Colgate-Palmolive Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unless noted, amounts are in millions of dollars. The company sells Oral, Personal and Home Care products and Hill’s Pet Nutrition in more than 200 countries and territories.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $5,065 | $4,770 | +6.2% |
| Organic sales growth (non-GAAP) | 9.8% | — | Volume +1.3%; pricing +8.5%; FX −3.6% |
| Gross profit / margin | $3,039 / 60.0% | $2,712 / 56.9% | Margin +310 bps |
| Operating profit / margin | $1,047 / 20.7% | $909 / 19.1% | Profit +15%; margin +160 bps |
| Net income attributable to Colgate | $683 | $372 | +84% |
| Diluted EPS | $0.83 | $0.45 | +84% |
| Operating cash flow | $681 | $735 | −7% |
| Capital expenditures | $126 | $163 | −23% |
Gross-margin improvement reflected pricing (+330 bps) and funding-the-growth savings (+250 bps), partly offset by higher raw and packaging material costs (−270 bps). Advertising expense rose 16% to $672, or 13.3% of sales versus 12.1%.
Excluding specified unusual items, operating profit increased 15% to $1,083, operating margin rose to 21.4% from 19.7%, net income attributable to Colgate increased 17% to $713, and diluted EPS rose 18% to $0.86. These are non-GAAP measures.
Segments and changes versus prior year
| Segment | Sales | Sales change | Operating profit |
|---|---|---|---|
| North America | $997 | +4.0% | $222 (+15%) |
| Latin America | $1,253 | +16.5% | $405 (+29%) |
| Europe | $711 | +9.5% | $144 (+24%) |
| Asia Pacific | $727 | −1.5% | $207 (+2%) |
| Africa/Eurasia | $276 | −4.5% | $66 (−3%) |
| Hill’s Pet Nutrition | $1,102 | +3.9% | $199 (+9%) |
Latin America’s reported sales growth included 19.7% pricing and 6.2% volume growth, offset by 9.4% unfavorable FX; organic growth was 25.9%. Hill’s sales growth was driven by pricing, while volume declined 3.9%. Asia Pacific and Africa/Eurasia reported lower sales primarily because of unfavorable currency effects, despite organic growth of 1.5% and 16.2%, respectively.
Reported earnings comparisons were significantly affected by the prior-year $267 ERISA litigation charge and $25 product-recall costs. Q1 2024 included $36 of pretax productivity-program charges, compared with $6 in Q1 2023. The company also reported $22 of non-service postretirement costs in Q1 2024 versus $294 in Q1 2023, which included the ERISA charge.
Cash, debt and liquidity
Cash and cash equivalents were $1,079 at March 31, 2024, up from $966 at year-end; $1,010 was held by foreign subsidiaries. Current assets were $5,640 and current liabilities were $5,314. Total debt was $8,689, up from $8,549 at year-end; long-term debt including current maturities was $8,171. The company redeemed $500 of notes at maturity, financed with commercial paper. Commercial paper outstanding was $1,599, compared with $906 at year-end.
Operating cash flow was lower primarily because receivables increased. Financing included $394 of dividends paid and $509 of treasury-share purchases. Management expects operating cash flow and debt issuance to meet foreseeable operating and recurring cash needs and says it expects broad access to credit and capital markets. 2024 capital expenditures are expected to be approximately 3.0% of sales. The quarterly dividend was increased to $0.50 per share, effective in Q2 2024.
Outlook, risks and notable items
- Management expects challenging and volatile conditions, including inflation, higher interest rates, FX volatility, and higher raw and packaging costs. Pricing actions may help offset costs but could weigh on demand, volumes, or mix; consumers may trade down or switch to private label.
- The company anticipates continued competitive pressure, changing retailer policies and channel shifts, including eCommerce growth. It says near-term category growth rates are difficult to predict; the filing provides no specific numerical sales or EPS guidance.
- The 2022 Global Productivity Initiative is expected to be substantially completed by mid-2024. Estimated cumulative pretax charges are $200–$240; annualized pretax savings are projected at $90–$110. Through March 31, cumulative charges were $178 and savings achieved were approximately $107 pretax.
- Legal matters include 285 pending U.S. talcum-powder cases. Management estimates reasonably possible losses in excess of accruals across disclosed matters at $0 to approximately $300, while cautioning outcomes could differ materially. In March 2024, a court ruled for plaintiffs on unresolved ERISA calculation issues; the company intends to appeal. Management says the ERISA matter requires no immediate company cash contribution based on the plan’s current funded status.
- The Ukraine war and Israel-Hamas war have not materially affected consolidated financial statements to date, but may affect supply chains, costs, currencies, and regional demand. Management also identifies geopolitical and FX risks, including in hyperinflationary economies.
- Management states disclosure controls were effective as of March 31, 2024; no material change in internal control over financial reporting was reported. The SAP S/4 HANA upgrade is not expected to materially affect those controls.
Important facts for investors to verify
- Assess how much reported and organic sales growth is supported by pricing versus underlying volume, particularly as pricing may affect demand.
- Track whether margin gains persist as material costs, advertising investment, and productivity savings evolve.
- Monitor receivables, operating cash conversion, commercial-paper borrowings, and the company’s ability to meet capital-return and debt obligations.
- Review developments in the ERISA appeal, talcum-powder litigation, Brazilian tax proceedings, and the disclosed reasonably possible loss range.
- Consider that non-GAAP results exclude specified charges and that market-share figures use third-party data with stated coverage and timing limitations.