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Why Is Kimberly-Clark (KMB) Down 4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Kimberly-Clark (KMB - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kimberly-Clark due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Kimberly-Clark Q4 Earnings Top Estimates, Decline Y/Y

Kimberly-Clark reported fourth-quarter 2020 results. Management intends to remain committed to its K-C Strategy 2022 and anticipates strengthening its market position. However, the company expects more difficult category conditions as well as escalated commodity costs in 2021. Nonetheless, management announced a 6.5% dividend hike, which together with the company’s buyback plan reflects its robust cash flow and solid growth prospects.

Adjusted earnings came in at $1.69 per share, which surpassed the Zacks Consensus Estimate of $1.61. However, the bottom line decreased 1.2% from $1.71 per share in the year-ago quarter.

Kimberly-Clark’s sales came in at $4,836 million, which surpassed the Zacks Consensus Estimate of $4,738.8 and advanced 6% year over year. Unfavorable currency movements put pressure on sales by 1%, whereas the Softex Indonesia buyout boosted sales by nearly 2%. Organic sales rose 5% year over year. Volumes rose 2%, whereas net selling prices climbed about 3%. Product mix was somewhat favorable.

In North America, organic sales in consumer products grew 11%, while it declined 7% in the K-C Professional segment. Internationally, organic sales increased 2% across developed markets and 3% in developing and emerging (D&E) markets.

Adjusted operating profit came in at $767 million, down from $826 million in the year-ago quarter, thanks to a rise in input costs (to the tune of $40 million) as well as other manufacturing costs including coronavirus-related expenses. Also, a major rise in advertising expenses, elevated general and administrative costs and adverse impacts of unfavorable foreign currency translations caused the downside. Nevertheless, these were somewhat offset by higher organic sales and cost savings of $110 million and $25 million from the FORCE (Focused On Reducing Costs Everywhere) program and the 2018 Global Restructuring Program, respectively.

Segment Details

Personal Care: Sales of $2,349 million increased 5% year over year. Volumes improved 3% while net selling prices and product mix inched up 1% each. Further, the Softex Indonesia buyout aided sales by 3%. However, unfavorable currency rates hurt sales by 3%. Further, sales increased 3% in North America, courtesy of baby and child care. Sales in D&E markets rose 7%. The metric grew 6% across developed markets outside North America.

Consumer Tissue: Segment sales of $1,727 million grew 14% year over year. Net selling prices were up 6% and volumes increased 9% owing to higher demand amid greater work-from-home trends amid the pandemic. Sales surged 21% in North America but declined 2% in D&E markets. The metric increased 12% in developed markets outside North America.

K-C Professional (KCP): Segment sales fell 9% to $742 million. Volumes were down 13% due to reduced away-from-home demand and tough business conditions after the pandemic. Net selling prices and product mix rose 2% each. Sales fell 7% in North America and 21% in D&E markets. The metric dropped 2% in developed markets outside North America.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $303 million, long-term debt of $7,878 million and stockholders’ equity of $869 million. Further, Kimberly-Clark generated cash from operating activities of $887 million during the quarter under review. Management incurred capital expenditures of $323 million. Kimberly-Clark repurchased 1.7 million shares for $243 million in the fourth quarter. In 2020, the company repurchased 4.9 million shares for $700 million.

Markedly, the company unveiled a 6.5% dividend hike, which represents its 49th straight raise in annual dividend. Management stated that the raised dividend of $1.14 per share will be payable on Apr 5, 2021, to shareholders of record as of Mar 5. Additionally, management has authorized a new share buyback plan worth $5 billion that supplements the existing $5-billion plan, which is anticipated to conclude later this year. The company expects share buybacks of $650-$750 million in 2021.

The company is on track with the 2018 Global Restructuring Program, which is focused on lowering its structural costs and improving financial flexibility. As part of this initiative, the company plans to sell or exit some low-margin businesses that deliver about 1% of net sales. Notably, Kimberly-Clark generated cumulative savings of $420 million from this program, until the end of 2020. Management now anticipates pre-tax cost savings of $540-$560 million from this program by 2021-en, compared with $500-$550 million expected earlier.

2021 Outlook

Management issued its 2021 guidance based on anticipations of no material impact from possible supply-chain hurdles amid the pandemic. Net sales in 2021 are expected to grow 4-6% year over year. Further, management anticipates adjusted operating profit growth in a range of flat to a 2% increase. Adjusted non-operating expenses are likely to decline year over year. Finally, the company envisions 2021 adjusted EPS of $7.75-$8, which indicates an increase from $7.74 reported in 2020. The Zacks Consensus Estimate is currently pegged at $7.76 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Kimberly-Clark has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Kimberly-Clark has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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