01—Abstract
Summary
Summary of the 10-K filed February 21, 2013. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's 2012 10-K (filed February 21, 2013) shows a company growing steadily on a reported basis, with worldwide Net sales up 2.0% to $17,085 milliona.
Organic sales grew 6.0%, but negative foreign exchange of 4.0% held reported growth down. Volume rose 3.0% and net selling prices rose 3.0%. GAAP diluted EPS was $5.15b versus $4.94 in 2011, and non-GAAP diluted EPS (excluding restructuring, Mexico land sale costs and business realignment charges) was $5.36, up 7%.
Operating margin on a GAAP basis was 22.8%, and gross margin improved to 58.1%, aided by funding-the-growth savings and pricing, partly offset by commodity inflation. The key forward-looking issues are the new four-year 2012 Restructuring Program, with total pretax charges of $1,100 to $1,250 millionc and annual savings of $365 to $435 million by year four, and the Venezuela devaluation in February 2013. The devaluation will create an approximately $120 million aftertax loss in Q1 2013, about $0.25 per share, plus ongoing EPS drag of $0.05 to $0.07 per quarter.
Management also flagged heightened competition, retailer concentration, and European competition-law fines and investigations. Balance sheet and cash generation remain solid, with operating cash flow of $3,196 milliond, $1,277 million in dividends and $1,943 million in buybacks. Total debt was $5,230 million at year-end.
For investors, the 2012 results show resilient underlying growth, but reported results carry currency and Venezuela headwinds, and the restructuring is expected to pay back over time rather than immediately. Investors should weigh the near-term charges against the medium-term savings and monitor emerging-market exposure, since roughly 80% of sales come from outside the U.S.
02—Key points
Key Highlights
- Worldwide Net sales rose 2.0% to $17,085 million; organic sales grew 6.0%, but foreign exchange cut about 4.0 points from reported growth.
- GAAP diluted EPS was $5.15 (up 4%), and non-GAAP diluted EPS was $5.36 (up 7%) after excluding restructuring, Mexico land sale and realignment items.
- Gross margin expanded to 58.1% (58.3% non-GAAP), driven by funding-the-growth savings (190 bps) and pricing (120 bps), offset by raw material inflation (250 bps).
- The 2012 Restructuring Program targets $1,100–$1,250 million in pretax charges and $365–$435 million in annual pretax savings by 2015/2016, with about 75% of charges expected to be cash.
- The February 2013 Venezuela devaluation (official rate moved from 4.30 to 6.30 per dollar) will cause an approximately $120 million aftertax loss in Q1 2013 (about $0.25 per share) plus ongoing EPS drag of $0.05–$0.07 per quarter.
- Segment results were strong: Latin America and Greater Asia/Africa drove organic growth, while Hill's Pet Nutrition operating margin improved to 27.3%.
- Cash generation was solid, with operating cash flow of $3,196 million, dividends of $1,277 million (up from $1,203 million) and share repurchases of $1,943 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Colgate-Palmolive kept $0.14.
- Revenue$17.09B100.0%
- Cost of revenue−$7.15B41.9%
- Gross profit$9.93B58.1%
- Operating costs−$6.04B35.4%
- Operating income$3.89B22.8%
- Interest, other & tax−$1.42B8.3%
- Net income$2.47B14.5%
Where FY2012 revenue went
$17.09B- Cost of revenue: $7.15B, 42% of revenue
- SG&A: $5.93B, 35% of revenue
- Net income: $2.47B, 14% of revenue
- R&D: $259.0M, 1.5% of revenue
- Interest, other & tax: $1.42B, 8.3% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 21, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $17.09B$16.73B | +2.1% |
| Cost of Revenue | $7.15B$7.14B | +0.1% |
| Gross Profit | $9.93B$9.59B | +3.6% |
| R&D Expenses | $259.00M$262.00M | −1.1% |
| SG&A Expenses | $5.93B$5.76B | +3.0% |
| Operating Income | $3.89B$3.84B | +1.2% |
| Interest Expense | $81.00M$59.00M | +37.3% |
| Net Income | $2.47B$2.43B | +1.7% |
| EPS (Basic) | $2.60$2.49 | +4.4% |
| EPS (Diluted) | $2.57$2.47 | +4.0% |
| Shares Outstanding (Basic) | 952.10M976.70M | −2.5% |
| Shares Outstanding (Diluted) | 960.20M984.10M | −2.4% |
05—Questions
Frequently Asked Questions
How did Colgate perform in 2012 on a reported versus underlying basis?
Reported Net sales grew 2.0% to $17,085 million, but organic sales grew 6.0%. The gap came mainly from a 4.0% negative foreign exchange impact. GAAP diluted EPS rose to $5.15 from $4.94, and non-GAAP diluted EPS rose 7% to $5.36 after excluding restructuring, Mexico land sale and realignment items.
What is the 2012 Restructuring Program and what should investors expect from it?
It is a four-year Global Growth and Efficiency Program started in Q4 2012. Cumulative pretax charges are projected at $1,100–$1,250 million, with 2013 charges of about $260–$310 million. Annual pretax savings are projected at $365–$435 million by the fourth year, and substantially all of those savings are expected to increase future cash flows. Workforce is expected to fall about 6% by 2016.
How significant is the Venezuela devaluation for Colgate's 2013 earnings?
The company expects a one-time aftertax loss of about $120 million ($0.25 per share) in Q1 2013 from remeasuring the local balance sheet. Ongoing remeasurement is expected to reduce diluted EPS by $0.05–$0.07 per quarter in 2013. Venezuela is expected to fall below 4% of consolidated 2013 Net sales, down from about 5% in 2012.
What are the main legal and regulatory risks disclosed?
The main items are Brazilian tax assessments tied to the Kolynos acquisition, with combined exposure of roughly $130 million plus $78 million, and European competition-law fines and open investigations, including a $46 million French fine on a divested detergent business. Management estimates the aggregate reasonably possible loss in excess of accruals at $0 to about $225 million and does not expect a material effect on financial position, though adverse outcomes could matter in a given quarter.
Is Colgate's balance sheet and capital return capacity sound?
Yes. Total assets were $13,394 million and shareholders' equity attributable to Colgate was $2,189 million, which is modest because of large treasury stock. Total debt rose to $5,230 million, and the company holds $884 million in cash, with $861 million held by foreign subsidiaries. Management says cash flow from operations and debt issuance will cover operating needs, dividends, capex, restructuring and buybacks. The 2013 dividend rate was $0.62 per quarter.
06—Continue