Powering Care Program Will Drive Growth Through Market Expansion In North America And China

Key Takeaways

• Focusing on innovation and strategic restructuring could enhance revenue, market share, and operating margins.
  
• Strong supplier relationships and productivity gains may mitigate costs, driving earnings and top-line growth in key markets.
  
• Slowing category growth, pricing challenges, FX pressures, and restructuring risks could pressure Kimberly-Clark's revenue, margins, and short-term earnings stability.

Catalysts

Manufactures and markets personal care and consumer tissue products in the United States.

• Kimberly-Clark's multiyear Powering Care transformation strategy aims to accelerate growth by restructuring into three segments, focusing on volume and mix-driven growth, which can enhance revenue and market share.
  
• The company's emphasis on innovation-led growth, with investments in product quality and brand support, is expected to drive future revenue expansion beyond current category growth rates.
  
• Strengthening relationships with suppliers and managing the commodity basket proactively could help mitigate cost pressures, potentially improving net margins.
  
• Industry-leading productivity and SG&A savings through the Powering Care program are projected to enhance operational efficiency, contributing to earnings growth and expanding operating margins.
  
• Strategic share gains in key markets, particularly in North America and China, are anticipated to bolster volumes in International and Professional segments, positioning the company for robust top-line growth.

Kimberly-Clark Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kimberly-Clark's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 13.2% in 3 years time.
• Analysts expect earnings to reach $2.7 billion (and earnings per share of $8.17) by about March 2028, up from $2.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, up from 18.2x today. This future PE is greater than the current PE for the US Household Products industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 1.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Kimberly-Clark Future Earnings Per Share Growth

Risks

• Slowing category growth driven by lower birth rates, particularly in Latin America and Southeast Asia, could exert pressure on Kimberly-Clark’s revenue and volume growth.
  
• The company’s expectation of muted pricing in 2025, amid limited inflation offset, poses a risk to net margins and earnings.
  
• Exposure to FX pressures, including hyperinflationary environments like Argentina, complicates pricing strategies and can negatively impact revenue growth in specific markets.
  
• The company’s restructuring efforts and strategic market exits (e.g., Nigeria) may involve execution risks and could potentially cause disruptions, affecting short-term earnings stability.
  
• Increased supply chain optimization and restructuring costs related to the global supply chain revamp might temporarily impact net margins if savings do not offset these initial outlays.

Valuation

• The analysts have a consensus price target of $143.888 for Kimberly-Clark based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $168.0, and the most bearish reporting a price target of just $118.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $20.5 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 6.2%.
• Given the current share price of $139.53, the analyst price target of $143.89 is 3.0% 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.