Kimberly-Clark (KMB) Last Update 5/1/21
Related: BBY CL COST HD
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Kimberly-Clark
$138.06
Yours
Trefis Price
N/A
$135
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Kimberly-Clark Company

VALUATION HIGHLIGHTS

  1. Kleenex, Scott Tissue (At-Home Use Tissue, Away From Home Use Tissue) constitutes 61% of the Trefis price estimate for Kimberly-Clark's stock.
  2. Huggies & Pull-Ups Baby Care constitutes 21% of the Trefis price estimate for Kimberly-Clark's stock.
  3. Kotex & Depend Feminine Care constitutes 18% of the Trefis price estimate for Kimberly-Clark's stock.

WHAT HAS CHANGED?

  1. Q1 2021 Earnings

KMB's hygiene and tissue products demand had risen due to the coronavirus outbreak. However, sales volume decreased over the recent quarter, and this led to net sales dropping to $4.7 billion from $5 billion over this period. Operating profit also took a hit, dropping to $770 million from $904 million. A lower effective tax rate helped support net income, and EPS came in around 10% lower at $1.73.

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 23.2% in 2020 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 35% by the end of our review period.

Kimberly-Clark's Market Share of Global Baby Care Diapers: We forecast Kimberly-Clark's market share of baby care products to slightly grow to around 7.5% by the end of our review period. There could be over 10% upside in our price estimate if the market share were to improve to 10%.

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 2 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, and 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 direct to manufacturing, lodging, office building, food service, healthcare establishments, and high volume public facilities. Wal-Mart, most recently, accounted for an estimated 14% of Kimberly-Clark's net sales.

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.

In 2020, the North American market contributed to 52% of Kimberly-Clark's net sales, followed by Asian & Latin American market with a 36% revenue contribution, while Europe accounted for 12% of the company's revenues.

SOURCES OF VALUE

Consumer & professional tissues have nearly the same revenues as personal care, but margins are higher

In 2020, the consumer and professional tissue (Kleenex and Scott) segments accounted for 52% of Kimberly-Clark's total revenues, with the personal care (baby care, feminine care, and adult incontinence products) segment accounting for the balance. However, EBITDA margins of the personal care division were higher than that of the consumer and professional tissue segments. EBITDA margin of the personal care segment was 23.2% as compared to 17% for consumer and professional tissue segment.

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. Kimberly-Clark expects the program to generate annual pre-tax cost savings of $500 million to $550 million by the end of 2021 through workforce reductions in the range of 5000 to 5500, or about 12% to 13% of its total workforce. 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 spend in order 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.