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Kimberly-Clark (KMB) Up 7.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Kimberly-Clark (KMB). Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kimberly-Clark due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kimberly-Clark Q3 Earnings Top Estimates, Sales Dip Y/Y

Kimberly-Clark reported third-quarter 2018 results, with the top and the bottom line beating the Zacks Consensus Estimate. Further, the quarter witnessed year-on-year earnings growth along with substantial savings from strategic growth programs. Management retained bottom-line view for 2018. However, sales were dismal in the quarter, thanks to weak segment performance stemming from unfavorable currency impacts and volumes.

Quarter in Detail

The quarterly adjusted earnings of $1.71 per share came ahead of the Zacks Consensus Estimate of $1.64 and increased nearly 7% year over year.

Notably, adjusted effective tax rate in the quarter was 19.6% compared with 28.8% in the year-ago quarter.

Kimberly-Clark's sales came in at $ 4,582 million, which surpassed the Zacks Consensus Estimate of $4,529 million. However, the top line inched down almost 1.8% from the year-ago period. Unfavorable currency movements weighed on sales by 3%. Organic sales rose 1% year-on-year, while a respective 1% rise in product mix and net selling prices was offset by 1% dip in volumes.

Within North America, organic sales in consumer products dropped 1%, while it climbed slightly at K-C Professional. Internationally, organic sales increased 3% across developing and emerging markets, while it increased 1% in the developed markets.

Adjusted operating profit came in at $798 million, down from $868 million in the year-ago quarter. Results in the quarter were hurt by higher input costs to the tune of about $210 million, stemming from increased prices of pulp and other raw materials. Also, unfavorable currency translations negatively impacted the adjusted operating profit metric in the reported quarter.

Nevertheless, these downsides were somewhat compensated by cost savings of $105 million from the Focused On Reducing Costs Everywhere (FORCE) program and savings of $40 million from the 2018 Global Restructuring Program. Moreover, lower general and administrative expenditures benefited adjusted operating profit.

Segment Details

Personal Care Products: Segment sales of $2,252 million went down roughly 1.4%, thanks to unfavorable currency rates and partly cushioned by the company's joint venture in India. Volumes and product mix also registered an improvement. Further, sales increased in North America, while it declined across developing, emerging and developed markets outside North America.

Segment operating profit fell 3% to $466 million in the quarter, due to input cost inflation and unfavorable currency translations, partly offset by cost savings and organic sales growth.

Consumer Tissue: Segment sales declined approximately 3.2% to $1,469 million in the quarter, owing to unfavorable currency rates and volume decline, somewhat cushioned by improved net selling prices and product mix. Further, segment sales gained year over year across developed regions outside North America, while it declined within the continent as well as in the developing and emerging markets.

Segment operating profit plunged 20% to $212 million in the quarter, on account of input cost inflation and soft volumes, which were somewhat offset by cost savings and higher net selling prices.

K-C Professional Corporate (KCP): Segment sales declined 0.5% from the prior-year quarter's tally to $848 million, thanks to adverse currency rates. This was partly offset by growth in volumes and product mix. Further, sales improved in North America, while the same declined across emerging, developing and developed markets outside North America.

Operating profit in the segment came in at $160 million, registering a decline of almost 9% from the year-ago quarter's tally. This was primarily due to input cost inflation and unfavorable currency rates, which were somewhat offset by cost savings, organic sales improvement as well as lower SG&A expenses.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $494 million, long-term debt of $5,739 million and stockholders' equity of $112 million.

Further, Kimberly-Clark generated cash flow of $692 million from operating activities, during the third quarter. During the same time frame, management incurred capital expenditures of $219 million.

During the quarter, Kimberly-Clark bought back 1.6 million shares for approximately $173 million. For 2018 as a whole, the company expects to repurchase shares worth $800 million.

Update on Restructuring Program

Management is on track with 2018 Global Restructuring Program, which marks the biggest restructuring in a long time. The plan is likely to enhance the company's underlying profitability, help it compete better and provide greater flexibility to undertake growth-oriented investments. Delving deeper, we note that the program is expected to simplify Kimberly-Clark's overhead organization and manufacturing supply-chain structures.

During the third quarter, pre-tax restructuring charges under the initiative amounted to $149 million, which took the cumulative pre-tax charges to $856 million. Further, cumulative savings from the program came in at $80 million.

Guidance for 2018

Despite facing a tough environment in the third quarter, thanks to input cost inflation and unfavorable currency impacts, the company managed to generate substantial savings and also invest in growth-oriented moves. Further, the company is on track with maintaining financial discipline.

That said, management slightly revised sales view for 2018. Net sales are now expected to remain flat year-on-year compared with the earlier range of flat to increase 1%. Nevertheless, management retained organic sales outlook for 2018 of approximately 1%.

Further, adjusted operating profit is now expected to decline either in the higher end or slightly more than the previous view of decline in the band of 2-5%. Further, management projects adjusted effective tax rate within a range of 21-22%.

All said, management continues to envision adjusted earnings per share (EPS) for 2018 in the range of $6.60-$6.80, depicting a considerable rise from the year-ago quarter's earnings of $6.23.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Kimberly-Clark has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kimberly-Clark has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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