01—Abstract
Summary
Summary of the 10-K filed February 24, 2005. Cited figures are marked; the original filing is the authoritative source.
Kimberly-Clark Corporation reported 2004 net sales of $15.08 billiona, up 7.5 percent from $14.03 billion in 2003, with operating profit of $2.51 billion, up 7.5 percent, and net income of $1.80 billion, or $3.61 per diluted share.
Income from continuing operations rose 7.7 percent and diluted earnings per share from continuing operations rose 9.9 percent to $3.55b. Growth came from higher sales volumes across all three segments (Personal Care, Consumer Tissue and Business-to-Business), partly offset by lower net selling prices, higher fiber costs and increased energy and distribution expenses. Cash provided by operations reached a record $2.73 billion, and the company repurchased 24.8 million shares for about $1.6 billion.
The November 30, 2004 spin-off of Neenah Paper, Inc., which held the U.S. fine and technical paper businesses and Canadian pulp mills, was a major structural event. Neenah's results are presented as discontinued operations, and the company received a $213.4 millionc cash payment from Neenah. The company now relies on a long-term pulp supply agreement with Neenah, and internal pulp supply fell from about 40 percent to about 10 percent of virgin fiber needs, which the filing flags as increasing commodity price risk.
Competitive pressure in diapers and tissue, particularly in North America and Europe, remained intense, and the filing notes that aggressive competitive actions in 2003 and 2004 required increased promotional spending. For 2005, management targets sales growth of 3 to 5 percent, cost savings of $150 milliond, and earnings of $3.70 to $3.85 per share, with at least $1 billion of share repurchases planned and a 12.5 percent dividend increase effective with the April payment.
Capital spending is estimated at $800 million. Management reported a $2.2 billion year-end debt-related position, with total debt and preferred securities at $4.2 billion, and noted that no changes occurred in credit ratings during 2004.
02—Key points
Key Highlights
- Net sales rose 7.5 percent to $15.08 billion in 2004, with sales advancing in each of the three business segments and in each geographic region.
- Net income was $1.80 billion, or $3.61 per diluted share, versus $3.33 in 2003; diluted EPS from continuing operations rose 9.9 percent to $3.55.
- Cash provided by operations set a record of $2.73 billion, the fourth consecutive year of record operating cash flow.
- The company repurchased about 24.8 million shares for about $1.6 billion in 2004 and plans at least $1 billion of repurchases in 2005.
- The Neenah Paper spin-off on November 30, 2004 removed fine paper, technical paper and Canadian pulp businesses from continuing operations; the company received a $213.4 million cash payment from Neenah.
- Pulp supply risk increased after the spin-off, with internal pulp supply falling from about 40 percent to about 10 percent of virgin fiber needs; derivative instruments have not been used to manage this risk.
- 2005 guidance calls for sales growth of 3 to 5 percent, $150 million of cost savings, earnings of $3.70 to $3.85 per share, and a 12.5 percent dividend increase effective with the April payment.
03—Questions
Frequently Asked Questions
What drove Kimberly-Clark's 2004 earnings growth?
Higher sales volumes across all three segments, about $160 million of benefit from cost savings programs, and favorable currency effects of over $70 million more than offset lower net selling prices, higher fiber costs, and increased energy and distribution expenses. Operating profit increased 7.5 percent to $2.51 billion.
What was the effect of the Neenah Paper spin-off?
On November 30, 2004, the company distributed all shares of Neenah Paper, Inc. to stockholders, at one share of Neenah for every 33 shares held. Neenah's fine paper and technical paper businesses and Canadian pulp mills were separated; prior-period results for the fine and technical paper businesses are shown as discontinued operations, and the distribution charged $202.5 million to retained earnings. The company also entered into a long-term pulp supply agreement with Neenah.
What are the company's 2005 financial targets?
Management targets sales growth of 3 to 5 percent, $150 million in cost savings, and earnings of $3.70 to $3.85 per share. First-quarter 2005 earnings are expected to be 92 to 94 cents per share. Capital spending is estimated at $800 million, and common share repurchases are targeted at at least $1 billion.
How much debt and preferred securities does the company carry, and how are its credit ratings positioned?
At December 31, 2004, total debt and preferred securities was $4.2 billion, the same as the prior year end. The filing states there were no changes in credit ratings in 2004. Standard & Poor's had revised the long-term rating from AA to AA- in July 2003, and Moody's changed its outlook to negative from stable, indicating a downgrade could be possible. The company also had $1.2 billion of revolving credit facilities, all unused at year end.
What legal and environmental risks does the company disclose?
The company was party to asbestos-related personal injury lawsuits as of December 31, 2004, and has denied the allegations and raised numerous defenses. It has been named a potentially responsible party at a number of waste disposal sites. Management believes none of these proceedings or environmental obligations is expected to have a material adverse effect on the company. A North American tissue mill also has a power supply agreement with a net present value cost of about $120 million if the mill were shut down, which management considers remote.
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