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Colgate (CL) Beats on Q1 Earnings, Misses on Revenues
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After reporting in-line earnings in the preceding two quarters, Colgate-Palmolive Co. (CL - Free Report) delivered positive earnings surprise in the first quarter of 2017. The company posted adjusted earnings of 67 cents a share that came a penny ahead of the Zacks Consensus Estimate and improved 6.3% from 63 cents earned in the prior-year quarter. Margin expansion and lower tax rate favorably impacted the bottom line.
Including one-time items, earnings came in at 64 cents a share compared with 59 cents reported in the year-ago period.
Despite earnings beat, Colgate’s shares are down 3% during pre-market trading hours, as investors remained skeptical about the company’s top line performance that fell short of expectations for the fourth straight quarter. In fact in the last six months, the stock has increased 2.7% compared with the Zacks categorized Soap & Cleaning Preparations industry that advanced 7.3%.
Deeper Insight
Total sales of $3,762 million remained flat with the year-ago period but came below the Zacks Consensus Estimate of $3,799 million. The benefits of 2.5% increase in prices were offset by a 2% drop in global unit volumes and a negative impact of 0.5% from currency fluctuations.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 0.5% on the back of 3% growth in organic sales in emerging markets. Management informed that organic sales growth failed to meet expectations on account of sluggish results in North America.
Adjusted gross profit margin was 60.7%, up 70 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 neutralized by increased raw and packaging material expenses.
In the reported quarter, adjusted operating profit of $931 million increased 1%, with the adjusted operating margin improving 20 bps to 24.7% on enhanced gross margin, partly offset by a 30 bps increase in adjusted selling, general & administrative expenses as a percentage of sales.
Year-to-date, Colgate’s market share of manual toothbrushes has reached 32.7%. Further, the company continued to lead with market share in the global toothpaste with a gain of 43.8% year-to-date.
Segment Discussion
North America net sales (20% of total sales) fell 5%, reflecting a 5% drop in unit volume and a 0.5% decline in pricing, partially offset by a positive impact of 0.5% from currency fluctuations. On an organic basis, sales declined 5.5%.
Latin America net sales (25% of total sales) jumped 9% year over year gaining from 7% increase in pricing and positive impact of 2% from currency fluctuations, while unit volume remained flat with the prior-year quarter. Excluding the impact of divested businesses, unit volume rose 0.5% driven by gains in Mexico, the Caribbean region and the Southern Cone region, offset by volume declines in Brazil. On an organic basis, sales increased 7.5%.
Europe net sales (15% of total sales) slipped 5% year over year, owing to 1% decline in pricing and negative impact of 4.5% from currency fluctuations, partially offset by 0.5% increase in unit volume. Unit volumes gains in the United Kingdom, Spain and the Netherlands were partly offset by declines in France. Europe organic sales dipped 0.5%.
Asia Pacific net sales (19% of total sales) declined 3%, attributable to 1% decline in unit volume and 2% negative impact from currency fluctuations. Pricing remained flat with the year ago quarter. Unit volumes declines in India, the Greater China region and Thailand were partly offset by gains in the South Pacific region, Vietnam and the Philippines. On an organic basis, sales for Asia Pacific decreased 1%.
Africa/Eurasia net sales (6% of total sales) rose 6.5% year over year, fueled by 7% jump in pricing and positive currency effects of 6%, partly offset by 6.5% drop in unit volumes. Unit volumes declines in the Sub Saharan Africa region and Russia were partly offset by gains in the North Africa/Middle East region. Organic sales for Africa/Eurasia inched up 0.5%.
Hill’s Pet Nutrition net sales (15% of total sales) inched up 0.5% year over year. During the quarter, positive impact from 4% increase in pricing and 0.5% gain from foreign exchange was somewhat offset by 4% drop in unit volume. Unit volume declines in the United States, Western Europe and Turkey were partially offset by gains in South Africa, Russia and Thailand. On an organic basis, sales were flat with the prior-year quarter.
Other Financial Details
Colgate ended the quarter with cash and cash equivalents of $1,347 million and total debt of $6,473 million. Net cash provided by operating activities came in at $691 million for the quarter.
Outlook
Looking forward, Colgate anticipates the backdrop to remain challenging due to uncertain global markets. Hence, it continues to expect net sales for 2017 to improve in low-single digits range. However, on account of the soft start to the year, management now envisions organic sales growth for 2017 to be moderately below 4–7% range but expects to register sequential improvement throughout the year.
On a GAAP basis, management forecasts gross margin expansion for the year but expects earnings per share to be flat on a dollar basis. Excluding charges related to the 2012 Restructuring Program and the other 2016 one-time items, Colgate continues to project low-single-digit earnings per share growth on a dollar basis for 2017. Further, the company expects robust operating cash flows, gross margin expansion and rise in advertising investment for the year.
Tyson Foods delivered an average positive earnings surprise of 6.8% in the trailing four quarters and has a long-term earnings growth rate of 11%.
Conagra Brands delivered an average positive earnings surprise of 10.7% in the trailing four quarters and has a long-term earnings growth rate of 8%.
Pinnacle Foods delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 9.3%.
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Colgate (CL) Beats on Q1 Earnings, Misses on Revenues
After reporting in-line earnings in the preceding two quarters, Colgate-Palmolive Co. (CL - Free Report) delivered positive earnings surprise in the first quarter of 2017. The company posted adjusted earnings of 67 cents a share that came a penny ahead of the Zacks Consensus Estimate and improved 6.3% from 63 cents earned in the prior-year quarter. Margin expansion and lower tax rate favorably impacted the bottom line.
Including one-time items, earnings came in at 64 cents a share compared with 59 cents reported in the year-ago period.
Despite earnings beat, Colgate’s shares are down 3% during pre-market trading hours, as investors remained skeptical about the company’s top line performance that fell short of expectations for the fourth straight quarter. In fact in the last six months, the stock has increased 2.7% compared with the Zacks categorized Soap & Cleaning Preparations industry that advanced 7.3%.
Deeper Insight
Total sales of $3,762 million remained flat with the year-ago period but came below the Zacks Consensus Estimate of $3,799 million. The benefits of 2.5% increase in prices were offset by a 2% drop in global unit volumes and a negative impact of 0.5% from currency fluctuations.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 0.5% on the back of 3% growth in organic sales in emerging markets. Management informed that organic sales growth failed to meet expectations on account of sluggish results in North America.
Adjusted gross profit margin was 60.7%, up 70 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 neutralized by increased raw and packaging material expenses.
In the reported quarter, adjusted operating profit of $931 million increased 1%, with the adjusted operating margin improving 20 bps to 24.7% on enhanced gross margin, partly offset by a 30 bps increase in adjusted selling, general & administrative expenses as a percentage of sales.
Year-to-date, Colgate’s market share of manual toothbrushes has reached 32.7%. Further, the company continued to lead with market share in the global toothpaste with a gain of 43.8% year-to-date.
Segment Discussion
North America net sales (20% of total sales) fell 5%, reflecting a 5% drop in unit volume and a 0.5% decline in pricing, partially offset by a positive impact of 0.5% from currency fluctuations. On an organic basis, sales declined 5.5%.
Latin America net sales (25% of total sales) jumped 9% year over year gaining from 7% increase in pricing and positive impact of 2% from currency fluctuations, while unit volume remained flat with the prior-year quarter. Excluding the impact of divested businesses, unit volume rose 0.5% driven by gains in Mexico, the Caribbean region and the Southern Cone region, offset by volume declines in Brazil. On an organic basis, sales increased 7.5%.
Europe net sales (15% of total sales) slipped 5% year over year, owing to 1% decline in pricing and negative impact of 4.5% from currency fluctuations, partially offset by 0.5% increase in unit volume. Unit volumes gains in the United Kingdom, Spain and the Netherlands were partly offset by declines in France. Europe organic sales dipped 0.5%.
Asia Pacific net sales (19% of total sales) declined 3%, attributable to 1% decline in unit volume and 2% negative impact from currency fluctuations. Pricing remained flat with the year ago quarter. Unit volumes declines in India, the Greater China region and Thailand were partly offset by gains in the South Pacific region, Vietnam and the Philippines. On an organic basis, sales for Asia Pacific decreased 1%.
Africa/Eurasia net sales (6% of total sales) rose 6.5% year over year, fueled by 7% jump in pricing and positive currency effects of 6%, partly offset by 6.5% drop in unit volumes. Unit volumes declines in the Sub Saharan Africa region and Russia were partly offset by gains in the North Africa/Middle East region. Organic sales for Africa/Eurasia inched up 0.5%.
Hill’s Pet Nutrition net sales (15% of total sales) inched up 0.5% year over year. During the quarter, positive impact from 4% increase in pricing and 0.5% gain from foreign exchange was somewhat offset by 4% drop in unit volume. Unit volume declines in the United States, Western Europe and Turkey were partially offset by gains in South Africa, Russia and Thailand. On an organic basis, sales were flat with the prior-year quarter.
Other Financial Details
Colgate ended the quarter with cash and cash equivalents of $1,347 million and total debt of $6,473 million. Net cash provided by operating activities came in at $691 million for the quarter.
Outlook
Looking forward, Colgate anticipates the backdrop to remain challenging due to uncertain global markets. Hence, it continues to expect net sales for 2017 to improve in low-single digits range. However, on account of the soft start to the year, management now envisions organic sales growth for 2017 to be moderately below 4–7% range but expects to register sequential improvement throughout the year.
On a GAAP basis, management forecasts gross margin expansion for the year but expects earnings per share to be flat on a dollar basis. Excluding charges related to the 2012 Restructuring Program and the other 2016 one-time items, Colgate continues to project low-single-digit earnings per share growth on a dollar basis for 2017. Further, the company expects robust operating cash flows, gross margin expansion and rise in advertising investment for the year.
Zacks Rank & Key Picks
Colgate currently carries a Zacks Rank #2 (Buy). Other favorably ranked stocks in the sector include Tyson Foods, Inc. (TSN - Free Report) , Conagra Brands, Inc. (CAG - Free Report) and Pinnacle Foods Inc. all carrying the same rank as Colgate. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tyson Foods delivered an average positive earnings surprise of 6.8% in the trailing four quarters and has a long-term earnings growth rate of 11%.
Conagra Brands delivered an average positive earnings surprise of 10.7% in the trailing four quarters and has a long-term earnings growth rate of 8%.
Pinnacle Foods delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 9.3%.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>