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| KMB > SEC Filings for KMB > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Introduction
This management's discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of the Corporation's recent performance, its financial condition and its prospects. The following will be discussed and analyzed:
· Overview of Second Quarter 2009 Results
· Results of Operations and Related Information
· Liquidity and Capital Resources
· New Accounting Standards
· Environmental Matters
· Business Outlook
Overview of Second Quarter 2009 Results
· Net sales decreased 5.6 percent.
· Operating profit and net income attributable to Kimberly-Clark Corporation decreased 6.3 percent and 3.4 percent, respectively.
· Cash provided by operations was $997 million, an increase of 32.4 percent over last year.
Results of Operations and Related Information
This section presents a discussion and analysis of the Corporation's second quarter and first six months of 2009 net sales, operating profit and other information relevant to an understanding of the results of operations.
Second Quarter of 2009 Compared With Second Quarter of 2008
Analysis of Net Sales
By Business Segment
(Millions of dollars)
Net Sales 2009 2008
Personal Care $ 2,122 $ 2,165
Consumer Tissue 1,555 1,690
K-C Professional & Other 736 840
Health Care 335 306
Corporate & Other 14 23
Intersegment sales (35 ) (18 )
Consolidated $ 4,727 $ 5,006
Commentary:
Percent Change in Net Sales Versus Prior Year
Changes Due To
Total Volume Net Mix/
Change Growth Price Currency Other
Consolidated (5.6 ) (2 ) 5 (8 ) (1 )
Personal Care (2.0 ) - 6 (9 ) 1
Consumer Tissue (8.0 ) (3 ) 4 (9 ) -
K-C Professional & Other (12.4 ) (10 ) 3 (7 ) 2
Health Care 9.5 14 (1 ) (4 ) -
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· Personal care net sales in North America decreased 4 percent versus the second quarter of 2008. Although net selling prices advanced approximately 2 percent, sales volumes fell more than 4 percent and currency effects reduced sales by 1 percent. The higher selling prices resulted from increases implemented during 2008 across all categories, net of increased competitive promotional activity, mainly for Huggies diapers. Sales volumes for Huggies diapers fell about 7 percent compared to double-digit growth in the year-ago period, and volumes for the Corporation's child care brands were down about 6 percent, reflecting continued category softness. Volume performance in the baby and child care categories was in line with the Corporation's expectations and second quarter market shares in both categories improved sequentially from first quarter levels. In other areas of the business, sales volumes for Huggies baby wipes increased at a double-digit rate in the second quarter, while volumes for the Corporation's feminine care and adult incontinence brands fell about 4 percent.
In Europe, personal care net sales declined approximately 14 percent in the quarter, as unfavorable currency exchange rates reduced net sales by nearly 20 percent. Sales volumes rose about 10 percent, while net selling prices were down about 4 percent in a continued competitive promotional environment. The volume gains reflect continued strength for Huggies diapers in Central Europe, along with improvement in the Corporation's four core markets of the U.K., France, Italy and Spain.
In developing and emerging markets, personal care net sales increased 1 percent, as continued double-digit growth in organic sales was mostly offset by negative currency effects of 16 percent. Net selling prices improved more than 14 percent and product mix was better by more than 1 percent in the second quarter. In addition, overall sales volumes increased approximately 2 percent despite lower diaper volumes in Australia. The growth in organic sales was broad-based, with particular strength in China, South Korea, Russia, Turkey, South Africa, Vietnam, Brazil and the Andean region in Latin America.
· In North America, net sales of consumer tissue products were essentially even with the year-ago period, as an increase in net selling prices of nearly 5 percent and slightly higher product mix were offset by a 5 percent decline in sales volumes. The improvement in net selling prices reflects list price increases implemented across the bathroom tissue, paper towel and facial tissue categories during 2008, partially offset by an increase in competitive promotional activity. The lower sales volumes reflect the Corporation's focus on improving revenue realization, as well as slower category growth and consumer trade-down. For the quarter, volumes were down approximately 10 percent for Kleenex facial tissue and the Corporation's paper towel brands, while overall bathroom tissue volumes fell about 2 percent.
In Europe, consumer tissue net sales decreased more than 19 percent compared with the second quarter of 2008, on weaker foreign currency exchange rates of almost 19 percent. Sales volumes were nearly 1 percent higher, while net selling prices and product mix each fell almost 1 percent in the quarter.
Consumer tissue net sales in developing and emerging markets declined by 9 percent, primarily due to unfavorable currency effects of nearly 15 percent and a decline in sales volumes of almost 4 percent. These factors were partially offset by higher net selling prices of more than 8 percent, reflecting the Corporation's aggressive actions over the past year to recover inflationary cost increases and improve profitability. Enhanced product mix also boosted sales by 1 percent in the quarter.
· Net sales of K-C Professional ("KCP") & Other products decreased 12.4 percent compared with the second quarter of 2008. Overall sales volumes fell about 10 percent, net of an approximate 2 percent benefit from the acquisition of Jackson Products, Inc. in the second quarter of 2009. Changes in foreign currency rates reduced sales by 7 percent, while higher net selling prices and improved product mix increased sales by about 3 percent and 2 percent, respectively. Economic weakness and rising unemployment levels in North America and Europe had a significant effect on KCP's categories in the second quarter. In North America, net sales declined 9 percent. While net selling prices and product mix each improved 1 percent, sales volumes declined 10 percent and currency effects were negative by about 1 percent. In Europe, KCP's net sales declined 25 percent in the second quarter, as sales volumes were nearly 11 percent lower, product mix was down about 2 percent and weaker currencies reduced sales by 16 percent, while net selling prices increased more than
3 percent. Across developing and emerging markets, net sales were down about 9 percent, including adverse currency effects of 13 percent. Organic growth was driven by higher net selling prices of approximately 8 percent and improved product mix of about 4 percent, with an offsetting decline in sales volumes of 8 percent.
· Net sales of health care products increased 9.5 percent in the second quarter. Sales volumes climbed about 14 percent, while net selling prices were lower by 1 percent and unfavorable currency exchange rates reduced sales by 4 percent. Volume growth was broad-based across most product categories, including continued double-digit growth in exam gloves. The business continues to benefit from strong results in nitrile gloves, including the new Lavender offering introduced late last year. In addition, nearly half of the total gain in health care volumes in the quarter was attributable to increased global demand for face masks as a result of the H1N1 flu virus.
By Geography (Millions of dollars) Net Sales 2009 2008 North America $ 2,594 $ 2,645 Outside North America 2,311 2,517 Intergeographic sales (178 ) (156 ) Consolidated $ 4,727 $ 5,006 |
· Net sales in North America declined 1.9 percent primarily due to lower sales volumes partially offset by higher net selling prices.
· Net sales outside North America decreased 8.2 percent as higher net selling prices were more than offset by unfavorable currency effects, particularly in Europe, South Korea, Australia and Brazil.
Analysis of Operating Profit By Business Segment (Millions of dollars) Operating Profit(a) 2009 2008 Personal Care $ 394 $ 437 Consumer Tissue 161 130 K-C Professional & Other 102 111 Health Care 62 30 Other income and (expense), net(b)(c) (41 ) (7 ) Corporate & Other(c) (69 ) (51 ) Consolidated $ 609 $ 650 |
Notes:
(a) Organization optimization charges (as described in Note 3 to the Consolidated
Financial Statements) are included in the business segments as follows (also
shown is the percentage change in operating profit versus the prior year due
to these charges):
Percentage
Amount Variation
Personal Care $ 41 (9.4 )
Consumer Tissue 42 (32.3 )
K-C Professional & Other 14 (12.6 )
Health Care 6 (20.0 )
Corporate & Other 7 (13.7 )
Total $ 110 (16.9 )
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(b) 2009 includes $20 million of currency transaction losses versus $6 million of currency transaction losses in 2008.
(c) Other income and (expense), net includes $(1) million and Corporate & Other includes $(14) million of pretax amounts for the strategic cost reductions in 2008.
Commentary:
Percentage Change in Operating Profit Versus Prior Year
Changes Due To
Total Net Input Production
Change Volume Price Costs(a) Curtailment Currency Other(b)
Consolidated (6.3 ) (7 ) 35 28 (7 ) (19 ) (36 )
Personal Care (9.8 ) (3 ) 32 6 (3 ) (19 ) (23 )
Consumer Tissue 23.8 (12 ) 52 81 (16 ) (12 ) (69 )
K-C Professional &
Other (8.1 ) (26 ) 23 30 (21 ) (8 ) (6 )
Health Care 106.7 44 (8 ) 49 44 (8 ) (14 )
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(a) Includes raw materials cost deflation and energy and distribution variations.
(b) Includes organization optimization charges as noted above.
Consolidated operating profit for the second quarter of 2009 was 6.3 percent lower than in the prior year. In addition to the effects of higher net selling prices and lower sales volumes, there were a number of other significant factors affecting year-over-year operating profit comparisons. Deflation in key cost inputs amounted to approximately $180 million overall versus 2008, including about $125 million in lower fiber costs, more than $40 million for raw materials other than fiber, primarily polymer resins and other oil-based materials, approximately $10 million in distribution costs, and $5 million of lower energy costs. Cost savings in the quarter from the Corporation's FORCE (Focused On Reducing Costs Everywhere) program and strategic cost reduction plan totaled $67 million and $16 million, respectively. At the same time, production curtailments to control inventory levels reduced operating profit by approximately $45 million compared with the year-ago quarter. The downtime helped the Corporation decrease inventories, which went down by more than $125 million during the quarter. Second quarter results also included the approximate $110 million in severance costs, referred to above, to streamline the organization. Pension expense rose by almost $50 million in the second quarter, as expected, with a majority of the increase reflected in cost of products sold.
Currency effects reduced second quarter operating profit by approximately $125 million in 2009 versus 2008. Translation losses arising from changes in currency exchange rates totaled about $65 million, with a number of key currencies weakening by more than 15 percent versus the U.S. dollar. In addition, cost of products sold in the second quarter of 2009 includes about $45 million of expense to recognize the U.S. dollar cost of importing finished product into Venezuela at the currency rate in place in the parallel market rather than the official rate. Currency exchange restrictions have been in effect in Venezuela since 2003 and have become more restrictive in the last six to nine months. In order to pay for imported finished goods for which U.S. dollars are unavailable at the official rate and to comply with the currency exchange restrictions, the Corporation's Venezuelan subsidiary exchanges bolivars for U.S. dollars through the parallel exchange mechanism. Conversion of cash balances in Venezuela at the parallel exchange rate that is not related to a specific U.S. dollar-denominated transaction continues to be reported in other (income) and expense, net. Lastly, other (income) and expense, net in the second quarter was a net expense of $41 million in 2009 compared with $7 million in 2008. The expense in 2009 included about $20 million in currency transaction losses, including parallel rate cash conversions in Venezuela, along with a $16 million non-cash charge related to one of the Corporation's financing entities, whereas the expense in the prior year was driven by currency transaction losses.
· Personal care segment operating profit decreased 9.8 percent as the benefits from higher net selling prices, cost savings and materials cost deflation were more than offset by charges for the organization optimization initiative, increased marketing and general expenses, and unfavorable currency effects. In North America, operating profit was even with the prior year as higher net selling prices, cost savings and materials cost deflation were offset by lower sales volumes, organization optimization charges and production curtailments. Operating profit in Europe decreased because cost savings and higher sales volumes were more than offset by lower net selling prices and charges for the organization optimization initiative. In the developing and emerging markets, operating profit declined as higher net selling prices were offset by unfavorable currency effects, including the previously mentioned impact of finished product imports in Venezuela, and higher distribution and marketing costs.
· Consumer tissue segment operating profit increased 23.8 percent on the strength of higher net selling prices, materials cost deflation and cost savings, partially offset by charges for the organization optimization initiative, production curtailments, lower sales volumes and unfavorable currency effects. Increased operating profit in North America was driven by the same factors, except for currency effects, that drove the overall segment improvement. In Europe, operating profit decreased as somewhat lower net selling prices, production curtailments, organization optimization charges and unfavorable currency effects more than offset cost savings and the benefits of materials cost deflation. Operating profit in the developing and emerging markets increased primarily due to higher net selling prices.
· Operating profit for K-C Professional & Other products decreased 8.1 percent as higher net selling prices and cost deflation were more than offset by production curtailments, lower sales volumes, charges for the organization optimization initiative and unfavorable currency effects.
· Health care segment operating profit increased 106.7 percent because increased sales volumes, materials cost deflation and manufacturing production efficiencies more than offset organization optimization charges.
By Geography (Millions of dollars) Operating Profit 2009 2008 North America $ 499 $ 458 Outside North America 220 250 Other income and (expense), net (a)(b) (41 ) (7 ) Corporate & Other(b) (69 ) (51 ) Consolidated $ 609 $ 650 |
Notes:
(a) 2009 includes $20 million of currency transaction losses versus $6 million of currency transaction losses in 2008.
(b) For the period ended June 30, 2008, Other income and (expense), net includes $(1) million and Corporate & Other includes $(14) million of pretax amounts for the strategic cost reductions.
Commentary:
†† Operating profit in North America increased 9.0 percent because higher net selling prices, cost deflation and cost savings more than offset lower sales volumes and organization optimization charges.
†† Operating profit outside North America decreased 12.0 percent as higher net selling prices were offset by production curtailments, organization optimization charges in Europe and unfavorable currency effects.
· Interest expense for the second quarter of 2009 was $3 million lower than the prior year primarily due to lower interest rates partially offset by a higher average level of debt.
· The Corporation's effective income tax rate was 29.0 percent in 2009 compared with 29.8 percent in 2008.
· The Corporation's share of net income of equity companies in the second quarter decreased to $44 million from $49 million in 2008, mainly as a result of lower net income at Kimberly-Clark de Mexico, S.A.B. de C.V. ("KCM"). Although KCM delivered high single-digit organic sales growth and improved its gross profit margin, operating profit and net income comparisons were adversely affected by currency translation losses. Compared with the second quarter of 2008, the Mexican peso depreciated on average by more than 20 percent versus the U.S. dollar.
· Net income attributable to noncontrolling interests was $27 million in the second quarter of 2009 compared with $34 million in the prior year. The decrease was primarily due to the acquisition of the remaining interest in the Corporation's Andean affiliate in January 2009.
First Six Months of 2009 Compared With First Six Months of 2008 Analysis of Net Sales By Business Segment (Millions of dollars) Net Sales 2009 2008 Personal Care $ 4,099 $ 4,211 Consumer Tissue 3,129 3,397 K-C Professional & Other 1,387 1,601 Health Care 633 604 Corporate & Other 27 45 Intersegment sales (55 ) (39 ) Consolidated $ 9,220 $ 9,819 |
Commentary:
Percent Change in Net Sales Versus Prior Year
Changes Due To
Total Volume Net Mix/
Change Growth Price Currency Other
Consolidated (6.1 ) (3 ) 5 (9 ) 1
Personal Care (2.7 ) 1 6 (10 ) -
Consumer Tissue (7.9 ) (4 ) 5 (10 ) 1
K-C Professional & Other (13.4 ) (9 ) 4 (8 ) -
Health Care 4.8 9 - (4 ) -
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† Personal care net sales declined 2.7 percent as higher net selling prices, in North America and the developing and emerging markets, were more than offset by unfavorable currency effects, principally in Europe, South Korea, Australia, Brazil and Russia.
† Consumer tissue net sales decreased 7.9 percent because unfavorable currency effects and lower sales volumes more than offset higher net selling prices. The unfavorable currency effects primarily occurred in the same countries as personal care.
† Net sales of K-C Professional & Other products decreased 13.4 percent as lower sales volumes and unfavorable currency effects, primarily in Europe, more than offset higher net selling prices.
† Health care net sales increased 4.8 percent on the strength of higher sales volumes, tempered by unfavorable currency effects.
By Geography (Millions of dollars) Net Sales 2009 2008 North America $ 5,133 $ 5,196 Outside North America 4,416 4,949 Intergeographic sales (329 ) (326 ) Consolidated $ 9,220 $ 9,819 |
†† Net sales in North America declined 1.2 percent due to lower sales volumes mostly offset by higher net selling prices.
† Net sales outside North America decreased 10.8 percent as higher net selling prices were more than offset by unfavorable currency effects.
Analysis of Operating Profit By Business Segment (Millions of dollars) Operating Profit(a) 2009 2008 Personal Care $ 836 $ 865 Consumer Tissue 355 286 K-C Professional & Other 182 208 Health Care 110 76 Other income and (expense), net(b)(c) (118 ) - Corporate & Other(c) (128 ) (121 ) Consolidated $ 1,237 $ 1,314 |
Notes:
(a) Organization optimization charges (as described in Note 3 to the Consolidated
Financial Statements) are included in the business segments as follows (also
shown is the percentage change in operating profit versus the prior year due to
these charges):
Percentage
Amount Variation
Personal Care $ 41 (4.7 )
Consumer Tissue 42 (14.7 )
K-C Professional & Other 14 (6.7 )
Health Care 6 (7.9 )
Corporate & Other 7 (5.8 )
Total $ 110 (8.4 )
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(b) 2009 includes $96 million of currency transaction losses versus $6 million of currency transaction gains in 2008.
(c) Other income and (expense), net includes $(2) million and Corporate & Other includes $(37) million of pretax amounts for the strategic cost reductions in 2008.
Commentary:
Percentage Change in Operating Profit Versus Prior Year
Changes Due To
Total Net Input Production
Change Volume Price Costs(a) Curtailment Currency Other(b)
Consolidated (5.9 ) (6 ) 38 19 (10 ) (21 ) (26 )
Personal Care (3.4 ) (1 ) 30 4 (5 ) (14 ) (17 )
Consumer Tissue 24.1 (15 ) 62 49 (20 ) (10 ) (42 )
K-C Professional &
Other (12.5 ) (21 ) 30 26 (24 ) (8 ) (16 )
Health Care 44.7 21 (3 ) 33 20 (7 ) (19 )
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(a) Includes raw materials cost deflation and energy and distribution variations.
(b) Includes organization optimization charges as noted above.
Consolidated operating profit decreased 5.9 percent compared with the prior year. For the first six months of 2009, the benefits of increased net selling prices, cost savings of $128 million and materials cost deflation of approximately $255 million were more than offset by negative currency effects of $275 million, severance costs of $110 million, higher pension expense of $95 million, and higher operating costs, including production curtailments that reduced operating profit by $135 million.
† Personal care segment operating profit declined 3.4 percent as higher net selling prices and cost savings were more than offset by production curtailments, the organization optimization charges and unfavorable currency effects.
† Consumer tissue segment operating profit increased 24.1 percent because higher net selling prices, materials cost deflation and cost savings more than offset the organization optimization charges, production curtailments and unfavorable currency effects.
† Operating profit for K-C Professional & Other products decreased 12.5 percent as lower sales volumes, production curtailments, the organization optimization charges and unfavorable currency effects more than offset materials cost deflation, cost savings and higher net selling prices.
† Health care segment operating profit increased 44.7 percent due to higher sales volumes, materials cost deflation and manufacturing production efficiencies.
· The charges included in other income and (expense), net for the first six . . .
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