Kimberly-Clark 3Q 2021 Results: Net Sales Up 7 Percent From Year Ago to $5.0 billion

Executive Summary

Third quarter 2021 net sales of $5.0 billion increased 7 percent compared to the year-ago period, with an organic sales increase of 4 percent.
The company is now targeting full-year 2021 organic sales decline of 1 to 2 percent and adjusted earnings per share of $6.05 to $6.25. The prior outlook was for organic sales decline of 0 to 2 percent and adjusted earnings per share of $6.65 to $6.90. The updated earnings outlook reflects significantly higher input cost inflation.

Chairman and chief executive officer Mike Hsu said, "Our third quarter results reflect a dynamic and challenging macro environment. Our organic sales were strong, including double-digit growth in a number of our personal care markets, and improving performance in tissue and our professional business. Market share performance also remained strong, demonstrating the strength of our innovation and excellent local commerical execution. Our earnings were negatively impacted by significant inflation and supply chain disruptions that increased our costs beyond what we anticipated. We are taking further action, including additional pricing and enhanced cost management, to mitigate these headwinds as it is becoming clear they are not likely to be resolved quickly."

Hsu continued, "We will continue to invest in our brands and capabilities as we navigate through this volatile and difficult macro environment. Our strategy is working, and we remain confident in our future and our ability to create long-term shareholder value."

Third Quarter 2021 Operating Results
Sales of $5.0 billion in the third quarter of 2021 increased 7 percent versus the prior year. Changes in foreign currency exchange rates increased sales 1 percent and the net impact of the Softex Indonesia acquisition and exited businesses in conjunction with the 2018 Global Restructuring Program increased sales 2 percent. Organic sales increased 4 percent as net selling prices rose 3 percent and product mix increased sales 1 percent.

In North America, organic sales increased 3 percent in consumer products and 16 percent in K-C Professional. Outside North America, organic sales were up 6 percent in developing and emerging (D&E) markets and were even with year-ago in developed markets.

Third quarter operating profit was $657 million in 2021 and $666 million in 2020. Results in both periods include charges related to the 2018 Global Restructuring Program. Third quarter adjusted operating profit was $745 million in 2021 and $806 million in 2020. Results were impacted by $480 million of higher input costs, driven by pulp and polymer-based materials, distribution and energy costs. Results benefited from organic sales growth, $115 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program, $35 million of cost savings from the 2018 Global Restructuring Program and lower marketing, research and general expense.

The third quarter effective tax rate was 21.6 percent in 2021 and 20.1 percent in 2020. The third quarter adjusted effective tax rate was 20.9 percent in 2021 and 22.4 percent in 2020. Kimberly-Clark's share of net income of equity companies in the third quarter was $21 million in 2021 and $31 million in 2020.

Cash Flow and Balance Sheet
Cash provided by operations in the third quarter was $782 million in 2021 and $559 million in 2020. The increase was driven by improved working capital and lower tax payments. Capital spending for the third quarter was $235 million in 2021 and $258 million in 2020. Third quarter 2021 share repurchases were 0.4 million shares at a cost of $58 million. The company now plans for full-year repurchases of approximately $400 million, at the low end of the previous range of $400 to $450 million. Total debt was $8.9 billion at September 30, 2021 and $8.4 billion at the end of 2020.

Third Quarter 2021 Business Segment Results

Personal Care Segment
Third quarter sales of $2.7 billion increased 14 percent. The net impact of the Softex Indonesia acquisition and exited businesses in conjunction with the 2018 Global Restructuring Program increased sales approximately 3 percent while changes in currency rates increased sales 1 percent. Net selling prices increased 4 percent, volumes rose 3 percent and product mix improved 2 points. Third quarter operating profit of $496 million increased 2 percent. Results benefited from organic sales growth, cost savings and reduced marketing, research and general spending. The comparison was impacted by input cost inflation.

Sales in North America increased 11 percent. Net selling prices increased sales 5 percent, volumes rose 4 percent and product mix improved 2 points. Changes in currency rates increased sales 1 percent while exited business related to the 2018 Global Restructuring program reduced sales 1 percent.

Sales in D&E markets increased 18 percent. The Softex Indonesia acquisition increased sales by approximately 11 percent while changes in currency rates increased sales 1 percent. Net selling prices increased sales 4 percent and product mix increased sales 3 percent. Organic sales increased in Argentina, Brazil, China, Eastern Europe, India and South Africa but declined in ASEAN and most of the rest of Latin America.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) increased 11 percent including a 4 point favorable impact from changes in currency rates. Volumes rose 5 percent and net selling prices increased sales 2 percent.

Consumer Tissue Segment
Third quarter sales of $1.5 billion decreased 5 percent. Changes in currency rates increased sales 1 percent. Volumes declined 7 percent while net selling prices increased sales 1 percent. The volume comparison reflects elevated shipments in North America and developed markets in the year-ago period to support higher consumer and customer demand related to the global outbreak of COVID-19. Third quarter operating profit of $222 million decreased 30 percent. The comparison was impacted by lower organic sales, higher input costs and other manufacturing cost increases, including inefficiencies from lower production volumes. Results benefited from cost savings and reduced marketing, research and general spending.

Sales in North America decreased 8 percent. Volumes fell 8 percent and product mix was down 1 percent, while net selling prices improved 1 percent.

Sales in D&E markets increased 5 percent including a 1 point favorable impact from changes in currency rates. Net selling prices rose 3 percent, product mix improved approximately 1 percent while volumes were down 3 percent. The Softex Indonesia acquisition increased sales 4 percent.

Sales in developed markets outside North America decreased 6 percent. Volumes were down 6 percent while net selling prices rose 1 percent. Exited businesses related to the 2018 Global Restructuring program reduced sales 4 percent while change in currency rates increased sales 3 percent.

K-C Professional (KCP) Segment
Third quarter sales of $0.8 billion increased 13 percent. Volumes increased 6 percent, net selling prices rose 5 percent and product mix improved slightly. Changes in currency rates increased sales 1 percent. Third quarter operating profit of $96 million increased 10 percent. Results benefited from organic sales growth, cost savings, lower other manufacturing costs, and reduced marketing, research and general spending. The comparison was impacted by higher input costs.

Sales in North America increased 16 percent. Volumes increased approximately 10 percent and net selling prices rose 6 percent. Product mix and currency rates each increased sales slightly. Sales were up significantly in washroom products reflecting comparison to weak year-ago period.

Sales in D&E markets increased 14 percent including a 1 point benefit from changes in currency rates. Volumes rose approximately 10 percent, compared to a soft year-ago period, net selling prices increased 3 percent and product mix improved 1 percent.

Sales in developed markets outside North America were up 3 percent including a 3 percent benefit from changes in currency rates. Net selling prices increased 5 percent while volumes decreased 5 percent.

Year-To-Date Results:
For the first nine months of 2021, sales of $14.5 billion increased 1 percent. Organic sales decreased 2 percent as volumes declined 5 percent while net selling prices increased 2 percent and product mix improved 1 percent. Changes in foreign currency exchange rates increased sales by approximately 2 percent and the net impact of the Softex Indonesia acquisition and business exits in conjunction with the 2018 Global Restructuring Program increased sales 2 percent.

Year-to-date operating profit was $2,040 million in 2021 and $2,495 million in 2020. Results in both periods include charges related to the 2018 Global Restructuring Program. Year-to-date adjusted operating profit was $2,225 million in 2021 and $2,815 million in 2020. Results were impacted by lower sales volumes, $960 million of higher input costs and elevated other manufacturing costs. Results benefited from higher net selling prices, $295 million of FORCE savings, $105 million of cost savings from the 2018 Global Restructuring Program and reduced marketing, research and general spending.

Through nine months, diluted net income per share was $4.31 in 2021 and $5.30 in 2020. Year-to-date adjusted earnings per share were $4.89 in 2021 and $6.06 in 2020.

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 about 1 percent of company net sales.

The restructuring is expected to be completed by the end of 2021. Total restructuring charges are anticipated to be $2,100 to $2,200 million pre-tax ($1,580 to $1,650 million after tax) compared to the previous estimate for charges of $2,000 to $2,100 million pre-tax ($1,490 to $1,570 million after tax).

The company expects the program will generate annual pre-tax cost savings of $550 to $560 million by the end of 2021, at the high end of the previous savings range. Through the third quarter of 2021, the company has incurred cumulative restructuring charges of $2,071 million pre-tax ($1,553 million after tax) and generated cumulative savings of $525 million.

2021 Outlook and Key Planning Assumptions
The company updated the following key planning and guidance assumptions for full-year 2021:

Net sales increase 1 to 2 percent (prior assumption 1 to 4 percent).
- Organic sales decline 1 to 2 percent (prior outlook decline 0 to 2 percent).
- Combined benefit of foreign currency exchange rates and the Softex Indonesia acquisition net of exited businesses in conjunction with the 2018 Global Restructuring Program expected to increase sales 3 percent (prior assumption foreign currency benefit 1 to 2 percent, Softex Indonesia acquisition increase sales 2 percent while exited businesses reduce sales slightly).
Adjusted operating profit expected to decline 20 to 22 percent year-on-year (prior assumption decline of 11 to 14 percent).
- Key cost inputs expected to increase $1,400 to $1,500 million (previous estimate $1,200 to $1,300 million). The increased estimate driven by polymer-based materials, distribution costs, and energy rates.
- Cost savings of $520 to $540 million, including $390 to $400 million from the FORCE program and $130 to $140 million from the 2018 Global Restructuring Program (prior outlook total savings of $520 to $560 million including $400 to $420 million from the FORCE program and $120 to $140 million from the 2018 Global Restructuring Program).
Net income from equity companies down year-on-year (prior outlook similar, to down somewhat).
Adjusted earnings per share of $6.05 to $6.25 (prior outlook $6.65 to $6.90).
Capital spending of $1,000 to $1,100 million (prior outlook $1,100 to $1,200 million).
Share repurchases of approximately $400 million (prior outlook $400 to $450 million).

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