Kimberly-Clark Corporation — Form 10-Q Summary
Business Context and Reporting Period
Kimberly-Clark Corporation filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company operates through Personal Care, Consumer Tissue, and K-C Professional segments, with brands including Huggies, Kleenex, Scott, Cottonelle, and Depend. The comparison periods are the three and nine months ended September 30, 2020.
Financial Performance and Position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $5.010 billion | $4.683 billion | $14.475 billion | $14.304 billion |
| Gross profit | $1.483 billion | $1.590 billion | $4.552 billion | $5.158 billion |
| Operating profit | $657 million | $666 million | $2.040 billion | $2.495 billion |
| Net income attributable to Kimberly-Clark | $469 million | $472 million | $1.457 billion | $1.813 billion |
| Diluted EPS | $1.39 | $1.38 | $4.31 | $5.30 |
| Cash provided by operations | Not separately provided | Not separately provided | $1.668 billion | $2.842 billion |
- Q3 sales increased 7%, including 4% organic growth. Nine-month sales increased 1%, while organic sales declined 2%.
- Q3 gross margin was approximately 29.6%, versus 33.9% in the prior-year quarter. Q3 operating margin was approximately 13.1%, versus 14.2%.
- Nine-month gross margin was approximately 31.5%, versus 36.1%, and operating margin was approximately 14.1%, versus 17.4%.
- Q3 adjusted operating profit was $745 million, down from $806 million. Adjusted diluted EPS was $1.62, down from $1.72.
- Q3 adjusted operating profit was reduced by approximately $480 million of higher input costs, including pulp, polymers, distribution, and energy. Cost savings provided $115 million from the FORCE program and $35 million from the restructuring program.
- Cash provided by operations declined by $1.174 billion year over year, primarily because of lower earnings, higher accounts receivable and inventory, payments for accrued expenses, and tax-payment timing.
- Capital spending was $734 million for the first nine months. Cash dividends paid were $1.133 billion, and share repurchases totaled $393 million.
- At September 30, 2021, cash and cash equivalents were $286 million, current assets were $5.626 billion, and current liabilities were $7.258 billion.
- Total debt was approximately $8.9 billion, including $1.1 billion of short-term debt and $7.6 billion of long-term debt on the balance sheet. The company had unused revolving credit facilities of $2.0 billion expiring in June 2026 and $750 million expiring in June 2022.
Material Changes Versus the Prior Comparable Period
- Personal Care sales increased 14% in Q3 and 9% year to date; operating profit increased 2% in Q3 but declined 7% year to date.
- Consumer Tissue sales declined 5% in Q3 and 10% year to date; operating profit declined 30% in Q3 and 38% year to date. Management attributed the decline to post-pandemic consumer and retailer destocking, lower volumes, input inflation, and manufacturing inefficiencies.
- K-C Professional sales increased 13% in Q3 and 2% year to date; operating profit increased 10% in Q3 but declined 22% year to date.
- North American sales increased 5% in Q3 but declined 4% year to date. Outside North America, sales increased 10% in Q3 and 8% year to date.
- The company recorded $250 million of restructuring charges during the first nine months of 2021, compared with $337 million in the prior-year period. Cumulative pre-tax charges under the 2018 Global Restructuring Program reached $2.1 billion through September 30, 2021.
- Shares outstanding declined year over year, reflecting repurchases. The company repurchased 3.0 million shares for $393 million during the first nine months.
Guidance, Outlook, Commentary, and Risks
- Full-year capital spending is expected to be $1.0 billion to $1.1 billion, reduced from the prior estimate of $1.1 billion to $1.2 billion.
- Full-year share repurchases are expected to be approximately $400 million, at the low end of the previous $400 million to $450 million range.
- Restructuring charges for 2021 are expected to be $280 million to $380 million pre-tax, with total program costs expected to be $2.1 billion to $2.2 billion pre-tax. The company expects the program to be completed in 2021.
- Management expects approximately $600 million to $700 million of incremental capital spending for the restructuring program by the end of 2021.
- Management believes operating cash generation and access to short- and long-term debt are adequate to fund working capital, restructuring payments, capital spending, pension contributions, dividends, and other foreseeable needs.
- Key risks include continuing COVID-19 effects, labor shortages, raw-material availability, transportation and supply-chain disruptions, commodity and energy inflation, foreign-exchange volatility, consumer-tissue destocking, competitive pricing pressure, economic and political conditions, and the ability to realize expected benefits from the Softex Indonesia acquisition.
- The company continues to evaluate potential contingencies related to the October 2020 Softex Indonesia acquisition and expected to finalize the purchase-price allocation no later than the fourth quarter of 2021.
- Management reported that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether pricing actions and cost savings can offset sustained pulp, polymer, freight, labor, and energy inflation.
- Whether Consumer Tissue volumes recover after pandemic-related destocking and whether K-C Professional demand remains durable as away-from-home activity normalizes.
- The timing and final cost of the 2018 Global Restructuring Program, including remaining cash obligations and capital spending.
- Liquidity headroom, commercial-paper reliance, debt maturities, and the renewal or replacement of the $750 million revolving credit facility in June 2022.
- The final purchase-price allocation and any contingencies associated with the Softex Indonesia acquisition.
- The effect of foreign-exchange movements, particularly on comprehensive income and accumulated other comprehensive loss.
- The comparability of GAAP results with management’s adjusted results, which exclude restructuring and acquisition-related costs.