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Why Is Kimberly-Clark (KMB) Down 4.5% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Kimberly-Clark Corporation (KMB - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 Tops on Q1 Earnings on Favorable Currency
Kimberly-Clark Corporation posted better-than-expected earnings in first-quarter 2017 owing to currency tailwinds. However, revenues lagged the Zacks Consensus Estimate. The company reiterated its earnings guidance for full year.
Adjusted earnings of $1.57 per share beat the Zacks Consensus Estimate of $1.54 by 1.95% and came ahead of the year-ago results of $1.53 by 2.6%. Year over year, earnings were boosted by cost savings, improved operating profits, favorable currency impact and lower taxes. However, earnings were negatively impacted by lower net selling prices and input cost inflation.
Quarter in Detail
The company reported sales of $4.483 billion in the first quarter. Sales marginally lagged the Zacks Consensus Estimate of $4.507 billion by 0.5% and was flat from the prior-year quarter. Currency, however, had a positive impact of 1% in the quarter’s sales.
Organic sales also declined 1% from the prior-year quarter as higher volumes of 1% were offset by net selling prices, which reduced sales by more than 1%. Softness in North American consumer products, higher competitive activity and less promotion shipments led to a decline of 3% in North America, while organic sales increased 4% in developing and emerging markets.
We note that Kimberly-Clark has been witnessing slower organic sales growth, especially in developing and emerging markets, over the past few quarters. In the fourth quarter 2016, organic sales increased 4% in developing and emerging markets, which decelerated from 5% increase witnessed in the first and second quarters.
Though the company has strong long-term growth prospects in developing and emerging markets, the current promotional environment is weakening the current market dynamics. In fact, the company expects only modest improvement in the overall environment in developing and emerging markets in 2017, particularly in the second half of 2017.
Operating profit in first-quarter 2017 grew 3.7% to $834 million. It was mainly driven by $110 million of cost savings from the FORCE (Focused on Reducing Costs Everywhere) program and positive foreign currency impact of $10 million. However, this was offset by lower net selling prices and higher input costs of $35 million in the quarter due to increases in raw materials (other than pulp), energy and distribution costs.
Segment Details
Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.
Segment sales increased 2% on a year-over-year basis to $2.3 billion in first-quarter 2017 driven by higher volumes and favorable currency offsetting lower selling prices. Sales improved in developing and emerging markets, but declined in two other regions of North America and developed markets outside North America.
Segment operating profit improved 7% to $481 million in the quarter driven by cost savings, higher volumes and currency tailwinds partially offset by lower selling prices and input cost inflation.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales dropped 3% to $1.5 billion in first-quarter 2017 owing to lower volumes and average selling prices. Sales improved in developing and emerging markets but declined in two other regions of North America and developed markets outside North America.
Segment operating profit declined 2% to $275 million in the quarter, as lower volumes and average selling prices more than offset the benefits from cost savings and lower marketing spending.
K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.
Segment sales grew 1% to $0.8 billion in the first quarter, owing to favorable currency and product mix. However it was offset by lower selling prices. Sales improved in developing and emerging markets as well as developed markets outside North America, while it declined in North America.
However, segment operating profit declined 3% to $146 million, as input cost inflation and lower selling prices was partially offset by cost savings.
Other Financial Update
Cash and cash equivalents were $835 million as of Mar 31, 2017. Capital expenditure was $215 million. Cash provided by operations in first-quarter 2017 was $436 million. Long-term debt was $6.43 billion.
In the first quarter, the company repurchased 2.4 million shares at a total cost of $300 pursuant to a share repurchase program.
Guidance for 2017
The company reiterated its earnings guidance for 2017 and continues to expect earnings per share in the range of $6.20–$6.35.
Net sales in 2017 are anticipated to increase 1 to 2%, with organic sales growth of 1 to 2% driven by higher volumes. Currency is projected to have a neutral impact in 2017 sales. Previously, the company was expecting sales to be similar year over year, with organic sales up approximately 2% and currency to negatively impact sales by 2%.
Input cost inflation is expected in the range of $150 to $250 million compared with the previous estimate in the band of $50 to $200 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter.
At this time, Kimberly-Clark's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Why Is Kimberly-Clark (KMB) Down 4.5% Since the Last Earnings Report?
A month has gone by since the last earnings report for Kimberly-Clark Corporation (KMB - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 Tops on Q1 Earnings on Favorable Currency
Kimberly-Clark Corporation posted better-than-expected earnings in first-quarter 2017 owing to currency tailwinds. However, revenues lagged the Zacks Consensus Estimate. The company reiterated its earnings guidance for full year.
Adjusted earnings of $1.57 per share beat the Zacks Consensus Estimate of $1.54 by 1.95% and came ahead of the year-ago results of $1.53 by 2.6%. Year over year, earnings were boosted by cost savings, improved operating profits, favorable currency impact and lower taxes. However, earnings were negatively impacted by lower net selling prices and input cost inflation.
Quarter in Detail
The company reported sales of $4.483 billion in the first quarter. Sales marginally lagged the Zacks Consensus Estimate of $4.507 billion by 0.5% and was flat from the prior-year quarter. Currency, however, had a positive impact of 1% in the quarter’s sales.
Organic sales also declined 1% from the prior-year quarter as higher volumes of 1% were offset by net selling prices, which reduced sales by more than 1%. Softness in North American consumer products, higher competitive activity and less promotion shipments led to a decline of 3% in North America, while organic sales increased 4% in developing and emerging markets.
We note that Kimberly-Clark has been witnessing slower organic sales growth, especially in developing and emerging markets, over the past few quarters. In the fourth quarter 2016, organic sales increased 4% in developing and emerging markets, which decelerated from 5% increase witnessed in the first and second quarters.
Though the company has strong long-term growth prospects in developing and emerging markets, the current promotional environment is weakening the current market dynamics. In fact, the company expects only modest improvement in the overall environment in developing and emerging markets in 2017, particularly in the second half of 2017.
Operating profit in first-quarter 2017 grew 3.7% to $834 million. It was mainly driven by $110 million of cost savings from the FORCE (Focused on Reducing Costs Everywhere) program and positive foreign currency impact of $10 million. However, this was offset by lower net selling prices and higher input costs of $35 million in the quarter due to increases in raw materials (other than pulp), energy and distribution costs.
Segment Details
Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.
Segment sales increased 2% on a year-over-year basis to $2.3 billion in first-quarter 2017 driven by higher volumes and favorable currency offsetting lower selling prices. Sales improved in developing and emerging markets, but declined in two other regions of North America and developed markets outside North America.
Segment operating profit improved 7% to $481 million in the quarter driven by cost savings, higher volumes and currency tailwinds partially offset by lower selling prices and input cost inflation.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales dropped 3% to $1.5 billion in first-quarter 2017 owing to lower volumes and average selling prices. Sales improved in developing and emerging markets but declined in two other regions of North America and developed markets outside North America.
Segment operating profit declined 2% to $275 million in the quarter, as lower volumes and average selling prices more than offset the benefits from cost savings and lower marketing spending.
K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.
Segment sales grew 1% to $0.8 billion in the first quarter, owing to favorable currency and product mix. However it was offset by lower selling prices. Sales improved in developing and emerging markets as well as developed markets outside North America, while it declined in North America.
However, segment operating profit declined 3% to $146 million, as input cost inflation and lower selling prices was partially offset by cost savings.
Other Financial Update
Cash and cash equivalents were $835 million as of Mar 31, 2017. Capital expenditure was $215 million. Cash provided by operations in first-quarter 2017 was $436 million. Long-term debt was $6.43 billion.
In the first quarter, the company repurchased 2.4 million shares at a total cost of $300 pursuant to a share repurchase program.
Guidance for 2017
The company reiterated its earnings guidance for 2017 and continues to expect earnings per share in the range of $6.20–$6.35.
Net sales in 2017 are anticipated to increase 1 to 2%, with organic sales growth of 1 to 2% driven by higher volumes. Currency is projected to have a neutral impact in 2017 sales. Previously, the company was expecting sales to be similar year over year, with organic sales up approximately 2% and currency to negatively impact sales by 2%.
Input cost inflation is expected in the range of $150 to $250 million compared with the previous estimate in the band of $50 to $200 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter.
Kimberly-Clark Corporation Price and Consensus
Kimberly-Clark Corporation Price and Consensus | Kimberly-Clark Corporation Quote
VGM Scores
At this time, Kimberly-Clark's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.