We reaffirm our Neutral recommendation on
). While the company has been delivering solid results, the
continued slowdown in the healthcare segment is hurting its
Why the Reiteration?
Kimberly-Clark posted better-than-expected results in all the
last four quarters. Organic sales growth, product innovation and
cost savings measures have remained the company's strong points.
However, increased input costs and macroeconomic headwinds
continue to raise concern.
The company has a leading position in several consumer product
categories including diapers, paper goods and female personal
care. Moreover, Kimberly-Clark focuses on improving its products
through innovation to retain its front-running position and drive
growth. Popular product launches in 2012 ranged from
super-premium Depend briefs, New U by Kotex tampons and pads,
Huggies Little Movers Slip-On diapers, Poise Hourglass Shape
pads, Kleenex Cool Touch facial tissue, and improved Cottenelle
bathroom tissue. These have been contributing to the revenue
growth in 2013.
Kimberly-Clark is well positioned overseas and has been
regularly expanding in the key emerging markets through K-C
International, which includes businesses in Asia, Latin America,
the Middle East, Eastern Europe and Africa, with particular
emphasis on China, Brazil, India and Russia. K-C International
accounted for 37% of the company's 2012 revenues, 36% of 2011
revenues and 33% of 2010 revenues, showing a consistent rise.
We are also optimistic about the company's restructuring
program as it is likely to improve underlying profitability and
return on invested capital at its consumer tissue and K-C
Professional segments, profits from which have been declining for
many years. Further, initiatives to control costs through its
FORCE program bode well for future operating performance. In
addition, the company's divestiture of low-margin Huggies diapers
businesses in all the European markets, except Italy, will also
help it utilize its resources in more promising markets.
However, lower consumer spending pattern due to an adverse
macroeconomic environment, unfavorable currency and higher input
costs remain headwinds for the company. The company's decelerated
sales growth in the healthcare segment over the past four
quarters is also raising concerns. Kimberly-Clark has, thus,
decided to spin-off its healthcare business to optimize its
performance and offer flexibility to pursue its own
value-creation opportunities. Kimberly-Clark thus holds a Zacks
Rank #4 (Sell).
Other Stocks to Consider
Other better-ranked stocks in the consumer staples sector
Hain Celestial Group, Inc.
ConAgra Foods, Inc.
Green Mountain Coffee Roasters, Inc.
). While Hain Celestial carries a Zacks Rank #1 (Strong Buy),
ConAgra Foods and Green Mountain carry a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
KIMBERLY CLARK (KMB): Free Stock Analysis
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