Kimberly-Clark Corporation

Ladies and gentlemen, thank you for your patience and holding. We now have your presenters in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of this morning's remarks, we'll open the floor for 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 today's first presenter, Mr. Paul Alexander.

Thank you, and good morning, everyone. Welcome to Kimberly Clark's year-end earnings conference call. This morning you'll hear from Mike Hsu, our Chairman and Chief Executive Officer, and Maria Henry, our CFO. We sincerely hope everyone is continuing to stay healthy and safe. And in keeping with our social distancing procedures, this morning Mike, Maria, and I are each in different locations in our Dallas office. As a reminder, we will be making forward-looking statements today. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements. Finally, 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 gap financial measures. Now I'll turn the call over to Maria.

Thanks, Paul, and good morning, everyone. Thanks for joining the call this morning. Let me start with the headlines for the full year results. We delivered strong top and bottom line growth and exceeded our previous outlook We significantly increased our brand and capability investments and improved our market shares. We generated excellent cost savings and cash flow, and we returned significant cash to shareholders. Now let's cover the details of our results, starting with sales. Full-year net sales were $19.1 billion. That's up 4% year-on-year and included a two-point drag from currency rates. Organic sales grew 6% with healthy underlying performance and increased demand related to COVID-19. Volumes were up 4%, and net selling prices and product mix each increased 1%. Mike is going to provide some more color on our top line and market share performance in just a few minutes. Moving on to profitability, full-year adjusted gross margin was 37.1%, up 210 basis points year on year. Adjusted gross profit increased 10%. We generated $575 million of cost savings from our force and restructuring programs. That was well above our initial target and slightly better than we expected in October. For 2021, we're targeting $400 to $460 million in total cost savings. Commodities were favorable by $175 million in 2020, although they turned inflationary in the fourth quarter. We're planning for commodity inflation of $450 to $600 million in 2021. Costs are projected to increase broadly in most areas, including pulp and recycled fiber, resin, superabsorbent, and distribution expenses. Other manufacturing costs were higher in 2020, including costs related to COVID-19. Foreign currencies were also a headwind, reducing operating profit at a high single-digit rate. Moving further down the P&L, between-the-lines spending was up 110 basis points as a percent of sales. That was driven by advertising, which was up 90 basis points. SG&A spending also increased and included higher incentive compensation along with capability building investments. Adjusted operating margin was 18.7%, up 90 basis points, and adjusted operating profit grew 9%. In terms of company profitability for 2021, the midpoint of our planning assumptions implies a 70 basis point decline in adjusted operating margin. And while there are a number of moving pieces, it's likely that adjusted gross margin will be down somewhat more than that. Turning back to 2020 results, full year adjusted earnings per share were $7.74, up 12%. Our October guidance was for earnings of $7.50 to $7.65. In addition to the strong growth in adjusted operating profits, the bottom line benefited from higher equity income, a lower share count, and a slight decline in adjusted effective tax rates. Now let's turn to cash flow . Cash provided by operations was an all-time record $3.7 billion, up $1 billion year-on-year, reflecting outstanding working capital performance and strong earnings. Cash flow is expected to be down year-on-year in 2021, driven by higher cash taxes and working capital. Nonetheless, cash flow should remain strong and well above 2019's level. Capital spending was $1.2 billion in 2020, in line with plan and the prior year. We plan to spend between $1.2 and $1.3 billion in 2021, including activity for our restructuring program and a pickup in growth projects. Based on an initial outlook at longer-term opportunities, we believe spending will be elevated again in 2022. On capital allocation, dividends and share repurchases totaled $2.15 billion. That's the 10th consecutive year we've returned at least $2 billion to shareholders. We expect to return a similar level of cash to shareholders in 2021. And as mentioned in the earnings release, our Board has already approved our 49th consecutive annual dividend increase and authorized a new $5 billion share repurchase program. Let me finish with a short update on our restructuring program. We continue to make significant progress as we head into the last year of this program. We're about 85% to 90% through the total pre-tax charges which we've increased somewhat to reflect delays as a result of COVID-19 and costs for additional savings opportunities. So far, we've generated $420 million of savings and expect to achieve between $540 and $560 million of savings by the end of 2021. Our original savings estimate was $500 to $550 million. Finally, at this point, cash payments are about 75% to 80% complete. Overall, it was an excellent year financially, while we invested more in the business for the long term and navigated the COVID-19 environment. I'll now turn the call over to Mike.