Kimberly-Clark Corporation (KMB)

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Kimberly-Clark Corporation (KMB)

Q2 2013 Earnings Call

Jul 22, 2013, 10:00 am ET


Paul Alexander - Vice President of Investor Relations

Mark Buthman - Chief Financial Officer, Senior Vice President

Tom Falk - Chairman of the Board, Chief Executive Officer

Mike Azbell - Vice President and Controller


Ali Dibadj - Sanford Bernstein

Gail Glazerman - UBS

Connie Maneaty - BMO Capital

Lauren Lieberman - Barclays

John Faucher - JPMorgan

Caroline Levy - CLSA

Olivia Tong - Merrill Lynch

Alice Longley - Buckingham Research

Javier Escalante - Consumer Edge Research

Jason English - Goldman Sachs

Bill Schmitz - Deutsche Bank



Ladies and gentlemen, thank you for your patience in holding. We now have your presenters 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, Mr. Paul Alexander.

Paul Alexander

Thank you, David, and good morning, everyone. Welcome to our second quarter earnings conference call. 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 a review of second quarter results. Tom will then provide his perspectives on our results and the outlook for the full year. We will finish with Q&A. We have a presentation of today's materials in the Investor section of our website which is

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 a further discussion of forward-looking statements. We will also be referring to adjusted results and outlook. Both excludes certain items described in this morning's news release. The release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

Now I will turn it over to Mark.

Mark Buthman

Thanks, Paul and good morning. Let me start with the headlines. First, we achieved organic sales growth of 3% led by 9% growth in K-C International. Second, we increased adjusted earnings per share 8% driven by organic sales growth and strong cost savings. Third, we are on-track with our overall capital plan, including working capital, capital spending and returning cash flow to shareholders.

Now some details for the quarter. Second quarter sales were $5.3 billion and was even with last year. Underlying organic sales rose 3% with increased fines of 2% and higher net selling prices of one point. While sales in connection with our restructuring activities reduced sales by 2% and unfavorable currency rates reduced sales by a point. Second quarter adjusted gross margin was 34.5%. That’s up 90 basis points from last year. The increase was driven by organic sales growth and $80 million of FORCE cost savings, partially offset by $30 million of input cost inflation.

I am really pleased with our continued momentum with FORCE. We delivered at least $80 million of savings in each of the last four quarters and we are now raising our full-year target to $300 million to $350 million of savings for the year. That ranges $50 million higher than our previous expectation and will help offset additional currency headwinds that Tom will talk about in a minute.

Moving down to P&L. Adjusted operating profit rose 6%, with an operating margin of 15.5%. That’s up 70 basis points compared to last year. Strategic marketing spending was down $20 million and that comparison was impacted by a high level of innovation related spending in the second quarter last year and also some lower spending in Europe this year given the strategic changes We are making there. Foreign currency translation effects reduced operating profit by $15 million and transaction effects further negatively impacted that comparison.

The second quarter adjusted effective tax rate was 31.8%. That’s up from last year but in line with our full year target of 30% to 32%. Equity income was up 28% as K-C de Mexico had another quarter of excellent performance. So, putting it all together, second quarter adjusted earnings per share was $1.41. That is up 8% year-on-year.

Now, turning to cash flow. Cash provided by operations in the second quarter was $576 million, compared to $740 million last year. The decrease was driven by higher tax payments, pension contributions and severance costs in Europe. So, halfway through the year, we are on track with our plan and expect our cash generation to improve sequentially in the back half of the year.

In terms of capital allocation, second quarter dividend payments and share repurchases totaled more than $600 million. We repurchased 300 million shares worth of KMB stock in the quarter. We now expect full-year sharing purchases of $1.2 billion. That's at the high end of our target range of $1 billion to $1.2 billion for share buybacks for the year.

Now, to highlight just a few areas from our segment results for the quarter. In Personal Care, organic sales rose 3%, driven by volume growth. K-C International had another good quarter with organic sales up 8% continue to make excellent progress with our targeted growth initiatives across K-C international. Tom will provide some more details in a minute.

Elsewhere in Personal Care, organic sales were down low single digits in North America, but high single digits in Europe. Second quarter Personal Care operating margins of 18.1%, rose 130 basis points. Improvement was driven by organic sales growth and cost savings, partially offset by cost inflation and unfavorable effects of currency.

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