There are certain things on which people have become dependent, and they cannot imagine life without them. Kimberly-Clark Corporation (NYSE:KMB) is one of the largest personal-products companies in the world, and together with its subsidiaries, manufactures and markets personal care, consumer tissue and health care products made from natural or synthetic fibers using advanced technologies in fibers, nonwovens and absorbency worldwide. The Irving, Texas-based company operates in four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. To name a few, Kleenex, Cottonelle, Depend, Huggies, Kotex, Scott are some of Kimberly-Clark’s brands.
The company has solid third quarter results (reported on Oct. 22, 2013), and value investors are expecting more and more from Kimberly-Clark in its fourth quarter (to be declared on Jan. 24, 2014). Kimberly-Clark generated third quarter revenues of $5.26 billion, up 0.3% year over year, driven by organic sales growth of 5%. Operating earnings advanced by some 3.1% to $807 million. The company reported a 5.6% increase in net earnings attributable to shareholders. Adjusted earnings per share also increased 7.5%.
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- KMB 15-Year Financial Data
- The intrinsic value of KMB
- Peter Lynch Chart of KMB
In order to continue driving its earnings per share higher, Kimberly-Clark has been repurchasing its shares. In the third quarter, it repurchased about 1.6 million shares for roughly $150 million, while paying a $0.81 dividend; this quarterly dividend is up 9.5% from the $0.74 paid in 2012. CEO and Chairman Thomas Falk said that organic sales growth of 5 percent reflects progress with targeted growth initiatives, innovation programs and revenue realization strategies.
Compared to its peers, Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL), whose businesses are diversified over a range of categories, as diverse as detergents, snack foods, beverages, pet foods and beauty products, Kimberly-Clark is less diversified. But, the company is playing very strategically which helps to gain market share around the world. In the year 2012, Kimberly-Clark generated around 50% of its revenue from the U.S. The Asia Pacific region, especially in markets like China and India, is the key growth driver for the company.
In the third quarter of 2013, the company grew its diaper business by 45% in China, 35% in Russia, and 20% in Brazil. In India, the company plans to expand adult care because Kimberly-Clark's revenue contribution from this region is limited to 1% of overall revenue. To win the hearts of Indian mothers, the company has also launched Huggies diapers with breathable covers (this will keep baby's skin healthy). In November 2013, the company took a notable step by spinning off its health care division. For the first nine months of 2013, the health care division has contributed only a 7.6% share in overall revenue. Further, to focus on more profitable investments, the company decided to restructure its European business.
Procter & Gamble on the other hand is also restructuring its business by increasing its division of business. This restructuring will help the company to perform well financially. But, compared to its peers, Kimberly-Clark is in a successful position because of its communicating techniques with customers.
Graph courtesy: Valuentum
On a Concluding Note
Kimberly-Clark employs about 57,000 people in 61 countries and its products are currently available in more than 175 countries. The company’s relatively narrow business model, along with lucrative equity investments in affiliated companies, will help to outperform its peers in the near future. Kimberly-Clark is a company that has been delivering solid earnings for a long time. It has also a record of consecutively increasing dividends for 37 years. The company’s business in Asia, Latin America, the Middle East, Eastern Europe and Africa will continue to execute targeted expansion and growth plans and take advantage of attractive market opportunities. I am therefore pretty bullish that Kimberly-Clark is going to report a strong fourth quarter, and 2014 also looks brighter.