KIMBERLY CLARK CORP annual report, FY2021

Kimberly-Clark Corporation — Fiscal 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter filing; quarterly information is included only where disclosed. Kimberly-Clark operates three principal segments: Personal Care, Consumer Tissue, and K-C Professional, with products sold in more than 175 countries.

Financial performance and key metrics

Metric	2021	2020	Change
Net sales	$19.440 billion	$19.140 billion	+2%
Gross profit	$5.988 billion	$6.822 billion	-12%
Operating profit	$2.561 billion	$3.244 billion	-21%
Net income attributable to Kimberly-Clark	$1.814 billion	$2.352 billion	-23%
Diluted EPS	$5.35	$6.87	-22%
Cash provided by operations	$2.730 billion	$3.729 billion	-27%
Capital spending	$1.007 billion	$1.217 billion	-17%

Approximate reported margins were 30.8% gross, 13.2% operating and 9.3% net in 2021, compared with 35.6%, 16.9% and 12.3%, respectively, in 2020. Adjusted operating profit was $2.836 billion, down 21%, and adjusted diluted EPS was $6.18, down 20%. The reported results included $0.83 per share of 2018 Global Restructuring Program charges; 2020 also included $0.08 per share of Softex acquisition-related costs and a $0.15 per share benefit from Brazil tax credits.

Personal Care: Sales of $10.267 billion, up 10%; operating profit of $1.856 billion, down 4%. Softex Indonesia contributed materially to sales growth.
Consumer Tissue: Sales of $6.034 billion, down 10%; operating profit of $888 million, down 39%, primarily due to lower volumes following elevated pandemic-related shipments in 2020 and higher input costs.
K-C Professional: Sales of $3.072 billion, up 2%; operating profit of $404 million, down 23%, reflecting lower away-from-home volumes and cost inflation.

Material changes versus the prior comparable period

Organic sales decreased 1%; volume declined 4%, while net pricing increased sales by 2%, currency contributed 1%, and the net impact of acquisitions and exited businesses contributed approximately 1%.
Input costs increased by approximately $1.490 billion, driven principally by pulp, polymer-based materials, distribution and energy. Cost savings partly offset the pressure, including $410 million from the FORCE program and $140 million from the restructuring program.
North America sales declined 3%, while sales outside North America increased 8%. Organic sales declined 5% in North American consumer products, increased 1% in North American K-C Professional, increased 5% in developing and emerging markets, and declined 3% in developed markets outside North America.
The 2018 Global Restructuring Program was completed in 2021. Total program costs were approximately $2.2 billion pre-tax, with cumulative annual savings of $560 million versus the 2017 baseline. The program closed or sold 11 facilities, exited or divested lower-margin businesses and reduced the workforce by approximately 6,000 positions.
Cash flow from operations declined by $999 million, reflecting lower earnings and less favorable working-capital contribution. Inventories increased to $2.239 billion from $1.903 billion.

Liquidity, debt and capital allocation

Cash and cash equivalents were $270 million at December 31, 2021, compared with $303 million at year-end 2020.
Total debt was approximately $8.6 billion, compared with $8.4 billion at year-end 2020. Long-term debt, including the current portion, was $8.456 billion; short-term debt was $118 million.
The company had unused revolving credit facilities of $2.0 billion expiring in June 2026 and $750 million expiring in June 2022. Management stated that operating cash flow and debt capacity were adequate for foreseeable working-capital, capital-spending, pension, dividend and other requirements.
Dividends paid were $1.516 billion. The dividend was increased 6.5% in 2021, representing the 49th consecutive annual increase; the board approved a further 1.8% increase for 2022.
Share repurchases totaled $400 million for 3.0 million shares in 2021. Management targeted approximately $100 million of repurchases in 2022, subject to market conditions.
2022 capital spending was expected to be approximately $1.0 billion to $1.1 billion. Expected 2022 pension contributions were approximately $25 million.

Guidance, outlook, commentary and risks

Management did not provide a full-year numerical sales or earnings outlook in the filing. It expects higher input costs, including pulp, resin, distribution and energy, to continue in 2022, while pursuing pricing actions, FORCE productivity savings, brand investment, innovation, e-commerce capabilities and growth in Personal Care markets across Latin America, Asia, Eastern Europe, the Middle East and Africa.

COVID-19 continued to create demand volatility, supply-chain disruption, labor constraints, logistics bottlenecks and inflationary pressure.
Key exposures include pulp and petroleum-based material prices, energy and transportation costs, foreign currency movements, supply availability, retailer concentration, private-label competition, changing birth rates and consumer trade-down.
Approximately 14% of consolidated 2021 sales were generated with Walmart, creating customer concentration and bargaining-power exposure.
Foreign-currency translation exposure remained significant; a hypothetical 10% unfavorable U.S. dollar movement would have reduced stockholders’ equity by approximately $750 million, primarily through unrealized translation adjustments.
The company is subject to ongoing legal and tax matters. A former health-care business investigation by the U.S. Department of Justice has an outcome and potential range of outcomes that management could not estimate. A Brazilian tax dispute involved proposed adjustments and penalties of approximately $80 million before interest, and the IRS is reviewing the company’s transition tax on foreign earnings.
Unrecognized tax benefits totaled $506 million at year-end; management stated that potential resolutions within 12 months could total up to $210 million but were not expected to materially affect financial condition, results or liquidity.
The critical audit matter was the estimation of trade promotion accruals, which totaled approximately $405 million at December 31, 2021.
Goodwill and indefinite-lived intangible asset impairment assessments used qualitative analysis; management concluded that fair values significantly exceeded carrying amounts and identified no impairment indicators.

Important facts for investors to verify

Reconcile reported and adjusted earnings, particularly the $281 million after-tax restructuring adjustment attributable to Kimberly-Clark in 2021.
Assess whether pricing and productivity savings can offset continuing commodity, logistics, labor and energy inflation.
Monitor volume recovery in Consumer Tissue and K-C Professional after pandemic-related demand distortions.
Review debt maturities, refinancing needs and the June 2022 expiration of the $750 million revolving facility.
Evaluate working-capital trends, especially the $336 million increase in inventories and the decline in operating cash flow.
Follow the former health-care business investigation, Brazilian tax dispute, IRS transition-tax review and other uncertain tax positions.
Assess the sustainability of dividend growth and planned share repurchases relative to cash generation and leverage.