Colgate Palmolive (CL): Growing Already Monster Share

Posted on Nov 5 2015 - 2:59pm by Sharpe Trade

Earnings season. 

Somehow … a company I cover slipped me by.  I had forgotten to post my notes regarding the Colgate (CL) call here at ‘Sharpe Trade‘.  So let’s correct that oversight now.

When I listen to the conference call of a company, I take some notes. And therefore … I thought that to help out new folks as they navigate conference calls, I would start posting my notes, as I’ve taken them. Perhaps, we can make this a continual feature here at ‘Sharpe Trade’ with the stocks that we have mentioned in the free Sharpe Income project.

Colgate Palmolive (CL) reported earnings on the 30th of October, after which the stock’s price has shed around 2.3% from October 29th highs.  As I have mentioned previously here at Sharpe Trade, this is a stock that I use in the equities section of my own personal income accounts.  It’s unfortunate that we have not yet had the opportunity to purchase Colgate (CL) as I personally believe there was an opportunity back in September.  But as we have said before, there will always be another opportunity.

As stated at the outset, we had the Colgate Palmolive (CL) call a few days back … that you can find here.

Colgate Palmolive (CL) – Daily Chart

Colgate-CL-Earnings-Chart-Sharpe-Trade-11-04-15

Although I took a cursory look at the numbers, I haven’t had the opportunity to sit and listen to the conference call. Which is fine, since my holding period, my time-frame … is that of years. So what’s ‘the skinny’ this quarter?

You can find my notes on last quarter’s earnings here, and as follows are a few notes from my desk as I listened to this quarters Conference Call

Colgate Palmolive Co (CL) – October 30, 2015

  • $0.72 Est. / $0.72 in Actual EPS.  In line.
  • $726 in Net Income, a 26.48% increase over last quarter, and 33.95% increase over the same time last year.
  • Total Revenue of $3.99 Billion, down -1.64% from last quarter and down -8.678% from the same time last year.
  • Net Profit Margin is 19.25%, up 42.17% from 13.54% the same time last year.
  • Operating Margin increase from 20.59% to 28.41%, a 37.98% increase.
  • Earnings per share (EPS) of $0.72 in line with estimates, which is down 5.263 % percent from $0.76 a year ago, and up 2.857 % from last quarter’s $0.70.
  • Debt to Assets approaching 50%, up every so slightly from last quarter, and up from about 40% in 2014.  Has been steadily rising year after year.  Every so slightly.
  • Cash flow is pretty much stable across the board year over year, and operating cash flow increased last quarter.  Dividend yield at around 2.2414%, with Dividend Payout at around 51.244.  However … that is for Colgate (CL), so …
  • Stated at the outset that Foreign Exchange continues to be a major challenge but, as last quarter, stressed growing “market share”.  As well, Gross Profit Margins improving, claiming “funding the growth initiatives, pricing actions and our global growth and efficiency program
  • Overhead costs are down, as can be seen on the Income Statement
  • To quote “advertising was down on dollar basis, we think we’re getting good results from the dollars we spend both in-store and out“.  Basically, the story here is working via Google and Facebook for better efficiency on growth initiatives and product reach on advertising, than perhaps more archaic forms of advertising.
  • Stated “Our balance sheet remain solid and we’re making very good progress on working capital” … well … it’s solid in that Colgate-Palmolive (CL) and they sell half the oral care products on this planet.  But I would question the continual rising debt to assets percentages, quarter over quarter … year over year.  In 2010, we were around 29%, and now, we’re approaching 50%.
  • Began going through product categories via geographic sales.
  • Believes market shares are up year-to-date in toothpaste, manual toothbrushes, mouthwash, liquid hand soap, body wash and fabric conditioners. And this was true on a quarter-over-quarter comparison as well.  At the same time, we’ve seen a decline in private label shares in many of our categories indicating the consumers preference for branded products and respect of our equities“.
  • States … “Europe, South Pacific. Our business there is showing encouraging signs of recovery with innovation playing a critical role“.
  • Finally, some hard number specifics.  Eight minutes in, and there has been no discussion of hard numbers.  Heck, the numbers above I had to pull off the report.  They weren’t mentioning them.  Bit of a pet peeve of mine.  However … at eight minutes, in one geographic, in one segment … “Elmex Sensitive Professional and Elmex ANTI-CARIES PROFESSIONAL has driven our pharmacy share in France to a leadership position 26.3% year-to-date and now ahead of the nearest competitor by 150 basis points. In manual toothbrushes, our leading market share in Europe is up 130 basis points year-to-date to 24.6% with our nearest competitor down to 17.4%. Driving these excellent results has been the launch across the region of our Colgate 360° manual toothbrush line
  • I’m an investor.  Not a customer.  Quit selling me on how fantastic your products are.  Talk numbers.  Always hate the CL call for that.
  • Some economic uncertainties in countries such as Brazil, our categories still show solid local currency growth. Our regional toothpaste share is up two full points year-to-date to 78.2%. In Brazil our market share is up 50 basis points year-to-date to 72%, the highest share in over 20 years and in the face of continued heightened competitive activity“.
  • In Mexico our share is up 1 point year-to-date to 81.3% with the most recent read at 81.6%, while our major competitor shows continued share decline. Contributing to this success is our premium priced Colgate Luminous White Advanced, Colgate’s most advanced whitening toothpaste formulated to intensify the whiteness of your teeth by three shades … In manual toothbrushes our market share is up 230 basis points year-to-date to 45.4% with the most recent read at 49.8%
  • Just more discussion of their monster market share, which we all sort of already understand.
  • China and India which both delivered good volume growth, category growth rates remain mid-single digit in China while in India our categories are growing as well. In India, our year-to-date toothpaste share is at almost 55% on a national basis and close to 59% in rural market. Our market leading manual toothbrush share is 43.6% year-to-date“.
  • In Russia, our share is up 230 basis points year-to-date to 34.2% hitting a record share of 35.1% in the most recent period. We recently launched Colgate Maximum Cavity Protection with Sugar Acid Neutralizer which has already reached at 0.7% share year-to-date and contributed to the share gain. In South Africa, our share grew 150 basis points year-to-date to 50.2% driven by a new marketing campaign behind Colgate Total“.
  • In Russia where we achieved incremental listings in Russia’s number one retailer, our toothbrush share grew 270 basis points year-to-date to 48.1% with the most recent read at 49.4%. And in Turkey our share grew 10 basis points year-to-date to 28.6% with the most recent read at 29.7% and in South Africa our share was up 30 basis points year-to-date to 38.2% with the most recent read at 38.6%. Our bar soap business continued with strong momentum in our two biggest markets Russia and South Africa, the recent introduction of Protex Men Power contributed to a regional share gain of 150 basis points year-to-date to almost 24%.
  • In summary, Colgate management is pleased and continues to focus on continued solid organic sales growth and market share gains around the world. The state their innovation pipeline is as full as ever and their savings programs are on track. Colgate continues to focus on our four strategic initiatives delivering consistent results.
  • Questions and Answers: Began at 18:53. Decreased A&P spending, Given the Focus Co. has on Growth, will this continue to work:   Ian Cook answered.  It was a bit of a longer, “around Snyders Barn” as we say down south, answer.  But in the end … it comes down to spending the dollars for Advertising and Promotion more intelligently, efficiently through digital advertising and where they can measure the results to a greater degree, as well as in-store advertising.  But they would not be surprised to see increase in A&P in 2016. Has Worst Case been Considered on Venezuela:   Ian – Venezuela is re-evaluated on a quarter by quarter basis primarily driven by their ability to obtain dollars.  This quarter, they keep Venezuela.  They will revisit their decisions on Venezuela next period.  Restructuring:  Ian Cook – Simplistically, Colgate will provide more rich detail on this next year.  “what we’ll be talking about … transformational in how we used the hubs we have created and how we use the service centers we have created more fulsomely.  So it is greater utilization around the basic structures that we will have fully established by next year.  And I hold it there at this stage”.  Europe:  Ian Cook – “I think when you look at the European environment obviously it’s our lowest growth area of the world. I think the good news is that although pricing has been consistently negative in Europe if you look at the three quarters this year it has become positively less negative”, but they believe “volumes will come back”.

I wish some points would have been hit regarding the rising debt levels we see on Colgate Palmolive’s (CL) Balance sheet since 2010.  But hey, you can’t get everything you want out of a call.

Colgate Palmolive enjoys a monster market share in their products.  We all pretty much understand this.  They sell much of the consumer oral health care products on this planet.  As of late, they have been involved in a global growth and efficiency program.  Growing their already monster share.  Becoming more efficient with what they spend on advertising.  Last quarter, it was stated that they do not plan on moving their advertising ratio lower in the face of a difficult macro-economic environment a comment was used briefly regarding “last man standing” among their competitors.  To deal with the pressures, Colgate (CL) plans on focusing on price, rather than volume in the future.  

And the Q&A session was littered with advertising questions.

Simply put, they seem to be growing their market share through their pricing / volume strategy somewhat well.  The quarter was pretty much … in-line with what had been estimated …

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