Paper products giant Kimberly Clark
Net income dropped 3.1% to $445.3 million, but with fewer shares outstanding, per-share results remained flat at $0.91. Excluding the results from the recently spun-offNeenah Paper
The core health and hygiene consumer products that remained behind -- which include brands like Huggies, Depends, and Cottonelle -- delivered a solid 5% volume increase. That, along with favorable currency translation, helped sales grow 8% to a record-high $3.9 billion.
Overall, net prices remained level during the quarter, as increases in tissues were offset by a reduction in diapers and training pants. The competitive price cuts, though, drove a double-digit volume improvement in the company's infant-care segment, which added to its already industry-leading domestic market share at the expense of archrival Proctor & Gamble
While North American operations were healthy, those in Europe again proved to be a soft spot during the quarter. Both the consumer-care and personal-tissue segments reported higher sales, with gains of 5% and 4%, respectively. Revenues would have declined, though, without the positive impact of currency fluctuations (which contributed 9%), as both pricing and volume were lower. This slowdown presents a short-term challenge, as do rising commodity costs and a continued weak pricing environment in the intensely competitive diaper market.
These concerns notwithstanding, Kimberly Clark enters the new year with some momentum. For the full year, sales advanced 8% to $15.1 billion, and with the help of $160 million in cost savings, earnings from continuing operations rose by double digits to $3.55. The company is also churning out a mountain of operating cash flows, which have risen for four straight years. With capital expenditures dropping to less than 5% of sales, free cash flows swelled to $1.43 billion, shattering last year's previous record number by more than 40%.
The company's free cash flow figures are net of dividend payments, which last year grew to $768 million. Those who prefer companies that pay now and later, such as Motley Fool Income Investor readers, will find Kimberly Clark's track record fairly attractive. After five consecutive annual increases, the company's dividend is now roughly two-thirds above where it stood back in 2000. Another increase has already been slated for next year, and the 12.5% raise will lift the yearly payment to $1.80, making the yield 2.8%. Cash has also been used for the generous repurchase of stock -- $1.6 billion was spent last year to buy back 24.8 million shares.
With competitive pressures keeping a lid on price increases, volume growth has become vital to moving the top-line, and by extension the bottom line, forward. In fact, nearly all of 2005's forecast 3%-5% revenue growth is expected to come from volume, as price, sales mix, and currency are all projected to be flat. Fortunately, with new product innovation, an expanded presence in emerging markets like China and India, and increased marketing support all aiding volume improvement, the upside potential of Kimberly Clark's stock price doesn't hinge on the upside potential of its products' prices.
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Fool contributor Nathan Slaughter spends a painful percentage of his income on Kimberly Clark diapers, but owns none of the companies mentioned.