Zacks_Analysts' Blog : Fitch Rates Kimberly-Clark's Debt - Analyst Blog

The rating agency Fitch Ratings has assigned an "A" rating to Kimberly-Clark Corporation's (KMB) 5-year debt of $1.5 billion and 364 day revolving credit facilities of $500 million. The outlook remains stable.

Further, these facilities of $2 billion will substitute the existing 5-year facility of $1.33 billion, which would mature in September 2012. The replacement of the old facility with the new one would alleviate the current pressure on European banks which had approximately 30% of the Kimberly-Clark’s total commitments in the new and old facilities.

Additionally, Fitch stated that Kimberly-Clark’s debt of $2 billion will be utilized for general corporate purposes. Kimberly-Clark can further extend its termination date by one year or increase the debt amount by an aggregate $500 million, if it is able to maintain a balance of no less than $2.3 billion in shareholders' equity.

Kimberly-Clark has been successfully generating at least $2.3 billion in operating cash flow and over $500 million of free cash flow for the past nine years, which reflects a strong credit environment in the company. Moreover, the company has strong liquidity with cash balances of $908 million and $2 billion in revolver availability at the end June 30, 2011.

In addition, Kimberly-Clark has leading market shares in many non-cyclical personal products and household care products industry. The company also posted adjusted earnings of $1.18 per share in the second quarter 2011, exceeding the Zacks Consensus Estimate by 3 cents.

Kimberly-Clark’s sales also grew to $5.3 billion, surpassing the Zacks Consensus Estimate of $5.1 billion. Organic sales also climbed 3% in the quarter, driven by increased sales volumes of 2% and higher net selling prices of 1%.

For fiscal 2011, Kimberly-Clark expects net sales to increase by approximately 5% - 7% and organic sales guidance to grow at 2% - 4%, while volumes are anticipated to grow at 1% - 2% and the combination of higher net selling prices and improved product mix should contribute 1 - 2 points of additional growth.

Further, the company expects sales to increase by approximately 3% in 2011 versus the previous estimate of 2%, as a result of the strengthening of most foreign currency exchange rates relative to the U.S. dollar.

Kimberly-Clark, which competes with Procter & Gamble Co. (PG), currently holds a Zacks #3 Rank, which translates into a short-term Hold rating. On a long-term basis, we maintain a Neutral rating on the stock.