Kimberly Clark Continues To Clean Up In Emerging Markets

Kimberly-Clark’s (NYSE:KMB) Q4 2012 results capped off an impressive annual performance driven by strong expansion in emerging markets. Net sales for the quarter finished at $5.3 billion, 3% higher than the same quarter the previous year. Underlying organic sales grew by an impressive 5%, with the company’s robust performance in emerging markets underlined by 10% growth in international sales. Investors can take confidence in the fact that the growth in organic sales was largely driven by stronger volumes – a sign of increasing demand for diapers and feminine hygiene products in countries such as India and China. Volumes grew by double-digits in Asia and the Middle East/Eastern Europe/Africa region and by mid-single digits in Latin America.

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Meanwhile, net operating profit for the fourth quarter finished at $449 million, 27% lower than the previous year. Investors should not be overly alarmed, however, as the company’s bottom-line was largely weighed down by costs associated with restructuring of its European operations. Last quarter, Kimberley Clark announced its decision to quit certain unprofitable segments in Europe – diapers being the highlight of the strategic exit. The company incurred costs to the tune of $300 million on this and a further $50 million were added for restructuring of its pulp and tissue operations.

Excluding restructuring costs, the company’s adjusted operating profit stood at around $798 million, 5% higher than that of previous year. This increase in operating profit was helped by Kimberley Clark’s long-running cost restructuring program called FORCE (Focus on Reducing Costs Everywhere), which generated savings of $80 million over the last quarter.

Moving on to business segments, the company recorded its strongest performance in the quarter in personal care products, which includes diapers and feminine hygiene products. The segment’s net sales increased by 8% in the quarter, contributing more than 40% of  total sales.

Consumer tissues, the company’s second largest revenue earner, didn’t fare very well though. The segment recorded a decline of 4.5% in net sales, weighed down primarily by the pulp and tissue restructuring operations.

The way forward for Kimberly-Clark seems pretty clear from an investor’s point of view. The strong results in personal care products vindicate the company’s recent strategic shift towards emerging economies, where demand is booming as a result of raised awareness and increasing disposable income. With the company setting up manufacturing facilities in countries such as China and spreading its channels deeper into regions such as South Asia and Africa, the outlook for the company remains positive. Kimberley Clark’s full-year adjusted earnings per share were $5.25 in 2012 compared to $4.80 in 2011. Adjusted earnings per share in 2013 are expected to be $5.50 to $5.65, up 5% to 8% compared to 2012 – a target we believe the company is well on its way towards reaching.

Based on the company’s performance in the upcoming Q4 2012 results, we will soon revise our $86 price estimate for Kimberly-Clark, which is in-line with the market price.

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