Why You Should Take a Look at Colgate-Palmolive and P&G
Colgate-Palmolive recently delivered third-quarter net sales growth of 1.5% year over year, with unit volume jumping 5%, pricing increasing 1%, and organic sales improving 6%. As if that wasn't enough good news, earnings per share came in at $0.70 versus $0.68 in the year-ago quarter. However, it gets better.
Market share and expectations
Colgate-Palmolive's global market share positions in the following categories are impressive:
- Toothpaste: 45%
- Manual Toothbrushes: 33.4%
- Mouthwash: 16.8% (record high)
If you're not familiar with the company's brands, they include Colgate, Palmolive, Softsoap, Irish Spring, Ajax, Speed Stick, and more.
Colgate-Palmolive anticipates that its growth will continue. In fiscal year 2013, Colgate-Palmolive expects EPS to grow between 4.5% and 5.5%. That's good, but not as good as the double-digit EPS growth expected in fiscal year 2014.
The company plans on focusing on oral care, personal care, and home care (its high-margin businesses) in order to drive growth. This will be done via innovation based on consumer insights. If products perform well regionally, then they will be rolled out on a global basis. Logically, Colgate-Palmolive will primarily target countries where consumers are seeing rising incomes.
The company also looks to cut costs in:
- Direct materials
- Indirect expenses
- Distribution of logistics
- Reduction of packaging material
- Raw material substitution
- Consolidating suppliers
Another company seeing organic growth and cutting costs
Procter & Gamble sure does take a lot of heat for a company that consistently rewards its shareholders. Many investors don't realize that Procter & Gamble has averaged organic sales growth of 4% over the past three years. It also has 22 billion-dollar brands, including but not limited to, Always, Bounty, Dawn, Gillette, Pampers, and Tide.
In addition to these positives, Procter & Gamble aims to cut $10 billion in costs by the end of fiscal year 2016. The breakdown: $6 billion of savings in cost of goods sold, $3 billion of savings in overhead, and $1 billion of savings in marketing.
Flat organic sales expected
When you think of Energizer Holdings, batteries might come to mind, but Energizer's brands also consist of Schick, Playtex, Banana Boat, and Wet Ones.
Energizer Holdings has outperformed Colgate-Palmolive and Procter & Gamble in stock appreciation over the past year. Energizer has appreciated 45.07%, versus stock appreciation of 28.76% and 31.28% for Colgate-Palmolive and Procter & Gamble, respectively. However, Energizer saw revenue decline 2.2% in fiscal year 2013, and the company expects organic sales to be flat in FY 2014. On the positive side, FY 2013 EPS increased 4% to $6.47, and the company expects mid-single digit EPS growth in FY 2014. Also, the company just increased its dividend 25%.
While there are positives for Energizer Holdings, consider top-line growth comparisons for the three aforementioned companies over the past year:
Colgate-Palmolive expects double-digit EPS growth in fiscal year 2014, and has seen strong organic sales. Procter & Gamble plans on $10 billion in cost savings and has seen solid organic sales. Colgate-Palmolive and Procter & Gamble yield 2.10% and 2.80%, respectively, whereas Energizer Holdings doesn't offer any dividend. Therefore, Colgate-Palmolive and Procter & Gamble appear to be more logical investment options.
However, let's take a look at some key metric comparisons prior to making that determination:
Procter & Gamble
Procter & Gamble stands out on a fundamental basis. It's trading at a fair valuation compared to its peers, it's the best at turning revenue into profit (barely), it offers the highest yield, and it has demonstrated high-quality debt management.
The bottom line
Energizer Holdings is performing well on the bottom line, and that's likely to continue, but Colgate-Palmolive and Procter & Gamble offer both top- and bottom-line potential. By investing in these companies, you also receive generous dividend payments. In my opinion, there would be little reason to choose Energizer Holdings over Colgate-Palmolive or Procter & Gamble, unless you're simply looking for stock appreciation momentum. However, that's not what Foolish investing is about. As always, please do your own due diligence prior to investing.
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The article Why You Should Take a Look at Colgate-Palmolive and P&G originally appeared on Fool.com.Fool contributor Dan Moskowitz 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.
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