Kimberly-Clark Shares Slump About 6% as Q1 Earnings Disappoint

Kimberly-Clark, an American multinational personal care corporation, reported lower-than-expected earnings in the first quarter of 2021 and lowered its full-year outlook, sending its shares down about 6% on Friday.

The company which manufactures sanitary paper products and surgical & medical instruments said its first-quarter adjusted earnings per share were $1.80 compared to $2.13 per share a year ago. That was lower than the market expectations of $1.92 per share.

Kimberly-Clark reported first-quarter 2021 net sales of $4.7 billion, down 5% compared to the year-ago period, including an organic sales decline of 8%.

The company slashed its full-year 2021 organic sales growth forecast to 0 to 1% and adjusted earnings per share of $7.30 to $7.55, from the prior outlook for organic sales growth of 1 to 2% and adjusted earnings per share of $7.75 to $8.00. The updated earnings outlook reflects significantly higher input cost inflation and lower sales volumes, partially offset by higher net selling prices and additional cost savings.

Kimberly-Clark shares slumped about 6% to $132.11 on Friday.

Analyst Comments

“Fiscal 2021 started on a sour note for Kimberly-Clark, as its first three months featured outsize raw material inflation, supply chain disruptions due to unfavorable weather in the southern U.S. (which management suggested constrained first-quarter sales by 2% and ate into EPS to the tune of$0.15), and slowing category marks. These factors manifested in an 8% retraction in organic sales, a 320-basis-point erosion in its adjusted gross margin to 34%, and a 290-basis-point drop in its adjusted operating margin to 17%,” noted Erin Lash, sector director at Morningstar.

“Given that weakening category volumes and pronounced inflation stand to linger for a few quarters, management slashed its full-year outlook, which now calls for organic sales to hold flat or grow 1% (down from 1%-2% growth prior) and adjusted EPS of $7.30-$7.55 (versus $7.75-$8.00prior). As such, we intend to tweak our near-term forecast, which had been 1.9% organic sales growth and adjusted EPS of $7.94, but we don’t anticipate altering our long-term expectations of 2%-3% sales growth and high-teens operating margins. In aggregate, this will likely result in a low-single-digit reduction to our $130 fair value estimate. However, even with the mid-single-digit pullback in shares after the earnings report, we still don’t think the stock offers much value.”

Kimberly-Clark Stock Price Forecast

Ten analysts who offered stock ratings for Kimberly-Clark in the last three months forecast the average price in 12 months of $145.56 with a high forecast of $172.00 and a low forecast of $122.00.

The average price target represents a 10.18% increase from the last price of $132.11. Of those ten analysts, three rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $136 with a high of $171 under a bull scenario and $95 under the worst-case scenario. The firm gave an “Equal-weight” rating on the personal care corporation’s stock.

“Heading into FY21, KMB is facing significantly higher input costs (pulp/resin), rising competitive pressure, consumer destocking/volatile category trends, and challenges from cycling a difficult comparison. Additionally, temporary supply chain disruptions are expected to further pressure volumes in 1H21,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“We see limited long-term organic revenue growth of ~1.5%, driven by muted category growth with declining birth rates in the US/developed markets. We view KMB’s ~30% CY21 P/E discount vs. higher growth HPC peers (PG/CL/CHD/CLX) as appropriate considering our lower long-term organic sales growth/EPS outlook.”

Several other analysts have also updated their stock outlook. JP Morgan slashed the stock price forecast to $127 from $132. Deutsche Bank lowered the target price to $145 from $146. Jefferies raised the target price to $160 from $156. Berenberg cut the price objective to $172 from $177.

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