Colgate-Palmolive Co. (CL), a global dealer in consumer goods, reported second-quarter 2014 adjusted earnings of 73 cents per share which came in line with the Zacks Consensus Estimate. Earnings grew 4% year over year.
Including one-time items, earnings came in at 67 cents per share, up 12% year over year.
Global sales of $4,352 million were almost flat as compared with the prior-year figure of $4,346 million. Sales benefited from 2.5% growth in volume and 1.5% rise in prices which were run down by a 4% negative impact from currency fluctuations. However, quarterly revenues missed the Zacks Consensus Estimate of $4,401 million.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 4%.
Adjusted gross profit margin was 58.8%, up 20 bps as the benefit from cost saving initiatives under funding-the-growth and 2012 Restructuring Program as well as higher pricing more than offset increase in raw material and packaging costs.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenues, fell 40 basis points (bps) to 34.4% from the year-ago quarter. The decline was mainly due to lower advertising investment partly offset by higher overhead expenses both as a percentage of sales.
In the quarter, adjusted operating profit of $1,056 million increased 2% from the year-ago period while operating margin improved 60 bps to 24.3%.
On a year-to-date basis, Colgate-Palmolive’s market share of global toothpaste and manual toothbrushes reached 44.4% and 33.5%, respectively. Additionally, the company’s mouthwash business made significant progress, with its global market share reaching a record 17.2% in the year-to-date period, an 80 bps improvement from the prior-year quarter.
Segment Discussion
North America sales (18% of total sales) rose 1% in the quarter, driven by a 2.5% rise in unit volume, partly offset by the negative impact of 1% from lower pricing and 0.5% from foreign exchange. On an organic basis, sales increased 1.5%.
The segment’s operating profit grew 2% to $231 million while operating margin expanded 20 bps to 30%. The year-over-year rise in operating margin was chiefly due to lower SG&A expenses as a percentage of net sales, partly offset by a lower gross margin.
Latin America sales (27% of total sales) declined 4% year over year, as the benefit of a 5% increase in pricing and 3% unit volume growth was more than offset by a negative foreign exchange impact of 12.0%. Volume gains were most prominent in Venezuela, Mexico and Colombia. On an organic basis, sales increased 8%.
Operating profit decreased 12% to $311 million while as a percentage of sales, it contracted 220 bps to 25.3% primarily due to a lower gross profit margin and higher SG&A expenses as a percentage of sales.
Europe/South Pacific sales (20% of total sales) grew 6% year over year, primarily benefiting from a 4.5% rise in unit volume and a 4% positive impact from foreign exchange. However, these were partially offset by a 2.5% impact from lower pricing. Volume gains were primarily led by Australia and France. Organic sales for the region were up 2.5%.
Operating profit increased 20% year over year to $227 million. Furthermore, the operating margin for the region expanded 310 bps to 26% primarily attributable to higher gross profit margin and lower SG&A expenses as a percentage of sales.
Asia sales (15% of total sales) fell 1.5% owing to 4.5% negative impact from foreign currency, which more than offset a 2.5% increase in unit volume and a 0.5% rise in pricing. Volume growth was primarily led by gains in India, Thailand and the Philippines. On an organic basis, sales grew 3%.
Operating profit rose 3% to $178 million. Operating margin expanded 120 bps to 29.2%, on account of lower SG&A expenses as a percentage of sales.
Africa/Eurasia sales (7% of total sales) also dropped 1% year over year due to a 7.5% negative impact from foreign currency exchange, which more than offset the benefit of 5.5% growth in unit volume and 1% increase in prices. Volume gains were primarily led by Russia, South Africa and Turkey. Organic sales for the region rose 6.5%.
Operating profit decreased 11% year over year to $58 million in the quarter while as a percentage of sales, it contracted 210 bps to 18.8%. The decrease was mainly due to lower gross profit margin and increased SG&A expenses as a percentage of sales.
Hill’s Pet Nutrition sales (13% of total sales) grew 2%. Pricing had a 4% positive impact on sales growth while foreign exchange negatively impacted sales by 0.5%. Unit volume decreased 1.5% due to volume declines in the U.S., and Japan, partly offset by volume gains in Russia. On an organic basis, sales rose 2.5% from the year-ago quarter.
Operating profit improved 7% to $146 million, while operating profit margin expanded 130 bps to 26.1%. The rise in operating profit was due to higher gross margin.
Other Financial Details
Colgate-Palmolive, which competes with The Procter & Gamble Co. (PG) and Unilever plc (UL), ended the quarter with cash and cash equivalents of $1,161 million, total debt of $6,061 million and shareholders’ equity of $1,779 million.
Net cash provided by operating activities came in at $1,389 million for the first half.
Other Stocks to Consider
Currently, Colgate-Palmolive carries a Zacks Rank #2 (Buy). Another stock that warrants a look in the retail space is Citi Trends, Inc. (CTRN), which sports a Zacks Rank #1 (Strong Buy).
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