Kimberly-Clark Reports Second Quarter 2002 Results DALLAS, July 23, 2002—Kimberly-Clark Corporation (NYSE: KMB) today reported that sales for the second quarter of 2002 were approximately $3.4 billion, 5 percent higher than 2001. Excluding currency effects, sales rose 6 percent, driven mainly by higher worldwide sales volumes of consumer tissue and personal care products. Overall sales volumes were 8 percent higher, including 3 percent from an acquisition net of divestitures, primarily the consolidation of Kimberly-Clark Australia Pty. Limited. Competitive pricing and promotional activity reduced sales by approximately 2 percent.
Diluted net income for the second quarter was 81 cents per share in 2002 compared with 78 cents per share in 2001.
Second quarter earnings before unusual items were 86 cents per share in 2002, up 6.2 percent from 81 cents per share in 2001. Cash provided by operations in the second quarter was $797 million in 2002, 47 percent greater than the prior year. Free cash flow (cash provided by operations less capital expenditures and dividends) in the second quarter was $425 million, bringing the year-to-date total to $633 million, approximately four times the amount generated in the first half of 2001.
Wayne R. Sanders, chairman and chief executive officer of Kimberly-Clark, said, “We delivered improved results in the second quarter despite highly competitive market conditions. We have good sales momentum, highlighted by record sales volumes for training and youth pants and incontinence care products in North America and by higher shipments of consumer tissue products in every region of the world. Sales of bathroom tissue and paper towels in North America were particularly strong. In addition, I am encouraged by the strong profit margins earned by each of our business segments and continuing improvement in cash flow.”
All three of the company’s business segments posted gains in operating profit before unusual items in the second quarter, paced by an improvement of nearly 15 percent in consumer tissue. In total, operating profit before unusual items rose approximately 8 percent; however, significantly lower earnings from equity companies, primarily Kimberly-Clark de Mexico, partially offset this benefit at the net income level. Fewer shares outstanding due to the company’s repurchase program also contributed to the increase in earnings per share.
Unusual items in the second quarter of 2002 included a pretax charge of about $27 million, or 3 cents per share, related to tax credits in Latin America. The company recently determined that tax credits used to offset sales and other taxes payable from 1999 through 2001 had been misrepresented to the company and improperly purchased by local management. These credits were not valid and all have been written off. Claims against parties involved in the transactions and other recovery efforts are being pursued. The company also recorded unusual pretax charges totaling $15 million, or approximately 2 cents per share, primarily for costs associated with the previously announced plans to streamline manufacturing and administrative operations in Latin America and Europe.
In the second quarter of 2001, unusual items of approximately $29 million before tax reduced net income by 3 cents per share. The unusual items included charges for business improvement and other programs primarily to streamline personal care operations in North America and China as well as costs to integrate acquired businesses into the company’s existing operations.
Review of second quarter sales by segment
Consumer tissue sales climbed 9.8 percent compared with the second quarter of 2001, with increases in every region of the world. Before positive currency effects, the gain was more than 9 percent. Sales volumes were up about 13 percent while selling prices were approximately 4 percent lower, due primarily to promotional activity.
In North America, sales volumes were nearly 12 percent higher, driven by rising sales of Cottonelle and Scott bathroom tissue, Scott towels and Huggies baby wipes. Net selling prices in North America dropped about 4 percent due to competitive promotional activity. In Europe, sales of consumer tissue products increased nearly 7 percent, or 4 percent before currency effects. Sales volumes rose 6 percent, led by higher shipments of Andrex bathroom tissue in the U.K. and Scottex bathroom tissue in Spain, while net selling prices were about 3 percent lower. In Latin America, volume gains of more than 11 percent were mainly responsible for improved sales in the region.
Sales of personal care products increased 3.6 percent over the second quarter of 2001 despite a decline in sales in Latin America resulting mainly from the recession in Argentina. Segment sales were up 6 percent before currency effects. Global sales volumes rose more than 8 percent, partially offset by lower net selling prices and product mix, each down 1 percent. In North America, sales volumes rose more than 7 percent, highlighted by a double-digit gain in shipments of Depend and Poise adult incontinence care products. Huggies diapers, Pull-Ups training pants and Huggies Little Swimmers swimpants also posted solid increases in sales volumes. Net selling prices declined nearly 5 percent in response to competitive pricing and promotional moves and due to selected package count increases. Sales of personal care products in Europe grew more than 6 percent, driven by double-digit growth in training and youth pants and a solid increase in sales volumes of diapers in highly competitive market conditions. In the Asia/Pacific region, sales increased 1 percent excluding K-C Australia, with double-digit growth in Korea being partially offset by lower sales in Taiwan and China.
Sales of business-to-business products rose slightly in the second quarter. Higher sales volumes, up 2 percent, and an improvement in product mix were mostly offset by a decline in selling prices of almost 2 percent. Sales of K-C Professional’s away-from-home products in North America continued to improve, as sales volumes increased 2 percent versus the second quarter of last year. In addition, sales of health care products increased approximately 5 percent. However, sales of other business-to-business operations in North America decreased as demand in many end-use markets remained soft.
Sales in the second quarter of 2002 increased approximately $105 million as a result of the company’s acquisition last year of an additional 5 percent of Kimberly-Clark Australia (KCA), net of divestitures in the business-to-business segment in 2001. The breakdown of the $105 million by segment is $43 million for consumer tissue, $48 million for personal care and $14 million for business-to-business. Effective July 1, 2001, the company began consolidating KCA’s operating results.
Other second quarter operating results
Operating profit in the second quarter of 2002 was $624.3 million, 5.7 percent greater than the prior year. Before unusual items, operating profit increased 7.6 percent to $665.9 million in the second quarter of 2002 compared with $619.1 million in 2001. Higher sales volumes along with lower raw material costs, productivity gains and other cost reductions were the major positive factors contributing to the increase, overcoming a step-up in the level of promotional activities and advertising. In addition, the elimination of noncash goodwill amortization expense was partially offset by a rise in noncash pension expense. All in all, margins before unusual items improved to the following levels: gross profit margin was 36.7 percent in the second quarter of 2002 versus 35.8 percent in the second quarter of 2001 and operating profit margin rose to 19.5 percent from 19.1 percent in 2001.
On a proforma basis, elimination of goodwill amortization in the second quarter of 2001 would have increased net income by 4 cents per share.
Kimberly-Clark’s share of net income of equity companies in the second quarter decreased from $52.6 million in 2001 to $21.5 million in 2002 due primarily to lower net income at Kimberly-Clark de Mexico, S.A. de C.V. (KCM). The decline was due primarily to the change in value of the Mexican peso, which resulted in additional expense in 2002, versus a benefit last year, to reflect the impact of the change on KCM’s U.S. dollar-denominated debt, as well as a higher tax rate stemming from changes in Mexican tax law. KCM’s market positions and operating profit margin remained strong in a highly competitive marketplace. The consolidation of Kimberly-Clark Australia in July 2001 also contributed to the decrease in the company’s share of net income of its equity affiliates.
At the end of the second quarter, net debt and preferred securities totaled $3.9 billion, compared with $3.8 billion at December 31, 2001. During the quarter, the company paid approximately $390 million to acquire the remaining 45 percent interest in K-C Australia and also repurchased 2.5 million shares of common stock at a cost of $162 million.
Year-to-date results
For the first six months of 2002, sales of $6.7 billion were up 2.6 percent from $6.6 billion in the prior year. Excluding currency effects, sales were more than 4 percent higher. Operating profit increased 5.5 percent to $1,289.2 million in 2002 versus $1,221.7 million in 2001. Before unusual items, year-to-date operating profit increased 4.8 percent to $1,339.7 million from $1,278.3 million in 2001. Diluted earnings per share for the first six months of 2002 were $1.65 versus $1.58 in 2001, a gain of 4.4 percent. Earnings per share before unusual items were $1.73 in 2002 compared with $1.65 in 2001, an improvement of 4.8 percent.
Outlook
Commenting on the outlook, Mr. Sanders said, “We are on track to deliver improved earnings this year. We have excellent market positions and a full product pipeline that should continue to drive sales growth. Additionally, our business-to-business operations in North America should benefit as the economy recovers.
“Compared with our planning assumptions that we shared last November, raw material costs, although moving up recently, are still expected to be lower. On the other hand, competitive activity will likely remain intense in the near-term and we expect the business environments in Mexico, Argentina and Brazil will continue to be challenging throughout the second half of the year. On an overall basis, we see the results for the year as being consistent with our November planning assumptions and previous expectations.”
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) today. 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 (www.kimberly-clark.com).
Kimberly-Clark Corporation is a leading consumer products company. Its global personal care, tissue and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Kimwipes, Kimberly-Clark, WypAll, Safeskin and Tecnol. Other brands well known outside the U.S. include Andrex, Scottex, Page, Popee and Kimbies. Kimberly-Clark also is a major producer of premium business, correspondence and technical papers. The company has manufacturing operations in 42 countries and sells its products in more than 150 countries.
Certain matters contained in this news release concerning the business outlook, including new product introductions, cost savings and acquisitions, anticipated financial and operating results, strategies, contingencies and 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 the section of Part I, Item 1 of the company’s Annual Report on Form 10-K for the year ended December 31, 2001 entitled “Factors That May Affect Future Results.”
Kimberly-Clark Web site: www.kimberly-clark.com
Notes:
- In 2002, charges (credits) for unusual items are included as follows:
cost of products sold - $6.6 million; marketing, research and general expenses - $8.5 million; other (income) expense, net - $26.5 million; share of net income of equity companies - $1.4 million; and minority owners’ share of subsidiaries’ net income - $(6.0) million.
- In 2001, charges for unusual items are included as follows: cost of products sold - $22.2 million; and marketing, research and general expenses - $6.3 million.
N.M.–Not meaningful
Unaudited
Notes:
- In 2002, charges (credits) for unusual items are included as follows:
cost of products sold - $14.1 million; marketing, research and general expenses - $9.9 million; other (income) expense, net – $26.5 million; share of net income of equity companies – $1.4 million; minority owners’ share of subsidiaries’ net income - $(7.3) million; and cumulative effect of accounting change, net of income taxes – $11.4 million.
- In 2001, charges (credits) for unusual items are included in operating profit as follows: cost of products sold – $43.8 million; marketing, research and general expenses - $12.3 million; other (income) expense, net – $.5 million; and share of net income of equity companies – $(.2) million.
- Following is a reconciliation of net income and diluted earnings per share reflecting the implementation of SFAS 142, Goodwill and Other Intangible Assets:
Notes:
- Operating profit includes charges for unusual items as follows:
- Goodwill amortization is included in operating profit as follows:
Description of Business Segments
The Personal Care segment manufactures and markets disposable diapers, training and youth pants and swimpants; feminine and incontinence care products; and related products. Products in this segment are primarily for household use and are sold under a variety of well-known brand names, including Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise and other brand names.
The Consumer Tissue segment manufactures and markets facial and bathroom tissue, paper towels and napkins for household use; wet wipes; and related products. Products in this segment are sold under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Page, Huggies, and other brand names.
The Business-to-Business segment manufactures and markets facial and bathroom tissue, paper towels, wipers and napkins for away-from-home use; health care products such as surgical gowns, drapes, infection control products, sterilization wraps, disposable face masks and exam gloves, respiratory products, and other disposable medical products; printing, premium business and correspondence papers; specialty and technical papers; and other products. Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott, Kimwipes, WypAll, Surpass, Safeskin, Tecnol, Ballard and other brand names.
N.M.–Not meaningful
Unaudited
