Kimberly Clark Q4 Earnings: Huggies Innovations And Cost Savings To Drive 2017 Results

by Trefis Team
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One of the biggest players in the baby & feminine care market, Kimberly-Clark (NYSE:KMB) reported its Q4’16 and full year earnings on January 24th. The company outperformed analysts’ expectations by earnings 3 cents more than the consensus estimate (Yahoo Finance). The bottom line mainly benefited from the record cost savings and synergies from the 2014 organizational restructuring, which was completed in Q4’16. Consumer tissue and KC professional recorded a strong increases in their respective operating margins of 120 and 80 basis points, which was mainly due to low fiber costs and higher selling prices. Organic revenue growth was by 1% and 2% for Q4 and full year 2016, respectively, which was led by strong growth in emerging nations. Of note was an increase in diaper sales in Eastern Europe and China. However, the net sales in 2016 declined by 2% due to strong currency headwinds of 4%.

We believe Kimberly Clark’s growth in fiscal 2017 will be primarily driven by :

  1. Strong innovations lined up for 2017
  2. Increased target for cost savings

kmb-Q4-2

See our complete analysis for Kimberly-Clark here

Top Line Growth In 2017 Depends On Strong Innovation In Baby And Feminine Care

Kimberly Clark has lost over six percentage points in market share to Procter and Gamble in the US diaper market since 2009, primarily because customers in North America were preferring Luvs and Pampers over Huggies due to better quality of the former two. In Q4’16 too, Huggies diaper volumes saw a mild decline in North America. Although, Kimberly Clark has been successful in gaining or maintaining its market share in Eastern Europe and China, it has been primarily a result of price cuts, which does not bode well for the company’s bottom line. Moreover, according to a report from Euromonitor, the competition from the local Chinese and Japanese brands is likely to intensify further, as Asian parents have started preferring diapers specifically designed for and suitable to Asian babies.

To increase its market share in the global baby, feminine and adult incontinence market, Kimberly Clark announced in the current earnings call that it plans to launch new innovations in Huggies Snug and Dry diapers, Goodnites Youth Pants and Depends underwear, which are likely to be the highlights for any potential growth in 2017.

Cost Savings – A Strength Which Is Likely To Get Stronger In 2017

Kimberly Clark has been the front runner when it comes to increasing the efficiency through cost savings. The company saved $435 million in 2016 under its FORCE (Focused On Reducing Costs Everywhere) initiative. This figure comfortably exceeded the company estimates of around $350-400 million savings, which it had set at the start of 2016. For 2017, the company has again set a target of saving at least $400 million, which should trickle down to the bottom line in the coming quarters, a trends that we have seen in the past few quarters. Apart from this, Kimberly Clark’s 2014 organizational restructuring was completed in Q4’16, and has started to add to the savings of the company. Considering the above factors, the company has given out its 2017 EPS estimates between 6.20 – 6.35 as compared to 6.03 in 2016.

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