Kimberly-Clark: Absorbing New Markets

Kimberly-Clark (NYSE:KMB) is a company that has experienced ups, downs and, generally, stagnation. An institutional favorite, and especially a darling of American Century and Vanguard Fund families, KMB is lurching forward and may add some spice to its vanilla image.

Emerging market sales are now 31% of revenues, up from 25% a few years ago. Part of the success is driven by KMB's thorough consumer research, which includes home visits and shopping trips with consumers to better understand purchase decisions. The bottom line is now growing faster than the top line.

Kimberly-Clark does not wish the company to be grouped in with paper companies. Only 50% of KMB's portfolio of products is paper based (primarily due to a reduction of paper in diapers). That said, commodity prices will continue to have an impact on KMB's bottom line. The company at a recent conference stated that a large part of the recent surge in commodity prices was attributed to speculation, and that commodities the company uses should cost less down the road. A stronger U.S dollar may make their hopes become true.

Private label competition does not appear to be an issue at present. KMB brands are strong and growing stronger worldwide. Worldwide growth is an excellent story in process for Kimberly-Clark. For instance, only 20% of the families in emerging countries presently use diapers on a regular basis. KMB is using local market strategies and packaging to attract buyers with increasing success.

Competitors such as Proctor and Gamble (NYSE:PG) are growing through acquisitions. KMB is not actively pursuing this mode of expansion. According to the company, acquisitions are only of interest if it can broaden the company's geography or help expand existing businesses such as in Health Care.

Trading below its 200-day average, this defensive stock may make a mildly attractive addition to a diversified portfolio. There is little downside risk,with the stock trading at $63.72 per share(52 week range of $61.94-$72.79), a dividend of 3.65% and a modest PE of 16.3. Kimberly-Clark appears to be a well run company. Return on assets is 9.87%, return on equity 30.39% and return on investment capital 13.95%. Gross profit margins are 31.07%, operating margin 14,25%, EBITDA margin 18.49% and overall profit margin 9.53%. Not a growth company, but an increasingly attractive, not-so-stodgy performer that will let you sleep at night.