Soft volume to persist in the near-term
- 4Q23 EPS came in slightly below market estimates, primarily due to currency impacts, while net sales were in line with expectations
- Management guided for low-to-mid single digit organic net sales growth and high single-digit constant-currency adjusted EPS growth in 2024
- Robust growth in Personal Care contrasts with muted growth in Consumer Tissue and KC-Professional
4Q23 EPS came in slightly below market estimates, primarily due to currency impacts, while net sales were in line with expectations. Kimberly reported adjusted EPS of US$1.51 (-2% y-o-y) in 4Q23, slightly below consensus’ estimate of US$1.54, while its diluted EPS was in line with prior year at US$1.50 on a reported basis as the impact of hyperinflationary economies and higher taxes offset by gross profit margin expansion and net income of equity companies. 4Q23 net sales of US$5bn were in line with prior year and consensus’ estimate. Excluding the negative impact of foreign currency exchange rates (-2%) and divestment of its tissue and K-C Professional business in Brazil (-1%), 4Q23 organic sales rose by 3% y-o-y, on the back of +2%/ +1% increase in pricing/ product mix, with volumes in line with the prior year period.
Gross margin improved by 210 basis points to 34.9% in 4Q23, driven by higher net revenue realization, cost savings, and favorable input costs partially offset by unfavorable currency impacts and higher other manufacturing costs. However, 4Q23 operating profit dropped by 6% y-o-y due to currency impacts including currency translation, transactional currency costs, and net monetary position losses in hyperinflationary markets. Excluding this factor, higher gross profit margin was partially offset by increase in marketing, research and general expenses, coupled with higher incentive compensation levels.
Management guided for low-to-mid single digit organic net sales growth and high single-digit constant-currency adjusted EPS growth in 2024. Kimberly expects to deliver a low-to-mid single digit organic net sales growth in 2024 versus the prior year period, which includes 200 bps from pricing in hyperinflationary economies. Management anticipates Personal Care to experience mid-to-high single-digit growth, while Consumer Tissue and KC-Professional are expected to see growth in the low-single digits. That said, reported net sales growth is projected to be negatively impacted by 300 basis points from currency translation and 60 basis points from the Brazil tissue divestment. Meanwhile, adjusted operating profit is expected to grow at a high single-digit to low double-digit rate on a constant-currency basis, and adjusted EPS are expected to grow at a high single-digit rate on a constant-currency basis versus the prior year period. However, reported growth in operating profit and EPS are projected to be negatively impacted by 400 basis points from currency translation.
On organic sales growth, management foresees a relatively balanced performance throughout the year 2024, albeit with a lower rate of organic net sales growth anticipated in the first quarter due to softer volumes on a sequential basis. Nevertheless, the company expects a progressive improvement in volumes and mix-led organic growth post the first quarter of 2024. This growth will be driven by factors such as value-added innovation, differentiated brands, revenue growth management, enhanced commercial capabilities and advertising, as well as supply improvements, all contributing to an expected improvement in market share.
Meanwhile, management anticipates earnings for the year to be less weighted towards the first half (48%) and more towards the second half (52%), considering the balance of sales, greater currency headwinds in the first half, and expectations for enhanced productivity gains as the year progresses. In 2024, distribution, logistics, and labor inflation are expected to persist as headwinds, offsetting the tailwinds from core commodities. Additionally, earnings are projected to be impacted by currency-related inflation in emerging markets with hyperinflationary conditions.
Robust growth in Personal Care contrasts with muted growth in Consumer Tissue and KC-Professional. By segments, 4Q23 organic sales growth were Personal Care (+6% y-o-y); Consumer Tissue (+0% y-o-y); KC-Professional (-1% y-o-y). Personal Care’s volume increased by 1% y-o-y given robust volume growth in North America (+4% y-o-y), while Consumer Tissue and KC Professional segments reported negative volume growth of -1%/-4% y-o-y respectively. That said, Consumer Tissue in North America experienced a sequential improvement in volume trends, with an increase of 2% y-o-y. Meanwhile, lower volume (-6% y-o-y) in K-C Professional in North America was a result of the ongoing process of rightsizing the business.
In North America, organic sales increased by 3% y-o-y in 4Q23. This growth was driven by a 5% increase in Personal Care and a 3% increase in Consumer Tissue, partially offset by a 3% decrease in K-C Professional. Outside North America, organic sales saw a 5% y-o-y increase in developing and emerging (D&E) markets. Meanwhile, organic sales in developed markets (Australia, South Korea, and Western/Central Europe) grew by 1% y-o-y.