January 29, 2016
Colgate-Palmolive Co.
(CL-NYSE)
$67.53
Note: More details to come; changes are highlighted. Except where highlighted no other sections of this report have
been updated.
Reason for Repot: Flash Update: 4Q15 Earnings Release.
Prev. Ed.: Dec 3, 2015; 3Q15 Earnings Update
Flash Update [Note: earnings update in progress; final report to follow]
On Jan 29, 2016, Colgate posted better-than-expected fourth-quarter 2015 earnings, while the top line
lagged expectations for the eleventh straight quarter. Colgate continued to battle macroeconomic
headwinds in various countries and lingering currency woes during the quarter.
Quarterly adjusted earnings of $0.73 a share beat the Zacks Consensus Estimate by $0.01, but
dropped 4% year over year. On a currency-neutral basis, adjusted earnings rose by double digits.
Including one-time items, the company posted a loss of $0.51 per share, as against earnings of $0.68
recorded in the year-ago quarter.
Deeper Insight
Total sales of $3,899 million decreased 7.5% from the year-ago figure of $4,221 million, falling short of
the Zacks Consensus Estimate of $3,950 million.
The company stated that excluding divested business-related operations, the benefits of 1% growth in
unit volume and a 4% rise in prices were more than offset by a negative impact of 11.5% from currency
fluctuations. Global unit volumes remained flat year over year.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded
sales growth of 5.0%, mainly driven by a 6.5% sales improvement in emerging markets.
Adjusted gross profit margin was 59%, up 20 basis points (bps), backed by benefits from cost-saving
initiatives under the company’s funding-the-growth and 2012 Restructuring Program, along with better
pricing, partly offset by increased packaging and material expenses stemming from higher currency
translation costs.
In the reported quarter, adjusted operating profit of $1,015 million declined 6% from the year-ago
quarter figure. However, the adjusted operating margin improved 40 bps to 26%, benefiting from lower
selling, general & administrative (“SG&A”) expenses as a percentage of revenues as well as enhanced
gross margin.
© Copyright 2016, Zacks Investment Research. All Rights Reserved.
On a year-to-date basis, Colgate’s market share of manual toothbrushes reached 34.7%, up 1.0 share
point. Further, the company’s share in the global toothpaste market inched up 0.5 share points to
44.7%.
Segment Discussion for Q4
North America sales (20% of total sales) rose 1% in the reported quarter, driven by a 2.0%
improvement in unit volume and 0.5% growth in higher pricing, offset by negative foreign exchange
impact of 1.5%. On an organic basis, sales grew 2.5%.
Latin America sales (27% of total sales) slumped 12% year over year, as the benefits of a 13%
increase in pricing were more than offset by a negative impact of 21% from foreign exchange and a 4%
decline in unit volumes. Volume gains in Mexico were more than offset by declines in Venezuela and
Brazil. On an organic basis, sales rose 9%.
Europe/South Pacific sales (18% of total sales) plunged 14.5% year over year due to a negative
impact of 2.5% from lower pricing, 11.5% from foreign currency translation and a 0.5% dip in unit
volumes. Volume gains were primarily backed by strength noted in the French, Australian and German
regions. Europe/South Pacific organic sales inched up 1.5%.
Asia sales (15% of total sales) dropped 5%, attributable to a 0.5% downside in pricing and a negative
impact of 7% from foreign exchange, partly offset by a 2.5% jump in volumes. Volume growth was
primarily attributed to gains in Thailand and Greater China regions. On an organic basis, sales rose 2%.
Africa/Eurasia sales (6% of total sales) fell 16.5% year over year due to a negative impact of 23% from
foreign currency exchange and a 1.5% decline in volumes, partly offset by an 8% increase in prices.
Weak volumes in the Central Caucasus and Russian regions were somewhat compensated by gains in
the Sub-Saharan Africa and South Africa regions. Organic sales for Africa/Eurasia advanced 6.5%.
Hill’s Pet Nutrition sales (14% of total sales) remained flat year over year. Pricing had a 2.0% positive
impact on sales growth, while foreign exchange negatively impacted sales by 6%. Unit volume
improved 4%, backed by volume gains in the U.S. and Western Europe. On an organic basis, sales
rose 6.0% year over year.
2015 Performance: A Glimpse
Colgate’s full-year 2015 earnings came in at $2.81 per share, down 4% year over year and in line with
the Zacks Consensus Estimate. Net sales for 2015 declined nearly 7% to $16,034 million, also falling
short of the Zacks Consensus Estimate of $16,072 million.
Other Financial Details
Colgate ended the quarter with cash and cash equivalents of $970 million, total debt of $6,571 million,
and shareholders’ equity (excluding non controlling interests) of ($299) million.
Net cash provided by operating activities came in at $2,949 million for full-year 2015.
Other Developments
Colgate removed assets and liabilities associated with its Venezuelan operations from its balance
sheet, effective Dec 31, 2015, after which, it shifted to the cost method of accounting for its Venezuelan
business.
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Outlook
Colgate anticipates macroeconomic and currency headwinds to linger in 2016. However, even in the
face of these challenges, management expects another year of robust organic sales growth on the
back of new products across categories and geographies.
Consequently, on excluding Venezuelan operations from its 2015 and 2016 results, Colgate envisions
2016 earnings per share to witness double-digit growth (on a currency neutral basis). As of the existing
spot rates, management expects gross margin to expand in 2016.
The aforementioned guidance excludes all charges associated with the 2012 Restructuring Program.
MORE DETAILS WILL COME IN THE IMMIMENT EDITIONS OF ZACKS RD REPORTS ON CL.
Portfolio Manager Executive Summary [Note: only highlighted material has been
changed]
Colgate-Palmolive Company (CL) is a global consumer products company, which, together with its
subsidiaries, engages in the manufacturing and marketing of consumer products worldwide.
Of the 17 firms covering the stock, 2 assigned positive ratings, while 15 provided neutral ratings. None
of the firms had a negative stance on the stock.
Neutral or equivalent outlook (15/17 firms or 88.20%) – These firms believe that Colgate-Palmolive’s
leadership position in several household and personal care categories gives it a strong footing to
expand in the fast-growing developed markets from where it derives majority of its top-line growth.
Further, the company’s well-known brands facilitate better relationships and occupancy with retailers.
However, the neutral firms remain primarily concerned about the intense competitive environment in
several developing markets – China, Russia, India, Brazil, and Mexico – with major competitors like
Procter & Gamble, Unilever and GlaxoSmithKline stepping up in product introductions and investment
spending.
On the one hand, Colgate’s healthy financials and innovations, especially in the North American
business, keep the company well placed for 2015. Also, the company stands to gain from its solid
market presence globally and strong sales from developing markets, particularly Latin America, where
favorable consumer reaction to Colgate’s oral care benefits bodes well. However, the neutral firms
remain skeptical on the stock owing to the currency headwinds and volatility in the macroeconomic
environment, which may negatively impact the company’s financials. These firms expect the ongoing
adverse currency movements to weigh on Colgate’s 2015 and 2016 earnings per share, and therefore
prefer to remain on the sidelines.
Positive or equivalent outlook (2/17 firms or 11.80%) – The firms remain bullish, given ColgatePalmolive’s organic sales growth, combination of top-line growth opportunities, cost-saving initiatives
and reinvestment programs, which continue to drive strong growth. Moreover, they believe that Colgate
has consistently demonstrated strong business fundamentals and the company's exceptional level of
internal discipline represents a point of differentiation, when compared with its peers.
Looking ahead, the firms believe that the new product pipeline will enhance the company’s growth rate.
It has a dominant market share in which it operates. Its daily-use products are sold at a relatively low
price/unit and the company faces insignificant threat from private labels or even value brand players in
most of its categories. Colgate-Palmolive offers a better investment profile, relative to its peers, even
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though the stock might get too expensive at a certain level, given the company’s greater exposure to
the emerging markets, lower reliance on oil-based commodities and margin benefits from its savings
programs, apart from the above-mentioned reasons.
The firms believe that Colgate-Palmolive’s scale, its well-established and often dominant brands as well
as widespread distribution infrastructure, should enable it to hold or gain shares in the developed
markets. Moreover, its intensified marketing and category growth should enable it to flourish in the
developing markets, even if it loses some share. Further, the company has ample cash flow and
consistently delivers a sound financial performance, which should help fund its dividends and share
buybacks.
Additionally, the firms are encouraged by the fact that Colgate generates nearly half of its sales from
developing markets and also delivers solid margins in these regions. Firms expect these trends to
continue, given the company’s robust market share in these regions (particularly in the Latin American
region), along with its impressive pricing power.
Key Strengths





Colgate-Palmolive is the world leader in oral care products, given its strong position in the oral
care segment, both domestically and internationally. The company is also a major supplier of
personal care products worldwide.
The company has one of the strongest track records in the household product sector for posting
consistent revenue and earnings growth.
Management's continued focus on the consumer products business, the recognition of the global
presence of Colgate-Palmolive’s brands, its broad international presence in both developed and
emerging markets, and its strong capital base position the company well to take advantage of
growth opportunities and increase profitability.
The company’s growth strategy is dependent upon product innovation. Colgate-Palmolive
increases its market share through new product launches and brand building.
Management is committed to enhance shareholder value through dividend payouts and share
repurchase programs.
December 3, 2015
Overview [Note: only highlighted material has been changed]
NY City-based Colgate-Palmolive Co. is a global consumer products manufacturer with a distribution
network spanning across more than 200 countries. The company is the world leader in oral care
products and one of the chief manufacturers of personal care products. The company follows a closely
defined business strategy to increase its leadership positions in key product categories. The product
categories are further prioritized based on their capacity to utilize the company’s core competencies
and strong global equities at optimal levels in order to deliver sustainable long-term growth. ColgatePalmolive operates through two business segments: (1) Oral, Personal and Home Care; and (2) Pet
Nutrition.
 Oral, Personal and Home Care: The company’s portfolio of oral care products includes toothpaste
(Colgate, Total), toothbrushes (Actibrush, Navigator), and other offerings, such as dental floss and
tooth whiteners (Simply White). Personal care items include deodorants (Speed Stick, Mennen),
shampoos (Thermal Spa gel, Naturals), soaps (Irish Spring, SoftSoap), and other commodities,
such as Colgate shaving cream. Moreover, in 2011, the company added the Sanex brand to its
portfolio. The brand has a distinct positioning around healthy skin with a strong market share in
Western Europe. Household products include dishwashing detergents (Palmolive), cleaners (Ajax,
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Fabuloso), and fabric care products (Ajax, Fab). The company also provides regional performance
of this segment under North America, Latin America, Europe/South Pacific, Asia and Africa/Eurasia
regions.
 Pet Nutrition: The pet nutrition segment consists of pet food products for dogs and cats
manufactured by Colgate-Palmolive’s subsidiary, Hill’s Pet Nutrition (Hill’s Science Diet and Hill’s
Prescription Diet). The pet products are sold to veterinarians and specialty pet retailers in over 95
countries.
More information on Colgate-Palmolive Co. is available at
http://www.colgate.com. Colgate-Palmolive’s fiscal year ends on Dec 31.
the
company’s
website:
The firms identified the following issues as critical to an evaluation of the investment merits of ColgatePalmolive:
Key Positive Arguments
Disciplined
Acquisition
Strategy:
Colgate’s
management has a strong history of making
intelligent strategic acquisitions at sensible prices.
Management will continue to make conservative and
selective acquisitions to expand the company’s
strategic offerings and distribution channels without
overpaying.
Long-Term Per Capita Consumption Opportunity:
Colgate’s dominant market share, within many of the
fastest growing emerging markets, represents a
significant opportunity for long-term volume growth as
per capita consumption of toothpaste catches up with
that of the more developed world.
Key Negative Arguments
Intense Competition: Colgate-Palmolive is facing
intense competition from its business rivals, and in
order to compete, it is incurring heavy promotional and
marketing expenditures.
Slowing Developing Markets: There are a few signs
of slowdown in the Latin American markets, and further
deterioration in currency in these markets is likely to
negatively impact earnings.
Foreign Exchange Transaction: Deterioration in the
currency environment would negatively impact the
company’s earnings.
Restructuring Program: The restructuring program
initiated by Colgate is expected to allow the company
to return to double-digit earnings growth. The
program focuses on reducing costs.
December 3, 2015
Long-Term Growth [Note: only highlighted material has been changed]
The firms, in general, are impressed by Colgate-Palmolive’s historical record of consistent margin
improvement, brand management as well as top- and bottom-line growth and hence, convinced about
the company’s future. This projection is based on a strong new product pipeline, healthy unit volume
growth and continuing expansion in gross margin.
Further, the company has embarked upon a four-year Global Growth and Efficiency Program (the 2012
Restructuring Program) to ensure a sustained long-term business performance through improving
growth trends in unit volume, organic sales and earnings per share. This program should help the
company to strengthen its global footprint, especially in its core business.
The major objectives of the program include strengthening global presence through the continued
evolution and expansion of proven international and regional commercial capabilities, simplifying and
standardizing of processes with the use of enhanced technology through collaboration and taking
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advantage of global data and analytic capabilities, lowering structural costs to boost gross and
operating profits and improving its leading market share positions worldwide to guarantee sustained
sales and earnings growth.
Further, the company’s restructuring initiatives under the program will remain focused on expanding
commercial hubs, extending shared business services and optimizing global supply chain and facilities.
The company has recently met with success regarding the first two initiatives in certain geographies,
such as Latin America and Europe.
Apart from making smooth progress in its 2012 Restructuring Program, the company is also stringently
focused on its aggressive worldwide funding-the-growth programs as well as its strategic pricing
initiatives. Furthermore, the firms believe that there are niches and larger opportunities for Colgate in
the oral care, pet nutrition and personal care sections.
The firms also observe that Colgate has a solid long-term growth record. The company’s secure
financial controls and history of new product innovations, coupled with efforts to enhance shareholder
value through share repurchases and dividend increases, support a positive long-term stance. Hence,
firms expect Colgate to drive long-term growth, given its solid brand portfolio, leading global market
position and healthy financial status.
December 3, 2015
Target Price/Valuation [Note: only highlighted material has been changed]
Rating Distribution
Positive
11.80%
Neutral
88.20%
Negative
0.0%
Avg. Target Price
$71.00
Highest Target Price
$75.00
Lowest Target Price
$66.00
No. of Analysts with Target Price/Total No.
10/17
Risks to the target price primarily include unsuccessful new product launches, sensitivity to global
macro and foreign exchange volatility, slowdown in Latin America and developing markets, failure to
achieve targeted cost reductions, higher-than-expected advertising and promotion expenditures,
unexpected competitive pricing pressures, unexpected increases in cost of raw materials and a slowerthan-expected recovery at the Hill's business.
Recent Events [Note: only highlighted material has been changed]
On Oct 30, 2015, Colgate-Palmolive posted 3Q15 adjusted earnings of $0.72 per share that came in
line with the Zacks Consensus Estimate, but dropped 5% year over year (y/y). Total sales of $3,999
million decreased 8.7% from the year-ago figure of $4,379 million. Moreover, quarterly revenues
missed the Zacks Consensus Estimate of $4,087 million.
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Revenue [Note: only highlighted material has been changed]
Provided below is a summary of total revenue as compiled by Zacks Digest:
Revenue($M)
3Q14A
2Q15E
3Q15A
4Q15E
2014A
2015E
2016E
2017E
Digest High
$4,379.0
$4,066.0
$3,999.0
$4,074.0
$17,277.0
$16,209.0
$16,821.0
$17,313.6
Digest Low
$4,379.0
$4,066.0
$3,999.0
$3,896.0
$17,277.0
$16,031.0
$15,853.0
$16,266.0
Digest Average
$4,379.0
$4,066.0
$3,999.0
$3,965.3
$17,277.0
$16,100.3
$16,327.5
$16,931.7
Y-o-Y Growth
-0.4%
-6.6%
-8.7%
-6.1%
-0.8%
-6.8%
1.4%
3.7%
Q-o-Q Growth
0.6%
-0.1%
-1.6%
-0.8%
The Zacks Digest average revenue in 3Q15 declined 8.7% y/y and 1.6% sequentially to $3,999.0
million, as the benefits of 1% growth in volume and a 3.5% rise in prices were more than offset by a
negative impact of 13% from currency fluctuations. Volumes also bore a 0.5% impact from divestments.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded
sales growth of 5.0%, mainly driven by 8% revenue growth in emerging markets.
During the quarter, Colgate’s market share of manual toothbrushes reached 34.5%, up 0.7 share
points. Further, the company’s share in the global toothpaste market inched up 0.7 share points to
44.7%.
Geographic Breakdown of Sales
North America (20% of Total Sales)
North America sales (20% of total sales) rose 0.5% in the reported quarter, driven by a 2.5%
improvement in unit volume, partly offset by 0.5% lower pricing and negative foreign exchange impact
of 1.5%. On an organic basis, sales grew 2.0%.
On the domestic front, the company continued to gain from new product launches that helped drive
volumes across all categories. In the toothpaste category, strong sales of Colgate Enamel Health,
Colgate Optic White Platinum Express White, Colgate Total Daily Repair and Tom’s of Maine
toothpastes contributed to volume growth in the quarter.
The company expanded market share for its toothpaste, manual toothbrushes, mouthwash, liquid hand
soap, body wash and fabric conditioners. Colgate’s strength in manual toothbrushes improved to 41.4%
in the quarter, driven by the success of Colgate 360° Enamel Health and Colgate 360° Optic White
Platinum manual toothbrushes.
Apart from oral care, other products that determined Colgate’s success in the U.S. are Colgate Enamel
Health and Colgate Kids mouthwashes, Softsoap Fragrant Foaming Collection of liquid hand soaps,
Softsoap Fresh & Glow body washes, Irish Spring Signature For Men body wash, Palmolive Soft Touch
Almond Milk and Blueberry dish liquid and Suavitel fabric conditioner.
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Provided below is a summary of revenue segment as compiled by Zacks Digest:
Revenue($M)
3Q14A
2Q15E
3Q15A
4Q15E
2014A
2015E
2016E
2017E
North America
$789.0
$780.0
$791.0
$794.3
$3,124.0
$3,154.3
$3,234.0
$3,330.0 
Latin America
$1,194.0
$1,126.0
$1,064.0
$1,068.8
$4,769.0
$4,345.8 
$4,337.6 
$4,601.4 
Europe
$886.0
$731.0
$728.0
$681.4
$3,406.0
$2,881.4 
$2,849.5 
$2,907.0 
Asia/Africa
$310.0
$254.0
$246.0
$247.3
$1,208.0
$1,001.3 
$1,008.1 
$1,049.9 
Hill's
Total Revenue
$566.0
$552.0
$546.0
$570.2
$2,255.0
$2,206.2 
$2,256.0 
$2,332.9 
$4,379.0
$4,066.0
$3,999.0
$3,965.3
$17,277.0
$16,100.3
$16,327.5
$16,931.7
The graphical representation of the revenue segments is shown below:
Segment Revenue 2015E
Segment Revenue 2014A
15%
21%
Latin America
8%
16%
North America
23%
North America
Latin America
7%
Europe
Europe
Asia/Africa
Asia/Africa
21%
23%
33%
Hill's
33%
Segment Revenue 2016E
Segment Revenue 2016E
16%
24%
Hill's
16%
North America
24%
North America
Latin America
Latin America
7%
7%
Europe
Europe
Asia/Africa
Asia/Africa
20%
21%
32%
Hill's
Hill's
33%
Latin America (27% of Total Sales)
Latin America sales declined 11% y/y, as the benefits of a 12% increase in pricing were more than
offset by a negative impact of 22% from foreign exchange and a 1% decline in unit volumes. Volume
gains in Mexico, Argentina and Columbia were more than offset by declines in Venezuela and Brazil.
On an organic basis, sales increased 11%.
Colgate’s market share gains in Latin America continued to improve, driven by its strong leadership
position in the toothpaste category. Toothpaste market share gains were led by Mexico, Brazil,
Venezuela, Argentina, Chile, El Salvador, Honduras and Nicaragua. Solid sales performances of
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Colgate Total 12, Colgate Luminous White Instant, Colgate Total Professional Breath Health, Colgate
Sensitive Pro-Relief Enamel Repair and Colgate Maximum Cavity Protection plus Neutrazucar
toothpastes primarily drove volume growth across the region. The manual toothbrush market in Latin
America expanded due to improved sales of Colgate 360° Surround Whitening, Colgate 360°
Interdental, Colgate Slim Soft and Colgate Triple Action manual toothbrushes.
Other categories that contributed to volume growth in the region include Colgate Plax Ice Infinity
mouthwash, Protex Complete 12, Protex Omega 3, Palmolive Men and Palmolive Naturals Berries and
Coconut Water bar soaps, Lady Speed Stick Powder Fresh and Speed Stick Xtreme Tech deodorants,
Suavitel Complete and Suavitel Aroma Intense fabric conditioners, Axion Complete dish liquid and
Fabuloso Pure & Clean liquid cleaner.
Europe/South Pacific (18% of Total Sales)
Europe/South Pacific sales plunged 18% y/y due to a negative impact of 2% from lower pricing, 15%
from foreign currency translation and a 1% dip in unit volumes. Volume gains in the French, Australian
and Polish regions failed to compensate for declines in the German and Austrian regions.
Europe/South Pacific organic sales slipped 1%.
Colgate’s oral care leadership in the region gained momentum, with market share gains in toothpastes,
led by France, Italy, Spain, the Netherlands, Belgium, Hungary, Poland, Czech Republic and Slovenia.
Premium products driving toothpaste share gains include Colgate Max White Expert White, elmex
Sensitive Professional, Colgate Total Daily Repair, Colgate Sensitive with Sensifoam and Colgate
Sensitive Pro-Relief Repair & Prevent toothpastes. Improvement in the manual toothbrush category
was backed by region-wide growth of Colgate Cavity Protection and Colgate Slim Soft Charcoal manual
toothbrushes.
Innovation in the other product categories that helped boost volume growth include the Sanex
Advanced line of shower gels, deodorants, hand creams and body lotions, Palmolive Aroma Sensations
and Palmolive Gourmet shower gels, Ajax All Usage Gel liquid and wipe cleaners, Ajax Anti Fog glass
spray cleaner and Soupline Fruity Sensations fabric conditioner.
Asia (15% of Total Sales)
Asia sales dropped 1.5%, attributable to a 1% downside in pricing and a negative impact of 6% from
foreign exchange, partly offset by a 5.5% jump in volumes. Volume growth, which also received 4%
contribution from acquisitions, was primarily attributed to gains in India, the Philippines and Greater
China regions. On an organic basis, sales rose 4%.
The company continued to lead in the toothpaste category in Asia. New products in the toothpaste
category included Colgate 360° Pro Gum Health Whitening, Colgate Optic White Plus Shine, Colgate
Active Salt Neem, Colgate Power White Bamboo Charcoal and Darlie All Shiny White Multicare
toothpastes, which led to volume growth in the region.
Volume growth was also prompted by an increase in sales of products in other categories, including
Colgate Slim Soft Tri-Tip, Colgate 360° Charcoal Gold and Darlie Charcoal manual toothbrushes,
Colgate Plax Herbal Salt, Colgate Plax Active Salt and Colgate Plax Bamboo Charcoal Mint
mouthwashes and Palmolive Naturals shampoo and conditioner.
Africa/Eurasia (6% of Total Sales)
Africa/Eurasia sales decreased 20.5% y/y due to a negative impact of 25% from foreign currency
exchange and a 3% decline in volumes, partly offset by a 7.5% increase in prices. Volumes were
impacted by divestments in the quarter. Weak volumes in the Central Asia/Caucasus region and
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Ukraine were somewhat compensated by gains in the Sub-Saharan Africa and South Africa regions.
Organic sales for Africa/Eurasia advanced 5%.
The company’s toothpaste business continued to gain traction in Africa/Eurasia, benefiting from market
share gains in almost all nations in the region. Volumes in the region were driven by improved sales of
Colgate Total, Colgate Optic White Instant and Colgate Maximum Cavity Protection plus Sugar Acid
Neutralizer toothpastes, Colgate Slim Soft Charcoal, Colgate Natural Extracts and Colgate Zig Zag
manual toothbrushes, Colgate Total mouthwash, Palmolive Gourmet Spa Mint Shake, Protex For Men
and Palmolive Men Taiga Freshness shower gels and Palmolive Altai Herbs and Protex Complete 12
bar soaps.
Hill’s Pet Nutrition (14% of Total Sales)
Hill’s Pet Nutrition sales were down 3.5%. Pricing had a 3.0% positive impact on sales growth, while
foreign exchange negatively impacted sales by 9%. Unit volume improved 2.5%, backed by volume
gains in the U.S. and Japan. On an organic basis, sales rose 5.5% y/y.
New product introductions that contributed to sales growth in the U.S. include Hill’s Prescription Diet
Metabolic Plus Mobility and Metabolic Plus Urinary, Hill’s Prescription Diet stews, Hill’s Prescription Diet
i/d Stress and i/d Sensitive and Hill’s Science Diet Urinary Plus Hairball Control. Hill’s Ideal Balance
Slim & Healthy, Grain Free and Indoor Cat also contributed to volume growth in the quarter.
New products that contributed to international sales growth include Hill’s Ideal Balance, Hill’s
Prescription Diet Metabolic Plus Mobility, Metabolic Plus Urinary and c/d Multicare Urinary Stress and
Hill’s Science Diet Perfect Weight.
Guidance
Colgate anticipates macroeconomic and currency headwinds to linger throughout 2015. However, even
in the face of these challenges, management expects another year of robust organic sales growth on
the back of new products across categories and geographies.
Please refer to the Zacks Research Digest spreadsheet of Colgate-Palmolive for specific revenue estimates.
Margins [Note: only highlighted material has been changed]
Provided below is a summary of margins as compiled by Zacks Digest:
Margins
3Q14A
2Q15E
3Q15E
4Q15E
2014A
2015E
2016E
2017E
Gross Margin
58.6%
58.3%
58.8%
59.0%
58.7%
58.7%
59.2%
59.8%↑
Operating Margin
24.6%
24.6%
25.3%
25.8%
24.4%
24.8%
25.5%
26.2%↑
Pre-Tax Margin
24.5%
24.4%
25.2%
25.7%
24.3%
24.7%
25.3%
26.1%↑
Net Margin
16.0%
15.7%
16.3%
16.7%
15.7%
15.9%
16.4%
16.8%
During 3Q15, the Zacks Digest average adjusted gross profit declined 8.4% y/y to $2,350 million.
Adjusted gross profit margin expanded 20 basis points (bps) y/y to 58.8%, backed by benefits from
cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program, along
with better pricing, partly offset by increased packaging and material expenses stemming from higher
currency translation costs.
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In the reported quarter, adjusted operating profit of $1,013 million declined 6% from the year-ago
quarter figure. However, the adjusted operating margin improved 70 bps to 25.3%, mainly benefiting
from lower selling, general & administrative (SG&A) expenses as a percentage of revenues.
Geographic Breakdown of Margins
North America operating profit jumped 7.5% to $258 million, with the operating margin increasing 20
bps to 32.6%. This is attributable to enhanced gross margin coupled with lower SG&A expenses, as a
percentage of net sales.
Latin America operating profit fell 9.1% to $300 million, while as a percentage of sales it expanded 60
bps to 28.2%. The increase in operating profit margin was primarily led by reduced SG&A expenses as
a percentage of sales, partly offset by reduced gross profit margin.
Europe/South Pacific operating profit plunged 13.1% y/y to $206 million. However, operating margin
for the region improved 160 bps to 28.3%, primarily backed by reduced SG&A expenses as a
percentage of sales.
Asia operating profit rose 4.3% to $195 million. Operating margin increased 60 bps to 4.9%, driven by
lower SG&A expenses as a percentage of sales, coupled with improved gross margin.
Africa/Eurasia operating profit tanked 26.7% y/y to $44 million in the quarter, while as a percentage of
sales it shriveled 30 bps to 1.1%. The decrease was mainly due to lower SG&A expenses as a
percentage of sales, partly compensated by higher gross profit margin.
Hill’s Pet Nutrition operating profit grew 5.4% y/y to $157 million, with the operating profit margin
expanding 250 bps to 28.8%. The rise in operating profit margin was mainly due to an improvement in
both gross margin and SG&A expenses as a percentage of sales.
Please refer to the Zacks Research Digest spreadsheet of Colgate-Palmolive for specific margin estimates.
Earnings per Share [Note: only highlighted material has been changed]
Provided below is a summary of EPS as compiled by Zacks Digest:
EPS
3Q14A
2Q15E
3Q15E
4Q15E
2014A
2015E
2016E
2017E
Digest High
$0.76
$0.70
$0.72
$0.76
$2.93
$2.84
$3.10
$3.25
Digest Low
$0.76
$0.70
$0.72
$0.72
$2.93
$2.80
$2.95
$3.18
Digest Average
$0.76
$0.70
$0.72
$0.73
$2.93
$2.81
$2.99
$3.22
Y-o-Y Growth
4.4%
-4.1%
-5.3%
-3.7%
3.3%
-4.1%
6.1%
7.7%
Q-o-Q Growth
4.1%
5.7%
2.8%
1.6%
The Zacks Digest average earnings in 3Q15 were $0.72 per share, down 5.3% y/y, but up 2.8%
sequentially. On a currency-neutral basis, adjusted earnings rose by double digits.
Including one-time items, earnings came in at $0.80 per share, up 35.6% from $0.59 recorded in the
year-ago quarter.
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Guidance
Colgate envisions earnings per share for 2015 to increase at a double-digit rate, on a currency neutral
basis. On including the currency impact, earnings per share for 2015 are expected to decrease at a
low-to-mid single-digit rate. Further, gross margin for 2015 is anticipated to remain flat y/y.
The company also provided an insight into its outlook for 2016, wherein it expects currency headwinds
to continue hurting results. However, backed by its global budget processing efforts and anticipation of
gross margin expansion, Colgate envisions 2016 to witness double-digit earnings growth (on a currency
neutral basis).
The aforementioned guidance excludes all charges associated with the 2012 Restructuring Program.
Please refer to the Zacks Research Digest spreadsheet of Colgate-Palmolive for more extensive EPS figures.
Capital Structure/Cash Flow/Solvency/Governance/Other
material has been changed]
[Note:
only
highlighted
Cash Structure
Colgate ended the quarter with cash and cash equivalents of $1,445 million, total debt of $6,790 million,
and shareholders’ equity (excluding non controlling interests) of $255 million.
Net cash provided by operating activities came in at $2,108 million for the first three quarters.
Further, free cash flows after incurring $459 as capital expenditures and prior to dividend payments
were $1,649 million year to date.
Dividend & Others
On Sep 10, 2015, Colgate-Palmolive announced a quarterly cash dividend of $0.38 per share, which
was paid on Nov 16, to stockholders on record as of Oct 23, 2015. Additionally, the company appointed
Lorrie Norrington, Operating Partner, Lead Edge Capital LLC, to its Board of Directors, effective Sep 9,
2015.
Global Growth and Efficiency Program
As previously stated, Colgate-Palmolive initiated its four-year Global Growth and Efficiency Program or
2012 Restructuring Program, with an aim to improve unit volume, organic sales and earnings per share
as well as to enhance its global leadership position. With the program running smoothly, the company
is already ahead of the higher end of its projected target range and aims to maintain the momentum in
2015.
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2012 Restructuring Program Update
Given the ongoing macroeconomic hurdles and considering the success of its 2012 Restructuring
Program as of now, management announced plans to extend this program through Dec 31, 2017. The
company intends to plough back the funds generated from the sale of its laundry detergent operations
in the South Pacific, to sponsor this extension.
December 3, 2015
Research Analyst
Vrishali Bagree
Copy Editor
Rajani Lohia
Content Ed.
Rajani Lohia
Lead Analyst
Rajani Lohia
QCA
No. of brokers
reported/Total brokers
Reason for Update
Sumit Singh
Zacks Investment Research
Flash
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