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Kimberly-Clark (KMB) Q3 Earnings: What’s in the Cards?


Kimberly Clark Corporation KMB is set to report third-quarter 2016 results before the opening bell on Oct 24. Last quarter, the company posted a positive earnings surprise of 3.38%. In fact, it has managed to surpass estimates in three of the trailing four quarters with an average positive surprise of 1.16%.

Let us see how things are shaping up for this announcement.

Factors to Consider

Kimberly-Clark has been disappointing investors lately, which is driving its share price down.

In the last reported second quarter of 2016, the company witnessed sluggish organic sales growth of just 3%, about 1% lower than expected. Emerging market organic sales growth of 5% was flat with the prior year quarter. Unfavorable currency and increased competition are also eroding sales growth.

In such a scenario, the company is relying on cost saving measures and restructuring programs to drive earnings. It is also striving to reduce expenses and buying back shares in order to boost its profits. Kimberly-Clark expects the trend to continue in the third quarter as well.

Third-quarter revenue is expected to be about $4.7 billion on 36.3% gross margin.

Of late, the company has been facing headwinds, which is pulling down its estimates. In mid-July, Kimberly-Clark suspended its operations in Venezuela without prior notice and fired around 1000 workers, thus violating the South American country’s laws.

Moreover, a few law firms have filed a shareholder class action lawsuit against the company and Halyard Health, Inc. HYH, which was spun out of Kimberly-Clark in Oct 2014. According to these firms, Kimberly-Clark and Halyard made false and misleading statements regarding surgical gowns and knowingly provided defective surgical gowns to U.S. workers amid the Ebola crisis. These allegations are dampening investors’ confidence.

KIMBERLY CLARK Price, Consensus and EPS Surprise

KIMBERLY CLARK Price, Consensus and EPS Surprise | KIMBERLY CLARK Quote

Earnings Whispers

Our proven model does not conclusively show that Kimberly-Clark is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: ESP for Kimberly-Clark is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.54.

Zacks Rank: Kimberly-Clark carries a Zacks Rank #4 (Sell).We caution against stocks with Zacks Rank #4 or 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank, and are therefore worth considering include:

Sanderson Farms, Inc. SAFM with an Earnings ESP of +9.62% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tyson Foods, Inc. TSN with an Earnings ESP of +9.48% and a Zacks Rank #2.

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