The restructuring at Colgate-Palmolive
Colgate-Palmolive reported outstanding performance, even though customers were spending less on staples because of higher gas and food costs. This makes sense, since Colgate sells basic items that aren't affected by these other things. When gas prices are high, shoppers tend to skip more frivolous purchases -- but they don't skip brushing their teeth or taking showers.
Internationally, the company really struts its stuff. With a mere 20% of its sales stemming from North America, much of Colgate's revenue growth comes from aboard. Domestic sales rose a meager 3%, while Latin America pulled in 16% growth, Europe posted a 17% gain, and Asia and Africa increased 15%. Though a favorable foreign currency translation helped boost sales 4.5%, these numbers are still strong, proving the benefits of global operations.
Market-share gains also helped boost results. Colgate-Palmolive launched new toothpaste products this past quarter, prompting robust sales in every region. Additionally, I believe further gains are possible as additional innovative products hit the shelves this quarter. By continuing to introduce new products, and ramping up associated marketing programs, the company is working hard to lure customers away from competitor Procter & Gamble's
Despite a sharp increase in advertising, management kept margins intact, thanks to a companywide cost-savings plan. In fact, gross margins (excluding restructuring charges) improved by one percentage point, to 57.1%, while operating margin stayed flat at 20.9%.
I doubt this will be Colgate-Palmolive's last successful quarter. It's rolling out more products while maintaining its advertising blitz, and its cost savings plan is fully implemented. The company's balance sheet should also have enough cash to potentially buy back more shares. In addition, rumors are swirling about a merger with Dutch rival Unilever
Further essential Foolishness:
- Procter and Gamble: Making Money, Making a Difference
- Quick Take: Is Unilever Up for Grabs?
- Colgate's Margins Gleam
Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. Feel free to email him. He doesn't have any positions in the companies mentioned. The Fool's disclosure policy flosses regularly.