Kimberly-Clark Corporation 2023 Q3 Form 10-Q Summary
Business context and reporting period
Kimberly-Clark Corporation reported results for the three and nine months ended September 30, 2023. The company operates through Personal Care, Consumer Tissue, and K-C Professional segments, selling products under brands including Huggies, Kleenex, Scott, Cottonelle, Kotex, Poise, Depend, and Kimberly-Clark Professional.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net sales | $5,132 million | $5,053 million | $15,461 million | $15,211 million |
| Gross profit | $1,838 million | $1,543 million | $5,295 million | $4,592 million |
| Gross margin | 35.8% | 30.5% | 34.2% | 30.2% |
| Operating profit | $774 million | $655 million | $1,674 million | $1,969 million |
| Operating margin | 15.1% | 13.0% | 10.8% | 12.9% |
| Net income attributable to Kimberly-Clark | $587 million | $467 million | $1,255 million | $1,427 million |
| Diluted EPS | $1.73 | $1.38 | $3.70 | $4.22 |
| Cash provided by operations | Not separately provided | Not separately provided | $2,327 million | $1,742 million |
Third-quarter organic sales increased 5%, while reported sales increased 2%. Pricing contributed 5 percentage points, mix contributed 1 point, volume reduced sales by 1 point, foreign currency reduced sales by 2 points, and exited Brazilian operations reduced sales by 1 point.
- Personal Care sales increased 3% to $2.7 billion and operating profit increased 19% to $502 million.
- Consumer Tissue sales decreased 1% to $1.6 billion, while operating profit increased 22% to $267 million.
- K-C Professional sales increased 2% to $854 million and operating profit increased 41% to $168 million.
- Management cited $90 million of third-quarter FORCE cost savings, $75 million of lower input costs, and higher net selling prices as major operating profit benefits.
- Nine-month adjusted operating profit was $2,288 million versus $1,905 million in the prior-year period; adjusted diluted EPS was $5.06 versus $4.09.
Liquidity, cash flow, debt, and capital allocation
- Cash and cash equivalents were $814 million at September 30, 2023, compared with $427 million at December 31, 2022.
- Total debt was approximately $8.1 billion, down from approximately $8.4 billion at year-end 2022. Debt payable within one year was $687 million and long-term debt was $7,403 million.
- The company issued $350 million of 4.50% notes due February 2033 and used the proceeds for general corporate purposes, including repayment of commercial paper.
- Operating cash flow of $2,327 million exceeded capital spending of $549 million. Full-year 2023 capital spending is expected to be approximately $800 million.
- The company paid $1,189 million of cash dividends during the first nine months and repurchased approximately $97 million of common stock. Full-year share repurchases are targeted at approximately $100 million to $150 million, subject to market conditions.
- Kimberly-Clark maintains unused revolving credit facilities of $2.0 billion expiring in June 2028 and $750 million expiring in May 2024.
- Supplier-finance obligations of approximately $1.0 billion were included in trade accounts payable at September 30, 2023.
Material changes versus the prior comparable period
- Third-quarter net income attributable to Kimberly-Clark increased 26% and diluted EPS increased 25%, primarily reflecting pricing, cost savings, lower input costs, and improved segment profitability.
- Nine-month reported operating profit and EPS declined because 2023 included $658 million of intangible-asset impairment charges, while 2022 included a $64 million pretax net benefit related to the acquisition of a controlling interest in Thinx.
- The company recorded a $74 million pretax gain on the sale of Brazilian tissue and K-C Professional assets, partially offset by $30 million of divestiture-related costs, producing a net pretax benefit of $44 million.
- Intangible-asset impairment charges totaled $658 million pretax, principally related to the Softex Indonesia business and also involving Thinx. The company stated that additional noncash impairment charges could be required if projected cash flows are not achieved.
- Kimberly-Clark increased its ownership of Thinx from 58% to 70% after paying $48 million to redeem part of the minority interest. A remaining redemption right could require payment of approximately $98 million to $197 million between January 1, 2024 and June 30, 2026.
Guidance, outlook, commentary, and risks
Management expects full-year 2023 capital spending of approximately $800 million and is targeting share repurchases of approximately $100 million to $150 million. The filing does not provide a clear full-year revenue or EPS guidance figure in the supplied text.
- Management emphasized revenue growth management, pricing, innovation, service improvements, FORCE cost savings, and disciplined cost control.
- Key risks include raw-material, energy, and other input-cost volatility; foreign-exchange movements; supply-chain disruptions; competitive pricing pressure; changing consumer preferences; and macroeconomic and geopolitical conditions.
- The Russia business represents approximately 1% to 3% of global sales, operating profit, and total assets. Operations have been substantially curtailed, and further disruption or impairment remains possible.
- The company continues to monitor the war in Ukraine, sanctions, financial restrictions, cyber threats, and regional instability, including the war in Israel.
- Kimberly-Clark continues cooperating with the U.S. Department of Justice regarding investigations and information requests concerning potential criminal and civil violations related to surgical gowns manufactured, marketed, and sold by former health care business Avanos.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile reported nine-month EPS of $3.70 with adjusted EPS of $5.06, particularly the $658 million intangible impairment and Brazil divestiture items.
- Assess whether pricing and FORCE savings can offset lower volumes, higher marketing spending, currency pressure, and future input-cost inflation.
- Review the valuation assumptions and sensitivity of Softex and Thinx intangible assets to potential additional impairment.
- Monitor debt maturities, the May 2024 revolving facility expiration, commercial-paper usage, and the potential $98 million to $197 million Thinx redemption obligation.
- Evaluate the effect of supplier-finance obligations on reported trade accounts payable and liquidity analysis.
- Track developments in the Avanos/DOJ proceedings, Russia operations, geopolitical exposures, and foreign-exchange volatility.