TEXT-Fitch affirms Colgate-Palmolive ratings

Fri Jul 27, 2012 2:34pm EDT

July 27 - Fitch Ratings has affirmed Colgate-Palmolive Company's 
(Colgate) ratings as follows: 

--Long-term Issuer Default Rating (IDR) at 'AA-';
--Short-term IDR at 'F1+';
--Senior unsecured notes at 'AA-';
--$1.85 billion revolving credit facility at 'AA-';
--Commercial paper program at 'F1+'.

 

The Rating Outlook is Stable. Senior unsecured notes totaling $4.3 billion and 
$1.1 billion in commercial paper outstanding as of June 30, 2012 are impacted by
this action.  

Fitch also rates Colgate's new $500 million, 10 year note 'AA-'.  The proceeds 
will be used to refinance commercial paper.

Rating and Outlook:

The ratings reflect the company's scale with approximately $17 billion in 
revenues at the last 12 months (LTM) ended June 30, 2012, leading market shares,
consistently strong operating performance, and considerable liquidity.  
Colgate's EBITDA margins of 26% are in the top tier of large personal care 
manufacturers. The company generated $1.1 billion free cash flow (cash flow from
operations minus capital expenditures and dividends) for the period.  Leverage 
has been 1.2 times (x) or less in each of the past five years and through the 
LTM. Fitch expects leverage to remain near 1.2x.  LTM funds from operations 
(FFO) interest coverage are over 56x, benefiting in part from the marked decline
in interest rates. 

Colgate is one of the most geographically diversified consumer products 
companies, generating more than 80% of its revenues outside the United States. 
Latin America (28% of revenues and more than 33% of operating profit before 
corporate expenses in 2011 is a particular stronghold where the company 
maintains very high toothpaste and toothbrush shares of more than 40% (Nielsen 
Holdings, N.V.). The ratings also encompass potential volatility in revenues and
profits from developing markets.  More than half of Colgate's revenues are 
generated from developing markets.  

The Stable Outlook is based on Fitch's expectations that Colgate's high level of
profitability, cash generation, and credit protection measures with modest 
leverage will continue into the medium term.  Fitch's expectations are 
predicated on there being no change in management's conservative financial 
posture and commitment to maintaining leverage appropriate for current rating 
levels.  

Financial Performance:

Fitch expects that there may be some pressure on revenue growth.  Foreign 
exchange translation from an appreciating U.S. dollar and an overall global 
economic slowdown could hamper growth.  However, with the company's focus on 
cost containment, the benefit of recent price increases and moderation in 
non-agricultural based commodity costs, Colgate's margins and cash flow should 
remain ample.  Colgate's EBITDA has increased in each of the past five years to 
the $4.5 billion level in the LTM, and as mentioned previously, free cash flow 
was approximately $1.1 billion in 2011 and $1.2 billion at the LTM.  Fitch 
expects it to remain in that range in the next two years.     

Liquidity and Debt:  

The company is highly liquid with a $1.85 billion un-utilized five year bank 
facility expiring in November 2016, a 364 day $145 million revolver maturing in 
November 2012, ample cash, and considerable access to the capital markets.  
Unusually high for the sector, $329 million or 30% of Colgate's $995 million in 
cash on hand at June 30, 2012 is essentially trapped in Venezuela as it is 
subject to currency exchange controls.  The remaining $666 million is a healthy 
amount, however, almost all of it is outside the U.S. and there could be tax 
implications upon repatriation. The 364 day revolver is likely to be extended as
provides additional support to the company's large CP program.  During the 
quarter, Colgate's CP outstanding can approach total revolver commitments.  

Debt balances increased to $5.4 billion from $3.4 billion at the end of 2010 to 
support the Sanex acquisition from Unilever and share repurchases. As a result, 
leverage increased modestly (.4x) to almost 1.2x at the LTM from the 0.8x level 
seen in 2010. Fitch does not expect leverage to increase markedly from this 
level. Long-term debt maturities are modest for the remainder of 2012 at $16 
million, $264 million in 2013 and $882 million in 2014.  Fitch expects the 
larger amounts due in 2013 and 2014 to be refinanced.  

What Could Trigger a Rating Action?

Positive:  A positive rating action is also not likely as Colgate manages its 
financial metrics and performance commensurate with the current category.  Fitch
notes that Colgate executes sizeable share repurchase programs and/or medium 
sized acquisitions, such as last years' $966 million acquisition of the Sanex 
personal care business, whenever credit protection measures drift towards a 
higher rating category.  

Negative:  While Colgate's credit protection measures are solid there is little 
room for further increases in leverage within this rating category.  A negative 
rating action is not expected given Colgate's low business risk and conservative
management team.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.