Kleenex tissue maker Kimberly-Clark Corp posted a steeper-than-expected drop in quarterly profit on Monday and cut the low end of its full-year forecast as costs of pulp and other goods are rising more than twice as much as it anticipated.
The maker of Huggies diapers and Scott paper goods will raise prices on a swath of items, including most of its North American consumer products, as costs jump.
Shares of Kimberly-Clark fell 3 percent to $64.08 in afternoon trading, outpacing a broad market decline.
For the next few months it's going to be tough sledding for this company, more so than others, said Edward Jones analyst Jack Russo.
Kimberly-Clark, whose results kicked off weeks of reports from U.S. household product makers, is highly exposed to rising costs. A large portion of its sales come from diapers, which contain oil-based materials, and paper goods.
Russo, who cut his rating on Kimberly-Clark to hold from buy early this year, said Procter & Gamble Co and Colgate-Palmolive Co would feel cost pressures to a lesser degree, because their portfolios are more diversified.
P&G confirmed on Monday that it was raising U.S. prices on some diapers, paper towels and toilet paper, on top of previously announced increases for detergent.
Spiking costs for everything from food to fuel are hitting other sectors as well, with the likes of McDonald's Corp and airlines passing them on to consumers.
Therefore, shoppers will soon start to see rising prices for a variety of items, after already paying more for gasoline and food.
Such increases may raise eyebrows at the Federal Reserve, which has said it does not expect more expensive commodities to affect broader prices. The U.S. central bank has kept interest rates near zero since late 2008 and is sticking to a massive bond-buying program despite signs that inflation is stirring.
Fed officials meet on Tuesday and Wednesday to discuss their next steps.
Kimberly-Clark paid about $80 million more for fiber during the quarter than a year earlier, $95 million more for polymer resin and other raw materials, $10 million in added distribution costs and $10 million more for energy.
The company now expects materials costs to rise $450 million to $550 million this year, up from a previous assumption of $200 million to $250 million.
Kimberly-Clark is raising North American prices on products such as diapers and toilet paper by 3 percent to 7 percent starting in June.
The company earned $350 million, or 86 cents per share, in the first quarter, down from $384 million, or 92 cents per share, a year earlier.
Excluding certain items, earnings fell to $1.09 per share from $1.14. Analysts on average had expected $1.17, according to Thomson Reuters I/B/E/S.
Sales rose 4 percent to $5.03 billion, topping the analysts' average forecast of $4.98 billion.
Sales rose, but operating profit declined, in each of the company's four segments.
Kimberly-Clark now expects to earn $4.80 to $5.05 per share this year, excluding special items, compared with its January outlook of $4.90 to $5.05. Analysts on average expect $4.95.
The company raised its 2011 sales growth outlook to a range of 4 percent to 6 percent. In January, it had forecast an increase of 3 percent to 4 percent.
Kimberly-Clark announced plans in January to exit the pulp making business. It is also cutting spending to help mitigate the impact of higher costs.
(Additional reporting by William Schomberg in New York; editing by Maureen Bavdek and Lisa Von Ahn)