U.S. News

Colgate Profit Tops Views, Reiterates Forecast for This Year


Colgate-Palmolive posted a better-than-expected 47% rise in quarterly profit on Wednesday, driven by improvements from its ongoing restructuring and strong global sales growth.

The company, whose Colgate toothpaste is the top seller worldwide, also said it still expected double-digit percentage growth in earnings per share this year.

Second-quarter profit rose to $415.8 million, or 76 cents per share, from $283.6 million, or 51 cents per share, a year earlier. Excluding special items, earnings were 84 cents per share. On that basis, analysts on average expected 83 cents, according to Reuters Estimates.

Colgate is in the midst of a four-year restructuring announced in late 2004 that has made it more focused on oral care, personal care and pet food. It has also beefed up its marketing, with advertising spending up 22% during the second quarter.

Products from Colgate have come under scrutiny this year.

In March, it had to recall some Hill's cat food manufactured by an outside company, and in June, counterfeit "Colgate" toothpaste was found in certain stores.

The New York-based company is now led by Chief Executive Ian Cook, who took over from Reuben Mark on July 1, just after the second quarter ended. Mark remains chairman.

Second-quarter sales rose 13% to $3.41 billion, topping the analysts' average forecast of $3.31 billion.

Cook said Colgate expected the strong sales growth to continue for the rest of the year, driven by new products.

The company also expects gross profit margin improvement, excluding restructuring charges, to be within its targeted range of 0.75 to 1.25 percentage points this year and next year. In the second quarter, gross profit margin excluding restructuring charges increased 1 percentage point to 57.1%.

Growth Everywhere

Colgate said its toothpaste market share grew in countries such as Brazil, China, France, India, Mexico and Russia.

Unit volume, which factors out the impact of foreign currency fluctuations and price increases, rose 8%, or 8.5% excluding divestitures. Sales and volume rose in every division.

CIBC analyst Joseph Altobello said the "standout" was Latin America, where volume rose 12.5% excluding a divested bleach business. Colgate said it was the fourth straight quarter where volume grew by a double-digit percentage rate in Latin America, one of its largest markets.

Altobello, who has a "sector performer" rating on Colgate shares, said he still saw the company's valuation as "modestly attractive" and that pressures in core categories "appear manageable for now."

Colgate and larger rival Procter & Gamble have been going head-to-head marketing their high-end toothpastes, Colgate Total and Crest Pro-Health, respectively. P&G also now sells Oral-B toothbrushes, which compete with Colgate's line.

Shares of Colgate, whose brands also include Ajax, Palmolive and Softsoap, trade at about 18.4 times expected 2008 earnings, in line with rivals including P&G.