Consumer products giant
) posted adjusted earnings of $1.49 per share in the second quarter
of 2014. Earnings were in line with the Zacks Consensus Estimate
and grew 5.7% from the year-ago figure of $1.41 per share. Earnings
were boosted by organic sales growth, cost savings and a lower
share count owing to share buybacks, which made up for increased
input costs, currency headwinds and lower net income from equity
Kimberly-Clark Corporation - Earnings Surprise
Quarter in Detail
The company reported sales of $5.343 billion in the second
quarter. Sales were up 1% from the prior-year quarter and were
slightly ahead of the Zacks Consensus Estimate of $5.321 billion.
Improvement in sales volumes and higher selling prices were offset
by foreign currency headwinds, lost sales in conjunction with
European strategic changes and pulp and tissue restructuring
Excluding the aforementioned headwinds, organic sales grew 5%
from the prior-year quarter, which includes a 10% increase in K-C
International segment sales.
Adjusted operating profit (excluding costs for the company's
potential spin-off of its health care business, which is expected
to be complete in Oct 2014 and European strategic changes) grew 5%
to $860 million in the second quarter. This reflects an increase in
organic sales, $75 million of cost savings from the FORCE (Focused
On Reducing Costs Everywhere) program and $10 million of savings
from pulp and tissue restructuring actions. However, input costs
increased $60 million and unfavorable currency reduced operating
profit by $20 million in the quarter. Total marketing, research and
general expenses were also up slightly in the reported quarter.
Personal Care Products:
The segment includes products like disposable diapers, training/
youth/swim pants; baby wipes; feminine and incontinence care
Sales increased 2% on a year-over-year basis to $2.4 billion in
the quarter owing to organic sales volume growth of 5% and 3%
increase in net selling prices. However, sales were hurt as a
result of European strategic changes, unfavorable product mix and
unfavorable currencies. Both K-C International and North America
witnessed positive sales growth. Sales in Europe declined in the
Segment operating profit surged 5% on a year-over-year basis to
$453 million in the quarter, benefiting from organic sales growth
and cost savings, partially offset by unfavorable currency rates,
input cost inflation and higher manufacturing-related costs.
The segment includes bathroom tissue, paper towels, napkins and
related products for household use.
Segment sales increased 1% to $1.6 billion in the second quarter
on the back of higher sales volume and increase in net selling
prices. However, both European strategic changes and pulp and
tissue restructuring actions reduced sales by 2%. Product mix also
had an unfavorable impact of 1% in the reported quarter. Both
Europe and K-C International witnessed decline in sales, while
sales in North America improved in the quarter.
Segment operating profit climbed 9% to $240 million owing to
benefits of organic sales growth and cost savings, which made up
for input cost inflation and higher marketing spending.
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 increased 2% on a year-over-year basis to $0.9
billion in second quarter 2014 owing to positive sales volumes.
However, these were offset by unfavorable currency rates. Except
North America, regions of Europe and K-C International witnessed
increase in sales.
Unfavorable currency and higher input costs led to a decline of
4% in segment operating profit to $154 million. However, these were
offset by organic sales and cost savings.
The segment consists of disposable health care products.
Sales declined 1% to $0.4 billion in first quarter 2014 due to
currency headwinds and unfavorable product mix. Both medical device
volumes and surgical and infection prevention volumes were flat
year over year.
Operating profit was $63 million, up 17% year over year, driven
by lower marketing, research and general spending and cost
As announced in Oct 2012, the company agreed to dissolve the
diaper segment of Western and Central Europe, except the Italian
market. The company has also streamlined its manufacturing
facilities in Europe, which resulted in restructuring costs of $4
million after tax in the second quarter of 2014. In conjunction
with European strategic changes, Kimberly Clark continues to expect
restructuring costs in the range of $300 to $350 million after-tax
through 2014. The impacted businesses previously generated annual
net sales of approximately $0.5 billion and negligible operating
Guidance for Full Year 2014 Narrowed
Kimberly-Clark has narrowed its guidance for full year 2014
adjusted earnings. The company now expects adjusted earnings in the
range of $6.00 - $6.15 per share, compared with the prior guidance
range of $6.00-$6.20 for 2014.
We appreciate the company's strong brand portfolio and an
enhanced innovation and cost savings program, which helped it to
offset higher input costs and unfavorable currency headwinds in the
second quarter of 2014. However, almost flat sales signal weakness
in the overall consumer spending environment. Slow recovery of the
U.S. economy is denting Kimberly-Clark's sales.
The consumer staples sector has been weak over the past few
quarters due to limited spending that emanated from slow job
growth, high interest rates and tightened credit availability. The
company also remains exposed to unfavorable foreign currency
translations as it has a considerable international presence. The
persistently sluggish economic conditions in Europe also create an
overhang. Kimberly-Clark holds a Zacks Rank #3 (Hold).
Better-ranked stocks in the consumer staples sector include
Treehouse Foods, Inc.
Newell Rubbermaid Inc.
Pinnacle Foods, Inc.
). While TreeHouse sports a Zacks Rank #1 (Strong Buy), Newell and
Pinnacle hold a Zacks Rank #2 (Buy).
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