Kimberly-Clark plans price hikes to handle costs

AP News
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Posted: Jul 25, 2011 4:40 PM
Kimberly-Clark plans price hikes to handle costs

Kimberly-Clark Corp. said Monday that it will keep raising prices to deal with rising costs for raw materials _ a sign that it believes people are willing to shell out more for household products like Huggies diapers and Kleenex tissues.

That news was part of the company's earnings report. Kimberly-Clark said its second-quarter net income fell 18 percent despite revenue rising 8 percent to beat analysts' estimates. The manufacturer said it was paying 15 percent more to make and transport its products.

"The going is not getting easier," Weeden & Co. analyst Javier Escalante wrote in a note to clients Monday morning.

U.S. companies selling products from hamburgers to clothing to bottled soft drinks have raised prices this year, saying they had no choice because they're paying more for raw materials. So far, customers have generally gone along. Even though prices on some materials, such as corn and fuel, have fallen since spring, they're still up significantly from a year ago.

Dallas-based Kimberly-Clark said it expects expenses increases to cost it $650 million to $750 million this year, up from the $450 million to $550 million annual increase it predicted three months ago and the $200 million to $250 million it predicted three months before that. Chief financial officer Mark Buthman said the company's costs for oil-based materials, such as the polymer resin used in a diaper's outer cover and leg elastic, have risen even though oil prices have fallen in the past three months. He blamed a tight supply driven by strong demand in China.

Buthman told The Associated Press that Kimberly Clark will hike North American prices 3 percent to 7 percent on average in the second half of the year, partly by raising list prices and partly by making smaller packages, he said. Prices won't rise on adult care brands Poise and Depend or on the company's feminine care brands.

"I don't think any of us want to raise prices for our consumers," Buthman added, though he said that retailers have been "understanding" because the company has been open about its cost structures. He said the company is trying to mitigate the increases by making supply chain changes, like offering diapers in bags instead of more-expensive cardboard boxes. CEO Tim Falk said during a conference call with analysts that Kimberly-Clark also is cutting overhead like administrative expenses.

Falk said sales of baby products have been hurt by the falling birth rate. According to the U.S. Census Bureau, there were 60 births per 1,000 U.S. women in 2010, down from 64.2 in 2008.

Falk expects new products like Huggies "slip-on" diapers, due in a few weeks, to help, but RBC Capital Markets analyst Jason Gere questioned whether customers would be willing to pay for what presumably will be a higher-priced product. Falk replied that parents still "want the very best for their babies."

Falk indicated his company would not be interested in buying Clorox Corp. because Kimberly-Clark's plan "doesn't call for big, transformational" acquisitions, and he said he didn't see ways to manage Clorox better than it is now. Billionaire investor Carl Icahn is encouraging Clorox to shop itself to rivals.

Kimberly-Clark maintained its forecast for earnings of $4.80 to $5.05 per share for the year, though Falk expects results in the lower half of that range.

The company's quarterly net income of $408 million, or $1.03 per share, was down from $498 million, or $1.20 per share, a year earlier. But its adjusted earnings of $1.18 per share beat analysts' average forecast for $1.14 per share, according to FactSet.

Revenue rose to $5.26 billion from $4.86 billion, more than the $5.11 billion analysts had expected. The company said it expects revenue to increase 5 percent to 7 percent this year, up from the 4 percent to 6 percent it previously predicted.

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AP Business Writer Michelle Chapman, also in New York, contributed reporting.