Paul J. Alexander – Vice President-Investor Relations Thomas J. Falk – Chairman and Chief Executive Officer Maria Henry – Senior Vice President and Chief Financial Officer Michael D. Hsu – President and Chief Operating Officer.

Bonnie Herzog – Wells Fargo Nik Modi – RBC Capital Markets Lauren Lieberman – Barclays Capital, Inc. Jason English – Goldman Sachs & Co. Wendy Nicholson – Citigroup Global Markets, Inc. (Broker) Caroline Levy – CLSA Americas LLC Ali Dibadj – Sanford C. Bernstein & Co. LLC Stephen R.

Powers – UBS Securities LLC Olivia Tong – Bank of America Merrill Lynch Jonathan Feeney – Consumer Edge Research LLC Erin Lash – Morningstar, Inc. (Research) Bill Schmitz – Deutsche Bank Securities, Inc..

Ladies and gentlemen, thank you for your patience in holding. We now have your speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of this morning’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 us today are Tom Falk, Chairman and CEO; Mike Hsu, Chief Operating Officer; and Maria Henry, CFO. Here's the agenda for our call. Maria will begin with a review of our 2016 results, focusing on the full year.

Tom will then provide his perspectives on our results and the outlook for the full year. We'll finish with Q&A. As usual we have a presentation of today's materials in the Investors section of our website. Now, 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, which exclude certain items described in this morning’s new release.

The release has further information about these adjustments and reconciliations to comparable GAAP financial measures. And now I'll 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 full year results. Sales and earnings for the year were consistent with our previous outlook. We achieved record cost savings and excellent margin improvement.

We generated strong cash flow, improved capital efficiency and return cash to shareholders. Now let’s take a look at the details of our results, starting with sales. Fourth quarter net sales were $4.5 billion with organic sales growth of 1%. Full year net sales of $18.2 billion were down 2% and included a 4 point drag from currency rates.

Organic sales growth was about 2% for the full year in line with the guidance we provided back in October. On profitability we had very strong performance in 2016 and we expect to make more progress in 2017. Our fourth quarter adjusted gross margin was 37%. Full year gross margin was 36.6%, up 70 basis points year-on-year.

Our adjusted operating margins was 18.9% in the fourth quarter, bringing the full year 18.4%, that’s up 110 basis points. Adjusted operating profit for the year rose 4%, right in line with our original target of 2% to 5% growth. Our team has delivered record FORCE cost savings of $435 million for 2016.

That was well above our initial target of at least $350 million coming into the year. Saving were 3.8% of our cost of sales, up nicely from 3.1% in 2015. I'm encouraged by the progress our business unit and supply chain teams are making on this front and I continue to believe there is long-term potential in this area.

Our savings target for 2017 is at least $400 million. In the fourth quarter, we successfully completed our 2014 organization restructuring. We generated $70 million of saving in 2016, bringing the cumulative benefit to $140 million annually. I'm pleased that we were able to achieve the high end of our savings commitment one year ahead of plan.

Commodities were $65 million benefit for the year. In 2017 we expect commodities to change from a positive to a negative for us. We're expecting a modestly inflationary environment and we're planning for cost inflation between $50 million and $200 million. Currency declines continue to impact our results in 2016.

For the year the total earnings dragged from currency within the low double digit. The net impact of changes in currencies, commodities and net selling prices reduced our earnings by about 10% just above our original plan of a high single digit drag.

In total, fourth quarter adjusted earnings per share were $1.45 bringing the full year to $6.03, that was up 5% year-on-year and in line with our previous outlook of $5.95 to $6.05. Now turning to cash flow and capital efficiently. Cash provided by operations was $3.2 billion for the year, up 40% year-on-year and somewhat ahead of our plan.

The increase was driven by improved working capital and lower pension contribution. We expect another year of strong cash generation in 2017. However, it's likely that our cash flow will be down a little bit, given our over-delivery in 2016 and our expectation for higher tax payments this year.

We reduced primary working capital cash conversion cycle by two days in 2015 that was at the high end of our original improvement target of one day to two days. We're planning for a one day improvement in 2017. On adjusted return on invested capital we improved these metric 120 basis points.

That's well above our long-term target of 20 basis points to 40 basis points. On capital allocation in 2016, we returned approximately $2.1 billion to shareholders, through share repurchases and dividends. That marked the sixth consecutive year that we’ve returned at least $2 billion to our shareholders.

In 2017, we plan to repurchase $800 million to $1 billion of Kimberly-Clark stock. In addition as mentioned in our news release we’re increasing dividend in 2017 by 5.4%. This is our 45th consecutive annual increase in the dividends. Now let’s take a look at the segment results for the year. In Personal Care organic sales rose 3%.

That included 5% growth in developing and emerging market and 4% volume growth in North America. Personal Care operating margins were healthy at 20.5% even with last year. In Consumer Tissue, organic sales were even with the prior year.

Consumer Tissue operating margins were 18.7%, that’s up 120 basis points, including benefits from cost savings and lower input costs. In K-C Professional, organic sales were up slightly with 5% growth in developing and emerging markets. Lower sales of nonwovens to Halyard Health reduced the segment top line by more than 1%.

We don't expect that drag to repeat in 2017. K-C Professional operating margins were 19.1% that was up 80 basis points with benefits from higher selling prices and cost savings. So to summarize, our full year top and bottom line results were consistent with our previous outlook.

We delivered record high saving, improved our margins nicely and increased ROIC. We generated strong cash flow and continue to allocate capital in shareholder friendly ways. I’ll now turn the call over to Tom..

Thanks Maria and good morning everyone. In terms of our full year 2016 results, I’ll focus my comments on organic sales on our market shares and current market conditions. Then I'll address our outlook for 2017. So starting with our results. As Maria just mentioned, organic sales were up about 2% for the year.

In developing and emerging markets, we delivered 4% organic sales growth even though we were impacted by category declines in some markets and by price competition in China. Let's take a look at some of our key markets. In Eastern Europe organic sales in diapers increased by more than 15%.

Results there were led by Huggies in Russia with double digit volume growth and 1 point of market share improvement. In China, organic sales in diapers were up low single digits as strong volume growth was mostly offset by lower selling prices. Our market share was pretty similar year-on-year in China.

Looking ahead in the China market, we expect another year of significant volume growth. Category demand should remain strong and we have lots of innovation coming on Huggies including a new super premium diaper pants that we recently launched on Singles Day in November.

Based on market trends in the last 2016 were cautiously optimistic that pricing in China will be less negative than 2017. Turning now to Brazil, organic sales in Personal Care were down slightly for the year. Category volumes fell throughout 2016 and competitive activity on diapers picked up in the second half of the year.

Our market share for the year was down in Brazil 1 point diapers, but up 2 point in feminine care. We expect that market conditions will remain difficult in Brazil in 2017 particularly in the first half of the year. In Argentina, volumes in Personal Care were down high single digits and that’s similar to the overall category.

Conditions were more challenging in the backup of the year and we're continuing to closely watch the dynamics in this market. Our adult care and feminine care businesses in developing and emerging markets had very strong organic sales growth, double digits for adult care and high single digits for feminine care.

In developed markets outside of North America, organic sales were even year-on-year. Moving now to North America, our consumer businesses achieved 3% volume growth and had excellent operating profit performance for the year. Overall, market shares were stable year-on-year in a pretty competitive environment overall.

Looking at key categories in North America. In child care volumes were up high single digits with benefits from category growth and innovation on pull-ups training pants. Baby wipes volumes increased mid-single digits. On Huggies diapers volumes were down low-single digits while market shares were up about half a share point.

In adult care, volumes rose mid-single digits aided by category growth and innovation on Poise and Depend. Then lastly in feminine care and in Consumer Tissue, volumes in both businesses were up low single digits.

Moving to K-C Professional in North America our organic sales were up 2% and we think that’s a little bit ahead of the market in that space.

So overall while we experienced challenging category conditions in 2016, particularly in some of the developing and emerging markets, our market shares are broadly healthy and holding up well in this environment. Now moving beyond sales. I'm very encouraged with our performance on cost savings, margins, cash flow and return on invested capital.

Results on these metrics were excellent and we’re ahead of plan across the board and demonstrating the continued strength and great execution by our business teams. Finally we grew the bottom line by 5% and that’s in line with our guidance for the year. Now moving onto our outlook for the coming year.

In 2017 we’ll continue to execute our global business plan strategies. Our teams will invest in innovation, marketing and targeted growth initiatives to keep our brands strong. We also continue to manage our Company with financial discipline, focusing on cost savings, cash flow and shareholder friendly capital allocation.

In terms of our specific guidance, on the top line we’re targeting organic sales growth of approximately 2% that’s broadly in line with our assumption for overall market growth in 2017. But we're expecting only modest improvement in the overall environment in developing and emerging markets.

But we aren’t expecting growth to pick back up significantly in 2017, we're still very optimistic about the long-term possibilities for us in these markets. Innovation continues to be an important part of our growth plans.

In developing and emerging markets we've got a number of launches planned in diapers and diaper pants, feminine care and adult care. We also have a strong line up in North America. Near term activity includes upgrades on Huggies Snug & Dry Diapers, Goodnites Youth Pants and Depend underwear.

We expect that organic sales growth will be higher in the second half of 2017 compared to the first half of the year and that’s largely because of tougher comparisons in the first half of the year. On the bottom line we’re targeting earnings per of $6.20 to $6.35 and that’s up 3% to 5% compared to our adjusted results in 2016.

We plan to achieve solid improvements in both growth and operating margins in 2017 and that’s despite an expectation for a mid-to-high single digit drag on earnings on the combined impact of changes in currencies, commodities and selling prices.

Our outlook also includes a meaningful decline in equity income that's driven by the weaker Mexican peso, which impacts our earnings for K-C de Mexico. Recent spot rates for the peso have been down 15% or more compared to the average rate for 2016. In terms of capital allocation, you should expect us to continue to be shareholder friendly.

We expect to allocate between $2.2 billion and $2.4 billion to dividends and share repurchases in 2017. That's a higher amount than in 2016 and that’s equivalent to 5% to 6% of our current market capitalization.

So all in all, we remain focused on continuing to compete effectively in the near term as we execute our global business plans strategies for long term success and shareholder value creation. That wraps up our prepared remarks and now we’ll begin to take your questions..

[Operator Instructions] Our first question comes from Windy Nicholson with Citi Research..

Good morning. Could you just talk about the pricing environment, your guidance, specifically for 2017, looks like it's almost entirely volume driven? I'm surprised a little bit not only with currency headwinds, but also with your expectation for higher commodity prices and innovation, why you're not expecting more benefit from price mix. Thanks..

I think I would say, we’re going to have some carry-over price drag in places like China. We still probably will get some additional positive price in markets like Brazil and Argentina, but we're not counting on a lot of price. In some of these markets the consumer has been pushed pretty hard and we just don't see of a big opportunity to take price.

And even in markets like the U.K. where you’ve had though the Brexit phenomena, we will try to take some small positive price increases, but we're not counting on a lot of that to drive our year in 2017.

So I think while the currency hit isn't as big as it’s been in the past, the commodities we're assuming that oil is up double digits and secondary fiber is up double digits. But some others like eucalyptus pulp is going to be pretty flat, but we’d just say the net of that is we're not counting on a lot of price in 2017..

Okay.

But your innovation broadly speaking can we assume that that’s for the most part on premium priced innovation or is it more just important to get the pricing right for the local consumer?.

I think. Both of those. We’ve tend to try to innovate on the premium end. We want all of our innovation to be margin accretive where ever we can.

In markets like Brazil though, we are making sure we’re innovating on the low tier when the category is moving down into tier 2, you want to make sure you've got a good performing product and can make competitive claims. And so we are trying to make sure we're innovating where the consumer is moving toward..

Got it. Terrific. Thank you very much..

Thanks, Wendy..

Our next question comes from Ali Dibadj with Bernstein..

Hey, so wanted to kind of inter relate two things. One is a marketing research and general expense being down to 70 basis points. Trying to get a better understanding what the driver of that was and if any that was adjustments in Q4 on spend i.e. decline.

Linking that to where you're effectively expecting for 2017, which is kind of an acceleration for the past couple of quarters of organic sales growth after this kind of 2% level same for the year. And I get the sequencing you gave in the first half was a back half.

But A; was it advertising spend that went down and how should we take that as we think about your expectation for acceleration for 2017 on the top line?.

Yeah so, I guess, the way I’d come out that, I’d say the marketing research general did not include advertising in that number so that would really be the cost of the marketers and any marketing research or other things.

I would say if you just looked at the quarter there was probably some more timing things particularly on our R&D where the third quarter was a little heavier than the fourth quarter, which is a little unusual for us.

But that why I probably look at the full year number to be more predictive, our advertising spend overall was pretty similar to the prior year fourth quarter, but down a little bit sequentially. So that’s not that unusual.

We continue to see shifts out of advertising into digital couponing and a lot of that cost gets captured between gross and net sales. So you don't really get good visibility of that. But as you think about the top line in 2017, the way I would come out at it is that we're calling a roughly 2%, that's roughly what we did in 2016 on average.

2016 was very front half loaded and the back half was fairly wide as you described and 2017 from a cost standpoint, you know have tougher comps in the front half and easier comps in the back half, so I think we’re calling fairly similar overall to what we saw for the full year in 2016..

And then just the sequential improvement that you're seeing, your saying it’s just basically from a cost perspective, right. I mean, the zero and the one this past couple of quarters getting up to 2 you're saying that really just look – the comparisons are easier for the back half and that’s where we’re going to make up the plaque.

Is that the right way to think about it?.

Yeah, that’s right way to think about it..

Then just on the commodity piece to it. You know I guess $50 million to $200 million of inflation.

Are you basically saying, you're not going to be able to recover any of that? Is that the right way to think about because historically you've been able to recover 60%, 70% of commodity inflation, so it’s just a different environment right now competitively that you just sounds like won't be able to recover any of that given the pricing you’re suppose in for 2017?.

Yeah, I wouldn't say any of it, it will be much more market specific, so in places like Brazil and Argentina where there's a lot of local market inflation, not necessarily even big commodity categories. You know that they will be taking price up in those markets. Will they recover all it? You know I think that’s an open question.

You are seeing more competitive activity in some of those markets. We still have some of the carryover drag from some of the Chinese price reductions that we experienced in 2016 that will be a drag in 2017. In markets like the U.K.

or in or even in North America, the level of inflation that we're seeing, we may get some pricing in case KCP around secondary fiber where we’ve got double digit price increases in secondary fiber.

But I wouldn't expect to get much price on our other broad consumer categories just because the inflation level isn't that big relative to the size of those businesses..

Okay thanks..

The other the other thing Ali is that we feel pretty good about our cost savings going forward.

And so our ability to absorb a little bit of inflation, these are fairly low inflation numbers, relative to what we've seen in the past and generating cost savings in the $400 million in a year, it gives us the ability to recover some of that and be competitive in the marketplace..

Okay. Thanks..

Our next question comes from Lauren Lieberman with Barclays..

So I want to just carry on this conversation about pricing versus inflation.

Is there something specific to your categories and kind of where they fall in the line of kind of consumer needs and willingness to trade down or pull back on usage, just limiting the ability to price in line with local inflation? If to provide as you said the consumer has been pushed pretty hard, particularly in Brazil and increasingly in Argentina, is what triggering the share losses, their modest.

Is it trade down that you're really seeing in the marketplace? Or is it another kind of similarly priced competitor that’s winning currently?.

Is there an all of the above answer I can choose, Lauren on that one..

No..

Because I think it is a little bit of all of those I think. There is – growth rates in a lot of our categories have slowed. We said we were expecting category growth rates of roughly 2%. We would have said several years ago three to four was probably more what we were trending.

So growth rates have come down, there's still lots of competition including local competitors who are aggressively pursuing business and we're trying to make sure we’ve got the right innovation, we got the right price point, we’re executing well in market and that probably makes it a little tougher in this environment to get price increases, in a market like Brazil, where the category is going backwards 3% to 4% in volume and you're taking list price up, you can generate some short-term category value increases, you don't want it to be a race to zero either..

Yeah understood, okay. You had also mentioned in the release, lower category demand in diapers in the U.S.

Could you talk a little bit about that, is that a birth rate conversation that’s driving that?.

There's been a pretty big category shift in the last year where training pants category growth is up strong double digits and diaper category growth is down a little bit. Since I got Mike Hsu here on his first call Mike is running North American business, why don’t you weigh in on that one Mike and give them a little color around that..

Yeah, I think our baby and child care team across both child care and infant, doing a great job, but I do think we see a category shift to train pants and I think in some ways Lauren, we see that as probably some positive green shoots on the economy because training pants to sell at a premium to diapers in a like-for-like sizing, you know the consumers now, when they have confidence in the economy, tend to trade up.

And the converse happens when the economy is bad. So I think there has been some shift. The other thing is though that we've made some significant improvements starting in 2015 on product quality. Pull-ups can give a performance of a diaper, but the benefits of training.

And so we made a major improvement in 2015, we saw double digit consumption growth in 2015 and that’s carried through to 2016. Double digit consumption and probably high single digit on shipments and so I think there's been a lot of activity there.

In terms of the commercial programming, I think we've been talking to moms about the benefits of training and when to start training and I think that’s having an effect in the category.

The other factor is our primary competitor has also re-entered or refreshed their product in the category and made a lot of promotion activity which is probably drawing consumers in the category.

So there's been a shift from diapers, but the overall mega category, if say all out at across non-measured and measured channels and diapers and child care is overall plan..

So we were up a couple of percent or percent and a half or simple like last year..

And the last thing was just the Nielsen data if there's been this disconnect we’re seeing across companies and categories. But if you can comment at all about in your categories what you think the shift to kind of untrack channels that are driving in terms of growth versus what we're seeing in the open..

Yeah Lauren, it’s probably playing out the biggest in diapers and because of a couple of factors. The non-measured, the online channels are growing at a rapid rate and so you can't see some of the customers that are in there.

Also some of the changes in terms of who is reporting with whom between Nielsen RRI [ph] also going to start affecting us as well. So it's a bit of a challenge right now when we're working through some of these issues too..

Okay. All right. I'll pass it on. Thank you so much..

Thanks, Lauren..

Our next question comes from Jason English with Goldman Sachs..

Good morning folks. Thank you letting me ask the question. Like the others, I’ve got two questions. First at a high level. Tom your guiding FORCE, so your second year of under-delivery versus your historical 3% to 5% aspiration.

You mentioned category growth overall is obviously a key contributor with it just being at a slower end market environment out there. How are you thinking about the forward, is there a path back to that 3% to 5%. Is sort of 2%, maybe to 2% to 3% is sort of a new reality for at least the foreseeable future.

If there is a path that's going to drive us higher, what are some of the key variables that you think we should be looking at, at the gate whether or not we can get traction on that..

Yeah, that's a key question, Jason. Obviously, I’d say, Latin America economic recovery would be a key driver. So if you look at Brazil, Argentina, they’re taking a pretty big shock, but Brazil in particular from lower oil prices. As those come back that we’ve got pretty big business with down there that could tier a lot of top line growth issues.

On the other hand, as you look at places like Russia, China, still very strong category volume growth and we still see big penetration opportunities in lots of markets around the world. So I think that's why we would still say long-term there’s huge opportunity here for us.

In the short-term we're at a little slower spot than the GDP growth per capita of range that we're going to make the categories go at a little slower rate..

Makes sense. Thanks. Next question is on EBIT math. I really appreciate all the inputs you give us in terms of the guidance assumptions into next year and I also obviously appreciate the bridges you gave in the Qs in terms of what's driving EBIT growth.

We can kind of use all these variables to build it up and see what the theoretical earnings potential is for next year. But one wild card that we don't have good visibility to is the other line that you roll in the 10-Q, I know there’s a lot in there.

But it's been a material source of leakage the last couple of years, north of $400 million every year of operating profits and leaking out to other line.

Can you give us some color on what are some of the key inputs to that? How we should be thinking about that catch-all other as we go into this year?.

Yeah, well, call it other Jason, because it is just a big unknown, but no seriously, I’ll let Maria give you a little bit of color, but there’s a lot of local inflation in there. We also have other product improvement costs would be in there, so for upgrading and adding functionality to a product we would put that into that line.

Any start-up costs for new capital equipment around the world would go into that line, I don’t know Maria, if there’s anything else you would add to that or build on that..

Yeah, I think that's right. It definitely has a currency component to it as well as the inflation component to it is what drives it..

And thoughts on what that could look like as we go through 2017..

I would say that line tends to be pretty similar year-to-year, but I don’t know Paul, if you’ve got any other, we have never tried to forecast other, so..

Yeah, I mean typically as you'd expect with all companies we're going to have general inflation in our P&L and we break out the commodity component of that inflation. But wage increases, things of that nature, benefit cost, those are going to be, I would say modestly increasing year-to-year..

Pretty similar year-to-year..

All right. Thanks a lot guys. I’ll pass it on..

Thanks Jason..

Our next question comes from Caroline Levy with CLSA..

Hi, good morning. Just a follow-on, on that inflation question – wage and benefit inflation.

Paul you’re saying that that sort of the offers, that its excluding the other or I mean, is there allocation to each division?.

Each country team would have their own wage and benefit program and we just – as we break out the analysis of change and share that with you, we capture those cost increases on the other bucket and so I think that’s the nature of the question that was asked.

So we try to run a very efficient corporate overhead team and Maria oversees the corporate G&A budget and I know they're planning for a fairly flat, I don’t know if you want to comment on how you’re approaching that going into 2017..

Yeah, on the corporate side we have pretty aggressive management of those expenses. I think you saw a decrease year-over-year 2016 to 2015 when you look at that segment reporting that we have on the corporate expenses. So we’ll remain diligent on that and I think we benchmark well in that area..

Trust me if we were sending our operating unit teams bigger bills from corporate, we would hear about it, so..

Got it. Okay. My other question is understanding what's going on in the China diaper market please. Because my understanding is there's kind of 30% share now are held by locals. And it's a bit confusing that in something with technology I would imagine, very important that hundreds of local players have been able to take so much share.

If you could just tell us a little bit more about what's going on with pricing.

What's going, what isn't and how you see us coming out of this?.

Yeah that local share seems very high to me. I mean, you’ve got essentially four big global diaper players with P&G is still the share leader. Their share is high teens. Our share would be high teens. Kao would be similar and Unit Term [ph], I think it's about 10 share. Then [Hang On] which is the local players about a 5 share.

So I think Caroline it may depend on which dataset you're looking at their because there’s a substantial portion of the Chinese market is in e-commerce. Another good chunk is in baby superstores and then there is relatively smaller segment than you might see in other markets that are in traditional retail.

So if you looked at a just a Nielsen traditional retail number you could probably get a high share for a local player but that’s covering a very small part of the market..

Got it I mean I actually got those numbers from a competitor, but it does seem clear that competition is extremely high and pricing is weak.

What do you think marks a turning point in this – in pricing?.

Well, I think the pricing is down double digits for the year, a lot of that happened in the – started really in late of 2015, but rolled through early 2016. Our expectation is going into 2017 that pricing is not going to get better in the short term.

We do see good category volume growth, see a strong growth rate, high single digit, maybe even low double digit increase in births in China, good category participation rate. So there aren’t many markets in the world that are growing that fast and it's not surprising that that there's a lot of competition there.

Our team has done a fantastic job of is improving the products and reducing our costs, so that our margins overall in China are still quite attractive..

That's great. Thank you very much..

Thank you Caroline..

Our next question comes from Stephen Powers with UBS..

Good morning. Tom on the composition of growth next year, maybe looking at by segment.

Are you anticipating a similar mix in terms of the growth between Personal Care Tissue and Professional? Or do you see an acceleration in Tissue and Professional and then perhaps offset by some level of decel in Personal Care?.

For Personal Care, should still be the fastest growing segment I would say overall. KCP had about 1 point drag this year on their segment organic growth due to lower sales to Halyard and some of our internal nonwovens, so that was expected because that supply agreement kind of wound down.

So we won't have that negative comp of holding them back in 2017, so KCP could be a bit higher. Consumer Tissue I'd say overall will be pretty similar..

Okay. Thanks. And then Maria if we turn to FORCE, I know there are a ton of moving parts and how you run that program from the bottom up. But is there any way you can call out any kind of bucket of costs in particular in terms of where you saw upside in fiscal 2016, just looking back over the year.

Then more importantly, where you expect the most incremental improvement to come in 2017 because the momentum. Both based on what you achieved in 2016 and what you’re indicating that for 2017 is well ahead of where I think you would have put it a year ago at this time.

So I’m just trying to understand better where you're seeing that momentum sourced from? Thanks..

Sure. Yeah for the FORCE cost savings, come in three main areas and that was consistent in 2016 as it has been and those as a remind our savings that we drive from negotiating with our vendors, so on lower material prices, improving our productivity in ways across our facilities through manufacturing process and driving out ways everywhere.

The third area is optimizing the cost of our product specifications and in particular looking for – what are things that don't matter to the consumer that we can optimize or how do we engineer our products with more effective material to lower the overall cost of the product. So those were the three areas for 2016 that drove our FORCE cost savings.

What I will say though is because we did a little over our expectation our teams were incredibly focused on driving savings as we continue to fight it out in the very tough macroeconomic environment. So some of the areas where we over-delivered include in our international markets and also in some of our manufacturing and distribution operations.

Those were ahead of our expectations in 2016,.

Just a thing I would add to that is Maria and our new supply chain leader, Sandra MacQuillan, have done a great job of driving inventory down. As we have – had held less inventory you get lots of other distribution and logistics savings and that probably another area that we’ve done better and I think there's more to come there..

Yeah I would agree with that and I think that really helped us on the cash flow side. We put two days off of our CCC, that was in the high end of our expectations and a lot of that improvement was driven by inventory, which I'm particularly pleased with the teams are very focused on that area.

Not only global supply chain, but the local teams are really doing a great job on working capital..

Okay. Thank you very much..

Thanks..

Our next question comes from Bill Schmitz with Deutsche Bank..

Hey, Tom, good morning..

Good morning Bill..

Hey a couple of things. The first is do you guys think you have enough spend capacity. It seems like all the growth in the category the next 10 years, as they come in the pack category. So have you thought about the capital requirements there? Whether you think it's more modular diaper lines to make taped in pant diapers in the same line..

Yeah, I mean, I’d say the simple answer to your question is yes, we do believe we have enough pant capacity and so we’ve been at and that’s pretty much we’ve been adding pant capacity in major market in the world. We got new assets in China, Brazil, Russia, Czech Republic even Central America.

And so - and our team in Mexico has also added capacity, so yeah we do feel pretty good about that. Not to get too technical, but the grade change between the diaper and a pant would be time consuming enough, that you probably wouldn't want to do it very often, so it's better to have dedicated assets..

Okay, all right, that’s helpful. Then what do you think the end game is for all the competitors, with all the pricing activity we’re seeing in some of these markets.

Is it mostly like distribution specific, so like are you seeing super intense activity on e-commerce side in China and maybe less activity in the traditional stores? Any deeper color on like what you think the rationale is for – so it seems like it’s just breaking the category growth globally.

So I'm just trying to figure out like what you think the end game is for yourselves and others..

Yeah, I mean, I think the end game for us is deliver winning products, build market share and sustain your business over time. You know it's kind of tried and true techniques and in China we invested a ton in 2016 in our newborn program to make sure that we were capturing new moms and carrying them through.

We're doing a lot of hospital sampling in many markets around the world to make sure that mom goes home from the hospital with the right products. And so it's all the basics.

I mean, as we deconstruct some of the P&Ls to attempt of our key our competition, I think these are still attractive businesses, even at reduced prices and we've been good at getting the cost out to help protect our margins structure.

And so we want the diaper to work better and cost less and if we can continue to deliver on that, yeah, that makes it tougher for anybody to compete with us. I don’t know if that addresses it specifically. There’s another part to your question, Bill, I don’t know if I answered better or not..

That’s perfect.

The other probably is just like do you see more aggressive activity in like different parts of the distribution network nearby channels or was it?.

I think the point I would make there is that e-commerce is making pricing more transparent everywhere.

So there's more – you know if retailers just to comp each other’s promoted prices and now e-commerce you can go comp three websites quick and easy and there’s apps that'll do it for you and so I think that's probably driving more of an EDLP type environment recognizing, there’s still room for some promotion.

I don’t know Mike if you've got a view of that of what you see in North America..

Yeah, I mean, North America I think the e-commerce is having an effect and I think it’s both the transparency, it’s also maybe the game theoretical impact which is – some of our customers feel like they can, promote their products and they're service offering more aggressively, promoting certain product lines more aggressively.

I think that has a – as you may call that it a deflationary effect across the categories some times. And so in some ways, you could argue that, it’s not healthy for the category, in other ways, you know can bring new users into the category.

So you know our job is, we’re trying to serve our customers across the board and we need to make our products that serve their needs and the economics can work for us and so that's how we're approaching it..

Okay. Great. And then just one last quick follow-up. I mean, is there anything funky, I know you said there is a shift in spending on the R&D side on the SG&A line, with (M&A) or whatever in the fourth quarter.

Was there anything like instead of comp reversals or things like that digital app [ph] next year?.

Nothing really unusual and that’s said just we were probably tightly controlling spend, but as you would hope we are always doing. But I would say no there was no unusual item that rolled through there..

Okay, great. Thanks so much..

Thanks, Bill..

Our next question comes from Nik Modi with RBC Capital Markets..

Two quick questions. Tom, if you could just give us your assessment of the global consumer, I'm putting the category dynamic aside with competition. Just we're hearing from a lot of global companies right now and it seems like the message is that the emerging markets are starting to stabilize.

I'm just curious on what you're seeing in some of the big markets. Then the second question is and I know this is kind of out of left field, but are you guys working on anything actually as it relates to robotics and automation, not just in the supply chain and manufacturing but more back office type stuff? Thanks..

That is a left field question Nik, I think that would be the first time I have had that one. But let me answer the first question. So the global consumer I would say probably a bit of a mixed bag if you're in a economy that had oil as a large part your economy, but you’re feeling still some pressure. So now you saw negative GDP in Russia.

Nigeria, certainly under pressure, very slow or negative GDP per capita growth there. Some of the challenges in Brazil have been there as well. So if you're a oil consuming nation you’ve got a big windfall in 2016 and so a pretty good GDP per capita growth generally or improving.

So I would say if you look at a market like China, the underlying category demand growth, the birth rate those are all really positive signals.

Despite a little bit of a little bit of a slowdown in their overall GDP growth, you still saw a really good growth in GDP per capita and more consumers coming in reach of our products and entering the category and starting families et cetera. And you’d see some similar things. Vietnam is a very a good market for us as well.

You saw – actually saw a very – we had a terrific year in Korea, despite a fairly flattish economy, our Korean business did pretty well. So I’d say, the U.K. with Brexit. Our KCP business in particular saw, a little weaker year than we were expecting there.

I think you saw some distributors not wanting to hold inventory, not certain necessarily what was happening next, that seemed like that calmed down a bit at the end of the year. It feels like maybe the U.K. is more stable at the moment and we'll see what the next step is in Brexit. But I don't know Marie if you want to add anything to that, so..

Yeah, I’ll take the next one though..

Okay, go ahead, do robotics –.

And robotics, yeah, and machine learning in back office, yeah. We have a global business services initiative at Kimberly-Clark. We've got shared services center around the globe, where we look to consolidate and optimize transaction services and more routine type of back office work.

And robotics automation can be applied in those areas, so we are working with our vendors and staying on top of the technology. And understanding why is that opportunity for us.

But clearly its part of our global business services initiatives where we're looking at robotics, automation, machine learning and how we might be able to change the game on that in the future..

Maybe just to build on that Nik, a way to think about it is if you could think about the perfect order or the perfect payables transaction or the quantity, the price, the delivery terms, everything lined up perfectly with the purchase order or it could sale right through your system and get paid without any human involvement, that would be the gold standard.

I'd say too often some of those things don't work out and you need human beings to fix and adjust and correct all those minor errors that happen. And if you think about a customer transaction, if we could take the customer's order, get the price exactly right, the quantity shipped on the date they wanted it with the correct terms.

So it applies right through our system and their system without any additional intervention that's a big opportunity and it takes friction out of everyone's transaction costs. But we still got a long way to go to get to that..

Great. Thanks so much for the perspective..

Thanks..

Our next question comes from Erin Lash with Morningstar..

Thank you for taking the question. I was hoping we could talk a little bit about usage particularly in for diapers in developing and emerging markets.

Obviously, with the economic environment been challenging particularly in Brazil whether that, you've seen usage continue to come down or whether some of the price competition that you’re seeing is actually negating a declining, or any on preventing I guess, a decline in usage?.

Yeah, I would say, Erin, it’s kind of a mixed bag if you looked at Russia, which has had a pretty good economic shock, we still saw a very strong a category growth. Our Huggies business was up double digits in volume and we had higher selling prices, lot of innovation so responsive consumer to that.

Brazil on the other hand you’ve tended to see, category volume declines in the low single digits 3% to 4% over the last couple of quarters.

So that would say the consumer is either reducing their household inventory or reducing their usage in some cases or shifting from five or six diapers a day to three or four diapers a day that could account for that, if a subset of the consumer base is doing that.

Argentina has probably been the biggest shock, they’ve had a pretty big economic transformation under way, there are going to move some of their utility cost to more of a market rate and that's having a big impact on household budgets and you're seeing lots of categories declining in that market.

I think it will take some time to really tell how that’s going to shake out. But we saw in the third and fourth quarter in Argentina double digit declines in category diaper volume, which, that’s pretty unusual, you don't see that every day..

That's very helpful. Thank you. Then just with regard to the growth that you're seeing in the training pant category in the U.S.

that’s been entirely driven by the, I guess, average age toddler or child as opposed to a shift or any consumer interest in moving down similar to the emerging markets for the diaper training pants has been picking up steam and is preferred for even newborn consumers, correct?.

Yeah I think that’s true. I don’t Mike, do you want to comment on diaper pants broadly..

Yeah, I think we’re still digging through the data on that, but I do think, a part of it is, I would say yes right now it's about average.

I think our training pant business leaders would say, hey you know we think mom’s should be starting earlier and so there's a strategy on their part to say, hey, we want our children to start training earlier and we want them to stay more consistent in the training pant, and so that’s long-term strategy for the pull-ups brand manager.

Then for the Huggies, they want them to stay in Huggies and I think our job again here is to want to serve the consumer and how they want us to be served and give them the choices and provide the best products, so they can make the choice..

Then to your point in the U.S. market we're not offering training pants that go down to newborn sizes. Or as in some of the emerging markets you do find diaper pants in smaller sizes although, usually not newborn, but usually in size one, two, you find some of those are still pretty small part of those categories..

Yeah, training tends to start around 18 months to 24 months..

Yeah and even diaper pant usage in emerging markets tends to start when babies are a little bit more active crawling stage..

Thank you. That's very helpful..

Thanks..

Our next question comes from Olivia Tong with Bank of America..

So obviously with the comps that you have in 2016, you’re looking for organic sales growth to more second half weighted. But can you talk about the phasing of some of the innovation that you discussed in your prepared remarks? Are there some quarters that will benefit more than others.

And then on price makes, obviously you said flat to up slightly, but you're now looking much from prices, we already discussed, so it sounds like obviously more is coming from mix. So much what's that based on? Do you expect the environment to improve as the year progresses and consumers mixing up? Or is there something else to that? Thank you..

Yeah, I’d say, there could be a couple of mix factors. As I said earlier in China we invested a lot in newborn in 2016, as those babies move up into the more mainstream diapers, you know we expect to see a little bit of more positive mix. And newborn hurts our mix just because there's more diapers in a bag and you sell the bag for the same price.

Although you'd argue that builds your franchise, so you definitely want to have a leadership share there. But we’re probably a little overweight newborn in China and that will have an effect on us going forward. I’d say broadly we're not expecting a lot from price or mix in 2017.

So I think they would both be slightly positive, but that's not going to be the story driving our growth, that’s going to be core volume..

Got it. And then the cadence on innovation..

Cadence on innovation, obviously it’s going to vary by market and so typically we've got quite a bit of stuff going on in North America. Mike I don't know if you want to comment on some of the things going on in independent polls without revealing any too much competitive launch data..

Yeah I think the teams there, particularly in adult care were still focused on driving the category penetration, which is still a big opportunity for us, the business is performing well, up mid-to-high single digits. I think the innovation is coming.

We’re really focused on that you know adding value in the category and some of things, employees within Shape [ph] and Depend in the 2016 like Depend which has been a very successful item. And then coming in 2017 new and improved super premium on Depend both real fit and silhouette. So again super premium, softer, more broadened set of performance..

In China we launched a new super premium diaper pant in November and so that will really just start to get traction as we roll into of 2017..

All right. Thank you so much..

Thank you..

Our next question comes from Bonnie Herzog with Wells Fargo..

I just had a question on your Personal Care business North America. Could you talk a little bit more in the competitive environment and promotional activity, which appears to remain pretty elevated across major category.

Then can you give us a sense of how you're thinking about the environment going forward? What's really factored into our FY2017 guide?.

Yeah, Bonnie, yeah, I think the environment is elevated and I think we saw an elevation occur in the third quarter, you could probably see that through in our results back then.

I think we improved in the fourth quarter, I think the team has responded well to the kind of the change in environment and ramped up their intensity in terms of both securing the right merchandising activity and the right marketing activity. I think our call is that it’s going to remain this way for a while, and that’s what we’re assuming for 2017.

I think our teams are prepared for right innovation both in diapers, child care, adult care and fem care and we’re excited about our plan for 2017..

Then regarding your innovation pipeline, would you characterize in general your pipeline, as more full versus last year across your categories? Just trying to get a sense of where you go out with innovations going forward?.

Yeah, I’d probably say comparable, but we've got some pretty good items in there and I think we’re not ready to kind of disclose what they are yet, Paul, But I think we feel good about it..

Yeah, so I’d say, Bonnie, we’re pleased, but never satisfied on that front..

Okay. And then just one final question for me, can you just give us a sense as to how your higher margin wiper business with K-C Professional is trending recently. I think it’s been a few quarters, since you guys called this out. So just trying to get a sense that you still think, strong growth there or things may be moderated. Thanks..

Yeah, I would say you know wipers was a little - was flattish in the quarter and for the year. We saw a little bit more growth in our core washroom business, so we've driven a lot of our innovation and commercial programming around the washroom and its probably refreshed that business a little bit.

We’re still seeing opportunity with wipers particularly in some of the heavy manufacturing areas, things like aeronautics and so forth, where we do a fair amount of work. So as those picked up we should see some opportunities to drive more wiper business..

Okay. Thank you..

Thank you..

Our next question comes from Ali Dibadj with Bernstein..

Thanks for the follow-up. So look, I was just reflecting on the whole conversation this the time and last quarter and everything and we’re all kind of taking as a granted, that there is much more competition out there.

But we don't talk a lot about why and I’m trying to get a sense of why from your perspective there is a lot more competition, so clearly local players, clearly P&G is he stepping it up.

But how would you characterize it, so and long-term concerns might be things like they're just lower barriers to entry, so tougher to differentiate? Competitors are cutting more cost, they're willing to spend more back. Maybe it's just that the macro environment is tougher and so people are more intrigued about share gains than anything else.

But putting your sense of that, kind of and you're going to say look there’s a great category its always been competitive. But it’s clearly more competitive now that than it has been. So trying to get a sense of your belief and the drivers of that to get a better sense of, is it going to get worse, is it going to get better, or is it going to be same.

Does that question make sense?.

Yeah, no, I think that’s fair. I guess, the way I would think about it would be; number one, as economic growth globally has slowed down and some of the markets we talked about. There's just less growth around and just as many people chasing it.

So that inherently will make that just a bit more competitive if you’re growing 3 to 4 and now you're growing too. And then you got the same number of competitors, it just makes – the same number of people fighting over in pieces of a smaller pie or smaller growth opportunity. So that’s probably one.

I also think you're seeing more competitors, expanding into more markets. So CNPC has moved out of Chile and is now operating in Brazil and moving into Peru and they're operating in Mexico, you know that's new geography for them and they’re obviously trying to get traction in launch. We’ve seen Unit term [ph] launch in Brazil.

They haven’ t build a big share position there yet, but that increases the competitive set.

SCA [ph] has done acquisitions and increased their footprint globally in lots of places and so maybe it used to be us and our primary global competitor in a market, now you've got usually one or two other global players that are around and just makes it, so you got to be sharp on innovation, you got to sharp on cost and you got to be great on execution.

We're up for that challenge, but there's other players in the neighborhood..

So it’s really helpful, so does that concern you given that it feels like those things aren't going away for your 3% to 5% organic sales growth target longer term, right? I’d assume people aren’t going to now retrench and go away, unless you believe the underlying market gets better, so people are more relax.

But does that concern you at all, the things you just described more competition in the same market.

Theoretically you’d expect it to put pressure on your 3% to 5% organic sales growth for long term, is that right, is that a fair concern or no?.

I mean, I would say, this, I mean, I think the, if you think about all the weighting of those factors. The slower economic growth is the one that’s probably, that you can't do anything about but that's probably the bigger challenge. The economies are growing better. There's more growth to feed more mouths in category in particular places.

And so the effect, we got more competition in more places. At the end of day, we’ve got to deliver a winning product solution at an attractive cost and execute it well on the market and so does everybody else. So yeah I'm absolutely up for that challenge..

Thanks very much for that..

Thanks Ali..

Our next question comes from Jon Feeney with Consumer Edge Research..

Thanks very much guys. I just wanted to follow-up on Ali’s question actually about, could you compare, within everything you just discussed. If you compare and contrast the dynamics in Brazil and Argentina specifically with maybe what kind of went on with the entry into China.

What’s different from macro standpoint? Maybe are there any learnings from the China experience, what you're kind of going through versus how you can handle and maybe what your next, couple of years will hold as maybe the structure of competition in Brazil and Argentina change.

Does it evolve in the same way China is kind of involved right now? And maybe what have you learned from the development of that super premium segments in China? Thank you..

Yeah, I mean, they're pretty different markets I would say and so China is an explosive growth opportunity where more and more people as our GDP per capita improves, are entering the category. So with billion plus, people in the country that is a near limitless supply of consumers that could eventually come into our category.

I’d say if you contrast it to Brazil, you probably had higher category penetration rates to start with. Unless GDP per capita growth and lately it’s been negative in GDP per capita trends. And so yeah, I’d just say it’s a different starting point and different economic. Ones a got great tailwind and one 's got a headwind that you're running against.

We have launch diaper pants in Brazil, have seen pretty good conversion and launched things like, in adult care in our Depend, Plenitude, which is our brand in that part of the world.

We've been pretty successful at transitioning the category from a lower cost briefs, which is more like an adult diaper to a higher cost pant will much similar to what we would sell in the U.S., just because it’s much better solution and then deliver terrific value.

Even though that is a income challenged consumer and so, you do still see responsiveness, but you don't have the explosive growth of GDP per capita and more people under in the category of that you probably have in China..

Thank you very much..

Thanks Jon..

And at this time we have no further questioners in the queue..

All right we appreciate all the questions today and we’ll wrap up with a comment from Tom..

Well, once again, we had a good year 2016. We've laid out an aggressive plan for our global business class strategies in 2017. And we appreciate your support of Kimberly-Clark. Thanks very much..

Thank you very much..

Ladies and gentlemen, that concludes this morning's presentation. You may disconnect your phones line and thank you for joining us this morning..