Q1 2010 Earnings Call Transcript
April 22, 2010 10:00 am ET
Paul Alexander – Head, IR
Mark Buthman – SVP and CFO
Tom Falk – Chairman and CEO
Jason Gere – RBC
William Schmitz – Deutsche Bank
Ali Dibadj – Sanford Bernstein
Chris Ferrara – Banc of America
Gail Glazerman – UBS
Wendy Nicholson – Citi Investment Research
Alice Longley – Buckingham Research
Andrew Sawyer – Goldman Sachs
Linda Bolton Weiser – Caris & Co.
Karen Lamark – Federated Investors
John Faucher – JP Morgan
Lauren Lieberman – Barclays
Connie Maneaty – BMO
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We now have your speakers and conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation, the floor will be open for your questions. Instructions for asking the questions will be given at that time.
I would now like to turn the conference over to Mr. Paul Alexander. Mr. Alexander, you may begin, sir.
Thanks, David and good morning, everyone. Welcome to our first quarter earnings conference call. With us today are Tom Falk, Chairman and CEO, Mark Buthman, Senior VP and CFO, and Mike Asbell, Vice President and Controller.
Here is the agenda for the call. Mark will begin with a review of our first quarter results, Tom will then provide his perspective on the results, and discuss our 2010 outlook and we’ll finish with Q&A. For those wishing to follow along, we have a presentation of today’s materials in the Investor section of our Web site, which is
Now, before we begin, let me remind you that we’ll be making forward-looking statements during the call. There can be no assurance that future events will occur as anticipated, or that our results will be as estimated.
Please refer to the Risk Factors section of our latest Annual Report on Form 10-K for a description of factors that could cause our future results to differ materially from those expressed in any forward-looking statements.
I’d also like to point out that that we will be referring to adjusted 2010 results and outlook, both of which exclude a one-time loss in the first quarter of 2010 for the remeasurement of the local currency balance sheet in Venezuela as a result of the move to highly inflationary accounting.
Management believes that reporting in this manner enables investors to better understand and analyze our ongoing results of operations. For information on these adjustments and reconciliations to comparable financial measures determined in accordance with GAAP, please see today’s news release and additional information on our Web site.
Now, I’ll turn it over to Mark.
Thanks, Paul, and good morning. I hope you had a chance to review our news release this morning with the details of our results. I’m going to briefly review the quarter and I’d like to start with a few headlines.
First, organic sales growth was 2%, including continued strong results for K-C International in our healthcare business. Second, adjusted growth and operating margins each improved about 200 basis points leading to a 16% increase in adjusted earnings per share. And third, we continue to be focused on managing those factors we control. Delivering strong cost savings, holding down working capital, and increasing investment behind our brands.
Now, let’s cover the details of the quarter starting with top-line. Overall, sales increased about 8% to $4.8 billion, including a five point benefit from currency and a one point growth from acquisitions. Organic sales rose 2% as higher net selling prices and improved sales volumes each contributed one point of growth.
Now, we turn to the top-line for each of our segments and for this purpose I am going to focus my comments on organic sales setting aside the impacts of currency and acquisitions which are included in our news release.
In Personal Care, organic sales increased approximately 3%. Sales volumes were up 3% and higher net selling prices contributed one point of growth, while product mix was off 1%. In North America, organic sales increased nearly 3%. Sales volumes were up about 2% and higher net selling prices driven by the timing of promotional activity, contributed an additional point of growth.
Feminine Care volumes increased double-digits due to the strong initial shipments of our U by Kotex innovation. In addition, baby wipes and child care volumes rose mid single-digit and adult care volumes advanced 3%. Huggies diaper volumes were down about 5% including the impact of a lower level of promotional activity compared to last year.
Now moving to Europe, personal care organic sales were down about 3%. Net selling prices fell approximately 2% while product mix and sales volumes were down slightly.
For K-C International, Personal Care organic sales rose about 6%. Sales volumes were up 7% while product mix lowered sales by about a percentage point. We delivered broad-based volume growth in these markets highlighted by strong performance in China, Turkey, South Asia, and Latin America.
Turning to consumer tissue, organic sales were down about 3%, driven by lower sales volumes. In North America, organic sales were down about 4%. Net selling prices increased more than 2%, mostly from the sheet count reductions we took on Cottonelle in the first quarter to improve net realized revenue, while volumes declined nearly 6%. Volumes were impacted by sheet count reductions, a mild cold and flu season for Kleenex and consumer trade down of paper towels.
Switching to Europe, consumer tissue organic sales were down more than 5% in a continued competitive environment. Net selling prices fell approximately 3% and sales volumes were down about 2%. For K-C International, consumer tissue organic sales increased 2%, driven by higher sales volumes.
Moving to K-C Professional and other, organic sales were up 4%. Net selling prices rose 2%, mostly in North America, Latin America and South Asia. And product mix improved 1% as our global KCP team continued to execute strategies to improve revenue realization. In addition, organic sales volumes were up one point in the quarter reflecting a mostly stable environment in KCP’s category.
Lastly, Health Care organic sales were up 8%, coming entirely from higher sales volumes. Health Care organic volumes were up in several product categories, including double-digit growth in medical devices and exam gloves. In addition, approximately four points of volume growth came from increased global demand for face masks as a result of the H1N1 flu virus.