Colgate Cautions, Stock Takes Hit – Analyst Blog

Colgate-Palmolive Company (CL), one of the leading consumer products companies, recently posted second-quarter 2010 results. The quarterly earnings of $1.17 per share beat the Zacks Consensus Estimate by a penny and rose 9.3% from $1.07 posted in the prior-year quarter on the heels of increase in volume and pricing, and a gain in market share.

However, the world's largest toothpaste maker cautioned that the weakening of the Venezuelan currency would hurt its fiscal 2010 earnings by 10 cents to 15 cents a share, up from 6 cents to 10 cents previously anticipated. Consequently, shares have fallen 6.5% in morning trading.

Global net sales grew 1.8% year-over-year to $3,814 million as unit volume increased 3%, and pricing rose 0.5%, countered by a negative foreign exchange impact of 1.5%. On an organic basis (excluding foreign exchange, acquisitions and divestitures), sales increased 3.5% in the quarter. Colgate's sales improved as consumers loosened their purse strings for branded goods.

However, the global net sales were weaker-than-expected and fell short of the Zacks Consensus Revenue Estimate of $3,949 million.

Gross profit climbed 1.9% to $2,242 million. However, gross profit margin of 58.8% remained flat compared to the prior-year quarter, reflecting cost-containment initiatives, offset by adverse foreign exchange translation.

Colgate-Palmolive notified that its share of the global toothpaste market has increased to 44.4% year-to-date, led by better performance across Brazil, China, India, Russia, Venezuela, France and the United Kingdom. Colgate’s market share in manual toothbrushes has increased to 31.6%.

Segment Discussion

North America sales (20% of the total sales) climbed 4.5% in the quarter, driven by a 5% unit volume growth and 1% favorable foreign exchange, partially offset by 1.5% on account of lower pricing. On an organic basis, sales rose by 3.5%. Operating profit jumped 14%.

Latin America sales (28% of the total sales) grew marginally by 0.5% as unit volume increased 1% driven by gains in Mexico, Colombia, Argentina, Dominican Republic and Central America, offset by a volume decline in Venezuela. Volume climbed 5%, excluding Venezuela. In addition, pricing contributed 7% to the top-line, countered by a negative foreign exchange impact of 7.5%. On an organic basis, sales soared 8%, whereas operating profit slipped 10% during the quarter.

Europe/South Pacific sales (20% of the total sales) dropped 2.5% as pricing was down 2.5% and foreign currency translation made a negative contribution of 1.5%. Unit volume rose 1.5% driven by GABA business, the United Kingdom and Italy Adria, partially offset volume declines across Belgium, Spain and Greece. On an organic basis, sales fell 1%, whereas operating profit climbed 4% in the quarter.

Greater Asia/Africa sales (19% of the total sales) climbed 14%, while unit volume surged 11.5%, led by volume gains in India, the Greater China region, Thailand, Russia and South Africa. Pricing dropped marginally by 1.5% but foreign currency translation made a positive contribution of 4%. On an organic basis, sales grew 10%, whereas operating profit rose 31%.

Hill’s sales (13% of the total sales) tumbled 7.5%. Unit volume fell 4%, due to volume declines across U.S., France, the United Kingdom, Japan and Russia, offset by gain in Canada, Mexico and South Africa. Pricing dropped 4%, but foreign currency translation made a positive contribution of 0.5% to the top-line. On an organic basis, sales slipped 8%, whereas operating profit dipped 4%.

Other Financial Details

Colgate-Palmolive ended the quarter with cash and cash equivalents of $555 million, total debt of $3,373 million and shareholders’ equity of $2,632 million. Year-to-date, net cash provided by operating activities rose 7.5% to $1,302 million, due to efficient working capital management.
 
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Zacks Investment Research
July 29, 2010 | Filed Under Analyst Opinions 

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