Shares of Kimberly-Clark Corp. (NYSE: KMB) popped 5% after the market open on Tuesday, April 21 following the consumer giant's latest results. The company reported quarterly earnings that missed on revenue but beat on earnings. That was enough for the market to breathe a sigh of relief. Fears had been stoked in recent weeks that this quarterly earnings report would be ugly, due to the strengthening U.S. dollar.
These fears caused the stock to decline by 7% year to date prior to the company's earnings report. Fortunately for investors, the stock regained most of that loss following the better than expected results.
Here are some key details from the report:
Clearing a low hurdle
Heading into the quarter, expectations were low for Kimberly-Clark. Analysts forecast that the strong dollar would drive down both revenue and earnings. Multinational corporations such as Kimberly-Clark are facing a significant headwind: A rising U.S. dollar makes international revenue worth less at home, because those foreign sales are worth fewer U.S. dollars.
Indeed, Kimberly-Clark's revenue fell 4% in the first quarter, due entirely to the strengthening U.S. dollar. Unfavorable currency fluctuations shaved a full 9 percentage points off revenue during the three-month period. That more than overshadowed a relatively strong 5% increase in organic sales, which strips away currency effects.
Kimberly-Clark has a large international business, which is proving to be a double-edged sword. On one hand, exposure to international markets leaves the company highly exposed to currency movements. On the other hand, new markets are a key part of Kimberly-Clark's growth strategy. The company realized 11% organic revenue growth in developing and emerging markets last quarter.
The company expects the currency headwind to persist for a while longer. Management anticipates full-year results to be negatively affected by currency, including a 9%-10% "drop" in sales just because of the stronger U.S. dollar.
Quarterly profits beat expectations, due partly to Kimberly-Clark's aggressive cost-cutting program. The Focus On Reducing Costs Everywhere, or FORCE, program was designed to realize significant cost savings throughout the company. It produced $90 million in cost savings last quarter alone.
Steady as she goes
Kimberly-Clark is the classic slow-and-steady stock. The company makes Kleenex tissues, Huggies diapers, and a number of other household products. It's a blue-chip dividend stock, with 81 straight years of payouts under its belt.
Even better, Kimberly-Clark has increased its dividend for 43 consecutive years. Still, growth is weak right now. Net sales are declining, and although currency movements are often transitory, the effects can be very real. Kimberly-Clark's 4% dividend increase this year was well below its previous raises.
However, the company's continued organic growth is a good sign. While the headline numbers disappointed, it's a mistake to conclude Kimberly-Clark is in decline. Currency is weighing on the reported numbers, but the underlying business is doing well. Volumes and organic revenue are increasing, which is a broader sign that the business is still growing.