Kimberly-Clark Corporation (KMB)

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Kimberly-Clark (KMB)

Q4 2010 Earnings Call

January 25, 2011 10:00 am ET

Executives

Thomas Falk - Executive Chairman, Chief Executive Officer, President and Member of Executive Committee

Mark Buthman - Chief Financial Officer and Senior Vice President

Paul Alexander - Director of Investor Relations

Analysts

Constance Maneaty - BMO Capital Markets U.S.

Lauren Lieberman - Barclays Capital

Alice Longley - Buckingham Research Group, Inc.

John Faucher - JP Morgan Chase & Co

Ali Dibadj - Bernstein Research

Jason Gere - RBC Capital Markets, LLC

William Schmitz - Deutsche Bank AG

Wendy Nicholson - Citigroup Inc

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Weiser - Caris & Company

Chip Dillon - Crédit Suisse AG

John San Marco - Janney Montgomery Scott LLC

Gail Glazerman - UBS Investment Bank

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for your patience in holding. We now have your speakers in conference. [Operator Instructions] It is now my pleasure to introduce Mr. Paul Alexander. Mr. Alexander, you may begin, sir.

Paul Alexander

Thanks, David, and good morning, everyone. Welcome to Kimberly-Clark's year end earnings conference call. Here in Dallas is : Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.

Here's the agenda for the call today. Mark will begin with a review of our fourth quarter results, followed by an overview of the additional actions we announced this morning. Tom will then provide his perspective on our results and discuss the 2010 outlook, and we'll finish with Q&A. For those wishing to follow along, we do have a presentation of today's materials in the Investors section of our website, which is www.kimberly-clark.com.

Before we begin, let me remind you that we'll be making forward-looking statements during the call. There can be no assurance that future events will occur as anticipated or that our results will be as estimated. Please refer to the Risk Factors section of our latest annual report on Form 10-K for a description of factors that could cause our future results to differ materially from those expressed in any forward-looking statements.

I'd also like to point out that we will be referring to adjusted results. For 2010, that excludes a one-time loss in the first quarter for the re-measurement of the local currency balance sheet in Venezuela. For 2011, our adjusted outlook excludes anticipated costs for the pulp and tissue restructuring. Management believes that reporting in this manner enables investors to better understand and analyze our ongoing results of operations. For further information and reconciliations to comparable financial measures determined in accordance with GAAP, please see today's news release and additional information on our website.

Now I'll turn it over to Mark.

Mark Buthman

Thanks, Paul, and good morning. Let's start with a few headlines. First, we delivered on our sales and earnings commitments in a challenging environment. Second, we had another strong quarter of cost savings and cash flow. And third, we are taking aggressive actions to improve value for our shareholders. Now let's cover the details of the quarter.

Overall sales increased 2% to $5.1 billion. Organic sales rose 3% driven by higher net selling prices of 2% and one point of improved product mix. Lines were even with year ago levels. We benefited from innovation and targeted growth initiatives. On the other hand, we experienced a one point drag from declines in Venezuela and category demand remains soft in North America and Western Europe. For the full year, organic sales were up 2%. That's in line with what we expected back in October. Fourth quarter operating profits fell 3% with an operating margin of 13.8%. Benefits from top line growth and cost savings mostly offset input cost inflation of $220 million. Full-year cost inflation was $790 million, that's toward the high end of our previous estimate.

Turning to cost savings, we finished the year strongly with fourth quarter savings from FORCE programs of $90 million. That brings full year savings to $370 million, an all-time record and a terrific accomplishment by our teams around the world. Fourth quarter earnings per share were $1.20 compared to $1.17 last year and included benefits from a decline in the tax rate and lower share count. Adjusted earnings per share for the year were $4.68, that's toward the high end of our previous guidance of $4.60 to $4.70 a share. Cash provided by operations for the quarter was $948 million as compared to all-time record of $1 million in the prior year. It's really encouraged our cash generation continue to build sequentially throughout 2010. Regarding share repurchases, we bought 1.6 million shares of KMB stock in the quarter and a cost of about $100 million. We repurchased $800 million of our stock for the year.

Now I'll turn to a few highlights of our segment results for the quarter and as usual further details are in this morning's news release. In Personal Care, organic sales rose 3%. Sales volumes were up 2%. We delivered double-digit growth in Feminine Care, Adult Care and Baby Wipes in North America and high single digit growth in K-C International outside of Venezuela. On the other hand, volumes fell significantly in Venezuela and the Baby and Child Care categories in North America remain relatively soft. Personal Care operating margins of 19.4% were impacted by input cost inflation but overall remain very healthy.

Turning to Consumer Tissue. Organic sales increased 5%. Net selling prices were up 5%, representing actions to increase revenue in most markets and the timing of promotions in North America. Sales volumes were down 1% as gains across Asia and in our Kleenex Facial Tissue business in North America were more than offset by declines elsewhere. Operating margins of 10% improved sequentially from the third quarter and were above prior-year levels as higher net selling prices and cost savings more than offset cost inflation driven by higher pulp prices.

Now moving to K-C Professional and Other. Organic sales were down 1%. Sales volumes fell 2% as the challenging environment continued to impact washroom sales in North America. In other areas of the business, volume growth was solid for our high-margin Safety and Wiper businesses in North America for our total KCP business in both Europe and K-C International. Operating margins of 14% were down somewhat mainly due to cost inflation, but they remain solid despite the tough environment.

Lastly, Healthcare organic sales were down 7% as volumes were up 5%, and net selling prices fell two points. Organic volumes of high-margin medical devices were up high single digits again this quarter. However, overall volume comparisons were negatively impacted by five points as a result of increased demand for face mask in 2009 because of the H1N1 flu virus. In addition, category demand remains soft in the North American Supplies market. Operating margin were down significantly compared to last year. It's mostly due to ongoing I-Flow litigation-related costs.

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