Church & Dwight (CHD 0.47%) and The Clorox Company (CLX +0.05%) are two of the largest manufacturers of consumer products in the world and are home to some of the most popular global brands, such as Arm & Hammer, Trojan, OxiClean, Clorox, Kingsford, and Burt's Bees. Both companies have recently reported their quarterly earnings, so let's break down their results and outlooks on the rest of fiscal 2014 to determine which had the stronger quarter and could provide the highest returns to investors going forward.
Breaking it all down
Source: Church & Dwight's LinkedIn
On May 1, Church & Dwight released its first-quarter report for fiscal 2014 and the results were mixed compared to the consensus analyst estimates; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.73 | $0.73 |
| Revenue | $782.00 million | $783.34 million |
Source: Estimize
- Earnings per share decreased 3.9%
- Revenue increase 0.3%
- Global volume increased 4.4%
- Gross profit decreased 3.1% to $442.6 million
- Gross margin contracted 150 basis points to 43.4%
- Repurchased $260 million worth of its common stock
- Paid $42.5 million in dividends
- Dividend update: On May 1, Church & Dwight announced it would be maintaining its quarterly dividend of $0.31 per share and it will be payable on June 2 to shareholders of record at the close of business on May 12; this marked its 453rd consecutive quarterly dividend payment.
- Other most notable update: Church & Dwight attributed its "weak" results to increased spending on marketing, slotting, and couponing, because the company brought several new products to market during the quarter.
Source: Clorox's Facebook
Clorox released its third-quarter report for fiscal 2014 on May 1, but its results fell short of the consensus analyst estimates; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $1.05 | $1.08 |
| Revenue | $1.39 billion | $1.43 billion |
Source: Estimize
- Earnings per share increased 5%
- Revenue decreased 1.9%
- Global volume decreased 0.5%
- Gross profit decreased 2.7% to $579 million
- Gross margin contracted 30 basis points to 41.8%
- Repurchased approximately $130 million worth of its common stock
- Dividend update: On May 12, Clorox announced it would be increasing its quarterly dividend by 4.2% to $0.74 per share and it will be payable on August 8 to shareholders of record at the close of business on Jul 23; this marked the 37th consecutive year in which Clorox has increased its dividend.
- Other most notable update: Clorox stated that it faced unfavorable foreign exchange headwinds and higher-than- expected trade promotion spending during the quarter, which offset the company's price increases.
What do the companies expect going forward?
Source: Church & Dwight
Following its mixed earnings results, Church & Dwight provided its guidance for the second quarter and narrowed its outlook on the full year. In the second quarter, the company anticipates earnings per share of $0.61, which would match its year-ago results, organic sales growth of 3%, and gross margin contraction of 100 basis points. For the full year of fiscal 2014, the company anticipates earnings-per-share growth of 7%-9%, organic sales growth of 3%-4%, and gross margin contraction of 50-75 basis points.
Both sets of Church & Dwight's guidance factor in the additional spending required to drive sales and market share growth in its new products, and this growth will be crucial for the company to achieve its full-year expectations. Church & Dwight also noted that the majority of the spending on its new products will take place in the first half of the fiscal year, which means the bulk of its earnings-per-share growth will take place in the second half of the year.
Source: Clorox
Followings the disappointing third-quarter results, Clorox updated its outlook on fiscal 2014 and provided its initial outlook on fiscal 2015. In fiscal 2014, Clorox anticipates earnings per share in the range of $4.25-$4.35, after it earned $4.31 per share in fiscal 2013, with revenue down slightly and 0-25 basis points of margin expansion. In fiscal 2015, Clorox anticipates earnings per share in the range of $4.35-$4.50, flat revenue growth from fiscal 2014, and 25-50 basis points of margin expansion. Needless to say, the company does not expect much growth over the next five quarters.
Source: Church & Dwight
And the winner is...
After reviewing the companies' earnings results and outlooks on the quarters ahead, the winner of this match-up is Church & Dwight; it did not report the greatest results in the first quarter, but this was because it had to increase spending to bring numerous new products to market and this move will help drive growth going forward. Also, Church & Dwight's outlook calls for significant growth during the year, while Clorox anticipates continued weakness.
On the day of its earnings release, Church & Dwight's stock fell 1.36%, but it has more than rebounded in the weeks since and sits about 2% higher. Even though it now sits within a point of its 52-week high, the stock yields approximately 1.8% and trades at favorable forward valuations, so I believe Foolish investors should consider initiating partial positions right now and add to them on any weakness in the trading sessions ahead; by scaling into a position, you can take advantage of lower share prices to maximize your returns.
