Kimberly-Clark Corporation (KMB)

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Kimberly-Clark Corporation (KMB)

• December 4, 2007
• Gloria Ho, Jonathan Li, Jason Mueller, Patricia
  Shongedza

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Investment Managers

• Gloria Ho
• gho2_at_uiuc.edu
• Jonathan Li
• jxli2_at_uiuc.edu

• Jason Mueller
• jcmuell1_at_uiuc.edu
• Patricia Shongedza
• pshonge2_at_uiuc.edu

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Presentation Outline

• Company Overview
• Business segments
• Risk assessment
• Competitor analysis
• DCF Analysis
• Recommendation

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Company Overview

• Global health and hygiene company
• Personal Products industry
• Products made from natural or synthetic fibers
• Advanced technologies in fibers, nonwovens, and
  absorbency.
• Founded in 1872 headquartered in Dallas, TX
• Consumers in more than 150 countries worldwide
• Manufacturing facilities in 40 countries
• More than 55,000 employees
• FY2006 Total Revenues of 16.75B Market cap
  29.5B
• More than 1.3 billion people (1/4 of the worlds
  population) trust K-C brands EVERYDAY.

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Consumer Brands

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Business Segments Brands
Personal Care Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise
Consumer Tissue Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, Page
K-C Professional Other Kimberly-Clark, Kleenex, Scott, WypAll, Kimtech, Kleenguard, Kimcare
Health Care Kimberly-Clark, Ballard
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Business Segments Products
Personal Care Disposable diapers, training and youth pants, and swim pants Baby wipes Feminine and incontinence care products Consumer Tissue Facial bathroom tissue Paper towels Napkins
K-C Professional Other Facial bathroom tissue Paper towels Napkins Wipers Various safety products Healthcare Surgical gowns Drapes Infection control products Sterilization wrap Disposable face masks and exam gloves Respiratory products
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Revenues by Segment
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Revenues by Region

• Net sales grew 14 in the developing and emerging
  markets, with each of the regions contributing to
  the increase.

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Innovation

• K-C invented five of their eight major consumer
  product categories
• facial tissue, paper towels, toilet paper on a
  roll, feminine pads and disposable training pants
• Primary raw material fiber recycled from
  recovered waste paper
• Polypropylene and other synthetics

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Presentation Outline

• Company Overview
• Business Segments
• Risk Assessment
• Competitor Analysis
• DCF Analysis
• Recommendation

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Risk Assessment

• Significant increases in costs
• Foreign market risk
• Heavy price competition
• High failure risk for new products

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Risks Input Costs

• Pulp, polypropylene, and synthetic polymers
• Direct input to 25 of total revenue.
• Cost increase for 2007 more than 120 greater
  than originally forecast.
• Result 4-7 increase in prices for tissue paper,
  diapers.
• Costs partially offset by increased volume,
  outsourcing.

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Risks Price Competition

• Highly competitive segments
• Low cost substitutes, private/generic labels for
  virtually all consumer products.
• Questionable customer loyalty Brand loyalty vs.
  Brand repertoire.
• The Wal-Mart Effect
• 13 of total firm-wide revenues
• Mitigating Factors
• Leverage customer knowledge and increase
  responsiveness.
• Ex Packaging alternatives for diapers
• Leverage global RD to make products more
  adaptive to local markets

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Risk Factors Contd

• Foreign Markets
• Rapid investment in BRICIT could lead to
  overcapacity.
• Political and socioeconomic volatility in
  emerging markets.
• Latin America, Eastern Europe.
• Success highly contingent on ability to form
  partnerships.
• Adapting to cultural differences, building
  distribution networks, etc.
• Intellectual property protection.
• New Product Acceptance
• High initial marketing costs
• High market saturation of existing products
  difficulties in continuing innovation

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Presentation Outline

• Company Overview
• Business Segments
• Risk Assessment
• Competitor Analysis
• DCF Analysis
• Recommendation

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Competitors

• Vary in size and function
• Competes against well known branded products
  therefore faces risk in consumer acceptance
• Principle areas of competition include brand
  loyalty, product quality and innovation, price
  and marketing strategies

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Competitors
KMB Georgia Pacific Playtex Products PG
Market Cap 29.44B NA NA 228.33B
Employees 55,000 50,000 1,250 138,000
Revenue 17.82B 2.15B 636.20M 77.89B
Net Income 1.85B 623M 30.20M 10.56B
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1 year chart (competitors)
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Porters five forces

• Threat of new entrants LOW
• Bargaining power of suppliers LOW
• Bargaining power of buyers MODERATE
• Threat of substitutes HIGH
• Industry rivalry HIGH

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RCMP Position

• Purchased 300 shares on April 20, 2005 at
  63.91/share
• Total investment 19,173
• Current market price 69.81
• Unrealized gain of 1,770.00 (9.23)

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Position in the portfolio
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Correlation Matrix
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Recent News

• Kimberly-Clark Declares Dividend
• Kimberly-Clark Declares Regular Quarterly
  Dividend of 53 Cents/Share
• Dividend increased 9 in 2006, and expected to
  increase 8 in 2007
• November 15, 2007 0627 PM EST
• Ahead of the Bell Kimberly Clark
• Analyst Upgrades Kimberly-Clark, Says 2005
  Restructuring Program Paying Off with potential
  increased revenue coming from BRIC emerging
  markets
• November 26, 2007 0911 AM EST

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Presentation Outline

• Company Overview
• Business Segments
• Risk Assessment
• Competitor Analysis
• DCF Analysis
• Recommendation

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DCF Analysis

• WACC calculation
• Beta 1.3 (Google Finance 0.71)
• WD 7.18
• WE 92.82
• KD Weighted avg. interest rate
• KE Cal. from CAPM
• Tax rate 36.7 (effective tax rate)

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DCF Analysis

• Key assumptions
• Sales Growth Rate (2007-08) 4.8
• Sales Growth Rate (2009-12) 2.0
• Cost of product to Sales 66.9
• Terminal Growth Rate 3.0
• Dividend Growth 8

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DCF Analysis
Key Assumptions
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DCF Analysis

• Based on DCF ?Share Price 73.49

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Presentation Outline

• Company Overview
• Business Segments
• Risk Assessment
• Competitor Analysis
• DCF Analysis
• Recommendation

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Recommendation

• Based on DCF ?Share Price 73.49
• Current Share Price 69.56 (3 Dec 07 closing)
• HOLD