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Kimberly-Clark Looks Buoyant on Acquisitions & Saving Efforts

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Kimberly-Clark Corporation (KMB - Free Report) is committed toward its three key strategic growth pillars. These include focus on improving its core business in the developed markets; ramp up growth of Personal Care segment in developing and emerging markets and enhance digital and e-commerce capacities. Keeping along these lines, the company recently completed its previously-announced acquisition of Softex Indonesia — a leading player in the Indonesian personal care market. Shares of the company have climbed 1.3% since the announcement on Oct 1.

In a press release dated Sep 3, the company had stated that it will buy Softex Indonesia from various shareholders including CVC Capital Partners Asia Pacific for an all cash transaction of $1.2 billion. Kimberly-Clark expects the buyout to augment its market share in the personal care category in the Southeast Asia region.

The company had earlier stated that Softex Indonesia, which generates nearly 80% of its revenues from the sale of diapers, holds the second largest share in the Indonesia diaper market. Moreover, management had highlighted that the diaper market in Indonesia is currently the sixth largest globally with an estimated value of $1.6 billion. Clearly, the acquisition of Softex Indonesia will help Kimberly-Clark accelerate growth in the fast-growing Indonesian diaper market. Apart from this, Softex Indonesia caters to the demand in feminine care and adult care categories. In fact, it appears to be well placed in both the categories.

Well, Softex Indonesia’s solid market presence, efficient production capabilities along with a robust distribution network is likely to boost Kimberly-Clark’s business in the Southeast Asia region in the long run. However, management expects its adjusted earnings per share for 2020 and 2021 to not be materially impacted by this buyout.

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.

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

Apart from these, Kimberly-Clark is benefiting from the burgeoning demand for its products amid the pandemic-led increased stay at-home and pantry-loading trends. We note that shares of this Zacks Rank #2 (Buy) company have gained 13.8% in the past six months compared with the industry’s growth of 5.4%.

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