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Kimberly-Clark (KMB) Q2 Earnings: What's in the Cards?

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Kimberly Clark Corporation (KMB - Free Report) is set to report second quarter 2016 results before the opening bell on Jul 25.

Last quarter, the company posted a negative earnings surprise of 1.32%. However, it has managed to surpass estimates in three of the trailing four quarters with an average surprise of 1.24%.

Let us see what’s in store for the company this quarter.

KIMBERLY CLARK Price and EPS Surprise

KIMBERLY CLARK Price and EPS Surprise | KIMBERLY CLARK Quote

Factors to Consider

Kimberly-Clark has been facing headwinds of late, which is driving down its share price. In mid-July, it suspended its operations in Venezuela, without prior notice, and fired around 1000 workers, thus violating the South American country’s laws. Not only that, a few law firms have filed a shareholder class action lawsuit against the company and Halyard Health, Inc. (HYH), which was spun out of Kimberly-Clark in Oct 2014. According to these firms, Kimberly-Clark and Halyard made false and misleading statements regarding surgical gowns and knowingly provided defective surgical gowns to U.S. workers amid the Ebola crisis. These allegations are dampening investors’ confidence. Estimates have also decreased for second quarter 2016 over the past 30 days.

Nevertheless, we believe in Kimberly-Clark’s cost saving initiatives and continued product innovation, which have been driving earnings for the past many quarters. The company has achieved higher organic sales on the back of volume growth and better pricing in the last two years. We expect the same trend in the to-be-reported quarter.

The company has also initiated a restructuring program in order to improve organizational efficiency and underlying profitability. The initiative, which will be completed in 2016, will generate meaningful cost savings for the company.

Earnings Whispers?

Our proven model does not conclusively show that Kimberly-Clark is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: ESP for Kimberly-Clark is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.48 per share.

Zacks Rank: Kimberly-Clark carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank and are therefore worth considering include:

Post Holdings, Inc. (POST - Free Report) with an Earnings ESP of +12.77% and a Zacks Rank #1.

Nu Skin Enterprises Inc. (NUS - Free Report) with an Earnings ESP of +2.60% and a Zacks Rank #2.

Tyson Foods, Inc. (TSN - Free Report) with an Earnings ESP of +0.94% and a Zacks Rank #3.

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