In the interest of full disclosure, let me say that I used to employ the Mach 3 system from Gillette (NYSE:G) for my facial hair-removal needs, but these days I've been utilizing the Schick Quattro razor, courtesy of Energizer Holdings (NYSE:ENR). I doubt this will make any difference in my obligation of impartiality, but I suppose you can never be too careful, especially in this era of the fierce razor battles.
Now, on to the business at hand. Gillette reported second-quarter earnings this summer morning that were rather cutting-edge. Net revenues came in at $2.44 billion versus $2.25 billion in the previous year's quarter, a jump of 8%. Net profits were $426 million against $338 million, representative of 26% appreciation. On a diluted basis, earnings per share came in at $0.42 versus $0.33.
The company cited a few things working in favor of these results: a positive currency exchange environment, a smaller effective income tax rate, and a lesser interest expense predicated on some debt reduction. Even taking these issues into consideration, I like these particular results (and you can't argue with the debt reduction, of course).
However, let's look at free cash flow, an important metric for Fools because free cash is, well, free to be used for such things as dividend payments and share buybacks. The company reported free cash of $291 million for the second quarter of this year versus $397 million in the same frame a year ago; that is a decrease of 26%. Year-to-date free cash levels are also not so good when compared with what was going on last year.
Expenditures for researching and marketing new products can be expensive, but a company such as Gillette needs to make sure it is constantly innovating. The new M3Power shaving device is an example; over time, some of these new franchise products will hopefully contribute to higher revenues and a better free cash flow situation. Looking at a Standard & Poor's stock report, I see that the dividend level has been rather stagnant over the last few years; this issue troubles me (and income investors) the most, as I like to see a higher dividend as a consistent theme. So, if I were a new investor, I would have to consider Gillette carefully before committing long-term money (it does have a powerful brand portfolio to its credit, which adds to the decision labor).
For more Fool resources mentioning Gillette, use your mighty mouse to click on these links:
- Selena Maranjian thinks Citigroup (NYSE:C), Clorox (NYSE:CLX), and IBM (NYSE:IBM), in addition to Gillette, are worth a look for one's portfolio.
- Alyce Lomax dissects the blade maker's previous quarter.
- See why Gillette was teething back in March and how it might affect Procter & Gamble (NYSE:PG), courtesy once again of the wonderfully prolific Alyce.
Fool contributor Steven Mallas owns none of the companies mentioned.
