Kimberly-Clark‘s (NYSE:KMB) Kotex is now a billion-dollar brand. The brand’s sales exceeded $1 billion in 2011, and it now joins the company’s other four billion-dollar brands, including the Kimberly-Clark, Huggies, Kleenex and Scott. Kimberly-Clark competes with Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL).
Feminine Care Generates More Than One-Fifth Of Company’s Value
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A 2011 report by Global Industry Analytics estimates the global market for feminine hygiene products to reach $14.3 billion by 2015. After decades of social conservatism and lack of publicity, the industry is now witnessing healthy growth, supported by improving standards of living, public attention to women’s health and better advertising.
Kimberly-Clark currently occupies more than one-fifth of the global market share of the feminine care and adult incontinence products category, particularly on the strength of its Kotex and Depend brands. The company’s feminine care business has grown in double digits over the last two years, helped by regular product innovation and new launches.
In the company’s Q4 2011 earnings call, management indicated that it will increase the level of strategic marketing much faster than the sales growth to support new innovations and growth initiatives. Increased marketing spend could help capture sales and more market share for Kimberly-Clark.
Why the Personal Care Segment Matters More
The personal care division, which includes Baby Care, Feminine Care and Adult Incontinence products, contributes higher value to Kimberly-Clark’s stock price despite generating lower revenues than the tissues segment. It derives its value from higher margins. However, the segment’s bottom-line came under significant pressure in 2011 due to high input commodity inflation, which increased company-wide input costs by $580 million. As a result, the personal care EBITDA margin suddenly dropped by 5 percentage points, to 19% from the last four years average of 24%. In 2010, the personal care segment reported an EBITDA margin of 24% , compared to 18% EBITDA margin for the tissues segment.
We currently expect input costs to ease and the personal care division to see improved margins, going forward. However, there could be a 10-15% upside to the Trefis price estimate if the margins improve to the 2009-2010 levels of 24-25% by 2018.
We have a $75 Trefis price estimate for Kimberly-Clark, 5% ahead of the current market price.