Battered by the ongoing foreign currency headwinds, Colgate-Palmolive Co. (CL - Analyst Report) reported dismal second-quarter 2015 results, wherein both the top and bottom lines fell short of expectations, and declined year over year.

The company’s adjusted earnings of 70 cents per share missed the Zacks Consensus Estimate by a penny and dropped 4.1% year over year.

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Including one-time items, earnings came in at 63 cents per share, down 6% from 67 cents recorded in the year-ago quarter.

Deeper Insight

Total sales of $4,066 million decreased 6.6% from the year-ago figure of $4,352 million, as the benefits of 3% growth in volume and a 2.5% rise in prices were more than offset by a negative impact of 12% from currency fluctuations. Moreover, quarterly revenues missed the Zacks Consensus Estimate of $4,072.5 million.

On an organic basis (excluding foreign exchange, acquisitions and divestitures), the company recorded sales growth of 5.5%.

Adjusted gross profit margin was 58.3%, down 50 basis points (bps), owing to increased packaging and material expenses stemming from higher currency translation costs. This was partly offset by improved pricing along with benefits from cost-saving initiatives under the company’s funding-the-growth and 2012 Restructuring Program.

In the reported quarter, adjusted operating profit of $1,000 million declined 5% from the year-ago quarter figure. However, the adjusted operating margin improved 30 bps to 24.6%, mainly benefiting from lower selling, general & administrative (“SG&A”) expenses as a percentage of revenues.

During the quarter, Colgate’s market share of manual toothbrushes reached 34.1%, up 0.2 share points.

Segment Discussion for Q2

North America sales (19% of total sales) inched up 1.5% in the reported quarter, driven by a 3% improvement in unit volume, partly offset by 0.5% lower pricing and negative foreign exchange of 1%. On an organic basis, sales grew 2.5%.

The segment’s operating profit decelerated 3% to $223 million, with the operating margin contracting 140 bps to 28.6%. This is attributable to higher SG&A expenses, as a percentage of net sales, partly compensated by enhanced gross margin.

Latin America sales (27% of total sales) slumped 8.5% year over year, as the benefits of 0.5% unit volume growth and 9% increase in pricing were more than offset by a negative impact of 18% from foreign exchange. Volume gains were most prominent in Mexico, Argentina and Brazil, offset by declines in Venezuela. On an organic basis, sales increased 9%.

Operating profit rose 3% to $321 million, while as a percentage of sales, it expanded 320 bps to 28.5%. The increase in operating profit was primarily led by reduced SG&A expenses as a percentage of sales, partly offset by reduced gross profit margin.

Europe/South Pacific sales (18% of total sales) plunged 16.5% year over year, due to a negative impact of 3% from lower pricing and 18% from foreign currency translation, offset slightly by a 4.5% rise in unit volume. Volume gains were primarily led by the French, Australian and German regions. Europe/South Pacific organic sales climbed 2%.

Operating profit descended 19% year over year to $183 million. Also, operating margin for the region contracted 100 bps to 25%, primarily owing to soft gross profit margin.

Asia sales (16% of total sales) grew 2%, attributable to a 5.5% jump in volumes, offset by a 0.5% downside in pricing and a negative impact of 3% from foreign exchange. Volume growth was primarily attributed to gains in India, the Philippines and Greater China regions. On an organic basis, sales rose 5%.

Operating profit increased 2% to $181 million. Operating margin shriveled 10 bps to 29.1%, on account of higher SG&A expenses as a percentage of sales, partly compensated by improved gross margin.

Africa/Eurasia sales (6% of total sales) fell 17.5% year over year due to a negative impact of 21.5% from foreign currency exchange and a 3% decline in volumes, partly offset by a 7% increase in prices. Weak volumes in the Central Asia/Caucasus region, Ukraine, South Africa and Russia were somewhat compensated by gains in the Sub-Saharan Africa region. Organic sales for Africa/Eurasia advanced 4%.

Operating profit fell 22% year over year to $45 million in the quarter, while as a percentage of sales it shriveled 110 bps to 17.7%. The decrease was mainly due to lower gross profit margin, partially offset by lower SG&A expenses as a percentage of sales.

Hill’s Pet Nutrition sales (14% of total sales) were down 1.5%. Pricing had a 1.5% positive impact on sales growth, while foreign exchange negatively impacted sales by 8.5%. Unit volume improved 5.5% backed by volume gains in the United States and Japan. On an organic basis, sales rose 7% from the year-ago quarter.

Operating profit remained flat year over year at $146 million, with the operating profit margin expanding 30 bps to 26.4%. The rise in operating profit margin was mainly due to an improvement in SG&A expenses as a percentage of sales.

Other Financial Details

Colgate ended the quarter with cash and cash equivalents of $1,059 million, total debt of $6,683 million and shareholders’ equity (excluding non-controlling interests) of $454 million.

Net cash provided by operating activities came in at $1,223 million for the first two quarters.

Outlook

Colgate anticipates macroeconomic and currency headwinds to linger throughout 2015. However, even in the face of these challenges, management expects another year of robust organic sales growth on the back of new products across categories and geographies.

Consequently, the company envisions earnings per share for 2015 to increase at a double-digit rate, on a currency neutral basis. On including the currency impact, earnings per share for 2015 are expected to decrease at a low single-digit rate.

Zacks Rank

Currently, Colgate carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include The Clorox Company (CLX - Analyst Report), Campbell Soup Company (CPB - Analyst Report) and Dean Foods Company (DF -Analyst Report), each carrying a Zacks Rank #2 (Buy).