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Kimberly-Clark Corp KMB

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Cost Pressures Eat Away at Kimberly-Clark's Bottom Line; Shares Fail to Offer Much Value

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

The massive inflationary headwinds and category retraction transcribed in the first three months of the year have continued to ring true for Kimberly-Clark. These factors resulted in decreasing sales (down 3% on an organic basis) and profits (with adjusted gross margins off 790 basis points to 31.9% and adjusted operating margins tumbling 760 basis points to 14.3%) in 2021’s second quarter. The pronounced pullback in retailer and consumer inventories in its North American consumer tissue arm (where volumes collapsed 27% against extraordinary 22% growth last year) drove a significant portion of its underperformance in terms of sales and cost leverage. More specifically, excluding this business, sales were up 4% over the same period in fiscal 2020. We still believe Kimberly is prudently focused on investing in innovation and capabilities; we forecast it will expend around 6% of sales, or $1.4 billion annually, on research, development, and marketing (in line with historical levels) to aid its long-term trajectory and support the brand intangible asset that underpins its narrow moat. And in our view, these investments helped bump sales up 3% on a two-year stack.

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Company Profile

Business Description

Kimberly-Clark is a leading manufacturer of personal care (around half of sales) and tissue products (roughly one third of sales). Its brand mix includes Huggies, Pull-Ups, Kotex, Depend, Kleenex, and Cottonelle. The firm also operates K-C Professional, which partners with businesses to provide safety and sanitary products for the workplace. Kimberly-Clark generates just over of half its sales in North America and more than 10% in Europe, with the rest primarily concentrated in Asia and Latin America.

Contact
P.O. Box 619100
Dallas, TX, 75261-9100
T +1 972 281-1200
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 46,000

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