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Kimberly-Clark Looks Poised on Solid Demand & Robust Savings

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While the coronavirus outbreak has disrupted economic activities globally several companies in consumer staple appear to be on firm grounds. In fact, many of these companies are benefiting from the burgeoning demand for essential items amid the pandemic-led increased stay at-home and pantry-loading trends. One such name gaining on these trends is Kimberly-Clark Corporation (KMB - Free Report) .

Apart from this, the company is gaining from its robust cost-saving plans. Moreover, the company’s K-C Strategy and other growth efforts have been yielding. We note that shares of Kimberly-Clark have increased 13.9% so far this year compared with the industry’s growth of 2%. Let’s delve deeper.

Coronavirus-Led Demand & Impressive Outlook

Burgeoning demand amid coronavirus pandemic bolstered the company’s second-quarter 2020 results, with the top and the bottom lines surpassing the Zacks Consensus Estimate. Also, earnings increased year over year. Revenues improved slightly and organic sales rose 4%. The quarterly performance reflected sales growth in the Consumer Tissue segment amid the coronavirus outbreak.

Impressively, management forecasts 2020 net sales to grow in the range of 1-2%. Further, Kimberly-Clark projects organic sales improvement of 4-5% in the same period. Also, it envisions adjusted earnings per share of $7.40-$7.60 in 2020, which indicates an increase from $6.89 reported in 2019.

Other Growth Drivers

Kimberly-Clark is undertaking robust steps to lower costs. This is highlighted from the 2018 Global Restructuring Program and the Focus on Reducing Costs Everywhere or FORCE Program. The 2018 Global Restructuring Program, which is the company’s biggest restructuring plan, focuses on enhancing profitability by simplifying the supply chain and manufacturing structures. This enables Kimberly-Clark to compete better and provides it more flexibility to undertake growth-oriented investments.

Until the end of second-quarter 2020, the company generated cumulative savings worth $380 million from the 2018 Global Restructuring Program. Management is on track to generate pre-tax savings of $500-$550 million from this program by the end of 2021. Some of these could be realized in 2022 due to uncertainties regarding the coronavirus outbreak.

Moreover, Kimberly-Clark is aggressively cutting costs and enhancing supply-chain productivity through its FORCE Program. The program has been generating solid cost savings for a while, which are in turn driving the company’s adjusted operating profit.

Also, Kimberly-Clark remains committed toward its three key strategic growth pillars. These include focus on improving its core business in the developed markets; accelerate growth in the Personal Care segment in developing and emerging markets as well as enhance digital and e-commerce capacities. The company’s K-C Strategy 2022 that was introduced January 2019, is noteworthy. The strategy concentrates on strengthening the company’s brand portfolio, undertaking efficient capital allocation and executing robust cost discipline.

Will Hurdles be Countered?

Coronavirus-induced stay-at-home trend dealt a blow to Kimberly-Clark’s K-C Professional segment. During the fiscal second quarter, segment sales declined 12% and volumes were down 16% year over year. Apart from this, the company is battling escalated costs and currency headwinds.

Nevertheless, the aforementioned upsides are likely to keep driving this Zacks Rank #3 (Hold) company.

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