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Kimberly-Clark (KMB) Banks on FORCE Program to Offset Costs

Kimberly-Clark Corporation 's KMB robust cost-saving efforts and regular innovation have helped the company to outpace the industry in the past three months. Also, the company is progressing well with its FORCE and 2018 Global Restructuring plans, which is evident from management's enhanced savings target.

Moreover, the company's focus on its three core strategies helped to drive sales growth in second-quarter 2018.

Buoyed by such factors, shares of this Zacks Rank #3 (Hold) company have advanced 14.1% in the past three months, outperforming the industry 's 5.8% growth. Markedly, the stock is hovering close to its 52-week high of $124.15. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

FORCE Programs & Global Restructuring on Track

Kimberly-Clark has been taking strategic initiatives to curtail costs through its ongoing Focus on Reducing Costs Everywhere or FORCE Program. Evidently, the company is narrowing costs through its FORCE Program. In the last reported quarter, it generated savings of $110 million from this program. Further, management raised its 2018 cost-savings outlook to $425-$450 million compared to the previous projection of $400 million.

The company expects to generate cost-savings of more than $1.5 billion over the four-year period from 2018 to 2021. This will stem from management's focus on enriching productivity at manufacturing facilities, optimizing design and raw material expenses and attaining distribution efficiencies.

Additionally, management remains on track with its 2018 Global Restructuring Program, which is likely to enhance the company's profitability, help it compete better, and provide greater flexibility to undertake growth-oriented investments. The program is expected to simplify Kimberly-Clark's overhead organization and manufacturing supply-chain structures.

In the second quarter, the company realized savings of roughly $40 million from its restructuring program and expects full-year savings to be in the $100-$120 million band, up from $50-$70 million projected earlier. Also, pre-tax savings is anticipated to be in the range of $500-$550 million from the same program, courtesy of efficient production supply chain and reduction in workforce by the end of 2021.

On a combined basis, Kimberly-Clark expects cost savings of more than $2 billion from the FORCE program and 2018 Global Restructuring Program, over the next four years.

Apart from this, management announced plans to shut or divest approximately 10 manufacturing facilities as well as expand production capacity to enhance scale and lower costs. In this regard, the company revealed intentions to sell or exit some low-margin businesses, which deliver about 1% of net sales, particularly in the consumer tissue unit.

Will the Company Overcome Cost Hurdles?

Kimberly-Clark has been battling higher input costs for a while now. Commodity cost inflation of $200 million, stemming from increased costs of pulp and other raw materials, negatively impacted the company in the second quarter. It also compelled management to raise the company's commodity-inflation view to a range of $675-$775 million for 2018.

The company's strained gross margin, which has been declining year over year for nearly a year now, also remain a cause for concern. In second-quarter 2018, adjusted gross margin contracted due to commodity cost inflation and lower net selling prices. This, along with expectations of currency woes, led to a lowered sales and earnings outlook. In addition, Kimberly-Clark continues to grapple with lower net selling prices and increased competition in the diapers business.

Nevertheless, Kimberly-Clark remains committed toward its three key growth initiatives, which include focus on improving its core business; acceleration of Personal Care segment's growth in developing and emerging markets, and enhancement of digital and e-commerce capacities.

Moreover, the company's regular innovation helps in improving brand positions and market share in the consumer categories. To this end, Kimberly-Clark launched its upgraded Huggies premium diaper and revealed plans to roll out an improved premium diaper plant in the second quarter 2018.

These factors are expected to help offset the hurdles and push the stock higher.

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Ollie's Bargain Outlet Holdings, Inc. OLLI delivered an average positive earnings surprise of 9% in the trailing four quarters. It has a long-term earnings growth rate of 23% and a Zacks Rank #2 (Buy).

WD-40 Company WDFC pulled off an average positive earnings surprise of 8.2% in the trailing four quarters. The company carries a Zacks Rank of 2.

Helen of Troy Ltd. HELE came up with an average positive earnings surprise of 21.6% in the trailing four quarters. It has a long-term earnings growth rate of 6.1% and a Zacks Rank #2.

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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