Kimberly-Clark Corp Q3 Profit Rises 3%

Kimberly-Clark Corp Q3 Profit Rises 3%

Kimberly-Clark Corp Q3 Profit Rises 3%

The FINANCIAL -- Kimberly-Clark Corporation on October 23 reported third quarter 2017 results and confirmed its previous guidance for full-year 2017 net sales and earnings per share.

Executive Summary

Third quarter 2017 net sales of $4.6 billion increased 1 percent compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by nearly 1 percent and organic sales rose slightly. Organic sales were similar in North American consumer products. Outside North America, organic sales increased 3 percent in developing and emerging markets and fell 3 percent in developed markets.

Diluted net income per share for the third quarter was $1.60 in 2017 and $1.52 in 2016. Results benefited from volume growth, cost savings and reduced marketing, research and general spending, while performance was impacted by lower net selling prices and input cost inflation.

The company continues to expect that full-year 2017 net sales and organic sales will be similar, or up slightly, year-on-year. The company also continues to anticipate that full-year 2017 earnings per share will be at the low end of its target range of $6.20 to $6.35.

Chairman and Chief Executive Officer Thomas J. Falk said, "We delivered bottom-line growth in the third quarter in a challenging environment. We also achieved $125 million of cost savings and reduced discretionary spending to help offset inflationary cost headwinds. In addition, we returned more than $500 million to shareholders through dividends and share repurchases. We are confirming our previous full-year 2017 outlook and we continue to execute our Global Business Plan strategies for long-term success."

Third Quarter 2017 Operating Results

Sales of $4.6 billion in the third quarter of 2017 were up 1 percent compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by nearly 1 percent. Organic sales rose slightly, as volumes increased more than 1 percent while net selling prices fell 1 percent.

Third quarter operating profit was $854 million in 2017 and $836 million in 2016. The year-over-year comparison included benefits from volume growth, $125 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program and reduced marketing, research and general spending. Results were also impacted by lower net selling prices and $115 million of higher input costs, driven by increases in pulp and other raw materials.

The third quarter effective tax rate was 28.8 percent in 2017 and 30.0 percent in 2016. The rate in 2017 benefited from certain tax planning initiatives. The company expects that the full-year 2017 effective tax rate will be slightly lower than the 2016 adjusted effective tax rate of 30.7 percent.

Kimberly-Clark's share of net income of equity companies in the third quarter was $24 million in 2017 and $33 million in 2016. At Kimberly-Clark de Mexico, results were impacted by higher input costs, partially offset by benefits from sales growth and cost savings.

Cash Flow and Balance Sheet

Third quarter cash provided by operations was $805 million in 2017 and $948 million in 2016. The decline was driven by a smaller working capital improvement in 2017 than in the year-ago period. Capital spending for the third quarter was $209 million in 2017 and $185 million in 2016. Full-year spending in 2017 is anticipated to be slightly below the company's target range of $850 to $950 million.

Third quarter 2017 share repurchases were 1.6 million shares at a cost of $200 million. Total debt was $7.6 billion at September 30, 2017 and at the end of 2016, according to Kimberly-Clark Corporation.

Third Quarter 2017 Business Segment Results

Personal Care Segment

Third quarter sales of $2.3 billion were down 1 percent. Net selling prices and volumes each fell about 1 percent, while product mix improved slightly. Third quarter operating profit of $476 million increased 4 percent. The comparison benefited from cost savings and reduced marketing, research and general spending, partially offset by lower net selling prices and input cost inflation.

Sales in North America decreased 3 percent. Net selling prices declined 2 percent, including higher promotion spending in adult care and feminine care. Overall volumes were down 1 percent. Total volumes in infant and child care were off mid-single digits due to lower Huggies diaper volumes. Baby wipes volumes were down mid-single digits compared to double-digit growth in the year-ago period, and feminine care volumes also declined mid-single digits. Adult care volumes rose high-single digits, with benefits from category growth, promotion activity and innovations launched over the last 12 months.

Sales in developing and emerging markets increased 3 percent. Volumes increased 3 percent and product mix improved 1 percent, while net selling prices were down 1 percent. The volume increase included gains in Eastern Europe and Latin America.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) decreased 6 percent, despite a 2 point benefit from favorable currency rates. Volumes fell 7 percent and net selling prices were down 2 percent, while product mix improved 1 percent. The changes mostly occurred in South Korea.

Consumer Tissue Segment

Third quarter sales of $1.5 billion increased 3 percent. Volumes rose approximately 4 percent and currency rates were favorable by 1 percent, while net selling prices fell 1 percent and product mix was slightly unfavorable. Third quarter operating profit of $260 million decreased 3 percent. The comparison was impacted by input cost inflation and the declines in net selling prices and product mix. Results benefited from volume growth, cost savings and lower marketing, research and general spending.

Sales in North America increased approximately 3 percent. Volumes were up 5 percent, while net selling prices fell 1 percent and product mix was down slightly. The volume comparison benefited from increased promotion activity and soft performance in the year-ago period.

Sales in developing and emerging markets increased 5 percent, including a 2 point benefit from favorable currency rates. Volumes increased 7 percent, while net selling prices fell 3 percent and product mix was off 1 percent. The changes mostly occurred in Latin America.

Sales in developed markets outside North America increased 1 percent, including a 1 point impact from favorable currency rates. Product mix improved 1 percent, while volumes fell 1 percent.

K-C Professional (KCP) Segment

Third quarter sales of $0.8 billion increased 3 percent. Volumes increased approximately 2 percent, changes in currency rates benefited sales by 1 percent and product mix improved slightly, while net selling prices were off 1 percent. Third quarter operating profit of $173 million increased 10 percent. The comparison benefited from sales growth and cost savings, partially offset by input cost inflation.

Sales in North America increased 3 percent. Volumes increased 3 percent, with growth in all major product categories, while net selling prices were down about 1 percent.

Sales in developing and emerging markets increased 3 percent, including a 1 point benefit from currency rates. Product mix was favorable by approximately 3 percent and volumes advanced 1 percent, while net selling prices were down 1 percent.

Sales in developed markets outside North America were up 5 percent, including a 3 point positive impact from changes in currency rates. Volumes improved 2 percent and net selling prices rose 1 percent, while product mix fell 1 percent.

Year-To-Date Results

For the first nine months of 2017, sales of $13.7 billion were essentially even with the year-ago period. Changes in foreign currency exchange rates benefited sales slightly. Organic sales were down slightly, as net selling prices declined 1 percent while volumes improved about 1 percent.

Year-to-date operating profit was $2,487 million in 2017 versus $2,478 million in 2016. The comparison benefited from volume growth, $355 million of FORCE cost savings and lower marketing, research and general spending. Results were also impacted by lower net selling prices and $220 million of higher input costs. Full-year input cost inflation is expected to be slightly above the company's previous estimate of $200 to $300 million.

Through nine months, diluted net income per share was $4.66 in 2017, up 2 percent compared to $4.58 in 2016. The comparison benefited from higher operating profit and declines in the effective tax rate and share count, while results were impacted by reduced net income from equity companies. Adjusted earnings per share were $4.59 in 2016.

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:

Adjusted earnings and earnings per share
Adjusted gross and operating profit
Adjusted other (income) and expense, net
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:

2014 Organization Restructuring. In October 2014, the company initiated a restructuring program in order to improve organization efficiency and offset the impact of stranded overhead costs resulting from the spin-off of the company's health care business. As a result, the company recognized restructuring charges in 2014, 2015 and 2016.

Venezuelan operations. In the second quarter of 2016, the company recorded a modest amount of income related to an updated assessment of the impact of deconsolidating the company's Venezuelan business at the end of 2015.

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 also impact the year-over-year change in net sales.