Operator: Ladies and gentlemen, thank you for your patience in holding, we now have your presenters in conference. Please be aware 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 to the procedure to follow, if you'd like to ask a question.
It is now my pleasure to introduce Mr. Paul Alexander.
Paul J. Alexander - VP, IR: Thank you, David and good morning, everyone. Welcome to our Second Quarter Earnings Conference Call. With us today are Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.
Here is the agenda for our call. Mark will begin with the review of second quarter results.
Tom, will then provide his perspectives on our results and the outlook for the year, we'll finish with Q&A. We have a presentation of today's materials in the Investor section of our website which is www.kimberly-clark.com. 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 will also be referring to adjusted results and outlook, both excludes certain items described in this morning's news release. The release has further information on these adjustments and reconciliations to comparable GAAP financial measures.
Now, I will turn it over to Mark.
Mark A. Buthman - SVP and CFO: Thanks Paul. Good morning. Let's start with the headlines. First, we achieved organic sales growth of 3%, led by 9% growth in K-C International. Second, we increased adjusted earnings per share 8%, driven by organic sales growth and strong cost savings. And third, we're on track with our overall capital plan, including working capital, capital spending, and returning cash flow to shareholders.
Now, some details for the quarter. Second quarter sales were $5.3 billion. It was even with last year. Underlying organic sales rose 3% with increased volumes of 2% and higher net selling prices of 1 point. Lost sales in connection with our restructuring activities reduced sales by 2% and unfavorable currency rates reduced sales by a point. Second quarter adjusted gross margin was 34.5%. That's up 90 basis points from last year. The increase was driven by organic sales growth and $80 million of FORCE cost savings, partially offset by $30 million of input cost inflation.
I'm really pleased with our continued momentum with FORCE. We delivered at least $80 million of savings in each of the last four quarters and we're now raising our full year target to $300 million to $350 million of savings for the year. That range is $50 million higher than our previous expectation and will help offset additional currency headwinds that Tom will talk about in a minute.
Moving down to P&L. Adjusted operating profit rose 6%, with an operating margin of 15.5%, that's up 80 basis points compared to last year. Strategic marketing spending was down $20 million, and that comparison was impacted by a high level of innovation related to spending in the second quarter of last year and also some lower spending in Europe this year given the strategic changes we're making there.
Foreign currency translation effects reduced operating profit by $15 million and transaction effects further negatively impacted that comparison. The second quarter adjusted effective tax rate was 31.8%. That's up from last year, but in line with our full year target of 30% to 32%. Equity income was up 28% as K-C de Mexico had another quarter of excellent performance. So, putting it all together, second quarter adjusted earnings per share was $1.41, that's up 8% year-on-year.
Now, turning to cash flow; cash provided by operations in the second quarter was $576 million, compared to $740 million last year. The decrease was driven by higher tax payments, pension contributions and severance costs in Europe. So, halfway through the year we're on right track with our plan and I expect our cash generation to improve sequentially in the back half of the year.
In terms of capital allocation, second quarter dividend payments and share repurchases totaled more than $600 million. We repurchased 300 million shares worth of KMB stock in the quarter. We now expect full year share repurchases of $1.2 billion, that's at the high-end of our target range of $1 billion to $1.2 billion for share buybacks for the year.
Now, I'll highlight just a few areas from our segment results for the quarter. In Personal Care, organic sales rose 3%, driven by volume growth. K-C International had another good quarter with organic sales up 8%. We continue to make excellent progress with our targeted growth initiatives across K-C International. Tom will provide some more details in a minute.
Elsewhere in Personal Care, organic sales were down low-single-digits in North America but up high-single-digits in Europe. Second quarter Personal Care operating margins of 18.1% rose 130 basis points. Improvement was driven by organic sales growth and cost savings, partially offset by cost inflation and unfavorable effects of currency.
Now before we leave Personal Care, let me give a brief update on the strategic changes we have underway in Europe. We've now stopped selling Huggies diapers in all markets except Italy and we closed our Spanish production facility in May. In terms of organization changes, we are about halfway through the total expected workforce reductions. So, in total, our European team continues to make good progress with the changes and they are on track to deliver their full year operating plan.
Moving to Consumer Tissue, organic sales were up about 5% with volume growth of 3% and higher net selling prices of 1%. Volumes improved in North America in K-C International but were down slightly in Europe. Consumer Tissue operating margins were solid although they were down 30 basis points versus last year.
Turning to K-C Professional, organic sales were up 2%, driven by higher net selling prices. Despite flat sales volumes, our K-C Professional team continues to drive profitability. Second quarter operating margins of 19.1% were up 270 basis points year-on-year, with strong cost savings and the benefits of pricing actions.
And lastly, Health Care organic sales were down 1%, driven by lower surgical and infection prevention volumes. Health Care operating margins of 13.5% were essentially even with the year ago period and while we've got more work to do Health Care profitability did pick up nicely from the first quarter.
So, that wraps up my comments. To recap, we generated solid organic sales growth. We delivered strong margins and improved adjusted earnings per share and we continue to allocate capital in shareholder friendly ways.
Now, I'll turn it over to Tom.
Thomas J. Falk - Chairman and CEO: Thanks, Mark, and good morning, everyone. I'll briefly comment on our second quarter results and then I'll address our full year outlook. So, starting with the second quarter, I'm encouraged by our strong cost savings, by our margin improvement and by our bottom line growth. As you can tell from Mark's discussion, we continue to perform well in these areas.
Our organic sales growth is the one part of our results that I was not totally satisfied with. As you heard from Mark, our performance was strong in K-C International, with 9% growth overall and excellent progress against our targeted growth initiatives. For example, in our diaper business in K-C International our volumes were up 45% in China and 10% in both Russia and Brazil, and improved net realized revenue brought total organic sales growth to about 20% in Brazil.
Elsewhere in K-C International, we delivered double-digit organic sales growth in feminine care, adult care and baby wipes, and organic sales were up 8% in K-C Professional within the K-C International space. So, our K-C International team delivered an excellent quarter of broad-based top line growth. They also improved their operating profit margins despite headwinds from currency and the conditions in Venezuela.
On the other hand, volume was below my expectations for some of our other businesses in developed markets, including K-C Professional, Health Care, and Huggies diapers in North America. Some of that shortfall was related to fairly sluggish category demand. I want you to know that our team is focused on driving better topline growth by fully taking advantage of our innovation and marketing programs and our sales capabilities. Our year-on-year comparison also gets somewhat easier in the back half of this year. So overall, even with a more mixed top line performance in the quarter, there were a number of positives in our second quarter results. And halfway through the year, I'm encouraged with our overall progress.
Now, let me move to the outlook. As we have all observed, the macro environment has become more volatile in the last few months, with rapid changes in currency rates, interest rates, financial markets, economic growth rates and most recently the price of oil. Despite this volatility, we will continue to execute our global business plan, and that means, pursuing targeted growth initiatives, launching innovation, reducing costs and returning capital to shareholders. We've made excellent progress with these strategies over time and I expect that to continue going forward.
On the innovation front, we'll continue to roll out new and improved products in K-C International, particularly in diapers, premium feminine care and adult care. In North America we launched a number of innovations in the second quarter that will be fully supporting in the back half of this year. We'll also be introducing innovations on our U by Kotex and Poise brands in the third quarter.
In terms of our financial targets for 2013, on the top line we continue to expect full year organic sales growth of 3% to 5%. Performance should be led by K-C International, which continues to target high single-digit growth. We now expect that currency will be a 1 point to 2 point drag on the top line with recent spot rates implying a drag of about 2 points. Our previous assumption was for the impact of zero to minus 1% on the top line.
The 1 point to 2 point top line drag from currency should cause a similar negative translation impact on the bottom line, along with additional negative transaction affects. Despite the more negative currency environment, we're also reconfirming our full year adjusted earnings target of $5.60 to $5.75 per share. We expect to overcome the additional currency headwinds, primarily from higher ForEx cost savings as Mark mentioned.
In terms of selling prices in this environment, in K-C International, we'll be opportunistic in improving our net realized revenue wherever we're able to and while we aren't planning any significant new price increases in the near-term the spot currency rates are maintained, I would expect that some increases would occur in some markets. As usual, our earnings guidance is based on foreign exchange rates expected over the balance of the year. If currencies hold at recent spot rates for the balance of the year, it's less likely that our adjusted earnings per share will reach the upper half of our guidance range.
In the past few years as currency rates have moved in one direction we've also seen commodity costs have generally moved in the other direction and right now, we're not seeing that traditional patter occur. So, even though we expect currency rates be more negative than our previous plan, our full year outlook for cost inflation continues to be $150 million to $250 million. In fact, if oil prices hold over $100 per barrel that could push cost inflation into the upper half of our estimated range. As I'm sure you will, we'll also continue to closely watch the relationship between currency rates and commodity costs going forward.
So, to summarize, we've had a strong first half of the year. We're reconfirming our full year top and bottom line growth objectives and while the environment has become more volatile recently, we remain optimistic about our prospects to drive profitable growth and to deliver strong returns to shareholders.
So, that wraps up our prepared remarks and now we'll begin to take your questions.
Operator: Ali Dibadj, Sanford Bernstein.
Ali Dibadj - Sanford Bernstein: A couple of questions. One is around KCI. So, it clearly looks like it has accelerated sequentially, but still kind of lower than historical levels. I want to get a sense from you guys whether that's driven by macro or an anomalous high growth rate (indiscernible) distribution gains you had or competition? Kind of what's driving the slowdown? And then, as a part that, if you can give us a sense of Consumer Tissue clearly being the driver recently of KCI growth? Is that – over Personal Care, is that intentional or is that serendipity? And kind what are the implication there around capacity margins, the way you run your business et cetera, so all of that KCI (indiscernible).
Thomas J. Falk - Chairman and CEO: Good questions, Ali. A couple of quick (ones). I mean, I'd say overall, we hit on some of the key growth markets we talked about, how things are going in China which continues to go very well. It's not really slowing down strong growth in the Brazil which despite some of the economic challenges in Brazil, the team there is executing very well and you're seeing good growth there. A lot of innovation coming in the back half on Personal Care, some of that launched in the second quarter in places like Russia, you started to see that pick up. I'd say where we've seen a little bit of maybe slowdown in the quarter was probably the more developed end of the developing markets, so places like Australia and Korea were a little slower in the quarter. Those are also big business for us, so they have a disproportionate impact. If you look at the segment split, I mean you still saw a strong Personal Care growth, but one of the swings in the quarter or maybe it wasn't as obvious was that, Venezuela did very well on Tissue and slowed down on Personal Care, and it was really more of a question on what kinds of things did the Venezuelan government want to support in terms of providing foreign exchange. So, they really want to emphasize bringing bathroom tissue and improving their in-stock position on that. So, we had a very strong bath tissue quarter in Venezuela and not as much on the diaper front. And just to put that in perspective, just that Venezuela swing was about third of the volume growth in the KCI tissue numbers in the quarter.
Ali Dibadj - Sanford Bernstein: So, Venezuela really being the driving factor of the (CTA) versus PC numbers…?
Thomas J. Falk - Chairman and CEO: As for margins I would say that was a biggest swing factor that hit us. There wasn't really a fundamental shift in strategy.
Ali Dibadj - Sanford Bernstein: And then another question which was touched on KCI a little bit, but really around the price mix which I mean in at least for us is a little bit less than we had hoped broadly and the couple of things we noticed, one about the KCI pricing or price mix wasn't great I want to get a sense of where you are versus inflation on that and kind of is there a competitive atmosphere that's not allowing you to take prices very much as you'd like to? And then secondly, the North America mix number was negative in both segments. So, just give us a sense of why that is and I guess the overarching piece of this is when commodities aren't going up do you guys have pricing power that really is always tied to commodity prices?
Thomas J. Falk - Chairman and CEO: Yeah, I would say broadly we will try to get a more price benefit through mix coupled with innovation I mean I would say most of our businesses around the world are not assuming that you're going to get routine list price increases, you'll get it when its driven by commodities and that's probably why you didn't see as much in KCI in the quarter. I mean KCI had – if you look at price and promotion together they had two points of improvement in Q2 versus three points in Q1. So, it wasn't markedly different than what we were expecting going in. We're probably more focused on using our trade funds more effectively in KCI and that will be a place that we will comp that as some price improvement as we roll forward. Beyond that we'll get some price for this big currency swings in KCI and we saw some of that in Brazil in the first half and that will play out. If you see big currency swings, eventually you'll see some price that moves there as well. On the North American front, we've typically have some negative mix built-in as more of the categories move to the larger format packs, but beyond that there wasn't anything else that was going on there that was a big driver.
Ali Dibadj - Sanford Bernstein: So no extra competition really driving any of this from a price and mix prospective?
Thomas J. Falk - Chairman and CEO: No, I wouldn't say so.
Operator: Gail Glazerman, UBS.
Gail Glazerman - UBS: Just on Personal Care in terms of volumes. Can you talk a little bit about what's going on in the fem care and is that a trend that you'd expect to continue?
Thomas J. Falk - Chairman and CEO: No. I mean, the fem care volume in the U.S. was – part was of a tougher comp. Last year we had double-digit growth. We had some pipeline fill with some new innovation that was launched and so that was more of the comparison. Our shares were pretty stable sequentially, so we didn't see much change. So we're still seeing good growth on U by Kotex and a little bit of weakness on our traditional Kotex, but we've got some good innovation coming across both those platforms in the coming quarter. So we do feel good about our feminine care plan overall.
Gail Glazerman - UBS: Then in terms of Europe, can you just remind me there is reference to solid performance and contribution from non-branded business. Is that something that rolls off as we enter the second half or at what point would you expect to see that business go away if at all?
Thomas J. Falk - Chairman and CEO: We've picked up some private label contracts a year ago, so we are still seeing the favorable comp of those and those will roll off in the second half of the year. So, we will some in Italy, but broadly, we'll shed some of that business as we've exited facilities.
Gail Glazerman - UBS: And in terms of North America with the pricing benefit you saw in bath tissue in the quarter, how much of that would have benefited the quarter versus what you would expect to see in the second half?
Thomas J. Falk - Chairman and CEO: We took some de-sheeting in the quarter that will roll into the second half and what you'll see is probably more positive price in the second in tissue in North America and less volume because we count volume in thousands of sheets, so you'll see a volume drag and a positive price which net for us works out to be a positive.
Gail Glazerman - UBS: And just one last question sticking on North American tissue. Last quarter you talked about seeing some benefit as the competitor was struggling to put the stock on the shelves. Has that started to reverse yet or is that something that you're able to maintain?
Thomas J. Falk - Chairman and CEO: I think we've heard and again, this is more anecdotal, they've returned to normal service and promotion levels by the end of the second quarter, albeit they're at a lower market share. So, we are pleased that we picked up share in this environment private label business as well and we'll be watching the competitive environment in the second half. In the meantime, we've got some great innovation coming with – we've got some improved Cottonelle variance, so we've got a big launch of our Cottonelle moist, some improvements on Kleenex and so actually a lot of news in the tissue category coming in the second half that we feel pretty good about.
Gail Glazerman - UBS: Just one last question on inflation. You mentioned oil. I was just wondering if you could talk a little bit about pulp. It seems like there is starting to be mounting pressure. Is that something that you'd expect in your second half forecast?
Thomas J. Falk - Chairman and CEO: Yeah, I mean, our Northern softwood guidance for the year really didn't change in the quarter. We still call it (890 to 910) on average for the year. It will be above that in the third quarter. But we buy a lot more eucalyptus than northern softwood and we're actually seeing eucalyptus trend down just a bit sequentially. And we do think that with the weaker Brazilian currency given that all the eucalypt producers fell in dollars, there is less need for them to get a price increase in this kind of environment. I think the other offsetting factor that we don't talk as much about is recycled fiber. We buy above 1.2 million tons of recycled fiber a year, and that's actually been a softer market. So, overall, fiber is just tracking pretty close to our expectations.
Operator: Connie Maneaty, BMO Capital.
Connie Maneaty - BMO Capital Markets: Could you talk a little bit about the organic sales growth pickup you expect in the second half. Given that KCI sales growth has trended about 9% for the last six quarters, this really suggests a pickup in developed markets. So where is it coming from? What are the new products you are especially focused on? And I hate to ask, but what is Cottonelle moist?
Thomas J. Falk - Chairman and CEO: So if you look at the Cottonelle, we've got a new tub design that would be a moist bathroom tissue product and it's a great product, great category, growing rapidly and we'll have to get you some Connie and try it, but that's probably one area that we think could be a good growth opportunity. We've got our new Snug & Dry diaper in market and we're going to put even more muscle to be competitive behind that in the second half and we'd expect to see a better baby and child care result overall in the second half than we had certainly in the second quarter. We've got some new Poise light bladder leakage products out as well. We've got a new Depend campaign that we're launching, that – for those of you that were watching the British Open this weekend got to watch Tony Siragusa pitching protect your manhood with some Depend Guards. So, we'll have those products that are going to start going and so shifting to some of the B2B businesses. We also would expect to see an uptick in KCP in the second half. We really weren't satisfied with our growth in North America in KCP in the second quarter. Some of that's the category with manufacturing being a little weak in some of the laboratory services area that we have a nice business, was a little weak. But we still expect to see better performance there in the second half.
Connie Maneaty - BMO Capital Markets: And also, could you comment on the uptick in FORCE savings? What are the projects that are kicking in to contribute $50 million extra? And then also, just very generally, how do you manage to take out hundreds of millions of dollars of costs every year without hitting some sort of institutional fatigue?
Thomas J. Falk - Chairman and CEO: Well, I mean really Connie our teams are energized about the cost savings initiatives and each of our teams around the world is looking at that as a way to fund their future growth and so by identifying and delivering cost savings in areas that our consumers don't care about, we're able to invest more in R&D invest more in strategic brand building and help grow our business overall and so we really view that as part of a healthy growth model for our business going forward. And so, the big areas that we continue to work on we started up a global procurement organization several years ago. We're continuing to build capability in that function around the world and sharing information better, doing more cost structure modeling of our suppliers to understand where we're adding costs and if we changed our specification we can deliver a better value overall. So, that's a big bucket for us. We're doing a lot on productivity and best practice sharing. So, we measure productivity in the same way around the world and are sharing best practices. The great news is that our best performing facilities are getting even better and so we still see a healthy gap for us to attack between our best performing facilities and our worst performing facilities. Then the third area is product specification changes. Looking at the design of our products, how do we design for value or where we are taking things out that the consumer isn't concerned about and so all three of those areas contributed again in the second quarter. We've got a pretty robust pipeline of ideas for the future that we are going to chase that give us confidence in our ability to deliver at that level.
Operator: Lauren Lieberman, Barclays.
Lauren Lieberman - Barclays: So, I got a question about the strategic spending. So first off, if the down $20 million in the quarter, that was kind of how you had planned things out and if you are expecting that to ramp up in the second half as the innovation activity picks up?
Thomas J. Falk - Chairman and CEO: Yeah, absolutely. We were a little heavy last year in the second quarter with the Fem Wellness launched in the U.S. and that obviously exiting some categories in Europe, categories in markets. We didn't spend as much in Europe as we would have last year. So, those are the two big drivers of the change in the quarter. But we've also had quite a bit of innovation coming in the second half and I would expect us to spend more on strategic A&P sequentially than we did in the first half. We will get a little bit of a currency benefit in some markets if you look at it from a dollar standpoint, but we still think for the full year, we'll spend at least as much as a percent of sales and maybe even a bit higher on strategic A&P this year.
Lauren Lieberman - Barclays: Then Poise Wellness launch; so it's now been a year. So where does that stand in terms of distribution? What trial and repeat has been like and so on because you guys certainly have a track record of trying to cover new ground in some of your categories and does it takes a bit longer to take hold?
Thomas J. Falk - Chairman and CEO: Yeah, I think that we've seen all over the world kind of mixed results. In some markets, it's gone great and in some markets it's one of the leading SKUs and category. In North America, it's been a little slower than we would have expected. And so, we're regrouping and trying to make sure we know what the next steps are for us there. But we do think there is a big insight here and a great consumer need and we'll working at it. In the meantime, we've got some great growth stories around the world to continue to drive.
Lauren Lieberman - Barclays: And my final thing was just Viva and shelf space. So, I think that last quarter you guys have said you were just about back up to historic levels. Is that still true or was there kind of more to go?
Thomas J. Falk - Chairman and CEO: No, I think, Viva is about on track with our expectations so far this year in the U.S. and again, we would continue to seize an opportunity there for innovation and growth going forward. But right now we're managing that about at the level that we can support.
Operator: John Faucher, JPMorgan.
John Faucher - JPMorgan: So, taking a look at the – you guys talked about the adults and the adult market in the U.S. currently in sort of high-single-digits there and I guess, as we look out over the next couple of years, what do you think is the more sustainable growth rate for that and can you talk about sort of category penetration versus overall size of the category and how you're really thinking about that longer-term from a growth standpoint?
Thomas J. Falk - Chairman and CEO: John, that's a great question. And even today that's a relatively under-penetrated category in the U.S. So, we think relative to the possible need states we maybe something like 40% penetrated in the U.S. Now, they may be using other products or in an institutional format, but there's other ways that we really think we can drive growth in this category. And then, broadly, as you look outside the U.S., the birth rate in many parts of the world is even lower than it is in the U.S. and the populations are ageing and people are living longer and so that's why we're so excited about the global growth prospects for our Depend business and our Poise business. So, we think there's lots and lots of growth ahead for those brands as we move forward.
Operator: Caroline Levy, CLSA.
Caroline Levy - CLSA: I wonder if you could talk about whether your China plant opened.
Thomas J. Falk - Chairman and CEO: Yes. I was there and cut the ribbon. I think it was in April. And so, yeah, the China plant in Nanjing has done well, had a great startup with the lot of support from our – Korean team was over to help with training and startup support, and had one of the best startups in the history of Kimberly-Clark. So they are off and running and we've built a great capability and it's going to support the growth in China. They kept reminding me we are going to need even more capacity at the rate our business is growing. So I think that will be a trip we'll be making pretty regularly here in the future.
Caroline Levy - CLSA: I'm trying to understand whether this is transformational for margins and growth opportunities or whether this is just a step in the right direction?
Thomas J. Falk - Chairman and CEO: Well, I think, getting to local manufacturing will certainly help the margin picture in China. On the other hand, when you're growing at 45%, there's still going to be importing some products to keep up with that growth rate, and so it's a balanced – but China is hitting its expectations for our plan this year. I think we're in 85 cities now with Huggies versus 80 last quarter and still expect to get to 90 by the end of the year and the team over there is executing at a very high level.
Caroline Levy - CLSA: And I know that you've gone through a more mainstream product from Super Premium, but – so I'm just trying to understand does the opening of local production offsets any potential margin hit from selling more mainstream versus premium? And also if you're taking a lot of market share just given your growth rate it seems really high?
Thomas J. Falk - Chairman and CEO: Yeah, I mean I think we've picked up a couple of share points in China over the last year. It's a big market and so we're coming off a smaller base. So, as we're moving into participate in a broader segment of the category that's part of it. And I would also tell you we're launching a super, Super Premium product to come at the very top end of the market. So, we'll actually be creating a new tier for those consumers that want the very best for their baby. So, we've got a lot of action in China and are really trying to make sure we're available in all the formats that mom might want.
Caroline Levy - CLSA: Just on Brazil there were some categories in consumer more beverage-related that seem to have taken a big hit, did you have any reaction from consumers that you have noticed in Brazil? Also aside from currency issues where there any delivery problems, was there any change in the takeaway trends in your business?
Thomas J. Falk - Chairman and CEO: Really nothing to speak of and we're still expanding and growing in Brazil as well. Actually we had our – our Board was in Brazil for a week in June and we hope – we cut the ribbon on a new plant in the northeastern part of Brazil. So, we're expanding our capability in that market as well and seeing the growth result from that.
Caroline Levy - CLSA: And able to take some price to offset currency there?
Thomas J. Falk - Chairman and CEO: Yeah, we took some price in the first quarter really following some of the currency change that ran up in 2012 and we were able to put that into the market. The encouraging thing was you saw the double-digit volume growth in diapers even with the double-digit price increase. So it was a good result, good execution by the team there.
Caroline Levy - CLSA: Last one – thank you so much, and this is North America. It looks like you did lose some share -- and you may have touched on this – in diapers to Proctor. Is there enough innovation coming in the back half you think that could shift? Do you see any hope for the market itself to be a little better in the back half?
Thomas J. Falk - Chairman and CEO: Yeah, in diapers, in our share calculation, we were flat sequentially and down about 0.5 point year-on-year and Luvs was the big share gainer. Actually Luvs took share from Pampers and from Huggies in the quarter. There was some hot promotional price points in certain channels that drove that and so we're going to make sure we're competitive and responsive to what's happening in the marketplace. We've got some terrific innovation that led to launching that we're going to make more noise about in the back half. So, we would hope to recover some of the share impacts in the back half of the year.
Operator: Olivia Tong, Bank of America-Merrill Lynch.
Olivia Tong - Bank of America-Merrill Lynch: I just wanted to touch a little bit more on organic sales growth. So your 3% to 5% target, what gets you to the 5% end of the range as opposed to the 3% end of the range?
Thomas J. Falk - Chairman and CEO: Well, I mean, I think this year quite frankly, it will be a bit of a challenge given that half of the year is already in the books at the 3% end of the range. But if you looked at it broadly and said, our categories are growing 3% to 4%, so to get to 5% you got to take some share, you got to have some innovation beyond your core category growth. So, we think that's doable, but we also would say 3% to 5% is probably the range to plan for and we want to deliver that consistently over a long period of time.
Olivia Tong - Bank of America-Merrill Lynch: And then you typically run through how many categories where you gain share of flat versus down. Can you run through that quickly?
Thomas J. Falk - Chairman and CEO: Yeah, maybe I'll turn that one over to Paul. But I mean, in the U.S., I think we were flat or up year-over-year in five of eight or something like that. Paul, is that about right?
Paul J. Alexander - VP, IR: Yeah, that's right and we were down in three categories and those three were; diapers, as Tom has mentioned, down about 0.5 point; also down about 0.5 point in facial tissue; about a point in child care.
Thomas J. Falk - Chairman and CEO: The child care is off a very high share base. We've gotten nearly mid-60s kind of a share there.
Olivia Tong - Bank of America-Merrill Lynch: And then just following up on child care, what drove the volume decline? Is that related to weather since you called out the Littler Swimmers, or is there something more systemic there?
Thomas J. Falk - Chairman and CEO: Yeah, I mean, I really hate blaming anything on the weather, because it sounds kind of lame. But we did have a cooler weather spring this year and we had a hotter dryer spring last year and I think that's part of it. So, Little Swimmers was a little softer this period of time and we don't – I think we're still digging into that to understand what's going on there and will we see that business come back over the summer months. So, that's part of it. I think the diaper category overall, the birth rate was lower than we expected, for longer than we expected. That's kind of piling up a little bit in the child care category. So, that's a little weaker. So, those were some of the factors that drove it. And so that's one that we're going dig into a little bit in the second half as well.
Operator: Alice Longley, Buckingham Research.
Alice Longley - Buckingham Research: Did I catch you saying earlier in the call that your categories in North America were sluggish in the second quarter just because did you mean they were slower than in the first quarter? And if so, why would that be?
Thomas J. Falk - Chairman and CEO: Yeah, I mean, I think in K-C Professional, in particular, where you see things – manufacturing was particularly seemed a little bit slower. We have a small scientific business that sells a lot into laboratories that do research and that one segment seems to have been a little bit more affected by the sequester where any government-funded research that's more discretionary has been closed down. So that was a little weaker. Things that are related to welding in general where we sell a fair amount of supplies into that space were a bit slower. Other segments like lodging were okay. So you saw – that was pretty stable. Healthcare which affects both our Health Care business and our KCP business was less negative in the second quarter, but was still negative in terms of overall surgeries. I think year-to-date, the best data we've seen in surgeries are down about 3%. It's more like – more of that in the first quarter than the second, but still a drag year-on-year.
Alice Longley - Buckingham Research: So there wasn't any particular weakening in the categories for Tissue or Personal Care?
Thomas J. Falk - Chairman and CEO: Not so much Tissue and Personal Care, probably the child care segment was weaker than we had expected and it's a bit of a seasonal business because of the impact of Little Swimmers. So it's not always fair to compare that sequentially, because you'd probably say, yeah, we sold more Little Swimmers in the second quarter than the first quarter, but that's not necessarily a valid comparison.
Alice Longley - Buckingham Research: So that would probably weather, so that wouldn't persist into the second half, is that correct?
Thomas J. Falk - Chairman and CEO: Yes.
Operator: Javier Escalante, Consumer Edge Research.
Javier Escalante - Consumer Edge Research: I have a question with regards to tissue margins, the negative leverage that you have in the quarter considering that you have better savings, you had the volume benefit from Georgia Pacific, you have (bolstered) pricing and the commodity impact seems to be coming on the lower end of your forecast. So, why is it that margins beat in the last quarter and we have this margin contraction in this quarter?
Thomas J. Falk - Chairman and CEO: Good question, Javier. Two key drivers of that, one is facial tissue is our weakest in the second quarter and that's a higher margin item then the overall basket in Consumer Tissue. So, obviously we do pretty well in the fourth quarter and first quarter with cold and flu. Second quarter you got spring allergy but it's usually a light facial tissue quarter so that affects our margin mix in that segment. The second driver was in Europe we had quite a bit of startup activity around some new Andrex product improvements that we're preparing that was a drag on margin in the second quarter versus the first as that asset went down in the second quarter. And I was in Europe in late June and went to the plant to see the new process and we're excited about the new products we're going to making in the balance of the year, but it did cost us some margin in the second quarter.
Javier Escalante - Consumer Edge Research: Changing businesses, on Health Care it has been negative for the past four quarters. Could you explain us what part of the business I know that it's kind of like a conglomerate of different businesses, but what is happening there, why we have four quarters in a row of negative sales growth?
Thomas J. Falk - Chairman and CEO: Couple of things, I mean the underlying category trends we've talked a little bit about that the number of surgeries has been less than we thought. I think everybody in the health care space is trying to figure that out. I think the best guess we've heard is that it's more and more consumers are in high deductible, consumer-directed health care plans and that's part of it. I think the other part is that you are seeing more of a push to alternative therapies before surgeries, so rather than getting your knee scope go do PT for a couple of months and see how that goes, before he puts you in the hospital and cuts your knee open. So that's part of it. I think the other part that we as synthetic nitro prices ran up. Last year we were pretty aggressive on pricing on disposable exam gloves and as a result we've shut some volume in that process, but it was lower margin volume and while it hurts your top line comparison, it's the right thing to do to get that business moving in the right direction.
Javier Escalante - Consumer Edge Research: Finally on China, if you can tell us what is the organic sales growth; just the volume, just to understand what is the impact on price mix from the rollout of the mid-tier diaper, if you could please?
Thomas J. Falk - Chairman and CEO: Yeah, there's not much price mix in that number, it's a pretty clean number. I'll ask Paul if he wants to give you a more precise estimate, but.
Paul J. Alexander - VP, IR: Yeah, Javier, on a rounded basis the 45% volume growth for diapers would have been 40% plus on total organic. So, as Tom said, not much difference there.
Operator: Jason English, Goldman Sachs.
Jason English - Goldman Sachs: We closed on China, so I guess I'll kind of pick that back up. You've been having tremendous success in the diaper market in China. We're hearing of new competitors or you just (seeing) competitors plan to get more aggressive, how LG, (Pigeon) and even Biostime whose had a good success in formula trying to come at diapers as well. Should we be concerned about this or this is just more noise in par for the course?
Thomas J. Falk - Chairman and CEO: Well, I got to tell you I mean everybody wants a piece of China. So, when you go over there, you'll find every company you've ever heard of is trying to build the business there. So, I think we're competing pretty well. But it's a big market and there is room for lots of competitors, but we expect that some point it will rationalize. There are still hundreds of diaper brands that are local in the Chinese market. There's probably thousands of fem care brands as you add them up all across China. In the meantime, we are aiming at mom. We're doing well on the digital space in China, which is increasingly important channel. So, we actually have a higher share in e-com in China than we would in the measured outlook. So, we really feel like we've got strong underpinning with great products, great brands and a team that's executing pretty well on the field right now.
Jason English - Goldman Sachs: Back to U.S. real quick, tissues, the facial tissue business. We saw the effect of de-sheeting in the Nielson data this past period. We also saw your market share take a pretty substantial step back. Is that just temporary on your transition here is the new sheet count or is there reason to be worried about price gaps going forward?
Thomas J. Falk - Chairman and CEO: We usually see a dip in second quarter from first quarter because there's a lot of promotion around cold and flu and we don't promote as heavily in the spring because the consumer need state isn't as great. And so we typically see a dip in second quarter from first quarter. It's a little deeper than last year, so you're down year-on-year, but we'd expect that to come back from a dollar share standpoint in the back half.
Operator: Bill Schmitz, Deutsche Bank.
Bill Schmitz - Deutsche Bank: When we're going to start seeing the margin benefit from the European divestitures because obviously you're exiting zero margin businesses? And then, I just kind of look at the SG&A costs, they were down year-over-year in dollars. Is that a trend that might continue throughout the year as the European thing starts to get some more traction?
Thomas J. Falk - Chairman and CEO: You're starting to see some of the margin improvement year-on-year in Personal Care from the European exit, so that's part of the year-on-year increase from that standpoint. We're well through the overhead savings. We should see a bit more that flow in in the back half, but I don't know that it will be big enough that we'll call it out in the G&A numbers, but we'll expect to see the overall margin improvement from Europe will be a part of the story this year for sure.
Bill Schmitz - Deutsche Bank: Then maybe I'm looking at the wrong data, but the eucalyptus pulp numbers that I have, show it's up quite a bit year-over-year, am I just looking at the wrong stuff or you guys kind of looking at the forward curve?
Thomas J. Falk - Chairman and CEO: No, I mean, I think the stuff we see – I don't know Paul, if you've got the specific data on your end. We're still (call it) about $800 average for the year and I think the July price was $815 or something like that. So, we're in the ballpark on that. It's up a bit. I think last year's average was $795.
Paul J. Alexander - VP, IR: Yeah, that's about right. I think, Bill, in the first half of the year, it is up year-over-year and Tom's comments earlier were referring that from here forward, we're starting to see prices come back down in July and August.
Operator: At this time, we have no other questioners in the queue.
Paul J. Alexander - VP, IR: All right. Thank you, David. We'll wrap up with comment from Tom.
Thomas J. Falk - Chairman and CEO: Very good. Well, once again, we're pleased with the execution in the first half, not satisfied with the top line and expect to see us continuing to execute our global business plan and deliver value for shareholders. Thank you very much for your interest and support of Kimberly-Clark.
Paul J. Alexander - VP, IR: Thank you.