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Kimberly-Clark (KMB) Thomas J. Falk on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Call

April 22, 2016 10:00 am ET

Executives

Paul J. Alexander - Vice President-Investor Relations

Maria Henry - Chief Financial Officer & Senior Vice President

Thomas J. Falk - Chairman & Chief Executive Officer

Analysts

Lauren Rae Lieberman - Barclays Capital, Inc.

Bill Schmitz - Deutsche Bank Securities, Inc.

Ali Dibadj - Sanford C. Bernstein & Co. LLC

Stephen R. Powers - UBS Securities LLC

Olivia Tong - Bank of America Merrill Lynch

John A. Faucher - JPMorgan Securities LLC

Erin Lash - Morningstar, Inc. (Research)

Jason English - Goldman Sachs & Co.

Caroline Levy - CLSA Americas LLC

Javier Escalante - Consumer Edge Research LLC

Operator

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 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 an audio question. It is now my pleasure to introduce today's first presenter, Mr. Paul Alexander.

Paul J. Alexander - Vice President-Investor Relations

Thank you, David, and good morning, everyone. Welcome to Kimberly-Clark's First Quarter Earnings Conference Call. Here with me today are Tom Falk, Chairman and CEO; Maria Henry, CFO; and Mike Azbell, our Controller. Here's the agenda for the call. Maria will begin with a review of our first quarter results. Tom will then provide his perspectives on our results and the outlook for the full year. We'll finish with Q&A. As usual, we have a presentation of today's materials in the Investors section of our website. Now 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. We'll also be referring to adjusted results and outlook, both exclude certain items described in this morning's news release. The news release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

And now, I'll turn it over to Maria.

Maria Henry - Chief Financial Officer & Senior Vice President

Thanks, Paul. Good morning, everyone, and thanks for joining the call. Let me start with the headlines for the quarter. Organic sales were up more than 2%, mostly due to higher volumes. We achieved strong cost savings, margin improvements and growth in adjusted earnings per share. And cash generation was healthy and we continue to allocate capital in shareholder friendly ways.

Now let's cover the details starting with sales. Our first quarter net sales were $4.5 billion, that's down 5% with a 7-point drag from currency rates. Organic sales rose more than 2% in the quarter. That was slightly below our 3% to 5% full-year target, and Tom's going to provide more color on our top line in just a few minutes. On profitability, first quarter adjusted gross margin was 36.6%, up 100 basis points year-on-year. Adjusted operating margin was 18.3%. That's up 90 basis points. In addition to this overall improvement, I'm encouraged that our margins were up in all three business segments. Our FORCE cost savings for the quarter were $95 million, so we're off to a good start relative to our full-year target of at least $350 million. Our FORCE cost program continues to help us offset currency headwinds and fund growth investments on our brands.

Our Organization Restructuring remains on track and generated $15 million of savings in the quarter. Commodities were a $30 million benefit, mostly in oil-based materials. Offsetting those benefits, the total earnings drag from currency this quarter was more than 20%. In addition to translation effects of about 7%, that figure includes substantial transaction effects in developing and emerging markets. Despite this headwind, our margins in the D&E market were essentially even with year-ago levels, mostly from the benefit of price increases and cost savings.