KMB Presentation by:

Mei-Hsuan Chao
Zuojia Chen
Suyang Hong
Jung Hyun Kim

12/08/2009
Agenda
• Company profile • Industry analysis
Environment • Macroeconomic analysis • Competition analysis
Analysis • SWOT analysis

• Profitability • Efficiency
Financial analysis • Leverage • Peer comparisons
• Liquidity

• DCF Valuation
Valuation • Relative Valuation
• Triangulation and Football chart

Conclusion &
Recommendation
Company Overview

• Global health and hygiene company focused on

product innovation and building its personal care,
consumer tissue, K-C professional & other and
health care brands
• Founded in 1872 & headquartered in Dallas, TX
• Manufacturing facilities in 35 countries
• Nearly 53,000 employees
• Well known global brand that has consumers in
more than 150 countries worldwide
- Over 1/4th of the world’s population uses K-C’s brand everyday
- Holds No. 1 or No. 2 positions in more than 80 countries
Business Segments

• Personal Care
2008 Sales $8.3B (43% of total sales)/ Operating Profit margin 19.9%
Diapers, Training/Youth/Swim Pants, Feminine Care,
Incontinence Care, Infant and Child Wipes and
Toiletries
Business Segments

• Consumer Tissue
2008 Sales $6.7B (35% of total sales)/ Operating Profit margin 8.9%
Facial Tissue, Bathroom Tissue, Paper Towels
Business Segments

• K-C Professional and Other

2008 Sales $3.2B (16% of total sales)/ Operating Profit margin 13.5%
Disposable Health & Hygiene Products for Away-From-
Home Use: Facial Tissue, Bathroom Tissue, Paper Towels
Wipers, Protective/Absorbent Products for Do-It-Yourself
Use, Safety Products; Nonwovens
Business Segments

• Health Care
2008 Sales $8.3B (6% of total sales)/ Operating Profit margin 19.9%
Surgical Drapes and Gowns, Sterilization Wrap, Face
Masks Exam and Surgical Gloves, Respiratory and
Other Disposable Medical Devices
Growth Strategies

• Targeting Growth Investments

• Translating customer, shopper, and user insights into
innovative product solutions
• Partnering with customers
• Leveraging strong global brands, market share leadership
and strategic marketing capabilities
• Implementing strategic cost reductions
• Using a systematic approach to reduce costs on an
ongoing basis
Management Assessment

• Adopted Global Business Plan (GBP) in 2003 to prioritize

growth opportunities and applying greater financial discipline
to K-C’s global operations.
Annual GBP Objective 2004 – 2008 Average
Top-line Growth 3-5% 7%
EPS Growth Mid-to-high single digits 5%
Operating Margin
40 to 50 basis points - 70 basis points
Improvement
Capital Spending 5-6% of net sales 5%
ROIC Improvement 40 to 50 basis points 10 basis points
High-single digit to
Dividend Increases 11%
low-double digits
Management Assessment

• Continuous effort to be remain focused on reducing costs,

improving margins and maximizing cash flow

• Maintained a solid financial position throughout the

economic downturn

• Strengthened its position in developing and emerging

markets
Macroeconomic Analysis

• Unfavorable global environment

– Current credit market disruptions and recession s in the US and
certain foreign countries
– Volatility in foreign currency
– Increased pricing pressure and intense competition for sales
• Significant increases in prices for raw materials,
energy, and transportation and other necessary
supplies
– Large swings of main raw material; Kraft pulp and petroleum based
commodities (Derivatives are not used to mitigate these risk)
CME Northern Softwood Pulp Index
SWOT Analysis

Strengths Weaknesses
•Strong brand recognition •Dependency on commodities
•Diversified business •High dependence upon a
portfolio single large customer
•Resistant to economic
cycles

Opportunities Threats
•Expansion in emerging •Intense competition
markets
•New acquisitions and alliances
•Commodity costs inflation
•Increasing preference for •Currency volatility
organic and personal care
products
Competition

• Competitors vary in size

• Highly competitive industry
• Few pure players in the industry
• New emerging “no-name" brands

• Competitors
– Procter & Gamble Co.
– Georgia-Pacific
– Johnson & Johnson
Keys for competition

• Brand loyalty
• Product quality
• Innovation
• Price
• Marketing strategies
Five-year stock price
Financial Position Analysis

• Profitability
Financial Position Analysis

• Profitability

Profit Margin
25,000 12.0

10.0
20,000

8.0
15,000
6.0 %
10,000
4.0

5,000
2.0

0 0.0
2003 2004 2005 2006 2007 2008

Total Revenue Income After Tax Profit Margin

Financial Position Analysis

• Profitability
Return on Assets
20,000.0 0.12
18,000.0
0.1
16,000.0
14,000.0
0.08
12,000.0
10,000.0 0.06
8,000.0
0.04
6,000.0
4,000.0
0.02
2,000.0
- -
2004 2005 2006 2007 2008

Average Assets Net Income Return on Assets %

Financial Position Analysis

• Profitability
Return on Equity
7,000.0 0.5
0.45
6,000.0
0.4
5,000.0 0.35
4,000.0 0.3
0.25
3,000.0 0.2
2,000.0 0.15
0.1
1,000.0
0.05
- -
2004 2005 2006 2007 2008

Average Equity Net Income Return on Equity %

Financial Position Analysis

• Company Structure/Leverage
Financial Leverage
20,000 2.00
18,000 1.80
16,000 1.60
14,000 1.40
12,000 1.20
10,000 1.00
8,000 0.80
6,000 0.60
4,000 0.40
2,000 0.20
0 0.00
2003 2004 2005 2006 2007 2008

Total Assets Total Common Equity Financial Leverage

Financial Position Analysis

• Accelerated Stock repurchase plan

– From July 2007 to March 2008
– 29.6 million shares of common stock from BOA
– $2.1 billion long-term notes
Financial Position Analysis

• Boost the EPS by reducing the shares

EPS vs Shares Outstanding
5 500
480
4
460
3 EPS( $ per Share)
440
2 420
Shares Outstanding(
400 in Millions)
1
380
0 360
2004 2005 2006 2007 2008
Financial Position Analysis

• Debt Structure
Total Debt Structure

2008

2007

2006

2005

2004

0% 20% 40% 60% 80% 100%

Short Term Debt Long Term Debt Current Portion of LT Debt

Financial Position Analysis

• Liquidity
Operational Liquidity
0.5
0.4
0.3
0.2
0.1
0.0
2004 2005 2006 2007 2008
-0.1
-0.2
-0.3
-0.4
-0.5

CF From Ops/LT Debt Ret. Earnings/Total Assets

Financial Position Analysis

• Efficiency
Assets Turnover
25,000.0 1.2

1.0
20,000.0

0.8
15,000.0
0.6
10,000.0
0.4

5,000.0
0.2

- -
2004 2005 2006 2007 2008

Sales Average Assets Total Asset Turnover

Financial Position Analysis

• Efficiency
Receivables Turnover
25,000 3500.0

3000.0
20,000
2500.0

15,000
2000.0

1500.0
10,000

1000.0
5,000
500.0

0 0.0
2004 2005 2006 2007 2008

Total Revenue Avg Accts Receivables Receivables Turnover

Financial Position Analysis

• Efficiency
Working Capital

2008

2007

2006

2005

2004

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

Current Liabilities Current Assets Working Capital

Peer Comparison
Profitability Ratio Liquidity Ratio
0.8 2
0.7 1.8
1.6
0.6
1.4
0.5 Return on Assets % 1.2
0.4 Return on Equity % 1 Current Ratio
0.3 0.8
Gross Margin % 0.6 Quick Ratio
0.2
EBIT Margin % 0.4
0.1 0.2
0 0
Kimberly Clark Johnson & Procter & Kimberly Clark Johnson & Procter &
Johnson Gamble Johnson Gamble

Efficiency Ratio Leverage Ratio

14 1.4
12 Total Asset Turnover 1.2
10 1
8 Fixed Asset Turnover 0.8
6 0.6 Total Debt/Equity
4 Accounts Receivable 0.4 LT Debt/Equity
2 Turnover 0.2
0 Inventory Turnover 0
Kimberly Clark Johnson & Procter & Kimberly Clark Johnson & Procter &
Johnson Gamble Johnson Gamble
Assumptions: Methodologies

• Hybrid Assumptions
• Segmental Perspective
• Incorporated Management Assessment
• Subjective Adjustment to Discount Rate
Pro Forma Assumptions

Segmental Revenue Growth 2009 2010 2011 to 2014

Personal Care 0% 4% 8.0%

Consumer Tissue 0% 2.50% 4.5%

Business-to-Business 0% 1.50% 3.0%

Health Care and Other 0% 1% 2.0%

Other Assumptions

Gross Margin 32% His. Ave 32.3%

R&D % of Sales 2% His. Ave 1.8%

Advertising Expenses % of Sales 3% His. Ave 2.6%

Interest Rate 6.5%

CAPEX % of Sales 5.5%

DCF Valuation

Dec-31-2008 Forecasted Forecasted Forecasted Forecasted Forecasted Forecasted

For the Fiscal Period Ending 2009E 2010E 2011E 2012E 2013E 2014E

Currency USD USD USD USD USD USD USD

Net Income 1,690.00 1,806.36 1,898.74 2,020.96 2,169.49 2,330.93 2,477.63

+Depreciation and Amortization 775.00 948.96 980.17 1,035.07 1,093.50 1,155.74 1,200.33

-Capital Expenditure (906.00) (1,067.99) (1,103.12) (1,164.90) (1,230.67) (1,300.71) (1,375.32)

-Change in Net working Capital 186.20 (70.02) (117.35) (127.57) (136.33) (141.61)

Free Cash Flow 1,559.00 1,873.53 1,705.78 1,773.78 1,904.76 2,049.63 2,161.04

Terminal Value 2,130.80 31,333.28

Present Value of FCFF 1,701.60 1,407.07 1,328.90 1,296.07 1,316.83 18,799.93

Discount Rate: 10.10%

Intrinsic Value: $50.20
Relative Valuation
Trailing P/E P/S P/B EV/EBITDA
Kimberly Clark 15.55 1.36 5.67 8.798
Johnson & Johnson 13.12 2.76 3.61 8.698
Procter & Gamble Co. 13.36 2.13 2.72 10.508

Dec-31-2008 Jun-30-2009
Earnings Per Share 4.037 3.952
Sales Per Share 46.38 45.29
Book Value Per Share 9.26 10.82
EBITDA Per Share 8.12 8.42

Valuation Method Minimum Average Maximum

P/E multiple 52.96544 53.44988 53.93432
P/S multiple 98.7894 110.73405 128.0088
P/B multiple 25.1872 34.2453 33.4286
EV/EBITDA multiple 70.62776 80.85726 85.32496
RCMP Portfolio
WFR
2%
SRCL
MCD 2% WAG
4% 6%

KMB
7%
JKHY
3%
FR
DO 1% CASH
2% 59%

AEO
13%

AEE
1%
Stock Correlation within Portfolio

Correlation Coefficient

KMB
WAG 0.17
AEE 0.27
MCD 0.21
AEOS 0.22
FR 0.27
WFR 0.20
SRCL 0.19
JKHY 0.14
DO 0.23
Current Position

• Bought 300 KMB shares at $63.91 on April 20, 2005

• Bought 100 shares at $56.31 on Nov. 18, 2008
Company Evaluation

• Management inconsistencies
• Stock Repurchase Plan
• Soaring raw material cost
• Not profitable to support for high dividend payout
Recommendation

• Intrinsic value of the company is $50.20

• Closing Price for December 7, 2009 is $65.19

We recommend to SELL 400 shares

at current market price
Sources

• Kimberley-Clark 2005-2008 Annual Report, 10-K

• http://www.kimberley-clark.com
• One-source database
• Capital-IQ
• Bloomberg
• http://finance.yahoo.com