Colgate-Palmolive Company (CL) reported earnings on October 26th and the stock dropped 6.7%. We used Amenity Viewer to uncover 3 key insights behind the disappointing top-line and outlook...within minutes.
It does not come as a surprise that macro factors have a meaningful impact on a global consumer products company such as Colgate-Palmolive. However, Viewer allows us to quickly view the historical trend around negative headwinds, and delve further into the commentary.
"The flat volume and 1% favorable pricing were offset by 4% negative impact from foreign exchange."
"...volume is down 1.5%, driven by issues in China and Brazil that Ian discussed."
"First, foreign exchange, which moved sharply negative, particularly so in our large Latin American division..."
"In Brazil, the macroeconomics are volatile, including a hangover from the truckers' strike in the second quarter, and of course, less now, but still uncertainty around elections."
"The disappointing part of this earnings report is the weak top line. 4 of 6 divisions up, but Brazil in Latin America and China in Asia drove our top line from positive to negative."
"...but we've got huge currency headwinds there and in Europe."
"Foreign currencies were also sizable headwind in the quarter, reducing operating profit by a high single-digit rate."
"In China, organic sales were down high teens due to lower diaper sales and continued challenging market conditions."
"On China, obviously, we're not satisfied with our performance in China."
"Foreign exchange was a $260 million earnings headwind."
"In less than the 3 months since our last earnings release, the foreign exchange headwind on earnings increased by $400 million after tax."
"Combined, FX and commodities are now a $1.3 billion after tax or a $0.50 per share headwind versus last fiscal."
"Productivity improvement were offset by 100 points of commodity cost increases, 60 points of foreign exchange headwinds and 160 points from mix."
Viewer showed a sea of red for CL. In fact it's Amenity Score ranked the lowest compared to the select peer group.
Colgate-Palmolive initiated the Global Growth and Efficiency (GGE) Program in 2012, Which was Extended and Now Expected to Conclude in 2019. The charges relating to this program were estimated to be between $1.28 to $1.38 billion, with significant cost savings resulting from global supply chain optimization.
Through Viewer, we see management's consistent enthusiasm over the last few quarters:
"We remain resolutely focused on maximizing our Global Growth and Efficiency Program to streamline our cost structure."
"...while we maintain a resolute focus on the Global Growth and Efficiency Program in the last couple of years of that program, so we can reduce structural costs as well and focus on building our brands."
"Look,in terms of flexibility on the year, we have the last year of our Global Growth and Efficiency Program remaining. We have a very strong funding-the-growth program off to very good start this year."
"That means that our overhead ratio was down meaningfully year-on-year and that traces to the Global Growth and Efficiency Program that we have had."
The cost savings were expected to start materializing this year; however, it is noteworthy that management avoided this topic entirely in their prepared remarks. When asked about the program, the CEO spoke about the program in a much more subdued tone than what we’ve heard before:
"...and those moves, they’re never without their challenges in the implementation of them."
"...and of course, we have learned our way over the years."
This topic may have been diluted against the other issues that the company has been plagued with over the past quarter or this may be something structural. It will certainly be a good point of interest in 2019.
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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.
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