In its Q2 2013 earnings call, Kimberly-Clark (
) announced plans to make certain innovations and improvements in
its tissues division in the second half of the year. For this
reason, consumers are now seeing changes across the company's
Kleenex line of products, including facial and bathroom tissues.
For example, the company has started making Kleenex tissue papers
bulkier than before in order to offer better quality. The
improvement in Kleenex tissues is likely to keep customers using
Kleenex tissues and could also enhance EBITDA margins for the
company's consumer tissue segment.
Tissues form an important division in Kimberly-Clark's overall
portfolio. The company derives slightly less than 50% of its
revenues from tissue brands such as Kleenex and Scott. The tissue
division consists of two segments: Consumer (at-home) and
Professional (away from home). While under the consumer tissue
segment only paper based products are sold, under the professional
tissue segment additional products such as apparel, wipers, soaps
and sanitizers are also sold.
See Our Full Analysis for Kimberly-Clark's
Desheeting Could Improve Consumer Tissue EBITDA
Although Kimberly-Clark has made Kleenex tissues 15% bulkier, it
has also reduced the number of tissues per box by 13% without
changing the price of the box. According to Kimberly-Clark's
management, the desheeting exercise will benefit the company in the
back half of the year. The consumer tissue segment has
historically witnessed the lowest EBITDA margins among all
divisions. Despite some improvement, the segment's EBITDA margin
stood better only than the health care division in 2012. The
desheeting technique could help the consumer tissue segment
enhance EBITDA margins as the management believes that making
thicker sheets is a more efficient manufacturing method and won't
require additional materials.An increase of even 1 to 2 percentage
points in EBITDA margins could lead to an upside of 3%-5% in our
price estimate for Kimberly-Clark's stock.
In our view, the desheeting is also a good move by the company
to effectively raise the price per tissue as a direct raise per box
would have lead to consumers shifting to private labels, whose
products are generally available at lower price points. Private
labels are a threat to Kimberly-Clark as they have been gaining a
lot of traction in recent times due to the price difference between
branded and private label brands.
Our price estimate of $101 for Kimberly-Clark
stands at a premium of about 5% to the current market price.
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