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We reaffirm our Neutral recommendation on Kimberly-Clark Corp (KMB - Analyst Report) following an appraisal of its first quarter 2013 results.

Why the Reiteration?

Kimberly-Clark posted healthy first quarter 2013 results, where both earnings and sales exceeded the Zacks Consensus Estimate by 10.4% and 1.9%, respectively. Earnings of $1.48 per share climbed 19.4% from the prior-year quarter, boosted by organic sales growth, cost savings and improved other income, which made up for increased input and marketing costs and higher tax rates. Organic sales increased 3% on the back of volume growth and better pricing.

Net sales of $5.3 billion increased 1% from the prior-year quarter, led by higher average selling prices. Targeted growth initiatives and product innovations helped sales and volume growth in the quarter. Further, organic sales growth and cost savings resulted in an increase in operating profit. However, currency fluctuations and the exit of non-strategic products eroded company’s sales in the quarter.

Overall, we are encouraged by the company’s leadership position in several consumer product categories including diapers, paper goods, health care products, and female personal care. Moreover, Kimberly-Clark focuses on improving its products through innovation in order to remain competitive and drive growth.

Kimberly-Clark is also well-positioned overseas and derives almost half of its revenues from outside U.S. markets. The company has been investing in key emerging markets through K-C International (‘KCI’), which includes businesses in Asia, Latin America, the Middle East, Eastern Europe and Africa, with a particular emphasis on China, Brazil, India and Russia.

Moreover, we are optimistic about the company’s restructuring program as it will improve underlying profitability and return on invested capital of its consumer tissue and K-C Professional segments, which have been facing declining profits for many years. Further, management’s initiatives to control costs through its FORCE program bode well for future operating performance.

Further, the company has plans to divest some lower-margin businesses in certain markets, mostly in the consumer tissue segment, in order to improve underlying profitability and focus its resources on its strongest markets and growth opportunities.

Kimberly-Clark, along with its peer Energizer Holding Inc. (ENR - Analyst Report) hold a Zacks Rank #2 (Buy). Other favorable stocks in the consumer staples sector include Flower Foods Inc. (FLO - Snapshot Report), and Omega Protein Corp , both carrying a Zacks Rank #1 (Strong Buy).

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