What is it about toothpaste that makes people unwilling to change their habits? Even in the face of economic ruin and currency devaluations, consumers are willing to spend money to make sure their pearly whites stay that way.
That's the lesson gleaned from Colgate-Palmolive's
This seems to be an anomaly with toothpaste only. We've heard from supermarket chains like Kroger
But not Colgate. As its raw material costs rose throughout the year the toothpaste maker initiated pricing programs to help offset those expenses. Such pricing programs were even more significant in international markets where foreign currency exchange rates would have hurt Colgate when it translated its sales back into dollars.
Rather than rest on its volume increases alone, Colgate also pushed prices higher, apparently without effect. Europe was the one locale where it wasn't able to pass on higher prices successfully; sales in the region fell 13% as a result.
Now that oil prices and commodities have returned from the stratosphere, Colgate has much of its pricing power in place, meaning that we should see margins begin to improve meaningfully in the year ahead. In fact, management said during its conference call that it expects full-year gross margins to return to first-quarter 2008 levels early in 2009.
Many emerging markets are just coming into their own when it comes to oral care. Increasingly, it seems that the tube they want to mash has Colgate's name on it, regardless of its cost. Even here at home, where you can pretty much make a year's supply of your own toothpaste with simple ingredients purchased at your local pharmacy, we still opt to buy it at the supermarket.
Procter & Gamble
At more than 18 times earnings, Colgate-Palmolive is still handsomely priced, and its stock sits pretty much where it was when it reported earnings three months ago. But with a reasonably safe dividend yielding 2.6%, this toothpaste maker is willing to pay patient investors for holding this stock. That generosity makes this company a premium product worth buying.
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Fool contributor Rich Duprey owns shares of Kroger and Procter & Gamble, but he does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.