The improving global economic situation, especially in developed markets, is likely to benefit consumer companies around the world. In particular, large consumer companies with notable developing market exposure are well placed to experience growth in the coming years. Procter & Gamble (NYSE:PG) is one of those companies, and it has seen growth in its earnings due to its large international and developing market operations. Similarly, The Clorox Company (NYSE:CLX) and Colgate-Palmolive (NYSE:CL) are targeting growth in developing markets.

Expanding International Outreach
Procter & Gamble has operations in more than 180 countries, and its rich product portfolio is an important growth driver for the company. To expand its business operations, the company has been targeting international markets, especially fast growing developing markets. Procter & Gamble earns about 60% of its total revenues from international markets, of which 40% is derived from developing markets. The company is also making progress in improving its financial performance, mainly due to better execution under new CEO Alan G. Lafley.

The company recently delivered good results for the third quarter of 2014, observing 3% sales growth in the quarter compared to the same period last year. Sales growth was driven by volume growth. Also, the company enjoyed 5% earnings growth in the quarter as compared to the same quarter last year.

Driven by improving economic activity, Procter & Gamble registered a 2% volume growth in developed markets, and 5% growth in sales in developing markets in the most recent quarter. Growth opportunities for consumer companies in emerging markets are driven by growing populations and increasing per capita income.

Cost cuts
Other than targeting growth in emerging markets, Procter & Gamble has been aiming to make its cost structure leaner. The company has been making good progress with its cost savings program of $10 billion, launched two years ago. At the start of fiscal year 2014, the company targeted annual savings of $1.4 billion, but now it is expecting productivity savings of about $1.6 billion. The productivity savings targeted by the company will be derived across supply chain, logistics and manufacturing units in both developed and developing markets. The company recently disclosed that it will revamp its supply chain and manufacturing facilities in North America, where it has 35 operational manufacturing facilities, in an effort to improve productivity.

Cost cutting programs have remained an important tool in the hands of consumer companies to support their earnings growth. The Clorox Company, by improving supply chain and the production process, aims to expand its EBIT margin by 25-50bps, annually. Also, the Clorox Company aims to lower its selling and administration expense to 14% or less of its total sales by 2020. Similarly, Colgate has been hoping to reduce its cost of production through the modification of manufacturing facilities and reduction of overhead spending, which will lead to margin expansion for the company. In the first quarter of 2014, Colgate managed to lower its overhead spending by 30bps, as compared to the same period last year. Also, for 2014 Colgate is anticipating a gross margin expansion of 75-125 bps through its cost controls.

All of the three companies mentioned above are likely to observe impressive long term growth rates, evident from analysts' growth projections shown in the table below.

 

Procter & Gamble

The Clorox Company

Colgate

Long Term EPS Growth Rate

8.5%

7.5%

8.5%

Currency movements impacting growth
Even as emerging markets offer impressive growth opportunities Procter & Gamble, currency movements remain a drag on its performance. The strengthening of the U.S. dollar has negatively affected sales and earnings growth of these large consumer companies with international exposure. For example, the strengthening of the U.S. dollar resulted in a 3% drag on Procter & Gamble's total sales in the third quarter of 2014.

The Clorox Company and Colgate also reported foreign currency drag in their most recent quarters. International markets make up about 75% of Colgate's total sales. In the first quarter of 2014, Colgate experienced a 6.5% currency drag on its total sales, resulting in flat YoY sales for the company. However, for the quarter Colgate did experience an impressive 10% growth in emerging markets. The Clorox Company is also aiming to expand its sales and earnings by increasing its international presence. Currently, the company generates about 25% of its total sales from international markets. The Clorox Company recently reported its quarterly results, which reflect that adverse currency changes had a 12% negative impact on its quarterly EPS.

Final Take
Procter & Gamble has been making progress with its growth and cost cut programs, mainly due to better execution of plans under the new CEO. Also, the company is likely to benefit from its large scale international operations, which will fuel its earnings growth. However, foreign currency movements are likely to remain a drag on sales and earnings growth of the abovementioned companies. But I believe the growth potential available in emerging markets overweigh the currency concerns.

Furqan Asad Suhail has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.