This summary is based on the third quarter fiscal 2008 earnings call conducted by Colgate-Palmolive Co. (CL) on October 30, 2008.
Management:
VP of Investor Relations: Bina Thompson
President and CEO: Ian Cook
Key Investors Issues
- EPS were 94 cents a share compared to 77 cents a share last year.
- Earnings were $500 million compared to $420 million a year ago.
- Sales rose 13% to $3.99 billion.
Third Quarter Highlights
Worldwide sales grew 13% to $3,988 million and unit volume grew 3%.
- Global pricing increased 6.5% and foreign exchange added 3.5%. The strong top-line growth was supported by a 6% increase in worldwide advertising spending to a record level for the quarter.
- Results include $31.2 million of aftertax charges related to the 2004 Restructuring Program. The year ago quarter included restructuring charges of $36.3 million and $10 million non-cash, aftertax SFAS 88 pension charge.
- Gross profit margin as reported was 56.1% and 56.2% in the year ago period. Excluding restructuring charges, gross profit margin decreased 90 basis points from 57.3% in 2007 to 56.4% in 2008, reflecting increases in raw and packaging material costs worldwide. These sharp increases were partially offset by increased pricing and successful savings initiatives.
- Operating profit increased 15% versus third quarter 2007 to $768.4 million.
- Net income and earnings per share were $499.9 million and 94 cents per share, respectively. Net income and earnings per share in third quarter 2007 were $420.1 million and 77 cents per share, respectively.
- Net cash provided by operations year to date increased by 7% to $1,757 million.
- Net debt declined by $203 million year to date and is at the lowest level in 18 quarters. Working capital increased to 2.6% of sales versus 2.4% in the comparable 2007 period, as reductions in receivable and inventory days outstanding were offset by a reduced level of payables.
Organic sales (excluding foreign exchange, acquisitions and divestments) grew 9.5% worldwide, driven by healthy unit volume growth on top of strong price increases.
- North American sales grew 4.5% to an all-time record level as unit volume increased 1% and pricing increased 3.5%. North American operating profit declined 4%, reflecting increases in raw and packaging material costs, partially offset by the benefits from restructuring and other efficiency programs.
- In the U.S., new product launches are contributing to growth across categories. Market share gains were seen in toothpaste, manual toothbrushes, power toothbrushes, hand dish liquid and fabric conditioners, year to date. In oral care, Colgate Total Advanced Clean and Colgate Total Advanced Whitening toothpastes, supported by an integrated marketing campaign featuring Brooke Shields and an expansive professional sampling program, helped drive market share for Colgate Total toothpaste to 16.2%, matching its highest quarterly share ever. Colgate’s share of the manual toothbrush market is 27.6% year to date, up 2 share points versus year ago, fueled by the success of Colgate 360°, Colgate 360° Sensitive and new Colgate 360° Deep Clean manual toothbrushes.
- Successful new products contributing to growth in the U.S. in other categories include Colgate 360° Sonic Power battery toothbrush, Irish Spring Moisture Blast and Irish Spring Reviving Mint body wash, Palmolive Pure & Clear dish liquid and Softsoap brand Body Butter Coconut Scrub moisturizing body wash.
Latin American sales and unit volume grew 21% and 4.5%, respectively, in the third quarter on top of strong sales and volume growth in the year ago period.
- The strong volume gains were led by Brazil, Mexico, Venezuela, Colombia and Argentina. Higher pricing added 11% and foreign exchange added 5.5%. Latin American operating profit increased 25%, to an all-time record level even after a strong double-digit increase in advertising.
- Colgate continues to build its strong leadership in oral care throughout Latin America with its regional toothpaste market share at a record high year to date, driven by market share gains in nearly every country. Strong sales of premium-priced offerings such as Colgate Total Professional Clean and Colgate Max White toothpastes drove share gains throughout the region. In Mexico, for example, Colgate’s toothpaste market share reached 85.2% year to date, up 140 basis points versus year ago. Colgate’s leading share of the manual toothbrush market for the region is at a record high year to date at 39.2%, up 190 basis points versus year ago. Strong sales of Colgate 360°, Colgate 360° Sensitive, Colgate 360° Deep Clean and Colgate Max Fresh manual toothbrushes throughout the region contributed to this success.
- In other product categories, Colgate 360° MicroSonic battery toothbrush, Colgate Plax Whitening and Colgate Plax Ice mouthwashes, Palmolive Naturals Yogurt and Fruits and Protex Oats bar soaps and shower gels, Palmolive bar soap and shower gel with ingredients from the Amazon, Lady Speed Stick Double Defense multi-form deodorants, Palmolive Caprice shampoo and Suavitel Magic Moments, a fabric conditioner with a touch-release fragrance that lasts for months after washing, contributed to market share gains in the region.
Europe/South Pacific sales increased 8.5% and unit volume grew 1% on top of strong growth in the year ago period.
- Pricing increased 0.5% and foreign exchange added 7%. Volume gains were achieved across most of the region and were particularly strong in Germany, Poland, Denmark, Greece and Australia, more than offsetting volume declines in France, Italy, United Kingdom and the GABA business. Operating profit for the region grew 3% to an all-time record level, on top of double-digit growth in the year ago period, reflecting benefits from ongoing savings programs and lower levels of advertising partially offset by higher raw material costs.
- Colgate maintained its oral care leadership in the Europe/South Pacific region with toothpaste share gains in Austria, Germany, Switzerland, Czech Republic, Hungary, Slovakia, Serbia, Poland, Greece, Croatia, Belgium, Sweden, Australia and New Zealand. Successful premium products driving these share gains include Colgate Max Fresh, Colgate Max White and Colgate Sensitive Enamel Protect toothpastes. GABA’s toothpaste market share also grew in many markets across the region, in both the food and pharmacy channels. In the manual toothbrush category, strong sales of Colgate 360°, Colgate 360° Sensitive and Colgate Max Fresh toothbrushes strengthened Colgate’s market leadership in this category for the region.
- Recent premium innovations contributing to gains in other product categories include Colgate 360° Sonic Power battery toothbrush, Colgate Plax Whitening mouth rinse, Palmolive Naturals Cherry Blossom shower gel, Ajax Professional bucket dilutable and Ajax Professional glass cleaners, PAIC Desincrust dish liquid, the French version of Palmolive Scrub Buster, and Soupline Magic Moments fabric conditioner.
Greater Asia/Africa sales and unit volume increased 18% and 10.5%, respectively.
- Excluding divested businesses, sales and unit volume increased 19% and 11.5%, respectively. The strong volume gains were led by India, Russia, Ukraine, Malaysia, Thailand, Philippines, Vietnam, Kazakhstan, South Africa, Gulf States, Saudi Arabia, Gabon, Angola and the Greater China region, where volume increased 17% on top of double-digit growth in the year ago quarter. For the division as a whole, pricing increased 5% and foreign exchange added 2.5%. Operating profit for the region increased 28% to a record level, even after a sizable increase in advertising during the quarter.
- Colgate strengthened its oral care leadership in the Greater Asia region with its regional toothpaste market share reaching a record high year to date. In China, for example, Colgate’s toothpaste market share reached 31.1% year to date, up 120 basis points versus year ago. Colgate’s share of the manual toothbrush market also strengthened throughout the region with many countries achieving record high shares in the category. Successful new products driving the oral care growth include Colgate Total Professional Clean, Colgate Max Fresh, Colgate 360° Whole Mouth Clean and Darlie Salt White toothpastes, Colgate 360° Deep Clean and Colgate Max Fresh manual toothbrushes, and Colgate Plax Overnight Herbal Sensations mouthwash.
- New products contributing to growth in other categories in the region include Palmolive Nutra-Oil shower gel, Palmolive Thermal Spa Nourishing Boost shower gel, bar soap and liquid hand soap, Protex Aloe shower cream and bar soap, and Protex Icy Cool bar soap.
Hill’s sales grew 13% as unit volume decreased 4%, pricing increased 15% and foreign exchange added 2%.
Volume growth in Japan, Australia, Russia, Brazil, Romania, Mexico, Czech Republic, Chile, Hong Kong and Thailand was offset by volume declines in the U.S. and Western Europe primarily due to timing differences of price increases taken in 2008 and 2007. Operating profit increased 14% to a record level even after significantly higher agricultural commodity costs during the quarter.
- For the three months ended September 30, 2008 and 2007, Corporate operating expenses include $47.2 and $51.1 of charges related to the company''s 2004 Restructuring Program, respectively. For the nine months ended September 30, 2008 and 2007, Corporate operating expenses include $124.5 and $152.4 of charges related to the company''s 2004 Restructuring Program, respectively. Additionally, Corporate operating expenses for the three and nine months ended September 30, 2007 were increased by SFAS 88 pension charges of $15.4. For the nine months ended September 30, 2007, Corporate operating expenses were reduced by a $48.6 gain related to the sale of the company''s household bleach business in Latin America.
