A month has gone by since the last earnings report for Kimberly-Clark CorporationKMB . Shares have added about 10.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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 Beats Fourth Quarter Earnings on Cost Savings
Kimberly-Clark posted better-than-expected results in the fourth-quarter 2016, wherein both earnings and revenues beat the Zacks Consensus Estimate.
Adjusted earnings of $1.45 per share beat both the Zacks Consensus Estimate and year-ago results of $1.42 by 2.1%. Year over year, earnings were boosted by cost savings, improved operating profits and lower tax rates. However, earnings were negatively impacted by unfavorable foreign currency exchange rates.
Quarter in Detail
The company reported sales of $4.544 billion in the fourth quarter. Sales marginally beat the Zacks Consensus Estimate of $4.522 billion and was flat from the prior-year quarter. Currency reduced the quarter's sales by 1%.
Excluding the aforementioned headwinds, organic sales increased 1% from the prior-year quarter as higher volumes of 2% were offset by the combined impact of changes in net selling prices and product mix, which reduced sales by 1%. 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 third quarter, organic sales declined in all the other regions, except in developing and emerging markets, where the figure was up 3%. However, growth decelerated from 5% increase witnessed in the first and second quarters, as performance improved in China but softened in Latin America, particularly in Brazil and Argentina, due to lower volumes, and highly competitive promotional activity and an even more difficult economic environment.
Though the company has strong long-term growth prospects in developing and emerging markets, the current promotional environment is weakening the current market dynamics.
Adjusted operating profit in the fourth-quarter 2016 (excluding organization restructuring costs) grew 10% to $859 million. It was mainly driven by $140 million of cost savings from the FORCE (Focused on Reducing Costs Everywhere) program and $25 million of savings from the organization restructuring announced in 2014. Input costs also decreased $5 million in the quarter due to lower fiber costs. However, this was offset by unfavorable currencies, which reduced adjusted operating profit by $5 million.
Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.
Segment sales increased 1% on a year-over-year basis to $2.2 billion in the fourth-quarter 2016 driven by higher volumes offsetting unfavorable currency, lower selling prices and product mix. Sales improved in all the regions of North America, developed markets outside North America, and developing and emerging markets.
Segment operating profit improved 5% to $495 million in the quarter driven by cost savings, partially offset by manufacturing-related cost increases and unfavorable currency effects.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales dropped 1% to $1.5 billion in the fourth-quarter 2016 due to unfavorable currency. Sales declined in developed markets outside North America and developing and emerging markets. Sales were flat in North America.
Segment operating profit increased 13% to $295 million in the quarter, benefiting from cost savings and input cost deflation, partially offset by unfavorable currencies and lower selling prices.
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 were flat at $0.8 billion in the fourth quarter, as volume increase was offset by unfavorable currencies. Sales improved in North America and developing and emerging markets but declined in developed markets outside North America.
However, segment operating profit declined 7% to $146 million, as input cost inflation and higher marketing, research and general spending was partially offset by organic sales growth and cost savings.
Full Year 2016 Results
Adjusted earnings of $6.03 per share exceeded the Zacks Consensus Estimate of $6.00 per share by 0.5% and year-ago results by 5%.
Sales were $18.202 billion in full year 2016, which marginally missed the Zacks Consensus Estimate of $18.275 billion. Sales also declined 2.1% from the prior-year.
In Oct 2014, Kimberly-Clark initiated a restructuring program in order to improve organization efficiency and underlying profitability, increase the company's flexibility to invest in targeted growth initiatives and offset overhead costs stemming from the spin-off of its health care business.
The restructuring were completed at the end of 2016, as expected. Total costs were $164 million, as was anticipated to be toward the high end of the previously announced range of $130-$160 million after tax. The company achieved annualized pre-tax savings of $140 million by the end of 2016 from the restructuring, as was expected to be toward the high end of the previously communicated range of $120-$140 million by 2017 end.
Other Financial Update
Cash provided by operations in the fourth-quarter 2016 was $871 million, up 31% from the year-ago period. In the fourth quarter, the company repurchased 1.9 million shares at a total cost of $225 pursuant to a share repurchase program.
Guidance for 2017
The company expects earnings per share in the range of $6.20-$6.35. Net sales in 2017 are expected to be similar to 2016, including organic sales growth of approximately 2%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.
Kimberly-Clark Corporation Price and Consensus
At this time, Kimberly-Clark's stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.