Kimberly-Clark (NYSE:KMB), a personal care company that focuses on paper-based consumer products like tissues, diapers and feminine care products and owns popular brands like Huggies, Kotex, Kleenex and Scott, delivered good performance last quarter supported by strong sales growth from emerging markets, cost-cuts and relief from high commodity prices. It, however, continued to face tepid demand for its products in the developed markets due to macro headwinds and lower birth rates. Even though cost environment eased, the company found it hard to lower prices and faced demand challenges while trying to sustain price hikes, especially in its diaper business. Nonetheless, easing costs and improving sales it expected to raise its outlook for the fiscal. Kimberly-Clark competes with Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL).
Emerging Markets Drives Personal Care Growth
- How Procter & Gamble And Kimberly Clark Compete In Diaper Battlefield?
- Why Is Kimberly Clark Relying Heavily On Cost Savings?
- Why Consumer Products Companies Might Be Overvalued At Current Prices?
- Kimberly Clark Q2 Earnings Driven By Higher Selling Prices & FORCE Initiative, Though Currency Headwinds Persist
- Kimberly Clark Q2’16 Preview: Currency Impact To Offset Higher Volumes
- By How Much Is Kimberly-Clark’s Revenue & EBITDA Expected to Change In The Next 5 Years?
Personal care sales in North America increased 2% driven by 4% higher selling prices offset by 1% volume decline. While child care and infant care volumes were down mid- and high-single digits, respectively, reflecting category declines and modest consumer trade-down in infant care, adult care and feminine care volumes continued to grow in high-single digits.
In Europe, personal care net sales increased 1% despite 12% volume growth due to unfavorable currency effect of 9% and lower net selling prices of 2%. The biggest growth driver for the segment was K-C International sales that rose 5% with 8% higher unit sales, despite a 7% decrease from unfavorable currency effect. This was supported by high-single digit growth in most of the major regions (Asia, Latin America, and the Middle East/Eastern Europe/Africa).
Consumer tissue sales fell 4% in North America despite 5% higher selling prices, primarily due to a 5% decrease from lost sales in conjunction with pulp and tissue restructuring actions. Nonetheless, paper towel net sales grew by double digits primarily due to higher volumes, and net sales of Kleenex facial tissue were up mid-single digits driven by higher net selling prices, offset by a low single digit decline in bathroom tissue sales. In Europe, consumer tissue net sales decreased 8% due to unfavorable currency effect of 7% and lower selling prices despite 2% higher volumes.
Commodity Costs Moderation And Price Cuts Help Margins
Kimberly-Clark generated 240 basis points improvement in gross margin (to 33.3% from 29.6%), supported by higher net selling prices, $30 million benefit due to deflation of key input commodity prices (like lower fiber costs) and $85 million cost savings through cost-cuts and restructuring initiatives. The operating income improvement was, however, offset by $35 million higher marketing spend. Nonetheless, these trends helped the company raise its organic sales and earnings guidance for the current fiscal.
We have a revised $86 Trefis price estimate for Kimberly-Clark.