Kimberly-Clark Corporation: Q3 2022 Form 10-Q Summary
Business context and reporting period
Kimberly-Clark is a global consumer products company with three reportable segments: Personal Care, Consumer Tissue, and K-C Professional. The filing covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. The company completed its acquisition of a controlling interest in Thinx Inc. on February 24, 2022.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|
| Net sales | $5,053 million | $5,010 million | $15,211 million | $14,475 million |
| Gross profit | $1,543 million | $1,483 million | $4,592 million | $4,552 million |
| Operating profit | $655 million | $657 million | $1,969 million | $2,040 million |
| Net income attributable to Kimberly-Clark | $467 million | $469 million | $1,427 million | $1,457 million |
| Diluted EPS | $1.38 | $1.39 | $4.22 | $4.31 |
| Cash provided by operations | Not separately provided | Not separately provided | $1,742 million | $1,668 million |
- Q3 gross margin was approximately 30.5%, compared with 29.6% in the prior-year quarter. Q3 operating margin was approximately 13.0%, versus 13.1%.
- For the first nine months, gross margin was approximately 30.2% and operating margin was approximately 12.9%.
- Q3 net sales increased 1%; organic sales increased 5%, driven by a 9% benefit from net pricing and a 1% mix benefit, partially offset by a 5% volume decline and a 4% foreign-currency headwind.
- Nine-month net sales increased 5%, with organic sales growth of 8%; pricing contributed 8%, mix contributed 1%, volumes declined 1%, and currency reduced sales by 3%.
- Q3 operating profit was affected by approximately $360 million of higher input costs, lower volumes, higher marketing, research and general expenses, and unfavorable currency. These effects were partly offset by pricing and $80 million of FORCE cost savings.
- Nine-month operating profit included more than $1.2 billion of higher input costs, partly offset by $175 million of FORCE savings, organic sales growth, and lower other manufacturing costs.
- At September 30, 2022, cash and cash equivalents were $362 million. Total current assets were $5.625 billion and current liabilities were $7.197 billion.
- Debt payable within one year was $959 million, long-term debt was $7.628 billion, and total debt was approximately $8.6 billion. The fair value of total debt was $8.588 billion, compared with a carrying amount of $8.587 billion, based on the filing's debt disclosures.
- The company maintained unused revolving credit facilities of $2.0 billion expiring in June 2026 and $775 million expiring in June 2023.
- Operating cash flow of $1.742 billion was used along with investing and financing activities that resulted in a $92 million increase in cash during the first nine months.
- Capital spending was $679 million; cash dividends paid were $1.167 billion; and share repurchases totaled $74 million during the first nine months.
Segment performance and changes versus the prior period
| Segment | Q3 sales change | Q3 operating profit change | 9M sales change | 9M operating profit change |
|---|
| Personal Care | -$28 million; -1% | -$73 million; -15% | +6% | -5% |
| Consumer Tissue | +$37 million; +2% | -$4 million; -2% | +5% | -17% |
| K-C Professional | +$39 million; +5% | +$23 million; +24% | +4% | -11% |
- Personal Care Q3 sales were pressured by lower North American volumes, retailer inventory reductions, and the planned exit of a private-label contract. Thinx contributed approximately 2% to North American sales growth.
- Consumer Tissue benefited from pricing, but profit remained pressured by input-cost inflation, higher spending, and currency.
- K-C Professional delivered the strongest Q3 profit growth, supported by pricing and cost savings, despite inflation, lower volumes, and currency pressure.
- Reported Q3 results included $8 million of after-tax pension settlement charges. The prior-year quarter included $79 million of after-tax restructuring charges related to the 2018 Global Restructuring Program.
- For the first nine months, the Thinx acquisition generated a $85 million non-cash gain from remeasurement of the previously held investment, partly offset by $21 million of transaction and integration costs. The net after-tax benefit was $68 million.
- Adjusted Q3 EPS was $1.40, down 14% from $1.62 in the prior-year period. Adjusted nine-month EPS was $4.09, down 16% from $4.89.
Guidance, outlook, risks and unusual items
- Management projected full-year 2022 capital spending of $0.9 billion to $1.0 billion and targeted approximately $100 million of share repurchases, subject to market conditions.
- Management stated that operating cash generation and debt capacity were adequate to fund working capital, capital spending, pension contributions, dividends, and other foreseeable needs.
- The company substantially reduced its Russia activities, suspended most media, advertising, promotional activity and capital investment there, and continued producing and selling essential hygiene products. Russia historically represented approximately 1% to 2% of sales, operating profit, and total assets; assets could be partially or fully impaired as conditions evolve.
- Key risks include inflation and availability of raw materials, energy and other input costs, supply-chain disruption, foreign-currency volatility, the Russia-Ukraine war and related sanctions, cybersecurity threats, customer and consumer behavior, competitive pricing pressure, regulatory actions, severe weather, and broader economic and political conditions.
- Argentina and Turkey were accounted for as highly inflationary economies. Their consolidated sales were approximately 1% or less of total sales for the nine months ended September 30, 2022.
- The preliminary purchase-price allocation for Thinx remained subject to revision, with finalization expected no later than the first quarter of 2023.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no reported material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pricing actions can offset persistent input-cost inflation without further volume deterioration.
- The sustainability of FORCE cost savings and the extent to which they mitigate inflation and currency pressures.
- Thinx revenue growth, profitability, integration costs, and the final purchase-price allocation.
- Potential impairment or operating disruption related to the Russia business and the broader Russia-Ukraine conflict.
- Debt maturities, commercial-paper dependence, interest-rate exposure, and availability of the revolving credit facilities.
- Execution against the $0.9 billion to $1.0 billion capital-spending outlook and approximately $100 million share-repurchase target.
- Reported results versus adjusted results, particularly the effects of pension settlements, the Thinx gain and transaction costs, and prior-year restructuring charges.
