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Kimberly-Clark's (KMB) Cost-Cutting Efforts Aid Amid High Costs

Kimberly-Clark Corporation KMB has been benefiting from essential steps to cut costs and enhance supply-chain productivity amid an inflationary environment. The consumer products company’s focus on three key strategic growth pillars and the K-C Strategy 2022 are noteworthy.

Let’s delve deeper.

What’s Working Well for Kimberly-Clark?

The Zacks Rank #3 (Hold) company has been committed to its three key strategic growth pillars. These include focus on improving its core business in the developed markets, speeding up growth of Personal Care segment in developing and emerging markets and enhancing digital and e-commerce capacities. The company expects to meet these objectives through product development across different categories and leveraging capabilities in marketing and sales. The company has been progressing well with these objectives, which have been aiding its portfolio and expanding global business.

 In February 2022, Kimberly-Clark acquired a majority stake in Thinx, Inc. — the pioneer in the reusable period and incontinence underwear category. In October 2020, Kimberly-Clark completed the acquisition of Softex Indonesia — a leading player in the Indonesian personal care market. The net impact of the Softex buyout and business exits in conjunction with the 2018 Global Restructuring Program, increased sales by almost 1% in 2021.

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Kimberly-Clark's K-C Strategy is focused on generating balanced and sustainable growth to return value to shareholders in a tough environment. The program also concentrates on strengthening the company’s brand portfolio, undertaking efficient capital allocation and executing robust cost discipline.

Cost Hurdles on Way

Kimberly-Clark is battling high input costs for the past few quarters. In the second quarter of 2022, gross margin came in at 30.2%, down 170 basis points compared with the adjusted gross margin in the year-ago quarter. Gross margin was adversely impacted by major input cost inflation. The company’s operating profit declined due to a rise in input costs to the tune of $405 million in the quarter. Escalated marketing, research and general expenses, and unfavorable foreign currency also affected the operating profit.

Management expects adjusted operating profit to be down mid-single digit percent in 2022. Key input costs are estimated to escalate by $1.4-$1.6 billion during the year. It expects costs to rise or remain escalated for most inputs like pulp and other raw materials along with distribution and energy. Kimberly-Clark envisions 2022 earnings per share (EPS) in the lower end of the $5.60-$6.00 range, owing to significantly higher input cost projections for the year.

Wrapping Up

While input costs are expected to flare up in 2022, KMB is focused on undertaking relevant cost-cutting initiatives and pricing actions to counter inflation. Kimberly-Clark aggressively cuts costs and enhances supply-chain productivity through the Focus on Reducing Costs Everywhere or FORCE Program. During the second quarter, it generated savings of $45 million from the FORCE program. Management expects cost savings from the FORCE program in the range of $300-$350 million in 2022.

KMB’s shares have dropped 4.3% in the past three months compared with the industry’s 10.8% decline.

Some Solid Food Bets

Some other top-ranked stocks are The Chef's Warehouse CHEF, General Mills, Inc. GIS and Celsius Holdings CELH.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial year sales suggests growth of 40.7% from the year-ago reported numbers.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2. GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial year sales and earnings EPS suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.

Celsius Holdings, which develops, processes, markets, distributes and sells functional drinks and liquid supplements, carries a Zacks Rank #2 at present. Celsius Holdings delivered an earnings surprise of 50% in the last reported quarter.

The Zacks Consensus Estimate for CELH’s current financial year sales suggests growth of 97.3% from the year-ago period’s reported figures.

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