Kimberly-Clark Corporation KMB is set to report first-quarter 2015 results before the opening bell on Apr 21. Last quarter, this consumer product giant posted a negative earnings surprise of 1.46%. Let’s see how things are shaping up prior to the announcement.
Factors to Consider
Kimberly-Clark’s cost saving initiatives and continued product innovation have been driving earnings for the past many quarters. The company also achieved higher organic sales on the back of volume growth and better pricing in all the quarters of 2014. We expect these positives to continue to drive earnings in 2015 as well.
Moreover, the spin-off of the health care business into a new company called Halyard Health, Inc. HYH in 2014 is allowing Kimberly-Clark 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.
However, the company had a tough year in 2014 due to a sluggish macro-economic environment. Weak spending from lower- and middle-income segment consumers hurt the company’s comps. Rising material costs and currency fluctuations also remained concerns.
Kimberly-Clark anticipates the sluggish sales trend to continue. Hence, it gave a disappointing outlook for sales in 2015 as it faces currency volatility and increased competition in its diapers segment. Sales are expected to decline 3%-6% in 2015, as against growth of 0.8% in 2014. Foreign currency exchange will impact sales by 8% to 9% and reduce earnings by 9% to 10%.
Estimates have also been declining for the first quarter of 2015 over the past 7 days.
Earnings Whispers
Our proven model does not conclusively show that Kimberly-Clark is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: ESP for Kimberly-Clark is -0.75% as the Most Accurate Estimate of $1.32 is lower than the Zacks Consensus Estimate of $1.33 per share.
Zacks Rank: Kimberly-Clark’s Zacks Rank #3 (Hold) when combined with an ESP of -0.75% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Other stocks worth considering in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Tyson Foods Inc. TSN, with an Earnings ESP of +8.00% and a Zacks Rank #2 (Buy).
Pilgrim's Pride Corporation PPC, with an Earnings ESP of +5.20% and a Zacks Rank #2.
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