Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL) are the two undisputed titans of the toothpaste industry, with their Crest and Colgate brands controlling over 60% of the market between just the two. Both companies have recently released earnings for their respective quarters, so let's compare the results to determine which had the better quarter and could provide the highest returns for investors going forward.
Breaking down the quarterly results
On April 23, P&G released its third-quarter report for fiscal 2014 and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:
|Earnings Per Share||$1.04||$1.02|
|Revenue||$20.56 billion||$20.73 billion|
- Earnings per share increased 5.1%
- Revenue decreased 0.2%
- Global unit volume increased 3%
- Organic sales increased 3%
- Gross profit decreased 2.9% to $9.96 billion
- Gross margin contracted 140 basis points to 48.4%
- Operating profit increased 1.6% to $3.46 billion
- Operating margin expanded 30 basis points to 16.8%
- Repurchased approximately $1.5 billion worth of its common stock
- Paid approximately $1.7 billion in dividends
- Other most notable update: On April 7, P&G raised its quarterly dividend by 7% to $0.6436 per share; this marked the 58th consecutive year in which P&G has increased its dividend.
Colgate-Palmolive released its first-quarter report for fiscal 2014 on April 25 and the results satisfied analysts' expectations; here's a breakdown and year-over-year comparison:
|Earnings Per Share||$0.68||$0.68|
|Revenue||$4.33 billion||$4.32 billion|
- Earnings per share increased 3%
- Revenue increased 0.2%
- Global unit volume increased 5%
- Organic sales increased 6.5%
- Gross profit increased 0.4% to $2.52 billion
- Gross margin expanded 10 basis points to 58.4%
- Operating profit increased 1.8% to $1.0 billion
- Operating margin expanded 30 basis points to 23.1%
- Repurchased approximately $453 million worth of its common stock
- Paid approximately $316 million in dividends
- Other most notable statistic: In the report, Colgate provided its updated global market share information:
|Global Market Share||
What will the rest of the year hold?
Following its third-quarter results, P&G lowered its full-year outlook on fiscal 2014; here's P&G's new outlook versus its previous one:
|Metric||Previous Outlook||New Outlook|
|Reported EPS Growth||7%-9%||1%-4%|
|Core EPS Growth||5%-7%||3%-5%|
|Net Sales Growth||1%-2%||1%|
|Organic Sales Growth||3%-4%||3%-4%|
This new outlook fell short of analysts' expectations for the year and P&G cited higher than expected foreign exchange headwinds and slower than expected market growth rates as the primary reasons. With this being said, on its conference call, P&G reiterated that it anticipates 90% free cash flow productivity, which will enable well over $6 billion in share repurchases in fiscal 2014 and allow it to pay its bountiful 3.2% dividend.
Following its strong first-quarter results, Colgate-Palmolive stated that it expects "another year of strong organic sales growth and gross margin expansion in 2014, and expect diluted earnings per share for the year to grow 4% to 5% on a dollar basis and at a double-digit rate on a currency neutral basis;" this forecast would result in earnings per share in the range of $2.95-$2.98, in-line with analysts' expectations. Also, it is safe to assume that Colgate will generate ample free cash flow during the year, so it can continue to repurchase a substantial amount of its shares while paying its healthy 2.1% dividend.
And the winner is...
After comparing the companies' earnings results and outlooks going forward, the winner of this match-up is Colgate-Palmolive; it showed growth in every key financial category and its outlook on the rest of the fiscal year calls for more of the same. Also, the fact that Colgate commands an absolutely incredible 44.3% of the global toothpaste market sets it apart as the best pure-play investment opportunity in the oral-care industry.
Today, Colgate's stock sits just below its 52-week high, however I believe there is much more room to the upside. Foolish investors would be wise to consider adding Colgate to their long term holdings. As always, Foolish investors should do their own research before making any investment decisions.
Joseph Solitro 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.