Online Exclusives

What Impact Oil?

By Tom Branna, Editorial Director | April 29, 2011

Q1 results are in, but Colgate-Palmolive executives are keeping an eye on raw material costs.

Consumers continue to snap up Colgate toothpaste, toothbrushes and soon, Sanex deodorants and shower gels. And that’s a good thing for parent company Colgate-Palmolive that, like so many other CPG companies, is keeping a wary eye on raw material costs.


That wariness comes at a time when first quarter sales were good. Colgate’s net sales rose 4.1% to $3.994 billion. Global unit volume grew 2.0%, pricing declined 0.5% and foreign exchange was positive 3.0%. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 1.5%.


Colgate executives were pleased with the results, noting that the company’s share of the global toothpaste market strengthened to 44.7% year to date, up 0.6 share points versus year ago. Colgate’s global leadership in manual toothbrushes also rose during the quarter with its global market share in that category reaching 32.4% year to date, up 1.0 share point versus year ago.


First quarter net income was $576 million and diluted earnings per share was $1.16. In contrast, the company reported $357 million and $0.69, respectively, which included a one-time, non-cash after-tax charge of $271 million related to the transition to hyperinflationary accounting in Venezuela as of Jan. 1, 2010. Excluding the 2010 Venezuela hyperinflationary charge, Net income and diluted earnings per share decreased 8% and 4%, respectively, versus first quarter 2010.


Reflecting the significantly higher cost environment, we expect gross profit margin to remain at around the first quarter level throughout the rest of 2011,” said Ian Cook, Colgate’s chairman and CEO in a statement. “We continue to be sharply focused on our aggressive cost-saving initiatives and anticipate that the benefits from those programs combined with our global pricing efforts will help us achieve our profit target of mid-single digit earnings per share growth for the year, excluding the 2010 Venezuela hyperinflationary charge noted above.


Portfolio Changes


In March, Colgate agreed to buy Unilever’s Sanex personal care unit for about $940 million, marking its biggest purchase in more than a decade to expand in deodorant and body wash overseas. At the same time, Colgate agreed to sell its Colombian laundry detergent business to Unilever for $215 million. Sanex, which Unilever had to sell to allay European Union competition concerns, generated sales of about $260 million last year. These moves are expected to have an accretive effect on a combined basis of approximately 4% on total company earnings in 2011, due entirely to the one-time gain on the detergent business sales and a positive effect on earnings in 2012 of approximately 1% from growth and efficiencies of the Sanex business.


Colgate plans to sell $500 million of notes in its first bond offering since it agreed to purchase Unilever’s Sanex personal-care unit. The company will split the sale evenly between three- and six-year notes, said a person familiar with the transaction. The three-year notes may pay about 30 basis points more than similar-maturity U.S. Treasuries while the six-year securities may yield a spread of about 80 basis points, said the person, who declined to be identified because terms aren’t set. Colgate has $3.2 billion of long-term debt, compared with $2.8 billion at the end of December, according to its most recent quarterly filing.


The Sanex acquisition is Colgate’s first since 2006 as Cook aims to expand into more profitable products. The move gives Colgate, which generates more than 80% of sales outside North America, a foothold in key parts of the personal care market in Western Europe as a result of the transaction.


The past five years have yielded 275 deals for personal care companies globally. The buyers in 25 of those deals paid a median of about 1.1 times their targets’ sales over that period, according to data compiled by Bloomberg. Colgate paid about $1 billion for Latin American toothpaste maker Kolynos Oral Care in 1995.


Oil’s Impact


While Colgate has made moves to build a higher-margin portfolio, like so many other players, the company can’t do much about higher raw material costs. Cook said he expects commodity costs to rise 11-13% as the year unfolds—up from previous estimates of an 8% to 10% increase. For the year, Colgate has modeled oil at $100 to $110 per barrel. But as of April 30, the price of oil stood at nearly $113 a barrel.


However, Colgate has been able to limit commodity cost impact via several internal measures, such as improving efficiency. For example, a new shared service center in Warsaw, services 27 European countries, which changes the processes used to get work done, which brings further savings and efficiency.


At the same time, Cook noted that promotional pricing issues continue to impact results—albeit at a slower rate.


“We continue to see elevated levels of promotional activity, and we continue to meet that promotional activity where necessary,” observed Cook. “But we think the pricing we have in, we can take in the context of maintaining our volume momentum.”


He noted that even as unemployment remains high, and the underemployment rate is even higher, which has consumers economizing. Meantime, the high cost of gas has led to substantial shifts in consumer shopping behaviors, both by types of stores and how frequently they purchase.


New Product Launches


One way to counteract promotional activity is to roll out novel products. Cook maintained that the relaunch of Colgate Total has helped consolidate the company’s leadership market position on toothpaste, adding 20 basis points year-over-year. Last year, Colgate launched Ultra Palmolive Antibacterial Dish Liquid, which is EPA approved to kill 99.9% of E. coli, salmonella and staph on dishes and non-porous surfaces in 30 seconds.

 
Ultra Palmolive Antibacterial Dish Liquid
In the current quarter, Cook is confident that the rollout of new Colgate Max variants will provide a lift to sales.


Looking ahead, Cook maintained that Colgate will have several product launches in the third quarter


“The big factor for us in North America is the timing of our innovation, which last year was very much first quarter oriented and this year is very much third quarter oriented,” said Cook. “I think you'll be quite excited by some of the innovation you see in the second half.”
 

Cook is excited too, by the Sanex acquisition. Couple that purchase with the sale of the detergent business in Colombia, and Cook termed the move as fitting exactly to what Colgate looks for in an acquisition in the sense that it is strategic, it gives Colgate strength in a business that is important to the company and it is a premium-priced product with a simple and consistent healthy skin positioning and the consumer strength that comes with that.
 

“And we were able to signal our intention to buy that business at the same time as we sell a lower gross margin, inherently lower growth detergent business,” he added.
 

Cook noted that Colgate has de-emphasized home care in recent years, in favor of higher-margin oral care, personal care and pet care businesses, but he noted, like as a fourth child, “we don’t love it any less.”
 
 
“We like the business. And we think we can bring the innovation necessary to compete in that business, and we have no intention of selling that business,” he insisted.
 

For a full transcript of the Colgate Q1 call, visit: www.seekingalpha.com
 
blog comments powered by Disqus
  • Sustainability is Omnipresent

    Sustainability is Omnipresent

    Christine Esposito , Associate Editor||July 1, 2016
    Industry stakeholders convene in New York City for Organic Monitor’s annual event

  • Perceived Perfection

    Perceived Perfection

    Christine Esposito, Associate Editor||July 1, 2016
    From primers to pressed powders, facial cosmetics help create the illusion of a flawless complexion.

  • Preserve & Serve

    Preserve & Serve

    Melissa Meisel , Associate Editor||July 1, 2016
    Suppliers with innovative preservatives provide staying power for formulations.

  • Pushin’ the Cushion

    Pushin’ the Cushion

    Christine Esposito, Associate Editor||July 26, 2016
    AmorePacific, the creator of the cushion compact, continues to improve its unique product.

  • Senior Skin Care

    Senior Skin Care

    Christine Esposito, Associate Editor||July 19, 2016
    McCord Research and Product Quest Manufacturing roll out new hospital-grade skin care kits for seniors to use at home.

  • An Antioxidant Arsenal

    An Antioxidant Arsenal

    July 11, 2016
    BioRewind is Dermarché Labs' new anti-aging regimen that delivers broad-spectrum antioxidant protection against free radicals

  • Enter Éclair

    Enter Éclair

    Christine Esposito, Associate Editor||July 5, 2016
    A new naturals line rolls out in Rite Aid stores nationwide.

  • Patent Update

    Patent Update

    June 30, 2016
    J&J's anti-aging patent, LVMH and cannabis essential oil, transdermal botulinum toxins and more in recent patent news.

  • Start Stuffing The Ballot Box (Again)!

    Start Stuffing The Ballot Box (Again)!

    June 28, 2016
    Vote on the finalists in Happi's reader's choice Anti-Aging Product of the Year contest!

  • What

    What's Next for the UK?

    Sarah Boumphrey, Euromonitor International||June 27, 2016
    Euromonitor weighs in on how Brexit could impact consumer product companies.

  • The Future of Innovation

    The Future of Innovation

    Nancy Jeffries, Contributing Editor||June 27, 2016
    Fashion Institute of Technology graduate students tackle a far-reaching topic for their Capstone project.

  • Problems for Preservatives

    Problems for Preservatives

    June 20, 2016
    David Steinberg details the issues surrounding this critical ingredient category.

  • Voyage to Better Skin

    Voyage to Better Skin

    June 13, 2016
    Skin Inc. rolls out new light-based device to US market.

  • Patent Update

    Patent Update

    June 9, 2016
    Avon’s use of melicope extract, skin care with SPF and chicory root, microdermabrasion cream and more in recent patents.

  • Exploring Green in Vegas

    Exploring Green in Vegas

    Christine Esposito, Associate Editor||June 6, 2016
    Cosmoprof North America sets the stage for brands dedicated to the growing and evolving eco-friendly beauty space.

  • We

    We're Surrounded!

    Tom Branna, Editorial Director||May 30, 2016
    Industry experts explain the important role that the skin microbiome plays in human health.

  • Luxury Re-Coded

    Luxury Re-Coded

    Nancy Jeffries, Online Editor||May 25, 2016
    Consumers have new expectations for beauty.

  • Procter Reels in Doctors

    Procter Reels in Doctors

    May 16, 2016
    The Procter & Gamble stand was abuzz during the annual meeting of the American Academy of Dermatology.

  • If You’re Going to San Francisco…

    If You’re Going to San Francisco…

    Tom Branna, Editorial Director||May 13, 2016
    Be sure to contact the Bay Area Beauty Association.

  • Kitchen Counter Cosmetics

    Kitchen Counter Cosmetics

    Christine Esposito, Associate Editor||May 2, 2016
    LOLI box marks the convergence of natural and organic ingredients, subscription service and DIY cosmetic chemistry.

  • Why Look Good, When You Can Look Perfect?

    Why Look Good, When You Can Look Perfect?

    Tom Branna, Editorial Director||April 4, 2016
    A new way to try-before-you buy is capturing the attention of consumers and the beauty industry.

  • From Greenville to Guangzhou

    From Greenville to Guangzhou

    Christine Esposito, Associate Editor||March 14, 2016
    South Carolina start-up BabyBlossom has big plans for its nontoxic baby products line...in China.

  • NYSCC Explores Product Innovation

    NYSCC Explores Product Innovation

    Christine Esposito, Associate Editor||March 14, 2016
    New product development, formulation expertise and proper preservation are topics of discussion at February monthly meeting.

  • Battling Pollution via Skin Care

    Battling Pollution via Skin Care

    Christine Esposito, Associate Editor||March 7, 2016
    Canadian start-up turns to crowdfunding to help launch a new anti-pollution moisturizer.

  • Putting Plaque in the Crosshairs

    Putting Plaque in the Crosshairs

    Christine Esposito, Associate Editor||February 29, 2016
    New toothpaste offers novel—and eye-catching—means to help consumers more effectively battle plaque.

  • Arm

    Arm's Reach: skin care line with unique packaging

    Christine Esposito, Associate Editor||February 15, 2016
    Chemist brothers create a skin care line with packaging that helps consumers cover hard to reach spots.

  • Buy the Sea, Buy the Sea, Buy the Beautiful Sea

    Buy the Sea, Buy the Sea, Buy the Beautiful Sea

    Tom Branna, Editorial Director||February 9, 2016
    Nova Scotia Fisherman makes a boatload of products that contain sea kelp and a raft of natural ingredients.

  • What

    What's on Tap for 2016?

    Nancy Jeffries, Contributing Editor||February 8, 2016
    CEW and NPD present their beauty industry review and preview.