On Dec 26, 2014, we issued an updated research report on Kimberly-Clark Corp. (KMB).
On Oct 21, the consumer product giant reported third quarter 2014 results.
Kimberly-Clark’s adjusted earnings of $1.61 per share exceeded the Zacks Consensus Estimate of $1.54 by 4.5% and grew 11.8% from year-ago earnings of $1.44 per share. Earnings were boosted by organic sales growth, cost savings and a lower share count owing to share buybacks, which more than made up for increased input costs, currency headwinds, a higher tax rate and lower net income from equity companies.
The company reported sales of $5.44 billion in the third quarter. Sales were up 3.4% from the prior-year quarter and were ahead of the Zacks Consensus Estimate of $5.38 billion by 1.1%. Improvement in sales volumes and higher selling prices offset foreign currency headwinds and lost sales from European strategic changes.
Excluding the aforementioned headwinds, organic sales grew 4% from the prior-year quarter, which includes a 10% increase in K-C International segment sales (read: Kimberly-Clark's Q3 Earnings & Revenues Beat Estimates).
We are encouraged by the company’s spin-off of the health care business during the quarter, which is now trading as Halyard Health, Inc. (HYH). Following the spin-off, the company will now be able to focus on its core portfolio. It has initiated a restructuring program in order to improve organizational efficiency and underlying profitability, increase the company's flexibility to invest in targeted growth initiatives and offset overhead costs stemming from the spin-off.
Kimberly-Clark’s organic sales growth, focus on innovations, growth initiatives and a strong international presence make the stock attractive. Further, initiatives to control costs through its FORCE program bode well. Kimberly-Clark is also 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.
The company also returns value to its shareholders and has recently authorized a new share repurchase program for up to 40 million shares for $5 billion (read: Kimberly-Clark Boosts Shareholder Value Yet Again).
However, a lower consumer spending pattern due to an adverse macro-economic environment, unfavorable currency and higher input costs remain as headwinds. In fact, the company expects higher input costs in 2014, which may hurt its margins. Kimberly-Clark holds a Zacks Rank #4 (Sell).
Key Picks from the Sector
Better-ranked stocks in the food industry include Aramark (ARMK) and The Hain Celestial Group, Inc. (HAIN). While Aramark sports a Zacks Rank #1 (Strong Buy), Hain Celestial holds a Zacks Rank #2 (Buy).
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