01—Abstract
Summary
Summary of the 10-K filed February 25, 2010. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's fiscal 2009 results show a company whose core businesses were healthy despite a difficult macro backdrop.
Worldwide net sales were essentially flat at $15,327 milliona (vs. $15,330 million in 2008), as volume growth of 0.5% and net selling price increases of 6.0% were offset by a 6.5% negative foreign exchange impact. Organic sales grew 6.5%. Operating profit rose 17% to $3,615 million, helped by pricing, cost savings, lower commodity costs, and the absence of 2008 restructuring charges, and diluted EPS increased to $4.37 from $3.66.
Net cash from operations rose to $3,277 millionb from $2,302 million, and the company paid $981 million in dividends and repurchased $1,063 million of stock. The key watch items for investors are Venezuela and Brazil. Venezuela was designated hyper-inflationary effective January 1, 2010, and the government devalued its currency on January 8, 2010.
Management estimates the devaluation will reduce 2010 diluted EPS by $0.06 to $0.10c, and a one-time charge of about $275 million was recorded through other comprehensive income. Venezuela represented 6% of 2009 consolidated sales. Separately, Colgate faces significant Brazilian tax assessments (roughly $115 million and $69 million at current exchange rates) that management is contesting, and several European competition investigations with fines that have in some cases reached hundreds of millions of dollars.
The balance sheet strengthened, with long-term debt falling to $2,821 million and total debt to $3,182 milliond, and shareholder equity rising to $3,116 million from $1,923 million. The company signaled confidence through a 2010 dividend increase to $0.53 per quarter and a new 40 million share repurchase authorization, while also projecting 2010 capital expenditures of about 3.5% of sales.
02—Key points
Key Highlights
- Net sales were flat at $15,327 million, with 6.0% net selling price increases and 0.5% volume growth offset by a 6.5% negative foreign exchange impact; organic sales grew 6.5%.
- Operating profit rose 17% to $3,615 million, and diluted EPS increased 19% to $4.37 from $3.66, aided by the absence of 2004 Restructuring Program charges.
- Gross profit margin expanded to 58.8% from 56.3% in 2008, reflecting higher pricing and cost-savings programs.
- Net cash from operations increased 42% to $3,277 million, and the company reduced total debt to $3,182 million from $3,783 million.
- Venezuela is a key risk: hyper-inflationary designation from January 1, 2010, and a devaluation with an estimated 2010 EPS impact of $0.06 to $0.10, on a market that contributed 6% of 2009 net sales.
- Legal and tax exposures include Brazilian tax assessments of roughly $115 million and $69 million under appeal, a $69 million-equivalent Brazil case, and multiple European competition investigations with formal claims pending in France and Italy.
- Shareholder returns remain a priority, with dividends of $981 million paid, a 2010 quarterly dividend increase to $0.53 per share, and a new authorization to repurchase up to 40 million shares.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Colgate-Palmolive kept $0.15.
- Revenue$15.33B100.0%
- Cost of revenue−$6.32B41.2%
- Gross profit$9.01B58.8%
- Operating costs−$5.39B35.2%
- Operating income$3.62B23.6%
- Interest, other & tax−$1.32B8.6%
- Net income$2.29B14.9%
Where FY2009 revenue went
$15.33B- Cost of revenue: $6.32B, 41% of revenue
- SG&A: $5.28B, 34% of revenue
- Net income: $2.29B, 15% of revenue
- R&D: $256.0M, 1.7% of revenue
- Interest, other & tax: $1.32B, 8.6% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 25, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $15.33B$15.33B | 0.0% |
| Cost of Revenue | $6.32B$6.70B | −5.7% |
| Gross Profit | $9.01B$8.63B | +4.4% |
| R&D Expenses | $256.00M$240.00M | +6.7% |
| SG&A Expenses | $5.28B$5.42B | −2.6% |
| Operating Income | $3.62B$3.10B | +16.6% |
| Interest Expense | $102.00M$115.00M | −11.3% |
| Net Income | $2.29B$1.96B | +17.1% |
| EPS (Basic) | $2.27$1.91 | +18.9% |
| EPS (Diluted) | $2.19$1.83 | +19.4% |
| Shares Outstanding (Basic) | 999.00M1.01B | −1.3% |
| Shares Outstanding (Diluted) | 1.05B1.07B | −1.9% |
05—Questions
Frequently Asked Questions
How did Colgate perform in 2009 given flat sales?
Reported net sales were flat at $15,327 million because a 6.5% foreign exchange headwind offset pricing and volume gains. Excluding currency, organic sales grew 6.5%. Profitability improved significantly, with operating profit up 17% to $3,615 million and diluted EPS up to $4.37, supported by price increases, cost-saving programs, lower raw material and oil costs, and the completion of the 2004 Restructuring Program with no charges in 2009.
What is the financial impact of the Venezuela devaluation?
Venezuela was designated hyper-inflationary effective January 1, 2010, so its functional currency became the U.S. dollar and future currency movements will flow through income. Management recorded a one-time charge of about $275 million to cumulative translation adjustment on January 1, 2010, mainly reflecting the premium paid to acquire dollars at the parallel market rate. Following the January 8, 2010 devaluation, management estimates a net reduction of $0.06 to $0.10 in 2010 diluted EPS. Exchange controls remain, and the company may have to use the less favorable parallel market to obtain U.S. dollars.
How strong is Colgate's balance sheet and cash generation?
Operating cash flow rose to $3,277 million from $2,302 million, and capital expenditures were $575 million. Long-term debt decreased to $2,821 million from $3,585 million, and total debt fell to $3,182 million from $3,783 million. The company's long-term debt is rated AA- by S&P and Aa3 by Moody's, and it had $3,014 million of unused credit lines at year-end. Shareholders' equity increased to $3,116 million from $1,923 million, though the company's equity base remains modest because of large treasury stock purchases.
What are the main legal and regulatory risks disclosed?
The main risks are Brazilian tax matters, including assessments of approximately $115 million related to disallowed interest deductions and about $69 million related to a tax on foreign exchange transactions, plus a 2002 civil action seeking joint liability. Management believes these are without merit and intends to contest them vigorously. In Europe, Colgate faces competition investigations in several countries, with a $5 million fine in Switzerland under appeal, a $3 million fine in Spain, and formal claims pending in France and Italy. Management notes that fines in such cases have sometimes reached hundreds of millions of dollars and that it has taken additional reserves when appropriate. Management also says these matters are not expected to have a material impact on financial position.
What are the company's capital return plans?
In 2009 Colgate paid $981 million in dividends, or $1.72 per common share, and repurchased $1,063 million of stock. On February 4, 2010, the Board increased the quarterly dividend to $0.53 per share effective in the second quarter of 2010 and authorized a new program to repurchase up to 40 million common shares, replacing the prior 30 million share program. Management expects cash from operations and debt issuance to cover planned dividends, capital expenditures, and buybacks.
06—Continue