This summary is based on the third quarter earnings call conducted by Kimberly-Clark Corp. (KMB) on October 22, 2008.
Management:
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VP, IR: Mike Masseth
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Chairman & CEO: Tom Falk
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SVP & CFO: Mark Buthman
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VP & Controller: Randy Vest
Key Investors Issues
Net income was down 8.8% to $413 million or 99 cents a share from $453 million or $1.04 a share in 2007.
- Sales increased 8% to $5 billion from $4.6 billion in the prior year.
Year to Date Highlights:
- Sales of $14.8 billion rose 9.7% from $13.5 billion in the prior year.
- Adjusted operating profit was $1,978 million, down 3% from $2,038 million in 2007.
- Adjusted earnings per share decreased slightly to $3.13 from $3.14 in 2007.
Third Quarter Highlights
Sales increased about 8% to $5 billion from $4.6 billion, including favorable currency effects of less than 3% as organic growth was solid at almost 6%.
- Growth was driven by the focus center improving net realized revenue which led to a four point gain in net selling prices and two points of improved product mix.
- Total sales volumes were down about 1% and were impacted more than anticipated by higher prices.
- Operating profit fell 9% to $626 million with an operating margin of 12.5% as profitability was impacted by cost inflation of about $250 million.
- Costs continued to increase during the quarter for many of the oil based inputs, reflecting the affects of the spike in oil prices earlier in the year.
- Net income was down 8.8% to $413 million or 99 cents a share from $453 million or $1.04 a share on high costs.
Strategic marketing investments increased by $25 million, rising faster than sales but margins were also impacted by 60 to 70 basis points from planned production downtime in order to improve the inventory position.
- Total savings were $47 million with the ongoing FORCE program generating savings of $19 million, despite higher spending in some of the facilities and below average productivity overall.
- Cash provided by operations was $641 million, that’s up 13% from the year-ago period mainly because of improved working capital performance.
- The firm bought back 2.5 million shares of KMB stock at a cost of about $130 million during the quarter bringing year-to-date repurchases to $550 million and now expects to repurchase $600 to $650 million worth of stock for the year.
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Personal care sales climbed almost 12% with strong organic growth of about 9% driven by increased sales volumes and higher net selling price, each up about 4%.
- In North America, sales increased nearly 7% with new selling prices rising four points while buying and mix each advanced more than 1%.
The volume growth was mostly due to the marketing leading Huggies baby wipes and buy ins for Huggies diapers and the child care brands were similar to year ago levels and generally in line with plan.
- In Europe, personal care sales volumes were off 8%, with Huggies volumes and core markets down the same percent as the promotional environment in Europe continues to be very competitive.
- In developing and emerging markets, personal care sales jumped nearly 20%, as organic sales rose 15%, volumes increased 9% and improved pricing mix contributed total of six points of growth.
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Consumer Tissue sales rose 5%, including three points of benefit from currency and net selling prices were up 7%, with solid increases around the world and improved mix also benefited sales by 2%.
- In North America, net sales decreased 2%, higher net selling prices of 6%, and improved product mix were more than offset by a 9% decline in volumes.
- In Europe, Consumer Tissue organic sales were up modestly with net selling prices rising 4% due to increases in several markets.
- In the developing and emerging markets, Consumer Tissue organic sales roses 13%, driven by a 12 point gain in net selling prices, and four points of improved mix.
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K-C Professional and Other, sales increased 8%, including three points from currency and organic sales rose 5%, driven by higher net selling prices of 4%, improved mix of 2%.
- KCP continues to make progress with its targeted growth initiatives with double-digit global sales growth for high margin diapers and safety products in the quarter.
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Health care segment sales increased 4% with top line growth driven by higher volumes of 5%, and currency benefits of 1%.
- Those gains were partially offset by lower net selling prices of 2% reflecting continued competitive conditions in the surgical supplies market.
- Health Care sales volumes were up 4% in surgical supplies, led by double-digit growth in exam gloves.
Fourth Quarter Outlook:
- The firm is targeting solid organic sales growth in the mid-single digits driven primarily by higher net selling prices and improved product mix.
- Sales volume growth will likely be relatively weak due to the focus on revenue realization in areas of the economy that are also experiencing weakness.
- Nonetheless, the firm still expects to maintain higher levels of investment and strategic marketing in customer development activities.
- The price increases implemented during the third quarter, along with some benefits from recent commodity cost reductions, should help drive a sequential improvement and adjusted operating profit in the fourth quarter, versus the third quarter.
- Adjusted earnings per share in the fourth quarter will be in a range of $1.02 to $1.07, and that compares with $1.11 per share in 2007 and for the full year 2008 will be in a range of $4.15 to $4.20.
