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Can Growth Initiatives Drive Kimberly-Clark’s (KMB) Stock?


Kimberly-Clark Corporation’s KMB shares have been dismal for a while. The company’s shares have plunged 12.5% in the past six months, compared with the industry’s decline of 9.1%. Its performance has primarily been affected by weak organic sales trend in the North American region. During the first and second quarters of 2017, organic sales from the region declined owing to high competition, reduced promotional shipments and lower net pricing.

Although organic sales have been positive in the developing and emerging markets, its growth rate has decelerated in the past few quarters. Further, consumer dynamics have also shifted negatively toward Kimberly-Clark’s diaper offerings. Rising input costs are also hurting the company’s margins.

Owing to such challenges, Kimberly-Clark issued soft earnings guidance for the full year, when it reported second-quarter 2017 results. The company now expects earnings per share at the low end of its previous targeted range of $6.20-$6.35. Following the company’s discouraging performance and dull outlook, the Zacks Consensus Estimate also witnessed a downtrend in the past 60 days. In the said period, estimates for 2017 have gone down nine cents to reach $6.22. Also estimated earnings of $1.55 for the third quarter depict a decline of five cents.

Nevertheless, this Zacks Rank #3 (Hold) company has been striving hard to spark a turnaround. Let’s look into some of the initiatives undertaken by the company to improve performance.

Product Innovations

Kimberly-Clark dedicatedly focuses on innovations and product launches to improve market share. Recently, the company launched its new Kleenex Reveal Countertop System under the Kimberly-Clark Professional segment, to offer improved and exceptional hygiene products. The company has been providing greater importance toward the improvement of its personal care products portfolio, especially feminine hygiene and diaper products. Innovations related to the Huggies brand has been initiated in several regions such as in Russia and China. In the near term, the company has a number of innovations lined up for launch in North America, including upgrades on Huggies Snug and Dry diapers, Good Nights youth pants and Depend underwear.

Savings Enhancing Initiatives

Kimberly-Clark is also aggressively cutting costs through a program called Focus on Reducing Costs Everywhere or FORCE. The FORCE program has generated higher cost savings each year with $435 million in 2016, $365 million in 2015, $320 million in 2014, $310 million in 2013, $295 million in 2012 and $265 million in 2011. In fact, cost savings in 2016 exceeded the initial target of at least $350 million. For 2017, the company now expects to generate cost savings in the range of $425 to $450 million from the FORCE program, up from the prior estimate of $400 million.

Restructuring efforts, which involve divestiture of lower-margin businesses and streamlining of manufacturing activities, have also resulted in significant savings for the company. Such efforts generated savings of $70 million in 2016, bringing the cumulative benefit to $140 million annually, compared with the original estimate for savings of $120-$140 million by the end of 2017.

Final Verdict

We expect that the company’s innovation and restructuring efforts will aid toward driving its performance in the periods ahead. Moreover, the company currently carries a VGM Score of A and has a long-term growth rate of 6.7%.

Considering the pros and cons, Kimberly-Clark currently carries a Zacks Rank #3 (Hold).

Looking for More Consumer Staples Stocks? Check These

Investors may also consider stocks such as Estée Lauder Companies Inc EL flaunting a Zacks Rank #1 (Strong Buy) while The Procter & Gamble Company PG and Constellation Brands, Inc STZ carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1stocks here.

Estée Lauder delivered an average positive earnings surprise of 13.7% in the trailing four quarters. It has a long-term earnings growth rate of 12%.

Procter & Gamble came up with an average positive earnings surprise of 4.5% in the trailing four quarters. It has a long-term earnings growth rate of 7.4%.

Constellation Brands pulled off an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

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