Kimberly-Clark (KMB)

Presented by Alex RingMarch 2, 2006

RCMP Position

Purchased 300 shares on April 20, 2005 for $63.91 per shareNow we have 302.255 shares

Represents 6.3% of portfolio based on market values

Loss on position: -6.74% or - $1,293.00Not great performance, but haven’t held even

held it a year.

Kimberly-Clark: The Company Dallas, Texas based company involved in the production

and sale of health and hygiene products. Founded in 1872 by John A. Kimberly, Havilah

Babcock, Charles B. Clark, and Frank C. Shattuck. The company was incorporated in 1928.

Operates globally in three segments: Consumer Tissue, Personal Care, and Business-to-Business.

13% of net sales over the past 4 years have been to Wal-Mart, little room for growth here.

Dividends have been paid since 1935 The Company has made 14 strategic acquisitions since

2000. Recent ones have been in their health care products business. Source: Kimberly-Clark 2004 Annual Report

The External Environment Kimberly-Clark operates in a highly competitive environment

that keeps prices relatively low. The company responds by differentiating it products by branding. As a result, it is reducing it’s workforce by 10% and closing down 20

plants related to diaper and health care products Recently the company has focused efforts toward improving

products based on consumer demands. Examples include making feminine products more aesthetically appealing by improving packaging and developed scented products.

Company recently announced that it plans to bring products that customers want to market faster than before.

Source: Reuters, Kimberly-Clark stands by earnings expectations, Feb. 24, 2006

Competitive Environment Discussion In recent year sales have been increasing

modestly Volume increases have been strong, but have been

tempered by decreasing prices This is what has been causing COGS to increase at a faster

pace that revenues 2005 sales were up 5%; 3% from volume, 2%

currency effects 2004 sales were up 8%; 5% due to volume, 3%

from currency effects

Vulnerabilities Related to Raw Materials Company Spun-off Neenah Paper (NP) on November

30, 2004. The CEO, Thomas Falk, said that the move, “strengthened our commitment to health and hygiene.” The disadvantage is that it made the company more reliant on outside suppliers for pulp products, and thus, more exposed to market prices.

Before the spin-off 40% of pulp needed for production was supplied internally. Now only 10% is supplied internally, and they do not use derivatives to hedge the risk.

Vulnerabilities, Continued The company is exposed to price increases in energy

in the form of natural gas and petroleum products. Additionally, petroleum products are used in the manufacture of diapers and training pants.

Given the competitive nature of the industry, prices for products may not adjust adequately to reflect these price increases, and the firm’s profits could be squeezed as a result.

Kimberly-Clark: The Business Where Does the Company Make Its Money? Business Segment Information

Consumer Tissue Personal Care Business to Business

Where the Company Makes its Money

2004 Operating Profit

By Segment (in millions)

Personal Care $1,253.20

Consumer Tissue $803.10

Business to Business $656.60

Other Income -$51.20

Unallocated-net -$155.30

$2,506.40

Source: Kimberly-Clark 2004 Annual Report

2004 Operating ProfitBy Region (in millions)

United States $1,953.10

Canada $122.00

Europe $221.00

Asia, Latin America and Other $416.80

Other Income -$51.20

Unallocated-net -$155.30

$2,506.40

Consumer Tissue Segment Operating Profit Margin – 15.0% Paper towels, bathroom tissue, and facial tissue.

Products familiar to most consumers.

Personal Care Segment Operating Profit Margin – 21.0% Products include diapers, baby wipes, youth training

pants, incontinence products, and feminine care products.

Business to Business Segment Operating Profit Margin – 16.6% Products sold to healthcare institutions and other

businesses. Manufactures and sells facial tissue, paper towels, bathroom tissue, and disposable health and hygiene products, to name a few.

Kimberly-Clark: The Stock Market Price as of 02/28/06 - $59.60 Dividend Yield – 3.30% P/E (ttm) – 18.02 (S&P 500 – 18) Forward P/E – 14.06 Debt/Equity - .687 Current Ratio – 1.03 Beta - .56 (3yr with S&P 500)

Source: Yahoo Finance October 26, 2005

Share Repurchase Program On September 15, 2005, Kimberly-Clark announced that it

would be repurchasing 50 million shares over the next several years. 45 million of which shares remain to be purchased, 9 million shares

were purchased in 2005 and added $0.14 per share to 2005 EPS. This represents 10.5% of the current number of shares

outstanding 2-3% of the outstanding shares will be repurchased annually. This is in addition to an already generous dividend policy. In 2004 repurchases add $0.07 per share to earnings, and $0.14

in 2005.

1 yr chart (competitors)

1 yr chart (50 & 200 day MA)

5 yr chart (50 & 200 day MA)

5 yr chart (S&P 500)

Kimberly-Clark: The StockDIRECT COMPETITOR COMPARISON  

KMB Pvt1 PYX PG Industry

Market Cap: 27.95B N/A 653.49M 201.79B 1.09B

Employ ees: 60,000 55,0001 N/A 110,000 9.60K

Qtrly Rev Growth (yoy): 2.80% N/A -9.90% 26.90% 7.40%

Revenue (ttm): 15.90B 19.66B1 595.25M 61.68B 1.78B

Gross Margin (ttm): 31.91% N/A 50.46% 51.05% 16.88%

EBITDA (ttm): 3.28B N/A 91.90M 14.42B 277.52M

Oper Margins (ttm): 14.53% N/A 10.97% 19.95% 4.42%

Net Income (ttm): 1.58B 623.00M1 12.53M 7.77B 2.75M

EPS (ttm): 3.285 N/A 0.200 2.733 0.23

P/E (ttm): 18.21 N/A 51.50 22.45 23.05

PEG (5 yr expected): 1.96 N/A 1.75 2.02 2.83

P/S (ttm): 1.75 N/A 1.11 3.28 0.61

Correlation Matrix

  AEOS CPRT FR JKHY JPM KMB MS MVSN SRCL WAG

AEOS 1.00

CPRT 0.21 1.00

FR 0.21 0.43 1.00

JKHY 0.24 0.30 0.17 1.00

JPM 0.32 0.38 0.40 0.38 1.00

KMB 0.08 0.39 0.25 0.24 0.35 1.00MS 0.27 0.27 0.30 0.41 0.67 0.30 1.00

MVSN 0.26 0.15 0.16 0.26 0.31 0.14 0.32 1.00

SRCL 0.11 0.02 0.06 0.13 0.22 0.13 0.17 0.06 1.00

WAG 0.26 0.28 0.21 0.26 0.34 0.26 0.34 0.12 0.31 1.00

Correlation based on 3 years of weekly returns (156 data points)

DCF Analysis

Financial Analysis

Conservative estimates: Costs have been growing faster than

sales, projections show this continuing Management expects $3.85-$3.95 a share

in 2006, I have $3.59 projectedExpectations were $3.70-$3.85 in 2005, in

reality they were $3.30

Financial Projections

Discounted Cash Flow value per share $61-$75 versus a current price near $60

Assumptions: WACC – 7.80%, low risk

Adjusted Beta: 0.75 Sustainable growth rate – 4.00%

Substantial impact on DCF price

Sensitivity Analysis

Sustainable Growth Rate (g)

  0.02 0.025 0.03 0.04 0.045 0.05 0.055

WACC

0.06 $70 $79 $90 $131 $171 $252 $495

0.07 $56 $61 $67 $86 $102 $125 $164

0.078 $48 $51 $56 $68 $77 $89 $106

0.08 $46 $49 $53 $64 $72 $83 $97

0.09 $39 $41 $44 $51 $56 $62 $69

0.1 $34 $36 $37 $42 $45 $49 $53

DuPont Analysis

ROE = PM * TAT * EM

28.2% = 9.86% * .98 * 2.93

Where:PM = Profit Margin (NI/Sales)TAT = Total Asset Turnover (Sales/TA)EM = Equity Multiplier (TA/TE)

Recommendation

Hold on to entire position Valued in line with the market, and at a discount to

peers Holds up well to DCF analysis with conservative

estimates Generous Dividends – 3.30% yield Share repurchase program will boost EPS Stable industry that provides valuable diversification

to our portfolio