On Sep 19, 2014, we issued an updated research report on Kimberly-Clark Corp. (KMB).
On Jul 22, the consumer product giant reported second-quarter 2014 results.
Kimberly-Clark’s adjusted earnings of $1.49 per share were in line with the Zacks Consensus Estimate and grew 5.7% from the year-ago figure. Earnings were boosted by organic sales growth, expansion into high-margin products and emerging markets, cost savings and lower share count owing to share buybacks, which made up for increased input costs, currency headwinds and lower net income from equity companies.
Sales of $5.34 billion in the second quarter were up more than 1% from the prior-year quarter and were slightly ahead of the Zacks Consensus Estimate of $5.32 billion. Improvement in sales volumes and higher selling prices were offset by foreign currency headwinds, lost sales in conjunction with European strategic changes, and pulp and tissue restructuring actions.
Excluding the aforementioned headwinds, organic sales grew 5% from the prior-year quarter, which includes a 10% increase in K-C International segment sales. (Read: Kimberly-Clark's Q2 Earnings In Line; Narrows Guidance).
We are encouraged by the company’s improved organic sales growth, regular innovations, growth initiatives and a strong international presence that make the stock attractive. Kimberly-Clark regularly focuses on improving its products through innovation in order to remain competitive and drive growth. Kimberly-Clark is well positioned overseas and has been regularly expanding in key emerging markets through K-C International (KCI), which includes businesses in Asia, Latin America, the Middle East, Eastern Europe and Africa, with particular emphasis on China, Brazil, India and Russia.
Further, initiatives to control costs through its FORCE program bode well for better profits in future. In addition, the company’s divestiture of low-margin Huggies diapers businesses in all the European markets except Italy will also help Kimberly-Clark utilize its resources in more promising markets.
However, lower consumer spending pattern due to an adverse macro-economic environment, unfavorable currency and higher input costs remain headwinds for the company. In fact, the company expects higher input costs in the year 2014, which may hurt margins.
Also, Kimberly-Clark’s health care segment has been witnessing decelerated sales growth since the last few quarters. The segment operates on low margins and has been underperforming other segments. Therefore, the company decided to shed its health care business to focus on its core consumer and professional brands, optimize its performance and offer flexibility to pursue its own value-creation opportunities.
Kimberly-Clark holds a Zacks Rank #3 (Hold).
Key Picks from the Sector
Better-ranked stocks in the food industry include Aramark (ARMK), Boulder Brands, Inc. (BDBD) and The Hain Celestial Group, Inc. (HAIN). While Aramark sports a Zacks Rank #1 (Strong Buy), Boulder Brands and Hain Celestial hold a Zacks Rank #2 (Buy).
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