Chairman and chief executive officer Thomas J. Falk said, “Business conditions in the first quarter proved to be somewhat more challenging than we predicted earlier this year, with significant headwinds from weak global economies and volatile currency fluctuations impacting our results. Despite the difficult environment, we made progress in several areas during the quarter. We continued to pursue our targeted growth initiatives and build our brands. We improved profitability in our Personal Care, Consumer Tissue and Health Care businesses, indicating that our focus on increasing margins is starting to pay off. We delivered continued double-digit organic top-line growth in developing and emerging markets. We also generated strong cash flow, including early benefits from our efforts to improve working capital. While this progress is encouraging, we are not yet where we need to be. We are committed to overcome the challenges facing us and deliver improved bottom-line results.”

Other first quarter operating results

Operating profit was $628 million in the first quarter of 2009, down about 5% from $664 million in 2008, but down nearly 9% compared with prior year adjusted operating profit of $688 million. The latter amount excludes net charges incurred in 2008 for the company’s strategic cost reduction plan.

The company’s effective tax rate for the first quarter of 2009 was 29.1%, consistent with the anticipated full year range of 28 to 30%. In the year-ago quarter, the effective tax rate was 27.6% and the adjusted effective tax rate, excluding the effects of charges for the company’s strategic cost reduction plan, was 27.8%. A reconciliation of the 2008 effective tax rate calculation is provided in a separate section of this news release.

Kimberly-Clark’s share of net income of equity companies in the first quarter decreased to $32 million from $43 million in 2008, mainly as a result of lower net income at Kimberly-Clark de Mexico, S.A.B. de C.V. (KCM). Although KCM delivered high single-digit organic sales growth and improved its gross profit margin, operating profit and net income comparisons were adversely affected by currency translation and transaction losses, including losses on U.S. dollar-denominated liabilities. Compared with the first quarter of 2008, the Mexican peso depreciated by an average of approximately 25% versus the U.S. dollar. Kimberly-Clark’s share of currency effects at KCM totaled about $18 million for the quarter, equivalent to approximately 4 cents per share. KCM has recently taken steps to hedge a significant portion of its U.S. dollar liability exposure.

Net income attributable to noncontrolling interests (formerly minority owners’ share of subsidiaries’ net income) was $24 million in the first quarter of 2009 compared with $35 million in the prior year.


The company updated several key planning and guidance assumptions for 2009, as follows:

Organic sales growth of 1 to 2%, somewhat below previous expectations as overall sales volumes are now anticipated to be flat to down slightly for the year instead of flat to up slightly. Year-over-year net selling prices are still expected to be up approximately 2 to 3% and product mix should be flat to up modestly.

Net sales decline of 6 to 8%. Currency is expected to reduce sales for the full year by approximately 8 to 9%, assuming exchange rates remain in line with first quarter levels.

Deflation in key cost inputs of approximately $600 to $700 million. This compares to the company’s previous expectation for $300 million of cost deflation and reflects estimated average market pricing for benchmark northern softwood pulp of approximately $660 per metric ton and oil prices averaging $45 to $55 per barrel for the balance of the year. As previously noted, weaker currency exchange rates versus 2008 reduce the potential benefit of forecasted declines in dollar-based input costs for operations outside the U.S.

Pension expense of approximately $255 million across all company defined benefit plans, down approximately $40 million from the original plan for the year, with virtually all of the reduction in expense coming in the second half of the year. The decrease is a result of the company’s decision to freeze plan benefits for all U.S. non-union employees effective December 31, 2009. Cash contributions to the plans in 2009 are not affected by this change and therefore are still expected to total about $530 million versus $130 million in 2008.

Year-over-year currency translation and transaction losses for consolidated operations of $425 to $500 million versus the previous assumption for losses in a range of $250 to $325 million. Most of the increase is due to an expectation for higher transaction losses based on the company’s experience in the first quarter.

Commenting on the outlook, Falk said, “We expect the external environment will remain challenging throughout the balance of the year. While we are encouraged that commodity costs have declined and have begun to positively impact our gross margins, economic weakness is impacting demand for our products. Moreover, currency effects have become a more significant drag than we anticipated heading into the year. Overall, we remain mindful of the potential for unexpected changes in consumer demand or net selling prices for our products and further volatility in currency exchange rates and our input costs.

“That said, we are confident in our strategic direction. We plan to continue to do the right things for the long-term health of our businesses and effectively manage those factors which we can control. We will continue to invest in our brands and build our capabilities in marketing, innovation and customer development to improve our competitive position and drive sustainable growth, while at the same time staying focused on increasing margins and maximizing cash flow in the short term.

In addition, we intend to further improve inventory levels; as a result, production curtailment will be higher than previously anticipated. Moreover, in this environment, we must also be flexible enough to adjust our plans to deliver the best possible results. In fact, we have already begun to generate incremental savings, particularly in product sourcing and supply chain costs, with additional plans underway to drive even greater efficiencies throughout our organization.

“All things considered, we are on track with our plan for the year and continue to expect earnings per share in 2009 will be in a range of $4.00 to $4.20, even though some of our planning assumptions have changed considerably. We also continue to believe that earnings per share in the first half of the year are likely to be down versus 2008, with improvement expected in the second half of the year.”