Kimberly Clark Q2’16 Preview: Currency Impact To Offset Higher Volumes

-0.84%
Downside
124
Market
123
Trefis
KMB: Kimberly-Clark logo
KMB
Kimberly-Clark

The manufacturer of popular brands like Huggies and Kotex, Kimberly-Clark (NYSE:KMB) is expected to report its Q2’16 earnings on July 25th. The company saw a 5% year-over-year decline in its Q1 2016 revenue ($4.5 billion), as the 2% increase in volumes was offset by a 7% negative impact from currency headwinds. There was a 5% volume decrease in Brazil and a 7% fall in sales from developed markets including Western Europe. We believe that volumes from these regions could increase in the second quarter because of better economic conditions in Brazil and Europe. However, the currency headwinds will continue to impact the revenues due to a stronger U.S. dollar, even as the com[any’s ongoing FORCE (Focused on Reducing Costs Everywhere) initiative will help improve the bottom line.

See our complete analysis for Kimberly-Clark here

kmb-a

Relevant Articles
  1. Should You Pick Kimberly-Clark Stock At $120 After A Downbeat Q4?
  2. Is Kimberly-Clark Stock Fully Priced At $120?
  3. Which Is A Better Pick – Kimberly-Clark Stock Or IDEXX Laboratories?
  4. Which Is A Better Consumer Defensive Pick – Kimberly-Clark Or CL Stock?
  5. Is Kimberly-Clark Stock A Better Pick Over Its Industry Peer?
  6. Steady Revenue Growth Has Not Been Reflected In Kimberly-Clark’s Stock Price – Here’s Why

Currency Headwinds Will Continue To Impact Q2’16 Top Line

  • US dollar has strengthened in Q2 against most of the major currency pairs around the world, especially Euro and Sterling. This is likely to offset the net sales to be reported in Q2 as the company does not hedge its translation exposures in forex market.

EURUSDWeekly

FORCE Initiative To Cushion The Bottom Line 

  • Kimberly clark started the FORCE program in 2013 as a cost saving measure.
  • It focuses on reducing costs by improving productivity, optimizing product cost design and reducing the raw material prices through negotiations.
  • Kimberly-Clark aims to achieve $350 million of cost savings from the FORCE program and it got a good head start in Q1 by saving $95 million.

Regional volumes overview: North America and emerging markets likely to lead again.

  • The good Q1 volumes from North America may reflect in Q2 earnings too as US Consumer Sentiment touched the high of 94.7 in May as compared to the quarterly low of 89 in April. (University of Michigan, tradingeconomics.com)
  • China saw a below expectation rise in sales of Huggies in Q1 due to pricing competition.  However, as per the company guidance, this is expected to improve as competitive promotional activity eases in the remainder of the year. This might be a favorable factor for the volumes and revenues.
  • Latin America may continue to disappoint as the company’s Venezuelan operations have been shut down in July due to problems in procuring raw material amidst worsening economic situation of the country.
  • Contrary to Venezuela, volumes from Brazil might improve slightly despite the grim economic conditions, as the Consumer Confidence Index of Brazil rose 7.9% in May month over month. (Reported by National Confederation of Industry, Brazil).
  • The European Consumer Confidence Index remains in negative but it too has seen an improvement of 2.3 points to -7.3 from its lows of 9.7 in April. (European Commission Consumer Confidence Index, Bloomberg). So the company might not perform worse than Q1 in Europe, if not better.

See our complete analysis for Kimberly-Clark here

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research