COLGATE-PALMOLIVE COMPANY 
Executive Overview
To this end, we are tightly focused on two product segments: Oral, Personal and Home Care; and Pet Nutrition. Within these segments, we follow a closely defined business strategy to grow our key product categories and increase our overall market share. Within the categories in which we compete, we prioritize our efforts based on their capacity to maximize the use of the organization's core competencies and strong global equities and to deliver sustainable long-term growth.
Operationally, we are organized along geographic lines with management teams
having responsibility for the business and financial results in each region. We
compete in more than 200 countries and territories worldwide with established
businesses in all regions contributing to our sales and profitability.
Approximately 70% of our Net sales are generated from markets outside the
The Oral, Personal and Home Care product segment is managed geographically in
five reportable operating segments:
On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include net sales (including volume, pricing and foreign exchange components), organic sales growth (net sales growth excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, and gross profit margin, operating profit, net income and earnings per share, in each case, on a GAAP and non-GAAP basis, as well as measures used to optimize the management of working capital, capital expenditures, cash flow and return on capital. In addition, we review market share data to assess how our brands are performing within their categories on a global and regional basis. The monitoring of these indicators and our Code of Conduct and corporate governance practices help to maintain business health and strong internal controls. For additional information regarding non-GAAP financial measures and the Company's use of market share data and the limitations of such data, see "Non-GAAP Financial Measures" and "Market Share Information" below.
COVID-19
The novel coronavirus ("COVID-19") has had a profound impact on the way people live, work, interact and shop and has severely restricted economic activity around the world. We have a well-established Crisis Management Team ("CMT") process, and the CMT, together with our senior management team and Colgate people around the world, are working to respond to the challenges presented by COVID-19.
During the quarter ended
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
some limited factory closures, particularly in
We saw a significant increase in demand across most of our categories in the
quarter ended
Government actions in response to COVID-19 could, in the future, impact our consumers' ability to purchase and our ability to manufacture and distribute our products. Nonetheless, we believe that, in the long-term, consumer demand for products in our categories will be strong. However, uncertainty continues surrounding the timing and extent of recovery, when travel and movement restrictions will abate, the timing and impact of consumer pantry-loading activity in certain markets, product demand trends and the impact of COVID-19 on the global economy. Our retail customers are also being impacted by the global pandemic; their success in addressing COVID-19 and maintaining their operations could impact consumer access to and sales of our products.
While we currently expect to be able to continue operating our business as described above and we intend to continue to work with government authorities and to follow the necessary protocols to maintain the health and safety of our employees and contract providers, uncertainty resulting from COVID-19 could result in an unforeseen additional disruption to our business, including our global supply chain and retailer network.
For more information about the anticipated COVID-19 impact, see "Outlook" below.
Business Strategy
To achieve our business and financial objectives, we are focused on innovating our core businesses; improving our brand building activities with an elevated brand purpose model and the use of equity advertising; innovating to gain market share in high growth segments and adjacencies; expanding into new channels and markets; maximizing growth online; and investing to drive consumption in growing populations. We continue to develop initiatives to build strong relationships with consumers, dental, veterinary and skin health professionals and traditional and eCommerce retailers. In addition, we continue to invest behind our brands, not just in terms of advertising, but also to build key growth capabilities in areas such as innovation and data and analytics. We also continue to broaden our eCommerce offerings, including direct-to-consumer and subscription services. We continue to believe that growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the Company's products. We are also working to integrate our sustainability strategy across our organization.
We are also changing the way we work to drive growth and how we approach innovation to respond to the dynamic retail landscape and the evolving preferences of our customers and consumers. The retail landscape, the ease of new entrants into the market in many of our categories and the evolving preferences of our customers and consumers demand that we work differently and faster in an agile, authentic and culturally relevant manner to drive innovation.
The investments needed to support growth are developed through continuous,
Company-wide initiatives to lower costs and increase effective asset
utilization. Through these initiatives, which are referred to as our
funding-the-growth initiatives, we seek to become even more effective and
efficient throughout our businesses. These initiatives are designed to reduce
costs associated with direct materials, indirect expenses, distribution and
logistics, and advertising and promotional materials, among other things, and
encompass a wide range of projects, examples of which include raw material
substitution, reduction of packaging materials, consolidating suppliers to
leverage volumes and increasing manufacturing efficiency through SKU reductions
and formulation simplification. We also continue to prioritize our investments
in high growth segments within our
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Significant Items Impacting Comparability
On
The provision for income taxes for the quarter ended
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts) Outlook
Looking forward, we expect global macroeconomic, political and market conditions
to remain challenging, especially due to the COVID-19 crisis. Although we have
seen short-term improvement in category growth rates due to consumer
pantry-loading activity, we have seen increased volatility in consumption rates
in our categories and expect category growth rates to slow going forward as
pantry inventory diminishes and to remain below historical levels. While the
global marketplace in which we operate has always been highly competitive, we
continue to experience heightened competitive activity in certain markets from
strong local competitors, from other large multinational companies, some of
which have greater resources than we do, and from new entrants into the market
in many of our categories. Such activities have included more aggressive product
claims and marketing challenges, as well as increased promotional spending and
geographic expansion. We expect promotional activities to increase as retailers
try aggressively to get consumers back into the stores after prolonged "stay at
home" and other government restrictions ease over the coming months. We have
been negatively affected by changes in the policies or practices of our retail
trade customers in key markets, such as inventory de-stocking, limitations on
access to shelf space or delisting of our products. In addition, the retail
landscape in many of our markets continues to be impacted by the rapid growth of
eCommerce retailers, changing consumer preferences (as consumers increasingly
shop online) and the emergence of alternative retail channels, such as
subscription services and direct-to-consumer businesses. These trends have been
magnified due to the COVID-19 crisis in many of our geographies and we plan to
continue to invest behind our eCommerce capabilities. This rapid growth in
eCommerce and the emergence of alternative retail channels have created and may
continue to create pricing pressures and/or adversely affect our relationships
with our key retailers. In addition, given that approximately 70% of our Net
sales originate in markets outside the
As discussed above, we continue to closely monitor the impact of COVID-19 on our
business. While we have taken, and will continue to take, measures to mitigate
the effects of COVID-19, we cannot estimate with certainty the full extent of
COVID-19's impact on our business, results of operations, cash flows and/or
financial condition. For more information about factors that could impact our
business, including due to COVID-19, see "Risk Factors" in Part II, Item IA of
this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for
the year ended
In summary, we believe we are well prepared to meet the challenges ahead due to our strong financial condition, experience operating in challenging environments, resilient global supply chain and continued focus on our key priorities: growing sales through engaging with consumers, developing world-class innovation and working with retail partners; driving efficiency on every line of the income statement to increase margins; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder return; and leading to win by staying true to the Company's culture and focusing on its stakeholders. Our key focus is to sustain the underlying momentum of our business, to adapt our financial plans to deliver on 2020, while leaving us well positioned for a return to stronger growth in 2021. Our commitment to these priorities, together with the strength of our global brands, our broad international presence in both developed and emerging markets and cost-saving initiatives, such as our funding-the-growth initiatives, should position us well to manage through the COVID-19 crisis and to increase shareholder value over the long term.
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts) Results of Operations Three Months
Worldwide Net sales were
Net sales in the Oral, Personal and Home Care product segment were
The Company's share of the global toothpaste market was 40.5% on a year-to-date
basis, down 0.9 share points from the year ago period, and its share of the
global manual toothbrush market was 32.1% on a year-to-date basis, up 0.5 share
points from the year ago period. Year-to-date market shares in toothpaste were
up in
Net sales in the
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Gross Profit/Margin
Worldwide Gross profit increased to
Worldwide Gross profit margin increased to 60.2% in the first quarter of 2020 from 58.9% in the first quarter of 2019. Excluding the items described above in both periods as applicable, Gross profit margin increased by 110 basis points (bps) to 60.3% in the first quarter of 2020 from 59.2% in the first quarter of 2019. This increase in Gross profit margin was due to cost savings from the Company's funding-the-growth initiatives (150 bps), higher pricing (70 bps) and favorable mix (20 bps), partially offset by higher raw and packaging material costs (130 bps), which included foreign exchange transaction costs.
Three Months Ended March 31,
2020 2019
Gross profit, GAAP $ 2,465 $ 2,287
Acquisition-related costs 4 -
Global Growth and Efficiency Program - 11
Gross profit, non-GAAP $ 2,469 $ 2,298
Three Months Ended March 31,
2020 2019 Basis Point Change
Gross profit margin, GAAP 60.2 % 58.9 % 130
Acquisition-related costs 0.1 -
Global Growth and Efficiency Program - 0.3
Gross profit margin, non-GAAP 60.3 % 59.2 % 110
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 8% to
Selling, general and administrative expenses as a percentage of Net sales
increased to 36.0% in the first quarter of 2020 from 35.1% in the first quarter
of 2019. Excluding charges resulting from the Global Growth and Efficiency
Program in the first quarter of 2019, Selling, general and administrative
expenses as a percentage of Net sales increased by 100 bps to 36.0% in the first
quarter of 2020 as compared to 35.0% in the first quarter of 2019. This increase
was due to increased advertising investment (80 bps) and higher overhead
expenses (20 bps) primarily due to higher logistics costs, both as a percentage
of Net sales. In the first quarter of 2020, advertising investment increased as
a percentage of Net sales to 11.8% from 11.0% in the first quarter of 2019 or
13% in absolute terms to
Three Months Ended March 31,
2020 2019
Selling, general and administrative expenses, GAAP
- (4 )
Selling, general and administrative expenses, non-GAAP
Three Months Ended March 31,
Basis
Point
2020 2019 Change
Selling, general and administrative expenses as a
percentage of Net sales, GAAP 36.0 % 35.1 % 90
Global Growth and Efficiency Program - (0.1 )
Selling, general and administrative expenses as a
percentage of Net sales, non-GAAP 36.0 % 35.0 % 100
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Operating Profit
Operating profit increased 8% to
Operating profit margin was 23.2% in the first quarter of 2020, an increase of 60 bps compared to 22.6% in the first quarter of 2019. Excluding the items described above in both periods as applicable, Operating profit margin was 23.4% in the first quarter of 2020, even with the first quarter of 2019, as higher Gross profit (110 bps) was largely offset by increases in Selling, general and administrative expenses (100 bps), both as a percentage of Net sales.
Three Months Ended March 31,
2020 2019 % Change
Operating profit, GAAP $ 952 $ 879 8 %
Global Growth and Efficiency Program - 28
Acquisition-related costs 6 -
Operating profit, non-GAAP $ 958 $ 907 6 %
Three Months Ended March 31,
2020 2019 Basis Point Change
Operating profit margin, GAAP 23.2 % 22.6 % 60Global Growth and Efficiency Program - 0.8 Acquisition-related costs
0.2 -
Operating profit margin, non-GAAP 23.4 % 23.4 % -
Non-Service Related Postretirement Costs
Non-service related postretirement costs were
Three Months Ended March 31,
2020 2019
Non-service related postretirement costs, GAAP $ 21 $ 25
Global Growth and Efficiency Program - (1 )
Non-service related postretirement costs, non-GAAP $ 21 $ 24
Interest (Income) Expense, Net
Interest (income) expense, net was
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COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts) Income Taxes
The effective income tax rate was 16.4% for the first quarter of 2020 as
compared to 26.3% for the first quarter of 2019. As reflected in the table
below, the non-GAAP effective income tax rate was 24.4% for the quarter ended
The quarterly provision for income taxes is determined based on the Company's estimated full year effective income tax rate adjusted by the amount of tax attributable to infrequent or unusual items that are separately recognized on a discrete basis in the income tax provision in the quarter in which they occur. The Company's current estimate of its full year effective income tax rate before discrete period items is 24.7%, compared to 26.1% in the first quarter of 2019. See Note 10, Income Taxes to the Condensed Consolidated Financial Statements for additional details.
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