Consumer products giant Kimberly-Clark Corporation (KMB - Free Report) posted better-than-expected results in the fourth-quarter 2016, wherein both earnings and revenues beat the Zacks Consensus Estimate.

Adjusted earnings of $1.45 per share beat both the Zacks Consensus Estimate and year-ago results of $1.42 by 2.1%. Year over year, earnings were boosted by cost savings, improved operating profits and lower tax rates. However, earnings were negatively impacted by unfavorable foreign currency exchange rates.

Quarter in Detail

The company reported sales of $4.544 billion in the fourth quarter. Sales marginally beat the Zacks Consensus Estimate of $4.522 billion by 0.7% and was flat from the prior-year quarter. Currency reduced the quarter’s sales by 1%.

Excluding the aforementioned headwinds, organic sales increased 1% from the prior-year quarteras higher volumes of 2% were offset by the combined impact of changes in net selling prices and product mix, which reduced sales by 1%. Organic sales increased 3% in developing and emerging markets.

Kimberly-Clark Corporation Price, Consensus and EPS Surprise

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Kimberly-Clark Corporation Price, Consensus and EPS Surprise | Kimberly-Clark Corporation Quote

We note that Kimberly-Clark has been witnessing slower organic sales growth, especially in developing and emerging markets, over the past few quarters. In the third quarter, organic sales declined in all the other regions, except in developing and emerging markets, where the figure was up 3%.

However, growth decelerated from 5% increase witnessed in the first and second quarters, as performance improved in China but softened in Latin America, particularly in Brazil and Argentina, due to lower volumes, and highly competitive promotional activity and an even more difficult economic environment.

Though the company has strong long-term growth prospects in developing and emerging markets, the current promotional environment is weakening the current market dynamics.

In fact, Kimberly-Clark’s shares have been underperforming the Zacks categorized Consumer Products-Miscellaneous Staples industry since the past one year. The stock has declined by 4.7% in comparison to the above mentioned industry’s growth of 4.8%. Notably, the industry is part of the bottom 11% of the Zacks Classified industries (235 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

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Adjusted operating profit in the fourth-quarter 2016 (excluding organization restructuring costs) grew 10% to $859 million. It was mainly driven by $140 million of cost savings from the FORCE (Focused on Reducing Costs Everywhere) program and $25 million of savings from the organization restructuring announced in 2014. Input costs also decreased $5 million in the quarter due to lower fiber costs. However, this was offset by unfavorable currencies, which reduced adjusted operating profit by $5 million.

Segment Details

Personal Care Products: The segment includes products like disposable diapers, training/ youth/swim pants, baby wipes, feminine and incontinence care products.

Segment sales increased 1% on a year-over-year basis to $2.2 billion in the fourth-quarter 2016 driven by higher volumes offsetting unfavorable currency, lower selling prices and product mix. Sales improved in all the regions of North America, developed markets outside North America, and developing and emerging markets.

Segment operating profit improved 5% to $495 million in the quarter driven by cost savings, partially offset by manufacturing-related cost increases and unfavorable currency effects.

Consumer Tissue: The segment includes bathroom tissue, paper towels, napkins and related products for household use.

Segment sales dropped 1% to $1.5 billion in the fourth-quarter 2016 due to unfavorable currency. Sales declined in developed markets outside North America and developing and emerging markets. Sales were flat in North America.

Segment operating profit increased 13% to $295 million in the quarter, benefiting from cost savings and input cost deflation, partially offset by unfavorable currencies and lower selling prices.

K-C Professional (KCP) & Other: The segment consists of facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products.

Segment sales were flat at $0.8 billion in the fourth quarter, as volume increase was offset by unfavorable currencies. Sales improved in North America and developing and emerging markets but declined in developed markets outside North America.

However, segment operating profit declined 7% to $146 million, as input cost inflation and higher marketing, research and general spending was partially offset by organic sales growth and cost savings.

Full Year 2016 Results

Adjusted earnings of $6.03 per share exceeded the Zacks Consensus Estimate of $6.00 per share by 0.5% and year-ago results by 5%.

Sales were $18.202 billion in full year 2016, which marginally missed the Zacks Consensus Estimate of $18.275 billion. Sales also declined 2.1% from the prior-year.

Organization Restructuring

In Oct 2014, Kimberly-Clark initiated a restructuring program in order to improve organization efficiency and underlying profitability, increase the company's flexibility to invest in targeted growth initiatives and offset overhead costs stemming from the spin-off of its health care business.

The restructuring were completed at the end of 2016, as expected. Total costs were $164 million, as was anticipated to be toward the high end of the previously announced range of $130–$160 million after tax. The company achieved annualized pre-tax savings of $140 million by the end of 2016 from the restructuring, as was expected to be toward the high end of the previously communicated range of $120–$140 million by 2017 end.

Other Financial Update

Cash provided by operations in the fourth-quarter 2016 was $871 million, up 31% from the year-ago period. In the fourth quarter, the company repurchased 1.9 million shares at a total cost of $225 pursuant to a share repurchase program.

Guidance for 2017

The company expects earnings per share in the range of $6.20–$6.35. Net sales in 2017 are expected to be similar to 2016, including organic sales growth of approximately 2%.