Can Kimberly-Clark's (KMB) Savings Efforts Uplift the Stock?

Kimberly-Clark Corporation’s KMB savings initiatives have been an aspect of cheer lately. Further, the company is focused on making investments as well as undertaking effective restructuring plans to induce efficiency and enhance market share.

However, softness in North American consumer products and the diaper segment as well as rising input costs have been posing concerns for a while. These factors have caused the company’s shares to drop 4.7% in the past six months, while it fared better than the industry's fall of 9%.

Nevertheless, lets weigh both the sides and see if the Zacks Rank #3 (Hold) company’s growth initiatives can help it uplift the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Ensuring Fuller Pockets With Savings & Restructuring

Kimberly-Clark is aggressively cutting costs through its Focus on Reducing Costs Everywhere, or FORCE Program. The program has successfully generated higher cost savings each year with record amount of $450 million in 2017.

The company projects savings of $400 million in 2018 and more than $1.5 billion over the four-year period from 2018 to 2021. This will be achieved, courtesy of management’s focus on enriching productivity at manufacturing facilities, optimizing design and raw material expenses as well as attaining distribution efficiencies.

Further, the company’s adherence toward maximizing savings and inducing operating efficiencies is evident from the 2018 Global Restructuring Program. In fact, the program is considered as one of the largest restructuring initiatives undertaken by the company. It primarily focuses on enhancing underlying profitability for better competition and provides 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. Notably, management expects cost savings of $50-$70 million from this program in 2018.

Further, as part of enhancing efficiency, Kimberly-Clark plans to divest some low-margin businesses, mainly concentrated in the consumer tissue unit. On a combined basis, Kimberly-Clark expects cost savings of more than $2 billion from the FORCE program and 2018 Global Restructuring Program, over the next four years.

 

Focus on Innovation

Being a popular name in several consumer product categories, Kimberly-Clark regularly undertakes innovation to sustain its brand positions and market share. Over the near term, the company has a number of innovations lined up for launch in North America, including upgrades on Huggies diapers and baby wipes, Pull-Ups training pants, Depend and Poise in adult care and new Kleenex wet wipes.

Hurdles to Be Crossed

Kimberly-Clark has been witnessing rising input costs of late. Evidently, increased input costs on account of hiked rates of pulp and other raw materials caused adjusted operating profit to fall 2.7% in the fourth quarter.  In 2018, management expects input cost inflation of about $300-$400 million, primarily in international markets. Additionally, softness in North American consumer products and high competition in the diaper segment have been posing concerns. 

Final Thoughts 

Wrapping up, Kimberly-Clark’s continued emphasis on reducing costs and making growth-oriented investments are expected to offset the aforementioned challenges. Also, management expects tax reforms to favorably impact its bottom-line and cash flows during 2018. Banking on such positives, management envisions adjusted earnings per share to grow roughly 11-16% year over year in 2018.

All said, we expect the company’s robust initiatives and a positive outlook to help it overcome persistent challenges in the forthcoming periods.

Looking for More? Check These Stocks

United Natural Foods UNFI, with a solid earnings surprise history and long-term earnings growth rate of 8.2%, boasts a Zacks Rank #1.

Hormel Foods HRL, with long-term earnings growth rate of 9.3%, holds a Zacks Rank #2 (Buy).

Conagra Brands Inc. CAG, carrying a Zacks Rank #2, flaunts an impressive earnings surprise history.

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