10-QPeriod: Q3 FY2006

COLGATE PALMOLIVE CO Quarterly Report for Q3 Ended Sep 30, 2006

Filed October 25, 2006For Securities:CL

Summary

Colgate-Palmolive Company's Q3 2006 report shows a net sales increase of 8.0% year-over-year, driven by a 5.5% volume gain and a 1.5% increase in net selling prices, with a 1.0% positive foreign exchange impact. Despite revenue growth, net income slightly decreased to $344.1 million from $347.2 million in the prior year's quarter, primarily due to increased restructuring charges related to the 2004 Restructuring Program and incremental stock-based compensation expenses from the adoption of SFAS 123R. Diluted earnings per share remained flat at $0.63. The company continues to focus on its core Oral, Personal, and Home Care, and Pet Nutrition segments, with strong performance noted in Latin America and Asia/Africa. The acquisition of Tom's of Maine in May 2006 is contributing to the North American segment. Management anticipates a challenging operating environment due to competitive pressures and rising raw material costs but remains optimistic about future profitability driven by cost-saving initiatives and new product development.

Key Highlights

  • 1Net sales increased by 8.0% to $3,143.7 million in Q3 2006, with volume growth of 5.5% and price increases of 1.5%.
  • 2Net income slightly decreased to $344.1 million from $347.2 million in Q3 2005, impacted by higher restructuring charges and stock-based compensation expenses.
  • 3Diluted earnings per share remained stable at $0.63 for both Q3 2006 and Q3 2005.
  • 4The acquisition of Tom's of Maine in May 2006 contributed 1.5% to North American sales and volume growth in Q3 2006.
  • 5Latin America demonstrated strong performance with a 15.0% net sales increase driven by 12.0% volume growth.
  • 6The company is undergoing a significant restructuring program (2004 Restructuring Program) which incurs substantial charges but is expected to yield future savings.
  • 7Cash provided by operations increased to $1,369.9 million for the first nine months of 2006.

Frequently Asked Questions

Revenue growth was primarily driven by a 5.5% increase in unit volume and a 1.5% increase in net selling prices, along with a 1.0% positive impact from foreign exchange. Excluding divestments, sales increased by 9.5% on 7.0% volume growth.

Net income saw a slight decrease due to increased charges related to the 2004 Restructuring Program ($84.0 million in Q3 2006 vs. $39.8 million in Q3 2005) and incremental stock-based compensation expenses ($28.0 million in Q3 2006) arising from the adoption of SFAS 123R. These factors more than offset the benefits of higher pricing and cost-savings programs.

The 2004 Restructuring Program involves significant charges, totaling $84.0 million in Q3 2006 and $317.7 million for the first nine months of 2006. These charges negatively impacted operating profit and net income. However, the program is expected to result in annual savings of $325-$400 million by 2008, which management believes will support future profitability and investment in growth initiatives.

The acquisition of Tom's of Maine, completed in May 2006, contributed positively to the North American segment, accounting for 1.5% of sales and volume growth in the third quarter of 2006. It provides Colgate with an entry into the fast-growing 'Naturals' oral and personal care market.