Kimberly Clark Q3’16 Earnings Preview: Low Consumer Demand Might Affect The Top-line

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Kimberly-Clark

The manufacturer of leading brands like Huggies and Kotex, Kimberly-Clark (NYSE:KMB) will report its Q3’16 earnings on October 24th. Kimberly Clark has performed decently this year, generating over $9 Billion revenues in first half of the year.  Although the company’s top-line suffered a 4% drag from currency effects in the second quarter, it managed to beat the analyst expectations and reported only a minor decline of 1% in net revenues.  The higher prices in Latin America supported the top-line in Q2. However, Unilever’s (NYSE:UL) below expectation Q3 results suggest that Latin America and other developing countries might be a drag to the top-line this time, in addition to the inflated commodity prices. On the other hand, Kimberly Clark has strengthened its product line through innovations and online sales channels which might offset some of the drags.

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See our complete analysis for Kimberly-Clark here

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High Commodity Prices To Affect Bottom-line

Kimberly Clark’s major product line include baby and adult diapers, along with tissues (consumer and professional). These products primarily need cellulose fiber and petroleum products for manufacture, but in Q3, there has been a considerable rise in commodity prices with crude oil crossing the $50 per barrel mark from the lows of around $26 a barrel in February. On a positive note, lower cotton prices in this quarter are likely to offset some of the crude oil impact on bottom-line, but overall the company might face some resistance in achieving the $20 million input cost deflation that it reported in Q2.

Developing Countries Reverse Their Role

For any consumer goods company, developing countries are the lifeline as these regions have the capacity  to generate large volumes along with high growth. However, this might not hold true in Q3 as the world consumer confidence index heads down towards 100. Brazil’s GDP growth, despite some improvement, is still negative. Argentina’s GDP too has entered the negative growth territory in the last quarter, with India and China experiencing a decline in the same metric. The better news is that there might be some relief from the currency headwinds from these regions as Indian Rupee and Brazilian Real have strengthened against US Dollar.

Partnership With E-Retailers

Kimberly Clark has made available its Kleenex Facial Cleansing collection on the online retail platforms of Amazon, Walmart, Target and other major e-retailers. The Kleenex facial cleansing collection includes cotton pads, make-up removers and face cleansing wipes. This can be a big move given the fact that skin care is around $100 Billion market and e-retailing is a turning out to be a big part of it. According to eMarketer report, global online commerce market had almost touched $2 trillion figure in 2015 and is expected to double to around $4 trillion by 2020. Since this step was taken in early August, it is likely that online channel might have added to the top-line of Kimberly Clark’s consumer tissue division.

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