Kimberly-Clark Corporation

Kimberly-Clark Corporation

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Household & Personal Products

Kimberly-Clark Corporation (KMB) Q3 2008 Earnings Call Transcript

Published at 2008-10-23 16:40:24
Executives
: : : Randy Vest – VP & Controller
Analysts
Ali Dibadj – Sanford Bernstein Gail Glazerman - UBS John Hausey – J.P. Morgan Chase Connie Maneaty – BMO Capital Markets William Schmitz – Deutsche Bank Alice Longley – Buckingham Research Chris Ferrara – Merrill Lynch Jason Gere – Wachovia Lauren Lieberman – Barclays Chip Dillon – Independent Research Linda Bolton Weiser – Caris & Company
Operator
Excuse me everyone, we now have your speakers in conference. Please be aware each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question. I would like to turn the conference over to Mr. Mike Masseth. Mr. Masseth, you may begin, sir.
Mike Masseth
Thanks, David. Good morning everyone. We appreciate your interest in Kimberly-Clark. With us today are Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Randy Vest, Vice President and Controller. Here is the agenda for today’s call. Mark will start with a review of our third quarter results. Then, Tom will provide his perspective and that will leave us with plenty of time for Q&A. And for those wishing to follow along, we have a presentation of today’s materials, as usual, in the Investors section of our website, which is www.kimberly-clark.com. First, let me remind you that we’ll be making forward-looking statements during the call today. There can be no assurance that future events will occur as anticipated or that the Company’s 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. We will also be referring to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating profit, and adjusted operating margin. Management believes that reporting in this manner enables investors to understand and analyze our ongoing results of operations. For additional information on why we make these adjustments and reconciliations to comparable financial measures determined in accordance with GAAP, see today’s news release as well as additional information on our website. Now, I’ll turn it over to Mark.
Mark Buthman
Thanks, Mike. Good morning. I am going to briefly review the quarter and I will start with the top line. Sales increased about 8% to $5 billion, including favorable currency effects of less than 3%. Organic growth was solid at almost 6%, but driven by our focus center improving net realized revenue which led to a four point gain in net selling prices and two points of improved product mix. Total sales volumes were down about 1% and were impacted more than we anticipated by higher prices. We’re also seeing some effects of economic weakness and slower category growth for consumer trade down. Now turning the top line for each of our segments. In personal care sales climbed almost 12%. Strong organic growth of about 9% was driven by increased sales volumes and higher net selling price, each up about 4%. Improved product mix contributed an additional point of growth. In North America, sales increased nearly seven percent. New selling prices rose four points while buying and mix each advanced more than 1%. The gain in selling prices included good progress from our mid-July increases on diapers and training pants. The volume growth was mostly due to our marketing leading Huggies baby wipes. Buy ins for Huggies diapers and our child care brands were similar to year ago levels and generally in line with plan. Although we did experience short term impact from increasing prices ahead of our major competitor. Moving to Europe, personal care sales volumes were off 8%. Huggies volumes and core markets were down the same percent as the promotional environment in Europe continues to be very competitive. In developing and emerging markets, personal care sales jumped nearly 20%, that’s the 16th consecutive quarter of double-digit growth. Organic sales rose 15%, as volumes increased 9% and improved pricing mix contributed total of six points of growth. Volume highlights included low 20’s growth in the fast growing BRICIT countries. Double-digit growth in Latin America overall. And good performance in South Korea and Vietnam. Now turning to Consumer Tissue, sales rose 5%, including three points of benefit from currency. Net selling prices were up 7%, with solid increases around the world and improved mix also benefited sales by 2%. Volumes fell about 7%, given the cost environment, we’re trading off some volume in order to improve revenue realization. In North America, net sales decreased 2%, higher net selling prices of 6%, and improved product mix were more than offset by a 9% decline in volumes. On the pricing front, benefits came primarily from the role product increases we implemented in the first quarter. And again in early August. Kleenex facial tissue prices went up toward the end of the third quarter. We’ve made some progress so far with the execution of our third quarter price increases, but it's still early days and we continue to watch promoted price points carefully. Regarding volumes, there are plenty of details in the news release, but in short, branded lines were down across all categories. In addition, the buying declines continue to reflect our decision to exist some low margin, private label business at the end of last year. Now switching to Europe, Consumer Tissue organic sales were up modestly. Net selling prices rose 4% due to increases in several markets. Volumes fell about the same percent in response to the price increases and category weakness, particularly in the U.K. In the developing and emerging markets, Consumer Tissue organic sales roses 13%, driven by a 12 point gain in net selling prices, and four points of improved mix. Now, moving to K-C Professional and Other, sales increased 8%, including three points from currency. Organic sales rose 5%, driving by higher net selling prices of 4%, improved mix of 2%. Overall, sales volumes were down one point in the quarter. KCP continues to make progress with its targeted growth initiatives with double-digit global sales growth for high margin diapers and safety products in the quarter. In North America, KCP organic sales rose about 2% as price and mix each advanced 3%. Compared to a strong year ago, volumes were down 4%, were impacted somewhat by our focus on increasing prices, and the current economic environment. In Europe, KCP had a great quarter, with double-digit buying growth, and two points of higher prices. And in the developing and emerging markets, KCP organic sales continued to increase at double-digit rates. Lastly, Health care segment sales increased 4%. Top line growth was driven by higher volumes of 5%, and currency benefits of 1%. Those gains were partially offset by lower net selling prices of 2% reflecting continued competitive conditions in the surgical supplies market. Health Care sales volumes were up 4% in surgical supplies, led by double-digit growth in exam gloves. Our higher margin medical device business had a solid quarter as well, with 6% volume growth. Now moving to operating profit and cost savings and for this discussion, I’ll refer to adjusted operating profit and margin, which excludes certain charges and gains detailed in this morning’s news release. Third quarter operating fell 9% to $626 million with an operating margin of 12.5%. Profitability was impacted by cost inflation of about $250 million the quarter. That’s the highest quarterly amount we’ve ever faced. Costs continue to increase during the quarter for many of our oil based inputs, reflecting the affects of the spike in oil prices earlier in the year. Despite the inflation, we continue to reinvest in our brands. Strategic marketing investments increased by $25 million, rising faster than sales. Margins were also impacted by 60 to 70 basis points from planned production downtime we took in order to improve our inventory position. Now, turning to cost savings, total savings were $47 million the third quarter. Our ongoing FORCE program generated savings of $19 million the quarter, that’s despite higher spending in some of our facilities and below average productivity overall. In terms of the strategic cost reduction plan, we realized $28 million of yearend year benefit in the quarter and we’re tracking to exceed our original target for the year. Our teams remain very focused on cost savings in this environment. And we will deliver significant savings for the year. However, given year-to-date results of $137 million, we may fall short of our full year objective of $200 million to $250 million in savings for the year. Now, let’s look briefly at third quarter segment operating margins. As expected, margins were down in all segments due to the inflationary pressures we’re facing. That said, Personal Care profitability remained healthy at nearly 19%. Moreover, K-C Professional and other margins improved nicely from the second quarter. Besides the input cost inflation, all segments were impacted by the production downtime I just mentioned. That’s particularly true in Consumer Tissue and Health Care. Now, switching briefly to taxes, the adjusted effective tax rate in the third quarter was 28.2% towards the low end of our previous guidance for a rate in the 28% to 30% range. Based on what we know now, the fourth quarter 2008 adjusted rate should be in the 27% to 29% range. Turning to equity income, equity income advanced 35% primarily due to increased earnings at K-C to Mexico. KCMs results reflected double digit sales growth and a favorable income tax settlement, partially offset by cost inflation and currency losses incurred on about $300 million of U.S. dollar denominated debt. The benefit to K-C from KCMs tax settlement was equivalent to about 0.03 per share, while the negative impact of the currency losses was about 0.01 per share. Now, moving to cash flow and the balance sheet. Cash provided by operations was $641 million, that’s up 13% from the year-ago period. Mainly because of improved working capital performance. While our working capital matrix have improved over the last two quarters, we still have opportunities to improve our performance even further. Looking at capital spending, we invested $219 million in the quarter. That brings year-to-date spending to $652 million. And we’re on track with our full year investment target of $850 million to $950 million. Regarding share repurchases, we bought back 2.5 million shares of KMB stock at a cost of about $130 million during the quarter. Bringing year-to-date repurchases to $550 million. Our solid balance sheet and capital structure has served us well in these uncertain times. In this environment, we’re being somewhat more conservative with our balance and with capital deployment. As a result, we now expect to repurchase $600 to $650 million worth of our stock for the year. We also anticipate making a contribution toward U.S.-defined pension plan in the fourth quarter. So that wraps up the financial review. To recap the quarter, we achieved solid top line growth. Our margins were weighed down by significant cost inflation. Bottom line results were in line with plan, and we delivered improved our cash flow. Now I’ll turn it over to Tom.
Tom Falk
Thanks, Mark, and good morning, everyone. I’ll comment briefly on the third quarter, and then I’ll review the outlook for the balance of the year, and then we’ll get to your questions. My headline this morning is that we’re managing through a very challenging environment. And our near term focus is on revenue realization and net cash flow. At the same time, we’re doing what’s right for the long term health of the business. My perspective on our third quarter results would be to highlight several key points. First I’m proud of our Kimberly-Clark teams and how they’ve responded in the fact of unprecedented cost inflation. Thanks to their efforts, we’ve delivered solid organic sales growth of almost 6%. Our businesses in developing and emerging markets are also very healthy and made a big contribution to our growth in the quarter. Our D&E teams are capitalizing on the opportunities that these rapidly growth markets offer us, with a blend of great marketing, good product innovation and strong customer relationships. Then second, our focus on improving realized revenue is beginning to pay off. And that’s the key to offsetting the cost inflation we’ve experience and restoring our margins. We’ve been particularly focused on revenue realization in our Consumer Tissue and K-C Professional businesses. So I’m encouraged. The net selling prices were up about 4% in the quarter. And then our product mix was 2% favorable as well. Although as Mark mentioned, our pricing leadership has held our volumes back more than we expected. And this environment, staying focused on revenue realization is the right focal point for us. And then third, I’m pleased by the continued strength of our cash flow and our balance sheet. Our financial strength has served us well over the years. So despite the recent turbulence in financial markets, we have had ready access to credit and the demand for Kimberly-Clark’s commercial paper program has continued to be strong. Our financial strength also enables us to pay out healthy dividends. And that provides an attractive yield to our shareholders and demonstrates our confidence in the future. So now let me turn to the outlook. The unprecedented volatility in global commodity currency and financial markets has resulted in as high a level of uncertainty in the current business environment than I’ve ever seen. So looking at our businesses today, there are a lot of moving parts. And many of these are experiencing significant fluctuations, even on a daily basis. And while this makes it more challenging to predict our results in the near term, the plan we are following is pretty clear. We’re making sure we effectively manage the factors we can control. So we’re building our brands, we’re improving our key capabilities, we’re reducing our costs, and then we’re deploying our cash in ways that are fair to our shareholders. And these are the right things for us to do to ensure the long term health of our business. At the same time, we’re taking the appropriate steps to improve our near term results. We’re driving price of mix, we’re working on increasing our efficiency and continuing to reduce our working capital. So our plan for the fourth quarter, target solid organic sales growth in the mid-single digits. And that’s going to be driven primarily by higher net selling prices and improved product mix. Sales volume growth in the fourth quarter will likely be relatively weak due to our focus on revenue realization in areas of the economy that are also experiencing weakness. Nonetheless, we still expect to maintain higher levels of investment and strategic marketing in our customer development activities. Given the significant changes in foreign currency exchange rates over the last month, we would now expect that currency will be a drag on our fourth quarter sales comparisons, instead of the benefit we’ve been experiencing over the past several years. And meanwhile, the price increases that we’ve implemented during the third quarter, along with some benefits from recent commodity cost reductions, should help drive a sequential improvement and adjusted operating profit in the fourth quarter, versus the third quarter. And that assumes consumer demand holds up, and that there are no material changes in input costs and keep foreign currencies from the current levels we’re experiencing today. And the currencies that we’re obviously watching most closely are listed in the presentation slides to this presentation today. I’m encouraged that commodity costs have recently started to decline, however it could take a while. It could take up to six months before those lower costs are fully realized in our results. While the currency hit from the recent strengthening of the U.S. dollar is reflected almost immediately. In fact, we now estimate that the recent changes in the currency exchange rates that have happened in the last month, will have an adverse impact on our fourth quarter results by about 0.10 to 0.15 per share, versus our previous plan. And this includes sizeable currency translation and transaction losses at Kimberly-Clark New Mexico. Again, we’re assuming current rates here, and the Paso has dropped about 15% over the last three weeks, and I believe it's off again this morning. So all in all, based on what we know today, we expect adjusted earnings per share in the fourth quarter will be in a range of $1.02 to $1.07, and that compares with $1.11 per share in 2007. Given the anticipated fourth quarter performance, we now expect our adjusted earnings per share for the full year 2008 will be in a range of $4.15 to $4.20. Again that’s versus $4.25 per share in 2007. And this new guidance compares with our previous guidance of adjusted earnings per share of $4.20 to $4.30. So, to summarize, our top line growth strategies continue to deliver good organic growth as we execute our target of growth initiatives. Increase in net selling prices, and continue to improve product mix. And although unprecedented levels of inflation have interrupted our bottom line growth, several levels of inflation have interrupted our bottom line growth, we have taken aggressive steps to offset the cost pressures. As a result, today, we are in a good position to improve our margins sequentially in the fourth quarter. And that will set the stage for further progress in 2009. Our teams are committed to improving our performance, and I’m also hopeful that we’ll realize more benefits from recent commodity cost reductions once the currency and commodity costs, commodity markets settle down. But given the volatility that we’re experiencing in the current environment, this could take some time. So, regardless of the environment that we’re in, you can count on us to stay true to our Global Business Plan strategies, and these are designed to build strong, enduring brands of franchises. And we’re confident this route will create long-term sustainable growth for Kimberly-Clark, and long term value for our shareholders. With that, thank you for your interest today. And we’d now be happy to start to take your questions.
Operator
Ladies and gentlemen, at this time the floor is now open for your questions. (Operator instructions) Our first question comes from Ali Dibadj from Sanford Bernstein.
Tom Falk
Morning Ali. Ali Dibadj – Sanford Bernstein: A few questions. One is first on price realization and, obviously the austicity were, a little bit worse than you suspected. And it looks like at least tissue is kind of creeping more towards one in terms of the austicity. What do you expect in terms of, you know, price, I mean I guess relaxation going forward? How do you think you’re going to have to take down your prices, particularly as commodities, maybe do start rolling over here.
Tom Falk
Well at this point, you know we’re still trying to focus on realizing price and you’re not seeing as much of the commodity cost that’s flowed through at this stage. You know, the pulp had just started to crack a bit this last month. You saw a $60 decline in southern hardwood. But if you look at a lot of the other cost inputs, and things like super absorbents and other things, we’re really not seeing much cost declines yet. So, you know, at this point, you know we’ve been aggressively pushing price up. We’ve been taking our promoted price points up where we can. Not everybody in the category has so we know there’s going to be some volume exposure while we go through that. The one we’ll probably watch closely is things like facial tissue, which the price increase just went in at the end of the quarter. And so obviously we’re heading into the cold and flu season. We’ll how that performs as we go through that environment. Ali Dibadj – Sanford Bernstein: But you mentioned a couple things in there. One is some of you may not have seen the decline in commodities just yet. But as that starts happening, hopefully, would you then expect to have to push back on pricing. I say that in the context of, you’re already seeing, you know you mentioned it a couple times in your remarks early and also in the press release, a competitive dynamic that is clearing being aggressive on pricing, whether it be private label, whether it be some of these other branded players.
Tom Falk
Yeah, I think it's something that obviously, we’re going to watch closely. We’re, if you look at our shares for the quarter, they were basically pretty stable. A little bit of weakness in tissue. A little bit of private label improvements. So that’s something that we’ll obviously continue to watch. And you know in the end we’re going to want to be competitive. But I also think in this environment where there’s been so much cost inflation, you know our focus is also to improve our margins in this period. Ali Dibadj – Sanford Bernstein: And are margins are one of the leverage your pulling out these cost savings and it looks like it disappointed a little bit this quarter. Is there a possibility, or how big is the possibility that you had pulled forward your cost savings projects in the face of high commodities, and now you have a little bit less left going forward?
Tom Falk
I think it's a couple things. As you look at the breakdown on the material specification changes. We continue to do pretty well and show strong cost savings on that front. Productivity was actually negative for the first time in a while, which you know, we took more downtime in the quarter, which we try to track separately. But obviously when you’re taking more downtime, you don’t run as well either, so that was a part of it. Negotiated material price savings, you know, obviously and the kind of inflation we’ve had recently, it's harder to get facts from vendors. And then the all other at the end, you know there’s no one big thing in there. I think there’s a little bit of inflation that’s flowing into that number. I also think with more downtime we probably didn’t control our maintenance spending as well as we could have. So I continue to believe that there is good opportunity for us to deliver for savings over the long term, consistent with the goals we’ve set. Though we’re probably going to fall short in 2008 of the goals we set for the year. Ali Dibadj – Sanford Bernstein: Okay and last question is on Personal Care. That’s where we immediately saw margins this quarter come down significantly. Can you talk a little bit about that? Is it pack sizing shift, is it channel shift, is it private label, is it market increases? Just give us a sense of that please, thanks.
Tom Falk
Yeah, a couple of things there. You know there was an increase in strategic marketing. Personal Care probably had a disproportionate amount of that. You know they had, they also got the brunt of the polymer cost increase kind of came in in the quarter. So polymer costs were higher in July than they were in June, and higher in August than July, and September they pretty well stayed up at that high level. So that flowed through in the quarter. There’s a little bit of a mix shift is that, you know that second quarter is a pretty big Little Swimmers quarter for us. And so, you know, you saw a relatively less Little Swimmers in the third quarter, and more of the rest of the product mix flow through there. So probably, you know, our second quarter margins are usually a bit of a high point for us. So, those are probably the three biggest factors I think that affected the comparison. Ali Dibadj – Sanford Bernstein: Okay thanks.
Tom Falk
Okay.
Operator
Our next question comes from Gail Glazerman with UBS. Gail Glazerman – UBS: Hi, good morning.
Tom Falk
Morning Gail. Gail Glazerman - UBS: I guess going back to the volume trends, can you give me a little bit more color, and how much of, if you think you’d get any of it back, as other competitors follow with price increases? You mentioned you haven’t lost much shares. If you could maybe give a little bit, a little bit more color, particularly in the towel segment that you reference.
Tom Falk
Yeah, in the consumer tissue volume there are several things going on this quarter. Some of it is we shed some private label volume earlier in the year which has been a comparison all year in that segment. There was also some de-sheeting that happened late last year in Cottonelle that we track as volume negative and a price positive. So that’s in there. And then, you’ve seen some category weakness, where it actually the facial and towel categories have been, were a little bit weaker in the third quarter than they have been historically. And then lastly, you know, we’ve probably lost a little bit of share, probably a point of share in sequentially in bath and towel. So, all of those factors combined make it a pretty ugly volume quarter for consumer tissue. You also an emerging marketing, particularly in Latin America, we’re very aggressive on price. Took price up strong double digits in many Latin American markets. And took some volume risk there at the same time. Gail Glazerman - UBS: Okay, any of the weakness in the third quarter, do you think any of that would be customer inventory’s of stocking?
Tom Falk
I’d say in some markets we, you know, we saw household inventory do stocking, more than customer inventory do stocking. The U.K., for example, the bath category was down pretty strongly. Big shift to private label in the U.K., but you also saw less lift than normal from the large count pack promotions, where consumers were buying much smaller pack counts, and not willing to inventory load as much as they may have in the past, even though the promotional price points were similar. Gail Glazerman - UBS: Okay, and just switching gears on the cost side. I totally understand it's going to take some time to flow through. But can you give us a sense, a little bit of a sense us moving into 2009, and the (inaudible) prices have started to move the last few months, waste paper is coming off dramatically. You probably don’t have particular hedges or anything that would stop that from flowing through. I mean, just, when would you expect, I guess, to see the bulk of the release assuming things stay where they are today.
Tom Falk
Yeah, I guess, let me just talk about each of the commodity areas. Diesel fuel, obviously the one that we see first. So that, you know, whatever the carriers pay, flow through pretty quickly. So diesel, you know, we’ve already started to see a little bit of benefit from. You know pulp would probably be next. Obviously you carry some inventory, and obviously you have your finished product in inventory. So you’ve probably got, you know, four to eight weeks of inventory in the system, between raw materials and finished stock that will, that will need to flow through before you start to see the benefits on both pulp and secondary fiber. Obviously southern hardwood dropped $60 a ton last month. I think northern softwood is up about $20 a ton. We’ve seen some very recent, like in the last couple of weeks, secondary fiber dropping $30 to $40 a ton as some of the Chinese exporters are not able to get letters of credit to be able to move some of that product overseas. So that’s actually, what we’re not sure of is how temporary that is, as more liquidity comes into the financial system. Will that export market pick up again at some point. So that’s one we’re watching pretty carefully. Polymer takes a bit longer. There’s some of our polymer suppliers and super absorbent suppliers are still feeling some of the after affects of the hurricane season that went through the Southern U.S., particularly Hurricane Ike. So we’ve had some of the base monomers that go into making super absorbent and making some of our other polymers have been in very short supply. We’ve even been on crisis management allocation programs to try to manage through that. And as that comes back into better balance, we expect to see ultimately the benefit of lower oil prices flow through there. But it’ll probably, that could take, you know, ultimately three to six months to show up in some cases. Gail Glazerman - UBS: Okay.
Tom Falk
Is that enough color for you Gail? Gail Glazerman - UBS: Yeah that’s great. Thank you very much.
Operator
Our next question comes from John Hausey from J.P. Morgan Chase
Tom Falk
Hello John. John Hausey – J.P. Morgan Chase: Good morning everyone. I guess just a quick follow up on that. You know, you guys had mentioned volatility in the raw materials a couple of times in your prepared remarks. And I guess, you know, we got a little bit of color of that. I mean, I would guess to sort of interpret it what you’re basically saying is the trend is in the right direction, but is it just the day-to-day volatility that makes you think that? You know, look, we’re going to be, you know, we’re going to hold off in terms of saying we have this, you know, it's moving in our favor. Or is it sort of there’s still things on the horizon that make you think okay, you know we could see this thing whipsaw back to where it’s a little unfavorable.
Tom Falk
If you’re talking to a supplier today, I mean they’ve been, you know, they're using an oil-based feed stock, they’ve been whipsawing for the last three years. They’ve been behind on price realization. So they're sitting looking at oil at, you know, $70 or just under $70. And you know, is their center point $100 a barrel, or $120 a barrel, or $80 a barrel. And so, they're trying to think about, you know, and plan for what’s that more likely to look like. And you know, it's only been in the last month or so that it's really come off. And you know, there still remember $147 oil peak and thinking we’re a couple bad days in the market from running back up there. And so, in the end, it will start to correct. But in the near term, I think everybody’s trying to figure out what the zero point is. And in some cases, you’re seeing commodities still go up. I mean corrugate for us and which we use a lot of cardboard boxes to move our product, that was up high-single, low double-digits again, still in this quarter. So you’re not seeing some of these costs come off as much as you might think. John Hausey – J.P. Morgan Chase: So it sounds, and I hate to paraphrase for you, but it sounds like what it is is it’s less volatility than more caution. And you know the volatility really would be you can’t predict, you know, every single raw material is moving in one direction or the other. Are those two fair statements then?
Tom Falk
Yeah I think that’s fair. You’ve seen some of the I think some of the CEOs have been out, taking multiple price increases in a quarter. You haven’t seen the announcements of them rolling any of those back yet. John Hausey – J.P. Morgan Chase: Yes. Okay. And then one other question to follow up again on the buy back. Just so I understand, I mean you guys talk I think a little bit about caution in terms of reducing the buy back guidance. Is that caution in terms of being able to access the debt markets, is that just, you know, look as numbers come down you want to just hold on to a little bit more cash? Just give us a little bit of a sort of philosophical view in terms why you’re being a little more cautious on the buy back.
Tom Falk
Yeah, I’ll let Mark talk about that, to add a little more color, in the end we’re going to put some money in the pension plan of the fourth quarter. May have to make a contribution in the first quarter. We’ve got to buy out the rest of our (inaudible) affiliate, which I think we’ve announced and that’ll happen in the first quarter. So we’ve got a couple of calls on cash coming in the first quarter, and we’re probably going to just make sure we’ve got some try powder here. But Mark if you want to add anything to that.
Mark Masseth
Yeah I think that’s a fair characterization. It's not a big shift. We’ll still buy back between two and three percent of our shares for the year. Which is our long range target. Have had good call on our commercial paper access. You know, we’ve got $850 million of CP in the market and we’re usually plus or minus $200 million of that. And you know in this environment with the volatility of the financial markets maybe being on the low end of our typical range is, you know, we just feel is a smarter place to be. John Hausey – J.P. Morgan Chase: Okay, but it sounds like it's more, you know, it's more about uses of cash than sources of cash right now.
Tom Falk
Yeah that’s fair.
Mark Masseth
We’d expect to see another solid cash flow quarter. John Hausey – J.P. Morgan Chase: Okay, thank you very much.
Operator
Our next question comes from Connie Maneaty with BMO Capital Markets.
Tom Falk
Morning Connie. Connie Maneaty – BMO Capital Markets: Morning. When do the falls in other currencies start to affect demand in those markets? Do you have a sense of that?
Tom Falk
I was just on some forecast calls as Mark was with our emerging markets team. And you know, early days, but we’re not seeing it in demand. And you know they run the business in local currency every day. So the, you know, the U.S. exchange rate is kind of an (inaudible) of how they think about the business every day. I mean obviously it affects their input costs, so to the extent that they were buying a lot of product or material that was imported from the U.S. You know they might see some translated increases. On the other hand, most of those commodities have gone down and costs on a relative basis. So I think they’re all still trying to do the net calculus to see if they need any further price increase to recover the net swing there between commodity costs drop and exchange rate change. But, you know I think that, you know, overall, we’re still pretty (inaudible) out of emerging markets. We saw another solid quarter of growth. I would expect in local currency to see another solid quarter in the fourth quarter. Connie Maneaty – BMO Capital Markets: Now as you look at what’s going on with currencies, do you, does it seem to you that it is primarily a translation impact, and that the memories of what happened between you know, 1995 and 2001, when all the currencies, emerging markets currencies dropped through the floor. And really affected business on a local level. Do you see (inaudible)?
Tom Falk
Well I guess I think it's sort of chicken and the egg issue here. Because I’m not sure it’s the local currencies that are moving versus the U.S. dollar that’s moving. So, I mean it's all in your perspective I guess. But you know certainly as the dollar was weakening, you know those local currencies really were a nice tail wind for us. Now the dollar has swung back the other way and it’ll be a translation headwind for us. You know, probably the biggest transaction exposure we have is we talked about in the release was Mexico where they’ve got a couple hundred million dollars of U.S. dollar denominated debt that we have to market every month. And then in individual markets, they have transaction exposures which we tend to hedge a portion of on a rolling 12 month basis. So they're buying pulp or they're buying polymer and they know what those exposures are 12 months out. We’ve got that partially hedged going into 2009. Connie Maneaty – BMO Capital Markets: Okay. And then one final question on that. I think you said in your remarks that you expected the single digit sales growth in the fourth quarter. I assume you meant organic sales growth?
Tom Falk
Yes. Connie Maneaty – BMO Capital Markets: And that reported sales are likely to be down because of currency, is that right?
Tom Falk
Well currency will definitely be a drag. You know, we’ll see. I mean I think you know at this point, organic sales growth will be mid-singles. And then we’ll at this point, (inaudible) exchange rates are trading every day. I’d say at current rates, you know we’ll definitely have a headwind from currency in the fourth quarter. Connie Maneaty – BMO Capital Markets: Okay. Thank you very much.
Operator
Our next question comes from William Schmitz with Deutsche Bank.
Tom Falk
Morning Bill. William Schmitz - Deutsche Bank: Morning guys. Just to take us up further in the currency thing. Can you just talk about what the translation impact is relative to say a percentage change in the top line?
Tom Falk
Well I mean if you look at just in real gross ballpark numbers, you know, a rough basket of currencies have probably depreciated what 13% to 15% in the last month or so. And developing and emerging markets about a third of the sales, you know, prior to that, 32% of our sales. So, you could see, you know, a 400 to 500 basis point drag on top line just from those. That doesn’t include Europe. So, I don’t know if Mike or, Mike, if you’ve got any other perspective on that?
Mike Masseth
Yeah.
Tom Falk
Does that help you? William Schmitz - Deutsche Bank: I’m just trying to figure out what the transaction piece of it is. So if it's 400 to 600 basis points on the top line, what’s that translate to on the bottom line. Because I imagine you, I know you hedge a little bit, but you have a fair bit of doubting on the costs as well.
Tom Falk
Yeah we don’t hedge translation first of all. So we won’t spend cash to hedge a non-cash exposure. And we’ll, we typically hedge about half of our transaction exposure on a rolling 12 month basis. So, the amount that we’re going to hedge every month, we’ll hedge about 1/12th of that going forward. So we would have some of that protected again. Probably the biggest single transaction exposure is in Mexico. So if you look at the, how the Paso performs, we’ve got a little over $200 million in U.S. dollar debt and probably closer to $300 million in U.S. dollar debt. So you can do the math on what that will cost. I mean probably if you look at just Mexico sequentially, you know, given where the Paso is today and if you strip out the, they had some tax benefits in the third quarter that won’t repeat. I mean there’s probably 5% of shares sequential draft just from Mexico on the tax and transactional currency impact. William Schmitz - Deutsche Bank: Okay. Good. And then just on the P&L pension cost. I mean should we look for a big uptake in the expense piece? I mean should we look for a big uptake in the expense piece of your pension exposure, both next quarter, then looking up to next year?
Tom Falk
We only set pension expense Bill once a year based on your funded status at the beginning of the year. So you set out your pension assumptions, and then that’s your expense for the year. And then, so going into ’09, we’ll obviously give you more guidance on it. But you could expect that our pension plan has performed pretty much like the market’s performed. And so I would expect both higher funding on the pension plan in 2009, and significantly higher pension expense in 2009. And we’ll give you more color on that in January. William Schmitz - Deutsche Bank: Okay. And just one last one if I could. There was no mention of China anywhere in the press release. I mean how’s that business trending, after the Olympics obviously?
Tom Falk
Continued to do well. I mean overall, we’ve just continued to see solid growth in our BRICIT market, so, and China has performed pretty consistently. We haven’t seen a big fall off there. William Schmitz - Deutsche Bank: Okay. Great. Thanks very much.
Operator
Our next question comes from Alice Longley with Buckingham Research. Alice Longley – Buckingham Research: Hi, good morning. I have a follow up question on currency. And again this is, has to do with the (inaudible) on the bottom line. It sounds as if some of your costs off shore are denominated in dollars such that if the top line were reduced by 5% by currency, would the bottom line be cut by more than that?
Tom Falk
I guess (inaudible) the way to think about currency, you know, there is a transaction exposure because we buy pulp everywhere in U.S. dollars. You know we buy a lot of polymer or non-woven materials to be priced in U.S. dollars. Obviously all the local labor content would be in local currency as well. A lot of the other materials that we would source locally where we can. If you look at the places where we make good profit and have strong margins, or some of the markets that were highlighted in the attachment to the earnings call comments this morning. But I’d pay attention to the U.K., I’d pay attention to the Korean Won, I’d pay attention to the Australian Dollar. I’d look at the Mexican Paso. Probably the Brazilian Real. Those would be big markets for us where we generally make pretty good profit. And so you’ll get both translation exposure, top and bottom line there. But you’ll also have some transaction exposure on top of it where they're buying some commodities in local currencies. Alice Longley – Buckingham Research: Okay. And along those lines, you told us that the currency hedge versus your former guidance would be 0.10 to 0.15 in the fourth quarter. Could you tell us how much currency has boosted your earnings through the first nine months of the year?
Tom Falk
We can, I think Mike or Paul may have that number. Alice Longley – Buckingham Research: Okay.
Mike Masseth
It was a couple cents in the third quarter analyst. And for the year-to-date, it's about 0.15.
Tom Falk
Okay. Alice Longley – Buckingham Research: 0.15?
Mike Masseth
Yes. Alice Longley – Buckingham Research: Okay. And on, now my other question is on the fourth quarter. The mid-single digit organic growth. I’m just trying to take the pieces apart. Compared to the third quarter, will pricing likely be stronger than the third quarter, and volume weaker than in the third quarter?
Tom Falk
I think the only new pricing that will be coming in the fourth quarter would be obviously the facial tissue increase we talked about that went into affect late in the third quarter. We’ve also got some K-C professional price increases that are beginning to roll out into the fourth quarter. So that would be the biggest up-pick sequentially in price realization. You know, we usually have a stronger volume quarter on facial tissue because of cold and flu, so you know we would be looking for that to be a little bit better sequentially. Other than that, probably pretty similar trends to the third quarter. Alice Longley – Buckingham Research: In terms of volume?
Tom Falk
Yes. Alice Longley – Buckingham Research: Okay so it sort of flats it down 1% volume?
Tom Falk
Yeah, again I wouldn't expect to take less than volume, but most of that organic is going to be price in mix. Alice Longley – Buckingham Research: Okay. And then my last question is about North America Personal Care where the volume deceleration was pretty steep. And you sited child care being down. Is that category down? I guess you said your not losing shares. And I'm wondering there's just (inaudible) de-loading or if consumers actually do cut back on that kind of product in tough times.
Tom Falk
Yeah, we've seen a little bit of shift from training pants into diapers as your seeing, you know, consumers are leaving children in diapers longer, and maybe you know opting for the diaper is less expensive per piece than a training pant. You know we've also, in Personal Care, the other factor that you had in the quarter is that both us and our primary competitor took price increases. Ours went into the market three weeks ahead of our primary competitor. So for three weeks in August we were out there at higher prices. And then there was some, some accounts, some promotional price point differences for about another three weeks. There were about a six week period on both diapers and pants in the quarter where we were at a price disadvantage in at least some key accounts. And so elected to take that risk to drive the revenue realization. And so that was probably another factor for the softer volume of bit in the quarter. Alice Longley – Buckingham Research: How long can de-loading last?
Tom Falk
Well in terms of… Alice Longley – Buckingham Research: (Inaudible) de-loading.
Tom Falk
I mean it's just, in terms of, what you're seeing in consumer behavior varies by category. Obviously in diapers and bathroom tissue, they're going to go back to the store and restock because they need those products every day. But they may, over the course of a month, they may buy the large compacts at the beginning of the month and they've got plenty of paycheck. When they get to the end of the month, and they're out of paycheck, they may buy smaller compacts, or they may buy, you know, a smaller, you know, four count pack instead of a 20 pound pack of bathroom tissue. So you're seeing that shift in consumer behavior during a pay period cycle more than we maybe have in the past. Alice Longley – Buckingham Research: Thank you.
Tom Falk
Thanks.
Operator
Our next question comes from Chris Ferrara from Merrill Lynch.
Tom Falk
Morning Chris. Chris Ferrara – Merrill Lynch: Good morning how are you?
Tom Falk
Pretty good. Chris Ferrara – Merrill Lynch: Just wanted to ask about the timing on pulp prices coming down and how it flows through your inventory. I thought you'd said last quarter that U.S. inventories are fully on a (inaudible) basis, so you kind of get that immediate effect flowing through. Is that not right?
Tom Falk
Yeah, you should get some of it, but you know, you've also got in your finished product as well. So it takes longer than that to actually flow through your P&L.
Mike Masseth
(Inaudible).
Tom Falk
And all of our inventories outside the U.S. are not on (inaudible). Chris Ferrara – Merrill Lynch: Oh, okay. So for the U.S. side on the part that is (inaudible) it's just a matter of your finished (inaudible) inventory flowing through, so you, if we could just look at your finished inventory days that would be a good gauge of that?
Tom Falk
Yeah that's probably a better proxy. Chris Ferrara – Merrill Lynch: Okay, okay great. And then on the planned downtime in your plants, and I know you're saying, you know I think 60 to 80 days is (inaudible). First of all, can you just translate that directly down to EP? Or is there another part of that that I'm not thinking of? And then also, is that downtime essentially over for the year and for next year?
Tom Falk
Well, I would say, yeah, obviously it depends on volume. So if we have a weaker volume quarter, we'll probably continue to take downtime to manage inventory. So we're trying to make sure we deliver on our working capital goals, and that we aren't running up a lot of inventory in this kind of an environment. So, I think that we will continue to have some downtime, particularly in consumer tissue where the volumes were weaker in the fourth quarter. And that could continue into 2009 depending on how things play out in the categories. Chris Ferrara – Merrill Lynch: Okay. Okay. So in other words, don't think of that as neat and downturn, downtime, think of it as slowing your plant because the volume is slower. I mean is that…?
Tom Falk
Right. Chris Ferrara – Merrill Lynch: Is that right?
Tom Falk
Right. Chris Ferrara – Merrill Lynch: Okay. And then just, a real simple question I guess. The 0.10 to 0.15 current (inaudible) impacts that you guys are saying, you know, we'll be hitting too for relative to your previous guides. Is this a fair statement that had the dollar not moved so aggressively, and obviously that, you can't separate that completely from commodities, but since you haven't seen much on the commodities side. And would you guys have been raising numbers this quarter, had the dollar not moved in the (inaudible)?
Tom Falk
Well I'm going to choose not to play with the hypothetical deck today Chris, but you know, I think there's, what I would say is there have been so many big moving parts that it is more difficult to forecast the business probably than anytime that I can remember. When you're seeing the kind of shifts in currency and the shifts in oil. One of the things that we've done as a management team, is you know, you used to be able to set, forecast assumptions five or six weeks ahead of when the forecast was going to roll up and be pretty sure they weren't going to drift too much. And now we're looking at adjusting them the day before the forecast rolls up, because everything can change in a short period of time. So it is a different environment to be able to run the business and predict what we're going deliver. Chris Ferrara – Merrill Lynch: But if there is no direct loss that I should be thinking of. I mean it's fair to take that gross currency impact number and just, you know look at what your numbers look like otherwise, right? I mean unless there's some other big thing that you're talking about that would have gone the other way, you know aside from…
Tom Falk
No I think that, you know, again probably the biggest transaction exposures in Mexico, but the translation should correlate pretty well to what has happened with commodities. And you know if you track the dollar, euro exchange rate versus a barrel of oil over an extended period of time, you'd see a pretty tight fit. So I don't know which one is cause and which one is affect, but they certainly are correlated. Chris Ferrara – Merrill Lynch: No, absolutely. Okay thank you very much, appreciate it.
Operator
Our next question comes from Jason Gere from Wachovia. Jason Gere – Wachovia: Thanks. Most questions have been answered. Just a couple of quick questions. One, I mean, can you talk about KCP and some of the stronger trends in Europe relative to North America, maybe just on the North America side? You know, if you could talk more macro, you know, office vacancies, hotel contracts, any of that.
Tom Falk
Yeah that's a good question and KCP is one where we typically would see the signs of economic weakness earlier than other parts of our business. But that hasn't been the case so far this cycle overall. You know KCP in Europe had a great quarter. I mean not as much in the U.K. which has been our strength, but you know, strong results in Germany. Some strong results in Central Europe. So, you know, continued good growth in that business. The teams doing a great job at delivering. In the U.S., probably a bit more focused on price realization. But even as we talk to our distributors in that business, I'd say they're cautious. They're seeing their customers, you know, much more selective on the need to have of items in their bundle and less on the nice to haves. But we haven't seen, you know, a big shift in our business at this point in time. We're pretty heavily placed in manufacturing, office building, health care, lodging and things like that. Which you'd think would start to feel it here. We're not as strong in food service, which I know has been particularly weak as some of the dining restaurants, their numbers have shown lightly. But, so far, our mix is holding up reasonably well. We're continuing to try and drive our safety channel business and our workplace and wiper business, which is higher margin for us. And so that has also probably, we've got a little bit healthier mix than maybe we've had before going into a downturn. Jason Gere – Wachovia: Okay. And then I guess just on the other side, just thinking about Europe. Obviously it looks like your getting pricing on consumer tissue, not on personal care, and I guess in a normal economic cycle, you would think that would be kind of the opposite, with personal care being more value added. Just, can you just talk maybe a little bit more about, you know the promotional environment out there? And you know, especially on the personal care side, what you can do really to you know try and I guess stem the losses on the volume side.
Tom Falk
Yeah and Europe has probably been the toughest competitive market anywhere in the world right now. And it's, and really on all fronts. You're seeing, you know, pretty high commodity cost increases that have been flowing through. I mean very high energy rate increases. Electricity rates in the U.K. are up by a huge amount as they've had actual electricity shortages, as they've had a lot of their operating networks down over there. So some, you know, much bigger localized cost increases than you would have expected from the overall numbers. And despite that, it's been tough to get price. And in personal care, our primary competitor has been running a lot of buy one get one free promotions. We haven't matched all of those, so we took a bigger volume hit this quarter. We are focused on launching improved tier five products and are putting promotional and brand building support behind that. But having said that, we probably lost a point of share in Europe in diapers across the measured markets. The tissue front, you know you're continuing to see pretty weak categories in the U.K. just the whole bathroom tissue category was down, which is kind of unheard of. And you know, retailers are trying to interrogate it and it's been a big growth in private label. It's been a, some pantry destocking. And obviously with our (inaudible) X brand we, you know we felt the brunt of that as the brand leader. So, Europe is feeling like a much weaker economic environment than even we're seeing in the U.S. Jason Gere – Wachovia: Okay. Great. Thanks a lot guys.
Operator
Our next question comes from Andrew Sawyer with Goldman Sachs. Andrew Sawyer - Goldman Sachs: Yeah, sure, just for one quick housekeeping item. Can you give some framework about what scale of pension contributions we're talking about? Are we looking at $100 million, $200 million, those types of numbers?
Tom Falk
Yeah I think for this year it's probably $50 million. For next year, you know it'll probably be a much larger number than that. But we'll give you some perspective. It obviously depends on how we finish the year ultimately. Because your year end valuation is what will determine that. Andrew Sawyer - Goldman Sachs: So that's $50 million over and above expense, or $50 million absolute?
Tom Falk
That's just $50 million absolute contributions of the… Andrew Sawyer - Goldman Sachs: Okay.
Tom Falk
U.S. plan. So we've made other contributions to other plans, and other markets, over the years. So you'll see probably a different number in the footnotes at the end of the year. Andrew Sawyer - Goldman Sachs: Okay, and then just, turning quickly to kind of '09 business planning. You're talking a lot about challenge, you know, just even forecasting tomorrow let alone a full year '09. As you think about it, are you guys sticking with the idea that your commodity retreat won't flow through to your numbers and you need to get the pricing? Or, are you taking a more adaptive approach and saying, you know, we don't necessarily need to stick to pricing and maybe we'll get a little stronger volume. And how are you guys holding your down the line managers accountable for sales goals, and margin goals in that kind of a fluid environment?
Tom Falk
Yeah, well we're still developing 2009 plans as you'd imagine. One of the things that we're doing is obviously the looking at multiple scenarios. You know, looking at a high, medium and low oil price scenario. What implications does that have for other commodities. And what do we expect the cost environment will look like. Obviously looking at multiple currency scenarios. And looking at what we can afford to invest in brand building. What's our, what are our innovation plans. Because ultimately continue to drive innovation and brand building is what will help you avoid becoming a commodity and help you continue to build branded equity in your businesses. But then, you know, starting to think about how do you manage an environment that's going to be much more volatile than we've had historically. And typically we can't change price quickly and easily in this environment and so we still haven't completely figured out how to do that. But we're all going to have to learn how to be a little nimbler if we're going to have the kind of volatility that we're seeing in markets today. Andrew Sawyer - Goldman Sachs: So do you start with a default view? Or do you start by running your business as though you're going to see the high oil scenario and then adapt the other way? Is that basically what you're saying?
Tom Falk
Yeah it's like, we're going to probably start with a more conservative set of assumptions around commodity costs. And then look at variability off of that. Andrew Sawyer - Goldman Sachs: All right. Well thank you very much guys.
Tom Falk
Thanks.
Operator
Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman – Barclays: Thanks, good morning.
Tom Falk
Morning Lauren. Lauren Lieberman – Barclays: This is the first time I've heard that.
Tom Falk
I wasn't going to say anything. Lauren Lieberman – Barclays: Yeah, I can't, that, okay, where am I? Okay. If you guys could talk a little bit about emerging markets? I know you touched a bit on it with regards to currency. But, you know, just kind of very fluid situation. Any kind of signs of slowdown in category growth, or your thoughts about middle class expansion, you know, continuing as we head into, or in the midst of a building macro economic global slowdown.
Tom Falk
Yeah, I guess I would say this. You know, as I said it earlier, I mean the emerging markets guys, they run the business in local currency, so I mean… Lauren Lieberman – Barclays: You know, I'm sorry, I meant, I'm not worried with the local, I just meant, that's all we really touched on before. I mean…
Tom Falk
Yeah. Lauren Lieberman – Barclays: I mean business in the local market.
Tom Falk
Yeah, but I think the point is that they're, you know, they're continuing to see the kind of job growth and middle class development and so forth in local currency that will hopefully have more people be able to enter our categories. Now, things may slow down a bit. And I, even if you look at our emerging markets growth rates was a little slower than it was earlier in the year, but it can still, I think we're up what 18% top line in the emerging markets for the fourth quarter, or for the third quarter. So, you know I think we would probably expect it to slow down a little bit. But it'll still be the fastest growing part of the business next year. Lauren Lieberman – Barclays: Okay. And then, if you could touch on the planning assumption, the $900 million, or as much $900 million. I know you said you are expecting a little bit of help in Q4 from the moderation scene and input in energy costs. But what order of magnitude are we talking about? Because you also talked about, you know, the natural lag affects.
Tom Falk
Yeah, I think if we had, it was 900 last quarter, it's probably more like 750 to 800. And you know, pulp is probably going to be $40, $45 million better just from some of the recent decreases that we've seen. All of the oil-related polymer and so forth, you know, will be a little better. Probably $20 million. You know, so and I guess I'd say those are probably the two bigger factors. Lauren Lieberman – Barclays: Okay. And then the final question was just, as you're thinking about manufacturing downtime, is the goal still to continue being able to reduce inventory? Or is right now it, what's more important is not letting it build? You know I'm just trying to the same order of magnitude for how much downtime is reasonable to think about if you're still going after the goal of really improving inventory levels.
Tom Falk
Yeah, there's a couple of ways of thinking about. We have target inventory levels for every business. Every SKE basically. So you know, it's how do we get better at running the target over time, as opposed to running the time or, you know, those kinds of things. So we're trying to build more flexibility to grade change more frequently, or even take that downtime out of the system as needed. As opposed to saying, we're going to run this code for a week, and then we'll grade change to the next code. So those are a lot of capabilities we're building into the business teams. And it's trying to do it and not have it hurt your cost as much as it does. So how do you find a way to take the downtime and shed as many costs as you can to have it minimize your cost impact. Now, having said all of that, you want to, you ultimately want to grow your volume so that you fill up your asset base, and not get really good managing downtime, so. Lauren Lieberman – Barclays: Okay. All right. Thank you.
Operator
Next question comes from Chip Dillon with Independent Research. Chip Dillon – Independent Research: Hi Tom, good morning.
Tom Falk
Hi Chip. Chip Dillon – Independent Research: Hey, first question is on the, just a little nit pick here, on the debt that's tied to the timberland transactions in the past. It was like $611 million that was consolidated, I think starting last quarter. Was that about the same number this time?
Tom Falk
Yeah, I don't think it's changed, so… Chip Dillon – Independent Research: Okay. And then, the second question is, could you just talk a little bit about, you know, how you think about the dividend? I know, you know, going back to the early 70's, you raised it pretty much every year. And you know you would seem to have some cushion in these uncertain times if you, you know, things stay kind of tough with maybe sort of going by that. Is the dividend something you'd like to see rise next year, or is it just too early for you to make that commitment?
Tom Falk
I think we would say that we have a strong commitment to the dividend and that we've set our goals, and we would increase the dividends consistently at a faster rate than earnings growth. We're going to have a down year this year, but I would still expect that there would be some level of dividend increase in 2009. We'll obviously be recommending that to the board, and talking about it later this year, and they'll declare it early next year. But that's, that will be how we're currently thinking about it. Chip Dillon – Independent Research: Okay. And then the last question is on the, you know, you're coming to the end of the three and a half year strategic cost reduction plan. And it looks like, you know, you're pretty much achieving what you thought. You know, the world's changed a lot in that time. Are you contemplating something maybe on the smaller scale or similar scale for the future? Or you think you'll give it a rest on the strategic cost reduction?
Tom Falk
Well I think, you know, one strategic plan comes to an end, you start thinking about what, you know, what are the next things you can do with the business. So obviously you can expect we've got an on-going look at our strategic planning process and if we ever find that there are actions we can take that will be shareholder value creating and strengthen our business, we won't be shy about bringing those forward. But at this point in time, we're focusing on delivering and finishing the current plan. And then as well, you know, as we have more things to talk to you about at some point, we'll obviously bring those up then. Chip Dillon – Independent Research: Got you. And in terms of that, I mean you mentioned downtime and the current call, and also you've deemphasized some of the private label activities, or I'm sorry, lower price point brands that you've had in the tissue area. Is it possible that you could see some of the, you know, some capacity reductions in the next year or two in the tissue business, in the, at least in the U.S., and maybe even in Europe?
Tom Falk
No, I mean I think our footprint in the U.S. is still pretty solid. So, you know, we've got a little bit of what we would call white space, but we, you know, we're setting about filling it. And have got the right asset configuration here. So I don't see any capacity changes of any significance at this point. Chip Dillon – Independent Research: Got you. Good luck guys.
Tom Falk
Thanks Chip.
Operator
Our next question comes from William Schmitz with Deutsche Bank. William Schmitz – Deutsche Bank: Hi sorry about the follow up. In the press release you comment about, you know, volume growth and you said it'll be relatively weak in the fourth quarter. Does that mean is going to be down again?
Tom Falk
Well, I mean, I'd say, you know, small positive, or small negative would be how I would define relatively weak. William Schmitz – Deutsche Bank: Okay. All right. That's all I needed. Thank you so much, bye.
Tom Falk
Okay, bye.
Operator
Our next question comes from Linda Bolton Weiser with– Caris. Linda Bolton Weiser – Caris & Company: Hi, Tom I think you said in the past that maybe you thought that some of the management incentives regarding working capital and inventory kind of needed to be adjusted. Is that something that is changing now, or is that something that will be put into place in 2009?
Tom Falk
No, every one of our business teams has a working capital goal in their annual incentive plan this year. And so as we do forecast reviews, we look at that every quarter, along with the operating results of the business. Linda Bolton Weiser – Caris & Company: Okay, great. Thank you very much.
Tom Falk
Thank you.
Operator
At this time, we have no further questions.
Mike Masseth
Thank you David. Tom I'll just ask you to give the closing comments before we sign off.
Tom Falk
Yeah, once again, it’s a challenging environment. You know, we continue to focus on revenue realization. We continue to focus on executing our cost improvement plans. And we appreciate your support of Kimberly-Clark. Thank you.
Operator
Ladies and gentlemen, you may disconnect at this time.