Making a Mint in the Recession

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Talking Foolishly out of both sides of my mouth, I recently offered investors two big reasons to love consumer-staples company Colgate-Palmolive (NYSE: CL), followed by my best attempt to stir up investor disdain for the oral-care king. The company's just-released third-quarter results, however, have me leaning toward loving this consistent performer.

On the top line, revenue of $3.99 billion was flat versus the year-ago quarter, while volume increased a not-too-shabby 1.5%. Both numbers are a significant improvement from the prior quarter, when sales and volume were in the doldrums.

Of course, third-quarter results likely made for an easier year-over-year comparison, given that we're measuring today's more stable macro environment against the onset of the financial crisis. Nonetheless, it could be that consumers are inching out of their shells -- maybe not for Starbucks' (Nasdaq: SBUX) pricey lattes or Altria's (NYSE: MO) heavily taxed smokes, but certainly for fancy toothbrushes.  Indeed, personal-care products do have great consumer loyalty.

On an organic basis, which excludes currency effects and restructurings, third-quarter sales rose 7%, helped by price increases and a healthy 2% volume gain.

As for profit, here's the real treat: Net income and earnings per share hit a record $590 million and $1.12, respectively. Stripping out restructuring charges that depressed third-quarter 2008 results, net income climbed 11%. Shareholders can be cheered that the earnings increase tops the company's five- and ten-year average EPS growth.

Meanwhile, gross margin expanded 2.8% on the back of higher pricing, cost-savings initiatives, and lower raw material and packaging expense. Management plowed the additional cash into advertising, which no doubt helped fuel the quarter's volume growth. The benefit of higher ad spending can also be seen in Colgate-Palmolive's market share, where its global toothpaste position came in at 45.1%, up from the prior quarter. However, while the company's manual toothbrush market share inched up annually -- showing that consumers haven't lost their proclivity for textured tongue fresheners and angled bristles -- sequentially, it was down slightly.

Looking ahead, management said it was "comfortable with external profit expectations for both the fourth quarter and the year." Based on the average analyst estimate from Yahoo! Finance, that puts full-year EPS at $4.29 -- up just shy of 11% from 2008. Hey, it sure beats the single-digit earnings decline expected from Procter & Gamble (NYSE: PG).

Despite Colgate-Palmolive's solid results, investors should keep in mind that shares trade at a P/E-premium to those of fellow consumer-staples companies such as Unilever (NYSE: UL), Clorox (NYSE: CLX), and Kimberly-Clark (NYSE: KMB). That's probably warranted given the company's enviable international profile and trade-down resistant product categories. In the near term, however, it could be harder for Colgate management to deliver substantial upside surprise, in turn limiting share appreciation. Yet for those who prefer a slow and steady ride, the odds appear to favor Colgate-Palmolive delivering a shiny long-term return.

Related Foolishness:

• These consumer-staples companies could be takeover targets.
• Of course, companies that love the recession are worth a look, too.
• Finally, beware store brands that are killing the competition.