What To Watch For In Kimberly-Clark’s Q4

by Trefis Team
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Kimberly-Clark‘s (NYSE: KMB) scheduled to announce its fiscal fourth quarter results on Wednesday, January 23. In the first nine months of fiscal 2018, the company’s net sales grew slightly to $14 billion. The company’s organic sales grew 1% y-o-y (year-over-year), as a 1% improvement in volume and product mix was offset by a marginal decline in net selling prices. During this period, the company saw gains in the K-C Professional and Consumer Tissue segments, which was partially offset by flat results in the Personal Care segment. Going forward, commodity costs, foreign exchange challenges, and transportation costs could likely persist in Q4, which could impact the company’s growth rates.

Kimberly-Clark’s stock price has declined slightly over the course of 2018, due to falling prices and rising cost inflation. Our $107 price estimate for Kimberly-Clark’s stock is almost 10% lower than the current market price. We have created an interactive dashboard on Commodity Inflation Could Negatively Impact Kimberly-Clark In Q4, which outlines our forecasts for the company’s Q4 and full-year fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Margin Pressure To Continue

Kimberly-Clark’s third quarter adjusted gross margin was 33.2%, down 250 basis points y-0-y. In addition, the company’s adjusted operating margin was down 120 basis points to 17.4%. The primary reason for this decline was higher pulp and raw material cost and inflation. We expect the continued cost pressure from inflation in raw materials and input costs to hurt the company’s margins going forward, as the company has guided for its full-year cost inflation to fall in the upper half of its previous outlook of $675 million to $775 million. In addition, some big-box retailers’ aggressive push towards launching their own private-label products could impact Kimberly-Clark’s shelf space, which could again put pressure on its margins.

Fiscal 2018 Outlook

For full-year 2018, Kimberly-Clark expects its net sales and organic sales to grow by 1% y-o-y. The company continues to expect its adjusted earnings in the $6.60 to $6.80 range, and diluted earnings in the range of $3.29 to $3.79. Furthermore, the company expects its adjusted operating profit to decline in fiscal 2018, mostly because of the recent weakness in many foreign currencies, especially in Latin America. In addition, the company continues to implement sheet count reductions in North America and increase prices in Latin America. In addition, it also plans to raise prices in other international markets in its Consumer Tissues and K-C Professional business in 2018

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