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Why Kimberly-Clark’s 3Q17 Results Could Be Disappointing

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Part 4
Why Kimberly-Clark’s 3Q17 Results Could Be Disappointing PART 4 OF 5

Will Kimberly-Clark’s Margins Improve in 3Q17?

Last quarter recap

Kimberly-Clark’s (KMB) margins were impacted adversely by inflationary pressure on input costs last quarter. Besides, sales deleverage further dented the margins. The company’s gross and operating profit margin contracted by 20 basis points and 50 basis points, respectively, despite the company generating $120 million in cost savings. Kimberly-Clark’s gross margin fell 20 basis points to 36.1% during the reported quarter.

Will Kimberly-Clark’s Margins Improve in 3Q17?

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What to expect in 3Q17

Kimberly-Clark’s 3Q17 margins are expected to benefit from higher cost savings. The company’s focus on reducing overhead costs is projected to support the operating margins growth. Kimberly-Clark expects to generate cost savings of $425.0 million–$450.0 million in 2017, which should help margins growth in 2H17.

However, the company’s gross margins could remain muted as higher input costs (pulp and other commodities), lower selling price, increased competition, and soft sales are expected to remain a drag. Also, the company’s increased spending on promotions to support the launch of new products could further lower margins.

In comparison, margins for the company’s peers including Procter & Gamble (PG), Colgate-Palmolive (CL), Clorox (CLX), and Church & Dwight (CHD) are also expected to be negatively impacted by rising input costs, increased competition, and higher marketing expenses.

However, Clorox and Church & Dwight’s margins are projected to benefit from higher sales and increased pricing.

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