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Kimberly-Clark (NYSE:KMB)

Q4 2010 Earnings Call

January 25, 2011 10:00 am ET

Executives

Thomas Falk - Executive Chairman, Chief Executive Officer, President and Member of Executive Committee

Mark Buthman - Chief Financial Officer and Senior Vice President

Paul Alexander - Director of Investor Relations

Analysts

Constance Maneaty - BMO Capital Markets U.S.

Lauren Lieberman - Barclays Capital

Alice Longley - Buckingham Research Group, Inc.

John Faucher - JP Morgan Chase & Co

Ali Dibadj - Bernstein Research

Jason Gere - RBC Capital Markets, LLC

William Schmitz - Deutsche Bank AG

Wendy Nicholson - Citigroup Inc

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Weiser - Caris & Company

Chip Dillon - Crédit Suisse AG

John San Marco - Janney Montgomery Scott LLC

Gail Glazerman - UBS Investment Bank

Christopher Ferrara - BofA Merrill Lynch

Operator

Ladies and gentlemen, thank you for your patience in holding. We now have your speakers in conference. [Operator Instructions] It is now my pleasure to introduce Mr. Paul Alexander. Mr. Alexander, you may begin, sir.

Paul Alexander

Thanks, David, and good morning, everyone. Welcome to Kimberly-Clark's year end earnings conference call. Here in Dallas is : Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.

Here's the agenda for the call today. Mark will begin with a review of our fourth quarter results, followed by an overview of the additional actions we announced this morning. Tom will then provide his perspective on the results and discuss our 2011 outlook. We'll finish with Q&A. For those wishing to follow along, we have a presentation of today's materials including the key assumptions for our 2011 plan in the Investors section of our website, which is www.kimberly-clark.com.

Before we begin, let me remind you that we'll be making forward-looking statements during the call. There can be no assurance that future events will occur as anticipated or that our results will be as estimated. Please refer to the Risk Factors section of our latest annual report on Form 10-K for a description of factors that could cause our future results to differ materially from those expressed in any forward-looking statements.

I'd also like to point out that we will be referring to adjusted results. For 2010, that excludes a one-time loss in the first quarter for the re-measurement of the local currency balance sheet in Venezuela. For 2011, our adjusted outlook excludes anticipated costs for the pulp and tissue restructuring. Management believes that reporting in this manner enables investors to better understand and analyze our ongoing results of operations. For further information and reconciliations to comparable financial measures determined in accordance with GAAP, please see today's news release and additional information on our website.

Now I'll turn it over to Mark.

Mark Buthman

Thanks, Paul, and good morning. Let's start with a few headlines. First, we delivered on our sales and earnings commitments in a challenging environment. Second, we had another strong quarter of cost savings and cash flow. And third, we are taking aggressive actions to improve value for our shareholders. Now let's cover the details of the quarter.

Overall sales increased 2% to $5.1 billion. Organic sales rose 3% driven by higher net selling prices of 2% and one point of improved product mix. Lines were even with year ago levels. We benefited from innovation and targeted growth initiatives. On the other hand, we experienced a one point drag from declines in Venezuela and category demand remains soft in North America and Western Europe. For the full year, organic sales were up 2%. That's in line with what we expected back in October. Fourth quarter operating profits fell 3% with an operating margin of 13.8%. Benefits from top line growth and cost savings mostly offset input cost inflation of $220 million. Full-year cost inflation was $790 million, that's toward the high end of our previous estimate.

Turning to cost savings, we finished the year strongly with fourth quarter savings from FORCE programs of $90 million. That brings full year savings to $370 million, an all-time record and a terrific accomplishment by our teams around the world. Fourth quarter earnings per share were $1.20 compared to $1.17 last year and included benefits from a decline in the tax rate and lower share count. Adjusted earnings per share for the year were $4.68, that's toward the high end of our previous guidance of $4.60 to $4.70 a share. Cash provided by operations for the quarter was $948 million as compared to all-time record of $1 billion in the prior year. I was really encouraged our cash generation continue to build sequentially throughout 2010. Regarding share repurchases, we bought 1.6 million shares of KMB stock in the quarter at a cost of about $100 million. We repurchased $800 million of our stock for the year.

Now I'll turn to a few highlights of our segment results for the quarter and as usual further details are in this morning's news release. In Personal Care, organic sales rose 3%. Sales volumes were up 2%. We delivered double-digit growth in Feminine Care, Adult Care and Baby Wipes in North America and high single digit growth in K-C International outside of Venezuela. On the other hand, volumes fell significantly in Venezuela and the Baby and Child Care categories in North America remain relatively soft. Personal Care operating margins of 19.4% were impacted by input cost inflation but overall remain very healthy.

Turning to Consumer Tissue. Organic sales increased 5%. Net selling prices were up 5%, reflecting actions to increase revenue in most markets and the timing of promotions in North America. Sales volumes were down 1% as gains across Asia and in our Kleenex Facial Tissue business in North America were more than offset by declines elsewhere. Operating margins of 10% improved sequentially from the third quarter and were above prior-year levels as higher net selling prices and cost savings more than offset cost inflation driven by higher pulp prices.

Now moving to K-C Professional and Other. Organic sales were down 1%. Sales volumes fell 2% as the challenging environment continued to impact washroom sales in North America. In other areas of the business, volume growth was solid for our high-margin Safety and Wiper businesses in North America for our total KCP business in both Europe and K-C International. Operating margins of 14% were down somewhat mainly due to cost inflation, but they remain solid despite the tough environment.

Lastly, Healthcare organic sales were down 7% as volumes were off 5%, and net selling prices fell two points. Organic volumes of high-margin medical devices were up high single digits again this quarter. However, overall volume comparisons were negatively impacted by five points as a result of increased demand for face masks in 2009 because of the H1N1 flu virus. In addition, category demand remains soft in the North American Supplies market. Operating margins were down significantly compared to last year. It's mostly due to ongoing I-Flow litigation-related costs.

So that wraps up the review of the quarter. But before I turn it over to Tom, I'd like to cover some of the details of the actions we announced today to improve shareholder value. The first two actions further demonstrate our commitment to allocate capital in shareholder-friendly ways. First, we are increasing our dividend by 6% in 2011. That's our 39th consecutive annual increase, it will help us maintain our top-tier dividend payout. We continue to believe that our strong dividend distinguishes us among our peers, and it's an important part of what makes KMB an attractive investment. Second, we plan to repurchase $1.5 billion of our stock in 2011 as we leverage our strong cash flow and balance sheet. $700 million of the repurchases will be funded through incremental debt as we take advantage of the current low interest rate environment. This move will allow us to return cash to shareholders, while we maintain plenty of flexibility to fund our Global Business Plan. We continue to be committed to our current A rating and top-tier access to commercial paper.

The third action is a two-year pulp and tissue restructuring. Let me spend a bit more time on this initiative. These actions will allow us to exit our remaining pulp manufacturing operations and improve the profitability and returns of our Consumer Tissue and K-C Professional businesses. In conjunction with the restructuring, we'll streamline, sell or close five to six manufacturing facilities, exit certain nonstrategic products, primarily non-branded offerings, and transfer some production to lower-cost facilities. Total costs are expected to be $280 million to $420 million after-tax with cash costs being about 25% to 50% of the total amount. As a result of the restructuring, we expect that by 2013, annual net sales will decrease by $250 million to $300 million, and annual operating profit will increase by at least $75 million. Consumer Tissue margins are expected to improve as a result of these actions about 150 basis points while K-C Professional margins should increase more than 50 basis points.

On a cash basis, the payback on these restructuring actions is about three years. So it was a difficult decision but one that's necessary to improve our competitive position to make us a stronger company. It's also further evidence of our focus on making portfolio choices and to the financial discipline that's the foundation of our Global Business Plan. So that wraps up my review.

To recap, we achieved our sales and earnings commitments for the fourth quarter, we delivered significant cost savings and strong cash flow and we're taking significant actions to improve shareholder returns.

Now I'll turn it over to Tom.

Thomas Falk

Thanks, Mark, and good morning, everyone. Since Mark has already reviewed the fourth quarter, I'll share my perspective with you on the other full year and then I'll talk about our 2011 outlook. And then, of course, we'll get to your questions. In short, we're executing our Global Business Plan strategies even as the environment that we are operating in remains difficult. So let me begin with our full year 2010 results.

On the top line, organic sales were up about 2%, that was on track with the estimate we provided you at the beginning of the year but it was below our long-range target. We delivered more selling price benefits than we expected, but volume growth was less than planned primarily due to soft category demand in North America. This was also particularly true in K-C Professional Washroom, Health Care Supplies and in portions of our consumer businesses, such as Diapers, Training Pants and Facial Tissue. Now with that said, we made excellent progress in our targeted growth initiatives. In particular, we had very good performance in 2010 in K-C International. Setting aside Venezuela, our Personal Care volumes in K-C International increased 9% in 2010. That includes mid-teens growth in Latin America and nearly 30% growth in China. Our growth strategies are taking hold in these markets, and we continue to be very excited about the future of our K-C International business.

We also delivered good results with our K-C Professional and our Healthcare growth initiatives. Our North American KCP team grew wiper and safety organic volumes by high single digits. That's also true for our global healthcare Medical Device business.

We also executed our brand building initiatives well this past year. We launched a number of innovations including U by Kotex, New Poise and Depend Offerings, Huggies Jeans Diapers, Kleenex Hand Towels, new K-C Professional wipers and a number of product upgrades across K-C International. I'm very pleased with how consumers have responded to these innovations. We supported our brands and growth initiatives with $100 million increase in strategic marketing as we raised our strategic A&P investments much faster than sales. And we also increase R&D spending ahead of sales growth. These are important investments for our future.

I'm encouraged that our marketing innovation programs are improving our brand's market positions. In the U.S., our market shares in the second half of the year were ahead of or even with our first half of the year levels in seven out of eight of our consumer product categories and we're growing ahead of our category rates in many areas of K-C International. On the bottom line, adjusted earnings per share grew 4% in 2010, somewhat below our Global Business Plan target. That was mostly due to cost inflation and the soft category demand in North America. In fact, the nearly $800 million of cost inflation we absorbed was an all-time high and more than double our original expectation for the year. Nonetheless, our teams responded to this challenge by delivering record FORCE cost savings in 2010, and we're making good progress in building a continuous improvement capability throughout our company, backed by the deployment of lean manufacturing practices and our global procurement organization.

Finally, as Mark mentioned, we continue to generate strong cash flow and allocated it in shareholder-friendly ways. We raised our top-tier dividend early last year by 10%, and we bought back $800 million of Kimberly-Clark stock, which was about $200 million to $300 million more than we committed to you a year ago. All told, we returned $1.9 billion to shareholders in dividends and share repurchases. That represents a return of about 7% on each outstanding share. So all in all, while the environment was more difficult than we originally planned, our teams achieved a number of important accomplishments in 2010.

So now let's talk about 2011. Let me turn to the outlook. In short, we'll continue to do what's right for the long term, and we expect to deliver bottom line growth in 2011 that's in line with our Global Business Plan. we'll leverage our strong brands, bring innovations to market and pursued targeted growth initiatives. To support our growth plans, we will continue to increase our marketing investments faster than sales. At the same time, we'll manage our company with financial discipline with a strong focus on cost savings and cash generation. We expect another successful year with our FORCE program and our cost savings target in 2011 is about $200 million to $250 million. That's also roughly equal to our current outlook for cost inflation in 2011.

In terms of the external environment, we expect it to remain difficult particularly in the first half of the year. And while there are signs that some portions of the U.S. economy are covering, unemployment levels remains high and we don't anticipate a big pickup in market growth in the near term, although we are cautiously optimistic that consumer demand could improve as the year progresses. Our full-year plan assumes organic sales growth of 2% to 3% and that's similar to or slightly better than our 2010 performance. And this includes a one point drag from the combined impact of expected volume declines in Venezuela and the pulp and tissue restructuring that Mark just covered. On the bottom line, we anticipate adjusted earnings per share of $4.90 to $5.05. That's up 5% to 8% from 2010, which will put us back on track with our long-term Global Business Plan objectives.

So to summarize, we'll continue to do what's right for the long term. We expect bottom line growth in 2011 to be in line with our Global Business Plan, and we're taking aggressive actions to improve our company and deliver shareholder value. That wraps up our prepared remarks. And now we'll begin to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Ferrara with Bank of America.

Christopher Ferrara - BofA Merrill Lynch

I wanted to ask about the restructuring. So obviously, it looks like a pretty big deal, I guess $75 million in savings, but is this kind of a first step? Or is this a toe in the water, if you will? I mean it seems like -- so this is closing some immediately get rid of some private label distribution, you're going to close down some pulp operations but what about the core of the rest of the business? Does this affect the rest of the business and do you think there's more potential savings than say, 150 basis points, through things like restructuring?

Thomas Falk

Good question. I would read into this exactly as we pitched that we're going to close five to six facilities. They're primarily not producing brand new products. And so this really won't affect our branded businesses from a volume standpoint anywhere in the world. And both these pulp mills were in a strong currency environments, and that's just make it tough for them to be competitive on a world pulp market. So exiting this last couple of own-make pulp operations is really the guts of this and then there are some other facilities that were primarily making either private label or hard rolls, non-branded products.

Christopher Ferrara - BofA Merrill Lynch

And I guess on a totally different note, I just wanted to ask about diapers, right. So there've been interesting category dynamics. I guess, Pants we've seen struggle for a while as a category. Towels are struggling, got better. Over the last five, six months, Diapers seem to have gotten worse where people seem to be trading down at the private-label into Luvs. Can you kind of diagnose what you think is going on there? And is there an end in -- is there any solution to getting this category to perk up a little bit more because it doesn't seem to be from a lack of innovation or lack of spending.

Thomas Falk

Good question. A couple factors. I mean the birthrate has stayed negative a lot longer than we would have thought causing the category to be down about a percent, where we would have expected the category to be up about a percent. In the fourth quarter, we saw some trade down as both private label and Luvs picked up share. P&G probably lost more share from their top-tier product. We actually gained some share in our top-tier products and lost some share in our mainline Huggies products. And so, we got some pretty aggressive innovation coming behind that. You may recall in the second quarter our jeans diaper, popped our diaper share up and we wound up essentially giving most of that back in the back half of the year which is part of the sequential comparison. But we expect the category trends to moderate a bit in 2011 probably toward the back half of the year. And we got a lot of innovation coming to make sure that we maintain our share levels at the level a brand leader should.

Operator

Our next question comes from Wendy Nicholson with Citi Investment Research.

Wendy Nicholson - Citigroup Inc

My first question has to do with the 150 basis points of savings that you think you'll get from the restructuring on the tissue margins because tissue margins clearly now are well below where they were even three or four years ago. So I'm just thinking about long-term with the bump up -- 150 basis point bump up. Are we saying, hey a run rate for Consumer Tissue margins is only going to be about 12% or is there a chance we ever get back to the 13%, 14%, 15% we had a few years ago?

Thomas Falk

Well, that's certainly our goal. Obviously, this restructuring won't close all of that margin gap. But if you look at where we are pulp price, just last year, we had nearly $500,000 of pulp price increase and recovered less than half of that in selling prices in our Tissue segments. So we still got some room to recover price and margin in this category. So pulp price has moderated a bit. Hopefully we'll be able to see some margin improvement from that standpoint. In the meantime, we're driving mix and price wherever we can, and you saw some of that in the Tissue segment in the fourth quarter with about five points in that price.

Wendy Nicholson - Citigroup Inc

And your outlook, though, for that business just for 2011 in terms of price -- I guess your outlook for the overall price impact for next year surprised me that it was a little bit higher but I assume in Consumer Tissue with pulp prices still relatively high, pricing will be more than just 1%. Is that fair?

Thomas Falk

Yes, I think that's probably right. I think the other factors is that as we look at what's going on in Venezuela, we are able to see price in markets like that as well so.

Wendy Nicholson - Citigroup Inc

Is there any guidance you can give us in terms of the timing or the pace of the buyback program, sort of should we think about that being spread evenly across the year? Is there any particular quarter we're going to see more on that?

Thomas Falk

I'll let Mark touch on that.

Mark Buthman

Yes, that will be weighted heavily toward the first half of the year, Wendy.

Operator

Our next question comes from Gail Glazerman with UBS.

Gail Glazerman - UBS Investment Bank

Can you just talk a little bit about what you've been seeing in pulp costs lately? And just what opportunity -- it seems like there's a gap building between hardwood and softwood, if you have any opportunity to take advantage of that?

Thomas Falk

Yes, sure. Well, first of all, everybody I think had expected pulp to start to come down even in the back half of last year and it's been pretty sticky at surprisingly high levels. In the fourth quarter, I think inventories in pulp came down another couple of days and the pulp market is still relatively tight and you are seeing pricing being fairly firm as we ended the first quarter here. Certainly, the gap between softwood and hardwood is one that we tried to exploit so to the extent that we can substitute more eucalyptus for northern softwood that is a strategy that we'll continue to employ while making sure we don't make any trade-offs on tissue quality.

Gail Glazerman - UBS Investment Bank

Pulp prices held up pretty well but there has been some talk of discounts widening. Is that something you've seeing in your experience?

Thomas Falk

I would say not substantial. The market has been fairly tight and you're also seeing it in other markets, secondary fiber is usually another way to look at the tension in the pulp mark and secondary fiber has been pretty quiet and availability has been even a challenge in some parts of the world. So it is, there's not an abundance of fiber around at this point and that makes for a good pricing environment for the sellers, not so good for the buyers.

Gail Glazerman - UBS Investment Bank

Just switching gear. Can you talk a little bit more about what you're seeing in the North American Paper Towel business? Are you still posting, kind of double-digit declines, so, at some point you should be I presume cycling past the slowdown and the economic impact there?

Thomas Falk

Yes, a couple of things going down there, private labels has been the big winner and then probably to a lesser extent Bounty Basic. So the category has shifted down. I think private label sales were up a couple of points in towels last year, and we launched share and so did many of the other minor brands. So that's been the challenge and so we lost some distribution last year. We got some of that back in 2011, and so our momentum sequentially should be a little bit better from a distribution standpoint. And we've got an aggressive product and promotion plan to make sure that we stem the share losses and start to get those back in a more positive foot. We saw a little bit of share uptick in the fourth quarter in our Towel business which is a positive sign but we got to keep that going.

Gail Glazerman - UBS Investment Bank

On the curtailment in the fourth quarter, were those focused in any one segment and is that something that will probably continue in the first quarter or we'll start to see that ease out?

Thomas Falk

I don't know, Paul, if you've got some details on curtailments in the fourth quarter?

Paul Alexander

Yes, it was spread fairly evenly through all the businesses. It wasn't isolated to one individual one.

Thomas Falk

One of the things you're seeing is that -- and maybe Mark can talk a little bit about this, we are much more focused on targeting cash conversion cycle, and making sure we're keeping our inventories in line.

Mark Buthman

Yes, our inventories are down about -- I think our total cash conversion cycle is down about three weeks from the start of 2009. We ended the year at about where we wanted to be in inventories. With soft demand we're working had through lean and continuous improvement to keep our inventories in line, and we're much more attuned to taking downtime when demand doesn't support production. So I think you're going to see that more as just an ongoing normal part of our business going forward.

Paul Alexander

Gail, I think you for the full year of 2011, if our volumes come in like we're expecting, you shouldn't curtailment be a big mover, one way or the other. It should be pretty neutral for the full year.

Operator

Our next question comes from Andrew Sawyer with Goldman Sachs.

Andrew Sawyer - Goldman Sachs Group Inc.

I was hoping to follow up a little bit on the pulp price side and in light of the tight demand dynamics -- supply demand dynamics, I was wondering if you could explain why you're looking for some deflation across the year and how that impacts your planning assumptions and budgeting for price and promotion?

Thomas Falk

Yes, good question. We tend to buy all the industry pricing forecasts, and so we took -- there's three or four of them that we look at. We average those and that's what we plug into our model. So we tend to try not to think that we're smarter than the market. We rely on others that are looking at these things for a living and so that's basically what all the forecasters are calling for, is for those -- pulp to soften a bit in the back half of the year. And so we factor that into our pricing and promotion assumptions.

Mark Buthman

And I think keep in mind, Andrew, we are at near all-time record prices. and I think the relative value of the dollar drives that, demand from Asia drives that, production capacity drives that. And so our outlook isn't for a dramatic decrease but more a slight downtick consistent with what industry experts would say off a pretty high base.

Andrew Sawyer - Goldman Sachs Group Inc.

And maybe reframing it, I mean you got some win ended a year ago and while not surprising to do upside and you guys did a nice job of just kind of mid-course correcting. How should we think about the flexibility to mid-course correct if pulp does remain at or above what you're think for the year?>

Thomas Falk

That's a good question. Everyone of our teams is really focused on that, what opportunities do we have from a pricing standpoint, what opportunities do we have from accelerating cost savings, are there other things that we can do to manage risk on commodities differently. So each team is focused on what happens if pulp doesn't come down or what opportunities do we have to adjust and still deliver our results.

Andrew Sawyer - Goldman Sachs Group Inc.

On the emerging markets side, it looks like you've gotten some nice pricing through on the Tissue portion of the business. How are you seeing the consumers react from a demand perspective to the inflation they're seeing in their baskets?

Thomas Falk

You're seeing inflation in a lot of markets around the world these days. So if you go to a market like China or Vietnam, I mean there is a quite a bit of inflation in those local economies broadly. And so we're not out of stuff with everybody else and you're seeing that kind of pressure flow through lots of places these days.

Andrew Sawyer - Goldman Sachs Group Inc.

Well, I guess I'm just asking are you seeing abnormal elasticities or anything you wouldn't expect out of this vast inflation?

Thomas Falk

No, from a volume standpoint, you can see the kind of category growth we're still experiencing. So the categories still seem to be pretty robust. And the consumer, their purchasing power is improving as well. You're getting lots of wage inflation on those markets as well so their purchasing power isn't taking as big of a hit here as you would expect in another market that was experiencing cost increases without wage increases.

Operator

Next question comes from Ali Dibadj with Sanford Bernstein.

Ali Dibadj - Bernstein Research

I wanted to follow up actually a little bit on that question about the emerging market pricing, but with a twist, which is not about the Consumer Tissue business but the rest of the business particularly Personal Care as you look forward. You're saying about 1% price going forward. Consumer Tissue prices sound like you're going to be up just kind of as you described earlier. So Personal Care prices, what should we expect there? And in particular, in the emerging markets, ex-Venezuela price increases, what should we expect there for Personal Care? And I guess in that context, if you just got a competitive environment there for the Personal Care business outside the U.S. will be helpful.

Thomas Falk

If you looked at our Personal Care pricing in the fourth quarter, ex-Venezuela, there was not a lot going on there. There are pretty very, very minor swings. It's much more a volume story. And so our opportunity in most of the emerging markets is to drive mix where we can by offering improved products and continuing to drive the consumer up the product performance scale. But beyond that, there isn't a huge amount of price. There were some areas where we took some temporary price reductions to match up with competitive activity. That may ease a little bit in 2011 and that's about, I think, kind of what you'd see in Personal Care.

Ali Dibadj - Bernstein Research

I guess that's the reason I call it a follow-up because it's odd to me in an inflationary environment elsewhere. So are you unable to take pricing in line with inflation on Personal Care? It sounds like you might be. And if so, why?

Thomas Falk

In some cases in the emerging markets where their are currencies are strengthened they have been able to handle the material cost increases better, except pulp is up so much that, that has overwhelmed the benefit of their currency appreciation.

Ali Dibadj - Bernstein Research

No, but in Personal Care I guess in Personal Care, it sounds like you can't take pricing in line with inflation if my understanding of your last question is right, in the emerging markets?

Thomas Falk

I'm just saying more of the pricing in international market is probably going to be in the Tissue side than on the Personal Care side in 2011. And it's not that you don't have the elasticity, it's that you're more focused on driving category growth and making sure your priced right and relative to competition in the marketplace.

Ali Dibadj - Bernstein Research

So the competition is getting tougher in the emerging market in Personal Care?

Thomas Falk

It was in 2010.

Ali Dibadj - Bernstein Research

And your projecting going forward for 1% for the year pricing with Consumer Tissue being up and pricing in Venezuela, for example, if that continues, is that a fair assessment?

Thomas Falk

That sounds reasonable, yes.

Ali Dibadj - Bernstein Research

Another longer-term question, just trying to get underneath your kind of your long-term algorithm using 2011 as a jumping point. 2% to 3% organic sales growth which actually sounds like 3% to 4% organic sales growth if you exclude the restructuring and kind of Venezuela. And you're taking that and you're turning now to 5% to 8% EPS growth. How should we think about that going forward given that you can't continue -- one can't continue to buy back $1.5 billion of shares forever? So what improves to get to your long-term EPS growth rate?

Thomas Falk

The biggest gap in 2011 versus our long-term model is we're not bringing as much of the gross margin improvement that we expect down to operating margin improvement. So instead of seeing 30 to 40 basis points of operating margin improvement in 2011, it's more like zero to 10 basis points in that range. And so part of that is we're still investing at a bit more of an aggressive rate on A&P. We're investing more in R&D. We've also got a little bit of a drag in 2011 where our incentive comp didn't pay out, that target in 2010, we're planning in 2011 that it will. So that's probably a drag that in a normal year-on-year situation you won't have as much of.

Mark Buthman

I think, Ali, too the general economic outlook is for continued relatively high unemployment. Generally weak sort of Packaged Goods category demand particularly in North America and Western Europe. And as the economy starts to recover, I think some of our products and some of our categories will kind of rebound with that. So our focus near term is to try to do all we can to drive margins through cost savings, improve product mix, get pricing where we can, leverage our balance sheet for support. And as the economy turns, I think you're going to see us get back on track for our long-range business algorithm.

Ali Dibadj - Bernstein Research

Just around the restructuring, it's very laudable, appreciated though that you're doing a restructuring makes sense, I like it. But I guess the question I have is, you're saving $75 million, costing you, call it $350 million, so the ROI -- just very basic divide the two numbers ROI, 4.6 to 1. Is this the best place you could have spent your money from a restructuring perspective? Or were there other places that you think you could have done -- and I guess why were there not other places where you could have gotten a better return on that restructuring?

Thomas Falk

I think these were the right decisions for our Tissue business at this point in time. These were facilities and businesses that we didn't think would earn our cost of capital over the long term and that we needed to exit it. The asset costs on pulp mills, they tend to asset-intensive complex operations, which makes it a bit more expensive to exit them because they were essentially producing pulp at costs that were not that far off market rate. The savings are a little lighter as you exit them. So while we would say it's not as good of a payback as other restructurings that we've done, it was the right thing to do from a shareholders standpoint. It's about a three-year cash payback under the midpoint of our assumptions here.

Operator

Our next question comes from Bill Schmitz with Deutsche Bank.

William Schmitz - Deutsche Bank AG

Could you just give a little bit more color on the price and promotion environment in the fourth quarter? I know we kind of talked about it ad nauseam so far in the call, but is there a cease-fire going on right now? Or was it kind of the year-ago comparison was difficult? So I know you're only planning for 1% pricing going forward but to do with sort of five points of pricing in Consumer Tissue and only have negative 1% volume, that's amazing elasticity. So can you just comment on that broadly and also just in the short term?

Thomas Falk

You see, Bill, we're not feeling sick yet so you can hold the ad nauseam, I guess. Well, you probably saw more with timing of promotions year-over-year there's a little bit more activity last year than this year. And so there wasn't a lot of other competitive noise -- it's still a competitive marketplace out there. I don't know, Paul, is there any other...

Paul Alexander

I think maybe, Bill, if you just look at the third and fourth quarter and average them, that's more reflective of the marketplace.

William Schmitz - Deutsche Bank AG

So what level of inflation is great for the industry? You know when is it too much and when is it too little? Because everyone kind of rings their hands about inflation but if you correlate it with your stock prices it's actually pretty correlated to some modest inflation is when it does best so is there a way to kind of benchmark down?

Thomas Falk

Yes, I think we would say what environment we'd like to operate in is probably more price stability and relatively predictable economic growth. I think our challenge is probably more that we've had a lot of volatility and the economies haven't been and categories haven't been growing particularly well.

William Schmitz - Deutsche Bank AG

Do you have a metric on what percentage of your branded businesses are holding or taking market share? Do you have that number handy?

Thomas Falk

Yes, we tend to look at it by each of our portfolio roles, where we are gaining share, where we attempted to gain share and where are we holding share. I think we commented that for the year, about half of or in the fourth quarter, seven out of eight were up versus the first half. So I don't know if there's a specific question that you're looking for there.

William Schmitz - Deutsche Bank AG

Well, if I look at some of the outlet data in the U.S. and with the exception of U by Kotex and the Kotex business which has been great. It seems like there's still quite a bit of market share friction happening.

Thomas Falk

You're looking at the three outlet data.

William Schmitz - Deutsche Bank AG

Exactly, right. What am I missing?

Thomas Falk

The three outlet would exclude Wal-Mart, Costco...

William Schmitz - Deutsche Bank AG

No, I have Wal-Mart in there. So I have the Wal-Mart panel but I don't have Club [ph] in there.

Thomas Falk

The panel data for some of our categories isn't that representative because it didn't have that many diapering households in it. But I don't know, Paul, you got the share chart in front of you.

Paul Alexander

Bill, if you just look at the full year for 2010, we're up or flat in about half of our categories and that would be Fem Care, as you mentioned, Adult Care is up strongly and then Child Care is up as well. We're flat in Facial Tissue, although improving in the second half of the year very nicely. And then where we have lost a little bit of share is in Bath Tissue and Towels. And then Diapers is down about one point for the year.

Operator

Our next question comes from John San Marco with Janney Capital.

John San Marco - Janney Montgomery Scott LLC

Can you talk about the advertising and research investments that you referenced in an earlier question? It looks like 2011 will be the fourth straight year of increasing those investments as a percentage of sales. What's your long-term target for the spend levels? And how do you target them and what's the long-term plan there?

Thomas Falk

We focus on we would say a healthy P&L would have gross margins improving every year. We'd invest a portion of that in innovation, both in marketing spend to loss innovation, as well as R&D to help develop the innovation and still bring some of that gross margin improvement down to an operating margin improvement. And so as you think about our Global Business Plan, that's how we're working it. As the business grows, you should get some efficiencies in the SG&A area, and so the combination of that would see gross margin growing 30 to 40 basis points, a little bit faster growth in A&P and innovation. Some leverage from SG&A and translated into operating margin improvements. And so I'd say in these last couple of years, we have been increasing strategic marketing spending at a little bit faster pace so that rate of growth will probably tail off but I hope we are in a position where we've got great innovation coming that improves our margins and we keep that good growth flywheel turning.

John San Marco - Janney Montgomery Scott LLC

And then just in helping me model this upcoming year, can you bridge the substantial margin decline we saw in Healthcare? How much of that was litigation-related and your outlook on that versus how much of it was related to de-leveraging from volumes?

Thomas Falk

I mean, really virtually all of the margin decline was litigation-related. We'd expect that the litigation-related costs in 2011 should be pretty similar to or perhaps slightly higher than what we experienced in 2010. So that should help you with your model from that standpoint.

Operator

Our next question comes from Lauren Lieberman with Barclays Capital.

Lauren Lieberman - Barclays Capital

Just wanted to talk again about the restructuring. So first thing was is it correct then to assume that this work is sort of unrelated to any need to take downtime or curtailment as the year goes through? This is not related necessary to the volume decline we've seen in the tissue over the last two, three years?

Thomas Falk

That would be correct. These are basically non-branded products that in many cases, it will be selling the mill with the related non-branded business that would go with it.

Lauren Lieberman - Barclays Capital

So why when you spun out -- why did you hang onto those integrated mills versus the decision to move on from them today?

Thomas Falk

Well, because they are integrated is the challenge. The two that we named, the one in Australia is it feeds us less pulp into a tissue mill. And so we're going to shut down a couple of assets in the tissue mill but it's also the site of our Australian tissue capacity that feeds the rest of the Australian businesses and all of our branded products. And so we couldn't in the timeframe that we're doing that, come up with a way to carve those things out. And at the time when we did that spin off, the dollar was probably closer to a $0.50 dollar than it is today. And that makes a big difference on the global competitiveness of that pulp asset. Everett is somewhat the same story where Everett has been a facility we've had since the Scott merger and the pulp from that pulp mill has gone into that tissue-making facility and we have made a decision now that we're going to pursue a sale of that facility.

Lauren Lieberman - Barclays Capital

And so the businesses that you are exiting, if we think about the consumer Tissue piece at about 150 basis point benefit, so that's the structural change in profitability to the business that would exist whether pulp is high or pulp is low?

Thomas Falk

Yes.

Lauren Lieberman - Barclays Capital

And then, where are -- if you can share it your utilization rates on, I guess, your current manufacturing infrastructure today in Tissue versus where it will be after?

Thomas Falk

They will be pretty similar. We will wind up moving a little bit of product loading around out of some of these facilities that we're exiting. But I would say, broadly our utilization rate will be pretty similar. Remember, we're also buying some tissue in on the outside and bringing that in and converting it. So there may be an opportunity to do less of that and load up some of our existing facilities to a greater level.

Lauren Lieberman - Barclays Capital

And then just turning to K-C Professional. I know it's not been very long since you last reported, but last quarter you kind of mentioned that there's been some business that you lost. You decided to price and then sort of walked away or lost some business, that wasn't able to happen. Has there been any progress or improvement or change in strategy on what you're doing from pricing or what contracts you want to hold onto standpoint?

Thomas Falk

Yes, I would say the marketplace is aggressive. We're stepping up our game to make sure that we're strategic and staying with the piece of the business that we're excited about. And you're seeing our sales force be probably a little more aggressive in the market place today. We're also seeing really good growth on our Wipers and Safety business and that is carrying some pieces of Washroom business with it which is good to see. So it didn't show up in the volume trends in the fourth quarter, but we're expecting to see that tick-up as we enter 2011.

Lauren Lieberman - Barclays Capital

Just final question for clarification. When you guys talk about strategic marketing, is that all in SG&A or does it include any of the promotional spending?

Thomas Falk

No, it's all between the lines. It's all in the SG&A lines.

Operator

Our next question comes from Chip Dillon with Crédit Suisse.

Chip Dillon - Crédit Suisse AG

Listen, on the restructuring, I apologize if I missed some of the last question but the two mills, I think you said in North America where you still are integrated where, I think you mentioned Everett, is the other one Huntsville, Ontario?

Thomas Falk

No. We only have one integrated mill in North America, which is Everett. The other was the mill in Australia.

Chip Dillon - Crédit Suisse AG

And with your goal is to sell actually because I would imagine where pulp prices are there might be interested in these.

Thomas Falk

Certainly, Everett we'll be pursuing a sale. I think in the mill in Australia is probably the more likely that it will wind up as a closure, but you never know.

Chip Dillon - Crédit Suisse AG

And with the Everett sale, are you concerned that someone might actually buy that mill and compete with you in the Tissue area? Or is your intention to sort of dismantle the tissue portion and just sell the pulp asset?

Thomas Falk

No, we'd look at selling the mill in its entirety as an operating facility.

Chip Dillon - Crédit Suisse AG

I guess the last thing on the whole restructuring. If your revenue drops $250 million to $300 million, it looks to me just in a very rough sense that this could represent I don't know 300,000-ish tons as a way to measure it, just sort of given where I've seen prices in the past and I guess 1/3, I guess 200 of that would be in Everett and the other hundred or so would be Australia. Is that a kind of a way to look at it?

Thomas Falk

You're talking about the pulp tons?

Chip Dillon - Crédit Suisse AG

Well, no, the actual tissue tons.

Thomas Falk

Yes, that's probably in the ballpark, I'd say. Across the -- there's five or six facilities involved, we've only named two of them. But we've named the two largest and so you're probably in the ballpark.

Chip Dillon - Crédit Suisse AG

And then on the first quarter, just so we kind of get a feel for the year and you might have mentioned this and apologize if I missed it, but often you give us like a guidance for the quarter whereabouts that we're in. Do you see 1Q '11 being similar to the first quarter of '10? Or do you think you're going to start out above or behind and ramp in one way or the other from there?

Thomas Falk

No, we have kind of quit giving quarterly guidance last year. So we've given you the annual guidance. I guess all I would say is that I would say that the year will be a little bit back-end loaded where we'd expect to see some better category growth from a consumer standpoint, as well as some modestly lower commodity costs in the back half and then our cost savings should build as we go through the year. So we expect to see stronger finish to the year at this stage.

Chip Dillon - Crédit Suisse AG

And then last question. You mentioned in North America the 2% volume decline in Consumer Tissue and I know that it's a very strong quarter for Facial. But was there more going on because you mentioned within the context of that decline, mid-single digits down in Bathroom and double digits in paper towels. What was just the mid single digit growth in facial enough to create that, the overall 2% decline or was there more going on there?

Thomas Falk

No, probably more the decline was Towel-related but the Facial category has been a little bit weak, because of a weak cold and flu season. So even though we picked up share sequentially, the categories not been that robust. We're seeing a little bit better symptomology in the first quarter and so we may wind up with a little later cold and flu season, we'll have to see.

Operator

Our next question comes from John Faucher for JPMorgan.

John Faucher - JP Morgan Chase & Co

Quick question on the capital this year. So you're obviously making a little bit of a shift in terms of your willingness to take on debt in terms of buying back stock. I think if we marry this with some of the performance on the Health Care side, I think what we would say is -- investors have struggled to figure out the strategy behind Health Care. Are you telling us now that look, there's going to the fewer acquisitions going forward and it's going to be much more about returning capital to shareholders? Or do you view this as more of an opportunistic thing given where interest rates are and given where your current debt levels are?

Thomas Falk

Really more the latter, John. We just see with what you can borrow long-term money for today relative to our dividend yield. It's a no-brainer and we've sized this to leave us with some financial flexibility within our A credit rating to still take advantage of our opportunistic tuck-in M&A. And so while we're disappointed with some of the litigation-related costs that we took in the Health Care business, the I-Flow deal was still a very good acquisition for us. The business is performing well, ex the litigation costs. I mean, the volume is there, the margin is there. We're seeing good momentum with the sales team and so yes, we still obviously, wish the litigation results were a little bit better but we still are pretty bullish about that acquisition long-term for us.

John Faucher - JP Morgan Chase & Co

And sort of continuing with the use of proceeds theme, as you look at some of these asset disposals, any thoughts in terms of what the capital usage will be? And is that factored into any of your savings numbers in terms of selling off facilities, what-have-you?

Thomas Falk

The proceeds should be probably fairly modest in this. I don't think it will affect our cash outlook. I think the pulp mills are somewhat capital intensive to keep running. So that will probably help us deploy the capital spending that would have been spent on these facilities to some of our higher-margin opportunities.

John Faucher - JP Morgan Chase & Co

And then finally, one more sort of housekeeping question. A couple of years ago, you guys had talked about making a switch to GAAP and I don't think it's a big deal one way or the other. And obviously, if you look at the charters, et cetera, you've moved away from that, sort of. I'm assuming this is okay, look, we tried going to GAAP. It turns out there's just so much volatility, what-have-you. Should we just assume that you guys have moved away from that whole GAAP concept at least for the foreseeable future?

Thomas Falk

No, I would say my life preference is to have cleaner earnings without a lot of one-time charges. On the other hand, I do want to try to be as transparent as I can. And we're not going to shy away from taking decisions that we think can create shareholder value if it will result in a unusual item. And so we're going to try to balance that and give you as much transparency as we can of what's in the numbers and things that are big that we think may distract investors from understanding what's actually happening in the underlying business we'll call out separately. But our long-range goal is to have reported GAAP numbers.

Mark Buthman

I think the only other add is this is going to take a couple of years to play out. So it's not a calendar year, it's not something we can complete within 12 months. And it's sizable enough so there's an element of time that goes into that decision as well.

Operator

The next question comes from Alice Longley with Buckingham Research.

Alice Longley - Buckingham Research Group, Inc.

My question is about Personal Care in North America. Are you expecting Child and Infant Care volumes to continue being down low to mid single-digits in 2011? And also, do you think in the category, there will continue to be downward shift in the mix?

Thomas Falk

No, we would expect to see a modest volume improvement in 2011. We think the category is probably is going to be fairly flat which would be an improvement from where it was in 2010. So just the category getting a little healthier will help us. But we've also got a pretty good innovation plan coming in 2011 that we think will help from that standpoint.

Alice Longley - Buckingham Research Group, Inc.

So are you assuming you gain shares this year?

Thomas Falk

Well, yes, we lost about a point of share in 2010 in Diapers, so we'd expect to get that back. And we picked up share in training pants. Our momentum in Baby Wipes was positive in the back half of the year. So we'd expect that to continue and the combination of all of those should help our Baby Child Care volumes in 2011.

Paul Alexander

Alice, the only other thing I would mention is that we're watching the category closely. It's still likely to be down in the first half 2011.

Alice Longley - Buckingham Research Group, Inc.

And I think you did say that you think you'll gain share a little bit in Diapers this year in volume terms?

Thomas Falk

Yes. But if you ask me that every year, Alice, I would tell you that, that's our plan. So we don't ever have a plan that says we lose share in diapers.

Alice Longley - Buckingham Research Group, Inc.

But even in your plan, maybe you'll do it more in the second half than the first.

Thomas Falk

Yes. We've got a fair amount of innovation coming so I think we're focused on getting the share back that we lost in the fourth quarter.

Alice Longley - Buckingham Research Group, Inc.

And then over in Consumer Tissue in North America. You got two points from favorable product mix, what was that?

Thomas Falk

We're getting good trade ups in Bathroom Tissue and particularly COTTONELLE.

Alice Longley - Buckingham Research Group, Inc.

So it's basically trade ups to COTTONELLE?

Paul Alexander

It's trade ups within the COTTONELLE like Aloe & E or Ultra.

Alice Longley - Buckingham Research Group, Inc.

So it's trade ups within COTTONELLE to the more value-added versions?

Paul Alexander

Yes.

Alice Longley - Buckingham Research Group, Inc.

Do think that indicates a stronger consumer or is that just you doing a better job marketing or something?

Thomas Falk

Well, probably a little bit of both. And I think in some categories you're see this trading up-trading down phenomena where you see the Super Premium segment growing and the Value segment growing and kind of the Mainline segment shrinking. And Bath Tissue is one where we're seeing that a bit lately.

Operator

Our next question comes from Priya Ohri-Gupta from Barclays Capital.

Priya Ohri-Gupta

I just wanted to see if you can give us some color on the timing of your debt issuance, whether you're going to utilize some of your CP at first and then term it out or just come straight to the market? And if you could sort of elaborate on what leverage target you have?

Mark Buthman

Priya, a guesstimated answer to the part or the second part of your question first, we're targeting solid A credit metrics and access top tier commercial paper. So there's a whole range of metrics within there and we'd like to be solidly in that space. I think post this move will do that. In terms of timing and nature of the debt issuance, we've got to see how the markets play out. So we've got a plenty of CP capacity that we could utilize and obviously long-term rates are pretty low relative to historic terms. So our trade routine is taking a look at both timing and nature of it and as soon as we make a decision and go to market, you'll know.

Operator

Our next question comes from Linda Bolton Weiser from Caris & Company.

Linda Weiser - Caris & Company

Back when Wal-Mart made some of their strategic changes and kind of reduced a lot of the SKUs on the shelf, it seemed like the Tissue Towel section did kind of become simplified, not as many iterations for SKUs. What are the changes going on now, now that Wal-Mart is doing some things different. Are you finding there's more opportunity now to get more iterations of things on the shelf? And also we thought we saw at Wal-Mart fewer facing for Viva paper towels on the shelf, really very reduced. Is that the case and can you just comment on what's going on there?

Thomas Falk

Yes, we lost some distribution in towels at Wal-Mart in 2010. We've got some of it back later in the year. And as it relates to Viva specifically, there could be some regional differences depending on where you shop, where we've got more distribution in some parts of the country than others. So overall, I would say we have seen some improvements in our distribution on a sequential basis, but we've still got some work to do to get to where we want to be.

Linda Weiser - Caris & Company

Can I also ask a question about the dividend? In terms of the 6% increase, it seemed like other than the recession year where I think it was up only 3%, it's been more of an 8% to 9% dividend growth rate. So,should we think of that as more 6% going forward or just because you did some more share repurchase or can you explain that policy?

Thomas Falk

Sure. What we tend to do is we're targeting a real increase in dividend growth over time or growing it at a faster rate than our earnings growth. And so for me, it tends to kind of follow the prior year earnings growth rate. So if you go back to '09, we had a very good earnings growth performance. We had a higher dividend increase in 2010. In 2010, we had a little bit weaker earnings performance so we had a little bit lower dividend increase in 2011. And so I'd look at the prior year earnings growth as an indicator for what we might be thinking about from a dividend increase.

Operator

Your next question comes from Jason Gere with RBC Capital Markets.

Jason Gere - RBC Capital Markets, LLC

Just a quick question. I guess thinking about just the timing and the magnitude of some of the integration that you are doing, the Diapers and Consumer Tissue, I'm just trying to get a perspective on what you did in 2010. Clearly, U by Kotex was a success. The marketing spending you got great ROI. So I'm just trying to think about how should we think about what changes might come in those categories especially when you are seeing softer growth right now and probably needs some good innovation coming to the market?

Thomas Falk

I think we've got a very solid lineup again in 2011. And I think that's an expectation you should have for us going forward and not just in the U.S. market but in the international markets as well. So we're setting increasingly higher innovation targets for ourselves around the world to make sure we're building our brands and improving our margins and mix going forward. So U by Kotex was great. We're supporting it again with more launch activity and new items in 2011. Jeans diaper was great in 2010, expect to see good innovation coming from Huggies in 2011. Our Kleenex hand towel launch met its objectives in 2010. Expect to see more coming from that in 2011. And so all of our teams are continuing to raise the bar in innovation every year.

Jason Gere - RBC Capital Markets, LLC

In terms on the Diapers side, I think one of the earlier questions, watch the category. You expect it to be down in the first half this year so should we imply that maybe your innovation could be more back-half weighted?

Thomas Falk

Yes, I would expect to see some launch activity in the first half of the year in our Diapers space. So if you look at those businesses, we typically are having one to two product improvements a year across both the Premium and the Mainline business. So expect to see some news consistently coming from Huggies in 2011.

Jason Gere - RBC Capital Markets, LLC

And can you just talk about maybe the consumers' willingness to try new products? Obviously, again U by Kotex performed well but when you look at the Hand Towels this is, I think, the first time you guys have actually called it out in your press release that you're seeing success. So was there kind of a delayed reaction? Did you have to step up spending in there to get the consumer the behavioral change? Can you just kind of go through that and then does that -- the magnitude of the innovation that you're bringing to the market over the course of this year and maybe even into next year?

Thomas Falk

Yes, I think the Hand Towel and U are changing consumer behavior. We've got the distribution we were looking for at launch, and we basically delivered the movement with our retail customers that we were expecting. A part of the reason we probably waited to talk about it a little bit is we wanted to see a repeat. So you can often get trial when you are getting a consumer to try something new but we wanted to see, did mom come back and buy another package. And so we wanted to kind of see that play out in the back half of the year and we started to see some repeat numbers that were consistent with our expectation and we've got a long way to go before we will say we've really changed habits and we built a long-term successful new category for us and for the retail customer, but we think we are on the right track and we're going to keep investing on it. I think that's maybe the other change is that we stay with our investments and our innovation a little bit longer to make sure that it's not just a one-year, one-hit wonder.

Jason Gere - RBC Capital Markets, LLC

And then just a housekeeping question. As we think about the cost inflation, clearly what you're forecasting for 2011 is almost in aggregate what you saw in the fourth quarter. So should it be logically that the first quarter is where you see the biggest pressure? And then maybe decelerating thereout. And in terms of the buckets, usually call out between fiber, polymers and kind of the distribution energy. Can you just talk about maybe rank order where you think the greatest impact will be?

Thomas Falk

Yes, in 2011, I think your assumption on phasing is probably about right. In 2011, virtually all of the cost increases was oil-related. So whether that's polymer, adhesives, non-wovens, materials, as well as the diesel fuel to move the product around, you would expect to see really virtually all of the costs increase in 2011 in those areas.

Jason Gere - RBC Capital Markets, LLC

Tom, just one last question. Just on the marketing spending, considering that the Super Bowl is in Dallas this year, is there going to be a bigger involvement of Kimberly-Clark while we're watching TV?

Thomas Falk

The super Bowl is in Dallas this year? Oh, that's right. I've heard that. The funny thing is, Jason, I don't have even have tickets. And the Green Bay Packers are playing, my favorite team. So no, we will not be running a Super Bowl ad. But we have got a lot of great advertising and digital marketing spend coming in 2011 that you'll be able to a watch on TV the rest of the year.

Operator

Our next question comes from Connie Maneaty with BMO Capital Markets.

Constance Maneaty - BMO Capital Markets U.S.

Since the blue jean Diaper was so popular last year, is it coming back this year? And could it become a year-long product?

Thomas Falk

I think fashion is certainly an area in our Personal Care arena that we're trying to drive in lots of different ways and doing that with better design across our various platforms has been key. And so I think that Jeans Diaper was an example of that. We have done that in a bunch of different markets around the world. So expect us to continue to do some things with that whole idea of bringing an element of fashion to diapers, which mom loves. She wants her baby to look good, and Huggies can provide that. We also saw some of our Depend products where we brought more underwear-like look to create a kind of a super premium space in Depend. And then U by Kotex, when you look at the design and the packaging and the graphics, we're doing a lot in those areas to drive innovation across those platforms.

Constance Maneaty - BMO Capital Markets U.S.

I know it doesn't mean much anymore but can you just describe the business environment in Venezuela? Is it still having an effect on your sales because the business is contracting because you can't get currency or because demand is down? And also, are you accessing the parallel market?

Thomas Falk

I think the Venezuela is what you would say is probably was a point drag of volume but we also got some price in that market. So the net of the two didn't have that much of an impact on our overall sales in the fourth quarter or for the full year for that matter. And what you are seeing is that, particularly for any of our products that are imported that use a high level of imported material, it's just tough to get supply and to be able to bring products in and put it on the shelf. And so I think you are seeing continued pressure across lots of categories that are facing those same challenges. And from a currency exchange standpoint, there really is no market any longer, so the only exchange that is available is through the government programs. And so, we are participating in those to the extent that we can but the amount that flows out of those programs isn't enough to be able to support a lot of the imports that we'd like to bring into the country.

Operator

Your next question comes from Chris Ferrara with Bank of America.

Christopher Ferrara - BofA Merrill Lynch

Why does the tax rate move higher year-on-year next year?

Thomas Falk

Well, I think Mark can give you a more detailed answer. But it seems like every government in the world has got a budget problem and wants to solve it by taxing corporations, is kind of the short answer but maybe Mark's got a more scientific answer for you.

Mark Buthman

No, I think that's about it. It's just a general kind of upward flow of the tax rate and some of the things you could do with your effective tax rate planning, say, ten years ago, just aren't available to you. So we are doing the best we can to manage our structure, underlying structural rate. I would say maybe the one thing that is changing and you would see any business that's growing outside of North America as we look to repatriate cash to North America. That tends to put a little upward pressure on the rate. If there is a kind of a something that internally, that's [indiscernible].

Thomas Falk

[Indiscernible] the higher U.S. rate on it.

Christopher Ferrara - BofA Merrill Lynch

Are we past the tough H1N1 comps?

Thomas Falk

First quarter 2011 should be the last of that and then it should turn significantly positive in Q2 and Q3 as we had some more inventory reductions and distributors in the middle of 2010.

Operator

Our next question comes from Ali Dibadj with Sanford Bernstein.

Ali Dibadj - Bernstein Research

you mentioned shooting marketing up $100 million for the year? Can you tell us how much it was up or down on the quarter both dollar and then percent of sales?

Thomas Falk

Yes, I think we're up $110 million through the third quarter so that would make us down $10 million in the fourth quarter.

Ali Dibadj - Bernstein Research

And reason being the typical timing of launches and such or...

Thomas Falk

Yes, basically we executed our plan for the year, and so this is the timing that we had laid out.

Ali Dibadj - Bernstein Research

And then separate question on Wal-Mart, we've been hearing a little bit more about factory-gate pricing, customer pick up, whatever you want to call it. Are you in those types of discussions with them? Do you think that's a theme that we're going to hear more and more about going forward?

Thomas Falk

We have done a lot of work with Wal-Mart's logistics teams over the years. And we have a customer pick up program that's available to all of our customers that Wal-Mart has taken advantage of for many, many years. So that's not really new for us probably because we're such high-cube, high-velocity categories. That is one we've worked on maybe a little bit before. We haven't pushed to the end point that I think some customers are going to with Wal-Mart with their -- doing all of their volume that way. I think we are really looking at it with them opportunistically to see which lanes of that make sense for them and for us.

Ali Dibadj - Bernstein Research

What percent of the volume are you doing now?

Thomas Falk

I'd be guessing, Ali, but we do have a pretty robust pick-up with them. They are obviously our largest pick-up customer at this point.

Ali Dibadj - Bernstein Research

And do you think 100% is like some other folks have done in the industry, do you think that's unrealistic for you guys?

Thomas Falk

I think that probably will be for a variety of reasons, not having to do with Wal-Mart or us, will may not be where ultimately we wind up because some lanes are such good low-cost carrier options with good backhaul that is probably going to make more sense for us to use carriers in those situations.

Mark Buthman

And I think what we are doing with them is we're both working on ways to take logistics costs out of the system and make the inventory flow to shelf faster. And that's in the end, what creates value for both of us.

Operator

Our next question comes from Connie Maneaty with BMO Capital Markets.

Constance Maneaty - BMO Capital Markets U.S.

When the restructuring is completed, by what percentage will it change the amount of pulp you buy?

Thomas Falk

Well, we're about 8% integrated today and so that will go basically to 0. So we consume about 2.5 million tons of pulp, so that's just under 200,000 tons of pulp production at those two facilities.

Operator

At this time, we have no further questions.

Paul Alexander

Thanks, we'll turn it over to Tom for closing comments.

Thomas Falk

Okay, once again we're on track with executing our plan in 2011 to deliver on our earnings growth expectations. So we're deploying cash in shareholder-friendly ways. And as usual, we appreciate your support of Kimberly-Clark. Thank you.

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