Procter & Gamble (NYSE: PG ) and Kimberly Clark (NYSE: KMB ) are two of the largest consumer-products manufacturers in the world, with a total of 30 billion-dollar brands between them, and both have recently released their quarterly earnings. Let's break down the results and the companies' outlooks on the rest of 2014 to determine which had the better quarter and could provide the highest returns for investors going forward.
The quarterly breakdown
On April 23, P&G released its third-quarter report and its results were mixed in comparison with expectations; here's a breakdown and year-over-year comparison:
|Earnings Per Share||$1.04||$1.02|
|Revenue||$20.56 billion||$20.67 billion|
- Earnings per share increased 5.1%
- Revenue decreased 0.2%
- Organic sales increased 3%
- Global volume increased 3%
- Gross profit decreased 2.9% to $9.96 billion
- Gross margin contracted 140 basis points to 48.4%
- Repurchased $1.5 billion of common stock
- Paid $1.7 billion in dividends
- Dividend update: On April 7, P&G raised its quarterly dividend by 7% to $0.6436 per share; this marked the 58th consecutive year in which P&G has increased its dividend and the 124th consecutive year in which it has paid dividends to shareholders.
Kimberly Clark released its first-quarter report on April 21 and its results were mixed in comparison with expectations as well; here's a breakdown and year-over-year comparison:
|Earnings Per Share||$1.48||$1.47|
|Revenue||$5.28 billion||$5.31 billion|
- Earnings per share were flat
- Revenue decreased 0.8%
- Organic sales increased 4%
- Global volume increased 3%
- Gross profit increased 0.2% to $1.83 billion
- Gross margin expanded 30 basis points to 34.6%
- Repurchased $464 million of common stock
- Paid $309 million in dividends
- Dividend update: On May 1, Kimberly Clark raised its quarterly dividend by 3.7% to $0.84 per share; this marked the 42nd consecutive year in which Kimberly Clark has increased its dividend and the 80th consecutive year in which it has paid dividends to shareholders.
Outlooks on the year ahead
In its report, P&G went on to lower its full-year outlook for 2014 as a result of higher than expected foreign exchange headwinds and slower than expected market growth rates; here's the company's new outlook versus its previous outlook:
|Metric||Previous Outlook||Current Outlook|
|Reported EPS Growth||7%-9%||1%-4%|
|Core EPS Growth||5%-7%||3%-5%|
|Net Sales Growth||1%-2%||1%|
|Organic Sales Growth||3%-4%||3%-4%|
As you can see, the new outlook is much weaker. However, on the conference call P&G reiterated that it still expects to deliver 90% free cash flow productivity, which will enable $6 billion in total share repurchases. Also, management spoke very highly of the company's innovative new products in the market and the ones that the company will release in the coming quarters, so it is surely setting itself up for success beyond 2014.
Following its strong first quarter, Kimberly Clark reaffirmed the full-year outlook provided in its fourth-quarter report; here's a summary:
- Earnings per share in the range of $6.00-$6.20, an increase of 4%-7.5% from fiscal 2013
- Revenue decrease of 1% to an increase of 2%
- Organic sales growth of 3%-5%
- Global volume growth of 2%-3%
In addition to this solid outlook, on the conference call Kimberly Clark's management said it continues to anticipate $1.3 billion-$1.5 billion in total share repurchases for the year; these repurchases will help boost the company to its earnings-per-share growth goals, and in combination with dividend payments this will result in $2.5 billion returned to shareholders over the course of the year.
And the winner is...
After reviewing the earnings results and the companies' guidance for the rest of fiscal 2014, the winner of this match-up is Kimberly Clark. Although the earnings per share and revenue growth shown by each company did not impress, Kimberly Clark's cost-saving initiatives propelled it to much greater growth in gross profit and margin expansion, and its strong outlook was icing on the cake.
Kimberly Clark's stock has fallen a little over 1% since it released its report and I believe this is a buying opportunity. Investors should strongly consider initiating positions right now to let price appreciation and the company's healthy 3% dividend provide significant returns over the years ahead.
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