金百利克拉克 (KMB) 2002 Q3 法說會逐字稿

Excuse me, everyone. We now have Mr. Mike Matthis in conference. Please remember that your lines under a listen-only mode. After the conference we'll open the call up for questions. We'll tell you the procedures that will follow if you would like to ask a question. I would like to turn the conference over to Mr. Mike Matthis.

Good morning. With us the normal team in Dallas, we have Jack Donehower, Mark Boothman, V.P. of Finance and Tina Berry, Sr. V.P. and the Head of Corporate Communications. And in Asia, where Tom Faulk is finishing up a trip, he is our Chairman - Not yet, who is our president and chief Executive Officer. I hope you've had a chance to review this morning's news release with all of the details of the 2002 third quarter results.

Third quarter earnings before unusual items were 87 cents per share, compared with 80 cents last year. Our top and bottom line growth in the third quarter was better than the first half of the year, despite intense competitive activity and cash flow, also, continues to be strong. Here is the agenda for today's call. Jack will start with the financial overview. Then Tom will provide additional insight about our strategies. I'll come back with some final details and we'll finish up with q and a as usual. In the interest of fair disclosure, we encourage to you get your questions answered during this public forum.

Now, before I begin, let me remind you that certain matters to be discussed during this conference call concerning the business outlook, anticipated financial operating results, strategies, contingencies, contemplated transactions of the company constitute forward-looking statements. And they're based on management's 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 a description of certain factors that could cause the company's future results to differ materially from those expressed in any such forward-looking sames see the section of part I, item I of the company's item report on form 10-k for the year ending December 31st, 2001, entitled "factors that may affect future results." Now, I'll turn it over to Jack.

Thanks, Mike. Good morning, everyone. Today I will briefly review our financial results from the quarter. Earnings before unusual items of 87 cents per share were up almost 9% versus the third quarter of last year. The increase was driven by a higher operating profit and fewer shares outstanding because of our ongoing purchase program. In addition the acquisition of the remaining 45% of KSC Australia at the end of the second quarter contributed to higher earnings. We're in good shape competitively and financially. Here is my perspective on the headlines for the quarter. Sales volumes rose a solid 5% so we are continuing to generate top-line growth. Operating profit margins before unusual items was a healthy 18.8%. And operating cash flows remain strong, up 6% versus last year on a comparable basis.

So let's review the results beginning with the top line. Sales of 3.5 billion dollars were up more than 3% versus the third quarter of last year and were an all-time record. As I mentioned, sales volumes were up 5% in the quarter. We had outstanding performance from our consumer tissue business, as well as record volumes in health care and adult care in North America. Overall competitive activity reduced sales by about 2%. Can you see we continue our focus on strategic marketing and brand-building initiatives. These programs help drive volume growth and defend our market-leading position in the face of aggressive levels of competitive activity. Meanwhile, the currency impact on sales was about neutral for the quarter. The benefits from a stronger Euro and British pounds were mostly offset by weaknesses in Latin America, particularly, Argentina.

This morning's news release contains details on the key factors affecting sales in each of our three business segments. So let me mention just a few of the highlights. In consumer tissue, sales increased almost 9% as every region of the world had higher sales. Excluding currency effects, some increased more than 6% on terrific volume growth of almost 10%. In nearly 2/36 the volume growth came from North America, led by double digits in facial tissue and viva and Scott towels. We had solid increases for Cotonelle and Scott bathroom tissue. Our marketing technology and strategic marketing programs continue to drive volume and share growth. In Europe, consumer tissue volumes were up 9% pace by gains in Scotttex bathroom tissues. In last [INAUDIBLE] America, sales increased 6% as a double digit increase offset weaker currencies.

Shifting to personal care, third quarter sales were down about 1%, but up approximately 1%, excluding currency effects. Volume growth was 2% for the quarter. In North America, volume growth was about 1%. Record sales volumes for adult products and kotex liners and Tampons more than offset a moderate decline in our infant and child businesses. These latter businesses remain healthy. In fact, year to date our volumes are tracking at record levels. Tom will give you highlights in a few minutes. Elsewhere, European personal care had solid volume growth of 4% in a market that remains fiercely competitive. In Asia, volumes grew at mid single digit rates behind record sales in Korea and double-digit gains Austraillia In Latin America, personal care sales dropped significantly, mainly as a result of the weak economy in Argentina.

In the business to business segment, sales increased approximately 4% or about 3% higher before currency effects and excluding two small divestiture last year. Sales volumes rose 4%. Price was 1% lowern as expected. Our health care business continued a strong momentum as it set an all-time sales record fueled by 8% volume growth. Our professional businesses in North America and Europe posted volume growth of 3% and 8% respectively. Our overall sales momentum is good, especially in tissue. Sales volume grew 5% in the quarter despite the weaknesses in Latin America and the tough competitive environment in infant and childcare categories.

Let's now turn to margins and operating profits. For purposes of this discussion, I will exclude unusual items from the comparison. These items are described in our news release and are also summerized by PNL line items and segments to the news release. For the quarter operating profit increased 2.5% to $656 million. Third quarter operating profit as a percent of sales was 18.8% versus 19.0% in 2001. Higher sales volumes productivity improvements and other manufacturing cost savings more than offset the stepped up level of promotional activities. I should also mention that the fiber cost was flat versus last year. I would like to point out a couple of other items on the PNL. Marketing, research and general expenses were 16.3% of sales in the quarter, up from 15.9% a year ago. The increase versus last year was due to higher gna expense including pension and health care costs. We also increased marketing support for new and improved products and other brand-building initiatives. That increase was mitigated by the elimination of goodwill amortization. On a pro forma basis this would have increased net income in the third quarter of 2001 by 4 cents per share.

Finally, other income expense included almost 2 cents per share of currency charges due to exchange rate changes in the third quarter. Now, let's look briefly at operating profits by segment. In consumer tissue, operating profits for the quarter was $238 million, up 7% from year ago levels. Operating margins for the quarter was an excellent 18.5% of sales down just slightly from 18.7% last year.

One moment, ladies and gentlemen, while we reconnect. Ladies and gentlemen, please remain on hold. We'll have the conference back under way in just a moment. Ladies and gentlemen, thank you for holding. The conference will resume in just one moment. Unfortunately, the power has gone out in Mr. Matthis' office, and he's be back on line in just a moment. Mr. Matthis?

Yes.

You are back in service.

I'm sorry, everyone. We lost power in Dallas. It knocked out our speaker phone. We will have Jack get back on the line and continue with the call.

Okay. Thank you, Mike. I think when we lost the power I was in the process of giving an update on operating cost by segment. On consumer tissue, operating profit was $238 million up 1%. Operating margin was 18.5% of sales down slightly from 18.7 last year. Higher sales volumes drove the operating profit improve will. The benefits more than offset the promotional activity from higher advertiser spending. About 3/4 of the operating profit came from our north American family care business, which continues to post excellent results. In Europe, consumer tissues delivered a double digit increase in operating profits.

Turning to personal care, operating profit for the quarter was $378 million, down 6% from last year. Operating margin for the third quarter was 21.1%, down from 22.1% last year. We reduced manufacturing costs in the quarter by improving productivity and implementing cost savings programs. However, these improvements partially offset the impack of strategic actions to offset aggressive competition in the diaper and training pants market in the U.S. and Europe. This is the right thing to do, of course, for the long-term health of the business, but involves short-term costs. Elsewhere in personal costs Asia Pacific had operating growth of more than 25%. Latin America had higher profits, despite the marketing conditions. In the B&B section, operating was $181 million up 11% from the prior year and up 1% excluding goodwill amortization. Operating margin was 19.5% of sales for the quarter. Higher sales volumes and productivity improve wills were the key factors responsible for the increase.

Now turning to equites our share of income decreased slightly to $21.8 million from $30.2 million last year. The decline was due to lower net income at Mexico. The main reason for the decline was not operating in nature. A higher tax rate. This reduced our share of [INAUDIBLE] to Mexico's net income by one penny per share. In addition the pace depreciated 7% compared to the third quarter of last year. Even so, [INAUDIBLE] to Mexico sales and operating profit were down 1% and 3% respectively. In fact, sales volumes increased 5% in the quarter. Kc to Mexico's market shares have remained strong and maintained a outstanding operating margin of more than 30%.

Finally, switching to cash flow in our financial position, cash provided by operations in the quarter was $557 million, down versus last year's level. However, you may remember that last year's normal September Federal tax payment was deferred until October by the U.S. Government. Adjusting for the timing difference on an apples to apples basis our cash flow was up about 6% for the quarter. The strong cash flow provides financial flexibility and hopes fund our growth. Year to date, free cash flow is $814 million above the full-year toll of 2001 of $564 million. Capital spending, through September, was $603 million, so we are tracking a bit lower than our previous guideance of $900 million for the year. Given the trends and current plans capital spending is more likely to be in the $850 million to $900 million range for 2002. During the third quarter, we continue to repurchase shares of our stock buying 2.5 million shares at a cost of $147 million. All totaled we've invested $464 million in the first nine months of the year to repurchase 7.5 million shares of our stock. Meanwhile, our balance sheet remains rock solid. Net debt and preferred securities at the end of September were $3.8 billion, the same as at the end of last year, 2001. In addition, our leverage ratio for net debt and preferred securities to total capital was 38.0% this is down from 38.9% at the end of last year and well within our target range of 35% to 45%.

That wraps up our financial review of the quarter. To summerize we delivered improved results despite very competitive market conditions. We increased sales volumes nicely. Our profit margins and market positions remain strong. We continue to generate strong cash flow. Now, I'll turn it over to Tom, who will share some strategic and operating highlights with you. Tom?

Thanks, Jack. Good morning, everyone! Or, perhaps, I should say good evening in Singapore. We're just wrapping up the end of an Asian budget review, and that's gone very well. And I'm actually giving a speech tomorrow in Singapore to several hundred of our customers at a global efficient consumer response conference. Would I like to add a few comments and give you my perspective about our third quarter results.

First of all, I'm pleased by the continued solid growth in our sales volumes this. Is a direct result of our focus on consumer preferred products supported by strong marketing programs and our go to market expertise. Go to market is one of the key points I'll make in our remarks to our customers tomorrow. And as jack mentioned, momentum is particularly good in several of our businesses. Most notably consumer tissue, which had an outstanding quarter. And our health care business worldwide, our incontinence business in North America and our operations in Australia and Korea also had an excellent quarter.

Secondly, I am encouraged by the continued strength in our cash flow. Our strong cash flow provides the funds for us to invest in growing our businesses and to repurchase shares of our common stock.

And, finally, while our new term results and personal care reflect the impact of intense competitive activity in the diaper and training pant categories in North America, I'm confident that we're doing the right thing to defend our market leading positions in these businesses in the near term and to bill our competitive advantage for the long term. All in all, we're making progress in 2002. We're growing the top line and the bottom line. And given the current competitive environment, however, it now looks like the growth rate in earnings per share per unusual items will be slightly lower than our original expectations. But, today, I want to talk about what is going on competitively, particularly the in the diaper and training pant markets in the U.S. and in Europe.

And then, before we wrap up today, I'll make a few comments about the outlook for the balance of the year. So let's look at the competitive environment. The markets for our products have always been competitive. That's no different today. Reasonably, our key competition has turned up the heat in the diaper and training pant category. I spoke to you in July about the strong positions we've built in these categories. For the past 10 years Huggies Diapers has been the leading diaper in the U.S. and has been the foundation for a 3.5 billion dollar global diaper business. We invented the training pant categories in 1989 with the introduction of Pullups Training Pants. It will likely reach $1 billion in retail sales in the U.S. alone this year. We have driven category growth and growth for Kimberly Clark by combining a deep understanding of consumer wants and needs with the technological innovation to continually improve our products.

Having a consistently superior performing product is particularly important in these categories because our consumer base is turning over every two to three years. And that's been the formula for our past success. And that will be the formula for our future success as well. The current environment competitively has been challenges. Our competitor re-entered the training pant market for the third time. In the third quarter they initiated a second round of price decreases through package account changes on these products in an attempt to improve market share. These moves have been accompanied by an unprecedented level of promotional activity, particularly in the frequency and value of consumer coupons.

Just to give you some perspective on this -- for example, we've recently seen our major competitor offer Catalina coupons worth up to $4 or $5 per package towards the purchase of their training pant products. For those of that you aren't familiar with Catalina that's a coupon issued at the cash register. In this case it would be triggered by a consumer that would be happening to be purchasing Pullups Training Pants. Can you see it's a significant level of competitive activity. We have defended our market positions in defense of this activity. The good news is that our products continue to win in consumer use tests. At the same time, we have continued our focus on bringing new, consumer preferred products to market. In the second quarter, we launched new Huggies Supreme Diapers, the first diaper of its kind with all-around stretch. It is the only diaper on the market that offers a new innovative stretchable outer cover. It has a new stretchy waist band and stretch sides. These features provide a more secure and comfortable fit. And that's important because, according to most consumers, parents consider fit to be one of the most important diaper features.

Last week, we also announced new Pullups Training Pants with easy open sides and Huggies Ultra Trim Diapers with a new stretchy waist band. A new Pullups product meets consumer needs for easier potty training. So we believe it will be a big hit. New Pullups Big Kids pants go on like underwear and the easy opening sides make it easier for parents to check on their child and more convenient to remove in the case of a messy accident. All three of these new products were significantly preferred by a 60/40 margin or better versus our current products and versus all competitive products in the consumer tests that we've conducted. Ship wills of the large size of our new Pullups product began arriving on store shelves across the U.S. recently. All sizes will be available by mid-2003. The new Huggies Ultra trim diapers are referred to we'll start to ship next month. We've sent samples of the great, new products to many of you to give you a first-hand look at our innovations. If you haven't received a sample kit, please contact Mike, and he would be happy to send one to you.

To summarize our diaper businesses and training pant businesses are strategicly healthy. We're doing the right thing strategically to defend our market leading positions in the near term and drive growth and improve our profitability longer term. Speaking about the competitive environment more broadly across our businesses, I want to provide a perspective on promotional activities. We've referred to the promotion in a news release in. A sense consumer and trade promotions reduce revenue. They can, in some ways, be considered a price reduction. Promotional activity can also be considered a strategic invest will. We're looking for a good return on those investments. So whether the purpose is to defend our market share, as we're doing in diapers and training pants, or to drive trial of a new product or drive category growth a properly designed promotional program can be a very good investment. I'd like to give you several other, recent examples of exactly what I mean.

In our adult care business, we're using promotions strategically to drive growth for Depend underwear and for the pant segment of the category. This has made the product more affordable for consumers with incontinence and contributed to the rapid growth of the pants segment. Pants now account for nearly 40% of all heavy incontinence products sold, verses just 25% last year. And, through promotions, we've also reduced the price premium of Depend Pants versus private label. This program is one of the factors that contributed to the strong market share of 54% and record results for our incontinence business in North America.

Switching gears to facial tissue, a key strategy for us in facial tissue is to own the seasons for facial tissue usage. The three key seasons are -- back to school, cold and flu and holiday. We've just completed a very successful back to school program for Kleenex facial tissue in North America. Again, you can see the benefit in our third quarter record sales. As Jack mentioned, facial tissue sales volumes in North America were up double digits. Our valued share and measured outlets in the recent 12 weeks exceeded 53% which is higher than at any point in the first quarter. Other examples include promotional support for new and improved products including a Cotonelle bathroom tissue upgrade in North America, our Andrex bathroom tissue with aloe and Huggies baby wipes and our product in Spain. We're leveraging advertising, consumer promotion, and trade promotion to grow our businesses. Now, before wrapping up and getting to your questions, let me comment on the outlook.

We expect to generate solid, overall solid earnings growth, as well as continued strong cash flow in 2002, even though advertising and promotion spending is coming in above our earlier projections. We expect the growth rate on earnings per share, before unusual items for the full year of 2002 will be in the mid single digit range. More specifically, we believe earnings per share, before unusual items, will be in the range of $3.42 to $3.46 per share. That's a slight reduction, about 2% to 3% compared with the current range of analysts' estimates of $3.50 to $3.56 per share for the full year. As a reminder, earnings per share of unusual items in 2001 were $3.27 per share. This updated guidance primarily reflects increased levels of competitive spending in the diaper categories in North America and Europe, as well as changes in the value of currencies in Latin America. Competition in diapers and training pants is likely to remain in the near-term. All indications are that the heavy promotions we saw in these products in the third quarter will continue now through the fourth quarter. We are proceeding with plans to reset the diaper and pant categories with lower retail price points that are more attractive to consumers. That impact will be priced neutral instead of our original plan for a 5% increase.

At the same time, we are launching product improvements for both Pullups Training Pants and Huggies Ultratrim Diapers as I just mentioned there. Will be costs for the changes and startups in the fourth quarter of about 2 cents to 3 cents per share. With our outlook on the other businesses on the plus side we have markup positions and a solid pipeline that should continue to deliver sales growth. In particular our tissue operations in North America and Europe and our health care business should continue to post strong results. And that's further depreciation in the Mexican peso we expect kc to Mexico's rules to improve enormously. On the other hand, we are not yet seeing any improvement for kc professional to North America and its business is usually seasonably a little softer in the fourth quarter. We also expect the business environments in Argentina and Brazil will continue to be challenging over the business of the past year. Currency effects on sales and earnings should not be much different in the third as they were in the fourth as improvements in the British pound, Australian dollar are being offset by the weakness in the Argentine and Mexican peso and other currencies. All in all earnings per share before unusual items should be similar to the third except for diapers and training pants, as I mentioned.

Over the balance of the year we'll continue to focus on investments to expand our propriety manufacturing technologies and roll out information technology that will support our go to market efforts and further streamline our administrative functions. Finally, we will continue to use our strong cash flow to repurchase our common stock. In closing, I want to leave with you three thoughts -- first, we're doing the right things strategically. In the short term we're aggressively defending our market shares driving gains and cost reduction programs. For the long term, we'll continue to launch product improvements, create superior new products and categories, and invest in our businesses and our people. Second -- we're strong financially with a solid balance sheet, healthy profit margins, and excellent cash flow. And, third -- our team is committed to growing our sales an earnings an increasing shareholder value. We're glad that you could join us today, and we appreciate your interest in Kimberly Clark. Now, Mike has a few details to review with you before we begin to take your questions. Mike?

Thanks, Tom. We're back in business here with an old-style speaker phone that doesn't rely on electricity because our power is still out. We thought we might have problems with the phone lines in Asia, but didn't have a clue that this would happen here. In any event some, of the details I usually provide on market share I'll go through that first and then some other financial details.

Looking at market share over all, our positions generally remain quite strong and I'll go through the dollar shares for the most recent quarter, versus the full year of last year, again, as I usually do. In bathroom tissue and paper towels continue to be up strongly, up about 2% and 3% respectively. And diapers and adult-care products or incontinence products, Tom mentioned the share for the incontinence products, are up about a half of a point. We're about flat in feminine care and, also, in facial tissue, compared to the full year of last year. We're down about a point in baby wipes, as we have finally gotten up against some tough comparisons. There.

In training pants, we're down about 10 points in this tough, competitive environment. A couple of details on the sales. looking at pricing in North America was down 4% and in Europe, was down 3%. Kc professional was down 1% slightly and down 2% in health care. As Jack mentioned, those were both as expected. Looking at Europe over all, sales were up 18% and 6% if you exclude the benefits of currency. So you can see the impact of the Euro and the pound there. And then in Latin America, over all sales were down 10%, but up 12% excluding currency. So you can see the currency going the other way there. In Asia, sales were up 9%, and they were up 3% before currency. So, there was some benefit in Asia before currency in Korea and Australia as well.

Switching over to the balance sheet accounts receivable were a billion 786. The day's sales came down sequentially from 48 to 46. As Jack mentioned the balance sheet is in good shape with inventories also coming down a billion 399 and the day's worth of inventory there are 56. Shareholders' equity 6 billion 013. And the effective tax rate on the earnings before unusual items was 29.0. That's the same as it was for the six months year to date. So I think that takes care of the financial details. Now we'll be happy to take your questions.

At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the 1 key on your touch-tone phone now. Questions will be taken in the order in which they are received. If, at any time, you'd like to remove yourself from the questioning queue press star 2. Again, to ask a question, press star 1 now. Our first question is from Chip Dylan with Solomon Smith Barney.

Hello. This is Tim Fiennes in Chip's place. One question about your competitors building tissue next year in'04 or maybe it's '04 and 'o 5. Do you have plans to increase your capacity there or bring on new machines in that arena?

Well, we've con Sicily added -- we've consistently added capacity over the years as we've needed to support our business and we would in the future. The gp is adding the three drive machines to support their consumer towel business. We're in the process of starting out the machines to support our KC professional business. We have a machine that started up early last year to support our consumer bath and towel businesses. So we believe in our capacity. We're getting good growth in our consumer tissue business, and we'll continue to make investments in the future as we need to to support our growth growth.

Okay. Great. Thank you.

And just one point there, Tim.

Yes.

The competitors may not have the air drive. They do not have the uncraved through-drive that we have.

Good test, Mike. Thanks.

Our next question is from Gail Glazerman with UBS Warberg Go ahead.

Good morning. Thank you. You've talked about the share gains and market shares. Can you talk about underlying market growth, for instance, particularly in the training pant category? I guess last quarter you lost share but volume was up. Has that continued?

Yeah. Over all, the pant category is growing faster this year, and part of the we have the Little Swimmers season. We had a record. I this I total sales were up 19% or something like that for the summer season. That was part of the seasonable section of the business. There's no doubt as Prostate cancerer came in it -- as procter came in it has increased but only a percentage uses a training pant. The rest of the time they use cloth pants or a disposable diaper. It is one where we have seen additional category growth. It hasn't seen to have too much impact on the diaper category at this point in time.

Okay. Can you talk about the rollout product? Are you planning to still roll that out?

Yes. We started shipping that in another segment of geography. We're into the midwest and the southwest at this point in time. And, so, we're continuing to roll that product out, and we continue to think that while it won't be as big of a category as we once thought it was our total moist business including roll wipes is working nicely for us this year.

Okay. Have you been rolling that out with new price points?

Yes, we've reconfigured the pack. We had four moist rolls and a dispenser for an $8.99 price point. In the new geography we'll have two moist rolls and a dispenser and a price point that was half of that level.

okay. It is too early to tell if that's having any impact?

Well income our early test markets that had a impact on trial and positive impact on trial because you're asking the consumer to take half as much money out of their pockets. We would expect to see trial growth improve with that. We'll wait to see what happens when we get into the new piece of geography.

okay. Changing gears a little bit. The 2 cent to 3 cent hit you are expecting in the fourth from the new product introduction, how much of that, if any, do you expect to carry into the fourth quarter and on or is that really just the fourth quarter?

Well, a fair amount is the cost that you incur with retailers to transition their inventory to the packs which is really a fourth quarter event and should not incur into 2003.

All right. Okay. I think that's all of my questions.

thank you.

Our next question is from Catherine Lewis with Morgan Stanley.

Yes. I was just wondering if there's anything that you can do better to improve margins and returns? I mean, the stock is at a 12-month low. The return on assets have eroded pretty steadaly over the past two years. I'm just wondering if there are some key milestones we should look for that would suggest that there be some better productivity?

Well I think that, for us, I mean, the productivity side of it has been, actually, working pretty well. We've had good volume growth. We've had good manufacturing productivity. The key challenge to us has really been the promotional environment and the competitive activity that has driven that. In both consumer tissue, as well as in diapers and training pants, in particular. And, so, it's been more of a price and promotion issue than a productivity issue. You know, we -- we are going through a competitive launch. It's a lot chiefer to defend our share, than to have to go and buy it back. It's a lot cheaper to defend our share, than to have to go and buy it back. So I think some level in the come promotional factor will be a key in getting it up as in past years. Having said that we're delivering top line growth and bottom line growth in the single digit line for the year and have strong cash flow. So we feel good over all about the results we're delivering and the kind of environment we're in.

Okay on KC Professional. Do you have any timing or visibility on that? What do you think are the key drivers that will help turn that around?

We're heavily weighted in that business to manufacturing and to lodging. And health care to a lesser extent. Manufacturing and lodging have probably been two of the harder-hit segments of the economy. As we look at our distributors' business, which is kind of the key belle weather for us as to how things are going, you know, none of them are doing very well. They are not seeing industrial activity pick up and, so, I think -- looking for general signs of improvement and manufacturing output and business travel would be a kind of belle weather indicators for that business. Having said that, we are sill up about 3% on volume in the professional business in the third quarter and, you know, we've got a lot of new product activity. We've locked a new towel in the beginning of the year that's gone very well and, so, we continue to drive our different rengsated products and -- we continue to drive our differentiated products and some of our business isn't quite as robust as it once was.

In terms of long-term sales I know you continue to maintain the 6% to 8% sales growth and 10% he eps growth. If you take a hard look at the growth profile of the categories you're in and then the competitive landscape, why wouldn't you reaccess those targets and be more conservative?

Well, I think, at this point, from everything we've seen, we've delivered those targets over the last five, 10, 15-year periods. So, you know, we're at a point here where the global economies have slowed down a little bit and that's affecting our business at this point in time. There will be points where we don't sit on those long-term objectives. Obviously, if we think that will continue for a longer extent of time we'll have to reevaluate our growth targets. At this point we think those are the times to set our growth targets for ourselves.

thank you.

Our next question is with Jim Gingrich from SanFord Bernstein.

Good morning. Can you give us a sengs of what the outlook will be for your pension expense where the profits are?

We are doing our budgeting and forecast. I think as you and many analysts know it will be dependent on what the returns will be at year end.

sure.

I would say the guidance we're giving you this year we're looking at about 8 cents to 9 cents extra cost year over year for 2002. I'm pretty sure that it's going to be worse than that next year. But how much it's really -- I've got to wait to see the returns. We'll probably be able to give you a lot better guidance. I know we'll be able to give you a better guidance on that when we do our forecast and assumptions later in December.

Okay. And that would be without any changes in terms of assumptions on long-term returns, that type of thing?

No, no, with a we do, like most companies -- well, in December, we will review our returns, our discount rates, and all of the other assumptions that go into the pensions. We'll have those pretty well reviewed for that December call. So you'll have a good sense of what we're going to use.

Okay. Just in -- just another housekeeping question. Did you explain to us what happened to the other expense line here in the current quarter, jack?

The other expense is, primarily pension. Excuse me. Currency. We have about -- of the toll there's about $12 million of currency impact in that line, Jim.

Agh, okay. Now, would you assume that that's going to continue? Would you have an unfavorable -- is that going to be unfavorable here in 4q as well?

Well, net, net, with all of the currency impacts combined we're about one penny for this quarter. If you look at the currency in the fourth quarter, the primary mover as being argue teen yand Brazil, and if you look at last year's fourth quarter, they were still fairly high. Argentina was like 96 cents. I would think a similar look in the fourth quarter for currency.

Okay.

The changes that we're seeing today really didn't occur, for the most part, in Latin America, particularly until the first quarter.

Right.

So I would expect the year over year impact to be similar.

Okay. Okay. Tom, I mean, with the stance that p & g it taking here I guess they'll follow the Dow count in February, I would assume that -- like yourselves is not taking pricing up on a per unit basis. It's kind of hard to see how this price environment lets up, even into the first half of next year. Is that a fair assumption?

I think when you look at in the first half of the year they've had trial generation activity. You may not see price letup but you may see some of the consumer and trade promotion let up a bit. On the tissue front it may depend on pulp prices. We've seen hot consumer tissue features we haven't followed by some of our compote stories. That may let up a little bit if pulp prices let up.

But I'm assuming that this goes beyond just the issue on training pants. I mean, if you're talking about personal care pricing being down 3% in Europe, and 4% in the U.S. and the tissue business being off 4%, despite a flat fiber environment this is pretty broad based, isn't it?

In Europe and in person al calendar -- in Europe and in personal care it is pry amayorly tissue and pants. We drove the volume that went along with the tissue and we're aggressively driving our Scott Towel business. It is kind of a launch in a new product mode. There's been a competitive reaction to that. We've seen our tissue shares pick up. There's been a competitive response.

Okay. Fair enough. Thanks, Tom.

thanks.

Our next question is from Carol Wilke with Merrill lynch.

Thanks. I had just sort of a general and conceptal question about 2003. If you look at your earnings growth adjusted for goodwill, which I think is probably fair you had 2% decline in 2001 and this year, with the revised guidance it is looking flattish. As you look into 2003, and you look at what's going on with cost, promotion and the fact that you're not getting a price increase, why would there really be earnings growth next year? You've got natural gas prices going up. You're got your price increase or not taking it on diapers. Pull pulp will go up. It won't be down like it was this year and you've got a heavy spending environment. What is the biggest positive that is going to occur in 2003 that will help turn around what's been a flat to slightly down growth in earnings pattern the past few years?

We'll give you more specifics on 2003 later in the year when we walk into the planning sessions. When you look at underlying volume growth that, to me S the biggest factor that will drive our business going forward. And as we get more volume and continue to build the productivity of our asset base and develop our cost-savings program to offset some of the promotional costs we would expect, even in this environment, to still deliver earnings growth next year.

It terms of the development programs when do you expect that to start kicking in?

We're seeing some of them already starting in North America. Probably on a year to date basis we've generated probably close to $70 million in cost savings already in North America. There's more to come in the balance of the year. That's really a world-wide program. We've got a lot of costs this year to start up our new computer systems in Europe, Asia, parts of North America. We should see benefits coming from those things as those continue to start up and we gain more proficiency with those capabilities next year. We continue to see productivity growth in every as peck of our business.

Our next question is from Neal Goldner from Global Advisors.

hi. Very two questions. One is -- well, I'm curious what happens to KC Australia in the third quarter comp money. It is zero acquisitions for everything. I thought when KC Australia was down it would still in that number?

New York Neil, we anniversaried that in the second quarter and began consolidating it in the second quarter of 2001. And, so, what happened differently is that we brought in the remaining 45% of KC Australia at the end of June and that reflected in the lower minority interest number.

Thank you, Mike. The second question -- maybe it's obvious, but I'm going to ask it anyways. The decision not to raise prices, is that for competitive reasons or is that for retailer reasons?

It's for competitive reasons. I mean, I think the retail environment was supportive of the move that we had maids. You know, for whatever reason our key competitor decided not to match. So we adjusted our plan according my -- so we adjusted our plan accordingly.

Okay, thank you.

Thank you.

Our next question is with Jeff Baggley of McKay Managers.

hi. I wanted to address the dividend. You've been buying back stock for $58 a share. If you look at stock for the last two, three years you've been buying above the current price of $51 and change. The payout ratio used to be higher. Any thoughts on, perhaps, increasing the dividends so that even with a shock to the stock like this we're at $51 it's a little better than 2.3%, which is a little more than average for the market?

We bumped out our dividend increase this year. We had been increasing it by a penny the last couple of years. We increased it by two cents this year. I think our payout will be around --

35% ratio.

So we were aware of that and bumped it up a little bit. That's, obviously, something we'll try to balance share repurchases and dividend policy to make sure we provide our shareholders with over all and accessible returns.

Okay, thank you very much.

thank you.

Okay. If you would like to ask a question, please press the star key followed by the 1 key on your touch-tone phone now. Our next question is from Amy Chasen, Goldman Sachs .

I have two questions. On the overall growth decline is that because of the increased trade spending?

Yes.

Okay. So there's nothing else going on there?

Well, I'm sure there are other pluses and minuses. Predominantly it's driven by the trade spending.

Okay. Of that, can you tell us how much was due to diapers and training pants, versus consumer tissue?

Well, I think that Mike gave you the figures in North America. Prices for both of them was down about 4% for the quarter in North America. Is that accurate, Mike?

That is correct.

O.K. so it was about equal then?

Yes, on a percentage basis.

Okay. Then my other question is just about diapers in the very short term. Given that you're doing your down count now it sounds like on the shelf, your diaper prices are actually going to be lower than your competitor's, lower than p & g for the near term. Do you expect in the short term that will drive increase demands for Huggies relative to Pampers?

We'll see what happens. This is always a delicate time to move through competitively. And I think that -- I guess I wouldn't predict that at this point in time. We'll see what happens as shelf prices continue. It will probably mean confusion for the con summer with pack count and prices moving all over the place.

Okay. So -- all right. Okay. Great. That's all. Thank you.

thanks, Amy.

Again, if you would like to ask a question, please press the star key followed by the 1 key on your touch-tone phone now. Our next question is from Jim Gingrich, SanFord Bernstein.

In terms of the diaper lines I understand the rollout to the states. I understand next year we're also looking at a rollout to Europe?

Well, we will continue to have product improvements in Europe as we have. They're not always on the same time lines. Sometimes we've had other improvements in Europe and other parts of the world. Can you expect, in every part of the world, we'll have you know, solid product news on every one of our product lines every year.

Okay. Thanks, Tom.

Thanks.

Again, if you would like to ask a question, please press the star key followed by the 1 key on your touch-tone phone now. At this time there are no further questions.

Okay. I think we will wrap up again. Just one point I will make for folks as both Tom and Jack mentioned that we will have a session similar to last year's in early December to review our planning assumptions for 2003. So we will let you know what that date is going to be, very shortly. And we'll go through all of the background on our planning assumptions. Tom, would you like to just say a couple of things to wrap up before we sign off?

Well, once again, we've had a solid growing quarter and delivered items of 9% and had a cash flow growth of 6% in. A tough, competitive environment, we're still delivering top and bottom line growth. We expect to have earnings for the full year in the mid single digits growth range. So we appreciate your support and confidence in Kimberly Clark. Thanks very much.

Thanks, everyone, and good-bye.

Ladies and gentlemen, thank you for participating in today's teleconference. You may all disconnect your lines at this time.