Three of the largest personal products manufacturers in the world, Procter & Gamble (NYSE:PG), Kimberly Clark (NYSE:KMB), and Clorox (NYSE:CLX), recently reported quarterly results. Each report told a similar story in terms of growth, but the results were differentiated enough to crown a champion. Let's break down each report and decide which company had the best 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.
Clorox is a leading manufacturer and marketer of consumer and household products. It is home to some of the most popular brands that we use every single day, such as Clorox, Tilex, Kingsford, Pine-Sol, Liquid-Plumr, Burt's Bees, and Hidden Valley; in fact, 90% of Clorox's brands hold the No. 1 or No. 2 market share in their categories.
The earnings reports
Procter & Gamble
Second-quarter results for fiscal 2014 were released on Jan. 24 and the results were mixed in comparison with expectations. Here's an overview with a year-over-year comparison:
|Earnings Per Share||$1.21||$1.20|
|Revenue||$22.28 billion||$22.35 billion|
- Core earnings per share decreased 1%
- Revenue remained unchanged
- Organic sales grew 3%
- Global volume increased 3%
- Gross profit fell 1% to $11.15 billion
- Gross margin declined 90 basis points to 50%
- Other most notable factor: P&G faced several charges related to its restructuring that will eventually result in increased productivity and cost savings
Jan. 24 brought Kimberly Clark's earnings release as well. For the fourth quarter of fiscal 2013 the company beat on both lines. Here's a breakdown and a year-over-year comparison:
|Earnings Per Share||$1.44||$1.39|
|Revenue||$5.31 billion||$5.28 billion|
- Earnings per share increased 5.1%
- Revenue remained unchanged
- Organic sales grew 5%
- Global volume increased 4%
- Gross profit rose 19% to $1.81 billion
- Gross margin expanded 546 basis points to 34.18%
- Other most notable factor: Kimberly Clark updated investors on the planned spin-off of its health care business; the split is expected to be voted on in the second quarter and completed by the third quarter
Second-quarter results for fiscal 2014 were released on Feb. 4 and the reported statistics were mixed in comparison with analysts' estimates. Here's a summary of the results and a year-over-year comparison:
|Earnings Per Share||$0.88||$0.91|
|Revenue||$1.33 billion||$1.31 billion|
- Earnings per share declined 5.4%
- Revenue increased 0.4%
- Global volume rose 1%
- Gross profit fell 1.1% to $557 million
- Gross margin declined 61 basis points to 41.88%
- Other most notable factor: the company still anticipates free cash flow will represent 10% of total sales, which will allow it to continue paying and raising its dividend while repurchasing shares
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:
This moderate growth is impressive for a company which is restructuring itself. I think this is why the stock rose on the day the company reported, but this was not enough to sustain a rally. 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.
After the fourth-quarter report brought fiscal 2013 to a close, Kimberly Clark gave investors its outlook for fiscal 2014. Here's what the company expects:
|Earnings Per Share||4%-7.5%|
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.
In the report, Clorox also updated its full-year guidance for fiscal 2014. The new guidance is lower than its previous guidance:
|Metric||Updated Outlook||Previous Outlook|
|Earnings Per Share||$4.40-$4.55||$4.45-$4.60|
This was not the worst-case scenario when it comes to reduced outlook, but it still is not what investors like to see. The consensus analyst estimates call for earnings per share of $4.54 for the year, so if Clorox can perform to the high-end of its updated expectations it should be fine. With this said, the main thing I want to see from the company is a dividend increase within the next two quarters.
And the winner is...
After comparing quarterly results and outlooks for fiscal 2014, our winner in this three-way matchup is Kimberly Clark. The company has been creating wealth for decades and I believe it is still one of the best investment opportunities in the market even after its run higher. There is plenty of upside in terms of price appreciation for Kimberly Clark and it will return additional capital via its healthy 3% dividend and share repurchases. Procter & Gamble and Clorox are both over 10% below their 52-week highs and they each have dividends above 3.15%, which represents large upside potential. However, they released sub-par reports and guidance.