DALLAS, January 25, 2011-Kimberly-Clark Corporation (NYSE: KMB) today reported year-end 2010 earnings in line with its previous expectations and provided guidance for growth in 2011 adjusted earnings per share consistent with its long-term Global Business Plan target. The company also announced a series of actions to further enhance shareholder value, including the 39th consecutive annual increase in the company's dividend, a pulp and tissue restructuring, and a plan to repurchase a significant amount of company stock in 2011, partially funded by incremental debt financing.
Chairman and Chief Executive Officer Thomas J. Falk said, "We achieved our earnings per share commitment for the fourth quarter of 2010 despite a continued challenging environment. Reflecting on the full year, we invested in our brands and growth opportunities, reduced costs and allocated capital in shareholder-friendly ways. Moreover, our overall market positions are strong, which bodes well for our future prospects. Looking ahead to 2011, we expect that adjusted earnings per share will grow in line with our Global Business Plan target while we continue to leverage our strong brands, bring innovations to market and pursue targeted growth initiatives. At the same time, we will continue to manage our company with financial discipline, with a strong focus on cost savings and cash generation."
Falk added, "We are also taking additional, aggressive steps to improve shareholder value. We will be increasing our dividend for the 39th consecutive year, helping us maintain our top-tier payout. In addition, we are initiating a pulp and tissue restructuring in order to exit our remaining integrated pulp manufacturing operations and improve the underlying profitability and returns of our consumer tissue and K-C Professional businesses. This is further evidence of the financial discipline embedded in our Global Business Plan. Finally, we will be repurchasing $1.5 billion of KMB stock in 2011, as we leverage our strong cash flow and balance sheet and take advantage of the current low interest rate environment. All told, even though we expect the environment to remain difficult, I'm encouraged by our prospects in 2011 while we take further actions to strengthen our company and improve returns to shareholders."
Fourth Quarter 2010 Operating Results
Total company sales of $5.1 billion increased 2 percent compared with the fourth quarter of 2009. Organic sales rose 3 percent, driven by higher net selling prices of 2 percent and improved product mix of 1 percent, while overall sales volumes were even with year-ago levels. Volumes benefited from product innovations and targeted growth initiatives, while overall performance was negatively impacted by declines in Venezuela that reduced overall company volumes by 1 percent and the difficult economic environment in developed markets. Changes in foreign currency exchange rates reduced sales by 1 percent.
Operating profit was $699 million in the fourth quarter of 2010, down 3 percent from $717 million in 2009. Comparisons benefited from organic sales growth and $90 million in cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program. In addition, pension expense fell $20 million, as expected, with a majority of the decrease reflected in cost of sales. Meanwhile, inflation in key cost inputs amounted to $220 million overall versus 2009, including $130 million in higher fiber costs, $75 million for raw materials other than fiber, primarily polymer resin and other oil-based materials, $10 million in distribution costs and $5 million for energy. In addition, lower production volumes as a result of production curtailment to manage inventory levels adversely affected fourth quarter operating profit comparisons by $20 million. Other (income) and expense, net was $8 million of income in the fourth quarter of 2010, driven by foreign currency transaction gains. Prior year other (income) and expense, net was $25 million of income, which included favorable settlement of value-added tax matters.
The company's effective tax rate for the fourth quarter of 2010 was 26.7 percent compared to 28.0 percent in the year-ago period. The full-year 2010 adjusted effective tax rate, which excludes the effects of the balance sheet remeasurement in Venezuela, was 29.8 percent, in line with the company's target for a rate between 29.0 and 31.0 percent.
Kimberly-Clark's share of net income of equity companies in the fourth quarter of 2010 was $51 million compared to $48 million in the fourth quarter of 2009. The increase was driven by higher earnings at Kimberly-Clark de Mexico, S.A.B. de C.V. (KCM). Although KCM continues to experience input cost inflation, overall earnings rose in the quarter and included benefits from double-digit sales growth and a lower effective tax rate.
Cash Flow and Balance Sheet
Cash provided by operations in the fourth quarter of 2010 totaled $948 million compared to $1,001 million in the prior year. The decrease was driven by a smaller level of improvement in primary working capital (accounts receivable + inventories - accounts payable) compared to the prior year, mostly offset by lower pension plan contributions. Fourth quarter contributions to the company's defined benefit pension plans totaled $15 million in 2010 versus $127 million in 2009. Full-year contributions totaled $245 million in 2010, consistent with company expectations.
Capital spending for the quarter was $353 million compared with $285 million in 2009. Full-year spending for 2010 totaled $964 million, in line with the company's previous expectation for spending between $900 million and $1 billion. During the fourth quarter, the company repurchased approximately 1.6 million shares of its common stock at a cost of $100 million. Full-year repurchases of 12.8 million shares totaled $800 million, equaling the company's target. Total debt and redeemable securities was $6.5 billion at December 31, 2010, even with the prior year.
Fourth Quarter 2010 Business Segment Results
Personal Care Segment
Fourth quarter sales of $2.2 billion increased 2 percent. Sales volumes rose 2 percent and net selling prices advanced 1 percent, while changes in currency rates reduced sales by 1 percent. Fourth quarter operating profit of $421 million decreased 3 percent. Despite benefits from organic sales growth and cost savings, segment operating profit declined, primarily due to input cost inflation and changes in currency rates.
Sales in North America increased 3 percent. Sales volumes were up 2 percent and net selling prices increased 1 percent. Feminine care volumes grew at a double-digit rate for the fourth consecutive quarter as a result of the U by Kotex line extension. Adult care volumes also increased double-digits, with benefits from innovation on the Poise and Depend brands and supporting marketing campaigns. Baby wipes volumes rose at a double-digit rate, including increased shipments to support customer promotion activity. Child care and infant care volumes fell low- to mid-single digits, partly reflecting continued soft category demand.
Sales in Europe decreased 4 percent, including a negative currency effect of 6 percent. Net selling prices advanced 2 percent, while overall sales volumes were even with the year-ago period, as growth in baby wipes and child care was offset by declines in infant care. Sales increased 4 percent in K-C's international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa (K-C International). Sales volumes were up 4 percent, spurred by double-digit growth in Australia, China, Turkey, South Africa and most of Latin America, while volumes fell significantly in Venezuela in a continued difficult foreign currency exchange environment. Changes in product mix benefited sales by 1 percent. Overall net selling prices were even with the year-ago period, as increases in Venezuela were offset by modest declines elsewhere, primarily in the Middle East, Eastern Europe and Africa. Changes in currency rates reduced sales by 2 percent.
Consumer Tissue Segment
Fourth quarter sales of $1.7 billion increased 4 percent. Net selling prices increased 5 percent and product mix improved 2 percent, while sales volumes fell 1 percent and changes in currency rates reduced sales 1 percent. Fourth quarter operating profit of $172 million increased 15 percent. The improvement was driven by sales growth, cost savings and lower marketing, research and general expenses, partially offset by input cost inflation.
Sales in North America increased 3 percent. Net selling prices were up 3 percent, including benefits from sheet count reductions and the timing of promotion activity, and changes in product mix improved sales 2 percent. Sales volumes declined 2 percent. Bathroom tissue volumes fell mid-single digits, primarily due to the timing of promotion activity, while paper towel volumes fell at a double-digit rate and continue to be impacted by consumer trade-down. On the other hand, Kleenex facial tissue volumes rose mid-single digits and market shares improved behind innovation and marketing activities. The Kleenex Hand Towel innovation also benefited results in the quarter.
Sales in Europe declined 1 percent, including unfavorable currency effects of 5 percent. Net selling prices improved 5 percent in response to input cost inflation, and changes in product mix benefited sales by about 2 percent, while sales volumes were down 2 percent. Sales increased 8 percent in K-C International. Net selling prices increased 7 percent, driven by improvements in Latin America, and changes in product mix benefited sales by 1 percent. Sales volumes rose 1 percent, as gains in Asia were mostly offset by declines in Latin America, primarily in Venezuela. Changes in currency rates reduced sales by 1 percent.
K-C Professional (KCP) & Other Segment
Fourth quarter sales of $0.8 billion decreased 2 percent. Sales volumes fell 2 percent, reflecting the challenging economic environment in North America, and changes in currency rates reduced sales 1 percent, while net selling prices increased 1 percent. Fourth quarter operating profit of $112 million decreased 6 percent. Despite benefits from cost savings and lower marketing, research and general expenses, segment operating profit declined, primarily due to input cost inflation.
Sales in North America decreased 3 percent. Sales volumes were down 5 percent, while net selling prices rose 2 percent. Washroom product volumes declined at a double-digit rate as high unemployment and office vacancy levels continued to impact demand, while high-margin safety and wiper product volumes grew at low- to mid-single digit rates.
Sales in Europe fell 4 percent, including a negative currency effect of 6 percent and a 1 percent decline in product mix, while volumes advanced 4 percent. Sales increased 4 percent in K-C International. Sales volumes were up 2 percent, with continued gains in Asia. In addition, changes in net selling prices and product mix each benefited sales by 1 percent.
Health Care Segment
Fourth quarter sales of $0.4 billion decreased 1 percent. The acquisition of I-Flow Corporation benefited sales by 5 percent, while organic sales volumes declined 5 percent and net selling prices fell 2 percent. Fourth quarter operating profit of $26 million decreased 54 percent. The decline was driven by significantly higher marketing, research and general expenses, mostly for ongoing I-Flow litigation-related expenses.
The organic volume comparison was adversely affected by approximately 5 points due to increased demand in 2009 for face masks as a result of the H1N1 flu virus. In addition, overall North American supply volumes in 2010 were impacted by a modest slowdown in market demand. Meanwhile, organic sales volumes for medical devices rose at a high-single digit rate.
For the year of 2010, sales of $19.7 billion increased 3 percent. Organic sales rose 2 percent, including higher net selling prices of 1 percent and benefits from higher sales volumes and improved product mix. The combined impact of the I-Flow Corporation and Jackson Safety acquisitions completed in 2009 added an additional point of sales growth. Full year operating profit of $2,773 million was down 2 percent compared to $2,825 million in 2009. Adjusted operating profit in 2010 of $2,871 million increased 2 percent versus operating profit in the year-ago period. Diluted net income per share in 2010 was $4.45 and adjusted earnings per share were $4.68 compared with diluted net income per share of $4.52 in 2009. Adjusted operating profit and adjusted earnings per share in 2010 exclude the first quarter charge for the balance sheet remeasurement in Venezuela.
Adjusted operating profit comparisons benefited from organic sales growth, FORCE cost savings of $370 million, severance and related costs of $128 million in 2009 to streamline the organization and benefits of $80 million in 2010 from the streamlining initiative. In addition, pension expense decreased $120 million. These positive factors were partially offset by inflation in key cost inputs of about $790 million and increased marketing, research and general expenses, which included higher strategic marketing spending of about $100 million and increases related to I-Flow and to support future growth in K-C International.
Pulp and Tissue Restructuring
The company has initiated a pulp and tissue restructuring in order to exit its remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of its consumer tissue and K-C Professional businesses. The restructuring is expected to be completed by the end of 2012 and will involve the streamlining, sale or closure of 5 to 6 manufacturing facilities around the world. In conjunction with these actions, the company will be exiting certain non-strategic products, primarily non-branded offerings, and transferring some production to lower-cost facilities in order to improve overall profitability and returns.
The total cost of the restructuring is expected to be $280 to $420 million after tax ($400 to $600 million pre-tax). Cash costs are projected to be 25 to 50 percent of the total charges. As a result of the restructuring, the company expects that by 2013 annual net sales will decrease by $250 to $300 million and operating profit will increase by at least $75 million. Most of the restructuring will impact the consumer tissue business segment.
At this point in time, the company expects that $195 to $265 million of the after tax charges ($280 to $380 million pre-tax) will occur in 2011, while benefits from the restructuring in 2011 are expected to be immaterial. In 2011 and 2012 the company will report adjusted results, which will exclude the costs of the restructuring. The company will report on the progress of the restructuring on a quarterly basis or when material developments occur.
The company's key planning and guidance assumptions for 2011 are as follows:
Non-GAAP Financial Measures
This press 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.
These non-GAAP financial measures exclude the following items:
In accordance with the SEC's requirements, reconciliations of the non-GAAP financial measures to the comparable GAAP financial measures are attached.
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 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 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 the charges that are used in calculating these non-GAAP financial measures.
In addition, Kimberly-Clark management believes that investors' understanding of the company's performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing the company's ongoing results of operations. Many investors are interested in understanding the performance of our businesses by comparing our results from ongoing operations from one period to the next. By providing these non-GAAP financial measures, together with reconciliations, we believe we are enhancing investors' understanding of our businesses and our results of operations. Also, many financial analysts who follow our company focus on and publish both historical results and future projections based on non GAAP financial measures. We believe that it is in the best interests of our investors for us to provide this information to analysts so that those analysts accurately report the non-GAAP financial information.
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measure. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items being excluded. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.
A conference call to discuss this news release and other matters of interest to investors and analysts will be held at 9 a.m. (CST) 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).
Kimberly-Clark and its well-known global brands are an indispensable part of life for people in more than 150 countries. Every day, 1.3 billion people - nearly a quarter of the world's population - trust K-C brands and the solutions they provide to enhance their health, hygiene and well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in more than 80 countries. To keep up with the latest K-C news and to learn more about the company's 139-year history of innovation, visit www.kimberly-clark.com.
Copies of Kimberly-Clark's Annual Report to Stockholders and its proxy statements and other SEC filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, are made available free of charge on the company's Web site on the same day they are filed with the SEC. To view these filings, visit the Investors section of the company's Web site.
Certain matters contained in this news release concerning the business outlook, including anticipated costs, scope, timing and effects of the pulp and tissue restructuring, raw material and energy costs, market demand and economic conditions, anticipated currency rates and exchange risk, anticipated impact of acquisitions, cost savings, changes in finished product selling prices, cash flow and uses of cash, capital spending, marketing, research and innovation spending, anticipated financial and operating results, contingencies and anticipated transactions of the company constitute forward-looking statements and are based upon management's expectations and beliefs concerning future events impacting the company. There can be no assurance that these future events will occur as anticipated or that the company's results will be as estimated. For a description of certain factors that could cause the company's future results to differ materially from those expressed in any such forward-looking statements, see Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2009 entitled "Risk Factors."