Kimberly-Clark Corporation

Ladies and gentlemen, thank you for your patience and holding. We now have your speakers in conference. Please be aware that each of your lines is in a listen-only mode. If you need assistance at any time, please press star zero and an operator will assist you. At the conclusion of today's presentation, we will open the floor for your questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question. It is now my pleasure to introduce Mr. Paul Alexander. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Kimberly Clark's second quarter earnings conference call. This morning, you'll hear from Mike Hsu, our Chairman and Chief Executive Officer, and Marie Henry, our CFO. We have a presentation of today's materials in the Investors section of our website. As a reminder, we will be making forward-looking statements today. Please see the Risk Factors section of our latest quarterly and annual reports for further discussion of forward-looking statements. Lastly, we will also be referring to adjusted results and outlook. Both exclude certain items described in this morning's news release. That release has further information about these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Maria.

Thanks, Paul, and good morning, everyone. Thanks for joining the call. I hope everyone is continuing to stay healthy and safe in this environment. Let me go ahead and start with the headlines for the quarter. Organic sales increased 4%, reflecting good underlying momentum and net benefits from increased demands related to COVID-19. We achieved significant cost savings, margin improvements, and record-adjusted earnings. And additionally, we achieved all-time record operating cash flow. Now let's cover the details of the results, starting with sales. Our second quarter net sales were $4.6 billion. That's up slightly from a year ago and includes a four-point drive from currency rates. Volumes were up 2% and net selling prices and product mix each improved one point. By segment, organic sales rose 14% in consumer tissue and 2% in personal care, but declined 10% in KC Professional. Mike will provide more color on the top line in just a few minutes. Moving on to profitability. Second quarter adjusted gross margin was 39.8%, up 520 basis points year-on-year. Adjusted gross profit increased 16%. We had outstanding cost savings performance in the quarter. Combined savings from our force and restructuring programs totaled $175 million, including strong productivity improvements. We are now targeting full-year cost savings of $510 to $560 million, That's up nicely compared to our original range of $425 to $500 million. Commodities were a benefit of $80 million in the quarter driven by pulp. We now expect full-year commodity deflation of $150 to $250 million. On average, that's $75 million better than our original outlook. On the other hand, foreign currencies were a headwind in the quarter, reducing our operating profit by a high single-digit rate. For the full year, currency effects are expected to be a high single-digit drag on operating profit. Versus our original plan, the incremental currency headwinds are about twice the benefit of the improved commodity outlook. Other manufacturing costs were also higher year on year. For the full year, these costs are expected to increase more than we originally planned, That's due to incremental expenses related to COVID-19, partially offset by improved fixed cost absorption. Moving further down the P&L, between-the-line spending was up 40 basis points as a percent of sales, driven by a nice pickup in digital advertising. All in all, adjusted operating profit was up 28%. Second quarter adjusted operating margin was 21.9%, up 470 basis points versus a year ago. Margins were up in all three business segments with significant improvement in consumer tissue. Consumer tissue margins included an approximate 175 basis point benefit from improved fixed cost absorption. On the bottom line, adjusted earnings per share were a record $2.20, up 32% year on year. Let's turn to cash flow and capital efficiency. Cash provided by operations in the second quarter was an all-time record of nearly $1.6 billion compared to $609 million in the year-ago quarter. The increase was driven by unusually strong working capital benefits, higher earnings, and a temporary delay in tax payments. While cash flow is expected to decline in the back half of the year, we expect full-year cash flow will be up very nicely year-on-year. Second quarter dividends in share repurchases totaled about $400 million. That was lower than normal because of our decision to temporarily suspend share repurchases for most of the second quarter. As we mentioned in this morning's news release, we will be restarting our share repurchase program beginning tomorrow. All in all, we delivered very good results across the board while continuing to invest for future success. I'll now turn the call over to Mike.