Shares of the maker of Kleenex tissues and Huggies diapers rose more than 3 percent as it also announced an increased dividend and stock repurchase plan as well as higher-than-expected quarterly earnings.
The company plans to buy back $1.5 billion of its shares this year, nearly twice as much as it bought last year, and it raised its dividend by 6 percent.
Kimberly-Clark is paying more for oil and the fiber used in its paper goods. At the same time, a heavy dose of discounting in the household products sector is putting pressure on sales.
Chief Executive Officer Thomas Falk said he expected the market to remain difficult this year.
Kimberly-Clark said the restructuring, the latest in a string of overhauls at the Dallas-based company, mainly affects the $6.5 billion consumer tissue business, which makes goods such as tissues, paper towels and toilet paper.
It is something that probably was long overdue, said Edward Jones analyst Jack Russo, who has a hold rating on Kimberly-Clark. They're trying to really clean up their business.
Getting out of pulp manufacturing should improve the profitability and return on invested capital of its consumer tissue and K-C Professional units, the company said.
Kimberly-Clark will streamline, sell or close five or six manufacturing facilities, including a pulp and tissue plant in Everett, Washington, and its two Australian facilities that make pulp and tissue. It will also move some production to lower-cost locations.
The company also plans to stop making certain products, mainly nonbranded ones.
Kimberly-Clark did not say how many jobs it would cut in the overhaul.
The company plans to repurchase $1.5 billion of its stock this year, including $700 million funded by incremental debt financing. It spent $800 million on repurchases in 2010.
What they're trying to do is show Wall Street that they're committed to supporting their stock price, said Russo. They firmly believe that it's undervalued, and it is.
Kimberly-Clark trades at 13.8 times expected 2011 earnings, well below the ratio of many other household products makers such as Procter & Gamble Co
Shares of Kimberly-Clark were up 3.5 percent at $66.23 in morning trading.
BY THE NUMBERS
Fourth-quarter profit was $520 million, or $1.20 per share, compared with $522 million, or $1.17 per share, a year earlier. Analysts on average expected $1.15 per share, according to Thomson Reuters I/B/E/S.
Sales rose 1.9 percent to $5.08 billion, ahead of the analysts' average forecast of $5.03 billion. Volume was flat.
Costs rose $220 million from a year earlier, including an increase of $130 million for fiber.
In the consumer tissue business, sales rose 3.9 percent, prices jumped 5 percent and volume fell 1 percent.
That's obviously an area that is highly exposed to changes in commodity costs, and it's also one that's subject to intense private-label competition, said Morningstar analyst Erin Swanson. Consumer tissue also has weaker margins than some of Kimberly-Clark's other businesses, she said.
It was interesting to see the company raise prices, rather than resorting to heavy discounting as it had done earlier in the year, to sell its goods, she said.
The restructuring should cost $280 million to $420 million after tax. By 2013, the move should reduce annual net sales by $250 million to $300 million and boost operating profit by at least $75 million a year, the company said.
Kimberly-Clark forecast 2011 earnings of $4.90 to $5.05 per share, excluding costs associated with the restructuring, with sales up 3 percent to 4 percent. Analysts were expecting a profit of $5.00.
(Reporting by Jessica Wohl; editing by John Wallace and Lisa Von Ahn)