In golf, they say there are no pictures on the scorecard, meaning the result counts more than how you got there. That analogy pretty well sums up Kimberly-Clark's (NYSE: KMB ) first quarter. Not all the pieces looked pretty, but the company managed to get to where it wanted.
Sales growth of 10% was the bright spot. Unit volume increased 3%, which was a tad slower than last quarter, but still solid. Particularly impressive was the 7% volume gain in the Personal Care segment. The weak U.S. dollar contributed a 4% foreign currency bump to sales, with price increases and product mix making up the remaining 3% lift.
Gross margin declined 59 basis points on raw material, energy, and distribution costs that jumped $160 million during the quarter. Of course, virtually all the consumer products companies are fighting this headwind, including Unilever plc (NYSE: UL ) and Kraft Foods (NYSE: KFT ) .
But management was able to offset these cost increases on the higher volume, along with some expense reductions from the company's FORCE program -- appropriately named for a Focus On Reducing Costs Everywhere (not only clever, but very timely).
Operating profit barley eked out a 3% gain -- adjusted for unusual items in both years. Adjusted EPS of $1.08 beat the prior year by 5%, helped by share repurchases. This result topped analyst estimates by a penny.
Management stuck by previous estimates of 5% to 8% adjusted EPS growth for the year, despite an expected tax rate increase in the second quarter that will drag earnings by "several cents per share."
I continue to rate Procter & Gamble (NYSE: PG ) and Colgate-Palmolive (NYSE: CL ) as the two premium picks in the consumer products segment. Their businesses are much more diversified, therefore less prone to the ups and downs of the paper product industry.
But it's hard to argue with Kimberly-Clark's ability in recent quarters to keep the top line humming. The company's lower P/E multiple (mid-teens) and higher dividend yield (3.6%) make the stock look like a pretty low risk core portfolio holding these days.