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Recently, Kimberly-Clark (KMB) announced its financial results for the quarter ended September 30, 2013. The topline of the company increased by just 0.3% year-over-year, but it witnessed an increase in organic sales of 5% year-over-year. Despite this, Kimberly's highest contributing personal care segment witnessed 1.3% decline in the topline.

What's affecting topline of the highest contributing segment?

Personal care is the highest contributing segment to Kimberly's overall revenue. In Kimberly's recent quarterly results, the personal care segment generated $2.38 billion in net sales, which contributed around 45.28% of the overall revenue. The segment witnessed reduction in sales volume by 4% and fluctuation in currency rates, which further declined sales.

The performance of the segment in the last three quarters is given below:

Quarter

Revenue from Personal care

($ million)

Contribution to the overall revenue

Growth in European sales from European region for personal care segment, year-over-year

Growth in the K-C international, or KCI sales for personal care segment, year-over-year

Growth in the North American sales for personal care segment, year-over-year

Quarter Ended March 31, 2013

2,397

45.03%

(10.00%)

4.00%

Flat

Quarter Ended June 30, 2013

2,390

45.37%

(29.00%)

5.00%

(3.00%)

Quarter Ended September 30, 2013

2,383

45.28%

(40.00%)

3.00%

Flat

Although the personal care segment has contributed the most to the company's topline with consistent 45% contribution, it also witnessed a decline of 1.3% year-over-year in its revenue in the last quarterly results. The segment is witnessing consistent decline from the European arm, which includes Northern, Southern, Central, and Eastern Europe, as well as the Gulf States, Israel, and South Africa.

On the other hand, Kimberly-Clark international, or KCI, which includes emerging markets in Asia, Latin America, the Middle East, Eastern Europe, and Africa regions, is showing consistent increase in the topline for the segment. So we can say that decreasing sales from Europe is the major factor for the segment's decrease in sales.

The company started strategic restructuring in the Central and Western European region's businesses in October 2012. The changes, which hampered the sales for the personal care division included exit from the diaper category in Western and Central Europe, except Italy. The restructuring activities hampered mostly the personal care segment, since the sales in Europe from the segment decreased 40% year-over-year. On the other hand, the consumer tissue segment experienced a 9% decline in European sales, and Kimberly's professional segment experienced flat European sales.

Despite this, the segment witnessed 5% growth in organic sales, and the volume sales from KCI also increased 7% year-over-year. But, higher input costs and higher marketing expenses offset the benefits of the rise in organic sales. The segment has the ability to achieve much better topline growth, since KCI regions are showing favorable results. Kimberly has already experienced rise in organic sales in diapers of 45% in China, 35% in Russia, and 20% in Brazil, year-over-year. Moreover, Brazil, Russia, and China are the focused areas for KCI. We expect that the rising sales from KCI regions will drive the personal care segment in the upcoming financial results.

The company giving better returns than its peers

In our last article on Procter & Gamble (PG), we discussed how much companies like Kimberly and Colgate Palmolive (CL) are giving back to shareholders in the form of dividends and share repurchase. In Kimberly's latest quarterly results, it continued its shareholder friendly approach and declared cash dividends of $0.81 per share, an increase of 9.4% year-over-year. Moreover, it bought back shares worth $150 million in the last quarter. The company should have high cash generation ability to facilitate these services to the shareholders.

Company

TTM Price-to-cash flow

Dividend ratio in the last quarter

Kimberly-Clark

12.8

57.00%

Procter & Gamble

15.8

55.87%

Colgate

17.8

50.00%

Kimberly's price-to-cash flow remains lowest among its peers, which indicates that the company is generating better cash than its peers. Kimberly is comfortably positioned to pay dividends and continue its share repurchases activities. The company still has a cash balance of $1.17 billion. With respect to dividend payments, Kimberly is paying the highest dividends among its peers out of profits in the last quarter. Moreover, in the last quarter, the free-cash-flow payout ratio of Kimberly was 43.89%, which is quite high. This indicates that Kimberly is paying a considerable amount of cash towards dividends.

Conclusion

Kimberly's stock is showing some consistent returns and is always backed by continuous dividends and share repurchase activities. This ensures continuous investor returns. We give a buy recommendation to Kimberly, since we believe that the company will continue its investor friendly approach.

Source: How To Play Kimberly-Clark

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Shweta Dubey, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.