Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Kimberly-Clark _KMB_

VIEWS: 31 PAGES: 26

									            Kimberly-Clark
            (KMB)


Presented by Alex Ring
March 2, 2006
RCMP Position
   Purchased 300 shares on April 20, 2005
    for $63.91 per share
     Now   we have 302.255 shares
 Represents 6.3% of portfolio based on
  market values
 Loss on position: -6.74% or - $1,293.00
     Not great performance, but haven’t held even
      held it a year.
Kimberly-Clark: The Company
   Dallas, Texas based company involved in the production
    and sale of health and hygiene products.
   Founded in 1872 by John A. Kimberly, Havilah
    Babcock, Charles B. Clark, and Frank C. Shattuck. The
    company was incorporated in 1928.
   Operates globally in three segments: Consumer Tissue,
    Personal Care, and Business-to-Business.
   13% of net sales over the past 4 years have been to Wal-
    Mart, little room for growth here.
   Dividends have been paid since 1935
   The Company has made 14 strategic acquisitions since
    2000. Recent ones have been in their health care
    products business.                        Source: Kimberly-Clark 2004 Annual Report
The External Environment
   Kimberly-Clark operates in a highly competitive environment
    that keeps prices relatively low. The company responds by
    differentiating it products by branding.
       As a result, it is reducing it’s workforce by 10% and closing down 20
        plants related to diaper and health care products
   Recently the company has focused efforts toward improving
    products based on consumer demands. Examples include
    making feminine products more aesthetically appealing by
    improving packaging and developed scented products.
   Company recently announced that it plans to bring products
    that customers want to market faster than before.


                                       Source: Reuters, Kimberly-Clark stands by earnings expectations, Feb. 24, 2006
Competitive Environment
Discussion
   In recent year sales have been increasing
    modestly
     Volume increases have been strong, but have been
      tempered by decreasing prices
          This is what has been causing COGS to increase at a faster
           pace that revenues
   2005 sales were up 5%; 3% from volume, 2%
    currency effects
   2004 sales were up 8%; 5% due to volume, 3%
    from currency effects
Vulnerabilities Related to Raw
Materials
   Company Spun-off Neenah Paper (NP) on November
    30, 2004. The CEO, Thomas Falk, said that the
    move, “strengthened our commitment to health and
    hygiene.” The disadvantage is that it made the
    company more reliant on outside suppliers for pulp
    products, and thus, more exposed to market prices.
   Before the spin-off 40% of pulp needed for
    production was supplied internally. Now only 10% is
    supplied internally, and they do not use derivatives to
    hedge the risk.
Vulnerabilities, Continued

   The company is exposed to price increases in energy
    in the form of natural gas and petroleum products.
    Additionally, petroleum products are used in the
    manufacture of diapers and training pants.
   Given the competitive nature of the industry, prices
    for products may not adjust adequately to reflect
    these price increases, and the firm’s profits could be
    squeezed as a result.
Kimberly-Clark: The Business
   Where Does the Company Make Its Money?
   Business Segment Information
     Consumer Tissue
     Personal Care
     Business to Business
Where the Company Makes its Money
            2004 Operating Profit                            2004 Operating Profit
           By Region (in millions)
                                                           By Segment (in millions)
United States                        $1,953.10
                                                 Personal Care                             $1,253.20
Canada                                $122.00
Europe                                $221.00    Consumer Tissue                             $803.10
Asia, Latin America and Other         $416.80    Business to Business                        $656.60
Other Income                           -$51.20   Other Income                                -$51.20
Unallocated-net                       -$155.30
                                                 Unallocated-net                            -$155.30
                                                                                           $2,506.40
                                     $2,506.40




                                                                Source: Kimberly-Clark 2004 Annual Report
Consumer Tissue
   Segment Operating Profit Margin – 15.0%
   Paper towels, bathroom tissue, and facial tissue.
    Products familiar to most consumers.
Personal Care
   Segment Operating Profit Margin – 21.0%
   Products include diapers, baby wipes, youth training
    pants, incontinence products, and feminine care
    products.
Business to Business
   Segment Operating Profit Margin – 16.6%
   Products sold to healthcare institutions and other
    businesses. Manufactures and sells facial tissue,
    paper towels, bathroom tissue, and disposable health
    and hygiene products, to name a few.
Kimberly-Clark: The Stock

 Market Price as of 02/28/06 - $59.60
 Dividend Yield – 3.30%
 P/E (ttm) – 18.02 (S&P 500 – 18)
 Forward P/E – 14.06
 Debt/Equity - .687
 Current Ratio – 1.03
 Beta - .56 (3yr with S&P 500)

                                  Source: Yahoo Finance October 26, 2005
Share Repurchase Program
   On September 15, 2005, Kimberly-Clark announced that it
    would be repurchasing 50 million shares over the next several
    years.
       45 million of which shares remain to be purchased, 9 million shares
        were purchased in 2005 and added $0.14 per share to 2005 EPS.
   This represents 10.5% of the current number of shares
    outstanding
   2-3% of the outstanding shares will be repurchased annually.
   This is in addition to an already generous dividend policy.
   In 2004 repurchases add $0.07 per share to earnings, and $0.14
    in 2005.
1 yr chart (competitors)
1 yr chart (50 & 200 day MA)
5 yr chart (50 & 200 day MA)
5 yr chart (S&P 500)
DIRECT COMPETITOR COMPARISON

    Kimberly-Clark: The Stock
                          KMB      Pvt1           PYX       PG       Industry

Market Cap:               27.95B       N/A       653.49M   201.79B      1.09B
Employ-ees:               60,000    55,000   1      N/A    110,000      9.60K
Qtrly Rev Growth (yoy):   2.80%        N/A        -9.90%   26.90%       7.40%

Revenue (ttm):            15.90B    19.66B   1   595.25M    61.68B      1.78B

Gross Margin (ttm):       31.91%       N/A       50.46%    51.05%     16.88%
EBITDA (ttm):              3.28B       N/A       91.90M     14.42B   277.52M
Oper Margins (ttm):       14.53%       N/A       10.97%    19.95%       4.42%
Net Income (ttm):          1.58B   623.00M   1   12.53M      7.77B      2.75M
EPS (ttm):                 3.285       N/A         0.200     2.733       0.23
P/E (ttm):                 18.21       N/A         51.50     22.45      23.05
PEG (5 yr expected):        1.96       N/A          1.75      2.02       2.83
P/S (ttm):                  1.75       N/A          1.11      3.28       0.61
Correlation Matrix
         AEOS     CPRT      FR      JKHY     JPM      KMB      MS         MVSN    SRCL    WAG
AEOS       1.00
CPRT       0.21     1.00
FR         0.21     0.43     1.00
JKHY       0.24     0.30     0.17    1.00
JPM        0.32     0.38     0.40    0.38     1.00
KMB        0.08     0.39     0.25    0.24     0.35     1.00
MS         0.27     0.27     0.30    0.41     0.67     0.30        1.00
MVSN       0.26     0.15     0.16    0.26     0.31     0.14        0.32    1.00
SRCL       0.11     0.02     0.06    0.13     0.22     0.13        0.17    0.06    1.00
WAG        0.26     0.28     0.21    0.26     0.34     0.26        0.34    0.12    0.31   1.00
Correlation based on 3 years of weekly returns (156 data points)
DCF Analysis
Financial Analysis
Conservative estimates:
 Costs have been growing faster than
  sales, projections show this continuing
 Management expects $3.85-$3.95 a share
  in 2006, I have $3.59 projected
   Expectations were $3.70-$3.85 in 2005, in
   reality they were $3.30
Financial Projections
 Discounted Cash Flow value per share
  $61-$75 versus a current price near $60
Assumptions:
 WACC – 7.80%, low risk
     Adjusted   Beta: 0.75
   Sustainable growth rate – 4.00%
     Substantial   impact on DCF price
  Sensitivity Analysis

                              Sustainable Growth Rate (g)




               0.02   0.025    0.03       0.04       0.045   0.05   0.055

        0.06   $70     $79      $90       $131       $171    $252   $495

        0.07   $56     $61      $67        $86       $102    $125   $164

       0.078   $48     $51      $56        $68        $77    $89    $106
WACC
        0.08   $46     $49      $53        $64        $72    $83     $97

        0.09   $39     $41      $44        $51        $56    $62     $69

         0.1   $34     $36      $37        $42        $45    $49     $53
DuPont Analysis

ROE = PM * TAT * EM

28.2% = 9.86% * .98 * 2.93
Where:
  PM = Profit Margin (NI/Sales)
  TAT = Total Asset Turnover (Sales/TA)
  EM = Equity Multiplier (TA/TE)
Recommendation
   Hold on to entire position
     Valued   in line with the market, and at a discount to
      peers
     Holds up well to DCF analysis with conservative
      estimates
     Generous Dividends – 3.30% yield
     Share repurchase program will boost EPS
     Stable industry that provides valuable diversification
      to our portfolio

								
To top