Kimberly-Clark de Mexico SAB de CV (ADR) ((KCDMY)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Kimberly-Clark de Mexico’s recent earnings call revealed a balanced sentiment, highlighting both achievements and challenges. The company reported increased export sales and cost reductions, indicating strong financial health. However, it also faced decreased profits and volume growth, alongside higher foreign exchange rates and raw material costs. The strategic move into the pet food market marks a significant development, showcasing the company’s resilience and forward-thinking approach.
Increase in Export Sales
Kimberly-Clark de Mexico reported a notable 21% increase in export sales, with double-digit growth in both converted product and hard rolled sales. This boost in exports underscores the company’s successful expansion efforts in international markets.
Cost Reduction Achievements
The company’s cost reduction program proved effective, yielding approximately MXN450 million in savings during the quarter, primarily at the cost of goods sold level. This achievement highlights the company’s commitment to maintaining operational efficiency.
Strong Balance Sheet
As of March 31st, Kimberly-Clark de Mexico maintained a robust cash position of MXN11.8 billion. The net debt-to-EBITDA ratio was 0.9 times, with an EBITDA to net interest coverage of 11 times, reflecting the company’s solid financial standing.
Innovation and New Product Launch
The launch of the super premium diaper, Huggies Black Label, and improvements in baby wipes demonstrate the company’s dedication to innovation. Additionally, the entry into the pet food business in partnership with Grupo Nutec signifies a strategic diversification into new markets.
Dividend Increase
Shareholders approved a 10% increase in the dividend payment to MXN2.04 and a 50% increase in the stock repurchase plan to MXN1,500 million. These moves reflect the company’s commitment to returning value to its shareholders.
Decrease in Gross Profit and Operating Profit
Despite the positive developments, the company experienced a 9.4% decrease in gross profit and a 12.5% decrease in operating profit, with the operating margin at 21.5%. These declines highlight the challenges faced in maintaining profitability.
Challenges with Consumer Demand
The company faced a 1.3% decline in total volume, with consumer products and away-from-home segments decreasing by 1.4% and 4.2%, respectively. This drop in demand poses a challenge for the company’s growth trajectory.
Negative Impact of FX and Raw Material Costs
Higher foreign exchange rates and unrelieved pulp prices negatively impacted costs, presenting a significant hurdle in the company’s financial performance.
Muted Volume Growth
Volume growth in key categories was muted, with even high-growth categories experiencing deceleration. This trend indicates a potential slowdown in market demand.
Forward-Looking Guidance
Looking ahead, Kimberly-Clark de Mexico plans to implement selective price increases and aims for record savings between MXN1.8 billion to MXN2 billion for the year. The company also anticipates significant growth potential in the pet food sector, marking a strategic expansion into new markets.
In summary, Kimberly-Clark de Mexico’s earnings call reflected a mixed sentiment, balancing achievements in export sales and cost reductions with challenges in profitability and volume growth. The company’s strategic initiatives, including its entry into the pet food market, indicate a forward-looking approach aimed at overcoming current challenges and capitalizing on new opportunities.