Tags: Earns | Kimberly | Clark

Kimberly-Clark to Hike Prices, Blames Rising Costs Raw Materials

Tuesday, 26 Apr 2011 08:20 AM

Kimberly-Clark Corp., the maker of Huggies and Kleenex, said that it plans to raise prices, its third such announcement since the middle of March.

The company said it's merely passing along the higher prices that it has to pay for raw materials like oil and wood pulp. It also more than doubled its predictions for how much the prices for such commodities will increase.

It's a refrain that's becoming familiar — and, to budget-conscious shoppers, tired — this spring. Rising commodities prices are taking center stage at a number of companies, from restaurants to clothing manufactures, who say they have no choice but to pass along those price hikes to customers.

One of Kimberly-Clark's chief rivals, Procter & Gamble Co., said Monday it will raise prices for Pampers diapers, Charmin toilet paper and Bounty paper towels by 3 to 7 percent.

At Kimberly-Clark, rising commodities prices also got the blame for a decline in first-quarter net income, which fell 9 percent compared to the same quarter a year ago. The company's stock fell $1.81, or nearly 3 percent, to close at $64.24.

CEO Tom Falk acknowledged that customers won't welcome the news.

"I don't think I have ever seen a customer yet that has said, 'Thank you' for that," he said, "just as we don't want our suppliers to hand us cost increases."

He said the company will try to soften the blow by trimming its own costs, as it's done throughout the recession. He said he's telling employees that "this is the way the world is everywhere."

"We're telling them, 'Hey, we are not going to be victims here,'" Falk said. "We are going to make those tough trade-offs to do the most important things, and the nice-to-have stuff isn't going to get done."

Falk didn't detail the cost-cutting plans, but spokeswoman Kay Jackson said they will include trimming discretionary spending like travel, overtime, consulting and open positions.

In a research note this month, UBS analyst Kaumil Gajrawala cast doubt about the "blame-it-on-commodities" line many companies are taking as they raise prices. The Goldman Sachs Commodity Index is up 25 percent in the past 18 months, according to an April 15 note by Gajrawala. It rose a much steeper 84 percent from January 2007 to July 2008, Gajrawala wrote.

Companies walk a tightrope when they try to raise prices. They want to make as much money as possible, but they don't want to drive customers to competitors or to store brands.

During the recession, customers got used to discounts on diapers and other items, so it's not likely that they'll take kindly to being asked to pay more.

Kimberly-Clark said Monday that the latest round of price increases will be focused on consumer products in North America. That followed two other recent announcements about price increases.

In March, Kimberly-Clark said it would raise U.S. prices on Huggies baby wipes and diapers, Pull-Ups training pants and GoodNites youth pants by an average of 3 to 7 percent this summer. It said it would raise prices for Cottonelle and Scott toilet paper by an average of 7 percent.

Last week, it said it would raise prices on some of the products it sells to hospitals and other companies.

In Monday's earnings report, Kimberly-Clark said its first-quarter net income fell to $350 million, or 86 cents per share, from $384 million, or 92 cents per share, last year.

Excluding one-time items, earnings per share were $1.09. Analysts had expected more, $1.17 per share.

The bright spot was sales, especially in emerging markets in Asia and Latin America. First-quarter revenue rose about 4 percent to about $5 billion, and the company raised its expectations for full-year revenue.

Feminine-care brands like Kotex, and adult-care brands like Depend, did better than baby products. Falk said that was due more to a decline in the U.S. birth rate than to anything the company had done.

Looking ahead, the company trimmed the lower end of its full-year forecast due to the expected higher costs. It now expects to report 2011 adjusted earnings of $4.80 to $5.05 per share, rather than $4.90 to $5.05 per share. On average, analysts predict profit of $4.95 per share.

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Kimberly-Clark Corp., the maker of Huggies and Kleenex, said that it plans to raise prices, its third such announcement since the middle of March. The company said it's merely passing along the higher prices that it has to pay for raw materials like oil and wood pulp. It...
Earns,Kimberly,Clark
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2011-20-26
Tuesday, 26 Apr 2011 08:20 AM
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