Kimberly-Clark Corporation (KMB)

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Kimberly Clark Corp (KMB)

Q42012 Earnings Call

January 25, 2013 10:00 am ET

Executives

Paul Alexander - Vice President, Investor Relations

Tom Falk - Chairman of the Board, Chief Executive Officer

Mark Buthman - Chief Financial Officer, Senior Vice President

Analysts

Ali Dibadj - Sanford Bernstein

Chris Ferrara - Bank of America

Caroline Levy - CLSA

Connie Maneaty - BMO Capital Markets

Jason Gere - RBC Capital

Lauren Lieberman - Barclays

James Armstrong - Vertical Research

Bill Schmitz - Deutsche Bank

Javier Escalante - Consumer Edge Research

John Faucher - JPMorgan

Linda Bolton Weiser - Caris

Presentation

Operator

Ladies and gentlemen, thank you for your patience in holding, we now have your speakers in conference.

Please be aware, each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for your questions. At that time, instructions will be given as to the procedure to follow if you'd like to ask a question.

It is now my pleasure to introduce today's first speaker, Mr. Paul Alexander.

Paul Alexander

Thank you, David, and good morning, everyone. Welcome to our Year End Earnings Conference Call. Here with us today are, Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.

Here is the agenda for our call. Mark will begin with the review of fourth quarter results. Tom will then provide his perspectives on our full year results and also our 2013 outlook. We will finish with Q&A. There is a presentation of today's materials including our key planning assumptions for 2013 in the Investor section of our website.

As a reminder, we will be making forward-looking statements today. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements. We will also be referring to adjusted results and outlook today. Both exclude certain items described in this morning's news release. The news release has further information on these adjustments and also reconciliations to comparable GAAP financial measures.

Now, I will turn it over to Mark.

Mark Buthman

Thanks, Paul, and good morning. Let's start with the headlines. First, we achieved organic sales growth of 5%, highlighted by 9% growth in K-C International. Second, we delivered adjusted earnings per share of the $1.37, that’s a 7% increase compared to the prior year. Third, we generated an all-time quarterly record of $1.1 billion in cash from operations.

Now, let's cover the details of the quarter. Fourth quarter sales were $5.3 billion, up 3% versus last year, underlying organic sales rose 5%, driven by increased volumes of 3% and higher net selling prices of 2%, unfavorable currency rates and lost sales in conjunction with our pulp and tissue restructuring further reduced sales by 1% each. Fourth quarter adjusted gross margin was 34.3%, that’s up 170 basis points from last year. The increase was driven by organic sales growth and $80 million of FORCE cost savings.

For the full-year, FORCE savings were $295 million. That’s well above our original target for savings of $150 million to $200 million for the year. We also surpassed our three-year savings target of $400 million to $500 million after just two years. We are making great progress leveraging our global procurement organization and deploying lean continuous improvement throughout our company and I expect that momentum to continue in 2013.

So moving now to P&L. Adjusted operating profit rose 5% with an operating margin of 15%. That’s up 30 basis points compared to last year. We continued investment between the lines including higher administrative and research spending to build capabilities and support future growth, particularly in K-C International. In addition, strategic marketing rose $10 million in the quarter. The fourth quarter adjusted effective tax rate was 30.6%, in line with our full year target of 30% to 32%. All in all, fourth quarter adjusted earnings per share were at $1.37. That’s up 7% versus last year.

As I said before, cash provided by operations in the fourth quarter was an all-time quarterly record of $1.1 billion. That is more than double our year-ago performance driven by improved working capital and lower pension contributions. Cash provided by operations for the full year was $3.3 billion. That is up $1 billion compared to the prior year. Our working capital cash conversion cycle improved two days in 2012 to a record low of 45 days for the year. We expect to make further progress in 2013.

During the fourth quarter, we repurchased 3.8 million shares of KMB stock at a cost of $320 million. For the year, we repurchased 16.4 million shares at a cost of $1.3 billion. Altogether, we allocated $2.5 billion dollars of cash to share repurchases and dividends in 2012.

Now, I will highlight a few areas from our segment results for the quarter. In personal care, organic sales rose 9% with volume growth of 6% and net selling prices up 3%. K-C International had another strong quarter with organic sales up 12%. Our key growth initiatives continue to perform very well. In fact, in the diaper, volumes in China grew 50%, volumes in Russia rose 15%, and volumes in Brazil were up 10%. Elsewhere, in personal care, volumes were up mid-single digits in Europe and low single digits in North America. Fourth quarter personal care operating margins of 17.6% rose 220 basis points driven by the organic sales growth and cost savings.

Now moving to consumer tissue. Organic sales were up 1%, driven by higher net selling prices and volumes. Volume gains in North America were mostly offset by modest declines in Europe and in K-C International. Consumer tissue operating margins were down 30 basis points compared to a strong year ago, although they were up 50 basis points sequentially versus the third quarter.

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