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Kimberly-Clark (KMB) Gains on Growth Pillars & Cost Cutting

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Kimberly-Clark Corporation (KMB - Free Report) has been benefiting from the focus on three key strategic growth pillars and the K-C Strategy 2022. The consumer products company undertakes essential steps to cut costs and enhance supply-chain productivity amid an inflationary environment.

The Zacks Rank #3 (Hold) company expects net sales to increase 2-4% from the year-ago reported figure, while organic sales are anticipated to increase 5-7% during 2022.

Let’s discuss.

What’s Working Well for Kimberly-Clark?

Kimberly-Clark has been committed to its three key strategic growth pillars — improving core business in developed markets, speeding up growth of 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. In October 2020, Kimberly-Clark completed the acquisition of Softex Indonesia — a leading player in the Indonesian personal care market. Recently, the company entered into an agreement to sell its Neve tissue brand in Brazil and related consumer and KCP tissue assets to Suzano. Management expects to conclude the deal during the first half of 2023. The move will allow the company to focus on widening its higher-growth Personal Care business across Brazil while crafting a better future for the Consumer Tissue business across Brazil.

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Saving Efforts on Track

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 solid cost savings for a while, which is driving performance. During the third quarter of 2022, the company generated savings of $80 million from the FORCE program, bringing year-to-date program savings to $175 million. Management is maintaining its cost savings from the FORCE program in the range of $300-$350 million in 2022. Considering the inflationary supply chain environment, management expects savings to be at the lower end of the range. While input costs are expected to flare up in 2022, management is focused on undertaking relevant pricing actions to counter inflation and efficiently manage costs.

Is All Rosy for Kimberly-Clark?

Kimberly-Clark has been battling high input costs for the past few quarters. In the third quarter of 2022, Kimberly-Clark’s gross margin came in at 30.5%, almost flat compared with the adjusted gross margin reported in the year-ago quarter. Gross margin was affected by major input cost inflation.

Kimberly-Clark reported an adjusted operating profit of $745 million in the third quarter of 2022. The operating profit declined due to a rise in input costs to the tune of $360 million. Reduced volumes, escalated marketing, research and general expenses and unfavorable foreign currency also affected the operating profit. The company expects input cost inflation of $1.4-$1.6 billion for the full year.

Due to its exposure to international markets, Kimberly-Clark remains vulnerable to currency fluctuations. Unfavorable foreign currency rates affected sales by 4% in the third quarter of 2022. Unfavorable foreign currency exchange rates are likely to hurt 2022 net sales 3-4%.

That being said, the aforementioned upsides are likely to keep aiding growth for Kimberly-Clark. KMB’s shares have increased 4.2% in the past three months against the industry’s 9% decline.

3 Solid Staple Picks

Some top-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) .

The Chef's Warehouse, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). Chef's Warehouse has a trailing four-quarter earnings surprise of 93.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year sales suggests growth of 46.5% from the year-ago reported number, while earnings indicate significant growth.

General Mills, which manufactures and markets branded consumer foods, carries a Zacks Rank #2 (Buy) at present. General Mills has a trailing four-quarter earnings surprise of 6.1%, on average.

The Zacks Consensus Estimate for GIS’ current financial year sales and earnings suggests growth of 2.7% and 3.8%, respectively, from the year-ago reported numbers.

Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2. CAG has a trailing four-quarter earnings surprise of 1.8%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 5.2% and 3.4%, respectively, from the corresponding year-ago reported figures.

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