Can Kimberly-Clark (KMB) Surprise This Earnings Season? - Analyst Blog
Kimberly Clark Corporation (KMB) is set to report fourth-quarter 2014 results before the opening bell on Jan 23. Last quarter, this consumer product giant posted a positive surprise of 4.55%. Let’s see how things are shaping up prior to the announcement.
Factors to Consider
Kimberly-Clark’s cost saving initiatives, lower selling expenses 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 three quarters of 2014. We expect these positives to drive earnings in the fourth quarter of 2014 as well.
Investors are encouraged by the company’s spin-off of the health care business during the quarter, which is now trading as Halyard Health, Inc. (HYH). Following the spin-off, the company will now be able to focus on its core portfolio.
Kimberly-Clark also initiated a restructuring program, after the spin-off, 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.
This is also expected to benefit the company in the upcoming quarter. Kimberly Clark’s previous restructuring and cost savings initiatives have helped reduce costs and led to higher operating profit in both 2012 and 2013. The company expects the trend to continue in 2014 too.
The company has also recently raised its share repurchase target to $2 billion for 2014, up from its previous plan of $1.3 billion–$1.5 billion. This will also impact 2014 earnings favorably.
However, the company has been reporting dismal sales since the past few quarters signaling weakness in the overall consumer spending environment. High input costs and unfavorable currency have reduced operating profit and have been offsetting the gains from organic sales growth and cost saving initiatives. In fact, the company predicts higher input costs for the fourth quarter, which may further hurt margins in the upcoming quarter.
Estimates have also been declining for the fourth quarter and full year 2014 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 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.36 per share.
Zacks Rank #3 (Hold): Kimberly-Clark’s Zacks Rank #3 when combined with an ESP of 0.00% 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.
Other Stocks to Consider
Other stocks worth considering in the consumer staples/retail sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Supervalu, Inc. (SVU) with an Earnings ESP of +4.76% and a Zacks Rank #1 (Strong Buy) Sysco Corp. (SYY) with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy)
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