Colgate Announces Strong 2nd Quarter Operating and Net Profit Up Double-Digit Excellent Top-Line Growth Across All Divisions
Colgate-Palmolive Company (NYSE:CL) today announced excellent worldwide sales and unit volume growth together with double-digit earnings growth for second quarter 2007. Worldwide sales grew 13.0% to $3,405.4 million and unit volume grew 8.0%, as reported. Excluding divestments, worldwide sales and unit volume grew 13.5% and 8.5%, respectively. Global pricing increased 0.5%, and foreign exchange added 4.5%. The very strong top-line growth was supported by a 22% increase in worldwide advertising spending to an all-time record level.
Second quarter 2007 results include $41.7 million of aftertax charges related to the 2004 Restructuring Program. In the year ago quarter, restructuring charges were $115.9 million aftertax.
As reported, gross profit margin increased 180 basis points to 56.0%. Excluding restructuring charges, gross profit margin increased 100 basis points to a record 57.1%.
Operating profit as reported increased 43% versus second quarter 2006. Excluding restructuring charges, operating profit rose 13% to $713.0 million. On the same basis, operating profit margin was 20.9% of sales, even with the year ago period.
Reported net income and diluted earnings per share in second quarter 2007 were $415.8 million and $.76, respectively. Excluding restructuring charges, net income in the quarter increased 15% versus second quarter 2006 to a record $457.5 million, and diluted earnings per share increased 17% to $.84, also a record. In second quarter 2006, reported net income and diluted earnings per share were $283.6 million and $.51, respectively, and net income and diluted earnings per share excluding restructuring charges were $399.5 million and $.72, respectively.
Net cash provided by operations year to date increased by 29% to $899.0 million after building selected inventories to support the business during factory closings related to the 2004 Restructuring Program. End of second quarter 2007 working capital improved to 3.3% of sales versus 3.9% in the comparable 2006 period.
Ian Cook, President and CEO commented, "We are delighted that our excellent growth momentum continued this quarter on both the top and bottom lines. This is the third consecutive quarter of double-digit sales and earnings per share growth, and the 17% increase in earnings per share, excluding restructuring charges, is the highest quarterly increase we have seen in over a year. We are especially encouraged that every operating division achieved record sales and operating profit for the second quarter.
"Pleasingly, the strong improvement in gross profit margin worldwide and other savings programs funded a significant increase in advertising supporting Colgate brands while still meeting or beating recently upwardly revised external expectations for earnings per share growth for the quarter.
“We believe these very strong results reflect our continued focus on our strategic initiatives which include getting closer to consumers everywhere, strengthening our partnerships with the dental and veterinary professions and our customers, fostering innovation in all areas of our business and getting more effective and efficient in everything we do.”
Every operating division had meaningfully higher advertising spending, which drove market share gains across categories. Colgate’s global toothpaste leadership strengthened during the quarter with market share gains in key countries around the world including Mexico, Brazil, China, India, France and Russia. Colgate’s leading share of the worldwide manual toothbrush market also strengthened during the quarter to another record high.
Reuben Mark, Chairman said, “This excellent quality quarter is further evidence that Ian and the new generation of Colgate leaders around the world are sharply focused as they pursue the strategic initiatives they established more than two years ago. I believe we will continue to see the power of these strategies to further build Colgate’s sales and profits.”
Mr. Cook further commented, "As we look to the balance of the year we are confident that the strong top-line growth will continue, driven by our very full new product pipeline around the world with an array of impactful integrated marketing campaigns to support them. We expect gross profit margin, excluding restructuring charges, to be up within our targeted range of 75 to 125 basis points for this year and next year as well, as a result of our ongoing cost-savings initiatives, the benefits from restructuring, efficiencies in promotional programs and a continued shift towards higher-margin products.
“All this combined with this quarter’s strong results adds to our confidence that we will deliver double-digit earnings per share growth for 2007.”
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 (20% of Company Sales)
Positive growth continued in North America, fueled by new product sales and market share gains. As reported, sales and unit volume grew 3.5% and 3.0%, respectively. Excluding the divestiture of the Canadian household bleach business, sales and unit volume grew 5.0% and 4.5%, respectively, driven by strong oral care volume growth in the United States, up 7% in the quarter. Pricing added 0.5% and foreign exchange was flat with the year ago period. North American operating profit increased 13% even after a significant increase in advertising during the quarter.
In the U.S., new product launches in the super-premium category are contributing to market share gains in oral care. Colgate Total Advanced Clean toothpaste, supported by a new integrated marketing campaign featuring Brooke Shields, helped drive market share for Colgate Total toothpaste up 1.1 share points versus year ago to 15.0% in the second quarter. Colgate Max Fresh BURST toothpaste, infused with 50% more mini breath strips, is also off to a strong start helping to drive market share for the Max Fresh equity to a record 4.0% in the second quarter. Colgate’s share of the manual toothbrush market is 25.7% year to date, up 2.4 share points versus year ago, fueled by the continued success of Colgate 360° manual toothbrush.
Successful new products contributing to growth in other categories include Irish Spring body wash for men, Softsoap brand Nutra-Oil moisturizing body wash, Mennen Speed Stick Gametime deodorant and Palmolive Scrub Buster with Micro Beads dish liquid. Fabuloso liquid cleaner and Suavitel fabric conditioner each achieved record high market shares during the quarter.
Positive growth momentum in the U.S. is expected to continue. New products planned for launch in the third quarter include Suavitel Aroma Sensations fabric conditioner, Softsoap brand Nutra-Oil and Softsoap brand Black Raspberry and Vanilla liquid hand soaps, and Softsoap brand Fresh Pear and Apple Blossom body wash.
Latin America (25% of Company Sales)
As reported, Latin American sales and unit volume grew 16.0% and 10.5%, respectively, in the second quarter. Excluding the divested bleach businesses, sales and unit volume grew 18.0% and 12.5%, respectively. This is the fourth consecutive quarter of double-digit volume growth for Latin America. Every market in the region contributed to the very strong volume gains, led by Mexico, Brazil, Venezuela, Central America, Dominican Republic, Colombia, Argentina, Chile, Peru and Ecuador. Higher pricing added 1.0% and foreign exchange added 4.5%. Latin American operating profit increased 12%, to an all-time record level even after a strong double-digit increase in advertising during the quarter.
Colgate continues to build its strong leadership in oral care throughout Latin America with its regional toothpaste market share at a record high year to date. Toothpaste share gains were achieved in nearly every country driven by strong sales of Colgate Total Professional Clean and Colgate Max Fresh Citrus toothpastes and the launch of Colgate Max White toothpaste during the quarter. Colgate’s leading share of the manual toothbrush market for the region reached another record high during the quarter and is nearly four share points ahead of the nearest competitor. Strong sales of Colgate 360° manual toothbrush throughout the region contributed to this success.
In other product categories, Plax Alcohol Free and Plax Ice mouthwashes, Palmolive Naturals Mint & Eucalyptus, Palmolive Nutri-Milk, Protex Deo 12 and Protex Propolis bar soaps, Lady Speed Stick Double Defense deodorant, Palmolive Caprice shampoo and Palmolive Nutri-Milk shower gel contributed to market share gains in the region.
Europe/South Pacific (25% of Company Sales)
Europe/South Pacific sales increased 17.0% to a record level, and unit volume grew 9.5%. Pricing was negative 1.5% and foreign exchange added 9.0%. Volume gains were very strong throughout the region led by the Gaba business, France, the United Kingdom, the Nordic region, Germany, Greece, Spain, Belgium, Holland, Poland, Adria, Romania, Australia and New Zealand. Operating profit for the region grew 15% even after a significant increase in advertising during the quarter.
Colgate increased its oral care leadership in Europe/South Pacific led by toothpaste market share gains in France, Germany, Italy, Spain, Greece, Austria, Norway, Romania, Denmark, Belgium, Poland and Australia. Successful premium products driving these share gains in both the therapeutic and sensorial segments include Colgate Total, Colgate Time Control, Colgate Sensitive Multi Protection and Colgate Max Fresh toothpastes. Gaba’s toothpaste market share also grew in many markets across the region, in both the food and pharmacy channels. In the manual toothbrush category, strong sales of Colgate 360°, Colgate 360° Sensitive and Colgate Max Fresh toothbrushes strengthened Colgate’s market leadership in this category for the region.
Recent premium innovations contributing to gains in other product categories include Palmolive Pure Cashmere and Palmolive BodYogurt body washes, Colgate Plax Gentle Care mouth rinse, and Ajax Professional bucket dilutable and Ajax Professional glass cleaners.
Greater Asia/Africa (17% of Company Sales)
Greater Asia/Africa sales and unit volume increased 15.5% and 9.0%, respectively. The strong volume gains were led by Thailand, India, Philippines, Vietnam, Russia, Turkey and South Africa, and unit volume in Greater China increased 20% during the quarter. For the division as a whole, pricing increased 1.0% and foreign exchange added 5.5%. Operating profit for the region increased 28%, even after a sizable increase in advertising spending during the quarter.
Colgate strengthened its oral care leadership in the Greater Asia region with 10 out of 14 countries reporting toothpaste market share gains versus year ago led by China, India, Philippines, Ukraine, Russia and the rest of the CIS countries. Colgate’s share of the manual toothbrush market also strengthened throughout the region with many countries achieving record high shares in the category. Successful new products driving the oral care growth include Colgate Herbal Seabuckthorn, Colgate Max Fresh Citrus Blast and Colgate Max White toothpastes and Colgate 360° and Colgate Twister Fresh manual toothbrushes.
New products contributing to growth in other categories in the region include Palmolive Thermal Spa Seabuckthorn shower gel, bar soap and liquid hand soap, Palmolive Pure Cashmere shower cream and bar soap, Protex Icy Cool bar soap and Lady Speed Stick Invisible Dry deodorant.
Hill’s (13% of Company Sales)
Innovative new products and veterinary recommendations continue to drive growth at Hill’s, a world leader in specialty pet food. Hill’s sales and unit volume grew 11.5% and 4.5%, respectively, during the quarter. Pricing increased 5.5% and foreign exchange added 1.5%. Operating profit increased 13% during the quarter.
Consumption growth continued in key specialty pet channel accounts, with particular strength around Science Diet Canine Small Bites and Science Diet Canine Lamb & Rice Small Bites. Science Diet Indoor Cat and Science Diet Light were strong performers in feline. In the U.S. veterinary channel, the relaunch of Prescription Diet c/d Multicare Feline, a diet for the nutritional management of cats with feline lower urinary tract disease, and Prescription Diet r/d and w/d Feline and Canine in the therapeutic weight category contributed to growth.
Internationally, growth was strong led by the Nordic region, Russia, South Africa, the United Kingdom, Italy, the Benelux countries, Spain, Portugal and France. New pet food products contributing to the international growth include Prescription Diet Feline Chunks in Gravy pouches, Prescription Diet c/d Feline in new chicken and seafood flavors, Science Plan Feline Chunks in Gravy pouches and Science Plan Neutered Cat, a new veterinary exclusive product.
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