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.
The company has solid fundamentals and the shares are gaining momentum. The company is a market leader and is currently focusing on emerging economies to boost its profitability. The company is known for its decent dividend payouts and share buybacks thereby creating shareholder value.
Third Quarter Results
CL Net sales of $4,379 million in third quarter 2014. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 3.5%. Net income and Diluted earnings per share in third quarter 2014 were $542 million and $0.59, respectively. Net income in third quarter 2013 included after tax charges of $24 million. The gross profit margin was 58.4% in the quarter, versus 58.8% in the year-ago quarter. Selling, general and administrative expenses were 34.2% of Net sales in the third quarter 2014 versus 35.2% of Net sales in third quarter 2013. Net cash provided by operations year to date was $2,392 million compared to $2,365 million in the comparable 2013 period, due to higher operating earnings.
Ian Cook, Chairman, President and Chief Executive Officer, commented on the results excluding the 2014 and 2013 items noted above, "We are pleased to have achieved another quarter of broad-based organic sales growth and higher profitability, despite difficult economic conditions worldwide. Operating profit margin and net income as a percent to sales both increased versus the year ago period.
"All operating divisions contributed to the 3.5% organic sales growth, driven by positive unit volume growth and higher pricing. Organic sales grew 4.5% in emerging markets, despite economic challenges in certain countries.
Colgate's leading global market shares in toothpaste and manual toothbrushes remain strong at 44.6% 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 reaching a record high at 16.9% year to date, up 40 basis points versus the year ago period."
The 2012 Restructuring Program is proceeding smoothly. On October 23, 2014, the Company's Board of Directors approved an expansion of the 2012 Restructuring Program to take advantage of additional savings opportunities. As a result of the expansion, cumulative after tax charges related to the 2012 Restructuring Program, once all phases are approved and implemented, are now estimated to increase by $175 million, to $950 million to $1,050 million. After tax charges for 2014 are now expected to increase by $25 million, to approximately $225 million to $255 million. Savings are also projected to increase by $65 million, to $340 million to $390 million after tax annually by the fourth year of the program. The expected savings continue to represent a three to four year cash payback, on average, with a targeted after tax rate of return of 30%. Implementation of the 2012 Restructuring Program is still expected to be substantially completed by December 31, 2016.
North America (18% of Company Sales)
North America Net sales increased 2.0% in the third quarter. Unit volume increased 3.0% with 0.5% lower pricing due to increased promotional activities and 0.5% negative foreign exchange. Organic sales increased 2.5% during the quarter.
Operating profit in North America decreased 2% in third quarter 2014 to $240 million, or 110 basis points to 30.4% of Net sales.
Latin America (27% of Company Sales)
Latin America Net sales decreased 4.5% in third quarter 2014. Unit volume increased 1.5% with 5.0% higher pricing and 11.0% negative foreign exchange. Volume gains were led by Venezuela, Mexico and Colombia and were partially offset by volume declines in Brazil. Organic sales for Latin America increased 6.0% during the quarter.
Operating profit in Latin America decreased 8% in third quarter 2014 to $330 million, or 100 basis points to 27.6% of Net sales.
Europe/South Pacific (20% of Company Sales)
Europe/South Pacific Net sales increased 0.5% in third quarter 2014. Unit volume increased 2.5% with 2.5% lower pricing due to increased promotional activities and 0.5% positive foreign exchange. Volume gains were led by the United Kingdom and France. Organic sales for Europe/South Pacific increased 0.5%.
Operating profit in Europe/South Pacific increased 10% in third quarter 2014 to $237 million.
Asia (15% of Company Sales)
Asia Net sales increased 1.0% during third quarter 2014. Unit volume increased 0.5% with 0.5% higher pricing. Foreign exchange was even with the year ago quarter. Volume gains were led by India and were partially offset by volume declines in the Greater China region. Organic sales for Asia increased 1.0%.
Operating profit in Asia increased 7% in third quarter 2014 to $187 million, or 170 basis points to 29.5% of Net sales.
Africa/Eurasia (7% of Company Sales)
Africa/Eurasia Net sales decreased 3.5% during third quarter 2014. Unit volume increased 3.5% with 1.0% higher pricing and 8.0% negative foreign exchange. Volume gains were led by Russia and South Africa and were partially offset by volume declines in the Central Asia/Caucasus region. Organic sales for Africa/Eurasia increased 4.5%.
Operating profit in Africa/Eurasia decreased 8% in third quarter 2014 to $60 million, or 80 basis points to 19.4% of Net sales.
(Source: Company’s Website)
In conclusion
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.
