Kimberly-Clark Announces First Quarter 2021 Results

Executive Summary
- First quarter 2021 net sales of $4.7 billion decreased 5 percent compared to the year-ago period, including an organic sales decline of 8 percent.
- Diluted net income per share for the first quarter was $1.72 in 2021 and $1.92 in 2020.
- First quarter adjusted earnings per share were $1.80 in 2021 compared to $2.13 in 2020. Adjusted earnings per share exclude certain items described later in this news release.
- Diluted net income per share for 2021 is anticipated to be $6.65 to $7.15.
- The company is now targeting full-year 2021 organic sales growth of 0 to 1 percent and adjusted earnings per share of $7.30 to $7.55. The prior outlook was for organic sales growth of 1 to 2 percent and adjusted earnings per share of $7.75 to $8.00. The updated earnings outlook reflects significantly higher input cost inflation and lower sales volumes, partially offset by higher net selling prices and additional cost savings.

Chairman and Chief Executive Officer Mike Hsu said, "Our first quarter results and updated outlook reflect a volatile and challenging environment. First quarter comparisons were impacted by COVID-19 related stock up in the year-ago period, consumer tissue category softness and commodity inflation. We also experienced temporary supply chain disruptions related to severe weather conditions in the southern part of the United States. Nonetheless, our market shares remain healthy overall as we leverage our enhanced commercial capabilities. In addition, we continue to achieve strong cost savings, return cash to shareholders and are taking decisive actions to mitigate commodity headwinds."

Hsu continued, "Looking ahead, we will continue to execute K-C Strategy 2022, focus on further improving our market positions and invest for long-term success. While our updated outlook reflects a more challenging near-term environment, our business remains fundamentally healthy and we are confident in our strategies to create long-term shareholder value."

First Quarter 2021 Operating Results
Sales of $4.7 billion in the first quarter of 2021 decreased 5 percent versus the prior year. The Softex Indonesia acquisition increased sales 2 percent and changes in foreign currency exchange rates increased sales slightly. Volumes declined 10 percent compared to an increase of more than 8 percent in the year-ago period, while net selling prices and product mix each improved 1 percent.

The volume comparison reflects increased shipments in the year-ago period to support consumer stock up related to the outbreak of COVID-19. The stock up impacted all business segments, in particular consumer tissue, and all major geographies. In addition, volumes in North American consumer products in 2021 were negatively impacted by supply chain disruptions related to severe weather conditions that occurred in February in the southern part of the United States. The disruptions included the temporary shutdown of several company manufacturing facilities and reduced availability of raw materials from suppliers, mostly impacting the company's personal care segment.

In North America, organic sales decreased 10 percent in consumer products and 8 percent in K-C Professional. Outside North America, organic sales were down 1 percent in developing and emerging (D&E) markets and 14 percent in developed markets.

First quarter operating profit was $770 million in 2021 and $904 million in 2020. Results in both periods include charges related to the 2018 Global Restructuring Program. First quarter adjusted operating profit was $804 million in 2021 and $997 million in 2020. Results were impacted by lower sales volumes and $135 million of higher input costs, driven by pulp, other materials and distribution costs. Other manufacturing costs were higher, including costs related to COVID-19 and inefficiencies from lower production volumes, and foreign currency transaction effects also negatively impacted the comparison. Results benefited from higher net selling prices, $65 million of cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program and $40 million of cost savings from the 2018 Global Restructuring Program. Marketing, research and general expenses were lower year-on-year, driven by administrative costs.

The first quarter effective tax rate was 20.9 percent in 2021 and 23.6 percent in 2020. The first quarter adjusted effective tax rate was 20.9 percent in 2021 and 23.2 percent in 2020. The rate in 2021 benefited from certain planning initiatives. Kimberly-Clark's share of net income of equity companies in the first quarter was $39 million in 2021 and $38 million in 2020.

Cash Flow and Balance Sheet
Cash provided by operations in the first quarter was $321 million in 2021 and $704 million in 2020. The decrease was driven by higher working capital, including payments for accrued expenses, and lower earnings. Capital spending for the first quarter was $298 million in 2021 and $352 million in 2020. First quarter 2021 share repurchases were 1.3 million shares at a cost of $175 million. Total debt was $8.8 billion at March 31, 2021 and $8.4 billion at the end of 2020.

First Quarter 2021 Business Segment Results
Personal Care Segment
First quarter sales of $2.5 billion increased 2 percent. The Softex Indonesia acquisition increased sales 4 percent while changes in currency rates reduced sales approximately 1 percent. Volumes decreased approximately 3 percent while product mix improved 1 percent. First quarter operating profit of $481 million decreased 9 percent. Results were impacted by input cost inflation, lower volumes, other manufacturing cost increases and unfavorable currency transaction effects. The comparison benefited from cost savings, improved product mix and lower general and administrative costs.

Sales in North America decreased 7 percent. Volumes fell approximately 7 percent, driven by the previously mentioned supply chain disruptions, and were down in all major product categories.

Sales in D&E markets increased 12 percent. The Softex Indonesia acquisition increased sales by 11 percent while changes in currency rates reduced sales 5 percent. Volumes rose 4 percent and the combined impact of changes in net selling prices and product mix increased sales 2 percent. Organic sales increased in Brazil, China, Eastern Europe, India and South Africa, but declined in Israel and most of the rest of Latin America.

Sales in developed markets outside North America (Australia, South Korea and Western/Central Europe) increased 5 percent. Changes in currency rates increased sales 9 percent. Volumes fell 5 percent while product mix improved 1 percent.

Consumer Tissue Segment
First quarter sales of $1.5 billion decreased 12 percent. Volumes declined approximately 14 percent while changes in currency rates increased sales about 1 percent. The volume comparison reflects increased shipments in the year-ago period to support consumer stock up related to the outbreak of COVID-19, along with category softness in 2021. First quarter operating profit of $269 million decreased 26 percent. The comparison was impacted by lower organic sales, higher input costs and other manufacturing cost increases. Results benefited from cost savings, lower advertising spending and reduced general and administrative costs.

Sales in North America decreased 14 percent. Volumes fell 14 percent and product mix was down 2 percent, while net selling prices improved 2 percent. The volume decline reflects stock up in the year-ago period and category softness in 2021, primarily in bathroom and facial tissue.

Sales in D&E markets decreased 11 percent including a 2 point negative impact from changes in currency rates. Volumes fell 10 percent and net selling prices were down 2 percent, while product mix improved 1 percent. The Softex Indonesia acquisition increased sales 2 percent.

Sales in developed markets outside North America decreased 10 percent. Volumes declined 16 percent, driven by Western/Central Europe, and net selling prices were down 1 percent. Changes in currency rates increased sales 7 percent.

K-C Professional (KCP) Segment
First quarter sales of $0.8 billion decreased 11 percent. Volumes declined 21 percent, including the impacts of lower away from home demand and challenging business conditions. Net selling prices increased 7 percent, product mix improved 2 percent and changes in currency rates increased sales 1 percent. First quarter operating profit of $126 million decreased 30 percent. The comparison was impacted by lower volumes, higher input costs and other manufacturing cost increases. Results benefited from increased net selling prices, cost savings, lower general and administrative costs and improved product mix.

Sales in North America decreased 8 percent. Volumes were down 18 percent, while net selling prices rose approximately 8 percent and product mix improved 3 percent. Sales were down significantly in washroom products. Sales increased double-digits in wipers, safety and other products, mostly due to higher net selling prices and favorable product mix.

Sales in D&E markets decreased 18 percent including a 2 point negative impact from changes in currency rates. Volumes fell 21 percent, with significant declines in all major geographies, while net selling prices increased 5 percent.

Sales in developed markets outside North America were down 14 percent. Volumes decreased 30 percent, driven by Western/Central Europe, while net selling prices increased 7 percent and product mix improved 2 percent. Changes in currency rates increased sales 7 percent.

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). The company expects the program will generate annual pre-tax cost savings of $540 to $560 million by the end of 2021. Through the first quarter of 2021, the company has incurred cumulative restructuring charges of $1,855 million pre-tax ($1,380 million after tax) and generated cumulative savings of $465 million.

2021 Outlook and Key Planning Assumptions
The company updated the following key planning and guidance assumptions for full-year 2021:
---- Net sales increase 3 to 5 percent (prior assumption 4 to 6 percent).
---------------Organic sales increase 0 to 1 percent (prior target 1 to 2 percent). Versus the previous assumption, volumes are expected to be lower and net selling prices are expected to be higher.
---------------Foreign currency exchange rates favorable between 1 and 2 percent (no change).
---------------Softex Indonesia acquisition expected to increase sales 2 percent while exited businesses in conjunction with the 2018 Global Restructuring Program anticipated to reduce sales slightly (no change).
---- Adjusted operating profit expected to decline 3 to 6 percent year-on-year (prior assumption similar, to up 2 percent).
---------------Benefits from higher net selling prices, partially offset by the impact of lower volumes.
---------------Key cost inputs expected to increase $900 to $1,050 million (previous estimate $450 to $600 million). The increased estimate is driven by polymer-based materials and pulp.
---------------Cost savings of $460 to $520 million, including $340 to $380 million from the FORCE program and $120 to $140 million from the 2018 Global Restructuring Program. The prior estimate was for total savings of $400 to $460 million.
---- Adjusted earnings per share of $7.30 to $7.55 (previous outlook $7.75 to $8.00).