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Consumer products giant Kimberly-Clark Corporation (KMB - Analyst Report) posted strong second quarter 2013 adjusted earnings of $1.41 per share. Earnings beat the Zacks Consensus Estimate of $1.39 by 1.4% and the year-ago result of $1.30 by 8.5%. Earnings were boosted by organic sales growth, cost savings, improved other income and lower share count, which made up for increased input costs and higher taxes.

Quarter in Detail

The company reported flat year-over-year sales at $5.27 billion in the second quarter. The results, however, slightly lagged the Zacks Consensus Estimate of $5.32 billion. Currency fluctuations reduced sales by 1% which offset the positive impact from sales volume and higher selling prices owing to targeted growth initiatives and product innovations. The exit of the diaper segment in Western and Central Europe and lost sales in conjunction with pulp and tissue restructuring actions eroded 1% of the company’s sales in the quarter.

Excluding currency impact and lost sales due to European strategic changes, organic sales grew 3% from the prior-year quarter, driven by volume growth and strong pricing.

Adjusted operating profit (excluding costs for the pulp and tissue restructuring and European strategic changes) grew 6% to $818 million in the second quarter. This reflects increase in organic sales and $80 million of cost savings from Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program. Adjusted operating margin also improved 80 basis points in the second quarter 2013.

Segment Details

Personal Care Products:The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.

Sales declined 1% on a year-over-year basis to $2.4 billion in the quarter due to lower sales volume and unfavorable currencies. Only the K-C International region witnessed positive sales growth. Sales in North America and Europe declined in the quarter. Organic sales volume increased 3%.

Segment operating profit increased 6% on a year-over-year basis to $432 million in the quarter due to organic sales growth and cost savings, which offset the higher input costs and unfavorable currency impact.

Consumer Tissue:The segment includes bathroom tissue, paper towels, napkins and related products for household use.

Sales increased 2% to $1.6 billion in the second quarter on the back of 3% growth in organic sales volumes and 1% increase in net selling prices, which were able to offset the negative impact of currencies. Sales in Europe declined, while regions of K-C International and North America witnessed improvement in sales driven by product innovation, improved pricing and strong volumes.

Segment operating profit was flat year over year as organic sales growth and higher production volumes were offset by higher input costs and other expenses.

K-C Professional (KCP) & Other:The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.

Sales were even with the prior-year quarter at $0.8 billion in second quarter 2013 due to reduced sales volumes and unfavorable currency rates offsetting the impact of higher net selling prices. Sales in K-C International region improved, while regions of North America and Europe witnessed decline in sales.

However, cost savings and improved selling prices led to an increase of 17% in segment operating profit to $161 million.

Health Care:The segment consists of disposable health care products.

Sales declined 2% from the prior-year quarter to $0.4 billion in second quarter 2013, due to unfavorable currency rates and lower sales volume. Surgical and infection prevention volumes were down low-single digits, while medical device volumes were slightly up year over year.

Operating profit was $54 million, down 4% year over year, due to higher manufacturing costs and increased marketing, research and general expenses.

Strategic Update

The company has dissolved the diaper segment of Western and Central Europe, except the Italian market, as per the announcement in Oct 2012. The company has also streamlined its manufacturing facilities in Europe, which resulted in restructuring costs of $21 million after tax in the second quarter of 2013. In conjunction with European strategic changes, Kimberly Clark expects to incur restructuring costs in the range of $300 to $350 million after-tax, up from its previous range of $250 million to $300 million through 2014.

Guidance for Full Year 2013

Kimberly-Clark reiterated its adjusted earnings guidance for 2013 in a range of $5.60 to $5.75, which marks a 7% to 10% increase from the prior-year quarter. The Zacks Consensus Estimate for 2013 is $5.72 per share.

The company now expects to repurchase shares worth $1.2 billion through 2013, which is at the higher end of the prior expected range of $1.0 to $1.2 billion.

However, the company expects currency to negatively impact sales by 1% to 2%, higher than the previous assumption of a negative impact on sales in the range of 0% to 1%. Moreover, currency rates are anticipated to negatively impact operating profit growth versus prior expectations.

Kimberly-Clark holds a Zacks Rank #3 (Hold).

Other stocks in the consumer staples sector that are better-positioned are B&G Foods Inc (BGS - Snapshot Report), Flower Foods Inc (FLO - Snapshot Report) and Newell Rubbermaid (NWL - Analyst Report). While B&G holds a Zacks Rank #1 (Strong Buy), Flower Foods and Newell carry a Zacks Rank #2 (Buy).

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