We reaffirm our Neutral recommendation on
) following the appraisal of its third quarter 2012 results. The
global supplier of health and hygiene products posted robust
earnings boosted by organic sales growth, cost savings and
reduced commodity costs. However, global macroeconomic
environment and foreign currency translations remain a
Why the Reiteration?
Kimberly-Clark posted healthy third quarter 2012 earnings of
$1.34 per share, beating the Zacks Consensus Estimate by 1.5% and
the prior-year quarter's earnings by 6.4%. Bottom-line growth was
boosted by organic sales growth of 3% driven by volume growth,
improved pricing and strong performance internationally. Organic
sales growth and cost savings from the Kimberly-Clark's FORCE
(Focused On Reducing Costs Everywhere) program drove the
However, total sales declined 3% to $5.2 billion in third
quarter 2012, slightly lagging the Zacks Consensus Estimate by
2.2%. Unfavorable foreign currency fluctuations offset the
increase in sales volume and higher net selling prices.
Kimberly-Clark also raised its expectation of adjusted
earnings for full year 2012 to the range of $5.15 to $5.25 from
the previous guidance of $5.05 to $5.20 per share. Earnings per
share are expected to grow 7% to 9% from the prior-year levels.
The company raised the guidance as it expects stronger organic
sales growth, better cost savings, and reduced input cost in the
Overall, we are encouraged by the company's leadership
position in several consumer product 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
Kimberly-Clark is also well-positioned overseas and derives
almost half of its revenues from outside the U.S. 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.
Moreover, we are optimistic about the company's restructuring
program as it improves 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.
Further, the company will be exiting the diaper category in
Western and Central Europe, with the exception of the Italian
market and will be divesting or exiting some lower-margin
businesses in certain markets, mostly in the consumer tissue
segment in order to improve underlying profitability and focus
its resources on its strongest market positions and growth
opportunities. The company will also streamline its European
manufacturing footprint and administrative organization to align
its cost structure with these strategic decisions.
However, the company has been hit hard by sluggish U.S.
economy, debt crisis in Europe and volatility in input costs. The
company is also facing unprecedented volatility in the global
commodity, currency, and financial markets due to its exposure in
the international markets. The company expects economic
conditions to remain volatile during 2013.
Kimberly-Clark holds a Zacks Rank #4 (Sell). Peers in the
Energizer Holdings Inc.
Tupperware Brands Corp
), both of which carry a Zacks Rank #3 (Hold).
ENERGIZER HLDGS (ENR): Free Stock Analysis
KIMBERLY CLARK (KMB): Free Stock Analysis
TUPPERWARE BRND (TUP): Free Stock Analysis
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