The Procter & Gamble Company (PG), The Clorox Co (CLX): Two Household & Personal Care Stocks to Buy, 1 to Hold

It has been more than two weeks since the earnings season ended. Different industries gave different surprises. Some didn’t. However, the cosmetics, household and personal care (CHPC) space wasn’t one of them. This industry had a tough first quarter of the year. In some cases, weather disturbed the expectations. In other situations, tough comps and soft end markets were claimed to be the main culprits of sequential declines in revenue.

However, what does this tell us about different companies in this space? Are they still attractive investments or not? Let’s have a look.

What the leader had to say

The Procter & Gamble Company (NYSE:PG)

The Procter & Gamble Company (NYSE:PG), the largest company in this space, also took the lead in reporting its earnings this season. The company’s remarks on slow category growth sent warnings down Wall Street, as the company is known to be prescient of macro trends. Although the company didn’t claim it to be the main reason behind its revenue miss, many other companies in this space corroborated The Procter & Gamble Company (NYSE:PG)’s view on the external environment.

With disappointing organic sales growth despite an improvement in market share momentum, we can understand why The Procter & Gamble Company (NYSE:PG) shares under-performed the market since the company’s earnings release. To be sure, with Staples, Inc. (NASDAQ:SPLS)‘ valuations having reached near historic levels over the past couple of months, the bigger question will be whether or not The Procter & Gamble Company (NYSE:PG)’s commentary on the more challenging macro environment is the beginning of a trend or a one-off event.

Either way, I would expect The Procter & Gamble Company (NYSE:PG) shares to take a breather until the company is able to show a marked acceleration in top-line growth.

The return of A.G. Lafley to the CEO office has sent bullish signals to the market as he was the main hero behind the turnaround of the company in 2010. Not only this, but the company is slowly building growth momentum as the market is witnessing the change after the 40/20/10 strategy that the company employed last year (to focus on its top 40 countries and brand categories that generate the most sales and profit; the top 20 innovations with the most growth potential; and the company’s top 10 developing markets).

Weather ruined The Clorox Co (NYSE:CLX)’s results

The Clorox Co (NYSE:CLX)’s management blamed the weather for the company’s earnings miss. Given this quarter’s top-line and EPS miss, it was surprising to see The Clorox Co (NYSE:CLX) shares down only -1.4% on earnings day (vs. S&P 500 (INDEXSP:.INX) -0.9%), particularly as organic revenue fell short in each reported division. The Clorox Co (NYSE:CLX)’s revenue trends are often predicated on compares, with one year’s positives becoming the next year’s negatives.

Such was the case again this quarter as the combination of strong base-period sales of charcoal (in F3Q12 due to warmer weather and early merchandising by a large retailer) and a colder F3Q13 (a -20% decline in charcoal volume in the month of March alone) led to a -1.5 point drag on total company volumes (ultimately creating an easier comp in F3Q14).

In any event, with The Clorox Co (NYSE:CLX) shares now trading at 19.3x the 2013 EPS estimate of $4.41, inline with its large-cap household and personal care peers despite below peer earnings growth, it seems difficult to see much appreciation from here.

Newell is rated as a buy

Newell Rubbermaid Inc. (NYSE:NWL) reported 1Q 2013 core EPS of $0.35; adjusted for the restatement for discontinued operations and excluding a $0.03 per share tax benefit, the EPS was modestly ahead of the expectations. Newell Rubbermaid Inc. (NYSE:NWL) also complained about a colder spring that influenced its sales in the tools division.

On an overall note, with better-than-expected organic growth in two of the company’s three “win bigger” businesses and the management reaffirming guidance for 2013 despite dilution from non-core disposals, Newell Rubbermaid Inc. (NYSE:NWL) is already demonstrating the viability of its global growth game plan.

Specifically, early investments in the segments and geographies that matter most are accelerating growth while flexibility from project renewal savings provides a cushion to the bottom line. It is this increased visibility on the bottom line coupled with the revenue potential embedded in the company’s long-term strategy that keeps the Street bullish on Newell Rubbermaid Inc. (NYSE:NWL).

Final word

As we can see, despite a poor 1Q 2013, the CHPC space has some exciting companies and investing themes. I remain bullish on The Procter & Gamble Company (NYSE:PG) given the return of its ex-CEO. Newell Rubbermaid Inc. (NYSE:NWL)’s Global Growth Plan makes me bullish on this company too. However, expensive valuations for The Clorox Co (NYSE:CLX) keeps me on the sidelines.


Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble.
Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article 2 Household & Personal Care Stocks to Buy, 1 to Hold originally appeared on Fool.com is written by Zain Abbas.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.