Kimberly-Clark Corporation — FY2013 Form 10-K Summary
Business context and reporting period
Kimberly-Clark is a global manufacturer and marketer of personal care, consumer tissue, K-C Professional and health care products sold in more than 175 countries. The filing covers the fiscal year ended December 31, 2013, with quarterly data including the fourth quarter. Dollar amounts are in millions, except per-share data, unless otherwise noted.
Major brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Cottonelle and WypAll. Wal-Mart represented approximately 12% of consolidated net sales in 2013.
Financial performance and key metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $21,152 | $21,063 | +0.4% |
| Gross profit | $7,240 | $6,749 | +7.3% |
| Operating profit | $3,208 | $2,686 | +19.4% |
| Net income attributable to Kimberly-Clark | $2,142 | $1,750 | +22.4% |
| Diluted EPS | $5.53 | $4.42 | +25.1% |
| Cash provided by operations | $3,040 | $3,288 | -7.5% |
| Capital spending | $953 | $1,093 | -12.8% |
| Cash dividends declared per share | $3.24 | $2.96 | +9.5% |
Reported gross margin was approximately 34.2%, compared with 32.0% in 2012. Operating margin was approximately 15.2%, compared with 12.8%, and net margin attributable to Kimberly-Clark was approximately 10.1%, compared with 8.3%.
Operating cash flow declined despite higher earnings because of higher tax payments, pension contributions and restructuring-related cash payments. Cash and cash equivalents were $1,054 at year-end, versus $1,106 in 2012.
| Segment | 2013 sales | Sales change | 2013 operating profit | Profit change |
|---|---|---|---|---|
| Personal Care | $9,536 | -0.4% | $1,698 | +2.3% |
| Consumer Tissue | $6,637 | +1.7% | $988 | +11.4% |
| K-C Professional | $3,323 | +1.2% | $608 | +11.6% |
| Health Care | $1,618 | -0.2% | $230 | +0.4% |
Organic volume increased 3% and net selling prices increased 1%, while currency effects and lost sales associated with European strategic changes and pulp and tissue restructuring each reduced reported sales by approximately 2%. Cost savings were $310, helping offset $205 of input-cost inflation and $70 of unfavorable currency translation effects.
Fourth-quarter results
| Metric | Q4 2013 | Q4 2012 | Change |
|---|---|---|---|
| Net sales | $5,305 | $5,307 | -0.0% |
| Gross profit | $1,813 | $1,524 | +19.0% |
| Operating profit | $822 | $449 | +83.1% |
| Net income attributable to Kimberly-Clark | $539 | $267 | +101.9% |
| Diluted EPS | $1.40 | $0.68 | +105.9% |
Fourth-quarter gross margin was approximately 34.2% and operating margin was approximately 15.5%. The comparison benefited from lower restructuring charges than in the prior-year quarter.
Balance sheet, debt and liquidity
- Total assets were $18,919, compared with $19,873 at December 31, 2012.
- Total debt and redeemable securities were $6.3 billion, compared with $6.7 billion in 2012. Long-term debt was $5,386; total long-term debt including the current portion was $5,698.
- Debt payable within one year was $375, and $500 of redeemable preferred securities was classified as a current liability for redemption in December 2014.
- The company had $63 of short-term debt at year-end and an unused $1.5 billion revolving credit facility expiring in October 2016, with an option to increase it by $500.
- 2014 scheduled long-term debt maturities were $312. Contractual obligations totaled $12,986, including debt, interest, preferred securities, leases, purchase obligations and open purchase orders.
- Management stated that operating cash flow and debt capacity are adequate to fund working capital, capital expenditures, dividends, pension contributions and other foreseeable needs.
Material changes versus the prior comparable period
- Profitability improved substantially despite essentially flat sales, driven by volume, pricing, cost savings and lower restructuring charges.
- 2013 included $81 of pretax charges, or $66 after tax, for European strategic changes, compared with $299 pretax, or $242 after tax, in 2012.
- 2013 included a $36 pretax, or $26 after-tax, noncash charge from the devaluation of the Venezuelan bolivar.
- The company repurchased 12.4 million shares for $1.2 billion in 2013; dividends and repurchases together totaled $2.4 billion.
- European sales declined 8%, reflecting exits from diapers, selected lower-margin businesses and related restructuring. The actions are expected to be completed by December 31, 2014.
- Asia, Latin America and other markets grew sales 3.4%, while K-C International represented 39% of company sales, up from 37% in 2012.
- Foreign currency translation reduced accumulated other comprehensive income by approximately $499 and reduced stockholders’ equity by approximately $900 under a hypothetical 10% unfavorable currency movement.
Guidance, outlook, risks and unusual items
For 2014, management forecast GAAP EPS of $5.95 to $6.17, combined organic volume, pricing and mix growth of 3% to 5%, currency-related sales pressure of 2% to 3%, and approximately 1% of lost sales from European and pulp-and-tissue restructuring. Planned cost savings were at least $300, against expected commodity inflation of $150 to $250 and unfavorable currency translation effects on operating profit of 3% to 4%.
- Expected 2014 capital spending: $1.0 billion to $1.2 billion.
- Expected 2014 share repurchases: $1.3 billion to $1.5 billion, subject to market conditions.
- Expected 2014 pension contributions: $100 to $200; expected pension expense was approximately $110.
- Management expected the quarterly dividend to increase 2% to 4% effective April 2014, subject to Board approval.
- The proposed tax-free spin-off of the health care business, with approximately $1.6 billion of annual sales, was targeted for completion by the end of the third quarter of 2014. Completion, timing, tax treatment and the ultimate structure were not assured and required Board, SEC, tax and solvency-related approvals.
- Key risks include pulp, petroleum-based materials, energy and transportation costs; pricing pressure and private-label competition; foreign exchange and political risks; dependence on major retailers; supply-chain and information-technology disruptions; litigation, tax and regulatory matters; pension obligations; and execution risk related to the proposed spin-off.
- The company reported no material adverse effect expected from pending litigation or environmental obligations, but outcomes cannot be predicted with certainty.
Most important facts for investors to verify
- Whether 2014 EPS guidance and the targeted 3% to 5% organic growth range were achieved, particularly given currency and commodity headwinds.
- The timing, costs, tax treatment and financial impact of the proposed health care spin-off.
- Progress and remaining charges and cash costs from the European strategic changes through their expected 2014 completion.
- Whether cost savings can offset input-cost inflation, currency effects and higher investment in advertising, research and innovation.
- Liquidity around the $500 preferred-security redemption, scheduled debt maturities, pension contributions and planned share repurchases.
- The sensitivity of earnings and equity to pulp prices, foreign currency movements, Venezuelan exposures and major-retailer concentration.