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Tickers in this Article: CL, KMB, CLX, CHD, UL, ACV
Consumer products giant Colgate-Palmolive (NYSE:CL) posted a third-quarter earnings increase on essentially flat revenue. Although sales volume grew, pricing was also flat. Despite an earnings beat, the company showed decelerating growth.

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Still a Productive Quarter
Colgate's net income for the quarter was up 4.9%, to $619 million, or $1.21 per share, compared to $590 million and $1.12 in the year ago quarter. Colgate's global market share in toothpaste is at record highs, now at 44.2%. Colgate's revenue for the quarter was down 1.4% to $3.943 billion, compared to $3.998 billion in last year's third quarter. Actual global sales volume (organic volume) was up 3%, while foreign exchange was a negative 4.5% and the flat pricing held revenue down.

Competitive Space
Colgate's price cutting, which dampened its revenue, demonstrates how challenging the consumer products field is. Kimberly-Clark (NYSE:KMB) came in with an earnings miss in its recent third-quarter report, with net income that fell 19.4%. Sales volume declined, while organic sales increased. Kimberly-Clark had volume declines in Venezuela, which has been a tough place for Colgate as well. Clorox (NYSE:CLX) is expected to show a similar flat revenue/slightly higher income pattern when it reports on November 2, as its top-line is pressured. Church & Dwight (NYSE:CHD) is expected to fare better, with both earnings growth and a slight revenue uptick, when it reports on November 9.

Then there is Unilever PLC (NYSE:UL), which by some measures on the Street, is overpaying for Alberto Culver (NYSE:ACV). Morningstar maintains Unilever is paying a 34% premium to its fair value estimate for Alberto-Culver. Though Unilver will become even larger by buying what it sees as robust growth in the personal hair care market, the heavy price paid could weigh it down in the near term.

Whatever the particular issues, Colgate, along with the other consumer products companies, continue to face sluggish global economic recovery, the necessity to keep product prices low as well as cost-cutting in operations, private label competition and unpredictable conditions in emerging markets.

The Broader, Longer View
Colgate still has many things going for it, especially in the longer term if/when the global economy gets healthier. Colgate's CEO Ian Cook maintained the company will still produce double-digit earnings in 2010, though his tone was cautious for 2011. The Street is unsure about 2011 double-digit earnings growth. Observers feel organic sales growth will remain in the low-single digits.

Colgate did only 19% of its sales in North America in the quarter, with Latin America contributing 27% and greater Asia-Africa 20%, so it's a fully global company. Emerging markets, the reason for Unilever's purchase of Alberto-Culver, remain a lucrative target area for now and the future. Greater Asia-Africa is the star region for Colgate right now, with sales and volume both rising by 12%.

Colgate's gross profit margins increased 20 basis points to 59.4%, and its free cash flow prior to dividend payments was more than 100% of net income. So there were some positives to point to in the report. More compelling is Colgate's overall position as one of the leading consumer products companies that has historically done solid business and is poised to continue doing so.

The Bottom Line
The stock price peaked at $87.39 per share in the last 52 weeks, and recently traded at $77.12, so the market has spoken clearly on that. The stock trades at 15-times forward earnings with a current yield of 2.83%, so there is opportunity for long-term value and income investors. As the stock languishes, it gives investors a chance to start or add to their positions on what has historically been a good, stable, solid stock with long-term growth potential. (For related reading, see Make Money With The Consumer Cyclical And Staple Indicator.)

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