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Kimberly-Clark's Efficient Cost-Saving Efforts Bode Well

Zacks Equity Research

Kimberly-Clark Corporation KMB looks well placed on the back of its robust cost-saving plans and growth efforts. Moreover, the company’s K-C Strategy bodes well. Apart from these, the company has been witnessing higher consumer demand for its products. This can be attributed to panic-induced stockpiling amid the coronavirus outbreak.

Impressively, these trends continued in first-quarter 2020, wherein adjusted earnings improved 28% from the year-ago quarter’s reported figure. Further, sales increased 8% year over year on the back of revenue growth across all segments, savings from restructuring plans and increased business investments. In the first quarter, organic sales rose 11% owing to a more than 8% rise in volumes from consumer stockpiling amid the coronavirus outbreak.


Factors Working Well for Kimberly-Clark

Kimberly-Clark has been undertaking initiatives to save costs for a while. This is evident from the 2018 Global Restructuring Program and the 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 to compete better and provides it more flexibility to undertake growth-oriented investments.

Until the end of first-quarter 2020, the company generated cumulative savings worth $325 million from the 2018 Global Restructuring Program. Management remains on track to generate pre-tax savings of $500-$550 million from this program by the end of 2021, backed by production supply-chain efficiencies and a reduction in workforce. Although some of these could be realized in 2022 due to uncertainties regarding 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 in turn driving the company’s adjusted operating profit. Further, the company remains committed to its three key strategic growth pillars — improving core business in the developed markets, accelerating growth in the Personal Care segment in the developing and emerging markets and enhancing digital and e-commerce capacities.

Apart from these, management introduced the K-C Strategy 2022 in January 2019 to generate balanced and sustainable growth and boost shareholders’ value. Although management has been seeing a slowdown in these strategies due to the outbreak, it expects to resume the execution of such policies as soon as possible.

We expect the upsides to continue aiding this Zacks Rank #2 (Buy) company. Kimberly-Clark’s shares have gained 9% in the past year against the industry’s decline of 11.3%.

Other Solid Staple Bets

General Mills, Inc. GIS, with a Zacks Rank #2, has a long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands Inc. CAG, with a Zacks Rank #2, has a long-term earnings growth rate of 7%.

The Kraft Heinz Company KHC, with a Zacks Rank #2, has a long-term earnings growth rate of 6%.

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