Kimberly-Clark Corporation — Q1 2022 Form 10-Q Summary
Business context and reporting period
Kimberly-Clark reported results for the three months ended March 31, 2022. The company operates through Personal Care, Consumer Tissue and K-C Professional segments. The filing was submitted April 22, 2022, and the financial statements are unaudited.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $5.095 billion | $4.743 billion | +7% |
| Gross profit | $1.520 billion | $1.589 billion | -4% |
| Gross margin | 29.8% | 33.5% | -370 bps |
| Operating profit | $693 million | $770 million | -10% |
| Operating margin | 13.6% | 16.2% | -260 bps |
| Net income attributable to Kimberly-Clark | $523 million | $584 million | -10% |
| Diluted EPS | $1.55 | $1.72 | -10% |
| Cash provided by operations | $204 million | $321 million | -36% |
Organic sales increased 10%, driven by volume growth of 2%, net price increases of 6% and mix improvements of 2%. Currency translation reduced reported sales by 2%.
- Personal Care: sales of $2.729 billion, up 11%; operating profit of $475 million, down 1%.
- Consumer Tissue: sales of $1.568 billion, up 4%; operating profit of $171 million, down 36%.
- K-C Professional: sales of $780 million, up 4%; operating profit of $90 million, down 29%.
Results were pressured by approximately $470 million of higher input costs, particularly pulp, polymers, distribution and energy. The FORCE cost-savings program contributed approximately $50 million. The reported effective tax rate was 18.2%, compared with 20.9% in the prior-year quarter.
Adjusted operating profit was $629 million versus $804 million, and adjusted diluted EPS was $1.35 versus $1.80. These measures exclude the 2022 Thinx acquisition benefit and 2021 restructuring charges.
Liquidity, cash flow and capital structure
- Cash and cash equivalents were $493 million at March 31, 2022, compared with $270 million at December 31, 2021.
- Total debt was approximately $9.1 billion, compared with $8.6 billion at year-end 2021. Debt payable within one year was $969 million and long-term debt was $8.101 billion.
- Operating cash flow was $204 million. Capital spending was $253 million, cash dividends paid were $384 million and the company used $25 million to acquire treasury stock.
- The company maintained unused revolving credit facilities of $2.0 billion expiring in June 2026 and $750 million expiring in June 2022.
- 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 versus the prior comparable period
Net sales increased, but profitability and cash generation declined because inflation in raw materials, energy and distribution costs substantially exceeded pricing and cost savings. Operating profit also benefited from the absence of 2021 restructuring charges, but this was more than offset by input-cost pressure.
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. The transaction produced an $85 million non-cash gain from remeasuring the previously held investment and incurred $21 million of transaction and integration costs, for a net pre-tax benefit of $64 million and after-tax benefit of $68 million.
The acquisition increased goodwill by $297 million and other intangible assets by $123 million. Thinx results are included in Personal Care on a one-month lag, and third-party ownership is reflected in noncontrolling interests.
Outlook, commentary, risks and unusual items
- Full-year 2022 capital spending was expected to be approximately $1.0 billion to $1.1 billion.
- Management targeted approximately $100 million of 2022 share repurchases, subject to market conditions.
- In March 2022, the company significantly reduced its Russia operations, suspended media, advertising, promotional activity and capital investments, and limited production to essential baby and feminine-care products. Russia historically represented approximately 1% to 2% of sales, operating profit and total assets. Management warned that assets could be partially or fully impaired as conditions evolve.
- Key forward-looking risks include the war in Ukraine and related sanctions, commodity and energy inflation, supply-chain disruption, foreign-exchange volatility, COVID-19 impacts, competitive pricing pressure, customer preferences, severe weather and global economic or political conditions.
- The filing states that acquisition purchase-price allocations remain preliminary and may be revised; finalization is expected no later than the first quarter of 2023.
- Derivatives were used to manage foreign-currency, interest-rate and commodity-price exposure. Derivative assets were $57 million and liabilities were $85 million at March 31, 2022.
Important facts for investors to verify
- Whether additional price increases and cost savings can offset continued pulp, polymer, energy, freight and other input-cost inflation.
- The sustainability of operating margins and cash flow after the sharp year-over-year decline in the first quarter.
- The financial contribution, integration progress and final purchase-price allocation for Thinx.
- Potential impairments, lost sales or added costs arising from the Russia and Ukraine situation.
- Near-term commercial-paper maturities, refinancing needs and availability of the revolving credit facilities.
- Whether the stated capital-spending and share-repurchase plans change in response to liquidity, market or operating conditions.