January 30, 2014 / 1:16 PM / in 4 years

Colgate's profit beats estimates due to cost cuts

(Reuters) - Colgate-Palmolive Co (CL.N), the world’s largest toothpaste maker, reported a better-than-expected quarterly profit as cost cuts offset the negative impact of a stronger dollar.

Colgate’s gross margins rose in the fourth quarter as it cut costs by negotiating better lease terms with suppliers, using cheaper raw material and reducing packaging material in products.

“The company continues to deliver solid results, despite macro challenges - which is impressive,” JPMorgan analyst John Faucher wrote in a note.

Launch of higher-margin products, redesigning of some brands and introduction of successful regional products in other markets helped the company grow its sales.

Colgate, which controls about 45 percent of the global toothpaste market, said it expected its 2014 adjusted earnings to be in line with analysts’ estimates.

Analysts on average are expecting a profit of $3.08 per share in 2014, according to Thomson Reuters I/B/E/S.

Colgate Chief Executive Ian Cook said he expected the company’s organic sales, which strip out the impact of acquisitions, divestitures and foreign exchange, to grow 5-7 percent in 2014.

Gross margins are expected to increase by 75-125 basis points, he told analysts on a conference call. The company reported gross margins of 58.6 percent for 2013.

Foreign exchange fluctuations are expected to hurt sales by 3 percent and profit by 4-5 percent in 2014, Cook said.

Faucher said Colgate’s profit guidance was “fine,” as there were concerns that a stronger dollar would have a greater impact on the company’s profit.

Rival Procter & Gamble Co (PG.N) said last week that it would not change its 2014 forecast and that it expected organic sales to grow 3-4 percent.


Colgate’s organic sales rose 6.5 percent in the fourth quarter ended December 31, led by growth in emerging markets.

In Latin America, its biggest market by sales, organic revenue rose 12.5 percent mainly due to new products such as Colgate Luminous White Advanced and Colgate Total Professional Gum Health.

Organic revenue in Asia, including India and China, grew 9 percent due to higher sales of products such as Darlie Expert White toothpastes and Palmolive Naturals White + Milk bar soap.

    The company said its global volumes grew 6.5 percent, but pricing was flat.

    Pricing is expected to rise about 2 percent in 2014, Colgate said.

    Net profit fell to $564 million, or 60 cents per share, in the fourth quarter from $598 million, or 63 cents per share, a year earlier.

    The company earned 75 cents per share, excluding a $133 million aftertax charge related to restructuring.

    Revenue rose 2 percent to $4.36 billion. Foreign exchange fluctuations hurt sales by 4.5 percent in the quarter, the New-York based company said.

    Analysts on average had expected earnings of 74 cents per share on revenue of $4.38 billion.

    Colgate’s gross profit margins rose to 58.9 percent in the fourth quarter from 58.4 percent a year earlier.

    The company’s shares were little changed at $61.37 on Thursday afternoon on the New York Stock Exchange. The stock rose as much as 4 percent earlier in the day.

    Editing by Kirti Pandey

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