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Colgate-Palmolive Annual Report, Year Ended Dec 31, 2017

Filing Date
Filed February 15, 2018
Period End
December 31, 2017
Security
CL
One revenue dollarkept$0.13
In the record · 2016–202610-K1210-Q338-K102

CL filed 12 annual reports (10-K), 33 quarterly reports (10-Q) and 102 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Mar ’20Mar ’20
  2. Leadership change8-K · Jun ’22Jun ’22
  3. Restructuring8-K · May ’26May ’26

01—Abstract

Summary

Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.

Colgate-Palmolive's 2017 10-K shows a company with modest top-line growth but margin and earnings pressure.

Worldwide Net sales rose 1.5% to $15,454 milliona, driven by volume (+0.5%), pricing (+0.5%) and favorable FX (+0.5%); organic sales grew 1.0%. Gross margin was flat at 60.0% on a GAAP basis (60.5% non-GAAP, up 20 bps), but GAAP operating profit fell 6% to $3,589 million, with the operating margin dropping to 23.2% from 25.3%. Management attributed the pressure mainly to advertising investment, which rose 10.2% to $1,573 million (10.2% of sales vs. 9.4%), plus higher raw and packaging material costs.

Excluding Global Growth and Efficiency Program charges and other items, non-GAAP operating profit declined 2%. GAAP diluted EPS was $2.28b, down from $2.72, reflecting $246 million of aftertax restructuring charges and a $275 million provisional charge from U.S. tax reform (TCJA). Excluding these items, non-GAAP diluted EPS rose 2% to $2.87.

The GAAP effective tax rate was 37.7%, while the non-GAAP rate was 29.5%; management guides to a 26%-27% rate for 2018. Cash generation remained solid with operating cash flow of $3,054 millionc, though it declined from $3,141 million. Capital returns were significant: dividends paid totaled $1,529 million ($1.59 per share, up from $1.55) and share repurchases totaled $1,399 million, with the dividend raised to $0.40 quarterly.

Leverage is moderate, with total debt of $6,577 milliond against cash of $1,535 million. Management describes the environment as highly challenging, citing slow category growth, heightened competition from local and multinational players, retailer de-stocking and e-commerce disruption.

Roughly 75% of sales come from outside the U.S., exposing the company to FX and emerging-market volatility. Key watch items include the Global Growth and Efficiency Program (targeting $560-635 million of annual pretax savings through 2019, with cumulative charges of $1.73-1.89 billion), the finalization of the TCJA charge in 2018, the pending Brazilian tax disputes (about $165 million plus $74 million in assessments), and the French and Greek competition fines.

02—Key points

Key Highlights

  1. Net sales rose 1.5% to $15,454 million; organic sales grew 1.0%, with Latin America (+5.5% organic) the strongest region and North America (-2.0%) the weakest.
  2. GAAP operating profit fell 6% to $3,589 million and operating margin contracted 210 bps to 23.2%, while non-GAAP operating profit declined 2% to $3,922 million, reflecting higher advertising spend (+10.2%).
  3. GAAP diluted EPS fell to $2.28 from $2.72 due to a $275 million U.S. tax reform charge and $246 million aftertax restructuring costs; non-GAAP diluted EPS rose 2% to $2.87.
  4. Gross margin held at 60.0% GAAP (60.5% non-GAAP, +20 bps), with cost savings offsetting roughly 190 bps of raw and packaging material inflation.
  5. Shareholder returns remained strong: $1,529 million in dividends (up to $1.59/share) and $1,399 million in buybacks under the $5 billion 2015 Program.
  6. Operating cash flow was $3,054 million, down from $3,141 million, largely due to income tax payment timing; capex was $553 million.
  7. Legal exposure includes Brazilian tax assessments (about $165 million and $74 million), French and Greek competition fines, and a growing talc-related litigation docket (193 cases), with aggregate reasonably possible losses of $0 to ~$250 million.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2017, Colgate-Palmolive kept $0.13.

  1. Revenue$15.45B100.0%
  2. Cost of revenue−$6.17B40.0%
  3. Gross profit$9.28B60.0%
  4. Operating costs−$5.57B36.1%
  5. Operating income$3.71B24.0%
  6. Interest, other & tax−$1.68B10.9%
  7. Net income$2.02B13.1%
Computed from 10-KFY2017filed February 15, 2018Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2017 revenue went

$15.45B
  • Cost of revenue: $6.17B, 40% of revenue
  • SG&A: $5.40B, 35% of revenue
  • Net income: $2.02B, 13% of revenue
  • R&D: $285.0M, 1.8% of revenue
  • Interest, other & tax: $1.68B, 11% of revenue

Kept 13% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2017filed February 15, 2018
Revenue$15.45B60.0% Gross MarginNet Income$2.02B13.1% Net MarginEPS (Diluted)$2.28Total Assets$12.68BCash & Equivalents$1.53BFree Cash Flow$2.50B

Financial Statements

FY2017 against FY2016

Line itemFY2017FY2016Change
Revenue$15.45B$15.20B+1.7%
Cost of Revenue$6.17B$6.07B+1.7%
Gross Profit$9.28B$9.12B+1.7%
R&D Expenses$285.00M$289.00M−1.4%
SG&A Expenses$5.40B$5.14B+5.0%
Operating Income$3.71B$3.96B−6.3%
Interest Expense$156.00M$155.00M+0.6%
Net Income$2.02B$2.44B−17.1%
EPS (Basic)$2.30$2.74−16.1%
EPS (Diluted)$2.28$2.72−16.2%
Shares Outstanding (Basic)881.80M891.80M−1.1%
Shares Outstanding (Diluted)887.80M898.40M−1.2%

05—Questions

Frequently Asked Questions

  1. Why did Colgate's GAAP earnings decline in 2017 even though sales grew?

    GAAP diluted EPS fell to $2.28 from $2.72 mainly because of a $275 million provisional charge related to U.S. tax reform and $246 million of aftertax Global Growth and Efficiency Program charges. Underlying operating performance was weaker than sales growth suggests: advertising investment rose 10.2%, and raw material costs pressured margins. Excluding these items, non-GAAP EPS actually rose 2% to $2.87.

  2. What is the Global Growth and Efficiency Program and what savings does it promise?

    It is a restructuring program started in Q4 2012 and extended through December 31, 2019, focused on expanding commercial hubs, shared business services and optimizing the supply chain. Projected annual pretax savings are $560-635 million once fully implemented, with 2018 savings expected at $90-120 million. Cumulative pretax charges are estimated at $1.73-1.89 billion, with 2018 charges of $100-175 million.

  3. How much of Colgate's business is exposed to foreign markets and emerging-market risk?

    Approximately 75% of net sales originate outside the U.S., and about 50% come from emerging markets such as Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe. This exposes the company to currency swings, exchange controls and political or economic instability. Management notes that its hedging and pricing actions may not fully offset FX impacts. Venezuela is accounted for under the cost method after its 2015 deconsolidation.

  4. What is the outlook for Colgate's tax rate and balance sheet in 2018?

    The company expects its 2018 effective tax rate to be 26%-27% on both a GAAP and non-GAAP basis, reflecting the lower U.S. corporate rate. The TCJA provisional charge may be adjusted during 2018 and is expected to be finalized by Q4 2018. Total debt was $6,577 million at year-end, and the company has $2,949 million in available credit lines, supporting its dividend and buyback commitments.

06—Continue

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