Pranay Damania

Juan Espinosa

Ryan Foelske

Brandon McArthurThursday, November 13, 2008

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.

3

Consumer Brands

4

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

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

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.

• 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%

• 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%

-

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%

- 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.

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

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

Peer Group Comparison

• Criteria for Peer Companies–Growth Potential–Risk Profile

• Peer Companies–Proctor and Gamble (PG)–Johnson & Johnson (JNJ)

2 Yr Stock price – KMB, PG, JNJ, S&P500

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%

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%

Oil Price vs. COGS

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

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 (

%)

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

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

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

Relative Valuation

• Football Chart

Relative Valuation Range : $61.22 – 70.35

Triangulated Value : $74.73

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

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

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