advertisement
A toothpaste maker may not have the appeal of a high-tech stock, but its profits certainly do.
Consider consumer-products giant Colgate-Palmolive (CL, news, msgs), which today said quarterly earnings per share grew 13% from a year ago on an 11.8% jump in sales. More importantly, gross margins rose to a record high 57.4%, up 1.1 percentage points.
The success is directly tied to restructuring efforts that began nearly two years ago. Designed to cut annual operating costs by as much as $300 million (when completed in two years), the cuts have freed money for advertising. Worldwide ad spending rose by 20% in the first quarter. The resulting 8.5% growth in global unit volume was among the highest the company has seen in the past decade.
Increased ad spending is also helping Colgate expand its market share. For example, Colgate Total's share of the toothpaste market grew 0.6 percentage point to 14.9%, and the company's share of the manual-toothbrush market jumped 2.7 points to 25.8%, an all-time high.
What makes the story even more compelling is that Colgate's success is happening in every geographic region and across all product lines. In fact, the company posted double-digit volume growth in every region outside North America. Bolstered by a slew of new products and its aggressive ad campaign, the company's share of the Latin American toothpaste market rose to a record 75.1%. Colgate is also making inroads into such high-growth markets as India and China.
No sign of slowing growth
Of course, good numbers last quarter wouldn't mean much if the company's growth rates begin to slow. Fortunately, that's not a concern anytime soon. With gross profit margins on the rise, management can continue to spend aggressively on advertising to bolster its sales efforts around the globe.Among the new products spurring growth are Palmolive Scrub Buster with Micro Beads dish liquid, Irish Spring body wash for men, Softsoap brand Nutra-Oil body wash, Colgate Max Fresh Burst toothpaste with 50% more mini breath strips and Advanced Clean, a Colgate Total toothpaste that reportedly helps maintain a dentist-clean feeling between dentist visits.
As a result of its full product pipeline and its redoubled advertising efforts, the company expects to deliver double-digit sales and earnings growth for the remainder of the year. Find a tech company that can say that!
More from MSN Money
Stock outperforming S&P 500
Even better, consider that the stock has gained 18% over the past year and 57% over the last 30 months. By contrast, the S&P 500 Index ($INX) is up by 14% and 35%, respectively. With Colgate delivering steady double-digit growth and the stock on the verge of breaking to a new 52-week high, its shares should continue to outperform the market.One potential roadblock is the impending management change. CEO Reuben Mark is stepping down in July, after more than 22 years at the helm. The board intends to move the current president and chief operating officer, Ian Cook, to the CEO's job, with Mark remaining on as chairman for 18 months. Given Cook's tenure with the company and his current leadership position, the management transition should be relatively seamless. Nevertheless, it could cut into the premium investors are willing to pay, at least over the short term.
- Video: Will the Dow rally continue?
Assuming a price multiple of 25 times earnings, slightly below what Colgate has traded at recently and considerably below the industry average of 32 times, the stock has upside over the next nine to 12 months to the $83 area, or 22% above current levels. Longer term, look for a move to the mid-$90s. Toss in a dividend yield of more than 2.13% and those are some pretty attractive returns for a stodgy old consumer-products company.
I'll add shares of Colgate-Palmolive to my Street Patrol tracking portfolio in MSN Money's Expert Picks section as of Thursday's open.
At the time of publication, Robert Walberg did not own or control shares of Colgate-Palmolive.
Rate this Article
High