Colgate (CL) Beats on Q4 Earnings, Currency Hurts Sales

Colgate-Palmolive Co. CL ended 2015 on a mixed note. While the company posted better-than-expected earnings in fourth-quarter 2015, the top line lagged expectations for the eleventh straight quarter. Colgate continued to battle macroeconomic headwinds in various countries and lingering currency woes during the quarter.

Quarterly adjusted earnings of 73 cents a share beat the Zacks Consensus Estimate by a penny, but dropped 4% year over year. On a currency-neutral basis, adjusted earnings rose by double digits. 
 

Colgate-Palmolive Company (CL) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Including one-time items, the company posted a loss of 51 cents per share, as against earnings of 68 cents per share recorded in the year-ago quarter.

Deeper Insight

Total sales of $3,899 million decreased 7.5% from the year-ago figure of $4,221 million, falling short of the Zacks Consensus Estimate of $3,950 million.

The company stated that excluding divested business-related operations, the benefits of 1% growth in unit volume and a 4% rise in prices were more than offset by a negative impact of 11.5% from currency fluctuations. Global unit volumes remained flat year over year.

On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 5.0%, mainly driven by a 6.5% sales improvement in emerging markets.

Adjusted gross profit margin was 59%, up 20 basis points (bps), backed by benefits from cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program, along with better pricing, partly offset by increased packaging and material expenses stemming from higher currency translation costs.

In the reported quarter, adjusted operating profit of $1,015 million declined 6% from the year-ago quarter figure. However, the adjusted operating margin improved 40 bps to 26%, benefiting from lower selling, general & administrative (“SG&A”) expenses as a percentage of revenues as well as enhanced gross margin.

On a year-to-date basis, Colgate’s market share of manual toothbrushes reached 34.7%, up 1.0 share point. Further, the company’s share in the global toothpaste market inched up 0.5 share points to 44.7%.

Segment Discussion for Q4

North America sales (20% of total sales) rose 1% in the reported quarter, driven by a 2.0% improvement in unit volume and 0.5% growth in higher pricing, offset by negative foreign exchange impact of 1.5%. On an organic basis, sales grew 2.5%.

Latin America sales (27% of total sales) slumped 12% year over year, as the benefits of a 13% increase in pricing were more than offset by a negative impact of 21% from foreign exchange and a 4% decline in unit volumes. Volume gains in Mexico were more than offset by declines in Venezuela and Brazil. On an organic basis, sales rose 9%.

Europe/South Pacific sales (18% of total sales) plunged 14.5% year over year due to a negative impact of 2.5% from lower pricing, 11.5% from foreign currency translation and a 0.5% dip in unit volumes. Volume gains were primarily backed by strength noted in the French, Australian and German regions. Europe/South Pacific organic sales inched up 1.5%.

Asia sales (15% of total sales) dropped 5%, attributable to a 0.5% downside in pricing and a negative impact of 7% from foreign exchange, partly offset by a 2.5% jump in volumes. Volume growth was primarily attributed to gains in Thailand and Greater China regions. On an organic basis, sales rose 2%.

Africa/Eurasia sales (6% of total sales) fell 16.5% year over year due to a negative impact of 23% from foreign currency exchange and a 1.5% decline in volumes, partly offset by an 8% increase in prices. Weak volumes in the Central Caucasus and Russian regions were somewhat compensated by gains in the Sub-Saharan Africa and South Africa regions. Organic sales for Africa/Eurasia advanced 6.5%.

Hill’s Pet Nutrition sales (14% of total sales) remained flat year over year. Pricing had a 2.0% positive impact on sales growth, while foreign exchange negatively impacted sales by 6%. Unit volume improved 4%, backed by volume gains in the U.S. and Western Europe. On an organic basis, sales rose 6.0% year over year.

2015 Performance: A Glimpse

Colgate’s full-year 2015 earnings came in at $2.81 per share, down 4% year over year and in line with the Zacks Consensus Estimate. Net sales for 2015 declined nearly 7% to $16,034 million, also falling short of the Zacks Consensus Estimate of $16,072 million.  

Other Financial Details

Colgate ended the quarter with cash and cash equivalents of $970 million, total debt of $6,571 million, and shareholders’ equity (excluding non controlling interests) of ($299) million.

Net cash provided by operating activities came in at $2,949 million for full-year 2015.

Other Developments

Colgate removed assets and liabilities associated with its Venezuelan operations from its balance sheet, effective Dec 31, 2015, after which, it shifted to the cost method of accounting for its Venezuelan business.

Outlook

Colgate anticipates macroeconomic and currency headwinds to linger in 2016. However, 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 geographies.

Consequently, on excluding Venezuelan operations from its 2015 and 2016 results, Colgate envisions 2016 earnings per share to witness double-digit growth (on a currency neutral basis). As of the existing spot rates, management expects gross margin to expand in 2016.  

The aforementioned guidance excludes all charges associated with the 2012 Restructuring Program.

Zacks Rank

Colgate currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is The Clorox Company CLX, with a Zacks Rank #2 (Buy). Other well-ranked stocks in the broader consumer staples sector include Helen of Troy Limited HELE and Constellation Brands Inc. STZ, each carrying a Zacks Rank #2.

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