Colgate-Palmolive Co. (CL), a global dealer in consumer goods, reported second-quarter 2013 adjusted earnings of 70 cents a share that came in line with the Zacks Consensus Estimate and rose 4.0% from the year-ago quarter’s adjusted earnings of 67 cents.
Global sales of $4,346 million increased 2.0% from the prior-year quarter’s level of $4,267 million, primarily benefiting from a 4.0% rise in global unit volumes and 1.0% upside in pricing, partially offset by a negative impact of 3.0% from foreign exchange. However, quarterly revenue marginally fell short of the Zacks Consensus Estimate of $4,362 million.
On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 5.5%.
Adjusted gross profit margin expanded 70 basis points (bps) to 58.6%, driven by better pricing and cost containment endeavors. This was more than offset by increased raw and packaging material expenses.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenue grew 60 bps from the year-ago quarter to 34.8%. The rise was mainly due to higher advertising investment partly offset by lower overhead costs.
In the quarter, adjusted operating profit of $1,032 million climbed 3.0% from $1,001 million compared to the year-ago period, while operating margin expanded 20 bps to 23.7% from 23.5% recorded in the prior year quarter. .
Colgate-Palmolive’s market share of global toothpaste and manual toothbrushes reached 45.4% and 33.3%, respectively. Global toothpaste and manual toothbrushes share represented an increase of 0.1 and 0.4 share points, respectively, from the year-ago period.
North America sales (18% of total sales) rose 5.0% in the quarter, driven by a 6.0% rise in unit volume partly offset by 1% downside in prices. On an organic basis, sales increased 5.0%.
Segment operating profit surged 20% to $227 million, while operating margin expanded nearly 370 bps to 29.8%. The year-over-year rise in operating profit margin was chiefly driven by increased gross profit margin and lower SG&A expenses as a percentage of net sales.
Latin America sales (29% of total sales) inched up 1.5% year over year, primarily driven by a 4.5% increase in pricing and 2.0% unit volume growth, partially offset by negative foreign exchange impact of 8.0%. Volume gains were most prominent in Mexico, Brazil, Venezuela and the Southern Cone region. On an organic basis, sales increased 7.0%.
However, operating profit declined 6.0% to $352 million from the prior-year quarter primarily due to lower gross profit margin and higher SG&A expenses as a percentage of sales. Moreover, operating margin contracted 120 bps to 27.5%.
Europe/South Pacific sales (19% of total sales) declined 3.0% year over year, driven by almost flattish growth in unit volume along with 3.0% downside in pricing as well as a 0.5% negative impact from foreign currency exchange. Volume gains were primarily led by United Kingdom, Germany and Australia, which were partly offset by volume declines in France and Greece. Organic sales for the region were down 2.0%.
Operating profit increased 6.0% year over year to $189 million. Furthermore, the operating profit margin in the region expanded 180 bps to 22.9%, driven by higher gross profit margin and lower SG&A expenses as a percentage of sales.
Greater Asia/Africa sales (21% of total sales) climbed 8.0%, with a 9.5% increase in unit volume, offset by a 1.5% negative impact from foreign currency. Volume growth was primarily led by gains in India, the Greater China region, Thailand, Turkey and Russia. On an organic basis, sales grew 9.5%.
Operating profit jumped 8.0% to $238 million on account of improved gross profit, partly offset by higher SG&A expenses, as a percentage of sales. Operating margin remained even at 25.6%.
Hill’s Pet Nutrition sales (13% of total sales) inched up 3.5%. Unit volume increased 2.5% due to volume gains in U.S., Russia, Korea, Germany, France and Brazil, partly offset by volume declines in Japan, Italy and the United Kingdom. Pricing had a 3.0% positive impact on sales growth, while foreign exchange negatively impacted sales by 2.0%. On an organic basis, sales rose 5.5% from the year-ago quarter.
Operating profit dipped 6.0% to $136 million, whereas operating profit margin contracted 250 bps to 24.8%. The decline was due to lower gross profit margin and higher SG&A expenses, as a percentage of net sales.
Other Financial Details
Colgate-Palmolive ended the quarter with cash and cash equivalents of $884 million, total debt of $5,628 million and shareholders’ equity of $1,531 million. Net cash provided by operating activities came in at $1,325 million for the first-half of 2013.
Looking ahead, Colgate-Palmolive anticipates its growth momentum to continue into 2013 as it remains on track with its global restructuring program. Further, the company’s stringent focus on the funding-the-growth programs and strategic worldwide pricing endeavors should help boost its bottom line.
As a result, the company expects strong organic sales as well as gross margin expansion in 2013. The company projects 4.5% to 5.5% growth in earnings per share for 2013. The company’s earnings for the year are expected to be impacted by currency devaluation in Venezuela and the recent fluctuations in foreign exchange in other countries.
Other Stocks to Consider
Colgate-Palmolive carries a Zacks Rank #3 (Hold). Other stocks in the same industry that are worth considering include Nu Skin Enterprises Inc. (NUS), Church & Dwight Co. Inc. (CHD), Reckitt Benckiser Group plc (RBGLY). Nu Skin carries a Zacks Rank #1 (Strong Buy) whereas Church & Dwight and Reckitt Benckiser carry a Zacks Rank #2 (Buy).
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