Consumer products giant Kimberly-Clark Corporation (KMB - Analyst Report) started the year 2015 on a strong note, posting better-than-expected results in the first quarter. The company also reiterated its earnings guidance for the full year.
Adjusted earnings of $1.42 per share beat the Zacks Consensus Estimate of $1.33 by 6.8% and also increased 7.6% from the year-ago figure of $1.32 per share. Year over year, earnings were boosted by organic sales growth, cost savings, margin improvements and lower share count owing to share buybacks. However, earnings were negatively impacted by unfavorable foreign currency exchange rate effects and higher taxes.
Kimberly-Clark Corporation - Quarterly EPS | FindTheCompany
Quarter in Detail
The company reported sales of $4.69 billion in the first quarter. Though sales slightly beat the Zacks Consensus Estimate of $4.63 billion, it declined 4% from the prior-year quarter due to foreign currency headwinds.
Excluding the aforementioned headwinds, organic sales grew 5% from the prior-year quarter, driven by 3% volume gains and 1% improvement each from net selling prices and product mix.
Adjusted operating profit in 2015 (excluding charges for organizational restructuring, charges for pension settlements and for Venezuelan balance sheet re-measurement) grew 7.2% to $815 million in the first quarter. This reflects an increase in organic sales and $90 million of cost savings from the FORCE (Focused On Reducing Costs Everywhere) program and $10 million of savings from the organization restructuring announced in 2014. Input costs also decreased $10 million in the quarter. However, currency fluctuations reduced adjusted operating profit by $75 million.
Segment Details
Personal Care Products: The segment includes products like disposable diapers, training/youth/swim pants; baby wipes; feminine and incontinence care products.
Sales decreased 3% on a year over year basis to $2.3 billion in the quarter due to unfavorable currency impact, which offset the 2% increase in net selling prices and 4% volume growth. Sales declined in North America, developed markets outside North America and developing and emerging markets.
Segment operating profit was flat at $455 million in the quarter, benefiting from organic sales growth and cost savings, partially offset by unfavorable currency rates and higher manufacturing-related costs.
Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.
Segment sales declined 7% to $1.6 billion in the first quarter due to unfavorable currencies and lower selling prices, which offset the impact of higher volumes. While sales in North America increased 2%, other two developed markets outside North America and developing and emerging markets declined in the quarter.
Segment operating profit increased 13% to $291 million owing to benefits of cost savings, reduced manufacturing costs and lower marketing, research and general expenses, partially offset by unfavorable currencies.
K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.
Segment sales declined 1% on a year over year basis to $0.8 billion in the first quarter of 2015 due to unfavorable currency offset by positive sales volumes and product/mix. While sales in North America increased 3%, other two developed markets outside North America and developing and emerging markets declined in the quarter.
Unfavorable currency effects led to a decline of 1% in segment operating profit to $134 million, which overshadowed the gains from organic sales and cost savings.
Other Financial Update
During the first quarter, the company acquired the remaining 49.9% interest in its subsidiary in Israel for approximately $150 million. As a result, the company is now targets 2015 share repurchases of $0.7 billion to $0.9 billion compared to the previous target of $0.8 billion to $1.0 billion.
Organization Restructuring in 2014
In Oct 2014, the company initiated a restructuring program in order to improve organization efficiency, improve its underlying profitability, increase the company's flexibility to invest in targeted growth initiatives and offset overhead costs stemming from the spin-off of the company's health care business.
The restructuring is expected to be completed by the end of 2016, with total costs anticipated to be $130 million to $160 million after tax. It will result in cumulative pre-tax savings in the range of $120 million to $140 million by the end of 2017.
During the first quarter of 2015, restructuring costs were $5 million after tax while savings amounted to $10 million.
Guidance for 2015
The company continues to expect 2015 earnings in the range of $5.60 to $5.80 per share, up 2% to 5% from adjusted earnings per share of $5.51 in 2014. Organic sales growth is expected in the range of 3% to 5%.
Foreign currency exchange will negatively impact sales by 9% to 10% and operating profit by 10% to 11%. Both of these ranges are 1 point more negative than prior assumptions. The company continues to expect unfavorable Venezuela currency to reduce total company sales and adjusted operating profit in 2015 by approximately 3% and 4%, respectively.
During the fourth quarter 2014 conference call, the company had stated that it expects adjusted operating profit to grow in the range of 1% to 4% in 2015. Cost savings of at least $300 million are expected from the company's FORCE program, whereas savings of $60 million to $80 million are expected to come from the 2014 organization restructuring initiative.
Kimberly-Clark has a Zacks Rank #3 (Hold).
Better-ranked stocks in the consumer staples sector include Monster Beverage Corp. (MNST - Analyst Report), Tyson Foods Inc. (TSN - Analyst Report) and Hormel Foods Corp. (HRL - Analyst Report). While Monster Beverage sports a Zacks Rank #1 (Strong Buy), Tyson and Hormel Foods hold a Zacks Rank #2 (Buy).
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