Colgate-Palmolive Company
(NYSE:CL) today announced strong worldwide sales and unit volume growth for
second quarter 2005, with every operating division reporting top- line
increases. Worldwide sales rose 10.5%, the largest quarterly growth in almost
ten years. The robust sales reflected unit volume growth of 8.0%, positive
foreign exchange of 2.5% and worldwide pricing that was even with the year ago
quarter. Excluding the recently acquired GABA oral care business, sales rose
9.0% and volume rose 6.5% in the quarter.
Second quarter 2005 results include $28.7 million of aftertax charges related
to the previously disclosed 2004 Restructuring Program. Reported net income
and diluted earnings per share were $342.9 million and $.62, respectively,
including this restructuring charge. Excluding the restructuring charge, net
income in the quarter declined 1% versus second quarter 2004 to $371.6 million
and diluted earnings per share increased 2% to $.67. In second quarter 2004,
reported net income and diluted earnings per share were $373.9 million and
$.66, respectively.
As reported, gross profit margin was 54.2%. Excluding restructuring charges,
gross profit margin was 55.1% versus 55.4% in the year ago record quarter. The
expected effect on gross profit from increases in raw and packing material costs
and higher business-building commercial spending was largely offset by the
Company's aggressive savings programs and an accelerated shift toward
higher-margin oral and personal care products.
Including the restructuring charge, operating profit declined 7%. Excluding the
charge, operating profit declined 1% versus second quarter 2004 after a 16%
increase in total advertising worldwide in the current quarter. Global
advertising supporting Colgate's brands of $292.3 million was at an all-time
record level led by a strong double-digit global increase in media spending.
Net cash provided by operations increased to $728.4 million, up 13% versus the
year ago period while working capital was even with the year ago period at 4.3%
of sales.
Reuben Mark, Chairman and CEO said, "We enjoyed outstanding top-line growth
this quarter, particularly in North America, Latin America, Eastern Europe and
Africa. Also, we are encouraged by volume growth in Western Europe, excluding
the GABA acquisition, despite the challenging retail environment in that
region.
"Toothpaste market shares are strong and getting stronger in the U.S. and
abroad, reaching a record high worldwide. Colgate's global leadership in
manual toothbrushes also expanded during the quarter with manual toothbrush
market shares reaching record highs in the U.S., Mexico, Venezuela, France and
other key countries around the world.
"We're delighted that in addition to market share growth, it appears that our
heavier level of advertising spending has accelerated the growth of the
toothpaste market in a considerable number of overseas countries.
"We are pleased that gross profit margin, excluding the restructuring charge,
was only slightly below the prior year record level despite the significant
rise in raw and packaging material costs. Although the cost environment is
expected to remain difficult, our ongoing focus on cost savings, the benefits
of restructuring and the impact of the recently announced sale of our North
American detergent business should allow gross margin expansion in the balance
of the year.
"We are also very encouraged that pricing was even with last year on a
worldwide basis after being negative for six consecutive quarters."
Mr. Mark continued, "This more positive pricing trend, which is expected to
continue in the second half, combined with an apparent moderation in the amount
of commercial spending required, bodes well for further increases in
profitability.
"We are optimistic the strong sales momentum and excellent results from our
cost-saving initiatives should enable us to achieve our expectations of high
single-digit E.P.S. growth for this year and allow us to return to double-digit
E.P.S. growth in 2006, before restructuring charges."
As previously disclosed, the 2004 Restructuring Program is projected to result
in cumulative aftertax charges of between $550 and $650 million by 2008.
Annual aftertax savings are expected to be in the range of $250 to $300 million
also by 2008, with the majority of the current year's projected savings expected
to be realized in second half 2005. First half 2005 restructuring projects have
been implemented as expected.
At 11:00 a.m. ET today, Colgate will host a conference call to elaborate on
second quarter results. To access this call as a webcast, please go to
Colgate's web site at http://www.colgate.com/.
The following are comments about divisional performance. See attached
Geographic Sales Analysis and Segment Information schedules for additional
information on divisional sales and operating profit.
North America (22% of Company Sales)
Strong growth momentum continued in North America, fueled by new product sales
and market share gains. Sales rose 9.0% during the quarter to an all-time
record level and unit volume grew 8.0%, the strongest volume growth seen in ten
quarters. Positive foreign exchange added 1.0% while pricing was even with the
year ago period. As expected, North American operating profit declined 1% as
volume growth was offset by increased commercial investment and higher freight
and raw material costs.
Colgate's leadership of the U.S. toothpaste market continues to grow, with its
ACNielsen market share reaching 35.6% year to date, up 150 basis points versus
the year ago period and over three share points ahead of the number two
competitor.
In the U.S., new products and increased commercial investment are generating
strong volume and market share growth. Key categories continuing to gain
market share year to date versus prior year include toothpaste, manual and
powered toothbrushes, hand dishwashing liquid, bar soap and fabric
conditioners. In oral care, new testimonial advertising for Colgate Total
toothpaste, and the recently launched Colgate Max Fresh Cinnamint toothpaste
and Colgate 360 Degree manual toothbrush contributed to the share gains. Other
new products contributing to growth in other categories include Palmolive Oxy
Plus Citrus Purity dishwashing liquid, new Mennen Speed Stick and Lady Speed
Stick 24/7 multiform deodorants with Micro-Absorber technology, Irish Spring
Micro Clean bar soap and Fabuloso Orange Burst liquid cleaner.
Top-line growth in the U.S. is expected to continue in the balance of the year
driven by a full pipeline of new product launches supported by higher
commercial spending. Recent announcements planned for second half 2005 include
Colgate Luminous toothpaste, Palmolive with Bleach Alternative dishwashing
liquid and Softsoap Kitchen Fresh Hands liquid hand soap.
Latin America (23% of Company Sales)
Latin American dollar sales and unit volume, excluding divestments, grew 19.5%
and 11.0%, respectively, in second quarter 2005. This is the strongest
quarterly volume growth for the region in almost eight years and the strongest
quarterly sales growth in nearly ten years. All 18 countries in the region
contributed to the strong volume gains led by Brazil, Mexico, Colombia,
Venezuela, Central America and Argentina. Sales and volume, as reported,
increased 18.0% and 9.5%, respectively, with 5.0% positive foreign exchange and
3.5% higher pricing. Latin American operating profit increased 12% to an
all-time record level as volume growth and the positive impact of foreign
exchange more than offset the increased level of commercial spending behind
Colgate brands during the quarter.
Colgate continues to build its extremely strong leadership in oral care
throughout Latin America with toothpaste market share gains seen in nearly
every country in the region, reaching record highs in Venezuela and Central
America. New products contributing to these gains include Colgate Triple
Action Mild Mint and Colgate Sensitive toothpastes, and the relaunch of Colgate
Total toothpaste with new packaging and strong advertising highlighting the
toothpaste's ability to provide complete 12 hour protection while actively
fighting 12 teeth and gum problems. New products succeeding in other
categories are Colgate MicroSonic battery-powered toothbrush, Palmolive Citrus
and Cream and Protex Oats bar soaps, Palmolive Hydra Natura hand and body
lotion, and Lady Speed Stick Aloe multiform deodorants.
Europe (25% of Company Sales)
European dollar sales and unit volume grew 11.5% and 10.5%, respectively,
during the quarter. The GABA acquisition added 6.0% to both sales and volume
growth for the region while foreign exchange added 3.5% and pricing was 2.5%
lower. Volume gains were achieved in the United Kingdom, Denmark, France,
Greece, Italy, Spain, Ireland, Russia, Ukraine, Adria, Romania, and Czech
Republic. Dollar operating profit increased 6% to a record level as volume
growth and the positive impact of foreign exchange more than offset a
double-digit increase in commercial spending during the quarter.
Colgate strengthened its oral care leadership in Western Europe with regional
market shares in toothpaste and manual toothbrushes both increasing year to
date. Successful new products driving these gains include Colgate Oxygen and
Colgate Sensitive toothpastes, Colgate 360 Degree manual toothbrush and Colgate
MicroSonic battery-powered toothbrush. Recent innovations contributing to gains
in personal care include Palmolive multiform deodorants, and Palmolive Aroma
Creme and Palmolive Naturals with Shea Butter shower gels.
Throughout Central Europe and Russia, Colgate's toothpaste market share
continues to grow, now exceeding 26% and reaching record highs during the
quarter in Russia, Ukraine, Kazakhstan, Slovenia and Croatia. Share gains in
the region were driven by strong sales of Colgate Propolis Whitening, Colgate
Cavity Protection, Colgate Total and Colgate Sensitive toothpastes. Colgate
360 Degree manual toothbrush, Lady Speed Stick 24/7 multiform deodorants and
Palmolive Aroma Creme shower gel contributed to gains in other categories.
Asia/Africa (17% of Company Sales)
Asia/Africa sales and unit volume, as reported, grew 4.5% and 4.0%,
respectively, on top of double-digit growth in the year ago quarter. Healthy
volume gains were achieved in the China region, Australia, India, Philippines
and South Africa. Positive foreign exchange of 2.5% was offset by lower
pricing of 2.0%. After a significant increase in commercial spending, dollar
operating profit for the region declined 7% versus the record level achieved in
second quarter 2004.
Colgate strengthened its oral care leadership in the Asia Pacific region led by
toothpaste market share gains in India, the Philippines, New Zealand and
Australia. Regional toothbrush market shares for the Colgate equity reached a
record high during the quarter. Successful new products driving the oral care
growth include Colgate Max Fresh, Colgate Propolis, and Darlie Tea Care
toothpastes. In the South Pacific, the recently launched Colgate 360 Degree
manual toothbrush and Colgate MicroSonic battery-powered toothbrush continue to
perform ahead of expectations.
New products contributing to growth in other categories throughout the region
include Palmolive Aroma Creme shower gel and liquid hand soap, Palmolive
Naturals shampoo and conditioner, and Palmolive Naturals Sun Care bar soap.
Hill's (13% of Company Sales)
Innovative new products and veterinary endorsements continue to drive growth at
Hill's, the world leader in specialty pet food. Unit volume grew 3.5% in the
second quarter and dollar sales rose 6.0% reflecting favorable 2.0% foreign
exchange and the effect of price increases taken in 2004. Dollar operating
profit increased 3% despite a double-digit increase in commercial spending.
Innovative new products contributing to growth in the U.S. specialty retail
channel during the quarter include Science Diet Canine Senior Large Breed and
Science Diet Canine Light Large Breed dog food. In the U.S. veterinary
channel, sales of new Prescription Diet Canine j/d, a food clinically proven to
reduce pain and improve mobility in dogs with arthritis, continue to exceed
expectations.
Internationally, growth was strong led by Spain, Russia, the United Kingdom,
Italy, France and Japan. New products driving this growth include Science Diet
Canine Senior Large Breed and Prescription Diet Canine j/d.
* * *
About Colgate-Palmolive: Colgate-Palmolive is a leading global consumer
products company, tightly focused on Oral Care, Personal Care, Home Care and
Pet Nutrition. Colgate sells its products in over 200 countries and
territories around the world under such internationally recognized brand names
as Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso,
Kolynos, Elmex, Ajax, Axion, Soupline, Suavitel and Fab, as well as Hill's
Science Diet and Hill's Prescription Diet pet foods. For more information
about Colgate's global business, visit the Company's web site at
http://www.colgate.com/.
This press release and the related webcast (other than historical information)
may contain forward-looking statements. Actual events or results may differ
materially from those statements. Investors should consult the Company's
filings with the Securities and Exchange Commission (including the information
set forth under the caption "Cautionary Statement on Forward-Looking
Statements" in the Company's Form 10-K for the year ended December 31, 2004)
for information about factors that could cause such differences. Copies of
these filings may be obtained upon request from the Company's Investor
Relations Department or the Company's web site at http://www.colgate.com/.
Non-GAAP Financial Measures
The following provides information regarding the non-GAAP measures used in this
earnings release:
Net income, gross profit margin, operating profit and earnings per share are
discussed in this release both as reported (on a GAAP basis) and excluding
charges related to the restructuring program that began in the fourth quarter
of 2004 and that is expected to be substantially completed by 2008 (the "2004
Restructuring Program"). Such charges, which are reported in the corporate
segment, include or will include separation-related costs, incremental
depreciation and asset write-downs and other costs related to the 2004
Restructuring Program. Management believes these financial measures on an
ex-restructuring basis provide useful information to investors regarding the
underlying business trends and performance of the Company's ongoing operations
and are useful for period over period comparisons of such operations. The
Company uses these financial measures internally in its budgeting process and
as factors in determining compensation. While the Company believes that these
financial measures are useful in evaluating the Company's business, this
information should be considered as supplemental in nature and not as a
substitute for the related financial information prepared in accordance with
GAAP. In addition, these non-GAAP financial measures may not be the same as
similar measures presented by other companies. See Income Statement and
Supplemental Information Reconciliation Excluding the "2004 Restructuring
Program" for the three months ended June 30, 2005 and 2004 and for the six
months ended June 30, 2005 and 2004 included with this release for a
reconciliation of these financial measures to the related GAAP measures.
Sales and unit volume growth, both worldwide and in relevant geographic
divisions, are discussed in this release both as reported and excluding
divestments. Management believes this provides useful information to investors
as it allows comparisons of sales and volume growth from ongoing operations.
See Geographic Sales Analysis, Percentage Changes - Second Quarter 2005 vs.
2004 for a comparison of sales excluding divestments to sales as reported in
accordance with GAAP.
The Company defines free cash flow before dividends as net cash provided by
operations less capital expenditures. As management uses this measure to
evaluate the Company's ability to satisfy current and future obligations,
repurchase stock, pay dividends and fund future business opportunities, the
Company believes that it provides useful information to investors. Free cash
flow before dividends is not a measure of cash available for discretionary
expenditures since the Company has certain non-discretionary obligations such
as debt service that are not deducted from the measure. Free cash flow before
dividends is not a GAAP measurement and may not be comparable to similarly
titled measures reported by other companies.
(See attached tables for second quarter results.)
Colgate-Palmolive Company
Consolidated Income Statement and Supplemental Information
Reconciliation Excluding the "2004 Restructuring Program"
For the three months ended June 30, 2005 and 2004
(Dollars in Millions Except Per Share Amounts) (Unaudited)
2005 2005 2005 2004
Excluding
As Restruct- Restruct- As
Reported uring uring Reported
Net sales $2,837.5 $- $2,837.5 $2,571.7
Cost of sales 1,298.4 (23.1) 1,275.3 1,148.1
Gross profit 1,539.1 23.1 1,562.2 1,423.6
Gross profit margin 54.2% 55.1% 55.4%
Selling, general and administrative
expenses 959.1 - 959.1 848.1
Other (income) expense, net 38.9 (12.9) 26.0 (9.3)
Operating profit 541.1 36.0 577.1 584.8
Operating profit margin 19.1% 20.3% 22.7%
Interest expense, net 30.9 - 30.9 29.3
Income before income taxes 510.2 36.0 546.2 555.5
Provision for income taxes 167.3 7.3 174.6 181.6
Effective tax rate 32.8% 32.0% 32.7%
Net income 342.9 28.7 371.6 373.9
Earnings per common share
Basic $0.64 $0.06 $0.70 $0.69
Diluted $0.62 $0.05 $0.67 $0.66
Average common shares outstanding
Basic 521.4 521.4 521.4 531.4
Diluted 557.4 557.4 557.4 570.6
Colgate-Palmolive Company
Consolidated Income Statement and Supplemental Information
Reconciliation Excluding the "2004 Restructuring Program"
For the six months ended June 30, 2005 and 2004
(Dollars in Millions Except Per Share Amounts) (Unaudited)
2005 2005 2005 2004
Excluding
As Restruct- Restruct- As
Reported uring uring Reported
Net sales $5,580.5 $- $5,580.5 $5,085.2
Cost of sales 2,537.8 (33.8) 2,504.0 2,262.0
Gross profit 3,042.7 33.8 3,076.5 2,823.2
Gross profit margin 54.5% 55.1% 55.5%
Selling, general and administrative
expenses 1,903.5 - 1,903.5 1,692.4
Other (income) expense, net 105.5 (51.9) 53.6 14.7
Operating profit 1,033.7 85.7 1,119.4 1,116.1
Operating profit margin 18.5% 20.1% 21.9%
Interest expense, net 62.5 - 62.5 57.6
Income before income taxes 971.2 85.7 1,056.9 1,058.5
Provision for income taxes 328.2 12.4 340.6 346.1
Effective tax rate 33.8% 32.2% 32.7%
Net income 643.0 73.3 716.3 712.4
Earnings per common share
Basic $1.20 $0.14 $1.34 $1.31
Diluted $1.15 $0.13 $1.28 $1.25
Average common shares outstanding
Basic 523.1 523.1 523.1 532.2
Diluted 559.5 559.5 559.5 571.5
Colgate-Palmolive Company Condensed Consolidated Balance Sheets
As of June 30, 2005, December 31, 2004 and June 30, 2004
(Dollars in Millions) (Unaudited)
June 30, December 31, June 30,
2005 2004 2004
Cash and cash equivalents $392.1 $319.6 $417.3
Receivables, net 1,315.4 1,319.9 1,277.2
Inventories 915.7 845.5 843.4
Other current assets 306.2 254.9 297.0
Property, plant and equipment, net 2,548.6 2,647.7 2,502.7
Other assets, including goodwill and
intangibles 3,189.2 3,285.3 3,092.8
Total assets $8,667.2 $8,672.9 $8,430.4
Total debt 3,889.1 3,675.1 3,962.4
Other current liabilities 2,031.2 2,145.1 1,941.0
Other non-current liabilities 1,552.0 1,607.3 1,495.6
Total shareholders' equity 1,194.9 1,245.4 1,031.4
Total liabilities and shareholders'
equity $8,667.2 $8,672.9 $8,430.4
Supplemental Balance Sheet Information:
Debt less cash and marketable
securities* $3,487.7 $3,338.2 $3,522.8
Working capital % of sales 4.3% 2.4% 4.3%
* Marketable securities of $9.3, $17.3 and $22.3 as of June 30, 2005,
December 31, 2004 and June 30, 2004, respectively, are included in Other
current assets.
Colgate-Palmolive Company Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2005 and 2004
(Dollars in Millions) (Unaudited)
2005 2004
Operating Activities:
Net income $643.0 $712.4
Adjustments to reconcile net income to net cash
provided by operations:
Restructuring, net of cash 61.8 (4.8)
Depreciation and amortization 165.2 159.7
Deferred income taxes 3.0 22.6
Cash effects of changes in:
Receivables (26.8) (32.3)
Inventories (95.7) (115.9)
Accounts payable and other accruals (20.3) (57.4)
Other non-current assets and liabilities (1.8) (40.3)
Net cash provided by operations 728.4 644.0
Investing Activities:
Capital expenditures (159.2) (117.6)
Payment for acquisition, net of cash acquired - (714.8)
Other (4.9) 52.4
Net cash used in investing activities (164.1) (780.0)
Financing Activities:
Principal payments on debt (1,119.9) (235.5)
Proceeds from issuance of debt 1,432.5 1,103.7
Dividends paid (291.2) (268.6)
Purchases of treasury shares (513.5) (358.2)
Proceeds from exercise of stock options 19.3 57.2
Net cash (used in) provided by financing
activities (472.8) 298.6
Effect of exchange rate changes on cash and
cash equivalents (19.0) (10.6)
Net increase in Cash and cash equivalents 72.5 152.0
Cash and cash equivalents at beginning of period 319.6 265.3
Cash and cash equivalents at end of period $392.1 $417.3
Supplemental Cash Flow Information:
Free cash flow before dividends
(net cash provided by operations less
capital expenditures)
Net cash provided by operations $728.4 $644.0
Less: Capital expenditures (159.2) (117.6)
Free cash flow before dividends $569.2 $526.4
Income taxes paid $298.3 $335.4
Colgate-Palmolive Company Segment Information
For the three and six months ended June 30, 2005 and 2004
(Dollars in Millions) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Net Sales
Oral, Personal and Home Care
North America $632.1 $578.9 $1,241.8 $1,147.4
Latin America 651.4 552.4 1,239.9 1,085.9
Europe 691.4 618.8 1,378.8 1,225.8
Asia/Africa 487.1 467.0 985.1 935.2
Total Oral, Personal and Home
Care $2,462.0 $2,217.1 $4,845.6 $4,394.3
Total Pet Nutrition 375.5 354.6 734.9 690.9
Total Net Sales $2,837.5 $2,571.7 $5,580.5 $5,085.2
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Operating Profit
Oral, Personal and Home Care
North America $135.3 $136.4 $272.1 $271.8
Latin America 179.3 159.8 342.4 318.1
Europe 139.0 131.1 274.3 260.8
Asia/Africa 73.8 79.0 155.7 163.1
Total Oral, Personal and Home
Care 527.4 506.3 1,044.5 1,013.8
Total Pet Nutrition 102.6 99.4 200.8 194.8
Total Corporate (88.9) (20.9) (211.6) (92.5)
Total Operating Profit $541.1 $584.8 $1,033.7 $1,116.1
The Company evaluates segment performance based on several factors, including
operating profit. The Company uses operating profit as a measure of operating
segment performance because it excludes the impact of corporate-driven
decisions related to interest expense and income taxes. Corporate operations
include research and development costs, unallocated overhead costs,
restructuring costs, and gains and losses on sales of non-strategic brands and
assets.
Corporate operating expenses for the three and six months ended June 30, 2005
include $36.0 and $85.7 of charges related to the Company's 2004 Restructuring
Program, respectively. Additionally, Corporate operating expenses for the
three and six months ended June 30, 2004 were reduced by a $26.7 gain related
to the sale of the Company's detergent businesses in Ecuador and Peru.
Colgate-Palmolive Company - Geographic Sales Analysis
Percentage Changes - Second Quarter 2005 vs 2004
June 30, 2005
(Unaudited)
COMPONENTS OF SALES CHANGE
2ND QUARTER
2nd Qtr 2nd Qtr Pricing,
Sales Sales Coupons,
Change Change Ex- Consumer &
As Ex- Divested Trade
Reported Divestment Volume Incentives Exchange
Region
Total Company 10.5% 10.5% 8.0% 0.0% 2.5%
Europe 11.5% 11.5% 10.5% -2.5% 3.5%
Latin America 18.0% 19.5% 11.0% 3.5% 5.0%
Asia/Africa 4.5% 4.5% 4.0% -2.0% 2.5%
Total International 11.5% 12.0% 9.0% -0.5% 3.5%
North America 9.0% 9.0% 8.0% 0.0% 1.0%
Total CP Products 11.0% 11.5% 8.5% 0.0% 3.0%
Hill's 6.0% 6.0% 3.5% 0.5% 2.0%
COMPONENTS OF SALES CHANGE
SIX MONTHS
6 Months 6 Months Pricing,
Sales Sales Coupons,
Change Change Ex- Consumer &
As Ex- Divested Trade
Reported Divestment Volume Incentives Exchange
Region
Total Company 9.5% 10.0% 8.0% -0.5% 2.5%
Europe 12.5% 12.5% 10.0% -2.0% 4.5%
Latin America 14.0% 15.5% 10.0% 2.5% 3.0%
Asia/Africa 5.5% 5.5% 5.5% -2.5% 2.5%
Total International 11.0% 11.5% 8.5% -0.5% 3.5%
North America 8.0% 8.0% 8.0% -0.5% 0.5%
Total CP Products 10.5% 10.5% 8.0% -0.5% 3.0%
Hill's 6.5% 6.5% 3.0% 1.0% 2.5%
NOTE:
GABA was acquired June 1, 2004.
The impact of GABA on Total Company sales and volume was 1.5% in the
second quarter and 2.0% in the six month period.
The impact of GABA on European sales and volume was 6.0% in the second
quarter and 8.5% in the six month period.
DATASOURCE: Colgate-Palmolive Company
CONTACT: Bina Thompson, +1-212-310-3072, or Hope Spiller,
+1-212-310-2291, both for Colgate-Palmolive Company
Web site: http://www.colgate.com/