How did Kimberly-Clark's profitability change in 2006?

Operating profit decreased 9.0 percent to $2,101.5 million and net income decreased 4.4 percent to $1,499.5 million. The filing cites about $385 million of cost inflation and about $256 million of higher Strategic Cost Reduction Plan charges as key factors, partly offset by about $265 million of cost savings.

What is the Strategic Cost Reduction Plan?

It is a multi-year plan, authorized in July 2005, to streamline manufacturing and administrative operations, primarily in North America and Europe. The company expects a net workforce reduction of about 10 percent, or approximately 6,000 employees, by the end of 2008, and about 20 manufacturing facilities are expected to be sold or closed.

Which business segments drove sales growth in 2006?

Personal Care net sales rose 7.2 percent, Health Care rose 8.6 percent, K-C Professional & Other rose 4.7 percent and Consumer Tissue rose 3.5 percent. Personal Care sales volume growth was 6 percent, and Health Care volume growth was 7 percent.

How much cash did the company return to shareholders and how is its balance sheet positioned?

The company returned $1.6 billion to shareholders through dividends and share repurchases in 2006. Total debt and preferred securities was $4.4 billion at year-end, compared with $4.6 billion a year earlier, and the ratio of total debt and preferred securities to capital was 40.3 percent.

What are the main risks the filing highlights for investors?

The filing highlights raw material and energy cost increases, particularly pulp and petroleum-based materials, intense competition and pricing pressure, and dependence on key retailers, with Wal-Mart Stores accounting for approximately 13 percent of net sales. It also cites foreign market risks, the reliance on third-party providers for certain administrative services beginning in 2007, and the risk that cost reduction efforts may not succeed.

KMB 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 22, 2007. Cited figures are marked; the original filing is the authoritative source.

Kimberly-Clark Corporation's 2006 annual report, filed February 22, 2007, shows net sales up 5.3 percent to $16,746.9 million^a, but operating profit fell 9.0 percent to $2,101.5 million and net income declined 4.4 percent to $1,499.5 million, with diluted EPS of $3.25.

The filing attributes the margin pressure to about $385 million^b of cost inflation and approximately $484 million of charges under the Strategic Cost Reduction Plan, partly offset by about $265 million of cost savings. Operating profit as a percent of net sales declined to 12.5 percent from 14.5 percent. The company describes growth driven by higher sales volumes, increased net selling prices and improved product mix, with the developing and emerging markets growing net sales 14 percent.

Cash provided by operations rose 12 percent to $2.6 billion^c, and the company returned $1.6 billion to shareholders through dividends and share repurchases, including $750 million of repurchases in 2006. Management expects competition to remain intense in 2007 and plans to continue the Global Business Plan.

The Strategic Cost Reduction Plan now carries estimated cumulative pretax charges of approximately $950 million to $1.0 billion^d through 2008, with anticipated annual pretax savings of at least $350 million by 2009 and a net workforce reduction of about 10 percent. Moody's downgraded the long-term credit rating to Aa3 with a stable outlook in October 2006, while Standard & Poor's kept its AA- rating.

02—Key points

Key Highlights

Net sales rose 5.3 percent to $16,746.9 million in 2006, driven by higher sales volumes, increased net selling prices and improved product mix.
Operating profit declined 9.0 percent to $2,101.5 million; operating margin fell to 12.5 percent from 14.5 percent in 2005.
Net income decreased 4.4 percent to $1,499.5 million, and diluted EPS decreased .9 percent to $3.25.
Cost inflation of about $385 million and approximately $484 million of Strategic Cost Reduction Plan charges outweighed cost savings of about $265 million.
Cash provided by operations increased 12 percent to $2.6 billion; capital spending was $972.1 million.
The company returned $1.6 billion to shareholders through dividends and share repurchases, including about $750 million of share repurchases in 2006.
Strategic Cost Reduction Plan charges are now estimated at $950 million to $1.0 billion before tax by the end of 2008, with anticipated annual pretax savings of at least $350 million by 2009.

03—Questions

Frequently Asked Questions

How did Kimberly-Clark's profitability change in 2006?
Operating profit decreased 9.0 percent to $2,101.5 million and net income decreased 4.4 percent to $1,499.5 million. The filing cites about $385 million of cost inflation and about $256 million of higher Strategic Cost Reduction Plan charges as key factors, partly offset by about $265 million of cost savings.
What is the Strategic Cost Reduction Plan?
It is a multi-year plan, authorized in July 2005, to streamline manufacturing and administrative operations, primarily in North America and Europe. The company expects a net workforce reduction of about 10 percent, or approximately 6,000 employees, by the end of 2008, and about 20 manufacturing facilities are expected to be sold or closed.
Which business segments drove sales growth in 2006?
Personal Care net sales rose 7.2 percent, Health Care rose 8.6 percent, K-C Professional & Other rose 4.7 percent and Consumer Tissue rose 3.5 percent. Personal Care sales volume growth was 6 percent, and Health Care volume growth was 7 percent.
How much cash did the company return to shareholders and how is its balance sheet positioned?
The company returned $1.6 billion to shareholders through dividends and share repurchases in 2006. Total debt and preferred securities was $4.4 billion at year-end, compared with $4.6 billion a year earlier, and the ratio of total debt and preferred securities to capital was 40.3 percent.
What are the main risks the filing highlights for investors?
The filing highlights raw material and energy cost increases, particularly pulp and petroleum-based materials, intense competition and pricing pressure, and dependence on key retailers, with Wal-Mart Stores accounting for approximately 13 percent of net sales. It also cites foreign market risks, the reliance on third-party providers for certain administrative services beginning in 2007, and the risk that cost reduction efforts may not succeed.

04—Continue

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