What To Expect From Kimberly-Clark’s Q2 Earnings

by Trefis Team
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Kimberly-Clark (NYSE:KMB) is scheduled to announce its fiscal second quarter results on Tuesday, July 25. The company reported mixed fiscal first quarter results, as its earnings per share (EPS) came in ahead of expectations but revenue missed. In Q1, the company’s organic sales fell 1% year-over-year (y-o-y) amid intense competition and low volumes from developed markets, particularly North America, although its net sales remained flat y-o-y due to currency tailwinds. Emerging markets remained an area of strength for Kimberly-Clark, which registered 4% y-o-y organic sales growth. The company’s earnings exceeded analyst estimates by 2 cents per share in the first quarter, driven by cost savings of $110 million and restructuring benefits.

Kimberly Clark’s EPS has grown from $4.80 in 2011 to $6.03 in 2016, despite the company’s revenue plummeting by over $1 billion during this period. In fact, a similar trend has been observed this year as well, so far. The company is able to sustain its EPS growth due to its successful cost saving initiatives. In 2016 alone, the company saved $450 million under its FORCE initiative, which exceeded its own guidance of $400 million.

However, this bottom line growth without top line expansion is unlikely to be sustainable in the long term. Going forward, the company’s gross margin could reach a saturation point with only cost savings initiatives supporting it.

Kimberly-Clark can compete on innovation, marketing, and volumes with the other players in the market, and will need to do so in order to grow its top line going forward. It should also be noted that the company raised its dividend by 5.4% in 2017, which was its 45th consecutive year of increases. In order to sustain such dividend growth, it is imperative for the company’s earnings to follow a sustainable growth pattern.

Future Outlook

Kimberly-Clark expects its sales to increase 1% to 2% in 2017. In terms of organic sales, the company expects growth of 1% to 2%, which compares to its original estimate of approximately 2% and reflects the category conditions in North America and slightly lower price realizations due to improved currencies. In addition, the company also expects earnings per share of $6.20 to $6.35 for 2017, up 3% to 5% y-o-y. In Q2, Reuters’ compiled analyst estimates forecast revenues of $4.5 billion and earnings of $1.49 per share, implying growth of about (-1%) and (-3%), respectively.

See our complete analysis for Kimberly-Clark here

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