2013 Results and 2014 Outlook

Transcription

1 Leading the world in essentials for a better life Results and 2014 Outlook January 24, 2014

2 Conference Call Reminders Forward-Looking Information Certain matters in this presentation and conference call, including our 2014 outlook, expectations and planning assumptions, and any estimates, projections, and statements relating to our business plans or objectives, constitute forward-looking statements and are based upon management s expectations and beliefs concerning future events impacting the company. These statements are subject to risks and uncertainties, including currency rates and exchange risks, cost savings and reductions, raw material, energy, and other input costs, competition, and market demand and economic conditions. There can be no assurance that these future events will occur as anticipated or that the company s 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. For a more complete listing and description of other factors that could cause the company s future results to differ materially from those expressed in any forward-looking statements, see Item 1A of the company s Annual Report on Form 10-K for the year ended December 31, 2012 entitled Risk Factors, and our discussion herein of the potential Health Care spin-off. Non-GAAP Financial Measures Management believes that non-gaap financial measures enhance investors understanding and analysis of the company s performance. As such, results have been adjusted to exclude certain items for relevant time periods as indicated in the non-gaap reconciliations to the comparable GAAP financial measures included in today s earnings release and described in additional information posted on our Web site ( These items include restructuring charges for European strategic changes, a remeasurement charge due to the February 2013 devaluation of the Venezuelan bolivar, and costs for pulp and tissue restructuring actions. 2

3 Leading the world in essentials for a better life Results Mark Buthman

4 2013 Headlines Organic sales growth 4 percent Strength in K-C International Adjusted earnings per share up 10 percent Organic sales growth and strong cost savings Strong overall capital management 4

5 Consolidated Net Sales Net Sales Q4 ($5.3B) 2013 ($21.2B) Organic sales growth 4 percent in 2013 Continued momentum in K-C International Organic sales +11 percent in Q4, full-year +9 percent Total Change 0.0% 0.4% Organic volume 4% 3% Restructuring (a) -3% -2% Net price 1% 1% Mix/other 0% 0% Currency -2% -2% Organic (b) 5% 4% (a) Reflects impact of lost sales associated with European strategic changes and pulp and tissue restructuring actions. (b) Growth before impact of currency, European strategic changes and pulp and tissue restructuring actions. 5

6 Adjusted Gross and Operating Profit 2013 adjusted gross margin 34.5 percent Up 70 basis points year-on-year FORCE cost savings $310 million Targeting at least $300 million in 2014 Input cost inflation $205 million Negative currency translation $70 million Additional negative currency transaction effects Adjusted operating margin 15.7 percent Up 90 basis points year-on-year 2013 Adjusted Operating Profit vs. Prior Year +7% ($ Million) $3, % $3, %

7 Adjusted Earnings Per Share 2013 Adjusted EPS vs. Prior Year +10% $5.25 $ adjusted effective tax rate 31.2 percent Up versus 30.6 percent in 2012, but in line with fullyear target of 30 to 32 percent Equity income up 16 percent Strong growth at K-C de Mexico Adjusted EPS $5.77, up 10 percent versus prior year; Q4 $1.44 (up 5 percent) Full-year growth slightly above top-end of long-term target, well above original guidance for the year 7

8 Cash Flow and Capital Allocation Cash provided by operations more than $3 billion Down somewhat year-on-year as expected Primary working capital cash conversion cycle down 6 days compared to 2012; targeting 1 to 2 day improvement in 2014 Adjusted ROIC up 150 basis points to 17.5% Targeting 20 to 40 basis point improvement in 2014 Dividend payments and share repurchases $2.4 billion Plan for 2014 Share repurchases $1.3 to $1.5 billion Dividend increase 2 to 4 percent to maintain appropriate payout ratio considering Health Care spin-off Future increases broadly in line with growth in adjusted earnings per share Credit metrics and financial position strong Modest leverage increase in

9 Personal Care Net Sales 2013 Total Change -0.4% Organic volume 4% Restructuring -3% Net price 0% Mix/other 1% Currency -2% Organic 5% Operating Margin 17.8% 17.3% Organic sales growth 5 percent K-C International up 9 percent Operating margin solid 9

10 Consumer Tissue Net Sales 2013 Total Change 1.7% Organic volume 2% Operating Margin 13.6% 14.9% Restructuring -1% Net price 2% Mix/other 0% Currency -1% Organic (a) 5% Organic sales growth 5 percent K-C International growth 9 percent North America up 3 percent Operating margin up 130 basis points (a) The change in organic net sales does not equal the sum of changes from organic volume, net price and mix/other as a result of rounding. 10

11 K-C Professional Net Sales 2013 Total Change 1.2% Organic volume 1% Operating Margin 16.6% 18.3% Restructuring -1% Net price 1% Mix/other 1% Currency -1% Organic 3% Organic sales growth 3 percent K-C International up 9 percent Up slightly in North America and Europe Operating margin up 170 basis points 11

12 Health Care Net Sales 2013 Total Change -0.2% Organic volume 1% Net price 0% Operating Margin 14.1% 14.2% Mix/other 0% Currency -1% Organic 1% Organic sales growth 1 percent Higher medical device volumes Operating margin up 10 basis points 12

13 Health Care Spin-Off Update Good progress analyzing spin-off implications, preparing carve-out financial statements and separation plans Expect to seek approval from Board of Directors in second quarter to execute spin-off Continue to expect spin-off to be completed by end of third quarter, subject to market, regulatory, and other conditions 13

14 Summary Achieved solid organic sales growth Delivered strong bottom-line growth Allocated capital in shareholder-friendly ways 14

15 Leading the world in essentials for a better life. Recap of 2013 Results and 2014 Outlook Tom Falk

16 2013 Recap Overall results strong Organic sales growth 4 percent, in line with long-term target K-C International organic sales up 9 percent, excellent progress with targeted growth initiatives Diaper organic sales up 35+ percent in China, about 20 percent in Russia and Brazil Adult care and baby wipes organic sales up double-digits Feminine care and KCP organic sales up high-single digits K-C International now 39 percent of company sales North America solid sales growth and innovations on Depend, Poise, U by Kotex, Cottonelle Improved performance on Huggies diapers in back half of year Brands healthy, market shares up or even with prior year in 7 of 8 categories 16

17 2013 Recap Margins improved in North America, Europe, and K-C International, and in all four business segments Adjusted earnings per share increased 10 percent, best performance since launch of Global Business Plan Operating with financial discipline Delivered significant FORCE cost savings Improved working capital and ROIC Returned substantial cash to shareholders Excellent results in 2013 overall Good momentum going forward 17

18 2014 Outlook Continue to focus on healthy growth and financial discipline Drive top-line with growth initiatives and innovations Increase margins behind strong cost savings Invest in brands Improve ROIC and cash flow Organic sales growth of 3 to 5 percent High-single digit growth in K-C International Numerous innovation launches planned Continue to expand adult care, baby wipes, K-C Professional Strong innovation pipeline in North America Huggies, GoodNites, Depend, Viva Advertising and R&D spending will increase faster than sales 18

19 2014 Outlook Adjusted earnings per share $6.00 to $6.20, up 4 to 7 percent year-on-year Includes 3 to 4 percent drag from currency translation; underlying growth outlook solidly in-line with, or even slightly above, long-term objective Commodity cost inflation of $150 to $250 million Adjusted EPS higher in second half of year compared to first half Continue to focus on cash generation and capital allocation Cash from operations should increase nicely year-on-year Will allocate at least $2.5 billion to dividends and share repurchases; 6 percent of current market capitalization 19

20 Summary Excellent financial performance in 2013 Business fundamentals healthy and improving Optimistic about 2014 plans and opportunities to deliver attractive returns to shareholders 20

21 Leading the world in essentials for a better life. Q&A Session

22 Leading the world in essentials for a better life. Appendix: 2014 Planning Assumptions

23 Planning Assumptions Net sales change -1 to +2 percent Organic growth 3 to 5 percent Volume growth 2 to 3 percent; improved net selling prices/product mix 1 to 2 percent Negative sales impact from currency 2 to 3 percent Negative sales impact from restructuring activities 1 percent Adjusted operating profit growth 3 to 7 percent FORCE cost savings at least $300 million Pulp and tissue restructuring savings $30 million Cumulative four-year savings $100 million Negative foreign currency translation impacts 3 to 4 percent Unfavorable transaction effects also anticipated Input cost inflation $150 to $250 million Advertising and R&D expenses increase faster than sales growth 23

24 Planning Assumptions Key input cost assumptions Benchmark eucalyptus pulp $800 to $830 per metric ton Oil $90 to $100 per barrel Natural gas $4.00 to $4.50 per MMBTU Material consumption factors Virgin fiber about 2.4 million metric tons Secondary fiber about 1.4 million metric tons Polymer resin over 700 million pounds 24

25 Planning Assumptions Interest expense expected to increase somewhat Adjusted effective tax rate 31 to 32.5 percent Equity income flat to up slightly Adjusted EPS $6.00 to $6.20 Up 4 to 7 percent compared to 2013 adjusted EPS of $

26 Planning Assumptions Capital spending $1.0 to $1.2 billion Generally in line with long-term target of 4½ to 5½ percent of net sales Cash contributions to defined benefit pension plans $100 to $200 million Average primary working capital cash conversion cycle improvement of 1 to 2 days Share repurchases $1.3 to $1.5 billion Dividend increase 2 to 4 percent effective April 2014 Subject to approval by Board of Directors Projections include full-year of Health Care business No spin-off transaction or related costs included 26

27 Leading the world in essentials for a better life Results and 2014 Outlook January 24, 2014