A Look At Kimberly-Clark’s Health Care Business

-0.84%
Downside
124
Market
123
Trefis
KMB: Kimberly-Clark logo
KMB
Kimberly-Clark

Kimberly-Clark Corp. (NYSE:KMB) is one of the world’s top producers of professional and consumer tissue, baby care non-wovens, female hygiene care, adult incontinence care and disposable healthcare products. The company sells its products in 150 countries and maintains manufacturing operations in 41 countries. It is one of the top 2 brands in its respective product segments in over 80 countries. The company had annual revenues of about $21 billion last fiscal year, and has a market capitalization of nearly $40 billion.

The company has four broad operating divisions: Personal Care, Consumer Tissue, K-C Professional and Health Care. The Personal Care division is Kimberly-Clark’s largest operating division, with a revenue share of approximately 45.2%. Kimberly-Clark’s Consumer Tissue business is second largest, with a revenue share of 31.4%. The remaining business units, K-C Professional and Health Care, account for approximately 15.7% and 7.7% of total revenues respectively.

In terms of profitability, the K-C Professional business unit is its most profitable segment with an operating profit margin of 16.6%. This is closely followed by its Personal Care unit, which has a 16.2% operating profit margin. The remaining divisions, Consumer Tissue and Health Care, have operating profit margins of 13.5% and 12.9% respectively.

Relevant Articles
  1. Should You Pick Kimberly-Clark Stock At $120 After A Downbeat Q4?
  2. Is Kimberly-Clark Stock Fully Priced At $120?
  3. Which Is A Better Pick – Kimberly-Clark Stock Or IDEXX Laboratories?
  4. Which Is A Better Consumer Defensive Pick – Kimberly-Clark Or CL Stock?
  5. Is Kimberly-Clark Stock A Better Pick Over Its Industry Peer?
  6. Steady Revenue Growth Has Not Been Reflected In Kimberly-Clark’s Stock Price – Here’s Why

In this research note, we present a brief overview of the company’s Health Care business.

See Our Full Analysis for Kimberly-Clark

Health Care Unit Spin-off Could Unlock Greater Value

As noted above, Kimberly-Clark’s health care business accounts for 7.7% of total revenues and has an operating profit margin of 12.9%, making it the smallest and least profitable segments in the company’s portfolio. Kimberly-Clark’s management has been mulling a spin-off of the Health Care business unit since November 2013 to focus on its core business lines. [1] In early May 2014, the company filed a registration statement with the Securities and Exchange Commission (SEC) announcing an approval from its Board of Directors to spin-off Halyard Health Inc., a wholly-owned subsidiary that owns Kimberly-Clark’s health care business. [2]

The spin-off of Halyard is expected to be completed in the second half of this year. Kimberly-Clark currently owns 100% of Halyard’s stock and the spin-off transaction will involve a tax-free distribution of Halyard’s common stock. The distribution is expected to be completed at the end of the third quarter or potentially in the fourth quarter of 2014, subject to market, regulatory and other conditions. [3] Both the stock-to-stock ratio and the size of the distribution have yet to be determined.

We believe spinning off the healthcare business is a good move for Kimberly-Clark, allowing it to focus on its larger and more profitable businesses. The Health Care division has been under-performing relative to the other divisions of the company, with sales remaining flat at approximately $1.6 billion since 2011. The stagnation in sales was a result of the slowing market for certain healthcare products (such as surgical procedures) and infection prevention because of the high level of healthcare awareness in the developed countries. The developing nations present better growth opportunities due to lower levels of awareness among the population.

The company has been aggressive in exiting underperforming markets across other product categories and allocating those resources to high-growth markets. Prior to the planned spin-off of the health care unit, Kimberly-Clark stopped selling Huggies diapers in 13 countries and exited its remaining five markets in Q2 2013. Exiting these markets allowed the company to divert resources towards China, Brazil and Russia, few of the fastest growing diaper markets. In the second half of 2013, Kimberly-Clark’s diaper sales rose by more than 35% in China and by 20% in Brazil and Russia. [4] [5] The latest exit from Health Care should benefit Kimberly-Clark’s business in the long term, with savings being reinvested into core product categories in high-growth markets.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

Notes:
  1. Kimberly-Clark Pursuing Spin-Off of Health Care Business, Halyard News, November 2013 []
  2. Halyard Health, Inc. Registration Statement, SEC Website, May 2014 []
  3. Registration Statement For Kimberly-Clark’s Planned Spin-Off Of Health Care Business Is Filed With The SEC, Kimberly Clark IR, May 2014 []
  4. Kimberly-Clark’s CEO Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, October 22, 2013 []
  5. Kimberly-Clark’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, January 24, 2014 []