Consumer products giant Kimberly-Clark Corporation (KMB) posted adjusted earnings of $1.35 per share in the fourth quarter of 2014. Earnings lagged the Zacks Consensus Estimate of $1.37 by 1.5% but grew 3.8% from the year-ago figure of $1.30 per share.
Year over year, earnings were boosted by organic sales growth, cost savings, decline in marketing, research and general expenses and lower share count owing to share buybacks. However, earnings were negatively impacted by unfavorable foreign currency exchange rate effects, input cost inflation, higher taxes and lower net income from equity companies.
Quarter in Detail
The company reported sales of $4.83 billion in the fourth quarter. Sales declined 1% from the prior-year quarter and missed the Zacks Consensus Estimate of $4.92 billion by 1.9%. Improvement in sales volumes and higher selling prices offset foreign currency headwinds.
Excluding the aforementioned headwinds, organic sales grew 3% from the prior-year quarter, which includes a 7% increase in K-C International segment sales.
Adjusted operating profit (excluding costs for changes in European strategic changes, regulatory dispute in the Middle East, charges for organizational restructuring and for Venezuelan balance sheet re-measurement) grew 1.3% to $769 million in the fourth quarter. This reflects an increase in organic sales and $90 million of cost savings from the FORCE (Focused On Reducing Costs Everywhere) program.
However, input costs increased $55 million in the quarter. Total marketing, research and general expenses were down slightly in the reported quarter. Currency fluctuations reduced adjusted operating profit by $30 million.
Full Year 2014 Details
In 2014, adjusted earnings (excluding the health care business, which was spun-off at the end of Oct 2014) were $5.51 per share, which lagged the Zacks Consensus Estimate of $5.52 by a penny. Earnings however grew 5% from the year-ago figure of $5.24 per share and were within the company’s guidance range of $5.46 to $5.56. Earnings were boosted by higher adjusted operating profit and lower share count, partially offset by lower equity income.
The company reported sales of $19.724 billion in 2014. Sales missed the Zacks Consensus Estimate of $19.81 billion by 0.4% but were up 0.8% from the prior year. Improvement in sales volumes and higher selling prices offset foreign currency headwinds and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions. Excluding the aforementioned headwinds, organic sales grew 4%.
Segment Details
Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants; baby wipes; feminine and incontinence care products.
Sales decreased 1% on a year over year basis to $2.3 billion in the quarter due to unfavorable currency impact, which offset the 4% increase in net selling prices. K-C International sales were flat in the quarter, while sales in Europe and North America declined.
Segment operating profit grew 3% on a year over year basis to $410 million in the quarter, benefiting from organic sales growth and cost savings, partially offset by unfavorable currency rates, higher manufacturing-related costs and input cost inflation.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales declined 3% to $1.6 billion in the fourth quarter due to decline in volumes and unfavorable currencies, which offset the impact of higher selling prices and mix. All the three regions of North America, Europe and K-C International declined in the quarter.
Segment operating profit increased 2% to $280 million owing to benefits of cost savings and lower marketing, research and general expenses, mostly offset by unfavorable currencies, input cost inflation and lower production volumes.
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 increased 1% on a year over year basis to $0.9 billion in the fourth quarter of 2014 owing to positive sales volumes, offset by unfavorable currency. Except Europe, regions of North America and K-C International witnessed an increase in sales.
Volume growth and cost savings led to an increase of 2% in segment operating profit to $151 million. However, input cost inflation and unfavorable currency effects reduced sales.
Strategic Update
The company incurred restructuring costs of $18 million after tax in the fourth quarter related to strategic restructuring in its Western and Central European businesses as announced in Oct 2012. The restructuring included the exit of the diaper category, with the exception of the Italian market, divestiture or exit of some lower-margin businesses in certain markets, and streamlining of its manufacturing footprint and administrative organization. The changes were completed at the end of 2014.
Organization Restructuring in 2014
In Oct 2014, the company initiated a restructuring program in order to improve organization efficiency, improve its underlying profitability, increase the company's flexibility to invest in targeted growth initiatives and offset overhead costs stemming from the spin-off of the company's health care business.
The restructuring is expected to be completed by the end of 2016, with total costs anticipated to be $130 to $160 million after tax. It will result in cumulative pre-tax savings in the range of $120 to $140 million by the end of 2017.
During the fourth quarter, restructuring costs were $95 million after tax while savings amounted to $5 million.
Guidance for Full Year 2015
The company expects 2015 earnings in the range of $5.60 to $5.80 per share, up 2% to 5% compared to adjusted earnings per share of $5.51 in 2014. Sales are expected to decline 3%-6% in 2015. Organic sales growth is expected in the range of 3% to 5%. Foreign currency exchange will continue to impact sales by 8% to 9%.
The company expects adjusted operating profit to grow in the range of 1% to 4%. Cost savings of at least $300 million are expected from the company's FORCE program, whereas savings of $60 million to $80 million are expected to come from the 2014 organization restructuring initiative.
Dividend is expected to increase in mid-single digits in 2015, while share repurchases are expected to total $0.8 to $1.0 billion, subject to market conditions.
Kimberly-Clark holds a Zacks Rank #3 (Hold).
Better-ranked stocks in the consumer staples sector include Supervalu Inc. (SVU), Sysco Corp. (SYY) and Aramark (ARMK). While Supervalu sports a Zacks Rank #1 (Strong Buy), Sysco and Aramark hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment