Two of the world's largest companies, Procter & Gamble (PG 0.16%) and Kimberly Clark (KMB +1.20%), have just released their first earnings reports of the year. Both reports included better-than-expected earnings results which propelled the stocks higher in the trading session that followed. Let's break down each report and decide who had the better quarter, and if this is our opportunity to buy.
The American giants
Procter & Gamble, or P&G, is one of the world's leading consumer-goods companies. It is home to the largest lineup of industry-leading brands; in fact, it is home to 25 billion-dollar brands, including Tide, Gain, Downy, Gillette, Charmin, Pampers, Duracell, and Crest. The company currently operates in 70 countries and its products are available in over 180 countries, serving approximately 4.8 billion people.
Kimberly Clark is one of the largest personal-products companies in the world. Its brands include Kleenex, Cottonelle, Depend, Huggies, Kotex, Scott, and numerous others, which are said to serve over a billion people each day. Kimberly Clark employs about 57,000 people in 61 countries and its products are currently available in more than 175 countries.
The earnings reports
Procter & Gamble
Second-quarter results for fiscal 2014 were released on Jan. 24 before the market opened. The results were mixed in comparison with expectations:
| Metric | Reported | Expected |
| Earnings Per Share | $1.21 | $1.20 |
| Revenue | $22.28 billion | $22.35 billion |
P&G's core earnings per share decreased by 1% and revenue remained unchanged year-over-year as organic sales grew by 3%. Gross profit fell 1% to $11.15 billion as a direct result of the gross margin declining 90 basis points to 50%. Volume was strong and all of P&G's segments showed growth; beauty grew 1%, grooming grew 2%, health care grew 6%, fabric and home care grew 5%, and baby, feminine, and family care grew 3%. Overall, the quarterly results may seem bad, but the company faced several charges related to its restructuring that will eventually result in increased productivity and cost savings; P&G has taken the hit now in order to prosper in future quarters.
Kimberly Clark
Jan. 24 brought Kimberly Clark's earnings release as well. The results were for the fourth quarter of fiscal 2013 and Kimberly Clark beat on both lines:
| Metric | Reported | Expected |
| Earnings Per Share | $1.44 | $1.39 |
| Revenue | $5.31 billion | $5.28 billion |
Kimberly Clark's earnings per share increased by 5.1% and revenue remained flat year-over-year as organic sales grew a strong 5%. Operating profit rose 5% to $836 million, driven by the operating margin expanding 90 basis points as a direct result of cost savings from Kimberly Clark's FORCE program; FORCE stands for "Focused on Reducing Costs Everywhere" and that is precisely what it has been able to do. In addition, the company updated investors on the planned spin-off of its health-care business; the split is expected to see a vote in the second quarter and to be complete by the third quarter. I support the spin-off because I believe the companies are more valuable as separate entities. With all of this being said, it was a great quarter for Kimberly Clark and the earnings can support a rally higher.
Outlook on the year
Procter & Gamble
As a buffer to the better-than-expected earnings results, P&G affirmed its full-year outlook for fiscal 2014 which called for the following results:
| Metric | Expected Growth |
| Reported EPS | 7%-9% |
| Core EPS | 5%-7% |
| Net Sales | 1%-2% |
| Organic Sales | 3%-4% |
This moderate growth is impressive for a company which is restructuring itself. I think this is why the stock rose in the trading day and why it will likely continue its rise in the coming weeks. Upon completion of the restructuring, Procter & Gamble will likely use its increased free cash flow to raise its dividend and repurchase shares at an accelerated pace. All in all, this is great guidance for P&G.
Kimberly Clark
Kimberly Clark also gave an outlook for fiscal 2014:
| Metric | Expected Growth |
| Earnings Per Share | 4%-7.5% |
| Net Sales | (1%)-2% |
| Organic Sales | 3%-5% |
| Operating Profit | 3%-7% |
| Dividend | 2%-4% |
In addition, Kimberly Clark noted that it plans to spend $1.3 billion-$1.5 billion on share repurchases. All of this looks great and I believe the highlight is the immense amount of capital that Kimberly Clark will return to shareholders; the dividend raise will keep the yield above 3% for the year, depending on how high the shares rise, and share repurchases will reduce the float to drive earnings per share higher. After the strong earnings beat, this outlook is icing on the cake.
And the winner is...
When we compare these quarterly results and outlooks for fiscal 2014, our clear-cut champion is Kimberly Clark in my view. The company has been creating wealth for decades and I believe it is still one of the best investment opportunities in the market. There is plenty of upside in terms of price appreciation and it will return additional capital via its healthy 3% dividend and share repurchases. The stock currently sits just a few points below its 52-week high, so investors may want to wait for weakness before initiating a position; however, do not wait too long, as this American titan's shares are destined for much higher prices.
