Shares of Gillette (NYSE:G)have climbed about 10% this year, excluding a 2% dividend yield, with nearly half that gain coming today. The razor blade, battery, and toothbrush behemoth reported third-quarter results that were anything but a close shave, topping earnings expectations by 14%.

On an 11% gain in third-quarter sales to $2.4 billion, Gillette earned net income of $416 million, or $0.41 per share, up 24% from the same quarter last year. Analysts had sought $0.36 per share. Cost efficiencies helped balloon profits, as did a 1% lower effective tax rate, but the largest boost came from a weak U.S. dollar.

The decline in the dollar accounted for nearly 50% of Gillette's 11% sales growth, and backing out currencies and a lower tax rate, third-quarter earnings would have been flat with last year. We wrote in May that Gillette and other large internationals, such as Coca-Cola (NYSE:KO), would benefit handsomely (on a reported earnings basis) this year from the falling dollar, and there's no sign of this abating soon.

Currency gains aside, management deserves credit for lowering company costs while simultaneously taking market share in highly competitive markets (the company has even sued Schick). Gillette's blades and razor sales rose 17%, topping $1 billion, as the Mach3 (and the new Mach3 Turbo Champion) continued to storm Europe. Gillette's newer blade for Women, called Venus, grew sales 15% in "constant dollars," a tribute to strong marketing. Along with Sensor3, all main Gillette blades gained market share.

The company's oral care unit -- namely Oral-B -- grew sales 3% to $328 million, while profits rose 6% to $64 million (there's decent margins in toothbrushes). Gillette's battery division -- represented by Duracell -- grew sales 7% to $514 million, while profits surged 35% to $105 million. The August blackout in North America contributed to strong sales.

Despite a strong third quarter, management did not increase fourth-quarter expectations (yet), perhaps indicating that -- given lower taxes, a new Mach3 rollout, and blackouts -- the earnings jump was an anomaly. In the fourth quarter, the company is currently expected to earn $0.36 per share (the same amount Wall Street had expected for this past quarter) on higher revenue of $2.7 billion.

For the nine months ended September, Gillette's free cash flow is up 36% to $1.5 billion. With an enterprise value of about $36 billion, the stock trades at 17 times likely 2003 free cash flow of $2.1 billion. That multiple values Gillette below the market average, making it more attractive. At $34, it trades at 23 times expected 2003 earnings per share, slightly richer than peer Procter & Gamble (NYSE:PG).

At 17 times forward free cash flow and with a 2% yield, the stock offers a margin of safety alongside reasonable-to-attractive long-term upside. Gillette may be one to sock away in your two-year-old's education fund or in your retirement account (assuming you don't already own it via an S&P 500 index).