Kimberly Clark 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

International led 4% core revenue growth

“First quarter sales were $5.3 billion. That’s down 1% versus last year. Underlying organic sales rose 4% led by strong growth in K-C International. Currency rates were a 3 point drag and restructuring activities reduced sales by a further 2%.”

Venezuela earnings locked up in the country

” We measure our results in Venezuela at the rate at which we transact our business in the country. Since March of last year, that’s been at the official exchange rate of 6.3 bolivars per US dollar. To date, we’ve not had access to US dollars through either the complementary currency exchange system known as SICAD or the recently announced SICAD II auction process. At this time, it’s not clear if we’ll able to access either of those systems going forward or what amount of currency exchange will transact through those mechanisms in the market as a whole.’

Big growth in Huggies internationally

“In diapers, our organic sales increased about 30% in China, 25% in Russia and 15% in Brazil in the first quarter. So our Huggies business has good momentum in these three markets and broadly throughout Kimberly-Clark International, and we’ve got more innovation coming yet this year to help us drive additional growth.”

Targeting 3-5% sales growth

“our organic sales growth target remains 3% to 5%. We got solid topline momentum right now and that’s driven by our targeted growth initiatives and our innovation and we expect that to continue going forward. On the bottomline, we continue to expect full year adjusted earnings per share to be in a range of $6 to $6.20.”

Retailers like selling diapers because it attracts a great type of consumer

“I’d say Personal Care stuff is probably a little bit more efficient to ship on an online environment. It’s not to say that you won’t see it in the offline or in having tissue move into online as well. But I do think Personal Care diapers in particular is a bigger item. And I think many of the online retailers want diapers for a lot of the same reasons that other retailers are focused on that category, because they want to get the young family as a regular customer.”

Rate of change in Chinese city expansion slowing a little bit

“if you looked at China, we’ve been growing at 40 and now I think in the first quarter, we were at 30. We were at 70-ish cities and now we got 90 by the end of last year. We went from 90 to 95 in the first quarter. So the rate of new city expansion is probably slowing a little bit, which is why those numbers are coming down.”

No shortage of competitors

“there’s a lot of competition everywhere. So in China in particular, Proctor, Unicharm, Kao are all over the mid and premium tiers. Hang On is all over the lower part of the marketplace.”

Venezuela currency situation unsustainable

“I don’t think I can remember in my entire career a situation like this in a significant currency market where you’ve got a range from 6 at the rate to if you look at SICAD II it’s trading at 50. And so I do think that something is going to happen to close that gap at some point, because it’s not sustainable to have that kind of a spread in a marketplace.”

Aside from financial disclosure risks, there’s operating risks too

“so I’m looking at this from two perspectives, what do we need to do operate in Venezuela, so how do we set pricing, how do we import product, how do we pay the bills and manage our exposure level. So that’s one set of activities.”

Mexico growth slower than forecast

“I guess I would say broadly economic conditions in Mexico continue to be challenging with less growth overall in the economy than forecasted. And they had a fairly challenging fourth quarter. And I’d say some of the same challenges that they had in the fourth quarter seem to continue into the first quarter. But the team down there is committed to continue to improve their business and they’ve got a solid track record and they’ll deliver improved results in the back half for the year.”