Colgate-Palmolive Co.’s (CL - Analyst Report) first-quarter 2015 adjusted earnings of 66 cents per share were in line with the Zacks Consensus Estimate. However, on account of the ongoing currency headwinds, adjusted earnings for the quarter dipped 3% year over year.
Colgate-Palmolive Company - Earnings Surprise | FindTheCompany
Including one-time items, earnings came in at 59 cents per share, soaring a whopping 40.5% from 42 cents recorded in the year-ago quarter.
Global sales of $4,070 million decreased nearly 6% from the year-ago figure of $4,325 million, as the benefits of 1.5% growth in volume and a 2.5% rise in prices were more than offset by a negative impact of 10% from currency fluctuations. Moreover, quarterly revenues missed the Zacks Consensus Estimate of $4,076 million.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 4%.
Adjusted gross profit margin was 58.9%, up 30 basis points (bps), driven by improved pricing, benefits from cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program, partly offset by an increase in raw material and packaging costs.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenues, fell 10 bps to 35.2% from the year-ago quarter, mainly due to lower investment in advertising, partly offset by greater overhead expenses, both as a percentage of sales.
In the reported quarter, adjusted operating profit of $960 million slipped 4% from the year-ago period. However, the adjusted operating margin improved 40 bps to 23.6%, mainly benefitting from lower SG&A expenses as a percentage of revenues and enhanced gross margin.
During the quarter, Colgate’s market share of global toothpaste and manual toothbrushes reached 45.2% and 33.8%, respectively.
Segment Discussion for Q1
North America sales (20% of total sales) inched up 0.5% in the quarter, driven by a 1.5% improvement in pricing. Further, unit volumes remained flat year over year, while foreign exchange was down 1%. On an organic basis, sales grew 1.5%.
The segment’s operating profit improved 1% to $218 million, while operating margin expanded 10 bps to 17.6%. The enhancement in operating margin was driven by higher gross margin and improved SG&A expenses, as a percentage of net sales.
Latin America sales (27% of total sales) declined 5.5% year over year, as the benefits of an 8% increase in pricing and 1.5% unit volume growth were more than offset by a negative impact of 15% from foreign exchange. Volume gains were most prominent in Mexico, Ecuador and Central America, offset by declines in Brazil and Venezuela. On an organic basis, sales increased 9%.
Operating profit rose 6% to $308 million, while as a percentage of sales it expanded 310 bps to 28.3%, primarily due to reduced SG&A expenses as a percentage of sales along with improved gross profit margin.
Europe/South Pacific sales (18% of total sales) slumped 14.5% year over year, due to a negative impact of 4.5% from lower pricing and 15% from foreign currency translation, offset slightly by a 5% rise in unit volume. Volume gains were primarily led by the United Kingdom, Australia and Germany. Organic sales for the region were up 1%.
Operating profit plunged 15% year over year to $184 million. Also, operating margin for the region contracted 30 bps to 24.8%, primarily owing to an increase in SG&A expenses, as a percentage of sales.
Asia sales (16% of total sales) slipped 1.5%, attributable to a 1.5% downside in pricing, a negative impact of 1.5% from foreign exchange, partly offset by a 1% increase in unit volume. Volume growth was primarily attributed to gains in India, the Philippines and Thailand, partially offset by declines in Greater China. On an organic basis, sales dipped 0.5%.
Operating profit was in line with the prior-year quarter figure of $193 million. Operating margin expanded 50 bps to 29.2%, on account of lower SG&A expenses as a percentage of sales, partly affected by lower gross margin.
Africa/Eurasia sales (6% of total sales) plunged 15% year over year due to a negative impact of 23% from foreign currency exchange, offset slightly by 0.5% growth in unit volume and a 7.5% increase in prices. Volume gains were primarily led by South Africa and the Sub-Saharan Africa regions, partly offset by weakness witnessed in the Central Asia/Caucasus Region. Organic sales for Africa/Eurasia advanced 8%.
Operating profit fell 34% year over year to $39 million in the quarter, while as a percentage of sales it shriveled 440 bps to 15.5%. The decrease was mainly due to lower gross profit margin and escalated SG&A expenses as a percentage of sales.
Hill’s Pet Nutrition sales (13% of total sales) were down 2.5%. Pricing had a 3.5% positive impact on sales growth, while foreign exchange negatively impacted sales by 8%. Unit volume improved 2% due to volume gains in the United States and Australia, offset by declines in Japan. On an organic basis, sales rose 5.5% from the year-ago quarter.
Operating profit climbed 2% year over year to $147 million, with the operating profit margin expanding 130 bps to 27.3%. The rise in operating profit margin was due to an improvement in SG&A expenses as a percentage of sales and gross margins.
Other Financial Details
Colgate ended the quarter with cash and cash equivalents of $859 million, total debt of $6,128 million and shareholders’ equity (excluding non controlling interests) of $460 million.
Net cash provided by operating activities came in at $727 million for the first quarter. Further, free cash flows prior to dividend payments were $605 million year to date.
Outlook
Colgate anticipates macroeconomic and currency headwinds to linger in 2015. However, even in the face of these challenges, management expects another year of robust organic sales growth, on the back of new products across categories and geographies.
Consequently, the company envisions earnings per share for 2015 to increase at a double-digit rate, on a currency neutral basis.
Zacks Rank
Currently, Colgate carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Boston Beer Co. Inc. (SAM - Analyst Report), SUPERVALU Inc. (SVU - Analyst Report) and Amira Nature Foods Ltd. (ANFI - Snapshot Report), each sporting a Zacks Rank #1 (Strong Buy).
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