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Kimberly-Clark (KMB) Eyes Growth Strategies: Time to Hold


With cost savings, restructuring initiatives and product innovation, Kimberly-Clark Corporation KMB is well positioned to sustain its growth momentum. Let’s now look into the factors impacting the performance of this leading player in several consumer product categories.

Factors Impacting Performance

The upside in Kimberly-Clark’s performance was observed to be driven by cost savings and continued product innovation related efforts. Kimberly-Clark is aggressively cutting costs through a program called Focus on Reducing Costs Everywhere or FORCE.

This program has generated higher cost savings each year with savings in 2016 exceeding the initial target. For 2017, the company expects cost savings of at least $400 million, out of which it already achieved $110 million of cost savings in the first quarter 2017. (Read more: Kimberly-Clark Tops Q1 Earnings on Favorable Currency)

Coming to product innovation, the company has a number of new product launches lined up in North America in the near term. As one of the leading players in several consumer product categories, Kimberly-Clark’s regular innovative efforts help in improving its brand positions and market share.

The company is focused on developing long-term prospects by improving its international presence. Organic sales in diapers have increased in Eastern Europe and China over the past quarters, due to strong volume growth and innovation.

However, the company’s top line missed estimates in seven of the past eight quarters. Additionally, over the past few quarters the company has been witnessing sluggish organic sales growth especially in developing and emerging markets. Highly competitive promotional activity continues to negatively impact the selling prices and weaken market dynamics for organic sales. Furthermore, input cost inflation and stiff competition especially in the diapers segment remain headwinds.

Price Performance

Over the past six months, the company was observed to have performed slightly better than the Zacks categorized Consumer Products-Miscellaneous Staples industry. During this time frame, shares of the company gained 12.1% while the industry grew 12%.

Stable Estimates

Estimates have remained stable for the company over the past 30 days at $1.51 and $6.29 for the second quarter and for 2017, respectively. Additionally, the company reiterated earnings guidance for 2017 is in the band of $6.20–$6.35 per share.

Bottom Line

Given the pros and cons, Kimberly-Clark currently carries a Zacks Rank #3 (Hold). We are hopeful that the company’s cost containment and innovation strategies would facilitate improving its top line performance while sustaining its earnings growth.

Key picks

Better-ranked stocks in the same industry include Ollie's Bargain Outlet Holdings OLLI, Energizer Holdings, Inc. ENR and Tupperware Brands Corp. TUP, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Ollie's Bargain delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 19%.

Energizer delivered an average positive earnings surprise of 21.6% in the trailing four quarters and has a long-term earnings growth rate of 9.8%

Tupperware Brands delivered an average positive earnings surprise of 6.6% in the trailing four quarters and has a long-term earnings growth rate of 12%.

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