Kimberly-Clark (KMB) Q3 Earnings Beat, Organic Sales Improve

Kimberly-Clark Corporation (NYSE:KMB) reported third-quarter 2019 results, wherein both top and bottom lines improved year over year and the latter marked its third consecutive beat. Adjusted earnings of $1.84 per share surpassed the Zacks Consensus Estimate of $1.80 and increased 7.6% from the year-ago period.

We note that the quarterly performance reflected organic sales growth, improved margins, savings from restructuring plans, increased brand investments and focus on innovation. Further, the K-C Strategy 2022 helped the company maintain momentum and enhance shareholder value. The solid performance was also followed by a raised earnings outlook for the year.

Management now envisions 2019 earnings of $6.75-$6.90 per share, up from the prior forecast of $6.65-$6.80. The Zacks Consensus Estimate for 2019 earnings is pegged at $6.81.

Quarter in Detail

Kimberly-Clark’s sales came in at $4,640 million, which fell short of the Zacks Consensus Estimate of $4,647 million. However, the top line climbed 1% 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 4% year over year, owing to improved net selling prices (up 4%) 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 4% and 5%, respectively. Internationally, organic sales increased 5% across developing and emerging markets, while it grew 1% in developed markets.

Adjusted operating profit came in at $859 million, up from $798 million in the year-ago quarter. Results gained from higher net selling prices along with cost savings of $50 million and $45 million from FORCE (Focused On Reducing Costs Everywhere) program and 2018 Global Restructuring Program, respectively. Further, lower input costs stemming from a decline in raw material expenses benefited results.

However, unfavorable currency translations, higher manufacturing costs, increased advertising expenses and a rise in general and administrative costs negatively impacted adjusted operating profit.

Segment Details

Personal Care Products: Segment sales of $2,305 million rose roughly 2%, owing to improved net selling prices (up 3%), volumes (up 1%) and product mix (up 1%). This, to an extent, was offset by unfavorable currency rates, which hurt sales by 3%. Further, sales increased 5% in North America and 3% in developing and emerging markets. Sales declined 3% across developed markets outside North America.

Consumer Tissue: Segment sales of $1,484 million grew about 1% year over year. Results gained from improved net selling prices (up 5%), partially offset by lower volumes (down 2%). Adverse currency movements hurt sales by 2%. Sales grew 3% in North America and 1% in developing and emerging markets. Sales dropped 4% across developed markets outside North America.

K-C Professional (KCP): Segment sales dropped 1% to $839 million due to a 2% impact each from adverse currency rates and several business exits as part of the 2018 Global Restructuring Plan. Volumes were down 2%. This was somewhat cushioned by improved product mix (up 1%) and higher net selling prices (up 3%). Sales rose 4% in North America, while the same declined 2% and 7% in developing and emerging markets, and developed markets outside North America, respectively.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $416 million, long-term debt of $6,198 million and stockholders' deficit of $141 million, excluding non-controlling interest of $229 million.

Further, Kimberly-Clark generated cash flow of $886 million from operating activities during the quarter under review. Management incurred capital expenditures of $298 million. During the quarter, Kimberly-Clark returned roughly $570 million to shareholders via dividends payouts and share buybacks. To this end, the company bought back 1.6 million shares for approximately $214 million. For 2019, management expects share buybacks of $800 million.

Other Developments & Guidance

Management is on track with the 2018 Global Restructuring Program, which is aimed at lowering the company’s structural costs and improving financial flexibility. Until the third quarter of 2019, Kimberly-Clark incurred pre-tax cumulative restructuring charges of $1,251 million related to this program, while it made cumulative savings worth $260 million from the same.

Management now forecasts full-year net sales to drop year over year. The company had earlier expected net sales to be flat to down 1% year over year. Kimberly-Clark now projects organic sales improvement of 3-4% compared with prior guidance of 3% growth.

Management anticipates adjusted operating profit growth of 4-5% for the year. Earlier, the company estimated 3-5% growth.

This Zacks Rank #3 (Hold) stock has rallied 22.2% year to date against the industry’s decline of 12.7%.

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