Company Profile

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Company Profile

• Manufactures and markets health and hygiene
  products, with operations in 37 countries and
  sold in more than 150 countries.
• 1.3 billion people use Kimberly-Clark products
  everyday with brands such as Kleenex, Scott,
  Andrex, Huggies, Pull-Ups, Kotex, Poise and
  Depend
• Holds the No. 1 or No. 2 share position in more
  than 80 countries.

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Segments

• Personal Care
• Diapers, training/youth/swim pants baby wipes
  feminine and incontinence care products and
  related products.
• Sales of 7.6B in 2007 and operating profit
  margin of 20.7.
• Consumer Tissue
• Facial/bathroom tissue, paper towels, and
  napkins.
• Sales of 6.5B in 2007 and operating profit
  margin of 10.8
• K-C Professional Other
• Disposable health hygiene products for
  away-from-home use facial tissue, bathroom
  tissue, paper towels, wipers, protective/absorbent
  products for do-it-yourself-use, and safety
  products.
• Sales of 3 B in 2007 and operating profit margin
  of 15.7.
• Health Care.
• Surgical drapes and gowns, infection control
  products, sterilization wrap, face masks, exam
  and surgical gloves, and respiratory products.
• Sales of 1.2 B in 2007 and operating profit
  margin of 16.2.

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Around the World

• Worldwide sales of personal care products
  increased 7.2 due to higher sales volumes.
• N. America net sales increased 4 higher sales
  volumes for disposable diapers.
• Europe net sales were even with prior sales as
  lower net selling prices offset higher sales
  volumes.
• D E net sales grew 14 with double digit
  growth in Latin America, the Middle East, Africa,
  and E. Europe.
• Worldwide net sales of K-C Professional Other
  products increased 4.7 due to 2 higher net
  selling prices.
• Worldwide net sales of health care products rose
  8.6 on the strength of nearly 7 higher sales
  volumes.

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Growth Strategies

• Improve margins and ROIC (from 40 - 50 basis
  pts).
• Strengthen leadership position in baby/child
  care, adult care, and family care.
• Accelerate growth in developing and emergency
  markets (BRICIT)
• Holds half the worlds population but only 5.5
  of total sales.
• Sales rose by double digits for the 4th
  consecutive year.
• China sales growth exceeded 35 in 2006 due to
  Huggies.
• Penetration is still less than 10.
• Subject to economic political instability,
  exchange rates, etc.
• Build positions of regional strengths in feminine
  care.
• Extend K-C Professional in higher margin
  segments.
• Expand Health Care globally and adding
  higher-margin products.

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Growth Strategies

• Implement strategic cost reductions to improve
  profitability and fund growth investments.
• Multi-year program to streamline worldwide
  manufacturing and administrative operations in
  July 2005.
• Annual pretax savings expected to increase to at
  least 350 M in 2009.
• Systematic approach to reduce costs.
• Initiatives focused on improving productivity and
  reducing raw materials and other costs delivered
  savings of more than 700 M via K-Cs FORCE
  program.
• Estimated cost savings of 350-450 M from
  2008-2010.

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Strategic Cost Reduction Plan

• To reduce costs by streamlining manufacturing and
  administrative operations.
• Anticipated reduction of workforce by 10
  (6,000) by the end of 2008.
• 17 (20) of manufacturing facilities are to be
  sold or closed and 4 facilities are to be
  streamlined.
• Pretax charges between 950 M and 1 B since
  2005.
• Cash costs related to the sale, closure or
  streamlining of operations, relocation of
  equipment, severance and other expenses are
  expected to account for less than 40 of the
  charges.
• Non-cash charges consist primarily of incremental
  depreciation and amortization and asset write
  downs.
• The plan is expected to yield an annual pretax
  savings of at least 350 M by 2009.

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SP Analysis

• Risk assessment low, due to the static demand
  for household and personal care products and that
  demand is usually not affected by changes in the
  economy or geopolitical factors.
• Expected overall sales growth of 5.6 in 2008
• Personal Care segment revenues up 8, driven by
  new products and growth in developing markets.
• Consumer Tissue segment sales rising 3, helped
  by growth in developing markets and price
  increases.
• K-C Professional Other and Health Care
  segments sales growth projections are 6 and
  3.5, respectively.

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SP Analysis

• Expected operating margin to widen just 20 basis
  points in 2008, excluding restructuring costs
  from periods. Continued substantial commodity
  cost pressures, particularly from pulp, and also
  planned strategic investments in advertising and
  promotions.
• Assuming an effective tax rate of 28.5 and a 6
  decline in the average shares outstanding, partly
  due to an accelerated share repurchase program in
  July 2007, the projected operating EPS will
  increase 7.1 to 4.55 in 2008 from 4.25 in
  2007.
• Analysis of the stock's current worth suggests
  that KMB is overvalued by 4.43 (6.9).

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Morningstar Analysis

• It depends whether consumers will trade down to
  less-expensive, private-label alternatives in
  core K-C categories such as diapers, when the
  company increases the price to offset cost
  inflation and maintaining gross margins.
• Total sales at the firm increased 10.5 to 4.8
  billion compared to the year-ago period, with
  strong growth in developing markets and personal
  care, and a 5 benefit from foreign exchange.
• Continued growth in the company's personal care
  business is driven by higher-margin,
  super-premium products such as Pull-Ups and
  GoodNites Sleep Boxers.
• For the most part, the strength in K-C's business
  is coming from N. America, as the strong
  mid-teens sales growth in Europe was a function
  of the strengthening euro versus the U.S. dollar.

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Morningstar Analysis

• Both Consumer Tissue and K-C Professionals sales
  increase was due to positive foreign exchange and
  Consumer Tissue sales in N. America were down on
  a 12 decline in shipments, primarily from a weak
  cold and flu season.
• Estimated fair value is 73, with average annual
  growth of 4.1 over the next five years compared
  to 4.8 over the past five years.
• Capital spending will be at around 5 of sales,
  lower than the firm's historical 10-year average.
• Earnings before interest and taxes are 9.5 times
  interest expense.
• No problems that would keep the company from
  making debt payments or paying dividends.

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Profitability Analysis
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Valuation Analysis
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Competitors (Household)
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SPs Sub-Industry Outlook

• Expected earnings growth to be driven by modestly
  higher unit volumes, price increases and benefits
  from cost savings programs.
• Increases of 5 in organic sales and 9 in
  operating earnings.
• Due to the slow growth, large multinationals are
  likely to continue to seek growth opportunities
  in developing and emerging markets.
• The modestly weaker U.S. dollar will benefit
  revenue growth for the multinationals.
• Global consolidation at retail aiding the larger
  industry players, as retailers tend to prefer to
  carry mostly leading brands.

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Overview

• Most significant risks foreign currency,
  interest rate and commodity price.
• Net sales rose 5.3 from higher sales volumes,
  increased net selling prices and an improved
  product mix.
•   Operating profit decreased 9.0, net income
  decreased 4.4, and diluted EPS decreased .9.
• Higher net sales and cost savings did not
  overcome the effects of cost inflation and
  charges related to the strategic cost reductions.
  
• Cash flow from operations increased 12  to
  2.6 billion.
• The Corporation returned 1.6 billion to
  shareholders through dividends and share
  repurchases.
• Net sales of personal care, consumer tissue,
  personal care, and K-C professional care products
  increased, esp. in developing and emerging
  markets.