and 33.4%, respectively, on a year-to-date basis. We continue to make great progress in mouthwash, with our global market share in that category at 16.9% year-to-date, up 10 basis points versus the year ago period."
In closing, Mr. Cook commented, "As we enter 2015, macroeconomic conditions and foreign exchange volatility remain challenging. Despite that, we anticipate another year of solid organic sales growth driven by a full new product pipeline across all categories and geographies. While our long term goal of double-digit annual earnings per share growth remains unchanged, we continue to see significant deterioration in foreign exchange rates. As a result, we are planning for a year of gross margin expansion and low-single-digit earnings per share growth on a dollar basis, based on current spot rates and excluding charges related to the 2012 Restructuring Program. This earnings per share growth would reflect a double-digit increase on a currency neutral basis."
North America (18% of Company Sales)
North America Net sales increased 1.0% in fourth quarter 2014. Unit volume increased 3.0% with 1.0% lower pricing due to increased promotional activities, while foreign exchange was negative 1.0%. Organic sales increased 2.0% during the quarter.
Operating profit in North America decreased 1% in fourth quarter 2014 to $239 million, or 60 basis points to 30.6% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit, which was partially offset by a decrease in Selling, general and administrative expenses, both as a percentage of Net sales.
Latin America (28% of Company Sales)
Latin America Net sales decreased 6.0% in fourth quarter 2014. Unit volume increased 1.0% with 11.5% higher pricing, while foreign exchange was negative 18.5%. Volume gains were led by Venezuela and Central America and were partially offset by volume declines in Brazil. Organic sales for Latin America increased 12.0% during the quarter.
Operating profit in Latin America decreased 4% in fourth quarter 2014 to $348 million, while as a percentage of net sales it increased 50 basis points to 29.2% of net sales. Colgate's strong leadership in toothpaste throughout Latin America continued during the quarter with Chile and Puerto Rico achieving record high market shares year to date.
Europe/South Pacific (20% of Company Sales)
Europe/South Pacific net sales decreased 7.5% in fourth quarter 2014. Unit volume increased 2.5% with 2.0% lower pricing due to increased promotional activities, while foreign exchange was negative 8.0%. Volume gains were led by Germany and the United Kingdom. Organic sales for Europe/South Pacific increased 1.0%.
Operating profit in Europe/South Pacific decreased 2% in fourth quarter 2014 to $196 million, while as a percentage of net sales it increased 140 basis points to 25.1% of net sales. Colgate strengthened its oral care leadership in the Europe/South Pacific region with toothpaste share gains led by the United Kingdom, Denmark, Italy and France.
Asia (14% of company sales)
Asia net sales increased 4.5% during fourth quarter 2014. Unit volume increased 4.5% with 2.0% higher pricing while foreign exchange was negative 2.0%. Volume gains were led by the Greater China region, the Philippines and India. Organic sales for Asia increased 6.0%.
Operating profit in Asia increased 8% in fourth quarter 2014 to $178 million, or 90 basis points to 29.7% of Net sales. transaction costs. This decrease in selling, general and administrative expenses was primarily due to lower overhead expenses.
Colgate continued its toothpaste leadership in Asia, driven by market share gains in India, Thailand, the Philippines, Malaysia and Pakistan.
Africa/Eurasia (7% of Company Sales)
Africa/Eurasia Net sales decreased 10.0% during fourth quarter 2014. Unit volume increased 5.0% with 2.5% higher pricing, while foreign exchange was negative 17.5%. Volume gains were led by South Africa and the Sub-Saharan Africa region. Organic sales for Africa/Eurasia increased 7.5%.
Hill's Pet Nutrition (13% of Company Sales)
Hill's net sales decreased 1.0% during fourth quarter 2014. Unit volume increased 0.5% with 3.5% higher pricing, while foreign exchange was negative 5.0%. Volume gains were led by Russia and were partially offset by volume declines in Japan. Hill's organic sales increased 4.0%.
Hill's operating profit was $153 million in fourth quarter 2014, even with the fourth quarter of 2013, while as a percentage of net sales it increased 40 basis points to 26.6% of Net sales.
To end
Colgate sells its products in 225 countries. More than 80% of its revenue comes from outside the U.S. This is where the international growth opportunities lie. The company is reputed for solid relationships with dental care professionals around the world. This has lead to product differentiation and promoting brand awareness.
The company has started a global growth and efficiency program to streamline its cost structure and further invest in growth opportunities. During the four years that the program will be in effect (2013 to 2016), the company intends to expand its commercial hubs, optimize its global supply chain and facilities, extend shared business services and streamline global functions.
The company's top line is also projected to grow in the future. Together, these factors add to the company's per-share earnings and increase the operating cash flows and shareholders' profits. The company also has wide global reach, and large scale of operations. Strong brand reputation, customer loyalty and global scale of operations are indicative of a wide moat by this company.
CL is known for the most recession-resistant portfolios of products. The most attractive feature of Colgate-Palmolive is its portfolio of products. The company's products are very basic. During recession, consumers are unwilling to move to other lower-priced offerings within other segments of consumer goods.
Colgate-Palmolive is well-known for its undisputed market leadership in the oral care industry on a global scale. According to management, the company owns a market share of 44.3% in toothpaste, 33.5% in toothbrushes and 38.5% in mouthwashes around the world.
(Source: Company's Website)
