Colgate-Palmolive Co. (CL)
Q4 2009 Earnings Call Transcript
January 28, 2010 11:00 a.m. ET

Executive

Bina Thompson - Vice President, Investor Relations
Ian M. Cook - Chairman, President and Chief Executive Officer
Steve Patrick - Chief Financial Officer
Dennis J. Hickey - Vice President and Corporate Controller
Elaine Paik - Treasurer

Analysts

Joseph Altobello – Oppenheimer & Company
William Schmitz – Deutsche Bank
Ali Dibadj – Sanford C. Bernstein & Company
Lauren Lieberman – Barclays Capital
Jason Gere – RBC Capital Markets
Christopher Ferrara – Bank of America/Merrill Lynch
John Faucher – J.P. Morgan
Alice Longley – Buckingham Research Group
Constance Maneaty – BMO Capital Markets
William Chappell – SunTrust Robinson Humphrey
Alec Patterson – RCM
Andrew Sawyer – Goldman Sachs
Douglas Lane – Jefferies & Company
Linda Bolton Weiser – Caris & Company

Presentation

Operator

Good day and welcome to today''s Colgate-Palmolive Company Fourth Quarter Year End 2009 Earnings Conference Call. Today''s call is being recorded and is being simulcast live at www.colgate.com. Just as reminder, there may be a slight delay before the question-and-answer session begins due to the web simulcast.

At this time, for opening remarks, I would like to turn the call over to Vice President of Investor Relations Ms. Bina Thompson. Please go ahead, ma''am.

Bina Thompson

Thank you Burlice [ph] and good morning everybody. And welcome to our fourth quarter earning release conference call. With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller and Elaine Paik, who has been elected Treasurer, effective February 1.

This conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements. So for information about certain factors that could causes such differences, investors should consult our annual report on Form 10-K filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Cautionary Statements on forward-looking statements.

We will discuss our results excluding charges relating to the 2004 restructuring program, which was completed in 2008. And a full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the Investor Relations page of our website at www. colgate.com. And of course, we will be glad to answer any questions you may have including or excluding these items as you wish. We are delighted with our fourth quarter results an excellent finish to a year, which had seem momentum building through the previous three quarters. Our financial strategy with which you are all familiar continues to be effective.

We were particularly pleased with our volume growth of 3% and our gross margin increase of 320 basis points. And as we told you at the beginning of the year, we approached 2009 cautiously as there were so many uncertainties from the global macroeconomic perspective. We said that the balance between volume and price would shift as the year unfolded and that indeed has been the case. In addition, we said that the rate of increase in our advertising spending would improve each quarter and that has happened as well.

Our fourth quarter increase of 18% was a healthy one, particularly as we continued to benefit from reduced media costs in many parts of the world. Our tax rate in the quarter of 32.6% was somewhat higher than our previous guidance due to an increase in remittances from our overseas subsidiaries, but despite that our EPS increased 21%, well ahead of consensus.

In addition to a healthy income statement, our balance sheet is very strong as well. Our operating cash flow was excellent up 42%, which should enable us to fund increased dividends and stock repurchases. Both receivables and inventory days outstanding have declined, resulting in our working capital being at minus 0.4% of sales. The first time we''ve seen such a low working capital on a worldwide basis. And our return on capital also reached a record of 39.1%.

So as we look out into this year, there are signs that the macroeconomic situation is improving around the world. Happily, we''ve a robust pipeline of new products, which should help continue our volume and share growth momentum. And in the developing markets, such as Latin America and Asia our strategy of offering good value at every price point should help continue to fuel growth there.

Now, I would just like to spend a moment on Venezuela. As you know, the Venezuelan currency devalued early this year. Colgate people, who have extensive experience in managing in high inflation, economies minimized the impact and we have confidence in our ability to manage effectively going forward.

While difficult to estimate precisely, we currently anticipate the impact of the Venezuelan devaluation will be as a net reduction in 2010 earnings per share of 6 to $0.10. This includes a negative 16 to $0.24 from translation, a positive 5 to $0.08 from lower taxes on accrued but unpaid remittances and a positive 3 to $0.05 from the revaluation of the local balance sheet.

The company continues to believe our strong top and bottom line momentum should continue, which bodes well for another year of double digit earnings per share growth in 2010. And now before I turn to the division for a more in-depth look at our results, I also wanted to share with you another step in our management development process, which realigns responsibilities among several Senior Managers effective as of the first of February.