Kimberly-Clark reports year-end 2017 results, global restructuring

P&PC Staff
January 30, 2018
By P&PC Staff
Jan. 30, 2018 - Kimberly-Clark Corp. has announced its year-end 2017 results and provided its 2018 outlook. The company also announced a new global restructuring initiative and established a multi-year savings target for its ongoing cost-savings program.

Kimberly-Clark Corp. says it will cut as many as 5,500 jobs, or 13 per cent of its workforce, in a new global restructuring initiative. The company expects to close or sell approximately 10 manufacturing facilities and expand production capacity at several others to improve overall scale and cost. As part of the program, Kimberly-Clark expects to exit or divest some low-margin businesses that generate approximately 1 per cent of company net sales. The sales are concentrated in the consumer tissue business segment.

Based in Dallas, Kimberly-Clark Corp. anticipates pre-tax savings of $500 million to $550 million by the end of 2021 from the cost-cutting moves. It foresees total pre-tax restructuring charges in a range of $1.7 billion to $1.9 billion.

Executive summary of year-end 2017 results:

• Fourth quarter 2017 net sales of $4.6 billion increased 1 per cent compared to the year-ago period and full-year 2017 net sales of $18.3 billion rose slightly.
• Diluted net income per share for the fourth quarter was $1.75 in 2017 and $1.40 in 2016. Full-year diluted net income per share was $6.40 in 2017 and $5.99 in 2016.
• Fourth quarter adjusted earnings per share were $1.57 in 2017 and $1.45 in 2016. Adjusted earnings per share exclude certain items described later in this news release.
• Full-year adjusted earnings per share were $6.23 in 2017, up 3 per cent compared to $6.03 in 2016. The company’s previous guidance was for earnings at the low end of the $6.20 to $6.35 range.
• The company has established a cost savings target of more than $1.5 billion over the 2018 to 2021 time period from its ongoing FORCE (Focused On Reducing Costs Everywhere) program.
• In addition, the company announced a new 2018 Global Restructuring Program to reduce the company’s structural cost base by streamlining and simplifying its manufacturing supply chain and overhead organization. The restructuring is expected to generate annual cost savings of $500 to $550 million by the end of 2021 and accelerate the company’s return to delivering its long-term growth objectives over time.
• Net sales in 2018 are expected to increase 1 to 2 per cent. Diluted net income per share for 2018 is anticipated to be $3.90 to $4.50, including charges related to the restructuring. Adjusted earnings per share in 2018 are expected to be $6.90 to $7.20, a year-on-year increase of approximately 11 to 16 per cent.
• The company’s board of directors has approved a 3.1 per cent increase in the quarterly dividend for 2018, which is the 46th consecutive annual increase in the dividend.

Q4 2017 business segment results

• Personal care segment
Fourth quarter sales of $2.3 billion were up 1 per cent. Volumes increased 2 per cent and product mix improved 1 per cent, while net selling prices fell 3 per cent. In addition, changes in currency rates and the acquisition of the company’s joint venture in India each benefited sales by less than 1 per cent. Fourth quarter operating profit of $483 million decreased 2 per cent. The comparison was impacted by lower net selling prices and input cost inflation. Results benefited from volume growth, improved product mix, cost savings and reduced marketing, research and general spending.

Sales in North America decreased 2 per cent. Net selling prices declined 4 per cent, including higher promotion spending in most categories, while volumes increased 2 per cent. Adult care volumes rose mid-single digits, led by gains on the Poise brand. Total volumes in infant and child care were up low-single digits, driven by growth in Pull-Ups training pants.

Sales in developing and emerging markets increased 7 per cent. Volumes increased 4 per cent and product mix improved 3 per cent, while net selling prices were down 3 per cent. In addition, the acquisition of the company’s joint venture in India benefited sales by 2 per cent and currency rates were favourable by 1 per cent. The volume increase was driven by gains in Latin America, primarily Argentina and Brazil, and in Eastern Europe.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) decreased 5 per cent, despite a 2 point benefit from favourable currency rates. Volumes were down 7 per cent, driven by South Korea. Net selling prices fell 2 per cent, offset by improved product mix.

• Consumer tissue segment
Fourth quarter sales of $1.5 billion decreased 1 percent. Volumes and net selling prices each fell 1 percent, while currency rates were favourable by less than 2 per cent. Fourth quarter operating profit of $258 million decreased 13 per cent. The comparison was impacted by lower sales and input cost inflation, partially offset by cost savings and reduced marketing, research and general spending.

Sales in North America decreased 4 per cent. Volumes were down 2 per cent, driven by lower bathroom tissue volumes. Net selling prices fell 2 per cent, reflecting increased promotion spending.

Sales in developing and emerging markets increased 4 per cent, including a 2 point benefit from favourable currency rates. Volumes increased 3 per cent, while the combined impact of changes in net selling prices and product mix reduced sales by 1 per cent.

Sales in developed markets outside North America increased more than 3 per cent, including an approximate 5 point impact from favourable currency rates. Volumes declined 3 per cent, primarily in Western/Central Europe, while the combined impact of changes in net selling prices and product mix benefited sales by 2 per cent.

• K-C Professional (KCP) segment
Fourth quarter sales of $0.8 billion increased 3 per cent. Changes in currency rates benefited sales by 2 per cent and volumes increased 1 per cent. Fourth quarter operating profit of $151 million increased 3 per cent. The comparison benefited from volume growth, cost savings and lower marketing, research and general spending, mostly offset by input cost inflation.

Sales in North America increased 1 per cent. Volumes were up 1 per cent, including growth in safety and other product categories.

Sales in developing and emerging markets increased 6 per cent, including a 3 point benefit from currency rates. Volumes were up 3 per cent, primarily in China and Latin America.

Sales in developed markets outside North America were up 6 per cent. Currency rates were favourable by 5 per cent and product mix improved 1 per cent.

Full-year 2017 results
Sales of $18.3 billion were up slightly compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by less than 1 per cent. Organic sales were similar year-on-year, as volumes increased about 1 per cent and product mix improved slightly, while net selling prices fell more than 1 per cent. In North America, organic sales were down 2 per cent in consumer products and similar year-on-year in K-C Professional. Outside North America, organic sales increased 3 per cent in developing and emerging markets but fell 3 per cent in developed markets.

Operating profit was $3,299 million in 2017 and $3,317 million in 2016. Adjusted operating profit was $3,323 million in 2017 and $3,341 million in 2016. Results were impacted by lower net selling prices and $355 million of higher input costs. The comparison benefited from volume growth, $450 million of FORCE cost savings and lower marketing, research and general spending.

Diluted net income per share was $6.40 in 2017 and $5.99 in 2016. Adjusted earnings per share of $6.23 in 2017 increased 3 per cent compared to $6.03 in 2016.

2018 outlook and key planning assumptions
The company’s key planning and guidance assumptions for 2018 are as follows:

• Net sales increase of 1 to 2 per cent.
  • Organic sales are expected to increase approximately 1 per cent, driven by higher volumes. Changes in net selling prices and product mix are expected to be similar, or up slightly, year-on-year.
  • Changes in foreign currency exchange rates are anticipated to have a neutral to 1 per cent positive impact on net sales, and the acquisition of the company’s joint venture in India should benefit sales slightly.
• Adjusted operating profit growth of 2 to 5 per cent.
  • Cost savings of approximately $400 million from the FORCE program and $50 to $70 million from the 2018 Global Restructuring Program.
  • Inflation in key cost inputs of $300 to $400 million. A majority of the inflation is anticipated to occur in international markets. In North America, the company is assuming market prices of $1,050 to $1,100 per metric ton for eucalyptus pulp and mid-$50’s to low-$60’s per barrel for oil.
• Interest expense down approximately 20 per cent, including benefits from redeeming, in December 2017, $500 million of notes originally due in late 2018.
• Adjusted effective tax rate of 23 to 26 per cent.
• Net income from equity companies similar, or up slightly, year-on-year.
• Adjusted earnings per share of $6.90 to $7.20, up approximately 11 to 16 per cent compared to $6.23 in 2017.
• Capital spending of approximately $1.1 billion.
• Dividend increase of 3.1 percent (approved by the Board of Directors and mentioned previously in this release). The quarterly dividend will increase to $1.00 per share, up from $0.97 per share in 2017. The first dividend will be payable on April 3, 2018 to stockholders of record on March 9, 2018.
• Share repurchases between $0.7 and $0.9 billion, subject to market conditions.

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