Is Dividend King Kimberly-Clark Overpriced?
Dividend King Kimberly-Clark (NYSE: KMB) is a highly valued stock in regards to its earnings multiple but this is a case in which the valuation is earned. The company is one of the most stable and predictable businesses in the Consumer Staples sector (NYSE: XLP), it has healthy cash flow, and it pays one of the highest dividends as well. At 3.4% it is well above the broad market and sector averages and offers steady and stable returns for investors in a world where economic conditions are changing, and not for the better. The takeaway from the report is that inflation is still present and pressuring the margin but company actions are preserving the earnings outlook if not fully overcoming the rise in costs.
Kimberly-Clark Beats And Offers Stable Guidance
Kimberly-Clark had a good quarter if one supported by higher selling prices. The company says selling prices are up 9% YOY due to input cost increases and additional price increases are coming in the second half of the year. The increase in selling price drove the revenue to $5.1 billion and a quarterly record that beat the Marketbeat.com consensus by 220 basis points, however, and the strength carried through to the bottom line as well. On an organic basis, sales are up 9% with mix adding 1% to the result and volume declining by 1%. The decline in volume is noteworthy in its size, a 1% YOY decline isn’t much and reveals the underlying strength of the personal care and bathroom tissue market.
On a regional basis, the North American Consumer market led with a growth of 11% followed by a 9% growth in Developed Markets and 8% growth in both Developing Markets and North American KC Professional. On a segment basis, Personal Care grew by 8%, Consumer Tissue grew 8% supported by a 3% increase in volume, and KC Pro grew by 5% but growth is overshadowed by margin compression that shaved 8.13% off of the adjusted operating income. Operating income was impacted by higher input costs as well as increased marketing, R&D, and an FX headwind as well but the shrinkage was in line with the expectations. On the bottom line, the $1.34 in adjusted EPS is down 9% from last year but beat the consensus by 220 basis points.
The takeaway here is that cash flow from ops increased due to lower tax payments and a reduction in working capital and aided the company’s capital return program. Kimberly-Clark not only paid its dividend but repurchased $23 million worth of shares which is equal to 0.5% of the market cap with shares at $134. In regard to the balance sheet, net debt is steady on a YOY basis and is well managed.
Kimberly-Clark Steadies On Mixed Guidance
Shares of Kimberly-Clark fell in the wake of the earnings report due to fears about profitability. The company upped its guidance for FY revenue by a full percentage point at both ends of the range while only maintaining the earnings outlook due to an expectation for increased costs. The analysts fear additional compression but it appears the tepid news is already factored into the market. The price action fell hard on the news but rebounded strongly from support at the $130 level and finished the day in the green. The move not only confirms support at this level but indicates a potential for a rally despite the high valuation. The next target for prices is $136 which may provide resistance, a break above that level would be bullish and could take the stock up to the $140 level. 
