Consumer products maker Kimberly-Clark Corp. said Tuesday that its third-quarter net income fell 19 percent as making its top-selling tissues and diapers got more expensive, and the company cut its forecast for the full year.
The results fell short of analysts' expectations, and shares of the maker of Huggies diapers and Kleenex tissues fell nearly 6 percent.
Costs for key materials such as pulp, polymer resin and oil-based materials rose $265 million in the quarter, the highest quarterly increase the company has ever seen.
CEO Tom Falk said the company now estimates its materials will cost in the high end of its prior range of $700 million to $800 million for the year.
The company also pulled back from its revenue forecast for the year and cut its earnings outlook.
Kimberly-Clark has been changing its products and cutting prices to keep customers interested in and buying its Cottonelle tissue, Pull-Up diapers and Kotex and Depends sanitary napkins.
Competition from less expensive store brands has increased during the economic downturn, and promotional prices have hurt the company's profits. Kimberly-Clark also said high unemployment hurt its unit that serves businesses in North America because those businesses are buying less of its products.
Overall for the quarter that ended Sept. 30, the company earned $469 million, or $1.14 per share, down from $582 million, or $1.40 per share, a year earlier. Revenue rose 1 percent to $5 billion.
Analysts surveyed by Thomson Reuters on average predicted the company would earn $1.28 per share on revenue of $5 billion.
Shares fell $3.86, or 5.8 percent, to $62.61.
Edward Jones research analyst Jack Russo said he expected the comparison with last year's third quarter to be tough for two reasons: Kimberly-Clark benefited then from high demand for surgical masks, tissues and other products as the H1N1 virus spread, and materials costs were lower.
He said the company will keep promoting its brands to spur sales, but it will be cautious because of rising materials costs.
"You've got to get in that game right now. You've got to promote your brands, and you've got to step up to that area," Russo said.
The company notes it expects to save more than $300 million this year from its cost-cutting initiative.
Its quarterly personal care product revenue grew 2.4 percent around the world and 4 percent in North America compared with a year earlier, including double-digit increases in feminine and adult care products. But net selling prices fell 1 percent because of promotions.
Revenue and volume both fell 3 percent in the Kimberly-Clark unit that sells to businesses in North America as unemployment and office vacancies remained high. In Europe, business revenue fell 12 percent, including an 8 percent drag from currency fluctuations. Revenue generated abroad can translate back into fewer dollars, depending on exchange rates.
Kimberly-Clark expects its full-year revenue to rise 3 percent, the bottom of its prior range of 3 percent to 5 percent, including slower-than-anticipated volume growth because of the weak economy in North America.
It expects earnings of $4.60 to $4.70 per share for the year, down from a July forecast of $4.80 to $5 per share. Last year, the company earned $4.52 per share.
Analysts expect the company to earn $4.83 this year.