Consumer products giant Kimberly-Clark Corporation KMB posted better-than-expected results for the third quarter of 2015. Also, company raised the lower end of its previous guidance range for full-year adjusted earnings and organic sales growth.
Adjusted earnings of $1.51 per share beat the Zacks Consensus Estimate of $1.49 by 1.3% and increased by 0.7% from the year-ago figure of $1.50 per share. Year over year, earnings were boosted by organic sales growth, cost savings, input cost deflation, margin improvements and lower share count owing to share buybacks. However, earnings were negatively impacted by unfavorable foreign currency exchange rate effects and higher other expenses.
Quarter in Detail
The company reported sales of $4.72 billion in the third quarter. Though sales easily beat the Zacks Consensus Estimate of $4.65 billion by 1.5%, it declined 6.7% from the prior-year quarter due to foreign currency headwinds.
Excluding the aforementioned headwinds, organic sales grew 5% from the prior-year quarter, mainly driven by volume gain of 5%. Product mix was slightly favorable. Organic sales grew 10% in developing and emerging markets and 7% in personal care in North America.
Adjusted operating profit in 2015 (excluding charges for pension settlements, organization restructuring costs and charges for restructuring the company's business in Turkey) declined 5.9% to $826 million in the third quarter. The decline was mainly due to unfavorable currencies, which reduced adjusted operating profit by $115 million. This overshadowed the organic sales growth, $85 million of cost savings from the FORCE (Focused On Reducing Costs Everywhere) program and $20 million of savings from the organization restructuring announced in 2014. Input costs also decreased $45 million in the quarter.
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 5% on a year-over-year basis to $2.4 billion in the quarter due to unfavorable currency impact. However, volumes increased more than 7% and product mix improved 1%. Sales improved in North America but declined in developed markets outside North America and developing and emerging markets.
Segment operating profit was flat at $484 million in the quarter, benefiting from organic sales growth, cost savings and lower input costs, partially offset by unfavorable currency rates and increased marketing, research and general spending.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales declined 10% to $1.5 billion in the third quarter due to unfavorable currencies and lower selling prices, which offset the impact of higher volumes. While sales improved in North America, it declined in developed markets outside North America and developing and emerging markets.
Segment operating profit decreased 9% to $260 million due to unfavorable currencies offset by cost savings.
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 declined 5% on a year-over-year basis to $0.8 billion in the third quarter of 2015 due to unfavorable currency, offset by positive sales volumes and product/mix. While sales in North America were flat, sales in developed markets outside North America and developing and emerging markets declined in the quarter.
Unfavorable currency effects led to a decline of 7% in segment operating profit to $154 million, which overshadowed the gains from organic sales and cost savings.
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 million to $160 million after tax. It will result in cumulative pre-tax savings in the range of $120 million to $140 million by the end of 2017.
During the third quarter of 2015, restructuring costs were $7 million after tax while savings amounted to $20 million.
Guidance for 2015
For 2015, the company raised the low end of its previous guidance range for adjusted earnings and organic sales growth. The company now expects adjusted earnings per share to be $5.70 to $5.80 compared with the company's previous guidance of $5.65 to $5.80. This is up 3.5% to 5% from adjusted earnings per share of $5.51 in 2014. Organic sales are anticipated to grow 4% to 5% versus the prior assumption of 3% to 5%.
Foreign currency exchange will negatively impact sales by 10% to 11%, higher than the prior assumption of 10%. Operating profit growth is anticipated to be 11% to 12%, higher than the prior expectation of 11%.
Kimberly-Clark has a Zacks Rank #3 (Hold).
Better-ranked stocks in the consumer staples sector include Ollie's Bargain Outlet Holdings, Inc. OLLI, Flower Foods, Inc. FLO and The J. M. Smucker Co. SJM. All of them hold a Zacks Rank #2 (Buy).
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