In the third quarter of 2024, Kimberly-Clark de Mexico (KCDMX) reported a sales increase of 3.8% to MXN 13.2 billion, driven by volume growth and pricing strategies. CEO Pablo Gonzalez announced a net income rise of 9.2% to MXN 1.8 billion, with earnings per share at $0.59. The company experienced significant growth in exports, with a 25% surge, and a notable 42.2% increase in hard rolled sales. Despite a challenging economic environment, Gonzalez expressed confidence in achieving further sales growth and cost savings into 2025.
Key Takeaways
- Sales increased by 3.8% to MXN 13.2 billion, with a net income rise of 9.2% to MXN 1.8 billion.
- Exports grew by 25%, with hard rolled sales up by an impressive 42.2%.
- EBITDA reached MXN 3.5 billion, marking a 1% increase, and an EBITDA margin of 26.3%.
- The company plans to buy back MXN 400 million in shares in the fourth quarter.
- Cost-saving initiatives have already yielded MXN 400 million in savings, with more expected next year.
Company Outlook
- Kimberly-Clark de Mexico anticipates sequential sales growth in the fourth quarter.
- The company aims to introduce more innovations in 2025.
- A strong fourth quarter is projected, with cost savings expected to be slightly lower than the previous year at around $1.6 billion.
Bearish Highlights
- The company noted a slight decline in market share following the summer promotional season but expects a potential recovery.
- Growth in exports, particularly in personal care, may slow in the fourth quarter due to comparisons.
Bullish Highlights
- The company maintains a strong cash position with MXN 16.7 billion.
- Consumer product sales grew by 0.6%, and the company achieved $1 billion in cost savings year-to-date.
- Investments in logistics are expected to improve service and reduce costs starting next year.
Misses
- No specific target for cost savings was provided for 2024, although confidence in surpassing this year's savings was expressed.
Q&A Highlights
- CEO Pablo Gonzalez indicated no further regulations regarding modern trade in Mexico, maintaining a competitive market environment.
- Xavier Cortés Lascurain emphasized strong cash flow generation and efforts to strengthen the balance sheet.
- Pulp prices are expected to decrease in the fourth quarter, with lower averages anticipated for 2025.
Kimberly-Clark de Mexico's recent earnings call highlighted a robust financial performance despite economic headwinds. The company's strategic pricing, volume increases, and cost-saving measures have contributed to its growth, with a particularly strong performance in exports. The outlook for 2025 remains positive, with expectations for continued sales growth and margin improvements. The company's investment in capital expenditures and logistics is set to enhance efficiency and competitiveness in the coming years.
InvestingPro Insights
Kimberly-Clark de Mexico's (KCDMY (OTC:KCDMY)) recent financial performance aligns with several key metrics and insights from InvestingPro. The company's reported sales increase and net income growth are reflected in its solid financial position, as indicated by InvestingPro data.
One of the most relevant InvestingPro Tips for investors considering KCDMY is that the company "Pays a significant dividend to shareholders." This is substantiated by the impressive dividend yield of 6.42% as of the latest data. Furthermore, the company has maintained dividend payments for 32 consecutive years, demonstrating a strong commitment to shareholder returns that aligns with the company's robust cash position mentioned in the earnings report.
Another pertinent InvestingPro Tip highlights that KCDMY is "Trading at a low earnings multiple," with a P/E ratio of 13.16. This relatively low valuation could be attractive to investors, especially considering the company's reported growth in sales and net income.
The InvestingPro data shows a revenue of $2.73 billion for the last twelve months as of Q3 2024, with a revenue growth of 2.01% over the same period. This modest growth is consistent with the company's reported 3.8% sales increase in the latest quarter. Additionally, the operating income margin of 22.22% reflects the company's ability to maintain profitability despite economic challenges.
It's worth noting that InvestingPro offers 11 additional tips for KCDMY, providing investors with a more comprehensive analysis of the company's financial health and market position.
The InvestingPro Fair Value estimate of $10.19 USD suggests potential upside from the previous closing price of $7.63 USD, which could be of interest to value-oriented investors. This fair value estimate, coupled with the company's strong dividend history and low earnings multiple, may support the positive outlook expressed by management for future growth and cost savings.
Full transcript - Kimberly-Clark de Mexico (KCDMY) Q3 2024:
Operator: Good day, everyone. And welcome to today's Kimberly-Clark de Mexico 3Q 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session [Operator Instructions]. Please note this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to CEO, Mr. Pablo Gonzalez.
Pablo Gonzalez: Hello, everyone. Thanks for participating on the call. As usual, I'll make some preliminary remarks and then pass it on to Xavier to provide some details of the Q3 quarter results. Our sales accelerated and our margins remained strong. Let me first provide some perspective on the top line. Both our consumer products and professional businesses managed to post growth despite a soft market and a very aggressive promotional environment. Volumes in consumer products were slightly down given that, as we mentioned in last quarter's call, we decided to decrease our promotional activities and increased prices on our tissue businesses to offset raw material costs. Also, during the quarter, retailers and consumers reduced their inventories as is always the case after the summer promotion season. Prices were up 2% and thus sales increased 1%. Growth for the quarter was supported by exports and parent roll sales. With the former, we continue to expand our relationship with our partner, Kimberly-Clark Corporation (NYSE:KMB) as well as established a base for increased sales of other personal care products particularly in the US. On the latter, operating our tissue machines at full capacity and exporting what our converted products do not consume has always been a way for us to maintain operating efficiencies to boost growth in times of lower domestic market dynamics. Our model and strategy clearly worked during the quarter. With respect to margins, achieving an EBITDA margin on the high side of our range despite increased costs, the substantial peso depreciation and a less favorable sales mix shows KCM's strength and resiliency. I'll share some thoughts on our perspectives going forward once Xavier covers the details of the quarter's results.
Xavier Cortés Lascurain: Good morning. During the third quarter, our sales were MXN13.2 billion, a 3.8% increase versus the previous year. Total volume was up 1.8% and price and mix contributed 2%. Consumer products grew 0.6%, away from home 2.4% and exports 25%. Exports of hard rolled sales increased 42.2% while exports of finished products grew 7.7%. Cost of goods sold increased 5%. Against last year recycled fibers, super absorbent materials and fluff were favorable while pulp and resins compared negatively. Energy was lower. The FX was considerably higher after an abrupt 16% devaluation averaging 11% more, a MXN2 depreciation. Our cost reduction program had very good results and yielded approximately MXN400 million of savings in the quarter. We continue investing behind cost savings and production efficiencies and finding more cost efficient materials and sourcing. Gross profit increased 2.4% and margin was 39.6% for the quarter. SG&A expenses were 4.6% higher year-over-year and as a percentage of sales were up 14 basis points. Distribution expenses are still up year on year, although the investments to improve our footprint and streamline our logistics operations have started to yield positive results and we are improving sequentially. Operating profit increased 0.7% and the operating margin was 22.5%. We generated MXN3.5 billion of EBITDA, a 1% increase. EBITDA margin was 26.3%, 80 basis points lower versus the third quarter of 2023. This margin is in the high end of our long term range despite the significant FX pressure and pulp price headwinds. Cost of financing was [MXN2.9 million] in the third quarter compared to MXN414 million in the same period last year. Net interest expense was lower since we have less net debt. During the quarter, we had a MXN4 million FX gain, which compares to a MXN4 million loss last year. Net income for the quarter was MXN1.8 billion with earnings per share of $0.59, a 9.2% increase. For the first nine months of the year, net sales grew 3%, EBITDA was up 12% and net income increased 19%. EBITDA margin was 27.8% during the same period. We maintain a very strong and healthy balance sheet. Our total cash position as of September 30 was MXN16.7 billion. Our net debt to EBITDA ratio was 0.7 times with an EBITDA to net interest coverage of 12 times. All of our debt is denominated in Mexican pesos. During the quarter, we bought back approximately MXN600 million of shares. We will be buying approximately MXN400 million during the fourth quarter in line with our authorized amount of MXN1 billion. Thank you.
Pablo Gonzalez: Going forward, despite indications that the economy and private consumption will not pick up during the fourth quarter, we expect our sales to improve sequentially driven by increased volumes. And as we get into 2025, we will be ramping up our innovations and increasing our investments behind our brands to support stronger growth. With respect to the bottom line, pulp prices have started to come down as China remains on the sidelines, new capacity has come onto the market and inventories have increased. We should see that fully reflected in our cost during the first quarter of 2025. In addition, we are investing to increase our paper manufacturing flexibility to utilize the most cost effective pulp mix and they should also start materializing early next year. When it comes to the exchange rates, the current rate would be 11% higher than last year during the fourth quarter and approximately 15% for the first half of next year. So most likely it will continue to be a headwind. All in all, our margins will still be very healthy and exceptional within our industry regardless of the comparatively much more difficult context. And we have plans for even more aggressive cost reduction initiatives, as well as price mix improvements as we get into next year to continue to support them. Before going to your questions and given it's our last call of 2024, let me wish you all a terrific end to the year and a great 2025. With that, we'll turn it over for your questions.
Operator: [Operator Instructions] And we will take our first question from Ben Theurer with Barclays.
Ben Theurer: Two ones. So number one, as you look into, obviously, the market dynamics and the FX impact and how that has impacted your share price, which has come down quite meaningful. You've done a couple of share buybacks already from right round about $30 million on a year-to-date basis. How do you think about just like capital allocation first place and to potentially accelerate these buybacks? What's left within your program and how much could you potentially increase that also in light of the leverage being well below 1 time? So that would be my first question.
Pablo Gonzalez: As you know, our cash flow continues to be very strong and we expect that to be the case going forward. Our earnings are still very strong. So we expect both to increase significantly or during next year and our buyback program for next year. For this year, as Xavier mentioned, we have MXN400 million left in the program and we will be buying back shares in that amount during the fourth quarter, but we do expect our program to be quite a bit stronger for next year.
Ben Theurer: And then as you look into just like the market dynamics, consumer dynamics, I think you said you expect a little bit of an improvement on the volume side into 4Q. Is that a volume improvement just given of maybe what the softness was in the third quarter on volume, or how should we think about this also on a year-over-year basis? Just to kind of get a little bit of a sense of like what's driving that expectation for improvement in volumes into 4Q?
Pablo Gonzalez: It's a couple of things, Ben. One, as you mentioned, it's a ramp up from the third quarter which is always slower given the promotional season and the summer -- the heavy promotional season during the summer in which both retailers and consumers stock up and then they have to get through that destocking of that inventory. So we always see a ramp up in the Q4. But in addition to that, the -- many of the activities we are putting into the market, into this quarter, we're already seeing improvements and we expect that to continue throughout the quarter.
Operator: And we will take our next question from Robert Ford (NYSE:F) with Bank of America.
Robert Ford: Pablo, it appears as if you've been trying to pass through some pricing coming under the summer promotional season. But I was hoping you might be able to maybe comment on that activity as well as how you're seeing competitive positioning and private label trends?
Pablo Gonzalez: As you know and as we mentioned in last quarter's call and this call, we passed on pricing on our tissue businesses early on the second quarter right before the summer promotional season. Our competitors lagged throughout the whole season. Hard to tell what will happen now as we got out of it. There might be some subsequent pricing coming into the market. We are all facing the same headwinds. So there's no doubt that there's some need out there to try and pass on pricing to absorb some of the FX costs and the raw material costs that we've experienced. In our case, we will take advantage of any pricing opportunity that comes ahead. We will not be doing anything across the board. But more likely given our analytical capabilities, we're taking a look at where we can do it, be it product, regions, categories, et cetera. But we will be pushing prices forth going forward. And having said that, we'll be cognizant of course of market and consumer reactions and adjust as necessary but we will be moving forward with that. In terms of private label, I mean, interesting that they participated in the summer promotional season, which is something we hadn't seen in the past, or they participated a little bit more strongly. Their prices are coming back are normalizing if you will in this quarter. So very cognizant of that. And as you know, very keen on strengthening our multi-tiered strategy, which has been our strategy to gain as much volume and share in the market and also to keep competitors at base. So we'll be working -- we are working already very hard to strengthen that proposition in terms of innovations, in terms of the right pricing and ramped up execution behind our activities. So just moving forward, again, we expect volume increases and we expect to strengthen our positions in the market.
Robert Ford: And then Pablo, the [Indiscernible] appears to be leaning toward regulating your relationship with the big kind of modern trade clients. Filings that we've read suggest that they're inspired by the Australian framework. How do you think a regulatory framework if it were in line within Australia or some of the European models, how might that impact your relationship with the modern trade in your opinion?
Pablo Gonzalez: Wouldn't know. I'm going to say that we don't expect any further regulation regarding more modern trade in Mexico at least none that we’ve heard of. So this will continue to be just an open and very competitive environment, and what we've done in the past and we will continue to do in the future is just win in such an environment. That is our culture and that is -- our execution capabilities have allowed us to do that and that's how we're thinking about it, just winning out there in the market with the consumer.
Operator: And we will take our next question from Antonio Hernandez with Actinver.
Antonio Hernandez: Regarding the cost initiative that you mentioned, I mean, you've already achieved that $1 billion in cost savings benchmark year-to-date. Anything else that you could provide right on -- regarding the Q4 and also next year, everything regarding that cost reduction program?
Pablo Gonzalez: As we've said many times and you know this -- I mean cost reduction is just a part of our culture. And we continue to execute very efficiently behind it and we expect another strong quarter in the fourth quarter. We're going to probably be close to where we were last year, maybe slightly lower than that, 1.6 -- somewhere in that range. And for next year, as I mentioned given the context we are facing, we're just redoubling our efforts. And don't have a number right now but I'm pretty confident that we will be able to surpass this year's number next year.
Antonio Hernandez: And just a quick follow-up on financing cost going forward. I mean, given the deleveraging trend that you are keeping and cash flow generation. Is this something that you are expecting as well in terms of financing cost?
Xavier Cortés Lascurain: Yes, we will continue to have a strong cash flow generation and very likely -- it's going to depend a lot on what happens next year with dividends as Pablo was mentioning, we will increase dividends and buybacks. But it's very likely that we will continue to strengthen our balance sheet and that should impact our finance costs positively. And let me just add -- Antonio, let me just add something to what Pablo was mentioning on the cost reduction initiatives. We have to keep in mind that the number that we get every year is on top of what we got the previous years. It's not that in one year we get a little bit less than the previous one, our costs are going up. There may be just a slow deceleration of how much we are reducing the costs. But every peso that we get there is on top of what we got the previous years.
Operator: And we will take our next question from Renata Cabral with Citigroup.
Renata Cabral: I have two here. One, in terms of exports, we saw a good improvement this quarter. Just if you can have some color about the perspectives for the fourth quarter, would be helpful. And the second one would be a follow-up in capital allocation, in terms of expanding capacity or investment in new categories. Is there something you can share with us, I would appreciate.
Pablo Gonzalez: Yes, first on exports. Our sales of finished product, as we mentioned, have continued to be strong behind our relationship with Kimberly-Clark Corporation on the one hand but also we're starting to establish a base of sales of personal care products, particularly in the US. Still small but growing and we expect that to continue to grow going forward. So exports of finished products will grow at a slightly lower rate in the fourth quarter given comparisons, but it continues to perform very strongly. When it comes to parent rolls, again in the third quarter given that our volumes, particularly in tissue and consumer products were slightly down versus last year, we were able to export the capacity into the US particularly and that's why we had such a strong growth. As we increase our volumes in the following -- in the next quarters internally or domestically then we expect the sale of parent rolls to be slower than it was in the third quarter. So again, that's always how it works depending on if we're able to get the volumes in here then we have less paper to sell outside of Mexico, and we expect that to be the case in the coming quarters.
Xavier Cortés Lascurain: As for capital allocation and how requirements for CapEx and/or expansions, what I can tell you is around $120 million, which is what we will be investing this year in CapEx, it's a -- figure around that should take care of our needs in the coming years for capacity, product improvements and efficiencies. So that's what we should be investing around that number. Regarding entry into other categories, as you know, we were actively looking at opportunities, hard to tell at this moment if we go into something if that would require capital. But beyond that, we will definitely have more free cash to give back to investors.
Pablo Gonzalez: And let me just add a little bit on the new categories. As Xavier has mentioned, we've been starting different categories. And all I can say we're getting closer and I'm pretty sure that sometime in 2025 we'll be able to let you know of our participation in additional categories within consumer products.
Operator: And we will take our next question from Eugenia Caballero with Morgan Stanley.
Eugenia Caballero: I have two questions. First, Xavier, if I can ask you to repeat the price and volume mix growth overall and by category, that would be very helpful. And second, I wanted to see if you could open a bit more and give us more details on how you're seeing competition in each of your main categories in Mexico?
Xavier Cortés Lascurain: So for our price and mix for top line as total volume was up 1.8% and price and mix was up 2%.
Pablo Gonzalez: That's total and that's how you get to the 3.8% sales, which I hope answers your question, if not, we'll come back to that. When it comes to competition, I mean, as you know who the competitors are and it's always been a very dynamic and competitive market. We aren't currently seeing any new entrants but a highly competitive market. But again, we are all having the same headwinds in terms of the exchange rate and some of the raw material costs. So we'll see how the pricing evolves. And on our end, we'll keep looking for opportunities to increase prices but are particularly focused on increasing our volumes in the coming quarters. And given our activities we're seeing now is already nice pickup. So we expect that to continue and we expect to strengthen our positions in the market in the coming quarters. Does that answer your question Eugenia or do you have anything that you want to follow-up with?
Eugenia Caballero: Yes. If you could also disclose the price mix and volume for the consumer products and away from home that will be very helpful, Xavier.
Xavier Cortés Lascurain: Yes, we can do that. Sales in consumer products were 0.6% higher and that's behind a minus 1.4% in volume and a 2% increase in price mix. And away from home, sales were up 2.4% with volumes up 3.9% and price mix minus 1.5%.
Operator: And we will take our next question from Juan Guzman with Scotiabank.
Juan Guzman: I have just one here, after -- that's a follow-up actually on competition. After -- you took some price actions in your tissue segment during the second quarter. What have you observed regarding competitors? You already mentioned that competitors lack. But are you seeing if they are following now, does rationality continue in the market? And additionally, how have your market shares performed in recent months?
Pablo Gonzalez: Yes, I mean, we've seen prices come up after the -- we don't want to call it the end, but as the summer promotional season subsides. We certainly have seen prices come up. So we'll see how those continue to move going forward, because they're coming back to pre-promotional season levels. So we expect those to continue to climb during this quarter as again as we all react to the FX and to the raw material costs. But at this point, what we're seeing is just prices coming off the very deep promotional season. And we again increased prices before the promotional season and were less aggressive than our competitors during the season. And that's why -- that's the main reason why our volumes were down and now we're starting to see our volumes come back up. So of course, when you talk about share, given that we were not aggressive as they were during the promotional season, we lost a little bit of share in some of our categories during the season. But again, we're starting to see those come back again. And we expect those to strengthen given what we're seeing right now in terms of our activities and our innovation and the reaction of consumers to both. So a very positive scenario going forward in terms of the strength of our shares and our brands in the market.
Operator: And we will take our next question from Jorge Izquierdo with BTG Pactual.
Jorge Izquierdo: I have a quick question regarding logistics. When do you expect to see the major benefit from the investments made to increase the penetration of your own fleet?
Pablo Gonzalez: I mean, we will see some benefits this quarter. But the whole program, if you will, will materialize really starting early next year. And that's because, one, as we mentioned, we increased our fleet and we're putting it to use more efficiently. However, it hasn't been easy to get all of the operators, the truck operators that we need in the country. It's an issue that every logistics operator is dealing with. So we're putting plans together to be able to attract more of those operators and we expect them to have the full force ready by next year. And that's when we will be able to take full advantage of the program that we've put in place. So you'll see something in the fourth quarter but we will see the whole advantage of it into next year. And we expect it to be substantial, not only in terms of cost but also in terms of allowing us to provide much better service to our clients. So we're very upbeat about that and we'll continue to invest to strengthen our own fleet so that we can continue to lower our costs and provide better services to our clients.
Operator: And we will take our next question from David Cruise [Indiscernible].
Unidentified Analyst: My question is, what is your expectation in the level of the price of cellulose fiber for the remainder of the year and for 2025?
Pablo Gonzalez: As we mentioned, pulp prices have already started to come down. So sequentially, they'll be lower in the fourth quarter versus the third quarter. Now what will those levels be it's hard to say, because we see the prices coming down in the market but we still haven't seen those reflected in our numbers and that's because there's always a lag given the contracts that we have. And because although, as I mentioned, China remains on the sidelines, new capacity on the market, inventories have increased and that's why prices are starting to come down. But of course, there's efforts by the pulp producers to have that -- those lower prices come into the market as slowly as possible. So we're pressuring as everyone who uses pulp is pressured to see so those prices reflected early on. But we’ll see something in the fourth quarter but most likely we'll see the whole impact next year. Now what will the impact be next year? It really depends on demand and depends on how quickly we can have this show up in the results. But let me quickly -- we can follow-up on that, David, because we'll put some numbers together and follow-up with you. I mean, most likely first and second quarter, we'll still see versus last year some increases but much more minor than we are seeing right now, because we'll see sequential -- sequentially important decreases. But second quarter, third quarter -- certainly third quarter and fourth quarter of next year, we're seeing prices lower in the double digits versus where they currently are. On average, they should be lower next year, the way we're seeing it and sequentially from now we should also see them coming down.
Operator: Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Mr. Pablo Gonzalez for closing remarks.
Pablo Gonzalez: Thank you. Well, thanks everyone again for participating on the call and for your questions. Let me just again reiterate that we expect sales to increase sequentially, driven by volumes. And we are upbeat for 2025 in terms of what we can achieve on the top line. And on the bottom line, we will continue to have very healthy margins and really exceptional within our industry. Yes, this quarter's margin was lower than prior quarters because we were at record levels. But we're still at the high end of our range and we expect that to continue throughout the fourth quarter and certainly into next year, notwithstanding the headwinds that we're facing. So we are upbeat with what we'll deliver in the fourth quarter and particularly for 2025. And we will certainly be updating you on that and working very hard to make sure that that happens. So again, thanks for participating. And once more, let me wish you all a terrific end to the year and a great 2025. Thank you all.
Operator: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.
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