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Kimberly-Clark (KMB) Tops Q1 Earnings on Favorable Currency

Consumer products giant Kimberly-Clark CorporationKMB posted better-than-expected earnings in first-quarter 2017 owing to currency tailwinds. However, revenues lagged the Zacks Consensus Estimate. The company reiterated its earnings guidance for full year.

Adjusted earnings of $1.57 per share beat the Zacks Consensus Estimate of $1.54 by 1.95% and came ahead of the year-ago results of $1.53 by 2.6%. Year over year, earnings were boosted by cost savings, improved operating profits, favorable currency impact and lower taxes. However, earnings were negatively impacted by lower net selling prices and input cost inflation.

Quarter in Detail

The company reported sales of $4.483 billion in the first quarter. Sales marginally lagged the Zacks Consensus Estimate of $4.507 billion by 0.5% and was flat from the prior-year quarter. Currency however had a positive impact of 1% in the quarter's sales.

Organic sales also declined 1% from the prior-year quarter as higher volumes of 1% were offset by net selling prices which reduced sales by more than 1%. Softness in North American consumer products, higher competitive activity and less promotion shipments led to a decline of 3% in North America, while organic sales increased 4% in developing and emerging markets.

We note that Kimberly-Clark has been witnessing slower organic sales growth, especially in developing and emerging markets, over the past few quarters. In the fourth quarter 2016, organic sales increased 4% in developing and emerging markets, which decelerated from 5% increase witnessed in the first and second quarters.

Though the company has strong long-term growth prospects in developing and emerging markets, the current promotional environment is weakening the current market dynamics. In fact, the company expects only modest improvement in the overall environment in developing and emerging markets in 2017, particularly in the second half of 2017.

Operating profit in first-quarter 2017 grew 3.7% to $834 million. It was mainly driven by $110 million of cost savings from the FORCE (Focused on Reducing Costs Everywhere) program and positive foreign currency impact of $10 million. However, this was offset by lower net selling prices and higher input costs of $35 million in the quarter due to increases in raw materials (other than pulp), energy and distribution costs.

Share Price Movement

Kimberly-Clark's shares have been outperforming the Zacks categorized Consumer Products-Miscellaneous Staples industry since the past one year. The stock increased 14.3% in comparison to the above mentioned industry's growth of 5.8%. Notably, the industry is part of the top 11% of the Zacks Classified industries (30 out of the 265). The broader Consumer Staples sector is placed at bottom 31% of the Zacks Classified sectors (11 out of 16).

Segment Details

Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.

Segment sales increased 2% on a year-over-year basis to $2.3 billion in first-quarter 2017 driven by higher volumes and favorable currency offsetting lower selling prices. Sales improved in developing and emerging markets, but declined in two other regions of North America and developed markets outside North America.

Segment operating profit improved 7% to $481 million in the quarter driven by cost savings, higher volumes and currency tailwinds partially offset by lower selling prices and input cost inflation.

Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.

Segment sales dropped 3% to $1.5 billion in first-quarter 2017 owing to lower volumes and average selling prices. Sales improved in developing and emerging markets but declined in two other regions of North America and developed markets outside North America.

Segment operating profit declined 2% to $275 million in the quarter, as lower volumes and average selling prices more than offset the benefits from cost savings and lower marketing spending.

K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.

Segment sales grew 1% to $0.8 billion in the first quarter, owing to favorable currency and product mix. However it was offset by lower selling prices. Sales improved in developing and emerging markets as well as developed markets outside North America, while it declined in North America.

However, segment operating profit declined 3% to $146 million, as input cost inflation and lower selling prices was partially offset by cost savings.

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

Kimberly-Clark Corporation Price, Consensus and EPS Surprise | Kimberly-Clark Corporation Quote

Other Financial Update

Cash and cash equivalents were $835 million as of Mar 31, 2017. Capital expenditure was $215 million. Cash provided by operations in first-quarter 2017 was $436 million. Long-term debt was $6.43 billion.

In the first quarter, the company repurchased 2.4 million shares at a total cost of $300 pursuant to a share repurchase program.

Guidance for 2017

The company reiterated its earnings guidance for 2017 and continues to expect earnings per share in the range of $6.20-$6.35.

Net sales in 2017 are expected to increase 1 to 2%, with organic sales growth of 1 to 2% driven by higher volumes. Currency is expected to have a neutral impact in 2017 sales. Previously, the company was expecting sales to be similar year over year, with organic sales up approximately 2% and currency to negatively impact sales by 2%.

Input cost inflation is expected in the range of $150 to $250 million compared with the previous estimate of $50 to $200 million.

Zacks Rank and Key Picks

Kimberly-Clark currently carries a Zacks Rank #3 (Hold).

Some better-ranked consumer staples companies include Ollie's Bargain Outlet Holdings, Inc. OLLI , Blue Buffalo Pet Products, Inc. BUFF and Energizer Holdings, Inc. ENR . While Ollie's Bargain Outlet Holdings sports a Zacks Rank #1 (Strong Buy), Blue Buffalo and Energizer Holdings carry a Zacks Rank #2 (Buy) each. You can see the complete list of today's Zacks #1 Rank stocks here .

While Ollie's Bargain Outlet Holdings has a long-term earnings growth rate of 17.1%, Blue Buffalo and Energizer have a long-term earnings growth rate of 13.0% and 9.8%, respectively.

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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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