An Overview Of Kimberly-Clark’s 2017 Performance

by Trefis Team
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Kimberly-Clark (NYSE: KMB) has had a mixed fiscal 2017 so far, as its earnings per share came in ahead of market expectations but revenue missed in the first three quarters. In fact, the company has struggled to generate meaningful revenue growth of late and, consequently, has cut its guidance for 2017 following mixed fiscal Q3 earnings. In the first nine months of 2017, the company’s net sales remained flat at $13.7 billion, primarily due to flat organic sales, as a 1% year-over-year (y-o-y) decrease in net selling prices was offset by a 1% y-o-y increase in volumes. The company witnessed weakness in the Personal Care business and Consumer Tissues, while the KC Professional segment grew at 1% y-o-y during this period. Kimberly-Clark reported net earnings of $4.66 per share, up 2% y-o-y, benefiting from FORCE cost savings of $355 million during the period.

Decline In Consumer Tissues Segment

Kimberly-Clark’s consumer tissue sales have been relatively weak of late. The tissue business is one of the company’s most valuable segments, accounting for over 30% of the company’s value, per our estimates. The segment witnessed a 1% y-o-y decline in organic sales in the first nine months of 2017, along with flat growth in its volumes, driven by lower net sales and higher pulp costs. We expect this trend to continue in the upcoming fourth quarter of fiscal 2017 as well, since pulp costs are expected to increase further.

Stiff Competition, Low Demand In North American Market

Kimberly-Clark is heavily reliant on the North American market, which accounts for 52% of sales and 70% of its profits. However, the company has been seeing some category softness, lower promotional shipments, and higher competitive activity in the geography from established players like Procter & Gamble (NYSE: PG). The increasing level of competition in this already-saturated market could push the prices lower in the near term. Meanwhile, Kimberly-Clark will need to rely on a strong product portfolio to succeed in developed markets, in addition to lower prices, particularly in the Baby Diapers and Feminine Care segments. Kimberly Clark has lost nearly 3 percentage points of share in both markets since 2010, per our estimates, largely due to competition from the likes of P&G. In the first nine months of 2017, Kimberly-Clark’s North American net sales fell 1% y-o-y, primarily due to a sluggish recovery in U.S. spending accompanied by weak demand. The Absolute Consumer Demand Index of America has been falling since September of last year, and its effects have started to weigh on the results of consumer companies.


Looking Ahead

For the full-year 2017, Kimberly-Clark continues to expect its organic sales to be similar or slightly up from the prior forecast of 1% to 2% growth. In terms of the 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 weaker-than-expected organic sales in the first nine months of 2017 along with cost inflation. The company also expects its full-year spending to be slightly below its $850 million to $950 million target range. In addition, the company expects its full-year dividends and share repurchases to total $2.3 billion.

Our $121 price estimate for Kimberly-Clark’s stock is about in line with the current market price.

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