23 Apr

What Drove Kimberly-Clark’s Q1 Earnings?


EPS exceeds expectations

Kimberly-Clark (KMB) posted better-than-expected earnings in the first quarter of 2019. Kimberly-Clark’s adjusted earnings of $1.66 per share handily surpassed analysts’ estimate of $1.54, driven by an increase in net pricing, a favorable mix, cost savings, and share buybacks. However, earnings declined on a YoY basis, reflecting inflation in commodities and a higher tax rate.

We expect input and logistics cost headwinds to pressure the margins of other CPG companies including Colgate-Palmolive (CL), Procter & Gamble (PG), Clorox (CLX), and Church & Dwight (CHD). Weak margins and adverse currency rates are expected to hurt the earnings of these companies in the coming quarters.

What Drove Kimberly-Clark’s Q1 Earnings?

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Q1 earnings in detail

Kimberly-Clark’s earnings benefitted from a 4% increase in pricing and a 1% benefit from a favorable product mix. Meanwhile, cost savings and a slight sequential decline in cost of commodities including pulp, recycled fiber, and polymer further supported margins, and in turn, the company’s EPS.

Kimberly-Clark’s adjusted gross margin contracted 30 basis points to 33.5%. Meanwhile, the adjusted operating margin stayed flat at 17.4%. Management stated the higher pricing helped offset the adverse impact of cost headwinds. Kimberly-Clark’s first-quarter earnings benefited from the lower outstanding share count. However, a higher effective tax rate was a 2% drag on its bottom line.

Management reiterated its guidance and expects its adjusted EPS to be in the range of $6.50 to $6.70 in 2019. Currency and input cost headwinds coupled with a planned increase in advertising are likely to hurt the company’s bottom line. However, cost savings, higher pricing, and lower outstanding share count is expected to support earnings.

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