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Kimberly-Clark (KMB) Q4 Earnings Beat Estimates, Rise Y/Y

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Kimberly-Clark Corporation KMB reported fourth-quarter 2019 results, wherein the bottom line improved year over year and marked its fourth consecutive beat. Adjusted earnings of $1.71 per share surpassed the Zacks Consensus Estimate by a penny and increased 7% from the year-ago period.

The quarterly performance reflected organic sales growth, savings from restructuring plans, increased brand investments and focus on innovation. Further, the K-C Strategy 2022 has been aiding performance.

To top it, the company ended the year with impressive margin growth, cost savings of $425 million and returns to shareholders of about $2.2 billion. Also, management issued an impressive outlook for 2020 and announced a dividend hike. Notably, this Zacks Rank #2 (Buy) stock has rallied 33.7% in a year against the industry’s decline of 5.3%.

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

Kimberly-Clark Corporation price-consensus-eps-surprise-chart | Kimberly-Clark Corporation Quote

Quarter in Detail

Kimberly-Clark’s sales came in at $4,583 million, which surpassed the Zacks Consensus Estimate of $4,532 million. The top line remained flat year over year. Unfavorable currency movements weighed on sales by 2%. Also, business exits pertaining to the 2018 Global Restructuring Program had a slight negative impact on sales.

Organic sales rose 3% year over year, owing to improved net selling prices (up more than 2%) and product mix (up 1%), somewhat offset by a 1% drop in volumes.

In North America, organic sales in consumer products and K-C Professional rose 3% each. Internationally, organic sales increased 3% across developing and emerging markets, while it grew 1% in developed markets.

Adjusted operating profit came in at $826 million, up from $742 million in the year-ago quarter. Results gained from higher net selling prices, better product mix, and cost savings of $85 million and $40 million from the FORCE (Focused On Reducing Costs Everywhere) program and the 2018 Global Restructuring Program, respectively. Further, lower input costs stemming from a decline in pulp costs benefited results.

However, unfavorable currency translations, increased advertising expenses and a rise in selling, general and administrative costs negatively impacted adjusted operating profit.

Segment Details

Personal Care Products: Segment sales of $2,242 million rose 1%, owing to improved net selling prices (up 2%) and product mix (up roughly 2%). This was offset by unfavorable currency rates, which hurt sales by 2%. Further, sales increased 2% in North America and 1% in developing and emerging markets. The metric declined 3% across developed markets outside North America.

Consumer Tissue: Segment sales of $1,511 million grew 1% year over year. Results gained from improved net selling prices (up 3%), partially offset by lower volumes (down 1%). Adverse currency movements hurt sales by 1%. Sales grew 4% in North America, while it fell 2% each in developing and emerging markets, and developed markets outside North America.

K-C Professional (KCP): Segment sales dropped 3% to $815 million due to a 3% adverse impact from several business exits as part of the 2018 Global Restructuring Plan. Also, currency woes hurt sales by 1%. Further, volumes were down 3%. This was somewhat cushioned by improved product mix (up 2%) and higher net selling prices (up 2%). Sales rose 1% in North America, while the same declined 5% each in developing and emerging markets, and developed markets outside North America.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $442 million, long-term debt of $6,213 million and stockholders’ deficit of $33 million, excluding non-controlling interest of $227 million.

Further, Kimberly-Clark generated cash from operating activities of $924 million during the quarter under review. Management incurred capital expenditures of $342 million. It expects capital expenditures of $1,150-$1,350 million for 2020.

During the quarter, Kimberly-Clark bought back 1.9 million shares for $252 million. In 2019, the company made buybacks of 6.2 million shares for $800 million. For 2020, management expects share buybacks of $700-$900 million.

Concurrently, management announced a 3.9% hike in its quarterly dividend, taking it to $1.07 per share. The raised dividend is payable on Apr 2, 2020, to shareholders of record as of Mar 6.

Other Developments & Guidance

Management is on track with the 2018 Global Restructuring Program, which is aimed at lowering the company’s structural costs and improving financial flexibility. Until the end of 2019, Kimberly-Clark incurred pre-tax cumulative restructuring charges of $1,402 million related to this program, while it made cumulative savings worth $300 million from the same.

In 2020, management expects to generate total cost savings of $425-$500 million. This includes expected savings of $325-$375 million from the FORCE program and $100-$125 million from the 2018 Global Restructuring Program. Moreover, the company expects cost of key inputs to drop in the range of $50-$200 million, thanks to lower pulp costs. However, advertising expenses are anticipated to rise in 2020.

Management forecasts 2020 net sales to grow 1% year over year. Further, Kimberly-Clark projects organic sales improvement of 2% on the back of higher net selling prices and volumes along with improved product mix. However, currency headwinds are likely to impact net sales by 1%, while business exits related to the 2018 Global Restructuring Program are also expected to slightly affect sales.

Management anticipates adjusted operating profit growth of 3-5% for the year.

The company also expects interest expenses to rise in 2020, wherein currency headwinds are likely to prevail.

Considering all factors, management envisions 2020 adjusted earnings per share of $7.10-$7.35, up from $6.89 reported in 2019. Also, the mid-point of the guided range, which is about $7.23, stands above the current consensus mark of $7.21.

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