Kimberly-Clark Gains From Stronger Product Demand In International Markets

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

Kimberly-Clark (NYSE:KMB) posted strong sales and profits in its third quarter ending September 30, 2014. Quarterly sales increased 3.4% to $5.45 billion, helped by an equal contribution from volume expansion and price increases. K-C International remained the pillars of growth in Kimberly-Clark’s geographic portfolio, growing 10% during the quarter.

Operating profits increased 15% during the quarter, resulting in a 1.8% expansion in operating profit margins in Q3FY14. In addition to contributions from strong sales, Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program generated nearly $100 million in cost savings during the quarter. Additionally, lower general and administrative expenses have supported overall margin expansion, offsetting the effect of a $55 million increase in input cost inflation in Q3FY14.

We are in the process of updating our price estimate of $112 for Kimberly-Clark’s stock to incorporate the latest quarterly results.

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

See Our Full Analysis for Kimberly-Clark

Personal Care and Consumer Tissue Businesses Ride on Emerging Market Growth

The Personal Care segment, which accounts for over 45% of total sales, marked a robust 4% growth during the quarter to reach $2.48 billion in sales. Organic sales grew 6% for the segment, driven by a 12% gain in organic sales from K-C International. Organic sales of diaper products in China, Russia and Eastern Europe grew 25% while sales in Brazil witnessed a 10% increase. Other categories that contribute a smaller portion to K-C International, such as feminine care, adult care and baby wipes, also reported double-digit organic growth rates.

On the flipside, organic sales in North America were down, with volumes down by more than 1% while pricing partially offset the decline in volumes. Product volumes from brands in the adult care segment, such as Kotex and Depend increased at double-digit pace, benefiting from innovations and product promotions. However, volumes declines in baby and child care brands such as Huggies and GoodNites masked the gains in adult care in North America. The strong growth rates in volumes and pricing from K-C International lifted margins for the Personal Care division to 19.5% in Q3FY14 from 18% in Q3FY13, making it the most profitable business line for Kimberly Clark.

Kimberly-Clark’s Consumer Tissue business, which accounts for about 31% of total sales, registered nearly 4.5% year on year growth to reach $1.7 billion in quarterly sales. Organic sales grew 3% for the segment, supported by strong volume performance in North America from the Viva Vantage paper towels and promotion campaigns and higher selling prices in International markets such as Latin America. Operating profits also witnessed a surge during the quarter, increasing 22% year on year to $285 million, benefiting from higher prices and volumes.

Weak North American Market Slows K-C Professional Sales

The K-C Professional segment had a relatively subdued quarter in comparison to Personal Care and Consumer Tissue segments. Sales grew 3.6% to $873 million while margins posted a meager 50 basis point expansion, held back by weak market performance and price erosion in North America. Net sales in North America were 3% lower while Europe and K-C International registered year on year growth rates of 6% and 14% respectively in Q3FY14 sales. Historically, K-C Professional has been Kimberly-Clark’s most profitable division. However, margins from the Personal Care stood higher in Q3FY14, supported by double-digit growth from key emerging markets.

Health Care Business Spin-off Scheduled for October End

Lastly, Kimberly-Clark’s Health Care segment continued to drag down overall sales. Year on year, sales in the Health Care segment declined 2.7% to $392 million in Q3FY14 due to falling selling prices. Volumes remained flat on a year on year basis due to an increase in demand for protective gear, and surgical and infection-prevention products since the diagnosis of Ebola in the U.S. Margins on the other hand declined about 4% compared to Q3FY13, with quarterly operating profit decreasing by 26% to $52 million due to pricing pressure.

Kimberly-Clark will be spinning off its Health Care business by the end of Friday, October 31, and has initiated a restructuring plan earlier this year to improve organizational efficiency and offset the impact of stranded overhead costs after the spin-off. As part of the restructuring, Kimberly-Clark plans to cut up to 1,300 jobs, primarily from its Health Care business through 2016. The spin-off of the health care business should add to improving sales and margins for Kimberly-Clark going forward.

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research