Kimberly-Clark Corporation 2021 Second-Quarter Form 10-Q Summary
Business context and reporting period
Kimberly-Clark Corporation reported results for the three and six months ended June 30, 2021. The company operates through Personal Care, Consumer Tissue, and K-C Professional segments. Results were affected by post-pandemic consumer destocking, lower away-from-home demand, substantial commodity inflation, supply-chain disruptions, and the ongoing 2018 Global Restructuring Program.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $4,722 million | $4,612 million | $9,465 million | $9,621 million |
| Gross profit | $1,480 million | $1,777 million | $3,069 million | $3,568 million |
| Operating profit | $613 million | $925 million | $1,383 million | $1,829 million |
| Net income attributable to Kimberly-Clark | $404 million | $681 million | $988 million | $1,341 million |
| Diluted EPS | $1.19 | $1.99 | $2.92 | $3.92 |
| Cash provided by operations | Not separately provided | Not separately provided | $886 million | $2,283 million |
- Q2 net sales increased 2%, while organic sales declined 3%. Six-month sales declined 2%, including a 5% organic decline.
- Q2 gross margin was approximately 31.3%, versus 38.5% in the prior-year quarter. Six-month gross margin was approximately 32.4%, versus 37.1%.
- Q2 operating margin was approximately 13.0%, versus 20.1%; six-month operating margin was approximately 14.6%, versus 19.0%.
- Adjusted Q2 operating profit was $676 million, compared with $1,012 million, and adjusted diluted EPS was $1.47, compared with $2.20. Adjusted six-month operating profit was $1,480 million, compared with $2,009 million, and adjusted diluted EPS was $3.27, compared with $4.34.
- Q2 operating profit reflected $345 million of higher input costs, partly offset by higher selling prices, $115 million of FORCE cost savings, $30 million of restructuring savings, and lower marketing, research, and general expense.
- Segment Q2 sales and operating profit were: Personal Care $2,517 million and $454 million; Consumer Tissue $1,424 million and $196 million; and K-C Professional $765 million and $110 million.
- At June 30, 2021, cash and cash equivalents were $306 million, compared with $303 million at December 31, 2020. Total current assets were $5,572 million and current liabilities were $7,244 million.
- Total debt was approximately $9.1 billion, including $1.2 billion of short-term debt, versus approximately $8.4 billion at year-end 2020. Long-term debt was $7.591 billion on the balance sheet.
- The company had unused revolving credit facilities of $2.0 billion expiring in June 2026 and $750 million expiring in June 2022.
- Six-month capital spending was $499 million. Dividends paid were $748 million, and share repurchases totaled approximately $331 million in cash flow reporting.
Material changes versus the prior comparable period
- Q2 net income attributable to Kimberly-Clark decreased 41%, operating profit decreased 34%, and diluted EPS decreased 40%. For the first six months, net income decreased 26%, operating profit decreased 24%, and diluted EPS decreased 26%.
- North American sales declined 9% in both the quarter and six-month period, while outside-North-America sales increased 17% in Q2 and 7% year to date.
- Personal Care sales increased 13% in Q2 and 7% year to date, partly reflecting the Softex Indonesia acquisition, but operating profit declined 13% and 11%, respectively.
- Consumer Tissue sales declined 13% in both periods, while operating profit declined 54% in Q2 and 41% year to date, primarily because of lower volumes, input-cost inflation, and manufacturing inefficiencies.
- K-C Professional sales increased 6% in Q2 but declined 3% year to date; operating profit declined 29% and 30%, respectively, as lower volumes and higher input costs outweighed pricing and savings.
- Operating cash flow fell by $1.397 billion year to date, driven by lower earnings, increased accounts receivable and inventory, accrued-expense payments, and tax-payment timing.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects full-year capital spending of $1.1 billion to $1.2 billion, reduced from the prior estimate of $1.2 billion to $1.3 billion.
- Management expects full-year share repurchases of $400 million to $450 million, reduced from the prior estimate of $650 million to $750 million.
- The 2018 Global Restructuring Program is expected to be completed in 2021. Expected 2021 restructuring charges were $180 million to $280 million pretax. Cumulative pretax charges through June 30, 2021 were approximately $2.0 billion, and Q2 savings were $30 million, bringing cumulative savings to $495 million.
- The company expects approximately $600 million to $700 million of incremental capital spending for the restructuring program by the end of 2021. Restructuring liabilities were $72 million at June 30, 2021.
- The Softex Indonesia acquisition was completed in October 2020 for approximately $1.2 billion in cash; the purchase-price allocation remained subject to contingencies and was expected to be finalized by the fourth quarter of 2021.
- COVID-19 remains a significant uncertainty. Risks include continued consumer tissue destocking, reduced away-from-home demand, employee absences, facility disruptions, raw-material shortages, supply-chain interruptions, commodity inflation, foreign-exchange volatility, competitive pricing pressure, and changing consumer preferences.
- Argentina remains subject to highly inflationary accounting. Argentina represented approximately 1% of consolidated sales, and the effect of exchange-rate changes on earnings was not material during the period.
- Management stated that operating cash generation and debt capacity should be adequate for working capital, restructuring payments, capital spending, pension contributions, dividends, and other foreseeable needs. The filing does not provide a formal revenue or earnings forecast.
Most important facts for investors to verify
- Whether commodity and distribution-cost inflation moderates and whether pricing actions offset input-cost pressure.
- Whether consumer tissue demand recovers after COVID-19-related destocking and whether K-C Professional volumes improve.
- Progress and final costs of the 2018 Global Restructuring Program, including the remaining cash obligations and expected savings.
- Integration results, purchase-price finalization, and expected synergies from the Softex Indonesia acquisition.
- Operating cash-flow recovery, inventory and receivables levels, short-term debt usage, and refinancing or liquidity requirements.
- Whether the reduced capital-spending and share-repurchase plans change as operating conditions develop.
- Exposure to foreign-exchange movements, raw-material availability and prices, COVID-19 developments, and other risks identified in the company’s Form 10-K.