pranay damania juan espinosa ryan foelske brandon mcarthur thursday, november 13, 2008
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Pranay Damania Juan Espinosa Ryan Foelske Brandon McArthur Thursday, November 13, 2008. Company Overview. “Improving the Health and Hygiene of People Everyday” Personal Products industry Products made from natural or synthetic fibers - PowerPoint PPT PresentationTRANSCRIPT
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Pranay Damania
Juan Espinosa
Ryan Foelske
Brandon McArthurThursday, November 13, 2008
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Company Overview
“Improving the Health and Hygiene of People Everyday”Personal Products industry
Products made from natural or synthetic fibersAdvanced technologies in fibers, nonwovens, and absorbency.
Founded in 1872 & headquartered in Dallas, TXConsumers in more than 150 countries worldwide
Manufacturing facilities in 40 countriesMore than 55,000 employees
FY2007 Total Revenues of $18.26B; Market cap: $23.39B
More than 1.3 billion people (1/4 of the world’s population) trust K-C brands EVERYDAY.
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Consumer Brands
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Business Segments: BrandsPersonal 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: ProductsPersonal Care Disposable diapers, training and youth pants, and swim pants Baby wipes Feminine and incontinence care products
Consumer TissueFacial & bathroom tissue Paper towels Napkins
K-C Professional & OtherFacial & 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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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
COGS Makes up about 69% of Sales: Primary raw material: fiber recycled from recovered waste paper Largest Consumer of Polypropylene- Oil Derivative
Company Overview
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Macroeconomic Overview
Oil continues to be volatile, but lower prices will have positive impact on economy and K-C. Yesterday’s Price $55.47 /barrel
Decline in Consumer Confidence
K-C affected by decline in economy, but generally looked as recessionary proof
Strained consumers continue to purchase K-C products during any economy, but may look to lower priced generic brands.
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• Total net sales grew 21% between 2004 and 2007.
$ -
$ 1.000
$ 2.000
$ 3.000
$ 4.000
$ 5.000
$ 6.000
$ 7.000
$ 8.000
Personal Care Consumer tissue K-C Professional & Other Health Care
Net Sales (Millions of dollars)
2007 2006 2005 2004
26.95%
21.18%
10,21%
0,55%
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• Total operational profit grew 4.4% between 2004 and 2007.
$ - $ 200 $ 400 $ 600 $ 800 $ 1.000 $ 1.200 $ 1.400 $ 1.600
Personal Care
Consumer tissue
K-C Professional & Other
Health Care
Operational profit (Millions of dollars)
2007 2006 2005 2004
24,67%
12,57%
23.53%
27.64%
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-
2.000
4.000
6.000
8.000
10.000
12.000
Total north america Europe Asia, Latin America y Others
Net sales by region (Millions of dollars)
2007 2006 2005 2004
12.74%
11.98%50.53%
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- 500 1.000 1.500 2.000 2.500
Total north america
Europe
Asia, Latin America y Others
Operating profit (Millions of dollars)
2007 2006 2005 2004
60.77%
16.79%
3.15%
• Total operating profit grew 4,4% between 2004 and 2007.
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Key Factors• Significant increases in inputs that can reduce KMB`s
financial results
• Competitive market
• Change in the policies of retail trade customers and dependence on key retailers.
• No successful of the reduce costs plan.
• Differences between real and estimated sales.
• Foreign market risks12
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Strategic cost reduction plan• Implemented since 2005, this plan expects to reduce
costs by reform manufacturing and administrative operations. So far, this plan includes:
– Less facilities– Reduce selling, general and administrative expenses– Relocation of equipment– Reduction of workforce
• This plan expected to result in cumulative charges of approximately $630 million by the end of 2008 (4% of total 2007 net sales).
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Peer Group Comparison – Business Focus
• Highly competitive industry
• Industry participants vary in size and function
• Proctor and Gamble • Johnson & Johnson• Georgia-Pacific - Private firm• Colgate Palmolive
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Peer Group Comparison
• Criteria for Peer Companies–Growth Potential–Risk Profile
• Peer Companies–Proctor and Gamble (PG)–Johnson & Johnson (JNJ)
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2 Yr Stock price – KMB, PG, JNJ, S&P500
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Ratio Analysis : DuPont2007 2006 2005 2004 2003
Revenues
18,266.00
16,746.90
15,902.60
15,0833.20
14,026.30
Net Income
1,822.90
1,499.50
1,580.60
1,770.40
1,643.60
Total Assets
17,753.35
16,685.10
16,660.60
16,898.95
16,779.80
Total Equity
5,660.55
5,827.80
6,093.85
6,697.90
6,766.30
Net Profit Margin 9.98% 8.95% 9.94% 11.74% 11.72%
Asset Turnover 1.03 1.00 0.95 0.89 0.84
Leverage 3.14 2.86 2.73 2.52 2.48ROA 10.27% 8.99% 9.49% 10.48% 9.80%
ROE 32.20% 25.73% 25.94% 26.43% 24.29%
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DCF Analysis
• Beta estimates:– Yahoo: 0.33– Bloomberg: 0.7– 3-year Weekly: 0.63– Used: 0.65
• Used 0.65 to due to confidence in our own calculations and huge differences in other sources.
• Cost of Debt:– Used weighted average
of LT and ST debt from balance sheet
– Found costs on Yahoo• LT: 10-yr corporate AA• ST: 2-yr corporate AA
• WACC: 8.22%
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Oil Price vs. COGS
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DCF Analysis• Sensitivity Chart: WACC vs COGS/Sales
COGS/Sales
65% 67% 69% 70% 71% 73% 75%
WACC
7.50% 137.39 119.95 102.51 93.80 85.08 67.64 50.20
7.75% 129.71 113.16 96.61 88.33 80.06 63.51 46.96
8.00% 122.79 107.04 91.29 83.42 75.54 59.79 44.04
8.25% 116.54 101.51 86.48 78.97 71.45 56.42 41.40
8.50% 110.86 96.49 82.11 74.93 67.74 53.37 38.99
8.75% 105.67 91.90 78.12 71.24 64.35 50.58 36.80
9.00% 100.91 87.69 74.47 67.85 61.24 48.02 34.79
9.25% 96.54 83.82 71.10 64.74 58.38 45.67 32.95
9.50% 92.50 80.25 68.00 61.87 55.75 43.49 31.24
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DCF Analysis
COGS/Sales
64%
66%
68%
70%
72%
74%
76%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
CO
GS
/Sal
es (
%)
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DCF Analysis• Projected Cash Flows
2008 2009 2010 2011 2012 2013
Net income
1,590
1,104
1,308
1,516
1,734
1,903
+
Depreciation and amortization
957
1,086
1,218
1,355
1,496
1,641
- ∆ NWC $274 ($4) ($33) ($39) ($46) ($42)
- Cap. Exp. ($1,169) ($1,247) ($1,284) ($1,323) ($1,363) ($1,404)
= FCF $1,652 $938 $1,209 $1,509 $1,822 $2,098
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DCF Analysis
Value of Firm = $35,390
LESS Debt 5,492
PLUSCash and Cash Equivalents $473
Firm's equity value $30,371
Outstanding Shares 413.8
10% + $80.74
Value per share $73.40
10% - $66.06
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Relative Valuation – Multiples
KMB PG JNJ Average
P/E Ratio (TTM) 14.42 17.03 14.18 15.21
Price to Sales (TTM) 1.30 2.22 2.71 2.08
Price to Book (MRQ) 4.46 2.75 4.20 3.80
Price to Cash Flow (TTM) 10.28 12.08 10.85 11.07
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Relative Valuation
• Football Chart
Relative Valuation Range : $61.22 – 70.35
Triangulated Value : $74.73
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Current Position• RCMP purchased 300 shares of KMB on April 20th,
2005 for $63.91/share
• Currently KMB is trading at $56.64 as of November
12, 2008 for an unrealized loss of $2,181.00
• Dividend Payouts sum up to $2,151.00
• Total Unrealized Loss = $30.00
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Value per Share• DCF Value = $ 73.40• Triangulated Value = $ 74.73• Current Market Price = $ 56.64
Currently under-valued by approx 22.83%
• BUY 100 Shares at Market Price
Recommendation