CL Financial Analysis

Analysis Date: 2/3/2025

Business Model

Colgate-Palmolive is a global consumer products company focused on four core categories: Oral Care, Personal Care, Home Care, and Pet Nutrition. They generate revenue by selling products within these categories across more than 200 countries and territories.

Revenue Sources

• Oral Care: Includes toothpastes, toothbrushes, mouthwashes, and other oral hygiene products under brands like Colgate, elmex, meridol, and hello.
• Personal Care: Includes soaps, shower gels, deodorants, and skin care products under brands like Palmolive, Irish Spring, Softsoap, Speed Stick, EltaMD, and Filorga.
• Home Care: Includes dishwashing liquids, fabric conditioners, and household cleaners under brands like Ajax, Axion, Fabuloso, Murphy, Soupline, and Suavitel.
• Pet Nutrition: Includes pet food products for dogs and cats under Hill's Science Diet and Hill's Prescription Diet brands.

Income Statement Analysis

• Net sales slightly decreased by 0.1% YoY, remaining almost flat.
• Gross profit increased by 1.1% YoY, with gross profit margin improving to 60.3% from 59.6%.
• Selling, general, and administrative expenses increased by 5.1% YoY.
• Other (income) expense, net significantly decreased, indicating lower net expenses or higher net income from other sources.
• Operating profit decreased slightly by 0.7% YoY, despite gross profit improvement, due to higher SG&A expenses.
• Interest expense decreased by 10.8% YoY, while interest income increased by 33.3% YoY, leading to lower net interest expenses.
• Net income attributable to Colgate-Palmolive Company increased by 3.0% YoY.

Balance Sheet Analysis

• Cash and cash equivalents increased by 13.5%, indicating improved liquidity.
• Receivables, net decreased by 4.1%, potentially indicating efficient collection or lower sales at the end of the period.
• Inventories increased slightly by 2.7%.
• Property, plant, and equipment, net decreased by 3.5%, possibly due to depreciation exceeding capital expenditures or asset disposals.
• Goodwill and Other intangible assets, net decreased, suggesting amortization or potential impairments.
• Total debt decreased by 7.0%, indicating debt reduction.
• Other current liabilities increased significantly by 15.6%.
• Total Colgate-Palmolive Company shareholders’ equity decreased significantly by 65.2%, potentially due to share repurchases exceeding net income or other equity adjustments.

Capital Allocation

Colgate-Palmolive demonstrates a balanced capital allocation strategy: Dividends: Consistent dividend payments with a slight increase YoY, indicating commitment to providing shareholder returns. Share Repurchases: Significant increase in share repurchases in FY 2024 compared to FY 2023, reflecting a more aggressive approach to returning capital to shareholders and potentially signaling undervaluation of the stock. Business Reinvestment: While capital expenditures decreased in FY 2024, the company continues to invest in advertising (up 15%) and innovation to drive organic sales growth. Management emphasizes 'funding the growth' initiatives and building capabilities in areas like digital, data, and analytics. They are also focused on productivity and efficiency to generate savings for reinvestment and shareholder returns.

Management Commentary

We are pleased to have delivered another quarter and full year of strong organic sales growth along with increases in gross profit, gross profit margin, net income, earnings per share and cash flow.

For the full year, we grew net sales 3.3% and organic sales 7.4%, with organic sales growth in every division and in all four of our categories.

Our strong margin performance allowed us to continue to invest to drive brand health and support innovation with a 15% increase in advertising spending in 2024, following a 19% increase in 2023.

The Company expects net sales to be roughly flat, including a mid-single-digit negative impact from foreign exchange.

The Company expects organic sales growth to be within its long-term targeted range of 3% to 5%, including the impact of the planned exit from private label pet nutrition over the course of 2025.

Overall Sentiment: Positive and Confident. Management expresses satisfaction with the FY 2024 results, highlighting strong organic sales growth, margin expansion, and increased cash flow. They are confident in their ability to deliver consistent earnings growth in 2025 and beyond, despite expecting roughly flat net sales due to foreign exchange headwinds. The focus remains on organic growth, innovation, and shareholder returns.

Recommendation

Rating: Hold

Reason for Rating: Considering the solid FY 2024 performance and positive outlook for organic sales growth within the target range, but with expected flat net sales and low to mid-single-digit base business EPS growth in 2025, a 'Hold' recommendation is appropriate. The company is performing well operationally, but external factors like foreign exchange are creating headwinds. The increased share repurchase program is a positive sign, but overall growth expectations for the next year are moderate.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/3/2025, 6:08:22 AM