Still Waiting On Kimberly-Clark

Wisconsin-based consumer products company Kimberly-Clark (NYSE:KMB) posted solid second quarter results. Revenue was flat year-over-year at $5.7 billion, just a touch below consensus estimates. Adjusted earnings per share increased 8% year-over-year to $1.41, slightly above consensus expectations. Even though headline numbers were strong, free cash flow totaled $356 million, equal to just under 7% of revenue (not as strong as we would have liked, but still good).

Kimberly-Clark's 'Personal Care' segment, the firm's largest division, underperformed the rest of the company, with revenue declining 1% year-over-year to $2.4 billion. European operations are being pared back, and it now no longer sells its legendary Huggies brand in any European market except for Italy. North American 'Personal Care' segment sales declined 3% year-over-year, but it does not appear as though management is worried about the slight sales slip. The declines in Europe and North America were offset by a 5% sales increase in K-C International which registered strong volume growth across the board. Overall, segment operating margins jumped 130 basis points year-over-year to 18.1%.

Kimberly-Clark's second largest segment, 'Consumer Tissue', increased its sales 2% year-over-year to $1.6 billion (organic sales were up 5% year-over-year). Aside from an 8% decline in European sales, revenue growth was relatively strong across the board. North American sales jumped 3% year-over-year, and K-C International revenues jumped 8% year-over-year in spite of a 3% currency headwind. The Kleenex and Cottonelle brands appear to be catching on across the globe.

As for Kimberly-Clark's smaller segments, 'K-C Professional' and 'Healthcare', we saw relatively weak top-line performance, as sales were flat and down 2%, respectively. Operating profit at K-C Professional, however, did jump 17% year-over-year thanks to stronger pricing and the firm's cost savings initiatives. Healthcare profit declined 4% year-over-year, but the division only accounted for $54 million in quarterly operating profit (or about 7%).

Looking ahead, the firm held steady with its earnings per share target of $5.60-$5.75 per share for full-year 2013. Currency headwinds are expected to weigh on sales slightly more than before, but the firm's cost reduction strategy, FORCE (focus on reducing costs everywhere), is producing savings at higher than anticipated levels.

Valuentum's Take

Kimberly-Clark's second quarter was relatively solid in spite of modest revenue growth. FORCE is achieving strong savings which we believe will help the firm remain a Dividend Aristocrat in the coming years. Still, we think shares look fairly valued, so we are waiting for a more favorable price before considering the company in the portfolio of our Dividend Growth Newsletter.

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

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