Kimberly-Clark Corp (KMB) — Q4 2015 Earnings Call Transcript

Thank you and good morning everyone. Welcome to Kimberly-Clark's Year End Earnings Conference Call. Here with me today are Tom Falk, our Chairman and CEO; Maria Henry, our CFO; and Mike Azbell, VP and Controller. Now here's the agenda for the call. Maria will begin with a review of our results focusing on the full year and after that Tom will provide his perspectives on our results and our outlook for 2016 and we'll finish with Q&A. As usual, we have a presentation of today's materials in the Investors section of our website. 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 exclude certain items described in this morning's news release. The news release has further information on these adjustments and reconciliations to comparable GAAP financial measures. And now, I will turn it over to Maria.

Thanks, Paul. Good morning everyone. Thanks for joining the call today. Let me start off with the headlines for our 2015 results. Our organic sales grew 5%. That's at the high end of our 3% to 5% target. We achieved excellent cost savings and margin improvements, helping us deliver adjusted earnings per share towards the high end of our original guidance. And finally, we continue to improve our capital efficiency and return cash to shareholders. Now let's take a look at the details for our results and let's start with sales. Fourth quarter net sales were $4.5 billion, that's down 6% with an 11 points rise from currency rate. Full year net sales were $18.6 billion down 6% including a currency headwind of more than 10%. Organic sales growth was about 5% for both the fourth quarter and the full year. On profitability, fourth quarter adjusted growth margins were 36%. The full year was 35.9% up 160 basis points year-on-year. Adjusted operating margins were 17.2% in the fourth quarter. The full year margin was 17.3%, that's up 120 basis points compared to the prior year. I am encouraged that operating margins were up in all three business segments and across all three geographies, both America, developed markets and developing and emerging markets excluding the impact of the Venezuelan devaluation. Our teams delivered $365 million of FORCE cost savings in 2015. That was above our initial target of at least $300 million and just $5 million shy of our all-time record. We expect another strong year in 2016 with a savings target of at least $350 million. In addition, our organizational restructuring is on track and it generated $65 million of savings in 2015. We expect additional savings of at least $50 million from this program in 2016. Commodities were a $150 million benefit for the year mostly in oil-based materials. That was at the high end of our original assumption for the year, but on the other hand, currency declines severely impacted our earnings. For the year the all-in earnings drag was about 25%, well above our going into the year assumption for a drag of more than 15%. On the bottom line, fourth quarter adjusted earnings per share were $1.42 bringing the full year to $5.76. That was up 5% compared to the results from continuing operations in 2014 and towards the high end of our original guidance range of $5.60 to $5.80 per share. Turning to cash flow and capital efficiency, cash provided by operations was $2.3 billion for the year versus $2.8 billion in 2014. A number of factors drove the lower cash amounts including our debt-financed pension contributions, the Halyard spin-off and higher total working capital. I expect a significant improvement in cash generation in 2016. We reduced our primary working capital cash conversion cycle by eight days in 2015 as a result of extending payables terms. On adjusted return on invested capital we improved this metric 350 basis points including benefits from the spin-off at Halyard Health. On capital allocations, in 2015 we've returned $2.1 billion to shareholders through share repurchases and dividends. For 2016 we plan to repurchase between $600 million and $900 million of Kimberly-Clark's stock. We also expect to increase the dividend at a mid-single-digit rate that's generally consistent with the 5% growth in adjusted earnings per share that we delivered in 2015. Now let's look at the segments. In Personal Care, organic sales rose 7% continuing our long track record of delivering strong growth in this segment. Our Personal Care business grew 14% in developing and emerging markets. Operating margins were 20.5% in Personal Care, up 180 basis points. The improvement was enabled by organic sales growth, cost savings, and lower input costs. In Consumer Tissue, organic sales were up more than 1% including volume growth of 6% in North America. Consumer Tissue operating margins were 17.5%. That was up 150 basis points and includes benefits from another year of excellent cost savings performance. In K-C Professional, organic sales increased 4% overall with 6% growth in developing and emerging markets. The segment top line also included a 1.5 point benefit from sales of nonwovens to Halyard Health in conjunction with a limited term supply agreement. So sales should be somewhat lower in 2016. K-C Professional operating margins were healthy at 18.3%, up 50 basis points year-on-year. To summarize, our fourth quarter results capped off a very good year overall as we achieved mid-single-digit growth in organic sales and adjusted earnings per share, we delivered strong cost savings and broad-based margin improvements and we continued to improve ROIC and allocate capital in a shareholder-friendly way. I'll now turn the call over to Tom.

Thanks Maria and good morning everyone. I will share my perspectives on our full year 2015 results and then I'll comment on our outlook for 2016. So starting with this past year, we delivered another year of good financial performance in a challenging environment. As Maria just mentioned, our organic sales grew about 5%. This reflects very good execution and it compares favorably to many other consumer packaged goods companies. Our volume growth was 4% and that's our best performance since 2007 on this metric. Our business in the developing and emerging markets had another great year with 10% organic sales growth. This performance was highlighted by 14% growth in Personal Care. That's the fifth consecutive year this part of our portfolio has grown organically at a double-digit rate. Looking at some of our targeted growth initiatives in the developing and emerging markets and in diapers, our organic sales increased more than 35% in Eastern Europe, 25% in China and 10% in Brazil. Innovation across all these markets continues to help drive our growth and in 2016 we will launch more product upgrades on Huggies throughout the developing and emerging markets. In China, Huggies diapers are now sold in 115 cities and we are targeting to be in 130 cities by the end of the year. And in Brazil, as a result of the continued decline in real we have recently initiated price increases across these categories. Elsewhere in Personal Care, our organic sales in feminine care rose double-digits in developing and emerging markets. Our performance in fem care was especially strong in Latin America led by Argentina and Brazil. We also had a very good year in China and then the Middle East, Eastern Europe, and Africa on fem care. In addition, our adult care and baby wipes businesses also grew organic sales at double-digit rates in developing and emerging markets. K-C Professional organic sales rose mid-single digits in developing and emerging markets even though demand has slowed in some places towards the end of the year. Overall, our business in the developing and emerging markets was 30% of company sales in 2015. Even though volatility has increased and economies are slowing in some parts of the world, we remain very optimistic about our growth prospects. For 2016, we are targeting organic sales growth of at least high single digits for our business in the developing and emerging markets. Turning to our developed markets business outside of North America, organic sales for 2015 were even with the prior year. We continue to generate very solid growth in South Korea while market conditions were relatively soft in Western and Central Europe. Moving to our North American consumer business, we delivered 5% volume growth and excellent operating profit performance. In adult care, we delivered high single-digit volume growth with benefits from innovations, brand investments, and category growth. Our market shares improved sequentially as the year progressed with shares up 1 point in the second half of the year compared to the first half. In baby and child care, volumes were up mid-single digits on Huggies baby wipes and low single digits on Huggies diapers. Our second quarter relaunch of Snug ‘N Dry diapers is on track and helped deliver volume growth in 2015. In consumer tissue, volumes were up mid-single digits with benefits from market share gains, good retail execution, and increased promotion support. Performance was led by Cottonelle bathroom tissue and Viva towels. In K-C Professional in North America, volumes increased mid-single digits on our higher margin wiper products business and our washroom products organic sales were up low single digits, roughly in line with the overall market. Maria has already highlighted how we continue to manage our company with financial discipline, so I'll just add that I'm encouraged with our cost savings delivery, our margin improvements, our improvements in return on invested capital and the cash that we've been able to return to our shareholders. I am also pleased that we delivered bottom line earnings growth towards the high end of our original commitment even though currency rates were much worse than we had planned for the year. So all in all I am proud of our team's accomplishments in 2015. We have good momentum overall and we're focused on driving further improvements going forward. Now let's move on to our outlook for 2016. We will continue to focus on the fundamentals that create shareholder value. So in 2016 we will deliver healthy levels of organic sales growth, cost savings and margin expansion. We will improve working capital, cash from operations, and return on invested capital and we will return a significant amount of cash to shareholders again in 2016. At the same time we will continue to invest in our brands, our growth initiatives, and our capabilities in order to improve Kimberly-Clark over the long-term. In terms of our specific 2016 targets, on the top line we expect organic sales growth of 3% to 5%, that's consistent with our long-term objectives. On the bottom line we have targeted adjusted earnings per share in a range of $5.95 to $6.15. That is up 3% to 7% year-on-year. Similar to this past year, at this point we are expecting that earnings will be higher in the second half of the year compared to the first half. Like other multinational companies, we're facing continued currency headwinds. We're planning that currency translation will reduce sales and earnings by 5% to 6% this year. The all-in drag on earnings including currency transactions is expected to approach 15%. These projections are based on forward exchange rates as of a couple of weeks ago which are pretty consistent with recent spot rates in most cases. To reduce the impact of currency headwinds we plan to raise selling prices in some of our international markets. We're expecting a relatively benign year on the commodity front. We're starting the year planning for a total impact between $100 million of cost deflation to $50 million of cost inflation. Although some commodity costs should benefit from lower oil prices, others like polypropylene resin in North America are being impacted by market-specific dynamics. In addition, costs for materials in some international markets are expected to increase due to local inflation. So as we said before, it is important to look at currencies, commodities, and selling price assumptions together since they are all somewhat related. On average we're expecting the net impact of these three factors to result in a high single-digit drag in our 2016 earnings. With that in mind, the underlying growth of 3% to 7% EPS growth that we've included in our outlook is pretty healthy. As we always do we'll continue to closely monitor the environment and we'll provide updates on our progress and outlook each quarter as the year unfolds. So in summary, we delivered another year of good financial performance in 2015. We expect to continue our momentum in 2016 and we remain very optimistic about our prospects to generate attractive shareholder returns through our global business plans. This wraps up our prepared remarks and now we'll begin to take your questions.

Hi, yes it is Steve. Thanks. Tom, maybe starting with first looking at North America, it looks and sounds like competition and promotional intensity held roughly flat sequentially. Would you agree with that? And if so, what's the assumed outlook there as you look forward to calendar 2016, just given it is all that's happening in that marketplace in P&G in general? And a similar question on China given the general demand conditions there, but also obviously a highly competitive market there too?

Yes, I think broadly the market was pretty similar Q3 to Q4, but also there was more activity in the second half of 2015 than there was in the first half. So if you looked at percent sold on deal and the level of A&P support across the category was probably increased for all the major brands. We got quite a bit of innovation coming in 2016. We believe our primary competitor does as well. So I would guess that the current level of competitive activity will continue. We'll forget about the progress in our unit volume growth on diapers in North America and we feel like we've got good momentum on diapers and training pants for sure. In China, we saw a bit more competitive pricing being spent in the market by some of the competitors which we matched up to at some extent, but we saw some of that in the third quarter as you may recall, but had a very strong volume quarter again and again have lots of innovation coming. So still tons of competition around, but I wouldn’t say it is getting worse, but it is continuing.

Okay, thanks. And then shifting gears a little bit, given another round of devaluation in markets like Brazil and Russia et cetera, what is your confidence on the continued ability to push through incremental pricing? You mentioned another round in Brazil, but is there a level at which it just becomes too difficult to maintain an incrementality?

Yes, I think we're watching the consumer carefully, particularly as you see GDP per capita go backwards in some of these markets. In Brazil for example we saw category volumes decline a bit in the fourth quarter for both diapers and bathroom tissue which you don’t see that too often in Eastern Europe. The Ukraine in particular has been a market that has been hard hit if you look at category volumes. Some of that is because there has been quite a bit of parallel imports there because of some value-added taxes that they put in place. So we are watching the consumer. On the other hand we've got real transaction exposure hitting these markets. You are trying to cover the transaction cost just to try to keep the shape of the P&L in order. And I think every major CPG is in that balancing act right now.

Sure, the way that we think about it is we are very focused on maintaining our single A credit rating. So at any point in time, we're looking at whether our affected cash flows. Our focus is on continuing to fund the dividend to spend CapEx at healthy levels given the significant opportunities that we have in our business for high ROI return types of projects, and then we look at share buyback to balance out what we do with the remainder of both our cash flow and our remaining debt capacity under that single A credit rating metrics. So we'll see how that unfolds during the year. You know that we set our debt up in 2015 and entered the year at $7.8 billion, but as a reminder, a chunk of that came from the debt financed pension contributions that we made in 2015, but going forward we expect stronger cash flows in 2016 from operations. And so we'll balance those things out as we go through the year.

Hi, good morning. A couple of things, number one, I think you gave us the organic sales growth breakdown for China, Eastern Europe, and Brazil just for the full year. Can you give us those for the fourth quarter specifically? And then with regard to Brazil pricing, do you intend to raise prices consistently across all the segments? I know there is a very big gap between the various segments and I'm just wondering how much risk of trading down there might be.

Paul will give you some of the quarterly details and then we can talk about pricing in general.

Yes, Wendy, for the quarter, so Eastern Europe first of all was up about 25% largely due to higher selling prices. This is in diapers. In China, organic sales were up more than 15%, all driven by volume. Volume was a little bit north of 20% in the fourth quarter. And then in Brazil Personal Care was up about 15%, diapers were about 10%, with both higher volumes and selling prices.

Yes, and then to your other question, we are trying to be smart as we look across categories, the level of pricing also is affected by the amount of innovation that we have coming. So we can bring a better performing product, we will probably be a little more aggressive on pricing in that space, but we're also looking at it by peer to see what's possible. Part of that is also driven by how much is the local content of a particular product makeup versus the U.S. dollar components for using a ton of imported materials; you're going to be more likely to have to price up for that.

And then thus far have you seen much trading down across the segments in Brazil or not so much?

We've seen a little bit of the trading up, trading down phenomenon like we have seen in other markets where the super premium segments are growing where you’ve got real innovation and some differentiation and then you’ve seen some uptick in the value and the middle segments have taken a bit of a hit. We’ve seen that in other markets and some other situations.

Got it and then I just had one last one on your regional operating margins. The progression in North America just continues to be fantastic, but there's still a lag or the international margins are still significantly below and that makes total sense. But my question is going forward just given that we continue to see such outsized growth from your international business, there is obviously an inherent drag there on your overall margin expansion. I’m just wondering kind of conceptually the FORCE savings or cost savings sort of the margin expansion priorities, how much of those are oriented towards the international business versus North America? So at what point do you think we will start to see that gap close?

Well, the good news is our international business is closing the gap and so their margins have improved this year. So even though the sales from [indiscernible] they came much closer to the dollar target than you might think given the size of the currency hit that they took. And so they really used very minimal margin drag on the company. In fact this year because they shrunk as a percent of the company’s overall sales we actually had a slight margin tailwind this year from a mixed standpoint. But getting back to the root cause, we tend to focus on gross margins in emerging markets and trying to narrow that gap because in some markets where we are investing in A&P or building infrastructure to support a larger business, we're not quite as efficient between the lines in the international market share, but that’s one that the team is working on and our markets that are at scale like Korea you'd see margins there that are at or above the North American levels in individual categories.

Terrific that’s very helpful, thank you.

Yes, good morning. Hey, just one quick one, how big is Argentina both sales and profits directionally and do we start getting concerned about what’s going on down there?

I think it’s 2% or 3% of sales and probably similar from profits; had a great year last year and part of the other expense that we took in the quarter was the devaluation that happened in mid December, that part was a $0.03 hit to our fourth quarter results. But I actually feel pretty optimistic about Argentina over the long term and so as we see the new government coming in place and they’re opening up their markets, there are some product categories for example that were imported. Like our K-CP business for example in Argentina had to import all their safety products and we didn’t manufacture anything locally there well over the last year. So we were not allowed to import. So you had to kind of go out of that business. That’s all going to open up in 2016. So there will be a translation and transaction hit, but I’m more optimistic about the future of Argentina going forward.

Okay, great. Actually just one another quick one, on the working capital side is working capital going to turn positive next year because I know that's a pretty significant use this year?

Yes, our working capital use was a bit higher in 2015 than we would like. There were a number of factors that impacted that including the negative impact of currency on our derivative settlements and we also had a tax receivable that moved up into accounts receivable at the end of the year. I mean despite the use of cash we made really good progress on our per working capital metrics as I talked about in my prepared comments. So for 2016 working capital is clearly an opportunity for us and we'll be sure to get at that and as I said our cash from operations to be significantly higher in 2016 versus 2015.

Thanks Bill.

Thanks, good morning.

Hi, Lauren.

First thing on the other income line of expense, so the hit from devaluation Argentina this quarter is that kind of a one quarter effect or should we think about it being at these elevated levels throughout the year?

No, you pretty much had the right year of payables down on the data devaluation occurred, so I don’t know Maria, if you've got any more color on that?

Yes, we took a significant hit on the devaluation in the fourth quarter and then it will just depend what happens to the currency from here and how we have to re-measure the balance sheet moving forward.

Okay, great. And then on K-C Professional, you mentioned sort of slowing demand at the end of the year in emerging markets, can you talk about that also for North America if you’re seeing any slowing in demand there and your outlook for that business being the more cyclically tied piece of the portfolio?

Yes, I would say this, we had probably different causes and different market sets and they are little softer fourth quarter on the top line than we were expecting overall for the year they had decent organic growth which is what we tend to look at. In North America, we saw some distributor inventory destocking because we look at our out-the-door sales versus our in-the-door sales in the fourth quarter. They sold more out-the-door than they purchased in-the-door. So I think those guys at calendar year end and they were doing some inventory level trimming as they hit their year end. I’d say in other markets like Brazil, which is a big market for K-CP, there you see more just a decline in GDP has had a pretty big impact on business activity. It has affected the key K-CP market much more than the consumer market for the year. In other markets China kind of a mixed bag with a little weaker quarter for us and yes some of that was execution on our front that we need to improve and there is plenty of competition there, probably a bit of the economic slowdown, but again that market is still growing overall, it’s just not at the same pace that it once was. So lots of different issues in individual markets that kind of added up to a little less than we were thinking we’re going to get on the top line.

Okay, great. And then on cost savings, so certainly notable that you’re starting the year talking about FORCE being $350 million, to the question on restructuring though, I think sort of came in at the lower end of the expected range for savings in 2015. If I layer on then the $50 million you’re expecting in 2016 those still have you kind of below the $120 million to $140 million in the total realized, so does this mean it extends a little bit further into 2017 or is it just going to be kind of a lower end of the range on the total program?

Yes, our overall restructuring program is firmly on track. We delivered savings of $65 million in 2015 and that brings the total to date to $70 million and our guidance for 2016 is another $50 million of savings putting our cumulative level within the target range of $120 million to $140 million for the full program and we still expect to realize some additional benefits in 2017. So we’re clearly on track in terms of the savings that we expect to realize for that program.

Lauren this is Paul. I would just build on that. Remember we said the charges would end in 2016, but as Maria has mentioned the savings is really through 2017.

Okay. Perfect and just a final quizzing on SG&A, I know in the release you mentioned FX was impacted and I just wanted to check if there was anything else in SG&A because it was a little bit higher than it might this quarter and just thinking it was mostly FX or any other kind of investments in marketing?

Yes, there are a couple of things you mentioned FX that clearly has an impact on the reported expense levels. But our expenses are higher as we’re investing in capabilities and we also had some higher variable compensation expense in the fourth quarter and for the year given our strong performance. And when you look year-over-year I think it’s probably also worth noting that we have lower levels of spend in the second half of last year, so organization was really focusing on the spend and the restructuring program which is a lot of work. And this year as we said on our second quarter earnings call again we were intending to invest in capabilities and we did that.

And Maria can you still elaborate on those capabilities? I mean is that, is it people, is it mostly in selling, is it in marketing or is it actual dollars in the marketplace already?

Yes it’s in a number of areas. Clearly, our selling capabilities is an area that we’re focused on investing in, in marketing capabilities particularly around electronic commerce as we grow in new channels and then we also had some investments in the area of IT in terms of data analytics and things like that, all focused on supporting our organic top-line growth efforts.

Okay. Thank you so much.

Thanks Lauren.

Hi good morning, Chris. Chris, are you there?

Hi good morning everyone. My question has to kind of the bigger picture of the company's earnings power right, if you step back and look at 2015 you got 25% impact of currency and yet deliver, if my calculation is correct, nearly 30% currency neutral earnings. This year you’re targeting something about 20% currency neutral earnings. So if you can help us understand kind of like this sustainability of that, how much of this earnings growth in 2016 has to do with savings versus leverage versus that kind of smart because one of the things that are not seen now is that the share repos are coming down relative to the past, so basically the financial side of the EPS growth is less of a contributor. So if you can explain us what is - what do you think is the earnings power of this company because 20% on top of 30% currency neutral EPS growth is pretty substantial? Thank you.

Yes Javier, I think maybe the way to think about it is looking at the net of price of currency and raw material inflation or deflation and when you net those three things together, it’s a little smaller drag as we talked about for 2016 is probably a high single-digit drag. So then to deliver 3% to 7% growth puts your real earnings power more in the low double-digit range which is still above where our historical average has been. So the things that helped us get further along in 2015, it will help us again in 2016. There has been strong volume growth and so good organic top line and a strong cost savings program and we’ve been ramping that up over the years and it’s been never more important than in times like this. And so, if you look at the organic top line drivers we feel pretty good about the innovation program that we’ve got as well as a portfolio of markets that we’re growing and where the categories are still growing there is still opportunity for geographic expansion. On the cost savings front, the three factors that are driving us there are negotiated material savings, our basic productivity programs and material specification changes and we are getting organized to deliver that on an even more consistent basis going forward with some of the works that we’re doing with a new global supply chain leader. So I feel pretty good about volume growth and our cost savings performance and hopefully that delivers the earnings power, it overcomes some of the currency drag and other things that we have got facing us.

And finally on North America again, tissue pricing in North America down 2% is that a temporary promotional activity or do you think that this is elements of the pass through of lower commodity prices starting to kick in and is it something that is led by you or is it something more of a reaction to say your competitors?

Yes, on the tissue front they didn’t really get too much of benefits from deflation in the year and more of it was oil related which benefited the Personal Care segment. They got a little bit of transportation benefit from lower diesel and things like that but beyond that it wasn’t much benefit from deflation. The pricing was a little bit more competitive in the marketplace and we tried to make sure we matched up to that. I think any time you have a discussion about this it is always the other guy that started it. So I’m sure there are some cases where we were aggressive behind innovation and trying to drive our business and that may have precipitated a response or maybe the converse is true. But I do think the overall market was a little bit more competitive. We’ve seen that for several quarters and we feel good about the volume performance. We grew share in 5 of 6 of the North American consumer tissue categories and we saw good margin improvement behind cost savings. So overall, I think the execution was there and we delivered on the plan and expectations for the year.

But as if I understand correctly, so you basically see the Q4 is slightly aggressive pricing as something more like a one-off I suppose to the pass through finally kicking in because the category has been very positive, so in terms of very constructive in terms of pricing, do you think that this is sustainable into 2016?

You haven’t seen much commodity benefit again, so our forecast is calling eucalyptus data a little bit in ’16 so, that will help at the movement I’d say the competitive environment is going to be pretty similar in ’16 to what it was in ’15.

Yes, thanks. Hey, I was wondering if may be you can give us kind of a state-of-the-union on category growth globally? I mean clearly we’ve seen some dramatic headlines on the economies in general across the world, but just curious what you’re seeing from a category perspective, and you are expected to be flat going into 2016 or kind of decelerate or accelerate any thoughts around that would be helpful?

Yes, I'd say broadly we still let’s say the category opportunity is 3% to 4% on average. If you look at a market like China, we'd still say high single-digit growth. It is going to be the year of the monkey in China which is a good year and so you typically have a little bit of an uptick in the birth rate, restarts with the forecasters were calling for, the birth rate in the U.S. is actually ticking up. I’d say there are places we're watching our markets like Brazil and the Ukraine which are going negative where the GDP is as happened to see us as a very short-term category issue or is there a bigger trend in place? But let’s say if you guess the category growth rate was three to four or maybe rounding down closer to three reflecting some of the challenges in some markets around the world.

As you take pricing in many of these emerging markets, have you seen the price gaps and dislocate with some of the local players that may not be under the same currency pressures, just any context on the magnitude of maybe some of the dislocation would be helpful?

Yes, most local markets we are playing in local currency and so you're turning to look at transaction exposure as the driver for pricing. So and most of these places most of the competitors, including local players, by pulse this is denominated in dollars or they buy super absorbent that’s denominated in dollars or they buy not [indiscernible] that are using polymer that's priced in dollars. And so, there is a transaction exposure that affects everybody and that tends to drive pricing more than trying to price for the translation exposure.

Hi, yes just a little bit of a follow up there on sort of the last comment on the pricing. You guys are looking for a little bit more price mix sequentially in 2016 versus 2015 and the gross margin performance has been amazing with less pricing than what we’re generally seeing from peers, is that something where the markets are, you have good visibility because the markets are letting you take that or it’s pricing that went in later in 2015 that sort of rolling through into 2016 so, I guess just, what’s the visibility is that, more transactional pricing rolling through mix what have you?

Yes, there is a mix of that I would say, if you look at the markets where we’ve been most successfully getting pricing is turning to be Latin America, Brazil had, had quite a bit in ’15 we’ve announced some of the recent currency moves more in '16. We'll see my guess is when Argentina the dust finally settles and the pricing rules right down there more visible there will likely be some pricing opportunities in that market. Eastern Europe has been the other place where you have seen real currency volatility or everyone in those markets has been pretty aggressive on pricing and so that would account for most of it. If you looked at a lot of the other developed markets like Australia, where there has been a little bit of currency movement or even Western Europe, you’re probably not going to get a lot of pricing for the sized currency moves that you’re seeing there. It will be very low single digits if at all and so I think, that's sort of the way it's shaking out is we've got a few hotspots where there has been big currency swings where you get price recovery because everybody is being hit with the same wave of transactional cost hits. And then there are lots of other markets where you have to manage with cost savings and mix or innovation or other things that are going to drive your revenue realization.

Hey, guys.

Good morning, Ali.

Hey, just a few questions, one is on cash flow sources and uses and if you think first at level of a more detail on the working capital kind of impact this year and then how and why it's expected to go down next year so from the sources perspective? As well as, why your CapEx remains in this kind of billion dollar range even after Europe and how you’re got spun-off so that’s from the sources perspective? And on the uses side, your buyback range is lower than has historically been the case and if you add that to your dividend guidance you’re kind of the shareholder return seems to be a little bit off course versus what we’ve seen recently and so I’m trying to get a sense of it that’s just kind of macro concerns trying to be cautious or if there is something else going on and I am trying to adjust for Europe and Halyard Health and kind of both those, so both sources of news please.

Sure, let me take a crack at it and then and Tom can certainly jump in here and let me start with CapEx. We’re fortunate to have a lot of opportunities to invest in high return capital projects that support both our top line growth and savings. As you think about our CapEx, you can think of the spend in three areas, growth which supports expansion capital and also investment behind our innovations. Cost savings, which is a second category a lot of that supports the four savings that you’re seeing come through and that we talk about. And then the third category on maintenance if we fund our operations to adequately maintain, productive and safe manufacturing environment. So those are the three categories and I think the range of $950 million to $1.50 billion is about right for our business now given the opportunities that we have and the size of our operations and the opportunities that we have for expansions in some of the geographies. We’ll continue to monitor that over time. As you know we hired a head of global supply chain and wondering how our organizations will work with the finance team and the local operators to make sure that we continue to optimize our CapEx spend as we move forward. On working capital, I said that I thought out working capital usage was a bit higher than we'd like it to be. I think there are areas of opportunities that we have in 2016 are around areas like inventory. We talked about strong performance on payables in 2015 and so, again with our global supply chain organization working with our local teams, we will be focusing on what we can do on the inventory side and then in ‘15 we also had some negative impacts on working capital from currency on our derivative settlements that we used to manage our exposures on the balance sheet, and then also we had a large tax receivable that moved up into AR at the end of the year, so when you look at the numbers after in there, that’s in there too. I think the third part of your question was around buybacks and that is back to what I said earlier. We’re very focused on maintaining our single A credit rating. So there is, as you know at certain metrics around single A and we watch those very closely and then look at how did the cash flows come in and make sure that we fund the dividends in that churn business through CapEx and then the remainder just remains how much we buyback and we use the cash flow and then any capacity that we have on the debt side within that A rating to really fund buybacks. So depending on where the results of the operations come in will depend on the flex – within the range on the share buybacks for 2016.

Okay, okay and I guess it has been over the past several years you've certainly been giving back more – than you have been carrying from few capital perspective so that obviously has an impact going forward. Switching gears on taking prices up more in the particularly developing and emerging markets, I mean the FX headwinds for both the Personal Care and the Consumer Tissue business in this quarter, has been there for a while and been quite significant. So like negative 23%. We’re only talking about 6% price mix say in those in that market or in the Personal Care business. So there is still a very large gap between the currency and what you’re taking from a pricing perspective. In your goal of taking prices further up, what gap should we think about between those two numbers as a target?

Well the way to think about it in terms of how we’re approaching it is we are not necessarily trying to cover the translation exposure, which is probably the biggest piece of it; we are trying to cover the transaction exposure, but as you look at our net income impacts that also includes things like the balance sheet re-measurement in Argentina that flow through other expenses or any other hedging gains or losses. And so, they’re looking more like the run rate transaction exposure and the impact on imported materials and what their ongoing cost of goods is going to be and using that to think about pricing going forward and then balancing that with what your innovation plan looked like and what are the things can we do to substitute the local source material and avoid the transaction exposure and so it’s a market by market approach. And again I would say in Latin America and Eastern Europe is where you found both of those markets are just I'd say used to dealing with high inflation and so when you get hit with this people aren’t shy about taking price, but other markets you’re not going to see that in Korea, you’re not going to see that in Australia. Yes Javier, I think you may have misheard. We expect the EPS growth to be more in the mid-single digits versus what we just laid out. But again, the difference in trajectory is where we will see significant cost savings against basic price increases we might have in markets where competitive activity may be tighter that may limit our pricing ability.

Great, thanks very much.

Thanks Bill.

All right, thanks everyone for the questions and we'll conclude with a comment from Tom.

Well, once again we wrapped up the year with a very solid performance in 2015. We've got great momentum and we appreciate your support of Kimberly-Clark. Thanks for joining us today.