Stock Wars: Procter & Gamble Vs. Kimberly-Clark

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector, with the goal of determining which company is the better investment.

This week, the duel is between a pair of consumer product industry titans: Procter & Gamble Co PG and Kimberly-Clark Corp KMB.

The Case For Procter & Gamble: In 1837, the English-born candlemaker William Procter and the Irish-born soapmaker James Gamble were living in Cincinnati. Their common ground was their wives — they were married to the sisters Olivia and Elizabeth Norris — and their father-in-law suggested the men team up to start their own business. Initially, Procter and Gamble focused on what they knew best — the creation and sale of candles and soap — and in the 1860s they snagged their first major client when the Union Army contracted them to provide their merchandise to the troops fighting the Civil War.

Procter & Gamble is still headquartered in Cincinnati and its product line has grown significantly over the decades, incorporating popular consumer brands including Charmin bathroom tissue, Crest toothpaste, Gillette razors, Ivory soap, Pampers diapers, Tampax tampons and Tide laundry detergent.

Among the most important corporate developments at Procter & Gamble recently was the July 29 announcement of Jon R. Moeller, vice chairman and chief operating officer, as the successor to President and CEO David Taylor, effective Nov. 1 with Taylor becoming executive chairman and leader of the board of directors.

Also from last month, the company unveiled its first paper bottle as part of a pilot program in Europe with the paper bottle company Paboco. If successful, this could open new commercial avenues for sustainable packaging.

In June, it introduced the Nervive line of holistic nerve care products to the U.S. market after decades of successful sales in other parts of the world.

In its most recent quarterly earnings report — fiscal year fourth quarter, published July 30 — Procter & Gamble reported net sales of $18.9 billion, up 7% from $17.7 billion one year earlier.

Within its categories, the company saw its greatest year-over-year net sales volume increases in health care (up 18%), beauty (up 11%) and grooming (up 10%), with lower increases recorded in fabric and home care (up 5%) and baby, feminine and family care (up 1%).

The company attributed this uptick to “strong innovation, partially offset by the higher base period in certain markets and categories due to pandemic-related consumption increases.”

During the quarter, basic net earnings per share (EPS) were $1.16, compared to $1.10 from the prior year, while diluted net earnings per share were $1.13, up from $1.07.

“We built strong momentum prior to the pandemic and have strengthened our position further,” said Taylor. “As we look forward to fiscal 2022, we expect to continue to grow top-line and bottom-line and to deliver another year of strong cash return to shareholders despite a challenging cost and operating environment.”

At last check Wednesday, Procter & Gamble was trading at $142.44, closer to its 52-week high of $146.92 than to its 52-week low of $121.54.

See Also: Benzinga Power Hour: Best Stocks Right Now

The Case For Kimberly-Clark: This company was created in Neenah, Wisconsin, in 1872 as a paper mill operation called Kimberly, Clark and Company. John A. Kimberly and Charles B. Clark secured their surnames into the corporate brand while Havilah Babcock and Franklyn C. Shattuck were relegated to being lumped into the anonymous “Company.”

The company made history twice with the invention of new product lines: in 1914 with cellu-cotton that became the foundation for Kotex, the first commercially manufactured disposable feminine hygiene product, and in 1924 with the introduction of Kleenex, the first disposable handkerchief. Its product line includes Cottonelle bathroom tissue, Depends incontinence undergarments, Huggies diapers, Scott paper goods and Viva paper toweling.

Among the most recent corporate developments at Kimberly-Clark recently was a partnership announcement in June with the biotech company RWDC Industries to develop new sustainable technologies that will create alternatives to traditional plastic packaging on consumer products. This partnership was announced in May with the nonprofit BLKHLTH to raise awareness of colorectal cancer within the Black community and the promotion of Russ Torres, president of Kimberly-Clark Professional, to group president of Kimberly-Clark North America in April.

In its most recent earnings report — second quarter, published July 23 — Kimberly-Clark reported net sales of $4.7 billion, up 2% compared to $4.6 billion from the year-ago period. But its second-quarter net income was $404 million, down 41% from $681 million one year earlier. For 2021, the company is forecasting a net sales increase of 1% to 4%, down from a prior assumption of 3% to 5%.

Within its categories, the personal care segment recorded a 13% year-over-year sales increase and the professional segment was up 6%, but the consumer tissue segment saw a year-over-year sales decline of 13% that the company attributed to “reduced shipments in North America, reflecting category softness as retailers reduce inventory and consumers reduce at-home usage and pantry levels following the stock up that occurred in prior periods related to the global outbreak of COVID-19.”

Second-quarter adjusted EPS was $1.47, down from $2.20 in the prior year, while diluted net income per share was $1.19, compared to $1.99 in the second quarter 2020.

Chairman and CEO Mike Hsu observed, “Our second quarter reflects continued pandemic-driven volatility. We are facing significantly higher input costs and a reversal in consumer tissue volumes from record growth in the year-ago period as consumers and retailers in North America continued to reduce home and retail inventory. While we look forward to a return to a more normalized environment, we have moved decisively to take pricing actions to mitigate inflationary headwinds and continue to prudently manage costs.”

At last check Wednesday, Kimberly-Clark was trading at $133.68, closer to its 52-week low of $128.02 than to its 52-week high of $160.16.

The Verdict: Both companies are solid performers, although Procter & Gamble (with a more diverse product line) came out of its latest quarterly earnings report with greater gusto. Both stocks have also been fairly stable over the past 52 weeks, with no volatility.

The real challenge for the investor goes beyond deciphering which company is the better stock pick today, but which one will weather the new storm that is gaining too much strength — the surge in COVID-19 infections across the U.S. courtesy of the Delta variant coupled with the inflation that, despite Fed Chairman Jerome Powell’s anodyne insistence, is showing no signs of being transitory.

Kimberly-Clark’s Hsu acknowledged this dilemma, noting how his company “moved decisively to take pricing actions to mitigate inflationary headwinds and prudently manage costs.” Still, the company is predicting sales to fall by roughly 1% for the remainder of the year.

Procter & Gamble was warning in April that this percolating socioeconomic problem would result in higher prices on its goods by the fall, with Chief Operating Officer Jon Moeller stating the company would make adjustments “where it’s necessary” to offset costs, even though increasing pulp and oil-related prices contributed to “one of the bigger increases in commodity costs we’ve seen.”

At the moment, Procter & Gamble appears to be in a stronger position to weather whatever economic maelstrom might take shape. But, then again, perhaps Powell’s prediction of a poof-and-it’s-gone inflationary spike could be right and the new COVID-19 surge could also dissipate as quickly as it coagulated.

But even in that jolly optimistic scenario, Procter & Gamble seems to be the better stock to pursue.

Photograph: Carola68 / Pixabay.