Currency Headwinds Shrink Organic Sales Growth For Colgate-Palmolive In Q3FY14

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Colgate Palmolive

Oral care player Colgate-Palmolive (NYSE:CL) missed sales and GAAP-based earnings in its third quarter of fiscal year 2014. Quarterly sales stood at $4.38 billion compared to consensus average of $4.44 billion, weighed down by slowing volume growth in Europe. In reported terms, sales were marginally lower from the third quarter of 2013. Excluding currency headwinds and other inorganic growth contributors, Colgate posted an organic sales growth rate of 3.5% on a year on year basis for Q3FY14, with a 2% growth in volumes and a 1.5% growth in selling prices.

Year to date, Colgate posted sales marginally over $13 billion. Its oral, personal and home care business generated about $11.38 billion in 2014 compared to $11.43 billion in the nine months in 2013. The decline in sales in this segment was primarily resulted by depreciating currencies in emerging markets, where Colgate has a lot of exposure. Comparatively, its Hill’s pet nutrition business posted sales of $1.68 billion compared to $1.63 billion during comparable periods, partly shielded from currency headwinds due to its larger presence in North America.

Operating profit margins in the nine months in FY14 expanded by 20 basis points to 26.6%, driven by margin expansions in Asia, Europe  South Pacific and its Hill’s pet nutrition business. Margins for Colgate’s oral, personal and home care business in Asia expanded 1.1 percentage points on a year on year basis to 29.1%, on the back of margin share gains from new product launches. In Europe and South Pacific, operating margins expanded 2.2% in 9MFY14 to 26%, benefiting from streamlined operations and the formation of hubs. Within Hill’s pet nutrition, margins expanded 100 basis points to 26.1% due to lower SG&A expenses.

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Colgate’s quarterly bottom line fell short of estimates on a GAAP basis, at $0.59 in Q3FY14 compared to $0.71 in Q3FY13, impacted by charges relating to the 2012 Restructuring Program and the remeasurement of the Venezuelan Bolivar. Adjusting for these line items, non-GAAP earnings for Q3FY14 was in-line with analyst estimates, at $0.76.

See our full analysis for Colgate-Palmolive

Currency Headwinds Shrink Organic Sales Growth in Q3FY14

For the nine months into FY14, Colgate has managed to grow its organic sales by 4.5%, with product volumes increasing by 3% and selling prices expanding by 1.5%. However, currency headwinds equaled this organic growth rate, resulting in flat reported sales in 9MFY14. Divisionally, its Oral, Personal and Home Care divisions reported an organic growth rate of 4.5%, driven by 3% volume growth and 1.5% pricing expansion. However, reported sales declined by 0.5% in 9MFY14 on a year on year basis due to a 5% currency headwinds.

Colgate continued to have high demand for its manual toothbrush products, with its newest Optic White Toothbrush and Built-In Whitening Pen contributing to sales acceleration and market share growth in North America. [1] Similarly, the company has witnessed some market share gains in other segments such as Toothpastes and Mouthwashes. U.S. market share in Toothpastes stood at 35.8%, up from 35% in January 2014. [1] This gain in market share in a competitive toothpaste market in the U.S. was driven by new product launches such as Enamel Health Toothpaste and Enamel Health Toothbrush. Outside the U.S., its products such as Total Advanced Whitening Toothpaste, Maximum Cavity Protection and Total Breath Health have contributed to share gains and organic sales growth. [1]

Going forward, we expect currency headwinds to slowly temper down while volumes and prices are likely to remain stable. This should aide an expansion in reported sales for Colgate-Palmolive going forward.

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Notes:
  1. Colgate-Palmolive’s (CL) CEO Ian Cook on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, October 2014 [] [] []