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Kimberly-Clark Corporation KMB appears well placed, courtesy of its focus on its three growth pillars, which include improving its core business in the developed markets, speeding up growth of the Personal Care segment in developing and emerging markets and enhancing digital and e-commerce capacities. Further, increased demand stemming from greater work-from-home trends amid the pandemic has been aiding the Consumer Tissue segment.
However, the company’s K-C Professional segment sales have been declining year over year for a while now due to hurdles related to coronavirus. Apart from this, Kimberly-Clark has been encountering high manufacturing costs, including coronavirus-related expenses. Nonetheless, the company’s commitment toward lowering costs through the 2018 Global Restructuring Program as well as the Focus on Reducing Costs Everywhere or FORCE Program has been yielding results. Let’s delve deeper.
Kimberly-Clark on Growth Track
The company expects to meet its three aforementioned growth pillars through product development across different categories and by leveraging capabilities in marketing and sales. The company has been progressing well with these objectives, which have been aiding the portfolio and expanding the global business. Notably, Kimberly-Clark recently completed the acquisition of Softex Indonesia — a leading player in the Indonesian personal care market. The buyout is aimed at augmenting the company’s market share in the personal care category in the Southeast Asia region. In fact, Kimberly-Clark’s fourth-quarter sales received a 2% contribution from this buyout.
On its fourth-quarter earnings call, the company said that it had a solid innovation roster, including near-term launches for its Huggies brand in North America and several other nations. Also, Kimberly-Clark anticipates benefiting from certain pricing actions as well as revenue management programs. That said, management issued its 2021 guidance based on anticipations of no material impact from possible supply-chain hurdles amid the pandemic. Net sales in 2021 are expected to grow 4-6% year over year. Further, management anticipates adjusted operating profit growth in the range of flat to a 2% increase. Finally, the company envisions 2021 adjusted EPS of $7.75-$8, which indicates flat to 3% growth from $7.74 reported in 2020.
Notably, Kimberly-Clark has been taking robust steps to lower costs. The 2018 Global Restructuring Program marks the company’s biggest restructuring action in a long time. The program is focused on lowering the company’s structural costs and improving financial flexibility. As part of this initiative, the company plans to sell or exit some low-margin businesses that deliver about 1% of net sales. Notably, Kimberly-Clark generated cumulative savings of $420 million from this program until the end of 2020. Management now anticipates pre-tax cost savings of $540-$560 million from this program by 2021-end compared with $500-$550 million expected earlier.
Moreover, Kimberly-Clark is aggressively cutting costs and enhancing supply-chain productivity through its FORCE Program. The program has been generating solid cost savings for a while now, which are in turn driving its performance. During the fourth quarter, the company generated cost savings of $110 million and $25 million from the FORCE program and the 2018 Global Restructuring Program, respectively.
Is it All Rosy for Kimberly-Clark?
In fourth-quarter 2020, sales in the K-C Professional segment fell 9% to $742 million. Volumes were down 13% due to reduced away-from-home demand and tough business conditions after the pandemic. Net selling prices and product mix rose 2% each. Sales fell 7% in North America and 21% in D&E markets. The metric dropped 2% in developed markets outside North America. Clearly, sluggishness in the K-C Professional segment is a threat to the company’s performance.
Additionally, high manufacturing costs, increased advertising expenses and escalated general and administrative costs have been weighing on the company’s profits. In the fourth quarter of 2020, adjusted operating profit came in at $767 million, down from $826 million in the year-ago quarter, thanks to a rise in input costs (to the tune of $40 million) as well as other manufacturing costs, including coronavirus-related expenses. Management expects a more difficult environment in 2021, wherein it anticipates commodity cost inflation of $450-$600 million. The company expects cost increases in most areas such as resins, pulp and recycled fiber, superabsorbent, and distribution expenses.
Nevertheless, we believe that the abovementioned upsides are likely to keep Kimberly-Clark well positioned for growth. The Zacks Rank #3 (Hold) stock has gained 3.1% in the past three months compared with the industry’s growth of 0.1%.
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