Thursday, 23 July 2015

US Thursday earnings fest #2: Dr Pepper and Kimberly-Clark

After part #1 here...Thursday's US earnings fest continues with a look at a couple of consumer names.

First Dr Pepper.  No surprises that carbonated soft drink volumes are being out-paced by their non-carbonated cousins...
 
but the good underlying pricing I have noted before on Dr Pepper continued and hence the operating profit and core EPS lines moved up by a mid-to-high single digit percentage.  

Also striking to me was shareholder remuneration which has run at over US$420m YTD.  This has been in excess of free cash flow generation but with debt around x2 ebitda maybe not a big concern yet (but surely there has to be a limit).  Nevertheless the current run rate was around an equivalent of 5.5%+ annualised shareholder remuneration yield.  
x14s EV/ebit is no disaster but with a little bit of debt, a big US only focus and over distribution currently I am prepared to wait for a bit of weakness (US$70?). 


Second is Kimberly-Clark who via their more international orientation compared to Dr Pepper had a big negative FX impact...

...they also showed no overall pricing power AND good sales growth in the developed/emerging markets which is an interesting combination.  More on this in a second. 

They edged up the lower end of their EPS guidance range...


...and also gave some quite punchy guidance for H2 shareholder remuneration.  To aid comparison with some of the Dr Pepper quoted metrics above a US$2bn shareholder remuneration by Kimberly-Clark would be equivalent to a 'yield' of just under 5%.  This is just about covered by inherent cash flow generation by the company whilst their net debt to ebitda ratio is a little over x1.75. 

What was also interesting about the Kimberly-Clark numbers was the sub-divisional differentiation with the personal care division (think nappies and related) having positive pricing, strong emerging market growth and double digit growth in various specialisms.  This was far stronger than the core consumer or 'professional' divisions.  


So what price this profile?  Prospectively the stock sits on a x15s EV/ebit rating which is a little firm even despite some of the positive trends above.  For me to buy the stock I would like to see something around a x14 prospective ratio (appropriate for a global consumer branded name with some debt) which would imply today a share price of around US$101.


I don't know what it is about Kimberly-Clark and a share price of c. US$100...because this was my broad conclusion way back in January 2014 too (link here).  Put a flag sub US$105 where technical support should be starting to kick in anyway judging by the above chart.  

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