Colgate-Palmolive Company — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2023. Unless stated otherwise, 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 | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $4,915 | $4,455 | $14,507 | $13,338 |
| Gross profit | $2,877 | $2,548 | $8,376 | $7,674 |
| Operating profit | $1,029 | $947 | $2,912 | $2,691 |
| Net income attributable to Colgate | $708 | $618 | $1,582 | $1,780 |
| Diluted EPS | $0.86 | $0.74 | $1.90 | $2.12 |
- Q3 sales rose 10.5%; organic sales rose 9.0%, reflecting pricing of 9.5%, volume growth of 0.5% and positive foreign exchange of 0.5%. Acquisitions contributed 1.0% to reported volume.
- Q3 gross margin was 58.5%, up 130 basis points; adjusted for productivity-program charges, it was 58.6%, up 140 basis points. GAAP operating margin was 20.9%, down 40 basis points; adjusted margin was 21.0%, up 30 basis points.
- For the first nine months, organic sales grew 9.0%, while reported volume declined 0.5% and foreign exchange reduced growth by 1.5%. GAAP gross margin was 57.7% versus 57.5%; GAAP operating margin was 20.1% versus 20.2%.
- Nine-month GAAP net income and diluted EPS fell year over year, while adjusted net income increased 6% to $1,962 and adjusted diluted EPS increased 7% to $2.36. Adjusted figures are non-GAAP measures and exclude specified unusual items.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $2,609, up from $1,883, primarily due to improved working capital. Capital expenditures were $508 versus $475; management expects 2023 capital expenditures to be approximately 4% of net sales.
- Cash and cash equivalents were $951 at September 30, 2023, compared with $775 at year-end 2022. Cash flow from investing was an outflow of $599 and financing was an outflow of $1,801. Dividends paid were $1,243 and treasury-share purchases were $883.
- Total debt was $8,724, down from $8,766 at year-end; long-term debt, including current portion, was $8,706. The company issued $1.5 billion of notes in March 2023 with fixed coupons of 4.6%–4.8%. It reported $1.17 billion of commercial paper outstanding and a $3 billion revolving credit facility expiring in November 2027.
- Current assets were $5,357 and current liabilities $4,602. Total equity was $406; Colgate-Palmolive Company shareholders’ equity was negative $9, with noncontrolling interests of $415. Management says operating cash flow and debt issuance should cover foreseeable operating and recurring cash needs and reports compliance with debt covenants.
Material changes and unusual items
- Q3 growth was led by pricing and Pet Nutrition. Hill’s Q3 sales increased 21.5% to $1,058, but operating profit was unchanged at $201 and segment margin declined 410 basis points to 19.0%, mainly reflecting input costs and unfavorable private-label mix.
- Q3 Oral, Personal and Home Care sales rose 7.5% to $3,857. By region, reported sales increased in North America, Latin America and Europe, but declined in Asia Pacific and Africa/Eurasia. Asia Pacific organic sales declined 1.5%.
- Nine-month results include a $267 ERISA litigation charge and a net $126 tax benefit from a prior-year foreign tax matter. The ERISA charge followed an appeals-court decision on retirement benefits; the Supreme Court denied the company’s appeal petition in October 2023. The matter is expected to require no immediate company cash contribution.
- A voluntary Fabuloso cleaner recall reduced nine-month operating profit by $25; the company does not expect a material future-period impact. Productivity-program charges were $29 in the first nine months. Cumulative charges were $139, with completion expected by mid-2024; projected annualized pretax savings are $90–$110 after all projects are approved and implemented.
Outlook, risks and contingencies
- No specific near-term sales or EPS guidance is provided. Management expects challenging macroeconomic, political and market conditions, including inflation and higher interest rates, and says category growth is difficult to predict.
- Higher raw and packaging costs, pricing-related pressure on demand, potential consumer trade-down, foreign-exchange volatility, competition and retailer practices may affect volume, mix and margins. The company is also monitoring the wars in Ukraine and Israel-Hamas, COVID-19-related uncertainty, and supply-chain and logistics conditions.
- For disclosed matters where losses can be estimated, reasonably possible losses in excess of accrued liabilities are estimated at $0–$250 in aggregate. Brazilian matters include assessments of approximately $128 and $56; management disputes them. The company reports 271 pending U.S. talcum-powder cases at September 30, 2023 and says it intends to defend them vigorously. It estimates approximately $145 of tax plus interest for a U.S. tax dispute covering 2010–2018, not included in uncertain tax positions.
- Management states that it does not currently expect resolution of disclosed contingencies to materially affect consolidated financial position or ongoing results, while cautioning that an adverse outcome could materially affect a particular quarter or year. Disclosure controls were deemed effective; no material change in internal controls was reported.
Important facts for investors to verify
- Whether pricing can continue to offset input-cost inflation without materially weakening consumer demand or shifting sales toward lower-margin products.
- Whether Hill’s Pet Nutrition can recover segment margin as costs and mix pressures evolve, and whether regional volume trends improve.
- The persistence of operating cash flow and the effect of dividends, repurchases, capital spending and debt costs on liquidity.
- Developments in the ERISA judgment, Brazilian tax cases, talc litigation and the U.S. tax dispute, including any changes to accruals or estimated exposures.
- Progress, remaining costs and realized savings from the productivity initiative; compare reported results with management’s non-GAAP adjustments as well as GAAP results.