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Kimberly-Clark Announces Year End 2019 Results

Today Kimberly-Clark reported year-end 2019 results and provided its 2020 outlook.

Executive Summary

  • Fourth quarter 2019 net sales of $4.6 billion were even with the year-ago period, while organic sales increased 3 percent. Full-year 2019 net sales of $18.5 billion were even with the year-ago period, while organic sales increased 4 percent.
  • Diluted net income per share for the fourth quarter was $1.59 in 2019 and $1.18 in 2018. Full-year diluted net income per share was $6.24 in 2019 and $4.03 in 2018.
  • Fourth quarter adjusted earnings per share were $1.71 in 2019, up 7 percent compared to $1.60 in 2018. Adjusted earnings per share exclude certain items described later in this news release.
  • Full-year adjusted earnings per share were $6.89 in 2019, up 4 percent compared to $6.61 in 2018. The company's previous guidance was for adjusted earnings per share of $6.75 to $6.90.
  • Net sales in 2020 are expected to increase 1 percent year-on-year, including organic sales growth of 2 percent. Diluted net income per share for 2020 is anticipated to be $5.95 to $6.65. Adjusted earnings per share in 2020 are expected to be$7.10 to $7.35.
  • The company's Board of Directors has approved a 3.9 percent increase in the quarterly dividend, which is the 48th consecutive annual increase in the dividend.

Chairman and Chief Executive Officer Mike Hsu said, "Our fourth quarter results capped off a year of excellent progress at Kimberly-Clark. For the full year of 2019, we delivered 4 percent growth in organic sales and in adjusted earnings per share, both ahead of our original outlook for the year. We also achieved strong margin improvements, generated $425 million of cost savings and returned $2.2 billion to shareholders through dividends and share repurchases. At the same time, we launched innovations, pursued our growth priorities and increased our investments behind our brands and in capabilities to position us for longer-term success. Overall, I'm encouraged by our progress in the first year of executing K-C Strategy 2022."

Hsu continued, "Looking ahead, our plan for 2020 is to deliver top- and bottom-line growth consistent with our medium-term financial objectives while continuing to increase our growth investments and allocate capital in shareholder-friendly ways. We remain very optimistic about our opportunities to deliver balanced and sustainable growth and create long-term shareholder value."

Fourth Quarter 2019 Operating Results

Sales of $4.6 billion in the fourth quarter of 2019 were even with 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 3 percent. Net selling prices rose more than 2 percent and product mix improved 1 percent, while volumes fell 1 percent. In North America, organic sales increased 3 percent in both consumer products and in K-C Professional. Outside North America, organic sales rose 3 percent in developing and emerging markets and 1 percent in developed markets.

Fourth quarter operating profit was $751 million in 2019 and $639 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 property associated with a former manufacturing facility that was closed as part of a past restructuring.

Fourth quarter adjusted operating profit was $826 million in 2019 and $742 million in 2018. Resultsbenefited from higher net selling prices, improved product mix, $85 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program and $40 million of cost savings from the 2018 Global Restructuring Program. Input costs decreased $60 million, driven by pulp, while other manufacturing costs rose year-on-year. Selling, general and administrative costs were higher, including increased incentive compensation expense and investments to improve commercial capabilities. Advertising spending also increased year-on-year. Unfavorable foreign currency translation and transaction effects also impacted the comparison.

The fourth quarter effective tax rate was 17.2 percent in 2019 and 18.6 percent in 2018. The fourth quarter adjusted effective tax rate was 24.6 percent in 2019 and 19.1 percent in 2018. The rate in 2018 benefited from planning initiatives and resolution of certain matters.

Kimberly-Clark's share of net income of equity companies in the fourth quarter was $32 million in 2019 and $23 million in 2018. Results benefited from volume growth, lower input costs and cost savings.

Cash Flow and Balance Sheet

Cash provided by operations in the fourth quarter was $924 million in 2019 and $949 million in 2018. Full-year cash provided by operations was $2,736 million in 2019 and $2,970 million in 2018. The full-year comparison was impacted by increased working capital and tax payments, partially offset by higher earnings and lower pension contributions. Capital spending for the fourth quarter was $342 million in 2019 and $311 million in 2018. Full-year spending was $1,209 million in 2019, including significant spending related to the 2018 Global Restructuring Program, compared to $877 million in 2018.

Fourth quarter 2019 share repurchases were 1.9 million shares at a cost of $252 million, bringing full-year repurchases to 6.2 million shares at a cost of $800 million. Total debt was $7.7 billion at the end of 2019 and $7.5 billion at the end of 2018.

Fourth Quarter 2019 Business Segment Results

Personal Care Segment

Fourth quarter sales of $2.2 billion increased 1 percent. Net selling prices increased 2 percent and product mix improved approximately 2 percent. Changes in currency rates reduced sales by 2 percent. Fourth quarter operating profit of $445 million increased 2 percent. The comparison benefited from organic sales growth and cost savings. Results were impacted by other manufacturing cost increases, increased selling, general and administrative costs, higher advertising spending and unfavorable currency effects.

Sales in North America increased 2 percent. Product mix improved 2 percent and net selling prices increased 1 percent, both driven by baby and child care, while volumes were down 1 percent. Volumes were down mid-single digits in baby and child care compared to a mid-single digit increase in the year-ago period, while volumes increased high-single digits in adult care.

Sales in developing and emerging markets increased 1 percent despite a 5 point negative impact from changes in currency rates. Net selling prices rose 3 percent, product mix improved 1 percent and volumes increased 1 percent. The higher net selling prices mostly occurred in Argentina and China. Volumes increased in Eastern Europe, India 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 5 point negative impact from changes in currency rates. Volumes and product mix each improved 1 percent, while net selling prices fell 1 percent.

Consumer Tissue Segment

Fourth quarter sales of $1.5 billion increased 1 percent. Net selling prices increased 3 percent, while volumes declined 1 percent and changes in currency rates reduced sales 1 percent. Fourth quarter operating profit of $281 million increased 36 percent. Results benefited from higher net selling prices, cost savings and lower input costs. The comparison was impacted by other manufacturing cost increases and increased selling, general and administrative costs.

Sales in North America increased 4 percent. Net selling prices rose 6 percent, while volumes fell 3 percent.

Sales in developing and emerging markets decreased 2 percent, including a 2 point negative impact from changes in currency rates. Net selling prices improved 1 percent, while volumes fell 1 percent.

Sales in developed markets outside North America decreased 2 percent. Changes in currency rates reduced sales 4 percent, while volumes improved 2 percent.

K-C Professional (KCP) Segment

Fourth quarter sales of $0.8 billion decreased 3 percent. Business exits in conjunction with the 2018 Global Restructuring Program and changes in currency rates reduced sales by 3 percent and 1 percent, respectively. Net selling prices increased 2 percent and product mix improved 2 percent, while volumes were down 3 percent. Fourth quarter operating profit of $169 million increased 12 percent. Results benefited from increased net selling prices, cost savings and lower input costs. The comparison was impacted by lower volumes, other manufacturing cost increases, and higher selling, general and administrative costs.

Sales in North America increased 1 percent. Net selling prices increased 3 percent and product mix improved 1 percent, while volumes fell 1 percent. Business exits in conjunction with the 2018 Global Restructuring Program reduced sales 1 percent.

Sales in developing and emerging markets decreased 5 percent, including a 2 point negative impact ​from changes in currency rates. Volumes declined 6 percent, while net selling prices increased 2 percent and product mix improved 1 percent.

Sales in developed markets outside North America were down 5 percent. Currency rates were unfavorable by 4 percent and business exits in conjunction with the 2018 Global Restructuring Program reduced sales 1 percent. Volumes fell 6 percent, while product mix improved 4 percent and net selling prices increased 1 percent. The changes occurred mostly in Western/Central Europe.

Full Year 2019 Results

Sales of $18.5 billion were even with the year-ago period. Changes in foreign currency exchange rates reduced sales by 3 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 3 percent in both consumer products and in K-C Professional. Outside North America, organic sales rose 6 percent in developing and emerging markets and 1 percent in developed markets.

Operating profit was $2,991 million in 2019 and $2,229 million in 2018. Results in both periods include charges related to the 2018 Global Restructuring Program.

Adjusted operating profit was $3,281 million in 2019, up 5 percent compared to $3,138 million in 2018. Results benefited from organic sales growth, $260 million of FORCE cost savings and $165 million of cost savings from the 2018 Global Restructuring Program. The comparison was impacted by unfavorable currency effects, $145 million of higher input costs, other manufacturing cost increases, increased advertising spending and higher selling, general and administrative costs.

Diluted net income per share was $6.24 in 2019 and $4.03 in 2018. Adjusted earnings per share of $6.89 in 2019 increased 4 percent compared to $6.61 in 2018. Performance benefited from higher adjusted operating profit, increased net income from equity companies and a lower share count, partially offset by a higher adjusted effective tax rate.

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 ($1,300 to $1,400 million after tax) by the end of 2020. Through the end of 2019, the company has incurred cumulative restructuring charges of $1,402 million pre-tax ($1,031 million after tax) and generated cumulative savings of $300 million.

2020 Outlook and Key Planning Assumptions

The company's key planning and guidance assumptions for 2020 are as follows:​

  • Net sales increase of 1 percent.
    • Organic sales increase of 2 percent, with improvements in net selling prices, volumes and product mix.
    • Foreign currency exchange rates unfavorable by 1 percent.
    • Exited businesses in conjunction with the 2018 Global Restructuring Program expected to reduce sales slightly.
  • Adjusted operating profit growth of 3 to 5 percent.
    • Cost savings of $425 to $500 million, including $325 to $375 million from the FORCE program and $100 to $125 million from the 2018 Global Restructuring Program.
    • Key cost inputs expected to decline $50 to $200 million, driven by pulp. 
    • Increased advertising spending.
    • Unfavorable foreign currency translation and transaction effects.
  • Interest expense expected to increase somewhat year-on-year. 
  • Adjusted effective tax rate of 23 to 25 percent.
  • Net income from equity companies higher year-on-year.
  • Adjusted earnings per share of $7.10 to $7.35 compared to $6.89 in 2019.
  • Capital spending of $1,150 to $1,350 million, including significant spending related to the 2018 Global Restructuring Program.
  • Dividend increase of 3.9 percent (approved by the Board of Directors and mentioned previously in this release). The quarterly dividend will increase to $1.07 per share, up from $1.03 per share in 2019. The first dividend will be payable on April 2, 2020 to stockholders of record on March 6, 2020.
  • Share repurchases of $700 to $900 million, subject to market conditions.

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.
  • ​Property sale gain. In the fourth quarter of 2019, the company recognized a gain on the sale of property associated with a former manufacturing facility that was closed in 2012 as part of a past restructuring.
  • 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.​

For the full earnings report, click here.