Published January 14, 2015
Colgate-Palmolive Co. (CL) will cut about 4,400 jobs, or 12 percent of its work force, and close nearly a third of its factories under a restructuring, the consumer products company said on Tuesday.
Colgate, which employs about 37,000 people and operates 78 plants, said it expects after-tax restructuring charges of $550 million to $650 million over the four-year program.
The news comes as rising raw material, gas, oil and packaging costs have put enormous pressure on the consumer products sector. Colgate, whose brands include Colgate tooth-care products and Palmolive cleansers, issued its first earnings warning in nearly a decade in September, due in part to higher costs.
The restructuring plan includes initiatives such as moving some business support functions to shared-service centers and globally managing all purchasing, including media.
Colgate will also increase its investment in research and development, mainly in oral care and its Hill's pet business.
Other steps include a focus on marketing and new products. Colgate wants to improve sales and marketing groups, especially in markets where it sees high potential, such as Eastern Europe, Russia, China and parts of Latin America and Asia.
"We had expected this announcement and view it as a step in the right direction," said SunTrust Robinson Humphrey analyst William Chappell, who has a "buy" rating on Colgate shares.
Investors cheered the plan, sending shares of Colgate up 4.5 percent to $48.38 on the New York Stock Exchange (search).
Colgate Chairman and Chief Executive Reuben Mark said in October that the company was working on cutting costs but that a "worldwide cataclysmic reorganization" should not be expected.
In November, Colgate shares fell 4 percent after Banc of America Securities analyst William Steele said he expected the company to soon announce a restructuring charge that could be near half a billion dollars.
New York-based Colgate's last big restructuring charge came in 1995. At that time, it took a charge of $369.2 million when it announced plans to slash 3,000 jobs, or 8.5 percent of its work force, and close 24 of its 112 factories.
Colgate said it agreed with analysts' earnings expectations for the 2004 fourth quarter and the full-year 2005, excluding restructuring and related charges. It said restructuring charges should be about $45 million in the fourth quarter and $200 million in 2005.
Analysts expect Colgate to earn 57 cents to 59 cents per share in the fourth quarter, with an average estimate of 58 cents, according to Reuters Estimates. For 2005, analysts expect a profit of $2.51 to $2.76 per share, with a mean estimate of $2.61.
The company, which previously forecast earnings per share growth of 6 percent to 10 percent in 2005, said it expects the restructuring to help earnings per share, excluding restructuring charges, to grow at low-double-digit rates in 2006 and beyond.
It said it plans to raise its goal for annual gross margin improvement to a range of 0.75 to 1.25 percentage point, from its long-time previous range of 0.5 to 1 percentage point. The new goal will go into effect once the restructuring initiatives are fully under way toward the end of 2005, Mark said in a statement.
Colgate, whose other brands include Ajax and Softsoap, expects after-tax savings from the restructuring of about $45 million in 2005. By the plan's fourth year, it expects annual after-tax savings of $250 million to $300 million.
Colgate's news comes in a week in which the company's rivals are also discussing their prospects.
On Monday, Kimberly-Clark Corp. (KMB), the maker of Kleenex tissues and Huggies diapers, outlined its plans for the next three years at a meeting with analysts and investors. Beauty company Avon Products Inc. (AVP) will unveil its plans on Wednesday, and consumer goods powerhouse Procter & Gamble Co. (PG) is expected to discuss its progress at an investment meeting in Boston on Thursday.