Taking Stock: Kimberly-Clark's may need changing
Malcolm Berko: KMB is Old Navy, golden retrievers, “Leave It to Beaver” and a fixation on lawn care, bad chardonnay, equally bad espresso, golf, soccer moms and SUVs. For too long, this company has been run by a fraternity of fallow managers.
Dear Mr. Berko: I'm 41 and divorced with two children. And thanks to my super dad, I've had a great job for 11 years, with excellent benefits and a very good retirement plan.
I have an individual retirement account worth $109,000, consisting only of stocks you have recommended in the past eight years. I got a good bonus this year, and my dad, who retired from Kimberly-Clark, recommends I buy 100 shares of that corporation. What do you think?
BR: San Antonio
Dear BR: I can't imagine a more wonderful, fulfilling, loving and caring relationship than one between a father and daughter. If you want to keep it that way, don't follow his investment advice.
In the state of Texas, there isn't a better example of a white-bread company with quintessential white-bread management than Kimberly-Clark (KMB-$88).
KMB is Old Navy, golden retrievers, “Leave It to Beaver” and a fixation on lawn care, bad chardonnay, equally bad espresso, golf, soccer moms and SUVs. For too long, this company has been run by a fraternity of fallow managers with a collective 12 handicap who play at the “vetty vetty” Preston Trails Golf Club in Dallas.
Can you believe a company that sells brands such as Kleenex, Huggies, Goodnites, Kotex, Pull-Ups, Cottonelle, Depends and Scott only grew revenues from $14.2 billion to $21 billion between 2001 and 2012? In those dozen years, KMB increased prices by 40 percent, so this 50 percent revenue growth is practically meaningless.
During that time frame, earnings were as flat as flapjacks, and profit margins fell 25 percent, definitely a testament to constipated management. The dividend tripled, and corporate debt doubled — while KMB spent $7 billion to repurchase 150 million shares of stock.
Certainly, KMB's spastic, inutile, overly compensated board of directors needs an industrial-strength enema. Reducing the number of outstanding shares by 30 percent is a shady accounting scam that proportionately increases earnings per share and deceptively makes management look good, allowing those in management to maintain their cushy jobs. The $7 billion management spent on stock buybacks was a terrible waste of shareholder money, which would have been better used developing new products, improving marketing and acquiring cost-saving equipment.