VALUATION HIGHLIGHTS
- Personal Care constitutes 53% of the Trefis price estimate for Kimberly-Clark's stock.
- Consumer Tissue constitutes 30% of the Trefis price estimate for Kimberly-Clark's stock.
- K-C Professional constitutes 16% of the Trefis price estimate for Kimberly-Clark's stock.
WHAT HAS CHANGED?
- KMB Stock vs. S&P500 Performance
The changes in KMB stock over the recent years have been far from consistent. Returns for the stock were 10% in 2021, -2% in 2022, -7% in 2023, and 12% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that KMB underperformed the S&P in 2021, 2023, and 2024.
- Q4 2024 Earnings
KMB's sales were down 0.8% y-o-y at $4.9 billion in Q4'24. Organic sales were up 2.3%, driven by 0.6% pricing growth and no change in product mix and 1.5% volume gains. Adjusted gross margin profit grew by 50 bps. KMB reported adjusted EPS of $1.50, down 0.7% y-o-y.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Kimberly-Clark EBITDA Margin
Kimberly-Clark EBITDA Margin: We project Kimberly-Clark's EBITDA margin will improve from 21% in 2024 to around 25% by the end of our Trefis forecast. An even stronger margin performance, exceeding 31% by the end of our review period, could potentially boost the Trefis price estimate by 20%.
BUSINESS SUMMARY
Kimberly-Clark Corporation stands as a prominent global manufacturer of a diverse range of products, including professional and consumer tissue, baby care non-wovens, feminine hygiene care items, adult incontinence solutions, and disposable healthcare products. With a significant international presence, the company distributes its offerings across 175 countries and operates manufacturing facilities in 37 countries. Notably, Kimberly-Clark holds a position as one of the top two brands within its respective product categories in over 80 countries.
The company's household products, encompassing consumer tissue, baby diapers, and feminine hygiene items, are distributed through a combination of direct sales and wholesale channels. These products reach consumers via supermarkets, mass merchandisers, drug stores, warehouse clubs, and various variety and department stores. In contrast, Kimberly-Clark's away-from-home products, such as professional tissue and medical disposables, are sold through distributors and directly to a range of commercial entities. These include manufacturing plants, lodging establishments, office buildings, food service providers, healthcare facilities, and high-traffic public venues.
The production of tissue products primarily relies on cellulose fiber, which includes both kraft pulp and recycled waste paper. Additionally, cellulose fiber, in conjunction with super absorbent materials like Polypropylene, forms a key component in the manufacturing of disposable diapers, training pants, feminine pads, and incontinence care products. Kimberly-Clark primarily sources its recovered paper, synthetics, pulp, and recycled fiber from third-party suppliers.
Among Kimberly-Clark's well-known brands are Huggies and Pull-Ups in the Baby Care segment, Scott and Kleenex for Personal and Professional Tissue, and Depend and Kotex within the Feminine Hygiene Care category.
KEY TRENDS
Cost Savings Program
Kimberly-Clark initiated a comprehensive global transformation program in early 2024. This strategic initiative is designed to drive growth and optimize expenses through segment reorganization, the establishment of more efficient overhead structures, and supply chain enhancements. This plan is on track for full implementation by the end of 2026 and is projected to involve approximately $1.5 billion in pre-tax charges. Upon completion, this program is expected to contribute to the expansion of the company's profit margins.
Ongoing New Product Launches and Increased Marketing Investment
Kimberly-Clark continues its strategy of gradually introducing new products to create distinct offerings within its established brand portfolios. This ongoing approach is likely to result in increased strategic marketing expenditure for the company, with a focus on supporting product innovations, targeted growth initiatives, and overall brand equity. Furthermore, research and development, along with selling expenses, are also anticipated to remain elevated to support growth ambitions and further enhance operational capabilities.
Sustained International Growth Driven by Rising Consumer Demand in Emerging Markets of the Asia Pacific & Latin America
The increasing disposable household incomes, fueled by robust economic growth in emerging economies, continue to drive a significant rise in demand for consumer goods such as baby diapers and feminine hygiene care. Trefis anticipates that this growing consumer demand in the relatively underpenetrated Asian and Latin American markets, coupled with the strong market presence of Kimberly-Clark's existing brands, will remain a crucial growth catalyst for the company.
However, growth in regions like China also presents certain inherent risks. For instance, the company may need to adapt its pricing strategies considerably to align with the purchasing power of consumers in these markets. Additionally, Kimberly-Clark might need to increase its general advertising investments to attract new customers. Moreover, expansion in emerging economies exposes Kimberly-Clark to currency fluctuations, given the volatility of these currencies relative to the dollar and euro.
