Kimberly-Clark Corporation (KMB, Financial) manufactures and markets personal care, consumer tissue and K-C professional products worldwide. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional. The company touches 1 in 4 lives on the planet in some way or the other, as it has expanded internationally over the years.
However, international exposure can be a double-edged sword, because a strong dollar bites into revenues. The personal care company started fiscal 2015 on strong footing, posting better-than-expected first-quarter results, and also reiterated its guidance for the full year.
A look at the first quarter
Personal Care segment, which includes products like disposable diapers, training/youth/swim pants; baby wipes; feminine and incontinence care products, registered a decline of 3% year over year to $2.3 billion. The decline was primarily due to currency translation headwinds.
Consumer Tissue segment, which includes bathroom tissue, paper towels, napkins and related products for household use, registered a 7% year over year decline to $1.6 billion. The decline in sales was triggered by currency translation headwinds and lower selling price which more than wiped off all the gains because of higher volumes.
K-C Professional & Other segment, which includes facial and bathroom tissue, paper towels, napkins, wipers and a range of safety products, registered a decline of 1% year over year to $0.8 billion. All the gains in North America were more than wiped off due to currency translation headwinds.
Consolidated sales came in at $4.69 billion, representing a 4% year-over-year decline, primarily because of currency translation headwinds. On constant currency terms, however, organic sales increased 5% year over year. The company managed to beat consensus estimates by around $60 million.
Adjusted earnings came in at $1.42 per share, thrashing consensus estimates by around 6.8%. The growth in earnings was 7.6% year over year.
Cost-cutting initiatives
The company had taken up the task of reshuffling the organizational structure in 2014 in order to increase efficiency, improve profitability, reduce overhead costs arising from the spin-off of the health care business, and also be in a position to invest in growth areas. This is slated to be completed by 2016. Once completed, this will yield cumulative pre-tax savings of $120 million to $140 million by the end of 2017.
Also, the company's FORCE program is expected to yield cost savings to the tune of around $300 million and the restructuring program is expected to yield another $60 million to $80 million, both trickling down to bottom line.
Other growth drivers
The company acquired the remaining 49.9% stake in its subsidiary in Israel for around $150 million.
As a result of investments in acquisitions, full-year share repurchases will now be in a range of $700 million to $900 million. Full-year dividends and share repurchases will be worth $2 billion, or around 5% of current market capitalization. This will drive bottom-line growth.
Product innovations
The diaper business in developing and emerging markets is more than 1.5 times the size of diaper business in North America. The company will be launching new products in the next few quarters to drive additional growth in diaper business. In North America the company already introduced improved Huggies baby wipes, and started shipping new Poise pads and Depend briefs.
Wrapping up
The company continues to target organic sales growth of 3% to 5% during fiscal 2015, representing 2% to 4% growth versus fiscal 2014. Full year adjusted earnings per share is expected to be in the range of $5.60 to $5.80.
Kimberly-Clark is trading at a P/E of 28.58 and forward P/E is at 17.97, representing good earnings growth, going forward. For the next five years, growth is expected to be at a CAGR of 6.90%, slightly ahead previous five years growth.
The company has a vast global presence and strength in dollar will bite into top-line growth. But, with cost control initiatives and new product launches, the company is confident of maintaining the growth momentum. Hence this stock is a buy for long term.
