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By David Urani

Background

In 1872 four business men, John Kimberly, Havilah Babcock, Charles Clark and Frank Shattuck partner with $30k to start Kimberly, Clark & Co. to make newsprint from linen and cotton rags. Scott Paper Co. started separately in 1874 by Thomas Irvin, Clarence Scott and two of their cousins. Kimberly and Clark also invested into starting Atlas Paper which innovatively makes paper from ground pulp. They become the leading paper maker in the Midwest by 1880, build a mill to establish the town of Kimberly, Wisconsin, and mainly make book and wrapping paper. In 1890 Scott Paper is the first company to put toilet paper on a roll, and in 1900 they introduce the first paper towel to America. In 1915 Kimberly-Clark (NYSE:KMB) rebuilds a mill to produce a new material Cellucotton, which is first used for bandages in WW1, and after the war it becomes Kotex feminine pads (starts advertising in 1921) and Kleenex (starts in 1924 originally marketed as a makeup remover; sales surge in 1930 when they market it as a disposable handkerchief). Scott was publicly traded as early as 1915. In 1960 Kimberly-Clark starts making single-use surgical gowns originally developed during the Korean War. Scott introduces Cottonelle bathroom tissue in 1972 and in 1978 Kimberly-Clark introduces Huggies, a highly successful entry with elastic in the legs, while Depend starts advertising in 1981. In 1989 Kimberly-Clark invents Pull-Ups training pants to immediate success. In 1995 Kimberly-Clark and Scott merge in a $9.4B deal. In 1997 they acquire TECNOL for face masks/hair nets for doctors to add to the surgical gowns, and in 2000 they acquire Safeskin disposable gloves, giving them the #1 spot in exam gloves.

Main Brands

  • Huggies
  • Kleenex - world's first face tissue
  • Scott
  • Kotex
  • Pull-Ups
  • Depend
  • Kimberly-Clark Health Care - essential health and hygiene products for patients and staff.
  • Kimberly-Clark Professional - workplace washroom and safety products.

Overview

  • Almost ¼ of the world's population buys their products every day.
  • 2012 Sales $21.2B
  • Holds #1 or #2 brand share in more than 80 countries. #1 personal care brand worldwide 5 years in a row.
  • To do $1.2B of repurchases in 2013; divided yield 3.2%
  • October 2012 - Decides to exit Western and Central European diaper business and to divest some other lower-margin businesses in some markets, mainly in tissues.

3Q13

  • Beat by $0.04 at $1.44 EPS, revenues +0.3% to $5.26B vs. $5.22B consensus
  • Organic growth, cost savings, lower effective tax rate, lower share count partially offset by input inflation and currency.
  • Organic sales +5% (vol +3%, prices +1%, mix 1%), +10% International. Total sales impacted by Europe and pulp & tissue restructuring.
  • Personal Care -1%. Europe restructuring reduced by 4%, currency -3% headwind. Organic sales +5%. N America flat, International +3% (despite -6% currency headwind; vol +7%) driven by Australia, China, Russia, S Africa, Vietnam, Most of LatAm. Product strength in Kotex, Depend, Huggies.
  • Tissue +1% (currency and Europe changes each took off 2%). Organic sales +5%. N America +4% International +4% (despite -7% currency; vol +7%). Some strength seemed to come from reducing sheet count on Kleenex, Cottonelle and Scott helping pricing/margin.
  • Professional +3% (includes -1% Europe restructure and -2% currency). Organic sales +5%. N America +3%, International +4% (despite -7% currency). Strength in wiper products.
  • Health Care +2% (currency -2% headwind). Organic sales +4%. Op Profit +19% on reduced marketing, research and G&A. Strength in medical devices.
  • Diapers +45% China, +35% Russia, +20% Brazil.
  • Adj Gross marg to 34.4% from 34.2%
  • Adj Op margin to 15.6% from 15.5%.
  • y/y repurchases added $0.04 to EPS
  • Guides FY13 EPS in line with consensus at $5.65-5.75 (from $5.60-5.75), the rest kept the same

All in all revenue was flat, but if you exclude European restructuring and currency headwinds sales were up decently at +5% while 10% international growth highlights ongoing expansion worldwide. It's a slow and steady type stock, resistant to slowdowns and recessions, supplemented by high cash flow for repurchases and dividends. Add to that its great history and impressive global leadership and perhaps it's not a high-flying momentum name but one you can hold on to for long term appreciation.

Source: Kimberly-Clark Q3 Overview: Making Paper By Making Paper