The story for consumer goods companies has been pretty consistent so far this earnings season. We heard it from close Colgate-Palmolive
"It," of course, is rising commodity costs.
For the first quarter, Colgate's gross margin fell 80 basis points to 58.4% as input costs took a bigger bite. With the exception of the Latin America region -- Colgate's largest geographic segment -- the company saw gross margin declines across the board in all segments and geographies. Interestingly, gross margin actually increased in Latin America as the company coupled its "funding the growth" initiative with higher prices.
Rising input prices and falling gross margins or not, investors reacted well to Colgate's numbers, as $1.16 in earnings per share matched analysts' estimates.
I can't say I was quite as excited about Colgate's quarter. Total revenue growth was 4.5%, but it was driven in large part by a 3% impact from foreign exchange movements. Organic sales growth was a more sluggish 1.5%.
While GAAP earnings showed a huge increase versus last year's first quarter, the year-ago quarter was clobbered by an accounting change. Stripping out that one-time charge, earnings per share fell 4%.
The overall decline was driven by weakness across almost all of Colgate's segments. In North America, volume and organic sales fell 1% and 5%, respectively, while operating profit slipped 12%. Volume crept up in Latin America and organic sales grew 5%, but operating profit fell 4%. In Europe, organic sales were down 1.5% on a 1% increase in volume, while operating profit fell 3%.
The Hill pet-product segment was somewhat more positive as organic sales were up 1.5% on a 3% volume gain, and operating profit managed to stay flat. But if there was a highlight, it was the Asia/Africa region. China, India, South Africa, and Turkey helped drive volume gains of 8.5% and organic sales growth of 7.5%. Operating profit actually grew for this segment, climbing 7%.
Colgate does claim strong brand power around the world, particularly when it comes to the oral-care products behind its flagship Colgate brand. A strong presence in many of the world's fastest-growing economies is certainly a plus in its column.
However, with a 2011 price-to-earnings ratio above 16 and sluggish performance over the past couple of quarters, I'm just not all that crazy about Colgate's stock. Right now, I'm finding myself much more interested in other consumer products companies like Procter & Gamble, Kimberly-Clark, or Pepsi.
Think I'm missing something about Colgate-Palmolive? Add the stock to your watchlist, then sound off in the comments section below.
