金百利克拉克 (KMB) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for your patience in holding.

We now have your presenters in conference.

Please be aware that each of your lines is in a listen-only mode.

At the conclusion of today's presentation, we will open the floor for your questions.

At that time, instructions will be given as to the procedure to follow if you would like to ask an audio question.

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

Thank you, and good morning, everyone.

Welcome to Kimberly-Clark's year-end earnings conference call.

Here with me today are Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.

Here's the agenda for the call.

Mark will begin with a review of our 2014 results focusing mostly on the full year.

Tom will then provide his perspectives on our results and then address the (inaudible) 2015.

Then, we'll finish with Q&A.

As usual, we have a presentation of today's materials in the investor section of our website.

That presentation and this morning's news release both include our detailed planning assumptions for 2015.

As a reminder, we will be making forward-looking statements today.

Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements.

We'll also be referring to adjusted results and outlook.

Both exclude certain items described in this morning's news release.

The release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

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

Thanks, Paul.

Good morning.

Let's start with the headlines for the year.

First, we generated mid-single-digit growth in organic sales and adjusted earnings per share from continuing operations.

Second, we improved our margins boosted by significant cost savings.

And, third, we delivered another strong performance managing our balance sheet.

Now let's cover the detail of our results.

Fourth-quarter sales were $4.8 billion down 1 point versus prior year.

That brought full-year sales to $19.7 billion, up 1 point compared to 2013.

If you exclude currency and restructuring impacts, our organic sales were up 3% for the quarter and 4% for the full year.

Our momentum in K-C International continues to be strong as organic sales were up 7% in the fourth quarter and 10% for the full year.

Fourth-quarter adjusted gross margin was 33.9% with the full year at 34.3%.

That's up 20 basis points year on year.

Adjusted operating margin was 15.9% in the fourth quarter, 16.1% for the full year.

That's up 70 basis points compared to the prior year.

I was really encouraged to see our operating margins up in North America, in Europe and in K-C International.

We delivered $320 million of forced cost savings in 2014.

That's the second-highest amount we've ever achieved.

We expect another strong year in 2015 with a savings target of at least $300 million for the year.

In addition, we expect to deliver $60 million to $80 million in savings from our 2014 organizational restructuring program.

We absorbed $240 million of input cost inflation in 2014.

Currencies were also a drag on earnings.

Translation was a $75 million negative, and transaction effects were also unfavorable.

Equity income was down 29% in 2014, and that that's well below our original plan for the year.

That was driven by performance in K-C de Mexico which continues to face challenging economic and competitive conditions in Mexico.

Because the Mexican peso has depreciated significantly over the last few months, we now expect that equity income will be down somewhat year on year in 2015.

Fourth-quarter adjusted earnings per share from continuing operations were $1.35 bringing the full year to $5.51.

That's up 5% year on year.

Net growth is consistent with the 4% to 7% target we set at the beginning of 2014.

Our overall capital management was strong in 2014 as well.

We continue to allocate capital in shareholder-friendly ways.

Cash from operations was healthy at $2.8 billion although we're down somewhat year on year.

Comparisons were impacted by higher tax payments and transaction costs related to our spinoff in the healthcare business.

We reduced primary working capital in 2014 with a seven-day improvement in our cash conversion cycle.

Return-on-invested capital improved nicely climbing 160 basis points to 19.1% for the year.

We returned $3.3 billion to shareholders through share repurchases and dividends in 2014.

And, for 2015, we expect to repurchase $800 million to $1 billion of KMB stock.

Regarding the dividend, we expect a mid-single digit increase this year consistent with our growth and adjusted earnings per share from continuing operations in 2014.

Let me briefly recap segment results for the year.

In personal care, organic sales rose 6% continuing our track record of delivering strong growth in this segment.

Full-year operating margins were solid at 18.7%.

That's an increase of 90 basis points.

Moving into consumer tissue, organic sales were up 2%.

Operating margins of 16% were up 110 basis points driven by cost savings and higher net selling prices.

And, lastly, K-C Professional organic sales increased 4%.

Operating margins were a healthy 17.8% although they were down slightly year-on-year.

Now, I want to cover two additional topics, and I'll start with Venezuela.

As you'd expect, we have been closely monitoring events and conditions in the country for some time.

Given the increased uncertainty and inconsistent liquidity at the end of the year, we decided to move from measuring results at the official exchange rate of 6.3 Bolivars per US dollar to using the government SICAD II floating exchange rate.

The SICAD II rate has been trading at about 50 Bolivars per dollar recently.

As a result of this change, we re-measured our year-end balance sheet in Venezuela at the SICAD II rate with a resulting charge to earnings of $462 million.

Looking ahead for 2015, using the SICAD II rate to translate results in Venezuela will reduce total Company sales by about 3% and adjusted operating profit by about 4%.

Now to wrap up.

Starting next quarter, we will be making a small change in how we talk about our businesses outside of North America.

As you know, we've spent the last year bringing our European operations together with our K-C International organization.

That integration is right on track.

And, as a result starting next quarter, we'll describe our businesses outside of North America in two groups.

Developing and emerging markets and developed markets.

That will replace K-C International in Europe.

Developing and emerging markets will comprise Eastern Europe, the Middle East and Africa, Latin America, and Asia-Pacific and will exclude Australia and South Korea.

Developed markets will consist of Western and Central Europe, Australia and South Korea.

So, for some perspective in 2014, our D&E markets' business represented 33% of our Company sales.

30% if you take into account the currency rate change in Venezuela.

The business generated organic sales growth of 11%, excluding Venezuela, and improved operating margins year on year.

We expect high single-digit to low double-digit organic growth in 2015 for our developing and emerging markets business.

Our developed markets business was approximately 21% of Company sales in 2014.

Organic sales were up 1% with healthy and improving operating margins.

That wraps up my comments, and I'll turn it over to Tom.

Thanks, Mark, and good morning, everyone.

I'll share my perspectives on our full-year 2014 results, and then I'll address our outlook for 2015.

Let's start with 2014.

We delivered on our financial commitments while making strategic changes to further improve our Company.

As Mark just mentioned, our organic sales grew 4% in 2014, and that was right in line with our long-term target.

K-C International had another great year including excellent progress with our key growth initiatives.

For example, in our diaper business in KCI, organic sales were up 25% in Eastern Europe, 25% in China, and 10% in Brazil.

We continue to benefit from innovation in these markets.

And, in China, Huggies diapers are now sold in 105 cities, and that's up from just 90 cities at the end of 2013.

We're targeting to be in 115 cities by the end of this year.

Our feminine care organic sales rose at a double-digit rate in K-C International.

We continue to grow our brands and launch innovations in this category around the world.

Our adult care organic sales were also up double digits in KCI, and baby wipes rose high single digits.

Elsewhere in K-C International, our K-C Professional sales, organic sales were up double digits.

This is now a $1 billion business for us with attractive margins.

So, we will be making additional investments in this part of our portfolio to drive further growth in the future.

Moving to our North American consumer business, we generated solid sales growth and launched innovations on several brands in 2014.

That included Viva towels, Good Nights youth pants, Huggies baby wipes, and our Poise and Depend adult care brands.

Our North American market shares were up or even with the prior year in six of the eight categories that we track.

One of our businesses had a soft year in North America, and that was mainline Huggies diapers.

To improve our performance in 2015, we will be making investments in innovation, marketing and relative value to key competition.

Turning to K-C Professional in North America.

We delivered high single-digit volume growth in safety products while volumes were down in washroom.

W have made some investments to be more competitive in this category, and with better execution and an improving US economy, we expect to drive more growth in this business in 2015.

Mark has already highlighted how we continue to manage our Company with financial discipline so I'll just add that I'm pleased with our cost savings, our margin improvement, and our cash returns to shareholders during the year.

I'm also pleased that we delivered on our bottom line growth target in a challenging environment.

We also made some important strategic changes to the business this past year.

We successfully executed the spinoff of our healthcare business.

And, that has allowed both Kimberly-Clark and Halyard Health to further increase focus on their own strategies.

We initiated our 2014 organization restructuring.

This will help us improve our efficiency, will offset the impact of stranded overhead cost from the spinoff, and will increase our flexibility to invest in future growth.

We expect to make significant progress with this program in 2015.

We also completed our European strategic changes initiatives, and we are realizing the benefits we expected.

Over the past two years, our European consumer business has increased operating profit by 10% and improved operating margin by 300 basis points.

And, we're growing volumes in our high-volume childcare and baby wipes businesses.

So, all in all, I'm encouraged with our accomplishments in 2014, and our teams are focused on driving further improvements going forward.

Now, let's move to our outlook for 2015.

The environment has become significantly more volatile recently particularly with currency rates and commodity costs.

So, planning in this environment has become much more dynamic.

Regardless, our teams continue to focus on our global business plan strategies and the fundamentals that create long-term shareholder value.

So, in 2015, we'll leverage our brands, our growth initiatives, our innovations, and marketing investments to drive organic sales growth.

We'll deliver healthy levels of cost savings to improve our margins and fund reinvestments in the business.

And, we'll generate strong cash flow, improve return-on-invested capital, and allocate capital in shareholder-friendly ways.

In terms of our specific 2015 targets.

On the top line, we expect organic sales growth of 3% to 5%.

We will continue to focus on driving rapid growth in personal care and K-C Professional in developing and emerging markets.

We will launch innovations throughout our businesses.

Near-term activity in North America will include upgrades on Huggies diapers, Huggies baby wipes, and in our adult care business.

Internationally, we'll introduce new or improved products across a number of categories.

To support our innovations and growth initiatives, our advertising spending should be up somewhat as a percent of sales.

On the bottom line, we're targeting adjusted earnings per share in the range of $5.60 to $5.80.

That's up 2% to 5% compared to adjusted earnings per share from continuing operations in 2014.

Similar to this past year, we expect that earnings in 2015 will be higher in the second half of the year as compared to the first half of the year.

Like other multinational companies, we're facing significant currency headwinds.

Including the rate change in Venezuela we, expect that translation effects will reduce our sales by 8% to 9% and reduce earnings by 9% to 10%.

Adding in transaction effects, currency is likely to hurt our bottom line by more than 15% in 2015.

On the commodity front, the outlook has improved some in the past three months, but at this point, we are not planning for a big commodity windfall.

Oil-based costs have started to fall recently but not nearly as much as the drop in oil prices.

We expect pulp costs, including secondary fiber, to be similar to last year or even up slightly.

We're also assuming that local inflation will continue in some of our international markets.

Adding it all up, our plan assumes cost deflation in 2015 of zero to $150 million.

At the midpoint, that's only a 2-point benefit to the bottom line.

So, the primary ways that we will offset currency headwinds will be by raising selling prices where we can, delivering cost savings, and controlling our overhead spending.

We will continue to focus on cash generation and capital allocation in 2015.

Cash provided by operations should be similar to 2014 or perhaps up somewhat despite the lost cash flow from the spun-off healthcare business.

We expect to allocate at least $2.1 billion to dividends and share repurchases in 2015.

That represents a cash return of about 5% based on our current market capitalization.

In summary, we delivered on our growth targets in 2014 while making strategic changes to improve our Company.

We continue to focus on the fundamentals that drive our long-term performance, and we remain optimistic about our prospects to generate attractive shareholder returns.

So, that wraps up our prepared remarks, and now, we'll begin to take your questions.

(Operator Instructions)

Ali Dibadj, Bernstein.

I want to dig a little deeper in North American consumer tissue given the price mix was down quite a bit.

And, I get that you're rolling off de-sheeting.

I get that there were competitors in the marketplace -- Georgia Pacific, in particular -- that was aggressive.

Can you tell us a little bit of how you think it should go forward?

You said pricing actions.

I want to get a sense of what you think that should look like going forward if you can give us any more detail?

If it is a capacity issue?

I know we've all heard about [tax] capacity coming online.

If there's anything around that you think is more sustainable from a pressure downwards?

I guess the way I'd look at this, Ali, is probably in the fourth quarter it was more of a year-on-year impact than timing of promotion.

If you looked at it sequentially, I'd say tissue pricing in the market was pretty similar third quarter to fourth quarter.

And again, we wouldn't see a big swing going forward.

So, I'd say second half was a little bit more competitive than first half.

But, pulp prices have been pretty stable and aren't moving around very much, and so there's not a lot of driver for competitive pricing at this point in time.

And, the capacity issue is not an issue it sounds like -- so no change there.

I think industry [operary] rates are still hovering around 90%.

And so, that's maybe down a tick.

As we look at the industry capacity increase in 2015, it looks like there's maybe net 1% additional capacity coming on line.

That's pretty much what the market grows every year.

So, there's not a huge imbalance at this point in time.

I'd say, we're cautiously optimistic about how that will play out.

Two other ones.

One on Venezuela.

Just wanted to get a sense of what changed over the past several months that make you change the way you're accounting for it?

And, moreover, as we look at it going forward, how much historically -- whether it be between consumer tissue or personal care -- you were benefiting from price mix from Venezuela that affects KCI?

We see good price mix in Latin America.

For example for PC, how much of that was Venezuela and how should we expect that going forward?

So, what's different, and then kind of going forward on the Venezuela pulling out from a price perspective?

I think that when -- it's something that Mark and I have been spending a lot of time watching and working with Elane Stock and the K-C International team to monitor what is going on on the ground in Venezuela.

And really, if you look at what happened with the oil price shock and that economy is so dependent on oil.

We really expected probably some other deflation or devaluation action to happen.

And, we got to the end of the year and felt like it was the right thing to do to move to a rate that may be more reflective of economic reality on the ground.

We're still getting foreign exchange at the 6.3 rate.

But, translating into our US dollar results felt like we should use a rate that was a little closer to economic reality.

And so, it's something that we spent a lot of time thinking about and talking about in the fourth quarter.

But, the drop in oil prices certainly made a difference.

It's also a key that we -- as we said on the last call, that we've kept our US dollar exposure there.

And so, we started to take some down time in the country due to lack of foreign exchange, and that also was a factor in our decision.

In terms of the impact on Venezuela, it has been about a 1-point tailwind to KCI growth.

If you look at it in total -- if you took Venezuela out of the KCI growth rates, it would probably drop by about 1 point, if that makes sense.

It does help.

Last question, and it's something I asked a little while ago -- a few years ago actually.

And, I just want to revisit it and get your point of view again.

Which is, 2014 dividend plus repurchase $3.3 billion which was very impressive.

But, yet again, that was higher than your free cash flow.

As it had been for the past several years, and it sounds like it will back in the envelope -- probably be the same type of return to shareholders higher than your free cash flow in 2015 as well.

Want to get a sense of how you think about that?

Especially as you describe it in a more volatile environment and whether it's sustainable?

That's a good question.

In 2014, basically the difference was the Halyard dividend.

And so, as part of the spin, we pulled the Halyard dividend out so that boosted us up to the top end.

But Mark, maybe you want to give a little bit more color on 2015, and how you're thinking about that?

Ali, I think it's a fair assessment.

As the Company grows, we've grown our balance sheet a little bit in line.

But, our target is to be a solid single A credit.

Heading into the year, we expect free cash flow to equal dividends and share repurchases.

This year, coming into the year, our outlook was to increase debt just a little bit associated with the healthcare spin, and just we felt we had a little bit of capacity.

There is nothing changed about our target to be a solid single A, and we watch those metrics pretty closely.

Chris Ferrara, Wells Fargo.

You are looking for 1 to 2 points off pricing in 2015.

You did about 2 in 2014.

I guess I'd like to get a sense of your confidence level that you'll be able to take incremental pricing especially in light of where crude is hitting from a competitive standpoint, right?

And, how much of that maybe is follow-through pricing that you've already taken?

And, how much is incremental pricing in 2015?

Good question.

A fair amount of it is follow-up through.

And, it's not going to be broadly-based.

So, it's going to be targeted in key markets.

So, where you've seen big currency moved like Russia, Argentina, you will see a disproportionate amount of pricing in markets like that.

If you see a market like Australia where you've had currency weakness -- or the euro zone -- where you have seen currency weakness, it will be much tougher to get pricing in those markets.

And, I think the commodity factor that you mentioned as well will make it more difficult.

But, in a market like Russia, you could see double-digit, mid-teens kind of pricing in Russia and Eastern Europe just because of the shock that you've seen to currencies in those markets.

More specifically, in the personal care KCI blurb in the press release, you talked about Brazil volume being down there and relating it to pricing.

Is that the risk -- or volume fell off pretty markedly in KCI without a lot of incremental pricing relative to last quarter.

Could you talk about that risk a little bit?

In Brazil, we took some pricing on November 1. And so, we had a little bit of a late third quarter, early fourth quarter buy-in ahead of that.

And so, it was a little softer in the end of the quarter as a result of that.

We were probably -- year-over-year, our promotional timing was not quite as heavily back-end loaded.

So, I'd say overall we felt pretty good about our volume in Brazil being up double digits in diapers for the year.

We've got great momentum and innovation coming, and I'm expecting them to have a very solid year in 2015.

Lastly, the main line Huggies diapers, obviously, that's where you've been losing share.

You commented on -- and then, one of the things you noted was adjusting relative value to key customers or versus competition.

Can you talk about how big a piece price will be to what you end up doing in mainline diapers?

And, what kind of timeframe you expect that at?

I think value is, as you know, Chris, is a combination of performance and price.

And so, we will make sure that we are competitive in our promotion calendar.

That we've got the right amount of display activity.

That were executing it well at retail.

So, I wouldn't expect anything major from a list price standpoint.

It's really more of making sure we're executing and more competitive with at least our fair share of display activities at competitive prices in-store.

And then, we'll have some product news as well coming in with some mainline improvements in late first quarter and additional improvements coming during the year just to make sure we get off to a better start and have a much better year on Huggies in 2015.

Olivia Tong, Bank of America Merrill Lynch.

On commodities, most of your assumptions are ahead of where current spot rates and external estimates are.

And, broadly speaking I understand that many forecasters are that prices will stabilize higher for oil.

But, can you give more color on your other forecasts, including pulp?

And also, what you're thinking in terms of resin?

From a pulp standpoint, in secondary fiber, it's looking fairly stable in the outlook.

You may see some -- we've actually -- in recent weeks seen eucalyptus going up a little bit.

Northern softwood coming down a little bit.

Secondary fiber has been pretty firm.

It has maybe trended down just a bit.

But, our outlook for both of those is to be pretty stable during the year, and they don't seem to be affected as much by some of the big currency moves maybe as they have been in the past.

The underlying supply-demand balance has been fairly stable and even tight in some grades of pulp and in some markets for secondary fiber.

On the polymer side, we would say that over time, it generally follows oil.

It seems to be a little slower at this point in time.

And, there's been some supply constraints on polypropylene, which we use a lot of, that has helped pricing up a little bit more than maybe you would expect.

That one has been the toughest one to forecast, and there aren't as many good forecasting services out there for that.

There is a little bit of a forward market, but that's not that reliable and not that heavily traded.

So, we'd expect us to get some benefit in zero to $150 million of cost deflation.

Polymer is a pretty good chunk of that.

But, that's the harder one to call for the year probably.

How have your discussions with retailers gone, particularly in the US?

Given what has happened with prices at the pump?

Well, with the fourth quarter, we still had $55 million of cost inflation in our quarter.

So, we still had polymer and other materials going up $30 million.

Pulp was still up $15 million.

Distribution cost unrelated to fuel surcharges, but just rates were up $15 million.

So, we haven't had any deflation yet to talk about.

I think at this point, they're all watching it closely, but it hasn't been that noisy at this stage.

The other perspective I'd add, Olivia, is that as inflation has been moderate for the last few years, we really haven't recouped that on the way up.

So, that may help us if costs go down a little bit in 2015.

On the organic sales, you give that by key emerging markets.

You gave it for fiscal -- for the full-year?

But, could you give it to us for Q4?

Are you referring to the diaper business, Olivia?

Brazil, Eastern Europe -- exactly.

China was up almost 30% in the fourth quarter in diapers.

Eastern Europe was about 25%, and Brazil was down slightly due to the pricing action Tom described.

Thank you.

Bill Schmitz, Deutsche Bank.

Just a few questions.

Was there any pre-buy ahead of all these price increases, especially in Eastern Europe and Russia -- that might have impacted things a little bit on the volume side in the quarter?

Not so much in Eastern Europe.

Some of their pricing -- they have been getting pricing all year, and there is some more going in in the first quarter.

As we talked about in Brazil, there was some forward buy that probably boosted late third quarter very early fourth quarter.

And then, it was a little lighter in November and December in Brazil.

Okay, thanks.

And then, did you exit Italy?

Because I didn't see a press release, but I looked at some of the Nielsen data.

And, it looks like volumes there are down 30%, 40%.

We're still selling in Italy in diapers and in tissue.

I haven't seen that in the Nielsen data.

I'd say our business was a little softer in the fourth quarter, but it wasn't to that extent.

As I look at the raw material guidance of zero to $150 million, and you look at the different pieces.

Maybe I'll just confirm some of the assumptions.

But, I thought that every dollar moving oil was $6 million to EBIT.

And then, you give us the other assumptions on polypropylene and super absorbers.

And, the numbers I'm getting to are significantly higher than your zero to $150 million.

So, I'm just trying to figure out where I'm wrong.

Those are the rules of thumb we've given.

Those rules of thumb aren't working right at the moment.

So, I think eventually they'll probably work, but it's going to take a little longer for it to flow through the pipe at this point in time.

So, you would expect that over time if oil stays at this level for an extended period of time that you'll see more of that flow through, but it's not going to happen at this point in the first half.

And, you may get a little bit more as the year progresses.

We will see.

At this point, based on what we know, we're not calling for that windfall to flow through at the same level as our traditional rules of thumb would have indicated.

The reason I bring it up is that if oil really is -- just oil alone is $6 million per dollar move.

That alone should be $225 million next year, right?

If you got it all in one year.

It's got to flow through adhesives and packaging materials, and that has just taken a little longer at this point in time.

We've seen nowhere near that kind of drop-off in the cost of polymer at this point.

It has come down modestly.

As we said in the fourth quarter, we still have inflation in those material areas.

We didn't see any benefit yet at this stage.

Keep belaboring this, but oil is exclusive to the polypropylene and the natural gas, right?

So, oil is the $6 million, and then it's the different buys all from the different raw materials?

Is that correct?

So, I'm not double-counting in terms of the $6 million, right?

The oil rule of thumb that we've given you was intended to roughly cover all of our oil-based materials.

We don't have that much direct oil exposure at all.

Okay.

That make sense.

Gail Glazerman, UBS.

Can we go back to the North American diaper situation?

Your volumes have been pretty weak for a while.

Have you started to take any of the actions that you're talking about?

And, as you think of your plan for 2015, how concerned are you that with a potential deflationary environment the competitive environment is only going to get worse?

I would say that started to take some of the competitive action, yes, but it takes a lot longer to affect retailer promotion plans, and so much of that work was started in 2014 and will play out in 2015.

Saw a little bit better in late fourth quarter, but it didn't show up much in the numbers.

We know it's a competitive environment to out there.

It has been.

We're going to be competing harder, and we've anticipated that there will be some competitive response in our outlook.

Can you talk a little bit about what you're seeing in private label?

Obviously, Amazon made some noise earlier this week as well as a few weeks ago.

Are you seeing any incremental, or less pressure there?

The Amazon thing was here and gone fairly quickly.

That one didn't have much of an impact in the marketplace.

Probably generated more media interest than consumer interest, I would say.

Private label shares didn't do much this year so you're seeing more of the activity -- probably has been with Luvs in the value segment has been where more of the action has been this year in terms of share growth.

Can you talk a little bit about North American [NCO]?

Just your latest thoughts on how Procter's return to the market is playing out?

They've done pretty well on the light end.

The part that we compete with Poise -- they've probably -- I think they've picked up 7 share points.

I'd say we've lost our fair share but have defended pretty effectively in terms of promotion, and the category has grown a little bit.

So, our volume actually was flat overall in the quarter despite a big competitive launch.

We've done better on the Depend end of the spectrum where we really haven't lost any share and have done well on that -- in that segment of it.

We've got more innovation coming in that space and feel pretty good about our business around the world.

As we noted, we've had double-digit growth in adult care globally as well.

So, it's an exciting category on trend, and we're going to keep driving hard to get at least our fair share of the growth there.

John Faucher, JPMorgan.

Just want to talk a little bit about the view on the promotional environment.

And, this came up a little bit.

Right now, given how the competitive environment is looking -- the balance between marketing spend and trade promotion, do you feel like you're in the right situation there?

And, have you seen any risk of any of the competitors maybe tilting a little bit more towards promotion in advance of some of the raw material benefits flowing through?

And then, also, can you talk a little bit about the timing of some of your innovation in terms of how we should see that playing out over the course of the year?

Thanks.

On the trade versus strategic, I think it's a little earlier at this point in time because there hasn't been much deflation that's made it into anybody's P&L yet.

On the tissue side, you certainly haven't seen pulp costs come down significantly, if at all.

So, that's not really driving anything there.

And, you're not seeing it really either on the personal care side that would be driven by oil, particularly.

It's not a factor at this stage.

We feel pretty good about our mix of marketing spend going into 2015.

We're trying to make sure we can drive even better performance off the trade money that we spend.

So, we'd love to drive more volume for the same investment by executing it better at retail and coming up with the right strategic price points, the right kinds of display activity that tie into the things that retailers are supportive of.

And, we want to get better at that around the world where we can.

I think from and innovation standpoint, you'll see that some of the diaper stuff happened in first quarter.

There's some adult care activity that's happening in the first half as well.

So pretty strong calendar around the world, but quite a few things getting started already early in the year.

Great.

Thanks.

Lauren Lieberman, Barclays.

Could you talk a little bit about the competitive environment in diaper pants?

I know that's been a place where in emerging markets you seem to be a bit ahead of the game, but Procter talked about launching a new and improved in the second half of the year.

Just curious if you have seen any change in dynamics in that category in terms of share?

Or, even a deceleration in the diaper pants segment as the economies in emerging markets have been a bit tougher?

Thanks.

That has been a pretty exciting business around the world.

And really, we've been a strong player but also Unicharm and Kao, two Japanese competitors.

In Japan, diaper pants are the majority of diaper category, and they've got terrific products that we've been competing with for some time.

And, have been launching diaper pants pretty aggressively around the world.

Procter has recently entered that part of the category both in China and Russia and a few other places -- Brazil.

There's a lot going on there.

It's really a strong source of category growth everywhere.

Not seeing it slow down at this point time.

I think it would be interesting to see what happens in markets like Russia with the economic activity that's playing out there.

But, at this point, it didn't seem to slow anything down significantly in the fourth quarter.

So we'll watch that one closely going forward.

On Russia, you talked about mid-teens kind of pricing but still had really strong volume.

Are you anticipating that volume decelerates because of the pricing?

Or, do you think the consumer is going to be able to bear the pricing?

That's just a bit of uncharted territory.

If the Russians and some of the other Eastern European economies declined by mid-single digits, which is with some of the forecasters say, we'll see how that plays out in terms of consumer purchasing power.

At this point, our momentum looks pretty good.

Our team over there is pretty motivated.

And, while the size of the P&L is going to wiggle around with the exchange rates, they're really focused on improving the shape of the P&L and making sure they take market share.

They drive their innovation hard.

They can improve -- they're improving their margins trying to get pricing where they can.

And, come out of it with a much stronger market position as the crisis starts to move forward.

And then, just finally, I was going to ask about K-C Professional.

The cyclical exposure to an improving US economy.

In your comments, it sounded a little bit like there's some investments in price necessary?

So, can you talk about in what segment of the business that might be?

And, has that been holding the business back thus far?

It has probably typically been to hold some lower tier volume where we've had to make some price investments to make sure we were competitive.

So, that's probably one soft spot.

We're trying to not chase low-margin business, but there's some strategic pieces of business that you have a fuller range of products in that you might be more competitive on the washroom if you've got their safety and wiper business.

But, broadly, secondary fiber prices actually have continued to go up, and so there has been some industry price increases still in that market as well.

So, that's offsetting the price drag to be competitive in some markets with some customers as well.

But, overall, we think that KCP and we've talked to our distributors are looking to have a better 2015 as the US economy continues to recover.

Employment levels are pretty good.

So, they're a little bit more bullish than they were a year ago.

[Erin Lesh], MorningStar.

A lot of my questions have been answered at this point, but I was wondering -- and you alluded to this earlier.

But, I was wondering with regards to the logistics and transportation costs.

If you could talk to whether the degree to which driver -- truck driver shortages is impacting you to any meaningful degree and offsetting some of that benefit that you might otherwise see from the declines in oil prices?

As we talked in the quarter of our $55 million in cost inflation, $15 million was in distribution, and virtually all of that was rate increases related to driver availability.

So, that has been a big problem for the industry overall, and it has actually caused us some customer service issues in some of our businesses for periods of time where there was an inability to get trucks in certain lanes.

And so, that's something that we will continue to watch.

But, that certainly was a bigger drag than any benefit we got from lower diesel prices in the quarter.

That's helpful.

I was wondering if you could speak to -- across your channel exposure -- if there's any opportunities to further penetrate other alternative outlets?

Dollars stores?

Or, I guess if there's any areas where you feel you're underpenetrated at this point?

We try to sell our products wherever mom wants to shop.

So, we're doing pretty well across the channels.

I think we were probably a little late to e-commerce in the US.

We're catching up quickly.

We have probably been ahead in e-commerce in markets like China where we're doing quite well there.

But, we are also trying to make sure there's a channel of baby stores in China which is very popular that we do well in.

There are small-format diaper stores in markets like Argentina where they might have 6,000 little tiny mom-and-pop-run shops that just sell diapers and baby formula.

And so, our customer teams around the world are constantly challenging to say where else is mom looking to shop?

What's emerging?

How do we make sure we get in the front end of it so that we are there with the right offer.

Javier Escalante, Consumer Edge Research

I would like to talk about the 2015 forecast for operating profit growth to be up 1% to 4%.

In the slide on 27, you basically said that the currency impact including transaction costs is going to be 15%?

So, essentially what is the currency-neutral EPS growth that you are planning, like 20%?

You cannot get there even having all the forced savings flowing through the P&L.

Having all the restructuring charge savings going through the P&L, and even taking $150 million in commodity benefits.

So, you don't get to 20% operating profit growth.

If you can help me understand this commentary of the currency impact on profits being more than 15%, that would be very helpful.

Javier, was that a question or a performance review?

I just was -- I'm just [kidding].

I don't see how you can grow currency-neutral profits at 20%.

It's a fair question.

There are some big moving parts in the P&L, maybe more than we've seen in the past.

If you looked at it in big buckets and said, okay, currency translation and transaction is probably $500 million to $600 million.

And, if we get the price that we're talking about of 1 to 2 points of price, that offsets maybe 50% of the currency drag.

You get some commodity deflation which is another chunk.

So, if you can get price and commodity deflation, that probably offsets two-thirds of the currency translation and transaction.

And then, you got to get benefits of volume growth, benefits of our cost savings program and our organization restructuring program cover other cost increases and deliver your profit growth year-on-year.

So, you've got probably bigger buckets of activity moving through the P&L than maybe we've had in the past.

But, the math actually works.

What would it be then, the currency-neutral EPS growth that you are forecasting?

The question would be is if you said some of the price we're getting is because of currency.

These things are -- if you think about currency, commodity costs, and price, they're all somewhat related.

You could look at in the absolute sense, but you might be kidding yourself that you could still get all the price in a currency-neutral environment.

But, it's not a currency-neutral EPS growth is over 20%?

If currency translation and transaction is 15%-plus, and we're growing our bottom line EPS 2% to 5% -- you can do the math and add it to the 15%.

And, that's the underlying growth.

That's going to come in cost savings, volume improvement, price mix, and commodity deflation.

But, do you think then that your forecast is conservative or is aggressive?

For 2015?

Because it seems like everything has to go well to grow EPS 2% to 5%.

Javier, we usually try to give guidance right down the middle of the fairway.

That we -- it is the best estimate we have at this point in time of what we think is going to happen.

I will tell you there is more big moving parts flowing through the P&L.

So, if currency moves suddenly in one direction, and we don't recover quickly enough on price, that is a risk.

On the other hand, there have been other questioners on the call saying, gosh, what if commodities stayed down longer and lower than you thought and you get some benefit?

I think we will do the best we can in the environment we're in, and we will give you visibility as we go through the year on how we're tracking against these big assumptions that we've made.

Thank you very much.

Connie Maneaty, BMO Capital Markets.

Good morning.

It's actually Pat Trucchio on the call for Connie.

First, can you talk about some of the big force projects for the year?

We've got three big buckets of activity around force.

One is negotiated material savings and our global procurement group is ramping up again to deliver against that.

They delivered more than $50 million of bottom-line benefit in 2014 and are looking to do that or even better in 2015.

Productivity for us is another big opportunity area.

We're driving lean, continuous improvement, designed for value around our organization and are continuing to get benefits from that and would expect that to be another strong contributor.

And then, material specification changes.

So, how can we get even more effective on the product designs so that we're giving mom everything that she wants and able to take costs out of the design by the choices we make on that front.

So, those will be three big factors again and would expect that to roll forward to deliver $300 million in cost savings again for another strong year for us.

Pat, we probably have 25% of our capital goes to productivity and waste-type cost savings projects as well.

So, in addition to just the way we work, we're also putting some capital behind cost savings and margin improvement.

How is Poise Impressa doing in test?

Is the test regional or nationwide?

And, is it being expanded?

When might the product come to market?

That's really just a test in one market at this point time in Kansas City.

I haven't seen the read of the test so far.

They're testing a lot of different combinations down there.

So, I've generally heard it's going well, but I haven't seen the output.

We will have final launch plans once we get a read on the test and what exactly we're going to do with that.

It's an interesting product, and we'll see where it plays out.

Caroline Levy, CLSA.

I would like to understand better what happened in US diapers.

It just seems like quite a dramatic market share loss and volume declines.

If you could just maybe see what you hadn't foreseen?

Because I'm sure this was a lot below your projections.

It was about a 1-point share loss sequentially.

And, I'd say the trend has just continued all year, and essentially Luvs has been the big share gainer.

I think Luvs has picked up 2 share points so far this year.

They've been on promotion really every week with a particular key retailer, and that's one that we've been working hard to make sure we do better in that particular category with that particular customer.

In the meantime, we're working to drive the business across the country with better product performance, making sure we're competitive on-shelf with the right display activity and the right offer.

So, it's really the basics of execution on that business.

We didn't do as good of a job as we needed to in 2014, and we will do a better job in 2015.

It isn't just about price though?

Doesn't it just require you to lower your prices or shift your mix in order to compete?

Value is always a function of performance and price.

So, will we be more competitive on shelf in our promoted pricing?

I would expect that will be a part of it, but it will also be product improvement and news and innovation that drive mom's preference in these categories.

So, to that point, there's some optimism about the US consumer.

Do you think that we -- or, are you seeing any signs of consumers being willing to trade up or of demand improving in your US business?

Well, look at our Huggies super premium diapers.

We are seeing that.

We picked up probably 0.5 share point this year on our super premium Huggies diapers in the US.

So, mom will trade up for real innovation.

We've got more innovation coming behind that segment of our lineup as well.

So, it is also focusing on that trade- up consumer.

I wouldn't say we've seen an uptick in the numbers of consumers heading in that direction at this stage.

But, it's pretty early days in this oil price cycle as well.

So, Caroline, that's true across categories.

If you look at super premium bath, it's growing as a percentage of the category and our share is growing.

Our Viva Vantage launch in the super premium end of the towel category this year has been the case.

Incontinence is largely being driven by the super premium end of the category.

Even through a tougher economic time, the categories are growing, not only in the value tier, but the super premium segment as well.

Just to ask about Russia and getting back to if you take double-digit pricing.

Have you done that already?

Or, is that something that is coming, and therefore the demand impact has not been felt?

There were multiple price increases during 2014 as the economic crisis unfolded.

And then, there's another wave of pricing coming into that market in early 2015 with the recent fall of the ruble.

So, do you think that the price elasticity is well below one to one?

I think when you see an economic shock like this, we're all going to find out what the consumer is going to do in a negative GDP growth environment.

But, in the meantime, there's so much of these products are based on imported raw materials even though we make the diapers in Russia, the polypropylene and packaging materials are all dollar-based.

The pulp is all dollar-based.

And so, you've got to get some pricing just to cover the huge shift in the cost of those imported materials in local currency.

To your equity income line, you talked about Mexico being down because of the peso.

If you were to take out the currency impact, would you be seeing -- are you seeing a recovery in the local operating dynamics in Mexico?

Or, are you still under pressure there?

They saw -- Mark and I were just down in Mexico earlier this week.

We met with Pablo and Claudio and the team down there.

I think their volume growth or their organic growth was up 5% in the quarter, but it was often easier comp last year's fourth quarter.

Their shares are stable.

They're North of 60% in bath and diapers which are their two big categories.

It's a tough competitive market.

The consumer is still pretty weak.

There has been lots of reforms down there that have probably affected consumer purchasing power in the short term.

On the other hand, they are optimistic that there's going to be better economic growth and a better consumer environment in the medium- to long-term.

In the meantime, they got a fairly tough peso exchange rate that gives them a little bit of the impact of imported material costs because a lot of their costs are dollar-based as well.

It's a challenging environment, but we've got a very strong position down there and a great team to operate the business.

On China and demand there, you've done believably well taken share for a lot of years.

Are you seeing anything out there as you head into this year that suggests that the growth is going to slow?

Or, that competition has picked up their game online in particular?

There's lots of competition in China and has been for years.

Pretty much every multinational CPG in the world is doing something in China.

The Japanese are aggressive competitors.

Procter is aggressive.

SCA just bought Vinda which is a local tissue player.

So, they're in there now in some categories.

And so, we've got a terrific team, great innovation, and we're executing pretty well in that market.

That has been translating into terrific business results.

So, Mike Zhang and our China team and Achal Agarwal and our Asia team has done a great job of executing in that market, and we feel like we've got great momentum and more good things coming.

At this time, we have no further questioners in the queue.

Once again, everyone, thank you for your support of Kimberly-Clark.

We had a terrific year in 2014 in executing and delivering great value for our shareholders.

We're headed into a more challenging environment in 2015, but rest assured that our global business plan is pointing us in the right direction.

Thank you again.

Thank you very much.

Ladies and gentlemen, that concludes today's presentation.

You may now disconnect.