Kimberly-Clark Upped to Hold on Innovation, Cost Savings - Analyst Blog
On Apr 15, 2015, Zacks Investment Research upgraded Kimberly-Clark Corp. KMB to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) primarily on account of its business innovations and cost savings initiatives. Going by the Zacks model, companies holding a Zacks Rank #3 have chances of performing in line with the broader market.
Factors at Play
Kimberly-Clark’s earnings got a boost through 2014 on the back of cost saving initiatives, lower selling expenses and continued product innovation. Initiatives to control costs through its FORCE program bode well. The company has also achieved higher organic sales on the back of volume growth and better pricing. The company is cash rich and has a consistent track record of returning cash to shareholders in the form of dividend payments and share buybacks.
Growth initiatives and a strong international presence also make the stock attractive. Kimberly-Clark is well positioned overseas and has been regularly expanding in key emerging markets, which includes businesses in Asia, Latin America, the Middle East, Eastern Europe and Africa, with particular emphasis on China, Brazil, India and Russia.
Moreover, the spin-off of the health care business into a new company 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. The health care company is now trading as Halyard Health, Inc. HYH.
However, the company sees itself struggling with currency volatility, higher input costs and increased competition in its diapers segment in 2015. Kimberly-Clark anticipates sluggish sales to continue. Hence, it gave a disappointing outlook for sales in 2015 as it struggles with 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%. (Read: Kimberly-Clark Q4 Earnings Miss on Currency Headwinds)
The firms are also not so positive about the company’s numbers in the upcoming quarters. Estimates for first quarter 2015 declined 0.7% and that for full year 2015 went down 0.7% over the last 30 days.
Key Picks from the Sector
Better-ranked stocks in the consumer staples sector include Monster Beverage Corp MNST and Cott Corp. COT. While Monster Beverage sports a Zacks Rank #1 (Strong Buy), Cott Corp. holds a Zacks Rank #2 (Buy).
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