01—Abstract
Summary
Summary of the 10-K filed February 16, 2023. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's FY2022 10-K shows a company with solid underlying momentum but GAAP earnings pressured by a large non-cash impairment.
Worldwide Net sales rose 3.0% to $17,967 milliona, driven by net selling price increases of 9.5%, partially offset by volume declines of 2.0% and a 4.5% foreign exchange headwind. Organic sales grew 7.0%. Hill's Pet Nutrition was the standout, with Net sales up 12.0% and organic growth of 13.0%, while Oral, Personal and Home Care sales grew only 1.0% on a reported basis (5.5% organic) and Europe was weak.
Gross margin fell 260 bps to 57.0% as raw and packaging material inflation (810 bps) outran pricing (360 bps) and productivity savings (220 bps). GAAP operating profit fell 13% to $2,893 millionb, driven by a $721 million pretax goodwill and intangible impairment tied to the Filorga skin health business. Excluding that charge and other items, operating profit declined 5% to $3,681 million, and non-GAAP diluted EPS fell 7% to $2.97 from $3.21.
GAAP diluted EPS was $2.13c versus $2.55 in 2021. Operating cash flow dropped to $2,556 million from $3,325 million, largely due to working capital build, and free cash flow after $696 million of capex was roughly $1.9 billion. The company paid $1,691 million in dividends (up to $1.86 per share) and repurchased $1,308 million of stock.
Total debt rose to $8,766 milliond after acquisitions, including Red Collar Pet Foods for $719 million. Management expects a continued difficult cost environment in 2023 with additional pricing that may weigh on volumes, and it flagged ongoing risks from China, travel retail, Ukraine-related disruption, and a multi-year 2022 Global Productivity Initiative with $200-240 million of cumulative charges and $90-110 million of annualized savings.
02—Key points
Key Highlights
- Net sales grew 3.0% to $17,967 million; organic sales grew 7.0%, led by net selling price increases of 9.5% against 2.0% volume declines.
- Hill's Pet Nutrition was the growth engine, with sales up 12.0% (13.0% organic) to $3,713 million, though its operating margin fell 430 bps to 22.9%.
- Gross margin contracted 260 bps to 57.0% due to raw and packaging material inflation of 810 bps, only partly offset by pricing and cost savings.
- GAAP operating profit fell 13% to $2,893 million because of a $721 million non-cash Filorga impairment; non-GAAP operating profit fell 5% to $3,681 million.
- GAAP diluted EPS was $2.13 (vs. $2.55); non-GAAP diluted EPS was $2.97 (vs. $3.21), down 7%.
- Operating cash flow fell to $2,556 million (from $3,325 million) on working capital investment, while the company returned capital through $1,691 million of dividends and $1,308 million of buybacks.
- Total debt rose to $8,766 million after funding acquisitions, and the company holds a $5 billion share repurchase authorization for 2022 onward.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Colgate-Palmolive kept $0.10.
- Revenue$17.97B100.0%
- Cost of revenue−$7.72B43.0%
- Gross profit$10.25B57.0%
- Operating costs−$7.36B40.9%
- Operating income$2.89B16.1%
- Interest, other & tax−$1.11B6.2%
- Net income$1.78B9.9%
Where FY2022 revenue went
$17.97B- Cost of revenue: $7.72B, 43% of revenue
- SG&A: $6.57B, 37% of revenue
- Net income: $1.78B, 9.9% of revenue
- R&D: $320.0M, 1.8% of revenue
- Other operating costs: $470.0M, 2.6% of revenue
- Interest, other & tax: $1.11B, 6.2% of revenue
Kept 9.9% as net incomeNet income $1.78B · 9.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 16, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $17.97B$17.42B | +3.1% |
| Cost of Revenue | $7.72B$7.05B | +9.6% |
| Gross Profit | $10.25B$10.38B | −1.2% |
| R&D Expenses | $320.00M$307.00M | +4.2% |
| SG&A Expenses | $6.57B$6.41B | +2.5% |
| Operating Income | $2.89B$3.33B | −13.2% |
| Interest Expense | $172.00M$120.00M | +43.3% |
| Net Income | $1.78B$2.17B | −17.6% |
| EPS (Basic) | $2.13$2.56 | −16.8% |
| EPS (Diluted) | $2.13$2.55 | −16.5% |
| Shares Outstanding (Basic) | 836.40M845.00M | −1.0% |
| Shares Outstanding (Diluted) | 838.80M848.30M | −1.1% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings decline more sharply than underlying results?
The decline was driven largely by a $721 million pretax non-cash impairment of goodwill and intangible assets at Filorga, the skin health business, which was hurt by COVID-19 restrictions in China and higher interest rates. Excluding this and other one-time items, non-GAAP diluted EPS fell 7%, a smaller decline than the 16.5% drop in GAAP EPS.
Is Colgate's pricing power holding up against cost inflation?
Partially. Net selling price increases of 9.5% offset much of the cost pressure, but raw and packaging material inflation reduced gross margin by 810 bps. Volumes fell 2.0%, and management warns that further price increases may weaken consumer demand in 2023.
How strong is Colgate's balance sheet and capital return capacity?
Colgate remains well funded, with $775 million of cash, $3,401 million of available credit lines and a $3 billion revolving facility that runs to November 2027. Total debt rose to $8,766 million, and the company paid $1,691 million in dividends and repurchased $1,308 million of stock, but operating cash flow declined in 2022, so it is worth watching whether that pace is sustainable.
What are the main risks flagged for 2023?
Key risks include persistent raw material, energy and logistics inflation; retailer consolidation and private-label competition; COVID-related disruption in China and travel retail; the war in Ukraine (Eurasia was about 2% of sales and 3% of operating profit); foreign currency volatility, since about two-thirds of sales come from outside the U.S.; and ongoing tax exposure, including an IRS matter with an estimated $145 million of tax plus interest.
06—Continue