Kimberly-Clark: A Dividend Stock With Positive Performance On The Horizon

Summary

International market expansion and product innovation initiatives will fuel top and bottom-line growth.

Spin-off of healthcare segment will allow company to focus on core consumer business.

KMB has been consistently sharing success with shareholders through share repurchases and dividends.

I reiterate my bullish rating on Kimberly-Clark (NYSE:KMB). KMB has been delivering a satisfactory financial performance in the recent past. The company's results for 2Q14 reflect that with its strong brand recognition, the company is steadily expanding in international markets; it grew its overall organic sales for 2Q14 by 5%, primarily fueled by an increase of 10% year-over-year for the international segment's sales. Also, the company's bottom-line results are benefiting from top-line growth and cost saving initiatives (FORCE program). Furthermore, with aggressive share buybacks and healthy dividends, the company has been sharing its successes with shareholders.

Sales Growth

As developed markets have matured, and offer limited growth, consumer companies like KMB are eyeing growth potentials of emerging international markets to expand their top and bottom line numbers. As KMB is expanding its international market operations, the company's organic sales base rose 5%, mainly driven by a 10% increase in the international segment's sales in 2Q14. Along with its international market expansion, the company implemented price increases in 2Q14, which helped offset the impact of adverse currency movements.

Along with international market expansion, the company has been targeting product innovation to better meet demands. Also, the growing popularity of baby care products, like Huggies, in emerging markets including Brazil, China, Europe and Russia, benefited the K-C international (segment) sales in 2Q14. With its constant efforts to expand in international markets and product innovation, the company grew its diaper sales around 30% in Russia and Europe, 15% in Brazil and 20% in China, in 2Q14. I believe KMB needs continuous efforts to grow its diaper sales, as its diaper business is exposed to tough competition from Procter &Gamble (NYSE:PG), which constitutes 35% of the global market share in baby care products.

Along with its strong sales results for the diaper business, the international segment also enjoyed double-digit growth for adult care, and mid-single digit growth for baby wipes. As, the company's international product portfolio is more focused on diapers, the company plans on bringing more innovation in the Huggies diapers business in coming quarter, which I believe will portend well for the company's top-line growth.

Healthcare Spinoff

To focus on its consumer brands and better address competition, the company has decided to spin off its healthcare segment. KMB's healthcare segment has been posting negative sales results in recent quarters, which is weighing on its top-line growth. In 2Q14, KMB's healthcare segment contributed -1% towards the overall sales growth of the company. Owing to these negative results from its healthcare segment and to focus on its core consumer business, KMB's healthcare segment spinoff is expected in 3Q14, which I believe is a good initiative and will unlock shareholder value.

Bottom-Line Growth

Along with its international market expansion and product innovation, KMB has been making progress with its cost saving program, FORCE, to lower its costs. The company managed to save $75 million in 2Q14, which resulted in cost savings of $145 million in 1H2014. As the company is effectively implementing its cost saving program, it stays on track to attain its annual cost saving goal of $300 million for 2014. These cost saving initiatives, coupled with sales growth, increased its operating profit margin by 60 basis points year-over-year. I believe the ongoing cost saving initiatives, under the FORCE program, will portend well for margin and bottom-line growth.

Value Creation

KMB has been consistently generating value for its shareholders by returning cash through share repurchases and consistent dividends. Furthermore, the company's ability to generate strong cash flows has been strongly backing its share repurchases and dividends. The company repurchased more than $400 million worth of common stocks and paid $318 million in dividends to shareholders in 2Q14.

I believe the company's strong cash flow generation supports dividend payments. The company offers a dividend yield of 3%, which is well covered by its free cash flow yield of 4.5%. Moreover, shares repurchased by KMB have reached $917million year-to-date, which indicate that KMB is well on track to repurchasing $1.3 - $1.5billion worth of shares by the end of 2014. I believe these share repurchases will keep on adding towards EPS growth and will magnify ROE for KMB.

Conclusion

The company's international market expansion and product innovation initiatives will fuel top and bottom-line growth. Also, the spin-off of the healthcare segment will positively affect the company's performance, as it will be able to focus on its core consumer business. Moreover, the company has been consistently sharing its successes with shareholders through share repurchases and dividends, which make it a good investment option for dividend investors. Due to the aforementioned factors, I am bullish on the company.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.