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Kimberly-Clark announces third quarter 2013 results

Kimberly-Clark Corporation today reported third quarter 2013 results and narrowed its guidance for full-year 2013 adjusted earnings per share.    

Executive Summary

  • Third quarter 2013 net sales of $5.3 billionwere even with the year-ago period. Organic sales rose 5 percent, including a 10 percent increase inK-C International. Organic sales exclude the impact of changes in foreign currency exchange rates and lost sales as a result of European strategic changes and pulp and tissue restructuring actions.
  • Diluted net income per share for the third quarter of 2013 was $1.42 versus $1.30 in 2012. 
  • Third quarter adjusted earnings per share were $1.44 in 2013 compared to $1.34 in the prior year. The improvement was driven by organic sales growth, cost savings, a lower effective tax rate and a lower share count, partially offset by input cost inflation and unfavorable foreign currency rates. Third quarter 2013 adjusted earnings per share exclude restructuring costs for European strategic changes. Adjusted earnings per share in the third quarter of 2012 exclude costs for pulp and tissue restructuring actions.
  • Full-year 2013 adjusted earnings per share are anticipated to be $5.65 to $5.75 compared to the company's previous guidance range of $5.60 to $5.75. Estimated 2013 adjusted earnings per share exclude restructuring costs for European strategic changes and a balance sheet remeasurement charge due to theFebruary 2013 devaluation of the Venezuelan bolivar.

Chairman and Chief Executive OfficerThomas J. Falk said, "We delivered another very good quarter of results in a challenging environment. I'm particularly encouraged that we achieved organic sales growth of 5 percent, which reflects progress with targeted growth initiatives, innovation programs and revenue realization strategies. We also generated healthy levels of cost savings and cash flow, increased adjusted earnings per share at a high-single digit rate and continued to allocate capital in shareholder-friendly ways. In terms of the full year, we expect to deliver growth in adjusted earnings per share of 8 to 10 percent. That's toward the high end of, or slightly above, our long-term objective. We are executing our Global Business Plan strategies well and we continue to be optimistic about our prospects to generate attractive returns  to shareholders."   

Third Quarter 2013 Operating Results
Sales of $5.3 billion in the third quarter of 2013 were even with the year-ago period. Organic sales rose 5 percent, with increased sales volumes of 3 percent, higher net selling prices of 1 percent and improved product mix of 1 percent. Changes in foreign currency exchange rates, and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions, each reduced sales by more than 2 percent.

Operating profit was $807 millionin the third quarter of 2013, up 3 percent from $783 million in 2012. Adjusted operating profit was $821 million in the third quarter of 2013, up 1 percent compared to $814 million in the year-ago period. Adjusted results exclude $14 million of restructuring costs for European strategic changes in 2013 and $31 million of costs for pulp and tissue restructuring actions in 2012. The increase in year-over-year adjusted operating profit included benefits from organic sales growth and $70 million in cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program. Input costs increased $55 million overall versus 2012, with $30 million of higher costs for raw materials other than fibre, $15 million of increased fibre costs and $10 million of higher distribution costs. Foreign currency translation effects, as a result of the weakening of several currencies relative to the U.S. dollar, reduced operating profit by $25 million. Currency transaction effects also negatively impacted the operating profit comparison.      

The third quarter effective tax rate was 30.3 percent in 2013 compared to 31.1 percent in 2012. The third quarter adjusted effective tax rate, which does not include the effect of the previously mentioned item excluded from adjusted earnings per share calculations, was 30.2 percent in 2013, in line with the anticipated full-year rate of 30 to 32 percent. The third quarter adjusted effective tax rate was 31.8 percent in 2012.

Kimberly-Clark's share of net income of equity companies in the third quarter was $49 million in 2013 and $43 millionin 2012. At Kimberly-Clark de Mexico, S.A.B. de C.V., results benefited from organic sales growth, increased operating profit margin and a stronger Mexican peso.

Cash Flow and Balance Sheet
Cash provided by operations in the third quarter of 2013 was $912 million compared to $844 million in the prior year. The increase was driven by improved working capital and lower pension contributions, partially offset by cash payments related to European strategic changes. Third quarter defined benefit pension contributions totaled $10 million in 2013 and $50 million in 2012. 

Capital spending for the third quarter was $203 million in 2013 and $277 million in 2012. Full-year 2013 spending is expected to be toward the low end of the previously communicated target range of $1.0 to $1.1 billion. Third quarter 2013 share repurchases were 1.6 million shares at a cost of $150 million. Kimberly-Clark continues to plan to repurchase $1.2 billion of common stock in 2013. Total debt and redeemable securities was $7.0 billion at September 30, 2013 compared to $6.7 billion at the end of 2012.

Third Quarter 2013 Business Segment Results
Personal Care Segment
Third quarter sales of $2.4 billion decreased 1 percent. Lost sales as a result of European strategic changes reduced sales volumes by 4 percent and currency rates were unfavorable by 3 percent. Organic sales volumes rose 5 percent and the combined impact of changes in net selling prices and product mix added 1 point of sales growth. Third quarter operating profit of$427 million decreased 2 percent. The comparison was negatively impacted by input cost inflation, unfavorable currency rates and higher marketing, research and general expenses, mostly offset by benefits from organic sales growth and cost savings. 

Sales in North America were even with the year-ago period. Volumes increased 2 percent, while product mix was off 1 percent and net selling prices fell 1 percent, primarily due to increased promotion activity in the diaper category. Feminine care volumes were up high-single digits, driven by growth on the U by Kotex brand. Adult care volumes increased mid-single digits, including benefits from product innovation on the Depend and Poise brands. Huggies diaper volumes were up mid-single digits, with benefits from improved Huggies Snug & Dry diapers.  Child care volumes decreased high-single digits and were impacted by the timing of promotions, category softness and competitive activity. 

Sales in K-C International increased 3 percent despite a 6 point negative impact from changes in currency rates. Sales volumes were up 7 percent and the combined impact of higher net selling prices and improved product mix added 3 points of growth. Volumes increased in Australia, China, Russia, South Africa, Vietnam and throughout most of Latin America, including Brazil, but declined in South Korea and Venezuela.

Sales in Europe decreased 40 percent, including a 48 point negative impact from lost sales in conjunction with European strategic changes. Organic sales volumes rose 7 percent, including growth in Huggies baby wipes and child care products, and currency rates were favorable by 1 percent.          

Consumer Tissue Segment
Third quarter sales of $1.6 billion increased 1 percent. Net selling prices rose 3 percent and higher organic sales volumes and favorable product mix each added 1 point of growth. Changes in currency rates, and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions, each reduced sales by 2 percent. Third quarter operating profit of $233 million increased 8 percent. The comparison benefited from organic sales growth, cost savings and lower marketing, research and general expenses, partially offset by input cost inflation and unfavorable currency rates. 

Sales in North America were up 4 percent. Net selling prices increased 4 percent, driven by sheet count reductions accompanying product innovation launched earlier in the year on Kleenex facial tissue and Cottonelle and Scott Extra Soft bathroom tissue. Product mix improved 2 percent, while sales volumes fell 2 percent and were negatively impacted as expected by the sheet count reductions, partially offset by higher shipments of paper towels.       

Sales in K-C International increased 4 percent despite a 7 point negative impact from changes in currency rates. Sales volumes rose 7 percent and net selling prices improved 3 percent. The organic growth was driven by increases inLatin America, primarily in Brazil and Venezuela.   

Sales in Europe decreased 9 percent. Lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions reduced sales volumes by 11 percent. Higher organic sales volumes and favorable currency rates each added 1 point of growth.         

K-C Professional (KCP) Segment
Third quarter sales of $0.8 billion increased 3 percent. Net selling prices improved 2 percent, organic sales volumes increased 2 percent and product mix was favorable by 1 point. Currency rates were unfavorable by 2 percent and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions reduced sales volumes by approximately 1 percent. Third quarter operating profit of $155 million increased 8 percent. The comparison benefited from organic sales growth and cost savings, partially offset by higher manufacturing-related costs and unfavorable currency rates.

Sales in North America increased 3 percent, with volumes, net selling prices and product mix each up 1 percent. The volume improvement was driven by increases in wiper products, partially offset by the exit of certain lower-margin safety product offerings.   

Sales in K-C International increased 4 percent despite a 7 point drag from unfavorable currency rates. Net selling prices rose 5 percent and sales volumes and product mix each improved 3 percent. The organic growth was driven by broad-based increases in Latin America.

Sales in Europe were even with year-ago levels. Lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions reduced sales volumes 4 percent, while currency rates were favorable by 2 percent. Product mix improved 2 percent and net selling prices increased 1 percent. Organic sales volumes were down 1 percent, including declines inSouthern Europewhere economic conditions remain difficult.     

Health Care Segment
Third quarter sales of $0.4 billion increased 2 percent. Sales volumes rose 3 percent and product mix improved slightly, while currency rates were unfavorable by 2 percent. Third quarter operating profit of $70 million increased 19 percent, driven by organic sales growth, reduced marketing, research and general expenses and cost savings.  

Medical device volumes were up high-single digits, with strong growth in pain management products and solid increases in airway management and digestive health offerings.  Surgical and infection prevention volumes were up slightly, as higher sales of surgical products and face masks were mostly offset by declines in exam gloves.                

Year-To-Date Results
For the first nine months of 2013, sales of$15.8 billion increased 1 percent. Organic sales rose 4 percent, with higher sales volumes of 3 percent and increased net selling prices of 1 percent.  Changes in foreign currency rates, and lost sales in conjunction with European strategic changes and pulp and tissue restructuring actions, each reduced sales by approximately 2 percent. 

Year-to-date operating profit of $2,386 millionin 2013 increased 7 percent compared to $2,237 million in 2012. Adjusted operating profit of $2,489 million in 2013 increased 7 percent compared to $2,322 million in 2012. Adjusted operating profit comparisons benefited from organic sales growth and FORCE cost savings of $235 million. On the other hand, input costs were $120 million higher overall versus 2012.  Foreign currency translation effects reduced operating profit by $45 million. Currency transaction effects also negatively impacted the operating profit comparison. 

Through nine months, diluted net income per share was $4.13 in 2013 and $3.73 in 2012.  Adjusted earnings per share were $4.33 in 2013 and $3.88 in 2012. The increase in adjusted earnings per share was primarily due to higher adjusted operating profit, along with increased equity income and a lower share count. 

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 February 2013 devaluation of the Venezuelan bolivar. Adjusted results in 2012 exclude charges for pulp and tissue restructuring actions. Additional detail on these items and further information about why the company uses these non-GAAP financial measures are provided later in this news release.

Western and Central European Businesses Strategic Changes -Update
In October 2012, Kimberly-Clark decided to make strategic changes to its Western and Central European businesses in order to improve underlying profitability and to focus resources and investments on stronger market positions and growth opportunities that can deliver more sustainable returns. These changes include the exit of the diaper category in Western andCentral Europe, with the exception of the Italian market, and the divestiture or exit of some lower-margin businesses in certain markets, mostly in the consumer tissue segment. To align its cost structure with these strategic decisions, Kimberly-Clark is streamlining its European manufacturing footprint and administrative organization. 

Restructuring costs for these actions will be incurred through 2014 and are expected to be toward the high end of the previously communicated range of $350 to $400 million pre-tax ($300 to $350 million after tax). Cash costs are projected to be toward the low end of the prior estimate of 50 to 60 percent of total charges. The impacted businesses generated annual net sales of approximately $0.5 billion and negligible operating profit. Third quarter 2013 restructuring costs were $14 million pre-tax ($10 million after tax), bringing cumulative costs to $366 million pre-tax ($294 million after tax). 

2013 Outlook -Update 
Adjusted earnings per share are expected to be $5.65 to $5.75 in 2013, up 8 to 10 percent compared to adjusted earnings per share of $5.25 in 2012. The company's previous target for 2013 adjusted earnings per share was $5.60 to $5.75. The company's other key full-year 2013 planning and guidance assumptions are generally consistent with what was communicated in its July 22, 2013 earnings news release. 

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