Key Takeaways From Kimberly-Clark’s Q4 Earnings

by Trefis Team
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Kimberly-Clark (NYSE: KMB) reported mixed fourth quarter earnings, as its earnings per share came in ahead of market expectations, but revenue missed. Below we discuss key takeaways from Q4 earnings report using the Trefis Interactive Dashboard. You can modify our forecasts for the company’s revenues and key drivers to see how changes would impact its earnings and valuation.

Stagnant Revenues, Growing EPS Trend

In Q4, Kimberly-Clark’s net sales increased 1% year-over-year (y-o-y) to $4.6 billion, primarily due to the positive impact of foreign currency fluctuations, partially offset by a 1% y-o-y decrease in organic sales. Volumes in the fourth quarter remained flat, while net selling prices fell about 2%. Kimberly-Clark also reported diluted earnings of $1.74 per share, which came in ahead of analyst estimates in the fourth quarter. The company has been able to sustain its EPS growth largely due to its successful cost-saving initiatives. In this quarter, the company benefited from FORCE cost savings of $95 million.

Stiff Competition, Low Demand In North American Market

Kimberly-Clark is heavily reliant on the North American market, which accounts for over 50% 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 such as Procter & Gamble (NYSE: PG). The increasing level of competition in this already-saturated market could push prices lower in the near term. The geography saw a 3% y-o-y decline in its organic sales in Q4, while emerging markets remained an area of strength for the company, registering 4% y-o-y organic sales growth.

Decline In Customer Tissues Segment

In Q4, Kimberly-Clark witnessed weakness in the Consumer Tissues business, while the Personal Care and KC Professional segments grew at 1% y-o-y and 3% y-o-y, respectively. The company’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 2% y-o-y decline in organic sales in Q4 2017, along with a 1% y-o-y decline in volume growth, driven by lower net sales and higher pulp costs. We expect this trend to continue in fiscal 2018 as well, since pulp costs are expected to increase further. Overall, Consumer Tissue operating margins also plunged 240 bps in this quarter.

Changes In Cost Savings Program

Kimberly-Clark announced a new restructuring as part of a multi-year cost savings target. The company set a four-year cost savings target of more than $1.5 billion, where the savings will be planned by improving productivity at manufacturing facilities, optimizing raw material and product design costs, generating benefits from procurement activities and improving distribution efficiencies. Kimberly-Clark expects the program to generate annual pre-tax cost savings of $500 million to $550 million by the end of 2021 through workforce reductions in a range of 5000 to 5500 employees. The reduction in employees is about 12% to 13% of its total workforce. Additionally, this program is expected to broadly impact all of the company’s business segments and organizations in each major geography.

Future Outlook

For full year 2018, Kimberly-Clark expects its net sales to range between 1% to 2%. In terms of the bottom line, the company expects its diluted earnings per share to range between $3.90 to $4.50, while it expects its adjusted earnings per share to range between $6.90 to $7.20. The company also expects its full-year spending to be around $1.1 billion. In addition, KMB plans to allocate $2.1 billion to $2.3 billion in dividends and share repurchases in 2018.

Our $121 price estimate for Kimberly-Clark’s stock is slightly ahead of the current market price.

See our complete analysis for Kimberly-Clark here

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