Colgate Announces 3rd Quarter Results and New Glob Colgate Announces 3rd Quarter Results and New Global Growth and Efficiency Program for Sustained Growth
October 25, 2012
NEW YORK--(BUSINESS WIRE)-- Colgate-Palmolive Company (NYSE:CL) today reported worldwide Net sales of $4,332 million in third quarter 2012, a decrease of 1.0% versus third quarter 2011. Global unit volume grew 2.0%, pricing increased 3.0% and foreign exchange was negative 6.0%. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 5.0%.
Net income and Diluted earnings per share in third quarter 2012 were $654 million and $1.36, respectively. Net income and Diluted earnings per share in third quarter 2011 were $643 million and $1.31, respectively. Net income in third quarter 2012 and 2011 included $7 million ($0.02 per diluted share) and $133 million ($0.27 per diluted share), respectively, of aftertax charges resulting from the implementation of the previously disclosed business realignment and other cost-saving initiatives and costs associated with the sale of land in Mexico. Net income in third quarter 2011 also included an aftertax gain of $135 million ($0.27 per diluted share) from the sale of the Company's non-core laundry detergent business in Colombia.
Excluding the above noted items in both periods, Net income in third quarter 2012 was $661 million, an increase of 3% versus third quarter 2011, and Diluted earnings per share in third quarter 2012 was $1.38, an increase of 5% versus third quarter 2011.
Gross profit margin was 58.4% in third quarter 2012 versus 56.2% in the year ago quarter. Excluding the above noted items in both periods, Gross profit margin was 58.6% in third quarter 2012, an increase of 180 basis points versus the year ago quarter, as higher pricing and cost savings from the Company's funding-the-growth initiatives more than offset the impact of increases in raw and packaging material costs and negative foreign exchange transaction costs.
Selling, general and administrative expenses were 34.6% of Net sales in third quarter 2012 versus 34.0% in third quarter 2011, as worldwide advertising spending increased 1% versus the year ago quarter to $453 million. Advertising as a percent to sales increased 20 basis points to 10.5% from 10.3% in third quarter 2011.
Operating profit decreased 1% to $1,027 million in third quarter 2012 compared to $1,035 million in third quarter 2011. Excluding the above noted items in both periods, Operating profit increased 3% to $1,037 million.
Net cash provided by operations year to date was $2,133 million compared to $2,057 million in the comparable 2011 period. Net cash provided by operations for 2012 includes higher income tax payments, higher payments related to business realignment and other cost-saving initiatives and the payment for the previously disclosed competition law matter in France related to a divested detergent business, and lower voluntary benefit plan contributions. Working capital as a percentage of Net sales was 2.2%, up 160 basis points versus the year ago period. This increase was primarily due to the timing of income tax payments and higher accounts receivable.
Ian Cook, Chairman, President and Chief Executive Officer, commented on the results and outlook excluding the 2012 and 2011 items noted above and the costs of the Global Growth and Efficiency Program discussed below, "We are very pleased to have achieved another quarter of strong profitability with gross profit margin, operating profit margin and net income as a percent to sales all increasing versus year ago, despite an intense competitive environment and challenging macroeconomic conditions worldwide.
"Our growth momentum continued on the top line as well, with organic sales increasing a healthy 5.0% during the quarter, led by the emerging markets where organic sales grew a robust 9.5%.
"We are delighted that gross profit margin increased by 180 basis points during the quarter, the largest expansion we have seen in ten quarters. This allowed for higher advertising spending behind Colgate's brands both in absolute dollars and as a percent to sales, which drove market share gains around the world.
"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 44.9% year to date, up 0.6 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 32.7% year to date, up 0.8 share points versus year ago.
"Looking ahead, we continue to be sharply focused on our aggressive funding-the-growth programs and our strategic worldwide pricing initiatives. We anticipate that the combined benefits from those programs will continue to help us offset the impact of increases in raw and packaging material costs and the transaction impact of negative foreign exchange, and achieve gross margin expansion in 2012 within our targeted range of 75 to 125 basis points.
"Overall, we continue to expect diluted earnings per share for 2012 to grow at a double-digit rate, on a currency neutral basis. If average exchange rates in the balance of the year were to remain at current spot rates, currency translation would decrease full year diluted earnings per share growth by approximately 6-7%."
Global Growth and Efficiency Program
Separately, the Company announced a four-year Global Growth and Efficiency Program (the "2012 Restructuring Program") for sustained growth. The program's initiatives are expected to help Colgate ensure continued solid worldwide growth in unit volume, organic sales and earnings per share and enhance its global leadership positions in its core businesses.
This four-year Global Growth and Efficiency Program is expected to produce significant benefits in the Company's long-term business performance. The major objectives of the program include:
• Becoming even stronger on the ground through the continued evolution and expansion of proven global and regional commercial capabilities, which have already been successfully implemented in a number of the Company's operations around the world.
• Simplifying and standardizing how work gets done by increasing technology enabled collaboration and taking advantage of global data and analytic capabilities, leading to smarter and faster decisions.
• Reducing structural costs to continue to increase the Company's gross and operating profit.
• Building on Colgate's current position of strength to enhance its leading market share positions worldwide and ensure sustained sales and earnings growth.
Implementation of the 2012 Restructuring Program is projected to result in cumulative pretax charges, once all phases are approved and implemented, totaling between $1,100 and $1,250 million ($775 and $875 million aftertax), beginning with approximately $110 to $120 million ($90 to $100 million aftertax) in fourth quarter 2012. Savings are projected to be in the range of $365 to $435 million ($275 to $325 million aftertax) annually by the fourth year of the program. The expected savings represent a three to four year cash payback, on average, with a targeted aftertax rate of return exceeding 30%.
Savings in 2013 should approximate $40 to $50 million ($30 to $40 million aftertax) effective in the latter part of the year. The anticipated charges for 2013 are expected to amount to approximately $260 to $310 million ($185 to $220 million aftertax.)
Initiatives under the program will focus on the following three areas:
•Expanding Commercial Hubs — Building on the success of this structure already implemented in several divisions, continue to cluster single-country subsidiaries into more efficient regional hubs, in order to drive smarter and faster decision making, strengthen capabilities available on the ground and improve cost structure.
•Extending Shared Business Services and Streamlining Global Functions — Implementing the Company's shared service organizational model, already successful in Europe, in all regions of the world. Initially focused on finance and accounting, these shared services will be expanded to additional functional areas to streamline global functions.
•Optimizing Global Supply Chain and Facilities— Continuing to optimize manufacturing efficiencies, global warehouse networks and office locations for greater efficiency, lower cost and speed to bring innovation to market.
It is expected that by the end of 2016, the 2012 Restructuring Program will reduce the Company's global employee workforce by approximately 6% from the current level of 38,600.
Ian Cook, Chairman, President and Chief Executive Officer commented, "We are living in a fast-changing world with many challenges including slowing economies in many countries. This program will help us to move forward from our current position of strength to continue to deliver sustained, profitable growth over the long-term.
"This initiative offers us the opportunity to expand many of our already successful programs. For example, we have seen extended growth in Latin America where we have been managing the division with regional hubs for many years. Additionally, in Europe, our financial shared service center in Warsaw, Poland has significantly reduced structural costs for the region.
"These positive experiences and our proven track record of implementing a multitude of savings programs and reducing costs year after year give us confidence in the ability of this program to fund even higher levels of investment behind Colgate's brands and strengthen our overall commercial capabilities around the world."
Specifically, reinvestment will be focused in the following four areas:
•New Product Innovation and Brand Building— Continuing our strong investment in research and product development to ensure a robust pipeline of new products supported by effective integrated marketing campaigns.
•Enabling Technology and Analytics — Intensify the use of existing and new technologies to enhance planning systems, real-time collaboration and paperless interaction, within the Company and with customers and suppliers, and to enhance analytic capabilities in support of consumer insights, brand management and commercial decision making.
•Digital Engagement — Increasing consumer engagement and loyalty by expanding our web-based capabilities, including mobile and social media and e-commerce.
•Emerging Markets — Seizing the opportunities reflected by this growing consumer base with targeted programs to increase consumer engagement, expand distribution and improve in-store execution.
Mr. Cook concluded, "As we look ahead to 2013, while our global budget process is still in its initial stages, based on the Company's current growth momentum, our confidence in this new efficiency program in addition to our ongoing funding-the-growth and strategic worldwide pricing efforts, we are planning for a return to our long-term target of double-digit earnings per share growth on a dollar basis and another year of gross margin expansion, excluding charges related to the 2012 Restructuring Program."
At 11:00 a.m. ET today, Colgate will host a conference call to elaborate on third quarter results and the announced restructuring program.
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