Kimberly-Clark Corporation Q4 2009 Earnings Call Transcript

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Kimberly-Clark Corporation (KMB)

Q4 2009 Earnings Call

January 22, 2009 10:00 am ET

Executives

Tom Falk - Chairman & Chief Executive Officer

Mark Buthman - Senior Vice President & Chief Financial Officer

Mike Asbell - Vice President & Controller

Paul Alexander - Head of Investor Relations

Analysts

Ali Dibadj - Sanford Bernstein

Alice Longley - Buckingham Research

Chris Ferrara - Banc of America

Andrew Sawyer - Goldman Sachs

William Schmitz - Deutsche Bank

Connie Maneaty - BMO Capital

Wendy Nicholson - Citigroup

Lauren Lieberman - Barclays Capital

Chip Dillon - Credit Suisse

Gail Glazerman - UBS

John Faucher - JP Morgan

Lee Furst - Dudack Research Group

Jason Gere - RBC Capital Markets

Linda Bolton Weiser - Caris & Co.

Presentation

Operator

(Technical Difficulty) Please be aware that each of your lines is a listen-only mode. At the conclusion of the presentation, the floor will be open for your questions. At that time instructions will be given and as to the procedure to follow if you’d like to ask a question.

I would like to turn the conference over to Mr. Paul Alexander. Mr. Alexander, you may begin, sir.

Paul Alexander

Thanks, David and good morning everyone. Welcome to our year end earnings conference call. With us today are Tom Falk, Chairman and CEO, Mark Buthman, Senior VP and CFO, and Mike Asbell, Vice President and Controller.

Now here is the agenda for the call. Mark will begin with a review of our fourth quarter results. Tom will follow with his perspective on the results, and then discuss our 2010 outlook. We’ll finish as usual with Q-and-A. For those following along on the website, we have a presentation of today’s materials in the Investor section, 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 the company’s 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 when discussing 2009 results, we will be comparing to adjusted results in 2008, which excluded charges for the strategic cost reduction plan we completed in 2008, and an extraordinary loss. Finally, we will also be referring to adjusted results when discussing our 2010 outlook, which excludes an anticipated loss for the re-measurement of the local currency balance sheet in Venezuela as a result of the recent currency devaluation and moved to hyper inflationary accounting.

Management believes that reporting in this manner enables investors to better understand and analyze our ongoing results of operations. For additional information on these adjustments 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. I hope you had a chance to review our news release with all of the details of the results. I’m going to briefly review the quarter and I’d like to start with a few headlines. First, organic sales growth was nearly 3%, including continued double digit growth for both our international business in Asia, Latin America, the Middle East, Eastern Europe and Africa, and for our global healthcare business.

Second, earnings per share increased 16% driven by improved margins, and third, cash provided by operations was up 48% to $1 billion. Now, let’s cover the details of the quarter starting with top line. Overall, sales increased more than 8% to $5 billion including a five point benefit from currency and one point of growth from acquisitions. Organic growth of nearly 3% was driven by higher net selling prices of about 2% and an approximate two point improvement in sales volumes. Meanwhile, product mix lowered sales by 1%.

Now, let me turn to the top line for each of our segments and I may not focus most of my comments on organic sales, setting aside the impact of currency and acquisitions, which you can see in our news release. By the way, when I refer to K-C International, I’m referring to our businesses in Asia, Latin America, the Middle East, Eastern Europe, and Africa, which we previously called our developing and emerging markets business.

In Personal Care, organic sales increased approximately 6%. Sales volumes were up 5% with improved performance in all regions, as selling prices contributed an additional two points of growth, while product mix was off 1%. In North America, organic sales were even with the prior year as higher volumes of 3% were offset by lower net selling prices due to increased promotional activity.

Huggies diapers delivered 6% volume growth and improved market shares by one point compared to a soft year ago performance. Elsewhere, feminine care volumes were up 11% and adult care volumes grew 10%, including benefits from innovation on Depend Underwear. In Europe, personal care organic sales increased nearly 3%. Sales volumes were up about 4% with improved performance in Huggies diapers in Poland and our core markets in Western Europe.

Overall product mix was off about a point. For K-C International, Personal Care organic sales rose about 15%. Net selling prices increased 9% and sales volumes were up 7%. We delivered double digit organic sales growth in a number of markets including Brazil, China, Russia, and Latin America overall.

Turning to consumer tissue, organic sales were down 3%, as sales volumes fell 2% and net selling prices were down approximately one point. In North America, organic sales were down about 6%. Net selling prices fell 3% reflecting an increase in competitive promotional activity, while sales volumes and product mix each lowered sales by more than one point. Kleenex facial tissue volumes were up 7%. However, paper towel volumes were down double digits and continue to be impacted by consumer trade down.

Switching to Europe, consumer tissue organic sales fell about 5% driven by a four point decline in net selling prices and slightly lower sales volumes. For K-C International, consumer tissue organic sales increased more than 2%. Our strategies to improve net realized revenue generated higher net selling prices of 6% and favorable product mix of 1%. Meanwhile volumes were down about 4%.

Moving to K-C Professional and other, organic sales were up about 3%. Higher net selling prices mostly in North America, and North Asia, and Latin America generated nearly seven points of growth. However, organic sales volumes were down about 3% and continued to reflect high unemployment levels and the weak economic environment particularly in North America and Europe. Organic volumes in these geographies were off at a mid single digit rate.

Lastly, Health Care organic sales were up 13%, all of which was driven principally by improvements in sales volumes. The I-Flow acquisition, which closed in late November, added another six points of growth in the quarter. Health Care organic volumes were up in several product categories including double digit growth in exam gloves for the 7 consecutive quarter and strong results in our apparel business. In addition, approximately six points of volume growth in the quarter came from increased global demand for face masks as a result of the H1N1 flu virus.

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