When you're having a great season, the mark of a real winner is the ability to close the deal in the fourth quarter. Simply stated, 2007 has been a winning year for Colgate-Palmolive (NYSE: CL). And as with most winners, it finished the year with a strong performance in the fourth quarter.
To understand the company's continued momentum, consider these growth rates for the fourth-quarter and full-year 2007. All numbers shown are excluding charges from the restructuring program begun in 2004:
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Colgate-Palmolive Selected Growth Rates
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QTR 4
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12 Month
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Change
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Total sales
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13.5%
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12.7%
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0.8%
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Gross profit
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15.3%
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14.6%
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0.9%
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Operating income
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17.7%
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15.3%
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2.4%
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Earnings per share
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16.7%
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16.2%
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0.5%
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By every profit and loss measure that counts, fourth-quarter results show healthy acceleration from already-solid trends. The gross margin numbers are particularly noteworthy, as margins are expanding by 90 basis points during a time when other consumer product companies like Kraft Foods (NYSE: KFT), Kellogg (NYSE: K), and Kimberly-Clark (NYSE: KMB) are experiencing margin erosion. It's true that the product lineup and the specific raw materials these companies depend on are different. But even if Colgate is not experiencing quite the degree of cost inflation as these other companies, a 90-basis-point expansion in margins is impressive.
A key driver of this success was unit volume growth of 5.5% during the quarter and full-year unit volume expansion of 6.5%. The only laggard remains the Hill's pet nutrition segment, which has been growing more slowly than the company's other brands, and actually dipped into slightly negative unit volume growth in the fourth quarter. Total international sales grew at a much faster rate than North American sales because of favorable currency conversion rates.
So how do these fourth-quarter results stack up against Colgate's primary competitor, Procter & Gamble (NYSE: PG), which also reported quarterly results last week? Quite favorably, I would say. Volume growth was comparable, but Colgate delivered much higher total sales growth (13.5% vs. 9%), benefitting from a significantly larger percentage of its sales coming from overseas markets (that currency translation effect). Both companies delivered earnings-per-share growth of 17%.
The cream continues to rise to the top. I might give P&G a slight edge from a stock picking perspective because of the lower trailing-12-month P/E ratio of 22 compared to Colgate's 24. But Colgate is showing nice momentum. Either stock looks like a solid core portfolio choice to me at this point.
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