K-C delivers strong improvements in gross margins

23 Apr '10

4 min read

Kimberly-Clark Corporation reported that net sales in the first quarter of 2010 increased 7.6 percent to $4.8 billion, including an approximate 5 percent benefit from stronger foreign currency exchange rates. Organic sales rose 2 percent, with sales volumes and net selling prices each up 1 percent. The combined impact of the I-Flow Corporation and Jackson Safety acquisitions completed in 2009 added an additional point of sales growth in the quarter. The organic volume growth was highlighted by an 8 percent increase for the company's global Health Care business and a 5 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 $0.92 and adjusted earnings per share were $1.14 compared with diluted net income per share of $0.98 in 2009. Bottom-line results were favorably impacted by the growth in net sales, improved gross margin of more than 150 basis points and a lower level of foreign currency transaction losses. On the other hand, strategic marketing spending increased by $60 million in the quarter to support the company's product innovation activities and targeted growth initiatives. In addition, the company's effective tax rate in the first quarter was significantly higher than the year-ago period, including a one-time charge equivalent to 5 cents per share related to recent changes in tax law in conjunction with U.S. health care reform legislation.

Adjusted earnings per share in 2010 exclude a one-time after tax charge of $96 million for the remeasurement of the local currency balance sheet in Venezuela as a result of the adoption of highly inflationary accounting in that country in January 2010. Additional detail on this item 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 are off to a solid start to the year with our first quarter results. Organic sales rose 2 percent, and we delivered strong improvements in gross margin and adjusted earnings per share, including excellent contributions from our ongoing cost savings program and last year's organization optimization initiative. In addition, we strengthened our brands by launching a number of innovations in the first quarter and by significantly increasing strategic marketing spending. Our targeted growth initiatives, particularly in our K-C International business and in Health Care, continued to progress well. Finally, we continued to deploy cash flow in shareholder-friendly ways, including raising our dividend by 10 percent and resuming our share repurchase plan. All-in-all, we are off to a good start to 2010."

Commenting on the outlook, Falk said, "Despite the near-term input cost headwinds we are facing, we will continue to strengthen our brands, pursue our targeted growth initiatives and reinvest in our business for future growth. We have launched a number of innovations this year and will bring more to market as the year progresses. We will support our brands with strong marketing programs and continue to expect that strategic marketing spending will rise at a faster pace than sales in 2010.

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