01—Abstract
Summary
Summary of the 8-K filed January 26, 2024. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive reported fourth quarter and full year 2023 results on January 26, 2024, showing broad-based top-line strength and margin expansion.
Q4 2023 net sales and organic sales both rose 7.0% to $4,950 milliona, with organic volume flat and growth driven almost entirely by pricing (+7.0%). GAAP diluted EPS was $0.87 versus $0.01 in the prior year, but that comparison is distorted by the $721 million goodwill and intangible impairment taken in Q4 2022. On a Base Business (non-GAAP) basis, EPS grew 13% to $0.87 from $0.77, and gross margin expanded roughly 400 basis points to 59.6%.
For the full year, net sales and organic sales both grew 8.5% to $19,457 millionb, the fifth consecutive year of organic growth at or above the company's 3% to 5% target range. GAAP EPS rose 30% to $2.77, while Base Business EPS rose 9% to $3.23. Operating cash flow increased 47% to $3,745 million, and free cash flow before dividends reached $3,040 million, up from $1,860 million.
Management also stepped up brand investment, with advertising up 19% to $2,371 millionc. For 2024, Colgate guided to net sales growth of 1% to 4% including a low-single-digit FX headwind, organic growth within its 3% to 5% long-term range, and double-digit GAAP EPS growth (mid to high-single-digit on a Base Business basis).
Investors should weigh the strong pricing-led growth and margin gains against flat organic volume in Q4, a planned step-up in advertising, and the lower guided reported sales growth due to currency. Total debt declined to $8,549 milliond from $8,766 million, and shareholders' equity remained modest at $609 million.
02—Key points
Key Highlights
- Q4 2023 net sales and organic sales both grew 7.0% to $4,950 million, driven entirely by pricing as organic volume was flat.
- FY 2023 net sales and organic sales both grew 8.5% to $19,457 million, with organic growth in every division and all four categories.
- Base Business EPS rose 9% to $3.23 for FY 2023 and 13% to $0.87 in Q4; GAAP EPS was $2.77 for the year, up 30%.
- Gross profit margin expanded to 58.2% for FY 2023 (from 57.0%) and to 59.6% in Q4 (up about 400 bps), supported by pricing and productivity.
- Operating cash flow rose 47% to $3,745 million and free cash flow before dividends rose to $3,040 million from $1,860 million.
- Advertising spending increased 19% to $2,371 million, and management expects higher brand investment in 2024.
- 2024 guidance calls for net sales growth of 1% to 4% (including a low-single-digit FX headwind), organic growth of 3% to 5%, and double-digit GAAP EPS growth.
03—Questions
Frequently Asked Questions
Why is GAAP EPS growth so different from Base Business EPS growth in Q4 2023?
The Q4 2022 GAAP EPS of $0.01 was depressed by a $721 million goodwill and intangible assets impairment charge. Because Q4 2023 had no such charge, GAAP EPS jumped to $0.87, which is reported as not meaningful. Base Business EPS, which excludes these items, grew a more modest 13% to $0.87 from $0.77.
Was Colgate's Q4 2023 growth driven by volume or price?
Almost entirely by price. Pricing contributed +7.0% while organic volume was flat (0%). Latin America was the notable exception, with organic volume up 8.0%, while Asia Pacific and Europe saw volume declines of 4.5% and 4.0%, respectively.
What does the 2024 guidance imply for investors?
Management expects reported net sales growth of 1% to 4%, held back by a low-single-digit negative FX impact, while organic growth should remain within the 3% to 5% long-term target. Profitability is expected to improve through gross margin expansion, offset partly by higher advertising. EPS growth is guided to double digits on a GAAP basis and to mid-to-high single digits on a Base Business basis.
How strong was Colgate's cash generation and balance sheet in 2023?
Operating cash flow was $3,745 million, up 47%, and free cash flow before dividends was $3,040 million. Total debt fell to $8,549 million from $8,766 million, and net debt (debt less cash and marketable securities) decreased to $7,404 million from $7,816 million. Dividends paid ($1,749 million) and share repurchases ($1,128 million) were both funded from operating cash flow.
Which divisions drove results and which lagged?
Latin America was the strongest performer, with Q4 organic sales up 16.5% and operating profit up 26%. North America grew organic sales 3.5%, and Europe grew organic sales 3.5%, with operating profit up 35%. Africa/Eurasia was the weakest, with operating profit down 15% in Q4 due to raw material costs and FX transaction costs, and Hill's operating profit fell 1% as input costs and a new plant's start-up costs weighed on margins.
04—Continue