Cost Efficiencies And Export Mix Shift Will Support Long-Term Earnings Resilience

Catalysts

About Kimberly-Clark de México S. A. B. de C. V

Kimberly-Clark de México S. A. B. de C. V produces and markets tissue, personal care and hygiene products for consumers and institutional customers in Mexico and export markets.

What are the underlying business or industry changes driving this perspective?

• Scaling innovation across diapers, bathroom tissue and value segments is supporting share gains in flat categories. This is expected to gradually lift volumes and sustain premium pricing, underpinning revenue growth and operating margin resilience.
• The strategic shift from hard roll exports toward higher value finished products with Kimberly-Clark Corporation, supported by available capacity and supply chain integration, is expected to enhance mix quality and export profitability, improving EBITDA and net margins.
• Structural cost efficiencies from ongoing MXN 500 million per quarter savings programs, combined with lower pulp, resins and a stronger peso flowing through inventory, are set to expand gross margin and support earnings growth even in a soft demand environment.
• Growing penetration of private label and economy tiers is being met with targeted innovation in value brands and disciplined revenue management. This is expected to help defend share, stabilize price architecture and protect operating margins.
• A robust balance sheet, comfortable debt maturities and consistent buybacks following a 7% shareholder payout create capacity to keep investing behind brands and capacity optimizations while returning cash, supporting per share earnings growth over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Kimberly-Clark de México S. A. B. de C. V's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 14.0% in 3 years time.
• Analysts expect earnings to reach MX$8.7 billion (and earnings per share of MX$2.86) by about December 2028, up from MX$7.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, up from 16.0x today. This future PE is greater than the current PE for the MX Household Products industry at 15.9x.
• Analysts expect the number of shares outstanding to decline by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.27%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged weak consumer environment in Mexico, with stretched households, job growth deceleration, slower remittances and muted category volumes, could cap pricing power and limit volume growth, constraining revenue and EBITDA expansion.
• Rising competitive intensity from both branded rivals and growing private label penetration in key tissue and diaper categories, including aggressive promotions and cheap imports in wipes, could force deeper discounts or a shift in mix toward economy segments, compressing net margins and earnings.
• Execution risk in shifting the export mix from hard rolls to higher value finished products, amid current oversupply of hard rolls in the U.S. and reliance on Kimberly-Clark Corporation for integration, could delay expected mix and margin benefits, weighing on export revenue and EBITDA margins.
• Cost tailwinds from lower pulp, resins and a stronger peso may be partially offset by structurally higher labor costs in Mexico and other operating expenses, limiting the anticipated rebound from the current 25% EBITDA margin floor and slowing earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of MX$40.25 for Kimberly-Clark de México S. A. B. de C. V based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be MX$62.2 billion, earnings will come to MX$8.7 billion, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 14.3%.
  
• Given the current share price of MX$38.25, the analyst price target of MX$40.25 is 5.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.