Colgate-Palmolive Company — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2010. Unaudited results; amounts in millions of dollars except per-share data. Colgate operates globally in Oral, Personal and Home Care and Pet Nutrition, with sales in more than 200 countries and territories.
Financial performance
| Metric | Q2 2010 | Q2 2009 | First half 2010 | First half 2009 |
|---|---|---|---|---|
| Net sales | $3,814 | $3,745 | $7,643 | $7,248 |
| Gross profit | $2,242 | $2,201 | $4,510 | $4,214 |
| Operating profit | $948 | $887 | $1,626 | $1,698 |
| Net income attributable to Colgate | $603 | $562 | $960 | $1,070 |
| Diluted EPS | $1.17 | $1.07 | $1.86 | $2.04 |
| Net cash from operations | Not separately reported | Not separately reported | $1,302 | $1,211 |
- Q2 sales rose 2.0%, including 3.0% volume growth and 0.5% higher net selling prices, partly offset by a 1.5% adverse foreign-exchange impact. Organic sales grew 3.5%.
- First-half sales increased 5.5%, driven by 4.5% volume growth and a 1.0% favorable foreign-exchange impact; net selling prices were level.
- Gross margin was 58.8% in Q2, unchanged year over year, and 59.0% for the first half versus 58.1%. Q2 SG&A was 33.9% of sales versus 34.6%; first-half SG&A was 34.6% versus 34.2%, reflecting higher advertising.
- Q2 operating profit increased 7% and diluted EPS increased 9%. First-half GAAP operating profit and net income declined 4% and 10%, respectively, largely due to Venezuela-related charges. Excluding the $271 million Venezuela transition charge, management reported first-half operating profit up 12%, net income up 15% to $1,231, and diluted EPS up 17% to $2.38.
- First-half capital expenditures were $204. Operating cash flow exceeded capital spending by $1,098. Investing used $215; financing used $1,114, including $978 of treasury-share purchases and $520 of dividends paid. Cash declined $45 to $555.
Balance sheet and liquidity
- At June 30, cash was $555 and current assets were $3,811, against current liabilities of $2,955. Current debt and notes payable totaled $42; long-term debt was $3,331. Total debt in these balance-sheet categories was $3,373, compared with $3,182 at December 31, 2009.
- Total assets were $10,586 versus $11,134 at year-end; total shareholders’ equity was $2,804 versus $3,257.
- Commercial paper outstanding was $654 at June 30, 2010, versus $838 a year earlier. The company said it intends and is able to refinance commercial paper and certain current maturities long term, including through credit lines expiring in 2012, and reported compliance with borrowing requirements.
Material developments, outlook and risks
- Venezuela: Effective January 1, 2010, Venezuela was treated as hyperinflationary and the subsidiary’s functional currency changed to the U.S. dollar. This generated a one-time $271 charge in Q1, partly offset by a $46 pretax devaluation-related gain (reported as a $59 after-tax gain, including lower taxes on accrued remittances). Management estimated the devaluation would reduce 2010 diluted EPS by $0.10–$0.15, including that after-tax gain. It warned that currency restrictions and limited access to foreign currency could further hurt operations and repatriation of earnings.
- Management expected 2010 capital expenditures to be approximately 3.5% of net sales and estimated a full-year effective tax rate of 32.5% before discrete items. No broader sales or earnings guidance is stated in the supplied filing text.
- Hill’s Pet Nutrition Q2 sales fell 7.5% and operating profit fell 4%; management attributed sales and volume weakness partly to a product resizing and repricing rollout that took longer than anticipated.
- Management cited challenging global economic conditions and exposure to foreign exchange, political uncertainty, raw-material costs, pricing and retail-customer policies. Approximately 75% of sales were generated outside the United States.
- Contingencies include Brazilian tax assessments of approximately $113 and $67, pending European competition matters, and an ERISA benefits lawsuit. Management said it intended to contest these matters and did not expect them to materially affect financial position, ongoing results or cash flows, while acknowledging a particular quarter or year could be materially affected.
- The company authorized repurchases of up to 40 million shares in February 2010. It repurchased 5.68 million shares under publicly announced programs during Q2. The quarterly common dividend was increased 20% to $0.53 per share.
Important facts for investors to verify
- How Venezuela’s exchange restrictions, remittance rate and currency access affect reported sales, earnings and cash repatriation, and whether the stated 2010 EPS impact estimate changes.
- Underlying sales, margins and operating trends by region, especially Latin America and the weaker Hill’s Pet Nutrition business.
- Progress and financial exposure in the Brazilian tax disputes, European competition investigations and ERISA litigation; outcomes and potential amounts remain uncertain.
- Debt refinancing capacity, cash generation, and the pace of dividends and share repurchases relative to liquidity and capital needs.
- Whether higher advertising and input costs, pricing actions and cost-saving programs alter margins or management’s tax and capital-spending expectations.