We reaffirm our Neutral recommendation on
) following an appraisal of its first quarter 2013 results.
Why the Reiteration?
Kimberly-Clark posted healthy first quarter 2013 results,
where both earnings and sales exceeded the Zacks Consensus
Estimate by 10.4% and 1.9%, respectively. Earnings of $1.48 per
share climbed 19.4% from the prior-year quarter, boosted by
organic sales growth, cost savings and improved other income,
which made up for increased input and marketing costs and higher
tax rates. Organic sales increased 3% on the back of volume
growth and better pricing.
Net sales of $5.3 billion increased 1% from the prior-year
quarter, led by higher average selling prices. Targeted growth
initiatives and product innovations helped sales and volume
growth in the quarter. Further, organic sales growth and cost
savings resulted in an increase in operating profit. However,
currency fluctuations and the exit of non-strategic products
eroded company's sales in the quarter.
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 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.
Moreover, we are 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
years. Further, management's initiatives to control costs through
its FORCE program bode well for future operating performance.
Further, the company has plans to divest 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 markets and growth
Kimberly-Clark, along with its peer
Energizer Holding Inc.
) hold a Zacks Rank #2 (Buy). Other favorable stocks in the
consumer staples sector include
Flower Foods Inc.
Omega Protein Corp
), both carrying a Zacks Rank #1 (Strong Buy).
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