From a skin-deep perspective, of course, the market had a point. Third-quarter sales rose only 6% year on year, and profits were just a hair faster than that at 7% per diluted share (then again, foreign exchange fluctuations accounted for 2% of the earnings growth).
But that ignores the company's impressive performance over the longer term. Comparing the first nine months of 2004 with the equivalent year-ago period, Kimberly-Clark grew revenues by about the same amount (7.5%), but earnings per diluted share increased at a double-digit rate (11.6%). And the company's free cash flow picture is even more attractive. Over the same periods, FCF grew by 29.5% to reach nearly $1.8 billion -- of which the company paid out more than $570 million as part of its current 2.5% annual dividend yield. The company itself subtracts out dividends when measuring its free cash flow, so its figure for the past nine months was closer to $1.2 billion -- which, as it points out in its press release, was more than the $1.1 billion in FCF that Kimberly-Clark collected in all four quarters of 2003 combined.
At its current run rate, then, Kimberly-Clark looks on target to hit about $2.4 billion in (pre-dividend) free cash flow for fiscal 2004, giving it a forward enterprise value-to-free cash flow ratio of about 14. Compare that to much-larger archrival Procter & Gamble's
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Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.