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Kimberly-Clark's (KMB) Saving Initiatives Aid Amid Rising Costs

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Kimberly-Clark Corporation (KMB - Free Report) is benefiting from strategic growth pillars and solid K-C Strategy 2022. The consumer products company’s essential steps to cut costs and enhance supply-chain productivity amid an inflationary environment are noteworthy.

These were visible in the company’s first-quarter 2022 results, with the top line increasing year over year and surpassing the Zacks Consensus Estimate. Kimberly-Clark’s sales came in at $5,095 million, rising 7%. Organic sales rose 10%, with net selling prices increasing 6%, volumes growing 2% and product mix sales moving up 2 points. Management expects net sales in 2022 to increase 2-4% year over year. Organic sales are anticipated to increase 4-6% in 2022.

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Growth Initiatives: Key Driver

Kimberly-Clark is committed to its three key strategic growth pillars. These include improving its core business in the developed markets, speeding up growth in the Personal Care segment in developing and emerging markets and enhancing digital and e-commerce capacities. The company expects to meet these objectives through product development across different categories and leveraging capabilities in marketing and sales. The company has been progressing well with these objectives, aiding its portfolio and expanding global business. In February 2022, Kimberly-Clark acquired a majority stake in Thinx, Inc. — the pioneer in the reusable period and incontinence underwear category. The investment in Thinx is in tandem with Kimberly-Clark’s intentions to create a portfolio of period and light bladder leakage solutions. The move will allow Kimberly-Clark to accelerate category growth with its retail partners. In October 2020, Kimberly-Clark completed the acquisition of Softex Indonesia — a leading player in the Indonesian personal care market.

Kimberly-Clark's K-C Strategy 2022, introduced in January 2019, bodes well. The strategy is focused on generating balanced and sustainable growth to return value to shareholders in a challenging environment. The program also concentrates on strengthening the company’s brand portfolio, undertaking efficient capital allocation and executing robust cost discipline.

Cost-Savings on Track

Kimberly-Clark has been taking robust steps to lower costs. This was highlighted by the 2018 Global Restructuring Program. In 2018, the company initiated the restructuring program to reduce the structural cost base by streamlining and simplifying the manufacturing supply chain and overhead organization. The restructuring actions were concluded at the end of 2021. Kimberly-Clark aggressively cuts costs and enhances supply-chain productivity through the Focus on Reducing Costs Everywhere or FORCE Program. The program has been generating substantial cost savings for a while, which is driving performance. During the first quarter of 2022, the company generated savings of $50 million from the FORCE program.

Is All Rosy for Kimberly-Clark?

Kimberly-Clark has been battling high input costs for the past few quarters. The trend persisted in the first quarter of 2022, with a gross margin of 29.8%, which contracted 420 basis points compared with the year-ago quarter’s adjusted gross margin. The metric was hurt by more-than-anticipated input cost inflation. Adjusted operating profit amounted to $629 million, down from $804 million in the year-ago quarter. The upside can be attributed to a rise in input costs to the tune of $470 million. An increase in pulp and polymer-based materials, distribution and energy costs led to a rise in input costs. Escalated marketing, research and general expenses and unfavorable foreign currency have also affected operating profit. Management expects adjusted operating profit to be down low to mid-single digits percent in 2022. Key input costs are estimated to escalate by $1.1-$1.3 billion in 2022, up from the initial expectation of $750-$900 million. Management expects costs to rise or remain escalated for most inputs like polymer-based materials, pulp and distribution and energy.

While input costs are expected to flare up in 2022, the Zacks Rank #3 (Hold) company is focused on undertaking relevant cost-cutting initiatives and pricing actions to counter inflation.

KMB’s stock has increased 8.6% in the past three months against the industry’s decline of 8.2%.

Top 3 Staple Bets

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , United Natural Foods (UNFI - Free Report) and Campbell Soup (CPB - Free Report) .

Sysco, which markets and distributes various food and related products, sports a Zacks Rank #1 (Strong Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings per share (EPS) suggests growth of 32.5% and 124.3%, respectively, from the year-ago reported number.

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for UNFI’s current financial year sales and EPS suggests growth of 7.2% and 3.6%, respectively, from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial year sales suggests growth of 0.5% from the year-ago reported figure.

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