It has been about a month since the last earnings report for Kimberly-Clark (KMB). Shares have added about 6.8% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Kimberly-Clark Q2 Earnings & Sales Top Estimates
Kimberly-Clark reported second-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Also, earnings increased year over year. The top line improved slightly from the year-ago quarter’s level.
Quarter in Detail
Adjusted earnings came in at $2.20 per share, which surpassed the Zacks Consensus Estimate of $1.82 and increased 32% from the year-ago quarter’s figure.
Kimberly-Clark’s sales came in at $4,612 million, which surpassed the Zacks Consensus Estimate of $4,513 million. The top line increased from $4,594 reported in the year-ago quarter. Unfavorable currency movements put pressure on sales by 4%. Organic sales rose 4% year over year. Volumes rose 2% year over year. Also, net selling prices and product mix inched up 1% each.
In North America, organic sales in consumer products increased 12% but were down 3% in K-C Professional segment. Internationally, organic sales increased 3% across developed markets but fell 3% in developing and emerging markets.
Adjusted operating profit came in at $1,012 million, up from $789 million in the year-ago quarter. Results gained from higher organic sales and cost savings of $120 million and $55 million from the FORCE (Focused On Reducing Costs Everywhere) program and the 2018 Global Restructuring Program, respectively. Further, lower input costs stemming from decline in pulp costs benefited results. However, unfavorable currency translations, increased advertising expenses and a rise in selling, general and administrative costs negatively impacted adjusted operating profit.
Personal Care Products: Sales of $2,229 million declined 2% year over year. Both net selling prices and volumes improved slightly while product mix rose up 2% year over year. Also, unfavorable currency rates hurt sales by 5%. Further, sales increased 4% in North America but decreased 9% in developing and emerging markets. The metric fell 8% across developed markets outside North America.
Consumer Tissue: Segment sales of $1,645 million rose 12% year over year. Net selling prices were up 1% while volumes increased 14% owing to higher demand amid coronavirus pandemic. However, product mix dropped 1%. Also, adverse currency movements hurt sales by 3%. Sales rose 22% in North America but decreased 9% in developing and emerging markets. The metric increased 8% in developed markets outside North America.
K-C Professional (KCP): Segment sales decreased 12% to $724 million. Volumes were down 16% owing to coronavirus-led woes. Net selling prices were up 4% and product mix increased 3%. Also, currency woes hurt sales by 2%. Sales fell 3% in North America and 35% in developing and emerging markets. The metric declined 12% in developed markets outside North America.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $1,448 million, long-term debt of $7,223 million and stockholders’ equity of $495 million.
Further, Kimberly-Clark generated cash from operating activities of $1,579 million during the quarter under review. Management incurred capital expenditures of $284 million.
Kimberly-Clark repurchased 0.3 million shares for $39 million in the quarter. Following this the company had temporarily suspended its share repurchase program effective Apr 24 amid the coronavirus outbreak. Nevertheless, management expects to restart the program from Jul 24.
Management forecasts 2020 net sales to grow 1-2% year over year. Further, Kimberly-Clark projects organic sales improvement of 4-5%. The company had earlier anticipated organic net sales growth of 2%. However, currency headwinds are likely to impact net sales by 3%, while business exits related to the 2018 Global Restructuring Program are also expected to slightly affect sales.
Management anticipates adjusted operating profit growth of 6-9% for the year. In 2020, management expects to generate total cost savings of $510-$560 million. This includes expected savings of $390-$420 million from the FORCE program and $120-$140 million from the 2018 Global Restructuring Program. Moreover, the company expects cost of key inputs to drop in the range of $150-$250 million. However, other manufacturing costs as well as advertising expenses are anticipated to rise in 2020. The company also expects interest expenses to fall in 2020.
Considering all factors, management envisions 2020 adjusted earnings per share of $7.40-$7.60, which indicates an increase from $6.89 reported in 2019. Earlier, adjusted earnings were anticipated to come in at $7.10-$7.35 in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -8.9% due to these changes.
Currently, Kimberly-Clark has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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