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Cost-Cutting Plans to Fuel Kimberly-Clark (KMB) Q1 Earnings


Kimberly-Clark Corporation KMB is slated to release first-quarter 2018 results on Apr 23. This consumer goods company has reported an average earnings surprise of nearly 2% over the trailing four quarters. Let’s see how things are placed ahead of the upcoming results.

Kimberly-Clark Corporation Price and EPS Surprise

Kimberly-Clark Corporation Price and EPS Surprise | Kimberly-Clark Corporation Quote

FORCE & Global Restructuring Plans to Drive Bottom Line

Kimberly-Clark is likely to continue gaining from its ongoing Focus on Reducing Costs Everywhere (FORCE) program, while it should also receive some benefits from its recently unveiled 2018 Global Restructuring plan. Notably, the latter marks the company’s biggest restructuring in a long time now. This plan is likely to enhance the company’s underlying profitability, help it compete better and provide greater flexibility to undertake growth-oriented investments. Delving deeper, we note that the program is expected to simplify Kimberly-Clark’s overhead organization and manufacturing supply chain structures. Well, the program will benefit all segments of the company as well as all the major geographical region.

Markedly, management expects cost savings of $50-$70 million from this program in 2018, which also bodes well for the quarter under review. Moving to the FORCE Program, Kimberly-Clark has long been gaining from this cost-cutting plan. In fact, the FORCE program has generated higher cost savings each year with record savings of $450 million in 2017, following $435 million in 2016 and lesser each year prior to that. The company anticipates cost savings of $400 million in 2018. On a combined basis, Kimberly-Clark expects cost savings of more than $2 billion from the FORCE program and 2018 Global Restructuring Program (discussed below), over the next four years.

These dedicated efforts are likely to help Kimberly-Clark offset hurdles related to input cost inflation. Incidentally, Kimberly-Clark has been witnessing rising input costs of late. Increased input costs on account of greater costs of pulp and other raw materials caused adjusted operating profit to fall 2.7% to $836 million in the fourth quarter. Further, in 2018, management expects input cost inflation of about $300-$400 million, primarily in international markets. However, the robust aforementioned strategies should help the company combat these hurdles and fuel bottom-line growth.

Earnings Expectations in Numbers

In fact, FORCE program was a driver for the company in the fourth quarter as well, wherein both top and bottom lines improved year over year and the latter also exceeded the Zacks Consensus Estimate for the second consecutive quarter. The year-over-year growth in earnings was driven by cost savings from FORCE program as well as reduced effective tax rate stemming from the latest tax reforms and associated activities. Also, management expects the tax reforms to favorably impact its bottom line and cash flows, which again remains a driver for Kimberly Clark in the quarter to be reported. Well, the current Zacks Consensus Estimate for the quarter under review is pegged at $1.70, which shows an increase of nearly 9% from $1.57 recorded in the year-ago period. The estimate has remained unchanged in the past 30 days.

Will Sales Grow Amid North American Challenges?

Moving to top line, the year-over-year growth in the last reported quarter was aided by greater Personal Product and K-C Professional (KCP) sales. However, on a region-wise basis, softness in North American consumer products and higher competitive activity have been major concerns for quite some time. Evidently, net sales in North America declined year over year across most segments, owing to lower selling prices. This in turn stemmed from intense promotional activities undertaken amid the mounting competition. Also, organic sales at consumer products decreased 3% in North America. In fact, the company’s overall organic sales also dipped 1%, due to lower net selling prices across most categories.

Nonetheless, management stated that it remains committed toward making further brand investments and implementing strategic growth initiatives. For the quarter under review, the consensus marks for Personal Product and KCP sales are pegged at $2,304 million and $795 million, in comparison with $2,250 million and $768 million, respectively. Also, analysts polled by Zacks expects Consumer Tissue sales to grow 2.35 to $1,488 million. Finally, the consensus estimate for Kimberly-Clark’s total revenues stands at $4,595 million, marking a 2.5% rise from the year-ago reported figure.

What the Zacks Model Unveils

However, our proven model doesn’t show that Kimberly-Clark is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

While Kimberly-Clark carries a Zacks Rank #3, its Earnings ESP of -2.35% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat:

Philip Morris PM has an Earnings ESP of +0.87% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer SAM, a Zacks #3 Ranked stock, has an Earnings ESP of +35.65%.

ManpowerGroup MAN, a #3 Ranked company, has an Earnings ESP of +1.94%.

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