01—Abstract
Summary
Summary of the 8-K filed July 26, 2024. Cited figures are marked; the original filing is the authoritative source.
Colgate-Palmolive reported second-quarter 2024 results that beat on the top and bottom line, with net sales up 4.9% to $5,058 milliona and organic sales up 9.0% (on top of 8.2% a year earlier).
Growth was broad-based: every operating division posted positive volume growth, with organic volume up 4.7% overall and pricing contributing 4.2%. GAAP diluted EPS rose 48% to $0.89b, while Base Business (non-GAAP) EPS rose 18% to $0.91. Gross profit margin expanded 280 basis points to 60.6% on a GAAP basis (300 bps to 60.8% Base Business), marking the fourth consecutive quarter of gross margin expansion.
Operating profit grew 12% on a GAAP basis to $1,092 millionc, and Base Business operating profit grew 13% to $1,118 million. Management continued to reinvest in the brand, with advertising spending up 18% to $706 million in the quarter. Net cash provided by operations was $1,671 million for the first six months of 2024, up from $1,457 million, and free cash flow before dividends rose to $1,428 million from $1,110 million, helped by lower capital expenditures.
Total debt was $8,676 milliond at June 30, 2024, and net debt (debt less cash and marketable securities) was $7,341 million, slightly below year-end 2023. Share repurchases of $989 million in the first half were the largest use of cash after dividends of $867 million. The company raised its full-year 2024 organic sales growth guidance to 6% to 8% from 5% to 7%, and raised its Base Business EPS growth guidance to 8% to 11% from mid-to-high single digits.
Net sales growth guidance of 2% to 5% was maintained, though it includes a mid-single-digit negative foreign exchange impact. GAAP EPS guidance still calls for double-digit growth. The primary risks flagged are currency headwinds, particularly in Latin America and Africa/Eurasia, and ongoing geopolitical uncertainty, including the war in Ukraine and the Israel-Hamas conflict.
02—Key points
Key Highlights
- Net sales rose 4.9% to $5.06 billion, with organic sales up 9.0%, showing strong underlying demand and a 4.7% organic volume increase
- GAAP diluted EPS increased 48% to $0.89; Base Business EPS increased 18% to $0.91, with the GAAP-to-non-GAAP gap driven mainly by 2022 Global Productivity Initiative charges
- Gross profit margin expanded 280 bps to 60.6% (GAAP) and 300 bps to 60.8% (Base Business), the fourth straight quarter of gross margin expansion
- Hill's Pet Nutrition operating profit rose 23% to $235 million, with margin up 300 bps to 21.1%; Latin America operating profit rose 15% to $417 million, with a 32.9% margin
- Full-year 2024 organic sales growth guidance raised to 6%–8% (from 5%–7%); Base Business EPS growth guidance raised to 8%–11% (from mid-to-high single digits)
- North America was the weak spot, with operating profit down 2% and margin down 90 bps, despite 2.5% sales growth
- Free cash flow before dividends rose to $1.43 billion for the first half of 2024 (from $1.11 billion), while the company returned cash through $867 million in dividends and $989 million in share repurchases
03—Questions
Frequently Asked Questions
Why did GAAP EPS grow much faster than sales in the second quarter?
GAAP EPS rose 48% to $0.89, versus 4.9% sales growth, largely because the prior-year quarter was depressed by a higher effective tax rate of 39.8% caused by a foreign tax matter. The 2024 quarter's effective tax rate was 24.1%. Gross margin expansion of 280 bps and operating profit growth of 12% also contributed. On a Base Business basis, EPS growth was a more modest 18%, which strips out the foreign tax benefit and other one-time items.
How strong was the organic growth, and is it driven by price or volume?
Organic sales grew 9.0%, with both components contributing. Organic volume rose 4.7% and pricing added 4.2%, after accounting for coupons and trade incentives. Every operating division delivered positive volume growth, which management highlighted as a sign of healthier category growth and increased brand penetration. Latin America and Africa/Eurasia had the strongest organic growth, at 18.8% and 16.4%, but both were heavily affected by currency devaluation, with foreign exchange reducing reported sales growth by 11.2% and 14.3%, respectively.
What are the main risks to the raised 2024 outlook?
The guidance still includes a mid-single-digit negative foreign exchange impact on reported net sales, and currency weakness in emerging markets, especially Latin America and Africa/Eurasia, is a material headwind. North America's operating profit declined 2% in the quarter, and the company plans to keep investing heavily in advertising, which rose 18% in the quarter and is expected to remain elevated for the rest of the year. The filing also cites risks from the war in Ukraine, the Israel-Hamas conflict, cost-reduction plans, and tax and legal matters.
How is Colgate using its cash, and how strong is the balance sheet?
Operating cash flow was $1.67 billion for the first half of 2024, up 15% year over year. Capital expenditures fell to $243 million from $347 million, which lifted free cash flow before dividends to $1.43 billion. Colgate paid $867 million in dividends and repurchased $989 million of stock. Total debt was $8.68 billion, and net debt was $7.34 billion, slightly lower than year-end 2023. Short-term borrowings increased by $736 million, which partly funded the buybacks.
What do the non-GAAP Base Business adjustments mean for investors?
Base Business results exclude items such as 2022 Global Productivity Initiative charges, product recall costs, and the 2023 ERISA litigation and foreign tax matters. In Q2 2024, the main adjustment was a $27 million charge related to the 2022 Global Productivity Initiative, which reduced GAAP EPS by about $0.02. Investors should review both measures, since the adjustments recur in some form each year. The GAAP to Base Business reconciliation tables are included in the filing so investors can see the impact of each item.
04—Continue