Kimberly-Clark Corp said higher pulp costs and increased marketing spending to promote new products will weigh on profit this year as it posted lower first-quarter earnings.
The company, known for Kleenex tissues and Huggies diapers, said this year's profit is more likely to come in toward the low end of its forecast that it reconfirmed just a month ago. Some analysts had already said that Kimberly-Clark's outlook for a profit of $4.80 to $5 per share was too high.
The company is seeing much higher costs for pulp and other materials than it had previously anticipated. It plans to offset some of that pressure with $50 million more in savings from cost cuts and fresh price increases on paper goods.
At the same time, Kimberly-Clark is seeing some improvement in its core consumers' buying habits as the economy perks up.
CEO Mom is pretty stable at this point; she hasn't gotten a lot more confident but it is not getting worse, Chairman and Chief Executive Thomas Falk said during a conference call.
First-quarter profit fell to $384 million, or 92 cents per share, from $407 million, or 98 cents per share. Excluding a currency-related charge, the company earned $1.14 per share versus analysts' average forecast of $1.16 per share.
Sales rose 7.6 percent to $4.84 billion, but much of that lift came from foreign currency exchange rates. The volume of goods sold rose just 1 percent.
Analysts, on average, expected Kimberly-Clark to post $4.9 billion in revenue, according to Thomson Reuters I/B/E/S.
I don't think there were an awful lot of surprises, said Edward Jones analyst Jack Russo, who noted that Kimberly-Clark is more exposed to commodity costs than rivals with broader lineups, such as Procter & Gamble Co .
Kimberly-Clark fell 1.5 percent to $62.02 on the New York Stock Exchange at mid-afternoon. Shares of bleach maker Clorox Co , which is also exposed to rising commodity costs, slid 1.2 percent to $64.38. P&G and Colgate-Palmolive both fell about 0.3 percent.
FEWER KLEENEX SOLD
In the North American consumer business, the volume of Kleenex tissues sold fell 3 percent, due in part to a mild cold and flu season, while paper towel sales continued to be hit by consumers opting for cheaper private label goods.
Businesses that showed growth included international operations and the health care division, where demand for face masks increased due to the H1N1 flu virus.
For the most part their products are holding up really well, said Derek Maupin, research analyst at Hodges Capital Management, based in Kimberly-Clark's hometown of Dallas.
The company, which competes against powerhouse P&G in categories such as diapers, tissues and tampons, must prove it can sell higher-end products while facing pressure from branded rivals and a variety of heavily-marketed store-branded goods.
P&G and other major household products makers are also ramping up their marketing behind a bevy of new goods this year, hoping to gain the attention of shoppers ready to buy.
Kimberly-Clark is spending more to market products such as U by Kotex tampons and Kleenex hand towels. It also plans improvements to its premium and main lines of Huggies diapers later this year after P&G replaced its higher-end Swaddlers and Cruisers lines with thinner, more absorbent diapers.
While U by Kotex just hit the U.S. market, sales have been good so far, Chief Financial Officer Mark Buthman said in an interview.
For 2010, Kimberly-Clark expects sales to rise 4 percent to 6 percent, instead of 5 percent to 6 percent, as it sees a lower benefit from currency as the euro and the British pound have weakened relative to the dollar. On a more positive note, it expects higher prices and a better mix of products to add 1 point to sales growth after predicting those factors would not be beneficial.
Kimberly-Clark previously expected to pay $300 million to $400 million more for pulp, oil-based materials and other raw materials this year and now sees such costs up $600 million to $700 million. Most of the increase stems from pricier pulp.
The company already cut the number of sheets in rolls of Cottonelle toilet paper and is looking at more ways to raise prices on paper goods, Buthman said.
(Reporting by Jessica Wohl; Editing by Derek Caney, Dave Zimmerman and Richard Chang)