Colgate-Palmolive Co. CL posted adjusted earnings of 77 cents a share in second-quarter 2018, up 7% from the prior-year quarter. The figure came in line with the Zacks Consensus Estimate. Including one-time items, earnings were 73 cents a share compared with 59 cents reported in the year-ago period.
Total sales of $3,886 million improved 1.5% from the year-ago period but lagged the Zacks Consensus Estimate of $3,899 million. The top line gained from 1.5% increase in global unit volumes, whereas pricing and favorable currency impact remained flat. During the reported quarter, unit-volume growth included a 1% contribution from recently-acquired professional skin care businesses.
Colgate-Palmolive Company Price, Consensus and EPS Surprise
On an organic basis, the company’s sales advanced 0.5%, which was below expectations. Lower organic sales resulted from reduced unit-volume growth in emerging markets and flat worldwide pricing.
We note that in the past six months, the stock has lost 9.3%, having underperformed the broader industry’s decline of 4.7%.
Deeper Insight
Adjusted gross profit margin of 59.3% contracted 140 basis points (bps) from the prior-year quarter, driven by higher raw- and packaging-material expenses. However, this was partially offset by gains from the cost-saving initiatives under the company’s funding-the-growth program.
In the reported quarter, adjusted operating profit of $1,004 million decreased 1.5%, while the adjusted operating margin contracted 80 bps to 25.8%. The operating margin decline resulted from a lower gross margin, partly negated by a 70-bp decline in adjusted selling, general & administrative expenses as a percentage of sales.
Year to date, Colgate’s market share of manual toothbrushes has reached 32.3%. Further, the company continued with its leadership in the global toothpaste market with 42.1% market share year to date.
Segment Discussion
North America net sales (21% of total sales) improved 8%, reflecting a 7% increase in unit volumes, 0.5% favorable currency impact and 0.5% rise in pricing. On an organic basis, sales increased 2%, while unit volume grew 1.5%.
Latin America net sales (24% of total sales) slipped 7% year over year, owing to 1% fall in unit volume, 5.5% unfavorable currency exchange and 0.5% decrease in pricing. During the quarter, soft volumes in Central America were negated by volume growth in Southern Cone region. On an organic basis, sales decreased 1.5%, further.
Europe net sales (16% of total sales) rose 6% year over year, due to 2.5% increase in unit volumes and a favorable currency impact of 7%, offset by 3.5% decline in pricing. Unit volumes gained from strength in France, the United Kingdom and Italy. Organic sales in Europe were down 1%.
Asia Pacific net sales (19% of total sales) rose 1.5%, attributable to 1% increase in pricing and positive currency impacts of 1.5%, partly compensated by 1% lower unit volumes. Volumes benefited from strength in India and the Philippines, which was partly neutralized by declines in the Greater China. On an organic basis, sales for the Asia-Pacific were flat.
Africa/Eurasia net sales (6% of total sales) rose 1% year over year, fueled by 2% higher unit volumes and 1% hike in pricing, partly offset by 2% unfavorable foreign currency impact. Higher volumes are attributed to volume gains in Sub-Saharan region and South Africa. Organic sales for Africa/Eurasia rose 3%.
Hill’s Pet Nutrition net sales (15% of total sales) were up 3.5% from the year-ago quarter. Results gained from 1% rise in unit volumes, 1% increase in pricing and 1.5% positive impact from currency. Volume gains in the United States and Australia were offset by the fall in South Africa. On an organic basis, sales rose 2%.
Other Financial Details
Colgate ended the first quarter with cash and cash equivalents of $833 million and total debt of $6,865 million. Net cash provided by operating activities was $1,297 million as of Jun 30, 2018.
Outlook
Looking into 2018, Colgate anticipates the backdrop to remain challenging, due to uncertain global markets and slowing category growth, worldwide. However, the company remains on track with the brand building and productivity maximization initiatives. Consequently, it expects net sales and organic sales to increase in low-single-digit in 2018. Further, the company anticipates witnessing sequential improvement in organic sales through the rest of the year.
Including the impact of the expanded Global Growth and Efficiency Program, the company expects gross margin to remain flat in 2018, along with double-digits increase in GAAP earnings per share.
Excluding the restructuring charges, resulting from the program and other one-time expenses associated with the U.S. tax reform in 2017, along with a foreign tax matter in 2018, management sees strong operating cash flow, contracted gross margin and higher advertising investments for this year. Further, it anticipates mid-single-digit earnings-per-share growth for the year, on an adjusted basis.
Zacks Rank & Key Picks
Colgate currently carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the consumer staples sector include The Boston Beer Company, Inc SAM, Helen of Troy Limited HELE and Lamb Weston Holdings Inc. LW.
Boston Beer Company, with long-term EPS growth rate of 9.5%, carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Helen of Troy, with long-term EPS growth rate of 6.14%, carries a Zacks Rank #2 (Buy).
Lamb Weston, with long-term EPS growth rate of 12.16%, carries a Zacks Rank #2.
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