Kimberly-Clark Corporation’s KMB performance has been impressive of late, owing to stringent cost-saving and restructuring initiatives. Additionally, this professional and personal care products company has been steadily expanding its portfolio through innovations. However, adverse North American market conditions and stiff competition in the diaper segment are headwinds.
Nevertheless, Kimberly-Clark’s growth efforts have helped shares gain 2.3% in the past three months against the industry’’s decline of 6.6%.
Let’s delve into the factors that have been impacting this Zacks Rank #3 (Hold) company’s performance.
Cost-Savings & Restructuring Initiatives Bode Well
Kimberly-Clark has been cutting costs through Focus on Reducing Costs (FORCE) program. During third-quarter 2017, the company managed to deliver cost savings of $125 million that favorably impacted the bottom-line performance. Further, it expects to generate cost savings in the range of $425-$450 million during 2017.
Additionally, the company has been able to attain greater operating efficiencies and profitability on the back of restructuring efforts. Such initiatives mainly include exiting lower-margin businesses, streamlining manufacturing activities and enhancing focus on growth-oriented arenas.
Product Innovation & Focus on Emerging Markets
Innovations have enabled Kimberly-Clark maintain market share. In the near term, the company has a number of innovations lined for launch in North America, including upgrades on Huggies diapers, Depend brands and Good Nights youth pants.
Additionally, Kimberly-Clark is well positioned overseas and has been expanding in developing and emerging markets. During the third quarter, organic sales in emerging markets increased 3% following an increase of 2% in the preceding quarter. Also, volume increased 4% in the developing and emerging markets in the last quarter.
Headwinds Impacting Performance
Kimberly-Clark’s business in the North American consumer products category has been dismal, thanks to tough industry conditions. Also, the company has been struggling with increased competitive activity in diaper segment. The diaper category faces challenges due to lower birth rates in South Korea and in the United States. These factors have dented the company’s top-line growth for a while.
Final Thoughts
We expect Kimberly-Clark’s innovation and restructuring efforts to revive performance in the diaper segment and in North America. Further, we commend the company’s steady cost-saving efforts, which aided management to reiterate earnings and sales view for 2017.
Do Consumer Staples Stocks Grab Your Attention? Check These
Investors interested in the same sector may consider stocks such as Estee Lauder Companies Inc EL, Conagra Brands Inc CAG and Meredith Corporation MDP. While Estee Lauder sports a Zacks rank #1 (Strong Buy), Conagra Brands and Meredith Corporation carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estee Lauder came up with an average positive earnings surprise of 18% in the trailing four quarters. It has a long-term earnings growth rate of 12.5%.
Conagra Brands pulled off an average positive earnings surprise of 7% in the trailing four quarters. Also, it has a long-term earnings growth rate of 7%.
Meredith Corporation delivered an average positive earnings surprise of 7.1% in the trailing four quarters. It has a long-term earnings growth rate of 8%.
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