Colgate-Palmolive Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 18, 2021. The filing also presents unaudited fourth-quarter results. Unless noted, dollar amounts are in millions.
Business context
Colgate-Palmolive sells oral, personal and home care products and Hill’s specialty pet nutrition products in more than 200 countries and territories. Approximately 70% of 2020 net sales came from outside the United States. Product mix was Oral Care 44%, Personal Care 21%, Home Care 18% and Pet Nutrition 17%.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $16,471 | $15,693 |
| Organic sales growth | 7.0% | 4.0% |
| Gross profit / margin | $10,017 / 60.8% | $9,325 / 59.4% |
| Operating profit / margin | $3,885 / 23.6% | $3,554 / 22.6% |
| Net income attributable to Colgate-Palmolive | $2,695 | $2,367 |
| Diluted EPS | $3.14 | $2.75 |
| Net cash provided by operations | $3,719 | $3,133 |
| Capital expenditures | $410 | $335 |
Sales increased 5.0%: volume grew 5.5% and net selling prices rose 3.0%, partly offset by a 3.5% foreign-exchange headwind; acquisitions contributed 1.5% to volume. Excluding identified unusual items, operating profit rose 5%, operating margin expanded 10 basis points to 23.5%, net income rose 8% to $2,633 and diluted EPS rose 8% to $3.06. These adjusted figures are non-GAAP.
Fourth-quarter 2020 sales were $4,324, versus $4,015 in fourth-quarter 2019. Quarterly net income attributable to Colgate-Palmolive was $647 versus $643; diluted EPS was $0.75 in both quarters.
Segments and material changes
- Oral, Personal and Home Care: Sales of $13,588, up 3%; organic sales increased 6%. Growth was led by toothpaste, liquid hand soap, bar soap, hand dish and liquid cleaner categories.
- Hill’s Pet Nutrition: Sales of $2,883, up 14%; organic sales increased 14.5%, led by Science Diet and Prescription Diet. Operating profit rose 13% to $793.
- Pet Nutrition’s growth was strong, while reported sales in Latin America fell 5% and Asia Pacific fell 0.5%, mainly reflecting unfavorable currency effects. Latin America organic sales grew 9%.
- Global toothpaste share declined 0.7 percentage point to 39.8%; manual toothbrush share increased 0.2 point to 31.1%.
Cash, debt and liquidity
Cash and cash equivalents were $888 at year-end, compared with $883 a year earlier. Total debt was $7,601, down from $7,847; long-term debt, including its current portion, was $7,343. The company reported $4,657 of unused domestic and foreign credit lines. The current ratio was 1.0. Management said operating cash flow and debt issuances should cover foreseeable operating and recurring cash needs.
Financing activities used $2,919 of cash, including $1,654 of dividends and $1,476 of share repurchases. The annual dividend was $1.75 per share, up from $1.71. Repurchases were moderated during 2020, paused except for equity-plan needs in the second quarter, then resumed; management expected net repurchases to return to historical levels in 2021. The company redeemed $800 principal of notes before maturity and recorded a $23 loss on extinguishment.
Outlook, risks and unusual items
- Management expected heightened category volatility over the next six to twelve months, making near-term category growth difficult to predict; it expected longer-term category growth below historical levels. No specific 2021 sales or EPS guidance was provided.
- Management expected 2021 capital expenditures of approximately 3.0%–3.5% of net sales. It cited organic growth, innovation, eCommerce, margin expansion and efficiency as priorities.
- COVID-19 lifted demand for several hygiene and cleaning categories, but disrupted professional and travel-retail channels, supply chains and logistics. Some products were out of stock; management said demand and consumer behavior remained uncertain.
- Gross margin benefited from cost savings and pricing, partly offset by higher raw-material and packaging costs. Higher advertising investment and logistics costs raised SG&A as a percentage of sales.
- 2020 GAAP results included a $71 tax benefit from changes to subsidiary and operating structures, a $23 debt-extinguishment loss, and a $16 pretax restructuring accrual reduction. The 2019 comparison included restructuring charges and tax and Brazil VAT benefits.
- Filorga’s goodwill and indefinite-lived intangibles were not impaired, but valuation headroom was relatively narrow: a 50-basis-point reduction in long-term growth or 25-basis-point increase in discount rate would leave goodwill headroom below 5% and bring the brand assets close to carrying value.
- For disclosed matters with estimable exposure, reasonably possible losses above accruals ranged from $0 to approximately $425. Management said ultimate outcomes could differ and an adverse result could materially affect a particular period. Talcum-powder cases increased to 137; a separate ERISA class-action judgment was appealed. The Hill’s 2019 dog-food recall settlement was preliminarily approved in February 2021 and was described as not material.
- Other significant risks include foreign exchange, commodity and logistics costs, competition and retail concentration, cyber incidents, regulatory and tax matters, and sustainability-related exposure.
Investor verification priorities
- Reconcile reported GAAP growth with non-GAAP organic sales, profit and EPS, including the 2020 tax benefit and prior-year comparison items.
- Assess whether elevated hygiene demand persists and whether supply availability, eCommerce costs and professional-channel weakness improve.
- Track foreign-exchange effects, input-cost inflation, pricing, advertising and logistics costs against margin performance.
- Review Filorga’s sales and impairment assumptions given its limited valuation cushion.
- Monitor debt, commercial-paper reliance, cash generation, dividends and planned 2021 buybacks and capital expenditures.
- Follow developments in Brazilian tax disputes, talcum-powder litigation and the ERISA appeal, as well as the disclosed potential-loss range.