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Kimberly-Clark Management Discusses Q2 2012 Results - Earnings Call Transcript

Now I'll turn it over to Mark.

Mark A. Buthman

Thanks, Paul, and good morning. Let's start with the headlines. First, we delivered organic sales growth of 5%, as highlighted by 9% growth in K-C International. Second, we generated strong improvements in both adjusted gross and operating margins, as well as double-digit growth in adjusted earnings per share. And third, we reinvested significantly behind our brands, with higher levels of strategic marketing and R&D investment.

Now, let's cover the details of the quarter. Overall sales of $5.3 billion were even with the year-ago period, underlying organic sales rose a healthy 5%. It's driven by higher net selling prices of more than 2% and increased sales volumes of 2%. On the other hand, changes in foreign currency rates decreased sales by more than 3% and lost sales in conjunction with our pulp and tissue restructuring reduced sales by an additional 1%.

Moving down the P&L, adjusted gross margin was 33.6%. That's up 240 basis points year-on-year. The improvement was driven by organic sales growth and $70 million of FORCE cost savings. Although we benefited from input cost inflation of $30 million, this was mostly offset by unfavorable currency translation effects.

Let me spend a minute on our FORCE program. Our teams around the world have been working hard to identify and implement additional savings programs so that we can fund reinvestment and improve our margins. They've made excellent progress in the first half of the year, in particular by leveraging our global procurement organization and continuous improvement capabilities. As a result, we're increasing our 2012 full year savings target to at least $250 million, up from our previous estimate of $150 million to $200 million. This new guidance, our 2011 and 2012 combined total savings, are now projected to be at least $515 million. So we'll exceed our existing 3-year target of $400 million to $500 million after just 2 years.

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