Oct. 22, 2009 (PR Newswire) -- DALLAS, Oct. 22 /PRNewswire-FirstCall/ -- Kimberly-Clark Corporation (NYSE: KMB) today reported that net sales in the third quarter of 2009 decreased 1.7 percent to $4.9 billion, as the effect of weaker foreign currency exchange rates more than offset organic sales growth of about 3 percent. The growth in organic sales was driven by higher net selling prices, which increased approximately 3 percent, while overall sales volumes were essentially even with year-ago levels. Sales volumes continue to reflect challenging economic conditions, particularly affecting the company's K-C Professional and Consumer Tissue businesses in North America and Europe, along with the company's focus on improving net realized revenue. Meanwhile, sales volumes rose approximately 18 percent for K-C's global Health Care business and about 3 percent for the company's operations in developing and emerging markets.

Diluted net income per share for the quarter was an all-time record $1.40 compared with $0.99 in 2008 and prior-year adjusted earnings of $1.02. During the quarter, the company delivered continued double-digit organic sales growth in developing and emerging markets, realized improved net selling prices in North America, generated strong sales and operating profit growth in Health Care, achieved significant cost savings and benefited from lower costs stemming from commodity cost deflation. These factors led to an increase in gross profit margin of nearly 600 basis points and growth in both operating profit and diluted net income per share in excess of 40 percent. The growth in earnings per share was achieved despite unfavorable currency effects of approximately 15 cents per share.

Adjusted earnings per share in the third quarter of 2008 exclude charges for strategic cost reductions. Additional detail on these items and further information about adjusted earnings per share and why the company uses this non-GAAP financial measure are provided later in this news release.

Chairman and Chief Executive Officer Thomas J. Falk said, "We delivered outstanding third quarter results in a challenging environment, while maintaining a strong focus on doing what's right to sustain our long-term growth. Third quarter performance was highlighted by strong margin expansion in each of our four business segments, record earnings per share and excellent cash flow. We realized sizable benefits from improved net realized revenue, and our strategy of driving efficiency in every aspect of our operations led to another quarter of significant cost reductions as well as overhead efficiencies. At the same time, we continued to deliver on our targeted growth initiatives, with double-digit organic top-line growth in developing and emerging markets and excellent results in Health Care. In addition, we continued to support our brands with an increase in strategic marketing spending of about $50 million in local currency terms. We also improved our working capital position in the quarter, building further on the progress we made in the first half of the year. All-in-all, we continue to execute our business plans well and I'm really pleased that bottom-line results in the third quarter are spurring a significant increase in our outlook for the year."

Review of third quarter sales by business segment

Sales of personal care products declined 0.7 percent compared with the third quarter of 2008. Although net selling prices increased 5 percent and sales volumes advanced about 1 percent, weaker currencies reduced sales by 6 percent and changes in product mix reduced sales by about 1 percent.

Personal care sales in North America decreased nearly 1 percent versus the third quarter of 2008. Although net selling prices advanced approximately 2 percent, sales volumes fell 2 percent and currency effects reduced sales by 1 percent. The higher selling prices resulted from increases implemented during 2008 in most product categories. Sales volumes for Huggies diapers fell about 3 percent, and volumes for the company's child care brands were down about 7 percent, reflecting continued category softness. Nonetheless, the company's third quarter market shares in both categories were even with year-ago levels. In other areas of the business, sales volumes for Huggies baby wipes decreased about 5 percent compared to double-digit growth in the year-ago period, and volumes for Kotex feminine care products were also down about 5 percent. Lastly, volumes for K-C's adult incontinence brands rose 10 percent, including benefits from product innovation on the Depend brand launched earlier in the year.

In Europe, personal care sales declined approximately 9 percent in the quarter, as unfavorable currency exchange rates reduced sales by more than 12 percent. Sales volumes rose nearly 7 percent, while net selling prices were down about 2 percent and changes in product mix reduced sales by more than 1 percent. The volume gains reflect continued strong performance for Huggies diapers in Central Europe, along with solid improvement in the company's four core markets of the U.K., France, Italy and Spain. In addition, sales volumes for Huggies baby wipes increased at a double-digit rate in the third quarter.

In developing and emerging markets, personal care sales increased 2 percent, as continued double-digit growth in organic sales was mostly offset by negative currency effects of 11 percent. Net selling prices improved about 10 percent and sales volumes rose 4 percent, while changes in product mix reduced sales by about 1 percent in the third quarter. The growth in organic sales was broad-based, with particular strength in Argentina, Brazil, China, Russia, South Africa, South Korea, Turkey and the Andean region in Latin America.

Sales of consumer tissue products declined 5.0 percent in the third quarter. Although net selling prices and product mix each improved about 1 percent, overall sales volumes were down 2 percent compared with the prior year and unfavorable currency exchange rates reduced sales by approximately 5 percent.

In North America, sales of consumer tissue products fell 2 percent compared to the year-ago period, as an increase in net selling prices of 2 percent was more than offset by a decline in sales volumes of 4 percent. The improvement in net selling prices reflects list price increases implemented during 2008, partially offset by an increase in competitive promotional activity. The lower sales volumes reflect the company's focus on improving revenue realization, as well as slower category growth and consumer trade-down. For the quarter, volumes were down at a double-digit rate for paper towels and mid-single digits for Kleenex facial tissue, while volumes for bathroom tissue fell slightly.

In Europe, consumer tissue sales dropped approximately 14 percent compared with the third quarter of 2008, including negative currency effects of more than 10 percent. Net selling prices decreased more than 2 percent and sales volumes declined more than 1 percent in a continued competitive environment.

Consumer tissue sales in developing and emerging markets fell about 3 percent, driven by unfavorable currency effects of more than 7 percent and slightly lower sales volumes. These factors were partially offset by higher net selling prices of approximately 3 percent and improved product mix of more than 1 percent, reflecting the company's actions over the past year to recover inflationary cost increases and improve profitability.

Sales of K-C Professional (KCP) & other products decreased 4.5 percent compared with the third quarter of 2008. Overall sales volumes fell 4 percent, net of an approximate 3 percent benefit from the acquisition of Jackson Safety that occurred in April 2009. Changes in foreign currency rates reduced sales by 4 percent, and product mix was unfavorable by 1 percent, while higher net selling prices increased sales by nearly 4 percent. Economic weakness and rising unemployment levels in North America and Europe continued to have a significant effect on KCP's categories in the third quarter. In North America, sales declined about 1 percent. Overall sales volumes declined 4 percent, net of an approximate 6 percent benefit from the Jackson Safety acquisition. In addition, changes in product mix and negative currency effects each reduced sales by about 1 percent, while net selling prices rose approximately 5 percent in the quarter. In Europe, KCP's sales declined 20 percent in the third quarter, including negative currency effects of 9 percent. In addition, sales volumes were 12 percent lower and product mix was off 1 percent, while net selling prices increased 2 percent. Across developing and emerging markets, sales rose approximately 7 percent despite an adverse currency effect of nearly 7 percent. Higher sales volumes and improved product mix each benefited sales by about 5 percent, and increased net selling prices contributed 4 points of growth.

Sales of health care products increased 15.8 percent in the third quarter. Sales volumes climbed about 18 percent and product mix was higher by 1 percent, while unfavorable currency exchange rates reduced sales by approximately 2 percent and net selling prices fell nearly 1 percent. Volume growth was broad-based across several product categories, including continued double-digit growth in exam gloves. The business continues to benefit from strong results in nitrile gloves, including the new Lavender offering introduced late last year. In addition, approximately 40 percent of the total gain in health care volumes in the quarter was attributable to increased global demand for face masks as a result of the H1N1 flu virus.

Other third quarter operating results

Operating profit was $871 million in the third quarter of 2009, up about 43 percent from $610 million in 2008, and up approximately 39 percent compared with prior year adjusted operating profit of $625 million. The latter amount excludes net charges incurred in 2008 for the company's strategic cost reduction plan.

In addition to the effect of higher net selling prices, there were a number of other significant factors affecting year-over-year operating profit comparisons. Deflation in key cost inputs amounted to more than $270 million overall versus 2008, including about $130 million in lower fiber costs, approximately $100 million for raw materials other than fiber, primarily polymer resins and other oil-based materials, about $25 million of lower energy costs, and more than $15 million in distribution costs. Cost savings in the quarter from the company's FORCE (Focused On Reducing Costs Everywhere) program and strategic cost reduction plan totaled $47 million and $14 million, respectively. Third quarter results also included approximately $12 million in severance and related costs to streamline the organization, more than offset by related savings of approximately $24 million. A breakdown of the costs by income statement line and business segment is included later in this news release. Pension expense rose by about $25 million in the third quarter, as expected, with a majority of the increase reflected in cost of sales.

Meanwhile, currency effects reduced third quarter operating profit by approximately $75 million in 2009 versus 2008. Translation losses arising from changes in currency exchange rates totaled about $30 million. In addition, cost of sales in the third quarter of 2009 included about $35 million of expense to recognize the U.S. dollar cost of importing finished product into Venezuela at the currency rate in place in the parallel market rather than the official rate. The company has successfully implemented other actions in that country to improve business results in order to mitigate the effects of the ongoing currency restrictions. Lastly, currency transaction losses included in other (income) and expense, net in the third quarter amounted to $13 million in 2009 and $4 million in 2008.

The company's effective tax rate for the third quarter of 2009 was 29.6 percent, consistent with the anticipated full year range of 28 to 30 percent. In the year-ago quarter, the effective tax rate was 28.1 percent.

Kimberly-Clark's share of net income of equity companies in the third quarter decreased to $40 million from $53 million in 2008, mainly as a result of lower net income at Kimberly-Clark de Mexico, S.A.B. de C.V. (KCM). Although KCM delivered solid organic sales growth and improved its gross profit margin, net income comparisons were adversely affected by a favorable income tax settlement in the year-ago period and currency translation losses in 2009. Compared with the third quarter of 2008, the Mexican peso depreciated on average by more than 20 percent versus the U.S. dollar.

Net income attributable to noncontrolling interests was $29 million in the third quarter of 2009 compared with $35 million in the prior year. The decrease was primarily due to the acquisition of the remaining interest in the company's Andean affiliate in January 2009.

Organization optimization initiative - update

As announced in June of 2009, the company plans to reduce its worldwide salaried workforce by approximately 1,600 positions by the end of the year. This action is intended to further improve Kimberly-Clark's underlying profitability and cash flow and put the company in a better position to take advantage of future growth and innovation opportunities. As mentioned earlier in this release, third quarter results included $12 million in pre-tax severance and related costs for this initiative, bringing year-to-date costs to $122 million. The company now expects that full-year severance and related costs will total $130 to $140 million pre-tax in 2009, down slightly from the previous estimate of $140 to $150 million. Related savings from this initiative in the third quarter of 2009 were approximately $24 million, with full-year savings anticipated to be about $55 million. Expected annualized pre-tax savings are approximately $135 million compared to the previous estimate of about $150 million.

Cash flow and balance sheet

Cash provided by operations in the third quarter totaled $791 million, an increase of 23 percent from $641 million in the prior year. The improvement was driven by higher cash earnings and reduced working capital, partially offset by increased pension plan contributions. Third quarter contributions to the company's defined benefit pension plans totaled $223 million in 2009 versus $14 million in 2008, bringing year-to-date contributions to $718 million compared to $67 million last year. The company contributed $200 million to its U.S. defined benefit pension plan in the third quarter, which was incremental to the company's previous plan for the year. As a result, the company now anticipates contributions for the year to total approximately $730 million compared to its previous plan of $530 million. Capital spending for the quarter was $167 million compared with $219 million in the prior year. The company continues to target total spending of $800 to $850 million for the year. Consistent with its previously announced plans for 2009, the company did not repurchase any shares of its common stock during the third quarter.

Total debt and redeemable securities was $6.7 billion at September 30, 2009 compared with $7.0 billion at the end of 2008.

Year-to-date results

For the first nine months of 2009, sales of $14.1 billion fell 4.6 percent from $14.8 billion in the prior year. Unfavorable currency effects reduced sales by nearly 8 percent, more than offsetting organic sales growth of approximately 3 percent. Net selling prices increased about 4 percent and product mix added approximately 1 point of sales growth, while sales volumes declined about 2 percent. Year-to-date operating profit of $2,108 million was up 10 percent compared to $1,924 million in 2008 and up 7 percent compared to prior-year adjusted operating profit of $1,978 million.