How did Colgate-Palmolive perform in 1994 on an underlying basis?

Underlying performance was solid. Net sales rose 6% to $7.59 billion (8% excluding divested businesses), EBIT increased 9% to $966.6 million, and income excluding the 1993 accounting charge and the 1994 Princess House loss rose 7% to $585.4 million. Growth was concentrated in developing markets, while North America declined.

Why did reported 1994 earnings jump versus 1993?

The comparison is distorted by the 1993 cumulative effect of adopting new accounting standards for income taxes, postretirement benefits and postemployment benefits, which reduced 1993 net income by $358.2 million. Excluding that charge, 1994 net income of $580.2 million was roughly in line with the underlying trend.

What are the main financial risks from the Kolynos acquisition?

The deal was financed largely with about $1.1 billion of bank borrowings, pushing pro forma debt-to-total-capitalization to 63% from 52%. Management expects less than 5% first-year dilution to earnings, and the transaction remains subject to antitrust review in Brazil and Colombia. Net interest expense already rose to $86.7 million in 1994 from $46.8 million, so higher interest costs will weigh on near-term earnings.

What is driving weakness in North America, and what is the outlook?

North America sales fell 8% on a 4% volume decline, reflecting trade destocking and disinflationary pricing. Segment EBIT dropped 21% as the company increased advertising and R&D spending to reposition the region. Management expects new product launches such as Palmolive Dishwashing Liquid and Irish Spring Waterfall Clean to support recovery, though the 1995 outlook is described only as similar to 1994.

Is the dividend and capital return program at risk given the higher leverage?

The 1994 common dividend was raised 14% to $1.54 per share, and the company repurchased $411.1 million of stock. With operating cash flow of $829.4 million, management states that internally generated cash flows are adequate for planned operations and capital spending, but that significant acquisitions like Kolynos require external financing. The filing does not state a specific policy on future buybacks, so the higher debt load could constrain repurchases.

CL 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 23, 1995. Cited figures are marked; the original filing is the authoritative source.

Colgate-Palmolive's 1994 results show a company growing top-line and profit at a steady clip, with the strongest momentum in developing markets.

Net sales rose 6% to $7,587.9 million^a (8% excluding divested non-core businesses), and EBIT grew 9% to $966.6 million. Gross margin improved to 48.4% from 47.8%, driven by a mix shift toward oral care, personal care and pet nutrition. Net income reached $580.2 million, or $3.82 per primary share, versus $189.9 million in 1993, which was depressed by a one-time accounting-change charge.

Excluding that charge and a one-time loss on the Princess House sale, income rose 7% to $585.4 million^b. North America was the weak spot, with sales down 8% and segment EBIT down 21% due to trade destocking and disinflationary pricing, while Asia/Africa and Latin America grew sales 20% and 14%. The central investor issue is the balance sheet.

On January 10, 1995, Colgate bought the Kolynos oral care business from American Home Products for $1,040.0 million^c in cash, financed with bank borrowings of roughly $1,100 million. Pro forma debt-to-total-capitalization rises to 63% from 52% at year-end 1994, and shareholders' equity is only $1,822.9 million. Management expects the deal to be less than 5% dilutive to first-year earnings, with the South American business expected to be accretive over time.

The acquisition still faces antitrust review in Brazil and Colombia. Cash generation supports the story. Operating cash flow rose 17% to $829.4 million^d, and capital spending was $400.8 million (5.3% of sales).

Dividends were raised 14% to $1.54 per common share, and about 6.9 million shares were repurchased for $411.1 million. Management guides to continued growth in developing markets, with some near-term caution about Mexico's peso crisis. Investors should weigh the strong operating momentum against the higher leverage the Kolynos deal creates.

02—Key points

Key Highlights

Net sales rose 6% to $7,587.9 million in 1994 (up 8% excluding divested non-core businesses), with volume up 7%.
Net income was $580.2 million ($3.82 per primary share), up from $189.9 million in 1993, which included a $358.2 million one-time accounting-change charge; excluding that charge and a one-time Princess House loss, income rose 7% to $585.4 million.
Gross margin improved to 48.4% from 47.8%, reflecting a mix shift toward oral, personal care and pet nutrition, along with overhead reduction.
EBIT grew 9% to $966.6 million, led by Asia/Africa (up 20%), Latin America (up 20%) and Europe (up 19%), while North America EBIT fell 21% on trade destocking.
On January 10, 1995, Colgate acquired the Kolynos oral care business from American Home Products for $1,040.0 million in cash, financed by bank borrowings; pro forma debt-to-capitalization rises to 63% from 52%.
Operating cash flow increased 17% to $829.4 million; capital expenditures were $400.8 million (5.3% of sales) and dividends per common share rose 14% to $1.54.
The company repurchased about 6.9 million shares for $411.1 million in 1994, down from $698.1 million in 1993.

03—Questions

Frequently Asked Questions

How did Colgate-Palmolive perform in 1994 on an underlying basis?
Underlying performance was solid. Net sales rose 6% to $7.59 billion (8% excluding divested businesses), EBIT increased 9% to $966.6 million, and income excluding the 1993 accounting charge and the 1994 Princess House loss rose 7% to $585.4 million. Growth was concentrated in developing markets, while North America declined.
Why did reported 1994 earnings jump versus 1993?
The comparison is distorted by the 1993 cumulative effect of adopting new accounting standards for income taxes, postretirement benefits and postemployment benefits, which reduced 1993 net income by $358.2 million. Excluding that charge, 1994 net income of $580.2 million was roughly in line with the underlying trend.
What are the main financial risks from the Kolynos acquisition?
The deal was financed largely with about $1.1 billion of bank borrowings, pushing pro forma debt-to-total-capitalization to 63% from 52%. Management expects less than 5% first-year dilution to earnings, and the transaction remains subject to antitrust review in Brazil and Colombia. Net interest expense already rose to $86.7 million in 1994 from $46.8 million, so higher interest costs will weigh on near-term earnings.
What is driving weakness in North America, and what is the outlook?
North America sales fell 8% on a 4% volume decline, reflecting trade destocking and disinflationary pricing. Segment EBIT dropped 21% as the company increased advertising and R&D spending to reposition the region. Management expects new product launches such as Palmolive Dishwashing Liquid and Irish Spring Waterfall Clean to support recovery, though the 1995 outlook is described only as similar to 1994.
Is the dividend and capital return program at risk given the higher leverage?
The 1994 common dividend was raised 14% to $1.54 per share, and the company repurchased $411.1 million of stock. With operating cash flow of $829.4 million, management states that internally generated cash flows are adequate for planned operations and capital spending, but that significant acquisitions like Kolynos require external financing. The filing does not state a specific policy on future buybacks, so the higher debt load could constrain repurchases.

04—Continue

← View all 10-K filings