(FORTUNE Magazine) – Colgate-Palmolive has always been something of an odd duck among big American companies. While other corporations established a bulwark at home and then gingerly ventured abroad, this 191-year-old producer of toothpaste, deodorant, pet food, and soap has long made most of its money overseas. The New York-based company generates almost 70% of its annual sales of about $9 billion outside the U.S. and Canada, and most of its top managers, including chairman and CEO Reuben Mark, have logged long stints abroad. But Colgate's performance at home has--until very recently--been pretty pathetic. Says David Johnson, a Colgate director and chairman of Campbell Soup: "This company was great in international, but it was always getting its ass kicked in the U.S."

Not anymore. In just three years, Mark and his team have revitalized Colgate's North American operations in toothpaste, detergent, and personal-care products. Analysts estimate that when 1997 results are in, Colgate will have increased domestic sales by about 23%, pumped up operating profits by an impressive 73%, and expanded gross margins by five percentage points, from 50% to 55%. The company has done all that by closing inefficient factories, revamping production processes, and investing heavily in new products.

Colgate's U.S. revival is all the more striking because it comes in a mature, slow-growth market overrun with products. In the past two years alone, manufacturers have introduced no fewer than 131 varieties of toothpaste. Who cares about toothpaste? Colgate does. Oral care accounts for roughly one-third of its revenues, and in this vital segment the company has unseated the perennial champ, Procter & Gamble, maker of Crest toothpaste. This is the first time in 35 years that Colgate has occupied the top spot in toothpaste in the U.S. Exclaims Paine Webber analyst Andrew Shore: "Colgate used to be the underdog to P&G and Unilever, but today it is sucker-punching those two heavyweights."

The news is likely to get better. In December, Colgate began marketing a potential blockbuster toothpaste called Total in the U.S. Already a money spinner in most of the 103 other countries where Colgate sells it, Total is no ordinary dentifrice. It's the first "oral pharmaceutical" ever approved by the Food and Drug Administration. Not only does Total clean teeth, it also contains Triclosan, a broad-spectrum antibiotic that helps heal gingivitis, one of those nasty bleeding-gum diseases that now afflict an increasing number of aging baby-boomers. Colgate will spend $100 million to promote Total in 1998--its biggest single-product marketing campaign ever. With none of Colgate's rivals even close to launching a similarly effective gum-disease fighter, Paine Webber's Shore predicts sales of Total could add $100 million to the company's top line in its first year on the U.S. market.

Colgate's North American comeback is rooted in a debacle that shook the company in 1994. For years the company's robust foreign sales masked the weakness in its domestic operations. From the look of its financials, Colgate hardly seemed like a company with a problem: Net income grew an average of 35% per year from 1984 to 1994, while sales increased 8% a year and total return to shareholders averaged 21% annually. But then Colgate's North American difficulties went from worrisome to awful. During 1993 and 1994, North American sales of toothpaste, detergent, and personal-care products dropped 12%, and operating profits plunged a miserable 26%. Wall Street grew restless, and analysts questioned whether CEO Mark possessed the vision to fix the problems.

Mark, 58, a wiry and normally voluble New Yorker who has led Colgate since 1984, doesn't like to talk about that period, and when he does, he plays it way down: "We had a little setback on worldwide gross margins. We were jolted out of a little bit of complacency. There was a bit of hesitation, and then we've come roaring back."

But behind that comeback lies a sweeping reorganization of Colgate's North American operations, one ordered up by Mark (who is a director of Time Warner, FORTUNE's parent) and President and chief operating officer William Shanahan. To lead the effort, they picked a veteran brand wizard named Lois Juliber, whose success on the job now positions her as a potential successor to Mark himself (who says he has no plans to retire anytime soon). An intense, personable Harvard MBA who came to the company from Kraft General Foods in 1988, Juliber, now 48, was Colgate's chief technological officer, the executive charged with submitting the massive documentation required by the FDA for approval of Total toothpaste. Before that, as head of the company's Asian operations, she had doubled sales and tripled profits in that region in just three years.

Juliber quickly sized up the problem. "The U.S. company didn't have a growth focus," she recalls. "It was viewed as a cash cow. Our Waterloo occurred in 1994. Inventories were high, profitability wasn't what it should be, we needed top-line growth, and we needed to cut costs, become more efficient, and improve productivity."

Before taking on the North American job, Juliber got a pledge from Mark and Shanahan that she could choose as her deputies anyone she wanted from Colgate's international operations. To head the critical oral-care business she picked Ian Cook, an Englishman who had worked in four countries and at the time headed up Scandinavia. Over the next two years Juliber, Cook, and other members of the North American rescue squad closed five plants and reorganized business processes. They reworked every link in the supply chain, from purchasing to inventory management to manufacturing to delivery. By eliminating redundant activities and reducing handoffs, they cut by 25% the time between a customer's order and the arrival of his shipment. Colgate linked marketing, purchasing, distribution, and customer service through SAP software. Colgate's implementation of SAP--always a large undertaking, sometimes horrendously difficult--was so successful that Coca-Cola, Philip Morris, Hershey Foods, and other companies have come to study it.

While Colgate was retooling its supply chain and revamping factories, it also began to invest in neglected brands--including Colgate toothpaste, Palmolive detergent, Ajax cleanser, and Science Diet pet food. The company launched a string of new versions of old products, including two new toothpastes that contained baking soda and peroxide (for whiter teeth), a liquid dishwashing soap that fought germs, and a clear stick deodorant.

Such basic blocking and tackling produced results that exceeded management's--and Wall Street's--expectations. In a slow-growth market, North American unit sales have increased 7% since January 1995, and market shares have climbed for key products. The company forecasts that the North American reorganization, combined with a worldwide restructuring carried out in 1995, should save $100 million annually in fixed costs beginning in 1998. Colgate has reduced its need for working capital and has more than doubled its free cash flow in the past three years.

Wall Street has noticed. Colgate's shares, selling for (a split-adjusted) $45 at the beginning of 1997, had risen 53%, to $69, as of mid-December. Even at that price, says the First Call survey of Wall Street research, most analysts rate the stock a buy. The Street's consensus is that Asian currency problems will dock Colgate about 13 cents a share in 1997 but that cost savings will enable it to beat forecast earnings ($2.43 a share).

The product that has really put the gloss on Colgate's North American rebound is toothpaste. Under Cook's leadership, Colgate has aggressively wrestled market share away from P&G's Crest. In a stagnant $1.5 billion market, Colgate's share has climbed from 21.3% in 1994 to 26.2% today, according to A.C. Nielsen. During the same period, P&G's share fell from 31.6% to 25.3%. Nobody expects P&G to take this lying down, but the company wouldn't comment on how it might respond. P&G CEO John Pepper recently threw Colgate a backhanded compliment when he told a meeting of securities analysts, "We haven't done a very good job in oral care. We've lost share in Crest."

Colgate's lead in toothpaste is likely to expand in coming months as it begins aggressively promoting Total. The FDA approved the new toothpaste in July after four years of scrutiny. Diseases like gingivitis, which cause gums to bleed from a buildup of plaque and tartar, cost some $40 billion per year around the world to treat, estimates Abdul Gaffar, vice president for advanced technology. Colgate says its treat-as-you-brush approach is cheaper. That's been a key selling point in foreign markets. Over the past four years in countries where Total has been sold, the company's share has risen six to 16 points. About half those consumers represent new Colgate users, while the other half are people who have switched from other Colgate products.

Gaffar, a Ph.D. chemist who holds more than 100 patents, was part of a Colgate team of 200 that spent ten years and some $35 million developing Total. Their main challenge: how to embed Triclosan, a highly soluble antibiotic used in soaps and deodorants to fight bacteria, into a mint-flavored paste and then make sure it didn't get immediately washed away. Working with dental schools in the U.S. and Europe, they developed polymers capable of binding Triclosan to teeth and gums for 14 hours, thus providing round-the-clock treatment with two daily brushings. Total also contains fluoride to prevent cavities, and the R&D folks hope to add a whitening substance like peroxide in the future. But the FDA will have to approve any proposed changes to the product.

Colgate plans a splashy campaign to announce Total's U.S. debut, including TV commercials, bus-shelter billboards, and 30 million samples distributed to dentists. The new toothpaste will be priced 25% above other Colgate varieties, but its promotion won't feature celebrities. "In our ads, Total is the star," says Cook. The company starts out with a sizable edge over its rivals. Even if P&G were to invent its own antigingivitis "oral pharmaceutical" tomorrow, it would probably need at least three years to get FDA approval.

While winners are never guaranteed in consumer marketing, it's safe to say that a far-flung multinational has staged a classic comeback on its home turf. Mark recently recognized Juliber's accomplishments by promoting her to executive vice president in charge of developed markets. He also elevated to executive vice president a potential Juliber rival, David Metzler. He's now chief of operations for developing countries, where Colgate's businesses are growing twice as fast as those in Europe and the U.S., and with fatter margins.

It's questionable whether Colgate would have rebounded so strongly if its North American business hadn't sunk so low. "Sometimes," muses director David Johnson, "crisis precedes synthesis. It can take terrible defeat to return with determination and spirit. The missing link was always U.S. operations. Colgate could never be whole without returning to strength at home. Now, I think, it has something bigger than ever before."