Colgate Announces 1st Quarter Results – Diluted Earnings Per Share in line with expectations

Colgate-Palmolive Company (NYSE:CL) today reported worldwide Net sales of $3,994 million in first quarter 2011, an increase of 4.5% versus first quarter 2010. 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%.

Net income and Diluted earnings per share in first quarter 2011 were $576 million and $1.16, respectively. Net income and Diluted earnings per share in first quarter 2010 were $357 million and $0.69, respectively, which included a one-time, non-cash aftertax charge of $271 million ($0.52 per diluted share) related to the transition to hyperinflationary accounting in Venezuela as of January 1, 2010. Excluding the 2010 Venezuela hyperinflationary charge, Net income and Diluted earnings per share decreased 8% and 4%, respectively, versus first quarter 2010. Net income and Diluted earnings per share in first quarter 2010 also included an aftertax gain of $59 million ($0.11 per diluted share) related to the remeasurement of the Venezuelan balance sheet and lower taxes on accrued but unpaid remittances as a result of the currency devaluation on January 8, 2010.

Gross profit margin was 58.4%, down 80 basis points versus the year ago quarter's record level, due to the impact of higher material costs and increased promotional investments more than offsetting benefits from cost-saving initiatives.

Selling, general and administrative expenses decreased by 20 basis points to 35.2% of net sales in first quarter 2011 from 35.4% in first quarter 2010, as worldwide advertising spending decreased 1% versus the year ago quarter to $418 million. Advertising as a percent to sales was 10.5%, down 60 basis points when compared with the strong 11.1% in first quarter 2010 due to the timing of new product launches.

Operating profit increased 35% to $915 million in first quarter 2011. Excluding the above-mentioned 2010 Venezuela hyperinflationary charge, Operating profit decreased 4% to $915 million compared to $949 million in first quarter 2010, decreasing as a percent to sales from 24.8% to 22.9%.

Net cash provided by operations in first quarter 2011 was $680 million compared to $733 million in first quarter 2010. Working capital as a percentage of sales was negative 0.6%, an increase of 20 basis points versus the record low level in the year ago period. Free cash flow before dividends remains very strong, once again exceeding 100% of Net income.

Ian Cook, Chairman, President and Chief Executive Officer commented, “We are pleased to have met earnings expectations this quarter despite very sharp increases in material costs and an intense competitive environment globally.

“Pleasingly, our strong growth momentum in emerging markets, which represent over half of our global sales, continued during the quarter with organic sales growing 5.5% in those markets.

“Colgate's global market shares in toothpaste and manual toothbrushes are both at record highs year to date. Colgate's share of the global toothpaste market strengthened to 44.7% year to date, up 0.6 share points versus year ago. Our global leadership in manual toothbrushes also strengthened during the quarter with Colgate's global market share in that category reaching 32.4% year to date, up 1.0 share point versus year ago.

“As planned, advertising spending increased versus the fourth quarter, and we continue to plan for higher levels of spending in the balance of the year in support of a very full pipeline of new products.

“Reflecting the significantly higher cost environment, we expect gross profit margin to remain at around the first quarter level throughout the rest of 2011. 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.”

At 11:00 a.m. ET today, Colgate will host a conference call to elaborate on first quarter results. To access this call as a webcast, please go to Colgate's web site at http://www.colgate.com.

The following are comments about divisional performance. See attached Geographic Sales Analysis and Segment Information schedules for additional information on divisional sales and operating profit.

North America (18% of Company Sales)
North America Net sales declined 4.5% in the first quarter. Unit volume decreased 1.0% with 4.0% lower pricing and 0.5% positive foreign exchange. Organic sales declined 5.0% during the quarter.

Operating profit in North America decreased 12% in the first quarter of 2011 to $192 million or 26.7% of Net sales. This decrease was driven by a decrease in Gross profit which was partially offset by a decrease in Selling, general and administrative expenses. The decrease in Gross profit was due to higher raw and packaging material costs, reflecting global commodity cost increases, and increased promotional investments reflected in the net selling price decreases noted above. The decrease in Selling, general and administrative expenses was due to an increase in logistics and overhead expenses, which was more than offset by a reduction in advertising expenses in line with the planned timing of new product launches.

In the U.S., new product launches including Colgate Sensitive Multi Protection and Colgate Max Clean SmartFoam toothpastes and the relaunch of Colgate Total toothpaste are strengthening Colgate's leadership in toothpaste, with its share of that market reaching 35.9% year to date, up 0.3 share points versus year ago. Colgate's strength in manual toothbrushes also continued, driven by the success of Colgate 360° Surround, Colgate 360° ActiFlex, Colgate Max White and Colgate Extra Clean manual toothbrushes.

Successful new products in the U.S. in other categories include Softsoap Body Butter Mega Moisture and Irish Spring Intensify body washes and Palmolive Antibacterial dish liquid. New products launched late in the first quarter and reaching store shelves now include Colgate Total Gum Defense toothpaste, Softsoap Body Butter Strawberry Smoother body wash, Palmolive Soft Touch dish liquid, Palmolive baby bottle, toy and dish wash, Softsoap Pampered Hands foaming liquid hand soap and a new line of Irish Spring deodorants and antiperspirants.

Looking ahead in the U.S., an array of new product introductions are planned for the balance of the year with increased advertising spending supporting them and other recent new product launches.