Colgate Announces 2nd Quarter 2018 Results

Colgate Announces 2nd Quarter 2018 Results

Colgate Announces 2nd Quarter 2018 Results

The FINANCIAL -- NEW YORK -- Jul. 27, 2018-- Colgate-Palmolive Company reported worldwide Net sales of $3,886 million in second quarter 2018, an increase of 1.5% versus second quarter 2017.

Global unit volume increased 1.5%, and pricing and foreign exchange were even with the year ago period. The previously disclosed professional skin care acquisitions contributed 1.0% to Net sales and unit volume growth in the quarter. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments) increased 0.5%.

Net income and Diluted earnings per share in second quarter 2018 were $637 million and $0.73, respectively. Net income in second quarter 2018 included $51 million ($0.06 per diluted share) of aftertax charges resulting from the Company’s Global Growth and Efficiency Program and a $15 million ($0.02 per diluted share) benefit from a previously disclosed foreign tax matter.

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 Global Growth and Efficiency Program.

Excluding charges resulting from the Global Growth and Efficiency Program in both periods and the benefit from a foreign tax matter in 2018, Net income in second quarter 2018 was $673 million, an increase of 5% versus second quarter 2017, and Diluted earnings per share in second quarter 2018 was $0.77, an increase of 7% versus second quarter 2017.

Gross profit margin was 59.2% in second quarter 2018 versus 60.1% in second quarter 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Gross profit margin was 59.3% in second quarter 2018, a decrease of 140 basis points versus the year ago quarter as higher raw and packaging material costs were partially offset by cost savings from the Company’s funding-the-growth initiatives.

Selling, general and administrative expenses were 33.5% of Net sales in second quarter 2018 versus 34.2% of Net sales in second quarter 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Selling, general and administrative expenses decreased by 60 basis points to 33.2% of Net sales in second quarter 2018 as a result of lower overhead expenses as a percentage of Net sales. Worldwide advertising investment increased 1% to $403 million versus $399 million in the year ago quarter.

Operating profit increased to $946 million in second quarter 2018 compared to $878 million in second quarter 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Operating profit was $1,004 million in second quarter 2018, a decrease of 1% versus second quarter 2017. Operating profit margin was 24.3% in second quarter 2018 versus 22.9% in second quarter 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Operating profit margin was 25.8% in second quarter 2018, a decrease of 80 basis points versus the year ago quarter. This decrease in Operating profit margin was 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.

Net cash provided by operations year to date was $1,297 million compared to $1,305 million in the comparable 2017 period. Working capital as a percentage of Net sales was negative 2.1% compared to negative 3.9% in the year ago period.

Ian Cook, Chairman and Chief Executive Officer, commented on the second quarter results, “The second quarter was another challenging one with category growth rates remaining soft in many markets around the world and recent unfavorable movements in foreign exchange. Net sales grew 1.5% and organic sales grew 0.5%, below our expectations, due to unit volume declines in emerging markets and flat pricing worldwide.

“Advertising investment increased in absolute dollars versus second quarter 2017 and we continue to plan for increased advertising investment, both absolutely and as a percent to sales, for the full year in support of new products, our base businesses and longer-term consumption-building activities.

“Colgate’s leadership of the global toothpaste market continued during the quarter with our global market share at 42.1% year to date. Our global leadership in manual toothbrushes also continued with Colgate’s global market share in that category at 32.3% year to date.”

Mr. Cook continued, “As we look ahead, while uncertainty in global markets and category growth worldwide remain challenging, we are maintaining our heightened focus on brand building and increased productivity while accelerating our change efforts. Based on current spot rates, we expect a low-single-digit net sales increase and low-single-digit organic sales growth in 2018, with sequential improvement in organic sales growth in the balance of the year.

“On a GAAP basis, based on current spot rates and including the impact of the Global Growth and Efficiency Program, we expect gross margin for the year to be even with 2017 and expect double-digit earnings per share growth versus 2017.

“Excluding charges resulting from the Global Growth and Efficiency Program, the one-time charge related to U.S. tax reform in 2017 and the benefit from a foreign tax matter in 2018, based on current spot rates, we are planning for a year of increased operating cash flow, modestly lower gross margin, increased advertising investment and mid-single-digit earnings per share growth versus 2017.”

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 2018 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 (21% of Company Sales)

North America Net sales increased 8.0% in second quarter 2018. Unit volume increased 7.0%, pricing increased 0.5% and foreign exchange was positive 0.5%. The previously disclosed professional skin care acquisitions contributed 5.5% to Net sales and unit volume growth. Organic sales and organic unit volume for North America increased 2.0% and 1.5%, respectively.

Operating profit in North America increased 4% in second quarter 2018 to $264 million, while as a percentage of Net sales it decreased 140 basis points to 32.0%. This decrease in Operating profit as a percentage of Net sales was due to a decrease in Gross profit, an increase in Selling, general and administrative expenses and an increase in Other (income) expense, net, all as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives. This increase in Selling, general and administrative expenses was due to higher overhead expenses, partially offset by decreased advertising investment. This increase in Other (income) expense, net was primarily due to the amortization of intangible assets resulting from the professional skin care acquisitions.

In the U.S., Colgate maintained its leadership in the toothpaste category during the quarter with its market share at 34.9% year to date. Successful products include Colgate Optic White Stain Fighter, Colgate Optic White Stain-Less White and Tom’s of Maine toothpastes. In manual toothbrushes, Colgate widened its brand market leadership in the U.S. with its market share in that category at 41.9% year to date, supported by the success of Colgate Total 360° Advanced Optic White and Colgate Gum Health manual toothbrushes.

Products succeeding in other categories include Softsoap Hydra Bliss body wash and liquid hand soap, Irish Spring Non-Stop Fresh body wash, Fabuloso Complete liquid cleaner and Suavitel Complete fabric conditioner.

Latin America (24% of Company Sales)

Latin America Net sales decreased 7.0% in second quarter 2018. Unit volume decreased 1.0%, pricing decreased 0.5% and foreign exchange was negative 5.5%. Excluding the impact of the truckers’ strike in Brazil, Latin America unit volume would have increased in the quarter. Volume declines in Central America were partially offset by volume gains in the Southern Cone region. Organic sales for Latin America decreased 1.5%.

Operating profit in Latin America decreased 15% in second quarter 2018 to $262 million, or 270 basis points to 28.1% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit and an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives. This increase in Selling, general and administrative expenses was due to higher overhead expenses.

Colgate maintained its toothpaste leadership in Latin America during the quarter, with market share gains in Brazil, Peru, Costa Rica, Chile, Guatemala and Panama. Products succeeding in oral care in the region include Colgate Total 12 Salud Visible, Colgate Luminous White XD Shine, Colgate Triple Action Xtra Freshness and Colgate Kids toothpastes. Colgate’s leadership in the manual toothbrush category continued throughout the region, supported by the success of Colgate 360° Advanced Total 12 and Colgate Pro Cuidado manual toothbrushes.

Products succeeding in other categories include Colgate Total 12 mouthwash, Protex Pro-Hidrata, Palmolive Natural Secrets and Palmolive Neutro Balance shower gels and bar soaps, Suavitel Complete fabric conditioner and Fabuloso Complete liquid cleaner.

Europe (16% of Company Sales)

Europe Net sales increased 6.0% in second quarter 2018. Unit volume increased 2.5%, pricing decreased 3.5% and foreign exchange was positive 7.0%. Volume gains were led by France, the United Kingdom and Italy. Organic sales for Europe decreased 1.0%.

Operating profit in Europe increased 7% in second quarter 2018 to $156 million or 20 basis points to 25.2% of Net sales. This increase in Operating profit as a percentage of Net sales was due to a decrease in Selling, general and administrative expenses and a decrease in Other (income) expense, net, partially offset by a decrease in Gross profit, all as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material 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, partially offset by higher overhead expenses.

Colgate maintained its toothpaste leadership in Europe during the quarter, with toothpaste market share gains in France, Germany, Italy, Greece, Denmark and Sweden. Products succeeding in oral care include Colgate Max White Expert Complete, Colgate Natural Extracts and meridol Parodont Expert toothpastes and Colgate 360° Advanced Whole Mouth Health and Colgate 360° Advanced Max White Expert White manual toothbrushes.

Products succeeding in other categories include Colgate Plax mouthwash, Sanex Zero% shower gel, deodorant and body lotion, Sanex Dermo shower gel, Palmolive Aroma Sensations shower gel, Palmolive Handwash + Lotion liquid hand soap, Ajax Boost liquid cleaner and Soupline Parfum Supreme fabric conditioner.

Asia Pacific (18% of Company Sales)

Asia Pacific Net sales increased 1.5% during second quarter 2018. Unit volume decreased 1.0%, pricing increased 1.0% and foreign exchange was positive 1.5%. Volume declines in the Greater China region were partially offset by volume gains in India and the Philippines. Organic sales for Asia Pacific were even with the year ago period.

Operating profit in Asia Pacific decreased 1% in second quarter 2018 to $203 million, or 100 basis points to 30.1% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit and an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives. This increase in Selling, general and administrative expenses was due to higher overhead expenses, partially offset by decreased advertising investment.

Colgate maintained its toothpaste leadership in the Asia Pacific region during the quarter with market share gains in the Philippines. Products succeeding in the region include Colgate Naturals, Colgate Swarna Vedshakti, Colgate MaxFresh and elmex Sensitive toothpastes.

Products succeeding in other categories include Colgate Slim Soft Advanced, Colgate Slim Soft Micro Silky and Colgate Slim Soft Flex Clean manual toothbrushes, Protex Thai Therapy bar soap, Colgate Plax mouthwash, Palmolive Luminous Oils shower gel, and Softlan Aroma Therapy fabric conditioner.

Africa/Eurasia (6% of Company Sales)

Africa/Eurasia Net sales increased 1.0% during second quarter 2018. Unit volume increased 2.0%, pricing increased 1.0% and foreign exchange was negative 2.0%. Volume gains were led by the Sub-Saharan region and South Africa. Organic sales for Africa/Eurasia increased 3.0%.

Operating profit in Africa/Eurasia decreased 7% in second quarter 2018 to $42 million, or 140 basis points to 17.3% 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 due to higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives. This decrease in Selling, general and administrative expenses was primarily due to lower overhead expenses.

Colgate maintained its toothpaste leadership in Africa/Eurasia during the quarter, with market share gains in Saudi Arabia, United Arab Emirates, Kenya, Kuwait, Morocco and Qatar. Successful products contributing to sales in the region include Colgate Ancient Secrets, Colgate Natural Extracts, Colgate Optic White Expert White and Colgate Maximum Cavity Protection toothpastes, Colgate 360° Advanced Whole Mouth Clean and Colgate Slim Soft Advanced manual toothbrushes, Palmolive Gourmet and Palmolive Luminous Oils shower gel and Protex Herbal bar soap.

Hill’s Pet Nutrition (15% of Company Sales)

Hill’s Net sales increased 3.5% during second quarter 2018. Unit volume increased 1.0%, pricing increased 1.0% and foreign exchange was positive 1.5%. Volume gains in the United States and Australia were partially offset by volume declines in South Africa. Hill’s organic sales increased 2.0%.

Hill’s Operating profit decreased 2% in second quarter 2018 to $165 million, or 160 basis points to 27.9% of Net sales. This decrease in Operating profit as a percentage of Net sales was due to a decrease in Gross profit and an increase in Other (income) expense, net, both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives. This increase in Other (income) expense, net was due to the expiration of a foreign sales tax benefit.

Successful products contributing to sales in the U.S. include Hill’s Prescription Diet k/d and k/d + Mobility, Hill’s Prescription Diet i/d for digestive care, Hill’s Science Diet Youthful Vitality, Hill’s Science Diet Urinary and Hairball Control and Hill’s Science Diet Kitten.

Successful products contributing to sales internationally include Hill’s Prescription Diet k/d and k/d + Mobility, Hill’s Prescription Diet Metabolic + Urinary, Hill’s Prescription Diet k/d Early Stage, Hill’s Science Diet Youthful Vitality and Hill's Science Diet Kitten.