Kimberly-Clark Announces Third Quarter 2019 Results

(STL.News) – Chief Executive Officer Mike Hsu said, “We delivered excellent third quarter results and we are raising our full-year outlook. We achieved strong improvements in organic sales, profit margins and earnings per share in the quarter.  In addition, we continued to launch innovations, pursue our growth priorities and increase investments in our brands.  We also generated $95 million of cost savings and returned approximately $570 million to shareholders through dividends and share repurchases.  I’m encouraged by the progress we’re making this year while we invest more for longer-term success.  We continue to be optimistic about our opportunities to deliver balanced and sustainable growth through execution of K-C Strategy 2022.”

Third Quarter 2019 Operating Results

Sales of $4.6 billion in the third quarter of 2019 increased more than 1 percent compared to the year-ago period.  Changes in foreign currency exchange rates reduced sales by 2 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales slightly.  Organic sales increased 4 percent.  Net selling prices rose 4 percent and product mix improved 1 percent, while volumes fell 1 percent.  In North America, organic sales increased 4 percent in consumer products and 5 percent in K-C Professional. Outside North America, organic sales rose 5 percent in developing and emerging markets and 1 percent in developed markets.

Third quarter operating profit was $915 million in 2019 and $669 million in 2018.  Results in both periods include charges related to the 2018 Global Restructuring Program.  Results in 2019 also include a gain on the sale of a manufacturing facility as part of the restructuring.

Third quarter adjusted operating profit was $859 million in 2019 and $798 million in 2018.  Results benefited from higher net selling prices, $50 million of cost savings from the company’s FORCE (Focused On Reducing Costs Everywhere) program and $45 million of cost savings from the 2018 Global Restructuring Program.  Input costs decreased $10 million, driven by lower raw material costs. Advertising spending increased and selling, general and administrative costs were higher, including increased incentive compensation expense.  Other manufacturing costs also rose year-on-year.  Foreign currency translation effects reduced operating profit by $15 million and transaction effects also negatively impacted the comparison.

The third quarter effective tax rate was 22.8 percent in 2019 and 23.9 percent in 2018.  The third quarter adjusted effective tax rate was 21.5 percent in 2019 and 19.6 percent in 2018.  The rate in 2018 benefited from certain planning initiatives.

Kimberly-Clark’s share of net income of equity companies in the third quarter was $31 million in 2019 and $23 million in 2018. At Kimberly-Clark de Mexico, results benefited from organic sales growth and cost savings.

Cash Flow and Balance Sheet

Cash provided by operations in the third quarter was $886 million in 2019 and $692 million in 2018.  The increase included benefits from improved working capital and lower pension contributions.  Capital spending for the third quarter was $298 million in 2019 and $219 million in 2018.  Proceeds from dispositions of property in the third quarter of 2019 included approximately $200 million from the previously mentioned sale of a manufacturing facility as part of the 2018 Global Restructuring Program.

Third quarter 2019 share repurchases were 1.6 million shares at a cost of $214 million.  The company expects full-year repurchases of $800 million, consistent with the original target range of $600 to $900 million.  Total debt was $7.8 billion at September 30, 2019 and $7.5 billion at the end of 2018.

Third Quarter 2019 Business Segment Results

Personal Care Segment

Third quarter sales of $2.3 billion increased 2 percent.  Net selling prices increased 3 percent, volumes rose 1 percent and product mix improved 1 percent.  Changes in currency rates reduced sales by 3 percent.  Third quarter operating profit of $490 million increased 5 percent.  The comparison benefited from organic sales growth and cost savings.  Results were impacted by unfavorable currency effects, other manufacturing cost increases, higher advertising spending and increased selling, general and administrative costs.

Sales in North America increased 4 percent.  Net selling prices increased 2 percent and product mix improved 1 percent, both driven by baby and child care.  Volumes were up 1 percent overall.  Volumes increased double-digits in adult care but were down mid-single digits in baby and child care compared to a mid-single digit increase in the year-ago period.

Sales in developing and emerging markets increased 3 percent.  Net selling prices rose 6 percent and product mix improved 1 percent, while volumes were even year-on-year and currency rates were unfavorable by 5 percent.  The higher net selling prices mostly occurred in Argentina, the Middle East/Eastern Europe/Africa and China.  Volumes increased in Eastern Europe, ASEAN and South Africa, but fell in Latin America.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) decreased 3 percent, including a 6 point negative impact from changes in currency rates.  Product mix improved 2 percent and volumes rose 1 percent.

Consumer Tissue Segment

Third quarter sales of $1.5 billion increased 1 percent.  Net selling prices increased 5 percent, while volumes declined 2 percent and changes in currency rates reduced sales 2 percent.  Third quarter operating profit of $264 million increased 25 percent.  Results benefited from higher net selling prices, cost savings and lower input costs.  The comparison was impacted by other manufacturing cost increases, lower volumes and increased selling, general and administrative costs.

Sales in North America increased 3 percent compared to a 5 percent decline in the year-ago period.  Net selling prices rose 8 percent, while volumes fell 4 percent and product mix was off 1 percent.

Sales in developing and emerging markets increased 1 percent.  Net selling prices and product mix each improved 1 percent, while currency rates were unfavorable by 2 percent.

Sales in developed markets outside North America decreased 4 percent, including a 5 point negative impact from changes in currency rates.  Net selling prices increased 2 percent.

K-C Professional (KCP) Segment

Third quarter sales of $0.8 billion decreased 1 percent.  Changes in currency rates and business exits in conjunction with the 2018 Global Restructuring Program each reduced sales 2 percent.  Net selling prices increased more than 3 percent and product mix improved 1 percent, while volumes were down 2 percent.  Third quarter operating profit of $176 million increased 10 percent.  Results benefited from increased net selling prices and cost savings.  The comparison was impacted by lower volumes, other manufacturing cost increases, unfavorable currency effects and higher selling, general and administrative costs.

Sales in North America increased 4 percent.  Net selling prices increased 4 percent and volumes rose 1 percent, while business exits in conjunction with the 2018 Global Restructuring Program reduced sales approximately 2 percent.

Sales in developing and emerging markets decreased 2 percent, including a 2 point negative impact from changes in currency rates. Volumes declined 5 percent, while net selling prices rose 4 percent.

Sales in developed markets outside North America were down 7 percent.  Currency rates were unfavorable by 5 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales 1 percent.  Volumes fell 7 percent, while product mix improved 4 percent and net selling prices increased 2 percent.  The changes occurred mostly in Western/Central Europe.

Year-To-Date Results

For the first nine months of 2019, sales of $13.9 billion were down slightly.  Changes in foreign currency exchange rates reduced sales by 4 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales slightly.  Organic sales increased 4 percent.  Net selling prices rose 4 percent and product mix improved 1 percent, while volumes fell 1 percent.

Year-to-date operating profit was $2,240 million in 2019 and $1,590 million in 2018.  Results in both periods include charges related to the 2018 Global Restructuring Program.  Year-to-date adjusted operating profit was $2,455 million in 2019 and $2,396 million in 2018.  Results benefited from organic sales growth, $175 million of FORCE cost savings and $125 million of cost savings from the 2018 Global Restructuring Program.  The comparison was impacted by $205 million of higher input costs, unfavorable currency effects, other manufacturing cost increases, increased advertising spending and higher general and administrative costs.

Through nine months, diluted net income per share was $4.65 in 2019 and $2.85 in 2018.  Year-to-date adjusted earnings per share were $5.18 in 2019 and $5.01 in 2018.

2018 Global Restructuring Program

In January 2018, Kimberly-Clark initiated the 2018 Global Restructuring Program in order to reduce the company’s structural cost base and enhance the company’s flexibility to invest in its brands, growth initiatives and capabilities critical to delivering future growth.  The company expects the program will generate annual pre-tax cost savings of $500 to $550 million by the end of 2021.  As part of the program, Kimberly-Clark expects to exit or divest some low-margin businesses that generate approximately 1 percent of company net sales.  To implement the program, the company expects to incur restructuring charges of $1,700 to $1,900 million pre-tax ($1,350 to $1,500 million after tax) by the end of 2020.  Through the third quarter of 2019, the company has incurred cumulative restructuring charges of $1,251 million pre-tax ($964 million after tax) and generated cumulative savings of $260 million.

2019 Outlook and Key Planning Assumptions

The company updated the following key planning and guidance assumptions for full-year 2019:

  • Net sales down slightly year-on-year (prior assumption even to down 1 percent)
  • Organic sales growth 3 to 4 percent (previous estimate 3 percent)
  • Foreign currency exchange rates unfavorable by 4 percent (prior estimate 3 to 4 percent)
  • Exited businesses in conjunction with the 2018 Global Restructuring Program expected to reduce sales slightly (no change)
  • Adjusted operating profit growth 4 to 5 percent (prior target 3 to 5 percent)
  • Inflation in key cost inputs in the lower half of the previously estimated range of $150 to $250 million
  • Currency effects slightly more unfavorable than previously assumed
  • Adjusted effective tax rate toward the low end of the prior estimate of 23 to 25 percent
  • Adjusted earnings per share $6.75 to $6.90 compared to the prior outlook of $6.65 to $6.80

Non-GAAP Financial Measures

This news release and the accompanying tables include the following financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures:

  • Adjusted earnings and earnings per share
  • Adjusted gross and operating profit
  • Adjusted effective tax rate

These non-GAAP financial measures exclude the following items for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures:

  • 2018 Global Restructuring Program.  Mentioned elsewhere in this release.
  • U.S. tax reform.  In the first, third and fourth quarters of 2018, the company recognized net charges associated with U.S. tax reform related matters.

The company provides these non-GAAP financial measures as supplemental information to our GAAP financial measures. Management and the company’s Board of Directors use adjusted earnings, adjusted earnings per share and adjusted gross and operating profit to (a) evaluate the company’s historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources and (c) measure the operational performance of the company’s business units and their managers. Management also believes that the use of an adjusted effective tax rate provides improved insight into the tax effects of our ongoing business operations.

Additionally, the Management Development and Compensation Committee of the company’s Board of Directors has used certain of the non-GAAP financial measures when setting and assessing achievement of incentive compensation goals.  These goals are based, in part, on the company’s adjusted earnings per share and improvement in the company’s adjusted return on invested capital and adjusted operating profit return on sales determined by excluding certain of the adjustments that are used in calculating these non-GAAP financial measures.

This news release includes information regarding organic sales growth, which describes the impact of changes in volume, net selling prices and product mix on net sales.  Changes in foreign currency exchange rates and exited businesses also impact the year-over-year change in net sales.

Conference Call

A conference call to discuss this news release and other matters of interest to investors and analysts will be held at 9 a.m. (CDT) today. The conference call will be simultaneously broadcast over the World Wide Web.  Stockholders and others are invited to listen to the live broadcast or a playback, which can be accessed by following the instructions set out in the Investors section of the company’s Web site (www.kimberly-clark.com).

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