Focus on three key strategic growth pillars and the K-C Strategy 2022 have been favoring
Kimberly-Clark Corporation ( KMB Quick Quote KMB - Free Report) . The consumer products company is benefiting from essential steps to cut costs and enhance supply-chain productivity amid an inflationary environment. Let’s discuss further. Image Source: Zacks Investment Research Q2 Sales & Robust View
In second-quarter 2022, Kimberly-Clark’s top line increased year over year and surpassed the Zacks Consensus Estimate. The company generated sales of $5,063 million, up 7% year over year. Organic sales rose 9%, with net selling prices rising 9%, product mix increasing 1% and volumes declining 1%. In North America, organic sales in consumer products rose 11% year over year, while the same increased 8% in the K-C Professional segment. Outside North America, organic sales went up 8% in the developing and emerging (D&E) markets. The metric rose 9% across the developed markets. The company witnessed sales growth across all reporting segments.
Management raised its 2022 organic sales growth view and reiterated the guidance for net sales. Net sales in 2022 are expected to grow 2-4% from the year-ago reported figure. Organic sales are now anticipated to increase 5-7%, up from the previous guidance of 4-6% growth. What’s Driving Kimberly-Clark’s Growth?
Kimberly-Clark is committed to its three key strategic growth pillars. These include focus on 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, which have enhanced its portfolio and expanded the global business. In February 2022, Kimberly-Clark acquired a majority stake in Thinx, Inc. — the pioneer in the reusable period and incontinence underwear category. In October 2020, the company completed the acquisition of Softex Indonesia — a leading player in the Indonesian personal care market. The net impact of the Softex buyout and business exits in conjunction with the 2018 Global Restructuring Program increased sales by almost 1% in 2021.
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 tough environment. The program also concentrates on strengthening the company’s brand portfolio, undertaking efficient capital allocation and executing robust cost discipline. Will Hurdles be Countered?
Kimberly-Clark has been battling high input costs for the past few quarters. In the second quarter of 2022, gross margin came in at 30.2%, down 170 basis points compared with the adjusted gross margin in the year-ago quarter. Gross margin was adversely impacted by major input cost inflation. During the quarter, Kimberly-Clark reported an operating profit of $621 million, up from $613 million reported in the year-ago quarter but down from the adjusted operating profit of $676 million in the second quarter of 2021. The operating profit declined due to a rise in input costs to the tune of $405 million. Escalated marketing, research and general expenses, and unfavorable foreign currency affected the operating profit.
Management noted that it expects adjusted operating profit to be down mid-single digit percent in 2022. Key input costs are estimated to escalate by $1.4-$1.6 billion. Management expects costs to rise or remain escalated for most inputs like pulp and other raw materials along with distribution as well as energy. Kimberly-Clark envisions 2022 earnings per share (EPS) in the lower end of the $5.60-$6.00 range, owing to significantly higher input costs projections for the year. Kimberly-Clark posted an adjusted EPS of $6.18 in 2021. While input costs are expected to flare up in 2022, KMB is focused on undertaking relevant cost-cutting initiatives and pricing actions to counter inflation. Kimberly-Clark aggressively cuts costs and enhances supply-chain productivity through the Focus on Reducing Costs Everywhere or FORCE Program. During the second quarter, it generated savings of $45 million from the FORCE program. Management expects cost savings from the FORCE program in the range of $300-$350 million in 2022. The Zacks Rank #3 (Hold) company’s shares have increased 2.2% in the past three months compared with the industry’s 0.9% growth. Looking for Solid Staple Bets? Check These Out
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