Colgate-Palmolive Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Dollar amounts are in millions, except per-share figures. Colgate operates Oral, Personal and Home Care and Hill’s Pet Nutrition businesses across more than 200 countries and territories.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $4,344 | $4,097 | Up 6.0%; volume +0.5%, pricing +4.5%, foreign exchange +1.0%. Organic sales grew 5.0%. |
| Gross profit / margin | $2,637 / 60.7% | $2,465 / 60.2% | Margin +50 basis points GAAP; excluding 2020 acquisition costs, +40 basis points. |
| SG&A | $1,605 | $1,473 | Up 9%; 36.9% of sales versus 36.0%, reflecting higher advertising and overhead, including logistics costs. |
| Operating profit / margin | $1,004 / 23.1% | $952 / 23.2% | Profit +5%; margin down 10 basis points GAAP, or 30 basis points excluding 2020 acquisition costs. |
| Net income attributable to Colgate | $681 | $715 | Down 5% reported; up 5% versus 2020 non-GAAP adjusted income of $648. |
| Diluted EPS | $0.80 | $0.83 | Down 4% reported; up 7% versus adjusted 2020 EPS of $0.75. |
| Cash from operations | $598 | $768 | Down 22%, primarily due to higher tax payments and working capital. |
| Capital expenditures | $107 | $82 | 2021 full-year capex expected at approximately 3.0%–3.5% of sales. |
Margins and business segments
- Higher pricing and funding-the-growth cost savings supported gross margin, but significantly higher raw and packaging material costs weighed on results. Management quantified these factors at +170 and +180 basis points, respectively, versus a 310-basis-point cost headwind.
- Oral, Personal and Home Care sales were $3,558, up 5.5%; organic sales increased 4.5%. Hill’s Pet Nutrition sales were $786, up 9.5%; organic sales increased 7.0%.
- Regional sales growth was strongest in Asia Pacific (+16.5%) and Africa/Eurasia (+8.5%); North America declined 0.5%. North America operating profit fell 22%, while Asia Pacific operating profit rose 39%.
- Hill’s operating profit rose 6% to $215, but its margin fell 80 basis points to 27.4%, reflecting material costs and increased advertising.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $995 at March 31, 2021, up from $888 at year-end; most cash was held by foreign subsidiaries. Operating cash flow was $598; investing activities used $142 and financing activities used $334.
- Total debt was $7,833, up from $7,601 at December 31, 2020. Long-term debt, including current maturities, was $7,579. Cash and current assets were $4,563 versus current liabilities of $4,539.
- Dividends paid were $376. The company increased the quarterly dividend to $0.45 per share from $0.44, effective Q2 2021. Treasury-share purchases were $372; the company repurchased approximately 4.7 million shares during the quarter.
- Management expects operating cash flow and debt issuance to cover foreseeable operating and recurring cash needs, including debt service, dividends, capital expenditures, repurchases and acquisitions. The company reported compliance with debt covenants.
Comparability, outlook and risks
- Q1 2020 included $71 of discrete tax benefits related to prior Tax Cuts and Jobs Act estimates, plus $6 of acquisition-related costs. These items explain why reported Q1 2021 net income and EPS declined even though management’s adjusted comparisons improved. The effective tax rate was 23.9% in Q1 2021 versus 16.4% reported in Q1 2020; the comparable non-GAAP rates were 23.9% and 24.4%.
- Management expects challenging and volatile conditions, particularly from COVID-19, and did not provide a specific sales, earnings or margin forecast. Demand for some hygiene categories softened from pandemic highs but remained above historical levels; category trends are difficult to predict. The filing describes possible supply-chain, factory, logistics and retailer disruptions.
- Other cited pressures include higher raw and packaging material costs, foreign-exchange volatility, intensified competition and promotions, retailer inventory and shelf-space decisions, and the rapid shift to eCommerce. Management’s strategy emphasizes innovation, brand investment, online growth and cost efficiency.
- Legal proceedings include Brazilian tax matters and talcum-powder product cases. The estimated aggregate range of reasonably possible losses in excess of accruals for matters where losses can be estimated was $0 to approximately $400; talc-related possible losses were not reasonably estimable. Management said it did not expect the ultimate resolution of disclosed contingencies to materially affect consolidated financial position or ongoing results, while noting an adverse outcome could materially affect a particular period.
- The Hill’s 2019 voluntary dog-food recall litigation remained outstanding; a U.S. settlement received preliminary court approval in February 2021 and was not material for the quarter. The company said recall-related sales loss and costs were not material and were not expected to be material in future periods.
Important facts for investors to verify
- Whether pricing and cost-saving initiatives can offset the reported raw-material, packaging and logistics cost pressures without further margin erosion.
- Whether organic growth persists as pandemic-related demand normalizes, and how volume and market-share trends develop; global toothpaste and manual-toothbrush shares were down 1.1 and 0.7 percentage points, respectively.
- Whether operating cash flow recovers from the Q1 decline while the company maintains dividends, repurchases and planned capital spending.
- How debt levels, foreign-currency exposure and the disclosed legal contingencies evolve, including the matters for which potential losses cannot currently be estimated.