Restructuring To Drive Kimberly-Clark's (KMB) Q4 Earnings

Kimberly-Clark Corporation (NYSE:KMB) is set to come out with fourth-quarter 2018 results on Jan 23. Notably, the company has outperformed the Zacks Consensus Estimate by average of 1.9% over the trailing four quarters. Let’s see how things are placed ahead of the upcoming quarterly results.

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at $1.68, which reflects 7% growth from the year-ago quarter’s figure. However, the consensus mark for revenues is $4,465 million, reflecting a drop of 2.5% from revenues reported in the year-ago quarter.

Factors Impacting the Quarter

Kimberly-Clark’s focus on its key growth initiatives bodes well for the quarter to be reported. These include focus on improving its core business in the developed markets; speeding up growth of Personal Care segment in developing and emerging markets, and enhancing digital and e-commerce capacities. Further, the company focuses on innovation, which is helping it constantly improve brand positions and market share in the consumer categories.

However, the company’s diaper segment has long been facing intense competition, which keeps its market share at risk. Another area of concern for Kimberly-Clark is commodity cost inflation, which has been denting its gross margin. Evidently, commodity cost inflation of $210 million, stemming from greater costs of pulp and other raw materials, weighed on Kimberly-Clark’s adjusted operating profit in the third quarter of 2018. Further, management expects input cost inflation for 2018 in the upper end of the $675-$775 million range. This remains a threat to profitability in the quarter to be reported. Well, escalated costs are posing as hurdles for many consumer staples players like Church & Dwight (NYSE:CHD) , Pilgrim's Pride (NASDAQ:PPC) and Campbell Soup (NYSE:CPB) , among others.

Coming back to Kimberly-Clark, we however commend the company’s cost-cutting and restructuring initiatives. This is highlighted by its 2018 Global Restructuring Program, and Focus on Reducing Costs Everywhere, or FORCE Program. Kimberly-Clark’s 2018 Global Restructuring Program marks its biggest restructuring in a long time. This plan is likely to enhance the company’s underlying profitability, help it compete better and provide greater flexibility to undertake growth-oriented investments. Delving deeper, we note that the program is expected to simplify Kimberly-Clark’s overhead organization and manufacturing supply-chain structures. During the third quarter of 2018, Kimberly-Clark generated savings of roughly $40 million from its restructuring program. Earlier, management had stated that it projects savings of $100-$120 million from this program in 2018, which gives out positive signals for the fourth quarter as well.

Such trends along with the aforementioned efforts to boost revenues should act as tailwinds to the company’s earnings in the quarter under review.

What the Zacks Model Unveils

Our proven model shows that Kimberly-Clarkis likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kimberly-Clarkcarries a Zacks Rank #3, which along with its Earnings ESP of +0.70% makes us reasonably confident of a beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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