Consumer products giant Kimberly-Clark Corporation (KMB - Analyst Report) posted better-than-expected results in the second quarter of 2016, wherein both earnings and revenues beat the Zacks Consensus Estimate. There was no share movement in pre-market trading.

Adjusted earnings of $1.53 per share beat the Zacks Consensus Estimate of $1.48 by 3.4% and increased 8.5% from the year-ago figure of $1.41 per share. Year over year, earnings were boosted by organic sales growth, cost savings, input cost deflation, margin improvements and lower tax rates. However, earnings were negatively impacted by unfavorable foreign currency exchange rate effects.

Quarter in Detail

The company reported sales of $4.588 billion in the second quarter. Sales beat the Zacks Consensus Estimate of $4.521 billion by 1.5% but declined 1.2% from the prior-year quarter, mainly due to foreign currency headwinds. Currency reduced the quarter’s sales by 4%.

Excluding the aforementioned headwinds, organic sales grew 3% from the prior-year quarter, mainly driven by volumes, which offset the product mix. Organic sales grew 7% in North American consumer products and 5% in developing and emerging markets.

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Adjusted operating profit in the second quarter of 2016 (excluding organization restructuring costs) grew 5% to $828 million. It was mainly driven by organic sales growth, $95 million of cost savings from the FORCE (Focused On Reducing Costs Everywhere) program and $15 million of savings from the organization restructuring announced in 2014. Input costs also decreased $20 million in the quarter. However, this was offset by unfavorable currencies, which reduced adjusted operating profit by $25 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 declined 1% on a year-over-year basis to $2.3 billion in the second quarter of 2016 due to unfavorable currency and lower selling prices, offsetting the gains from higher volumes. Sales improved in North America but declined in developed markets outside North America and developing and emerging markets.

Segment operating profit also declined 4% to $455 million in the quarter due to unfavorable currency rates and increased marketing, research and general spending, offset by organic sales growth and cost savings.

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

Segment sales were flat at $1.5 billion in the second quarter of 2016 as unfavorable currency and product mix, offset the gains from higher volumes. Sales improved in North America but declined in developed markets outside North America and developing and emerging markets.

Segment operating profit increased 6% to $275 million in the quarter, benefiting from organic sales growth, cost savings and input cost deflation, partially offset by unfavorable currencies.

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 declined 2% to $0.8 billion in the second quarter due to unfavorable currencies and lower volumes, which offset the impact of higher selling prices. Sales improved in North America but declined in developed markets outside North America and developing and emerging markets.

However, segment operating profit increased 3% to $150 million driven by cost savings, partially offset by unfavorable currency effects.

Organization Restructuring

In Oct 2014, the company 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 the company's health care business.

The restructuring is expected to be completed by the end of 2016, with total costs anticipated to be toward the high end of the previously announced range of $130 million to $160 million after tax. Cumulative pre-tax savings from the restructuring are expected to be toward the high end of the previously communicated range of $120 to $140 million by the end of 2017.

During the second quarter of 2016, restructuring costs were $1 million after tax while savings amounted to $15 million.

Guidance for 2016

For 2016, the company continues to expect adjusted earnings per share in the range of $5.95 to $6.15, up 3% to 7% from adjusted earnings of $5.76 in 2015.

Organic sales are now expected to be in the low end of the previously guided range of 3% to 5%. The impact of foreign currency exchange on net sales and operating profit is expected to be in the range of 4% to 5% (compared with the previous expectation of toward the low end of the 5 to 6% range).

The company now expects full-year 2016 cost savings to be $350 to $400 million, compared with the previous expectation of at least $350 million.

The company continues to expect full-year 2016 adjusted effective tax rate between 30.5% and 32.5%.

Kimberly-Clark has a Zacks Rank #4 (Sell).

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