Kimberly-Clark: A Better Buy Than Colgate-Palmolive and Procter & Gamble?

Kimberly-Clark (NYSE: KMB  ) will release its quarterly report on Tuesday, and after a run to new all-time highs earlier this year, the consumer-products company has pulled back somewhat. Strong competition from Procter & Gamble (NYSE: PG  ) and Colgate-Palmolive (NYSE: CL  ) always poses a threat to Kimberly-Clark earnings, but that hasn't held Kimberly-Clark back from taking advantage of its larger rivals' miscues to score some lucrative growth opportunities in the past.

Kimberly-Clark has a stable of well-known brand names that have boosted the company's prominence both domestically and around the world, with its Kleenex franchise dominating the facial tissue market and products like Huggies and Scott paper towels also having mass appeal. Yet the growth in emerging markets around the world has led to huge competition from Colgate-Palmolive, Procter & Gamble, and other major consumer-products players, as everyone wants to tap the growing wallets of the emerging-market middle-class as they try to improve their standards of living. Let's take an early look at what's been happening with Kimberly-Clark over the past quarter and what we're likely to see in its report.

Stats on Kimberly-Clark

Analyst EPS Estimate

$1.40

Change From Year-Ago EPS

4.5%

Revenue Estimate

$5.23 billion

Change From Year-Ago Revenue

(0.3%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How much can Kimberly-Clark earnings grow this quarter?
Analysts have gotten a bit less excited in recent months about Kimberly-Clark earnings, cutting $0.02 per share from their third-quarter estimates and $0.03 per share from their full year 2013 and 2014 projections. The stock has also slowed down in its upward trajectory, rising just 1% since mid-July.

Kimberly-Clark has done a good job of making the most of a tough economic environment around the world. In its second-quarter results, Kimberly-Clark beat investors' expectations for earnings, with growth in net income of 8.5%. Flat revenue has been a problem for the company, though, and this quarter's projections for a slight decline in year-over-year sales mark a reason for longer-term concern.

Kimberly-Clark's challenge is that it faces both industrywide and company-specific headwinds to earnings. On one hand, Colgate-Palmolive, Procter & Gamble, and Kimberly-Clark have all had to deal with rises in input costs that have put pressure on their profit margins. Yet to a greater extent than Colgate or P&G, Kimberly-Clark has had to deal with the threat of private-label competition, especially in areas where poor economic conditions have forced shoppers to economize where possible.

Kimberly-Clark's rivals are also aiming at capturing greater parts of its key market areas. Last month, P&G increased the absorbency of its Pampers diapers, allowing it to reduce the number of diapers per box while keeping prices steady. With no plans to make similar changes to Huggies, Kimberly-Clark could find itself lagging behind if P&G's initiative takes off.

The big question for Kimberly-Clark is whether emerging-market growth will come to a standstill. Unilever (NYSE: UL  ) warned recently that emerging markets have seen much slower growth than investors expected, and the ripple effect hurt Kimberly-Clark as well as Procter & Gamble and Colgate-Palmolive. Even worse, it could make companies question their overall growth strategies favoring emerging markets over more established areas of the world.

In the Kimberly-Clark earnings report, watch to see how much the company is able to boost profits despite weak revenue. The consumer-products industry has huge potential for long-term growth, and smaller players have a big opportunity to tap into that potential. To do so, though, Kimberly-Clark will eventually need to sell more products in order to keep its earnings moving higher.

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