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Colgate Announces 2nd Quarter 2017 Results

NEW YORK--(BUSINESS WIRE)--Colgate-Palmolive Company (NYSE:CL) today reported worldwide Net sales of $3,826 million in second quarter 2017, a decrease of 0.5% versus second quarter 2016. Global unit volume decreased 1.0%, pricing increased 1.0% and foreign exchange was negative 0.5%. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments) were even with the year ago period.

“Excluding charges resulting from the 2012 Restructuring Program and the other 2016 one-time items previously disclosed, based on current spot rates, we continue to plan for a year of strong operating cash flow, gross margin expansion, increased advertising investment and low-single-digit earnings per share growth on a dollar basis.”

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Net income and Diluted earnings per share in second quarter 2017 were $524 million and $0.59, respectively. Net income in second quarter 2017 included $115 million ($0.13 per diluted share) of aftertax charges resulting from the Company’s Global Growth and Efficiency Program (the “2012 Restructuring Program”).

Net income and Diluted earnings per share in second quarter 2016 were $600 million and $0.67, respectively. Net income in second quarter 2016 included $44 million ($0.05 per diluted share) of aftertax charges resulting from the 2012 Restructuring Program and a $13 million ($0.01 per diluted share) net benefit related to a previously disclosed foreign tax matter.

Excluding charges resulting from the 2012 Restructuring Program in both periods and the net benefit related to a previously disclosed foreign tax matter in 2016, Net income in second quarter 2017 was $639 million, an increase of 1% versus second quarter 2016, and Diluted earnings per share in second quarter 2017 was $0.72, an increase of 3% versus second quarter 2016.

Gross profit margin was 60.1% in second quarter 2017 versus 59.9% in second quarter 2016. Excluding charges resulting from the 2012 Restructuring Program in both periods, Gross profit margin was 60.7% in second quarter 2017, an increase of 50 basis points versus the year ago quarter. This increase was primarily driven by cost savings from the Company’s funding-the-growth initiatives and the 2012 Restructuring Program, and higher pricing, partially offset by higher raw and packaging material costs, which included foreign exchange transaction costs.

Selling, general and administrative expenses were 34.8% of Net sales in second quarter 2017 versus 34.3% of Net sales in second quarter 2016. Excluding charges resulting from the 2012 Restructuring Program in both periods, Selling, general and administrative expenses increased by 40 basis points to 34.4% of Net sales in second quarter 2017, as a result of increased advertising investment and higher overhead expenses. Worldwide advertising investment increased 1% to $399 million versus $394 million in the year ago quarter.

Operating profit decreased to $853 million in second quarter 2017 compared to $944 million in second quarter 2016. Excluding charges resulting from the 2012 Restructuring Program in both periods, Operating profit was $995 million in second quarter 2017, a decrease of 1% versus second quarter 2016. Operating profit margin was 22.3% in second quarter 2017 versus 24.6% in second quarter 2016. Excluding charges resulting from the 2012 Restructuring Program in both periods, Operating profit margin was 26.0% in second quarter 2017, a decrease of 10 basis points versus the year ago quarter.

Net cash provided by operations year to date decreased to $1,305 million compared to $1,320 million in the comparable 2016 period, primarily due to the timing of income tax payments. Working capital as a percentage of Net sales improved to negative 3.9% compared to negative 2.6% in the year ago period, reflecting the Company’s tight focus on working capital.

Ian Cook, Chairman, President and Chief Executive Officer, commented on the second quarter results, “The second quarter was another challenging one. Net sales declined 0.5% and organic sales were even with the year ago quarter, below our expectations as a result of continued softness in North America and challenges in Asia Pacific. Despite this, we are encouraged by another quarter of strong organic sales growth in Latin America and the return to positive organic sales growth at Hill's.

“Colgate’s leadership of the global toothpaste market continued during the quarter with its global market share now at 43.6% year to date. Our global leadership in manual toothbrushes also continued with Colgate’s global market share in that category now at 32.8% year to date.

“As we look ahead, uncertainty in global markets and slowing category growth worldwide remain challenging. Based on current spot rates, we continue to expect a low-single-digit net sales increase for 2017, and given our slower than expected first half, we are now planning for low-single-digit organic sales growth for 2017.

“We are pleased with the progress of our 2012 Restructuring Program, and, as we have previously said, we continue to pursue additional savings opportunities, especially given the current challenging environment. In the second quarter, we identified additional opportunities under our Program that take us to the upper end of our previously disclosed cost and savings ranges. As a result, on a GAAP basis, based on current spot rates, we are planning for a year of gross margin expansion and now expect a mid-single-digit earnings per share percentage decline on a dollar basis.

“Excluding charges resulting from the 2012 Restructuring Program and the other 2016 one-time items previously disclosed, based on current spot rates, we continue to plan for a year of strong operating cash flow, gross margin expansion, increased advertising investment and low-single-digit earnings per share growth on a dollar basis.”

At 11:00 a.m. ET today, Colgate will host a conference call to elaborate on second quarter results. To access this call as a webcast, please go to Colgate’s website at http://www.colgatepalmolive.com.

The following are comments about divisional performance for second quarter 2017 versus the year ago period. See attached Geographic Sales Analysis Percentage Changes and Segment Information tables for additional information on divisional net sales and operating profit.

North America (20% of Company Sales)

North America Net sales decreased 3.5% in second quarter 2017. Unit volume decreased 2.0% with 1.5% lower pricing, while foreign exchange was even with the year ago quarter. Organic sales for North America decreased 3.5%, primarily due to market share losses in our dish liquid business in the U.S. and a further slowdown in category growth in the U.S.

Operating profit in North America decreased 4% in second quarter 2017 to $241 million, while as a percentage of Net sales, it remained even at 31.5%, as a decrease in Gross profit and an increase in Selling, general and administrative expenses were offset by a decrease in Other (income) expense, net, all as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher raw and packaging material costs, which included foreign exchange transaction costs, and lower pricing, partially offset by cost savings from the Company’s funding-the-growth initiatives and the 2012 Restructuring Program. This increase in Selling, general and administrative expenses was due to higher overhead expenses, which were partially offset by a decrease in advertising investment. This decrease in advertising investment in part reflects a shift from advertising investment to in-store promotional activities and the timing of advertising spending in the prior year.

In the U.S., Colgate maintained its leadership in the toothpaste category during the quarter with its market share at 35.6% year to date. Successful new products include Colgate Total Clean-In-Between, Colgate Optic White Beauty Radiant and Tom’s of Maine Rapid Relief Sensitive toothpastes. In manual toothbrushes, Colgate maintained its brand market leadership in the U.S. with its market share in that category at 40.7% year to date, driven by strong sales of Colgate Total 360° 4 Zone manual toothbrush.

New products succeeding in other categories include Colgate Total Advanced Health mouthwash, Softsoap Hand Wash Plus Lotion and Softsoap Blooming Jasmine & Plum, Softsoap Honey Creme & Lavender and Irish Spring Pure Fresh body washes.

Latin America (26% of Company Sales)

Latin America Net sales increased 7.0% in second quarter 2017. Unit volume increased 2.5% with 4.5% higher pricing, while foreign exchange was even with the year ago quarter. Volume gains were led by Brazil, the Andean region and Argentina. Organic sales for Latin America increased 7.0%.

Operating profit in Latin America increased 8% in second quarter 2017 to $308 million, or 40 basis points to 30.7% of Net sales. This increase in Operating profit as a percentage of Net sales was due to an increase in Gross profit and a decrease in Other (income) expense, net, partially offset by an increase in Selling, general and administrative expenses, all as a percentage of Net sales. This increase in Gross profit was due to cost savings from the Company’s funding-the-growth initiatives, and higher pricing, partially offset by higher raw and packaging material costs, which included foreign exchange transaction costs. This increase in Selling, general and administrative expenses was due to an increase in advertising investment.

Colgate maintained its leadership in toothpaste in Latin America during the quarter, with market share gains in Mexico, Peru, the Dominican Republic, Puerto Rico and Paraguay. Strong sales of Colgate Luminous White XD Shine, Colgate Total 12, Colgate Triple Action Extra Whitening and Colgate Max Fresh toothpastes contributed to volume growth throughout the region. Colgate’s leadership in the manual toothbrush category continued throughout the region, driven by strong sales of Colgate Minions™ manual toothbrush for kids and Colgate 360° Luminous White Advanced manual toothbrush plus whitening pen.

Products in other categories contributing to growth throughout the region include Colgate Plax Ice Glacial and Colgate Luminous White XD Shine mouthwashes, Protex Pro-Hidrata shower gel, bar soap and liquid hand soap, Palmolive Natural Secrets shower gel and bar soap, Lady Speed Stick Derma + Omega 3 antiperspirant, Suavitel Sweet Pleasures fabric conditioner, Axion Active Foam dish liquid and Fabuloso Complete liquid cleaner.

Europe (15% of Company Sales)

Europe Net sales decreased 3.5% in second quarter 2017. Unit volume decreased 1.0%, pricing increased 0.5% and foreign exchange was negative 3.0%. Volume declines in Germany and Norway were partially offset by volume gains in the Netherlands, the United Kingdom and Poland. Organic sales for Europe decreased 0.5%.

Operating profit in Europe increased 5% in second quarter 2017 to $145 million, or 200 basis points to 24.8% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit and a decrease in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was primarily driven by cost savings from the Company’s funding-the-growth initiatives and the 2012 Restructuring Program, and sales mix, partially offset by higher raw and packaging material costs, which included foreign exchange transaction costs. This decrease in Selling, general and administrative expenses was primarily due to lower overhead expenses and a slight decrease in advertising investment.

Colgate maintained its oral care leadership in Europe during the quarter, with toothpaste market share gains in Germany, Italy, the Netherlands, Belgium, Portugal, Austria, Czech Republic, Slovenia, Bosnia, Latvia and Serbia. Premium products succeeding in oral care include Colgate Enamel Strength, Colgate Natural Extracts and meridol Parodont Expert toothpastes, Colgate 360° Advanced Whole Mouth Health and Colgate 360° Advanced Max White Expert White manual toothbrushes and Colgate Minions™ interactive battery powered toothbrush for kids.

Premium innovations succeeding in other product categories include Sanex Zero% shower gels and deodorants, Palmolive Naturals with precious oils and Palmolive Gourmet shower gels, Sanex Advanced Revivafirm and Sanex Advanced Hydrate 24h body lotions, Paic Extreme dish liquid, the Ajax Optimal7 range of multi-benefit cleaners available in liquid, spray and wipes and Soupline Parfum Supreme line of fabric conditioner products.

Asia Pacific (18% of Company Sales)

Asia Pacific Net sales decreased 5.0% during second quarter 2017. Unit volume decreased 2.0%, pricing decreased 1.5% and foreign exchange was negative 1.5%. Volume declines in India, Thailand and Australia were partially offset by volume gains in the Philippines, Vietnam and New Zealand. Organic sales for Asia Pacific decreased 3.5%, primarily reflecting inventory reductions by wholesalers in India in anticipation of the new Goods and Services Tax, which went into effect on July 1, 2017, increased competitive activity in Australia and consumption declines in Thailand.

Operating profit in Asia Pacific decreased 6% in second quarter 2017 to $205 million, or 50 basis points to 30.9% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit, partially offset by a decrease in Selling, general and administrative expenses, both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher raw and packaging material costs, which included foreign exchange transaction costs, and lower pricing, partially offset by cost savings from the Company’s funding-the-growth initiatives. This decrease in Selling, general and administrative expenses was due to decreased advertising investment, in part reflecting a shift from advertising investment to in-store promotional activities and also due to the timing of advertising spending in the prior year, which was partially offset by higher overhead...


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