Solid second quarter despite challenging environment, K-C
Kimberly-Clark Corporation reported that net sales in the second quarter of 2010 increased 2.8 percent to $4.9 billion. Organic sales rose 2 percent, driven by higher net selling prices of 2 percent, while sales volumes and product mix were even with year-ago levels.
The combined impact of the I-Flow Corporation and Jackson Safety acquisitions completed in 2009 added an additional point of sales growth, while changes in foreign currency rates had no overall impact on sales in the quarter. The growth in organic sales was highlighted by a 6 percent gain for K-C's international operations in Asia, Latin America, the Middle East, Eastern Europe and Africa.
Diluted net income per share for the quarter was $1.20 compared with $0.97 in 2009. Bottom-line growth was favorably impacted by the higher net sales and improved profitability, as gross margin advanced 50 basis points and operating margin increased 170 basis points.
The margin comparisons benefited from increased net selling prices, significant cost reductions, lower pension expense and severance charges incurred in 2009. On the other hand, the company absorbed input cost inflation of $235 million and increased strategic marketing spending by more than $40 million in the quarter to support product innovation and targeted growth initiatives.
Chairman and Chief Executive Officer Thomas J. Falk said, "We delivered solid results in the second quarter despite a continued challenging environment. Organic sales rose 2 percent, and we delivered strong improvements in operating margin and earnings per share despite significantly higher commodity costs. Moreover, our ongoing cost savings momentum continues to enhance profitability and help fund our growth plans. In addition, several of the innovations we've launched this year performed well in the second quarter, and we supported our brands with a considerable increase in strategic marketing spending.
“Our targeted growth initiatives, particularly in our K-C International business and in higher-margin portions of Health Care and K-C Professional, continued to progress well. Finally, we continued to deploy cash flow in shareholder-friendly ways, repurchasing $350 million of KMB stock in the second quarter and paying an attractive dividend. All-in-all, we made progress in a number of areas in the second quarter, and through six months we're generally on track with our full-year plan, despite a difficult external environment."
Commenting on the outlook, Falk said, "Despite the near-term headwinds we are facing, we remain committed to do what's right for the long-run success of our business and to deliver solid results in the short-term. We will continue to strengthen our brands, pursue our targeted growth initiatives and invest for future growth.
“We have already launched a number of innovations this year and will bring more to market in the back half of the year. We will support our brands and growth initiatives with strong marketing programs and continue to expect that strategic marketing spending will rise at a faster pace than sales in 2010. In addition, based on plans in place, we expect organic sales volumes in the back half of the year to pick up somewhat from second quarter levels.