Kimberly-Clark Corporation (KMB - Free Report) reported first-quarter 2018 results, with the top and the bottom lines improving year over year. While earnings were in line with the Zacks Consensus Estimate, sales exceeded the same for the third consecutive period. In fact, strong performance across key market locations prompted management to raise sales view for 2018. Further, the company’s cost-saving efforts are also praiseworthy and significantly aided the company’s performance in the reported quarter.
On the flip side, the company’s performance continues to face challenges from rising input costs. This has been marring investors’ optimism in the stock, which has declined 16.4% in the past six months compared with the industry’s fall of 12.8%
Quarter in Detail
The quarterly earnings of $1.71 per share came in line with the Zacks Consensus Estimate and increased almost 9% year over year.
Notably, adjusted effective tax rate in the first quarter was 22% compared with 27.5% in the year-ago quarter.
Kimberly-Clark’s sales advanced 5% to $4,731 million and surpassed the Zacks Consensus Estimate of $4,599 million. Favorable currency movements benefitted sales by 3%. Additionally, organic sales improved 2%, driven by a 3% increase in volumes and marginally offset by a 1% decline in net selling prices.
Within North America, organic sales in consumer products increased 3%, while it climbed 2% at K-C Professional. Internationally, organic sales advanced 2% across the developed market locations, while it rose 1% in developing and emerging markets.
Adjusted operating profit inched-up 0.7% to $824 million. Results were aided by higher volumes, favorable currency translations worth close to $20 million as well as reduced spending on marketing, research and general spending. Further, operating results also gained from cost savings of $90 million from the Focused On Reducing Costs Everywhere (FORCE) program. These upsides were partially offset by lower net selling prices as well as increased input costs on account of greater costs of pulp and other raw materials.
Kimberly-Clark Corporation Price, Consensus and EPS Surprise
Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.
Segment sales of $2,307 million went up 3% during the quarter, courtesy of improved product mix and volumes, benefits from currency and buyout of the company’s joint venture in India, somewhat countered by lower net selling prices. Sales improved across North America, developing and emerging markets as well as the developed markets outside North America.
Segment operating profit fell 3% to $470 million in the quarter due to input cost inflation and lower selling prices, partly offset by cost savings, increased volumes, favorable currency rates and reduced expenditure on market research and general spending.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales gained 9% to $1,579 million in the quarter owing to volume growth and favorable currency rates, which were partially offset by unfavorable product mix. Segment sales gained year over year across all market regions, which include North America, developed regions outside North America as well as the developing and emerging markets.
Segment operating profit plunged 11% to $249 million in the quarter on account of unfavorable product mix and input cost inflation, somewhat cushioned by cost savings, increased volumes, favorable currency rates as well as lower marketing, research and general costs.
K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.
Segment sales grew 5% from the prior-year to $832 million in the quarter, backed by growth in volumes, improved net selling prices and product mix as well as positive impacts from currency rates. Sales improved in North America and developing and emerging markets. Sales also improved in the developed markets outside North America.
Segment operating profit rose 6% to $158 million, gaining from organic sales rise, cost savings, lower market research and general costs as well as positive impacts from currency rates. These were partially countered by input cost inflation.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $626 million, long-term debt of $6,081 million and stockholders' equity of $555 million.
Further, Kimberly-Clark generated cash flow of $542 million from operating activities during first-quarter 2018. During the same time frame, management incurred capital expenditures of $189 million.
During the quarter, the company bought back 1.8 million shares for $204 million.
Management is encouraged about its 2018 Global Restructuring Program, which marks the biggest restructuring in a long time. This plan is likely to enhance the company’s underlying profitability, help it compete better and provide greater flexibility to undertake growth-oriented investments. Delving deeper, we note that the program is expected to simplify Kimberly-Clark’s overhead organization and manufacturing supply chain structures
Management continues to envision pre-tax savings worth approximately $500-550 million from this program by 2021 end, backed by production supply chain efficiencies and reduction in workforce. As part of this restructuring initiative, the company expects to sell or exit some low-margin businesses that deliver about 1% of net sales, mainly concentrated in the consumer tissue unit. The company expects pre-tax restructuring charges worth $1,700-$1,900 million by 2020 end, to execute this program.
During the first quarter pre-tax restructuring charges under this initiative amounted to $577 million. Further, the company is on track with its $50-70 million savings targets from this initiative for 2018.
Ups Sales Guidance for 2018
The upbeat performance of this Zacks Rank #3 (Hold) company in all key market regions led management to raise sales view for 2018. Net sales are now expected to rise in a range of 2-3% compared with the previous band of 1-2%.
On the flip side, the company expects input costs to rise even further, owing to a hike in the cost of pulp and other raw materials. Input cost inflation in now expected in the band of $400-550 million compared with the previous view of $300-$400 million.
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