KMB
#Good morning, everyone
Let me start with the headlines for the quarter
Sales and earnings were down slightly, reflecting a challenging environment, as Tom just described, and comparison to strong results last year
We delivered significant cost savings in the quarter, and we've increased our full year cost savings outlook
And finally, we're on track with our overall capital plan
Now let's take a look at the details, starting with sales
Our second quarter net sales were $4.6 billion, that's down 1% year-on-year due to lower organic sales
Tom is going to provide some more color on our top line in just a few minutes
On profitability, second quarter gross margin was 36.1%, that's down 20 basis points year-on-year
Operating margin was 17.5%, down 50 basis points
While margins were down slightly overall, I'm encouraged with the improvements that we achieved in our Personal Care and K-C Professional business segments, and also in the developing and emerging markets overall
Commodities were a $75 million drag in the second quarter, and for the full year, we're now expecting inflation of $200 million to $300 million, that's $50 million higher than our previous estimate driven by higher pulp costs
Our teams continued to deliver significant FORCE cost savings
Second quarter savings were $120 million and we've increased our full year savings target to $425 million to $450 million
Our original target was for savings of at least $400 million
Given the current environment, we are also tightly managing our overhead spending
On the bottom line, second quarter earnings per share were $1.49, down 3% year-on-year
Lower equity income reduced earnings by $0.03 per share, offset by a lower share count and a slightly better effective tax rate
Now let's take a look at cash flow
Cash provided by operations in the second quarter was $825 million, in line with our expectations
Cash flow was down compared to $860 million in the year-ago quarter, including the impact of higher tax payments this year
Second quarter working capital cash conversion cycle was down six days compared to full year 2016, bringing the year-to-date decline to five days
We're making very good progress in this area, and we expect to nicely exceed our original one-day improvement target for the full year
We also continue to manage capital spending in this environment, and we now expect that full year spending will be in the lower half of our $850 million to $950 million target range
On capital allocation, second quarter dividend payments and share repurchases totaled more than $600 million
We continue to expect that full year dividends and share repurchases will total between $2.2 billion and $2.4 billion
Looking at our segments, in Personal Care, organic sales fell 1% due to lower net selling prices
Organic sales were up 2% in developing and emerging markets but were down elsewhere
Personal Care operating margins were 20.6%, up 60 basis points
The improvement was driven by cost savings, partially offset by lower selling prices and higher input costs
In Consumer Tissue, organic sales were down 2%, driven by North America
Overall, Consumer Tissue operating margins were 16.5%, down 190 basis points
The results were impacted by lower sales and higher pulp costs
In K-C Professional, organic sales in the quarter were up 1%, with gains in all major geographies
K-C Professional operating margins were 20.1%, up 150 basis points
The comparison included benefits from cost savings
So in summary, our second quarter results were impacted by difficult environment with weaker economies, category softness and increased competitive activity
Nonetheless, we are achieving strong cost savings, we're generating healthy cash flow, and we're allocating capital in shareholder-friendly ways
I'll now turn the call back over to Tom
Yeah, we do continue to deliver significant cost savings through the FORCE program, and we were able to take up the full year target
And what I'd say is that as the program name implies, our teams really are Focused On Reducing Costs Everywhere
When you look at our supply chain savings that includes improving productivity and waste across our manufacturing operations, driving down the cost of our facilities, optimizing the cost of our product specifications and continually negotiating lower input costs or material costs of our products
And year-to-date, we are at 4% of cost of goods, which is really a strong performance, not only internally but benchmarks very well
I continue to see opportunities for us to continue to deliver the FORCE cost savings as we move forward
So good performance there, and I think more opportunity there
Sure
On the buyback, the $800 million to $1 billion is still the right number for the year
We're on track with that
And in terms of the interest expense, we did some pre-funding on the $950 million that comes due in August, which is why you see a higher debt number at the end of the quarter, but that should normalize
And the debt that we'll take out in August is a pretty high coupon, it's 6.125%, and so that will be replaced with lower interest rate debt and that should bring the interest expense down for the year
