01—Abstract
Summary
Summary of the 10-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive's 2023 results were driven by pricing rather than volume.
Worldwide Net sales rose 8.5% to $19,457 milliona, built on net selling price increases of 10.0% that offset volume declines of 0.5% and a 1.0% foreign exchange headwind. Organic sales grew 8.5%. Gross margin expanded 120 basis points to 58.2%, supported by pricing and funding-the-growth savings, though raw and packaging material inflation of 480 bps was a significant drag.
Reported operating profit rose 38% to $3,984 millionb, but that comparison is flattered by the 2022 Filorga impairment; excluding one-time items, operating profit grew 10% to $4,036 million and the margin reached 20.7%. Diluted EPS was $2.77 on a GAAP basis and $3.23 on a non-GAAP basis, up 9% from $2.97. The quality of earnings warrants attention.
Oral, Personal and Home Care organic growth of 8.0% was strong, with toothpaste global share up 1.1 points to 41.1%. Hill's Pet Nutrition organic growth of 10.5% was offset by a 410 bps margin compression to 18.8%, driven by raw material costs and private label mix from recent acquisitions. Several discrete items affected 2023 GAAP results, including a $267 millionc ERISA pension charge, a $148 million foreign tax matter (partly offset by a $126 million net tax benefit in the reconciliation), and a $25 million Fabuloso recall.
Cash generation improved, with operating cash flow of $3,745 milliond versus $2,556 million, helped by working capital, while capital expenditures were $705 million. Total debt fell to $8,549 million, and Colgate returned about $1.75 billion in dividends and $1.13 billion in buybacks. Looking ahead, management expects continued challenging macro conditions, elevated inflation and higher interest rates, along with category volatility that makes near-term growth difficult to forecast.
Key risks include foreign currency exposure, given that about two-thirds of sales come from outside the U.S., heightened competition and retailer concentration (Walmart is roughly 11% of sales), geopolitical disruption from the Ukraine and Israel-Hamas wars, and continued litigation, including talc claims and a Brazilian tax dispute. The 2022 Global Productivity Initiative is expected to conclude by mid-2024 with annualized savings of $90 to $110 million pretax.
02—Key points
Key Highlights
- Net sales grew 8.5% to $19.46 billion, driven almost entirely by net selling price increases of 10.0%; volume declined 0.5% and foreign exchange was a 1.0% headwind.
- Gross margin expanded 120 bps to 58.2%, as pricing and funding-the-growth savings offset a 480 bps raw and packaging material cost headwind.
- Non-GAAP operating profit rose 10% to $4.04 billion (20.7% margin); GAAP operating profit rose 38% to $3.98 billion, partly because 2022 included a $721 million Filorga impairment.
- Non-GAAP diluted EPS rose 9% to $3.23 versus $2.97; GAAP diluted EPS was $2.77 after a $267 million ERISA pension charge and a $148 million foreign tax matter.
- Hill's Pet Nutrition grew organic sales 10.5% but saw segment operating margin fall 410 bps to 18.8% due to input costs and private label mix from acquisitions.
- Operating cash flow nearly doubled? No: rose 46% to $3.75 billion, helped by working capital, while total debt declined to $8.55 billion and $2.88 billion was returned to shareholders via dividends and buybacks.
- Management expects a challenging macro environment with elevated inflation, higher rates and category volatility, and guides capital expenditures to about 3.0% of 2024 net sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Colgate-Palmolive kept $0.12.
- Revenue$19.46B100.0%
- Cost of revenue−$8.13B41.8%
- Gross profit$11.33B58.2%
- Operating costs−$7.34B37.7%
- Operating income$3.98B20.5%
- Interest, other & tax−$1.68B8.7%
- Net income$2.30B11.8%
Where FY2023 revenue went
$19.46B- Cost of revenue: $8.13B, 42% of revenue
- SG&A: $7.15B, 37% of revenue
- Net income: $2.30B, 12% of revenue
- R&D: $343.0M, 1.8% of revenue
- Interest, other & tax: $1.68B, 8.7% of revenue
Kept 12% as net incomeNet income $2.30B · 12%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 15, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $19.46B$17.97B | +8.3% |
| Cost of Revenue | $8.13B$7.72B | +5.3% |
| Gross Profit | $11.33B$10.25B | +10.5% |
| R&D Expenses | $343.00M$320.00M | +7.2% |
| SG&A Expenses | $7.15B$6.57B | +8.9% |
| Operating Income | $3.98B$2.89B | +37.7% |
| Interest Expense | $299.00M$172.00M | +73.8% |
| Net Income | $2.30B$1.78B | +28.9% |
| EPS (Basic) | $2.78$2.13 | +30.5% |
| EPS (Diluted) | $2.77$2.13 | +30.0% |
| Shares Outstanding (Basic) | 827.40M836.40M | −1.1% |
| Shares Outstanding (Diluted) | 829.20M838.80M | −1.1% |
05—Questions
Frequently Asked Questions
How much of Colgate's 2023 growth came from price versus volume?
Nearly all of it came from price. Net selling price increases contributed 10.0 points of the 8.5% net sales growth, while volume declined 0.5% and foreign exchange reduced sales by 1.0%. The volume decline indicates that consumers responded to higher prices, which is a key watch item for 2024.
Is Colgate's 2023 GAAP earnings growth representative of underlying performance?
Not entirely. GAAP diluted EPS of $2.77 rose 30% from $2.13, but the 2022 base included a $620 million after-tax Filorga impairment, which inflates the growth rate. On a non-GAAP basis, which excludes items such as the ERISA charge, the foreign tax matter, restructuring and the recall, EPS grew 9% to $3.23. Investors should anchor on the non-GAAP figure for the trend.
What are the main risks to Colgate's profitability going forward?
The main risks are continued raw and packaging material inflation, which hit gross margin by 480 bps in 2023; consumer trading down to private label as prices rise; competitive pressure and retailer concentration, with Walmart at about 11% of sales; foreign currency exposure, since about two-thirds of sales are outside the U.S.; and geopolitical disruption. Pet Nutrition margin compression is an additional concern.
How financially flexible is Colgate after 2023?
Colgate has solid flexibility. Operating cash flow was $3.75 billion, capital expenditures were $705 million, and total debt fell to $8.55 billion. It has access to $3.57 billion in unused credit lines, and the $3 billion revolver was extended to 2028. Management is not required to make a mandatory 2024 U.S. pension contribution. Dividends and buybacks continue, with the quarterly dividend raised to $0.48.
06—Continue