DBRS Confirms Colgate-Palmolive at AA (low)

DBRS has today confirmed the ratings of Colgate-Palmolive Company (Colgate or the Company), as the Company maintains a strong earnings profile based on its solid portfolio of leading brands, excellent geographic diversification and exceptional product innovation, which provide substantial and consistent revenue growth. Colgate continued its strong top-line momentum with growth of 12.5% in 2007, driven by volume gains of 6.5% and a higher-than-normal positive foreign exchange impact of 5.0%. Operating margins remained stable in 2007 and H1 2008 as restructuring charges, rising input/energy costs and higher advertising expenditures were offset by savings from cost reduction programs and a shifted focus toward higher profit margin products. Colgate’s financial profile remains solid due to the strength and stability of its operating cash flow, free cash flow, and the Company’s disciplined financial management. The Company continued to emphasize cash returns to shareholders as the bulk of its free cash flow was used for share repurchases.

DBRS expects Colgate’s earnings profile to remain strong, based on its already solid and improving market positions, stable operating margins, and continued product innovation. Organic sales growth before foreign exchange is also expected to remain strong (i.e., in the 7%-to-9% range). That said, this growth is expected to be more influenced by price increases than in the past as the Company attempts to pass some of the impact of sharply rising costs on to customers. Although higher pricing may have a modest impact on volume growth and mix, DBRS does not expect the weaker global economic environment to have a significant impact on demand since Colgate’s product lines are considered non-cyclical. Operating margins are expected to remain stable as increases in commodity prices should be offset by price increases, further savings from the 2004 restructuring, and continued rapid expansion in Latin America, where margins are nearly 30%.

DBRS also expects Colgate’s financial profile to remain strong for the current rating category, due to increasing operating cash flow, a disciplined growth strategy and prudent financial policies. Operating cash flow should continue to track earnings, which are likely to rise in the double-digit range over the near to medium term. DBRS believes Colgate will continue to use its significant free cash flow primarily for share repurchases, while maintaining financial metrics in the upper range of the AA (low) category. DBRS expects Colgate to remain highly selective and disciplined with regard to potential acquisitions. We are confident that Colgate is committed to maintaining its current strong credit ratings and believe it would temper share repurchase activities should circumstances warrant.

Note:
All figures are in U.S. dollars unless otherwise noted.