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Kimberly-Clark (KMB) Looks Troubled on Escalated Input Costs

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Kimberly-Clark Corporation (KMB - Free Report) has been in trouble due to high input costs, which are expected to persist. Also, volumes in the company’s Consumer Tissue unit have been witnessing tough comparisons with the year-ago period’s pandemic-led demand spike. On its third-quarter earnings call, management slashed its guidance for 2021.

The Zacks Consensus Estimate for its 2021 bottom line has declined from $6.65 per share to $6.16 over the past 60 days. It also suggests a decline of 20.4% from the figure reported in the year-ago period. Let’s take a closer look at the factors weighing on this Zacks Rank #5 (Strong Sell) company.

Escalated Input Costs

Kimberly-Clark has been battling high input costs for the past few quarters. In the third quarter, adjusted operating profit came in at $745 million, down from the year-ago quarter’s $806 million due to a rise in input costs to the tune of $480 million. An increase in pulp and polymer-based materials, distribution as well as energy costs led to a rise in input costs. Key input costs are now estimated to escalate in the range of $1,400-$1,500 million in 2021 compared with the $1,200-$1,300-million range projected before. The updated input cost guidance is accountable to higher polymer-based materials, distribution costs and energy rates.

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Other Hurdles & Lowered View

In Kimberly-Clark’s Consumer Tissue segment, sales of $1,541 million fell 5% year over year in the third quarter. Volumes fell 7%, reflecting a tough comparison stemming from higher shipments in North America and the developed markets in the year-ago quarter. This was the result of a spike in demand amid the pandemic.

Net sales in 2021 are now expected to rise 1-2% year over year. Earlier, management had anticipated the metric to increase 1-4%. Organic sales are now expected to decline 1-2% compared with the flat 2% decrease forecast before. Management now expects adjusted operating profit to decrease 20-22% compared with the 11-14% decline anticipated earlier. KMB now envisions 2021 adjusted earnings per share in the range of $6.05-$6.25, down from the previously expected range of $6.65-$6.90. The updated earnings view reflects significant escalated input cost inflation. The metric came in at $7.74 in 2020.

Bottom Line

Kimberly-Clark has been taking robust steps to lower costs, such as the 2018 Global Restructuring Program as well as the Focus on Reducing Costs Everywhere or FORCE Program.  During the third quarter, the company generated cost savings of $115 million and $35 million from the FORCE Program and the 2018 Global Restructuring Program, respectively. While input costs are expected to flare up in 2021, management is focused on undertaking relevant pricing actions to counter inflation and efficiently manage costs. Management expects total cost savings in the band of $520-$540 million in 2021, including the $390-$400-million range from the FORCE program and the $130-$140-million range from the 2018 Global Restructuring Program.
However, the abovementioned cost hurdles cannot be ignored in the near term.

Shares of Kimberly-Clark have rallied 8% in the past six months against the industry’s fall of 12%.

3 Consumer Staple Picks

Some better-ranked stocks from the Consumer Staples sector are MGP Ingredients (MGPI - Free Report) , The Hain Celestial Group (HAIN - Free Report) and Inter Parfums, Inc. (IPAR - Free Report) .

MGP Ingredients, the producer and supplier of distilled spirits and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have rallied 34.9% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings per share (EPS) suggests growth of 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.

Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. Inter Parfums has a trailing four-quarter earnings surprise of 29.7%, on average.

The Zacks Consensus Estimate for IPAR’s current financial-year sales and EPS suggests growth of 55.9% and 100%, respectively, from the year-ago period’s figures. Shares of the company have surged 38.5% in the past six months.

The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 (Buy) at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 4.1% in the past six months.

The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.