Colgate Says Sales Slump Will Continue 

Colgate Says Sales Slump Will Continue 

Colgate Says Sales Slump Will Continue 

The FINANCIAL -- Colgate-Palmolive Company on October 27 reported worldwide Net sales of $3,867 million in third quarter 2016, a decrease of 3.5% versus third quarter 2015.

Global unit volume decreased 4.0%, pricing increased 3.0% and foreign exchange was negative 2.5%. Excluding divested businesses and the impact of the previously disclosed deconsolidation of the Company's Venezuelan operations, unit volume increased 1.5%. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions, divestments and the deconsolidation of the Company's Venezuelan operations) grew 4.5%.

Net income and Diluted earnings per share in third quarter 2016 were $702 million and $0.78, respectively. Net income in third quarter 2016 included $32 million ($0.04 per diluted share) of aftertax charges resulting from the Company's Global Growth and Efficiency Program (the "2012 Restructuring Program"), a $63 million ($0.07 per diluted share) aftertax gain on the sale of land in Mexico, $22 million ($0.02 per diluted share) of benefits related to previously disclosed tax matters and an aftertax charge of $4 million ($0.00 per diluted share) for a previously disclosed litigation matter, according to Colgate-Palmolive Company.

Net income and Diluted earnings per share in third quarter 2015 were $726 million and $0.80, respectively. Net income in third quarter 2015 included a $120 million ($0.13 per diluted share) aftertax gain on the sale of the Company's South Pacific laundry detergent business and $47 million ($0.05 per diluted share) of aftertax charges resulting from the 2012 Restructuring Program and an effective devaluation in Venezuela.

Excluding charges resulting from the 2012 Restructuring Program in both periods, the gain on the sale of land in Mexico, the benefits related to tax matters and the charge for a litigation matter in 2016, and the gain on the sale of the Company's South Pacific laundry detergent business and the charge related to an effective devaluation in Venezuela in 2015, Net income in third quarter 2016 was $653 million, even with third quarter 2015, and Diluted earnings per share in third quarter 2016 was $0.73, an increase of 1% versus third quarter 2015. Excluding these items in both periods, as applicable, and excluding Venezuela's operating results in both periods, Diluted earnings per share increased double digit on a currency-neutral basis.

Gross profit margin was 60.1% in third quarter 2016 versus 58.7% in third quarter 2015. Excluding charges from the 2012 Restructuring Program in both periods, Gross profit margin was 60.4% in third quarter 2016, an increase of 160 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, and the impact of the deconsolidation of the Company's Venezuelan operations effective December 31, 2015.

Selling, general and administrative expenses were 34.2% of Net sales in third quarter 2016 versus 33.7% of Net sales in third quarter 2015. Excluding charges from the 2012 Restructuring Program in both periods, Selling, general and administrative expenses increased by 70 basis points to 34.0% of Net sales in third quarter 2016, primarily due to increased advertising investment. Worldwide advertising investment increased 3% to $339 million versus $328 million in the year ago quarter.

Operating profit decreased to $1,071 million in third quarter 2016 compared to $1,136 million in third quarter 2015. Excluding charges resulting from the 2012 Restructuring Program in both periods, the gain on the sale of land in Mexico and the charge for a litigation matter in 2016, and the gain on the sale of the Company's South Pacific laundry detergent business and the charge related to an effective devaluation in Venezuela in 2015, Operating profit was $1,022 million in third quarter 2016, an increase of 1% versus third quarter 2015. Operating profit margin was 27.7% in third quarter 2016 versus 28.4% in third quarter 2015. Excluding these items in both periods, as applicable, Operating profit margin was 26.4% in third quarter 2016, an increase of 110 basis points versus the year ago quarter.

Net cash provided by operations year-to-date was $2,317 million compared to $2,108 million in the comparable 2015 period, reflecting strong operating earnings and the timing of income tax payments, partially offset by the impact of the deconsolidation of the Company's Venezuelan operations effective December 31, 2015 and a voluntary contribution to an employee postretirement plan. Working capital as a percentage of Net sales was negative 3.4% compared to negative 1.3% in the year ago period, reflecting the Company's continued tight focus on working capital and the impact of reclassifying current deferred tax assets to noncurrent deferred tax assets upon the adoption of a new accounting standard.

Ian Cook, Chairman, President and Chief Executive Officer, commented on the third quarter results, "As expected, foreign currency headwinds continued during the third quarter, which together with the impact of the deconsolidation of the Company's Venezuelan operations resulted in the 3.5% net sales decline.

"In the face of continued challenging macroeconomic conditions worldwide, we are pleased to have achieved another quarter of strong organic sales growth, with every operating division contributing. The 4.5% worldwide organic sales growth was led by emerging markets where organic sales grew a strong 8.0%, despite economic challenges in several countries.

"Pleasingly, the sizable expansion in gross profit margin this quarter funded an increase in advertising, both absolutely and as a percent to sales.

"Colgate's leadership of the global toothpaste market continued during the quarter with its global market share now at 44.0% year-to-date. Our global leadership in manual toothbrushes also continued with Colgate's global market share in that category now at 33.2% year-to-date.

"As we look ahead, macroeconomic conditions and foreign exchange volatility remain challenging. We continue to expect a low to mid single-digit net sales decline for the year due to currency headwinds and the impact of the deconsolidation of the Company's Venezuelan operations. Despite this, we continue to anticipate another year of solid organic sales growth in 2016, driven by a full new product pipeline across all categories and geographies.

"On a GAAP basis, based on current spot rates, we continue to plan for a year of gross margin expansion and continue to expect high double-digit earnings per share growth, reflecting the impact of the 2015 charge related to the deconsolidation of our Venezuelan operations.

"Excluding the 2015 and 2016 one-time items, based on current spot rates, we continue to plan for a year of gross margin expansion, and continue to expect earnings per share to be flat with 2015 on a dollar basis. This reflects a double-digit increase in earnings per share on a currency-neutral basis, excluding Venezuela from 2015 and 2016 results."

In closing, Mr. Cook commented on the outlook for 2017, "Looking ahead, we continue to see uncertainty in foreign exchange rates. As we enter our global budget process, on a GAAP basis, we are planning for a year of gross margin expansion and mid to high single-digit earnings per share growth on a dollar basis.

"Excluding charges related to the 2012 Restructuring Program in both periods and the other 2016 one-time items, we are planning for a year of gross margin expansion and, consistent with our long-term strategy, our goal is to return to double-digit earnings per share growth on a dollar basis."

The following are comments about divisional performance for third quarter 2016 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 1.0% in third quarter 2016. Unit volume increased 1.5% with 0.5% lower pricing, while foreign exchange was even with the year ago quarter. Organic sales increased 1.0% during the quarter.

Operating profit in North America increased 6% in the third quarter of 2016 to $273 million, or 150 basis points to 34.1% 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 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, which were partially offset by higher raw and packaging material costs. This decrease in Selling, general and administrative expenses was due to lower overhead expenses, which were partially offset by an increase in advertising investment.

In the U.S., new product launches are contributing to volume growth. Market share gains year-to-date were seen in toothpaste, manual toothbrushes, mouthwash, liquid hand soap, body wash, liquid cleaners and fabric conditioners. Colgate's share of the toothpaste market strengthened to 35.7% year-to-date, up 0.3 share points versus the year ago period, driven by strong sales of Colgate Total Daily Repair, Colgate Optic White Platinum High Impact White, Colgate Sensitive Smart White and Tom's of Maine Rapid Relief Sensitive toothpastes. In manual toothbrushes, Colgate strengthened its brand market leadership in the U.S. with its market share in that category at 41.9% year-to-date, up 0.5 share points versus the year ago period. Strong sales of Colgate 360° Enamel Health Sensitive, Colgate 360° Optic White Platinum and Colgate Total 360° 4 Zone manual toothbrushes contributed to volume growth in the quarter.

Successful new products driving volume growth in the U.S. in other categories include Colgate Total Daily Repair and Colgate Kids mouthwashes, Colgate Total 360° Whole Mouth Clean battery toothbrush, Softsoap Pure foaming hand soap, Softsoap Luminous Oils and Irish Spring Signature For Men body washes and Palmolive Fusion Clean dish liquid.

Latin America (24% of Company Sales)

Latin America Net sales decreased 13.0% in third quarter 2016. Unit volume decreased 16.0% with 9.0% higher pricing, while foreign exchange was negative 6.0%. Excluding the impact of the deconsolidation of the Company's Venezuelan operations, unit volume increased 1.5% driven by volume gains in Mexico. Organic sales for Latin America increased 10.5%.

Operating profit in Latin America decreased 1% in the third quarter of 2016 to $298 million, while as a percentage of Net sales it increased 410 basis points to 32.3% 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 due to higher pricing as cost savings from the Company's funding-the-growth initiatives were offset by higher costs, which included foreign exchange transaction costs and the impact of the deconsolidation of the Company's Venezuelan operations effective December 31, 2015. This decrease in Selling, general and administrative expenses was due to lower overhead expenses, which were partially offset by an increase in advertising investment.

Colgate strengthened its leadership in toothpaste in Latin America during the quarter, driven by market share gains in Brazil, Peru, Uruguay, Paraguay, Puerto Rico, Nicaragua and Costa Rica. Strong sales of Colgate Luminous White Advanced Expert, Colgate Sensitive Pro-Alivio, Colgate Total Professional Daily Repair and Colgate Triple Action Extra Whitening 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 Luminous White Advanced Toothbrush + Built-In Whitening Pen, Colgate 360° Gold and Colgate Professional Lab series manual toothbrushes.

Products in other categories contributing to growth throughout the region include Colgate Plax Ice Infinity mouthwash, Protex Pro-Hidrata shower gel, bar soap and liquid hand soap, Protex for Men 3 in 1 shower gel and bar soap, Palmolive Naturals Almond and Omega Oil shower gel, bar soap and liquid hand soap, Suavitel Superior Care Vanilla fabric conditioner, Axion Complete dish liquid and Fabuloso Pure Cleaning liquid cleaner.

Europe (16% of Company Sales)

Europe Net sales decreased 1.5% in third quarter 2016. Unit volume increased 4.0%, pricing decreased 2.5% and foreign exchange was negative 3.0%. Volume gains were led by Germany and the United Kingdom. Organic sales for Europe increased 1.5%.

Operating profit in Europe decreased 8% in the third quarter of 2016 to $158 million, or 200 basis points to 25.9% 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 driven by higher raw and packaging material costs, which included foreign exchange transaction costs, and lower pricing due to increased in-store promotional activities, partially offset by cost savings from the Company's funding-the-growth initiatives. The increase in Selling, general and administrative expenses was due to higher advertising investment.

Colgate maintained its oral care leadership in Europe during the quarter, driven by toothpaste market share gains in Spain, France, Belgium, Austria, Denmark, Poland, Hungary, Czech Republic, Italy, Bulgaria, Bosnia and Latvia. Successful premium products contributing to volume gains in oral care include Colgate Max White White and Protect, Colgate Total Proof, Colgate Sensitive Pro Relief Extra Strength, Colgate Kids and elmex Sensitive Professional Repair & Prevent toothpastes, Colgate Max White Expert White Toothbrush + Built-In Whitening Pen and Colgate 360° Advanced manual toothbrushes.

Premium innovations contributing to volume growth in other product categories include Sanex Advanced shower oils and body balms, Palmolive Gourmet shower gels, Palmolive Sensorials line of dish liquids, Palmolive Skin Garden shower gel, bath foam, liquid hand soap, bar soap and body lotion, Sanex Men shower gel and deodorant, a range of Ajax specialist kitchen spray cleaners and Soupline Complete Care fabric conditioner.

Asia Pacific (19% of Company Sales)

Asia Pacific Net sales decreased 1.5% during third quarter 2016. Unit volume was even with the year ago quarter while pricing increased 0.5% and foreign exchange was negative 2.0%. Excluding divested businesses, unit volume increased 2.5%. Volume gains were led by the Philippines and India. Organic sales for Asia Pacific increased 3.0%.

Operating profit in Asia Pacific increased to $230 million in the third quarter of 2016, or 60 basis points to 31.8% 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 mainly driven by cost savings from the Company's funding-the-growth initiatives and the 2012 Restructuring Program, mix and higher pricing, partially offset by higher raw and packaging material costs, which included foreign exchange transaction costs. This decrease in Selling, general and administrative expenses was due to lower overhead expenses, which were partially offset by an increase in advertising investment.

Colgate continued its toothpaste leadership in the Asia Pacific region during the quarter, with market share gains in Hong Kong, Taiwan, the Philippines, New Zealand, Vietnam and Pakistan. Successful new products including Colgate 360° Charcoal Gel, Colgate Sensitive Salt Minerals, Colgate Total Pro Breath Health, Colgate Enamel Health, Colgate Optic White Power White, Colgate Fresh Confidence Bamboo Charcoal, Colgate Sensitive Clove Essence, Colgate Naturals and Colgate MinionsTM toothpastes contributed to volume growth in the region.

Successful products contributing to volume growth in other categories in the region include Colgate Pain Out dental gel, Colgate A1, Colgate Slim Soft Charcoal Spiral, Colgate Gum Clean, Colgate Zig Zag Charcoal, Colgate Super Flexi Black and Colgate MinionsTM manual toothbrushes, Colgate Plax Ice Infinity and Colgate Plax Spicy Fresh mouthwash, Palmolive Oil Infusions body wash, liquid hand soap and body lotions and Protex Thai Therapy bar soap.

Africa/Eurasia (6% of Company Sales)

Africa/Eurasia Net sales increased 1.5% during third quarter 2016. Unit volume decreased 2.0%, pricing increased 10.5% and foreign exchange was negative 7.0%. Volume gains in the North Africa/Middle East region were more than offset by volume declines in South Africa. Organic sales for Africa/Eurasia increased 8.5%.

Operating profit in Africa/Eurasia increased 14% in the third quarter of 2016 to $50 million, or 210 basis points to 20.0% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit, partially offset by an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company's funding-the-growth initiatives and higher pricing, partially offset by higher costs, primarily driven by higher raw and packaging material costs, which included foreign exchange transaction costs. This increase in Selling, general and administrative expenses was due to higher overhead expenses and increased advertising investment.

Colgate continued its toothpaste leadership in Africa/Eurasia during the quarter, with market share gains in Russia, Turkey, Saudi Arabia, South Africa, Israel, the United Arab Emirates, Tunisia, Kuwait, Kazakhstan, Oman and Qatar. Successful products contributing to sales in the region include Colgate Total Pro Breath Health, Colgate Optic White Lasting White and Colgate Sensitive Pro-Relief Repair & Prevent toothpastes, Colgate 360° Charcoal Gold and Colgate Slim Soft Sensitive Gum Care manual toothbrushes, Palmolive Aroma Sensations and Palmolive Naturals shower gels and Lady Speed Stick Bio Protection deodorant.

Hill's Pet Nutrition (14% of Company Sales)

Hill's Net sales increased 2.5% in third quarter 2016. Unit volume decreased 2.0% with 3.5% higher pricing, while foreign exchange was positive 1.0%. Volume declines in the United States, Western Europe and Japan were partially offset by volume gains in the rest of Asia, Latin America and Russia. Hill's organic sales increased 1.5%.

Hill's Operating profit increased 3% in the third quarter of 2016 to $162 million, or 10 basis points to 28.9% 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. This increase in Gross profit was mainly driven by cost savings from the Company's funding-the-growth initiatives and higher pricing, partially offset by higher costs, primarily driven by higher raw and packaging material costs, which included foreign exchange transaction costs. This increase in Selling, general and administrative expenses was due to increased advertising investment and higher overhead expenses. This decrease in Other (income) expense, net was in part due to a foreign sales tax benefit.

Successful products contributing to sales in the U.S. include Hill's Prescription Diet Metabolic + Mobility and Metabolic + Urinary, Hill's Prescription Diet z/d for skin and food sensitivities, Hill's Prescription Diet i/d for digestive care, Hill's Prescription Diet Derm Defense for environmental sensitivities, Hill's Science Diet Urinary and Hairball Control, Hill's Science Diet Perfect Weight stews, Hill's Science Diet Healthy Cuisine and Hill's Science Diet Sensitive Stomach and Skin Small & Toy Breed.

Successful products contributing to sales internationally include Hill's Prescription Diet Metabolic + Mobility and Metabolic + Urinary, Hill's Prescription Diet Derm Defense, Hill's Prescription Diet z/d, Hill's Prescription Diet i/d, Hill's Science Diet Urinary and Hill's Science Diet Perfect Weight.