Intense price competition in China and macro challenges in Brazil will challenge topline growth.
Cost cut efforts will augur well for profit margins.
Stock is trading at a forward P/E of 18x, versus PG’s forward P/E of 20x.
Kimberly-Clark (NYSE:KMB) is among the leading hygiene product producing companies in the world. The company’s strong product portfolio and increasing international footprint will augur well for its long-term growth. However, KMB’s near-term performance will be challenged because of intense competition. KMB is facing intense price competition in China, which will weigh on its top-line growth in the upcoming quarters. Its cost reduction efforts and easing foreign currency headwinds will support its earnings growth in the challenging environment. Moreover, the company needs to consistently focus on product innovation to strengthen its product portfolio and keep up with the changing consumer demands. The ongoing challenges have weighed on the stock valuations, and the stock is down almost 12% since June 2016. I believe, the current challenging environment will continue to remain an overhang on the stock price.
Financial Performance and Catalysts
The company reported mixed results for 3Q16. KMB’s EPS for the quarter came out to be $1.52, missing the consensus estimate of $1.54. However, EPS for 3Q16 increased by 7.8% YoY, as the earnings were positively affected by input cost inflation and cost savings. For 3Q16, the company reported total sales of $4.6 billion, down 2.5% YoY, missing the consensus by 2.8%, as foreign currency headwinds and intense competition adversely affected the top line numbers. Organic sales for the quarter were flat, as developing and emerging markets sales grew by 3%, whereas Consumer Tissue and K-C Professional segments sales were down 2% and 1%, respectively. Also, the company revised its organic sales guidance for 2016, as it now expects 2016 organic sales growth of only 2%, as compared to its previous organic sales growth guidance range of 3%-5%.
Fuente: Seeking Alpha
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