Kimberly-Clark Lags Estimates - Analyst Blog

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Kimberly-Clark Corporation ( KMB ) has reported adjusted earnings of $1.28 per share in the fourth quarter 2011 and $4.80 per share in the fiscal year 2011. The adjusted earnings increased 7% from the prior-year fourth quarter 2010 earnings, while it 2.6% from fiscal year 2010. However, the results lagged the Zacks Consensus Estimate of $1.29 per share and $4.82 per share, respectively.

The adjusted earnings in the fourth quarter and fiscal year of 2011 exclude the adjustment for charges related to the pulp and tissue restructuring of 27 cents per share and 73 cents per share, respectively.

The results were benefited from sales growth, cost savings and a lower share count. However, these were partially offset by rising input cost inflation, higher effective tax rate and lower net income from equity companies.

Kimberly-Clark posted fourth quarter earnings of $1.01 per share in the reported quarter, including the one-time charges. It was, however, 15.8% lower than the year-ago quarter earnings of $1.20 per share. Reported net income also declined 10.3% to $3.99 per share in the fiscal 2011.

For fiscal 2012, Kimberly-Clark expects its adjusted earnings to climb 4% - 7% in the range of $5.00 to $5.15 per share, compared to 2011.

Consolidated Revenue and Margins

During the quarter, net sales showed robust growth of 2.0% to $5.2 billion from $5.1 billion in the same period previous year. Net sales in fiscal 2011 increased 5.6% to $20.8 billion from $19.7 billion in the year-over period. Kimberly-Clark's sales also surpassed the Zacks Consensus Estimate of $5.3 billion.

Organic sales climbed 3% in the fourth quarter, driven by increased sales volume of 1% and higher net selling prices of 2%. However, the sales volume were reduced by approximately 1% owing to the combined impact of a third quarter 2011 divestiture in Latin America and lost sales from exiting non-strategic products related with pulp and tissue restructuring actions.

Foreign currency rates did not impact the sales at all. Organic sales in fiscal 2011 increased 3%, driven by higher net selling prices of 2% and increased sales volumes of 1%.

For fiscal 2012, Kimberly-Clark expects its net sales guidance to increase 0% - 1%. Organic sales guidance is expected to grow at 3% - 4%, while volumes are anticipated to grow at 1% - 2%. The company expect the combination of higher net selling prices and improved product mix to contribute 2 points of additional growth, driven by carryover benefits from price increases taken in 2011. Further, the company expects sales to decrease by 2% in 2012.

Compared with the year-ago period, gross profit contracted 6.1% to $1.54 billion as compared to $1.65 billion in the prior-year quarter. Gross profit in the fiscal 2011 also declined 6.1% to $6.15 billion as compared to $6.55 billion.

The company's operating profit plunged 13.0% to $611 million in the fourth quarter of 2011 from $699 million in the same period in 2010. Excluding the costs for the pulp and tissue restructuring of $148 million, adjusted operating profit surged up 9% to $759 million in the fourth quarter of 2011. Further, these results were benefited from sales growth and $70 million in cost savings from the Kimberly-Clark's FORCE (Focused On Reducing Costs Everywhere) program.

Fiscal year 2011 operating profit also declined 12% to $2.44 billion from $2.77 billion in 2010. Excluding pulp and tissue restructuring charges, adjusted operating profit in 2011 increased 1% to $2.89 billion as compared to $2.87 billion in 2010, benefiting from sales growth, FORCE cost savings of $265 million and improved net other income and expense.

Kimberly-Clark's inflation in key cost inputs was approximately $55 million overall in the fourth quarter 2011 versus 2010, which included increases of $75 million for raw materials other than fiber, primarily polymer resin and other oil-based materials, $15 million in distribution costs and $5 million for energy, partially offset by $40 million of lower fiber costs.

For 2012, management expects adjusted operating profit to grow in the range of 3% - 6%, while adjusted gross profit is expected to grow at a faster rate. Cost savings from the company's FORCE program should total $150 to $200 million in fiscal 2012, while savings from pulp and tissue restructuring actions are expected to be $30 million.

The impact of changes in key commodity cost inputs is expected to be in a range of $50 million of deflation to $50 million of inflation in 2012.

Segment Details

Personal Care: Sales grew 2% on a year-over-year basis to $2.2 billion, benefited from increase in sales volumes and net selling prices, offset by a decrease in currency rates. Operating profit plummeted 19% on a year-over-year basis to $341 million in the quarter.

Consumer Tissue: Sales were same as the prior-year quarter at $1.7 billion, owing to higher net selling prices and improved product mix. Segment's operating profit climbed 43% to $246 million in the quarter.

K-C Professional ( KCP ) & Other: Sales increased 2% year over year to $0.8 billion, on the back of improved sales volumes and net selling prices. Operating profit for the segment increased 13% to $127 million.

Health Care: Sales advanced 10% year over year to $0.4 billion, resulting from an increase in sales volumes, changes in currency rates and net selling prices. Operating profit was $60 million, up 131% year over year.

Pulp and Tissue Restructuring Update

In January 2011, Kimberly-Clark initiated a pulp and tissue restructuring in order to exit its remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of its consumer tissue and K-C Professional businesses.

The restructuring charges are expected to be incurred through the end of 2012 and the company expects the total amount to be in the range of $385 to $420 million after tax ($550 to $600 million pre-tax). The company's previous guidance was in the range of $280 to $420 million after tax ($400 to $600 million pre-tax).

Cash costs are projected to be 30% to 40% of the total charges. As a result of the restructuring activities, Kimberly-Clark expects 2013 annual net sales to decrease by $250 to $300 million, and operating profit is anticipated to increase by at least $75 million in 2013 and at least $100 million in 2014.

Capital Structure and Balance Sheet

Cash provided by operations in the fourth quarter of 2011 amounted to $517 million as compared to $948 million in the prior-year quarter. The decline was driven by increased working capital compared to a significant decrease in the year-ago period, along with higher defined benefit pension plan contributions, partially offset by improved cash earnings.

Cash provided by operations in fiscal 2011 was $2.29 billion as compared to $2.74 billion in 2010. The decrease was driven by higher pension contributions in 2011.

Capital spending in the fourth quarter of 2011 was $312 million as compared to $353 million in 2010. In fiscal 2011, capital spending amounted to $968 million.

Kimberly-Clark did not repurchase any common stock in the fourth quarter of 2011, consistent with previous plans. Total buybacks in fiscal 2011 totaled 19.0 million shares at a cost of $1.24 billion.

For fiscal 2012, the company expects its capital spending in the range of $1.0 to $1.1 billion, in line with the company's long-term target of 4.5% to 5.5% of net sales. The company also anticipates a mid-single digit increase in the dividend from April 2012, subject to approval by the Board of Directors.

In addition, share repurchases are expected to total $900 million to $1.1 billion, subject to market conditions.

Kimberly-Clark, which competes with Procter & Gamble Co. ( PG ), currently holds a Zacks #3 Rank, which translates into a short-term Hold rating. On a long-term basis, we maintain a Neutral rating on the stock.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: KCP , KMB , PG

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