Why You Should Take a Look at Colgate-Palmolive and P&G

Colgate-Palmolive (NYSE: CL  ) recently delivered third-quarter net sales growth of 1.5% year over year, with unit volume jumping 5%, pricing increasing 1%, and organic sales improving 6%. As if that wasn't enough good news, earnings per share came in at $0.70 versus $0.68 in the year-ago quarter. However, it gets better.

Market share and expectations
Colgate-Palmolive's global market share positions in the following categories are impressive:

  • Toothpaste: 45%
  • Manual Toothbrushes: 33.4%
  • Mouthwash: 16.8% (record high)

If you're not familiar with the company's brands, they include Colgate, Palmolive, Softsoap, Irish Spring, Ajax, Speed Stick, and more. 

Colgate-Palmolive anticipates that its growth will continue. In fiscal year 2013, Colgate-Palmolive expects EPS to grow between 4.5% and 5.5%. That's good, but not as good as the double-digit EPS growth expected in fiscal year 2014.

The company plans on focusing on oral care, personal care, and home care (its high-margin businesses) in order to drive growth. This will be done via innovation based on consumer insights. If products perform well regionally, then they will be rolled out on a global basis. Logically, Colgate-Palmolive will primarily target countries where consumers are seeing rising incomes.

The company also looks to cut costs in:

  • Direct materials
  • Indirect expenses
  • Distribution of logistics
  • Reduction of packaging material
  • Raw material substitution
  • Consolidating suppliers

Another company seeing organic growth and cutting costs
Procter & Gamble (NYSE: PG  ) sure does take a lot of heat for a company that consistently rewards its shareholders. Many investors don't realize that Procter & Gamble has averaged organic sales growth of 4% over the past three years. It also has 22 billion-dollar brands, including but not limited to, Always, Bounty, Dawn, Gillette, Pampers, and Tide. 

In addition to these positives, Procter & Gamble aims to cut $10 billion in costs by the end of fiscal year 2016. The breakdown: $6 billion of savings in cost of goods sold, $3 billion of savings in overhead, and $1 billion of savings in marketing.

Flat organic sales expected
When you think of Energizer Holdings (NYSE: ENR  ) , batteries might come to mind, but Energizer's brands also consist of Schick, Playtex, Banana Boat, and Wet Ones. 

Energizer Holdings has outperformed Colgate-Palmolive and Procter & Gamble in stock appreciation over the past year. Energizer has appreciated 45.07%, versus stock appreciation of 28.76% and 31.28% for Colgate-Palmolive and Procter & Gamble, respectively. However, Energizer saw revenue decline 2.2% in fiscal year 2013, and the company expects organic sales to be flat in FY 2014. On the positive side, FY 2013 EPS increased 4% to $6.47, and the company expects mid-single digit EPS growth in FY 2014. Also, the company just increased its dividend 25%.

Peer comparisons
While there are positives for Energizer Holdings, consider top-line growth comparisons for the three aforementioned companies over the past year:

PG Revenue (TTM) Chart

PG Revenue (TTM) data by YCharts.

Colgate-Palmolive expects double-digit EPS growth in fiscal year 2014, and has seen strong organic sales. Procter & Gamble plans on $10 billion in cost savings and has seen solid organic sales. Colgate-Palmolive and Procter & Gamble yield 2.10% and 2.80%, respectively, whereas Energizer Holdings doesn't offer any dividend. Therefore, Colgate-Palmolive and Procter & Gamble appear to be more logical investment options.

However, let's take a look at some key metric comparisons prior to making that determination:

Company 

Forward P/E

Profit Margin

Dividend Yield

Debt-to-Equity Ratio

Colgate-Palmolive

21

13.12%

2.10%

2.63

Procter & Gamble

18

13.62%

2.80%

0.51

Energizer Holdings

13

9.11%

N/A

1.05

Source: Company financial statements.

Procter & Gamble stands out on a fundamental basis. It's trading at a fair valuation compared to its peers, it's the best at turning revenue into profit (barely), it offers the highest yield, and it has demonstrated high-quality debt management.

The bottom line
Energizer Holdings is performing well on the bottom line, and that's likely to continue, but Colgate-Palmolive and Procter & Gamble offer both top- and bottom-line potential. By investing in these companies, you also receive generous dividend payments. In my opinion, there would be little reason to choose Energizer Holdings over Colgate-Palmolive or Procter & Gamble, unless you're simply looking for stock appreciation momentum. However, that's not what Foolish investing is about. As always, please do your own due diligence prior to investing. 

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