Colgate reports worldwide Net sales of $4,346 million in second quarter 2013

Colgate-PalmoliveJul 25 2013

Colgate-Palmolive Company (NYSE:CL) today reported worldwide Net sales of $4,346 million in second quarter 2013, an increase of 2.0% versus second quarter 2012. Global unit volume grew 4.0%, pricing increased 1.0% and foreign exchange was negative 3.0%. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 5.5%.

“Advertising investment increased versus year ago, both absolutely and as a percent to sales, and we continue to plan for higher levels of commercial investment in the balance of the year in support of a very full pipeline of new products worldwide.”

Net income and Diluted earnings per share in second quarter 2013 were $561 million and $0.60, respectively. Net income in second quarter 2013 included $101 million ($0.10 per diluted share) of aftertax charges resulting from the implementation of the previously disclosed four-year Global Growth and Efficiency Program (the "2012 Restructuring Program"), costs associated with the sale of land in Mexico and a charge associated with an existing European competition law matter.

Net income and Diluted earnings per share in second quarter 2012 were $627 million and $0.65, respectively. Net income in second quarter 2012 included aftertax charges of $14 million ($0.02 per diluted share) resulting from the items described in Table 8.

Excluding the above noted items in both periods, Net income in second quarter 2013 was $662 million, an increase of 3% versus second quarter 2012, and Diluted earnings per share in second quarter 2013 was $0.70, an increase of 4% versus second quarter 2012.

Gross profit margin was 58.3% in second quarter 2013 versus 57.7% in the year ago quarter. Excluding the above noted items in both periods, Gross profit margin was 58.6% in second quarter 2013, an increase of 70 basis points versus the year ago quarter, as higher pricing and cost savings from the Company's funding-the-growth initiatives more than offset higher raw and packaging material costs.

Selling, general and administrative expenses were 35.1% of Net sales in second quarter 2013 versus 34.3% in second quarter 2012. Excluding the above noted items in both periods, Selling, general and administrative expenses increased by 60 basis points to 34.8% of Net sales in second quarter 2013, as advertising investment increased by 70 basis points and overhead expenses decreased by 10 basis points, both as a percentage of Net sales. Worldwide advertising investment increased 9% versus the year ago quarter to $497 million.

Operating profit decreased 8% to $906 million in second quarter 2013 compared to $982 million in second quarter 2012. Excluding the above noted items in both periods, Operating profit increased 3% to $1,032 million.

Net cash provided by operations year to date increased 11% to $1,325 million, compared to $1,193 million in the comparable 2012 period. The increase was driven by strong operating earnings as well as a continued tight focus on working capital. Free cash flow before dividends (Net cash provided by operations less Capital expenditures) exceeded 100% of Net income. Working capital as a percentage of Net sales improved to negative 0.2% versus 2.8% in the year ago period, mainly due to accrued liabilities related to the 2012 Restructuring Program and the timing of dividend payments.

Ian Cook, Chairman, President and Chief Executive Officer, commented on the results and outlook excluding the 2013 and 2012 items noted above, "We are delighted that our strong growth momentum continued on both the top and bottom lines. For the fifth consecutive quarter, gross profit margin, operating profit margin and net income as a percent of sales all increased versus the year ago period.

"The strong 5.5% organic sales growth was led by the emerging markets where organic sales grew a robust 8.5%. All operating divisions achieved positive unit volume growth in the quarter. We were particularly pleased to see a return to unit volume growth at Hill's one quarter earlier than expected.

"Advertising investment increased versus year ago, both absolutely and as a percent to sales, and we continue to plan for higher levels of commercial investment in the balance of the year in support of a very full pipeline of new products worldwide.

"Colgate's global market shares in toothpaste and manual toothbrushes are both at record highs year to date. Colgate's share of the global toothpaste market strengthened to 45.4% year to date, up 0.1 share points versus year ago. Our global leadership in manual toothbrushes also strengthened during the quarter with Colgate's global market share in that category reaching 33.3% year to date, up 0.4 share points versus year ago.

"Looking forward, we expect our growth momentum to continue as we progress through the year. We are pleased that our global restructuring program is on track and proceeding smoothly. We also continue to be sharply focused on our aggressive funding-the-growth programs and our strategic worldwide pricing initiatives.

"Based on this, we continue to anticipate another year of strong organic sales growth and gross margin expansion in 2013. In light of the ongoing impact of the Venezuela currency devaluation and the recent volatility in foreign exchange in other countries, we now expect diluted earnings per share to grow 4.5% to 5.5% for the year, on a dollar basis, assuming average exchange rates in the balance of the year are equal to current spot rates."

At 11:00 a.m. ET today, Colgate will host a conference call to elaborate on second quarter results. To access this call as a webcast, please go to Colgate's web site at http://www.colgatepalmolive.com.

The following are comments about divisional performance for second quarter 2013 versus the year ago period. See attached Geographic Sales Analysis Percentage Changes and Segment Information schedules for additional information on divisional net sales and operating profit.

North America (18% of Company Sales)

North America Net sales increased 5.0% in second quarter 2013. Unit volume increased 6.0% with 1.0% lower pricing and foreign exchange was even with the year ago quarter. Organic sales increased 5.0% during the quarter.

Operating profit in North America increased 20% in the second quarter of 2013 to $227 million, or 370 basis points to 29.8% of Net sales. This increase in Operating profit was primarily due to an increase in Gross profit and a decrease in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was mainly driven by lower raw and packing material costs and cost savings from the Company's funding-the-growth initiatives which were partially offset by lower pricing. This decrease in Selling, general and administrative expenses was due to lower overhead costs which was partially offset by higher advertising investment.

In the U.S., new product launches are contributing to volume growth across categories. Market share gains year to date were seen in manual toothbrushes, powered toothbrushes, mouthwash, body washes and fabric conditioners. In toothpaste, the success of Colgate Optic White and Colgate Optic White Dual Action toothpastes helped drive market share for the Colgate Optic White brand to 5.6% year to date, up 1.0 share points versus year ago. In manual toothbrushes, Colgate achieved brand market leadership with its market share in that category reaching a record 37.2% year to date, up 0.6 share points versus year ago. This success was driven by strong sales of Colgate 360° Optic White, Colgate 360° Total Advanced Floss Tip bristles and Colgate Extra Clean manual toothbrushes.

Successful new products driving volume growth in the U.S. in other categories include Colgate Total Advanced Pro-Shield and Colgate Optic White mouthwashes, Softsoap brand Acai Berry & Tropical Water and Softsoap brand Coconut Island Quench body washes, Palmolive Soft Touch and Ajax with Aloe dish liquids and Suavitel Silky Essence fabric conditioner.

Exciting new products launching in third quarter 2013 include Colgate MaxFresh Cool Scrub and Colgate Sensitive SmartFoam with Whitening toothpastes and Colgate SlimSoft manual toothbrush.

Latin America (29% of Company Sales)

Latin America Net sales decreased 1.5% in second quarter 2013. Unit volume increased 2.0% with 4.5% higher pricing and 8.0% negative foreign exchange. Volume gains were led by Mexico, Brazil, Venezuela and the Southern Cone region. Organic sales for Latin America increased 7.0% during the quarter.

Operating profit in Latin America decreased 6% in the second quarter of 2013 to $352 million, or 120 basis points to 27.5% of Net sales. This decrease in Operating profit was primarily due to a decrease in Gross profit and an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This decrease in Gross profit was due to higher costs, primarily in Venezuela, which were partially offset by cost savings from the Company's funding-the-growth initiatives and higher pricing. This increase in Selling, general and administrative expenses was primarily due to higher advertising investment and higher overhead expenses due primarily to higher costs in Venezuela.

Colgate's strong leadership in oral care throughout Latin America continued during the quarter with year-to-date toothpaste market share gains in Brazil, Chile, Paraguay, Uruguay, the Dominican Republic and Puerto Rico. Strong sales of Colgate Luminous White, Colgate Total Professional Gum Health and Colgate Triple Action Extra Whitening toothpastes drove volume growth throughout the region. Colgate strengthened its leadership of the manual toothbrush market throughout the region, driven by strong sales of Colgate 360° Luminous White, Colgate Triple Action and Colgate Premier manual toothbrushes. In mouthwash, Colgate's year-to-date market share is at a record high in the region with gains driven by Colgate Luminous White mouthwash.

Products in other categories contributing to volume growth include Protex Men, Protex Vitamin E and Palmolive Naturals Olive and Aloe bar soaps, Lady Speed Stick and Speed Stick deodorants, and Axion dish liquid.

Europe/South Pacific (19% of Company Sales)

Europe/South Pacific Net sales in second quarter 2013 decreased 3.0%. Unit volume increased 0.5% with 3.0% lower pricing and 0.5% negative foreign exchange. Volume gains in the United Kingdom, Germany and Australia were partially offset by volume declines in France and Greece. Organic sales for Europe/South Pacific decreased 2.0%.

Operating profit in Europe/South Pacific increased 6% in the second quarter of 2013 to $189 million, or 180 basis points to 22.9% of Net sales. The increase in Operating profit was primarily due to an increase in Gross profit and a decrease in Selling, general and administrative expenses both as a percentage of Net sales. This increase in Gross profit was primarily driven by savings from the Company's funding-the-growth initiatives and lower raw and packing material costs, which were partially offset by lower pricing. This decrease in Selling, general and administrative expenses was driven by higher advertising investment which was more than offset by lower overhead costs.

Colgate continued its oral care leadership in the Europe/South Pacific region with toothpaste share gains led by the United Kingdom, France, Poland, Holland, Czech Republic, Croatia and Slovakia. Successful premium products driving share gains include Colgate Max White One Luminous, Colgate MaxFresh ActiClean with SmartFoam and Colgate Total Pro Gum Health toothpastes. In the manual toothbrush category, Colgate 360° Max White One and elmex Erosion manual toothbrushes contributed to volume growth throughout the region.

Recent premium innovations contributing to volume growth in other product categories include Colgate Max White One, Colgate Total Pro Gum Health and elmex Senstive Professional mouthwashes, Colgate ProClinical electric toothbrush, Sanex Men Dermo Double Protect deodorant, Sanex Surgras and Palmolive Mediterranean Moments shower gels, Ajax Pure Home liquid cleaner and Soupline Aroma Sensations fabric conditioner.

Greater Asia/Africa (21% of Company Sales)

Greater Asia/Africa Net sales and unit volume increased 8.0% and 9.5%, respectively, during second quarter 2013. Pricing was even with the year ago period and foreign exchange was negative 1.5%. Volume gains were led by India, the Greater China region, Thailand, Turkey and Russia. Organic sales for Greater Asia/Africa increased 9.5%.

Operating profit in Greater Asia/Africa increased 8% in the second quarter of 2013 to $238 million, and remained flat at 25.6% of Net sales, as an increase in Gross profit was partially offset by an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company's funding-the-growth initiatives, partially offset by higher raw and packing material costs. This increase in Selling, general and administrative expenses was driven by higher advertising investment which was partially offset by lower overhead costs.

Colgate continued its toothpaste leadership in Greater Asia, driven by market share gains in India, China, Russia, South Africa, Turkey, Thailand, the Philippines, Singapore and Hong Kong. Successful new products including Colgate 360° Pro Gum Health, Colgate Optic White, Colgate Visible White and Darlie Enamel toothpastes contributed to volume growth throughout the region.

Successful products contributing to volume growth in other categories in the region include Colgate Slim Soft and Colgate 360° Surround manual toothbrushes, Colgate Optic White and Colgate Plax Herbal mouthwashes and Protex for Men shower gel.

Hill's Pet Nutrition (13% of Company Sales)

Hill's Net sales increased 3.5% during second quarter 2013. Unit volume increased 2.5%, pricing increased 3.0% and foreign exchange was negative 2.0%. Volume gains in the U.S., Russia, Korea, Germany, France and Brazil were partially offset by volume declines in Japan, Italy and the United Kingdom. Hill's organic sales increased 5.5%.

Hill's Operating profit decreased 6% in the second quarter of 2013 to $136 million, or 250 basis points to 24.8% of Net sales. This decrease in Operating profit was primarily due to a decrease in Gross profit and an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher raw and packaging material costs due in part to formulation changes, which was partially offset by cost savings from the Company's funding-the-growth initiatives and higher pricing. This increase in Selling, general and administrative expenses was due to increased investment in customer development initiatives and higher advertising investment.

New product introductions driving volume growth in the U.S. include the successful launch of a new natural pet food brand, Hill's Ideal Balance, with natural ingredients perfectly balanced.

New product introductions driving volume growth globally, include the launch of breakthrough weight loss nutrition, Hill's Prescription Diet Metabolic and the relaunch of Hill's Science Diet with natural ingredients and improved taste.