Kimberly-Clark’s Stronger Margins Pave The Way To A Higher Valuation

by Trefis Team
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Trefis
KMB
Kimberly-Clark
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Kimberly-Clark (NYSE:KMB) released strong earnings for the first quarter of fiscal 2013. The organic sales rose 3% on the back of solid growth in revenues from its international segment. Consumer tissue sales in North America rose 6% while revenues from international markets grew by 5%. The total sales for first quarter 2013 stood at $5.3 billion. We had estimated a similar growth in revenues for this quarter in our earnings forecast.

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Higher margins supported by FORCE program

The company reported operating profits of $783 million in the first quarter of 2013, up 12% from same period last year. We had estimated the FORCE (Focus On Reducing Costs Everywhere) program to add about $70 million to the margins this quarter. However, it actually resulted in a cost savings of $85 million shooting up the margins. The company spent about $31 million in this quarter to restructure its European business.

Less than expected inflation in key input costs

Key input costs is a major area for concern for a conglomerate of this size. We had estimated an increased expenditure on key inputs to the tune of $55 million, but the actual expenses were reported as only $35 million, thus adding to the overall margins. In view of the decreasing input costs, management has raised the full year outlook for adjusted earnings per share by 7-10 percent to $5.60-$5.75.

Trefis price estimate changed to $100 from $86

We have revised our price estimate upwards by about 20% considering the strong first quarter performance and the robust growth in consumer tissue segment which constitutes almost 30% of the Kimberly-Clark’s stock value. The Consumer Tissue segment reported net sales of $1.7 billion in Q1 2013, up by 4% year-on-year and added $260 million to operating profits. This was supported by robust organic sales growth, cost savings from the FORCE program, lower marketing, research and general expenses, partially offset by input cost inflation. Professional tissue sales, on the other hand, declined by 1 percent due to lower sales volume and unfavorable currency exchange rates.

The personal care segment, which includes the baby, adult and feminine care business, saw a 1% higher revenue figure backed by growth in organic sales and improved prices. The health care segment revenues declined by 2% owing to lower volumes and unfavorable currency rates.

We have update our price estimate for Kimberly-Clark to $100.

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