Executive Summary
Chairman and Chief Executive Officer
Falk added, "The strength of our results this past year gives us added confidence that we will continue to execute our Global Business Plan well going forward. In 2014, we will pursue targeted growth initiatives, launch innovations and support our growth opportunities with increased advertising and research spending. We expect to achieve a healthy level of cost savings, which should help fund brand investments and improve margins. We will also focus on cash generation and allocate capital in shareholder-friendly ways. And while we expect significant currency headwinds and higher commodity costs this year, we plan to deliver solid bottom-line growth. We remain optimistic about our prospects to drive profitable growth and generate attractive returns to shareholders."
Fourth Quarter 2013 Operating Results
Sales of
Operating profit was
The increase in year-over-year adjusted operating profit included benefits from organic sales growth and $75 million in cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program. Input costs increased $85 million overall, with
The fourth quarter effective tax rate was 32.4 percent in 2013 compared to 38.5 percent in 2012. The fourth quarter adjusted effective tax rate, which does not include the effects of the previously mentioned items excluded from adjusted earnings per share calculations, was 31.8 percent in 2013 and 30.6 percent in 2012. The full-year adjusted effective tax rate in 2013 was 31.2 percent, in line with the company's expectation for an adjusted rate between 30 and 32 percent.
Cash provided by operations in the fourth quarter of 2013 was
Capital spending for the fourth quarter was $256 million in 2013 and $330 million in 2012. Full-year 2013 spending totaled
Fourth Quarter 2013 Business Segment Results
Personal Care Segment
Fourth quarter sales of
Sales in
Sales in
Sales in
Consumer Tissue Segment
Fourth quarter sales of
Sales in
Sales in
Sales in
K-C Professional (KCP) Segment
Fourth quarter sales of
Sales in
Sales in
Sales in
Health Care Segment
Fourth quarter sales of
Medical device volumes were up high-single digits, with strong growth in pain management products and a solid increase in digestive health offerings. Surgical and infection prevention volumes were even with year-ago levels, as increases in most product areas were offset by declines in exam gloves.
Full-Year 2013 Results
Sales of
Operating profit of
Diluted net income per share was
Adjusted operating profit and adjusted earnings per share in 2013 exclude restructuring costs for European strategic changes and a balance sheet remeasurement charge due to the
Potential Health Care Business Spin-Off - Update
In
Western and Central European Businesses Strategic Changes - Update
In
2014 Outlook and Key Planning Assumptions
The company's key planning and guidance assumptions for 2014 are as follows:
The company's 2014 projections include a full-year estimate for the health care business and do not include transaction and related costs for the potential health care business spin-off.
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 for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures:
In addition, this press release includes information regarding organic sales, which exclude the impact of changes in foreign currency rates and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions.
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
Conference Call
A conference call to discuss this news release and other matters of interest to investors and analysts will be held at
About
Copies of
Certain matters contained in this news release concerning the outlook, including key planning assumptions, anticipated financial and operating results, dividends and share repurchases, growth initiatives, advertising, research, innovation, capital and other spending and expenses, cost savings and reduction, the anticipated costs, scope, timing and financial and other effects of the potential spin-off of the health care business and the Western and
| ||||||||||
Three Months Ended |
||||||||||
2013 |
2012 |
Change | ||||||||
Net Sales |
$ |
5,305 |
$ |
5,307 |
— | |||||
Cost of products sold |
3,492 |
3,783 |
-7.7% | |||||||
Gross Profit |
1,813 |
1,524 |
+19.0% | |||||||
Marketing, research and general expenses |
999 |
1,066 |
-6.3% | |||||||
Other (income) and expense, net |
(8) |
9 |
N.M. | |||||||
Operating Profit |
822 |
449 |
+83.1% | |||||||
Interest income |
4 |
5 |
-20.0% | |||||||
Interest expense |
(72) |
(72) |
— | |||||||
Income Before Income Taxes and Equity Interests |
754 |
382 |
+97.4% | |||||||
Provision for income taxes |
(244) |
(147) |
+66.0% | |||||||
Income Before Equity Interests |
510 |
235 |
+117.0% | |||||||
Share of net income of equity companies |
48 |
51 |
-5.9% | |||||||
Net Income |
558 |
286 |
+95.1% | |||||||
Net income attributable to noncontrolling interests |
(19) |
(19) |
— | |||||||
Net Income Attributable to |
$ |
539 |
$ |
267 |
+101.9% | |||||
Per Share Basis |
||||||||||
Net Income Attributable to |
||||||||||
Basic |
$ |
1.41 |
$ |
0.68 |
+107.4% | |||||
Diluted |
$ |
1.40 |
$ |
0.68 |
+105.9% | |||||
Cash Dividends Declared |
$ |
0.81 |
$ |
0.74 |
+9.5% | |||||
Common Shares Outstanding |
December 31 |
|||||||||
2013 |
2012 |
|||||||||
Outstanding shares as of |
380.8 |
389.3 |
||||||||
Average diluted shares for three months ended |
384.9 |
393.5 |
||||||||
N.M. - Not meaningful |
| |||||||||
Twelve Months Ended |
|||||||||
2013 |
2012 |
Change | |||||||
Net Sales |
$ |
21,152 |
$ |
21,063 |
+0.4% | ||||
Cost of products sold |
13,912 |
14,314 |
-2.8% | ||||||
Gross Profit |
7,240 |
6,749 |
+7.3% | ||||||
Marketing, research and general expenses |
4,028 |
4,069 |
-1.0% | ||||||
Other (income) and expense, net |
4 |
(6) |
N.M. | ||||||
Operating Profit |
3,208 |
2,686 |
+19.4% | ||||||
Interest income |
20 |
18 |
+11.1% | ||||||
Interest expense |
(283) |
(284) |
-0.4% | ||||||
Income Before Income Taxes and Equity Interests |
2,945 |
2,420 |
+21.7% | ||||||
Provision for income taxes |
(929) |
(768) |
+21.0% | ||||||
Income Before Equity Interests |
2,016 |
1,652 |
+22.0% | ||||||
Share of net income of equity companies |
205 |
176 |
+16.5% | ||||||
Net Income |
2,221 |
1,828 |
+21.5% | ||||||
Net income attributable to noncontrolling interests |
(79) |
(78) |
+1.3% | ||||||
Net Income Attributable to |
$ |
2,142 |
$ |
1,750 |
+22.4% | ||||
Per Share Basis |
|||||||||
Net Income Attributable to |
|||||||||
Basic |
$ |
5.58 |
$ |
4.45 |
+25.4% | ||||
Diluted |
$ |
5.53 |
$ |
4.42 |
+25.1% | ||||
Cash Dividends Declared |
$ |
3.24 |
$ |
2.96 |
+9.5% | ||||
Common Shares Outstanding |
December 31 |
||||||||
2013 |
2012 |
||||||||
Average diluted shares for twelve months ended |
387.3 |
396.1 |
|||||||
N.M. - Not meaningful |
NON-GAAP RECONCILIATIONS (Millions, except per share amounts) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
As Reported |
Charges for European Strategic Changes |
As Adjusted Non-GAAP | ||||||||||||||
Cost of products sold |
$ |
3,492 |
$ |
10 |
$ |
3,482 |
||||||||||
Gross profit |
1,813 |
(10) |
1,823 |
|||||||||||||
Marketing, research and general expenses |
999 |
2 |
997 |
|||||||||||||
Other (income) and expense, net |
(8) |
2 |
(10) |
|||||||||||||
Operating profit |
822 |
(14) |
836 |
|||||||||||||
Income before income taxes and equity interests |
754 |
(14) |
768 |
|||||||||||||
Provision for income taxes |
(244) |
— |
(244) |
|||||||||||||
Effective tax rate |
32.4 |
% |
— |
31.8 |
% | |||||||||||
Income before equity interests |
510 |
(14) |
524 |
|||||||||||||
Net income |
558 |
(14) |
572 |
|||||||||||||
Net income attributable to |
539 |
(14) |
553 |
|||||||||||||
Diluted earnings per share |
1.40 |
(0.04) |
1.44 |
|||||||||||||
Three Months Ended | ||||||||||||||||
As Reported |
Charges for Pulp and Tissue Restructuring |
Charges for European Strategic Changes |
As Adjusted Non-GAAP | |||||||||||||
Cost of products sold |
$ |
3,783 |
$ |
45 |
$ |
250 |
$ |
3,488 |
||||||||
Gross profit |
1,524 |
(45) |
(250) |
1,819 |
||||||||||||
Marketing, research and general expenses |
1,066 |
4 |
49 |
1,013 |
||||||||||||
Other (income) and expense, net |
9 |
1 |
— |
8 |
||||||||||||
Operating profit |
449 |
(50) |
(299) |
798 |
||||||||||||
Income before income taxes and equity interests |
382 |
(50) |
(299) |
731 |
||||||||||||
Provision for income taxes |
(147) |
20 |
57 |
(224) |
||||||||||||
Effective tax rate |
38.5 |
% |
— |
— |
30.6 |
% | ||||||||||
Income before equity interests |
235 |
(30) |
(242) |
507 |
||||||||||||
Net income |
286 |
(30) |
(242) |
558 |
||||||||||||
Net income attributable to |
267 |
(30) |
(242) |
539 |
||||||||||||
Diluted earnings per share |
0.68 |
(0.08) |
(0.61) |
1.37 |
||||||||||||
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and they should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. 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. | ||||||||||||||||
Unaudited |
| ||||||||||||||||
Twelve Months Ended | ||||||||||||||||
As Reported |
Charges for European Strategic Changes |
Charge for Venezuelan Bolivar Devaluation |
As Adjusted Non-GAAP | |||||||||||||
Cost of products sold |
$ |
13,912 |
$ |
54 |
$ |
— |
$ |
13,858 |
||||||||
Gross profit |
7,240 |
(54) |
— |
7,294 |
||||||||||||
Marketing, research and general expenses |
4,028 |
22 |
— |
4,006 |
||||||||||||
Other (income) and expense, net |
4 |
5 |
36 |
(37) |
||||||||||||
Operating profit |
3,208 |
(81) |
(36) |
3,325 |
||||||||||||
Income before income taxes and equity interests |
2,945 |
(81) |
(36) |
3,062 |
||||||||||||
Provision for income taxes |
(929) |
15 |
10 |
(954) |
||||||||||||
Effective tax rate |
31.5 |
% |
— |
— |
31.2 |
% | ||||||||||
Income before equity interests |
2,016 |
(66) |
(26) |
2,108 |
||||||||||||
Net income |
2,221 |
(66) |
(26) |
2,313 |
||||||||||||
Net income attributable to |
2,142 |
(66) |
(26) |
2,234 |
||||||||||||
Diluted earnings per share |
5.53 |
(0.17) |
(0.07) |
5.77 |
||||||||||||
Twelve Months Ended | ||||||||||||||||
As Reported |
Charges for Pulp and Tissue Restructuring |
Charges for European Strategic Changes |
As Adjusted Non-GAAP | |||||||||||||
Cost of products sold |
$ |
14,314 |
$ |
128 |
$ |
250 |
$ |
13,936 |
||||||||
Gross profit |
6,749 |
(128) |
(250) |
7,127 |
||||||||||||
Marketing, research and general expenses |
4,069 |
6 |
49 |
4,014 |
||||||||||||
Other (income) and expense, net |
(6) |
1 |
— |
(7) |
||||||||||||
Operating profit |
2,686 |
(135) |
(299) |
3,120 |
||||||||||||
Income before income taxes and equity interests |
2,420 |
(135) |
(299) |
2,854 |
||||||||||||
Provision for income taxes |
(768) |
49 |
57 |
(874) |
||||||||||||
Effective tax rate |
31.7 |
% |
— |
— |
30.6 |
% | ||||||||||
Income before equity interests |
1,652 |
(86) |
(242) |
1,980 |
||||||||||||
Net income |
1,828 |
(86) |
(242) |
2,156 |
||||||||||||
Net income attributable to |
1,750 |
(86) |
(242) |
2,078 |
||||||||||||
Diluted earnings per share |
4.42 |
(0.22) |
(0.61) |
5.25 |
||||||||||||
Unaudited |
| |||||||
December 31 | |||||||
2013 |
2012 | ||||||
ASSETS |
|||||||
Current Assets |
|||||||
Cash and cash equivalents |
$ |
1,054 |
$ |
1,106 |
|||
Accounts receivable, net |
2,545 |
2,642 |
|||||
Inventories |
2,233 |
2,348 |
|||||
Other current assets |
718 |
493 |
|||||
Total Current Assets |
6,550 |
6,589 |
|||||
Property, Plant and Equipment, Net |
7,948 |
8,095 |
|||||
Investments in Equity Companies |
382 |
355 |
|||||
Goodwill |
3,181 |
3,337 |
|||||
Other Intangible Assets |
243 |
246 |
|||||
Long-Term Note Receivable |
— |
395 |
|||||
Other Assets |
615 |
856 |
|||||
TOTAL ASSETS |
$ |
18,919 |
$ |
19,873 |
|||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||
Current Liabilities |
|||||||
Debt payable within one year |
$ |
375 |
$ |
1,115 |
|||
Redeemable preferred securities of subsidiary |
506 |
— |
|||||
Trade accounts payable |
2,598 |
2,443 |
|||||
Accrued expenses |
2,060 |
2,244 |
|||||
Dividends payable |
309 |
289 |
|||||
Total Current Liabilities |
5,848 |
6,091 |
|||||
Long-Term Debt |
5,386 |
5,070 |
|||||
Noncurrent Employee Benefits |
1,312 |
1,992 |
|||||
Deferred Income Taxes |
817 |
488 |
|||||
Other Liabilities |
344 |
396 |
|||||
|
72 |
549 |
|||||
Stockholders' Equity |
|||||||
|
4,856 |
4,985 |
|||||
Noncontrolling interests |
284 |
302 |
|||||
Total Stockholders' Equity |
5,140 |
5,287 |
|||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
18,919 |
$ |
19,873 |
|||
Unaudited |
| |||||||||||||||
Three Months Ended |
Twelve Months Ended | ||||||||||||||
2013 |
2012 |
2013 |
2012 | ||||||||||||
Operating Activities |
|||||||||||||||
Net income |
$ |
558 |
$ |
286 |
$ |
2,221 |
$ |
1,828 |
|||||||
Depreciation and amortization |
222 |
215 |
863 |
857 |
|||||||||||
Asset impairments |
3 |
171 |
45 |
171 |
|||||||||||
Stock-based compensation |
19 |
10 |
92 |
67 |
|||||||||||
Deferred income taxes |
23 |
(96) |
151 |
224 |
|||||||||||
Net (gains) losses on asset dispositions |
11 |
20 |
11 |
35 |
|||||||||||
Equity companies' earnings in excess of dividends paid |
39 |
26 |
(36) |
(27) |
|||||||||||
(Increase) decrease in operating working capital |
101 |
454 |
(158) |
119 |
|||||||||||
Postretirement benefits |
(23) |
18 |
(158) |
7 |
|||||||||||
Other |
(8) |
15 |
9 |
7 |
|||||||||||
Cash Provided by Operations |
945 |
1,119 |
3,040 |
3,288 |
|||||||||||
Investing Activities |
|||||||||||||||
Capital spending |
(256) |
(330) |
(953) |
(1,093) |
|||||||||||
Acquisitions of businesses |
— |
— |
(32) |
(5) |
|||||||||||
Proceeds from dispositions of property |
16 |
3 |
129 |
9 |
|||||||||||
Proceeds from sales of investments |
10 |
9 |
26 |
23 |
|||||||||||
Investments in time deposits |
(47) |
(151) |
(93) |
(212) |
|||||||||||
Maturities of time deposits |
28 |
17 |
94 |
95 |
|||||||||||
Other |
(5) |
(3) |
(15) |
(1) |
|||||||||||
Cash Used for Investing |
(254) |
(455) |
(844) |
(1,184) |
|||||||||||
Financing Activities |
|||||||||||||||
Cash dividends paid |
(310) |
(292) |
(1,223) |
(1,151) |
|||||||||||
Change in short-term borrowings |
(309) |
(193) |
(287) |
271 |
|||||||||||
Debt proceeds |
1 |
— |
890 |
315 |
|||||||||||
Debt repayments |
(2) |
(21) |
(544) |
(492) |
|||||||||||
Cash paid on redeemable preferred securities of subsidiary |
(6) |
(7) |
(27) |
(28) |
|||||||||||
Proceeds from exercise of stock options |
68 |
42 |
232 |
565 |
|||||||||||
Acquisitions of common stock for the treasury |
(257) |
(322) |
(1,216) |
(1,284) |
|||||||||||
Other |
(17) |
(23) |
(10) |
2 |
|||||||||||
Cash Used for Financing |
(832) |
(816) |
(2,185) |
(1,802) |
|||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
16 |
9 |
(63) |
40 |
|||||||||||
Increase (Decrease) in Cash and Cash Equivalents |
(125) |
(143) |
(52) |
342 |
|||||||||||
Cash and Cash Equivalents - Beginning of Period |
1,179 |
1,249 |
1,106 |
764 |
|||||||||||
Cash and Cash Equivalents - End of Period |
$ |
1,054 |
$ |
1,106 |
$ |
1,054 |
$ |
1,106 |
|||||||
Unaudited |
| |||||||||||||||||||||
Three Months Ended |
Twelve Months Ended |
||||||||||||||||||||
2013 |
2012 |
Change |
2013 |
2012 |
Change | ||||||||||||||||
NET SALES |
|||||||||||||||||||||
Personal Care |
$ |
2,366 |
$ |
2,380 |
-0.6% |
$ |
9,536 |
$ |
9,576 |
-0.4% | |||||||||||
Consumer Tissue |
1,668 |
1,675 |
-0.4% |
6,637 |
6,527 |
+1.7% | |||||||||||||||
K-C Professional |
846 |
825 |
+2.5% |
3,323 |
3,283 |
+1.2% | |||||||||||||||
Health Care |
417 |
410 |
+1.7% |
1,618 |
1,622 |
-0.2% | |||||||||||||||
Corporate & Other |
8 |
17 |
N.M. |
38 |
55 |
N.M. | |||||||||||||||
TOTAL NET SALES |
$ |
5,305 |
$ |
5,307 |
— |
$ |
21,152 |
$ |
21,063 |
+0.4% | |||||||||||
OPERATING PROFIT |
|||||||||||||||||||||
Personal Care |
$ |
398 |
$ |
419 |
-5.0% |
$ |
1,698 |
$ |
1,660 |
+2.3% | |||||||||||
Consumer Tissue |
275 |
235 |
+17.0% |
988 |
887 |
+11.4% | |||||||||||||||
K-C Professional |
149 |
138 |
+8.0% |
608 |
545 |
+11.6% | |||||||||||||||
Health Care |
62 |
61 |
+1.6% |
230 |
229 |
+0.4% | |||||||||||||||
Corporate & Other(a) |
(70) |
(395) |
N.M. |
(312) |
(641) |
N.M. | |||||||||||||||
Other (income) and expense, net |
(8) |
9 |
N.M. |
4 |
(6) |
N.M. | |||||||||||||||
TOTAL OPERATING PROFIT |
$ |
822 |
$ |
449 |
+83.1% |
$ |
3,208 |
$ |
2,686 |
+19.4% | |||||||||||
(a) |
For the three and twelve months ended | |||||||||||||||||||||
N.M. - Not meaningful |
| |||||||||||||||||||||
PERCENTAGE CHANGE IN NET SALES VERSUS PRIOR YEAR | |||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||
Total |
Organic Volume |
Restructuring Impact on Volume(a) |
Total Volume |
Net Price |
Mix/ Other(b) |
Currency | |||||||||||||||
Consolidated |
— |
4 |
(3) |
1 |
1 |
— |
(2) |
||||||||||||||
Personal Care |
(0.6) |
6 |
(3) |
3 |
— |
(1) |
(3) |
||||||||||||||
Consumer Tissue |
(0.4) |
1 |
(3) |
(2) |
2 |
1 |
(1) |
||||||||||||||
K-C Professional |
2.5 |
2 |
— |
2 |
2 |
1 |
(2) |
||||||||||||||
Health Care |
1.7 |
3 |
— |
3 |
— |
— |
(1) |
||||||||||||||
Twelve Months Ended |
|||||||||||||||||||||
Total |
Organic Volume |
Restructuring Impact on Volume(a) |
Total Volume |
Net Price |
Mix/ Other(b) |
Currency | |||||||||||||||
Consolidated |
0.4 |
3 |
(2) |
1 |
1 |
— |
(2) |
||||||||||||||
Personal Care |
(0.4) |
4 |
(3) |
1 |
— |
1 |
(2) |
||||||||||||||
Consumer Tissue |
1.7 |
2 |
(1) |
1 |
2 |
— |
(1) |
||||||||||||||
K-C Professional |
1.2 |
1 |
(1) |
— |
1 |
1 |
(1) |
||||||||||||||
Health Care |
(0.2) |
1 |
— |
1 |
— |
— |
(1) |
||||||||||||||
(a) Lost volume related to the European strategic changes and pulp and tissue restructuring actions. | |||||||||||||||||||||
Unaudited |
| ||||||||||
ESTIMATED FULL YEAR 2014 DILUTED EARNINGS PER SHARE | ||||||||||
Adjusted earnings per share |
$ |
6.00 |
- |
$ |
6.20 |
|||||
Adjustment for charges related to European strategic changes |
(0.05) |
- |
(0.03) |
|||||||
Per share basis - diluted net income attributable to |
$ |
5.95 |
- |
$ |
6.17 |
The company's 2014 projections include a full-year estimate for the health care business and do not include transaction and related costs for the potential health care business spin-off.
[KMB-F]
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SOURCE
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