01—Abstract
Summary
Summary of the 10-K filed February 20, 2014. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's 2013 10-K shows a company with solid underlying momentum but a reported earnings decline driven by one-time items.
Worldwide Net sales rose 2.0% to $17,420 milliona, with organic sales (excluding foreign exchange, acquisitions and divestments) up 6.0%, driven by volume growth of 5.0%. However, the 4.0% negative foreign exchange impact offset much of that growth. GAAP Operating profit fell 9% to $3,556 million, and GAAP diluted EPS dropped 7% to $2.38.
Excluding restructuring, the Venezuela devaluation charge, and other special items, non-GAAP diluted EPS rose 6% to $2.84b and non-GAAP operating profit rose 3% to $4,140 million. The main GAAP drags were the 2012 Restructuring Program (a four-year Global Growth and Efficiency Program with $1.1-1.25 billion in expected cumulative pretax charges and $365-435 million in annual pretax savings by year four), and a one-time $172 million pretax charge from the February 2013 Venezuela bolivar devaluation. Gross margin expanded to 58.6% from 58.1%, and non-GAAP gross margin reached 58.8%, helped by funding-the-growth cost savings.
Segment performance was strong in Asia (organic sales up 10.5%c) and Latin America was mixed, with Venezuela creating significant margin pressure. Pet Nutrition (Hill's) grew 2.5% in sales but operating margin contracted 180 bps to 25.5% on higher raw material costs. Investors should monitor forward risks, particularly Venezuela.
Management estimates a further one-time aftertax loss of $180d-200 million (about $0.19-0.21 per diluted share) if the SICAD exchange rate stays at 11.70 bolivares per dollar in Q1 2014, plus ongoing 2014 impacts of $0.11-0.14 per share. Other watch items include a tax assessment and litigation exposure (reasonably possible losses up to about $250 million beyond accruals), a new Venezuelan 30% profit margin cap, and multiple European competition-law matters. Cash generation remained healthy, with operating cash flow of $3,204 million, dividends of $1,382 million, and share repurchases of $1,521 million.
02—Key points
Key Highlights
- Worldwide Net sales grew 2.0% to $17,420 million; organic sales rose 6.0% on 5.0% volume growth, but 4.0% negative foreign exchange offset much of the gain.
- GAAP diluted EPS fell 7% to $2.38, while non-GAAP diluted EPS rose 6% to $2.84 after excluding restructuring, Venezuela devaluation, and other special charges.
- GAAP Operating profit declined 9% to $3,556 million (margin 20.4%), while non-GAAP Operating profit grew 3% to $4,140 million (margin 23.8%, up 30 bps).
- Gross margin improved to 58.6% (non-GAAP 58.8%), driven by funding-the-growth cost savings of 220 bps, partially offset by higher raw and packaging material costs of 210 bps.
- The 2012 Restructuring Program has cumulative pretax charges of $460 million to date, against an expected total of $1.1-1.25 billion, with 2014 savings projected at $105-125 million pretax.
- Venezuela remains a key risk: a $172 million pretax devaluation charge in 2013, a potential further one-time loss of $180-200 million if SICAD rates persist, and about 4% of Net sales exposed.
- Hill's Pet Nutrition sales grew 2.5% to $2,211 million, but segment operating margin fell 180 bps to 25.5% on a 470 bps hit from raw material costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Colgate-Palmolive kept $0.13.
- Revenue$17.42B100.0%
- Cost of revenue−$7.22B41.4%
- Gross profit$10.20B58.6%
- Operating costs−$6.64B38.1%
- Operating income$3.56B20.4%
- Interest, other & tax−$1.31B7.5%
- Net income$2.24B12.9%
Where FY2013 revenue went
$17.42B- Cost of revenue: $7.22B, 41% of revenue
- SG&A: $6.22B, 36% of revenue
- Net income: $2.24B, 13% of revenue
- R&D: $267.0M, 1.5% of revenue
- Other operating costs: $155.0M, 0.9% of revenue
- Interest, other & tax: $1.31B, 7.5% of revenue
Kept 13% as net incomeOther operating costs $155.0M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 20, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $17.42B$17.09B | +2.0% |
| Cost of Revenue | $7.22B$7.15B | +0.9% |
| Gross Profit | $10.20B$9.93B | +2.7% |
| R&D Expenses | $267.00M$259.00M | +3.1% |
| SG&A Expenses | $6.22B$5.93B | +4.9% |
| Operating Income | $3.56B$3.89B | −8.6% |
| Interest Expense | $119.00M$81.00M | +46.9% |
| Net Income | $2.24B$2.47B | −9.3% |
| EPS (Basic) | $2.41$2.60 | −7.3% |
| EPS (Diluted) | $2.38$2.57 | −7.4% |
| Shares Outstanding (Basic) | 930.80M952.10M | −2.2% |
| Shares Outstanding (Diluted) | 939.90M960.20M | −2.1% |
05—Questions
Frequently Asked Questions
Why did Colgate's reported earnings decline in 2013 even though sales grew?
Reported GAAP diluted EPS fell 7% to $2.38 because of several one-time items: $371 million in 2012 Restructuring Program charges (pretax), a $172 million pretax Venezuela devaluation charge, a $23 million French competition-law charge, and $18 million in Mexico land-sale costs. Excluding these, non-GAAP EPS rose 6% to $2.84. Currency also reduced reported sales growth by 4.0 points.
How significant is the Venezuela exposure going forward?
Venezuela represented about 4% of 2013 Net sales and about 3% of operating profit (excluding special items). If the SICAD rate of 11.70 bolivares per dollar persists through Q1 2014, the Company estimates a one-time aftertax loss of $180-200 million ($0.19-0.21 per diluted share), plus ongoing 2014 impacts of $0.11-0.14 per share. A new Law on Fair Pricing capping profit margins at 30% adds further uncertainty that is not included in these estimates. Net monetary assets of about $600 million and roughly $225 million of fixed assets could face remeasurement or impairment.
What is the expected payoff from the 2012 Restructuring Program?
The four-year program is expected to cost $1.1-1.25 billion pretax ($775-875 million aftertax), with about 75% in cash. Annual savings are projected at $365-435 million pretax by year four, and 2014 savings should be about $105-125 million pretax. Workforce is expected to fall about 6% by the end of 2016. As of December 31, 2013, cumulative charges were $460 million pretax.
What are the main legal and regulatory risks investors should track?
Key risks include multiple European competition-law investigations and fines (for example, a $46 million French detergent fine upheld on appeal in January 2014), a Brazilian tax dispute tied to the 1995 Kolynos acquisition with assessments of about $120 million and $75 million, Australian competition proceedings filed in December 2013, and talc-related asbestos lawsuits. Management believes the Company will prevail, but the aggregate reasonably possible loss in excess of accruals is estimated at $0 to about $250 million. Regulatory scrutiny of triclosan, an ingredient used mainly in Colgate Total, is also ongoing.
How strong is Colgate's cash generation and capital return?
Operating cash flow rose to $3,204 million in 2013 from $3,196 million. The Company paid $1,382 million in dividends, with the quarterly dividend raised to $0.34 per share from $0.31. It repurchased $1,521 million of stock and held $962 million in cash, of which $865 million sat in foreign subsidiaries. Total debt was $5,657 million. Management expects cash flow from operations and debt issuance to cover operating needs, including restructuring costs and capital returns, and planned 2014 capital expenditures of about 4.5% of Net sales.
06—Continue