Kimberly-Clark Corporation: Q1 2021 Form 10-Q Summary
Business context and reporting period
Kimberly-Clark reported results for the three months ended March 31, 2021. Its principal segments are Personal Care, Consumer Tissue and K-C Professional. The quarter remained affected by COVID-19 demand normalization, supply-chain disruptions related to severe February weather in the southern United States, higher commodity and distribution costs, and foreign-currency volatility.
Financial performance and liquidity
- Net sales: $4.743 billion, down 5% from $5.009 billion; organic sales declined 8%.
- Gross profit: $1.589 billion versus $1.791 billion. Gross margin was approximately 33.5%, compared with 35.8% in the prior-year quarter.
- Operating profit: $770 million, down 15% from $904 million. Operating margin was approximately 16.2%, compared with 18.0%.
- Net income attributable to Kimberly-Clark: $584 million, down 12% from $660 million.
- Diluted EPS: $1.72 versus $1.92. Adjusted diluted EPS was $1.80 versus $2.13.
- Cash flow: Operating cash flow was $321 million, down from $704 million, primarily because of higher working capital and lower earnings. Capital spending was $298 million versus $352 million.
- Cash and debt: Cash and cash equivalents were $320 million at March 31, 2021. Total debt was approximately $8.8 billion, compared with $8.4 billion at December 31, 2020; short-term debt was $963 million.
- Liquidity: The company had unused revolving credit facilities of $2.0 billion expiring in June 2023 and $750 million expiring in June 2021. Management stated that operating cash generation and debt capacity were adequate for foreseeable needs.
- Capital returns: The company paid $359 million in dividends and repurchased 1.3 million shares for approximately $175 million during the quarter.
Segment results and material changes
| Segment | Net sales | Year-over-year change | Operating profit | Year-over-year change |
|---|---|---|---|---|
| Personal Care | $2.462 billion | +2% | $481 million | -9% |
| Consumer Tissue | $1.510 billion | -12% | $269 million | -26% |
| K-C Professional | $752 million | -11% | $126 million | -30% |
- Volume declined 10% company-wide, reflecting unusually strong COVID-19-related consumer stocking in the first quarter of 2020 and subsequent normalization.
- Consumer Tissue was particularly affected by lower household inventory replenishment and category softness.
- K-C Professional continued to experience reduced away-from-home demand, although pricing and mix improved.
- Adjusted operating profit declined to $804 million from $997 million. Higher input costs reduced results by approximately $135 million, while cost savings contributed approximately $105 million, including $65 million from the FORCE program and $40 million from the restructuring program.
- The Softex Indonesia acquisition increased consolidated sales by approximately 2% and contributed to Personal Care growth. The purchase price allocation remained subject to potential contingencies and was expected to be finalized by the fourth quarter of 2021.
Guidance, outlook, risks and unusual items
- The filing does not provide clear full-year revenue or EPS guidance.
- Management expected full-year capital spending of $1.2 billion to $1.3 billion and full-year share repurchases of $650 million to $750 million.
- The 2018 Global Restructuring Program is expected to be completed in 2021. Restructuring charges were $34 million pre-tax in the quarter, with 2021 charges expected to total $180 million to $280 million pre-tax. Cumulative pre-tax charges through March 31, 2021 were $1.9 billion, and cumulative savings were $465 million.
- The restructuring program is expected to require approximately $600 million to $700 million of incremental capital spending by the end of 2021.
- COVID-19 could continue to affect demand, employee availability, facility operations, supply chains and foreign-exchange and commodity markets. Management could not estimate the pandemic’s ultimate duration or economic impact.
- Key ongoing risks include pulp and other raw-material costs, distribution expenses, severe weather, supply-chain interruptions, foreign-currency movements, competitive pricing, global economic conditions, customer relationships, and realization of Softex acquisition benefits.
- Argentina remains subject to highly inflationary accounting; its sales represented approximately 1% of consolidated sales, and the reported earnings impact was not material.
Important facts for investors to verify
- Whether volume trends in Consumer Tissue and K-C Professional recover as COVID-19-related demand comparisons normalize.
- The persistence of pulp, material, energy and distribution-cost inflation and the extent to which pricing offsets those pressures.
- Progress, cash costs and savings from the 2018 Global Restructuring Program.
- Operating cash-flow conversion, working-capital requirements and the increase in short-term debt.
- Capital-spending, share-repurchase and dividend plans relative to cash generation and leverage.
- Final purchase accounting and any contingencies associated with the Softex Indonesia acquisition.
- Management’s future full-year guidance, which is not clearly provided in this filing.