Kimberly-Clark Corporation (KMB) started the year on a high note with strong first quarter 2013 adjusted earnings of $1.48 per share. Earnings breezed past the Zacks Consensus Estimate of $1.34 by 10.4% and the year-ago result of $1.24 by 19.4%. Earnings were boosted by organic sales growth, cost savings and improved other income, which made up for increased input and marketing/research costs and higher tax rates.
Quarter in Detail
The company reported net sales of $5.3 billion in the first quarter, up 1% from the prior-year quarter. The results also exceeded the Zacks Consensus Estimate of $5.2 billion. Targeted growth initiatives and product innovations helped sales and volumes growth in the quarter. However, currency fluctuations reduced sales by 1%, and the exit of the diaper segment of Western and Central Europe and lost sales in conjunction with pulp and tissue restructuring actions also eroded company’s sales by 1% in the quarter.
Excluding currency impact and lost sales due to European strategic changes, organic sales grew 3% from the prior-year quarter, driven by volume growth and strong pricing.
Adjusted operating profit (excluding costs for the pulp and tissue restructuring and European strategic changes) grew 16% to $850 million in the first quarter. This reflects increase in organic sales and cost savings from Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program.
Personal Care Products:The segment includes products like disposable diapers, training/ youth/swim pants; baby wipes; feminine and incontinence care products.
Sales grew 1% on a year-over-year basis to $2.4 billion in the quarter on the back of increase in net selling prices, which offset the negative impact of currency fluctuations. Organic sales increased 3%. The segment witnessed positive sales growth in the K-C International region, remained flat in North America and declined in Europe.
Segment operating profit increased 11% on a year-over-year basis to $441 million in the quarter due to organic sales growth, higher production volumes and cost savings, partially offset by rise in marketing spending and higher input costs.
Consumer Tissue:The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Sales increased 4% to $1.7 billion in the first quarter. Organic sales volumes improved 4% and net selling prices were up 1%. However, lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions reduced sales volume. All the three regions of K-C International, North America and Europe witnessed improvement in sales.
Segment operating profit also surged 20% to $260 million in the quarter owing to organic sales growth, cost savings, and lower marketing expenses, which offset the higher input costs.
K-C Professional (:KCP) & Other:The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.
Sales declined 1% to $0.8 billion in first quarter 2013 due to reduced sales volumes and unfavorable currency rates offsetting the combined impact of higher net selling prices and changes in product mix. Except K-C International, regions of North America and Europe witnessed decline in sales.
Segment operating profit increased 14% to $143 million, driven by cost savings.
Health Care:The segment consists of disposable health care products.
Sales declined 2% from the prior-year quarter to $0.4 billion in first quarter 2013, resulting from unfavorable currency rates and lower sales volume, offsetting the improved product mix. Surgical and infection prevention volumes were down low-single digits, while medical device volumes were flat year over year.
Operating profit was $44 million, down 17% year over year, due to higher manufacturing costs and increased marketing, research and general expenses, partially offset by cost savings.
The company has dissolved the diaper segment of Western and Central Europe, except the Italian market, which was announced in Oct 2012. The company has also streamlined its manufacturing facilities in Europe, which resulted in restructuring costs of $21 million after tax in the first quarter 2013. In conjunction with European strategic changes, Kimberly Clark expects to incur restructuring costs in the range of $300 to $350 million after-tax, higher than the prior estimate of $250 to $350 million, through 2014.
Other Financial Details
During the first quarter, the company repurchased approximately 5.5 million shares for $500 million.
Guidance for Fiscal 2013
Following upbeat first quarter results, Kimberly-Clark raised its adjusted earnings guidance for 2013. The company expects adjusted earnings in a range of $5.60 to $5.75, higher than the previous expectation of $5.50 to $5.65 per share. This marks a 7% to 10% increase from the prior-year quarter.
The company continues to expect share repurchases in the range of $1.0 to $1.2 billion in 2013.
Kimberly-Clark holds a Zacks Rank #3 (Hold). Other stocks in the consumer staples sector that are better-positioned are Flower Foods Inc (FLO), B&G Foods Inc (BGS) and Kellogg Co (K). While Flower Foods holds a Zacks Rank #1 (Strong Buy), B&G and Kellogg carry a Zacks Rank #2 (Buy).
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