Kimberly-Clark Announces Year-End 2020 Results And 2021 Outlook

Executive Summary
-Fourth quarter 2020 net sales of $4.8 billion increased 6 percent compared to the year-ago period, including organic sales growth of 5 percent. Full-year 2020 net sales of $19.1 billion increased 4 percent, with organic sales up 6 percent.
-Diluted net income per share for the fourth quarter was $1.58 in 2020 and $1.59 in 2019. Full-year diluted net income per share was $6.87 in 2020 and $6.24 in 2019.
-Fourth quarter adjusted earnings per share were $1.69 in 2020 compared to $1.71 in 2019. Adjusted earnings per share exclude certain items described later in this news release.
-Full-year adjusted earnings per share were $7.74 in 2020, up 12 percent compared to $6.89 in 2019. The company's previous guidance was for adjusted earnings per share of $7.50 to $7.65.
-Net sales in 2021 are expected to increase 4 to 6 percent, including organic sales growth of 1 to 2 percent. Diluted net income per share for 2021 is anticipated to be $7.10 to $7.60. Adjusted earnings per share in 2021 are expected to be $7.75 to $8.00.
-The company's Board of Directors has approved a 6.5 percent increase in the quarterly dividend, which is the 49th consecutive annual increase in the dividend. The Board also authorized a new $5 billion share repurchase program which supplements the current $5 billion authorization that is expected to be completed later in 2021. These actions reflect the company's strong cash flow and growth prospects along with an ongoing commitment to return cash to shareholders.

Chairman and Chief Executive Officer Mike Hsu (photo) said, "In 2020, we grew organic sales 6 percent, with healthy underlying performance and increased demand because of COVID-19. We also significantly increased brand investments and improved our market share positions. In addition, we achieved $575 million of cost savings and returned $2.15 billion to shareholders through dividends and share repurchases. Finally, we grew adjusted earnings per share 12 percent, well above our medium-term objective. I'm extremely proud of what our teams accomplished while staying relentlessly focused on employee health and safety and meeting the needs of our consumers during this unprecedented time period."

Hsu continued, "Going forward we will continue to execute K-C Strategy 2022. We expect to further improve our market positions by building on our current momentum and leveraging our enhanced commercial capabilities. At the same time, we will continue to operate with financial discipline. We expect more challenging category conditions and higher commodity costs in 2021. That said, we remain very optimistic about our strategies to deliver balanced and sustainable growth over time and create long-term shareholder value."

Fourth Quarter 2020 Operating Results
Sales of $4.8 billion in the fourth quarter of 2020 increased 6 percent compared to the year-ago period. Organic sales rose 5 percent and the Softex Indonesia acquisition increased sales by approximately 2 percent, while changes in foreign currency exchange rates reduced sales 1 percent. Net selling prices increased approximately 3 percent, volumes increased 2 percent and product mix was slightly favorable. In North America, organic sales increased 11 percent in consumer products but fell 7 percent in K-C Professional. Outside North America, organic sales rose 3 percent in developing and emerging (D&E) markets and 2 percent in developed markets.

Fourth quarter operating profit was $749 million in 2020 and $751 million in 2019. Results in both periods include charges related to the 2018 Global Restructuring Program. Results in 2020 also include Softex Indonesia acquisition-related costs and a benefit from the resolution of a business tax matter in Brazil. Results in 2019 also include a gain on the sale of property associated with a former manufacturing facility that was closed as part of a past restructuring.

Fourth quarter adjusted operating profit was $767 million in 2020 and $826 million in 2019. Results benefited from organic sales growth, $110 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 increased $40 million and other manufacturing costs were higher, including costs related to COVID-19. Advertising spending increased significantly and general and administrative costs were higher, including incentive compensation expense and capability-building investments. Foreign currency transaction effects also negatively impacted the comparison.

The fourth quarter effective tax rate was 24.6 percent in 2020 and 17.2 percent in 2019. The fourth quarter adjusted effective tax rate was 22.2 percent in 2020 and 24.6 percent in 2019. The rate in 2020 benefited from certain planning initiatives.

Kimberly-Clark's share of net income of equity companies in the fourth quarter was $38 million in 2020 and $32 million in 2019. Results benefited from organic sales growth but were negatively impacted by unfavorable currency effects.

Cash Flow and Balance Sheet
Cash provided by operations in the fourth quarter was $887 million in 2020 and $924 million in 2019. Full-year cash provided by operations was an all-time record $3,729 million in 2020 compared to $2,736 million in 2019. The increase was driven by improved working capital and higher earnings. Capital spending for the fourth quarter was $323 million in 2020 and $342 million in 2019. Full-year spending was $1,217 million in 2020 and $1,209 million in 2019.

Fourth quarter 2020 share repurchases were 1.7 million shares at a cost of $243 million, bringing full-year repurchases to 4.9 million shares at a cost of $700 million. Total debt was $8.4 billion at the end of 2020 and $7.7 billion at the end of 2019. The increase included incremental financing to fund the Softex Indonesia acquisition that closed on October 1, 2020.

Fourth Quarter 2020 Business Segment Results
Personal Care Segment
Fourth quarter sales of $2.3 billion increased 5 percent. Volumes increased 3 percent and net selling prices and product mix each improved 1 percent. The Softex Indonesia acquisition increased sales 3 percent while changes in currency rates reduced sales by 3 percent. Fourth quarter operating profit of $401 million decreased 10 percent. Results were impacted by unfavorable currency effects, other manufacturing cost increases, higher advertising spending, increased general and administrative costs and input cost inflation. The comparison benefited from organic sales growth and cost savings.

Sales in North America increased 3 percent driven by baby and child care. Volumes increased 2 percent and net selling prices rose 1 percent.

Sales in D&E markets increased 7 percent. The Softex Indonesia acquisition increased sales by 8 percent while changes in currency rates reduced sales 9 percent. Volumes rose 4 percent, including increases in Brazil, China, Eastern Europe, India and South Africa. Product mix improved more than 2 percent and net selling prices increased 1 percent.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) increased 6 percent. Changes in currency rates increased sales 5 percent. Volumes rose 2 percent while the combined impact of changes in net selling prices and product mix reduced sales by 1 percent.

Consumer Tissue Segment
Fourth quarter sales of $1.7 billion increased 14 percent. Volumes increased 9 percent and net selling prices rose 6 percent, while product mix was unfavorable by 1 percent. The volume increase was driven by demand related to the outbreak of COVID-19 and the work from home environment. Fourth quarter operating profit of $337 million increased 20 percent. Results benefited from organic sales growth and cost savings. The comparison was impacted by other manufacturing cost increases, increased advertising spending, higher input costs and increased general and administrative costs.

Sales in North America increased 21 percent. Volumes rose 13 percent, with bathroom tissue and paper towels up double-digits and facial tissue up mid-single digits. Net selling prices improved 11 percent driven by lower promotion expense, while product mix was down 3 percent.

Sales in D&E markets decreased 2 percent including a 6 point negative impact from changes in currency rates. Volumes rose 3 percent and the Softex Indonesia acquisition increased sales by 2 percent.

Sales in developed markets outside North America increased 12 percent. Volumes increased 6 percent, driven by South Korea, and changes in currency rates increased sales 6 percent.

K-C Professional (KCP) Segment
Fourth quarter sales of $0.7 billion decreased 9 percent. Volumes declined 13 percent, reflecting lower away from home demand and challenging business conditions following the outbreak of COVID-19. Net selling prices and product mix each improved 2 percent. Fourth quarter operating profit of $105 million decreased 38 percent. The comparison was impacted by lower volumes, other manufacturing cost increases, higher input costs, and increased general and administrative costs. Results benefited from favorable net selling prices and cost savings.

Sales in North America decreased 7 percent. Volumes were down 12 percent, while product mix improved 4 percent and net selling prices rose 1 percent. Sales were down significantly in washroom products but increased double-digits in wipers, safety and other products.

Sales in D&E markets decreased 21 percent including a 5 point negative impact from changes in currency rates. Volumes fell 16 percent, with significant declines in all major geographies, and product mix was down 4 percent. Net selling prices increased 5 percent.

Sales in developed markets outside North America were down 2 percent. Volumes decreased 11 percent, while net selling prices and product mix each improved 2 percent. Currency rates were favorable by 5 percent.

Full Year 2020 Results
Sales of $19.1 billion increased 4 percent. Organic sales increased 6 percent, as volumes rose 4 percent and net selling prices and product mix each improved 1 percent. Changes in foreign currency exchange rates reduced sales by 2 percent. The net impact of the Softex Indonesia acquisition and business exits in conjunction with the 2018 Global Restructuring Program increased sales slightly.

Operating profit was $3,244 million in 2020 and $2,991 million in 2019. Results in both periods include charges related to the 2018 Global Restructuring Program. Results in 2020 also include Softex Indonesia acquisition-related costs and a benefit from the resolution of a business tax matter in Brazil. Results in 2019 also include a gain on the sale of property associated with a former manufacturing facility that was closed as part of a past restructuring.

Adjusted operating profit was $3,582 million in 2020, up 9 percent compared to $3,281 million in 2019. Results benefited from organic sales growth, $455 million of FORCE cost savings and $120 million of cost savings from the 2018 Global Restructuring Program. Input costs decreased $175 million, driven by pulp. The comparison was impacted by other manufacturing cost increases, unfavorable currency effects, increased advertising spending and higher general and administrative costs.

Diluted net income per share was $6.87 in 2020 and $6.24 in 2019. Adjusted earnings per share of $7.74 in 2020 increased 12 percent compared to $6.89 in 2019. The increase was driven by growth in adjusted operating profit, along with higher net income from equity companies and declines in the share count and adjusted effective tax rate.

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 in 2021. Total restructuring charges are anticipated to be $2,000 to $2,100 million pre-tax ($1,490 to $1,570 million after tax) compared to the previous estimate for charges toward the high end of the range of $1,700 to $1,900 million pre-tax ($1,300 to $1,400 million after tax). The increased cost estimate includes impacts from delays as a result of COVID-19 and additional savings opportunities. The company expects the program will generate annual pre-tax cost savings of $540 to $560 million by the end of 2021 compared to the prior target of $500 to $550 million. Through the end of 2020, the company has incurred cumulative restructuring charges of $1,821 million pre-tax ($1,354 million after tax) and generated cumulative savings of $420 million.

2021 Outlook and Key Planning Assumptions
The company's 2021 outlook assumes no significant impact from potential supply chain disruptions as a result of COVID-19. In addition, key planning and guidance assumptions are as follows:
-Net sales increase 4 to 6 percent.
°Organic sales increase 1 to 2 percent.
°Foreign currency exchange rates favorable between 1 and 2 percent.
°Softex Indonesia acquisition expected to increase sales by 2 percent while exited businesses in conjunction with the 2018 Global Restructuring Program anticipated to reduce sales slightly.
-Adjusted operating profit similar, to up 2 percent, year-on-year.
°Benefits from net sales growth.
°Cost savings of $400 to $460 million, including $280 to $320 million from the FORCE program and $120 to $140 million from the 2018 Global Restructuring Program.
-Key cost inputs expected to increase $450 to $600 million. Costs are projected to increase for most raw materials and distribution expenses.
°Adjusted nonoperating expense expected to decrease year-on-year.
°Adjusted effective tax rate of 22 to 24 percent.
-Net income from equity companies similar, to up somewhat, year-on-year.
-Adjusted earnings per share of $7.75 to $8.00 compared to $7.74 in 2020.
-Capital spending of $1,200 to $1,300 million, including spending related to the 2018 Global Restructuring Program and other growth initiatives.
-Dividend increase of 6.5 percent (approved by the Board of Directors and mentioned previously in this release). The quarterly dividend will increase to $1.14 per share, up from $1.07 per share in 2020. The first dividend will be payable on April 5, 2021 to stockholders of record on March 5, 2021.
-Share repurchases of $650 to $750 million, subject to market conditions.