KMB
#Thank you, <UNK>, and good morning, everyone
Since <UNK> covered the financial details for the quarter, I'll focus my comments on our organic sales in the quarter and then on our full year outlook
As <UNK> just mentioned, our organic sales were down 1% in the quarter
So, in January, we said that growth would be higher in the second half of the year compared to the first half largely due to comparisons
That said our first quarter organic sales were somewhat below my expectations, most of that coming from North America
In North America, our organic sales fell 3% in our consumer businesses, and that reflects the combination of category softness, greater competitive activity, and lower promotional shipments
Overall category growth across all channels, including e-commerce, was about 0.5% in the quarter, and that's about 1.5 points below what it was for the full year 2016. In terms of our key businesses in North America, our Personal Care volumes were off by 1%
In infant and child care, our volumes overall were down low-single digits, which is probably in line with the mega category
Category consumption continues to shift out of diapers and into training pants, and volume growth in e-commerce is continuing to accelerate
Our market share overall was even year-on-year and up 1 point sequentially in infant and child care
In Consumer Tissue, our volumes were down 7%, mostly in bathroom tissue
Results were impacted by competitive activity and lower promotional shipments than last year
We've got a stronger promotional calendar scheduled for the balance of the year
We expect better performance going forward in North America particularly the back half of the year when our comparisons get a little easier
Our planned product innovations will also help drive our growth in the near term
That includes the introduction of U by Kotex Fitness in our feminine care business, improvements to Huggies diapers and baby wipes, and some new Kleenex facial tissue offerings
In addition, we're placing even more focus on the execution of our sales and retail merchandising strategies with stronger programming going forward
In terms of the category overall, trends were a little better in the last part of the first quarter, so we're cautiously optimistic that market growth will get back to more normal levels over time
Moving onto developing and emerging markets, we delivered 4% organic sales growth in this part of our business, and performance and category conditions were broadly in line with our expectations from January
Looking at some of our key markets, in China, organic sales in diapers were up low-single digits as strong double-digit volume growth was mostly offset by lower selling prices
While the promotion environment remains competitive, we're optimistic that pricing won't be as negative in 2017 as it was in 2016. We also have several innovations on Huggies launching in the second quarter
In Brazil, our organic sales in Personal Care were up high-single digits compared to a decline of 5% in the year-ago period
Category demand remains down in Brazil and our team there continues to innovate and has product improvements in market on diapers and feminine care
In Argentina, our organic sales in Personal Care were up low-double digits, driven by higher selling prices
We re-launched Huggies diapers late in the quarter and that helped us deliver modest volume growth despite category volumes being down double digits
At Eastern Europe, organic sales in diapers were similar year-on-year
Volumes were up double digits again this quarter with continued benefits from innovations in Russia
Selling prices were down, reflecting price rollbacks last year following the strengthening of the Russian ruble
Lastly, in developed markets outside of North America, organic sales were down 2%, mostly in South Korea
We expect results there to pick up as the year progresses including benefits from innovation launches
Now, moving onto our outlook and our specific targets for the year; we expect sales to increase 1% to 2% in 2017. The currency impact on sales should be neutral overall, which is about 2 points better than what we expected in January
Regarding organic sales, we also expect growth of 1% to 2%, and that compares to our original estimate of approximately 2% and reflects our first quarter results, the category conditions in North America, and slightly lower price realization due to improved currencies
Regarding earnings, while the currency outlook has improved, our cost inflation estimate has increased by $75 million on average compared to our assumption in January
In total though, we're still planning that the net impact of changes in currencies, commodities and selling prices will be a mid-to-high single digit drag in our bottom line
That's consistent with our original plan for the year although with a different mix of these factors
Altogether, we continue to target earnings per share of $6.20 to $6.35 for 2017. And that's up 3% to 5% year-on-year
So, in summary, we're investing in our brands and growth initiatives to help us grow and compete effectively
We're managing our company with financial discipline
And we continue to be optimistic about our opportunities to create long-term shareholder value
That wraps up our prepared remarks, and now we'll begin to take your questions
Question-and-Answer Session
Good morning, <UNK>
I'll let Mike <UNK> give you a little bit more color on that, but we've certainly seen a pretty strong uptick in e-commerce
And that's a trend that's happening in lots of places, but it did seem to accelerate in the U.S
in the last couple of quarters
Yeah, go ahead, Mike
And, <UNK>, fem care was down, I think, mid-singles, and part of that's timing of launch
We've got the fem care U by Kotex Fitness launch coming
That starts in the second quarter
So we expect to see a little stronger calendar in the back half of the year
Thanks, <UNK>
Hey, <UNK>
Yeah, <UNK>, I guess a couple of things I would say
Number one, giving you an accurate e-commerce or online versus off-line share is pretty tough for us to do because there's a lot of our traditional brick and mortar customers that do quite a bit of click-and-collect
And so we don't really have any visibility of that because it goes into their existing distribution system and into their existing stores and they take off their shelves
So Amazon will be a big one that isn't in the tracked data that probably is the gap
And maybe – and again, they've had a strong quarter across lots of businesses, including ours
And I don't know, Mike, if you want to comment any more about anything that you're seeing in that specific space?
I guess I would just call it – if you look at the North American price was pretty neutral quarter-on-quarter
So that would be an indication that we're not funding additional competitive spend activity
Yeah, if you look at the pricing in Q1 versus fourth quarter last year was pretty similar
So we didn't really see further degradation
All the price decline was a carryover effect of things that happened in the first half of last year
So we would feel like it seems to have stabilized at this point in time
And the good news is you're still seeing really strong category volume growth
And so, our pricing comps will get a lot more favorable in the back half, which gives us some confidence on our organic top line outlook
Thanks, <UNK>
Yeah, I guess I'd say, <UNK>, the year started out a little slow
Jan, Feb and March was much better
When we look at that and the plans that we have rolling forward with some of the innovation that we've got coming, that's what gives us some confidence
Our comps get quite a bit easier in the back half
So we knew the first half was going to be a tougher comparison to deliver organic growth
And we've got good momentum in a lot of markets around the world
I'd say the two factors were probably – and the call down of the top line was a little slower start in Consumer Tissue in North America, and then some price rollbacks in markets where there was pretty big price recovery last year and no other currencies have strengthened
So Brazil and Russia in particular have been places where the currency was pretty weak last year, and we took a lot of price and some of that snapped back
But we'll give you an update as the year progresses
We call it, as you know, down the middle of how we see the fairway, and we'll keep updating as we go through the year
Yeah, I guess we would say that 1% to 2%, we still feel like relative to our long-term goal of 3% to 5% reflects some of those secular challenges
Yes
In fact, Mike, maybe will comment on this because he's taking a refreshed look at the long-term strategic plan, which we won't unpack all the details for you this morning, but I'd say we still see strong category growth potential, particularly in a lot of the emerging markets
So maybe, Mike, do you want to comment just a little bit on that?
Thanks, <UNK>
Good morning, <UNK>
Yeah, I think as you look at some of the price competition in China that's rolling off, what we're seeing is the underlying category has been robust from a volume standpoint
It's just been masked by some of the price challenges, and so we feel pretty solid that that's going to continue and flow through
There are other markets like Brazil, Argentina, where the economy hasn't yet really turned substantially
There's still a fair amount of price recovery to go in Argentina to get back to a more equilibrium state, and so there's probably some question marks there
On the other hand, Russia and other parts of Eastern Europe still seeing actually strong category growth there even though the economy hasn't fully recovered
And North America, I'd say it's a mixed bag
On the Personal Care front, we still see good category growth in adult care
We've got good innovation coming in fem care
Actually, the growth in the training pant category and out of diapers favors us given our share with Pull-Ups, so we feel pretty good about that
And Consumer Tissue is one where we just got to step up our execution a bit and make sure we're getting our fair share of that category
So I wouldn't say it's dependent on improvement in category growth, it's more sustaining what we see happening and then executing against it
Yeah, I don't think we could probably give you an accurate read on that specifically
And I think we'd probably say we're still trying to exactly figure it out what happened with the consumer in North America in the first quarter
You've seen a little bit of category weakness across lots of places
So how much of it is broader economic slowdown, which you don't seem to be seeing in other areas? The job report was a little weak but not substantially so
So that's still probably what we're trying to dial in a little bit more precisely
It's a pretty long question, <UNK>
We'll do the best we can with that
I guess I would start
Price competition among retailers is not a new phenomena and it's maybe heating up a bit
Ultimately, finished product selling prices are retailers' responsibility and you didn't see a lot of price change in our North American numbers
So our trade programs are pretty much intact and maybe I'll let Mike comment a little bit more if you want on private label trends or the general nature of discussions there
I will say this though that when you've got good innovation and strong brands (29:14), it leads to a different discussion than if you don't have those things, it becomes more of an item price discussion
Thanks, <UNK>
Yeah, I guess I'd say, and maybe Mike can comment a little bit more on North America, but I'd say our overall plan in North America hasn't changed much
We just didn't get it all executed in the marketplace in the first quarter, particularly in Consumer Tissue, and so our plan for the year hasn't changed in terms of what we plan to spend broadly
I don't know, Mike, is there anything else you want to add to that or?
And then on the commodities inflation, it's not enough to drive finished product selling prices in most places, and particularly, when you see many of the international markets, the currency turning favorable, it's not a calculus that would lead to a lot of price in markets like that
We are getting some pricing in – where secondary fiber has gone up quite a bit in K-C Professional, we're getting some price recovery
I think there's been more broad price increases across the industry that have been announced recently and so that will give us some benefit
But that's about the only one that I can think of that there's maybe a direct commodity driven price change that we'd see coming this year
(32:54), <UNK>
Well, we would say brilliant leadership would be right at the top of the list, but jokes aside, we had a great cost savings quarter
$110 million in FORCE cost savings, a great way to start the year
And then that certainly was a driver of that
Good mix of negotiated material savings, pretty good productivity, some of this material specification changes, then an increasing element of that bucket is in some of the distribution and logistics related savings
I know <UNK>'s a fan of this to see our inventories keep coming down and that not only delivers cash, but also delivers cost savings as we've got less stuff to store and handle
I don't know, Mike, if there's anything else you want to build on that?
I would say there aren't that many tuck-ins internationally, but there are a few in a few places, but we did a lot of that in the 1990s and really bought up a lot of the market positions that we wanted and we've been able to consolidate some joint ventures into being 100% owned over time
And so it's a relatively light calendar of M&A activity
And yeah, we read all the same chatter that you guys read and, quite honestly, we're more focused on running our own business every day and stay pretty focused on that and don't play too much with the speculation process on what might happen
So, I think so far that's served us well
Thanks, <UNK>
Yeah, in terms of retailer inventories, we didn't see a big shift anywhere really, and we have pretty high cube, high velocity categories, particularly in a place like China, where so much of it is e-commerce
Often the e-com players really aren't even holding any inventory
They'll pick up at our distribution center and deliver the same day
And so there's not a lot of inventory in those systems, and I know we've seen some minor shifts in inventory across other channels, but nothing that was significant enough to call out in the quarter
Thanks, <UNK>
Okay
I'll do the best I can with that, Steve, and we'll see, Steve, what I leave left for you to follow-up on
In terms of pulp and oil, we'd say for pulp we're probably up $40 to $50 a ton versus our original guidance in terms of we expect in terms of market pricing for eucalyptus
So we're calling euc at $870 to $900 a ton
And I know the current price is above that, but that's kind of our outlook for the year
Oil we're kind of in the $50 to $60 a ton still, and there may be some upside for us on that depending on where oil shakes
In the meantime, though polymer has actually gone up a bit, as there's been some supply challenges on polymer
And we don't have a lot of direct oil
We do a lot more polypropylene and oils short of the long-term proxy for that, but in the short term, they can go different directions
Swinging to the market share front, if you looked at shares sequentially in North America, they're pretty flat; up in a couple, flat in a few, down in a couple
Year-over-year, particularly in Consumer Tissue is where we had the most negative share comparison
So that was probably a high watermark for Consumer Tissue last year
As you travel around the world, I'd say you'd see relatively stable share positions
Brazil is up in fem care, down a little in diapers; similar story in Argentina
China shares were, I think, pretty flat to down 1-point; Korea, kind of a similar story
Positive shares in Russia, Ukraine, other parts of Eastern Europe on diapers in particular
I don't know, Mike, if there's any other ones that jump out for you? Fem care has probably been our star and that we've had very strong share performance in most markets on fem care
I think that's a fair statement
When we get done with this call, Mike and I are going to go in and talk to our team leaders around the company
And one of the things we're going to tell is we're not satisfied with our market shares in the first quarter
So we'd expect to do better as the year progresses
Thanks, Steve
All right
Maybe I'll have Mike comment on both of those, so on promotional environment broadly and then facial pricing
I'm not aware that there's been any change on their end
Yeah
I think the other point, <UNK>, would be, as we've got innovation coming, you want to use your promotion along with your other strategic marketing tools to drive that
So we've got a pretty strong calendar coming, and so that wouldn't be unusual for us to put more money behind those ideas either
No, I wish I could tell you the clear answer, because then I would have done something about it before now
But it was – and I think everybody was talking about retail store traffic was down broadly
They can't point to weather
There was theories about late income tax refunds
Again, I don't know why that would necessarily affect our category
But, on the other hand, if you're not in the store shopping, you definitely saw that in terms of retail traffic
Now there was some uptick in e-commerce that balanced off a part of that
We are seeing probably, I don't know, Mike, if you want to comment on this, just a little bit less in terms of the fill-in trips may be part of it as some retailers unpacked that
But I think it's still pretty early to figure out exactly what happened
Thanks, <UNK>
Good morning, <UNK>
Yeah, I think on China, a lot of the pricing was really led by some of our other international competitors over the last couple of years almost, and some of that was probably funded by a weaker yen
But I think that seems to have normalized
In the meantime, this is one of the fastest growing markets in the world, and it's not surprising to see everybody chasing after that consumer growth
And so right now, you've got two big U.S
-based players and two big Japanese-based players all chasing growth in the Chinese market
And I think the good news is that pricing seemed to have stabilized in the quarter, although it was down year-on-year, reflecting some of the things that happened in the first quarter last year
On the Brazil front, part of it was we had a lousy start last year in the first quarter, so our comp was easier in that market, and that was why our volume uptick was there
I'd say the shares we've seen in that market are just Jan, Feb, and we had a stronger March, so you could've had a situation there, where maybe shipments were even a little bit ahead of category consumption
But we'll see when we get the next share data
I don't know, Mike, if there's anything else you want to add on either of those markets?
So if you have slower growth and you've got lots of competitors facing it that sometimes results in higher promotional environment
And so you're also seeing retailers get creative across the space in terms of do more with click and collect and there's a lot of innovation happening, not just around price, but also around service and how shoppable the categories are in different environments
And so I will expect that that will continue as we roll forward
I don't know, Mike, if there's any other color you've got on that?
Yeah, and e-commerce does cause great price transparency
On the other hand, retailers have been comp shopping each other's stores in bricks and mortar for 100 years
It's a pretty comprehensive list there so, on the promo front, maybe Mike can comment a little bit on that
On China, I think the question was, have you seen any kind of trade up in e-com and I think, broadly, that is the case
We've just launched a super-premium diaper pant in China that we're really excited about
And moms that tend to shop in e-com tend to skew a little bit higher income and so that should be a positive for us
And then the last question
was tax rate, which <UNK> can comment on
One difference though
You might be looking just that fourth quarter only working capital number
We tend to compare to the full year average, because there is a bit of cyclicality as the year rolls through
Hey, <UNK>
<UNK>, we don't give quarterly guidance as you know, so I think you can do the math as easy as we can and you're correct in assessing that the comps get tougher in the second quarter
But, beyond that, I'm probably not going to give you any more color on quarterly guidance
No, not at all
The volume actually has been pretty strong throughout and so is it's been more of a function of innovation and category growth and consumer spending power and that we expect those stronger results to come through more clearly in the back half of the year
Thanks, <UNK>
Well, once again, we are continuing to execute our Global Business Plan and allocating capital in shareholder friendly ways
And we appreciate your support of Kimberly-Clark
