Colgate-Palmolive Company — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results. Unless noted otherwise, amounts are in U.S. dollars; financial figures are in millions.
Business context
Colgate-Palmolive sells consumer products in more than 200 countries and territories through Oral, Personal and Home Care and Hill’s Pet Nutrition. About 80% of net sales came from outside the United States, and about 50% came from emerging markets. Oral Care represented 44% of sales, Personal Care 22%, Home Care 21% and Pet Nutrition 13%.
Key financial results
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Net sales | $17,085 | $16,734 | +2.0% |
| Gross profit / margin | $9,932 / 58.1% | $9,590 / 57.3% | Margin +80 bps |
| Operating profit / margin | $3,889 / 22.8% | $3,841 / 23.0% | Profit +1% |
| Net income attributable to Colgate | $2,472 | $2,431 | +2% |
| Diluted EPS | $5.15 | $4.94 | +4% |
| Cash from operations | $3,196 | $2,896 | +$300 |
| Capital expenditures | $565 | $537 | +$28 |
Organic sales, excluding foreign exchange, acquisitions and divestitures, grew 6.0%; volume rose 3.0% and pricing 3.0%, offset by a 4.0% negative currency impact. Excluding disclosed special items, operating profit increased 4% to $4,023, operating margin rose 40 basis points to 23.5%, and diluted EPS increased 7% to $5.36. These are company-reported non-GAAP measures.
Fourth quarter: Net sales were $4,286; net income attributable to Colgate was $598; diluted EPS was $1.26. Fourth-quarter results included $70 of after-tax restructuring charges and $3 of after-tax Mexico land-sale costs.
Segments and material changes
- Oral, Personal and Home Care: Sales grew 2.5% to $14,925; organic sales rose 6.5%. Greater Asia/Africa sales increased 7.0%, while Europe/South Pacific sales declined 2.5%, largely reflecting currency and pricing.
- Hill’s Pet Nutrition: Sales declined 0.5% to $2,160; organic sales grew 1.5%. Volume fell 2.5%, partly offset by 4.0% pricing.
- Reported growth was significantly reduced by foreign exchange. Sales growth reflected higher volume and pricing, while commodity costs and currency-related transaction costs pressured margins.
- Net income and EPS included restructuring, business realignment and Mexico land-sale costs. The 2011 comparison also included a $135 after-tax gain on the sale of the Colombian detergent business, alongside other charges.
Cash, debt and liquidity
- Cash and cash equivalents were $884 at year-end, versus $878 in 2011; current assets were $4,556 and current liabilities $3,736 (current ratio 1.2).
- Total debt was $5,230, up from $4,810; long-term debt, including current maturities, was $5,176. The company issued $1,000 of 10-year notes in 2012 at fixed rates of 1.95% and 2.3%, mainly to reduce commercial paper.
- Unused domestic and foreign credit lines totaled $2,547. Management said operating cash flow and debt issuance should cover foreseeable operating and recurring cash needs; the company was in compliance with debt covenants.
- Operating cash flow less capital expenditures was approximately $2,631, calculated from reported figures. Dividends paid were $1,277 and share repurchases cost $1,943.
Outlook, risks and contingencies
- Management expected global economic and market conditions to remain highly challenging, citing competition, currency fluctuations and high commodity costs. No broad quantified FY 2013 sales or EPS guidance is provided in the filing.
- The four-year 2012 Global Growth and Efficiency Program is expected to incur cumulative pretax charges of $1,100–$1,250 ($775–$875 after tax), with annual pretax savings of $365–$435 by year four. 2013 charges were estimated at $260–$310 pretax; expected 2013 savings were $40–$50 pretax. The program is expected to reduce the workforce by about 6% by the end of 2016.
- Capital spending was expected to rise to about 4.5% of sales in 2013, primarily due to the restructuring program.
- After year-end, Venezuela devalued its official exchange rate from 4.30 to 6.30 bolivars per U.S. dollar. The company preliminarily estimated a $120 after-tax loss ($0.25 per share) in Q1 2013 and an ongoing 2013 diluted-EPS reduction of $0.05–$0.07 per quarter. Venezuela represented about 5% of 2012 sales; the company expected less than 4% in 2013. Price and foreign-exchange controls, import restrictions, inflation and labor disruption remain risks.
- For disclosed legal matters, the company estimated reasonably possible losses above accrued amounts of $0–$225. Matters include Brazilian tax assessments of approximately $130 and $78, European competition investigations and fines under appeal, and an unresolved ERISA putative class action. Management did not expect these matters to materially affect consolidated financial position or ongoing results, but acknowledged that an adverse outcome could materially affect a particular period.
- Other principal risks include international and currency exposure, commodity and supply-chain volatility, retailer concentration and pricing pressure, competition, product liability and regulation, reputation, IT disruption, and execution of restructuring initiatives.
Investor facts to verify
- Whether organic growth, pricing and volume gains can offset foreign-exchange effects and input-cost pressure.
- Hill’s volume trends and performance in Europe, the United States and Japan.
- Actual restructuring charges, cash costs, savings and delivery timing versus stated estimates.
- The financial impact of Venezuela’s devaluation and any further changes to currency, import or price controls.
- Debt, repurchases and dividends relative to cash generation, and the outcome of material legal and tax matters.