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Will Kimberly-Clark's (KMB) Savings Efforts Pare Cost Woes?

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Amid rising input costs plaguing the performance of many consumer staples players, Kimberly-Clark Corporation (KMB - Free Report) has been managing to stay afloat on the back of well-structured savings initiatives. Additionally, the company indulges in frequent product launches and augments core business offerings. Let’s look at some of the aspects that have been aiding this leading manufacturer of personal care products to maintain market position, along with getting an insight into the headwinds plaguing its prospects.

Programs to Drive Savings

Kimberly-Clark has been undertaking robust initiatives to curtail costs. Through its Focus on Reducing Costs Everywhere program, or FORCE, the company has been generating higher cost savings each year, with record savings of $450 million in 2017. In the second quarter, Kimberly-Clark generated savings of $110 million from the program.

Further, management is encouraged about the 2018 Global Restructuring Program, which marks the company’s biggest restructuring in a long time. The plan is likely to enhance the company’s underlying profitability, enable it compete better and provide greater flexibility to undertake growth-oriented investments. During the second quarter of 2018, Kimberly-Clark generated savings of roughly $40 million from the restructuring program and expects 2018 savings in the range of $100-$120 million, up from previous projection of $50-$70 million. Further, the company expects pre-tax savings of $500 million to $550 million from this program by the end of 2021, backed by production supply chain efficiencies and reduction in workforce. Moreover, as part of its restructuring efforts, management is on track with exiting low-margin businesses that deliver about 1% of net sales, primarily concentrated in the consumer tissue unit.

On a combined basis, the company expects cost savings of more than $2 billion from the FORCE and 2018 Global Restructuring programs over the next four years. Further, backed by such well-chalked endeavors, management raised 2018 cost-savings outlook to $425-450 million, from the previous projection of $400 million.

Other Growth-Oriented Efforts

Apart from keeping a check on costs, Kimberly-Clark is also focusing to improve the core consumer products business, accelerate growth in the Personal Care segment in developing and emerging markets as well as enhance digital and e-commerce capacities. Moreover, to stay as a key player in several consumer product categories, the company regularly engages in innovation. In this respect, the company frequently comes up with upgrades and new launches in the diaper category.

Can Efforts Clear Away Hurdles in the Path?

Higher input costs have been troubling Kimberly-Clark for a while. Evidently, commodity cost inflation of $200 million, stemming from greater costs of pulp and other raw materials weighed on the company’s adjusted operating profit in the second quarter. Higher commodity costs have also been marring gross margin performance. Apart from Kimberly-Clark, other companies in the consumer staples space such as Pilgrim's Pride Corporation (PPC - Free Report) , Church & Dwight Co., Inc. (CHD - Free Report) and TreeHouse Foods, Inc (THS - Free Report) have also been struggling with higher commodity costs.

Amid such hurdles, the company’s focus on restructuring operations to boost savings and efficiency bodes well. Such efforts are expected to provide cushion and help the company retain foothold in the personal care arena.   

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