Tuesday, July 30, 2013

Earnings Commentary: Colgate-Palmolive (CL)

Adjusted closing price per share on 07/24/13 (before earnings announcement): $58.47
Adjusted closing price per share on 07/25/13 (after earnings): $59.62
Current Price per share: $60.39

I purchased some shares of Colgate a few months ago in my search for another “quality stock” to add to my portfolio (can you see a trend here?!). I was tracking a series of different companies on my handy-dandy excel spreadsheet and one day I took the plunge and decided Colgate would be the new addition and it has not let me down!

I purchased the stock about a month before their 2:1 stock split which took place on 05/16/2013. What the heck is a stock split?! Corporations sometimes decide to “split” the stock price in order to make it more affordable to investors to buy the shares and gain new investors, among other reasons.

So, for example, let’s say that before the split you had 6 shares of CL at $115 each. After the 2:1 split, you will have a total of 12 shares showing a purchase price of $57.5 each. A company can do a reverse stock split too, and is the same idea. So, do not fear splits. Your position with the company doesn’t change.

So anyways, that’s what happened with CL a couple of months ago.

Earnings for second quarter 2013 were reported this past Thursday July 25 and let’s just say they made me a very happy shareholder. Colgate is an amazing company with incredible management whom cares about the growth of the company and remaining competitive. Some may feel that a company that has been around for as long as Colgate may not have much room to grow but their earnings call proved that’s not the case. The Colgate team continuously strives to bring new products to market-- enticing more sales and market share growth.  Here are some highlights:
·         Worldwide net sale of $4,346 million in second quarter 2013, an increase of 2.0% versus second quarter 2012.

·         Organic sales grew 5.5% (net sales excluding foreign exchange, acquisitions and investments).

·         Net income in second quarter 2013 was $662 million, an increase of 3% versus second quarter 2012.

·         Gross profit margin was 58.3% versus 57.7% in the same quarter a year ago.

·         Selling, general and administrative expenses were 35.1% of net sales in second quarter 2013 V. 34.4% in second quarter 2012.

·         Operating profit decreased 8% to $906 million in second quarter 2013 compared to $982 million in second quarter 2012. Excluding special items in both periods (outlined in the full earnings report) operating profit increased 3% to $1,032 million.

·         Net cash provided by operations year to date increased 11% t0 $1325 million. As per the CEO Ian Cook: “For the fifth consecutive quarter, gross profit margin, operating profit margin and net income as a percentage of sales all increased versus the year ago period”.

·         Colgate’s market share of the global toothpaste market strengthened to 45.4% year to date. This is an increase of 0.1 share points in comparison to a year ago. In the CEOs own words: “looking forward, we expect our growth momentum to continue as we progress through the year. We are pleased that our global restructuring program is on track and proceeding smoothly. We also continue to be sharply focused on our aggressive funding-the-growth programs and our strategic worldwide pricing initiative...”
One way Colgate increases market share? Through advertising! Simply sit down to watch TV for an hour or even less and I can guarantee you that you’ll see a Colgate commercial. This is what they had to say about advertising expenses: “Advertising investment increased versus a year ago, both absolutely and as a percentage of sales, and we continue to plan for higher levels of commercial investment in the balance of the year in support of a very full pipeline of new products worldwide!”

 The earnings report goes on to specify earnings and market share performance world-wide including North America, Latin America, Europe/South pacific and Greater Asia/Africa—all of which reported notably positive results!

Also, did you know that Colgate has a pet-nutrition subdivision called “Hill’s Pet Nutrition”?! As per the report, net sales increased 3.5% during second quarter 2013. Unit volume increased 2.5%, pricing increased 3% and foreign exchange was negative at 2%. There were volume gains in the U.S, Russia, Korea, Germany, France and Brazil. Meanwhile, some volume declines were experienced in Japan, Italy, and the United Kingdom. Organic sales for Hill’s increased 5.5%.
For the official summary of Colgate’s earnings report check out their Investor’s Relations page.

Dividend Information: And you guessed it—if something is in my portfolio it more than likely pays dividends. Current annual dividend yield is 2.25% which translates in to a payout of $1.36 per share! (which translates in to 0.34 cents per share every 3 months).

Fun Fact: You may think it would be obvious to see whether a product in your home is made by Colgate. However, they have acquired many companies through the years and operate under multiple different brands including the following: Mennen, Speed Stick, Lady Speed Stick, SoftSoap, Irish Spring, Protex, Sorriso, Kolynos, elmex, Tom’s of Maine, Ajax, Fabuloso, Suavitel among others.

Look around your home—how many Colgate-Palmolive products can you identify?

Disclosure: I currently hold shares of CL

This is not a recommendation to purchase CL stock. Do not invest or cease to invest solely on the information provided on this post.