International Sales Will Help Kimberly-Clark To Meet Its Growth Target For 2013

Kimberly-Clark (NYSE:KMB) is set to release its Q4 and complete fiscal year 2013 results Friday, January 24. With an increase of 4% year over year in organic sales (excludes the impact of changes in foreign currency exchange rates and lost sales as a result of restructuring activities) in the first nine months of 2013, we think that Kimberly-Clark is in a comfortable position to deliver its full year target of 3%–5% organic sales growth. This will be achieved through a combination of price hikes, improved product mix and strong organic volume growth in the international markets.

Driven by the success of its FORCE (Focused On Reducing Costs Everywhere) program, the company has also managed to grow adjusted operating profit (excludes restructuring charges) by 7% in the first three quarters to $2.5 billion. ^[1] We think that the program will continue to deliver in this regard.

Our price estimate of $108 for Kimberly-Clark marks our valuation almost in line with its market price.

International Business Will Lead The Growth Like Previous Quarters

Kimberly-Clark’s international segment, K-C International, led the growth in Q3 with organic sales higher by 10% year over year. The segment registered high single-digit to double-digit organic sales growth in categories such as adult care, baby wipes, baby diapers and feminine care. Growth was particularly strong in diapers, as indicated by diaper volumes, which increased 45% in China, 35% in Russia and 20% in Brazil. ^[1]

The sale of baby care products is increasing at a fast rate in the developing nations due to factors such as a large population, stronger purchasing power and greater brand awareness among consumers. In October 2012, Kimberly-Clark decided to exit its diaper business in the saturated Western and Central European market, and focus on the emerging economies in order to capture strong demand growth in these markets. By Q1 2013, the company had stopped selling Huggies diapers in 13 countries and exited its remaining five markets in Q2 2013. We believe that directing resources and investments towards faster growing markets will help the international segment to maintain its growth trajectory.

Additionally, the company’s international portfolio is more inclined towards diapers and fem care. Its diapers and fem care products have greater reach in international markets than its baby wipes and adult care products. This offers it the opportunity to further expand its presence in the latter two categories.

Cost Savings To Help Offset Currency Headwinds And Rising Commodity Costs

Kimberly-Clark’s FORCE program has resulted in significant cost savings. The company saved $70 million from the program in Q3, which helped it absorb $55 million of commodity cost inflation and $25 million of currency translation losses. By identifying and delivering cost savings in areas where consumers are not much concerned, the company has been able to invest more in innovation and strategic branding.

At the time of the Q2 earnings call, Kimberly-Clark’s management revised its full year target for FORCE cost savings upwards by $50 million at both ends to $300 million–$350 million. The $50 million upward revision will help the company to overcome currency headwinds and cost inflation.

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1. Kimberly-Clark Announces Third Quarter 2013 Results, Kimberly-Clark Investor Relations Website, October 22, 2013 [↩] [↩]