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Kimberly-Clark: Earnings Beat, Weak Volumes a Concern

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  • Although Kimberly-Clark’s Q3 2019 earnings beat estimates, its revenues were roughly in line with expectations.
  • KMB’s volumes remain weak.
  • The company raised its full-year revenues and EPS outlook.

Kimberly-Clark (KMB) posted its third-quarter earnings today, beating analysts’ expectations. Higher net selling prices and cost savings drove the company’s earnings. Moreover, lower raw material costs supported its margins and earnings. However, as expected, a higher effective tax rate remained a drag.

Kimberly-Clark’s revenues improved on a YoY (year-over-year) basis, reflecting continued strength in the base business. However, its revenues were generally in line with analysts’ estimates as weak volumes remained a drag. Also, adverse foreign exchange rates dented its revenues.

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In comparison, Procter & Gamble (PG) posted stellar quarterly performance today for the first quarter of fiscal 2020. Procter & Gamble’s top line and bottom line beat Wall Street’s estimates by a wide margin. Plus, its margins continued to expand, while the company’s management raised its full-year outlook.

Kimberly-Clark stock was trading lower in the morning following its third-quarter results. In comparison, Procter & Gamble stock was trading higher.

Kimberly-Clark: Q3 earnings in detail

Kimberly-Clark posted revenues of $4.64 billion in the third quarter. These revenues rose about 1% YoY and were mostly in line with Wall Street’s estimates. Organic sales increased 4%, reflecting a 4% contribution from higher net selling prices and a 1% gain from product mix. However, volumes continued their downtrend and dropped 1%.

In comparison, Procter & Gamble’s organic sales soared 7%, reflecting balanced growth in volumes, pricing, and mix. Procter & Gamble’s organic sales have been growing at a robust pace. Including its first quarter of fiscal 2020, the company’s organic sales have now increased 7% in the last two consecutive quarters.

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Kimberly-Clark’s adjusted gross and operating profit margins increased by 260 and 110 basis points, respectively. Increased net selling prices, lower raw material costs, and cost savings supported KMB’s adjusted gross profit margins. Meanwhile, its adjusted operating margin benefited from higher gross margins. However, higher advertising and SG&A expenses subdued its margins.

Procter & Gamble’s profit margins showed strong growth, led by robust organic sales, productivity savings, and a decline in commodity costs.

Kimberly-Clark posted adjusted earnings per share of $1.84, which increased 7.6% YoY and beat analysts’ estimate of $1.80. Margin expansion drove its third-quarter earnings. However, an increase in the adjusted effective tax rate subdued its EPS. In comparison, Procter & Gamble’s adjusted EPS jumped 22% YoY and crushed analysts’ estimates.

Kimberly-Clark improved its outlook for sales and earnings. KMB’s organic sales are expected to increase 3%–4%—up from the previous growth outlook of 3%. The company’s adjusted EPS could be $6.75–$6.90, up from its earlier guidance of $6.65–$6.80.

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