Kimberly-Clark Corporation 2015 Form 10-K Summary
Business Context and Reporting Period
Kimberly-Clark is a global manufacturer and marketer of personal care, consumer tissue and K-C Professional products, including Huggies, Kleenex, Scott, Cottonelle and Depend. The filing covers the fiscal year ended December 31, 2015. The request references 2015 Q4; the filing is an annual report, with fourth-quarter data presented separately.
- Products were sold in more than 175 countries, with approximately 43,000 employees at year-end.
- Reportable segments were Personal Care, Consumer Tissue and K-C Professional.
- Wal-Mart represented approximately 14% of 2015 net sales.
Financial Performance and Key Metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | $18,591 million | $19,724 million | Down 5.7% |
| Gross profit | $6,624 million | $6,683 million | Down 0.9% |
| Operating profit | $1,613 million | $2,521 million | Down 36.0% |
| Income from continuing operations | $1,066 million | $1,545 million | Down 31.0% |
| Net income attributable to Kimberly-Clark | $1,013 million | $1,526 million | Down 33.6% |
| Diluted continuing-operations EPS | $2.77 | $3.91 | Down 29.2% |
| Cash provided by operations | $2,306 million | $2,845 million | Down 18.9% |
- Reported gross margin was approximately 35.6%, versus 33.9% in 2014. Reported operating margin was approximately 8.7%, versus 12.8%.
- Adjusted operating profit was $3,210 million, up 1% from $3,184 million. Adjusted diluted EPS from continuing operations was $5.76, up from $5.51.
- Segment sales and operating profit were: Personal Care $9,204 million and $1,885 million; Consumer Tissue $6,121 million and $1,073 million; and K-C Professional $3,219 million and $590 million.
- Organic net sales increased 5%, driven by 4% volume growth and 1% favorable mix. Foreign currency effects reduced reported sales by more than 10%.
- FORCE cost savings were $365 million, and 2014 Organization Restructuring savings were $65 million.
- Capital spending was $1,056 million. Dividends paid were $1,272 million, and share repurchases totaled approximately $800 million for 7.1 million shares.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $619 million at December 31, 2015, compared with $789 million at December 31, 2014.
- Total debt was approximately $7.8 billion, compared with $7.0 billion at the prior year-end. Long-term debt was $6,106 million and debt payable within one year was $1,669 million.
- The company had an unused $2.0 billion revolving credit facility expiring in 2019, supporting its commercial paper program.
- Stockholders’ equity was only $40 million, down from $999 million, while Kimberly-Clark Corporation stockholders’ equity was negative $174 million. The balance reflects substantial dividends, share repurchases and accumulated currency effects.
- Management stated that operating cash generation and debt capacity were adequate to fund working capital, capital expenditures, dividends, pension contributions and other foreseeable needs.
Material Changes Versus the Prior Comparable Period
- Reported results were materially reduced by foreign currency translation and transaction effects, particularly in international markets. Organic growth and cost savings substantially offset, but did not eliminate, these effects.
- The company recorded $1,358 million of pre-tax pension settlement charges, or $835 million after tax, primarily in the second quarter. The charges followed the transfer of $2.5 billion of U.S. pension obligations covering approximately 21,000 retirees to insurance companies.
- Kimberly-Clark recorded a $102 million after-tax charge in the fourth quarter for deconsolidation of its Venezuelan operations and will no longer consolidate those operations beginning in the first quarter of 2016.
- A $49 million fourth-quarter charge related to prior-year uncertain tax positions was recorded.
- The 2014 Organization Restructuring generated $63 million of pre-tax charges in 2015. The program was expected to conclude by the end of 2016, with cumulative after-tax costs of $130 million to $160 million.
- Personal Care operating profit rose 5%, Consumer Tissue rose 1%, while K-C Professional declined 2%, despite reported sales declines in all three segments due primarily to currency.
Guidance, Outlook, Risks and Unusual Items
- For 2016, management projected adjusted EPS of $5.95 to $6.15, excluding expected restructuring charges equivalent to approximately $0.03 to $0.06 per share.
- Management expected combined volume, net selling price and mix growth of 3% to 5%, unfavorable currency effects of 5% to 6% on sales and operating profit, commodity cost impact ranging from $100 million of deflation to $50 million of inflation, and at least $350 million of FORCE savings.
- Planned 2016 capital spending was $950 million to $1,050 million, share repurchases were targeted at $600 million to $900 million, and pension contributions were expected to be up to $100 million.
- Key risks include foreign exchange volatility, political and economic instability in international markets, Venezuela-related restrictions, competition and private-label products, retailer concentration, pulp and petroleum-based input costs, supply-chain disruption, litigation and regulatory matters, tax uncertainty, cybersecurity, and execution of restructuring and cost-saving initiatives.
- Environmental capital expenditures and operating expenses were not expected to materially affect consolidated earnings or liquidity. The company reported no unresolved SEC staff comments and received unqualified audit opinions on its financial statements and internal controls.
Important Facts for Investors to Verify
- Reconcile reported GAAP earnings with adjusted results, particularly the $1.4 billion pre-tax pension settlement charge, Venezuela-related charges, restructuring costs and the $49 million tax-position charge.
- Assess the sustainability of organic volume and pricing growth after removing favorable cost savings and excluding foreign currency effects.
- Review debt maturities, including $598 million due in 2016, $964 million in 2017 and $933 million in 2018, against operating cash flow and planned shareholder distributions.
- Monitor the effect of the Venezuelan deconsolidation on 2016 sales, earnings, assets and cash flows.
- Evaluate the implications of negative Kimberly-Clark Corporation stockholders’ equity, accumulated currency losses and continued dividends and share repurchases.
- Verify execution of the restructuring program, FORCE savings, 2016 guidance assumptions and the planned mid-single-digit dividend increase.