Kimberly-Clark Beat Q2 EPS Estimate but Lowered 2018 Guidance

Adjusted EPS surpassed estimate

Kimberly-Clark (KMB) reported better-than-expected earnings for the second quarter of 2018 on July 24. Kimberly-Clark’s second-quarter adjusted earnings of $1.59 per share came in ahead of analysts’ expectation of $1.57 and rose 6.7% on a YoY (year-over-year) basis. Lower interest expenses and taxes in addition to share buybacks drove the company’s bottom-line growth. However, input cost headwinds remained a drag. Moreover, the company’s tepid guidance raised concerns.

Kimberly-Clark Beat Q2 EPS Estimate but Lowered 2018 Guidance

Q2 earnings in detail

Kimberly-Clark’s second-quarter EPS benefitted from a significant decline in the tax rate. The adjusted effective tax rate during the second quarter stood at 23.0%, down from 28.2% in the prior-year quarter. Also, a decline in interest expenses and share repurchases further cushioned the earnings. However, weak volumes and pricing and higher-than-expected inflation in commodities adversely impacted the EPS and restricted the bottom-line growth.

Kimberly-Clark’s management lowered the 2018 EPS guidance in anticipation of higher cost pressure and unfavorable currency rates. Kimberly-Clark’s adjusted EPS is now projected to be in the range of $6.60 to $6.80 in 2018, down from its earlier guidance range of $6.90 to $7.20.

Kimberly-Clark’s full-year guidance shows that CPG companies’ issues are not likely to get better in the near term, and earnings are expected to remain pressured. The profitability of CPG companies including Kimberly-Clark, Procter & Gamble (PG), and Colgate-Palmolive (CL) is already reeling under pressure from lower pricing and cost headwinds. Now, an unfavorable currency outlook only worsens the situation.

These companies are considering increasing pricing to offset cost headwinds and support margins, but raising prices amid heightened competition could affect volumes, and in turn, the earnings growth rate.