What To Expect From Kimberly-Clark’s Q3 Earnings

by Trefis Team
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Kimberly-Clark (NYSE:KMB) is scheduled to announce its fiscal third quarter results on Monday, October 23. The company has struggled to generate meaningful revenue growth of late, with revenue declining in 2016, and the company cutting its guidance for 2017 following mixed fiscal Q2 earnings. In Q2, the company’s net sales declined 1% year-over-year (y-o-y) to $4.6 billion, primarily due to lower organic sales, which reflected a challenging growth environment, and a difficult comparison to last year’s results.

Kimberly-Clark’s organic sales fell 1% y-o-y amid intense competition and low volumes growth from developed markets in the second quarter. However, emerging markets remained an area of strength for the company, registering 2% organic sales growth. In the first six months of fiscal 2017, the company’s net sales in markets outside North America also grew 2% year-over-year (y-o-y), as compared to a 2% y-o-y decline in the North American market. In fact, the company is looking at developing and emerging markets such as China and Brazil to drive growth, primarily due to low penetration of its category products in these regions, and the likely increase in the consumption of these products with economic development. We expect this to be a key driver of the company’s long-term growth.

Kimberly-Clark reported net earnings of $1.49 per share in Q2, which came in line with analyst estimates in the second quarter. Kimberly-Clark is able to sustain its EPS growth despite plummeting revenues due to its successful cost saving initiatives. The company benefited from FORCE cost savings of $120 million in the second quarter. In 2016 alone, the company saved $450 million under its FORCE initiative, which exceeded its own guidance of $400 million, and also led to a 70 basis point increase in its gross margin. Going forward, the company plans to deliver $425 million to $450 million of cost savings in this fiscal year. This initiative has led to significant margin expansion for the company, and we expect it to bank on the continued benefits of cost savings in the near term as well.

For the full year 2017, Kimberly-Clark expects its organic sales to be similar or slightly up from the prior forecast of 1% to 2% growth. In terms of bottom line, the company expects its earnings per share to be at the low end of the target range of $6.20 to $6.35. This lower guidance is driven by weak organic sales in the first half of 2017 along with cost inflation. In Q3, Reuters’ compiled analyst estimates forecast revenues of $4.7 billion and earnings of $1.54 per share, implying growth of about 2% and 1%, respectively.

See our complete analysis for Kimberly-Clark here

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