金百利克拉克 (KMB) 2001 Q1 法說會逐字稿

Excuse me everyone. We now have Mike Mathis in conference. Please be aware that each of your lines is in a listen only mode. At the conclusion of the presentation, we will 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. I would now like to turn the conference over to Mr. Mathis. Sir, you may begin.

Thank you very much. Good morning everyone. We are glad you could join us today. Here today are our normal team Tom Falk, President; Jack Donehower, CFO, who will be speaking this morning; Randy Controller; and Tina Barry, Senior Vice President and Head of Corporate Communications. I hope you had a chance to review yesterday's news release about our first quarter results. To sum up, our sales momentum continued with a gain of 6.5% versus last year when we had solid bottom line improvement as earnings from operations set a new first quarter record of 84 cents per share, up 5%. It is important to note that we achieved these improved results, despite a significant drag from both currency and energy costs. Here is the agenda for today's conference call. Jack will start with a financial overview, then Tom will cover some of the strategic and operational highlights for the quarter as well as the outlook for the coming year. I will come back with some final details, and of course we will finish up with Q&A. In the interest of full and fair disclosure, we encourage you to get your questions answered during this public forum. Now before we begin, I need to advise you that certain matters to be discussed during this conference call concerning the business outlook, anticipated financial and operating results, strategies, contingencies, and contemplated transactions of the company constitute forward looking statements and are based upon management expectations and beliefs concerning future events impacting the company. There can be no assurance that these events will occur as anticipated or that the company's results will be as estimated. For

description of certain factors that could cause the company's future results to differ materially from those expressed in any such forward looking statements, see the section of part 1 item 1 of the company's annual report on form 10K for the year ended December 31, 2000, entitled Factors That May Affect Future Results.

Thanks Mike! Good morningeveryone. As you can see from our press release, we had continued success in growing sales in the first quarter. It is very encouraging to see strong top-line growth at 6-1/2% and to see continued improvement in sales volume. Both of these see improvements in our bottom line results particularly in light of the impact or fluctuations in global currency markets and significantly higher energy costs in North America. These external factors penalize third quarter earnings by about seven cents per share. Clearly, we are operating in a very challenging business environment. Today, I would briefly review our financial results for the quarter. Here are some of the highlights. First, the headline is that strategically our businesses remain on track. We're growing and investing for future growth. Second, sales momentum remains strong. Sales were 3.6 billion dollars in the first quarter and set an all time record for the third quarter in a row, and third, our margins remained solid. Operating profit margins for the third quarter, or for the first quarter excluding unusual items was 18.3%. For controlling costs well to translate the top line growth into solid sustainable bottom-line growth. So, lets review the results beginning with the top line. As I just mentioned, sales were 3.6 billion dollars an increase of 6-1/2% compared to the first quarter of 2000. That is in line with our overall top line objective of six to eight percent. The sales increase was more than nine percent excluding currency effects so you can see that currency reduced sales by

about three percent. The effects were widespread due to weakness in key currencies in Europe, Asia, and Latin America. Currency has also reduced sales in the first quarter of last year by two percent. Our teams delivered good volume growth, an increase of more than five percent over the first quarter of last year. We are continuing to build competitive advantage in a very challenging business environment. Volume growth is key. It is clear evidence that our strategies are working, and we are continuing to outgrow our competition. In addition, selling prices were up approximately four percent, primarily due to price increases implemented last year. Of the more than nine percent gross in sales before currency, three key acquisitions contributed approximately two percent of the nine points of growth. Just to remind you, the acquisitions were Safeskin acquired in February of year 2000, S.K. Corporation in Taiwan acquired mid last year, and Linostar the Italian diaper business we just acquired at the end of January this year. Sales were up at each of the company's four businesses, tissue, personal care, and healthcare in every geographical region of the world despite currency effects. In tissue, sale excluding currency increased more than nine percent as higher sales volume and selling prices both contributed to the improvement. Prices were up five percent with increases in every region of the world. Remember, we successfully raised prices last year when we responded to significantly higher raw materials cost. We also implemented a price increase at our away-from-home business in North America in February of this year. Sales volumes rose approximately four percent with strong increases in key areas of our North American business and continued double-digit growth in Latin America. In Northern America, we had continued double-digit growth in consumer bathroom tissue behind our Cottonelle and Scott Brand. Additionally, sales volume of

Huggies Baby Wipes and our Wet Wipes Products including Cottonelle flushable moist Wipes, Just for Me Wipes for Kids, and Splash n Go! Hand and Face Wipes were up strongly. In Europe and Asia, sales lines of tissue products were down just slightly compared with the first quarter of last year. First quarter sales of personal care products were 6.1 greater than in 2000 and were also up over nine percent before currency affects. Sales volumes increased approximately seven percent and selling prices were three percent higher. All geographic regions contributed to the improvement in sales volumes highlighted by the continued double-digit growth in Europe and Asia. In fact, in Europe, personal care sales lines jumped about 20%, trimmed by strong sales of Huggies diapers, Pull-Ups Training Pants and Dry-Nights Youth Pants and to a lesser extent the Linostar acquisition. In North America, sales volumes for Pull-Ups Training Pants and youth pants as well as Depend protective underwear and poise pads had healthy increases in the quarter as well as a result of good category growth. In addition, personal care sales in North America were boosted by last September's price increase for diapers and training and youth pants. In the health care and other segments, sales rose 9.2% on sales line growth of ten percent. Selling prices were one percent lower. Within the segment, sales lines for professional healthcare rose approximately 20% due partly to the Safeskin acquisition along with high single-digit volume growth in the base business. Looking at the segment total, lower sales in our technical papers business partially offset the good improvement in professional health care business. In summary, we had very good top line growth in the first quarter of more than nine percent excluding currency. With great brands supported by proprietary technologies and continuous flow of new and improved products, we are looking forward to continued strong growth.

Now lets turn to margins and profit growth for the quarter. Excluding unusual items, gross margin was 41.0% in the first quarter of 2001. That compared to the 41.9% in the first quarter of last year and 41.4% in the fourth quarter. And by the way, the unusual items are summarized by P&L line items in business segments in our news release. For the remainder of my remarks I will exclude the unusual items. I am pleased with our gross margin given the severity of the cost increases we absorbed this quarter; obviously, there are many factors that affect gross margins. For example, increased selling prices have helped to offset higher raw material cost and we continue to focus on reducing manufacturing cost with our go to market programs through branch marketing, productivity improvement, and expanding cost efficient technologies like If you eliminate just two factors, higher energy cost of approximately 25 million dollars and our investment and startup cost of more than 10 million dollars, our gross margin for the quarter would be about flat with last year's first quarter. Moving down the P&L, advertising, promotion and selling expenses were 15.4% of sale for the first quarter. That compared to 16.2% in the first quarter of last year and 15.1% for the full year 2000. Reduction from last year's first quarter is almost entirely to more efficient promotion spending. We talked about what 's going on here before. It is basically good growth in baselines of our consumer preferred products as well as good market initiatives such as our proprietary business planner. Advertising spending is very consistent and we are currently running Kotex Wet Dot and Thank Goodness for Kleenex campaigns in North America, Latin America, and Europe. The final point on expenses in the first quarter, general and administrative expenses continue to be well controlled at 4.8% of sales. to operating

margins for the quarter, excluding unusual items, operating profit increased 5.5% to 659.2 million dollars And first quarter operating profit as a percent of sales was 18.3% versus 18.4% in 2000. Lets look at these numbers by segment. In tissue, operating profit for the quarter was 340 million dollars. That is an increase of about seven percent over 2000 despite significantly higher energy cost and startup costs. The operating margin was a strong 17.8% of sale. Personal care turned in another good quarter operating profit with 285 million dollars, about five percent higher than the first quarter of last year and the operating margin with 20.7% sales, the ninth straight quarter above the 20% level. In healthcare and other segments, operating profit was 51.7 million dollars and the operating margin was 15.5% of sales. Looking at the profit margin comparisons in this segment, there was good improvement in professional healthcare both year over year and sequentially. However, that was more than offset by lower margins in other areas. Now I would like to review the performance of our equity. In the first quarter, our share of net income of equity companies decreased to 39.5 million dollars in 2001 from 47.6 million dollars in 2000. As noted in the press release, this was due mainly to lower earnings in K-C Mexico, K-C Australia, and Kimberly in Brazil. In each case, currency contributed to the decline. Additionally in the fourth quarter K-C Mexico and writing papers business, a small part of the company was soft. KCS consumer products operations have continued to perform well. Since I just mentioned currency, I would like to review the impact on the quarter with you in little more detail. Not only did currency dampen top line growth, it also squeezed our bottom line reducing earnings from operations by

approximately four cents per share. In 2000, currency affects reduced sales by about 2.5%, with the impact growing from two percent in the first quarter, to slightly more than three percent in the fourth quarter. But the story revolved entirely around the euro in the British in the year 2000. This year currency weakness has become more widespread. First of all, in the first quarter, the euro and the pound averaged six percent and nine percent lower respectively than last year. After staging recovery in late 2000, both currencies declined throughout the first quarter. And as you probably know, today's euro is down to 90 cents and the pound is about a $1.44. Today's rates are lower than the first quarter average used in the P&L by two to three percent. Looking at the average first quarter rates for other key currencies, this year versus last, the Australian dollar was down 14%, Brazilian riyal declined ten percent, the Columbia peso was 14% lower, and South Korean fell ten percent. We have sizable businesses in each of these countries, and the currency exchange rate for each currency is also below the first quarter average and well below the level assumed in our plans for this year. The currency effect is magnified by the fact that pulp and oil used in these operations are dollar-based costs. So there is a double hit on our results from translation of operating profit at reduced exchange rates and higher costs in local currency terms. Now, before turning over to Tom, I would like to comment on two more areas, first, income taxes and second, cash flow in our financial position. As you may remember, in our last conference call, I said that our tax rate would likely be somewhere between 30% and 31% this year, down from 31% last year. In fact, that has occurred and are effective tax rate for the first quarter excluding unusual items, was 30.2%. What is

happening is that as a result of our global scale and global expansion, mix in our income continues to shift to countries outside the U.S. where tax rates are generally lower. I expect the effective tax rate for this year will reasonably be similar to the first quarter's 30.2% rate. Searching out at cash flow, cash provided by operations in the first quarter was $458 million compared with $582 million last year. Two items account for the entire decline. First in 2000, cash flow included approximately $55 million from a settlement of a patent dispute and, of course, we treated that as an unusual item in the profit and loss statement, but of course we put the money in a bank as cash. Second, we had abnormally large reductions in accrued expenses from the first quarter of 2001, nearly $70 million greater than last year. This is mainly due to long-term incentive compensation payouts and will not reoccur in subsequent quarters. Meanwhile, accounts receivable, inventories, and accounts payable remain well controlled. Accounts receivable were one billion seven hundred nineteen million dollars at the end of March versus one billion, eight hundred ten million dollars at the end of December. With receivables almost a $100 million dollars lower, first quarter date sales outstanding improved more than three days from December of the fourth quarter last year and as discussed on the last conference call, we expected this improvement. Inventories were one billion, three hundred fifty seven million dollars at the end of March versus one billion, three hundred and ninety million dollars at the end of last year, a reduction of more than $30 million. In looking at the above trends, we believe our cash flow should build through the balance of the year. So, in the first quarter we continue to use our cash flow to repurchase shares of our stocks. We

bought two million shares at a cost of a $136 million. At current prices it is a very easy decision for us to continue an aggressive repurchase program and we have the flexibility to do that because of our financial position continues to remain very strong. Net debt and preferred securities at the end of March were $3.4 billion compared to $3.3 billion at the end of last year. The March figure included $517 million of preferred securities financing that we completed during first quarter of this year. At the end of March our net debt and preferred securities and capital ratio was 35.4% in the middle of our target range of 30%-40%. That wraps up the financial review for the first quarter and I guess I would comment that all in all it was a good quarter with continued strong top line growth and saw a growth in earning per share from operations in spite of currency and energy cost impacts. And now I am pleased to turn it over to Tom, who will discuss the strategic and operational highlights for the first quarter.

Thanks, Jack, and good morning everyone. I would like to start by just echoing Jack's comments about the quarter. Our teams around the world have continued to deliver excellent top line growth and build competitive advantage. Thanks to their efforts earnings per share from operations set a new first quarter record in a very challenging business environment. So clearly, our strategies are working. And while we are pleased with our performance in the quarter, as I have said before, we are far from satisfied. From our vantage point, we still see a lot of room for improvement and tremendous opportunities for continued growth. Obviously, higher energy cost and currencies have hurt our results in the near term and we are redoubling our efforts to more fully offset these external pressures. Jack gave you the details about how currency is affecting us but to put it in perspective for you, you should consider that

about one-third of our earnings comes from operations outside the U.S. and furthermore, most of these operations are exposed to dollar based cost for fiber and oil. So while we are achieving excellent results measured in local currency in those places, the bottom line is that currency reduced first quarter earnings per share from operations by about four cents a share. And with regard to energy costs, I am sure many of you had the same kind of sticker shock that we had when you opened your gas and electric bills over the last few months and we certainly experienced that as well. As Jack mentioned earlier, our energy bills in the first quarter were about $25 million or about three cents per share higher than last year. And this is occurring primarily in North America and while most of our facilities are affected, tissue operations are bearing the brunt of the energy price increase. Tissue manufacturing, as most you know, requires a lot of energy to produce a dry, fluffy sheet and natural gas is the main energy source for our tissue process. The year over year increase in natural gas costs in the first quarter was just staggering. It was up nearly 140% and on top of that electricity rates averaged about 20% higher so we had a huge double whammy in energy with both gas and electricity really sky rocketing. The good news is that the energy costs have moderated somewhat since the first quarter spike. In addition, we have locked in the cost for about half of our expected natural gas usage over the balance of the year. However, the locked-in cost is still substantially higher than last year, although it is better than the first quarter. Over the last five years, we have increased our energy efficiency per unit of output by about ten percent, and we have set similar goals for ourselves for the next five years. However, we are accelerating our efforts because of the current energy environment, and we have got a list of good energy projects at each one of our facilities around the world, and so we are going through each of those now and picking those up and

accelerating the projects that have the quickest payback for us. So, despite the pressures from currency and energy cost, we are continuing to aggressively invest in the future growth of our businesses. We will not compromise our growth strategies to offset the near term challenges from these external factors. I would like to take the next few minutes to give you an update about several of our growth initiatives. First, as most of you know, we are expanding our UCTAD or through air-dry tissue technology in the U.S. We will be starting up two new UCTAD tissue machines this year in the U.S. to support the continued growth of differentiated products like Cottonelle bathroom tissue and Scott towels for the consumer market and our Kleenex Scott fold hand towels for the away-from-home market. This technology provides tremendous opportunity to drive continued sales and margin growth in our tissue businesses around the world. The new tissue machine in Jenx, Oklahoma will start up later this quarter, and this machine will support the consumer market and enable us to expand Scott Towels with Ridges to the western part of the U.S. In addition, coincident with the start up we will improve Scott towels across the rest of the country. This is a very solid product improvement that provides us with better absorbency and better hand feel along with an increase in size for each of the towels. The second UCTAD tissue machine will start up in Loudon, Tennessee, and this startup will occur in the third quarter. This machine will support our away-from-home tissue business. So, we continue to have exciting things happening in the tissue business and as long as we are talking about tissue, let us talk a little bit about current market conditions. In the first quarter, our sales volumes for consumer tissue in North America were up six percent and selling price and mix were up five percent so we got terrific growth in our consumer business in the first quarter and our away-from-home tissue business sales volumes were one percent higher with price index improving

two percent. The February price increase is being implemented in away from home in line with our expectations and these markets continue to be competitive, but they have always been so and we are seeing nothing unusual in the current competitive environment in tissue. In Europe, first quarter tissue volumes were down slightly and price index were almost ten percent higher than last year. Again, we have led price in Europe and we have seen some volume erosion as a result. This market does continue to be very competitive and we are seeing some early signs of discounting led by FCA primarily in the UK. Turning now to our diaper business and the growth strategies we have got in diapers, we are continuing to make excellent progress outside North America. Europe led the pack in the first quarter. As Jack mentioned, increased infant and childcare sales, were responsible for a 20% jump in personal care sales volumes across Europe. And as you that's been one of our key strategies is to increase the size by personal care business across Europe. Demand for our new diaper products, which we have categorized into the beginners, freedom, and adventurers categories, is off to a great start. In addition, we completed the Linostar acquisitions at the end of January, which is the Italian diaper producer and that integration is going very well. Just to give you some flavor for it, we successfully integrated Linostar on our order entry system the day after closing. So we were ready to go with this. We have done all our due diligence and so far this is off to a great start and looks like a great acquisition. Even including the new Linostar operations, our infant and childcare business in Europe showed an increase in operating profit in the first quarter. So once again we have been able to bring Linostar on and not miss a beat with out diaper business in Europe. In the U.S., we have a full pipeline of improvement for the Huggies diapers the first of which is Disney's Winnie the Pooh design's and Huggies Supreme Diaper, recently began to ship, and as you know consumers

love Disney characters and they really love these designs. And by the way, we have also incorporated Winnie the Pooh designs on a series a collectable cubs for Huggies Baby wipes, piggy-backing or should I say piglet-backing on this idea. So look for more improvements on Huggies as the year progresses. We know that consumer preference and product differentiation are the keys to increasing Huggies market share versus other brands and versus private label products. Continuing in the product improvement vein, we have just added two new heavy absorbency codes of Depend protective underwear to our product lineup in March. As of the first of the year, our two original Depend protective underwear codes were the number one and number two highest dollar-selling items in the retail incontinence category in the U.S. So that is a terrific accomplishment, and now we have got two more codes coming out to join them. With the pants segment growing rapidly, we are very hopeful that these new products will enable us to build upon our very strong base in the incontinence category. We created this category, and we need to continue to own it. We believe the Depend protective underwear has the potential to be a $100 million product as early as this year. That will be a terrific accomplishment for our adult care business. Now, I would like to update you on our plans for Cottonelle Fresh Rollwipes. Ever since we announced Rollwipes in January, consumers have been buzzing about the product and customer demand has been unprecedented. We have really been overwhelmed by the response to this new product. In fact, virtually 100% of our retail customers have accepted the new product, which far exceeds our expectations. The majority of customers are also expecting to receive the shipment on the first available date in order to be among the first to offer the product to consumers.

This is exceptional for a new product and underscores the excitement that customers and consumers have shown for this revolutionary new product. Normally, it takes a little while for the product to reach the shelf, but everyone is very excited and wants it available on day one. Also planned retail activity by our customers indicates a very high level of merchandising support so everyone wants this product to be a winner. To ensure that we have sufficient inventories to meet the unprecedented customer demands and strong consumer interest, we recently revived our launch plan. The product will now be introduced in the southeastern U.S. in early July instead of June and we except the shipment in the northeast later this year. Production of Rollwipes was initially delayed a little bit due to late equipment deliveries, but we are now producing quality product and building inventories for the first days of the market launch. In fact, the product that we have produced so far, both the sheet and the dispenser, are exceeding our performance expectations so we continue to be very excited about the opportunity for this product. Based on the phased approach that we are now rolling out a little bit slower geographically, we expect retail sales of Cottonelle Fresh Rollwipes to be about a 125 million in the first twelve months after launch and so we are going to launch in a little bit smaller geography and make sure we can launch and stay in good inventory position with our customers, get a read on the market place and then expand as quickly as we can for the rest of the east coast. Before I wrap up, I would have to come back to something Jack mentioned earlier about professional healthcare. PHC sales and operating profits in the first quarter were very good and demand for our differentiated products picked up from fourth quarter levels and pricing was in line with our

expectations and so this business is really on track strategically and operationally for continued growth in sales or earnings. Now to summarize, we delivered excellent top line growth in the first quarter and a solid improvement in earnings per share from operations in the face of significantly higher energy cost and widespread currency weakness. We had to absorb these effects in advance of any meaningful benefit from recent reductions in the cost of fiber. Based upon the reductions to date totaling $110 per ton, we should see more fiber benefits ahead over the balance of the year. Now looking ahead, we also have full pipeline of great part innovations to continue to drive, increase sales, and build our global franchises. As I have mentioned earlier, we will not reduce key strategic investments to offset the near term challenges from external factors. That will be a shortsighted thing do in our opinion. At today's exchange rates, currency will remain a challenge over the balance of the year and although energy costs have moderated recently, they will still be well above last year's levels. As a result, we expect earnings per share from operations in the second quarter of this year to be similar to that of what we earned in the first quarter. The second quarter will include increased amount of start up cost both for Cottonelle Fresh Rollwipes and our new tissue machines. We should then see sequentially improved result in the third and fourth quarters as we realize more benefit from lower fiber costs and cost savings programs. For the full year, we expect solid growth and earnings per share from operations in line with our sales growth which should be in our target range of six to eight percent and with the boost from this year's major investments, we expect our sales' momentum will continue in 2002 and that will return to our targeted

double-digit rate of growth and earnings per share from operations. So, before we close, I would like to leave you with just three thoughts. First, our strategies are working and we're going to continue to aggressively build on them. Our team is committed to Kimberly-Clark's growth by focusing on our strong fundamentals, superior product performance, strong global brand, and technology-driven innovation. Second, we expect to deliver very good growth this year despite the significant negative impact of currency and higher energy costs. We continue to target top line growth of six to eight percent. In fact, sales grew 6.5% in the first quarter and would have been up more than nine percent at constant exchange rates. For the year, we expect earnings per share from operations will grow in line with sales. Meanwhile, we are doing the right things for the future health and growth of our businesses. And third, we are very strong strategically and financially. In all my years with the company, I have never felt better about our competitive position, our prospects for the future, or our ability to create value for our shareholders. We appreciate your interest in Kimberly-Clark, and now Mike has a few details to review with you before we start to take their questions.

Thanks, Tom, as I normally do, I will go through the market share details for the first quarter in our key categories in the U.S., and what I will do is give you comparisons to the full year market share numbers for the year 2000. I think what you will see is that the market share numbers generally are very consistent with the good share position that we have held over the past year. Starting out with diapers, in the first quarter, our market share was 32% and that compares with 33 % last year. In training and youth pants, we did slip a little bit to 72% versus 76% last year and 74% in the fourth quarter. Baby

wipes were 36%, an increase from 35% last year. Feminine care market share was 26%, which is the same as last year and also the fourth quarter. Incontinence was at 51% same as the year last year. Facial 52% and bath tissue 31%. The facial and bath tissue numbers were the same as the last year as well, and the towels were 13%, which is also the same as the last year, up a point though from the fourth quarter. Jack mentioned the accounts receivable and inventory numbers to you. As we look at the average working capital across the quarter as a percent of sales, it was 14.0% and that compares to 14.1% last year. Finally, shareholders' equity was five billion eight hundred sixty-three million dollars and our last point, sort of a clean-up point on the emerging issues task force, EITF 0014, which is the accounting rule change for coupons, it is our understanding now that implementation has been delayed until next year and that will coincide with the implementation of another EITF, 0025, which addresses accounting for trade promotions and another rebates. So, it will be the first quarter next year before that is implemented. I think we are ready to entertain your questions now.

At this time, if we you would like to ask a question, please press the star key, followed by the 1 key on your touch-tone phone now. If at any time, you would like to remove yourself from the questioning queue, dial star, 2. Once again, if you would like to ask a question, dial star 1, and our first question comes from Matt Berler of Morgan Stanley.

Hi, Tom, I remember the last time pulp prices went south in Europe in your tissue business. You had to deal with some pretty intense discounting, particularly in the private label area, and I think you have cut your private label exposure significantly, but can you just update us on what your exposure is to European private label and to what extent you are

seeing some pressure from store brands, not just in the UK which you mentioned and which I have heard is sort of a hot bed right now in discounting, but throughout the continent, in particular in the southern part of Europe where this activity seems to be most intense when pulp prices are weak?

Yeah, sure, Matt. Our exposure to private label in Europe is less than 10% of our business in order of magnitude, it is 10% or slightly less than that. We are starting to see the European private label producers' spin back some of the lower cost pulp that they have been able to pick up, particularly out of Asia. I think the good news for us is that we have got significantly improved products that we are launching across Europe this year, which would say improve bathroom tissue and towels in Spain and Italy as well as improve bathroom tissue in the UK. So, I think, you know, once again product performance makes a significant difference still in this category, and you know, we are counting on that to continue to help us to improve our volume in Europe.

Okay, and then can you comment on the increased competition, your brand of product versus store brands throughout Europe at this time?

Well, I think, you know, if you look over the last number of years, private label has continued to make any inroads against branded products generally in Europe and that trend has continued. I think you are seeing some of it reach the retail shelf but you are also seeing retailers improve their margins on private label products so the consumer isn't necessarily seeing the fiber savings directly.

And then Tom, in the U.S. you highlighted lower fiber cost as a benefit going forward here in the U.S. and I wondered if you could share with us your thinking about how much of the fiber cost decline we should just flow through to the bottom line and how much we should assume gets returned to the customer?

There is a portion of it that will likely be sent back promotionally because I think that is, you know, likely to happen in this environment but there will be some manufacturers that will spend more promotionally. MALE SPEAKER: I don't think we will see a list price decline in the U.S., so hopefully, we will get to keep a good share of it. Now in the U.S. we are also more integrated than we are outside the U.S., I mean most of our pulp mills are located in the U.S. so we would be somewhere between where Georgia Pacific is and where Procter & Gamble is on integration level. 00Yeah, our next question comes from Catherine Lewis of Morgan Stanley.

Hi! I.... I just wanted to make certain I understand some of the issues in the first half versus the second half. It looks like material cost will hit you obviously in the first half, but should...according to your budget, should it be a net benefit in the second half? I am just trying to understand specifically what you have budgeted in the second half and then with respective to price and volume, what have you assumed on pricing and volume in the second half? Is the 352 the low end revised guidance? Is that a conservative estimate based on some of the trends you are seen right now?

Yeah, I think that the...getting back to your first point that the cost first half versus second half, obviously we expect to get some benefit from fiber on the second half as that starts to flow through inventories and so forth, and we should expect to see lower energy costs in the second half given that we have locked in a portion of the gas consumption in the U.S. Yeah, we will probably see some heavier promotion and marketing cost in the second half behind the launch of Cottonelle Fresh as well as other product improvements but we should also get some volume improvements from those activities as

well. So, you know, as we...as we look at the year we expect our sales growth to be a little higher in the second half behind some of the product improvements, particularly the Cottonelle Fresh that we have talked about.

So, if you were to then tie it to say gross-margin outlook and operating margin outlook in the second half, what sort of sequential improvement do you expect in those numbers?

I guess given overall comment for the year that would we expect our earnings to grow by the same rate of sales. We will probably expect on balance for the year that operating margins are going to be pretty flat this year.

Okay, so then it sounds like you have still some pricing built into your forecast for the back half. Is that a fair statement?

Price increases?

Yeah, pricing in tissue and personal care. Do you have, are you expecting some pricing in the back half?

No, no, in fact, for me I think that the fiber cost coming down will give us some benefit. We may see some additional promotion cost that offset part of that. But you know, I...I think that our margin should be pretty stable this year based on our view of this point.

Okay, and then lastly, I guess just on the volume front, what are you looking for in terms of volumes in both tissue and personal care in the back half?

Well, I think the first quarter was a good example where we were up a little over six percent in both categories so, you know, I think we are looking for that kind of top line growth over the course of the year.

Okay so then in your view this is revised guidance. I mean, is that a worst-case scenario, the 352 for the full year? At this point, I mean, I am just trying to understand what the risks are to your new budget.

Well, I think that, you know the range that we have given you is that we expect our top line to be

in the six to eight percent growth range and we expect bottom line to be consistent with that. It is the right range for us to be in and we think that it is realistic given where we are at through the first quarter.

Okay, Great. Thank you very much.

Thank you.

Our next question comes from Amy Chayson of Goldman Sachs.

Hi, can you give us some idea on advertising and promotion as a percent of sales, how that trends over the next couple of quarters? Does it sequentially increase from here and if when you are talking about that, you could talk about how that it is going to change now that the world wide launch isn't going to be fully national right off the bat?

I probably cannot give you all the specifics that you are looking for, Amy. I mean, we were up sequentially from the fourth quarter in the first quarter but down slightly from last year. I think when we talked in January, you know, we thought that we be in the 15 to 15-1/2 level. You know, in the first part of the year, it might be a little higher than that, and in the back half of the year as we spend more on Cottonelle Fresh as well as well as other product improvements that we have got. And I think, you know, the key message is we are going to continue to invest in advertising. We are going to try to control trade promotion spending and drive it to be even more efficient than we can be, but we are fundamentally going to invest in growing our business this year.

So again, should we look for a sequential increase over the next couple of quarters?

I think that you would see the back half of the year higher than the first half of the year.

And that is not going to change...are you changing how much you are going to spend on Rollwipes now that it is not going to be fully national right off the bat?

I think we were talking about is a delay, but I think, you know, our total plan of investment in that business has not changed.

And that was what about 40 million dollars this year?

I think we said the ANP plan was in the 40-50 million dollar range.

But for this calendar year.

This calendar year.

And that hasn't changed.

Yes, that hasn't changed.

Okay, and then I also just want to follow up on this question on Europe... you mentioned that you think you are in better position this cycle than last cycle because the private label is smaller and you have these advanced products that should help you buck the trend so to speak and yet this quarter, in fact, you indicated that you guys went ahead and raised prices and your volume was weak. Why is that dynamic going to change over the next couple of months?

Well, I. I think that as you...Tina just showed me something, Amy, let me come back to the Rollwipes question. I think the actual spending this year is going to be slightly less than we had previously told you. So, I want to correct my last answer to that. But the total spending over the course of the plan has not changed. It is just going to calendarize a little differently this year and we will probably have some additional startup of cost as we were ... you know... taking a little longer to start up the process. So our total P&L hit for the year is going to be above what we thought but there is going to be a slightly smaller advertising and promotion hit than we had previously told you about.

Can you tell us what the spending will be now... the new number?

Amy, this is Tina. It is going to be about $30 million instead of 40, but again 40...

The total P&L has.

In to... in total.

This is going to be the same.

Yeah, but as Tom said, given slightly higher start up cost the total P&L hit will be the same as we have fully expected.

Okay.

Okay, so what was your next question?

On Europe, you know...first quarter transverses what you are expecting for the remainder of the year. Like if the volume was weak even though you have those new products in place. Oh... we have got still a lot of new products coming in Europe throughout the balance of the year. Our personal care business continues to do...

This is a tissue question, Tom.

Tissue... you know, we are going to have improved

products coming across really the region this year and we would expect to see that bolster our volume in second half.

All right, and then why are you so confident that there is not going to be a retail price reduction in the U.S. in tissue?

Well, I think that the reality of it is, is when go back and look at what has happened when that has occurred, very little of it has made it to the consumer, and every time there has been a change like that, it has been an opportunity to enhance margins. And the most recent example is the Bounty towel price rollback. Very little of that has made to the store shelf.

But that doesn't mean that it won't happen.

It does not mean that it won't happen but there are probably other ways to invest those funds to drive volume and some of that may happen promotionally.

I'm just a little bit concerned that you are relying on what you think P&G may do, and I'm a little bit concerned that you haven't taken that into account. Yeah, I am little bit more conservative, I guess, on your assumption for what may happen in an environment while pulp costs are coming down.

Well, if you look at a longer-term trend of tissue pricing, it has tended to plateau in weak pulp markets and then increase the next time pricing has gone up and when you couple that with the kind of energy costs increases that all tissue producers are feeling, you know, I think as you look at it on balance, you have got some cost positives and some costs negatives, and you know, there is not a compelling reason to make a big price change in the marketplace at this point of time.

And yet you did say...sorry, last question. Do you think...are you guys modeling that promotional activity will pick up in tissue in the U.S.?

Yes.

Can you give us some idea of how much?

Not specifically at this point in time but we would that some of the fiber savings would be spent back as additional promotion.

Okay. Thank you.

Is there another question? Hello.

Yes, the next question is from William Steel of Bank of America Securities.

Thanks, Jack, I was wondering if you could touch on the other expense net line item which seems to have swung from the a positive 11 million dollars to a negative two million dollars in the quarter. Has there been any sort of change in the hedging strategy of the company that could have caused this?

No, Bill, that swing was really...we had two unusual items last year. That 11 million dollars last year was made up of 2 items. One was the sale of a piece of property, a piece of real estate property actually a dam and the other one was another unusual items, nonrecurring items so no, they were just one-time items. There really was not so much a change in hedging strategy.

Okay, and so all the quarters of last year pretty much within that 9 to 11 million dollar range in each of the four quarters of the last year. Is it best to budget more or less an expense of two million dollars for each of the four quarters of this year?

Well, last year total as you said was about 43 million dollars for the full year. It is pretty hard to forecast these, Bill because they really are extremely and, I mean, unusual things that don't follow any pattern. That is why they are listed on that line. I would say it probably likely to be somewhere between that range of 2 to 10 million dollars is the normal pattern.

As an expense.

No, actually this has been an income item most of the time.

Okay, well in 1999 it was not, so...

Yeah, last

year it was fairly consistent as an income item. You're right, it does vary year to year but I would probably put it somewhere between, you know, 0 and 10 million dollars.

MALE MALE Okay, and conceptually, Jack, why is that line item above operating income? It is obviously not operating. This is as Randy. The SEC has said that activities that are related to business that are of an income and expense nature need to be included as a part of operating profit. So, if you go back a couple of years, we had that below operating profits and then some general guidance, it wasn't specific guidance to Kimberly-Clark but general guidance from the SEC resulted in us making that move, to move that line back up above and include it in operating profit.

I guess given the volatility of that line item, it creates a little bit of difficulty in trying to project operating margin. That's kind of what I am asking.

Okay, well, that helps me up. Thank you. Our next question comes from Dave Kolpack of Key Asset Management.

Hi! I would like to know what the year over year changes in revenue and volume were for the entire company overall, excluding all these acquisitions that you made.

MALE SPEAKER 2: Dave, Jack mentioned that acquisitions Safeskin and SK and Linostar accounted for two points of the nine percent growth that we had excluding currency.

Two points.

MALE MALE 2: Yes.

So, volume of 5.4% company wide increase would have been 3.4?

MALE MALE 2: Would have been about three and a half. Yes.

Okay. I noticed one thing that struck me here. You guys have increased your R&D spending at a double-digit rate now for seven consecutive quarters, that's considering you guys are one of the few of your peers to actually add shareholder value through R&D recently. I think that's encouraging. We know about Fresh Rollwipes. What can you tell us excluding

that? If you didn't have Fresh Rollwipes how would you feel about your new product pipeline at this moment?

I would feel as we had said, as good as I've felt in a long, long time, and probably in my career with Kimberly-Clark. We have got a very full pipeline of products coming in every category of the company. We talked a little bit about the new tissue projects. We have also got a great pipeline of improved diaper products, childcare products. We are launching two new adult care codes, so there is a lot of new product activity happening in every area of the business around the world.

Excluding Rollwipes would you say that 2001 will have more new products than 2000 did?

Yes.

Okay, and then finally you seem to be getting an opportunity here with the street panicking over the falling pulp costs, which seem like a good thing to me, but you have one of the most conservative balance sheets in the industry, why not use that balance sheet to step up here with the stock down 10% and really crank up the share buy-back spending.

We have been in pretty consistent buy our stock and as we said during the call, it has never been a better value and it certainly is going on sale today it looks like.

Okay thanks.

The next question comes from Amanda Tepper of JP Morgan.

Hi, a couple of questions. On the R&D spending, is your UCTAD total dollars spend still in line with what you had previously expected or has that gone up?

No, that's in line with what we had expected.

And the timeline in terms of coming on line and everything is still what you were looking for previously?

Yes, the UCTAD tissue expansions are on track.

Okay, and just, you know, a question on the quarterly charges. I had thought that maybe by now...these of the unusual items not the other income line. I thought they would be tapering off by now, and you still have some this

quarter. Is this amount kind of going to be continuing ongoing or are we almost at the end?

Well, I think what we can tell you, Amanda, is that all we will do is tell you about the good and the bad as they occur, you know. As we have opportunities to take advantage of streamlining our business, we will take them and we will tell you about them as we have unusual gains like we had in the first quarter of last year from the litigation settlement, we will tell you about those as well, and we don't see a big restructuring coming in our future. I mean I picked up the paper this morning and saw 3M was going to take out 5,000 people and one of our competitors is doing the same thing and we don't have a big plan like that in mind but as we have opportunities to streamline our business we will take those charges in time and tell you about it.

Right. It just seems that there are going to be probably steady stream of recurring opportunities and I am just wondering if that is not, you know, in some ways just an ongoing cost of business to constantly streamline but that's kind of a theoretical question. One last question which is also kind of bigger picture. I know you have fairly long lead time into any of these capital projects so it is not like you could have put on the brakes when you saw suddenly your short-term expenses for energy and currency rising but as you look out into next year, are you having any discussions internally about cutting back or slowing down any capital projects for next year because these energy price rises may be permanently or, you know, over a longer period of time squeezing your margins?

Well, I mean, tissue is a good example, you know, we are sold out of tissue right now. We can't wait for this capacity to start up because we can, you know, sell it out immediately.

UnhUnh.

So, you know, at this point, we are continuing to drive for every growth opportunity we can come across, and we are not telling people to slow down.

Okay, great. Thank you very much.

Next question comes from Carol Wilke of Credit Swiss First Boston.

Thank you! This is Carol Wilke. Two quick questions on personal care. If you look at the operating margins of personal care, they have been down year over year now for four quarters. Could you talk about what is causing them to decline and when you might think they will increase? I guess I had expected them to show more improvement this year than tissue, and yet tissue margins were flat. And my second question has to do with the diaper category in the U.S. The private label continues to gain pretty significant share looking at March, they were up almost four dollar points and up over 6 volume points. Can you talk about what is going on in the category in the U.S. and when you think that the branded products might start regaining some share?

Sure. Personal care margins, I mean, first of all we have had, I do not know how many quarters now above 20% margins, which has been a terrific result. Part of this mix, I mean we are growing faster in Europe, and we have made some acquisitions recently, both in SK and Linostar in Italy that that were primarily personal care oriented. Those are lower than our overall baskets that has a tendency to bring the mix down, and quite honestly, we are pushing personal care to draw up top line growth and I'd be happy if they maintain their margins above 20% and putting more margin focus on the healthcare business to bring those up into the 20% range and we have made a lot of margin improvement on tissue as well. So, it is not to say that it is not important that we are not focused on it, but we are really aggressively driving top line growth in personal care.

Are the personal care margins up in North America?

I do not think we have disclosed that information, but we continue to have very strong margins on our personal care business in North America.

Okay, and on the diaper category?

Yeah, there is no

secret that one of our large customers is driving a private label diaper strategy more aggressively. We have held up reasonably well in that environment, but it has had an effect on the overall market. You are not seeing a as big of a shift in other classes of trade, although there has been some rebound of that and we're watching it as the economy slows down or consumers down shifting at all. We don't have any research to that effect at this point of time and we continue to believe that superior product performance will ultimately win in the diaper category. So we have got a full pipeline of product improvements behind Huggies this year to make sure that we deliver on that.

Given at least the current change in the push in the private label, would you be more hesitant to raise prices to a down count going forward? I think if the economy slows then consumers might be a little less apt to pay up for a Disney graphic, which is not really a product improvement.

The category just went through a down count last fall, as you know.

Right.

You know, the private labels generally did not follow and at least not to the same extent and so we will watch that gap and certainly try to maintain a reasonable price value relationship versus private label.

Okay.

Our next question comes from Nancy Kraus of Delaware Investments.

Good morning and I do just have one question. Earlier in the comments, you commented on the healthcare sector with professional having doing well both year over year and sequentially but other areas perhaps not doing quite as well. Could you comment on that or give us a little bit more information on that area?

Yeah, there are some other parts of our business in that segment that are...more industrial type products are sold to industrial customers that are more economically sensitive and as you have had auto

plants down and the whole tech industry slowing rapidly, those parts our business have been more affected by it than others and so that is really overshadowed a great performance by our professional healthcare team in the first quarter.

NANCY NANCY Okay, thank you very much.

Thank you.

The next question comes from Andrew Shore of inaudible.

My question has been asked. Thank you.

The next question comes from Michael Elmon of inaudible.

MICHAEL Thanks very much. In you fourth quarter release, you indicated that fiber costs alone were almost $55 million greater than in the fourth quarter of 1999. Could you tell us what was the delta or incremental penalty from the fiber costs in this first quarter?

Yes, Mike. It was almost $30 million.

Almost $30, and could you just remind us what the pressure from energy cost was in the fourth quarter.

I don't think we had a separate analysis of energy in the fourth quarter, although as we looked that energy across the year last year, oil costs began going up around the middle of the year, I think, but came down a little bit in the fourth quarter. Electricity and natural gas costs started to move toward the spike that we saw in the first quarter and fourth quarter. So, if you were to look at any charts of those inputs, you would see that there was relative stability, I think, through the first three quarters or maybe through the first part of the third quarter, and then you started to see it to move upward.

Okay, thanks.

Okay, once again, if you would like to ask a question dial star, 1 and our next question comes from Jim Gingrich at Sanford Bernstein.

Good morning. Tom, can you remind us, yeah, I am trying to understand a little bit about what has changed in your outlook versus the end of January. I am thinking, you know, in some sense of pricing sounds like it is a little bit better than what folks had expected. Energy is about where it was, where you thought it was going to be. I think at that time you were talking about $700 a ton pulp and, you know, clearly that has gotten better. You know, what do you point to that has changed that's kind of changed your outlook now, you know, both for next quarter and for the balance of the year.

That's a good question. I think the biggest single factor we would point to would probably be currency rates. I mean, we were hopeful coming in to the year that we would to see a 95 cent euro and that we would see, you know, reasonable stability in Asia and in South America from a currency standpoint and really throughout the first quarter we have been shocked as we traveled around the world. I happened to be in Australia on the day that the dollar hit 47 cents and, you know, we have been expecting that it would be closer to the high 50's and in the previous year it was in the low 60's so when you have got 30 year earnings outside the U.S. dealing with an unusually strong dollar that has probably been the biggest single factor that has caused us to soften a little bit on the outlook.

So what type of assumptions now are you planning for the balance of the year that's, you know, embedded in your current guidance.

Well, as we would look at it, we would say, you know, we would expect it to be a little bit better than the first quarter but not much.

All right, and...

As we stand here in the second quarter, it is actually a little bit worse than the first quarter. So, you know, we are hoping that euro gets back in the low 90's on average over the balance of the year and as we look at outside forecasting resources, everyone tells us that's a

reasonable assumption but it has got to actually do it now.

Okay. So presumably, if actually deteriorates from where we are now, your outlook would be more pessimistic.

Well, we would obviously have to revisit that at that point in time and certainly we can overcome some elements of currency and maybe we will get a break in fiber or something else that will help us out but we would obviously take another look if currencies shift further from where they are today.

Okay. What if, you know, to shift gears for a second, you know, when I...back to I guess the question Carol was asking on personal care margins...If we kind of broaden that, you now, I kind get the sense listening to you, Tom, that we should not, if we think about the long term earnings potential of Kimberly-Clark, we should not be building into our assumptions any significant margin expansions in, you know, tissue or personal care. Is that of fair statement?

Dependent how you define long term. I mean, I think for this year we're going to be relatively flat, as we have said. Really what we are saying is that we got a lot of outstanding cost savings initiatives and things happening around our go to market programs that are offsetting, in some parts, the energy costs and the weaker currencies to still deliver bottom line growth that is consistent with top line growth. If we get back to a more normal energy and currency environment, all those cost savings programs are continuing and should deliver better margin growth in the future and that is why we feel like getting back to double-digit rate in 2002 makes sense to us.

So when you model a double-digit rate, what type of margin expansion are you assuming on an ongoing basis, Tom.

If we are talking six to eight percent top line and at least double-digit bottom line, you know, you are looking at consistent, gradual margin growth over that point in time by that delta.

Okay. I can do the maths. Thanks.

Once again, if you would like to ask a question dial star, 1 and the next question comes form Kathleen Reid of Merrill Lynch.

Good morning. Just a quick question on equity income from your affiliates. What are you budgeting for the rest of the year or the second quarter, just with regards especially to Kimberly Mexico since it seems like their consumer results were very strong, but they also have a larger exposure to the industrial segment and then just another question on the healthcare segment. If you could give us a little bit more detail on if the professional division did really well, just how much the technical paper division was down?

Sure.

Let me do the second one first, Kathleen. This is Jack.

Hi.

Hi, Kathleen. This is actually on that...if you look at professional healthcare and you remember last year we hit the low point. We were under 15% in margin in healthcare and in the second quarter of last year, just to give you a sense, progressively that's gone up a 140 basis points in the third quarter and another 140 basis points in fourth quarter so that if the fourth quarter we have 16.5% and as you know our goal is to get toward 20%. For this quarter we were at 17.4% in professional healthcare so you have seen another 100 basis points over fourth quarter. So, as Tom said, and we said in the conference, professional healthcare is getting back to a level of where we want it to go to and it's making good progress towards the 20%. The offset, and Tom mentioned this, we do have one business that 's predominantly B-to-B and who sells to companies in the automotive and industrial area and that is down significantly. It's a small business but it impacts that particular segment which is small overall.

So this 17.4% margin excludes the technical paper.

Yes, I was just giving you the quarter-to-quarter improvements in the healthcare business to reinforce the point but that

business, as Tom said, is well on track.

Okay... and do you have a revised outlook for your operating margin for the total healthcare division including the technical paper division if we would assume that business wouldn't dramatically improve anytime soon.

I think, that on the technical paper size, improvement is going to follow the economy pretty much.

Right. Okay!

I mean, you really have to factor in there whatever you expect the economy to do, it will follow and then snap back and I think you will see that segment improve with the economy and I would expect also to see continued improvement in the healthcare business towards the 20% margin. So that sector overall should improve its overall margin.

Okay.

On K-C of Mexico, a small private business is in printing and notebook papers. That business is down in both volume and price and as K-C Mexico commented in their press release, they're shifting a lot of their sales in that business into the second and third quarter, so when you look at the quarter over quarter that contributed an awful lot to the decline or the softness as they referred to it. I think are going to have to wait little bit to see if that shift occurs or how much that business may pick up in the second quarter so that it's not, as you know, a negative offset like it was in the first. But I would expect to see that business pick up a little bit. Our consumer business was up in both operating margins and volumes around four percent and net sales four percent and profit is about four percent in the consumer side of the business, although the overall margins in the company were down under 30 for the first time. I think you will see those margins probably pick up through the year as they pick up the sales in the notebook and professional writing papers business.

Okay. That sounds great. Thank you very much.

Our next question comes from Chip Dillon of Solomon Smith Barney.

Yes, good morning. A couple questions. First of all you mentioned,

Tom, how well received the new Cottonelle Fresh Rollwipes is receiving very good acceptance out there, 100% of most of your customers. If that's the case, why slow down the introduction of the product? Is it because of the challenges in getting the product actually produced or are you trying to sort of manage the expense side of it given the current, you know, pressures from energy and other areas?

We would go faster. It really is making sure we can supply and it's, you know, we think we would assume we would get at least 80% distribution and we got a 100%. We had assumed that it would take a while for them to be able to cut us into the shelf resets which sometimes takes three months to get the product actually on shelf everywhere, and everyone wants it shipped on the first available date and so when you build a startup curve for a new process and you have factored in what your demand is likely to be, assuming a distribution level, and assuming how long it is going to take for it to actually to get to the store shelf. We have a startup curve that matched up pretty well once we saw the initial surge coming from the customer. We want to make sure that once we get it there, we can keep supplying it. You know, the worst thing to be is on allocation on a new product launch because it just makes everybody unhappy. So we tried to fall back a little bit to make sure we got plenty of inventory to handle the initial surge and I think, quite frankly, the consumer reaction has also overwhelmed us. We have had over 30,000 hits to our website and everybody is really excited about this. So that's good news and we wish we could go faster and we are going to get a read on the market with this initial launch and then we'll see how quickly we can accelerate it.

Okay. Thanks.

Thanks Chip.

Once again, if you would like to ask a question, dial star, 1, and the next question comes from Jim

Edleman of Hilan Capital.

JIM Thank you. Good morning. Just to help me understand the amount of the currency surprise. As I understand it, for the total company, the impact was 2.8 % this quarter. How does that compare with what you had expected and then over the balance of the year, what is the amount that is implicit in you forecast of the currency impact for the rest of the year, and what were you expecting in your budget?

I think the currency we sell was about four cents of share on the quarter. Then was that where you got the 2.8% from?

I am just getting to...looking at the top line, the 6.5%.

I see, percent of sale exchange. Okay.

Yeah, just using that as a marker.

No, I think as we look at the currency, we had expected the euro to appreciate to about 95 cents, which we thought conservative based on what everybody else was forecasting it to back to least parity to the dollars. We had expected a more stable currency environment in Asia and it has weakened significantly, and we had expected a more stable currency environment in Brazil and that has weakened significantly and we have got big operations in all those areas. So and as we stand here today, as we said you know, the second quarter rate or at least the rate for the month of April is going to be lower than the first quarter average. So with a third of our earnings outside the U.S. it is hard getting the math to work.

Okay. Thank you.

Once again, if you would like to ask a question, dial star, 1 and the next question comes from Mark Hazelton of the Associated Press.

That is Mark Hazelton with the Associated Trust Company. Can you give us the primary factors behind the decline in U.S. market share for diapers and training and youth pants, and did I miss the market share for

European diapers?

Let me give you the market share for European diapers. It was 23% in the first quarter, which was the same as the first quarter last year, and that reflects the Italian business now coming in which is about a 20 share so the mix has shifted to a slightly lower share and that drags it down a little bit and ahead of the market launch of the diaper improvements that Tom talked about, there was a period of low promotion as the shelves were destocked before the shipment so the product is off to a great, new product is off to a great start and we think that market share is solid.

Yeah. In the U.S., there is no question that our U.S. diaper share was affected by private label inroads, but I think we were affected less than some of our other competitors, but our challenge is to make sure that we justify the value of our Huggies products to our consumers everyday and offer them a good value versus other products that are out there, including private label. In the childcare market, I mean the good news is that the category is growing much more rapidly again. So while our share declined a little bit our volume was still up for the quarter. So, you know, we are seeing the category continue to grow. There is still room left to penetrate that category and while we would obviously like to have higher shares and higher category growth, the good news is we are getting the category growth and our volume is growing.

Thank you.

Thanks.

Once again, if you would like to ask your question dial star, 1. Okay, sir, there are no more questions at this time.

Well, thank you everyone. Thanks for joining us, and Tom would you like to just wrap up with a comment or two.

Sure, I think, once again, we had a very solid quarter. We have got good momentum on the top

line. We are overcoming the challenges of currency and energy and still delivering a growth to the bottom line and we expect that to continue for the balance of the year. Thanks for listening. Thanks.