Kimberly-Clark Corporation KMB April 12, 2007. Investment Managers Jessica Boghosian...

Kimberly-Clark

CorporationKMB

April 12, 2007

Investment Managers

Jessica Boghosianjboghos2@uiuc.edu

Stephen Profferproffer2@uiuc.edu

Matthew Storkmanstorkman@uiuc.edu Gleb Zarkhgzarkh2@uiuc.edu

Company Overview

Global health and hygiene company headquartered in Dallas, Texas

Manufacturing facilities in 37 countries with brands sold in more than 150 countries

Four segments: Personal Care Consumer Tissue K-C Professional & Other Health Care

Revenue of $16.75 Billion and Market Cap of $31.57 Billion

K-C’s 4 Business Segments

Personal Care Disposable Diapers Training and Youth Pants Swimpants Baby Wipes Feminine & Incontinence Care Products

Consumer Tissue (Household Use)

Facial & Bathroom Tissue Paper Towels Napkins

K-C Professional & Other (Away-From-Home Marketplace)

Facial & Bathroom Tissue Paper Towels Napkins Wipers Safety Products

Health Care Surgical Gowns Drapes Infection Control Products Sterilization Wrap Disposable Face Masks and Exam Gloves Respiratory Products

Kimberly-Clark Management

Long-term success factors: Developing new and improved products Responding effectively to competitive

challenges Obtaining and maintaining leading

market shares Controlling costs Managing currency and commodity

risks

Corporate risks

Manufacturing Cellulose fiber is the primary raw material

for tissue products and is an important component in disposable diapers, training pants, feminine products, incontinence and health care products, and away-from-home wipers.

Cellulose fiber (recycled fiber from recovered waste paper) is subject to significant price fluctuations due to the cyclical nature of these fiber markets. Recycled fiber accounts for approximately 29 percent of the Corporation and its equity companies' overall fiber requirements.

Corporate Risks

Manufacturing A number of K-C’s products, such as

diapers, training and youth pants, and incontinence care products contain certain materials which are principally derived from petroleum. These materials are subject to price fluctuations based on changes in petroleum prices, availability and other factors. Derivative instruments have not been used to manage these risks

Corporate risks

The Corporation's manufacturing operations utilize electricity, natural gas and petroleum-based fuels. Derivative instruments are used to hedge a

substantial portion of natural gas price risk. Highly competitive marketplace for sales

Increased concentration and a growing presence of large-format retailers and discounters = low bargaining power for K-C.

Retail trade agreements Higher trade discounts or allowances could lead to

reduced profitability.

Expense management

Marketing, sales, and administrative costs have increased over the last 3 years despite their “Competitive Improvement Initiatives” program implemented in 2005.

Expense Management-Outsourcing

As part of the Corporation’s Global Business Plan, a number of administrative functions are being transferred to third-party service providers beginning in 2007. Those functions include: Information technology Finance and accounting Sourcing and supply management Human resources services

Revenue Sources

K-C is involved in a new global marketing strategy to extend brand-building capabilities outside the United States.

This strategy will help recent problems in expanding globally and in developing and emerging markets such as Asia, Latin America, the Middle East, Eastern Europe and Africa.

Canada3%

Other25%

United States

54%

Europe18%

Consumer Tissue35.60%

K-C Professional & Other

16.18%

Health Care7.92%

Personal Care

40.11%

Corporate & Other0.19%

RCMP position

Purchased 300 shares on April 20, 2005 at $63.91/share Total investment of $19,173

Currently trading at $69.65/share as of April 11, 2007 Current value = $21,033

Unrealized gain of $1,860 (9.7%)

Portfolio Exposure

AEE 6%

AEO 19%

CPRT 9%

FR 7%

FR 7%

JKHY 3%

JPM 14%

KMB 6%

MS 9%

MVSN 1%

SRCL 5%

SRZ 7%

WAG 7%

Correlation Matrix

KMB AEE AEO CPRT FR JKHY JPM MS MVSN SRCL SRZ WAGKMB 1.000AEE 0.269 1.000AEO -0.004 0.049 1.000CPRT 0.162 10.082 0.118 1.000FR 0.254 0.386 -0.051 0.207 1.000JKHY 0.024 -0.019 0.032 0.355 0.115 1.000JPM 0.090 0.116 0.412 0.257 0.073 0.101 1.000MS 0.025 0.060 0.369 0.495 0.172 0.216 0.489 1.000MVSN -0.019 -0.008 0.288 0.298 0.172 0.362 0.525 0.475 1.000SRCL 0.126 -0.082 0.032 0.098 0.089 0.083 -0.046 0.118 -0.050 1.000SRZ -0.058 0.187 0.221 0.209 0.074 0.318 -0.034 0.085 0.060 0.065 1.000WAG 0.216 0.015 0.052 -0.050 0.008 0.191 -0.086 0.033 -0.009 0.180 0.070 1.000MKT 0.111 0.176 0.046 0.444 0.424 0.343 0.592 0.755 0.531 0.139 0.165 0.154

Competitors

Who Colgate-Palmolive (CL) Unilever (UN) Procter & Gamble (PG) Playtex (PYX)

Why Industry specific Market capitalization

1-Year Comparables

5-Year Comparables

K-C trades at a discount to its competitors with the exception of Unilever NV.

Dividend yield is high and the profit margin is mid-range compared to its competitors

Comparables

P/E EV/EBITDA EV/REV PM DIV YLDKIMBERLY-CLARK CORP. 21.45 9.469 2.08 8.95% 3.10%Colgate-Palmolive Co. 27.11 12.753 3.07 11.06% 2.20%Procter & Gamble Co. 22.43 12.664 3.14 13.14% 2.00%Playtex Products Inc. 29.35 10.765 2.25 4.75% N/AUnilever NV 13.69 11.059 1.85 11.97% 3.60%

DCF Analysis

Estimates Stable sales growth

Continuing efforts to expand internationally Population rates are main sales driver

Costs have been increasing faster than revenues

Management believes strategic cost reduction plan will begin to have effect in 2009

Forecast shows plan benefiting firm beginning 2010

DCF Analysis

DCF value per share $68.46 Market price of $69.65 (as of April

11, 2007) WACC

Sustainable growth rate = 3.5% Beta = 0.7 Number of shares outstanding =

455.5 Million

Sensitivity Analysis

Terminal Growth Rate2.83% 3.17% 3.50% 3.83% 4.17%

5.96% $104.27 $116.21 $131.37 $151.28 $178.57W 6.46% $88.63 $97.20 $107.69 $120.85 $137.81A 6.96% $76.77 $83.18 $90.84 $100.12 $111.61C 7.46% $67.45 $72.42 $78.22 $85.08 $93.33C 7.96% $59.94 $63.89 $68.41 $73.67 $79.85

8.46% $53.76 $56.95 $60.57 $64.71 $69.508.96% $48.58 $51.21 $54.16 $57.49 $61.29

DuPont Analysis

ROE = PM X TAT X EM

24.6% = 8.96% X .98 X 2.8

Where: PM = net profit margin TAT = total asset turnover EM = total assets/shareholders’ equity

Recommendation

HOLD the currently owned 300 shares of KMB. Low correlation with the market Minimally correlated to other stocks in

portfolio Consistent and stable growth Dependable dividend yield