Kimberly-Clark Announces Year-End 2017 Results, 2018 Outlook, New Global Restructuring And Multi-Year Cost Savings Target

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Kimberly-Clark Corporation today reported 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.

Executive Summary

o Fourth quarter 2017 net sales of $4.6 billion increased 1 percent compared to the year-ago period and full-year 2017 net sales of $18.3 billion rose slightly.

o 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 $5.99in 2016.

o 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.

o Full-year adjusted earnings per share were $6.23 in 2017, up 3 percent 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.

o 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.

o 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.

o Net sales in 2018 are expected to increase 1 to 2 percent. 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 percent.

The company’s Board of Directors has approved a 3.1 percent increase in the quarterly dividend for 2018, which is the 46th consecutive annual increase in the dividend.

Chairman and Chief Executive Officer Thomas J. Falk said, "In 2017, we delivered bottom-line growth in a challenging environment. We also achieved all-time record FORCE cost savings of $450 million and reduced discretionary spending to help offset inflationary cost headwinds. In addition, we returned $2.3 billion to shareholders through dividends and share repurchases."

Falk continued, "Although we expect market conditions will remain challenging in the near-term, we plan to deliver better results in 2018 while we begin to implement our new restructuring. We expect organic sales to return to growth while improving our margins and delivering double-digit growth in adjusted earnings per share. In addition, we will increase investments in our brands, our growth initiatives and the capabilities we need for long-term success. We will also continue to allocate capital in shareholder-friendly ways."

Falk concluded, "We believe that, over time, our 2018 Global Restructuring Program will accelerate our return to delivering on our long-term growth objectives. This is the biggest restructuring we have undertaken since the introduction of our Global Business Plan in 2003, and it will make our company leaner, stronger and faster. The changes we are making will improve our underlying profitability, provide more flexibility to invest in growth opportunities and help us compete even more effectively. At the same time, we are expecting our ongoing FORCE program to continue to deliver significant results and are making that clear by establishing a multi-year commitment for this program. Combined, our restructuring and FORCE programs will generate more than $2 billion of total cost savings over the next four years, giving us substantial funds to drive profitable growth. Today’s announcement is the latest example of Kimberly-Clark’s proactive and strategic approach to improving our business so we can win in the marketplace and create long-term shareholder value."

Fourth Quarter 2017 Operating Results

Sales of $4.6 billion in the fourth quarter of 2017 were up 1 percent compared to the year-ago period. Changes in foreign currency exchange rates benefited sales by more than 1 percent. Organic sales fell about 1 percent, as lower net selling prices of 2 percent were partially offset by improved product mix of 1 percent and slightly higher volumes. In North America, organic sales were down 3 percent in consumer products and up 1 percent in K-C Professional. Outside North America, organic sales increased 4 percent in developing and emerging markets but fell 3 percent in developed markets.

Fourth quarter operating profit was $812 million in 2017 and $839 million in 2016. Fourth quarter adjusted operating profit was $836 million in 2017 and $859 million in 2016. The year-over-year comparison was impacted by lower net selling prices and $130 million of higher input costs, driven by increases in pulp and other raw materials. Results benefited from favorable volumes and product mix, $95 million of cost savings from the company’s FORCE program and reduced marketing, research and general spending.

The fourth quarter effective tax rate was 19.2 percent in 2017 and 35.7 percent in 2016. The rate in 2017 included a net benefit as a result of U.S. tax reform and related activities. The fourth quarter adjusted effective tax rate was 29.7 percent in 2017 and 35.4 percent in 2016.

Kimberly-Clark’s share of net income of equity companies in the fourth quarter was $25 million in 2017 and $29 million in 2016. At Kimberly-Clark de Mexico, results were impacted by higher input costs, partially offset by benefits from sales growth and cost savings.

Cash Flow and Balance Sheet

Cash provided by operations in the fourth quarter was $863 million in 2017 and $871 million in 2016. Full-year cash provided by operations was $2,929 million in 2017 compared to $3,232 million in 2016. The decline was in line with expectations and driven by higher tax payments. Capital spending for the fourth quarter was $190 million in 2017 and $189 million in 2016. Full-year spending was $785 million in 2017 and $771 million in 2016.

Fourth quarter 2017 share repurchases were 0.9 million shares at a cost of $100 million, bringing full-year repurchases to 7.2 million shares at a cost of $900 million. Total debt was $7.4 billion at the end of 2017 and $7.6 billion at the end of 2016.

FORCE Cost Savings Target

The company has established a four-year cost savings target of more than $1.5 billion from its ongoing FORCE program over the 2018 to 2021 time period. The savings will further enhance the company’s ability to invest in growth opportunities, offset headwinds and improve gross margin. The savings will be achieved through a continued focus on improving productivity at manufacturing facilities, optimizing raw material and product design costs, generating benefits from procurement activities and improving distribution efficiencies.

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