Monday, October 23, 2017

Kimberly Clark (KMB) Is Worth a Look at These Levels

            Dividends are central to my investment philosophy.  They not only lower portfolio volatility but also provide a continued source of funds for reinvestment.  In that vein, I continually monitor a small list of companies that have consistently raised dividends for at least 25 years.  When these companies are weak technically, it’s an appropriate time to examine them as a potential addition to a portfolio.  I detail this process in my book The Lifetime Income Security Solution.

            Kimberly Clark is currently looking attractive from a technical perspective:

The weekly chart (top chart) shows a double-top in the first half of this year followed by a consistent downtrend.  Weekly prices are currently approaching the 200-week EMA.  The daily chart (bottom chart) is very weak; it is below the 200-day EMA and recently gapped lower. 

            According to their latest 10-K, KMB has three lines of business:    
  •      Personal Care brands offer our consumers a trusted partner in caring for themselves and their families by delivering confidence, protection and discretion through a wide variety of innovative solutions and products such as disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, and other related products.  Products in this segment are sold under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, Poise and other brand names.
  •        Consumer Tissue offers a wide variety of innovative solutions and trusted brands that touch and improve people's lives every day.  Products in this segment include facial and bathroom tissue, paper towels, napkins and related products, and are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Neve and other brand names.
  •       K-C Professional ("KCP") partners with businesses to create Exceptional Workplaces, helping to make them healthier, safer and more productive through a range of solutions and supporting products such as wipers, tissue, towels, apparel, soaps and sanitizers. Our brands, including Kleenex, Scott, WypAll, Kimtech and Jackson Safety, are well-known for quality and trusted to help people around the world work better.

The company faces intense competition.  This means KMB must very efficient.

            Their balance sheet (as researched on isn’t as clean as I would like.  But a high asset/liability ratio is less important for a multi-billion dollar company.  Over the last 5 years, total assets have decreased about $5 billion, thanks to a modest decline in receivables along with a larger decline in property, plant, and equipment (about $800 billion) and inventories (about $900 billion).  Turning to liabilities, the company has increased its debt levels by about $1.4 billion, which is to be expected during a period of record-low interest rates.  According to their revenue statement, their interest expense is 1.75% of gross income – a manageable level.

            Expenses demonstrate that management is top-notch.  Over the last 5 years, their gross margin has improved by 450 basis points, their operating income has risen nearly 550 basis points and their net margin has increased almost 390 basis points.  And then there is EBITDA, which is up 525 BPs.  Considering the intense competition in their market, these are very important and impressive numbers.

            The company is large enough to fund current expansion out of net income.  This means the primary play on their cash flow statement is in their financing structure.  Over the last 5 years, they’ve done a large amount of debt-refunding, which is prudent in a low rate environment.  They have also been buying back stock at a solid pace – another great way to reward shareholders.

            According to FINVIZ, their current yield is 3.42% -- which is about 60 basis points higher than the AAA effective yield and on par with a BBB effective yield (according to FRED) data.  Their dividend coverage ratio is just south of 62%, which means they have room to raise it further.          

              Technically, the company is weak, which means it’s time to look at this company.  While the balance sheet isn’t that impressive, the rising margins show management is very good at its job.  The company has taken advantage of low interest rates to refund its debt; interest rate expenses are under control.

            Overall, this KMB is currently worth a look

     This post is not an offer to buy or sell this security.  It is also not specific investment advice for a recommendation for any specific person.  Please see our disclaimer for additional details.

Saturday, October 21, 2017

Weekly Indicators for October 16 - 20 at

 - by New Deal democrat

My Weekly Indicators post is up at

The divergence between the long term and short term forecasts that became apparent las week continues.

Thursday, October 19, 2017

"Hurricane adjusting" initial claims has proven its value

 - by New Deal democrat

For the last month, I deduced a "hurricane adjusted" number for initial claims, which showed that the previous underlying positive trend was intact, with the four week average remaining in the 230,000's.

That approach was borne out by this week's report, which, at 222,000, was the lowest since 1973.

Although I haven't gone through the entire formal exercise, here's how the numbers from the three affected jurisdictions compared in last week's report compared with one year previously:

FL 13,861 (+6508 from 2016)
TX 16,656 (-225 from 2016)
PR 250 (-2409 from 2016) (DoL estimate)

Net change: +3904 from 2016

Since the seasonal adjustment last week was only ~6%, (244,000 vs. 229,289 NSA), this means last week's "hurricane adjusted" number was on the order of 239,000 or 240,000.

Natural disasters will continue to strike. I am confident that the method I used in 2012 after Sandy, and again this past month, is a good way to distill the underlying trend from the disaster disturbance.

Labor Market Slack and Weak Wage Growth

From the IMF's latest World Economic Outlook:

Sluggishness in core inflation in advanced economies—a surprise in view of stronger than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). As shown in Chapter 2, muted growth in nominal wages in recent years partly reflects sluggishness in labor productivity.1 However, the analysis also reveals continued spare capacity in labor markets as a key drag: wage growth has been particularly soft where unemployment and the share of workers involuntarily working part-time remain high. The corollary of this finding is that, once firms and workers become more confident in the outlook, and labor markets tighten, wages should accelerate. In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher Sluggishness in core inflation in advanced economies—a surprise in view of stronger-than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). 

     Consider the following chart from the Atlanta Fed:

For the longest time, I've been staring at the lower left-hand corner of that chart and thinking, "weak wages are really about low utilization."  Let's place that data into context:

The above chart shows the absolute number of employees working part-time for economic reasons.  The total number -- after 8 years of economic growth -- is only now returning to the heights of the previous expansion.  

     Here's another chart of the data:

This chart (better known as the U-6 unemployment rate) presents the information in a percentage format.  This statistic was 10% at the beginning of 2016, which was the highest level of the previous recession.  But during this expansion, we hit this level a full seven years after the recession ended.  That's quite a delay.  

     The excerpt from the IMF report adds two key pieces to this puzzle: First, the US is not the only country experiencing weak labor utilization and a corresponding weak wage growth.  In fact, The IMF strongly implies this also seems to go hand-in-hand with the weak pace of global inflation.  Second, the IMF has research that links these two concepts.