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Kimberly-Clark Corp.

Kimberly-Clark Corp. David Mizell Mary Voss 4/19/2005. Why is K-C a good company?. Strong Portfolio of Brands International Growth Potential Innovation/Product Improvements Continuing Cost Reduction Good Management and Strong Corporate Governance Commitment to Environmentalism.

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Kimberly-Clark Corp.

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  1. Kimberly-Clark Corp. David Mizell Mary Voss 4/19/2005

  2. Why is K-C a good company? • Strong Portfolio of Brands • International Growth Potential • Innovation/Product Improvements • Continuing Cost Reduction • Good Management and Strong Corporate Governance • Commitment to Environmentalism

  3. Company Overview • Founded in 1872 in Neenah, WI by John A. Kimberly, Charles B. Clark and two other partners. • Company Timeline • First paper towel (Scott) invented in 1907 • Kotex pads created in 1920 • Kleenex invented in 1924 • Huggies developed in 1978 • Depends introduced in 1980 • Pull-Ups developed in 1989 • Kimberly-Clark and Scott Paper Merge in 1995 • Neat Sheet introduced in 2002

  4. Brands • Kimberly-Clark Brands • Kleenex facial tissues • Cottonelle toilet paper • Scott and Viva paper towels • Kotex pads • Huggies, Pull-Ups, Depends, and Poise diapers • Neat Sheet

  5. Market Share • Category 2004 2003 2002 • Diapers . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .38% 38% 40% • Training, Youth and Swim Pants . . . . . . . . . . .69% 68% 73% • Feminine Care . . . . . . . . . . . . . . . . . . . . . . . . . 20% 22% 23% • Adult Incontinence Care . . . . . . . . . . . . . . . . . .56% 56% 55% • Baby Wipes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% 41% 42% • Facial Tissue . . . . . . . . . . . . . . . . . . . . . . . . . . . 51% 53% 54% • Bathroom Tissue . . . . . . . . . . . . . . . . . . . . . . . 29% 28% 27% • Paper Towels . . . . . . . . . . . .. . . . . . . . . . . . . . . 19% 19% 19%

  6. Financial Performance • Total Revenue • $13,231,500,000 in 2002 • $14,026,300,000 in 2003 • $15,083,200,000 in 2004 • Basic net earnings per share • $3.24 in 2002 • $3.34 in 2003 • $3.64 in 2004 • Market Cap is $31.04 B • P/E Ratio is 18.04

  7. Kimberly-Clark’s Numbers • Trailing P/E: 18.04 • Forward P/E: 15.57 • Profit Margin (ttm): 11.40% • Operating Margin (ttm): 16.62% • Return on Assets (ttm): 10.22% • Return on Equity (ttm): 26.56% • Beta is .85

  8. KMB 1 Year Chart

  9. KMB 5 Year Chart

  10. KMB 5 Year vs. S&P 500 and DJIA

  11. Competitor Comparison Playtex Products (PYX) • Market Cap:625.23M • Employees:1,500 • Rev. Growth (ttm):1.4% • Revenue (ttm):666.90M • Operating Margin (ttm):18.70% • Net Income (ttm):55.51M • EPS (ttm):.907 • P/E (ttm):10.85 • Kimberly-Clark (KMB) • Market Cap:31.04B • Employees:60,000 • Rev. Growth (ttm):5.10% • Revenue (ttm):15.08B • Operating Margin (ttm):16.62% • Net Income (ttm):1.77B • EPS (ttm):3.574 • P/E (ttm):18.04 • Proctor & Gamble (PG) • Market Cap:137.73B • Employees: 110,000 • Rev. Growth (ttm):18.5% • Revenue (ttm):51.49B • Operating Margin (ttm):19.16% • Net Income (ttm):6.81B • EPS (ttm):2.513 • P/E (ttm):21.73

  12. Industry Averages • Market Cap: 947.34M • Employees: 8,100 • Revenue Growth (ttm): 7.5% • Revenue: 1.60B • Operating Margin (ttm): 3.90% • Net Income: 14.31M • EPS: .39 • P/E: 16.87

  13. KMB 1 Year vs. PG and PYX

  14. KMB 5 Year vs. PG and PYX

  15. Porter’s Five Forces • Threat of New Entrants: Low • Threat of Substitutes: High • Bargaining Power of Buyers: Moderate • Industry Rivalry: High • Bargaining Power of Suppliers: Low

  16. Financial Forecast • From company guidance: • 3-5% Revenue growth expected • Reduction of 150 million in cost each year for next couple of years • Plan to repurchase 25 million shares over the next 5 years • Capital spending 5-6% of sales • Concern over rising commodity prices

  17. Financial Forecast • Discounted Cash Flow Analysis returns a price of $77.40 per share • View excel spreadsheet

  18. Scenario Analysis • Growth Rates - rates at 5% : 78.62 - rates at 4% : 75.99 - rates at 3% : 73.44 • WACC - WACC at 8% : 82.89 - WACC at 8.5% : 74.56 - WACC at 9% : 67.64 • Cost of Products Sold - at 65.40% : 66.92

  19. Global Growth Potential • Sells products in more than 150 countries • Manufacturing facilities in 37 countries • In K-C’s developing and emerging markets sales and operating profit rose at double-digit rates • Developing and emerging markets account for less than 25 percent of sales • BRICIT, where K-C has established assets and a marketplace presence: Brazil, Russia, India, China, Indonesia and Turkey. • Per capita income in each of these countries is rising • Using multi-tier product strategy to drive penetration and usage and to build brand loyalty

  20. Good Management • Fortune magazine named K-C among the 100 Best Companies to Work For in America in 2002 and 2003. • K-C has won several similar global awards • Wal-Mart recognized Kimberly-Clark with a Supplier of the Year Award in 2003 • Named in 2002 to the Calvert Social Index: • Criteria relates to workplace issues, environmental management, product safety, application of consistent high standards to international operations, respect for indigenous peoples’ rights and progressive community relations. • Kimberly-Clark was listed on the Financial Times Stock Exchange Index for Good US 100 Companies and the FTSE4GOOD Global 100 Companies Index in 2002 • Kimberly-Clark was recognized in 2002 by the National Safety Council as a Charter Member for the company’s involvement in founding the organization in 1912. • Thomas J. Falk ,Chief Executive Officer, has worked for Kimberly-Clark since 1983.

  21. Environmental Policies • Protection of the Biosphere • Periodically audits environmental performance at all locations. • Sustainable Use of Natural Resources • Recycled fiber in products and packaging and following sustained yield forestry practices • Use and Conservation of Energy • Establishing ongoing energy conservation programs in all locations • Reduction and Disposal of Wastes • Supporting an integrated approach to solid waste management including: • Recycling • Conservative use of landfills

  22. Recommendation • Purchase 300 Shares of KMB at the Market • KMB closed at 64.48 as of 4/18/2005 • 300 shares at 64.48 yields an investment of $19,344.

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