VALUATION HIGHLIGHTS

1. Personal Care constitutes 53% of the Trefis price estimate for Kimberly-Clark's stock.
2. Consumer Tissue constitutes 28% of the Trefis price estimate for Kimberly-Clark's stock.
3. Kleenex, Scott Tissue constitutes 18% of the Trefis price estimate for Kimberly-Clark's stock.

WHAT HAS CHANGED?

1. KMB Stock Performance

KMB stock has seen a decline of 10% from levels of $135 in early January 2021 to around $120 now (early February 2024), vs. an increase of about 30% for the S&P 500 over this roughly 3-year period.

However, the decrease in KMB stock has been far from consistent. Returns for the stock were 6% in 2021, -5% in 2022, and -10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that KMB underperformed the S&P in 2021 and 2023.

2. Q4 2023 Earnings

KMB's sales were flat y-o-y at $5.0 billion in Q4'23. Organic sales were up 3%, driven by 2% pricing growth and 1% in product mix and flat volume. Operating profit slid 6%, primarily due to the currency impact. KMB reported adjusted EPS of $1.51, down 2% y-o-y.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Huggies & Pull-Ups Baby Care

Baby Care EBITDA Margin and Feminine Care EBITDA Margin: We currently forecast Kimberly-Clark's Personal Care (Baby Care, Feminine Hygiene Care, and Adult Incontinence products) EBITDA margin to improve from 23.8% in 2022 to about 26% by the end of the Trefis forecast period. There could be a 10% upside to the Trefis price estimate if margins improved to over 30% by the end of our review period.

BUSINESS SUMMARY

Kimberly-Clark Corporation is one of the world's leading 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 175 countries and maintains manufacturing operations in 37 countries. It is one of the top two brands in its respective product segments in over 80 countries.

Products for household use such as consumer tissue, baby diapers, and female hygiene care are sold directly and through wholesalers to supermarkets, mass merchandisers, drug stores, warehouse clubs, as well as variety and department stores. Products for away-from-home use such as professional tissue and medical disposables are sold through distributors as well as sold directly to manufacturing, lodging, office building, food service, healthcare establishments, and high-volume public facilities.

Cellulose fiber, such as kraft pulp or recycled waste paper, is the primary raw material for manufacturing tissue products. Cellulose fiber along with super absorbent material such as Polypropylene is a primary component in disposable diapers, training pants, feminine pads, and incontinence care products. Most recovered paper, synthetics, pulp, and recycled fiber are purchased primarily from third-party suppliers.

Kimberly-Clark's most popular brands include Huggies and Pull-Ups in Baby Care; Scott and Kleenex in Personal-Professional Tissue; Depend and Kotex in Feminine Hygiene Care.

KEY TRENDS

Robust Cost Savings

In 2018, Kimberly-Clark achieved $510 million of cost savings, which include its FORCE and Restructuring program savings. The company had announced its restructuring program as part of a multi-year cost savings target, whereby it set a four-year cost savings target of more than $1.5 billion. These savings are to be achieved by improving productivity at manufacturing facilities, optimizing raw material and product design costs, generating benefits from procurement activities, and improving distribution efficiencies. Additionally, this program is expected to broadly impact all of the company's business segments and organizations in each major geography.

New product launches and increased spending on marketing

Kimberly-Clark plans to launch new products gradually to create different product segments under the same brand. According to company management, the firm's strategic marketing spending is expected to increase faster than sales, primarily supporting product innovations, targeted growth initiatives, and overall brand equity. Research and development and selling expenses are also expected to rise faster than sales to support growth initiatives and to further improve capabilities.

Strong international growth riding on increasing consumer demand in emerging markets of the Asia Pacific & Latin America

As household disposable incomes have increased, led by higher economic growth in emerging economies, there has been a rapid increase in demand for consumer goods such as baby diapers and female hygiene care. Trefis expects this increasing consumer demand in the relatively unsaturated Asian and Latin American markets, combined with the strong market position of Kimberly-Clark's current brands, will be an important growth driver for the company.

Growth in countries such as China also carries with it some inherent risks. For one, the company's pricing structure will have to be revised significantly to suit the wallets of third-world consumers. The company will also have to step up its general advertising spending to attract new customers. Meanwhile, growth in emerging economies also exposes Kimberly-Clark to currency risks given the volatility relative to the dollar and euro.