Kimberly-Clark's First-Quarter Earnings Have Sent Its Shares Lower, Should You Buy?

Kimberly Clark (NYSE: KMB  ) , the global personal-products titan behind brands such as Kleenex, Scott, Pull-Ups, Cottonelle, and Kotex, has just reported its first-quarter results to kick off fiscal 2014. The stock has reacted by moving lower in the trading session, so let's dig deep into the report to determine if this is a buying opportunity or if we should avoid it and go with another consumer goods giant, like Clorox (NYSE: CLX  ) .

Source: Kimberly Clark

The quarterly breakdown
Before the market opened on April 21, Kimberly Clark released its first-quarter report and the results were mixed in comparison with analysts' expectations; here's a summary:

Metric Reported Expected
Earnings Per Share $1.48 $1.47
Revenue $5.28 billion $5.31 billion

Source: Benzinga

Kimberly Clark's earnings per share were flat and its revenue declined 0.8% year-over-year as global volume increased 3% and organic sales rose 4%; here's a breakdown of its revenue by segment:

Segment Q1 2014 Revenue Q1 2013 Revenue Change
Personal Care $2,382 million $2,397 million (0.6%)
Consumer Tissue $1,689 million $1,718 million (1.7%)
K-C Professional $800 million $793 million 0.9%
Health Care $397 million $397 million 0%
Corporate & Other $10 million $13 million (23.1%)
Total $5,278 million $5,318 million (0.8%)

Source: Kimberly Clark

Source: ScottBrand.com

Even with the decline in revenue, Kimberly Clark's adjusted operating profit increased 0.4% to $853 million, which was helped by $70 million in cost savings from the company's FORCE program and $10 million in cost savings from pulp and tissue restructuring.

Gross profit increased 0.2% to $1.83 billion and the gross margin showed strength, expanding 30 basis points to 34.6%. These great results allowed Kimberly Clark to repurchase roughly 4.3 million shares of its common stock for approximately $464 million and pay dividends of over $300 million during the quarter.

Overall, it was a fantastic quarter for Kimberly Clark and I believe the market reacted incorrectly to the results when it sent the company's shares lower; however, before we make a final decision on whether or not this is a buying opportunity, let's take a look at the company's outlook for the rest of the year...

Source: VivaTowels.com

What will the year hold?
In the report, Kimberly Clark also reaffirmed its outlook on 2014, which calls for earnings per share in the range of $6.00-$6.20; this represents growth of 4%-7.5% from fiscal 2013. The company did not comment on the total amount of shares that it expects to repurchase over the course of the year, which is a crucial factor for whether it will meet its earnings guidance, but it appears to be on pace to reach the $1.3 billion-$1.5 billion target it projected in its fourth-quarter report. 

With the key financials and guidance in hand, I believe Kimberly Clark is still one of the best investment opportunities in the market today. The company has shown consistent organic growth and it has been one of the most active share repurchasers. It has paid a healthy 3% dividend that it has increased for 42 consecutive years. Any weakness provided by the market in the coming days should be used as an opportunity to build a long-term position.

Another consumer goods giant 's results are due out shortly
Clorox, the company behind global brands such as Clorox, Burt's Bees, Fresh Step, Kingsford, and Glad, will report its third-quarter results on May 1 and Kimberly Clark's report may be an indication of things to come; here's what analysts currently expect to see:

Metric Expected Year Ago
Earnings Per Share $1.08 $1.00
Revenue $1.43 billion $1.41 billion

Source: Estimize

Source: Clorox

These expectations call for Clorox' earnings per share to increase 8% and revenue to increase 1.4% from the same period a year ago. In addition, for the stock to react positively, it will be very important for the company to provide guidance for the fourth quarter that is within analysts' estimates; currently, expectations call for earnings per share of $1.45 and revenue of $1.57 billion, which represent year-over-year increases of 5.1% and 1.3%, respectively. 

Following the strong report out of Kimberly Clark, I am confident Clorox will satisfy the earnings and revenue expectations while guiding toward a fine fourth quarter; for these reasons, I am a buyer of Clorox, as it is more than 6.5% below its 52-week high and it has a healthy 3.1% dividend that will provide protection to the downside.

The Foolish bottom line
Kimberly Clark has just reported a strong second quarter and reaffirmed its full-year outlook, but its shares have reacted by falling about 1% in the trading day. I believe this decline is an opportunity to buy, as the company has growth on its side and an excellent 3% dividend to boot. Foolish investors should consider initiating positions right now and adding to them if the company's shares decline further. They could also take a look at Clorox, as both companies represent great long-term investments. 

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