Kimberly-Clark Corporation KMB is gaining from its restructuring efforts and focus on other key strategies. These endeavors are enabling the company to stay in investors’ good books despite soft K-C Professional unit sales and input cost inflation.
Markedly, this Zacks Rank #3 (Hold) stock has rallied 24% so far this year against the industry’s decline of 12.1%. Let’s take a closer look.
Kimberly-Clark on Growth Path
Kimberly-Clark has been taking robust steps to lower costs. This is highlighted by the 2018 Global Restructuring Program and the FORCE Program.
The 2018 Global Restructuring Program is likely to enhance the company’s underlying profitability by simplifying the supply chain and manufacturing structures, thereby providing greater flexibility to make growth-oriented investments. On a cumulative basis, the company generated savings of $215 million from this program. Management continues to expect pre-tax savings of $500-$550 million from this program by the end of 2021. As part of this initiative, the company plans to sell or exit some low-margin businesses.
Moreover, Kimberly-Clark is aggressively cutting costs and enhancing supply-chain productivity through its Focus on Reducing Costs Everywhere or FORCE Program. The program is generating solid cost savings for quite a while.
This apart, Kimberly-Clark is committed toward its three key growth pillars. These include focus on improving its core business in the developed markets, accelerating the growth of the Personal Care segment in developing and emerging markets, and enhancing digital and e-commerce capacities. The company expects to meet these objectives through product development across different categories and by banking on marketing and sales capabilities.
Hurdles on the Path
Higher input costs have been troubling Kimberly-Clark for a while now. Evidently, input costs of $80 million stemming from increased costs of pulp, and higher raw materials and distribution expenses weighed on the company’s adjusted operating profit in the second quarter of 2019. Further, management now expects input cost inflation of $150-$250 million for 2019.
Also, Kimberly-Clark’s K-C Professional (or KCP) segment has been witnessing dismal sales performance. After declining 2% in the first quarter of 2019, the segment’s sales dropped 5% in the second quarter. This was due to adverse currency rates and several business exits. Volumes were down 3%. This was somewhat cushioned by improved product mix and higher net selling prices. Sales were flat in North America, while the same declined 6% and 8% in developing and emerging markets as well as developed markets outside North America, respectively.
Though the persistence of these headwinds is a concern, we expect Kimberly-Clark to tide over them with its growth efforts in place. In fact, management had raised its 2019 guidance, when it reported second-quarter results. The company now envisions 2019 earnings of $6.65-$6.80 per share, up from the prior forecast of $6.50-$6.70. Kimberly-Clark now projects organic sales to grow 3%, up from prior guidance of 2%.
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