Colgate-Palmolive Co. (CL), a global dealer in consumer goods, reported third-quarter 2014 adjusted earnings of 76 cents per share, a penny ahead of the Zacks Consensus Estimate and improving 4% year over year.
Including one-time items, earnings came in at 59 cents per share, down 15.7% year over year.
Global sales of $4,379 million were nearly 0.5% down from the year-ago figure of $4,398 million, as benefit of 2% growth in volume and 1.5% rise in prices were more than offset by a negative impact of 4% from currency fluctuations. Moreover, quarterly revenues missed the Zacks Consensus Estimate of $4,441 million.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 3.5%.
Adjusted gross profit margin was 58.6%, down 40 bps as the benefit from cost saving initiatives under funding-the-growth and 2012 Restructuring Program as well as higher pricing were more than offset by increase in raw material and packaging costs.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenues, fell 110 basis points (bps) to 33.9% from the year-ago quarter, mainly due to lower advertising investment.
In the quarter, adjusted operating profit of $1,076 million increased 3% from the year-ago period. Operating margin improved 70 bps to 24.6%, mainly benefitting from lower SG&A expenses as a percentage of revenues, partially offset by reduced adjusted gross margin.
On a year-to-date basis, Colgate-Palmolive’s market share of global toothpaste and manual toothbrushes reached 44.6% and 33.4%, respectively. Additionally, the company’s mouthwash business made significant progress, with its global market share reaching a record 16.9% in the year-to-date period, a 40 bps improvement from the prior-year quarter.
Segment Discussion
North America sales (18% of total sales) rose 2% in the quarter, driven by a 3% rise in unit volume, partly offset by negative impact of 0.5% each from lower pricing and foreign exchange. On an organic basis, sales increased 2.5%.
The segment’s operating profit declined 2% to $240 million, while operating margin contracted 110 bps to 30.4%. The year-over-year decline in operating margin was mainly due to higher SG&A expenses as a percentage of net sales, partly offset by improved gross margin.
Latin America sales (27% of total sales) declined 4.5% year over year, as the benefit of a 5% increase in pricing and 1.5% unit volume growth was more than offset by a negative foreign exchange impact of 11%. Volume gains were most prominent in Venezuela, Mexico and Colombia. On an organic basis, sales increased 6%.
Operating profit decreased 8% to $330 million, while as a percentage of sales it contracted 100 bps to 27.6% primarily due to a lower gross profit margin, partially offset by reduced SG&A expenses as a percentage of sales.
Europe/South Pacific sales (20% of total sales) grew 05% year over year, primarily benefiting from a 2.5% rise in unit volume and a 0.5% positive impact from foreign exchange. However, these were partially offset by a 2.5% impact from lower pricing. Volume gains were primarily led by the United Kingdom and France. Organic sales for the region were up 0.5%.
Operating profit increased 10% year over year to $237 million. Furthermore, operating margin for the region expanded 220 bps to 26.7% primarily attributable to higher gross profit margin and lower SG&A expenses as a percentage of sales.
Asia sales (15% of total sales) inched up 1% owing increase of 0.5% each in unit volume and pricing. Volume growth primarily resulted from gains in India, while Greater China region witnessed a year-over-year decline. On an organic basis, sales grew 1%.
Operating profit rose 7% to $187 million. Operating margin expanded 170 bps to 29.5%, on account of lower SG&A expenses as a percentage of sales, partially offset by reduced gross margin.
Africa/Eurasia sales (7% of total sales) also dropped 3.5% year over year due to a negative impact of 8% from foreign currency exchange, which more than offset the benefit of 3.5% growth in unit volume and 1% increase in prices. Volume gains were primarily led by Russia and South Africa. Organic sales for the region rose 4.5%.
Operating profit decreased 8% year over year to $60 million in the quarter, while as a percentage of sales it contracted 80 bps to 19.4%. The decrease was mainly due to lower gross profit margin, partially offset by reduced SG&A expenses as a percentage of sales.
Hill’s Pet Nutrition sales (13% of total sales) grew 4%. Pricing had a 3.5% positive impact on sales growth, while foreign exchange negatively impacted sales by 0.5%. Unit volume improved 1% due to volume gains in Russia and South Africa. On an organic basis, sales rose 4.5% from the year-ago quarter.
Operating profit improved 8% to $149 million, while operating profit margin expanded 100 bps to 26.3%. The rise in operating profit was due to decline in SG&A expenses as a percentage of sales, which was partially offset by lower 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 $1,355 million, total debt of $6,055 million and shareholders’ equity of $1,420 million.
Net cash provided by operating activities came in at $2,392 million for the first three quarters of 2014.
Other Stocks to Consider
Currently, Colgate-Palmolive carries a Zacks Rank #4 (Sell). A better-ranked stock that warrants a look in the retail space is Citi Trends, Inc. (CTRN), which sports a Zacks Rank #2 (Buy).
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