KIMBERLY-CLARK CORPORATION Introduction
This management's discussion and analysis ("MD&A") of financial condition and
results of operations is intended to provide investors with an understanding of
our recent performance, financial condition and prospects. Dollar amounts are
reported in millions, except per share dollar amounts, unless otherwise noted.
The following will be discussed and analyzed:
•Overview of First Quarter 2021 Results
•Impact of COVID-19
•Results of Operations and Related Information
•Liquidity and Capital Resources
•Information Concerning Forward-Looking Statements
We describe our business outside North America in two groups - Developing and
Emerging Markets ("D&E") and Developed Markets. D&E markets comprise Eastern
Europe , the Middle East and Africa , Latin America and Asia-Pacific , excluding
Australia and South Korea . Developed Markets consist of Western and Central
Europe , Australia and South Korea . We have three reportable business segments:
Personal Care, Consumer Tissue and K-C Professional. These business segments are
described in greater detail in Note 8 to the unaudited interim consolidated
financial statements.
This section presents a discussion and analysis of our first quarter 2021 net
sales, operating profit and other information relevant to an understanding of
the results of operations. In addition, we provide commentary regarding organic
sales growth, which describes the impact of changes in volume, net selling
prices and product mix on net sales. Change in foreign currency exchange rates
and acquisitions also impact the year-over-year change in net sales. Our
analysis compares the three months ended March 31, 2021 results to the same
period in 2020.
Throughout this MD&A, we refer to financial measures that have not been
calculated in accordance with accounting principles generally accepted in the
U.S. , or GAAP, and are therefore referred to as non-GAAP financial measures.
These measures include adjusted gross and operating profit, adjusted net income,
adjusted earnings per share, adjusted other (income) and expense, net and
adjusted effective tax rate. We believe these measures provide our investors
with additional information about our underlying results and trends, as well as
insight into some of the financial measures used to evaluate management.
Non-GAAP financial measures are not meant to be considered in isolation or as a
substitute for the comparable GAAP measures, and they should be read only in
conjunction with our unaudited interim consolidated financial statements
prepared in accordance with GAAP. There are limitations to these non-GAAP
financial measures because they are not prepared in accordance with GAAP and may
not be comparable to similarly titled measures of other companies due to
potential differences in methods of calculation and items being excluded. We
compensate for these limitations by using these non-GAAP financial measures as a
supplement to the GAAP measures and by providing reconciliations of the non-GAAP
and comparable GAAP financial measures.
The non-GAAP financial measures exclude the following item for the relevant time
periods as indicated in the reconciliations included later in this MD&A:
•2018 Global Restructuring Program - In 2018, we initiated this restructuring
program to reduce our structural cost base by streamlining and simplifying our
manufacturing supply chain and overhead organization. See Item 1, Note 2 to the
unaudited interim consolidated financial statements for details.
Overview of First Quarter 2021 Results
•Net sales of $4.7 billion decreased 5 percent compared to the year-ago period,
including an organic sales decline of 8 percent.
•Operating profit was $770 in 2021 and $904 in 2020. Net Income Attributable to
Kimberly-Clark Corporation was $584 in 2021 compared to $660 in 2020, and
diluted earnings per share were $1.72 in 2021 compared to $1.92 in 2020. Results
in 2021 and 2020 include charges related to the 2018 Global Restructuring
Program.
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Impact of COVID-19
We continue to actively address the COVID-19 situation and its impact globally.
We believe that we will emerge from these events well positioned for long-term
growth, though we cannot reasonably estimate the duration and severity of this
global pandemic or its ultimate impact on the global economy and our business
and results.
We have experienced increased volatility in demand for some of our products as
consumers adapt to the evolving environment. Beginning in the first quarter of
2020, particularly in March, demand increased in our Consumer Tissue and
Personal Care business segments across all major geographies as consumers
increased home inventory levels in response to COVID-19. The increase was
followed by a period of demand softness as consumers used existing home
inventories and demand returned to more normal levels. While demand for our
consumer tissue products was elevated throughout 2020, use of home inventories
drove demand softness in the first quarter of 2021. Our K-C Professional
business experienced volume declines throughout 2020 and the first quarter of
2021 reflecting the reduction in away from home demand.
During 2020 and to a more limited extent the first quarter of 2021, we
experienced temporary closures of certain facilities, though we did not
experience a material impact from a plant closure and our facilities were
largely exempt or partially exempt from government closure orders. At many of
our facilities, we have been experiencing increased employee absences, which may
continue in the current situation.
During 2020 and the first quarter of 2021, we also experienced increased
volatility in foreign currency exchange rates and commodity prices, as certain
countries experienced increased macro-economic volatility from the COVID-19
situation.
Results of Operations and Related Information
This section presents a discussion and analysis of our first quarter 2021 net
sales, operating profit and other information relevant to an understanding of
the results of operations.
Consolidated
Selected Financial Results
Three Months Ended
2021 2020 Percent Change
Net Sales :
North America $ 2,351 $ 2,601 -10 %
Outside North America 2,470 2,484 -1 %
Intergeographic sales (78) (76) +3 %
Total Net Sales 4,743 5,009 -5 %
Operating Profit:
North America 508 659 -23 %
Outside North America 367 414 -11 %
Corporate & Other(a) (101) (155) N.M.
Other (income) and expense, net(a) 4 14 -71 %
Total Operating Profit 770 904 -15 %
Share of net income of equity companies 39 38 +3 %
Net Income Attributable to Kimberly-Clark Corporation 584 660 -12 %
Diluted Earnings per Share 1.72 1.92 -10 %
(a) Corporate & Other and Other (income) and expense, net include income and
expense not associated with the business segments, including adjustments as
indicated in the Non-GAAP Reconciliations.
N.M. - Not Meaningful
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--------------------------------------------------------------------------------GAAP to Non-GAAP Reconciliations of Selected Financial Results
Three Months Ended March 31, 2021
2018 Global As
As Restructuring Adjusted
Reported Program Non-GAAP
Cost of products sold $ 3,154 $ 25 $ 3,129
Gross Profit 1,589 (25) 1,614
Marketing, research and general expenses 815 9 806
Operating Profit 770 (34) 804
Provision for income taxes (147) 7 (154)
Effective tax rate 20.9 % - 20.9 %
Net income attributable to noncontrolling interests (10) 1 (11)
Net Income Attributable to Kimberly-Clark Corporation 584 (26) 610
Diluted Earnings per Share(a) 1.72 (0.08) 1.80
Three Months Ended
2018 Global As
As Restructuring Adjusted
Reported Program Non-GAAP
Cost of products sold $ 3,218 $ 70 $ 3,148
Gross Profit 1,791 (70) 1,861
Marketing, research and general expenses 873 23 850
Operating Profit 904 (93) 997
Provision for income taxes (197) 18 (215)
Effective tax rate 23.6 % - 23.2 %
Net income attributable to noncontrolling interests (15) 1 (16)
Net Income Attributable to Kimberly-Clark Corporation 660 (74) 734
Diluted Earnings per Share(a) 1.92 (0.22) 2.13
(a) "As Adjusted Non-GAAP" may not equal "As Reported" plus "Adjustments" as a result of rounding.
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--------------------------------------------------------------------------------Analysis of Consolidated Results
Percent Change for Percent Change for
Three Months Ended Three Months Ended
Net Sales March 31, 2021 Adjusted Operating Profit March 31, 2021
Volume (10) Volume (21)
Net Price 1 Net Price 6
Mix/Other 1 Input Costs (14)
Acquisition(e) 2 Cost Savings(c) 11
Currency - Currency Translation 1
Total(a) (5) Other(d) (2)
Organic(b) (8) Total (19)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition and
currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE (Focused On Reducing Costs Everywhere)
program and 2018 Global Restructuring Program.
(d) Includes impact of changes in product mix, marketing, research and general
expenses, foreign currency transaction effects and other manufacturing costs.
(e) Acquisition of Softex Indonesia.
Net sales in the first quarter of $4.7 billion decreased 5 percent compared to
the year ago period. The Softex Indonesia acquisition increased sales by 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 changes in net selling prices and product mix each
increased sales by 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 of our manufacturing
facilities and reduced availability of raw materials from suppliers, mostly
impacting our 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 D&E markets and 14 percent in developed markets.
Operating profit in the first quarter was $770 in 2021 and $904 in 2020. Results
in both periods include charges related to the 2018 Global Restructuring
Program. First quarter adjusted operating profit was $804 in 2021 and $997 in
2020. Results were impacted by lower sales volumes and $135 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 of cost savings from our FORCE program and $40 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.
Our share of net income of equity companies in the first quarter was $39 in 2021
and $38 in 2020.
Diluted net income per share for the first quarter of 2021 was $1.72 and $1.92
in 2020. First quarter adjusted earnings per share were $1.80 in 2021, a
decrease of 15 percent compared to $2.13 in 2020.
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Results by Business Segments
Personal Care
Three Months Ended March 31 Three Months Ended March 31
2021 2020 2021 2020
Net Sales $ 2,462 $ 2,422 Operating Profit $ 481 $ 527
Net Sales Percent Change Operating Profit Percent Change
Volume (3) Volume (8)
Net Price - Net Price (2)
Mix/Other 1 Input Costs (9)
Acquisition(e) 4 Cost Savings(c) 10
Currency (1) Currency Translation 1
Total(a) 2 Other(d) (1)
Organic(b) (2) Total (9)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition and
currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring
Program.
(d) Includes impact of changes in product mix, marketing, research and general
expenses, foreign currency transaction effects and other manufacturing costs.
(e) Acquisition of Softex Indonesia.
First quarter net 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.
Net sales in D&E markets increased 12 percent. The Softex Indonesia acquisition
increased sales by 11 percent while changes in foreign currency exchange rates
reduced sales by 5 percent. Volumes rose 4 percent and the combined impact of
changes in net selling prices and product mix increased sales by 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 .
Net sales in developed markets outside North America increased 5 percent.
Changes in foreign currency exchange rates increased sales by 9 percent. Volumes
fell 5 percent while changes in product mix increased sales by 1 percent.
Operating profit of $481 decreased 9 percent. Results were impacted by input
cost inflation, lower volumes, other manufacturing cost increases and
unfavorable foreign currency transaction effects. The comparison benefited from
cost savings, improved product mix and lower general and administrative costs.
Consumer Tissue
Three Months Ended March 31 Three Months Ended March 31
2021 2020 2021 2020
Net Sales $ 1,510 $ 1,723 Operating Profit $ 269 $ 365
Net Sales Percent Change Operating Profit Percent Change
Volume (14) Volume (24)
Net Price - Net Price 2
Mix/Other (1) Input Costs (12)
Currency 1 Cost Savings(c) 9
Total(a) (12) Currency Translation 2
Other(d) (3)
Organic(b) (14) Total (26)
(a) Total may not equal the sum of volume, net price, mix/other and currency due
to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring
Program.
(d) Includes impact of changes in marketing, research and general expenses,
foreign currency transaction effects and other manufacturing costs.
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First quarter net sales in North America decreased 14 percent. Volumes fell 14
percent and changes in product mix decreased sales by 2 percent, while changes
in net selling prices increased sales by 2 percent. The volume decline reflects
stock up in the year-ago period and category softness in 2021, primarily in
bathroom and facial tissue.
Net sales in D&E markets decreased 11 percent including a 2 percent negative
impact from changes in foreign currency exchange rates. Volumes fell 10 percent
and changes in net selling prices decreased sales by 2 percent, while changes in
product mix increased sales by 1 percent. The Softex Indonesia acquisition
increased sales by 2 percent.
Net sales in developed markets outside North America decreased 10 percent.
Volumes declined 16 percent, driven by Western/Central Europe , and changes in
net selling prices decreased sales by 1 percent. Changes in foreign currency
exchange rates increased sales by 7 percent.
Operating profit of $269 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
K-C Professional
Three Months Ended March 31 Three Months Ended March 31
2021 2020 2021 2020
Net Sales $ 752 $ 848 Operating Profit $ 126 $ 181
Net Sales Percent Change Operating Profit Percent Change
Volume (21) Volume (43)
Net Price 7 Net Price 32
Mix/Other 2 Input Costs (24)
Currency 1 Cost Savings(c) 12
Total(a) (11) Currency Translation 1
Organic(b) (13) Other(d) (8)
Total (30)
(a) Total may not equal the sum of volume, net price, mix/other and currency due
to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Combined benefits of the FORCE program and 2018 Global Restructuring
Program.
(d) Includes impact of changes in product mix, marketing, research and general
expenses, foreign currency transaction effects and other manufacturing costs.
First quarter net sales in North America decreased 8 percent. Volumes were down
18 percent, while changes in net selling prices increased sales by approximately
8 percent and changes in product mix increased sales by 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.
Net sales in D&E markets decreased 18 percent including a 2 percent negative
impact from changes in foreign currency exchange rates. Volumes fell 21 percent,
with significant declines in all major geographies, while changes in net selling
prices increased sales by 5 percent.
Net sales in developed markets outside North America decreased 14 percent.
Volumes decreased 30 percent, driven by Western/Central Europe , while changes in
net selling prices and product mix increased sales by 7 percent and 2 percent,
respectively. Changes in foreign currency exchange rates increased sales by 7
percent.
Operating profit of $126 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.
2018 Global Restructuring Program
First quarter 2021 pre-tax savings from the 2018 Global Restructuring Program
were $40 , bringing cumulative savings to $465 . See Item 1, Note 2 to the
unaudited interim consolidated financial statements for additional information.
To implement this program, we expect to incur incremental capital spending of
approximately $600 to $700 by the end of 2021.
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Liquidity and Capital Resources
Cash Provided by Operations
Cash provided by operations was $321 for the first three months of 2021 compared
to $704 in the prior year. The decrease was driven by higher working capital,
including payments for accrued expenses, and lower earnings.
Investing
During the three months ended March 31, 2021 , our capital spending was $298
compared to $352 in the prior year. We anticipate that full year capital
spending will be $1.2 billion to $1.3 billion .
Financing
Our short-term debt, which consists of U.S. commercial paper with original
maturities up to 90 days and/or other similar short-term debt issued by non-U.S.
subsidiaries, was $963 as of March 31, 2021 (included in Debt payable within one
year on the consolidated balance sheet). The average month-end balance of
short-term debt for the first quarter of 2021 was $772 . These short-term
borrowings provide supplemental funding for supporting our operations. The level
of short-term debt generally fluctuates depending upon the amount of operating
cash flows and the timing of customer receipts and payments for items such as
dividends and income taxes.
At March 31, 2021 and December 31, 2020 , total debt was $8.8 billion and $8.4
billion , respectively.
We maintain a $2.0 billion revolving credit facility which expires in June 2023
and a $750 revolving credit facility which expires in June 2021 . These
facilities, currently unused, support our commercial paper program, and would
provide liquidity in the event our access to the commercial paper markets is
unavailable for any reason.
In July 2017 , the United Kingdom's Financial Conduct Authority , which regulates
the London Interbank Offered Rate (LIBOR), announced that it intends to phase
out LIBOR by the end of 2021. We are currently evaluating the potential effect
of the eventual replacement of the LIBOR, but we do not expect the effect to be
material.
We repurchase shares of Kimberly-Clark common stock from time to time pursuant
to publicly announced share repurchase programs. During the first three months
of 2021, we repurchased 1.3 million shares of our common stock at a cost of $175
through a broker in the open market. We expect our full-year repurchases will be
$650 to $750 .
K-C Argentina began accounting for their operations as highly inflationary
effective July 1, 2018 , as required by GAAP. Under highly inflationary
accounting, K-C Argentina's functional currency became the U.S. dollar, and its
income statement and balance sheet have been measured in U.S. dollars using both
current and historical rates of exchange. The effect of changes in exchange
rates on peso-denominated monetary assets and liabilities has been reflected in
earnings in Other (income) and expense, net and was not material. As of March
31, 2021 , K-C Argentina had a small net peso monetary position. Net sales of K-C
Argentina were approximately 1 percent of our consolidated net sales for the
three months ended March 31, 2021 .
We believe that our ability to generate cash from operations and our capacity to
issue short-term and long-term debt are adequate to fund working capital,
payments for our 2018 Global Restructuring Program, capital spending, pension
contributions, dividends and other needs for the foreseeable future. Further, we
do not expect restrictions or taxes on repatriation of cash held outside of the
U.S. to have a material effect on our overall business, liquidity, financial
condition or results of operations for the foreseeable future.
Information Concerning Forward-Looking Statements
Certain matters contained in this report concerning the business outlook,
including raw material, energy and other input costs, the anticipated cost
savings from our FORCE program, costs and savings from the 2018 Global
Restructuring Program, cash flow and uses of cash, growth initiatives,
innovations, marketing and other spending, net sales, anticipated currency rates
and exchange risks, including the impact in Argentina , effective tax rate,
contingencies and anticipated transactions of Kimberly-Clark, including
dividends, share repurchases and pension contributions, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are based upon management's expectations and
beliefs concerning future events impacting Kimberly-Clark. There can be no
assurance that these future events will occur as anticipated or that our results
will be as estimated. Forward-looking statements speak only as of the date they
were made, and we undertake no obligation to publicly update them.
The assumptions used as a basis for the forward-looking statements include many
estimates that, among other things, depend on the achievement of future cost
savings and projected volume increases. In addition, many factors outside our
control, including pandemics (including the ongoing COVID-19 outbreak),
epidemics, fluctuations in foreign currency exchange rates, the prices and
availability of our raw materials, supply chain disruptions due to COVID-19,
severe weather conditions or government
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trade or similar regulatory actions, potential competitive pressures on selling
prices for our products, energy costs, general economic and political conditions
globally and in the markets in which we do business, as well as our ability to
maintain key customer relationships and to realize the expected benefits and
synergies of the Softex Indonesia acquisition, could affect the realization of
these estimates.
For a description of certain factors that could cause our future results to
differ from those expressed in these forward-looking statements, see Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2020 entitled
"Risk Factors." Other factors not presently known to us or that we presently
consider immaterial could also affect our business operations and financial
results.
Item 4. Controls and Procedures
As of March 31, 2021 , an evaluation was performed under the supervision and with
the participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were effective as of March 31, 2021 .
There were no changes in our internal control over financial reporting during
the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
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