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Kimberly-Clark tops Q2 estimates

August 31, 2011

Kimberly-Clark (K-C) reports its second quarter adjusted EPS of $1.18, is ahead of consensus estimates of $1.15 per share.

Revenues for the quarter rose 8% year-over-year to $5.3 billion, topping consensus estimates of $5.1 billion.

Thomas J. Falk, chairman and CEO, says, "Our organic sales grew in the second quarter in line with our full-year plan, as we continue to benefit from innovation and targeted growth initiatives. We are gaining market share in a number of businesses and are launching additional product innovations to further improve our brands. We also continue to deliver significant ongoing cost savings and generate strong cash flow. Although adjusted earnings per share were down slightly in the second quarter versus last year, we delivered sequential improvement in most key metrics compared to the first quarter, which gives us added confidence in our performance in the back half of the year."

Gross margin shrank 4.2 percentage points to 29.6%. The contraction appeared to be driven by increased costs, which rose 15.2% from the year earlier quarter while revenue rose 8.3%.

K-C's revenue has risen the past four quarters. Revenue increased 4% to $5.03 billion in the first quarter. The figure rose 1.9% in the fourth quarter of the last fiscal year from the year earlier and climbed 1.3% in the third quarter of the last fiscal year from the year-ago quarter.

The company topped expectations last quarter after falling short of forecasts in the first quarter with net income of $1.09 versus a mean estimate of net income of $1.18 per share. Net income has dropped 4.6% year over year on average across the last five quarters. Performance was hurt by a 19.4% decline in the third quarter of the last fiscal year from the year earlier quarter.

For 2011, the company sees EPS of $4.80 to $5.05, vs. consensus estimates of $4.85 per share. Kimberly-Clark has a potential upside of 1.4% based on a current price of $67.9 and an average consensus analyst price target of $68.82.

CFO Mark Buthman said the company's costs for oil-based materials, such as the polymer resin used in a diaper's outer cover and leg elastic, have risen even though oil prices have fallen in the past three months. He blamed a tight supply driven by strong demand in China.

Buthman said Kimberly–Clark will hike North American prices 3-7% on average in the second half of the year, partly by raising list prices and partly by making smaller packages, he said. Prices won't rise on adult care brands Poise and Depend or on the company's feminine care brands.