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Kimberly-Clark's (KMB) K-C Professional Unit Soft, Costs High

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Social distancing and stay-at-home trends amid the coronavirus outbreakhave been marring Kimberly-Clark Corporation’s (KMB - Free Report) K-C Professional segment for quite some time. Moreover, escalated cost burden coupled with stiff competition is a concern for the company. Nevertheless, the company is undertaking various cost-saving efforts to counter these hurdles.

Let’s delve deeper.

Factors Hurting Kimberly-Clark’s Performance

Kimberly-Clark’s K-C Professional segment sales have been declining year over year for a while now, due to hurdles related to coronavirus. In the first quarter of 2021, segment sales fell 11% to $752 million. Volumes were down 21% due to reduced away-from-home demand and tough business conditions. Sales fell 8% in North America and 18% in developing and emerging markets across the segment. The metric dropped 14% in developed markets outside North America. Further, operating profit in the segment came in at $126 million, down 30%. The downside was caused by reduced volumes as well as escalated input and other manufacturing costs.

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We note that the company has been encountering high input costs and escalated other manufacturing expenses, including coronavirus-related costs, for the past few quarters. In the first quarter, total adjusted operating profit came in at $804 million, down from $997 million in the year-ago quarter, thanks to rise in input costs (to the tune of $135 million) as well as reduced sales volumes. Higher pulp, other materials and distribution costs led to rise in input costs. Rise in other manufacturing costs like costs related to COVID-19 and inefficiencies from lower production volumes coupled with unfavorable foreign currency rates caused the downside. For 2021, management expects commodity inflation in the range of $900-$1,050 million. The projection is likely to be driven by polymer-based materials and pulp.

Incidentally, this Zacks Rank #4 (Sell) company reported dismal first-quarter 2021 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Unfavorable year-over-year comparisons owing to pandemic-led stock piling during the prior-year quarter, declines in consumer tissue category as well as commodity inflation affected the quarterly results. Also, some temporary supply chain disruptions were deterrents.

Wrapping Up

Kimberly-Clark has been taking efficient steps to lower costs. This is highlighted by the 2018 Global Restructuring Program as well as the Focus on Reducing Costs Everywhere or FORCE Program. During the first quarter, the company generated cost savings of $65 million and $40 million from the FORCE Program and the 2018 Global Restructuring Program, respectively. Moreover, the company is committed toward its three key strategic growth pillar — improving its core business in the developed markets; accelerating growth of Personal Care segment in developing and emerging markets as well as enhancing digital and e-commerce capacities

That being said, let’s see if these upsides can help the company counter the aforementioned hurdles. Shares of Kimberly-Clark have lost 4.1% so far this year against the industry’s growth of 3.9%.

Better-Ranked Staple Bets

Medifast, Inc. (MED - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients Inc. (DAR - Free Report) , currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 29.8%, on average.

Nomad Foods Limited (NOMD - Free Report) , currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 10.3%, on average.

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