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Kimberly-Clark (KMB) Up on Solid Restructuring & Innovation

Zacks Equity Research

Kimberly-Clark Corporation KMB has been benefiting from robust restructuring efforts and focus on innovation. Moreover, the company is committed toward its three key strategic growth pillars. Notably, this Zacks Rank #3 (Hold) stock has rallied 22.8% in the past year against the industry’s decline of 6.6%.

However, softness in K-C Professional (KCP) along with unfavorable currency rates is a concern. Nevertheless, the upsides drove the company’s performance in fourth-quarter 2019, with the top and the bottom line beating the Zacks Consensus Estimate. This marked the company’s fourth consecutive bottom-line beat. Further, management issued an impressive outlook for 2020, with net sales expected to inch up 1% year over year. Further, management envisions 2020 adjusted earnings per share in the range of $7.10-$7.35, suggesting improvement from $6.89 reported in 2019.



Factors Driving Kimberly-Clark’s Growth

Kimberly-Clark has been undertaking initiatives to save costs for a while. This is evident 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 its profitability by simplifying the supply chain and manufacturing structures. This enables Kimberly-Clark compete better and provides it more flexibility to undertake growth-oriented investments.

Till the end of 2019, Kimberly-Clark generated cumulative savings worth $300 million from the 2018 Global Restructuring Program. Earlier, management had stated that it expects pre-tax savings in the range of $500-$550 million from this program by the end of 2021, backed by production supply-chain efficiencies and reduction in workforce. Moreover, the company is on track with cutting costs and enhancing supply chain productivity via the FORCE program.

Kimberly-Clark generated total cost savings of $425 million in 2019. Encouragingly, management expects to generate total cost savings of $425-$500 million in 2020. This includes expected savings of $325-$375 million from the FORCE program and $100-$125 million from the 2018 Global Restructuring Program.

Further, the company has been progressing well with its focus on three key strategic growth pillars — improving core business in the developed markets, accelerating growth in the Personal Care segment in developing and emerging markets as well as enhancing digital and e-commerce capacities.

Additionally, management introduced the K-C Strategy 2022 in January 2019 to generate balanced and sustainable growth as well as boost shareholders’ value. Apart from this, the company has been focusing on innovation, particularly in the training pant category to drive growth. Further, Kimberly-Clark plans to innovate products under its adult incontinence and tissue category. Also, the company announced a number of innovation plans, including upgrades on Poise pads and Huggies diapers.

Wrapping Up

Kimberly-Clark’s KCP segment has been witnessing dismal sales performance for a while. Sales in the segment dropped 3% in the fourth quarter. Further, volumes in the category fell 3% in the same period. Also, the company is exposed to unfavorable foreign currency translations due to international presence. Nonetheless, we believe that the aforementioned upsides are likely to help Kimberly-Clark maintain its position in investor’s good books.

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