We are reiterating our Neutral rating on
) 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
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.
KIMBERLY CLARK (KMB): Free Stock Analysis
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