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Kimberly-Clark (KMB) Beats on Q3 Earnings, Reiterates View

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Kimberly-Clark Corporation (KMB - Free Report) made a comeback in the third quarter of 2017, outperforming the Zacks Consensus Estimate by 4.6%. On the contrary, net sales marginally fell short of the consensus mark but grew year over year in the quarter under review.

Nevertheless, management reiterated its full-year view. As a result, not much movement was noticed in the stock during pre-market trading hours, in spite of an earnings beat. However, we note that the stock has declined 0.6% on a year-to-date basis, marginally better than the industry’s decline of 1.7%.

The quarterly earnings of $1.60 per share surpassed the Zacks Consensus Estimate of $1.53 and increased 5% year over year. The quarterly results benefited from improved volumes, cost savings and reduced marketing, research and general spending. However, lower net selling prices and input cost inflation had negatively impacted earnings during the quarter.

Quarter in Detail

Kimberly-Clark reported sales of $4.64 billion in the third quarter. Sales marginally lagged the Zacks Consensus Estimate of $4.67 billion but depicted a growth of 1% from the prior-year quarter. Sales during the quarter were positively impacted by currency rates changes of 1% and marginal growth in organic sales.

Organic sales grew marginally, as volumes inched up more than 1%, whereas net selling prices declined 1%. While organic sales remained even in North American consumer products, the same increased 3% in the emerging market regions. Organic sales declined 3% in the developed markets.

Operating profit in the quarter increased 2.2% to $854 million. It was favorably impacted by volume growth, reduced marketing, research and general spending and cost savings of $125 million from the FORCE (Focused on Reducing Costs Everywhere) program. These were partially offset by higher input costs of approximately $115 million, arising out of higher costs of pulp and other raw materials as well as lower net selling prices.

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 of $2.3 billion went down 1% during the quarter, owing to a 1% decline in both net selling prices and volumes. These were slightly offset by an improved product mix. Sales improved in the developing and emerging markets, while the same had declined in the regions of North America and developed markets outside North America.

Segment operating profit improved 4% to $476 million in the quarter driven by cost savings and reduced expenditure on market research and general spending. These were partially offset by input cost inflation and lower selling prices.

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

Segment sales improved 3% to $1.5 billion in the quarter owing to 4% jump in volume and positive impacts from currency rates of approximately 1%. These were marginally offset by decline in net selling prices of 1% as well as unfavorable product mix. Segment sales improved in both North America and developed regions outside North America. Sales in the segment also depicted growth in the developing and emerging regions.

Segment operating profit declined 3% to $260 million in the quarter, as lower selling price and product mix, higher cost inflation more than offset the benefits from growth in volumes, cost savings and reduced spending over marketing, research and other general categories.

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 3% from the prior-year to $0.8 billion in the third quarter. Growth in volumes (up 2%), positive impacts from currency rates and improved product mix was offset by lower selling prices (down 1%). Sales improved in North America and developing and emerging markets. Sales also improved in the developed markets outside North America.

Segment operating profit surged 10% to $173 million, gaining from cost savings and higher sales. These were partially offset by input cost inflation.

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

Other Financial Update

The company ended the quarter with cash and cash equivalents of $655 million, long-term debt of $7.1 billion and stockholders' equity of $498 million. Management incurred capital expenditures of $209 million during the quarter and expects the same to be marginally below the company's projected range of $850-$950 million for 2017. During the quarter, the company bought back 1.6 million shares at a total cost of $200 million.

Guidance for 2017

Kimberly-Clark maintained its earnings and sales view for 2017. It continues to envision earnings per share at the lower end of the targeted range of $6.20-$6.35. Also, net sales alongside of organic sales are anticipated to remain flat or slightly up from the prior-year figure. The current Zacks Consensus Estimate for full year is pegged at $6.19.

Although Kimberly-Clark currently carries a Zacks Rank #4 (Sell), it is subject to revision considering third-quarter performance.

Looking For Consumer Staple Stocks? Check These

Investors interested in the same sector may also consider stocks such as McCormick & Company, Inc (MKC - Free Report) flaunting a Zacks Rank #1 (Strong Buy), while Constellation Brands, Inc (STZ - Free Report) and The Procter & Gamble Company (PG - Free Report) each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

McCormick delivered an average positive earnings surprise of 4.1% in the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

Constellation Brands pulled off an average positive earnings surprise of 13.6% in the trailing four quarters. It has a long-term earnings growth rate of 14.8%.

Procter & Gamble came up with an average positive earnings surprise of 3.7% in the trailing four quarters. It has a long-term earnings growth rate of 7.5%.

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