01—Abstract
Summary
Summary of the 10-K filed February 18, 2015. Cited figures are marked; the original filing is the authoritative source.
Kimberly-Clark Corporation's 2014 Form 10-K reports net sales of $19.72 billiona, up 1 percent from $19.56 billion in 2013, while operating profit fell 13.2 percent to $2.52 billion from $2.90 billion.
The decline was driven largely by a $462 millionb non-deductible charge from remeasuring the Venezuelan balance sheet, $133 million of charges for the new 2014 organization restructuring, and $33 million for European strategic changes. Diluted earnings per share were $4.04, down from $5.53, and diluted EPS from continuing operations was $3.91, down from $5.01. Net income attributable to Kimberly-Clark was $1.53 billion, versus $2.14 billion in 2013.
Organic sales volumes and net selling prices each rose 2 percent, while currency reduced net sales by 2 percent. The company completed the spin-off of its health care business, Halyard Health, Inc., on October 31, 2014, which is presented as discontinued operations. Halyard had approximately $1.7 billionc in annual net sales, and shareholders received one Halyard share for every 8 Kimberly-Clark shares held.
Cash provided by operations was $2.8 billiond, and the company repurchased 18 million shares for $2.0 billion. Total assets fell to $15.53 billion from $18.92 billion, and total stockholders' equity fell to $999 million from $5.14 billion, largely reflecting the spin-off. Management guided to 2015 GAAP EPS of $5.46 to $5.72, and planned to repurchase $0.8 billion to $1.0 billion of shares and raise the quarterly dividend by mid-single digits effective April 2015.
Key risks highlighted include the Venezuelan currency situation, in which management stated it is evaluating the implications of the government's mid-February 2015 changes to its exchange system. Other risks include pulp and petroleum-based input price volatility, dependence on large retailers (Wal-Mart Stores, Inc. accounted for approximately 13 percent of net sales), and the 2014 restructuring, which is expected to cost $190 to $230 million pre-tax and reduce the workforce by 1,100 to 1,300 people.
02—Key points
Key Highlights
- Net sales of $19.72 billion, up 1 percent; organic volume and net selling prices each up 2 percent, with currency unfavorable by 2 percent.
- Operating profit fell 13.2 percent to $2.52 billion, including a $462 million Venezuela balance sheet remeasurement charge and $133 million of 2014 organization restructuring charges.
- Diluted EPS was $4.04 (continuing operations $3.91) versus $5.53 (continuing operations $5.01) in 2013.
- Spin-off of Halyard Health, Inc. (health care business, approximately $1.7 billion in annual net sales) completed October 31, 2014, with health care presented as discontinued operations.
- Cash provided by operations was $2.8 billion; share repurchases were $2.0 billion and dividends declared were $3.36 per share, with the dividend raised 4 percent in 2014.
- 2015 guidance: GAAP EPS of $5.46 to $5.72, capital spending of $950 million to $1.05 billion, and share repurchases of $0.8 billion to $1.0 billion.
- Total assets declined to $15.53 billion and stockholders' equity to $999 million, from $18.92 billion and $5.14 billion, reflecting the spin-off and the Venezuela charge.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Kimberly-Clark kept $0.08.
- Revenue$19.72B100.0%
- Cost of revenue−$13.04B66.1%
- Gross profit$6.68B33.9%
- Operating costs−$4.16B21.1%
- Operating income$2.52B12.8%
- Interest, other & tax−$995.0M5.0%
- Net income$1.53B7.7%
Where FY2014 revenue went
$19.72B- Cost of revenue: $13.04B, 66% of revenue
- Other operating costs: $3.79B, 19% of revenue
- Net income: $1.53B, 7.7% of revenue
- R&D: $368.0M, 1.9% of revenue
- Interest, other & tax: $995.0M, 5.0% of revenue
Kept 7.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 18, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $19.72B$19.56B | +0.8% |
| Cost of Revenue | $13.04B$12.95B | +0.7% |
| Gross Profit | $6.68B$6.61B | +1.1% |
| R&D Expenses | $368.00M$333.00M | +10.5% |
| Operating Income | $2.52B$2.90B | −13.2% |
| Interest Expense | $284.00M$282.00M | +0.7% |
| Net Income | $1.53B$2.14B | −28.8% |
| EPS (Basic) | $4.07$5.58 | −27.1% |
| EPS (Diluted) | $4.04$5.53 | −26.9% |
| Shares Outstanding (Basic) | 374.50M384.00M | −2.5% |
| Shares Outstanding (Diluted) | 377.40M387.30M | −2.6% |
05—Questions
Frequently Asked Questions
Why did operating profit and EPS decline so sharply in 2014?
The largest factor was a non-deductible $462 million charge from remeasuring the Venezuelan balance sheet at the year-end floating SICAD II rate of 50 bolivars per U.S. dollar, of which $421 million was recorded in other (income) and expense. The 2014 organization restructuring added $133 million of pre-tax charges and European strategic changes added $33 million. Lower equity company income and a 38.0 percent effective tax rate (versus 31.4 percent in 2013) also weighed on results.
What was the Halyard Health spin-off and how did shareholders receive shares?
On October 31, 2014, Kimberly-Clark completed the spin-off of its health care business as Halyard Health, Inc., which had approximately $1.7 billion in annual net sales. Shareholders of record at the close of business on October 23, 2014 received one Halyard share for every 8 Kimberly-Clark shares held. The distribution was structured to be tax free to U.S. shareholders for U.S. federal income tax purposes, and the company does not beneficially own any Halyard shares afterward.
What restructuring is the company undertaking and what will it cost?
In October 2014 the company began an organization restructuring to improve efficiency and offset stranded overhead from the spin-off. It is expected to be completed by the end of 2016, with total costs of $130 to $160 after tax ($190 to $230 pre-tax), about 80 percent of which are cash costs. Workforce reductions of 1,100 to 1,300 are expected, primarily salaried employees. Cumulative pre-tax savings are expected to be $120 to $140 million by the end of 2017.
What is the outlook for 2015 and how is capital being returned to shareholders?
The company expects 2015 GAAP EPS of $5.46 to $5.72, net sales reduced by unfavorable currency of 8 to 9 percent, and an effective tax rate of 31.5 to 33.5 percent. It plans share repurchases of $0.8 billion to $1.0 billion subject to market conditions, capital spending of $950 million to $1.05 billion, and a quarterly dividend increase of mid-single digits effective April 2015, subject to Board approval.
What is the Venezuela exposure and what happens next?
At December 31, 2014, K-C Venezuela had a bolivar-denominated net monetary asset position of $59 million and a net investment of $152 million, both valued at 50 bolivars per U.S. dollar. Net sales of K-C Venezuela were approximately 3 percent of consolidated 2014 net sales. In mid-February 2015 the Venezuelan government announced changes to its three-tiered currency exchange system, and the company is evaluating the implications for its results and reporting.
06—Continue