01—Abstract
Summary
Summary of the 10-K filed February 23, 2012. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's 2011 10-K shows a year of top-line growth and higher margins, but with pressure on gross margin from commodity costs.
Net sales rose 7.5% to $16,734 milliona, driven by 3.5% volume growth, 1.0% net pricing and a 3.0% favorable foreign exchange impact; organic sales grew 4.0%. GAAP operating profit rose 10% to $3,841 million, though this was flattered by a $207 million gain on the Colombia detergent divestment. Excluding one-time items, operating profit grew about 2% to $3,858 million.
Diluted GAAP EPS was $4.94b (up from $4.31), and non-GAAP diluted EPS was $5.03 (up 4%). Profitability mix was mixed. Gross margin fell to 57.3% from 59.1% as global commodity inflation (about 390 bps) outweighed funding-the-growth savings (190 bps).
Management offset some of this with advertising discipline, which fell as a share of sales to 10.4%. Cash generation weakened: operating cash flow fell to $2,896 millionc from $3,211 million, mainly due to higher voluntary pension contributions. Capex was $537 million and the company spent $966 million on the Sanex acquisition, with total debt rising to $4,810 million.
Shareholder returns remained strong, with $1,203 milliond in dividends and $1,806 million in buybacks, and the quarterly dividend was raised to $0.58. Key risks remain concentrated in Venezuela (about 5% of sales, with new price controls and currency devaluations), in European competition-law fines and investigations, and in the Brazilian tax disputes (combined exposure cited at up to roughly $200 million in reasonably possible losses beyond accruals). About 80% of sales come from outside the U.S., so currency and emerging-market volatility remain central to the investment case.
02—Key points
Key Highlights
- Net sales up 7.5% to $16.7 billion, with organic sales growth of 4.0% and a 3.0% FX tailwind; Latin America (+12.0%) and Greater Asia/Africa (+9.5%) led growth
- Gross profit margin compressed 180 bps to 57.3% (57.6% excluding realignment costs) as commodity cost inflation of roughly 390 bps outweighed 190 bps of cost savings
- GAAP diluted EPS rose to $4.94 from $4.31; non-GAAP EPS rose 4% to $5.03, with 2011 results including a $207M Colombia detergent divestment gain offset by $224M of restructuring and other charges
- Operating cash flow declined to $2.9 billion from $3.2 billion, primarily due to higher voluntary benefit plan contributions; capex was $537M
- Acquired Sanex personal care business from Unilever for $966M; total debt increased to $4.8 billion and the company repurchased $1.8 billion of stock
- Venezuela (about 5% of sales) remains a material risk following new 2011 price controls and currency devaluations; European competition investigations and fines and Brazilian tax disputes are ongoing
- Dividends raised to $0.58 per quarter ($2.27 paid in 2011, up from $2.03), with 49 consecutive years of regular dividend increases
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Colgate-Palmolive kept $0.15.
- Revenue$16.73B100.0%
- Cost of revenue−$7.14B42.7%
- Gross profit$9.59B57.3%
- Operating costs−$5.75B34.4%
- Operating income$3.84B23.0%
- Interest, other & tax−$1.41B8.4%
- Net income$2.43B14.5%
Where FY2011 revenue went
$16.73B- Cost of revenue: $7.14B, 43% of revenue
- SG&A: $5.76B, 34% of revenue
- Net income: $2.43B, 15% of revenue
- R&D: $262.0M, 1.6% of revenue
- Interest, other & tax: $1.41B, 8.4% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 23, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $16.73B$15.56B | +7.5% |
| Cost of Revenue | $7.14B$6.36B | +12.3% |
| Gross Profit | $9.59B$9.20B | +4.2% |
| R&D Expenses | $262.00M$256.00M | +2.3% |
| SG&A Expenses | $5.76B$5.41B | +6.4% |
| Operating Income | $3.84B$3.49B | +10.1% |
| Interest Expense | $59.00M$69.00M | −14.5% |
| Net Income | $2.43B$2.20B | +10.3% |
| EPS (Basic) | $2.49$2.23 | +11.9% |
| EPS (Diluted) | $2.47$2.15 | +14.6% |
| Shares Outstanding (Basic) | 976.70M975.60M | +0.1% |
| Shares Outstanding (Diluted) | 984.10M1.02B | −3.7% |
05—Questions
Frequently Asked Questions
What drove Colgate's revenue growth in 2011?
Net sales grew 7.5% to $16,734 million. Volume contributed 3.5%, net selling prices 1.0% and favorable foreign exchange 3.0%. The Sanex acquisition added about 1 point of growth. Organic sales growth was 4.0%, with Latin America up 11.5% organically and Oral, Personal and Home Care up 4.5%.
Why did gross margin decline in 2011?
Gross margin fell to 57.3% from 59.1% primarily because of global commodity cost increases in resins, tropical oils, tallow, corn and soybeans, which reduced margin by about 390 bps. Funding-the-growth cost savings (190 bps) and higher pricing (50 bps) partly offset the pressure. Management did not fully pass through raw material inflation to customers.
How much of the 2011 earnings growth was from one-time items?
Reported 2011 results included a $207M pretax gain on the Colombia detergent sale, offset by roughly $224M of pretax restructuring, Mexico land sale costs, a French competition-law charge and Sanex transaction costs. Net of these, the net effect was a headwind of about $0.09 per diluted share. Non-GAAP diluted EPS rose 4% to $5.03, which is the better measure of underlying growth.
What are the main risks for Colgate investors?
Key risks include Venezuela, where new price controls and currency devaluations limit pricing and repatriation of earnings; about 80% of sales from outside the U.S., exposing results to FX and emerging-market instability; European competition-law fines and pending claims in France and Germany; Brazilian tax assessments totaling roughly $113M and $67M; and commodity cost volatility. Management estimates reasonably possible losses beyond accruals of $0 to about $200 million across legal matters.
How is Colgate returning cash to shareholders?
In 2011 Colgate paid $1,203M in dividends ($2.27 per share) and repurchased $1,806M of common stock (about 20.4 million shares plus shares for employee plans). The board authorized a new program of up to 50 million shares in September 2011, with approximately 44 million shares remaining at year-end. Dividends were increased to $0.58 per quarter, effective in Q2 2011.
06—Continue