Kimberly-Clark Corporation 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual Form 10-K, not a standalone fourth-quarter filing; quarterly data are included. Kimberly-Clark manufactures and markets personal care, consumer tissue and K-C Professional products globally under brands including Huggies, Kleenex, Scott, Cottonelle and Depend.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $19.140 billion | $18.450 billion | +4% |
| Gross profit | $6.822 billion | $6.035 billion | +13% |
| Operating profit | $3.244 billion | $2.991 billion | +8% |
| Net income attributable to Kimberly-Clark | $2.352 billion | $2.157 billion | +9% |
| Diluted EPS | $6.87 | $6.24 | +10% |
| Cash provided by operations | $3.729 billion | $2.736 billion | +36% |
Reported gross margin was approximately 35.6%, versus 32.7% in 2019. Reported operating margin was approximately 16.9%, versus 16.2%, and net income attributable margin was approximately 12.3%, versus 11.7%. Adjusted operating profit was $3.582 billion, up 9%, and adjusted diluted EPS was $7.74, up 12%; these non-GAAP measures exclude restructuring costs, Softex acquisition costs and Brazil tax credits, among other items.
- Segment sales and operating profit: Personal Care sales were $9.339 billion and operating profit was $1.933 billion; Consumer Tissue sales were $6.718 billion and operating profit was $1.448 billion; K-C Professional sales were $3.019 billion and operating profit was $528 million.
- Cash allocation: Capital spending was $1.217 billion, dividends paid were $1.451 billion and share repurchases were $700 million for 4.9 million shares. Dividends and repurchases totaled approximately $2.15 billion.
- Liquidity: Cash and cash equivalents were $303 million at year-end, compared with $442 million in 2019. Total debt was approximately $8.4 billion, versus $7.7 billion; short-term debt was $223 million. The company had unused revolving credit facilities of $2.0 billion expiring in June 2023 and $750 million expiring in June 2021.
- Balance sheet: Total assets were $17.523 billion and total stockholders’ equity was $869 million, compared with $194 million in 2019. Long-term debt was $7.878 billion.
Material changes versus 2019
- Organic sales increased 6%; currency translation reduced reported sales by 2%.
- Consumer Tissue benefited from elevated at-home demand during COVID-19, with sales up 12% and operating profit up 44%.
- Personal Care sales increased 3% and operating profit increased 2%, supported by volume growth, cost savings and the Softex acquisition.
- K-C Professional sales declined 8% and operating profit declined 20% as away-from-home demand fell during the pandemic.
- FORCE and restructuring initiatives generated $455 million and $120 million of savings, respectively. Input costs decreased $175 million, primarily due to pulp.
- The company acquired Softex Indonesia on October 1, 2020, for approximately $1.2 billion, with a preliminary purchase price of $1.1 billion. The acquisition added $390 million of goodwill and $757 million of intangible assets; its 2020 consolidated operating impact was not significant.
- Reported results included $419 million of pretax 2018 Global Restructuring Program charges, $32 million of Softex transaction and integration costs, and a $77 million benefit from Brazil business tax credits. The company also recorded $17 million of asset impairments.
Outlook, risks and unusual items
- Management planned to continue investing in core brands, digital marketing, innovation, revenue growth management and developing and emerging markets, particularly Latin America, China, Eastern Europe and ASEAN.
- The 2018 Global Restructuring Program was expected to be completed in 2021. Total pretax costs were estimated at $2.0 billion to $2.1 billion, with 2021 charges expected to be $180 million to $280 million. Annual pretax savings were expected to reach $540 million to $560 million by the end of 2021; cumulative savings through 2020 were $420 million.
- Expected 2021 capital spending was approximately $1.2 billion to $1.3 billion. Management targeted 2021 share repurchases of $650 million to $750 million, subject to market conditions, and disclosed a 6.5% dividend increase for 2021.
- Management stated that operating cash generation and debt capacity should be adequate for working capital, restructuring payments, capital spending, pensions, dividends and other foreseeable needs.
- COVID-19 created demand volatility, supply-chain and workforce risks, and significant weakness in away-from-home markets. Other principal risks include pulp and petroleum-based input costs, energy and transportation costs, foreign exchange, retailer concentration, competition and private-label pressure, cyber and privacy incidents, regulatory compliance, product liability, litigation and acquisition integration.
- The restructuring carries remaining cash and non-cash obligations, while contractual obligations totaled $18.379 billion, including $8.156 billion of long-term debt, $3.507 billion of interest payments and $3.487 billion of unconditional purchase obligations.
- Tax matters include approximately $497 million of unrecognized tax benefits, a Brazil tax dispute with proposed adjustments and penalties of approximately $70 million before interest, and an IRS review of the 2017 transition tax. Management does not expect these matters to materially affect liquidity or results, but outcomes remain uncertain.
- An ongoing U.S. Department of Justice investigation concerns the former health care business’s surgical gowns. The filing states that the outcome and potential range of outcomes cannot currently be estimated.
Investor verification checklist
- Reconcile reported versus adjusted operating profit and EPS, particularly the effects of restructuring charges, Softex costs and Brazil tax credits.
- Assess whether COVID-related Consumer Tissue demand persists and whether K-C Professional volumes recover as away-from-home activity normalizes.
- Verify delivery of the remaining restructuring savings and the projected 2021 charges and capital spending.
- Monitor leverage, debt maturities, commercial paper usage and the June 2021 revolving credit facility expiration.
- Evaluate Softex integration, purchase-price allocation revisions and the expected contribution from the Indonesian personal care business.
- Review exposure to pulp, petroleum-based materials, energy, transportation and foreign-currency movements.
- Track the Brazil tax dispute, IRS transition-tax audit, DOJ investigation and other legal contingencies.
- Confirm sustainability of dividends and planned repurchases against operating cash flow and investment requirements.