Colgate-Palmolive (NYSE:CL) -- you know it well because chances are good that at least some of its products reside in your medicine cabinet or kitchen cupboards. Despite its familiarity, it's coming off a few tough years, and its second-quarter results failed to excite investors.
Colgate's profits fell because of charges related to its ongoing restructuring and stock options expense; the company reported second-quarter profit of $283.6 million, or $0.51 per share, compared to $342.6 million, or $0.62 per share in the same quarter last year. However, if you backed out the charges, Colgate-Palmolive's earnings would have been $0.74 per share. Sales increased 6% to $3.01 billion.
Gross profit margin was 54.2%, but if you back out the restructuring charges, Colgate said gross profit margin reached 56.1%, a 100 basis point improvement compared to last year. Colgate expects double-digit earnings increases for this year and 2007 -- excluding, of course, continued charges like the ones noted above.
You may recall that Colgate hit the skids back in 2004, resulting in the current restructuring, where it's been cutting costs by selling (or buying) business in order to focus on gaining high-margin businesses for its umbrella. (The recent acquisition of Tom's of Maine is a good example of such a purchase.) Motley Fool Inside Value advisor Philip Durell highlighted Colgate as a value pick in late 2004 -- when Colgate had been particularly beaten down -- and the stock has since increased by nearly 30%.
One of the most interesting elements of consumer products companies like Colgate and rival Procter & Gamble (NYSE:PG) is that advertising is an important element of their continued success as they fight for consumers' dollars. Colgate said that its cost cutting allowed it to spend a record amount on advertising this quarter, "generating market share gains both here in the U.S. and abroad."
When you consider the long-term picture, there's a lot to be said for companies like Colgate. When consumers are worried about their wallets, they might not be able to justify purchasing electronics or luxury bling, but they don't just stop buying the essentials like toothpaste, laundry soap, or dishwashing detergent. In his recent article "Bargains in the Cupboard," my Foolish colleague Nate Parmelee pointed out that the brand strength companies like Colgate possess actually gives them a lot of power to raise prices on their products, and thereby maintain margins.
Despite the drop in profit, Colgate's initiatives seem to be going as planned -- it's hard to complain about market share gains and margin improvements -- and Colgate is slugging it out in the global marketplace. Although investors had a hard time getting excited about the second-quarter results, there are certainly signs that Colgate is building a solid foundation for the future.
Clean up with some related Foolish content:
- Here's a flashback to Colgate's difficult phase.
- Consider the bargains in your cupboard.
- Did Tom's of Maine make a deal with the devil?
Colgate-Palmolive is a Motley Fool Inside Value selection. To find out what other stocks Philip Durell has picked as extraordinary bargains, click here for a 30-day free trial.
Alyce Lomax does not own shares of any of the companies mentioned.
