A month has gone by since the last earnings report for Kimberly-Clark (KMB). Shares have lost about 2.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kimberly-Clark due for a breakout? 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 catalysts.
Kimberly-Clark Q4 Earnings Beat Estimates, Rise Y/Y
Kimberly-Clark Corporation (NYSE:KMB) reported fourth-quarter 2019 results. Adjusted earnings of $1.71 per share surpassed the Zacks Consensus Estimate by a penny and increased 7% from the year-ago period.
Kimberly-Clark’s sales came in at $4,583 million, which surpassed the Zacks Consensus Estimate of $4,532 million. The top line remained flat year over year. Unfavorable currency movements weighed on sales by 2%. Also, business exits pertaining to the 2018 Global Restructuring Program had a slight negative impact on sales.
Organic sales rose 3% year over year, owing to improved net selling prices (up more than 2%) and product mix (up 1%), somewhat offset by a 1% drop in volumes. In North America, organic sales in consumer products and K-C Professional rose 3% each. Internationally, organic sales increased 3% across developing and emerging markets, while it grew 1% in developed markets.
Adjusted operating profit came in at $826 million, up from $742 million in the year-ago quarter. Results gained from higher net selling prices, better product mix, and cost savings of $85 million and $40 million from the FORCE (Focused On Reducing Costs Everywhere) program and the 2018 Global Restructuring Program, respectively. Further, lower input costs stemming from a 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.
Segment Details
Personal Care Products: Segment sales of $2,242 million rose 1%, owing to improved net selling prices (up 2%) and product mix (up roughly 2%). This was offset by unfavorable currency rates, which hurt sales by 2%. Further, sales increased 2% in North America and 1% in developing and emerging markets. The metric declined 3% across developed markets outside North America.
Consumer Tissue: Segment sales of $1,511 million grew 1% year over year. Results gained from improved net selling prices (up 3%), partially offset by lower volumes (down 1%). Adverse currency movements hurt sales by 1%. Sales grew 4% in North America, while it fell 2% each in developing and emerging markets, and developed markets outside North America.
K-C Professional (KCP): Segment sales dropped 3% to $815 million due to a 3% adverse impact from several business exits as part of the 2018 Global Restructuring Plan. Also, currency woes hurt sales by 1%. Further, volumes were down 3%. This was somewhat cushioned by improved product mix (up 2%) and higher net selling prices (up 2%). Sales rose 1% in North America, while the same declined 5% each in developing and emerging markets, and developed markets outside North America.
Kimberly-Clark generated cash from operating activities of $924 million during the quarter under review. Management incurred capital expenditures of $342 million. It expects capital expenditures of $1,150-$1,350 million for 2020.
During the quarter, Kimberly-Clark bought back 1.9 million shares for $252 million. In 2019, the company made buybacks of 6.2 million shares for $800 million. For 2020, management expects share buybacks of $700-$900 million. Concurrently, management announced a 3.9% hike in its quarterly dividend, taking it to $1.07 per share.
Other Developments & Guidance
Management is on track with the 2018 Global Restructuring Program. Until the end of 2019, Kimberly-Clark incurred pre-tax cumulative restructuring charges of $1,402 million related to this program, while it made cumulative savings worth $300 million from the same.
In 2020, management expects to generate total cost savings of $425-$500 million. This includes expected savings of $325-$375 million from the FORCE program and $100-$125 million from the 2018 Global Restructuring Program. Moreover, the company expects cost of key inputs to drop in the range of $50-$200 million, thanks to lower pulp costs. However, advertising expenses are anticipated to rise in 2020.
Management forecasts 2020 net sales to grow 1% year over year. Further, Kimberly-Clark projects organic sales improvement of 2% on the back of higher net selling prices and volumes along with improved product mix. However, currency headwinds are likely to impact net sales by 1%, while business exits related to the 2018 Global Restructuring Program are also expected to slightly affect sales.
Management anticipates adjusted operating profit growth of 3-5% for the year. The company also expects interest expenses to rise in 2020, wherein currency headwinds are likely to prevail. Considering all factors, management envisions 2020 adjusted earnings per share of $7.10-$7.35, up from $6.89 reported in 2019.
How Have Estimates Been Moving Since Then?
Estimates revision followed an upward path over the past two months.
VGM Scores
At this time, Kimberly-Clark has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, 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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