Kimberly-Clark Corporation — Form 10-Q Summary
Business Context and Reporting Period
Kimberly-Clark reported results for the three and six months ended June 30, 2023. The company operates through Personal Care, Consumer Tissue and K-C Professional, with brands including Huggies, Kleenex, Scott, Cottonelle, Kotex, Depend and Poise.
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Net sales | $5.134 billion | $5.063 billion | $10.329 billion | $10.158 billion |
| Net income attributable to Kimberly-Clark | $102 million | $437 million | $668 million | $960 million |
| Diluted EPS | $0.30 | $1.29 | $1.97 | $2.84 |
| Operating profit | $113 million | $621 million | $900 million | $1.314 billion |
| Cash provided by operations | Not separately provided | Not separately provided | $1.400 billion | $944 million |
Financial Performance and Key Metrics
- Q2 net sales increased 1%; organic sales increased 5%, reflecting an 8% benefit from net selling prices, a 1% mix benefit and a 3% volume decline. Foreign currency reduced reported sales by approximately 4%.
- Six-month net sales increased 2%; organic sales increased 5%, driven by a 9% pricing benefit and a 4% volume decline.
- Q2 gross profit was $1.731 billion, or approximately 33.7% of sales, versus $1.529 billion, or 30.2%, in the prior-year quarter.
- Q2 reported operating margin was approximately 2.2%, versus 12.3% in Q2 2022. The decline reflects a $658 million intangible-asset impairment charge, partially offset by a $44 million pretax net benefit from the Brazil divestiture.
- Q2 adjusted operating profit was $727 million, compared with $618 million on an adjusted basis in the prior-year period. Adjusted operating margin was approximately 14.2% versus 12.2%.
- Q2 adjusted EPS was $1.65, up from $1.34. Six-month adjusted EPS was $3.32, up from $2.69.
- Q2 interest expense increased to $76 million from $68 million, primarily due to higher average borrowing rates. The Q2 effective tax result included a $32 million tax benefit, substantially related to the intangible-asset impairment.
- Cash provided by operations for the first six months increased to $1.400 billion from $944 million, driven by operating performance excluding noncash charges and improved working capital.
- Capital spending was $389 million through June 30, compared with $470 million in the prior-year period. Management expects full-year capital spending of $800 million to $900 million.
Segment Results
| Segment | Q2 Sales | Sales Change | Q2 Operating Profit | Profit Change |
|---|---|---|---|---|
| Personal Care | $2.685 billion | -1% | $472 million | +1% |
| Consumer Tissue | $1.549 billion | +1% | $200 million | +12% |
| K-C Professional | $887 million | +11% | $187 million | +120% |
K-C Professional led reported sales and operating-profit growth. Segment performance generally benefited from pricing and FORCE cost savings, while volumes, input costs, foreign currency and other manufacturing costs remained headwinds.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $580 million at June 30, 2023, compared with $427 million at December 31, 2022.
- Total debt was approximately $8.1 billion, down from $8.4 billion at year-end 2022. Long-term debt, including the current portion, had a carrying value of $8.068 billion and an estimated fair value of $7.530 billion.
- Short-term debt was $67 million at June 30, compared with $373 million at year-end 2022. The company issued $350 million of 4.50% notes due February 2033 and used proceeds partly to repay commercial paper.
- The company maintains unused revolving credit facilities of $2.0 billion expiring in June 2028 and $750 million expiring in May 2024.
- Six-month cash uses included $790 million of dividends, $389 million of capital spending, $350 million of debt repayments and $63 million of share repurchases.
- Management targets approximately $100 million to $150 million of share repurchases for full-year 2023, subject to market conditions.
- Supplier-finance obligations of approximately $1.0 billion were included in trade accounts payable at June 30, 2023.
Material Changes, Outlook and Unusual Items
- Kimberly-Clark recognized a $658 million pretax, $483 million after-tax, noncash impairment charge on intangible assets associated primarily with Softex Indonesia and also with Thinx. The charge followed revised projections reflecting weaker post-COVID consumer behavior, inflation, competition and underperformance.
- The company completed the sale of its Neve tissue brand and related consumer and K-C Professional tissue assets in Brazil for $212 million. It recorded a $74 million pretax gain and $30 million of divestiture-related costs, producing a $44 million pretax and $26 million after-tax net benefit.
- Kimberly-Clark acquired additional Thinx ownership for $48 million, increasing its controlling ownership to 70%. A remaining redemption right could require an estimated payment of approximately $98 million to $197 million during January 2024 through June 2026.
- Reported results declined sharply because of the impairment charge and comparison with the prior-year Thinx acquisition-related benefit. On an adjusted basis, operating profit and EPS improved.
- Management cited $80 million of Q2 FORCE cost savings and $185 million of six-month savings. Pricing remained favorable, but lower volumes, input costs, foreign currency and higher expenses offset part of the benefit.
- Operations in Russia represent approximately 1% to 3% of global sales, operating profit and total assets. The business faces increased costs, supply-chain complexity, weaker demand, financial restrictions and potential asset impairment.
- Key forward-looking risks include raw-material and energy costs, foreign exchange, supply-chain disruption, geopolitical developments and sanctions, cyberattacks, customer and consumer demand, competitive pricing, impairment risk, capital-market disruption and the ability to realize cost savings.
Important Facts for Investors to Verify
- Whether pricing actions can offset continued volume declines and input-cost pressure.
- Whether the Softex and Thinx businesses meet revised forecasts or require additional impairment charges.
- The timing and amount of any remaining Thinx redemption payment.
- Progress toward the $800 million to $900 million capital-spending plan and $100 million to $150 million share-repurchase target.
- The maturity profile, refinancing requirements and interest-rate sensitivity of approximately $8.1 billion of total debt.
- The sustainability of reported cash generation and the impact of the $1.0 billion supplier-finance balance within accounts payable.
- Developments affecting Russia, foreign exchange, commodity costs, supply chains and cybersecurity.