Why Is Kimberly-Clark (KMB) Up 3% Since Last Earnings Report?
A month has gone by since the last earnings report for Kimberly-Clark (KMB). Shares have added about 3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kimberly-Clark due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Kimberly-Clark Q3 Earnings Beat Estimates, Pricing Aids
Kimberly-Clark came out with third-quarter 2023 results, wherein the top and bottom lines increased year over year, and earnings crushed the Zacks Consensus Estimate. The company witnessed organic growth in all segments, along with continued margin improvements. A solid year-to-date show encouraged management to raise its guidance for 2023.
Quarter in Detail
Adjusted earnings came in at $1.74 per share, which comfortably surpassed the Zacks Consensus Estimate of $1.58. The bottom line rose 24% year over year, mainly due to increased adjusted operating profit and equity income gains.
Kimberly-Clark’s sales totaled $5,132 million compared with the consensus estimate of $5,135 million. The metric increased 2% compared with the year-ago period’s figure. Organic sales increased 5% due to a 5% rise in the price as part of the company’s ongoing revenue growth management programs and a 1% impact of the favorable product mix. These were offset by a 1% decline in volumes. Unfavorable foreign currency rates affected sales by nearly 2%, and the divestiture of KMB’s tissue and K-C Professional business in Brazil dented sales by about 1%. In North America, organic sales rose 7% year over year, which included 9% growth in Personal Care, a 4% increase in Consumer Tissue and a 7% improvement in K-C Professional. Outside North America, organic sales rose 5% in developing and emerging markets while remaining flat year over year in developed markets (Australia, South Korea and Western/Central Europe).
The gross margin expanded 530 bps to 35.8%. The upside can be attributed to increased net revenue realization, cost savings and lower input costs. This was partially countered by increased other manufacturing costs and currency headwinds.
The operating profit grew 18% on a greater gross profit, including $90 million of FORCE savings and reduced input costs. These were offset by elevated other manufacturing costs, a planned escalation in marketing, research and general expenses and increased incentive compensation. Adverse currency fluctuations hurt the operating profit by $135 million.
Kimberly-Clark’s operating margin came in at 15.1%, up more than 200 bps compared with the year-ago quarter’s figure of almost 13%. Our model suggested an operating margin increase of around 100 bps.
Segment Details
Personal Care: Segment sales of $2,700 million grew 3% year over year, surpassing our estimate of 1.7% growth. Organic sales rose 7% on a favorable price, mix and volumes. Management highlighted that innovation, strong commercial execution and better supply trends led to volume growth.
Consumer Tissue: Segment sales of $1,567 million dipped 1% year over year. However, impressive revenue growth management and enhanced service levels were upsides. Organic sales increased 2% on favorable pricing. This was somewhat offset by drab volumes.
K-C Professional: Segment sales climbed 2% to $854 million in comparison with our estimate of 3.1% growth. Organic sales jumped 4% on a favorable price and mix. These were somewhat offset by lower volumes. Significant revenue realization and market share expansion in North America were somewhat countered by soft volumes. The demand for the company's innovative solutions in the washroom category remained favorable.
Other Financial Updates
Kimberly-Clark ended the quarter with cash and cash equivalents of $814 million, long-term debt of $7,403 million and total stockholders’ equity of $840 million.
Cash provided by operations was about $2.3 billion year to date. Management incurred capital spending of $549 million in the same time frame. For 2023, KMB projects capital expenditures of approximately $800 million. Kimberly-Clark concluded share repurchases of 740,000 for $97 million in the first nine months of 2023. It returned $1.3 billion to shareholders via dividends and share buybacks.
Guidance
Organic sales in 2023 are projected to increase 4-5% now compared with the earlier view of 3-5% growth. Management anticipates net sales growth of 1-2% compared with the earlier range of flat to 2%. Unfavorable foreign currency exchange rates are likely to hurt net sales by 3%. Further, acquisition/divestitures are expected to hurt net sales by around 1% in 2023. Management expects the operating profit to be affected by input costs to the tune of $50 million. Other manufacturing costs are likely to be a headwind of $250 million. Currency headwinds are likely to lower the 2023 operating profit by about $450 million. KMB expects FORCE savings of $300-$350 million in 2023. The adjusted operating margin is expected to expand 170 basis points now compared with 150 bps expected earlier. Finally, Kimberly-Clark envisions 2023 adjusted EPS to increase 15-17% from the adjusted EPS of 2022. Earlier, it was anticipated to increase in the range of 10-14%. The effective tax rate is likely to be in the band of 23-24%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
At this time, Kimberly-Clark has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Kimberly-Clark has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
