Fitch Rates Colgate's $800MM Notes 'AA-'
CHICAGO -- May 1, 2013
Fitch Ratings has assigned a 'AA-' rating to Colgate-Palmolive Company's
(Colgate) 0.9% $400 million notes due May 1, 2018 and 2.1% $400 million notes
due May 1, 2023. The company plans to use the proceeds to repay and retire the
4.2%, $250 million note maturing on May 15, 2013 with the remainder for
general corporate purposes including repaying commercial paper.
Colgate had $627 million in commercial paper outstanding at March 31, 2013.
The new notes are issued under the company's 1992 indenture. Given Colgate's
high credit quality, repurchase upon change of control language has not been
included in any notes to date.
KEY RATING DRIVERS
The ratings reflect the company's scale with approximately $17 billion in
revenues for the last 12 months (LTM) ended March 31, 2013, leading market
shares, consistently strong operating performance, and considerable liquidity.
Colgate's EBITDA margins of more than 25% are in the top tier of large
personal care manufacturers. The company generated $1.4 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.
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 adjusted operating profit before corporate
expenses in the first quarter of 2013) 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
For the first quarter ended March 31, 2013 revenues increased 2.5% to $4.3
billion. Colgate's organic revenues increased 6% with a strong 4.5%
contribution from volume growth and 1.5% in pricing which partially offset 3%
in negative foreign exchange translation and .5% in divestments. The 6%
organic growth level exceeded Fitch's expectations given the overall global
economic slowdown. EBITDA was flat with last year at $1.1 billion. FCF
improved to $392 million from $324 million last year. 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. LTM FCF of more than $1.4 billion helped by the company's tight
working capital management in the quarter. FCF is currently trending higher
than Fitch's expectation of approximately $1.2 billion in through 2013.
Liquidity and Debt
The company is highly liquid with a $1.85 billion un-utilized five year bank
facility expiring in November 2017, a 364 day $145 million revolver maturing
in November 2013, ample cash, and considerable access to the capital markets.
The 364 day revolver is likely to be extended as it provides additional
support to the company's large CP program. During the quarter, Colgate's CP
outstanding can approach total revolver commitments.
Debt balances were essentially flat with year end at almost $5.4 billion as
was leverage of 1.2x. Fitch does not expect leverage to increase markedly from
this level. Long-term debt maturities over the next four years are modest in
relation to Colgate's substantial cash flow. Nonetheless, these maturities are
likely to be refinanced as the company manages its capital structure. In 2013,
$250 million is due but has already been refinanced with this debt issuance.
Maturities after 2013 are $887 million in 2014, $494 million in 2015 and $254
million in 2016.
Future developments that may lead to a positive rating action include:
A positive rating action is 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 whenever credit protection measures drift towards a higher rating
Future developments that may, individually or collectively, lead to a negative
rating action include:
A negative rating action is not expected given Colgate's low business risk and
conservative management team. While Colgate's credit protection measures are
solid there is little room for further increases in leverage within this
Fitch rates Colgate as follows:
--Long-term Issuer Default Rating (IDR) 'AA-';
--Short-term IDR 'F1+';
--Senior unsecured notes 'AA-';
--Revolving credit facilities 'AA-';
--Commercial paper program 'F1+'.
The rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
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Grace Barnett, +1 212-908-0718
Fitch Ratings, Inc.
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New York, NY 10004
Judi Rossetti, CFA, CPA, +1 312-368-2077
Wesley E Moultrie, II, CPA, +1 312-368-3186
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