Kimberly-Clark Remains Neutral - Analyst Blog

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We are reiterating our Neutral rating on Kimberly-Clark Corporation ( KMB ) following the first quarter 2012 results.

Kimberly-Clark delivered first quarter 2012 earnings of 1.24, which exceeded the Zacks Consensus Estimate and the year-ago earnings by 7 cents and 15 cents per share, respectively. The results were driven by organic sales growth, cost savings and a lower share count which more than made up for the higher marketing and input costs in the quarter. 

The company's net sales climbed 4% to $5.2 billion, briskly outpacing the Zacks Consensus Revenue Estimate of $5.0 billion, driven mainly by the emerging markets.

We are encouraged by the company's leadership in several consumer products categories including diapers, paper goods, health care products, and female personal care. Moreover, Kimberly-Clark focuses on improving its products through innovation in order to remain competitive and drive growth.

For example in 2011, the company established a new product range with its Huggies Little Movers Slip-On Diapers, Kleenex Cool Touch facial tissue, and improved Cottenelle bathroom tissue, which added to revenue growth. These innovations are expected to help in improving brand position and market share in the consumer categories, going forward.

Kimberly-Clark is also well-positioned overseas, and derives almost half of its revenues outside the U.S. The company has been investing in the 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 in China, Brazil, India and Russia.

Moreover, we are optimistic about the company's restructuring program as it improves the underlying profitability and return on invested capital of its consumer tissue and K-C Professional segments, which have been facing declining profits for many years. Further, management's initiatives to control costs through its FORCE program bode well for future operating performance.

However, the company has been hit hard by uncertain economy and increasing cost inflation, which has resulted from the tight supply for raw materials. The company is also facing unprecedented volatility in the global commodity, currency, and financial markets.

Kimberly-Clark's significant international presence exposes it to unfavorable foreign currency fluctuations, which often affect its operating results. Kimberly-Clark's increasingly dependency on a handful of customers also reduces the company's pricing power against giant retailers, thereby exerting pressure on margins and limiting profitability. We thus expect to remain on the sidelines with a Neutral rating.


 
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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.



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