Colgate Reports Modest Earnings

Colgate Palmolive Company (CL - Analyst Report) reported results for the third quarter of 2009 with earnings of $1.12 per share, which was a penny above the Zacks Consensus Estimate of $1.11. Earnings were up 13.1% year-over-year, driven by effective price implementation and ongoing aggressive cost savings program.

Net sales for the quarter were flat year-over-year declining marginally by 0.3% to $3.9 billion as unit volume increased 1.5% and pricing contributed 5.0%. This was partially offset by negative foreign exchange translation of 6.5%. Organic sales (excluding foreign exchange, acquisitions and divestitures) increased 7.0% in the quarter.

North American sales increased 3.0% driven by 1.5% pricing and 5.0% unit volume growth, partially offset by 0.5% negative currency translations. In Latin America, sales grew 5.0% as unit volume increased 3.0% driven by solid gains in Venezuela which were partially offset by an 11.0% negative foreign exchange impact.

In Europe/South Pacific, sales declined 5.5%; however, unit volume increased 2.5% as volume gains in U.K. and Greece, were more than offset by the declines in France, Germany the U.K., Denmark, Greece, Portugal and the GABA business. Sales in Greater Asia/Africa declined 3.0% while unit volume declined 2.5% as volume gains in India, Thailand and Turkey were more than offset by declines in Russia, the Philippines, South Africa and the Ukraine.

Sales in the Hill’s Pet Nutrition business grew 1.5%, however unit volume declined 2.5% and foreign exchange had a negative impact of 0.5%, which was partially offset by a 4.5% increase in pricing. Demand was strong for existing products such as Science Diet Culinary Creations feline products and the expanded line of Science Diet Simple Essentials Treats Canine.

Gross margins expanded 313 basis points (bps) to 59.2% from 56.1% in the prior-year period driven by benefits of restructuring activities and pricing. The operating margin also increased 333 bps to 22.2% versus 19.8% in the prior-year quarter, driven by a 30 bps decline in advertising. Capital expenditures for the first nine months of 2009 were $347 million.

Year-to-date net cash provided by operations increased 34% to $23.7 billion, due to efficient working capital management, especially a reduction in receivable days outstanding. The company has a debt-to-total-capitalization ratio of 52.5%.

Concurrent with the earnings release, management provided the outlook for the remainder of fiscal 2009. Management expects continued improvement in gross margins for the rest of the year, due to moderation in commodity costs and benefits from pricing and cost reduction programs.

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