Clorox (NYSE:CLX), the company behind global brands such as Burt's Bees, Green Works, and Kingsford, as well as its namesake brand, released its third-quarter results on May 1 and the stock has reacted negatively in the days since then. Let's break down the report and the company's outlook going forward to determine if this decline is our opportunity to buy or if we should go with another consumer-products giant instead, like Kimberly Clark (NYSE:KMB)

Source: Burt's Bees.

The results are in
Clorox's Q3 results narrowly missed expectations on both the top and bottom lines; here's an overview:

Earnings per share $1.05 $1.08
Revenue $1.39 billion $1.43 billion

Source: Estimize.

Clorox's earnings per share increased 5% and revenue decreased 1.9% year over year, as the company faced unfavorable foreign exchange rates and higher trade promotions during the quarter. Here's a breakdown of the revenue and volume growth by segment:

SegmentQ3 2014 Revs.Q3 2013 Revs.Rev. GrowthVolume Growth
Cleaning $437 million $454 million (3.7%) (5%)
Household $428 million $413 million 3.6% 5%
Lifestyle $237 million $245 million (3.3%) (1%)


$284 million $301 million (5.6%) 1%
Total $1,386 million  $1,413 million (1.9%) (0.5%)

Source: Clorox.

Source: Green Works.

Clorox's gross profit decreased 2.7% to $579 million and the gross margin took a slight hit, declining 30 basis points to 41.8%. Even with the slight hit to profitability, the net cash provided by operations was $434 million, which allowed Clorox to repurchase approximately 1.5 million shares of its common stock for $130 million; the company also noted that it plans to continue returning excess cash to shareholders through share repurchases and its bountiful 3.2% dividend, which it has increased each year since 1977.

Overall, Clorox's quarter was nothing to write home about and its stock reacted accordingly by falling 1.43% in the trading session that followed. The shares have continued lower in the days since then, but before we decide if this is a buying opportunity, let's take a look at what the company expects going forward.

What will the remainder of the year hold?
In the report, Clorox updated its outlook on the full year of fiscal 2014 and also provided its initial outlook on fiscal 2015; here's a summary of these expectations:

Source: Clorox.

Fiscal 2014

  • Diluted earnings per share in the range of $4.25-$4.35, compared to $4.31 in fiscal 2013
  • Revenue down slightly from fiscal 2013
  • Flat to 25 basis points of margin expansion
Fiscal 2015
  • Diluted earnings per share in the range of $4.35-$4.50
  • Sales about flat compared to fiscal 2014
  • 25-50 basis points of margin expansion
This is absolutely dismal guidance for both 2014 and 2015, and I believe these were the main factors that sent the shares lower following the report. I believe Clorox has an incredible brand portfolio and is very strong financially, but as investors we want to put our money to work in companies that are growing now and expect substantial growth in the future; Clorox does not fit these criteria today and I believe there are much better options elsewhere. For these reasons, I would avoid an investment in Clorox today and simply monitor it going forward.

Kimberly Clark: The stock to own?
Kimberly Clark, the consumer-products giant behind brands such as Cottonelle, Kleenex, Huggies, and Pull-Ups, released its first-quarter results on April 21 and its shares responded negatively to its report as well; here's a summary of what the company accomplished during the quarter:

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 decreased 0.8% year over year, as global volume and organic sales increased 3% and 4%, respectively. Even though revenue declined, gross profit increased 0.2% to $1.83 billion and 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 savings from its pulp and tissue restructuring. FORCE stands for "Focused On Reducing Costs Everywhere," as the company aims to become as efficient as possible. The pulp and tissue savings are a result of the company pulling out of the business of manufacturing its tissue products and instead using a third party that can manufacture them for much less. 

Source: Kimberly Clark.

These strong results allowed Kimberly Clark to repurchase approximately 4.3 million shares of its common stock for $464 million and pay $309 million in dividends during the quarter; this puts it well on pace to accomplish its goal of $1.3 billion-$1.5 billion in share repurchases for the full year. Also, Kimberly Clark reaffirmed its outlook on the full year by calling for earnings per share in the range of $6.00-$6.20, which would represent growth of 4%-7.5% from fiscal 2013.

In summary, it was a phenomenal quarter for Kimberly Clark, but the market reacted by sending the shares 1.42% lower in the trading session that followed. The shares have been relatively flat in the days since then and I think this is a perfect entry point for investors who seek moderate growth and the safety of a 3% dividend, which the company has raised for 42 consecutive years.

The Foolish bottom line
Clorox has just missed on earnings expectations and pointed toward slowed growth for the rest of fiscal 2014 and fiscal 2015. The shares have reacted by falling and the stock now sits nearly 10% below its 52-week high. In many cases, sharp declines in the stocks of blue chip companies are buying opportunities, but I do not believe this is one of those situations. Foolish investors would be wise to steer clear of Clorox for the time being and instead look to Kimberly Clark, which has fallen after a strong quarter and represents a great opportunity right now.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Kimberly Clark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.