2Q Net Sales Increased Approximately 11 Percent to $5.0 Billion in 2008;
GAAP-Basis EPS Were $0.99 vs. $1.00 in 2007
Adjusted EPS Declined 1 Percent to $1.03, Below Previous Guidance for the
Quarter
Company Updates Earnings Guidance for 2008 in Light of Significant Increase
in Cost Inflation; Now Expects Adjusted EPS of $4.20 to $4.30 Compared with
Previous Range of $4.45 to $4.60
DALLAS, July 14 /PRNewswire-FirstCall/ -- Kimberly-Clark Corporation
(NYSE: KMB) today reported that net sales in the second quarter of 2008,
based on preliminary figures, advanced 11 percent to $5.0 billion. Sales
growth was highlighted by double-digit increases in the Personal Care and
K-C Professional businesses, with particular strength in developing and
emerging markets. Overall, organic sales growth is estimated to be about 7
percent, driven primarily by increased sales volumes and higher net selling
prices.
Diluted net income per share for the quarter is estimated to be $0.99
compared with $1.00 in the prior year. Preliminary adjusted earnings were
$1.03 per share versus $1.04 per share in the second quarter of 2007 and
below the company's previous guidance range of $1.08 to $1.11 per share.
Although top-line growth and savings from cost reduction programs benefited
year-over-year earnings comparisons, these factors were more than offset by
a significant increase in cost inflation and a planned higher investment in
strategic marketing of nearly $25 million. Full details of the quarterly
results will be announced on July 24, 2008.
The company noted that the shortfall in adjusted earnings per share
versus its previous guidance was driven primarily by the rapid escalation
in costs that occurred during the second quarter. Inflation was
approximately $50 million higher than estimated heading into the quarter,
with the greatest increases in energy costs, particularly natural gas,
oil-based materials and distribution costs. Margins were adversely impacted
across all businesses.
Adjusted earnings per share excludes charges for strategic cost
reductions to streamline the company's operations in both years and certain
incremental implementation costs related to the strategic cost reduction
plan in 2007, as well as an after-tax extraordinary loss related to the
restructuring of certain contractual arrangements in the second quarter of
2008. Additional detail on these items and further information about
adjusted earnings per share and why the company uses this non-GAAP
financial measure is provided later in this news release.
Chairman and Chief Executive Officer Thomas J. Falk said, "While I'm
encouraged by our continued strong top-line growth in the quarter, I'm
disappointed that the dramatic acceleration in inflation over the last
quarter has interrupted our progress in delivering on our bottom-line
commitments. Given second quarter results and our planning assumption that
raw material and energy costs will remain at elevated levels, we anticipate
our margins will remain under pressure in the near-term.
"In this environment, we are intent on improving revenue realization in
order to offset recent commodity cost increases and restore profitability
to acceptable levels. That's why we just raised prices again in K-C
Professional in the U.S. and will shortly be implementing our second price
increase of the year across most of our U.S. consumer tissue and personal
care categories. We have also implemented or announced price increases in a
number of other markets around the world. Moreover, further pricing actions
may be warranted by the cost environment.
"In the meantime, we will continue to focus on executing our Global
Business Plan strategies to drive sustainable growth and long-term
competitive advantage. I am convinced that we are doing the right things
for the long-term health of our businesses and that we are effectively
managing those factors which we can control -- generating top-line growth;
driving costs out of the system; building our brands; improving our
capabilities in marketing, innovation and customer development; and
deploying our cash in shareholder-friendly ways."
Outlook
The company updated key planning and guidance assumptions for 2008, as
follows:
-- Organic sales growth of 5 to 7 percent. This assumes implementation
of recently announced price increases in the U.S.
-- Net sales growth of 8 to 10 percent. Given current rates of
exchange, currency should benefit sales for the full year by approximately
3 percent.
-- Inflation of as much as $900 million, more than double the company's
original estimate. This reflects pricing for benchmark northern softwood
pulp of $890 to $910 per metric ton in the second half of the year. It also
assumes that oil prices and natural gas prices will be similar to current
levels over the balance of the year, in ranges of $135 to $145 per barrel
and $12 to $13 per mmbtu, respectively.
-- Capital investments of $850 to $950 million that will help support
future sales and earnings growth. This is consistent with the company's
original plan for the year.
-- Share repurchases totaling $700 to $800 million in 2008. This will
allow for the repurchase of approximately 3 percent of the company's
outstanding shares at the beginning of the year.
-- Adjusted earnings per share for the third quarter are expected to be
in a range of $0.98 to $1.03. This compares with $1.07 per share in 2007.
-- Adjusted earnings per share for the full year are expected to be in
a range of $4.20 to $4.30. This compares to previous guidance of $4.45 to
$4.60 and 2007 adjusted earnings per share of $4.25.
Commenting on the outlook, Falk said, "We have plans in place to
generate continued solid growth in organic sales over the balance of the
year, supported by higher levels of spending for strategic marketing and
customer development and our innovation pipeline. Unfortunately, the
significant increase in cost inflation has outpaced our ability to offset
higher costs in the near-term through price increases, cost reductions and
other measures. However, we expect adjusted operating profit and adjusted
earnings per share will improve sequentially in the fourth quarter as our
price increases gain traction, assuming no further material increases in
input costs from current levels.
"Despite the unprecedented levels of inflation we are experiencing, we
will continue to invest wisely to support our brands and still expect to
increase marketing spending at a faster rate than sales for the year.
Moreover, capital spending plans are on track and we expect to repurchase a
significant amount of our stock in 2008. These decisions are important for
our business in the long run, while we take the necessary steps in the
short run to get our business performance back on track with our Global
Business Plan objectives."
Non-GAAP financial measures
This press release and the accompanying tables include adjusted
earnings per share, a financial measure that has not been calculated in
accordance with accounting principles generally accepted in the U.S., or
GAAP, and is therefore referred to as a non-GAAP financial measure.
This non-GAAP financial measure excludes certain items that are
included in the company's earnings per share calculated in accordance with
GAAP. A detailed explanation of each of the adjustments to the comparable
GAAP financial measure is given below. In accordance with the requirements
of SEC Regulation G, a reconciliation of the non-GAAP financial measure to
the comparable GAAP financial measure is attached.
The company provides this non-GAAP financial measure as supplemental
information to our GAAP financial measures. Management and the company's
Board of Directors use adjusted earnings per share 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. Additionally, the Management Development and Compensation
Committee of the company's Board of Directors uses this non-GAAP financial
measure 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 determined by excluding the charges that are used in calculating
this non-GAAP financial measure.
In addition, Kimberly-Clark management believes that investors'
understanding of the company's performance is enhanced by including this
non-GAAP financial measure as a reasonable basis for comparing the
company's ongoing results of operations. Many investors are interested in
understanding the performance of our businesses by comparing our results
from ongoing operations from one period to the next. By providing this
non-GAAP financial measure, together with a reconciliation, we believe we
are enhancing investors' understanding of our businesses and our results of
operations, as well as assisting investors in evaluating how well the
company is executing the material changes to our enterprise contemplated by
the strategic cost reduction plan. Also, many financial analysts who follow
our company focus on and publish both historical results and future
projections based on non-GAAP financial measures. We believe that it is in
the best interests of our investors for us to provide this information to
analysts so that those analysts accurately report the non-GAAP financial
information.
We calculate adjusted earnings per share by excluding from the
comparable GAAP measure (i) charges related to our strategic cost reduction
plan for streamlining the company's operations, (ii) certain incremental
implementation costs relating to our strategic cost reduction plan, (iii)
an after-tax extraordinary loss related to the restructuring of certain
contractual arrangements, and (iv) the gain on a litigation settlement.
Each of these adjustments and the basis for such adjustments are described
below:
-- Strategic cost reduction plan. In July 2005, the company authorized
a strategic cost reduction plan aimed at streamlining manufacturing and
administrative operations, primarily in North America and Europe. The
strategic cost reduction plan commenced in the third quarter of 2005 and is
expected to be substantially completed by December 31, 2008. At the time we
announced the plan, we advised investors that we would report our earnings,
earnings per share and operating profit excluding the strategic cost
reduction plan charges so that investors could compare our operating
results without the plan charges from period to period and could assess our
progress in implementing the plan. Management does not consider these
charges to be part of our earnings from ongoing operations for purposes of
evaluating the performance of its business units and their managers and
excludes these charges when making decisions to allocate resources among
its business units.
-- Implementation costs. In connection with our strategic cost
reduction plan, the company has incurred incremental implementation costs
related to the transfer of certain administrative processes to third-party
providers. These costs were incurred primarily in the first six months of
2007. Management excludes these implementation costs from our earnings from
ongoing operations for purposes of evaluating the performance of our
business units and their managers and excludes these costs when making
decisions to allocate resources among its business units.
-- Extraordinary loss. In June 2008, the company restructured
contractual arrangements of two financing entities which resulted in the
consolidation of these two entities. As a result of the consolidation,
notes receivable and loan obligations held by these entities with aggregate
fair values of $600 million and $612 million, respectively, have been
included in long-term notes receivable and long-term debt on the company's
consolidated balance sheet. Because the fair value of the loans exceeded
the fair value of the notes receivable, the company recorded an after-tax
extraordinary loss of approximately $8 million, or 2 cents per share, on
its income statement for the period ended June 30, 2008, as required by
FASB Interpretation No. 46 (Revised December 2003), Consolidation of
Variable Interest Entities. Management does not consider this loss to be
part of our earnings from ongoing operations for purposes of evaluating the
performance of its business units and their managers and excludes this loss
when making decisions to allocate resources among its business units.
-- Litigation settlement. In the third quarter of 2007, the company
received proceeds from settlement of litigation related to prior years'
operations in Latin America. Management does not consider this gain to be
part of our earnings from ongoing operations for purposes of evaluating the
performance of its business units and their managers and excludes this gain
when making decisions to allocate resources among its business units.
This non-GAAP financial measure is not meant to be considered in
isolation or as a substitute for the comparable GAAP measure. There are
limitations to this non-GAAP financial measure because it is not prepared
in accordance with GAAP and may not be comparable to similarly titled
measures of other companies due to potential differences in methods of
calculation and items being excluded. The company compensates for these
limitations by using this non- GAAP financial measure as a supplement to
the GAAP measure and by providing a reconciliation of the non-GAAP and
comparable GAAP financial measure. The non-GAAP financial measure should be
read only in conjunction with the company's consolidated financial
statements prepared in accordance with GAAP.
Conference call
A conference call to discuss this news release and other matters of
interest to investors and analysts will be held at 9 a.m. (CDT) tomorrow
(July 15, 2008). The conference call will be simultaneously broadcast over
the World Wide Web. Stockholders and others are invited to listen to the
live broadcast or a playback, which can be accessed by following the
instructions set out in the Investors section of the company's Web site
(http://www.kimberly-clark.com).
About Kimberly-Clark
Kimberly-Clark and its well-known global brands are an indispensable
part of life for people in more than 150 countries. Every day, 1.3 billion
people -- nearly a quarter of the world's population -- trust K-C brands
and the solutions they provide to enhance their health, hygiene and
well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex
and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in more
than 80 countries. To keep up with the latest K-C news and to learn more
about the company's 136-year history of innovation, visit
http://www.kimberly-clark.com.
Copies of Kimberly-Clark's Annual Report to Stockholders and its proxy
statements and other SEC filings, including Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, are made
available free of charge on the company's Web site on the same day they are
filed with the SEC. To view these filings, visit the Investors section of
the company's Web site.
Certain matters contained in this news release concerning the business
outlook, including new product introductions, cost savings, changes in
finished product selling prices, anticipated raw material and energy costs,
anticipated costs and benefits related to the strategic cost reduction
plan, anticipated financial and operating results, strategies,
contingencies and anticipated transactions of the company constitute
forward-looking statements and are based upon management's expectations and
beliefs concerning future events impacting the company. There can be no
assurance that these future events will occur as anticipated or that the
company's results will be as estimated. For a description of certain
factors that could cause the company's future results to differ materially
from those expressed in any such forward-looking statements, see Item 1A of
the company's Annual Report on Form 10-K for the year ended December 31,
2007 entitled "Risk Factors."
KIMBERLY-CLARK CORPORATION
PERIODS ENDED JUNE 30
NON-GAAP RECONCILIATION SCHEDULES
The tables on the following pages present the reconciliation of
non-GAAP financial measures to GAAP financial measures.
EARNINGS SUMMARY:
Three Months Ended June 30
(Diluted Earnings Per Share) 2008* 2007
Adjusted Earnings Per Share $1.03 $1.04
Adjusted for:
Strategic Cost Reduction charges (.02) (.02)
Implementation costs -- (.02)
Extraordinary loss (.02) --
Earnings Per Share - Diluted $.99 $1.00
* (Based on preliminary figures)
KIMBERLY-CLARK CORPORATION
OUTLOOK FOR 2008
Estimated Full-Year 2008 Diluted Earnings Per Share:
Twelve Months
Ended December 31,
2008* 2007
Adjusted Earnings Per Share $4.20 - $4.30 $4.25
Adjusted for:
Strategic Cost Reductions (.11) - (.09) (.14)
Implementation Costs -- -- (.04)
Extraordinary loss (.02) (.02) --
Litigation Settlement -- -- .02
Earnings Per Share - Diluted $4.07 - $4.19 $4.09
Estimated Third Quarter 2008 Diluted Earnings Per Share:
Three Months
Ended September 30,
2008* 2007
Adjusted Earnings Per Share $.98 - $1.03 $1.07
Adjusted for:
Strategic Cost Reductions (.03) - (.02) (.05)
Litigation Settlement -- -- .02
Earnings Per Share - Diluted $.95 - $1.01 $1.04
* (Based on preliminary figures)
SOURCE Kimberly-Clark Corporation
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Related links:
http://www.kimberly-clark.com
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/19991117/KMBLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Investor Relations, Mike Masseth,
+1-972-281-1478, mmasseth@kcc.com, or Paul Alexander,
+1-972-281-1440, palexand@kcc.com, or Media Relations, Dave
Dickson, +1-972-281-1481, ddickson@kcc.com, all of Kimberly-Clark
Corporation
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