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Colgate-Palmolive Struggles in 1st Quarter

Price hikes fail to keep up with rising costs

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May 01, 2022
Summary
  • EPS down 18%.
  • CEO Noel Wallace: ‘difficult cost environment expected to continue.’
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Colgate-Palmolive Company (

CL, Financial) saw profits drop in the latest quarter, with net income of just $559 million, well below the $681 million mark of a year ago. It also cut its outlook for full-year earnings as price increases failed to offset higher logistics costs – a reality that management said should continue for several more quarters.

The consumer products giant's first quarter 2022 earnings, released on Friday, also showed that net sales increased 1.5% year-over-year, Organic sales rose 4.0%, while on a GAAP basis, EPS declined 18% to 66 cents. On an adjusted basis, EPS declined just 8% to 74 cents. The GAAP gross profit margin and adjusted gross profit margin both decreased 220 basis points to 58.5%.

The share price at Friday’s close stood at $77.05, a drop of 5.13%, or $4.17 per share.

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Net cash provided by operations was $386 million for the first three months of 2022. Colgate’s leadership in toothpaste continued with its global market share at 39.2% year-to-date. Its leadership in manual toothbrushes continued with its global market share at 30.7% year-to-date.

The company said it would incur an additional $650 million in raw material and logistics costs this year, mostly driven by the spike in oil prices due to the war in Ukraine. Overall, the company forecasts that raw materials costs will jump 22% for the year (previously, it had expected just a 13% increase).

Noel Wallace, Chairman, President and CEO, commented, “We are pleased to have delivered another quarter of organic sales growth within our targeted range of 3% to 5%, despite a volatile operating environment worldwide. Net sales increased 1.5% and organic sales grew 4.0%, driven by higher pricing in nearly every region. Our investments in innovation and digital capabilities are paying off and should help us to continue our sales growth momentum.”

While growth continued on the top line, the company's profitability was impacted by significant increases in raw material and logistics costs worldwide. Management expects the “difficult cost environment” to continue for the next several quarters. Wallace said he remains “sharply focused” on revenue growth management, including additional pricing, funding-the-growth and other productivity initiatives.

Wallace added that “there is still much uncertainty stemming from the COVID-19 pandemic, supply chain disruptions, the war in Ukraine and volatility in consumer demand and currencies.”

Full year 2022 guidance now calls for net sales growth to be at the higher end of 1% to 4%, including a low-single-digit negative impact from foreign exchange. The company also expects organic sales growth to be within the range of 4% to 6%.

On a GAAP basis, executives expect a decline in gross profit margin, increased advertising investment and double-digit earnings per share growth. On a non-GAAP basis, they forecast a decline in gross profit margin, increased advertising investment and a mid-single-digit earnings per share decline.

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