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| KMB > SEC Filings for KMB > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-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 Third Quarter 2009 Results
· Results of Operations and Related Information
· Liquidity and Capital Resources
· New Accounting Standards
· Environmental Matters
· Business Outlook
Overview of Third Quarter 2009 Results
· Net sales decreased 1.7 percent.
· Operating profit and net income attributable to Kimberly-Clark Corporation increased 42.8 percent and 40.9 percent, respectively.
· Cash provided by operations was $791 million, an increase of 23 percent over last year.
Results of Operations and Related Information
This section presents a discussion and analysis of the Corporation's third quarter and first nine months of 2009 net sales, operating profit and other information relevant to an understanding of the results of operations.
Third Quarter of 2009 Compared With Third Quarter of 2008
Analysis of Net Sales
By Business Segment
(Millions of dollars)
Net Sales 2009 2008
Personal Care $ 2,132 $ 2,147
Consumer Tissue 1,625 1,711
K-C Professional & Other 805 843
Health Care 351 303
Corporate & Other 11 17
Intersegment sales (11 ) (23 )
Consolidated $ 4,913 $ 4,998
Commentary:
Percent Change in Net Sales Versus Prior Year
Changes Due To
Total Volume Net Mix/
Change Growth Price Currency Other
Consolidated (1.7 ) - 3 (5 ) -
Personal Care (0.7 ) 1 5 (6 ) (1 )
Consumer Tissue (5.0 ) (2 ) 1 (5 ) 1
K-C Professional & Other (4.5 ) (4 ) 4 (4 ) (1 )
Health Care 15.8 18 (1 ) (2 ) 1
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· Personal care net sales in North America decreased nearly 1 percent versus the third quarter of 2008. Although net selling prices advanced approximately 2 percent, sales volumes fell 2 percent and currency effects reduced sales by 1 percent. The higher selling prices resulted from increases implemented during 2008 in most product categories. Sales volumes for Huggies diapers fell about 3 percent, and volumes for the company's child care brands were down about 7 percent, reflecting continued category softness. The Corporation's third quarter market shares in both categories were even with year-ago levels. In other areas of the business, sales volumes for Huggies baby wipes decreased about 5 percent compared to double-digit growth in the year-ago period, and volumes for Kotex feminine care products were also down about 5 percent. Lastly, volumes for the Corporation's adult incontinence brands rose 10 percent, including benefits from product innovation on the Depend brand launched earlier in the year.
In Europe, personal care net sales declined approximately 9 percent in the quarter, as unfavorable currency exchange rates reduced sales by more than 12 percent. Sales volumes rose nearly 7 percent, while net selling prices were down about 2 percent and changes in product mix reduced sales by more than 1 percent. The volume gains reflect continued strong performance for Huggies diapers in Central Europe, along with solid improvement in the Corporation's four core markets of the United Kingdom, France, Italy and Spain. In addition, sales volumes for Huggies baby wipes increased at a double-digit rate in the third quarter.
In developing and emerging markets, personal care net sales increased 2 percent, as continued double-digit growth in organic sales was mostly offset by negative currency effects of 11 percent. Net selling prices improved about 10 percent and sales volumes rose 4 percent, while changes in product mix reduced sales by about 1 percent in the third quarter. The growth in organic sales was broad-based, with particular strength in Argentina, Brazil, China, Russia, South Africa, South Korea, Turkey and the Andean region in Latin America.
· In North America, net sales of consumer tissue products declined 2 percent compared to the year-ago period, as an increase in net selling prices of 2 percent was more than offset by a decline in sales volumes of 4 percent. The improvement in net selling prices reflects list price increases implemented 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 at a double-digit rate for paper towels and mid-single digits for Kleenex facial tissue, while volumes for bathroom tissue fell slightly.
In Europe, consumer tissue net sales decreased approximately 14 percent compared with the third quarter of 2008, including negative currency effects of more than 10 percent. Net selling prices decreased more than 2 percent and sales volumes declined more than 1 percent in a continued competitive environment.
In developing and emerging markets, consumer tissue net sales declined about 3 percent, driven by unfavorable currency effects of more than 7 percent and slightly lower sales volumes. These factors were partially offset by higher net selling prices of approximately 3 percent and improved product mix of more than 1 percent, reflecting the Corporation's actions over the past year to recover inflationary cost increases and improve profitability.
· Net sales of K-C Professional ("KCP") & Other products decreased 4.5 percent compared with the third quarter of 2008. Overall sales volumes declined 4 percent, net of an approximate 3 percent benefit from the acquisition of Jackson Products, Inc. ("Jackson") that occurred in April 2009. Changes in foreign currency exchange rates reduced sales by 4 percent, and product mix was unfavorable by 1 percent, while higher net selling prices increased net sales by nearly 4 percent. Economic weakness and rising unemployment levels in North America and Europe continued to have a significant effect on KCP's categories in the third quarter. In North America, net sales declined about 1 percent. Overall sales volumes declined 4 percent, net of an approximate 6 percent benefit from the Jackson acquisition. In addition, changes in product mix and negative currency effects each reduced net sales by about 1 percent, while net selling prices rose approximately 5 percent in the quarter. In Europe, KCP's net sales declined 20 percent in the third quarter, including negative currency effects of 9 percent. In addition, sales volumes were 12 percent lower and product mix was off 1 percent, while net selling prices increased 2 percent. Across developing and emerging markets, sales rose approximately 7 percent despite an adverse currency effect of nearly 7 percent. Higher sales volumes and improved product mix each benefited sales by about 5 percent, and increased net selling prices contributed 4 points of growth.
· Net sales of health care products increased 15.8 percent in the third quarter. Sales volumes climbed about 18 percent, and product mix was higher by 1 percent, while unfavorable currency exchange rates reduced sales by approximately 2 percent and net selling prices fell nearly 1 percent. Sales volume growth was broad-based across several 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, approximately 40 percent 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 $ 2,661 $ 2,665 Outside North America 2,407 2,502 Intergeographic sales (155 ) (169 ) Consolidated $ 4,913 $ 4,998 |
Commentary:
· Net sales in North America were essentially flat primarily due to lower sales volumes partially offset by higher net selling prices.
· Net sales outside North America decreased 3.8 percent as higher net selling prices were more than offset by unfavorable currency effects, particularly in Europe, South Korea, Russia, Brazil, Australia, and Argentina.
Analysis of Operating Profit By Business Segment (Millions of dollars) Operating Profit 2009(a) 2008 Personal Care $ 467 $ 404 Consumer Tissue 232 133 K-C Professional & Other 163 119 Health Care 78 22 Other income and (expense), net(b) (4 ) (5 ) Corporate & Other(c) (65 ) (63 ) Consolidated $ 871 $ 610 |
Notes:
(a) Organization optimization charges (as described in Note 3 to the Consolidated
Financial Statements) are included in the business segments and Corporate &
Other as follows:
Amount
Personal Care $ 3
Consumer Tissue 5
K-C Professional & Other 2
Health Care -
Corporate & Other 2
Total $ 12
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(b) 2009 includes $13 million of currency transaction losses versus $4 million in 2008.
(c) Corporate & Other includes $15 million of pretax charges 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 42.8 (1 ) 26 45 1 (13 ) (15 )
Personal Care 15.6 (1 ) 27 19 - (14 ) (15 )
Consumer Tissue 74.4 (12 ) 17 92 (2 ) (6 ) (15 )
K-C Professional &
Other 37.0 (4 ) 26 45 (3 ) (2 ) (25 )
Health Care 254.5 86 (8 ) 88 37 (8 ) 60
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(a) Includes raw materials cost deflation and energy and distribution variations.
(b) Includes organization optimization charges and cost savings.
Consolidated operating profit for the third quarter of 2009 increased 42.8 percent from the prior year. In addition to the effect of higher net selling prices, there were a number of other significant factors affecting year-over-year operating profit comparisons. Deflation in key cost inputs amounted to more than $270 million overall versus 2008, including about $130 million in lower fiber costs, approximately $100 million for raw materials other than fiber, primarily polymer resins and other oil-based materials, about $25 million of lower energy costs, and more than $15 million in distribution costs. Cost savings in the quarter from the Corporation's FORCE (Focused On Reducing Costs Everywhere) program and strategic cost reduction plan totaled $47 million and $14 million, respectively. Third quarter 2009 results also included approximately $12 million in severance and related costs to streamline the organization, which were more than offset by related savings of approximately $24 million. Pension expense rose by about $25 million in the third quarter, as expected, with a majority of the increase reflected in cost of sales.
Currency effects reduced third quarter 2009 operating profit by approximately $75 million versus 2008. Translation losses arising from changes in currency exchange rates totaled about $30 million. In addition, cost of sales in the third quarter of 2009 included about $35 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. The Corporation has successfully implemented other actions in that country to improve business results in order to mitigate the effects of the ongoing currency restrictions. Lastly, currency transaction losses included in other (income) and expense, net in the third quarter amounted to $13 million in 2009 and $4 million in 2008.
· Personal care segment operating profit increased 15.6 percent on the strength of higher net selling prices, materials cost deflation, cost savings, and decreased general expense, partially offset by unfavorable currency effects and increased marketing expenses. In North America, operating profit increased due to materials cost deflation, cost savings, and higher net selling prices, partially offset by increased marketing costs and lower sales volumes. In Europe, operating profit increased due to decreased marketing and general expenses and higher sales volumes, partially offset by lower net selling prices. In the developing and emerging markets, operating profit decreased as higher net selling prices and lower general expenses were more than offset by unfavorable currency effects and increased marketing expenses.
· Consumer tissue segment operating profit increased 74.4 percent due to materials cost deflation, increased net selling prices, cost savings, decreased general expense, and improvements in product mix, partially offset by increased marketing costs, lower sales volumes and unfavorable currency effects. In North America, operating profit increased due to materials cost deflation, higher net selling prices and cost savings, partially offset by increased marketing expenses and lower sales volumes. In Europe, operating profit increased because of materials cost deflation and cost savings, partially offset by lower net selling prices and lower sales volumes. In the developing and emerging markets, operating profit increased because higher net selling prices, improved mix and materials cost deflation more than offset increased marketing expenses and unfavorable currency effects.
· Operating profit for KCP & Other products increased 37 percent because materials cost deflation, increased net selling prices, and cost savings more than offset changes in product mix, lower sales volumes, production curtailments, increased general expenses and unfavorable currency effects.
· Health care segment operating profit increased 254.5 percent because of cost deflation in key materials, higher volumes, manufacturing production efficiencies and cost savings.
By Geography (Millions of dollars) Operating Profit 2009 2008 North America $ 660 $ 440 Outside North America 280 238 Other income and (expense), net (a) (4 ) (5 ) Corporate & Other(b) (65 ) (63 ) Consolidated $ 871 $ 610 |
Notes:
(a) 2009 includes $13 million of currency transaction losses versus $4 million of currency transaction losses in 2008.
(b) Corporate & Other includes $15 million of pretax charges for the strategic cost reductions in 2008.
Commentary:
† Operating profit in North America increased 50 percent as materials cost deflation, higher net selling prices and cost savings were partially offset by lower sales volumes and increased marketing costs.
† Operating profit outside North America increased 18 percent as higher net selling prices and materials cost deflation were partially offset by production curtailments and unfavorable currency effects.
Additional Income Statement Commentary
· Interest expense for the third quarter of 2009 was $9 million lower than the prior year primarily due to a lower average level of debt.
· The Corporation's effective income tax rate was 29.6 percent in 2009 compared with 28.1 percent in 2008 due to increased earnings in higher tax jurisdictions. The third quarter 2009 rate was in line with the Corporation's expectation for a full year 2009 rate of 28 to 30 percent.
· The Corporation's share of net income of equity companies in the third quarter of 2009 decreased to $40 million from $53 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 solid organic sales growth and improved its gross profit margin, net income comparisons were adversely affected by a favorable income tax settlement in the year-ago period and currency translation losses in 2009. Compared with the third 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 $29 million in the third quarter of 2009 compared with $35 million in the prior year. The decrease was primarily due to the acquisition of the remaining interest in the Corporation's Andean region subsidiary in January 2009.
First Nine Months of 2009 Compared With First Nine Months of 2008 Analysis of Net Sales By Business Segment (Millions of dollars) Net Sales 2009 2008 Personal Care $ 6,231 $ 6,358 Consumer Tissue 4,754 5,108 K-C Professional & Other 2,192 2,444 Health Care 984 907 Corporate & Other 38 62 Intersegment sales (66 ) (62 ) Consolidated $ 14,133 $ 14,817 |
Commentary:
Percent Change in Net Sales Versus Prior Year
Changes Due To
Total Volume Net Mix/
Change Growth Price Currency Other
Consolidated (4.6 ) (2 ) 4 (8 ) 1
Personal Care (2.0 ) 1 6 (9 ) -
Consumer Tissue (6.9 ) (4 ) 4 (8 ) 1
K-C Professional & Other (10.3 ) (8 ) 4 (7 ) 1
Health Care 8.5 12 - (3 ) (1 )
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† Personal care net sales declined 2 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 South Korea, Europe, Russia, Australia, and Brazil.
†† Consumer tissue net sales declined 6.9 percent as higher net selling prices were more than offset by unfavorable currency effects and lower sales volumes. The unfavorable currency effects primarily occurred in the same countries as personal care.
† Net sales for KCP & Other products declined 10.3 percent because higher net selling prices were more than offset by lower sales volumes and unfavorable currency effects.
† Health care net sales increased 8.5 percent because of higher sales volumes, partially offset by unfavorable currency effects.
By Geography (Millions of dollars) Net Sales 2009 2008 North America $ 7,794 $ 7,861 Outside North America 6,823 7,451 Intergeographic sales (484 ) (495 ) Consolidated $ 14,133 $ 14,817 |
Commentary:
† Net sales in North America declined 0.9 percent due to lower sales volumes and unfavorable currency effects, partially offset by higher net selling prices.
† Net sales outside North America decreased 8.4 percent as higher net selling prices were more than offset by unfavorable currency effects and lower sales volumes.
Analysis of Operating Profit By Business Segment (Millions of dollars) Operating Profit 2009(a) 2008 Personal Care $ 1,303 $ 1,269 Consumer Tissue 587 419 K-C Professional & Other 345 327 Health Care 188 98 Other income and (expense), net(b)(c) (122 ) (5 ) Corporate & Other(c) (193 ) (184 ) Consolidated $ 2,108 $ 1,924 |
Notes:
(a) Organization optimization charges (as described in Note 3 to the Consolidated
Financial Statements) are included in the business segments and Corporate &
Other as follows:
Amount
Personal Care $ 44
Consumer Tissue 47
K-C Professional & Other 16
Health Care 6
Corporate & Other 9
Total $ 122
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(b) 2009 includes $109 million of currency transaction losses versus $2 million of currency transaction gains in 2008.
(c) Other income and (expense), net includes $2 million and Corporate & Other includes $52 million of pretax charges 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 9.6 (5 ) 34 27 (7 ) (19 ) (20 )
Personal Care 2.7 (1 ) 29 9 (3 ) (15 ) (16 )
Consumer Tissue 40.1 (14 ) 48 63 (14 ) (9 ) (34 )
K-C Professional &
Other 5.5 (15 ) 28 33 (16 ) (6 ) (19 )
Health Care 91.8 36 (4 ) 45 24 (7 ) (2 )
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(a) Includes raw materials cost deflation and energy and distribution variations.
(b) Includes organization optimization charges and cost savings.
Consolidated operating profit increased 9.6 percent compared to the prior year. For the first nine months of 2009, the benefits of organic sales growth, cost savings, and materials cost deflation were partially offset by unfavorable currency effects, organization optimization charges, increased pension expense, manufacturing production inefficiencies and increased marketing expense.
† Personal care segment operating profit increased 2.7 percent as higher net selling prices, materials cost deflation and cost savings more than offset unfavorable currency effects, increased marketing expenses, and organization optimization charges.
† Consumer tissue segment operating profit increased 40.1 percent as materials cost deflation, higher net selling prices and cost savings were partially offset by lower volumes, production curtailment impacts, unfavorable currency effects, increased marketing expenses, and organization optimization charges.
† Operating profit for KCP & Other products increased 5.5 percent as materials cost deflation, higher net selling prices, and cost savings were partially offset by production curtailment impacts, lower volumes, organization optimization charges and unfavorable currency effects.
† Health care segment operating profit increased 91.8 percent as materials cost deflation, higher sales volumes, and manufacturing efficiencies were partially offset by unfavorable currency effects and slightly lower net selling prices.
† Other income and (expense), net for the first nine months of 2009 is primarily related to currency transaction losses, with approximately two-thirds of these transaction losses being related to conversion of local currency cash balances to U.S. dollars at the Corporation's Venezuelan subsidiary.
By Geography (Millions of dollars) Operating Profit 2009 2008 North America $ 1,664 $ 1,367 Outside North America 759 746 Other income and (expense), net (a) (b) (122 ) (5 ) Corporate & Other(b) (193 ) (184 ) Consolidated $ 2,108 $ 1,924 |
Notes:
(a) 2009 includes $109 million of currency transaction losses versus $2 million of currency transaction gains in 2008.
(b) Other income and (expense), net includes $2 million and Corporate & Other includes $52 million of pretax charges for the strategic cost reductions in 2008.
Commentary:
† Operating profit in North America increased 21.7 percent primarily due to higher net selling prices, materials cost deflation and cost savings.
† Operating profit outside North America increased by 1.7 percent as higher net selling prices and materials cost deflation were partially offset by unfavorable currency effects.
Additional Income Statement Commentary
† Interest expense for the first nine months of 2009 was $13 million lower than the prior year primarily due to lower interest rates.
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