Kimberly-Clark Beats, Provides View

Zacks

Kimberly-Clark Corporation (KMB) delivered better-than-expected fourth quarter 2012 adjusted earnings (excluding charges) of $1.37 per share, beating the Zacks Consensus Estimate by a penny. Adjusted earnings also surpassed the prior-year quarter’s earnings of $1.28 per share by 7.0%.

Bottom-line growth was boosted by organic sales growth, cost savings and a reduced commodity costs, partially offset by increased marketing and higher interest expenses.

Quarter in Detail

The company reported net sales of $5.3 billion in fourth quarter, up 3% from the prior-year quarter. The results also exceeded the Zacks Consensus Estimate of $5.2 billion. However, currency fluctuations and the exit of non-strategic products each eroded company’s sales by 1% in the quarter.

Excluding currency impact and lost sales, organic sales grew 5% from the prior-year quarter, driven by volume growth, improved pricing and strong performance internationally.

Adjusted operating profit (excluding costs for the pulp and tissue restructuring and European strategic changes) grew 5% to $798 million in the fourth quarter. This reflects increase in organic sales and cost savings from Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program.

Segment Details

Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants; baby wipes; feminine and incontinence care products.

Sales grew 8% on a year-over-year basis to $2.4 billion in the quarter on the back of increase in sales volumes and rise in net selling prices, which offset the negative impact from currency fluctuations. The segment witnessed positive sales growth in all the regions of North America, K-C International and Europe.

Segment’s operating profit increased 23% on a year-over-year basis to $419 million in the quarter due to organic sales growth, higher production volumes and cost savings, partially offset by rise in marketing spending and higher manufacturing costs.

Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.

Sales declined 2% to $1.7 billion in the fourth quarter. Lost sales in conjunction with pulp and tissue restructuring actions, as well as currency fluctuations and decline in product mix overshadowed the higher net selling prices and improved organic sales volumes. Except K-C International, regions of North America and Europe witnessed decline in sales.

Segment operating profit also plummeted 4% to $235 million in the quarter due to higher marketing, research and general expenses, offsetting the benefits from cost savings and organic sales increase.

K-C Professional (:KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.

Sales increased 1% to $0.8 billion in fourth quarter 2012, driven by organic sales growth and improved pricing. However, currency fluctuations and the exit of non-strategic products eroded sales. Except K-C International, regions of North America and Europe witnessed decline in sales.

Segment operating profit increased 9% to $138 million, driven by organic sales growth, input cost deflation and cost savings, partially offset by higher manufacturing costs.

Health Care: The segment consists of disposable health care products.

Sales declined 2% from the prior-year quarter to $0.4 billion in fourth quarter 2012, resulting from unfavorable currency rates, lower sales volume and decline in net selling prices.

Operating profit was $61 million, up 2% year over year, driven by input cost deflation and lower marketing expenses, mostly offset by increased manufacturing costs and the negative impact of lower organic sales.

Fiscal 2012 Results

The company delivered better-than-expected fiscal 2012 adjusted earnings (excluding charges) of $5.25 per share, beating the Zacks Consensus Estimate by 2 cents. The result was at the highest end of the guidance range of $5.15 to $5.25 per share. Adjusted earnings also surpassed the prior-year quarter’s earnings by 9.4%.

The company’s sales increased 1% to $21.06 billion, beating the Zacks Consensus Estimate of $20.96 billion. However, currency fluctuations and the exit of non-strategic products each eroded company’s sales.

Excluding currency impact and lost sales, organic sales grew 5% from the prior-year quarter, driven by sales volume, improved pricing and product mix.

Adjusted operating profit increased 8% to $3.1 billion in fiscal 2012, benefiting from organic sales growth, FORCE cost savings and input cost deflation. These benefits were partially offset by increased marketing spending.

Strategic Update

In Oct 2012, the company announced plans to dissolve the diaper segment of Western and Central Europe, except the Italian market. The company also plans to streamline its manufacturing facilities in Europe.

The company incurred restructuring costs of $242 million after tax in the fourth quarter due to European strategic changes. Through 2014, the company expects restructuring costs of $250 to $350 million after tax.

Other Financial Details

During the fourth quarter, the company repurchased approximately 3.8 million shares for $320 million, while the share repurchases in fiscal 2012 totaled 16.4 million shares for $1.3 billion. 

Guidance for Fiscal 2013

Following an upbeat fiscal 2012 results, Kimberly-Clark expects its adjusted earnings in a range of $5.50 to $5.65, up 5% to 8% from fiscal 2012.

The company expects net sales to increase in the range of 0%–3%. Organic sales are expected to grow 3% to 5%, with higher organic volumes, higher net selling prices and improved product mix. However, lost sales as a result of European strategic changes and pulp and tissue restructuring actions are expected to reduce sales volumes by 2%, while currency rates are expected to decrease sales by 0% to 1%.

Adjusted operating profit is expected to grow in the range of 3% to 6%, driven by cost savings from the company's FORCE program, which is expected in the range of $250 to $300 million.

The company expects to repurchase shares for a total of $1.0 to $1.2 billion in fiscal 2012. 

Kimberly-Clark holds a Zacks Rank #3 (Hold). Other stocks in the consumer staples sector that are better-positioned are B&G Foods Inc (BGS), Ingredion Inc (INGR)  and Flower Foods Inc (FLO), all of which carry a Zacks Rank #1 (Strong Buy).

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