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Kimberly-Clark Corp. (NYSE:KMB)

Q3 2007 Earnings Call

October 22, 2007 10:00 am ET

Executives

Mike Masseth - VP, IR

Mark Buthman - SVP & CFO

Tom Falk - Chairman & CEO

Randy Vest - Vice President & Controller,

Analysts

Ali Dibadj - SanfordBernstein

Linda BoltonWeiser - Oppenheimer & Co

Gail Glazerman - UBS

Chip Dillon - Citigroup

Amy Chasen - Goldman Sachs

Chris Ferrara - Merrill Lynch

Lauren Lieberman - Lehman Brothers

John Faucher - JP Morgan

Justin Hott - Bear Stearns

Bill Schmitz - Deutsche Bank

Connie Maneaty - BMO Capital Markets

Jason Gere - Wachovia Capital Markets

Mariann Montagne - Thrivent Asset Management

Operator

We now have Mr. Mike Masseth in conference. Please be awarethat each of your lines is in a listen-only mode. At the conclusion of Mr.Masseth's presentation, we will open the floor for questions.

At that time instructions will be given as to the procedureto follow, if you would like to ask a question. I would now like to turn theconference over to Mr. Mike Masseth. Mr. Masseth you may begin, sir.

Mike Masseth

Thank you very much. And good morning everyone, weappreciate your interest in Kimberly-Clark. With us today are Tom Falk,Chairman and CEO; Mark Buthman, Senior VP and CFO; and Randy Vest, VicePresident and Controller.

Here's the agenda for today's call. Mark will start with areview of our third quarter results, and then Tom will provide his perspectiveon our results and discuss our outlook for the fourth quarter.

That will leave us plenty of time to finish, as usual withQ&A. Now, for those who are wishing to follow along, we have a presentationof today's materials in the Investor Section of our website, which iswww.kimberlyclark.com.

First, let me remind you that we will be makingforward-looking statements during the call today. There can be no assurancethat future events will occur as anticipated, or that the company's resultswill be as estimated. Please refer to the risk factor section of our latestannual report on Form 10-K for a description of factors that could cause ourfuture results to differ materially from those expressed in any forward-lookingstatements.

We'll also be referring to certain non-GAAP financialmeasures, including adjusted earnings per share, adjusted operating profit, andadjusted operating margin. Management believes that reporting in this mannerenables investors to better understand and analyze our ongoing results at operations.

For additional information on why we make these adjustmentsand reconciliations to comparable financial measures, determined in accordancewith GAAP, see today's news release as well as additional information on ourwebsite.

Now I will turn it over to Mark.

Mark Buthman

Thanks Mike. Good morning, everyone. I hope you had a chanceto review our news release this morning with all the details of our results.I'm going to briefly review the quarter starting with a few headlines.

First we achieved outstanding top line growth, with sales upnearly 10%. That includes 7% organic growth, well above our sales objective,with good progress from a number of targeted growth initiatives.

Second, we delivered solid bottom line results, slightlyahead of our previous guidance. Adjusted earnings per share for the quarterwere at $1.07 a share, up 8% from last year and above our guidance for earningsin a range of $1.04 to $1.06.

Third we continued to deploy cash in shareholder friendlyways, as share repurchases and dividends totaled nearly $2.5 billion in thequarter.

Now I would like to review some of the details of ourresults, starting with the top line for each of our segments.

In Personal Care, sales jumped 12%, driven by strong volumegrowth of 8% and currency benefits of 3%. In North Americawe delivered broad based volume growth of 7%, as our brands continued tobenefit from innovation.

Take Huggies, diaper volumes rose 9%, and baby wipesincreased 10% fueled by premium tier innovations. In child care, volumes rose6%, as we launched new GoodNites Sleep Boxers and Sleep Shorts in the laterpart of the quarter. And in adult care, volumes advanced 5%, behindimprovements to both Poise and Depend.

Now moving to Europe, thirdquarter sales volumes for Personal Care rose 1%, with gains in Huggies diapersand baby wipes.

In the developing and emerging markets, Personal Care salesclimbed 21%. That's the 12th consecutive quarter of double-digit growth, as ourteams continued to deliver terrific results. Highlights, included double-digitvolume growth in the fast growing BRICIT countries and in Latin America overall,along with a great performance in South Korea.

Now turning to Consumer Tissue, sales were up 10% includingthree points of benefit from currency. Segment volumes increased 4%, while netprice at selling prices were 3% higher.

In North America volumesincreased 7%, supported by a solid increase in advertising. Kleenex facialtissue volumes continue to rise with a double-digit gain in the third quarter,behind a strong back-to-school season. In other parts of the business, bathroomtissue and paper towel volumes were each up mid to high single-digits, spurredby strong growth in Scott bath tissue and Viva towels.

Now switching to Europe,sales volumes gained 2%. Higher branded volumes led by Andrex bathroom tissueand Kleenex facial tissue, more than offset the impact off- shedding some lowmargin businesses as part of our strategic cost reduction plan.

Moving to K-C Professional and Other; sales increased 9%including 3 points from currency. Volumes advanced 4%, while higher net sellingprices and improved mix together, added 2 points to the top line growth.

We are continuing to make steady progress with our targetedgrowth initiatives in KCP. In the third quarter, global wiper sales increasedto about 10%. At the same time KCP's business-building efforts helped drive a 19%increase in sales across the developing and emerging markets.

We also had a very good quarter in our washroom business,with solid organic growth in both North America and Europe.

Lastly Health Care segment sales declined 5%. The declinewas due to lower volumes of 9%, partially offset by a 3 point gain from productmix and 1 point of favorable currency.

As was the case in the first half of the year, comparisonswere impacted by our decision in the third quarter last year, to exit the latexexam glove business. Growth in higher margin nitrile gloves has not acceleratedas fast as we had anticipated, and didn’t overcome the impact of the fall-off inlatex glove sales.

Third quarter comparisons, as we expected, were alsoaffected by strong growth last year in face masks, which benefited from avianflu preparedness that didn't recur this year. These two factors more thanoffset high single-digit growth in medical device sales.

Now moving to operating profit and cost savings, and forthis discussion, I'll refer to adjusted operating profit and margin, whichexcludes certain charges and gains detailed in this morning's news release.

Third quarter operating profit was $691 million, with anoperating margin of 15%. Operating profit was up 6%, right inline with ourfull-year growth objective of 5% to 7%. That improvement came despite observingcost inflation of about $70 million, including about $50 million from higherfiber costs.

Despite the inflation, we are continuing to execute our planto increase investments in strategic marketing. In the third quarter, spendingwas up about $10 million compared to the year-ago period. Spending alsoincreased sequentially from the second quarter, as planned. Third quarterincreases supported growth in businesses across D&E, in North AtlanticPersonal Care and Kleenex facial tissue.

Now turning to cost savings, we delivered total savings of$67 million in the third quarter. Thatbrings year-to-date savings to about $205 million, as we are tracking towardthe high end of our full-year savings objectives of $200 million to $250million. Our ongoing FORCE program generated savings of $40 million in thethird quarter, despite higher spending levels at some of our facilities. At thesame time we realized $27 million of year-on-year savings from our strategiccost-reduction plan.

Our continued success with the strategic cost-productionplan is helping drive solid margin improvement in Europe.We increased margins 130 basis points last year and were on track for a similargain in 2007.

Speaking of margins, let's look briefly at third quartersegment operating margins. Personal Care continues to perform at a very highlevel, with strong improvement versus a year ago. K-C Professional and Other marginswere down, due to fiber cost increases, but I was really pleased to see asequential pickup in profitability compared to the second quarter. Health Caremargins were down due to lower sales; higher costs in business buildinginvestments and selling; and research and development activities.

Finally in Consumer Tissue, although we are realizing benefitsfrom good top line growth-to-cost savings, margins continue to be impacted bypulp cost inflation.

Now, I'll switch to taxes, there are plenty of details in thenews release and in our presentation on the website, so I won't repeat them butwill hit the highlights. Although the adjusted tax rate was slightly below ourguidance for the quarter, the high price of oil caused us to realize fewerbenefits from our synthetic fuels initiative than we had expected. So thebottom line is taxes overall were in line with our guidance for the thirdquarter.

Now, looking ahead based on what we know now the fourthquarter adjusted tax rate, we should be in the 27% to 29% range. We also expectto realize a net benefit of about $0.01 per share from synthetic fuels.

Now moving to cash flow and the balance sheet. Cash providedby operations was $585 million compared to $648 million in the prior year, asgrowth and cash earnings was more than offset by higher working capital. Thatincrease was, in part, due to the timing of sales collections at the end of thequarter, along with higher inventories.

Looking at capital spending, we invested $233 million in thethird quarter with year-to-date spending of $777 million. We're likely tofinish the year towards the high end of our full-year target of $900 million to$1 billion in spending for the year.

Regarding share repurchases, we bought 33 million shares ofKMB stock at a cost of more than $2.2 billion during the quarter. That includesthe $2 billion accelerated share repurchase program we announced in July.Through the nine months, we've repurchased more than $2.5 billion worth of KMBshares and we are on track with our plan to repurchase $2.8 billion worth ofour stock this year. So that wraps up the financial review of the quarter. Torecap, we achieved strong top line growth, we delivered bottom line resultsslightly above our commitments, and we continue to allocate cash in shareholderfriendly ways.

Now, I will turn it over to Tom.

Tom Falk

Thanks Mark and good morning everyone. I will commentbriefly on the third quarter and then I will review the outlook that we havegot for the balance of the year.

I have in mind this morning that we are continuing to buildmomentum under our Global Business Plan and our third quarter sales andadjusted earnings-per-share came in ahead of expectations. So, I am pleased we'vebeen able to continue to offset persistent inflationary pressures.

As for my perspective on our third quarter results, I wouldlike to highlight a number of positives, as well as some opportunities that wehave to improve. I am particularly encouraged about the continued strength ofour Personal Care business. Our Personal Care team posted a 12% increase insales and 130 basis-point increase in operating profit margin. So here, acombination of strong brands and innovation along with double-digit growth indeveloping and emerging markets, is fueling our growth in Personal Care.

In fact for our developing and emerging markets, overall,sales were up 17% in the quarter and operating profit improved at an evenfaster rate, and that extended the favorable trends we have seen in thesebusinesses throughout the first half of this year. It's also very encouragingto see some of our key brands, like Huggies, Kleenex, Scott, Viva, Kimtech andWypAll, to name just a few, that are delivering excellent volume growth for ourPersonal Care, Consumer Tissue and K-C Professional businesses in North America.

On the other hand, margins for Consumer Tissue and K-CProfessional have been significantly impacted by higher versioned fiber and wastepapercosts. As these costs continue to escalate during the third quarter, it becameclear that we needed to take additional steps to get our margins moving back inthe right direction. And accordingly we recently announced a series of priceincreases, for both Consumer Tissue and K-C Professional in North America.

Increases for K-C Professional in North America arecurrently underway, and prices for Consumer Tissue in the U.S. are slatedto go up next February. We are also planning to raise prices for baby andchild-care products in the U.S.at the same time.

Meanwhile, there is also clearly room for improvement in ourHealth Care business, which saw our third quarter sales and operating profitfall below year-ago levels. So although we've made the right strategic decisionto exit the latex glove business, it has caused our results to be softer thanwe would like in the short-term. So our Health Care team is working hard toregain momentum, and we expect sales and earnings comparisons will show somesequential improvement in the fourth quarter.

Then a final noteworthy accomplishment in the third quarterwas the $2 billion accelerated share repurchase we executed in late July, andthat was funded by a corresponding increase in our debt levels. This movebetter aligns our capital structure with our global business plan strategies,and is also a direct reflection of our confidence that we'll continue to hit ourplanned targets.

So overall, I am pleased with our third quarter results andI am very proud of our Kimberly-Clark teams around the world that deliver them.So, thanks to their efforts, we are driving strong top line growth anddelivering on our bottom-line commitments in the short-term, while at the sametime making the necessary changes to further strengthen our competitiveposition and our prospects for long-term sustainable growth.

So, this brings me to the outlook. The underlying strengthof our business results for the first nine months give us confidence that wewill continue to execute our global business plan well over the balance of theyear. We expect top line momentum will remain positive, paced by continuedstrong performances in developing and emerging markets, and the success ofother targeted growth initiatives, particularly in Personal Care and K-CProfessional.

We'll also continue to drive cost out of the system throughour FORCE and strategic cost-reduction efforts. These factors, combined withbenefits from our accelerated share repurchases, should enable us to overcomesignificant inflationary pressures and deliver another quarter of solid bottom-linegrowth.

Meanwhile, our plans incorporate further increases inspending for strategic marketing to support volume growth and improve brandequity, as we remain committed to boost spending above the rate of sales growththis year.

So all in all, we expect adjusted earnings-per-share in thefourth quarter will be in the range of $1.09 to $1.11 per share, and that's up6% to 8% from the $1.03 per share we earned last year in the fourth quarter. Withthe anticipated improvement in our fourth quarter performance, we would nowexpect adjusted earnings-per-share for the full year of 2007 will be in therange of $4.23 to $4.25 a share. And this compares with our previous guidancefor adjusted earnings per share of $4.20 to $4.25, and will result in growth of8% to 9% versus the $3.90 per share we earned in 2006.

So to summarize, 2007 is shaping up to be a very good yearfor us with top and bottom-line growth on-track to exceed our original plan forthe year. We are focused on delivering sustainable growth in sales andearnings, improving our returns and deploying our cash in shareholder-friendlyways.

We've been doing what we said wewould do, and we intend to continue driving our targeted growth initiatives,further strengthening our brands and continually improving our capabilities andcost effectiveness. We believe we have the right strategies in place to createvalue for our shareholders and that is the bottom-line objective of all of ourefforts. And with that, thank you for your interest today and now we'll behappy to take your questions.

Question-and-AnswerSession

Operator

At this time the floor is open for your questions. (OperatorInstructions). Our first question comes from Ali Dibadj with Sanford Bernstein.

Ali Dibadj - SanfordBernstein

Hey guys, how are you?

Mark Buthman

Hello Ali, how are you?

Ali Dibadj - SanfordBernstein

Hey, just want to push a little bit on the margins issue,besides Personal Care, as you mentioned everything was down and we can see the$50 million and the $20 million from the [Kleenguard], but it feels likethere's got to be something else there, on where we bucket it, its somethingaround pricing and mix and may be 50 basis points, I guess that becomes roughly$23 million. A, is that right and then B, if so where did that come from, isthat kind of geographic mix or the trade down? It selling more through the clubchannel?

Tom Falk

No, I mean, actually mix, we are about a point of positivemix in the quarter that probably the two big pieces that don't show up in ouranalysis as clearly as that, the distribution expense was up about $20 millionin the quarter and that doesn't show up directly in our cost analysis. And sopart of that is related to carrier rate, some of it’s fuel related, some ofit’s working hours; but also as you look at our working capital, ourinventories are higher than we would like and that usually tracks along withthe higher level of distribution costs.

So, we've got some opportunity there to bring that down. Ithink the other piece that shows up in the margin analysis is the cost ofproduct improvements. So, as we've improved our facial tissue or improvedtier-V diapers and put more value into the product which then benefits us bydriving our positive mix. There is a cost associated with product improvements,probably those two are the other big factors that affected gross margin in thequarter.

Ali Dibadj - SanfordBernstein

So, you are not seeing in fact any trade down or any margin,negative margin mix given that you are selling more through clubs for examplesor what have you?

Tom Falk

No, I mean, overall, the mix was a positive 1% at the topline and that tracks don't have a positive benefit at the bottom line as well.

Ali Dibadj - SanfordBernstein

Okay. And then you mentioned inventory that's the otherthing I want to push on. It clearly looks like it's up to me. If you lookyear-on-year it's up by lets call it 10 days, but sequentially it keeps goingup. Where do you want to be and what is the cause of some of that, is itinternational expansion, is it consolidating some plans, I mean what else is inthere?

Tom Falk

No, it's one that -- I would say a couple of things. One isthere is still a fair amount of disruption in our supply chain as we'rereconfiguring plans. We have also been doing some work on reconfiguring ourdistribution network. And while you are going through that, you are starting upa new DC and taking down the old DCs and you windup I think probably not bydesign but by the way it works out with more inventory and more places than youwould like, and that purchase on inventory levels and distribution expense. So,we are working through that. I'll also tell you that we've been tracking forthe high end of our sales forecast and had some customer service challenges asa result, and so we are probably protecting to a higher side volume estimatewith a bit more inventory than we'd like. Health Care, clearly we got moreinventory because our sales have under delivered. So, we are not happy with itand as we look at it, we are probably up about a five or six days of inventoryby our calculation relative to year end and that's probably the near-termtarget we are looking to get back out of the system.

Ali Dibadj - SanfordBernstein

And what's your plan to get there?

Tom Falk

Every business unit has got plans to work through it and sothat's something that each one of our teams is working on. And I thinkobviously we've told you this for a couple of quarters and it hasn't come down.So, it’s one that we are going to continue to work on and we would expect tosee some improvement over the next couple of quarters.

Ali Dibadj - SanfordBernstein

Okay, great thanks guys.

Tom Falk

Thanks.

Operator

Our next question comes from Linda Bolton Weiser withOppenheimer & Co.

Linda BoltonWeiser - Oppenheimer & Co

Thank you. I just wanted you to clarify again, does the $20million of higher distribution cost is that figured in to your $5 millionyear-over-year decrease in energy and distribution or is that a separate item?

Tom Falk

That's a separate $20 million, and the energy is really justnatural gas and electricity. And a lot of that is slightly lower natural gaspricing, and then lower electricity rates in the UK has also been a factor. So,pretty modest energy change year-over-year from that standpoint. So, thatdoesn't include like all the oil-related things that would be affecting powerand that would be in that raw materials bucket. And distribution is one thatjust hasn't set neatly into any of those buckets that we typically give you.

Linda BoltonWeiser - Oppenheimer & Co

Okay. And guys, can you clarify also on the increase instrategic marketing spending. Maybe I have my numbers wrong, but I thought thatit was $20 million year-over-year increase in the first quarter, than $13million increase. So, in what way is it higher sequentially?

Tom Falk

Okay. Look at what we've spent in the third quarter versuswhat we've spent on the fourth quarter. It’s higher sequentially in terms ofthe absolute amount that was spent. So…

Mark Buthman

Third versus second.

Tom Falk

Third versus second.

Linda BoltonWeiser - Oppenheimer & Co

Oh. Okay, alright. And is it true that in the third quarter,the percentage increase was above the sales increase in the third quarter?

Tom Falk

No, it was pretty flat, as the percent of sales in the thirdquarter. But obviously our sales growth was a lot higher than we expected. So,basically we spent what we thought we are going to spend in our third quarterand we got more on the top-line for it.

Linda BoltonWeiser - Oppenheimer & Co

Okay. And just in terms of a little more detail on theHealth Care operating margin. The new gloves, the nitrile gloves, I guess youmentioned are higher margins, so is it that the raw material cost pressures areoffsetting that mix improvement and that's the reason the margin is down somuch or can you explain more there?

Tom Falk

Yeah, there is a couple of things that are affecting HealthCare margins. One is, we do almost all of our glove manufacturing in Thailand,so the impact of the weakening of the dollar versus the Thai Baht has increasedour costs. And we really haven't been able to get pricing to offset any ofthat. That's one thing.

And then the second is, we really ran pretty full in thefirst part of the year, and as volumes started to fall back, we've curtailedcapacity in some aspects of our Health Care business. So, you had some fixedcost absorption issues that affected the margin comparison. Probably those twofactors are the biggest pieces. The mix is positive, so the shift from movingfrom latex to nitrile has had a positive impact on margin, but the effect ofthe Thai Baht and the curtailment in fixed cost absorption were drags onmargin.

Linda BoltonWeiser - Oppenheimer & Co

Okay. And just finally on the other income expense line. Iguess, generally most of the time that's sort of a net expense item, but it wasan income item, even excluding the gain or the positive item. Is theresomething else in there that's a little bit unusual on the positive side ornot?

Tom Falk

Usually, what winds up in there, they are the biggest numberand they are typically as currency gains and losses and historically we usuallyhave small or have had some small currency transaction losses. This last coupleof quarters we had small currency transaction gains and that's the biggestpiece in that swing there.

Linda BoltonWeiser - Oppenheimer & Co

Okay, great thank you very much.

Tom Falk

Thanks Linda.

Operator

Our next question comes from Gail Glazerman with UBS.

Gail Glazerman - UBS

Good morning. I was wondering if you could talk a little bitmore about the volume gains in Consumer Tissue, particularly in North America. Were you taking some market share or isthat just moving along with the market [because] industry data has actually beenpretty weak this year?

Tom Falk

Yeah, and I mean, really good story in a couple of keyareas, we spend more on advertising and promotion in Consumer Tissue. We had avery strong back to school season on Kleenex, and so good volume growth onKleenex. We had double-digit volume growth on Viva towels, as we've gotten morecapacity to grow in Viva and are driving that strategically this year and soViva was solid. We had double-digit volume growth on our Scott brand and sothat's gone very well. All of our moist wipe products in the tissue segmentinclude double-digits for both Cottonelle and Kleenex and probably the one areawhere we were essentially flat on volume was Cottonelle, and that was as aresult of the count decrease in the quarter. So the fact that we took sheetsout of that usually hurts our volume comparisons for a while. So, goodexecution and really a good example of where our investments in marketingspending has paid off for us in volume growth.

Gail Glazerman - UBS

And this product of the new machines, has that gonesmoothly? Were there any costs in the quarter?

Tom Falk

Yeah, there were, but it was -- the impact of fiber anddistribution were by far the biggest impacts on tissue margins in the quarter.If you look at it, I think fiber costs was about a 120 basis points to marginand distribution would make up about the rest of the 200 point margin todecline in the quarter, 200 basis point margin decline, so.

Gail Glazerman - UBS

Okay. Can you talk a little bit about the European ConsumerTissue market? I guess pricing was still down. I am just wondering, do youforesee any potential change in the near future or what the environment isthere?

Tom Falk

Well, one of the interesting things about Europeis the strengthening of the currency, they haven't felt the full impact of thefiber price change and so there isn't as much pressure on price. The pricingcomparison was mostly related to promotional timing, so we had more promotionaldeals on Andrex in the third quarter than prior year and so there really wasn'tany list price activity, it was more trade spend changes. So, there is somepricing that has taken place, I think. We had some price increases in Italy that went into effect in the thirdquarter, but again realization in Europe istough in this environment.

Gail Glazerman - UBS

And again, there is nothing pending for kind of fourthquarter early '08, at this point?

Tom Falk

Nothing that we have announced at this stage.

Gail Glazerman - UBS

Okay, thank you very much.

Tom Falk

Thanks.

Operator

Our next question comes from Chip Dillon with Citigroup.

Chip Dillon - Citigroup

Yes, good morning.

Tom Falk

Good morning, Chip.

Chip Dillon - Citigroup

First question is on the, looking at the Consumer Tissuebusiness. I know that both of you would be silent and your biggest ConsumerTissue competitor in Green Baywas constantly starting up machines. And they announced another initiative asyou probably know in Utahand I just wanted to know how you feel about your volumes especially after thislast quarter. Do you feel a need to also add to your capability there in thenext two or three years, since I don't believe you have anything else in thepipeline?

Tom Falk

I think, those guys are headquartered in Cincinnati not Green Bay Chip, but…

Chip Dillon - Citigroup

No, no their machine is in Green Bay.

Tom Falk

Well, I see. It might be, you might sort of have aninteresting rumor for them I wasn't going to move. No, I think we feel likeConsumer Tissue is pretty well in balance right now and so we have addedcapacity as needed to grow the business so we wouldn't be concerned about doingthat. But the U.S. Consumer Tissue market absorbs about 2 or 3 machines a year,just from normal volume growth. And so, I would think that again the timingthat they are on, that we don’t see any major issues from that standpoint froma capacity perceptive.

Chip Dillon - Citigroup

Even with the other guys in Atlanta, I am talking about headquarters now.

Tom Falk

No.

Chip Dillon - Citigroup

Having one, I think that they are in building that one andone that they are talking about building?

Tom Falk

Yeah, I mean overall we feel pretty good about the U.S.Consumer Tissue market. It's typically been much more rational and balancedthan some of the other markets around the world, so we would expect that tocontinue.

Chip Dillon - Citigroup

Speaking of that, when you look at Europe,I know it’s early days, and in the previous question you indicated that pricingcould be better. But have you noticed any changes in that marketplace, giventhe change in the makeup of the players?

Tom Falk

We said deals just closed like on October 1st, so it'spretty early yet at this point in time. And we just have to see how it playsout. In a lot of cases, private label has got the dominant share in the most ofthe European markets, and so we will see how they price things and lot of thisis going to have to do with expectations of fiber price and currency I wouldguess.

Chip Dillon - Citigroup

Okay. And then just shifting real quickly to Personal Care.Just fantastic numbers there and one thing we noticed especially this quarterwas how strong the North American volumes are. Yet we all kind of know therelative stability of that market and we can sort of see the demographics. I amjust wondering how sustainable are the volume growth rates are in North America, do you expect to see some moderation or doyou think this is sustainable?

Tom Falk

Well I mean, clearly we had a terrific volume a quarter andhad a solid mix with some of the things around the launch of Sleep Boxers andSleep Shorts, continued growth in our tier-V diaper business. So, obviously,while this was higher than average, we certainly expect continued growth withinour Personal Care business.

It was nice to see baby wipes was up strongly, double-digitvolume growth in baby wipes in the quarter, so there really was a positiveresult. Even across all our Personal Care we still have opportunities to dobetter in a number of categories. And I think our [dozen] Cottonelle's businesshad mid singles, but we would like that to grow a little bit faster. And so,even if diaper slows down a little bit we would expect that there would be someother things that will pick up the slack.

Chip Dillon - Citigroup

Okay. And then lastly Tom, if we can see a continuation inthese trends. I can't help to think that market would continue to see yourvalue increasingly more in the Personal Care area. And in fact, given I thinkthe view that perhaps there's a pretty big difference or gap between how onewould foresee the value of that business versus say the more capital intensivetissue businesses. Any thoughts however splitting on the company, has that evercrossed your mind?

Tom Falk

No, I mean we think the portfolio works. I mean we have gotscale on important categories with our key customers. And we are pretty happywith the mix of businesses that we are in.

Chip Dillon - Citigroup

Got you. Thanks very much.

Tom Falk

Thank you.

Operator

Our next question comes from Amy Chasen with Goldman Sachs.

Amy Chasen - Goldman Sachs

First I wanted to just stick with the question on strongPersonal Care volume in the U.S.It's very inconsistent with the track data and yet you say that you havepositive mix and usually when you are selling more in to clubs and next Marchthe mix will be negative. Can you reconcile that for us, were there any big newwins outside of the track channels this quarter that drove the strength? Canyou just give us a little color?

Tom Falk

Yeah, I mean a couple of things, the relative growth of thesuper premium and of all of the Personal Care segment has been a positive forceon mix. So whether it's tier-V diapers or the launch of Sleep Boxers, SleepShorts or Huggies Supreme Wipes all of those innovations are driving our growthin our mix in a positive way. And so, we had good growth across all of ournon-tracked channels. So, it was Dollar stores as well as some of the other bigMM players. So, again, there is probably a bigger divergence in the Nielsendata and our all outlet data than may be in prior quarters that someone had doa promotional timing and other things so.

Amy Chasen - Goldman Sachs

So, would you expect that that divergence would narrow backto a more normal level or you like increasingly focused on Dollar stores andsome of these other channels, which is why the promotional activity was up?

Tom Falk

No, we love all of our customers and we will take ordersfrom all of them. So, we would guess, that it will normalize overtime. But asyou look overtime, the consumer shopping pattern is really what's driving this,more than us trying to drive the volume to a particular channel. So, I thinktoday probably less than 40% of our diaper category is in major channels. So,you've got 60% outside and that 60% is intended to grow overtime just by theconsumer shopping behavior.

Amy Chasen - Goldman Sachs

Okay. Can you just give us some early read on the costoutlook for '08 relative to timing of your savings?

Tom Falk

Yes, we'll give you more detailed guidance on the next call.I mean, I would say when you look at pulp, which is probably the biggest one,remember we had probably at one point of looking for pulp to moderate, givenwhat's happened to the U.S. dollar. We are today planning for pulp to remain atthese high levels, which tracks with why we're leading some price in variouscategories. Oil would be the same thing and we certainly aren't planning foroil at $90 a barrel at this stage, but we are certainly in the high $70s. Aquestion we're asking ourselves today is even as oil has spiked up it hasn'tyet translated into higher oil related raw material costs, so the refiningmargin is what's gotten squeezed and I would guess something is got to givethere either. Oil has got to come back down or some of the underlyingcommodities are going to go up and catch up with oil price. And so, that'sreally kind of that calculus is what we are watching carefully as we lay outour '08 plans. But clearly the inflation pressure continues to be pretty highand so that's the basis that we're putting together plans for '08.

Amy Chasen - Goldman Sachs

I am sorry, but you said you are putting together plans for'08; you are not using $90 or either you are using more like $70?

Tom Falk

High $70s.

Amy Chasen - Goldman Sachs

Okay. I mean given, do you have another month or so tocontinue to do your planning when you want to be conservative and assume ahigher estimate?

Tom Falk

When we started our planning, we thought that wasconservative. So, obviously, as we get closer to the wrapping this up we'll befine turning those assumptions as well. Looking forward, we are looking at thefutures market like everybody else is at this point in time.

Amy Chasen - Goldman Sachs

Alright, thank you.

Tom Falk

Thanks Amy.

Operator

Our next question comes from Chris Ferrara with MerrillLynch.

Chris Ferrara - Merrill Lynch

Hi guys.

Tom Falk

Good morning Chris.

Chris Ferrara - Merrill Lynch

Good morning. Can you talk about, I know you have been sheddinglow margin businesses in Europe what you have,and then obviously exiting out of the latex exam glove business. Could you justtry and quantify in total where else you might be exiting low margin businesseswhere you would have you know sort of a negative impact on the top line that wemay not be thinking about? And also what the timing is of lapping finally allthe European mix issues or issues with exiting these lower margin businesses?

Tom Falk

Yeah, I mean those ones that you focused on are probably thebiggest impact in Europe in particular. Wethink in the third quarter sold one additional tissue facility. So, that willcontinue to [anniversary] through the third quarter of next year. So, those arethe major areas that we have looked for setting times now. At the same time allof our businesses are trying to drive mix, and so we are trying to make sure weare growing in the higher margin segments. So, we’re trying to grow in tier-Vdiapers. We are growing our wiper business in our K-C Professional operation.We are growing our medical device sales in Health Care. So, even though thevolume comparisons in Health Care weren’t great, we still grew in our medicaldevice business, which is a good margin story for them. So, that’s where ourfocus is. So, we are not actively shutting it, but we are trying to drive ourcapacity in the higher margin, better mix opportunities for us.

Chris Ferrara - Merrill Lynch

Got you, and then on I know it's a smaller piece of the mix.But on the gloves business, you guys now cited your tougher competitiveenvironment as you switch over to the nitrile gloves. Can you just talk aboutthat a little bit more?

Tom Falk

Yes, I'd say there are more players now in nitrile. Thoughwe had that low cost nitrile more or less to ourselves. And as we switched,others have followed, our capacity didn’t ramp up as quickly as we wanted itto, to be able to service all of our customers. So we were on allocation onnitrile gloves earlier of this year and that provided some opportunities forour competitors. And so or else we were the only one in the making the sales[pits], now there is two or three that are betting for that same business.

Chris Ferrara - Merrill Lynch

So I mean is that and that's beyond your expectation. Likein other words are your expectations in total for the gloves business now lowerthan they were a quarter or two ago and is it any meaningful amount?

Tom Falk

I would say it's more of a time setback, in terms of what weultimately expect to get. We're probably six to twelve months behind our planon those glove conversions. So, we still believe we'll get to where we want togo, but it's going to take a little longer.

Chris Ferrara - Merrill Lynch

Got it. And just finally on the synfuels, you are expectingbenefit in Q4. Is that because there the phase-out is set annually or is theresomething else I am missing in there?

Tom Falk

Yeah, it's an annual average and so, Mark can give you alittle bit more detail on what oil price you've to assume to have a total phaseout from the quarter. Mark?

Mark Buthman

Right in the third quarter, we sort of reset each quarter;you sort of take a look at the annual run rate and the outlook. So we resetthat in the third quarter, so we got very little benefit from synfuels. If weaveraged for the full quarter in the low 90's, so I think today oil is $90.50 abarrel or something like that. If that stayed, that would just about eliminatethat synfuel benefit.

Tom Falk

So, we would have to average in the high 80's to be in the rangeof about a penny a share that we talked about so?

Chris Ferrara - Merrill Lynch

Yes.

Mark Buthman

And I think it's important to, I mean everyday, people arecoming in and they are setting a new high, we pull back $4 or $5, and we haveto be careful to not set your outlook based on the most recent daily price.

Chris Ferrara - Merrill Lynch

Got it thanks, guys.

Operator

Our next question comes from Connie Maneaty with BMO CapitalMarkets.

Tom Falk

Good morning Connie.

Operator

[Ms. Maneaty], your line is open. Alright our next questioncomes from Lauren Lieberman with Lehman Brothers

Lauren Lieberman - Lehman Brothers

Thanks good morning.

Tom Falk

Good morning Lauren.

Lauren Lieberman - Lehman Brothers

Just wanted to talk a little bit about margins again. Firstwas on Personal Care. The margins in the business are great, you are gettingbetter. Are you getting any push back from retailers as you are trying to takepricing? Your margins are still growing despite the cost inflation?

Tom Falk

As we go and talk to retailers, we layout the cost story forevery one of our business areas. And so, when you look at the amount of oilbased materials that are going into Personal Care products. I mean, there is avery strong cost story and a lot of the margin improvement is from mix andoften the better mix is beneficial from a retailer's perspective as well.

Lauren Lieberman - Lehman Brothers

Do you feel like there is a change in the way retailers areinteracting with their suppliers and that they are more open minded on pricingin general and allowing you to really reap the benefits from your own costsavings initiatives, but still pass through some pricing?

Tom Falk

Well, I would say that these cost shifts are more than justnormal inflations. So, we are not in there saying see our wages are going up acouple of percent or healthcare costs are up high single-digits. These arepretty seismic shifts in major material areas. Pulp is up on some grades morethan 30% year-over-year and oil would be in same kind of a situation. And so,they're not just hearing it from one supplier, in fact if you go back and lookat all of the CPG price increases over the last year, Diapers is kind ofnotable as one category that really hasn't had an increase. And so, I think,they understand that fiber is half the cost of tissue and when fiber goes up acouple hundred dollars a ton that there is going to be a price relief. I thinkthat the last time in tissue we had price increases, pulp was about $650 a tonand now its $850 a ton so.

Lauren Lieberman - Lehman Brothers

Okay. And then, just on the tissue business, obviously it'slike you said it’s fiber and cost inflation that's driving margins down a bit.If its possible, can you talk a little bit about any structural improvementsthat you are having in margins in that business because I would assume that alot of the restructuring and FORCE savings have been in tissue. So, if you areable to kind of pass out the pieces you have been able to control?

Tom Falk

Yes, if you looked at Europein total for example, our European business, we improved margins by a 130 basispoints in '06 and we will get a similar level of improvement in '07. Now thatcuts across all of our businesses in Europe,but that's been, a lot of restructuring activity in mill closures have been inthe tissue part of the business. So that may be the best example, I couldprobably give you. I would tell you the other things that we are doing intissue, the volume growth this quarter was in some our higher margin segments.So facial tissue was positive, Viva towels was positive, the moist wipes waspositive. So, all that helps us a bit for our margin standpoint. We are alsocontinuing to invest more A&P in that business and so that is a bit of amargin driver but it helps stimulate the volume growth.

Lauren Lieberman - Lehman Brothers

Okay. I'll leave it there, thank you.

Tom Falk

Thanks Lauren.

Operator

Our next question comes from John Faucher with JP Morgan.

John Faucher - JP Morgan

Yes, good morning.

Tom Falk

Hi, John.

John Faucher - JP Morgan

Hi. If you take a look at the increase in spending, you havebeen bringing new people into marketing and raising the spending levels on someof these businesses. I realize it’s still early days. Have you been able to putin some sort of marketing mix analysis to give you an idea of may be thepotential top line growth you can get, if you continue to up this investmentlevel and does the recent success so far make you think, okay, we can take thisa lot higher may be than what we thought?

Tom Falk

Yeah, we are working to get those tools in place. And sowe've got marketing mix analysis, but as developed and do we use it aspredictably as we could, the answer is probably no. So, we are really focusingon each of our businesses, and making sure we are spending on the high priorityitems on the higher margin opportunities and really trying to execute betterand more consistently across the businesses.

And even with that level of focus, we've seen some improvementfrom a top line standpoint. So, I think we are really just beginning todescribe the surface on what the potential is. It is also encouraging that wehave consistently increased marketing spending, faster than sales in developingand emerging markets. We are getting great top line growth. We are also gettingprofit margin growth faster than top line. So, it is a really virtual circlethat we are driving in some parts of the business.

John Faucher - J.P. Morgan

Okay. But, so far no real change in terms of how you aretargeting the level of spending on a longer-term basis. But did something, asyou get more data you are going to look at that, that’s how you are looking atthem?

Tom Falk

I'd say, our marketing mix is changing like everybodyelse's. We are doing less TV, more interactive, more Internets, more PR. So, Ithink there is a level of creativity that’s evolving in our marketing teams. AsI think most CPG companies are doing, whether finding more ways to connect withconsumers in unique ways, and so that's the exciting opportunity for everybody.

John Faucher - J.P. Morgan

Okay. And then just one quick question here, more of anaccounting question. Do you guys use sales curve accounting to match up thingslike marketing spend with volume?

Tom Falk

I don’t think so, because I am sure, I don’t know what youare talking about. Mark's shaking his head too. We list our accounting policiesin the footnote in terms of how we book promotion and advertising and so forth,but it's pretty straight forward.

John Faucher - J.P. Morgan

Okay. I'll follow-up offline. Thank you.

Tom Falk

That’s great.

John Faucher - J.P. Morgan

Thanks You.

Operator

Our next question comes from Justin Hott with Bear Stearns.

Justin Hott - Bear Stearns

Thanks. Can you maybe give us some guidance on what you seeout there and what your competitors, is there any future spending in any ofyour major categories first of all?

Tom Falk

Well, it continues to be a competitive environment. So, ifyou look at the coupon levels for our various competitors and variousactivities, that continues to be competitive, I would say some of the premiumbath account change, that's the P&G led, that we have followed it in acertainly different way, Georgia-Pacific has also followed. So, with the higherfiber costs, very recently you've seen competitors generally following. And interms of the pricing that we announced for February of '08, it's only been inthe marketplace for a little over a week. So, there's hasn't been any othercompetitive announcements on that front.

As you look at the diapers and wipes and pants, thatcontinues to be a competitive battle. And in adult care, there we're reallybattling private label more than anything else. If you look at our growth inD&E, in a lot of cases we are driving category penetration. So, as thoseeconomies grow and consumer incomes improve, we are able to bring more and morepeople into the category. And we want more than our fair share of those newentrants. And so, in our BRICIT markets in particular, we saw growth of, topline is up 26%, a lot of that is category penetration, as opposed to a sharegain.

Justin Hott - Bear Stearns

Has there been any change in behavior of private label inthe paper-related categories? Since pulp continues to go up, anything you'venoticed so far?

Tom Falk

Well, it's not as big of a factor in the US. So, I wouldn't say I've seenanything substantial there. But I also don’t spend a whole lot of time lookingat that segment of the category.

Justin Hott - Bear Stearns

And just one last thing, can we get a little more detail onthe BRICIT countries may be which are outperforming more than the others?

Tom Falk

Yes, I mean, let’s say Russia,China, Brazil were clearly the threebiggest, and the three strongest performances in the quarter from a top linestandpoint. And good progress in all those areas, in Russia it's really been driven moreby diapers. Pretty much the same story in China although, fem care continuesto perform very well. And Brazilits again diapers and fem care. I was just in Sao Paulo a couple of weeks ago and the teamthere is motivated. They are doing great things in the marketplace. A lot ofgood capability being built, and yes we think we are really building a platformfor sustainable growth in the BRICIT countries.

Justin Hott - Bear Stearns

Thank you, Tom.

Tom Falk

Thanks.

Operator

Our next question comes from Bill Schmitz with DeutscheBank.

Bill Schmitz - Deutsche Bank

Hi, good morning.

Tom Falk

Good morning, Bill.

Bill Schmitz -Deutsche Bank

Because the sales growth is coming in a lot better than, Iguess, you expected in your models. Are you still thinking 100 basis pointincrease in A&P spending or is it more going to be a dollar amount now by2009?

Tom Falk

Yes, we haven't changed our target at this point in time for'09. But as you look at a quarter or couple of quarters out, you tend to planfor where your think the top line is going to come in. And then you buildprogramming around that kind of a level, and we've just seen good results fromthe A&P stand. As well as the execution at the customer level. So, thewhole process has been working very well for us so far this year.

Bill Schmitz - Deutsche Bank

Okay. Great. And then, just on the K-C Professional side,pricing is only 1% in the quarter, but I thought the price increase was earlyon in the second quarter. So, why some, why they are kind of flowing through inthe P&L?

Tom Falk

The vast majority of that business is contract space, so ittakes longer to get price realization in that marketplace. So, a very smallpercentage of it is on list, and so sometimes you have to wait for thecontracts to come up before you can go into those. And then, as you are out inthe marketplace at times you have to be competitive and spent some of it backnot unlike a trade promotion, analogies of the consumer business, to make surethat you retain your business. So, again, we'd expect that to build overtime.But it takes a little longer to get price realization in the professional market.

Bill Schmitz -Deutsche Bank

What's the price increase, the percentage amount?

Tom Falk

There was one in October 1, that was double-digits and Ithink the one in April was of similar amount.

Bill Schmitz - Deutsche Bank

Okay. Great, and then, how about gross margin for the fourthquarter? You think it's going to be up?

Tom Falk

Yeah, we are still going to see a persistent cost inflationhitting us, we hope, we can do a little better on distribution expense, part ofthat's going to be a function of oil price. We should start to get someadditional revenue from the price realization from the Cottonelle price countchange. As well as some of the K-C Professional price increases. So, I wouldsay some sequential improvement from where we were in the third quarter isassumed into those numbers.

Bill Schmitz - Deutsche Bank

Okay, great. Andthen, just very briefly, I think in the new Viva Ultra capacities, is up rightnow? I mean, are you getting more aggressive in that business now, that it's alot more cost effective and you can scale it up more?

Tom Falk

Yeah, we really have all this year and you have seen goodgrowth in Viva and we are up double-digit turns Viva in the third quarter. Andso, we think that's a great brand and a great product. And so, we've gotcapacity now to drive that a little bit harder.

Bill Schmitz - Deutsche Bank

Okay. Is it possible for the rest of the business given thehigh latex content in it?

Tom Falk

Yeah, Viva has got a very positive margin story for us.

Bill Schmitz -Deutsche Bank

Great, thank you very much.

Tom Falk

Thanks Bill.

Bill Schmitz -Deutsche Bank

Very helpful.

Operator

Our next question comes from Connie Maneaty with BMO CapitalMarkets.

Connie Maneaty - BMOCapital Markets

Hi. Let's try this again.

Tom Falk

Hi, Connie.

Connie Maneaty - BMOCapital Markets

Hi. Do the cost-savings that you currently have in place. Doyou think they would be enough to offset oil in the high 70’s or the low 80’s?

Tom Falk

You are talking about fourth quarter?

Connie Maneaty - BMOCapital Markets

No. I am sorry; I am talking about next year.

Tom Falk

We haven’t given guidance for '08 specifically, but what Iwould tell you is that we committed to a three year cost-savings program aroundFORCE at our Investor Day last year. And we’re on track and we are ahead todeliver that. So, we would expect that to continue in '08. And today we’replanning on oil in the high 70’s. And overall, I would tell you we expect tocontinue to deliver against the goals in our global business plan.

Connie Maneaty - BMOCapital Markets

But, when you started the FORCE program what were your threeyear assumptions for the cost of your, of pulp and of oil?

Tom Falk

We’re expecting more of a normal level of inflation,probably in $100 million to $150 million a year has been quiet a bit more thanthat. But we’re also getting more pricing than we thought that we would have atthat point in time. So, for those seismic shifts, you are going to need to getsome selling price increased, to be able to offset the cost of oil and fiber.

Connie Maneaty - BMOCapital Markets

I guess the last question is, as you come to the end of therestructuring program, do you see through the FORCE program more savings thatyou could accelerate if raw-material costs don’t debate?

Tom Falk

You are seeing some of that this year. We are really aheadof our FORCE plan for the year, at the high-end of the range of our FORCEsavings for the year. And one of the challenges is that, as we have beenimplementing the competitive improvement initiatives, some of the people thatwe would have working on normal cost savings are working on restructuringfacilities and so forth. So, as we get past all of the restructuring, we'llhave a bit more capacity to generate cost savings ideas. And we haven't reallyquantified that. That should be a positive for us.

Connie Maneaty - BMOCapital Markets

Okay. Thank you very much

Tom Falk

Thanks Carnie.

Operator

Our next question comes from Jason Gere with Wachovia CapitalMarkets.

Jason Gere - WachoviaCapital Markets

Good morning.

Mark Buthman

Good morning Jason.

Jason Gere - WachoviaCapital Markets

Hi. Just a question about the price increase for next year,we've seen in the past that when you take pricing sometimes there is I guess aresidual impact of volumes. Can you talk a little bit about the mix betweenmaybe the marketing spending and maybe a little more trade spending you mightneed to just make sure the consumer gets the right price proposition?

Tom Falk

Yeah. Obviously, we haven't had a lot of price increasesrecently in diapers, to be able to measure this. I would say diapers is less ofa risk, because the consumers in the category are probably the most sensitivecategory. Historically it's been facial tissue and we haven't initiated anyprice action on facial tissue at this point in time in the US.

So, all the pricing is directed at rolled products, bathtissue and towels. And those categories typically hold up pretty well, were yousee some volume declines often as were we take place for sheet count. Andbecause, we measure volumes and sheet sold and the consumer's typically buyabout the same number of roll. So, it takes a little while for that householdinventory change, to adjust through the system, and then you get back on moreof a normal category growth perspective.

Jason Gere - WachoviaCapital Markets

Okay. And then secondly, I am not sure if I missed this. Canyou talk little bit about the tissue volumes in the developing and emergingmarkets, with the price increase, what's going on there and kind of theresolution?

Tom Falk

Yeah. In the developing and emerging markets, tissue volumesweren’t up there, they are pretty flat. We pushed some price in Latin Americamore aggressively, we're doing some things in Brazil to restage our value bathproduct from a 1-ply to a 2-ply, with fewer sheets. And so that's flattening upthe volume and giving us a little bit more price in emerging markets. Otherthan that there really wasn't much of a story on consumer tissue, in emergingmarkets, more of that business is really in North America and Europe.

Jason Gere - WachoviaCapital Markets

Okay. And then, the last question, I guess, sort of fourthquarter you are seeing adjusted tax rate would be 27 to 29. Is that how weshould look at it, I mean, assuming that the synthetic fuel it's completelygone for '08. Is that the range that we should be looking at for next year?

Tom Falk

We will give you more guidance on '08 in the January call.But that's going to be a lower than normal effective rate in the fourthquarter, because we have visibility of some tax planning initiatives that wewill take advantage of in the fourth quarter.

Jason Gere - WachoviaCapital Markets

Okay. Fair enough, thanks.

Tom Falk

Thanks.

Operator

Our next question comes from Chip Dillon with Citigroup.

Chip Dillon -Citigroup

Yeah, just a quick follow-up Tom. On the tissue priceincrease for February, do you have ways, this year you did it, obviously, agreat job of managing around the pulp cost situation? If we don't see yourcompetitors following, I guess, today we haven't seen any movement, correct meif I'm wrong, do you have ways you could achieve your bottom line objectives ifwe don't see success for this increase? Or alternatively, you do put inpricing, but you take a volume or market share hit for it?

Tom Falk

That's pretty early days yet and I am not going tospeculate, I guess on what might or might not happen. We will have morevisibility over the next month or so. And what pricing levels are going to looklike for '08. And then we'll factor that into our guidance and in our plan for'08 that we share with you in January.

Chip Dillon -Citigroup

Okay, alright. Thank you.

Tom Falk

Thanks.

Operator

Our next question comes from Mariann Montagne at ThriventAsset Management.

Mariann Montagne -Thrivent Asset Management

Hi, just to revisit the inventory side of things in theworking capital. Can you breakout for us a rough estimate of what part of theworking capital decline was due to the timing of sales, collections and whatpart was because of the higher value of your inventory now?

Tom Falk

Yeah, our working capital was up about a 100 basis points inthe quarter. Receivables my recollection and Mark is here as well and he cangive you a little bit of detail. Receivables was about half of that increase,may be just a little less. Part of that was in the fact that month ended on aSunday, so we shipped Saturday and Sunday, and invoiced that. But obviouslythere weren't any collections on Saturday and Sunday.

Also the Monday after was a bank holiday, so if customerswere going to send anything into the lock boxes, they really have untilTuesday, the calendars having been received by the due date. So, I would saythat was, we probably added a day to our day sales and receivables as theresult of timing. But Mark unless you got any more

Mark Buthman

Yeah Marianne, this was sort of roll of thumb, we sell about$50 million a day on an fully annual basis, so a couple of days of lack incollection is about a $100 million.

Tom Falk

And then, if you look at inventory and you look at the costinflation we have had this year, its heading toward a $300 million kind of anumber. It has been $ 235 million through the first nine months. And anyfigure, we have got probably little over 60 days of inventory, so it takes twomonths worth of that, and that's our ballpark number on what the impacts ofinflation would be on our inventory. So, obviously we have got things on LIFOand other stuffs, so it's not quite that simple, but that’s the ballpark thatwe're at so.

Mariann Montagne -Thrivent Asset Management

Okay. And I have a follow-up question if I could ondeveloping in emerging markets, what is your operating margin now in thatgroup?

Tom Falk

I don’t if we've disclosed that separately, but theoperating margins are generally a little lower than the corporate average. Butagain, we are growing, the top line faster than the corporate average, and weare growing the bottom-line in developing and emerging markets faster than thetop line. So, we are closing that gap some what.

Mariann Montagne -Thrivent Asset Management

Could you just give me the change, the Delta this quarter?

Tom Falk

We haven't disclosed that information.

Mariann Montagne -Thrivent Asset Management

Okay. Thanks anyway.

Tom Falk

Thank you.

Operator

Mr. Masseth at this time there are no further questions.

Mike Masseth

Okay. Dave, I think we will wrap it up then, Tom finalcomments?

Tom Falk

Thank you again for your support to Kimberly-Clark. We had asolid quarter. I am very pleased about the top line. It's in a challenging costenvironment and our teams have done a great job of delivering results in thechallenging environment. So, thank you again.

Operator

Ladies and gentlemen, you may disconnect at this time.

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Source: Kimberly-Clark Q3 2007 Earnings Call Transcript

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