) is set to release its Q4 and complete fiscal year 2013 results
Friday, January 24.With an increase of 4% year over year in organic
sales (excludes the impact of changes in foreign currency
exchange rates and lost sales as a result of restructuring
activities) in the first nine months of 2013, we think that
Kimberly-Clark is in a comfortable position to deliver its full
year target of 3%-5% organic sales growth. This will be achieved
through a combination of price hikes, improved product mix and
strong organic volume growth in the international markets.
Driven by the success of its FORCE (Focused On Reducing Costs
Everywhere) program, the company has also managed to grow adjusted
operating profit (excludes restructuring charges) by 7% in the
first three quarters to $2.5 billion. We think that the
program will continue to deliver in this regard.
Our price estimate of $108 for Kimberly-Clark
marks our valuation almost in line with its market price.
International Business Will Lead The Growth Like Previous
Kimberly-Clark's international segment, K-C International, led
the growth in Q3 with organic sales higher by 10% year over year.
The segment registered high single-digit to double-digit organic
sales growth in categories such as adult care, baby wipes, baby
diapers and feminine care. Growth was particularly strong in
diapers, as indicated by diaper volumes, which increased 45% in
China, 35% in Russia and 20% in Brazil.
The sale of baby care products is increasing at a fast rate in
the developing nations due to factors such as a large population,
stronger purchasing power and greater brand awareness among
consumers. In October 2012, Kimberly-Clark decided to exit its
diaper business in the saturated Western and Central European
market, and focus on the emerging economies in order to capture
strong demand growth in these markets. By Q1 2013, the company had
stopped selling Huggies diapers in 13 countries and exited its
remaining five markets in Q2 2013. We believe that directing
resources and investments towards faster growing markets will help
the international segment to maintain its growth trajectory.
Additionally, the company's international portfolio is more
inclined towards diapers and fem care. Its diapers and fem care
products have greater reach in international markets than its baby
wipes and adult care products. This offers it the opportunity to
further expand its presence in the latter two categories.
Cost Savings To Help Offset Currency Headwinds And Rising
Kimberly-Clark's FORCE program has resulted in significant cost
savings. The company saved $70 million from the program in Q3,
which helped it absorb $55 million of commodity cost inflation and
$25 million of currency translation losses. By identifying and
delivering cost savings in areas where consumers are not much
concerned, the company has been able to invest more in innovation
and strategic branding.
At the time of the Q2 earnings call, Kimberly-Clark's management
revised its full year target for FORCE cost savings upwards by $50
million at both ends to $300 million-$350 million. The $50 million
upward revision will help the company to overcome currency
headwinds and cost inflation.
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