2008-08-01 02:06:01 -
- Fitch Ratings has affirmed Kimberly-Clark Corporations ratings as follows:
--Issuer Default Rating (IDR) at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1';
--$1.5 billion revolving credit facility at 'A';
--Senior unsecured notes and debentures at 'A;
--Dealer remarketable securities at 'F1' and 'A'
The Rating Outlook is Stable. Approximately $4.1 billion in outstanding notes, debentures and dealer remarketable securities are affected by this action.
The ratings reflect the company's strong liquidity supported by its ability to generate at least $2.1 billion in operating cash flow in each of the past nine years, significant scale with over $19 billion in revenues over the past 12 months ending June 30, 2008, and
leading market shares in a relatively non-cyclical industry. The rating also encompasses a long-term trend of EBITDA margin declines from 22.3% in 2004 (excluding restructuring charges) to 19.3% in 2007. Margins are most likely to be down meaningfully in 2008 driven by accelerating commodity costs and could be pressured further in the intermediate term. Additionally, the company's ability to pass through price increases and continued focus on cost reduction is a key element to the rating. Given that, Fitch expects Kimberly-Clark to maintain a solid balance sheet with debt near present levels and to fund its share repurchase program with internally generated cash. Accelerated levels of top-line growth in the recent past and cost reduction activities should result in metrics roughly in line with 2007 over the medium term with the caveat that commodity costs do not escalate significantly beyond current levels. If so, the rating and Outlook would be reviewed.
The Stable Outlook remains due to: room within its current metrics to absorb the planned $900 million of negative inflation effects in 2008; relatively strong metrics; and high liquidity and generation of strong solid levels of free cash flow. The company's second round of price increases and some level of cost controls should also partially blunt the effect of the high cost environment at current levels.
For the fiscal year ended Dec. 31, 2007 revenues increased 9% to $18.3 billion. The EBITDA margin (excluding strategic improvement charges) declined 190 basis points (bps) to 19.3%. Leverage (Debt/EBITDA) increased to 1.84 times (x) mainly due to the company's $2 billion accelerated share repurchased program in July 2007 that was funded primarily with debt. Free cash flow was $507 million.
For the first half of 2008, revenues increased 10.5% to $9.8 billion due to currency, organic volume growth and pricing. However, significant cost inflation led to the EBITDA margin declining 200bps over the comparable period to 17.8%. Debt balances increased by $859 million to $7.4 billion mainly due to a $617 million accounting consolidation of two variable interest entities (VIE) where the primary credit risk is supported by letters of credit from two money-center banks. These entities were previously disclosed in the company's footnotes. Fitch's analysis excludes the debt and interest expense associated with these entities. Leverage (Debt/EBITDA) increased slightly over year end to 1.92x with a modest decrease in coverage (EBITDA/Interest) to 11.6x from 12.5x at year end.
Kimberly-Clark is a leading global manufacturer and marketer of tissue-based consumer products. Approximately 56% of net sales and 68% of operating profit (before corporate & other expenses) were derived from North America in 2007. In its principal product lines, the company holds the No. 1 or 2 brand position in more than 80 countries. Kimberly-Clark's global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Safeskin, Tecnol, and WypAll.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
New York:
Grace Barnett, CPA, +1-212-908-0718
Thomas P. Razukas, CFA, +1-212-908-0223
Brian Bertsch, +1-212-908-0549 (Media Relations)
