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We reaffirm our Neutral recommendation on Kimberly-Clark Corporation (KMB - Analyst Report) following appraisal of its fourth quarter 2012 results.

Why the Reiteration?

Kimberly-Clark posted healthy fourth quarter 2012 earnings of $1.37 per share, beating the Zacks Consensus Estimate by 0.7% and the prior-year quarter earnings by 7.0%. Bottom-line growth was boosted by organic sales growth of 5% which was driven by volume growth and improved pricing. Strong performance internationally drove the 3% growth in Kimberly-Clark’s net sales. Net sales of $5.3 billion also beat the Zacks Consensus Estimate by 1.9%. However, currency fluctuations and the exit of non-strategic products each eroded company’s sales by 1% in the quarter. Furthermore, organic sales growth and cost savings resulted in an increase in operating profit.

Overall, we are encouraged by the company’s leadership position in several consumer product categories including diapers, paper goods, health care products, and female personal care. Moreover, Kimberly-Clark focuses on improving its products through innovation in order to remain competitive and drive growth.

Kimberly-Clark is also well-positioned overseas and derives almost half of its revenues from outside U.S. markets. The company has been investing in key emerging markets through K-C International (‘KCI’), which includes businesses in Asia, Latin America, the Middle East, Eastern Europe and Africa, with a particular emphasis on China, Brazil, India and Russia.

Moreover, we are optimistic about the company’s restructuring program as it will improve underlying profitability and return on invested capital of its consumer tissue and K-C Professional segments, which have been facing declining profits for many years. Further, management’s initiatives to control costs through its FORCE program bode well for future operating performance.

Further, the company has plans to divest some lower-margin businesses in certain markets, mostly in the consumer tissue segment, in order to improve underlying profitability and focus its resources on its strongest market positions and growth opportunities.

Kimberly-Clark holds a Zacks Rank #3 (Hold). Other favorable stocks in the consumer staples sector include Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report), Kellogg Co. (K - Analyst Report) and Procter & Gamble Co. (PG - Analyst Report). Green Mountain holds a Zacks Rank #1 (Strong Buy), while Kellogg and Procter & Gamble carries a Zacks Rank #2 (Buy).

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