Kimberly-Clark Corporation — 2022 Q2 Form 10-Q Summary
Business context and reporting period
Kimberly-Clark is a global consumer products company with three reportable segments: Personal Care, Consumer Tissue, and K-C Professional. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The company reported 337.6 million common shares outstanding as of July 19, 2022.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net sales | $5,063 million | $4,722 million | $10,158 million | $9,465 million |
| Gross profit | $1,529 million | $1,480 million | $3,049 million | $3,069 million |
| Operating profit | $621 million | $613 million | $1,314 million | $1,383 million |
| Net income attributable to Kimberly-Clark | $437 million | $404 million | $960 million | $988 million |
| Diluted EPS | $1.29 | $1.19 | $2.84 | $2.92 |
| Cash provided by operations | Not separately provided | Not separately provided | $944 million | $886 million |
- Second-quarter sales increased 7%; organic sales increased 9%, driven primarily by a 9% benefit from net pricing and a 1% mix benefit, partly offset by a 1% volume decline and 2% unfavorable currency translation.
- Six-month sales increased 7%; organic sales increased 10%, including 7% from pricing, 1% from volume, and approximately 1% from mix.
- Second-quarter gross margin was approximately 30.2%, compared with 31.3% in the prior-year quarter. Six-month gross margin was approximately 30.0%, compared with 32.4% in 2021.
- Second-quarter operating margin was approximately 12.3%, compared with 13.0% in 2021. Six-month operating margin was approximately 12.9%, compared with 14.6% in 2021.
- Adjusted second-quarter EPS was $1.34, down from $1.47. Adjusted six-month EPS was $2.69, down from $3.27.
- Second-quarter results reflected $405 million of higher input costs, partially offset by organic sales growth and $45 million of FORCE cost savings. Six-month FORCE savings were $95 million.
Segment performance
| Segment | Q2 2022 sales | Q2 sales change | Q2 2022 operating profit | Q2 operating profit change |
|---|---|---|---|---|
| Personal Care | $2,710 million | +8% | $466 million | +3% |
| Consumer Tissue | $1,537 million | +8% | $178 million | -9% |
| K-C Professional | $802 million | +5% | $85 million | -23% |
Personal Care benefited from pricing, organic growth, and cost savings but remained exposed to inflation, higher spending, and currency effects. Consumer Tissue and K-C Professional experienced significant input-cost pressure, with K-C Professional also affected by lower volumes.
Cash flow, debt, liquidity, and capital allocation
- Operating cash flow for the first six months was $944 million, up from $886 million, reflecting improved operating working capital despite lower operating profit.
- Capital spending was $470 million through June 30, compared with $499 million in the prior-year period. Management expects full-year capital spending of $1.0 billion to $1.1 billion.
- Total debt was $8.7 billion at June 30, 2022, compared with $8.6 billion at December 31, 2021. Debt payable within one year was $1.031 billion, including approximately $0.7 billion of short-term debt.
- Cash and cash equivalents were $311 million, compared with $270 million at year-end 2021. The company also reported $158 million of time deposits and unused revolving credit facilities of $2.0 billion expiring in June 2026 and $775 million expiring in June 2023.
- Cash dividends paid were $775 million during the first six months. The company targeted approximately $100 million of full-year 2022 share repurchases, subject to market conditions, and repurchased $50 million of shares through June 30.
- Management stated that operating cash generation and debt capacity should be adequate to fund working capital, capital expenditures, pension contributions, dividends, and other foreseeable needs.
Material changes and unusual items
- On February 24, 2022, Kimberly-Clark acquired a controlling 58% interest in Thinx, Inc. for total consideration of $181 million, including $53 million of cash. Thinx operates in reusable period and incontinence underwear and is reported within Personal Care.
- The Thinx transaction produced a $85 million non-cash remeasurement gain and $21 million of transaction and integration costs, resulting in a net pretax benefit of $64 million and an after-tax benefit of $68 million in the first quarter.
- Second-quarter results included $24 million of pretax pension settlement charges, reducing net income by $18 million and diluted EPS by $0.05.
- Prior-year results included charges from the 2018 Global Restructuring Program, which was completed in 2021. This affects comparability, particularly for adjusted operating profit and EPS.
- Total assets increased to $18.114 billion from $17.837 billion at year-end 2021, while redeemable subsidiary securities increased to $260 million from $26 million, primarily in connection with the Thinx transaction and minority interest.
Outlook, management commentary, and risks
- Management’s stated outlook includes $1.0 billion to $1.1 billion of 2022 capital spending and approximately $100 million of share repurchases; the filing does not provide a clear full-year sales or earnings guidance range.
- Input-cost inflation, supply-chain complexity, raw-material and energy prices, foreign exchange, and higher operating expenses remain significant pressures.
- Following Russia’s invasion of Ukraine, Kimberly-Clark suspended substantially all media, advertising, promotional activity, and capital investments in Russia and limited production and sales to essential products. Russia historically represented approximately 1% to 2% of consolidated sales, operating profit, and total assets. The company warned that assets could be partially or fully impaired as conditions evolve.
- The company is monitoring heightened cybersecurity risks related to the Russia-Ukraine conflict and has increased monitoring of its systems.
- Turkey was placed under highly inflationary accounting effective April 1, 2022; Argentina was already subject to highly inflationary accounting. Management stated that the related earnings effects were not material for the periods presented.
- Other principal risks include foreign currency volatility, supply-chain disruptions, changing consumer preferences, competitive pricing pressure, pandemics, geopolitical and regulatory developments, and the availability and cost of raw materials.
Important facts for investors to verify
- Assess whether pricing actions can offset persistent input-cost inflation without causing further volume declines.
- Verify the sustainability of segment profitability, particularly the margin pressure in Consumer Tissue and K-C Professional.
- Monitor Thinx integration, purchase-price allocation revisions, minority-interest economics, and the effect of the acquisition on Personal Care growth.
- Reconcile GAAP results with adjusted results, including the Thinx gain, pension settlement charges, and prior-year restructuring charges.
- Evaluate debt maturities, commercial-paper reliance, interest-rate exposure, and the availability of the revolving credit facilities.
- Track Russia-related operating restrictions, potential impairments, currency effects, and cybersecurity developments.
- Confirm subsequent changes to 2022 capital-spending, share-repurchase, dividend, sales, and earnings expectations, as the filing provides no clear full-year sales or earnings range.