Colgate-Palmolive (NYSE: CL), whose colleagues at the supermarket include companies like Procter & Gamble (NYSE: PG) and Clorox (NYSE: CLX), did all right in the second quarter. Sales were inhibited by currency rates: they dropped by well over 5%. The bottom line, on the other hand, fared a lot better. The company made $1.07 per share compared to 92 cents per share in the year-ago period. However, the previous year's quarter had 6 cents of charges to take into account, so the adjusted earnings in 2008 actually comes out to 98 cents. This makes the growth rate a modest 9%. The market was expecting $1.05 per share according to Earnings.com, so management beat by two pennies.
I was surprised a little by how the stock sold off on Thursday after the earnings report. Shares of Colgate-Palmolive closed down over 5% on very active volume.
Was this warranted? Maybe. The stock has been doing very well since it bottomed out in March. I can't blame investors for capturing some of the gains and taking them out of play.
But I thought that the earnings report was decent enough in this recessionary cycle. Gross margin and cash flow seemed very healthy to me. And management is apparently aware of the power of advertising. I always want to see a commitment to advertising and promotions when it comes to consumer-products businesses. They're the lifeblood of the model.
Colgate-Palmolive will need to try even harder in the coming year to keep ahead of the pack. If economic conditions improve, then they will improve for every entity out there, including the competition. Every management team is going to be out in the field taking advantage of better cash flows to pump up their brands.
I think Colgate-Palmolive will be able to handle it. Just keep the new product variations and brand extensions coming, guys, and everything should be okay. I'm not sure I like the stock 100% at these levels, but if you are set on buying the company now, employ the investment method of dollar-cost-averaging over a long period of time.
Disclosure: I don't own any company mentioned; positions can change without notice.
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