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Colgate (CL) Tops Q2 Earnings, Sales Lag; Outlook Intact
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Colgate-Palmolive Co. (CL - Free Report) reported second-quarter 2016 results, wherein earnings beat estimates, while sales missed the same. The company continued to battle macroeconomic headwinds in various countries and lingering currency woes in the quarter. Nevertheless, Colgate witnessed solid gross margin expansion yet again and also reaffirmed its earnings view for 2016.
Quarterly adjusted earnings of 70 cents a share came a penny ahead of the Zacks Consensus Estimate of 69 cents and remained flat year over year. On a currency-neutral basis, adjusted earnings rose by double digits.
Including one-time items, the company posted earnings of 67 cents per share, up 6.3% from the year-ago quarter.
Deeper Insight
Total sales of $3,845 million declined 5.5% from the year-ago figure of $4,066 million and also missed the Zacks Consensus Estimate of $3,870.6 million.
The company stated that excluding divested business and the effects of the previously announced deconsolidation of its Venezuelan operations, the benefits of 1.5% growth in unit volume and a 3% rise in prices were more than offset by a negative impact of 5.5% from currency fluctuations.
On an organic basis (excluding foreign exchange, acquisitions, divestitures and the deconsolidated Venezuelan operations), the company recorded sales growth of 4.5%, mainly driven by a 6.5% sales improvement in emerging markets despite tough economic conditions.
Adjusted gross profit margin was 60.2%, up 190 basis points (bps), backed by benefits of cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program, along with better pricing. These were partly offset by increased packaging and material expenses stemming from higher currency translation costs and the effect of deconsolidation of the Venezuelan operations.
In the reported quarter, adjusted operating profit of $1,003 million remained flat with the year-ago quarter. However, adjusted operating margin improved 150 bps to 26.1% on enhanced gross margin and was partly offset by a 30 bps increase in adjusted selling, general & administrative expenses as a percentage of revenues.
On a year-to-date basis, Colgate’s market share of manual toothbrushes reached 33.5%. Further, the company’s share in the global toothpaste market continued to grow, reaching 43.8%.
Segment Discussion
North America sales (21% of total sales) rose 2% in the reported quarter, driven by a 3.5% improvement in unit volume, offset by a 1.5% fall in pricing. Foreign exchange remained flat year over year. On an organic basis, sales grew 2%.
Latin America sales (24% of total sales) slumped 16.5% year over year as the benefits of a 9.5% increase in pricing was more than offset by a 13.5% plunge in unit volumes and negative impact of 12.5% from foreign exchange. Excluding the deconsolidation of Venezuelan operations impact, unit volumes remained flat as gains from Mexico and Central America were offset by softness in Brazil and Argentina. On an organic basis, sales rose 9.5%.
Europe (16% of total sales) sales inched up 0.5% year over year, backed by a 4% rise in unit volumes, somewhat countered by a negative impact of 3% from lower pricing and 0.5% from foreign currency translation. Unit volumes were driven by the strength noted in United Kingdom, Italy and Poland, while volumes remained weak at France. Europe organic sales inched up 1%.
Asia Pacific sales (18% of total sales) tumbled 7%, attributable to a 3% drop in volumes and a negative impact of 5% from foreign exchange, partly compensated by a 1% improvement in pricing. Unit volumes jumped 1%, excluding divested businesses. Volume growth was primarily attributed to gains in India and the Philippines, partly negated by softness noted in the Greater China region. On an organic basis, sales rose 2%.
Africa/Eurasia sales (6% of total sales) declined 9% year over year due to a negative impact of 13.5% from foreign currency exchange and 1.5% dip in unit volumes, partly compensated by a 9% increase in prices. Soft volumes at South Africa and Central Asia Caucasus regions could not be compensated by gains in Gulf States and Sub-Sahara Africa regions. Organic sales for Africa/Eurasia advanced 7.5%.
Hill’s Pet Nutrition sales (15% of total sales) increased 3.5% year over year. During the quarter, positive impact from 1.5% volume growth and a 2.5% increase in pricing were somewhat offset by a 0.5% negative impact from foreign exchange. Unit volume improvements were backed by gains in the U.S., Russia and Western Europe. On an organic basis, sales rose 4% year over year.
Colgate ended the quarter with cash and cash equivalents of $1,085 million, total debt of $6,572 million, and shareholders’ equity (excluding non controlling interests) of ($281) million.
Net cash provided by operating activities came in at $1,320 million for the first half of 2016.
Outlook
Colgate anticipates macroeconomic and currency headwinds to linger throughout 2016. Hence, it expects net sales for 2016 to decrease in low to mid-single-digits, mainly reflecting the impact of adverse currency movements. Nonetheless, 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 geographical regions.
Excluding the Venezuelan operations from its 2015 and 2016 results, Colgate still envisions 2016 earnings per share to witness double-digit growth (on a currency neutral basis). As of the existing spot rates, management continues to expect gross margin to expand in 2016 and adjusted earnings per share in dollar terms to remain flat with 2015. On a GAAP basis, Colgate anticipates the bottom line to grow in high double-digits in 2016, along with gross margin expansion.
Zacks Rank
Colgate currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Ingredion Incorporated (INGR - Free Report) , Omega Protein Corporation and The J. M. Smucker Company (SJM - Free Report) , with a Zacks Rank #1 (Strong Buy) each.
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Colgate (CL) Tops Q2 Earnings, Sales Lag; Outlook Intact
Colgate-Palmolive Co. (CL - Free Report) reported second-quarter 2016 results, wherein earnings beat estimates, while sales missed the same. The company continued to battle macroeconomic headwinds in various countries and lingering currency woes in the quarter. Nevertheless, Colgate witnessed solid gross margin expansion yet again and also reaffirmed its earnings view for 2016.
Quarterly adjusted earnings of 70 cents a share came a penny ahead of the Zacks Consensus Estimate of 69 cents and remained flat year over year. On a currency-neutral basis, adjusted earnings rose by double digits.
Including one-time items, the company posted earnings of 67 cents per share, up 6.3% from the year-ago quarter.
Deeper Insight
Total sales of $3,845 million declined 5.5% from the year-ago figure of $4,066 million and also missed the Zacks Consensus Estimate of $3,870.6 million.
The company stated that excluding divested business and the effects of the previously announced deconsolidation of its Venezuelan operations, the benefits of 1.5% growth in unit volume and a 3% rise in prices were more than offset by a negative impact of 5.5% from currency fluctuations.
On an organic basis (excluding foreign exchange, acquisitions, divestitures and the deconsolidated Venezuelan operations), the company recorded sales growth of 4.5%, mainly driven by a 6.5% sales improvement in emerging markets despite tough economic conditions.
Adjusted gross profit margin was 60.2%, up 190 basis points (bps), backed by benefits of cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program, along with better pricing. These were partly offset by increased packaging and material expenses stemming from higher currency translation costs and the effect of deconsolidation of the Venezuelan operations.
In the reported quarter, adjusted operating profit of $1,003 million remained flat with the year-ago quarter. However, adjusted operating margin improved 150 bps to 26.1% on enhanced gross margin and was partly offset by a 30 bps increase in adjusted selling, general & administrative expenses as a percentage of revenues.
On a year-to-date basis, Colgate’s market share of manual toothbrushes reached 33.5%. Further, the company’s share in the global toothpaste market continued to grow, reaching 43.8%.
Segment Discussion
North America sales (21% of total sales) rose 2% in the reported quarter, driven by a 3.5% improvement in unit volume, offset by a 1.5% fall in pricing. Foreign exchange remained flat year over year. On an organic basis, sales grew 2%.
Latin America sales (24% of total sales) slumped 16.5% year over year as the benefits of a 9.5% increase in pricing was more than offset by a 13.5% plunge in unit volumes and negative impact of 12.5% from foreign exchange. Excluding the deconsolidation of Venezuelan operations impact, unit volumes remained flat as gains from Mexico and Central America were offset by softness in Brazil and Argentina. On an organic basis, sales rose 9.5%.
Europe (16% of total sales) sales inched up 0.5% year over year, backed by a 4% rise in unit volumes, somewhat countered by a negative impact of 3% from lower pricing and 0.5% from foreign currency translation. Unit volumes were driven by the strength noted in United Kingdom, Italy and Poland, while volumes remained weak at France. Europe organic sales inched up 1%.
Asia Pacific sales (18% of total sales) tumbled 7%, attributable to a 3% drop in volumes and a negative impact of 5% from foreign exchange, partly compensated by a 1% improvement in pricing. Unit volumes jumped 1%, excluding divested businesses. Volume growth was primarily attributed to gains in India and the Philippines, partly negated by softness noted in the Greater China region. On an organic basis, sales rose 2%.
Africa/Eurasia sales (6% of total sales) declined 9% year over year due to a negative impact of 13.5% from foreign currency exchange and 1.5% dip in unit volumes, partly compensated by a 9% increase in prices. Soft volumes at South Africa and Central Asia Caucasus regions could not be compensated by gains in Gulf States and Sub-Sahara Africa regions. Organic sales for Africa/Eurasia advanced 7.5%.
Hill’s Pet Nutrition sales (15% of total sales) increased 3.5% year over year. During the quarter, positive impact from 1.5% volume growth and a 2.5% increase in pricing were somewhat offset by a 0.5% negative impact from foreign exchange. Unit volume improvements were backed by gains in the U.S., Russia and Western Europe. On an organic basis, sales rose 4% year over year.
COLGATE PALMOLI Price, Consensus and EPS Surprise
COLGATE PALMOLI Price, Consensus and EPS Surprise | COLGATE PALMOLI Quote
Other Financial Details
Colgate ended the quarter with cash and cash equivalents of $1,085 million, total debt of $6,572 million, and shareholders’ equity (excluding non controlling interests) of ($281) million.
Net cash provided by operating activities came in at $1,320 million for the first half of 2016.
Outlook
Colgate anticipates macroeconomic and currency headwinds to linger throughout 2016. Hence, it expects net sales for 2016 to decrease in low to mid-single-digits, mainly reflecting the impact of adverse currency movements. Nonetheless, 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 geographical regions.
Excluding the Venezuelan operations from its 2015 and 2016 results, Colgate still envisions 2016 earnings per share to witness double-digit growth (on a currency neutral basis). As of the existing spot rates, management continues to expect gross margin to expand in 2016 and adjusted earnings per share in dollar terms to remain flat with 2015. On a GAAP basis, Colgate anticipates the bottom line to grow in high double-digits in 2016, along with gross margin expansion.
Zacks Rank
Colgate currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Ingredion Incorporated (INGR - Free Report) , Omega Protein Corporation and The J. M. Smucker Company (SJM - Free Report) , with a Zacks Rank #1 (Strong Buy) each.
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