01—Abstract
Summary
Summary of the 10-K filed February 18, 2016. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's 2015 10-K shows a year dominated by a non-cash accounting charge rather than weak operations.
Worldwide Net sales fell 7.0% to $16,034 milliona, but organic sales (excluding foreign exchange, acquisitions and divestments) rose 5.0%, driven by 1.5% volume growth and 3.0% net selling price increases. Foreign exchange was the main drag, subtracting 11.5 points. Reported GAAP operating profit fell 22% to $2,789 million, largely because of a $1,084 million pretax charge from deconsolidating Venezuela (CP Venezuela), which is now carried at cost after the company concluded it can no longer control the operation or access U.S. dollars for imports and dividends.
Excluding this and other special items, non-GAAP operating profit declined 5% to $3,988 millionb, and non-GAAP diluted EPS fell 4% to $2.81. GAAP diluted EPS was $1.52. Underlying performance was mixed by segment.
Oral, Personal and Home Care organic sales grew 4.5%, led by Oral Care toothpaste and manual toothbrushes, and Hill's Pet Nutrition organic sales grew 6.0%, driven by Prescription Diet. Europe/South Pacific and Africa/Eurasia had weaker reported results, and Latin America's reported sales fell 9.5% even though organic sales rose 9.5%. Management reduced advertising spending 16.4% to $1,491 millionc, which helped margins, but it also flagged persistent cost pressure from raw and packaging materials, which were tied to foreign exchange transaction costs.
Cash generation remained solid, with operating cash flow of $2,949 milliond, while dividends ($1,493 million) and buybacks ($1,551 million) were funded partly with new debt. Total debt rose to $6,571 million. The 2012 Restructuring Program was extended through 2017, with expected 2016 pretax charges of $285 to $435 million.
For investors, the key questions are whether organic growth can persist as the restructuring savings build, how much further foreign exchange and Venezuela-related risk remains, and whether the company can keep its dividend growth and buyback pace while leverage increases. Litigation risk is also notable, including a Brazilian tax dispute, European competition fines, talc-related lawsuits and a pending $2.5 billion N8 damages claim, though management believes the claims lack merit and does not expect a material effect on financial position.
02—Key points
Key Highlights
- Worldwide Net sales declined 7.0% to $16,034 million, but organic sales grew 5.0%, with volume up 1.5% and net selling prices up 3.0%; foreign exchange reduced sales by 11.5%.
- A $1,084 million pretax ($1,058 million aftertax, or $1.16 per diluted share) charge followed the deconsolidation of Venezuela, which is now accounted for at cost; CP Venezuela represented about 4% of 2015 Net sales.
- GAAP diluted EPS fell 36% to $1.52, while non-GAAP diluted EPS declined 4% to $2.81, with the gap driven mainly by the Venezuela charge and restructuring costs.
- Hill's Pet Nutrition organic sales rose 6.0%, and Oral Care organic growth was broad-based across toothpaste, manual toothbrushes and mouthwash; toothpaste global share reached 44.7%.
- Gross margin held at 58.6% (58.7% excluding special items) as funding-the-growth savings and pricing offset higher raw and packaging material costs, which included significant foreign exchange transaction costs.
- Operating cash flow was $2,949 million, and shareholder returns totaled about $3.0 billion ($1,493 million in dividends and $1,551 million in buybacks), with total debt rising to $6,571 million.
- The 2012 Restructuring Program was extended one year through 2017 with reinvested South Pacific laundry sale proceeds, and advertising spending was cut 16.4% to $1,491 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Colgate-Palmolive kept $0.09.
- Revenue$16.03B100.0%
- Cost of revenue−$6.63B41.4%
- Gross profit$9.40B58.6%
- Operating costs−$6.61B41.2%
- Operating income$2.79B17.4%
- Interest, other & tax−$1.41B8.8%
- Net income$1.38B8.6%
Where FY2015 revenue went
$16.03B- Cost of revenue: $6.63B, 41% of revenue
- SG&A: $5.46B, 34% of revenue
- Net income: $1.38B, 8.6% of revenue
- R&D: $274.0M, 1.7% of revenue
- Other operating costs: $872.0M, 5.4% of revenue
- Interest, other & tax: $1.41B, 8.8% of revenue
Kept 8.6% as net incomeNet income $1.38B · 8.6%R&D $274.0M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 18, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $16.03B$17.28B | −7.2% |
| Cost of Revenue | $6.63B$7.17B | −7.4% |
| Gross Profit | $9.40B$10.11B | −7.0% |
| R&D Expenses | $274.00M$277.00M | −1.1% |
| SG&A Expenses | $5.46B$5.98B | −8.7% |
| Operating Income | $2.79B$3.56B | −21.6% |
| Interest Expense | $139.00M$134.00M | +3.7% |
| Net Income | $1.38B$2.18B | −36.5% |
| EPS (Basic) | $1.53$2.38 | −35.7% |
| EPS (Diluted) | $1.52$2.36 | −35.6% |
| Shares Outstanding (Basic) | 902.20M915.10M | −1.4% |
| Shares Outstanding (Diluted) | 909.70M924.30M | −1.6% |
05—Questions
Frequently Asked Questions
Why did reported operating profit fall 22% in 2015?
Most of the decline came from a non-cash $1,084 million pretax charge tied to the change in accounting for Venezuela, which moved CP Venezuela to the cost method after the company concluded it no longer controls the operation. Operating profit also absorbed $254 million of 2012 Restructuring Program charges and $34 million of Venezuela remeasurement losses, partly offset by a $187 million gain on the sale of the South Pacific laundry detergent business. Excluding these items, non-GAAP operating profit fell 5% to $3,988 million.
How strong is the underlying business despite the weak reported sales?
Organic sales grew 5.0%, with Oral, Personal and Home Care up 4.5% and Hill's Pet Nutrition up 6.0%. Volume growth was 1.5% and net selling price increases contributed 3.0%. The reported decline was driven mainly by a stronger U.S. dollar, which reduced sales by 11.5 percentage points, particularly in Latin America and Africa/Eurasia.
What are the main risks to future earnings?
Key risks include ongoing foreign currency volatility (about 75% of sales come from outside the U.S.), cost inflation in raw and packaging materials, heightened competition from local and private-label brands, and the execution of the restructuring and funding-the-growth savings programs. Venezuela remains a source of uncertainty because of exchange controls and price restrictions, and the company expects 2016 restructuring charges of $285 to $435 million.
Is the dividend and capital return program sustainable?
The company raised its quarterly dividend to $0.38 from $0.36 in 2015 and paid $1,493 million in total dividends, with a payout well covered by operating cash flow of $2,949 million. However, buybacks and dividends exceeded operating cash flow after capital expenditures of $691 million, so the gap was funded with net new debt. Management says cash generation and financing access support these commitments, but the higher leverage and reduced cash position bear watching.
What litigation exposures could be material?
The most significant items include a Brazilian tax dispute over the Kolynos acquisition (about $76 million with interest), a separate Brazilian tax assessment (about $48 million), European competition fines (including $57 million in France), and a pending Utah lawsuit by N8 Medical and related plaintiffs seeking roughly $2.5 billion in alleged damages. Management believes these claims lack merit and that the aggregate reasonably possible loss in excess of accruals is $0 to about $175 million, though outcomes are inherently uncertain.
06—Continue