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Kimberly-Clark (KMB 0.87%) reported fourth-quarter results on Jan. 24. The maker of Kleenex tissues and Huggies diapers saw its profits rise largely as a result of its cost-cutting initiatives and nonrecurring gains, prompting management to issue a tepid sales and profit forecast for the year ahead.

Kimberly-Clark results: The raw numbers

MetricQ4 2016Q4 2015Year-Over-Year Change
Sales $4.544 billion $4.539 billion 0.1%
Net income $505 million $333 million 51.7%
Earnings per share $1.40 $0.91 53.8%

Data source: Kimberly-Clark Q4 2016 earnings release.

What happened with Kimberly-Clark this quarter?

Net sales were flat year over year at $4.5 billion, as foreign exchange rate movements offset a 1% increase in organic sales. 

However, adjusted operating profit -- which excludes restructuring costs, pension settlement charges, and other nonrecurring items -- jumped 10% to $859 million, as cost savings related to Kimberly-Clark's FORCE (Focused On Reducing Costs Everywhere) program and lower raw material costs boosted results.

All told, adjusted net income rose less than 1% to $520 million. And adjusted earnings per share, aided by share buybacks, increased 2% to $1.45.

"While we experienced a challenging economic and competitive environment in 2016, our market share positions remained broadly healthy," said Chairman and CEO Thomas Falk in a press release. "We also achieved record cost savings, which helped us improve our margins and deliver bottom-line earnings in line with our guidance for the year."

Cash flow and capital returns

Fourth-quarter operating cash flow jumped 31% to $871 million and free cash flow surged 68% to $682 million, mainly due to Kimberly-Clark's improved working capital and lower pension plan contributions. Management remains committed to passing this cash on to shareholders via dividends and stock buybacks, with the company repurchasing 1.9 million shares at a cost of $225 million in the fourth quarter.

For the full year, operating and free cash flow soared 40% and 97%, to $3.2 billion and $2.5 billion, respectively. And Kimberly-Clark repurchased a total of 6 million shares for an aggregate cost of $750 million in 2016.

The company's board of directors also approved a 5.4% increase in its quarterly dividend to $0.97 per share, marking the 45th consecutive year that Kimberly-Clark has raised its annual dividend.

Looking forward

Kimberly-Clark expects its net sales in 2017 to be similar to those in 2016, with negative foreign exchange rate movements projected to offset organic sales growth of 2%. Operating profit is forecast to rise between 2% and 4%, driven by cost savings of at least $400 million from the company's FORCE program. And earnings per share are estimated to be $6.20 to $6.35, which would represent growth of 3% to 5% versus adjusted EPS of $6.03 in 2016.

"Looking to 2017, we will execute our global business plan strategies in what we expect will be a continued difficult environment," added Falk. "Our teams will invest in innovation, marketing and targeted growth initiatives to keep our brands strong and help us compete effectively."

In this sluggish sales environment, capital returns will remain an important part of Kimberly-Clark's value proposition to investors, with the company planning to repurchase $800 million to $1 billion of its shares in 2017.

"We will also continue to manage our company with financial discipline, with a focus on cost savings, cash flow, and shareholder-friendly capital allocation," said Falk. "We remain optimistic about our opportunities to create long-term shareholder value."