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Kimberly-Clark (KMB) Up on Solid Q4 Earnings, Savings Goals

Kimberly-Clark CorporationKMB reported fourth-quarter 2017 results, wherein both top and bottom lines improved year over year and the latter also exceeded the Zacks Consensus Estimate for the second consecutive quarter. Moreover, management announced 2018 guidance, taking into account the expected gains from its Focused on Reducing Costs Everywhere (FORCE) program and the 2018 restructuring plan.

Additionally, the company announced a dividend hike, which along with the quarterly performance drove this Zacks Rank #3 (Hold) stock by 1.4% in the pre-market trading session. Also, we note that the stock has gained 5.2% in the past three months outperforming the industry 's upside of 0.7%.

The quarterly earnings of $1.57 per share surpassed the Zacks Consensus Estimate of $1.54 and increased 8.3% year over year. The year-over-year growth was driven by cost savings from FORCE program as well as reduced effective tax rate stemming from the latest tax reforms and associated activities. Notably, adjusted effective tax rate in the fourth quarter was 29.7%, as compared with 35.4% in the year-ago period.

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

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

Quarter in Detail

Kimberly-Clark's sales advanced 1% to $4,582 million, while it lagged the Zacks Consensus Estimate of $4,597 million. Sales were positively impacted by currency movements by more than 1%.

However, organic sales dipped 1% owing to a 2% fall in net selling prices, somewhat compensated by improved volumes and product mix. Within North America, organic sales at consumer products decreased 3%, while it climbed 1% at K-C Professional. Internationally, organic sales advanced 4% in developing and emerging markets, whereas it dropped 3% in developed regions.

Adjusted operating profit fell 2.7% to $836 million due to lower net selling prices, increased input costs on account of greater costs of pulp and other raw materials. This was partly negated by higher volumes, favorable product mix, lower marketing, research and general spending and cost savings of $95 million from the FORCE program.

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 of $2,274 million went up 1% during the quarter, courtesy of improved product mix and volumes; benefits from currency and buyout of the company's joint venture in India, somewhat countered by lower net selling prices. Sales improved in the developing and emerging markets, while it remained soft in North America and developed markets outside North America.

Segment operating profit fell 2% to $483 million in the quarter owing to input cost inflation and lower selling prices, partly offset by cost savings, better product mix and reduced expenditure on market research and general spending.

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

Segment sales dipped 1% to $1,496 million in the quarter owing to a decline in net selling prices and volumes, while the segment witnessed some positive impacts from currency movements. Segment sales dropped year over year in North America, while it increased in developed regions outside North America. Sales in the segment also depicted growth in the developing and emerging regions.

Segment operating profit plunged 13% to $258 million in the quarter on account of weak sales and input cost inflation, somewhat cushioned by cost savings and lower market research and general costs.

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 3% from the prior-year to $803 million in the quarter, backed by growth in volumes and positive impacts from currency rates. Sales improved in North America and developing and emerging markets. Sales also improved in the developed markets outside North America.

Segment operating profit rose 3% to $151 million, gaining from cost savings, lower market research and general costs and higher volumes. These were partially offset by input cost inflation.

Other Financial Updates

The company ended the year with cash and cash equivalents of $616 million, long-term debt of $6,472 million and stockholders' equity of $882 million.

Further, Kimberly-Clark generated cash flow of $2,929 million from operating activities during 2017. During the same time-frame, management incurred capital expenditures of $785 million, while it expects it to be roughly $1.1 billion in 2018.

During the quarter, the company bought back 0.9 million shares for $100 million. Including this, the company repurchased 7.2 million shares for $900 million during 2017. In 2018, the company anticipates making share buybacks worth $0.7-$0.9 billion.

Additionally, management announced a 3.1% hike in its dividend, from 97 cents per share to $1.00 per share. This will be payable on on April 3, 2018 to shareholders of record on March 9, 2018.

2018 Global Restructuring & FORCE Programs to Drive Savings

Management remains encouraged about its 2018 Global Restructuring Program, which marks the company's biggest restructuring in a long time now. This plan is likely to enhance the company's underlying profitability, help it compete better and 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.

Management expects pre-tax savings of $500 million to $550 million from this program by the end of 2021, backed by production supply chain efficiencies and reduction in workforce. Notably, the program will benefit all segments of the company, alongside being gainful for each major geographical region. Moreover, management plans to shut or divest nearly 10 manufacturing facilities, as well as expand production capacity at various other facilities to enhance scale and curtail costs.

In fact, in this regard, the company expects to sell or exit some low-margin businesses that deliver about 1% of net sales, mainly concentrated in the consumer tissue unit. The company expects spending $1,500-$1,700 million by 2020 end, to execute this program. This includes pre-tax cash restructuring charges of about $900-1,000 million and additional capital expenditure of about $600-$700 million. In 2018, the company expects incurring pre-tax restructuring charges of about $1,200-$1,350 million.

Apart from this program, the company remains on track with its robust FORCE program. In this regard, the company anticipates cost savings of more than $1.5 billion to be generated 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.

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.

Guidance for 2018

Kimberly-Clark provided its overall outlook for 2018. Net sales are expected to rise in a range of 1-2%, while organic sales are anticipated to climb nearly 1% on volume growth. Management stated that it expects net selling prices and product mix to remain similar in 2018, or be slightly higher than 2017. Sales are likely to remain neutral to receive a 1% benefit from currency changes, and it is also likely to get a boost from the buyout of the company's joint venture in India.

Adjusted operating profit is expected to jump 2-5%, buoyed by cost savings of nearly $400 million from the FORCE program and $50-$70 million from the 2018 Global Restructuring Program. However, management expects input cost inflation of about $300-$400 million.

Interest costs are expected to tank nearly 20% and effective tax rate is envisioned in a band of 23% to 26%.

Considering all factors, the company envisions adjusted earnings per share to grow roughly 11-16% year over year to about $6.90-$7.20. Notably, the current Zacks Consensus Estimate for full-year 2018 is pegged much lower at $6.56, which is likely to witness upward revision.

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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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