Kimberly-Clark Announces Strong First Quarter 2020 Results

"A combination of increased consumer demand for our products and strong execution by our teams is reflected in our first quarter results. We increased investments in our business and our market positions remain broadly healthy." – Mike Hsu, Chairman and CEO, Kimberly-Clark.

Chairman and Chief Executive Officer Mike Hsu said, "Since the outbreak of COVID-19, Kimberly-Clark has taken decisive actions to protect the health and safety of our people, customers and consumers, proactively managed our global supply chain to ensure a steady supply of our essential products, and positioned our brands to help support those in need. I am incredibly proud of all the ways our employees are responding to this crisis, all while staying focused on serving consumers who count on Kimberly-Clark."

Hsu continued, "A combination of increased consumer demand for our products and strong execution by our teams is reflected in our first quarter results. We increased investments in our business and our market positions remain broadly healthy. In addition, we generated very strong cash flow and further strengthened our balance sheet by executing two long-term debt transactions in the quarter.

"Given the lack of visibility and uncertainty about the pandemic and its potential effects on the global economy and our business, we are temporarily suspending our forward-looking guidance. We expect that we will resume guidance when the environment stabilizes and we can provide a clear picture of our expectations. As always, we are prudently managing our business in the near-term while maintaining focus on the long-term health of our company."

First Quarter 2020 Operating Results

Sales of $5.0 billion in the first quarter of 2020 increased 8 percent compared to 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 11 percent. Volumes increased more than 8 percent, driven by increased shipments to support consumer stock up related to the global outbreak of COVID-19. The stock up impacted all business segments, in particular consumer tissue, and all major geographies. Net selling prices and product mix each improved 1 percent. In North America, organic sales increased 11 percent in consumer products and 6 percent in K-C Professional. Outside North America, organic sales rose 9 percent in developing and emerging markets and 15 percent in developed markets.

First quarter operating profit was $904 million in 2020 and $655 million in 2019. Results in both periods include charges related to the 2018 Global Restructuring Program. First quarter adjusted operating profit was $997 million in 2020 and $807 million in 2019. Results benefited from organic sales growth, $100 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program and $25 million of cost savings from the 2018 Global Restructuring Program. Input costs decreased $115 million, driven by pulp, while other manufacturing costs rose year-on-year. Advertising spending increased and selling, general and administrative costs were also higher compared to the prior year. Foreign currency translation effects reduced operating profit by $15 million and transaction effects also negatively impacted the comparison.

The first quarter effective tax rate was 23.6 percent in 2020 and 24.6 percent in 2019. The first quarter adjusted effective tax rate was 23.2 percent in 2020 and 23.7 percent in 2019.

Kimberly-Clark's share of net income of equity companies in the first quarter was $38 million in 2020 and $27 million in 2019. The improvement was driven by volume growth and lower input costs.

Cash Flow and Balance Sheet

Cash provided by operations in the first quarter was $704 million in 2020 and $317 million in 2019. The increase was driven by higher earnings and improved working capital. Capital spending for the first quarter was $352 million in 2020 and $316 million in 2019. First quarter 2020 share repurchases were 1.6 million shares at a cost of $224 million. Total debt was $8.4 billion at March 31, 2020 and $7.7 billion at the end of 2019.

Personal Care Segment

First quarter sales of $2.4 billion increased 6 percent. Volumes increased approximately 7 percent, product mix improved 2 percent and net selling prices rose 1 percent. Changes in currency rates reduced sales by 3 percent. First quarter operating profit of $527 million increased 9 percent. The comparison benefited from organic sales growth, cost savings and lower input costs. Results were impacted by higher advertising spending, increased selling, general and administrative costs, other manufacturing cost increases and unfavorable currency effects.

Sales in North America increased 10 percent. Volumes increased 7 percent, product mix improved 2 percent and net selling prices rose 1 percent. Volumes increased double-digits in adult care, high-single digits in feminine care and mid-single digits in baby and child care. The changes in product mix and net selling prices were driven by baby and child care.

Sales in developing and emerging markets increased 3 percent despite a 6 point negative impact from changes in currency rates. Volumes increased 6 percent, product mix improved 3 percent and net selling prices rose 1 percent. Volumes increased in Asia-Pacific, Eastern Europe, the Middle East and South Africa.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) increased 5 percent despite a 5 point negative impact from changes in currency rates. Volumes increased 8 percent, driven by Australia and Western/Central Europe, and net selling prices and product mix each improved 1 percent.

Consumer Tissue Segment

First quarter sales of $1.7 billion increased 13 percent. Volumes increased 14 percent and net selling prices rose 1 percent, while changes in currency rates reduced sales 2 percent. The volume increase was driven by increased shipments in all major geographies to support consumer stock up related to the global outbreak of COVID-19. First quarter operating profit of $365 million increased 51 percent. Results benefited from organic sales growth, lower input costs and cost savings. The comparison was impacted by other manufacturing cost increases, higher selling, general and administrative costs, increased advertising spending and unfavorable currency effects.

Sales in North America increased 12 percent. Volumes rose 10 percent and net selling prices improved 3 percent, while product mix was down 1 percent. The volume increase included double-digit gains on bathroom tissue and facial tissue.

Sales in developing and emerging markets increased 10 percent despite a 3 point negative impact from changes in currency rates. Volumes increased 12 percent and product mix improved 2 percent, while net selling prices were down 1 percent. Volumes increased in all major geographies.

Sales in developed markets outside North America increased 17 percent. Volumes rose 21 percent, with significant increases in all markets, and product mix improved 1 percent. Changes in currency rates reduced sales 4 percent and net selling prices fell 1 percent.

K-C Professional (KCP) Segment

First quarter sales of $0.8 billion increased 4 percent. Volumes increased 4 percent, net selling prices rose 2 percent and product mix improved 1 percent. Changes in currency rates and business exits in conjunction with the 2018 Global Restructuring Program reduced sales by 2 percent and 1 percent, respectively. First quarter operating profit of $181 million increased 21 percent. Results benefited from organic sales growth, cost savings and lower input costs. The comparison was impacted by higher selling, general and administrative costs and other manufacturing cost increases.

Sales in North America increased 5 percent. Volumes increased 4 percent and net selling prices and product mix each improved 1 percent. Business exits in conjunction with the 2018 Global Restructuring Program reduced sales 1 percent.

Sales in developing and emerging markets increased 2 percent despite a 4 point negative impact from changes in currency rates. Volumes and net selling prices each increased 3 percent, while product mix was down 1 percent.

Sales in developed markets outside North America were up 5 percent. Product mix improved 4 percent and volumes and net selling prices each increased 3 percent, while currency rates were unfavorable by 4 percent.

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. 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.

As a result of the outbreak of COVID-19 and the related uncertainty and complexity of the environment, the company now expects that some restructuring activity and the related charges will extend into 2021 rather than being completed at the end of 2020 as previously planned. Total restructuring charges to implement the program are expected to be toward the high end of the previously estimated range of $1,700 to $1,900 million pre-tax ($1,300 to $1,400 million after tax). The company continues to expect the program will generate annual pre-tax cost savings of $500 to $550 million. The company continues to target to achieve those savings by the end of 2021, although it is possible the full realization could occur in 2022 because of the uncertainties related to COVID-19. Through the first quarter of 2020, the company has incurred cumulative restructuring charges of $1,495 million pre-tax ($1,105 million after tax) and generated cumulative savings of $325 million.

2020 Outlook

The company previously issued its full-year 2020 outlook on January 23, 2020. Due to the rapidly evolving situation and the high degree of uncertainty related to the duration and potential impacts of COVID-19 and the overall environment, including global business and economic activity, consumer and end-market demand, global supply chain operations, and volatility in foreign currency exchange rates and commodity costs, the company is withdrawing its previous 2020 guidance and not providing any additional outlook at this time.

The company is temporarily suspending its share repurchase program effective April 24, 2020 for at least the remainder of the second quarter to enhance flexibility in the current environment. The company will continue to monitor the environment and further assess its share repurchase program later in the year.

Kimberly-Clark Corporation

Kimberly-Clark's (NYSE: KMB) portfolio of brands, include Huggies, Kleenex, Scott, Kotex, Cottonelle, Poise, Depend, Andrex, Pull-Ups, GoodNites, Intimus, Neve, Plenitud, Viva and WypAll, hold No. 1 or No. 2 share positions in 80 countries.