Kimberly-Clark Corporation

Ladies and gentlemen, thank you for your patience and holding. We now have your presenters in conference. Please be aware, each of your lines is in a listen-only mode. At the conclusion of this morning's presentation, we'll be opening the floor for questions, and at that time, instructions will be given as to the procedure to follow if you'd like to ask an audio question. It is now my pleasure to introduce today's first presenter, Mr. Paul Alexander. Please go ahead, sir.

Thank you, David. Good morning, everyone. Welcome to Kimberly Clark's third quarter earnings conference call. This morning, you'll hear from Mike Hsu, our Chairman and Chief Executive Officer, and Maria Henry, our CFO. We have a presentation of today's materials in the investor section of our website. As a reminder, we will be making forward-looking statements this morning. Please see the risk factors section of our latest quarterly and annual reports for further discussion of forward-looking statements. Lastly, we'll 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 us on the call this morning. Let me start with the headlines for the quarter. Organic sales increased 3% with good underlying momentum and benefits from increased demand related to COVID-19. We significantly increased our growth investments and improved our market positions. We had another strong quarter of achieving cost savings and returning cash to shareholders. And finally, while earnings were down as expected, we are increasing our full-year outlook. Now let's look at the details of our results, starting with sales. Our third quarter net sales were $4.7 billion. That's up 1% from a year ago and includes a two-point drag from currency rates. Volumes were up 2%, and the combined impact of changes in net selling prices and product mix increased sales by 1%. By segment, organic sales rose 10% in consumer tissue and 5% in personal care, but declined 15% in KC Professional. Mike will talk more about our top line and our market share performance in just a few minutes. Moving on to profitability, third quarter adjusted gross margin, was 36.2%, up 40 basis points year-on-year. Adjusted gross profit increased 2%. We had excellent cost savings performance in the quarter. Combined savings from our force and restructuring programs totaled $140 million, including continued strong productivity improvements. Commodities were a benefit of $25 million in the quarter, driven by pulp and other raw materials. Other manufacturing costs were higher year on year. That included incremental costs related to COVID-19. Foreign currencies were also a headwind, reducing operating profit by a high single-digit rate in the quarter. Moving further down the P&L, between-the-line spending was 18.9% of sales. That's up 180 basis points and driven by a big step up in digital advertising. G&A also increased. including capability-building investments and higher incentive compensation expense. We expect between-the-line spending will rise further sequentially in the fourth quarter. Our SG&A spending is typically high in the fourth quarter, and this year we'll also have project activities that were temporarily delayed because of COVID-19. All in all, for the third quarter, adjusted operating profit was down 6 percent An operating margin was 17.2%, down 130 basis points versus a year ago. By segment, operating margins were up in consumer tissue and healthy and personal care. KC professional margins were down significantly, including an approximate 600 basis point drag from fixed cost under absorption. On the bottom line, adjusted earnings per share were $1.72 in the quarter compared to $1.84 in the year-ago period. Turning to cash flow and capital efficiency, cash provided by operations in the third quarter was $559 million compared to $886 million in the year-ago quarter. The decrease was as expected and driven by the timing of tax payments and higher working capital. We continue to allocate capital in shareholder-friendly ways. Third quarter dividends and share repurchases totaled approximately $560 million. And for the full year, we expect the total will be $2.15 billion. So let me now turn to the full year. The overall headline is that we're raising our top and bottom line outlook. On the top line, we now expect organic sales growth of 5% compared to our prior target of 4% to 5%. Through nine months, organic sales are up nearly 6%, and we expect a solid fourth quarter. On average, we expect slightly less headwinds from currency rates than previously anticipated. In addition, we'll begin consolidating the soft tax Indonesia business into our results on November 1st on a one-month lag. All in all, we expect net sales will grow 2 to 3 percent this year. That's one point better than our previous estimate. On the bottom line, our new outlook is for adjusted earnings per share of $7.50 to $7.65. That represents year-on-year growth of 9 to 11 percent. Our prior outlook was for adjusted EPS of $7.40 to $7.60. The increase in our outlook is driven by improved top line, partially offset by higher incentive compensation expense and other manufacturing costs. Overall, I'm encouraged that we're improving our near-term outlook and investing significantly in the business for longer-term growth. I'll now turn it over to Mike.