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Kimberly-Clark (KMB) Poised on Growth Efforts, Cost Woes Stay

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Zacks Equity Research
·4 min read
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Kimberly-Clark Corporation KMB is battling escalated costs and currency headwinds. Moreover, increased social distancing and stay-at-home trends amid the coronavirus outbreak are marring the K-C Professional segment. Nevertheless, Kimberly-Clark’s robust cost-saving plans and focus on key strategic growth pillars bode well.

Let’s delve deeper.

What’s Hurting Kimberly-Clark?

Kimberly-Clark’s K-C Professional segment is witnessing softness for the past two quarters, which reflects challenging economic and business situations worldwide stemming from the coronavirus outbreak. In the third quarter of 2020, sales in the K-C Professional segment slumped 16% year over year. Volumes were down 21% owing to coronavirus-led woes.

Apart from this, Kimberly-Clark is seeing escalated marketing, research and general expenses for the last few quarters. In the third quarter, the metric rose 13%. Moreover, the company is exposed to unfavorable foreign currency translations as it has a considerable international presence. Unfavorable currency movements dented sales by 2% in the quarter. We note that Kimberly-Clark’s shares have declined 8% in the past three months compared with the industry’s growth of 2.9%.

The Bright Side

Kimberly-Clark is committed toward its three key strategic growth pillars. These include focus on improving core business in the developed markets; ramping up growth in the Personal Care segment in developing and emerging markets as well as enhancing digital and e-commerce capacities. Management is progressing well with these objectives, which are boosting portfolio and expanding global business. In October Kimberly-Clark acquired Softex Indonesia — a leading player in the Indonesian personal care market. The company expects the buyout to augment its market share in the personal care category in the Southeast Asia region.

Additionally, Kimberly-Clark is undertaking significant measures to lower costs. This is highlighted from the 2018 Global Restructuring Program and Focus on Reducing Costs Everywhere or FORCE Program. The 2018 Global Restructuring Program, which is the company’s biggest restructuring plan, focuses on enhancing profitability by simplifying the supply chain and manufacturing structures. This enables Kimberly-Clark to compete better and provides it more flexibility to undertake growth-oriented investments.

Until the end of third-quarter 2020, Kimberly-Clark generated cumulative savings worth $395 million from the 2018 Global Restructuring Program. Management is on track to generate pre-tax savings of $500-$550 million from this program by the end of 2021. However, some of these realizations could occur in 2022 due to uncertainties related to the coronavirus outbreak.

Moreover, Kimberly-Clark is aggressively cutting costs and enhancing supply-chain productivity through its FORCE Program. The program is generating solid cost savings for a while, which are driving its performance. During the third quarter, the company generated cost savings of $125 million and $15 million from the FORCE program and the 2018 Global Restructuring Program, respectively.

Apart from these, the company is witnessing higher consumer demand for its products amid the coronavirus outbreak. We believe that these upsides are likely to drive this Zacks Rank #3 (Hold) company’s performance.

Some Solid Staple Bets

Grocery Outlet GO, with a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 14.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newell Brands NWL, with a Zacks Rank #1, has a long-term earnings growth rate of 2.9%.

Albertsons Companies ACI, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10.9%.

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KimberlyClark Corporation (KMB) : Free Stock Analysis Report
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