This summary is based on the first quarter fiscal 2008 earnings call conducted by Kimberley Clarke Corp. (KMB) on April 22, 2008.
Management:
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CFO and Sr. VP: Mark A. Buthman
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Chairman of the Board and CEO: Thomas J. Falk
Key Investors Issues
- Sales advanced 9.7% to $4.8 billion, from $4.39 billion in the prior year
- Income dropped 2.5% to $441 million or $1.04 a share, from $452 million or 98 cents in 2007.
- The firm bought $3.1 million of stock at a cost of about $200 million.
First Quarter Highlights
Net sales advanced 9.7% to $4.8 billion, from $4.39 billion in the prior year as sales in developing and emerging markets climbed 22%, with particular strength in the Personal Care and K-C Professional businesses.
- Organic sales growth exceeded 5%, driven primarily by increased sales volumes and higher net selling prices.
- Changes in currency exchange rates also benefited sales by more than 4%.
- Income dropped 2.5% to $441 million or $1.04 a share, from $452 million or 98 cents in 2007, due to $160 million of cost inflation and a $22 million rise in strategic marketing spending.
- A lower share count, partially offset by a related increase in interest expense, also contributed to the increase in adjusted earnings per share versus the year-ago period.
Operating profit rose 3% to $688 million with an operating margin of 14.3% as profitability was impacted by significant cost inflation which totaled about $160 million in the quarter.
- Due to escalating oil prices and continued increases in Eucalyptus pulp and secondary fiber, the inflationary impact on the bottom line was several cents per share worst than our first quarter plan.
- Despite the inflation, the firm is continuing to invest in strategic marketing, spending $22 million supporting growth in areas such as personal care and the developing emerging markets, and Adult care in North America.
- Interest expense increased $24 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.
The firm delivered total savings of more than $50 million, as the ongoing FORCE program generated saving of $24 million, despite higher spending levels at some facilities.
- At the same time, the firm realized $28 million of year-on-year benefit from the strategic cost reduction plan.
- Cash provided by operations was $426 million compared to $525 million in the prior year, the decline driven by increased working capital levels, particularly higher inventories.
- The firm invested $220 million, in line with the full year investment target of $850 million to $950 million.
- It bought $3.1 million of KMB stock at a cost of about $200 million.
Segment Highlights:
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In personal care sales climbed 14% driven by strong volume growth of 7%, improved net selling prices and product mix each added an additional point of top line growth and currency benefited sales by 5%.
- In North America sales volumes increased about 4% and net selling prices rose 2% volume growth was led by the adult care business with a double-digit gain behind improvements to poise and depend.
- Baby and child care delivered solid volume growth compared to a year ago along with good early benefits from the price increases that started to go in to effect in February.
In Europe, cleaning materials sales volumes rose 1% with growth in Huggies diapers, Baby wipes, pull-ups and dry nights child care brands.
- Net selling prices were off 3% due to continued competitive activity in core markets.
- In the developing and emerging markets personal care sales rose more than 25% and sales volumes increased 13% with broad based growth in each region.
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Consumer tissue, sales rose 7% including 4 points of benefit from currency higher net selling prices contributed 3 points of growth, although 1 point gain in product mix was offset by lower sales volumes.
- In North America net sales were up slightly as the focus on improving revenue realization drove a 2 point gain in net selling prices and a 1 point benefit in product mix.
- Those gains were offset by a 3% decline in sales volumes, driven primarily by the decision to shed some low margin business in order to improve revenue realization and to support continued growth of higher margin offerings.
- Cleenex facial tissue volumes recovered from a soft cold and flu season in the fourth quarter; more essentially even with year ago performance.
- In Europe, sales volumes gained 6%, spurred by growth from the market leading Andrex bath tissue brand in the U.K., and Kleenex brand in several markets.
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K-C Professional sales increased 9% including nearly 5 points from currency As organic sales were up more than 4% with higher sales volumes and net selling prices each contributing 2 points of growth.
- Global wiper sales continued to expand, with a first quarter increase of 12% as business buildings efforts helped drive a strong double-digit increase in sales across the developing and emerging markets.
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Healthcare sales were down almost 2% despite 2 points of favorable currency.
- Net selling prices were off about 2% and product mix and sales volumes, each fell about 1%.
- Comparisons were impacted as expected by strong growth last year in face masks which benefited from avian flu preparedness that did not recur this year.
- In addition volumes and net selling prices declined in surgical product due to continued competitive market conditions.
- The firm generated solid growth in medical devices led by the Ballard airway management offerings.
- Margins were down reflecting lower sales, higher input cost and the impact of down time to manage inventories.
Strategic Insights:
