Kimberly-Clark Beats Wall Street's Earnings Estimates, but Currency Effects Weigh on Results


Kimberly-Clark reported second-quarter results before the market open Thursday. The consumer goods giant delivered revenue and earnings that exceeded Wall Street's expectations, yet investors appear to be reacting to the news with a sigh, with shares down about 0.3% as of 1:25 p.m.

Operating results Sales decreased 6% year over year to $4.643 billion, coming in slightly ahead of analysts' estimates of $4.625 billion. A 3% increase in volume and 1% rise in price helped drive organic sales higher by 4%. Yet this growth was more than offset by the negative impact of changes in foreign currency exchange rates, which reduced sales by 10%.

Excluding non-cash pension settlement charges and non-recurring restructuring costs, adjusted operating profit increased 1.7% to $790 million, aided by cost savings related to Kimberly-Clark's FORCE (Focused On Reducing Costs Everywhere) program, and lower raw material costs.

Foreign exchange fluctuations also negatively affected Kimberly-Clark'sequity income (the income it derives from partially owned subsidiaries). Kimberly-Clark's Q2 equity income was$39 million, even with the year-ago period, as negative currency effects offset organic sales growth and lower costs.

All told, adjusted earnings per share rose 6% to $1.41, as the combined beneficial impact of Kimberly-Clark's organic sales growth, cost savings, input cost deflation, and lower share count (as a result of its share repurchase program) more than offset the negative currency effects. Wall Street was projecting only $1.36 in EPS.

GuidanceLooking ahead,management increased its expected full-year cost savings from the FORCE program to at least $350 million, up from a prior estimate of $300 million. Management also expects to benefit even more from lower raw material costs, and raised its projected input cost deflation range to $100 million to $200 million, from $50 million to $150 million.

However, management now expects the drag on sales and earnings from foreign currency movements to come in at the high end of the company's previous assumption, which was for a negative impact on sales of 9% to 10% and a negative impact on operating profit of 10% to 11%.

All told, full-year adjusted earnings per share are anticipated to be$5.65to$5.80,compared to the company's previous guidance range of$5.60to$5.80.

"We continue to execute our Global Business Plan strategies well," said Chairman and CEOThomas Falk. "In the second quarter, we delivered mid-single digit growth in organic sales and adjusted earnings per share from continuing operations. We also achieved significant cost savings and improvements in adjusted gross and operating margins. In addition, we made further progress with targeted growth initiatives, launched product innovations and allocated capital in shareholder-friendly ways.

"In terms of our full-year earnings outlook, we are raising the low end of our previous guidance by5 centsper share. This reflects our strong performance in the first half of the year, additional cost savings and more investments behind our brands and growth initiatives than we previously planned. We continue to be optimistic about our prospects to generate attractive returns to shareholders."

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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.

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