KIMBERLY-CLARK CORPORATION 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 Second Quarter 2022 Results
•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 7 to the unaudited interim consolidated financial statements. OnFebruary 24, 2022 , we completed our acquisition of a majority and controlling share ofThinx Inc. ("Thinx"), an industry leader in the reusable period and incontinence underwear category, for total consideration of$181 consisting of cash of$53 , the fair value of our previously held equity investment of$127 , and certain share-based award costs of$1 . This section presents a discussion and analysis of our second quarter 2022 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, acquisitions and exited businesses also impact the year-over-year change in net sales. Our analysis compares the three and six months endedJune 30, 2022 results to the same periods in 2021. InMarch 2022 , we implemented significant adjustments to our business inRussia and suspended substantially all media, advertising and promotional activity as well as capital investments in our sole manufacturing facility. Consistent with the humanitarian nature of our products, we are manufacturing and selling only essential items, such as baby diapers and feminine pads, which are critical to the health and hygiene of women, girls and babies, but our ability to manufacture these items may change as the situation evolves. OurRussia business has historically represented approximately 1 to 2 percent of our net sales, operating profit and total assets. We are actively monitoring the situation, and as the business, geopolitical and regulatory environment concerningRussia evolves, our assets may be partially or fully impaired. We are also monitoring the increased risk of cyber-based attacks as a result of the Russian invasion ofUkraine and have implemented heightened cyber-security monitoring of our systems designed to address the evolving threat landscape. We are experiencing increased input costs as a result of inflation and supply chain complexities related to the Russian invasion that are having a negative impact on our operations. For a more complete discussion of the risks we encounter in our business, please refer to Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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 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 items for the relevant time periods as indicated in the reconciliations included later in this MD&A:
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•Pension settlements - In the second quarter of 2022, pension settlement charges
of $24 pre-tax ($18 after tax) were recognized related to lump-sum distributions
from pension plan assets exceeding the total of annual service and interest
costs resulting in a recognition of deferred actuarial losses.
•Acquisition of controlling interest in Thinx - In the first quarter of 2022, we
increased our investment in Thinx. As a result of this transaction, a net
benefit was recognized of $64 pre-tax ($68 after tax), primarily due to the
non-recurring, non-cash gain recognized related to the remeasurement of the
carrying value of our previously held equity investment to fair value partially
offset by transaction and integration costs. See Item 1, Note 2 to the unaudited
interim consolidated financial statements for details.
The non-GAAP financial measures also exclude charges in 2021 for the 2018 Global
Restructuring Program as indicated in the reconciliations included later in this
MD&A. In 2018, we initiated this restructuring in order to reduce our structural
cost base by streamlining and simplifying our manufacturing supply chain and
overhead organization. As a result, we recognized restructuring charges in 2018,
2019, 2020 and 2021 for this program. Restructuring actions were completed in
2021.
Overview of Second Quarter 2022 Results
•Net sales of
•Operating profit was$621 in 2022 and$613 in 2021. Net Income Attributable toKimberly-Clark Corporation was$437 in 2022 compared to$404 in 2021, and diluted earnings per share were$1.29 in 2022 compared to$1.19 in 2021. Results in 2022 include pension settlement charges, compared to 2021 results, which include charges related to the 2018 Global Restructuring Program.
Results of Operations and Related Information
This section presents a discussion and analysis of our second quarter 2022 net
sales, operating profit and other information relevant to an understanding of
the results of operations.
Consolidated
Selected Financial Results Three Months Ended June 30 Six Months Ended June 30
Percent Percent
2022 2021 Change 2022 2021 Change
Net Sales :
North America $ 2,657 $ 2,393 +11 % $ 5,271 $ 4,744 +11 %
Outside North America 2,479 2,405 +3 % 5,025 4,875 +3 %
Intergeographic sales (73) (76) -4 % (138) (154) -10 %
Total Net Sales 5,063 4,722 +7 % 10,158 9,465 +7 %
Operating Profit:
North America 497 488 +2 % 956 997 -4 %
Outside North America 232 272 -15 % 509 639 -20 %
Corporate & Other(a) (106) (134) N.M. (208) (236) N.M.
Other (income) and expense, net(a) 2 13 -85 % (57) 17 N.M.
Total Operating Profit 621 613 +1 % 1,314 1,383 -5 %
Share of net income of equity companies 29 28 +4 % 52 67 -22 %
Net Income Attributable to Kimberly-Clark Corporation 437 404 +8 % 960 988 -3 % Diluted Earnings per Share 1.29 1.19 +8 % 2.84 2.92 -3 %
(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
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--------------------------------------------------------------------------------GAAP to Non-GAAP Reconciliations of Selected Financial Results
Three Months Ended
As
As Pension Adjusted
Reported Settlements Non-GAAP
Nonoperating expense $ (27) $ (24) $ (3)
Provision for income taxes (115) 6 (121)
Effective tax rate 21.8 % - 22.0 %
Net Income Attributable to Kimberly-Clark Corporation 437 (18) 455
Diluted Earnings per Share(a) 1.29 (0.05) 1.34
Three Months Ended June 30, 2021
2018 Global As
As Restructuring Adjusted
Reported Program Non-GAAP
Cost of products sold $ 3,242 $ 25 $ 3,217
Gross Profit 1,480 (25) 1,505
Marketing, research and general expenses 854 30 824
Other (income) and expense, net 13 8 5
Operating Profit 613 (63) 676
Nonoperating expense (55) (56) 1
Provision for income taxes (113) 25 (138)
Effective tax rate 22.8 % - 22.5 %
Net Income Attributable to Kimberly-Clark Corporation 404 (94) 498
Diluted Earnings per Share(a) 1.19 (0.28) 1.47
Six Months Ended
Acquisition of
Controlling As
As Interest in Adjusted
Reported Thinx Pension Settlements Non-GAAP
Marketing, research and general expenses $ 1,792 $ 21 $ - $ 1,771
Other (income) and expense, net (57) (85) - 28
Operating Profit 1,314 64 - 1,250
Nonoperating expense (31) - (24) (7)
Provision for income taxes (229) 4 6 (239)
Effective tax rate 19.9 % - - 21.5 %
Net Income Attributable to Kimberly-Clark
Corporation 960 68 (18) 910
Diluted Earnings per Share(a) 2.84 0.20 (0.05) 2.69
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Six Months Ended June 30, 2021
2018 Global As
As Restructuring Adjusted
Reported Program Non-GAAP
Cost of products sold $ 6,396 $ 50 $ 6,346
Gross Profit 3,069 (50) 3,119
Marketing, research and general expenses 1,669 39 1,630
Other (income) and expense, net 17 8 9
Operating Profit 1,383 (97) 1,480
Nonoperating expense (61) (56) (5)
Provision for income taxes (260) 32 (292)
Effective tax rate 21.7 % - 21.6 %
Net income attributable to noncontrolling interests (16) 1 (17)
Net Income Attributable to Kimberly-Clark Corporation 988 (120) 1,108
Diluted Earnings per Share(a) 2.92 (0.35) 3.27
(a) "As Adjusted Non-GAAP" may not equal "As Reported" plus "Adjustments" as a result of rounding.
Analysis of Consolidated Results
Net Sales Percent Change Adjusted Operating Profit Percent Change
Three Months Six Months Ended Three Months Six Months Ended
Ended June 30 June 30 Ended June 30 June 30
Volume (1) 1 Volume (5) (3)
Net Price 9 7 Net Price 60 47
Mix/Other 1 1 Input Costs (60) (59)
Currency (2) (2) Cost Savings(c) 7 7
Total(a) 7 7 Currency Translation (3) (2)
Other(d) (7) (6)
Organic(b) 9 10 Total (8) (16)
(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) Benefits of the FORCE (Focused On Reducing Costs Everywhere) program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
Net sales in the second quarter of$5.1 billion increased 7 percent compared to the year ago period. Changes in foreign currency exchange rates reduced sales by 2 percent. Organic sales increased 9 percent as changes in net selling prices and product mix increased sales by 9 percent and 1 percent, respectively, and volumes declined 1 percent. InNorth America , organic sales increased 11 percent in consumer products and increased 8 percent in K-C Professional.Outside North America , organic sales rose 8 percent in D&E markets and 9 percent in developed markets. Operating profit in the second quarter was$621 in 2022 and$613 in 2021. Excluding the charges related to the 2018 Global Restructuring Program, 2021 adjusted operating profit was$676 . Results were impacted by$405 of higher input costs. Higher marketing, research and general expense as well as unfavorable foreign currency transaction effects reduced operating profit in the quarter. Results benefited from organic sales growth and$45 of cost savings from our FORCE program. The second quarter effective tax rate was 21.8 percent in 2022 and 22.8 percent in 2021. The second quarter adjusted effective tax was 22.0 percent in 2022 and 22.5 percent in 2021.
Our share of net income of equity companies in the second quarter was
Diluted net income per share for the second quarter was
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Year-to-date net sales of $10.2 billion increased 7 percent compared to the year
ago period. Organic sales increased 10 percent, as changes in net selling prices
increased sales by 7 percent, volumes increased 1 percent and changes in product
mix increased sales by approximately 1 percent. Changes in foreign currency
exchange rates decreased sales by approximately 2 percent. Year-to-date
operating profit was $1,314 in 2022 and $1,383 in 2021. Results in 2022 include
the net benefit of the acquisition of a controlling interest in Thinx. Results
in 2021 include charges related to the 2018 Global Restructuring Program.
Year-to-date adjusted operating profit was $1,250 in 2022 and $1,480 in 2021.
Results were impacted by higher input costs, higher marketing, research and
general spending and unfavorable foreign currency effects. Results benefited
from organic sales growth, $95 of FORCE savings and lower other manufacturing
costs. Through six months, diluted net income per share was $2.84 in 2022 and
$2.92 in 2021. Year-to-date adjusted earnings per share were $2.69 in 2022 and
$3.27 in 2021.
Results by Business Segments
Personal Care
Three Months Ended June
Three Months Ended June 30 Six Months Ended June 30 30 Six Months Ended June 30
2022 2021 2022 2021 2022 2021 2022 2021
Net Sales $ 2,710 $ 2,517 $ 5,439 $ 4,979 Operating Profit $ 466 $ 454 $ 941 $ 935
Net Sales Percent Change Percent Change Operating Profit Percent Change Percent Change
Volume (1) 1 Volume (3) (1)
Net Price 9 9 Net Price 52 46
Mix/Other 1 2 Input Costs (39) (42)
Acquisition/Exited
Businesses(e) 1 - Cost Savings(c) 7 6
Currency (2) (2) Currency Translation (3) (3)
Total(a) 8 9 Other(d) (11) (5)
Organic(b) 9 11 Total 3 1
(a) Total may not equal the sum of volume, net price, mix/other, acquisition/exited businesses and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Benefits of the FORCE program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
(e) Combined impact of the acquisition of
Second quarter net sales inNorth America increased 10 percent. Changes in net selling prices increased sales by 9 percent, and the Thinx acquisition increased sales by 1 percent. Organic sales increased in all personal care segments. Net sales in D&E markets increased 7 percent. Changes in net selling prices and product mix increased sales by 12 percent and 3 percent, respectively, while volumes declined 6 percent. Changes in foreign currency exchange rates decreased sales by 2 percent. Organic sales growth was driven byLatin America andChina . Net sales in developed markets outsideNorth America increased 1 percent. Volumes increased 5 percent, and changes in net selling prices and product mix increased sales by 4 percent and 1 percent, respectively. Changes in foreign currency exchange rates reduced sales by 9 percent.
Operating profit of
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Consumer Tissue
Three Months Ended June
Three Months Ended June 30 Six Months Ended June 30 30 Six Months Ended June 30
2022 2021 2022 2021 2022 2021 2022 2021
Net Sales $ 1,537 $ 1,424 $ 3,105 $ 2,934 Operating Profit $ 178 $ 196 $ 349 $ 465
Net Sales Percent Change Percent Change Operating Profit Percent Change Percent Change
Volume 3 3 Volume - -
Net Price 7 6 Net Price 52 37
Mix/Other 1 1 Input Costs (80) (72)
Acquisition/Exited
Businesses(e) - (1) Cost Savings(c) 4 6
Currency (3) (2) Currency Translation (1) (1)
Total(a) 8 6 Other(d) 16 5
Organic(b) 11 9 Total (9) (25)
(a) Total may not equal the sum of volume, net price, mix/other, acquisition/exited businesses and currency due to rounding.
(b) Combined impact of changes in volume, net price and mix/other.
(c) Benefits of the FORCE program.
(d) Includes impact of changes in marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
(e) Impact of exited businesses in conjunction with the 2018 Global Restructuring Program.
Second quarter net sales inNorth America increased 14 percent. Volumes grew 7 percent, and changes in net selling prices and product mix increased sales by 6 percent and 1 percent, respectively. The volume growth reflects comparison to the COVID-related consumer and retailer inventory destocking in the year-ago period.
Net sales in D&E markets increased 4 percent. Changes in net selling prices and product mix increased sales by 9 percent and 3 percent, respectively, while volumes were down 7 percent. Changes in foreign currency exchange rates decreased sales by 1 percent.
Net sales in developed markets outsideNorth America were even with year-ago. Changes in net selling prices increased sales by approximately 9 percent, and volumes grew 2 percent. Changes in foreign currency exchange rates decreased sales by 9 percent, and exited businesses related to the 2018 Global Restructuring program reduced sales by 1 percent. Operating profit of$178 decreased 9 percent. The comparison was impacted by input cost inflation and higher marketing, research and general spending. Results benefited from organic sales growth, lower other manufacturing costs and cost savings. K-C Professional Three Months Ended June 30 Six Months Ended June 30 Three Months Ended June 30 Six Months Ended June 30 2022 2021 2022 2021 2022 2021 2022 2021 Net Sales$ 802 $ 765 $ 1,582 $ 1,517 Operating Profit $ 85$ 110 $ 175 $ 236 Net Sales Percent Change Percent Change Operating Profit Percent Change Percent Change Volume (3) (2) Volume (20) (16) Net Price 9 7 Net Price 62 43 Mix/Other 2 2 Input Costs (64) (64) Currency (3) (2) Cost Savings(c) 7 7 Total(a) 5 4 Currency Translation (1) (1) Other(d) (7) 5 Organic(b) 7 7 Total (23) (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) Benefits of the FORCE program.
(d) Includes impact of changes in product mix, marketing, research and general expenses, foreign currency transaction effects and other manufacturing costs.
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Second quarter net sales in North America increased 8 percent. Changes in net
selling prices and product mix increased sales by approximately 8 percent and 2
percent, respectively, while volumes declined by 1 percent. Washroom products
sales were up strong double-digits, while sales of safety products decreased
versus a strong year-ago.
Net sales in D&E markets increased 4 percent. Changes in net selling prices and
product mix increased sales by 7 percent and 1 percent, respectively, while
volumes declined 2 percent. Changes in foreign currency exchange rates decreased
sales by 2 percent.
Net sales in developed markets outside
Operating profit of$85 decreased 23 percent. The comparison was impacted by input cost inflation, lower volumes and higher marketing, research and general spending. Results benefited from higher net selling prices and cost savings.
Liquidity and Capital Resources
Cash Provided by Operations
Cash provided by operations was$944 for the first six months of 2022 compared to$886 in the prior year. The increase was driven by favorable working capital, partially offset by lower operating profit.
Investing
During the six months endedJune 30, 2022 , our capital spending was$470 compared to$499 in the prior year. We anticipate that full year capital spending will be$1.0 billion to$1.1 billion . Acquisition of business, net of cash acquired of$46 in the first six months of 2022 reflected the acquisition of a controlling interest of Thinx.
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$0.7 billion as ofJune 30, 2022 (included in Debt payable within one year on the consolidated balance sheet). The average month-end balance of short-term debt for the second quarter of 2022 was$0.8 billion . These short-term borrowings provide supplemental funding to support 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.
At
We maintain a$2.0 billion revolving credit facility which expires inJune 2026 and a$775 revolving credit facility which expires inJune 2023 . 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. TheUnited Kingdom's Financial Conduct Authority , which regulates theLondon Interbank Offered Rate ("LIBOR"), is in the process of phasing out LIBOR with completion of the phase out expected byJune 30, 2023 . We have evaluated the potential effect of the elimination of LIBOR and do not expect the effect to be material. Accounting guidance has been issued to ease the transition to alternative reference rates from a financial reporting perspective. We repurchase shares of Kimberly-Clark common stock from time to time pursuant to publicly announced share repurchase programs. During the first six months of 2022, we repurchased 388 thousand shares of our common stock at a cost of$50 through a broker in the open market. We are targeting full-year 2022 share repurchases of approximately$100 , subject to market conditions. 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, 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, 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 andTurkey , 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 20
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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 the war inUkraine (including the related responses of consumers, customers, and suppliers and sanctions issued by theU.S. , theEuropean Union ,Russia or other countries), pandemics (including the ongoing COVID-19 outbreak and the related responses of governments, consumers, customers, suppliers and employees), epidemics, fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, supply chain disruptions, changes in customer preferences, severe weather conditions, government 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, could affect the realization of these estimates. The factors described under Item 1A, "Risk Factors" in this Form 10-K, or in our otherSEC filings, among others, could cause our future results to differ from those expressed in any forward-looking statements made by us or on our behalf. Other factors not presently known to us or that we presently consider immaterial could also affect our business operations and financial results.
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