COLGATE-PALMOLIVE COMPANY Executive Overview
Colgate-Palmolive Company (together with its subsidiaries, "we," "us" "our" the "Company" or "Colgate") is a caring, innovative growth company reimagining a healthier future for all people, their pets and our planet. We seek to deliver sustainable, profitable growth and superior shareholder returns, as well as to provide Colgate people with an innovative and inclusive work environment. We do this by developing and selling products globally that make people's lives healthier and more enjoyable and by embracing our sustainability and social impact and diversity, equity and inclusion strategies across our organization. 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, profitable 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 theU.S. , with approximately 45% of our Net sales coming from emerging markets (which consist ofLatin America ,Asia (excludingJapan ),Africa /Eurasia andCentral Europe ). This geographic diversity and balance help to reduce our exposure to business and other risks in any one country or part of the world. The Oral, Personal and Home Care product segment is managed geographically in five reportable operating segments:North America ,Latin America ,Europe ,Asia Pacific andAfrica /Eurasia, all of which sell primarily to a variety of traditional and eCommerce retailers, wholesalers and distributors. Through Hill's Pet Nutrition, we also compete on a worldwide basis in the pet nutrition market, selling products principally through authorized pet supply retailers, veterinarians and eCommerce retailers. We are engaged in manufacturing and sourcing of products and materials on a global scale and have major manufacturing facilities, warehousing facilities and distribution centers in every region around the world. 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. 23
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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) COVID-19 The COVID-19 pandemic and government steps to reduce the spread and address the impact of COVID-19 have had and continue to have a profound impact on the way people live, work, interact and shop and have significantly impacted and continue to impact 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, continue to respond to and manage the challenges presented by COVID-19. During the COVID-19 pandemic, many of the communities in which we manufacture, market and sell our products have experienced and in some cases continue to experience unprecedented "stay at home" orders, travel or movement restrictions and other government actions to reduce the spread and address the impact of COVID-19, and have implemented varying policies to resume economic activity and distribute effective vaccines. The situation continues to be uncertain and varies by geography, as infection rates of COVID-19 remain high in many countries throughout the world, includingBrazil ,India ,Mexico ,Thailand andVietnam where we have substantial manufacturing facilities, and authorities have taken different approaches to address the pandemic, resume economic activity and vaccinate their populations. Because the vast majority of our products (such as oral care products, soaps and other personal hygiene products, home cleaners and pet food) have been deemed essential for the health and well-being of people and their pets, we have, in most instances, been able to continue operating our business. In doing so, the health, safety and well-being of our employees has been and remains our first priority. Many of our employees globally continue to work from home. In those instances where our employees cannot perform their work at home, such as in our factories and in certain of our laboratories, or in geographies where circumstances have allowed us to offer employees the ability to return to the office, often on a voluntary and staggered basis, we have implemented additional health and safety measures and social distancing protocols, consistent with government recommendations and/or requirements, to help to ensure their safety, often at an additional cost. In addition, during the COVID-19 pandemic, we have seen increased instances of absenteeism and, in some cases, we have experienced some limited factory closures. Furthermore, some of our suppliers, customers, distributors, logistics providers and service providers have experienced disruptions to their businesses. We saw a significant increase in demand across many of our categories, such as liquid hand soap, dish liquid, bar soap and cleaners, during 2020 as a result of the COVID-19 pandemic, driven by consumer pantry-loading and increased consumption of our products. While during the three months endedJune 30, 2021 consumer demand for these categories declined year-over-year, it remained above historical levels, and we believe that some of this increase in consumption is sustainable in light of changes in consumer behavior related to COVID-19. Across our business, changes in consumer demand for our products vary by product category and geography depending on, among other things, the severity of the COVID-19 outbreak and retailer availability. At the same time, during the COVID-19 pandemic, we have experienced disruptions in certain channels, including professional sales and travel retail, due to the economic slowdown and restricted consumer movement in many geographies throughout the world. We also continue to see changes in the purchasing patterns of our consumers, including the nature and/or frequency of visits by consumers to retailers and dental, veterinary and skin health professionals and a shift in many markets to purchasing our products online. COVID-19 and government steps to reduce the spread and address the impact of COVID-19 have impacted and may continue to impact our consumers' ability to purchase and our ability to manufacture and distribute our products. While we believe that, in the long-term, consumer demand for the products in our categories will continue to be strong, uncertainties continue surrounding the timing and extent of the pandemic and the recovery from it. These uncertainties include: the impact of the timing and scale of changes to travel and movement restrictions in certain geographies, the availability and widespread distribution and use of safe and effective COVID-19 vaccines and whether and when communities reach herd immunity, the emergence and spread of COVID-19 variants such as the Delta variant, the timing and impact of consumer pantry-loading and destocking activity in certain markets, product demand trends and the impact of COVID-19 on the global economy. Our retail customers, contract manufacturers, logistics providers and other third parties 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. We expect the ongoing economic impact and health concerns associated with COVID-19 to continue to impact consumer behavior, shopping patterns and consumption preferences once government restrictions are lifted and economies around the world reopen. 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 24 --------------------------------------------------------------------------------
COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts) 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, and/or require us to incur additional operational costs. For more information about the anticipated COVID-19 impact, see "Outlook" below. 25
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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)
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 our products. We are also working to integrate our sustainability and social impact and diversity, equity and inclusion strategies 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 drive growth are supported by strong cash flow performance and our disciplined capital allocation strategy. These investments 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 ourOral Care , Personal Care and Pet Nutrition businesses, including by expanding our portfolio in premium skin health.
Significant Items Impacting Comparability
In 2019, we received a favorable judgment regarding certain value-added tax previously paid inBrazil . As a result of this favorable judgment, during the fourth quarter of 2019, we filed an application with the Brazilian government to recover value-added tax previously paid and recorded a benefit. InMay 2021 , theBrazilian Supreme Court issued a clarifying ruling allowing a higher deduction of state value-added tax when determining the taxable base. In light of this ruling, we recorded an additional benefit of$26 pretax ($20 aftertax) in the three months endedJune 30, 2021 . The provision for income taxes for the six months endedJune 30, 2020 includes$71 of income tax benefits recorded on a discrete period basis, of which$45 relates to previously recorded foreign withholding taxes and$26 relates to a previously recorded valuation allowance against a deferred tax asset. As more fully described in "Results of Operations-Income Taxes," and in Note 10, Income Taxes to the Condensed Consolidated Financial Statements, both items were previously recorded in connection with the charge recorded in 2017 and revised in 2018 related to the Tax Cuts and Jobs Act (the "TCJA"). OnJanuary 31, 2020 , we acquiredHello Products LLC ("hello"), an oral care business, for cash consideration of$351 . The acquisition was financed with a combination of debt and cash. This acquisition is part of our strategy to focus on high growth segments within ourOral Care , Personal Care and Pet Nutrition businesses. See Note 4, Acquisitions to the Condensed Consolidated Financial Statements for additional information. 26
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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 COVID-19. During the three months endedJune 30, 2021 , all of our divisions experienced significantly higher raw and packaging material costs. In certain markets, we also incurred increased logistics costs due to higher eCommerce demand and volume and capacity constraints in the shipping and logistics industry. We expect this difficult cost environment to continue for at least the remainder of the year. 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 have seen increases in promotional activities in certain markets as retailers try aggressively to get consumers back into the stores as some "stay at home" and other government restrictions begin to ease, a trend we expect will continue. We have been negatively affected by changes in the policies and practices of our trade customers in key markets, such as inventory de-stocking, limitations on access to shelf space, delisting of our products and sustainability, supply chain and packaging initiatives. In addition, the retail landscape in many of our markets continues to evolve as a result of the rapid growth of eCommerce retailers, changing consumer preferences (as consumers increasingly shop online) and the increased presence of alternative retail channels, such as subscription services and direct-to-consumer businesses. These trends have been magnified due to COVID-19 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 theU.S. , we have experienced and will likely continue to experience volatile foreign currency fluctuations. We have also experienced and may continue to experience disruptions to our business due to civil unrest in certain countries, including, most recently,Colombia ,South Africa andMyanmar . While we have taken, and will continue to take, measures to mitigate the effect of these conditions as well as the higher raw and packaging material and logistics costs noted above, in the current environment, it may become increasingly difficult to implement certain of these mitigation strategies. Should these conditions persist, they could adversely affect our future results. As discussed above, we continue to closely monitor the impact of COVID-19 on our business. During the first year of the COVID-19 pandemic, we saw improvement in category growth rates due to heightened demand for certain health and hygiene products, particularly liquid hand soap, dish liquid, bar soap and cleaners. We believe some of this increased consumption is sustainable due to consumer behavior changes related to COVID-19. However, we expect increased volatility across all of our categories and it is therefore difficult to predict category growth rates in the near term. 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 I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . In summary, we believe that we are well prepared to meet the challenges ahead due to our strong financial condition, broad based experience operating in challenging environments, resilient global supply chain and focused business strategy. Our strategy is based on driving organic sales growth through innovation within our core businesses, leveraging faster growth in adjacent categories and expanding in high-growth channels and markets; delivering margin expansion through operating leverage and efficiency; and maximizing the impact of our environmental, social and governance programs and leading in the development of human capital, including our sustainability and social impact and diversity, equity and inclusion strategies. Our commitment to these priorities, the strength of our brands, the breadth of our global footprint and a commitment to driving efficiency in cash generation should position us well to manage through the challenges presented by COVID-19 and increase shareholder value over time. 27
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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$4,260 in the second quarter of 2021, up 9.5% from the second quarter of 2020, due to volume growth of 2.5%, net selling price increases of 2.5% and positive foreign exchange of 4.5%. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, increased 5.0% in the second quarter of 2021. A reconciliation of net sales growth to organic sales growth is provided under "Non-GAAP Financial Measures" below. Net sales in the Oral, Personal and Home Care product segment were$3,466 in the second quarter of 2021, up 7.5% from the second quarter of 2020, due to volume growth of 1.0%, net selling price increases of 2.0% and positive foreign exchange of 4.5%. Organic sales in the Oral, Personal and Home Care product segment increased 3.0% in the second quarter of 2021. The Company's share of the global toothpaste market was 39.3% 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 30.8% on a year-to-date basis, down 0.1 share points from the year ago period. Year-to-date market shares in toothpaste were up inAfrica /Eurasia and down inNorth America ,Latin America ,Europe andAsia Pacific versus the comparable 2020 period. In the manual toothbrush category, year-to-date market shares were up inLatin America andAfrica /Eurasia and down inNorth America ,Europe andAsia Pacific versus the comparable 2020 period. For additional information regarding market shares, see "Market Share Information" below. Net sales in the Hill's Pet Nutrition segment were$794 in the second quarter of 2021, up 18.0% from the second quarter of 2020, due to volume growth of 10.5%, net selling price increases of 4.5% and positive foreign exchange of 3.0%. Organic sales in the Hill's Pet Nutrition segment increased 15.0% in the second quarter of 2021. 28 --------------------------------------------------------------------------------
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$2,556 in the second quarter of 2021 from$2,369 in the second quarter of 2020, reflecting an increase of$221 resulting from higher Net sales and a decrease of$34 resulting from lower Gross profit margin. Worldwide Gross profit margin decreased to 60.0% in the second quarter of 2021 from 60.8% in the second quarter of 2020. This decrease in Gross profit margin was primarily due to significantly higher raw and packaging material costs (370 bps), which included foreign exchange transaction costs, partially offset by cost savings from the Company's funding-the-growth initiatives (200 bps) and higher pricing (90 bps). Three Months Ended June 30, 2021 2020 Gross profit$ 2,556 $ 2,369 Three Months Ended June 30, 2021 2020 Basis Point Change Gross profit margin 60.0 % 60.8 % (80) 29
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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 12% to
Selling, general and administrative expenses as a percentage of Net sales increased 100 bps to 36.8% in the second quarter of 2021 from 35.8% in the second quarter of 2020. This increase was due to higher overhead expenses (70 bps), driven by significantly higher logistics costs, and increased advertising investment (30 bps), both as a percentage of Net sales. In the second quarter of 2021, advertising investment increased as a percentage of Net sales to 11.6% from 11.3% in the second quarter of 2020, or 13% in absolute terms to$494 as compared with$439 in the second quarter of 2020. Three Months
Ended
2021 2020
Selling, general and administrative expenses
$ 1,395 Three Months Ended June 30, 2021 2020 Basis Point Change Selling, general and administrative expenses as a percentage of Net sales 36.8 % 35.8 % 100 Other (Income) Expense, Net Other (income) expense, net was$(8) and$28 in the second quarter of 2021 and 2020, respectively. Other (income) expense, net in the second quarter of 2021 included a benefit related to a value-added tax matter inBrazil . Excluding the benefit related to the value-added tax matter inBrazil in the second quarter of 2021, Other (income) expense, net was$18 and$28 in the second quarter of 2021 and 2020, respectively. Three Months Ended June 30, 2021 2020 Other (income) expense, net, GAAP $ (8)$ 28 Value-added tax matter in Brazil 26
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Other (income) expense, net, non-GAAP $ 18$ 28 30
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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 5% to$996 in the second quarter of 2021 from$946 in the second quarter of 2020. Operating profit in the second quarter of 2021 included a benefit related to a value-added tax matter inBrazil . Excluding the benefit related to the value-added tax matter inBrazil in the second quarter of 2021, Operating profit increased 3% to$970 in the second quarter of 2021 from$946 in the second quarter of 2020. Operating profit margin was 23.4% in the second quarter of 2021, a decrease of 90 bps compared to 24.3% in the second quarter of 2020. Excluding the benefit related to the value-added tax matter inBrazil in the second quarter of 2021, Operating profit margin was 22.8% in the second quarter of 2021, a decrease of 150 bps compared to 24.3% in the second quarter of 2020. This decrease in Operating profit margin was due to an increase in Selling, general and administrative expenses (100 bps), and a decrease in Gross profit (80 bps), partially offset by a decrease in Other (income) expense, net (30 bps), all as a percentage of Net sales. Three Months Ended June 30, 2021 2020 % Change Operating profit, GAAP $ 996$ 946 5 % Value-added tax matter in Brazil (26) - - Operating profit, non-GAAP $ 970$ 946 3 % Three Months Ended June 30, 2021 2020 Basis Point Change Operating profit margin, GAAP 23.4 % 24.3 % (90) Value-added tax matter in Brazil (0.6) - - Operating profit margin, non-GAAP 22.8 % 24.3 % (150)
Non-Service Related Postretirement Costs
Non-service related postretirement costs were$18 in the second quarter of 2021 as compared to$20 in the second quarter of 2020. Interest (Income) Expense, Net Interest (income) expense, net was$25 in the second quarter of 2021 as compared to$35 in the second quarter of 2020, primarily due to lower average interest rates on debt. 31 --------------------------------------------------------------------------------
COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Net Income Attributable to
Net income attributable toColgate-Palmolive Company in the second quarter of 2021 increased to$703 from$635 in the second quarter of 2020, and Earnings per common share on a diluted basis increased to$0.83 per share in the second quarter of 2021 from$0.74 in the second quarter of 2020. Net Income attributable toColgate-Palmolive Company in the second quarter of 2021 included a benefit from the value-added tax matter inBrazil . Excluding the benefit from the value-added tax matter inBrazil in the second quarter of 2021, Net income attributable toColgate-Palmolive Company in the second quarter of 2021 increased 8% to$683 from$635 in the second quarter of 2020, and Earnings per common share on a diluted basis increased 8% to$0.80 in the second quarter of 2021 from$0.74 in the second quarter of 2020. Three Months Ended June 30, 2021 Net Income Net Income Including Attributable To Income Before Provision For Noncontrolling Colgate-Palmolive Diluted Earnings Income Taxes Income Taxes(1) Interests Company Per Share(2) As Reported GAAP$ 953 $ 212 $ 741 $ 703$ 0.83 Value-added tax matter in Brazil (26) (6) (20) (20) (0.03) Non-GAAP$ 927 $ 206 $ 721 $ 683$ 0.80 Three
Months Ended
Net Income Net Income
Including Attributable To
Income Before Provision For Noncontrolling Colgate-Palmolive Diluted Earnings
Income Taxes Income Taxes(1) Interests Company Per Share(2)
As Reported GAAP $ 891 $ 216 $ 675 $ 635 $ 0.74
Non-GAAP $ 891 $ 216 $ 675 $ 635 $ 0.74
(1) The income tax effect on non-GAAP items is calculated based upon the tax
laws and statutory income tax rates applicable in the tax jurisdiction(s) of the
underlying non-GAAP adjustment.
(2) The impact of non-GAAP adjustments on diluted earnings per share may not
necessarily equal the difference between "GAAP" and "non-GAAP" as a result of
rounding.
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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)
Oral, Personal and Home Care
North America Three Months Ended June 30, 2021 2020 Change Net sales$ 912 $ 949 (4.0) % Operating profit$ 200 $ 254 (21) % % of Net sales 21.9 % 26.8 % (490) bps Net sales inNorth America decreased 4.0% in the second quarter of 2021 to$912 as volume declines of 8.5% were partially offset by net selling price increases of 4.0% and positive foreign exchange of 0.5%. Organic sales inNorth America decreased 4.5% in the second quarter of 2021. The organic sales decline was largely driven bythe United States . The decrease in organic sales inNorth America in the second quarter of 2021 versus the second quarter of 2020 was primarily due to a decrease in Personal Care and Home Care organic sales, partially offset by an increase inOral Care organic sales. The decrease in Personal Care was primarily due to organic sales declines in the liquid hand soap and bar soap categories, partially offset by organic sales growth in the skin health category. The decrease in Home Care was primarily due to organic sales declines in the hand dish category, partially offset by organic sales growth in the liquid cleaners category. The increase inOral Care was primarily due to organic sales growth in the manual toothbrush and prescription dental categories, partially offset by organic sales declines in the toothpaste category. Operating profit inNorth America decreased 21% in the second quarter of 2021 to$200 , or 490 bps to 21.9% as a percentage of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (330 bps) and a decrease in Gross profit (120 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to significantly higher raw and packaging material costs (490 bps), partially offset by cost savings from the Company's funding-the-growth initiatives (160 bps) and higher pricing. This increase in Selling, general and administrative expenses was due to higher overhead expenses (320 bps), largely driven by higher logistics costs, and increased advertising investment (10 bps). 33
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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)
Latin America
Three Months Ended June 30,
2021 2020 Change
Net sales $ 907 $ 805 12.5 %
Operating profit $ 254 $ 229 11 %
% of Net sales 28.0 % 28.4 % (40) bps
Net sales in Latin America increased 12.5% in the second quarter of 2021 to
$907 , due to volume growth of 2.5%, net selling price increases of 6.0% and
positive foreign exchange of 4.0%. Organic sales in Latin America increased 8.5%
in the second quarter of 2021. Organic sales growth was led by Mexico , Brazil
and Argentina , partially offset by organic sales declines in Colombia .
The increase in organic sales in Latin America in the second quarter of 2021
versus the second quarter of 2020 was due to increases in Oral Care and Home
Care organic sales. The increase in Oral Care was primarily due to organic sales
growth in the toothpaste, manual toothbrush and mouthwash categories. The
increase in Home Care was primarily due to organic sales growth in the fabric
softener and liquid cleaner categories, partially offset by organic sales
declines in the hand dish category.
Operating profit in Latin America increased 11% in the second quarter of 2021 to
$254 , while as a percentage of Net sales it decreased 40 bps to 28.0%. This
decrease in Operating profit as a percentage of Net sales was primarily due to a
decrease in Gross profit (140 bps), partially offset by a decrease in Selling,
general and administrative expenses (70 bps), both as a percentage of Net sales.
This decrease in Gross profit was primarily due to significantly higher raw and
packaging material costs (650 bps), partially offset by cost savings from the
Company's funding-the-growth initiatives (300 bps) and higher pricing. This
decrease in Selling, general and administrative expenses was due to decreased
advertising investment (130 bps), partially offset by higher overhead expenses
(60 bps), primarily driven by higher logistics costs.
Europe
Three Months Ended June 30,
2021 2020 Change
Net sales $ 709 $ 617 15.0 %
Operating profit $ 166 $ 158 5 %
% of Net sales 23.4 % 25.6 % (220) bps
Net sales in Europe increased 15.0% in the second quarter of 2021 to $709 due to
volume growth of 7.0% and positive foreign exchange of 10.0%, partially offset
by net selling price decreases of 2.0%. Organic sales in Europe increased 5.0%
in the second quarter of 2021. Organic sales growth was led by the United
Kingdom , Germany , Poland and the Nordic region.
The increase in organic sales in Europe in the second quarter of 2021 versus the
second quarter of 2020 was due to an increase in Oral Care organic sales,
partially offset by a decrease in Personal Care organic sales. The increase in
Oral Care was primarily due to organic sales growth in the toothpaste, manual
toothbrush and prescription dental categories. The decrease in Personal Care was
primarily due to organic sales declines in the liquid hand soap category.
Operating profit in Europe increased 5% in the second quarter of 2021 to $166 ,
while as a percentage of Net sales it decreased 220 bps to 23.4%. This decrease
in Operating profit as a percentage of Net sales was primarily due to an
increase in Selling, general and administrative expenses (130 bps) and a
decrease in Gross profit (110 bps), both as a percentage of Net sales. This
decrease in Gross profit was primarily due to higher raw and packaging material
costs (280 bps) and lower pricing, partially offset by cost savings from the
Company's funding-the-growth initiatives (230 bps). This increase in Selling,
general and administrative expenses was due to increased advertising investment
(160 bps), partially offset by lower overhead expenses (30 bps).
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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)
Asia Pacific
Three Months Ended June 30,
2021 2020 Change
Net sales $ 673 $ 625 7.5 %
Operating profit $ 200 $ 176 14 %
% of Net sales 29.7 % 28.2 % 150 bps
Net sales in Asia Pacific increased 7.5% in the second quarter of 2021 to $673
due to volume growth of 3.5% and positive foreign exchange of 6.5%, partially
offset by selling price decreases of 2.5%. Organic sales in Asia Pacific
increased 1.0% in the second quarter of 2021. Organic sales growth was led by
India and Thailand , partially offset by organic sales declines in the Greater
China region.
The increase in organic sales in Asia Pacific in the second quarter of 2021
versus the second quarter of 2020 was due to an increase in Oral Care organic
sales. The increase in Oral Care was primarily due to increases in organic sales
in the manual toothbrush and mouthwash categories.
Operating profit in Asia Pacific increased 14% in the second quarter of 2021 to
$200 , or 150 bps to 29.7% as a percentage of Net sales. This increase in
Operating profit as a percentage of Net sales was primarily due to an increase
in Gross profit (70 bps) and a decrease in Selling, general and administrative
expenses (30 bps), both as a percentage of Net sales. This increase in Gross
profit was primarily due to cost savings from the Company's funding-the-growth
initiatives (210 bps), partially offset by lower pricing and higher raw and
packaging material costs (80 bps), net of foreign exchange transaction benefits.
This decrease in Selling, general and administrative expenses was due to
decreased advertising investment (20 bps) and lower overhead expenses (10 bps).
Africa /Eurasia
Three Months Ended June 30,
2021 2020 Change
Net sales $ 265 $ 229 15.5 %
Operating profit $ 55 $ 56 (2) %
% of Net sales 20.8 % 24.5 % (370) bps
Net sales in Africa /Eurasia increased 15.5% in the second quarter of 2021 to
$265 due to volume growth of 9.5%, net selling price increases of 3.5% and
positive foreign exchange of 2.5%. Organic sales in Africa /Eurasia increased
13.0% in the second quarter of 2021. Organic sales growth was led by Turkiye,
Nigeria and Russia .
The increase in organic sales in Africa /Eurasia in the second quarter of 2021
versus the second quarter of 2020 was primarily due to an increase in Oral Care
organic sales. The increase in Oral Care was primarily due to organic sales
growth in the toothpaste and manual toothbrush categories.
Operating profit in Africa /Eurasia decreased 2% in the second quarter of 2021 to
$55 , or 370 bps to 20.8% as a percentage of Net sales. This decrease in
Operating profit as a percentage of Net sales was primarily due to a decrease in
Gross profit (230 bps) and an increase in Selling, general and administrative
expenses (160 bps), both as a percentage of Net sales. This decrease in Gross
profit was primarily due to significantly higher raw and packaging material
costs (560 bps), partially offset by cost savings from the Company's
funding-the-growth initiatives (180 bps) and higher pricing. This increase in
Selling, general and administrative expenses was due to increased advertising
investment (230 bps), partially offset by lower overhead expenses (70 bps),
despite significant increases in logistics costs.
35
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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)
Hill's Pet Nutrition
Three Months Ended June 30,
2021 2020 Change
Net sales $ 794 $ 672 18.0 %
Operating profit $ 212 $ 191 11 %
% of Net sales 26.7 % 28.4 % (170) bps
Net sales for Hill's Pet Nutrition increased 18.0% in the second quarter of 2021
to $794 due to volume growth of 10.5%, net selling price increases of 4.5% and
positive foreign exchange of 3.0%. Organic sales in Hill's Pet Nutrition
increased 15.0% in the second quarter of 2021. Organic sales growth was led by
the United States , Latin America and Europe .
The increase in organic sales in the second quarter of 2021 was primarily due to organic sales growth in the Prescription Diet and Science Diet categories.
Operating profit in Hill's Pet Nutrition increased 11% in the second quarter of 2021 to$212 , while as a percentage of Net sales it decreased 170 bps to 26.7%. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (180 bps) and a decrease in Gross profit (10 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (250 bps), partially offset by higher pricing and cost savings from the Company's funding-the-growth initiatives (100 bps). This increase in Selling, general and administrative expenses was largely due to increased advertising investment (170 bps). Corporate Three Months Ended June 30, 2021 2020 Change Operating profit (loss) $ (91)$ (118) (23) % Operating profit (loss) related to Corporate was ($91 ) in the second quarter of 2021 as compared to ($118 ) in the second quarter of 2020. Corporate Operating profit (loss) for the second quarter ofJune 30, 2021 included a benefit related to a value-added tax matter inBrazil of$26 . 36 --------------------------------------------------------------------------------
COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts) Six Months
Worldwide Net sales were
Net sales in the Oral, Personal and Home Care product segment were$7,024 in the first six months of 2021, an increase of 6.5% as compared to the first six months of 2020 due to volume growth of 0.5%, net selling price increases of 3.5% and positive foreign exchange of 2.5%. Organic sales in the Oral, Personal and Home Care product segment increased 4.0% in the first six months of 2021. The increase in organic sales in the first six months of 2021 versus the first six months of 2020 was due to an increase inOral Care organic sales, partially offset by decreases in Personal Care and Home Care organic sales. The increase inOral Care was primarily due to organic sales growth in the toothpaste, manual toothbrush and mouthwash categories. The decrease in Personal Care was primarily due to organic sales declines in the liquid hand soap and bar soap categories, partially offset by organic sales growth in the skin health and shampoo categories. The decrease in Home Care was primarily due to organic sales declines in the hand dish category, partially offset by organic sales growth in the fabric softener and liquid cleaner categories. Net sales in the Hill's Pet Nutrition segment were$1,580 in the first six months of 2021, an increase of 13.5% from the first six months of 2020 due to volume growth of 6.5%, net selling price increases of 4.0% and positive foreign exchange of 3.0%. Organic sales in the Hill's Pet Nutrition segment increased 10.5% in the first six months of 2021. 37 --------------------------------------------------------------------------------
COLGATE-PALMOLIVE COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions Except Per Share Amounts)
Net sales and Operating profit by segment were as follows:
Six Months ended June 30,
2021 2020
Net sales
Oral, Personal and Home Care
North America $ 1,835 $ 1,878
Latin America 1,814 1,694
Europe 1,426 1,292
Asia Pacific 1,412 1,258
Africa/Eurasia 537 481
Total Oral, Personal and Home Care 7,024 6,603
Pet Nutrition 1,580 1,391
Total Net sales $ 8,604 $ 7,994
Operating profit
Oral, Personal and Home Care
North America $ 402 $ 512
Latin America 526 478
Europe 346 312
Asia Pacific 424 337
Africa/Eurasia 109 112
Total Oral, Personal and Home Care 1,807 1,751
Pet Nutrition 427 393
Corporate (234) (246)
Total Operating profit $ 2,000 $ 1,898
Within the Oral, Personal and Home Care product segment, North America Net sales
decreased 2.5% as volume declines of 7.5% were partially offset by net selling
price increases of 4.5% and positive foreign exchange of 0.5%. The hello
acquisition contributed 0.5% to volume in North America . Organic sales in North
America decreased 3.5%. Latin America Net sales increased 7.0% driven by volume
growth of 1.5% and net selling price increases of 7.5%, partially offset by
negative foreign exchange of 2.0%. Organic sales in Latin America increased
9.0%. Europe Net sales increased 10.5% driven by volume growth of 1.5% and
positive foreign exchange of 9.0% while net selling prices were flat. Organic
sales in Europe increased 1.5%. Asia Pacific Net sales increased 12.0% driven by
volume growth of 7.0% and positive foreign exchange of 6.0%, partially offset by
net selling price decreases of 1.0%. Organic sales in Asia Pacific increased
6.0%. Africa /Eurasia Net sales increased 12.0% as volume growth of 7.0% and net
selling price increases of 6.0% were partially offset by negative foreign
exchange of 1.0%. Organic sales in Africa /Eurasia increased 13.0%.
In the first six months of 2021, Operating profit (loss) related to Corporate
was $(234) as compared to $(246) in the first six months of 2020. Corporate
Operating profit (loss) for the six months ended June 30, 2021 included a
benefit related to a value-added tax matter in Brazil of $26 . Corporate
Operating profit (loss) for the six months ended June 30, 2020 included charges
for acquisition-related costs of $6 .
38
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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 $5,193 in the first six months of 2021 from
$4,834 in the first six months of 2020. Gross profit in the first six months of
2020 included acquisition-related costs. Excluding acquisition-related costs in
the first six months of 2020, Gross profit increased to $5,193 in the first six
months of 2021 from $4,838 in the first six months of 2020, reflecting an
increase of $371 resulting from higher Net sales and a decrease of $16 resulting
from lower Gross profit margin.
Worldwide Gross profit margin decreased to 60.4% in the first six months of 2021
from 60.5% in the first six months of 2020. Excluding acquisition-related costs
in the first six months of 2020, Gross profit margin decreased by 10 bps to
60.4% in the first six months of 2021 from 60.5% in the first six months of
2020, due to higher raw and packaging material costs (340 bps), largely offset
by cost savings from the Company's funding-the-growth initiatives (190 bps) and
higher pricing (130 bps).
Six Months ended June 30,
2021 2020
Gross profit, GAAP $ 5,193 $ 4,834
Acquisition-related costs - 4
Gross profit, non-GAAP $ 5,193 $ 4,838
Six Months ended June 30,
2021 2020 Basis Point Change
Gross profit margin, GAAP 60.4 % 60.5 % (10)
Acquisition-related costs - -
Gross profit margin, non-GAAP 60.4 % 60.5 % (10)
39--------------------------------------------------------------------------------
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 11% to
Selling, general and administrative expenses as a percentage of Net sales increased to 36.9% in the first six months of 2021 from 35.9% in the first six months of 2020. This increase was due to higher overhead expenses (50 bps), driven by higher logistics costs, and increased advertising investment (50 bps), both as a percentage of Net sales. In the first six months of 2021, advertising investment increased as a percentage of Net sales to 12.0% from 11.5% in the first six months of 2020, or 11.5% in absolute terms to$1,029 , as compared with$923 in the first six months of 2020. Six Months ended June 30, 2021 2020 Selling, general and administrative expenses$ 3,173 $ 2,868 Six Months ended June 30, 2021 2020 Basis Point Change Selling, general and administrative expenses as a percentage of Net sales 36.9 % 35.9 % 100 Other (Income) Expense, Net Other (income) expense, net was$20 and$68 in the first six months of 2021 and 2020, respectively. Excluding the benefit related to a value-added tax matter inBrazil in the first six months of 2021 and acquisition-related costs in the first six months of 2020, Other (income) expense, net was$46 and$66 in the first six months of 2021 and 2020, respectively. Six Months ended June
30,
2021 2020
Other (income) expense, net, GAAP $ 20$ 68 Value-added tax matter in Brazil 26
-
Acquisition-related costs -
(2)
Other (income) expense, net, non-GAAP $ 46$ 66 40
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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 5% to$2,000 in the first six months of 2021 from$1,898 in the first six months of 2020. Operating profit in the first six months of 2021 included a benefit related to a value-added tax matter inBrazil . Operating profit in the first six months of 2020 included acquisition-related costs. Excluding these items in both periods as applicable, Operating profit increased to$1,974 in the first six months of 2021 from$1,904 in the first six months of 2020, primarily due to an increase in Gross profit, partially offset by an increase in Selling, general and administrative expenses. Operating profit margin was 23.2% in the first six months of 2021, a decrease of 50 bps compared to 23.7% in the first six months of 2020. Excluding the items described above in both periods as applicable, Operating profit margin was 22.9% in the first six months of 2021, a decrease of 90 bps compared to 23.8% in the first six months of 2020, primarily due to an increase in Selling, general and administrative expenses (100 bps) and a decrease in Gross profit (10 bps), both as a percentage of Net sales. Six Months ended June 30, 2021 2020 % Change Operating profit, GAAP$ 2,000 $ 1,898 5 % Value-added tax matter in Brazil (26) - Acquisition-related costs - 6 Operating profit, non-GAAP$ 1,974 $ 1,904 4 % Six Months ended June 30, 2021 2020 Basis Point Change Operating profit margin, GAAP 23.2 % 23.7 % (50) Value-added tax matter in Brazil (0.3) - Acquisition-related costs - 0.1 Operating profit margin, non-GAAP 22.9 % 23.8 % (90)
Non-Service Related Postretirement Costs
Non-service related postretirement costs were
Interest (income) expense, net was
41
--------------------------------------------------------------------------------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 22.2% for the second quarter of 2021 as compared to 24.2% for the second quarter of 2020. As reflected in the table below, the non-GAAP effective income tax rate was 22.2% for the second quarter of 2021, as compared to 24.2% in the comparable period of 2020.
The effective income tax rate was 23.1% for the first six months of 2021 as compared to 20.3% for the first six months of 2020. As reflected in the table below, the non-GAAP effective income tax rate was 23.1% for the first six months of 2021, as compared to 24.3% in the comparable period of 2020. 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 23.3%, compared to 24.4% in the second quarter of 2020. See Note 10, Income Taxes to the Condensed Consolidated Financial Statements for additional details.
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