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Kimberly-Clark Corporation (KMB)
Barclays Back-To-School Conference Call
September 04, 2013 09:45 am ET
Mark A. Buthman – Senior Vice President and Chief Financial Officer
Mark A. Buthman
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So to start, I want to cover three things today. We are going to start with just a quick recap of our enterprise strategy and then we will take a look at our financial performance, both over the long-term and near-term. We will revisit the guidance that we provided back in July with our second quarter earnings and then we’ll take a little deeper dive into our global business plan and specific strategies underlying each of our businesses and give you a little bit update about how we are doing around the world. And lastly, we will sort of finish with some focus on financial discipline, which is really the foundation upon which our overall business model works. And at the end, we will have plenty of time for questions.
So headlines; we are executing our global business plan, our GBP well in a very difficult environment. I am sure that’s a consistent thing that you are going to hear from companies throughout this week. Despite the challenges in the macroeconomic environment, we’re continuing to invest to keep our business healthy and growing over the long-term.
We are leveraging strong financial and cost discipline to make sure we’ve got the resources to keep the business – keep investing in the business despite what’s going on in the world around us. And lastly, we focused a lot of time and energy on allocating capital in ways that we hope are friendly to our shareholders and we will talk about that little bit later.
Our enterprise strategies, to recap, we manage our businesses as a portfolio. So each business has a role to play. From businesses that are going to be growth oriented, some are driving revenue realization and cost savings to drive margin improvement and other businesses has a role to generate cash to invest elsewhere in the portfolio and it really drives how we think about investment decisions whether its capital or marketing innovation or talent around the organization. So it’s all about making choices.
We drive investments, investments behind innovation, investments behind brand building and targeted growth initiatives. Part of our global business plan, we actually are in the fortunate position, we have more growth opportunities than we’ve got resources or capital to invest. So it’s about making decisions and targeting to grow where we’ve got the best chance to win.
Sustainable cost reduction is really important part of the model. It’s the engine that sort of fuels the investment in the business and drives bottom line margin improvement and earnings growth.
And then lastly, taking a disciplined approach to allocating our capital, both how we invest in the business to drive improvements in returns on that capital overtime, as well as making sure we are disciplined in returning cash to shareholders in the form of dividend and share repurchases, it is kind of the bottom line of our global business plan strategies.
So overtime, we launched the global business plan 10 year ago in the middle of 2003. And at that time, we set out some pretty clear performance benchmarks and here is how we’ve done over that first 10 years of the strategic plan. Top line, we want to grow 3% to 5%, so if you take a look at the categories that we participate in, 3% to 5% is roughly inline with category growth plus taking a little bit of share, that’s our top line goal. Over the first 10 years of the GBP, we were been at the high end of that expectation at 5% topline growth.
Earnings, we want to grow mid to high single digits. We’ve been at the low end of that. That are opportunities to improve. Return on invested capital, we want to drive consistent improvement in our returns in the capital, we want to drive consistent improvement in our returns and the capital we deploy, 20 basis point to 40 basis points a year. We’ve been right in the middle of that expectation.
And lastly, we want to drive dividends, we want to be a top tier dividend payer. We have accomplished that with a 9% average annual increase in the first ten years of our global business plan. Going forward you should expect us to increase dividends roughly inline with our earnings growth. So, pretty solid performance with some opportunities to improve on the bottom line.
First half of 2013, we had a really strong start to the year. Top-line up 1%, and if you strip out the effects of currency in some of our restructuring activities, delivered 3% organic sales growth. Operating margins were up a 150 basis points, earnings were up 14% and return on invested capital was up healthy 90 basis points. So, really a good start to the first half of 2013.
Revisit the guidance we provided with our second quarter earnings back in July, was an update from our initial guidance for the year. So on the top-line, sales down 1% to up 2% and that’s really a difference from our initial guidance. It’s just solely due to currency. Organic sales we still expect to be 3% to 5% for the year and that will require a better performance on the top-line and the second half of the year.