Boring Can Be Beautiful With This Company

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Kimberly-Clark (NYSE: KMB) is in the boring business of paper towels, tissues, diapers, baby wipes, toilet paper, and feminine hygiene products. The business isn't exciting, but it's very profitable and Kimberly-Clark has built a large moat for itself. To put it in perspective, consider that:

  • The company's leading brands are sold in more than 175 countries.

  • Kimberly-Clark has been in business for more than 140 years.

  • Nearly 25% of the world's population purchase its products every day.

  • Among its brands Kleenex, Scott, Huggies, Pull-Ups, Kotex, Poise, and Depend, Kimberly-Clark holds the number one or two brands share in more than 80 countries.

Besides being in a boring business, the way the stock trades is actually boring and that's a great thing. The stock has a beta of zero. But what isn't boring is the dividend and the dividend growth. The company pays an annual dividend of $3.24 per share for a yield of 3.30%. In February the company raised the dividend 9.5% and that marked the 41st consecutive annual increase in the dividend.

In the first quarter, Kimberly-Clark purchased $500 million in stock and plans to purchase a total of $1 billion to $1.2 billion this year. Kimberly-Clark is a very shareholder-friendly company and I see the company continuing its record of increasing the dividend and repurchasing shares.

In the first quarter of this year, sales grew 1% to $5.3 billion. Gross margin increased 140 basis points to 34.6%. Earnings per share rose 19% to $1.48, which was better than management guided three months prior.

Going forward, I still see plenty of growth for Kimberly-Clark in international markets. The company is getting aggressive in expanding its capacity in international markets. Kimberly-Clark is building a new diaper plant in China. By adding capacity in China, the company can boost margins from having to import less into that growing market.

In Venezuela, Kimberly-Clark is investing $37 million to expand its operations there. The company currently has 15% of the toilet paper market in Venezuela, but that number is likely to grow with this investment and the nation is dealing with a critical toilet paper shortage since the new government took office. The investment in Venezuela will allow the company to expand its capacity by 30% to 40%.

The competition

Kimberly-Clark has a very strong competitor in Procter & Gamble (NYSE: PG). Procter & Gamble competes with its Bounty paper towels, Charmin toilet paper, Pampers and Luvs diapers, Puffs tissues, and Always and Tampax feminine hygiene products.

For Procter & Gamble, all eyes are on the return of former CEO A.G. Lafley, who was in charge from 2000 to 2009. Shareholders are hoping he can rework the magic he had during his previous tenure. His first move was to reorganize the company into four divisions led by a group president who will report directly to Lafley. The plan is to spur growth in emerging markets and for Procter & Gamble to become a more efficient and profitable company.

The company is in the midst of a cost-cutting plan that is expected to save $10 billion by 2016. To spur growth in emerging markets, the company has plans for 20 new manufacturing facilities in Brazil, China, and Eastern Europe by 2015. In China, a new plant in Guangzhou will be operational later this year and will produce Pampers diapers. The company's stated goal is to acquire 1 billion new customers by 2015.

By localizing production with new manufacturing facilities, Procter & Gamble can roll out products quicker and with less cost to the company. If A.G. Lafley can accomplish these goals, there's plenty of growth ahead for Procter & Gamble.

Kimberly-Clark competes with Energizer Holdings (NYSE: ENR) and its Playtex line of feminine hygiene products, Diaper Genie baby products and Wet Ones wipes. Even though the company is named after its battery division, the personal care division accounts for more than half of the company's sales.

Energizer Holdings is looking to achieve growth via licensing deals. The company just hired licensing agency Brandgenuity to find deals for its personal care products, including its Playtex line. The goal is to create more value for Energizer's brands via strategic partnerships.

The company is also undergoing a significant restructuring to improve profitability. The company just increased its total expected savings by $25 million to a total of $225 million. So far, the company has eliminated 700 positions, or half of its stated goal.

Foolish assessment

Overall, my favorite is Kimberly-Clark, but Procter & Gamble is a close second now that A.G. Lafley is back in charge. I'm disappointed with Energizer Holdings and its aggressive cost cutting. Management is making deep cuts in the organization and that can't be good for morale. I'm not impressed with the company's strategy to license its products. I'll have to wait and see the results from that initiative.

For an investor looking to own a boring, solid consumer products company, stick to Kimberly-Clark or Procter & Gamble. You wouldn't have been wrong doing so in the past and likely won't be wrong doing so in the future.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Energizer Holdings, Kimberly-Clark, and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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