Rain or Shine, Staples Make Sales

Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A shopper may give up some luxuries during a recession, but a consumer staple like baking soda is much harder for her to leave on the shelf. Church & Dwight (NYSE: CHD), Clorox (NYSE: CLX), and Colgate-Palmolive (NYSE: CL) sell products that their customers need to buy, which insulates them from the fads and trends that cause wide swings in other retailers' sales.

Church & Dwight makes Arm & Hammer baking soda, and this staples seller showed steady revenue growth and strong margins over the last few years even while other consumer oriented firms had to offer big discounts to keep their customers. Church & Dwight significantly improved its gross margin during the last few years, which increased from 39.1 percent in 2007 to 44.7 percent in 2011.

The Arm & Hammer brand doesn't just include the company's familiar boxes of baking soda. Church & Dwight also sells Arm & Hammer brand cat litter, toothpaste, and laundry detergent, as shoppers know that Arm & Hammer makes bad smells go away. Although a bargain hunter could buy lower end cleaning products to save money, quality is very important with these types of products because cheap cleaning products could leave a shopper's house dirty and smelly. The Arm & Hammer brand also provides opportunities for Church & Dwight to add more product lines, as the company may find ways to use its baking soda in other household products.

Church & Dwight also sells an array of personal products such as condoms and home pregnancy tests, and the company owns the well known Trojan condom brand. These personal care product lines provide further protection against worsening economic conditions for the company, as consumers typically have fewer children during recessions. High product quality is very important for these personal care products, as a product failure could lead to an unexpected pregnancy.

Clorox built its brand on bleach, and many of the factors that gave Church & Dwight strength during the recession also apply to Clorox. The Clorox brand is well known, just like Arm & Hammer. Clorox can also use its main brand to branch out into other product lines. Arm & Hammer figured out that small amounts of baking soda can provide noticeable performance gains for many household products, and the same theory applies with bleach and other cleaning products. Like Church & Dwight, Clorox sells a wide array of household products such as laundry detergent, household cleaners, and cat litter. Clorox also uses its association with clean households to market trash bags under the Glad brand.

While Clorox's revenue improved from $5.16 billion in 2009 to $5.23 billion in 2011, Church & Dwight's revenue rose from $2.52 billion to $2.75 billion during the period. Church & Dwight might have had more room to grow than Clorox, because Clorox is a larger company, although both companies are much smaller than their competitor Colgate-Palmolive.

Church & Dwight's income improved from $392 million in 2009 to $495 million in 2011, while Clorox's income increased from $537 million to $557 million. Clorox actually earned $603 million in 2010, although the company's net income figure includes several significant items. Clorox wrote off $258 million in goodwill and earned $247 million from selling its auto business in 2011, so a direct comparison to its 2010 results could be misleading.

Colgate-Palmolive's product line also includes many basic necessities. The company's two main brands, Colgate toothpaste and Palmolive soap, satisfy needs that are mandatory in modern society. A consumer with a limited budget will still purchase toothpaste and soap. Again, although there are cheaper toothpaste and soap products on the market, a low end product may not meet a consumer's personal grooming standards.

Colgate reported significant sales growth in foreign markets, even though its United States sales figures did not change much. Between 2009 and 2011, Colgate's Latin American sales grew from $4.32 billion to $4.78 billion, while its European sales increased from $3.27 billion to $3.51 billion. All three staples companies sell products throughout the world.

Colgate-Palmolive, Clorox, and Dwight & Church each offer a wide array of well known brands, retained their customers during a weak economy, and can benefit from growing demand in international markets. I think all three of these consumer staple companies are buys.

The Motley Fool owns shares of The Clorox Company. enovinson has no positions in the stocks mentioned above. 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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