Kimberly-Clark (NYSE:KMB) Mexico (KCM), a leading consumer products company, reported a robust start to 2024 with record-breaking financial results for the first quarter. The company's net sales, EBITDA, and net income reached all-time highs, driven by strategic price increases and sustained volume.
The Consumer Products business experienced growth in the low single digits, attributed to these price adjustments and volume protection by clients. Despite a substantial decrease in tissue parent rolls, the Professional and finished products categories continued to expand.
With a strong focus on margin improvement through higher volume, efficiencies, and cost reduction, KCM's Q1 sales hit MXN13.8 billion, marking a 1.8% increase. The cost of goods sold reduced by 8%, while gross profit surged by 18.4%. EBITDA soared to a record MXN3.9 billion, up by 19.3%, and net income climbed to MXN2.1 billion, a significant 29.1% increase.
Kimberly-Clark Mexico is set to accelerate growth through innovation, brand investments, and the execution of effective commercial strategies, including investments in logistics and distribution network optimization. The company boasts a strong balance sheet with a total cash position of MXN20.2 billion, and has announced a 15% dividend increase along with a share repurchase plan of up to MXN1 billion.
Key Takeaways
- Record Q1 net sales, EBITDA, and net income for Kimberly-Clark Mexico.
- Consumer Products business grew due to price increases and volume protection.
- Professional and finished products categories saw growth, while tissue parent rolls declined.
- Sales reached MXN13.8 billion, a 1.8% increase; gross profit up by 18.4%.
- Record EBITDA of MXN3.9 billion, a 19.3% increase; net income of MXN2.1 billion, up 29.1%.
- Plans to invest in logistics and streamline distribution network.
- Strong balance sheet with MXN20.2 billion in cash; dividend increased by 15% and a share repurchase plan of up to MXN1 billion introduced.
Company Outlook
- Focus on accelerating growth through innovation, brand investments, and effective commercial strategy execution.
- Investment in logistics to optimize distribution network and improve cost structure.
- Exploration of new categories to add value for consumers and clients.
Bearish Highlights
- Challenges in distribution due to a shortage of truck drivers in Mexico.
- Higher input costs impacting the company's operations.
Bullish Highlights
- Growth from a mix of volume and prices, addressing cost increases.
- Gaining market share through innovation and brand support, not aggressive pricing.
Misses
- Significant decrease in tissue parent rolls segment.
Q&A Highlights
- Pablo Gonzalez indicated potential growth in core businesses and categories with low penetration.
- The company is actively seeking opportunities to add value in new categories.
- Market share gains last year, with an intention to continue this trend through innovation and brand support.
- The call concluded with Pablo Gonzalez expressing gratitude and anticipation for the next quarter's discussion.
InvestingPro Insights
Kimberly-Clark de Mexico 's (KCDMY (OTC:KCDMY)) first quarter of 2024 performance reflects the company's ability to navigate a challenging market environment effectively. The InvestingPro data and tips provide deeper insights into the company's financial health and stock performance, which may be of interest to investors considering KCDMY as part of their portfolio.
InvestingPro Data:
- The company has a market capitalization of $6.45 billion, indicating its significant presence in the industry.
- KCDMY's P/E ratio stands at 14.85, suggesting that the stock is trading at a reasonable valuation relative to its earnings.
- With a dividend yield of 4.67%, the company demonstrates a commitment to returning value to shareholders.
InvestingPro Tips:
- KCDMY is recognized for its high shareholder yield, which is a positive sign for investors looking for income-generating stocks.
- The stock is currently trading at a low P/E ratio relative to near-term earnings growth, which may signal an attractive investment opportunity for value investors.
For investors interested in a more comprehensive analysis, InvestingPro offers additional tips on KCDMY. Currently, there are 10 more InvestingPro Tips available, which can be accessed at https://www.investing.com/pro/KCDMY. These tips could provide valuable insights into KCDMY's performance, industry position, and future prospects.
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Full transcript - Kimberly-Clark de Mexico (KCDMY) Q1 2024:
Operator: Good day, everyone, and welcome to today's Kimberly-Clark Mexico's 1Q '24 Earnings Conference Call [Operator Instructions]. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Pablo Gonzalez, CEO.
Pablo Gonzalez: Hello, everyone. Thanks for participating on the call, and we hope your year is off to a great start. As usual, I'll make some preliminary remarks and then pass it on to Xavier to provide some details on the first quarter results. We had a good start to the year, particularly on margins and bottom line growth. Net sales, EBITDA and net income were all quarterly records. Let me first provide some perspective on the top line. Our Consumer Products business grew low single digits versus a strong comparison, driven by the implementation of price increases during the first quarter of 2023 and the corresponding volume protection by clients, as well as Holy week landing in March this year as opposed to April of last year. Holy Week is traditionally a slow sales period in our categories. However, when compared to the fourth quarter of 2023 that is sequentially growth in the first quarter was 6% with a healthy 3% increase in volume. Professional posted mid single digit growth, an experts of finished products achieved very strong double digit growth, albeit from a low base. On the contrary, tissue parent rolls, once again decreased substantially and were roughly half those of last year. This was due to increased internal tissue consumption and significantly lower prices because of excess capacity in the Far East and the lower exchange rate. [Indiscernible] [This card roll] sales decreased -- this decrease impacted our top line by more than MXN400 million and roughly 300 basis points. It's important to point out that the negative impact for this line of business will be lower in the second quarter and reverse during the second half of the year. All in all, our consumer and professional businesses continued to perform well with healthy volume and strong shares, and first quarter total sales were a new record for the company. On the bottom line, we again posted important increases and continue to improve our margins. This resulted from a combination of higher volume and efficiencies, better raw material prices and continued progress on our cost reduction efforts. Let me pass it on to Xavier to provide details on the quarter.
Xavier Cortés Lascurain: Thank you. Good morning, everyone. During the quarter, our sales were a record MXN13.8 billion, a 1.8% increase versus the first quarter of 2023. Total volume was up 0.6% and price mix 1.2%. Net sales were driven by consumer products and work from home, which grew 3.4% and 5.8% respectively. Year-over-year, consumer products volume was down 0.3% while price mix was up 3.7%. Exports were down 17.2%, dragged by lower hard rolled sales. Converted product exports showed again very important improvement and grew 76.1%. Cost of goods sold decreased 8%. Against last year, virgin and recycled fibers, SAM and fluff were favorable, while resins compared negatively. The FX was lower, averaging 10% less. Our cost reduction program once again had very good results and yielded approximately MXN360 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing, materials improvement and process efficiencies. Gross profit increased 18.4% and margin was 42.3% for the quarter. SG&A expenses were 13% higher year-over-year and as a percentage of sales were up 181 basis points. Distribution expenses are up and we have strengthened the investment behind our brands. We are investing to improve our footprint and streamline our logistics operations. Operating profit increased 22.2% and the operating margin was 24.7%. We generated a record MXN3.9 billion of EBITDA, a 19.3% increase. EBITDA margin was 28.2%, a 50 basis point sequential improvement and a 410 basis points differential versus the first quarter of 2023, underscoring our focus on achieving strong margins. Cost of financing was MXN315 million in the first quarter compared to MXN415 million in the same period last year. Net interest expense was lower since we have less net debt. During the quarter, we had a MXN1 million FX gain, which compares to MXN21 million loss last year. Net income for the quarter was MXN2.1 billion with earnings per share of $0.68, a 29.1% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of March 31st was MXN20.2 billion. Our net debt to EBITDA ratio was 0.8 times with a net EBITDA to net interest coverage of 10 times. With that, I'll turn it back to Pablo. Thank you.
Pablo Gonzalez: Let me make a few additional comments before going into Q&A. On the top line, Mexico's economy has slowed but domestic consumption continues to show resiliency. We expect job growth, wage increases, remittances and handouts through social programs, together with higher spending in an election year to help sustain this trend and continue to support growth in other categories. Throughout the year and into 2025, we'll look to accelerate growth by strengthening our market positions, taking advantage of the opportunities through a very strong innovation pipeline, together with more effective investments behind our brands as well as great execution of our commercial strategies. On the cost side, we expect sequential increases on pulp and recycled fibers but other inputs will continue to compare favorably. And overall, we should experience a fairly stable raw material scenario. Continued growth in our categories, a relatively stable cost scenario, together with the investments to optimize our footprint and strengthen execution as well as [Technical Difficulty] and effective focus on cost reductions will allow us to continue to achieve strong results. Finally, at our February shareholders meeting, a 15% dividend increase and a share repurchase plan of up to MXN1 billion were approved. With that, let me open the floor for questions.
Operator: [Operator Instructions] And we'll take our first question from Ben Theurer with Barclays (LON:BARC).
Ben Theurer: Just two follow-up questions on some of the commentary made. So the first one is really around the economic expectations you just pointed out as it relates to potentially slightly slower activity, but still consumer spending to be fine and that the way you -- within that look to market share gains. Could you elaborate a little bit more as it relates to what type of investments you're doing and maybe have a few examples on the marketing side and on the innovation side. So just as we have like a more -- a better picture of what to watch for and what to see for, that would be the first question. And the second is really on the cost environment and the margin improvement you had and the stability here. Just to kind of get a feel how you think about the sensitivity in an environment if FX were to go weaker as we've seen a little bit more volatility more recently?
Pablo Gonzalez: First, on the investment examples. There's quite a few, but let me touch on a couple. One, over the past I'm going to say, six months, we've pretty much improved all of our lineup on the diaper category. From the premium Supreme Huggies diaper to back and forth and then on the value segment on [Indiscernible] in the economy segment [Indiscernible]. And all of those products have seen significant improvements in performance and as we have checked with consumer, they're all preferred significantly versus competitors. So that's one investment we're doing and you'll continue to see further improvements in our diaper category. Another example will be bathroom tissue where over the last, again, six to eight months, we've pretty much turned around quite a few of our products with improved strength, improved softness for consumers and again, with very good response so far. And likewise, we'll do some important improvements on feminine care, adult care, et cetera. So we really have a very strong pipeline of innovation but only that has already happened, but that it's coming in line for the next couple of years. So we're very excited with that. And as we bring that innovation into the market, we are certainly supporting our brands very aggressively and more and more effectively going forward. So we'll continue to put a lot of focus on that to ensure that consumers notice the innovation and our products are preferred and our brands are strengthened. On the cost environment, I mean, as we mentioned in the preliminary remarks, we do expect to see sequentially some cost increases on pulp and recycled fiber that those mainly have to do with a little stronger demand overall globally plus some competitors or some producers who have gone on maintenance or who have had force majeure. We expect that to slow down and maybe even reverse some more capacity comes online in the second half of the year but it's hard to tell at this point how that will convert in the second half. For the most part, the rest of the raw materials, at least the expectation right now is that they'll compare favorably. So that's why overall, we see a pretty stable cost scenario going forward. If something were to happen, as you mentioned, with the exchange rate, which has been strong and has helped us on the cost side, we would certainly have to take that into consideration and determine what actions we need to take to absorb such an impact. Again, difficult to tell at this point but we're ready to move if we need to.
Operator: And we'll take our next question from Alejandro Fuchs with Itau.
Alejandro Fuchs: I have two on my side very quickly. First, I was wondering if you could repeat the volume performance for the quarter. I think I missed it due to some connection issues on my side. And then the second will be related to the distribution expenses, right? In them you mentioned that you're trying to invest in logistics, improved logistics distribution network. But I also wanted to understand, as this is also related maybe to higher minimum wages in the country overall. And maybe you could provide a little bit more color on the specific things that were changing and the distribution we should expect this to continue the whole year?
Pablo Gonzalez: Yes, glad to comment on the volume. As we said, overall for the company, sales were up 1.8% and of that volume was 0.6% higher and price and mix was 1.2%, particularly on consumer products, which grew 3.4%, volume was slightly lower 0.3% and the growth came from a price and mix contribution of 3.7%. And lastly, away from home, which grew 5.8%, volume was up 5.3%. So volume is still strong on the professional or away from-home business. On the consumer products, as we mentioned, although volume was slightly lower versus last year that's because of the comparison. Because when you look at it sequentially, volume was 3% higher in the first quarter of this year versus fourth quarter of 2023. So again, let's remember that now growth will come from a more healthy and balanced mix between volume and prices as we've lapped most of the prices that we had to put in place because of the very strong cost increases over the past couple of years. So we are happy with our volume sequentially continuing to improve, which is a sign of the health in our business and the strength of our brands. When it comes to the distribution side, yes, we've seen important increases. And I think for the most part, there's different elements, let me put it this way that are making that happen. One, there's a lack of enough operators in Mexico or truck drivers in Mexico. Some have put it in the realm of 60,000 operators that we're missing in Mexico, and it seemed that our connection has been lost, but hopefully, that's not the case. So again, a lack of operators that we see in the country and that lack of supply has translated into higher costs together with, as you mentioned, higher wage increases in Mexico over the past couple of years. So overall -- and some higher input costs to the logistics company. So overall, a very -- a difficult scenario there, but a great opportunity going forward, because although it's been -- it's put some pressure on our SG&A over the past year and half, we are making some important investments to take advantage of the opportunity. And those have to do with our footprint, which we've mentioned and we're looking -- and have made investments in our footprint to optimize it, so that we need to move product around in a much lesser fashion that we're currently doing. And that's by focusing our operations and our manufacturing where demand is happening and you'll continue to see investments behind that. We did important investments in the bathroom tissue side, now we're doing them on the napkin side, and we'll continue to focus on that. So that's one area where we're focusing. And the other one is we're expanding our own fleet, which brings substantial savings to us and we'll be doing that throughout this year. We're already in the process of it. So we think that together, the footprint optimization, the expansion of our fleet and other measures that we're taking to streamline our operations in the distribution side should mean that we take advantage of this opportunity maybe closer to the end of the year and certainly into 2025. It doesn't happen overnight but we're already working on it. And again, we believe this is an important opportunity to strengthen our execution and improve our cost structure.
Operator: [Operator Instructions] We'll take our next question from Rodrigo Alcantara with UBS.
Rodrigo Alcantara: Just going back a bit on the top line and on product innovation and new categories. Pablo, just curious if you can comment here on -- I mean, maybe not inorganic opportunities, but what about new categories where you could be possibly explore as a way to to accelerate growth. I mean in your view, which categories could there be -- where could be the potential for Kimberly to enter into these new categories to accelerate growth? Just curious on your thoughts please here.
Pablo Gonzalez: It's a very important question and one that we're looking at very intently. As you know, we believe our core businesses still have a substantial room for growth. And we have a group of categories that are very -- that have low penetration and we're accelerating that penetration and growth of the categories, but it will take a little bit of time for those to be more important, but we're seeing great growth there. And we are, as you mentioned, also looking at other categories where we could participate. And the way we think about it is where can we add value to the consumer, to the client and that at least over time there would be margin neutral or at least -- or hopefully accretive but at least neutral. So that's the way we're thinking about this third bucket. And we're again intently looking to see where we can add value again for consumers and clients. And nothing that I can mention at this point only to say that we're [intentively] looking at a couple of categories. And hopefully, we'll be able to make some strides on that here in the near future.
Rodrigo Alcantara: And actually, a very quick follow-up. If you can perhaps give us a very brief update on your market share trends, right? I mean we traditionally always speak about the stable share trends. But on the other hand, we have seen very few competitors, at least in Mexico, so just this year. What's your view regarding a more aggressive strategy for you guys to gain share in the market, not only [maintaining] stable but to gain share in the market?
Pablo Gonzalez: I mean last year, as we mentioned on last quarter's call and our most important categories, we were able to gain some share. And this year, as the year starting, things look stable, if you will. But we are, as I mentioned, through innovation, through supporting our brands, looking to accelerate our growth. And for that, we need to grow volume and grow share. So we'll be very aggressive but we'll be aggressive on the innovation front and on the execution front, again and supporting our brands. We believe that's the sustainable, healthy way to grow share, not doing it by cutting prices or being very aggressively promotionally. It's all about having the best product in here and supporting it as we need in the point of sale and through our brand execution. So we will certainly be looking to, again, accelerate innovation and accelerate the support behind our brands.
Operator: And we'll take our next question from Renata Cabral with Citibank. And Renata, your line is open, please ask your question. And it does look like she has taken herself out of the queue at this time. It appears that we have no further questions. I will now turn the program back over to our presenters for any additional or closing remarks.
Pablo Gonzalez: Thanks again for participating on the call. And we look forward to talking to you next quarter. Hope you have a terrific second quarter. Thanks so much.
Operator: That concludes today's teleconference. Thank you for your participation. You may now disconnect.
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