Introduction
This management's discussion and analysis ("MD&A") of financial condition and results of operations is intended to provide investors with an understanding of our recent performance, financial condition and prospects. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted. The following will be discussed and analyzed: •Overview of First Quarter 2021 Results •Impact of COVID-19 •Results of Operations and Related Information •Liquidity and Capital Resources •Information Concerning Forward-Looking Statements We describe our business outsideNorth America in two groups - Developing and Emerging Markets ("D&E") and Developed Markets. D&E markets compriseEastern Europe , theMiddle East andAfrica ,Latin America andAsia-Pacific , excludingAustralia andSouth Korea . Developed Markets consist of Western andCentral Europe ,Australia andSouth Korea . We have three reportable business segments: Personal Care, Consumer Tissue and K-C Professional. These business segments are described in greater detail in Note 8 to the unaudited interim consolidated financial statements. This section presents a discussion and analysis of our first quarter 2021 net sales, operating profit and other information relevant to an understanding of the results of operations. In addition, we provide commentary regarding organic sales growth, which describes the impact of changes in volume, net selling prices and product mix on net sales. Change in foreign currency exchange rates and acquisitions also impact the year-over-year change in net sales. Our analysis compares the three months endedMarch 31, 2021 results to the same period in 2020. Throughout this MD&A, we refer to financial measures that have not been calculated in accordance with accounting principles generally accepted in theU.S. , or GAAP, and are therefore referred to as non-GAAP financial measures. These measures include adjusted gross and operating profit, adjusted net income, adjusted earnings per share, adjusted other (income) and expense, net and adjusted effective tax rate. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight into some of the financial measures used to evaluate management. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and they should be read only in conjunction with our unaudited interim consolidated financial statements prepared in accordance with GAAP. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items being excluded. We compensate for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures exclude the following item for the relevant time periods as indicated in the reconciliations included later in this MD&A: •2018 Global Restructuring Program - In 2018, we initiated this restructuring program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. See Item 1, Note 2 to the unaudited interim consolidated financial statements for details. Overview of First Quarter 2021 Results •Net sales of$4.7 billion decreased 5 percent compared to the year-ago period, including an organic sales decline of 8 percent. •Operating profit was$770 in 2021 and$904 in 2020. Net Income Attributable toKimberly-Clark Corporation was$584 in 2021 compared to$660 in 2020, and diluted earnings per share were$1.72 in 2021 compared to$1.92 in 2020. Results in 2021 and 2020 include charges related to the 2018 Global Restructuring Program. 14 -------------------------------------------------------------------------------- Impact of COVID-19 We continue to actively address the COVID-19 situation and its impact globally. We believe that we will emerge from these events well positioned for long-term growth, though we cannot reasonably estimate the duration and severity of this global pandemic or its ultimate impact on the global economy and our business and results. We have experienced increased volatility in demand for some of our products as consumers adapt to the evolving environment. Beginning in the first quarter of 2020, particularly in March, demand increased in our Consumer Tissue and Personal Care business segments across all major geographies as consumers increased home inventory levels in response to COVID-19. The increase was followed by a period of demand softness as consumers used existing home inventories and demand returned to more normal levels. While demand for our consumer tissue products was elevated throughout 2020, use of home inventories drove demand softness in the first quarter of 2021. Our K-C Professional business experienced volume declines throughout 2020 and the first quarter of 2021 reflecting the reduction in away from home demand. During 2020 and to a more limited extent the first quarter of 2021, we experienced temporary closures of certain facilities, though we did not experience a material impact from a plant closure and our facilities were largely exempt or partially exempt from government closure orders. At many of our facilities, we have been experiencing increased employee absences, which may continue in the current situation. During 2020 and the first quarter of 2021, we also experienced increased volatility in foreign currency exchange rates and commodity prices, as certain countries experienced increased macro-economic volatility from the COVID-19 situation. Results of Operations and Related Information This section presents a discussion and analysis of our first quarter 2021 net sales, operating profit and other information relevant to an understanding of the results of operations. Consolidated Selected Financial Results
Three Months Ended
2021 2020 Percent ChangeNet Sales : North America$ 2,351 $ 2,601 -10 % Outside North America 2,470 2,484 -1 % Intergeographic sales (78) (76) +3 % Total Net Sales 4,743 5,009 -5 % Operating Profit: North America 508 659 -23 % Outside North America 367 414 -11 % Corporate & Other(a) (101) (155) N.M. Other (income) and expense, net(a) 4 14 -71 % Total Operating Profit 770 904 -15 % Share of net income of equity companies 39 38 +3 % Net Income Attributable to Kimberly-Clark Corporation 584 660 -12 % Diluted Earnings per Share 1.72 1.92 -10 % (a) Corporate & Other and Other (income) and expense, net include income and expense not associated with the business segments, including adjustments as indicated in the Non-GAAP Reconciliations. N.M. - Not Meaningful 15 --------------------------------------------------------------------------------
GAAP to Non-GAAP Reconciliations of Selected Financial Results
Three Months Ended March 31, 2021 2018 Global As As Restructuring Adjusted Reported Program Non-GAAP Cost of products sold$ 3,154 $ 25$ 3,129 Gross Profit 1,589 (25) 1,614 Marketing, research and general expenses 815 9 806 Operating Profit 770 (34) 804 Provision for income taxes (147) 7 (154) Effective tax rate 20.9 % - 20.9 % Net income attributable to noncontrolling interests (10) 1 (11) Net Income Attributable to Kimberly-Clark Corporation 584 (26) 610 Diluted Earnings per Share(a) 1.72 (0.08) 1.80
Three Months Ended
2018 Global As As Restructuring Adjusted Reported Program Non-GAAP Cost of products sold$ 3,218 $ 70$ 3,148 Gross Profit 1,791 (70) 1,861 Marketing, research and general expenses 873 23 850 Operating Profit 904 (93) 997 Provision for income taxes (197) 18 (215) Effective tax rate 23.6 % - 23.2 % Net income attributable to noncontrolling interests (15) 1 (16) Net Income Attributable to Kimberly-Clark Corporation 660 (74) 734 Diluted Earnings per Share(a) 1.92 (0.22) 2.13
(a) "As Adjusted Non-GAAP" may not equal "As Reported" plus "Adjustments" as a result of rounding.
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Analysis of Consolidated Results
Percent Change for Percent Change for Three Months Ended Three Months Ended Net Sales March 31, 2021 Adjusted Operating Profit March 31, 2021 Volume (10) Volume (21) Net Price 1 Net Price 6 Mix/Other 1 Input Costs (14) Acquisition(e) 2 Cost Savings(c) 11 Currency - Currency Translation 1 Total(a) (5) Other(d) (2) Organic(b) (8) Total (19) (a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding. (b) Combined impact of changes in volume, net price and mix/other. (c) Combined benefits of the FORCE (Focused On Reducing Costs Everywhere) program and 2018 Global Restructuring Program. (d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs. (e) Acquisition of Softex Indonesia. Net sales in the first quarter of$4.7 billion decreased 5 percent compared to the year ago period. The Softex Indonesia acquisition increased sales by 2 percent and changes in foreign currency exchange rates increased sales slightly. Volumes declined 10 percent compared to an increase of more than 8 percent in the year-ago period, while changes in net selling prices and product mix each increased sales by 1 percent. The volume comparison reflects increased shipments in the year-ago period to support consumer stock up related to the outbreak of COVID-19. The stock up impacted all business segments, in particular consumer tissue, and all major geographies. In addition, volumes in North American consumer products in 2021 were negatively impacted by supply chain disruptions related to severe weather conditions that occurred in February in the southern part ofthe United States . The disruptions included the temporary shutdown of several of our manufacturing facilities and reduced availability of raw materials from suppliers, mostly impacting our personal care segment. InNorth America , organic sales decreased 10 percent in consumer products and 8 percent in K-C Professional.Outside North America , organic sales were down 1 percent in D&E markets and 14 percent in developed markets. Operating profit in the first quarter was$770 in 2021 and$904 in 2020. Results in both periods include charges related to the 2018 Global Restructuring Program. First quarter adjusted operating profit was$804 in 2021 and$997 in 2020. Results were impacted by lower sales volumes and$135 of higher input costs, driven by pulp, other materials and distribution costs. Other manufacturing costs were higher, including costs related to COVID-19 and inefficiencies from lower production volumes, and foreign currency transaction effects also negatively impacted the comparison. Results benefited from higher net selling prices,$65 of cost savings from our FORCE program and$40 of cost savings from the 2018 Global Restructuring Program. Marketing, research and general expenses were lower year-on-year, driven by administrative costs. The first quarter effective tax rate was 20.9 percent in 2021 and 23.6 percent in 2020. The first quarter adjusted effective tax rate was 20.9 percent in 2021 and 23.2 percent in 2020. The rate in 2021 benefited from certain planning initiatives. Our share of net income of equity companies in the first quarter was$39 in 2021 and$38 in 2020. Diluted net income per share for the first quarter of 2021 was$1.72 and$1.92 in 2020. First quarter adjusted earnings per share were$1.80 in 2021, a decrease of 15 percent compared to$2.13 in 2020. 17 -------------------------------------------------------------------------------- Results by Business Segments Personal Care Three Months Ended March 31 Three Months Ended March 31 2021 2020 2021 2020 Net Sales$ 2,462 $ 2,422 Operating Profit $ 481$ 527 Net Sales Percent Change Operating Profit Percent Change Volume (3) Volume (8) Net Price - Net Price (2) Mix/Other 1 Input Costs (9) Acquisition(e) 4 Cost Savings(c) 10 Currency (1) Currency Translation 1 Total(a) 2 Other(d) (1) Organic(b) (2) Total (9) (a) Total may not equal the sum of volume, net price, mix/other, acquisition and currency due to rounding. (b) Combined impact of changes in volume, net price and mix/other. (c) Combined benefits of the FORCE program and 2018 Global Restructuring Program. (d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs. (e) Acquisition of Softex Indonesia. First quarter net sales inNorth America decreased 7 percent. Volumes fell approximately 7 percent, driven by the previously mentioned supply chain disruptions, and were down in all major product categories. Net sales in D&E markets increased 12 percent. The Softex Indonesia acquisition increased sales by 11 percent while changes in foreign currency exchange rates reduced sales by 5 percent. Volumes rose 4 percent and the combined impact of changes in net selling prices and product mix increased sales by 2 percent. Organic sales increased inBrazil ,China ,Eastern Europe ,India andSouth Africa , but declined inIsrael and most of the rest ofLatin America . Net sales in developed markets outsideNorth America increased 5 percent. Changes in foreign currency exchange rates increased sales by 9 percent. Volumes fell 5 percent while changes in product mix increased sales by 1 percent. Operating profit of$481 decreased 9 percent. Results were impacted by input cost inflation, lower volumes, other manufacturing cost increases and unfavorable foreign currency transaction effects. The comparison benefited from cost savings, improved product mix and lower general and administrative costs. Consumer Tissue Three Months Ended March 31 Three Months Ended March 31 2021 2020 2021 2020 Net Sales$ 1,510 $ 1,723 Operating Profit $ 269$ 365 Net Sales Percent Change Operating Profit Percent Change Volume (14) Volume (24) Net Price - Net Price 2 Mix/Other (1) Input Costs (12) Currency 1 Cost Savings(c) 9 Total(a) (12) Currency Translation 2 Other(d) (3) Organic(b) (14) Total (26) (a) Total may not equal the sum of volume, net price, mix/other and currency due to rounding. (b) Combined impact of changes in volume, net price and mix/other. (c) Combined benefits of the FORCE program and 2018 Global Restructuring Program. (d) Includes impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs. 18 -------------------------------------------------------------------------------- First quarter net sales inNorth America decreased 14 percent. Volumes fell 14 percent and changes in product mix decreased sales by 2 percent, while changes in net selling prices increased sales by 2 percent. The volume decline reflects stock up in the year-ago period and category softness in 2021, primarily in bathroom and facial tissue. Net sales in D&E markets decreased 11 percent including a 2 percent negative impact from changes in foreign currency exchange rates. Volumes fell 10 percent and changes in net selling prices decreased sales by 2 percent, while changes in product mix increased sales by 1 percent. The Softex Indonesia acquisition increased sales by 2 percent. Net sales in developed markets outsideNorth America decreased 10 percent. Volumes declined 16 percent, driven by Western/Central Europe , and changes in net selling prices decreased sales by 1 percent. Changes in foreign currency exchange rates increased sales by 7 percent. Operating profit of$269 decreased 26 percent. The comparison was impacted by lower organic sales, higher input costs and other manufacturing cost increases. Results benefited from cost savings, lower advertising spending and reduced general and administrative costs K-C Professional Three Months Ended March 31 Three Months Ended March 31 2021 2020 2021 2020 Net Sales $ 752 $ 848 Operating Profit $ 126$ 181 Net Sales Percent Change Operating Profit Percent Change Volume (21) Volume (43) Net Price 7 Net Price 32 Mix/Other 2 Input Costs (24) Currency 1 Cost Savings(c) 12 Total(a) (11) Currency Translation 1 Organic(b) (13) Other(d) (8) Total (30) (a) Total may not equal the sum of volume, net price, mix/other and currency due to rounding. (b) Combined impact of changes in volume, net price and mix/other. (c) Combined benefits of the FORCE program and 2018 Global Restructuring Program. (d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs. First quarter net sales inNorth America decreased 8 percent. Volumes were down 18 percent, while changes in net selling prices increased sales by approximately 8 percent and changes in product mix increased sales by 3 percent. Sales were down significantly in washroom products. Sales increased double-digits in wipers, safety and other products, mostly due to higher net selling prices and favorable product mix. Net sales in D&E markets decreased 18 percent including a 2 percent negative impact from changes in foreign currency exchange rates. Volumes fell 21 percent, with significant declines in all major geographies, while changes in net selling prices increased sales by 5 percent. Net sales in developed markets outsideNorth America decreased 14 percent. Volumes decreased 30 percent, driven by Western/Central Europe , while changes in net selling prices and product mix increased sales by 7 percent and 2 percent, respectively. Changes in foreign currency exchange rates increased sales by 7 percent. Operating profit of$126 decreased 30 percent. The comparison was impacted by lower volumes, higher input costs and other manufacturing cost increases. Results benefited from increased net selling prices, cost savings, lower general and administrative costs and improved product mix. 2018 Global Restructuring Program First quarter 2021 pre-tax savings from the 2018 Global Restructuring Program were$40 , bringing cumulative savings to$465 . See Item 1, Note 2 to the unaudited interim consolidated financial statements for additional information. To implement this program, we expect to incur incremental capital spending of approximately$600 to$700 by the end of 2021. 19 -------------------------------------------------------------------------------- Liquidity and Capital Resources Cash Provided by Operations Cash provided by operations was$321 for the first three months of 2021 compared to$704 in the prior year. The decrease was driven by higher working capital, including payments for accrued expenses, and lower earnings. Investing During the three months endedMarch 31, 2021 , our capital spending was$298 compared to$352 in the prior year. We anticipate that full year capital spending will be$1.2 billion to$1.3 billion . Financing Our short-term debt, which consists ofU.S. commercial paper with original maturities up to 90 days and/or other similar short-term debt issued by non-U.S. subsidiaries, was$963 as ofMarch 31, 2021 (included in Debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the first quarter of 2021 was$772 . These short-term borrowings provide supplemental funding for supporting our operations. The level of short-term debt generally fluctuates depending upon the amount of operating cash flows and the timing of customer receipts and payments for items such as dividends and income taxes. AtMarch 31, 2021 andDecember 31, 2020 , total debt was$8.8 billion and$8.4 billion , respectively. We maintain a$2.0 billion revolving credit facility which expires inJune 2023 and a$750 revolving credit facility which expires inJune 2021 . These facilities, currently unused, support our commercial paper program, and would provide liquidity in the event our access to the commercial paper markets is unavailable for any reason. InJuly 2017 , theUnited Kingdom's Financial Conduct Authority , which regulates the London Interbank Offered Rate (LIBOR), announced that it intends to phase out LIBOR by the end of 2021. We are currently evaluating the potential effect of the eventual replacement of the LIBOR, but we do not expect the effect to be material. We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During the first three months of 2021, we repurchased 1.3 million shares of our common stock at a cost of$175 through a broker in the open market. We expect our full-year repurchases will be$650 to$750 . K-C Argentina began accounting for their operations as highly inflationary effectiveJuly 1, 2018 , as required by GAAP. Under highly inflationary accounting, K-C Argentina's functional currency became theU.S. dollar, and its income statement and balance sheet have been measured inU.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other (income) and expense, net and was not material. As ofMarch 31, 2021 , K-C Argentina had a small net peso monetary position. Net sales of K-CArgentina were approximately 1 percent of our consolidated net sales for the three months endedMarch 31, 2021 . We believe that our ability to generate cash from operations and our capacity to issue short-term and long-term debt are adequate to fund working capital, payments for our 2018 Global Restructuring Program, capital spending, pension contributions, dividends and other needs for the foreseeable future. Further, we do not expect restrictions or taxes on repatriation of cash held outside of theU.S. to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future. Information Concerning Forward-Looking Statements Certain matters contained in this report concerning the business outlook, including raw material, energy and other input costs, the anticipated cost savings from our FORCE program, costs and savings from the 2018 Global Restructuring Program, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, including the impact inArgentina , effective tax rate, contingencies and anticipated transactions of Kimberly-Clark, including dividends, share repurchases and pension contributions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon management's expectations and beliefs concerning future events impacting Kimberly-Clark. There can be no assurance that these future events will occur as anticipated or that our 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. The assumptions used as a basis for the forward-looking statements include many estimates that, among other things, depend on the achievement of future cost savings and projected volume increases. In addition, many factors outside our control, including pandemics (including the ongoing COVID-19 outbreak), epidemics, fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, supply chain disruptions due to COVID-19, severe weather conditions or government 20 -------------------------------------------------------------------------------- trade or similar regulatory actions, potential competitive pressures on selling prices for our products, energy costs, general economic and political conditions globally and in the markets in which we do business, as well as our ability to maintain key customer relationships and to realize the expected benefits and synergies of the Softex Indonesia acquisition, could affect the realization of these estimates. For a description of certain factors that could cause our future results to differ from those expressed in these forward-looking statements, see Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 entitled "Risk Factors." Other factors not presently known to us or that we presently consider immaterial could also affect our business operations and financial results. Item 4. Controls and Procedures As ofMarch 31, 2021 , an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as ofMarch 31, 2021 . There were no changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 21
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