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K-C reports organic sales growth in second quarter

August 8, 2012

Operating profit was $754 million in the second quarter of 2012, up 21% from $625 million in 2011.

Kimberly-Clark Corporation reported second quarter 2012 net sales of $5.3 billion, which were even with the year-ago period. Organic sales rose 5%, driven by higher net selling prices of more than 2%, increased sales volumes of 2% and slightly favorable product mix. The organic growth was highlighted by a 9% increase in K-C International, the company says.

Changes in foreign currency rates decreased sales by more than 3% and lost sales from exiting non-strategic products in conjunction with pulp and tissue restructuring actions reduced sales volumes by 1%.

Operating profit was $754 million in the second quarter of 2012, up 21% from $625 million in 2011. Adjusted operating profit was $773 million in the second quarter of 2012, an 8% increase compared to $715 million in the year-ago period. Adjusted results exclude costs for pulp and tissue restructuring actions of $19 million in 2012 and $90 million in 2011.

Factors affecting the year-over-year adjusted operating profit comparison included benefits from organic sales growth and $70 million in cost savings from the company's FORCE (Focused On Reducing Costs Everywhere) program. In addition, deflation in key cost inputs was approximately $30 million overall versus 2011, driven by $55 million of lower fiber costs, partially offset by increases of $15 million for raw materials other than fiber and $10 million of higher distribution costs.

Lower production volumes in 2012 to manage inventory levels adversely affected operating profit comparisons by $20 million. In addition, overall marketing, research and general expenses increased compared to the previous year’s period. The higher spending included a $35 million increase in strategic marketing, primarily to support product innovations and targeted growth initiatives.

“We delivered another very good quarter of results,” says Thomas J. Falk, chairman and CEO. “We achieved 5% organic sales growth, led by excellent performance in K-C International. In addition, we generated a 240 basis point improvement in adjusted gross margin and delivered 10% growth in adjusted earnings per share. We also strengthened our brands by launching a number of innovations and increasing strategic marketing spending by $35 million. Lastly, we achieved $85 million of cost savings through our ongoing program and restructuring actions. Half way through the year, we are tracking ahead of our 2012 plan on most key financial metrics, and I'm encouraged by our execution in a continued volatile environment."

Looking ahead, the company plans to focus on targeted growth initiatives, innovation, brand building, cost reduction and shareholder-friendly capital allocation, Falk adds. “Accordingly, we are raising our full-year expectations for organic sales growth, cost savings and adjusted earnings per share. We're also increasing our marketing and administrative investments to support our growth plans. We continue to believe that execution of our Global Business Plan in 2012 and beyond will lead to strong returns to shareholders."

Personal Care Segment

Second quarter sales in the personal care segment increased 3% to $2.4 billion. Sales volumes rose 4% and net selling prices improved 3%, while changes in currency rates reduced sales by 4%. Second quarter operating profit of $406 million increased 2%.

Sales in North America increased 2%. Net selling prices rose approximately 4%, driven by improved revenue realization for Huggies diapers and baby wipes, while overall sales volumes decreased about 1%. Child care and infant care volumes were down mid- and high-single digits, respectively, primarily reflecting category declines and modest consumer trade-down in infant care. Baby wipes volumes fell mid-single digits compared to strong year-ago performance. Adult care volumes rose high-single digits, including benefits from new Depend Real Fit and Silhouette briefs and new Poise Hourglass Shape Pads. Feminine care volumes were up high-single digits, with benefits from new U by Kotex products launched early in the second quarter.

Sales in Europe increased 1%, despite an unfavorable currency impact of approximately 9%. Sales volumes rose 12%, with growth in child care, Huggies baby wipes and non-branded offerings. Overall net selling prices fell 2% and product mix was off 1%.

Sales increased 5% in K-C International, despite an approximate 7 point drag from changes in currency rates. Sales volumes were up 8%, with high-single digit growth in each major region (Asia, Latin America, and the Middle East/Eastern Europe/Africa). Volume performance was strong in a number of markets, including Brazil, China, Russia, South Africa, Venezuela and Vietnam. Overall net selling prices improved 4% compared to the year-ago period, driven by increases in Latin America.

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