KMB – A solid pick for consistent income

Kimberly-Clark is a global consumer goods company focusing on personal care, consumer tissue, and K-C professional products. The company manufactures and markets a wide range of products mostly made from natural or synthetic fibers using advanced technologies.

Kimberly-Clark is a household name with its brands touching nearly 1 out of 4 people globally every day. The company sells its products in more than 175 countries with key markets being North America (52% of revenue), and outside North America (~48%). It has manufacturing facilities in 32 countries.

The company is organized into three core operating segments, Personal care products comprising 50% of total revenues, Consumer tissue (~33%), and K-C Professional (~17%). Personal Care and Consumer Tissue are its primary revenue-generators. Personal care includes leading brands like Huggies, PullUps, Little  Swimmers, GoodNites, DryNites, Kotex, etc., while Consumer tissue operates through Kleenex, Scott, Cottonelle, Viva, brands. Kleenex, Scott, Huggies, Cottonelle, and Kotex are Kimberly-Clark’s billion-dollar brands holding the No. 1 or No. 2 share positions in more than 80 countries worldwide.

The company has a large distribution network including supermarkets, mass merchandisers, drugstores, warehouse clubs, department stores, e-commerce, etc.

Investment Data

Revenue Growth & Market Exposure

With 148 years of experience, Kimberley Clark has a long and strong innovation streak, creating five of the eight major product categories in which it competes. The company continues to create premium products for its customers based on its deep understanding of consumer behavior and preferences. The company’s economies of scale, strong brands, and a large distribution network are its major competitive advantages.

Kimberley Clark operates and markets its products globally. Walmart is Kimberley-Clark’s largest customers accounting for nearly 14% of its total sales. The company owns various patents and trademarks registered domestically and in many foreign countries. Kimberley Clark is emphasizing on growth in larger markets like Asia, Latin America, Eastern Europe, the Middle East, and Africa. Its revenues have grown at a rate of more than 13% in the last three years. 

Kimberley-Clark experienced some temporary manufacturing slowdowns and shutdowns as a result of the pandemic outbreak. However, it continues to work with its raw material suppliers and distribution partners to ensure continuity and maximize deliveries. The company is also suspending all near-term capital projects and restructuring activities and has not given any guidance for the full year. Prior to the outbreak, Kimberley-Clark was targeting a 1%-3% organic sales growth in the medium-term. 

The company operates a recession-resistant business and the first quarter was marked by a spike in demand for consumer products as consumers continue to rearrange their priorities.

Dividends

Kimberly-Clark is a S&P500 Dividend Aristocrat paying uninterrupted dividends to shareholders for 85 years and increasing them for the past 47 consecutive years. It managed to increase dividends even during the great financial crisis when its sales declined by 2%. Shares of Kimberley-Clark sport a dividend yield of 3.13% which is higher when compared to most of its peers. It has a current payout ratio of 62% and last raised its dividend payout by 7%. The company has grown its dividend at a rate of 5.6% CAGR in the last decade. 

Kimberley-Clark paid $575 million in dividends and share repurchases in the first quarter. The company witnessed strong cash flow during the quarter as a result of significant volume increases from consumer stock-up, in all major geographies and across all business segments, especially in consumer tissue.

Kimberley-Clark is in a good position to leverage its cost and financial discipline to fund future growth. It had launched a global restructuring plan in 2018 focusing on business re-organization, streamlining overhead spending, and manufacturing supply chain. It is estimating annual savings of $500 million to $550 million by the end of 2021. Kimberley-Clark has sustainable cost reduction and shareholder-friendly cash deployment programs in place which should increase the overall shareholder returns in the future. It is also undertaking actions to further strengthen the balance sheet and enhance financial flexibility.

Prior to the outbreak, Kimberley-Clark was targeting annual EPS growth in the mid-single digits in the medium-term and increase the dividend in line with the EPS. If the company achieves its targets, dividend growth can be expected to continue to be in the low single-digit level.

Competition

Kimberley-Clark competes with several major companies in most of its markets, both domestic as well as international. The company is highly sensitive to changing consumer purchasing patterns and consumer preferences. Kimberley-Clark faces intense competition from large consumer goods brands like Procter & Gamble and Colgate-Palmolive. Both Procter & Gamble and Colgate-Palmolive Company are global consumer goods companies with leading market shares in personal care product categories. Kimberley-Clark’s well-known brands and global scale has created a strong competitive moat. It continues to invest in products, brands, commercial capabilities to maintain growth.

Bottom Line

Kimberley-Clark operates in the consumer staples sector that is relatively immune to market fluctuations. However, the company might face challenges like changing consumer buying patterns, supply chain disruption, and labor issues in the future, as the coronavirus situation still persists. Kimberley-Clark is a reliable dividend payer with payouts supported by stable cash flows and strong brands. If the company navigates through these challenges, it should witness a hike in its personal hygienic products and home essentials categories as a result of the pandemic. 

KMB vs INDICES

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.