What good comes of being a dominant global company if you can't dominate your industry? Such is the case with Colgate-Palmolive (CL 1.49%), which just posted uninspiring quarterly results. More promisingly, the company announced a global initiative to drive sales and reduce expenses, but this will come at a price -- both in financial and human terms.
Fat margins ...
The initiative isn't due to a lack of cash or profitability. For its Q3, the company posted net sales of $4.3 billion and a bottom line of $654 million. The former was 1% lower year over year, while the latter represented a slight rise just under 2%. These were broadly in line with analyst expectations.
They're also respectable, if not spectacular, for a fast-moving consumer goods company. It's a tough sector to succeed in, given the many skills required -- effective inventory management, smart pricing, research and development directed toward products that will pay off, and so on.
For these reasons, it can be a challenge to net a decent profit, or any profit at all for that matter. Colgate's Q3 margin of 15%, then, is pretty good. It's higher than what the company has posted in each of its past five fiscal years and compares favorably with those of its rivals. For example, the average margin of Procter & Gamble (PG +0.74%) from 2007 to 2011 was 13.5%,and that for Unilever (UL 1.26%) stood at just under 10%.
... but sluggish sales
Those numbers are fine, but what Colgate's probably more concerned with is top line. Any fall in revenues, no matter how slight, is a concern for a company with the scope and range these guys enjoy.
All of the company's regional divisions posted sales that were weaker than they probably should have been. Europe/South Pacific was an expected laggard thanks to the continent to the left of the slash, but even by the falling standards of that economically strapped place, revenue in the region fell steeply, by 11% to $865 million. That's a tough hit, because it's responsible for around 20% of total net sales.
Meanwhile, other crucial areas are also lagging. In spite of China's recent slowdown, the Asian economy is still moving up and has plenty of potential. But sales in the greater Asia/Africa region increased only 5%. This isn't a company reaping the full benefits of the continent's determined march to wealth.
Latin America's a region with a lot of potential. Just look at how well some other big multinationals are doing there. 3M (MMM 2.69%), for example, just posted record Q3 earnings, helped in no small measure by sales in that part of the world, growing 10.5% year over year in Latin America/Canada -- and we can safely assume much of that didn't come from the mature market of the Great White North.
Colgate, meanwhile, grew by almost nothing there. It would be generous even to say that revenue inched up for it in that part of the world, crawling to $1.245 billion this quarter from $1.243 billion in Q3 2011. What's doubly hurtful about that is that it's the region where the company brings in the most money; the next-highest sales take was the aforementioned greater Asia/Africa, with $897 million. North America came in No. 4 and last with $797 million.
Pink-slip time
So Colgate's taking the let's-restructure-and-recover path. Accompanying its announcement of Q3 results, it unveiled the optimistically titled "global growth and efficiency program," a four-year effort it hopes will drive unit volume, sales, earnings, and all the good stuff that makes a company grow.
The strategy seems fairly straightforward, with the company using strings of corporate-speak ("Becoming even stronger on the ground through the continued evolution and expansion of proven global and regional commercial capabilities") to describe its objectives.
The company was a little more precise in detailing what it expects to sacrifice -- in terms of both resources and manpower -- to reach these goals. This will not be cheap; cumulative pre-tax charges are to reach $1.1 billion to $1.25 billion over the four years. The program will kick off post-haste, with $110 million to $120 million being spent to fund it in the upcoming quarter alone. If all goes well, Colgate expects to eventually save around $365 million to $435 million annually.
Part of the savings will come from a reduction in head count. The company revealed that it will cut its 38,600-strong global workforce by around 6%, meaning around 2,300 jobs. This will particularly bite in Europe, which is already reeling from a lack of good job opportunities and a bleeding economy.
If all goes well, Colgate will start to reap the benefits within a few years. But before then it'll have to bite a large bullet, with both its employees and its shareholders feeling the bitter taste of that metal.
