This summary is based on the second quarter fiscal 2008 earnings call conducted by Kimberly-Clark Corp. (KMB) on July 24, 2008.
Management:
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Chairman & CEO: Tom Falk
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SVP & CFO: Mark Buthman
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VP, IR: Mike Masseth
Key Investors Issues
- Total sales growth to 11% to $5 billion from $4.5 billion in the prior year.
- Net income was $416.7 billion or 99 cents a share compared with $461.8 million or $1.00 a share in the prior year, down 10%.
Half Year Highlights:
- Sales of $9.8 billion rose 10.5% from $8.9 billion in the prior year.
- Net income was $857 million or $2.04 a share, up 6.2% from $913 million or $1.99 a share in 2007.
Second Quarter Highlights
The top line remains very healthy with organic growth in excess of 7%, which was at the high end of the 5% to 7% range the firm was expecting for the full year.
- Higher sales volumes and net selling prices each contributed three points of growth, and product mix was favorable as well.
- A 4% benefit from currency exchange rates brought total sales growth to 11% to $5 billion from $4.5 billion in the prior year.
- Operating profit fell 2% to $665 million with an operating margin of 13.3%, impacted by significant cost inflation, which totaled about $180 million.
- Net income was $416.7 billion or 99 cents a share compared with $461.8 million or $1.00 a share in the prior year, down 10% driven by top-line growth and cost savings.
- Those improvements were not sufficient to overcome an increased level of inflation, as input costs climbed about $180 million, and a planned higher investment in strategic marketing of nearly $25 million.
Despite the inflation, the firm continued to reinvest in the brands with strategic marketing investments increasing by nearly $25 million, rising faster than sales.
- Margins were also impacted by planned production downtime in order to improve the inventory position.
- Total savings were nearly $40 million and the ongoing FORCE program generated savings of $1 million.
- Interest expense for the quarter increased approximately $21 million from the prior year, mainly as a result of new long-term debt issued to fund the company''s $2.0 billion accelerated share repurchase program in July 2007.
This year’s results also included higher spending levels at some of the facilities as well as some efficiency losses from the planned production downtime.
- In terms of the strategic cost reduction plan, the firm realized $38 million of year-on-year benefit.
- Cash provided by operations was $753 million, up 16% from the year-ago period mainly because of a decreased level of investment in primary working capital.
- Capital spending was $213 million and the firm bought back 3.5 million shares of stock at a cost of about $220 million during the quarter. As previously announced, we expect to buy back $700 million to $800 million worth of K-C stock in 2008.
Segment Highlights:
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In Personal Care, sales climbed 15%, driven by strong volume growth of 9%, as higher net selling prices added two points of top line growth while currency benefited sales by 4%.
- In North America, sales volumes increased 8% and net selling prices advanced 1%, with volume growth broad-based, including a 10% gain for Huggies diapers.
In addition, the child care and adult care brands delivered high-single digit volume increases, spurred by innovations rolled out over the last year.
- In Europe, sales volumes were off 5% and despite solid growth in Huggies baby wipes, and the child care brands, those increases were more than offset by lower diaper volumes in a continued competitive promotional environment.
- In the developing and emerging markets, personal care sales jumped 25%, and sales volumes increased more than 14%, highlighted by low 30s growth in the fast-growing BRICIT countries.
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Consumer Tissue sales rose 8%, including four points of benefit from currency.
- The focus on increasing revenue realization drove a five point gain in net selling prices with good progress here in the U.S. and in most international geographies.
- Improved product mix also benefited sales while volumes fell about 3%.
In North America, net sales fell 1% as higher net selling prices of 5% were more than offset by lower volumes.
- The majority of the volume decline came from the price increases implemented in the first quarter and the decision to shed some low-margin businesses at the end of last year in order to improve revenue realization and to support growth of higher margin offerings.
- In Europe, Consumer Tissue organic sales growth was about 1% and although sales volumes fell 3%, that was more than offset by higher net selling prices of 4% as the firm raised prices in the U.K., Italy, and various other markets.
- In the developing and emerging markets, Consumer Tissue organic sales rose 14%, led by the business in Latin America.
