As an investor, I find it exceedingly annoying when corporate PR flacks try to write the headlines for the business press. This week's case in point: "Colgate Announces Strong 3rd Quarter, Exceeding Expectations."
When management is responsible for setting expectations, it's no great victory to "exceed" them. When you set the bar, you know how high you can jump. So let success speak for itself, Colgate-Palmolive (NYSE:CL), and spare us the spin. It's not becoming to what was otherwise a good quarter.
And Colgate did have a decent quarter, with pretty good revenue growth and earnings. The top line grew at a 9.5% clip if you exclude the effects of divestitures, though there's a 1% bump from foreign exchange. Volume growth was a smaller 7%.
That meant $0.63 a share in earnings, which looks the same as last year. But when you pretend that restructuring charges don't exist, and similarly ignore stock compensation charges, it looks more like $0.77 per share, or a 15% uptick.
That's pretty good stuff from a company that's already a behemoth, yet sells nothing more exciting than toothbrushes and their accompanying minty freshness (not to mention upscale dog food). But from such boring products, fortunes are made. Just ask investors in this company, or similar consumer-products powerhouses such as Altria (NYSE:MO), Church & Dwight (NYSE:CHD), Clorox (NYSE:CLX), and Procter & Gamble (NYSE:PG). If you can't find anyone to ask, check the chart.
While I expect Colgate to continue to perform well, I have to say I don't like today's valuation too much. When I model out cash flows, today's price looks to be about right. If you're looking for something solid and relatively risk-resistant, Colgate might be OK. But if you want cheap, keep looking.
Brush up on Colgate's latest quarter by the numbers.
Colgate-Palmolive is a Motley Fool Inside Value pick. For a look at the reasons behind the recommendation, and instruction in valuation, an all-access pass is free.
At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.
