We reaffirm our Neutral recommendation on
) following mixed second-quarter 2013 results.
Why the Reiteration?
Kimberly-Clark posted adjusted earnings of $1.41 per share
which surpassed the Zacks Consensus Estimate by 1.4% and the
year-ago result by 8.5%. Earnings were boosted by organic sales
growth, cost savings, improved other income and lower share
count, which made up for increased input costs and higher tax
Organic sales grew 3% from the prior-year quarter, driven by
volume growth and strong pricing. Targeted growth initiatives and
product innovations aided sales and volume growth in the
However, the company reported flat year-over-year sales of
$5.27 billion in the second quarter. The results slightly lagged
the Zacks Consensus Estimate of $5.32 billion. Currency
fluctuations and the exit of non-strategic products eroded the
company's sales in the quarter. Further, organic sales growth and
cost savings resulted in an increase in operating profit.
Overall, we are encouraged by the company's leadership
position in several consumer product categories including
diapers, paper goods, and female personal care. Moreover,
Kimberly-Clark focuses on improving its products through
innovation in order to remain competitive and drive growth.
Kimberly-Clark is also well-positioned overseas and derives
almost half of its revenues from outside U.S. markets. The
company has been investing in key emerging markets through K-C
International ('KCI'), which includes businesses in Asia, Latin
America, the Middle East, Eastern Europe and Africa, with a
particular emphasis on China, Brazil, India and Russia.
We are also optimistic about the company's restructuring
program as it will improve underlying profitability and return on
invested capital of its consumer tissue and K-C Professional
segments, which have been facing declining profits for many
Further, management's initiatives to control costs through its
FORCE program bode well for the future operating performance. The
company's divestiture of some low-margin businesses in certain
markets, mostly in the consumer tissue segment will also help the
company to utilize its resources in more promising markets.
However, the company's decelerated sales growth in the
healthcare segment over the past four quarters is raising
concerns. In addition, lower consumer spending pattern due to an
adverse macro-economic environment, unfavorable currency and
higher input costs remain headwinds.
Kimberly-Clark holds a Zacks Rank #3 (Hold). Other favorable
stocks in the consumer staples sector include
Pinnacle Foods Inc.
Dole Food Co. Inc
Boulder Foods Inc
). While Pinnacle Foods carries a Zacks Rank #1 (Strong Buy),
Dole Food and Boulder Foods carry a Zacks Rank #2 (Buy).
BOULDER BRANDS (BDBD): Free Stock Analysis
DOLE FOOD CO (DOLE): Free Stock Analysis
KIMBERLY CLARK (KMB): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
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