Kimberly-Clark 2007 Annual Report Download - page 38

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PART II
(Continued)
principal products in our major markets, both domestically and internationally. Our products compete
with widely-advertised, well-known, branded products, as well as private label products, which are
typically sold at lower prices. We have several major competitors in most of our markets, some of which
are larger and more diversified. The principal methods and elements of competition include brand
recognition and loyalty, product innovation, quality and performance, price, and marketing and
distribution capabilities.
Aggressive competitive actions in 2006 and 2007 have required increased promotional spending to
support new product introductions and enable competitive pricing in order to protect the position of the
Corporation’s products in the market. We expect competition to continue to be intense in 2008.
• Market shares—Achieving leading market shares in our principal products has been an important part of
our past performance. We hold number 1 or 2 share positions in more than 80 countries. Achieving and
maintaining leading market shares is important because of ongoing consolidation of retailers and the
trend of leading merchandisers seeking to stock only the top competitive brands.
• Cost controls—To maintain our competitive position, we must control our manufacturing, distribution
and other costs. We have achieved cost savings from reducing material costs and manufacturing waste
and realizing productivity gains and distribution efficiencies in our business segments. Our ability to
control costs can be affected by changes in the price of pulp, oil and other commodities we consume in
our manufacturing processes. Our strategic investments in information systems and partnering with
third-party providers of administrative services should also allow further cost savings through
streamlining administrative activities.
• Foreign currency and commodity risks—As a multinational enterprise, we are exposed to changes in
foreign currency exchange rates, and we are also exposed to changes in commodity prices. Our ability to
effectively manage these risks can have a material impact on our results of operations.
Overview of 2007 Results
The Corporation experienced significant raw materials cost inflation in 2007, as well as continued
competitive pressures.
• Net sales rose 9.1 percent.
• Growth was driven by higher sales volumes, favorable currency effects, increased net selling prices
and an improved product mix.
• Operating profit increased 24.5 percent and net income and diluted earnings per share increased
21.6 percent and 25.8 percent, respectively.
• Higher net sales, lower charges for the strategic cost reduction plan of $377 million and cost savings
of about $265 million overcame the effects of about $350 million of cost inflation and a $50 million
increase in strategic marketing expense.
• Cash flow from operations was $2.4 billion, a decrease of 5.8 percent.
• The Corporation returned $3.7 billion to shareholders through dividends and share repurchases.
Results of Operations and Related Information
This section contains a discussion and analysis of net sales, operating profit and other information relevant
to an understanding of 2007 results of operations. This discussion and analysis compares 2007 results to 2006,
and 2006 results to 2005. Each discussion focuses first on consolidated results, and then the results of each
reportable business segment.
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