In this article, let's take a look at Kimberly-Clark Corporation (KMB, Financial), a $39.98 billion market cap company, which is best known for brands such as Kleenex, Scott, Huggies and Kotex.
Global reach
The company sells products in more than 150 countries, operating as a broadly diversified portfolio. It operates four segments: Personal Care (45% of 2013 sales); Consumer Tissue (31%); K-C Professional & Other (16%); and Health Care (8%). Looking at geographic importance, about half of 2013 sales were from North America; 14% from Europe; and the other 37% from Asia and Latin America.
Health Care business
This segment benefited from the acquisitions of Technol Medical Products, Ballard Medical Products, and Safeskin Corp. In the last 25 years, there were 30 strategic acquisitions and 20 strategic divestitures, which made the firm a leading global manufacturerof tissue, personal care and health care products. Further, it’s pending spinoffof this business makes that it focuses on higher-return opportunities.
Strategic Plan
In 2003, the firm introduced a new plan called the Global Business Plan, with a great interest in growth opportunities while focusing on greater financial discipline. It plans to continue with this plan in 2014 with goals pointing a growth of 3% to 5%; as well as good EPS growth; an operating margin improvement of 50 basis points; with a capital spending of 4.5% to 5.5% of net sales; an ROIC improvement of 20 to 40 basis points; as well as and dividend increases. Further, the company has plans to reduce its less-profitable operations while cutting costs, should help it to focus on its core portfolio.
Emerging markets
We believe that growth opportunities will come in emerging markets, where income is becoming higher. Now it accounts for nearly 40% of total sales, and we expect far more in the long run.
Revenues, margins and profitability
Looking at profitability, revenue growth by 1.44% led earnings per share remained flat in the most recent quarter compared to the samequarter a year ago ($1.35vs $1.36). During the past fiscal year, the company increased its bottom line. It earned $5.54 versus $4.42 in the prior year. This year, Wall Street expects an improvement in earnings ($6.09 versus $5.54).
The gross profit margin for the company is considered high, at 38.87%, and it increased from the same quarter the previous year. The net profit margin of 9.52% is similar to the industry average.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| KMB | Kimberly-Clark | 45.99 |
| CHD | Church& Dwight Company, Inc. | 18.11 |
| ENR | Energizer Holdings Inc | 15.19 |
| CL | Colgate-Palmolive Co | 123.49 |
| PG | Procter & Gamble Co | 16.85 |
| Â | Industry Median | 8.35 |
The company has a current ROE of 45.99% which is higher than the industry median. Also, it is higher than ones exhibit by Church & Dwight (CHD, Financial), Energizer Holdings (ENR, Financial) and Procter & Gamble (PG, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Colgate-Palmolive (CL, Financial) could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 19.2x, trading at a premium compared to an average of 19.0x for the industry. To use another metric, its price-to-book ratio of 8.7x indicates a premium versus the industry average of 1.77x while the price-to-sales ratio of 1.9x is above the industry average of 0.99x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $22.250, which represents a17.4% compound annual growth rate (CAGR).
Final comment
Despite the fact that the firm could face a scenario of slow economic growth and worst of all, unfavorable demographics, we believe long-term growth will come by the expansion on emerging markets as well as focusing on non-traditional categories.
The return on equity that significantly exceeds the industry average make me feel bullish on this stock.
Hedge fund gurus likeJim Simons (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Buckingham (Trades, Portfolio) and Murray Stahl (Trades, Portfolio)added this stock to their portfolios in the second quarter of 2014, as well as Manning & Napier Advisors, Inc and Diamond Hill Capital (Trades, Portfolio).
Disclosure: Omar Venerio holds no position in any stocks mentioned
