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Kimberly-Clark Announces Second Quarter 2019 Results

Kimberly-Clark Corporation today reported second quarter 2019 results and raised its outlook for full-year 2019 organic sales growth and earnings per share.

Executive Summary

  • Second quarter 2019 net sales of $4.6 billion were even with the year-ago period. Organic sales increased 5 percent while changes in foreign currency exchange rates reduced sales by 5 percent.
  • Diluted net income per share for the second quarter was $1.40 in 2019 and $1.30 in 2018.
  • Second quarter adjusted earnings per share were $1.67 in 2019 and $1.59 in 2018. Adjusted earnings per share exclude certain items described later in this news release.
  • Diluted net income per share for full-year 2019 is expected to be $5.50 to $5.90 compared to the prior estimate of $4.85 to $5.35.
  • The company is now targeting full-year 2019 organic sales growth of 3 percent and adjusted earnings per share of $6.65 to $6.80. The prior outlook was for organic sales growth of 2 percent and adjusted earnings per share of $6.50 to $6.70.

Chief Executive Officer Mike Hsu said, "We made excellent progress in the second quarter. We delivered strong organic sales growth, gross margin improvement and higher earnings per share. In addition, we generated $90 million of cost savings and returned $520 million to shareholders through dividends and share repurchases. We also continued to launch innovations, pursue our growth priorities and increase investments in our brands."

Hsu added, "For the full year, we are raising our top- and bottom-line outlook, reflecting strong execution and an improving commodity environment. We're also increasing our growth investments behind our brands and in capabilities that will position us for longer-term success. We continue to be optimistic about our opportunities to deliver balanced and sustainable growth and create shareholder value through execution of K-C Strategy 2022."

Second Quarter 2019 Operating Results

Sales of $4.6 billion in the second quarter of 2019 were even with the year-ago period. Changes in foreign currency exchange rates reduced sales by 5 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales slightly. Organic sales increased 5 percent. Net selling prices rose 5 percent and product mix improved 1 percent, while volumes fell slightly. In North America, organic sales increased 5 percent in consumer products and 2 percent in K-C Professional. Outside North America, organic sales rose 9 percent in developing and emerging markets and 1 percent in developed markets.

Second quarter operating profit was $670 million in 2019 and $674 million in 2018. Results in both periods include charges related to the 2018 Global Restructuring Program. Second quarter adjusted operating profit was $789 million in 2019 and $774 million in 2018. Results benefited from higher net selling prices, $70 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program and $20 million of cost savings from the 2018 Global Restructuring Program. On the other hand, results were impacted by $80 million of higher input costs, driven by $40 million in pulp inflation and increases in other raw materials and distribution expense. In addition, foreign currency translation effects reduced operating profit by $25 million and transaction effects also negatively impacted the comparison. Other manufacturing costs were also higher year-on-year. Advertising spending increased and general and administrative costs were higher, driven by increased incentive compensation expense.

The second quarter effective tax rate was 22.2 percent in 2019 and 24.1 percent in 2018. The second quarter adjusted effective tax rate was 22.3 percent in 2019 and 23.0 percent in 2018. The rate in 2019 benefited from certain planning initiatives.

Kimberly-Clark's share of net income of equity companies in the second quarter was $33 million in 2019 and $30 million in 2018. At Kimberly-Clark de Mexico, results benefited from organic sales growth and cost savings, but were negatively impacted by higher input costs and unfavorable currency effects.

Cash Flow and Balance Sheet

Cash provided by operations in the second quarter was $609 million in 2019 and $787 million in 2018. The decline was driven by higher tax payments and increased working capital. Capital spending for the second quarter was $253 million in 2019 and $158 million in 2018. Second quarter 2019 share repurchases were 1.3 million shares at a cost of $167 million. Total debt was $8.0 billion at June 30, 2019 and $7.5 billion at the end of 2018.

Second Quarter 2019 Business Segment Results

Personal Care Segment

Second quarter sales of $2.3 billion increased 1 percent. Net selling prices increased approximately 5 percent, volumes rose 1 percent and product mix improved 1 percent. Changes in currency rates reduced sales by 6 percent. Second quarter operating profit of $485 million increased 5 percent. The comparison benefited from organic sales growth and cost savings, while results were impacted by unfavorable currency effects, input cost inflation, higher advertising spending and other manufacturing cost increases.

Sales in North America increased 5 percent. Net selling prices increased 3 percent, driven by baby and child care, and volumes rose 3 percent. Volumes were up high-single digits in adult care, including benefits from category growth, innovations and increased marketing support. Volumes increased low-single digits in baby and child care and fell mid-single digits in feminine care.

Sales in developing and emerging markets decreased 1 percent. Currency rates were unfavorable by 13 percent, including significant declines in Latin America. Net selling prices rose 11 percent and product mix improved 2 percent, while volumes were even year-on-year. The higher net selling prices were primarily in Latin America and secondarily in China and the Middle East/Eastern Europe/Africa. Volumes increased in Eastern Europe, ASEAN and South Africa, but fell in Latin America and China.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) decreased 6 percent, including an 8 point negative impact from changes in currency rates. Volumes and product mix each improved 1 percent.

Consumer Tissue Segment

Second quarter sales of $1.5 billion were even year-on-year. Changes in currency rates reduced sales 4 percent. Net selling prices increased 5 percent and product mix improved slightly, while volumes declined 2 percent. Second quarter operating profit of $221 million increased 7 percent. Results benefited from higher net selling prices and cost savings. The comparison was impacted by input cost inflation, other manufacturing cost increases, unfavorable currencies, lower volumes and higher general and administrative costs.

Sales in North America increased 5 percent compared to a 4 percent decline in the year-ago period. Net selling prices rose 7 percent while volumes fell 2 percent.

Sales in developing and emerging markets decreased 4 percent. Currency rates were unfavorable by 8 percent, primarily in Latin America. Net selling prices increased 5 percent and product mix improved 1 percent, while volumes fell 1 percent.

Sales in developed markets outside North America decreased 7 percent. Changes in currency rates reduced sales by 7 percent. Net selling prices increased 3 percent while volumes fell 2 percent. The changes occurred primarily in Western/Central Europe.

K-C Professional (KCP) Segment

Second quarter sales of $0.8 billion decreased 5 percent. Changes in currency rates reduced sales by 4 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales 2 percent. Net selling prices increased 3 percent and product mix improved 1 percent, while volumes were down 3 percent. Second quarter operating profit of $162 million decreased 2 percent. The comparison was impacted by input cost inflation, lower volumes, unfavorable currency effects and higher general and administrative costs. Results benefited from increased net selling prices and cost savings.

Sales in North America were even year-on-year. Net selling prices increased 2 percent while business exits in conjunction with the 2018 Global Restructuring Program reduced sales 2 percent.

Sales in developing and emerging markets decreased 6 percent, including an 8 point negative impact from changes in currency rates. Net selling prices rose 4 percent while volumes declined 2 percent.

Sales in developed markets outside North America were down 8 percent. Currency rates were unfavorable by 7 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales 1 percent. Volumes fell 8 percent, while net selling prices increased 4 percent and product mix improved 3 percent. The changes occurred mostly in Western/Central Europe.

Year-To-Date Results

For the first six months of 2019, sales of $9.2 billion decreased 1 percent. Changes in foreign currency exchange rates reduced sales by 5 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 $1,325 million in 2019 and $921 million in 2018. Results in both periods include charges related to the 2018 Global Restructuring Program. Year-to-date adjusted operating profit was $1,596 million in 2019 and $1,598 million in 2018. The comparison was impacted by $215 million of higher input costs, unfavorable currency effects, other manufacturing cost increases, increased advertising spending and higher general and administrative costs. On the other hand, results benefited from organic sales growth, $125 million of FORCE cost savings and $80 million of cost savings from the 2018 Global Restructuring Program.

Through six months, diluted net income per share was $2.71 in 2019 and $1.56 in 2018. Year-to-date adjusted earnings per share were $3.33 in 2019 and $3.30 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.

Second quarter 2019 restructuring charges were $119 million pre-tax ($92 million after tax), bringing cumulative charges to $1,307 million pre-tax ($997 million after tax). Second quarter 2019 restructuring savings were $20 million, bringing cumulative savings to $215 million.

2019 Outlook and Key Planning Assumptions

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

  • Net sales even to down 1 percent year-on-year (prior assumption down 1 to 2 percent).
    • Organic sales growth 3 percent (previous estimate 2 percent).
  • Adjusted operating profit growth of 3 to 5 percent versus prior target of 1 to 4 percent.
    • Inflation in key cost inputs of $150 to $250 million compared to the prior assumption of $300 to $400 million. The change is driven primarily by an improved outlook for pulp and secondarily for other raw materials including superabsorbent and polymer resin.
    • Higher marketing spending and general and administrative costs than previously planned.
  • Net income from equity companies higher year-on-year (prior estimate similar year-on-year).
  • Adjusted earnings per share $6.65 to $6.80 compared to the prior outlook of $6.50 to $6.70.

For the full earnings report, click here