The Consumer-Goods Tango

"Then the Cubans hit the floor
And they drive along the pipeline
They tango till they're sore
They take apart their nightmares
And they leave them by the door"

-- "Tango Till They're Sore," by Tom Waits, from the 1985 album Rain Dogs

It's almost impossible to find a more consistent industry than the everyday-household-items sector where Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) ply their trades. Despite this nearly preternatural dependability, both stocks have been dragged down this year by the same general consumer concerns that affected everybody else.

Now the results for the last three months are in. The main question is simple: Was Mr. Market right to worry about Colgate and P&G all along?

Zooming in for the close-up
As it turns out, there is no clear answer. Both companies reported pro forma earnings pretty much in line with expectations. But one stock lost more than 5.5% of its value on the news, while the other gained 3% on a very similar report. I mean, check out the highlights:

• Procter & Gamble's earnings rose 11% to $0.82 per share on 9% sales growth.
• Colgate-Palmolive reported a 16.8% gain in earnings per share (excluding one-time items and restructuring charges) on 16% sales improvement.

Oddly enough, Procter & Gamble's stock climbed 3% on the news, while Colgate-Palmolive's price tumbled more than 5%. Word on the Street has it that the difference is due to differing views of the next few quarters. Both companies are feeling the pinch of rising commodity prices, making it more expensive to manufacture and ship out toothpaste, paper towels, and deodorant.

P&G raised its earnings guidance a tiny bit, expecting price increases and cost controls to improve operating margins by 20 basis points this year. Colgate? Cost controls and price increases should keep gross margins "flat to slightly up" this year, and then improve the picture dramatically next year.

Zooming out for a bird's-eye view
Add the recent report from paper-products specialist Kimberly-Clark (NYSE: KMB) to the mix, and you're looking at three companies in the same rock-solid sector, all fighting cost increases with the same basic weapons and similar levels of success. They're all solid stocks with confidence-inspiring management teams, and they're all trading at reasonable valuations given the safety net they offer with their appealing dividend yields.

Any of these stocks would look great in the average stock portfolio, and maybe even in yours. They just showed us the money as proof that even a pending large-scale economic recession can't make them miss their targets. Should the likes of Colgate and Kimberly-Clark ever lose money, I suppose it would be all right to head for the hills with a shotgun and a three-year supply of ramen noodles, but I just don't see that happening.

Your move, Fool
Colgate's stock was punished because management had the temerity to plan for the future. This tells me that the sellers were more short-term speculators than long-term investors, as the company clearly improves its cash-generating abilities with a next-year margin jump.

Fine. That means lower prices for the rest of us. What's next? Fire sales on Johnson & Johnson (NYSE: JNJ) and UnitedHealth (NYSE: UNH)? Bring it on. My portfolio is ready and waiting, and whatever ground these stocks lose today will be regained many times over, if you leave your nightmares by the door.

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