Gillette Spends, Wins

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Blade king Gillette (NYSE: G) scraped its way to record market share in 2003, but there are looming worries it will have to increase spending in order to maintain those gains in the months to come.

Global blade share grew half a percent to 72.5%, thanks in large part to a huge 28% spike in advertising spending. Management seems most concerned with the battery division, though, as its flagship Duracell brand is now priced about 50% higher than value and private-label competitors -- Rayovac (NYSE: ROV), in particular.

"Historically that type of gap has resulted in share erosion," said Chris Jakubik, vice president of investor relations, in this morning's conference call (transcript courtesy of CCBN StreetEvents). "We're starting to see it now and, given the large price gap, that trend is likely to continue."

The company saw fourth-quarter operating sales 4% higher than the same period last year, but that figure would be -3% if not for a favorable 7% foreign exchange boost. Earnings from continuing operations were up 9% to $0.35 per share. For the full year, revenue increased 9% and earnings per share jumped 18%. Saving the best number for last, free cash flow in 2003 rose 32% to $2.2 billion.

Shares of Gillette, while up 20% over the past year, have underperformed the S&P 500's 30% return.

Looking ahead to 2004, one question to be answered is how well the company will hold up in the Battle of the Blades. Jakubik said today that the most expensive blades remain the only source of growth in this category, with sales up 105% in 2003.

Energizer's (NYSE: ENR) Schick Quattro -- the world's first four-blade razor -- is selling better than Gillette first thought. Will Gillette management turn the three-blade Mach3 into a Mach4? Will Schick answer with a Cinque? Where does it all end? Perhaps here, a millennium from now, with men struggling to lift 32 blades to their faces.