Forex Dents Kimberly-Clark Corp. Earnings

By Markets Fool.com

Image source: The Motley Fool.

Continue Reading Below

Kimberly-Clark(NYSE: KMB)reported second-quarter results on July 25. Foreign exchange continues to weigh on the consumer products giant's results, but the maker of brands including Kleenex tissues and Cottonelle toilet paper remains confident that it can meet its full-year profit forecast.

Kimberly-Clark results: The raw numbers

Q2 2016

Q2 2015

Growth (YOY)

Sales

$4.588 billion

$4.643 billion

(1.2%)

Net income

$566 million

($305 million)

N/A

Earnings per share

$1.56

($0.83)

N/A

Data source: Kimberly-Clark Q2 2016 Earnings Press Release.

What happened with Kimberly-Clark this quarter?

Continue Reading Below

Organic sales grew 3%, driven by a 4% increase in volume. However, net sales decreased 1.2% to $4.6 billion, as these gains were more than offset by a 4% negative impact from foreign exchange.

Adjusted operating profit -- which excludes restructuring costs, pension settlement charges, and other nonrecurring items -- rose 5% to $828 million, as cost savings related to Kimberly-Clark's FORCE (Focused on Reducing Costs Everywhere) program and lower raw-material costs boosted results.

All told, adjusted net income, which benefited from a lower effective tax rate, increased 7.8% to $556 million. And adjusted earnings per share, aided by share buybacks, rose 8.5% to $1.53.

What management had to say

"We delivered a good quarter of results in a challenging environment while we continue to execute our long-term Global Business Plan strategies," said chairman and CEOThomas Falk in a press release. "In the second quarter, we achieved a 4 percent increase in sales volumes, with benefits from targeted growth initiatives and product innovations. We also delivered$110 millionof cost savings, which helped improve our profitability and increase our adjusted earnings per share."

Cash flow and capital returns

Second-quarter operating cash flow rose 11% to $860 million, due to Kimberly-Clark's higher cash earnings and improved working capital, and free cash flow jumped 29% to $683 million. Management remains committed to passing on this cash flow to Kimberly-Clark's investors via dividends and stock buybacks, with the company repurchasing 1.1 million shares at a cost of$150 million in the second quarter. The quarterly dividend is $0.92 per share.

Looking forward

Kimberly-Clark reiterated its full-year adjusted EPS forecast of $5.95 to $6.15. However, the company now expects its organic sales growth to be at the low end of its prior guidance of 3% to 5%, which is likely to be offset by a 4% to 5% negative impact from foreign exchange.

"Cash flow was strong in the quarter and we continued to allocate capital in shareholder-friendly ways," added Falk. "Half way through the year, we are broadly on track with our plans and are confirming our bottom-line earnings guidance for 2016."

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.