2014 Results and 2015 Outlook

Transcription

1 Leading the world in essentials for a better life Results and 2015 Outlook January 23, 2015

2 Conference Call Reminders Forward-Looking Information Certain matters in this presentation and conference call, including our 2015 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, costs and impact of the 2014 organization restructuring, market demand and economic and political 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, 2013 entitled Risk Factors. Non-GAAP Financial Measures Management believes that non-gaap financial measures enhance investors understanding and analysis of the company s performance. As such, results and outlook 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 a balance sheet remeasurement charge in Venezuela during the fourth quarter of 2014, transaction and related costs for the company s spin-off of its health care business, restructuring charges for European strategic changes and the 2014 organization restructuring, a charge related to a regulatory dispute in the Middle East and a remeasurement charge due to the February 2013 devaluation of the Venezuelan bolivar. 2

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

4 2014 Headlines Mid-single digit growth in organic sales and adjusted EPS from continuing operations Improved margins, significant cost savings Strong balance sheet management 4

5 Consolidated Net Sales Net Sales Q4 ($4.8B) 2014 ($19.7B) Organic sales growth 4 percent in 2014 Continued momentum in K-C International Organic sales +7 percent in Q4, full year +10 percent Total Change -1.4% 0.8% Organic volume 1% 2% Restructuring (a) 0% -1% Net price 2% 2% Mix/other 0% 0% Currency -4% -2% Organic (b) 3% 4% (a) Reflects impact of lower sales associated with European strategic changes and pulp and tissue restructuring actions. (b) Growth before currency and restructuring impacts. 5

6 Adjusted Gross and Operating Profit 2014 adjusted gross margin 34.3 percent Up 20 basis points year-on-year FORCE cost savings $320 million Input cost inflation $240 million Negative currency translation $75 million Additional negative currency transaction effects Adjusted operating margin 16.1 percent Up 70 basis points year-on-year Operating margins up in North America, Europe and K-C International 2015 cost savings targets FORCE at least $300 million 2014 Organization Restructuring $60 to $80 million 2014 Adjusted Operating Profit vs. Prior Year +5% ($ Million) $3, % $3, %

7 Adjusted EPS from Continuing Operations 2014 Adjusted EPS from Continuing Operations vs. Prior Year +5% Equity income down 29 percent Lower earnings in K-C de Mexico $5.24 $5.51 Expect equity income to be down somewhat in 2015 due to weaker Mexican peso Adjusted EPS from Continuing Operations $5.51, up 5 percent versus prior year Q4 $1.35 (up 4 percent) Full-year growth consistent with 4 to 7 percent target set at beginning of

8 Cash Flow and Capital Allocation Cash provided by operations $2.8 billion Down somewhat year-on-year due to higher tax payments and transaction costs for health care spin-off Primary working capital cash conversion cycle down 7 days versus 2013 Adjusted ROIC up 160 basis points to 19.1 percent Dividend payments and share repurchases $3.3 billion Plan for 2015 Share repurchases $0.8 to $1.0 billion Dividend increase mid-single digits Consistent with growth in adjusted EPS from continuing operations in

9 Personal Care Net Sales 2014 Total Change 1.0% Organic volume 3% Restructuring -1% Net price 3% Mix/other 0% Currency -4% Organic 6% Operating Margin 18.7% 17.8% Organic sales growth 6 percent Operating margin up 90 basis points 9

10 Consumer Tissue Net Sales 2014 Total Change 0.1% Organic volume 1% Restructuring -1% Net price 1% Mix/other 0% Currency -1% Organic 2% Operating Margin 16.0% 14.9% Organic sales growth 2 percent Operating margin up 110 basis points Driven by cost savings and higher net selling prices 10

11 K-C Professional Net Sales 2014 Total Change 2.0% Organic volume 3% Operating Margin 18.2% 17.8% Restructuring 0% Net price 1% Mix/other 0% Currency -2% Organic 4% Organic sales growth 4 percent Operating margin down slightly yearon-year 11

12 Venezuela Exchange Rate Update Given increased uncertainty and lack of liquidity, at the end of the year we moved from measuring results at official exchange rate of 6.3 bolivars per U.S. dollar to government's SICAD II floating exchange rate SICAD II rate about 50 bolivars per U.S. dollar recently Remeasured December 31, 2014 net bolivar-denominated monetary assets, resulting in $462 million charge Using SICAD II exchange rate to translate 2015 results will reduce company sales by 3 percent and adjusted operating profit by 4 percent 12

13 K-C s Business Outside North America Europe part of our K-C International organization Starting Q1 2015, describing business outside North America as Developing and Emerging (D&E) markets and Developed markets Replaces K-C International and Europe Developing and Emerging markets: Eastern Europe, the Middle East and Africa, Latin America and Asia-Pacific (Excluding Australia and South Korea) Developed markets: Western and Central Europe, Australia and South Korea 13

14 K-C s Business Outside North America D&E markets in percent of sales (30 percent taking into account FX rate change in Venezuela) Organic sales +11 percent excluding Venezuela Improved operating margins 2014 Company Net Sales 33% 21% 46% Expect high-single to low-double digit organic sales growth in 2015 Developed markets in 2014 D&E Developed North America Approximately 21 percent of sales Organic sales +1 percent Healthy and improving operating margins 42% 12% 46% KCI North America Western/Central Europe 14

15 Leading the world in essentials for a better life. Recap of 2014 Results and 2015 Outlook Tom Falk

16 2014 Recap Delivered on financial commitments while making strategic changes to further improve our company Organic sales grew 4 percent, in line with long-term target Another great year in K-C International, excellent progress with targeted growth initiatives Diaper organic sales up 25 percent in Eastern Europe, 25 percent in China, and 10 percent in Brazil Feminine care organic sales up double-digits Organic sales up double-digits in adult care and high-single digits in baby wipes K-C Professional organic sales up double-digits 16

17 2014 Recap North American consumer business Solid organic sales growth and innovations on several brands, including Viva paper towels, GoodNites youth pants, Huggies baby wipes, Poise and Depend adult care brands North American market shares up or even with prior year in 6 of 8 categories Mainline Huggies diapers had a soft year; making investments to improve performance in 2015 North American K-C Professional High-single digit volume growth in safety products Volumes down in washroom; expect growth in 2015 from investments, better execution and improving U.S. economy 17

18 2014 Recap Continue to manage company with financial discipline Delivered on bottom-line growth target in challenging environment Important strategic changes Successfully executed spin-off of health care business Initiated 2014 Organization Restructuring to improve efficiency, offset impact of stranded costs from spin-off and increase flexibility to invest Completed European strategic changes, realizing benefits Over last two years, consumer business operating profit +10 percent, operating margins +300 basis points, volumes up in child care and baby wipes Encouraged with accomplishments, focused on driving further improvements going forward 18

19 2015 Outlook Environment has become significantly more volatile recently, particularly currency rates and commodity costs Continue to focus on Global Business Plan strategies and fundamentals that create long-term shareholder value Leverage brands, growth initiatives, innovations and marketing investments to drive organic sales growth Deliver healthy levels of cost savings to improve margins and fund reinvestments Generate strong cash flow, improve ROIC and allocate capital in shareholder-friendly ways 19

20 2015 Outlook Organic sales growth of 3 to 5 percent Focus on driving rapid growth in Personal Care and K-C Professional in developing and emerging markets Launching innovations throughout our businesses Near-term activity in North America on Huggies diapers and baby wipes and in adult care New or improved products in a number of categories internationally Advertising up somewhat as a percent of sales to support innovations and growth initiatives 20

21 2015 Outlook Adjusted EPS $5.60 to $5.80, up 2 to 5 percent compared to adjusted EPS from continuing operations in 2014 Adjusted EPS higher in second half of year compared to first half Currency translation expected to reduce sales by 8 to 9 percent and reduce earnings by 9 to 10 percent Includes rate change in Venezuela More than 15 percent bottom-line drag from currency including transaction effects 21

22 2015 Outlook Commodity deflation of $0 to $150 million Outlook has improved in last three months, oil-based costs starting to fall but not nearly as much as drop in oil prices Expect pulp costs, including secondary fiber, to be similar to last year, or up slightly Local inflation in some international markets At mid-point, deflation a 2 point benefit to bottom-line Primary ways to offset currencies Raising selling prices where we can Delivering cost savings Controlling overhead spending 22

23 2015 Outlook Continue to focus on cash generation and capital allocation Cash from operations similar to 2014, or perhaps up somewhat, despite lost cash flow from spun-off health care business At least $2.1 billion in dividends and share repurchases Represents 5 percent cash return on current market capitalization 23

24 Summary Delivered on growth targets in 2014 while making strategic changes Continue to focus on fundamentals that drive long-term performance Optimistic about our prospects to generate attractive shareholder returns 24

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

26 Leading the world in essentials for a better life. Appendix: 2015 Planning Assumptions

27 Planning Assumptions Net sales -3 to -6 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 8 to 9 percent, including 3 point impact from the move to using SICAD II exchange rate in Venezuela Adjusted operating profit growth 1 to 4 percent FORCE cost savings at least $300 million 2014 Organization Restructuring savings $60 to $80 million Negative foreign currency translation impacts 9 to 10 percent Includes 4 point impact from exchange rate change in Venezuela Total currency impact, including transaction effects, more than 15 percent Input cost deflation $0 to $150 million Advertising expense somewhat higher as a percent of net sales 27

28 Planning Assumptions Key input cost assumptions (North America) Benchmark eucalyptus pulp $840 to $870 per metric ton Oil $50 to $60 per barrel Natural gas $3.00 to $3.50 per MMBTU Material consumption factors Virgin fiber about 2.4 million metric tons Secondary fiber about 1.4 million metric tons Polymer resin 600+ million pounds Superabsorbents 700+ million pounds (340,000+ metric tons) 28

29 Planning Assumptions Adjusted effective tax rate 31.5 to 33.5 percent Equity income down somewhat Net income attributable to noncontrolling interests down year-on-year Adjusted EPS $5.60 to $5.80 Up 2 to 5 percent compared to 2014 adjusted EPS from continuing operations of $

30 Planning Assumptions Capital spending $950 to $1,050 million Cash contributions to defined benefit pension plans up to $100 million Share repurchases $0.8 to $1.0 billion Mid-single digit dividend increase Generally consistent with mid-single digit growth in 2014 adjusted EPS from continuing operations Subject to approval by Board of Directors 30

31 Leading the world in essentials for a better life Results and 2015 Outlook January 23, 2015