Colgate-Palmolive Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in millions of U.S. dollars, except per-share data. Comparisons are with Q1 2021 unless otherwise noted.
Business context and results
Colgate-Palmolive sells Oral, Personal and Home Care products and Hill’s Pet Nutrition in more than 200 countries and territories. About 70% of sales came from outside the U.S. and approximately 45% from emerging markets.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $4,399 | $4,344 |
| Gross profit / margin | $2,572 / 58.5% | $2,637 / 60.7% |
| Operating profit / margin | $860 / 19.5% | $1,004 / 23.1% |
| Net income attributable to Colgate-Palmolive | $559 | $681 |
| Diluted EPS | $0.66 | $0.80 |
| Cash from operations | $386 | $598 |
Sales rose 1.5%; price increases of 5.5% were partly offset by volume declines of 1.5% and unfavorable foreign exchange of 2.5%. Organic sales, a non-GAAP measure, grew 4.0%. Gross margin fell 220 basis points, chiefly from higher raw and packaging material costs (590 basis points), partly offset by pricing (200 basis points) and cost savings (170 basis points). SG&A was $1,641, or 37.3% of sales, versus $1,605, or 36.9%; higher logistics costs were a notable factor.
Q1 included $82 of pretax ($65 after-tax) charges for the 2022 Global Productivity Initiative. Excluding these charges, management reported operating profit of $923, down 8%; operating margin of 21.0%, down 210 basis points; net income attributable to the company of $624, down 8%; and diluted EPS of $0.74, down 8%. These are non-GAAP measures.
Segments and material changes
| Business | Sales, Q1 2022 | Sales change | Operating profit change |
|---|---|---|---|
| Oral, Personal and Home Care | $3,527 | (1.0%) | $828, down from $932 |
| Hill’s Pet Nutrition | $872 | +11.0% | $204, down from $215 |
Pet Nutrition organic sales grew 13.0%, supported by pricing and volume. Oral, Personal and Home Care organic sales grew 2.0%, despite reported sales declines from foreign exchange and lower volume. Higher input and logistics costs pressured operating profit across regions and segments. Europe sales declined 9.0% as reported, including a 6.0% foreign-exchange headwind and a 5.0% volume decline; organic sales declined 3.0%.
Cash, debt and liquidity
Operating cash flow fell 35% to $386, primarily reflecting lower earnings and working-capital use: inventory increased and receivables rose. Capital expenditures were $122, versus $107. Cash and cash equivalents were $877 at quarter-end, compared with $832 at December 31, 2021; $854 was held by foreign subsidiaries.
Total debt was $7,607, up from $7,245 at year-end, including long-term debt and current portion of $7,600. Current assets were $4,989 and current liabilities $4,566. The company said operating cash flow and debt issuance should meet foreseeable operating and recurring cash needs and noted access to credit markets; it was in compliance with borrowing covenants. Its $3 billion revolving credit facility expires in August 2026.
Financing activity included $378 of dividends paid and $410 of treasury-share purchases. The board authorized a new share repurchase program of up to $5 billion in March 2022, replacing the prior program. The quarterly dividend was increased to $0.47 per share effective in Q2 2022.
Outlook, risks and unusual items
- Management expected raw and packaging material and logistics cost pressures to continue throughout 2022. It cited pricing, productivity and cost initiatives as mitigations, while warning that persistent conditions could adversely affect results. The filing gives no specific consolidated sales or EPS guidance.
- The 2022 Global Productivity Initiative is expected to be substantially completed by mid-2023. Estimated cumulative pretax charges are $200–$240 ($170–$200 after tax), with approximately 80%–90% expected to be cash expenditures. Projected annualized pretax savings are $90–$110 ($70–$85 after tax), once projects are approved and implemented.
- COVID-19 continued to create demand, operational and supply-chain uncertainty; management expected effects on consumer behavior and shopping patterns to continue in 2022. The company reported no significant Q1 liquidity impact from COVID-19.
- The war in Ukraine significantly affected the company’s Ukraine business, but had not materially affected consolidated results to date. Russia sales were restricted to essential health and hygiene products, and investment and promotional activity there were halted. Eurasia represented about 2% of consolidated business. Management cited possible further effects from commodity and logistics costs, supply chains, sanctions and foreign-exchange volatility.
- Legal matters include Brazilian tax and civil proceedings, talcum-powder product litigation, an ERISA class action and a Greek competition matter. The company estimated reasonably possible losses in excess of accrued liabilities at an aggregate $0–approximately $475 where estimable. Management did not expect the matters discussed to materially affect consolidated financial position or ongoing results or cash flows, but acknowledged an adverse outcome could materially affect a particular quarter or year. There were 186 pending U.S. talcum-powder cases at March 31, versus 171 at year-end.
- Effective April 1, 2022, Türkiye was designated hyper-inflationary and its subsidiary’s functional currency changed to the U.S. dollar; the company did not expect a material financial-statement impact. On April 28, 2022, it acquired manufacturing assets of Italian canned pet-food producer Nutriamo.
Most important facts for investors to verify
- Whether pricing and productivity savings can offset sustained input, packaging and freight inflation without further weakening volume or margins.
- Whether working-capital use, particularly higher inventories and receivables, eases and operating cash flow recovers.
- Progress, cash costs, timing and realized savings from the productivity initiative versus its stated estimates.
- Pet Nutrition growth and the performance of Oral, Personal and Home Care, including market-share trends and foreign-exchange effects.
- Developments in Ukraine, Russia, COVID-19-related supply constraints and foreign-currency exposure.
- Changes in the estimated exposure or outcomes of the disclosed legal proceedings, especially the aggregate reasonably possible loss range.