Health and hygiene products company Kimberly-Clark Corp. (KMB) Thursday posted a 3.4% drop in its second-quarter profit, reflecting sales declines in all of its business segments except Health Care and the significant impacts of negative foreign currency exchange. The company confirmed its plan to cut about 1,600 jobs that was announced in June, and lifted its fiscal 2009 earnings per share outlook.
The company reported second-quarter net income attributable to the company of $403 million or $0.97 per share, compared with $417 million or $0.99 per share a year ago. Adjusted earnings per share in the second quarter of 2008 were $1.03, which excluded charges for strategic cost reductions and an extraordinary loss related to the restructuring of certain contractual arrangements.
On average, 13 analysts polled by Thomson Reuters expected the company to report earnings of $0.94 per share. Analysts' estimates typically exclude special items.
Net sales decreased 5.6% in the second quarter to $4.73 billion from $5.01 billion in the same period last year. Eleven Wall Street analysts had a consensus revenue estimate of $4.62 billion for the quarter.
For the first quarter, Kimberly-Clark reported net income of $431 million, and net income attributable to the company of $407 million or $0.98 per share. Net sales for the first quarter were $4.50 billion.
The company said that the effect of weaker foreign currency exchange rates more than offset organic sales growth of nearly 3%. The growth in organic sales was driven by a 5% rise in net selling prices, partially offset by a decline in overall sales volumes of about 2%. The lower sales volumes reflected continued challenging economic conditions, particularly affecting the company's K-C Professional and Consumer Tissue businesses, along with the company's focus on improving net realized revenue. Meanwhile, sales volumes rose about 14% for K-C's global Health Care business.
The company also said that it delivered continued double-digit organic sales growth in developing and emerging markets, realized improved net selling prices in North America, and also benefited from lower costs stemming from commodity cost deflation and cost savings initiatives.
Commenting on the results, Kimberly-Clark Chairman and Chief Executive Officer Thomas Falk said, "Business conditions remained challenging in the second quarter, as the economic environment and weak foreign currency rates continued to impact our results."
Based on business segments, sales of personal care products declined 2% in the second quarter to $2.12 billion. While net selling prices increased about 6% and product mix improved approximately 1%, weaker currencies reduced sales by 9%. Personal care sales in North America decreased 4% and about 14% in Europe. In developing and emerging markets, personal care sales were up 1%, as continued double-digit growth in organic sales was mostly offset by negative currency effects of 16%.
Sales of consumer tissue products declined 8% in the second quarter to $1.56 billion. Although net selling prices increased 4%, overall sales volumes were down 3% and unfavorable currency exchange rates reduced sales by 9%. In North America, sales of consumer tissue products were essentially even with the year-ago period. In Europe, consumer tissue sales dropped more than 19%, and in developing and emerging markets, the sales were down 9%.
Further, sales of K-C Professional or KCP and other products decreased 12.4% in the second quarter to $736 million. In addition, second-quarter sales of health care products were up 9.5% from last year to $335 million. While sales volumes climbed about 14%, net selling prices were lower by 1% and unfavorable currency exchange rates reduced sales by 4%.
The company also said that its share of net income of equity companies in the second quarter decreased to $44 million from $49 million a year ago, mainly due to lower net income at Kimberly-Clark de Mexico, S.A.B. de C.V., or KCM.
For the first half of fiscal 2009, Kimberly-Clark reported net income attributable to the company of $810 million or $1.95 per share, compared with a net income of $858 million or $2.03 per share, in the same period last year. Sales declined to 6.1% to $9.22 billion from $9.82 billion a year ago.
Kimberly-Clark said that, as announced in June, it plans to reduce its worldwide salaried workforce by approximately 1,600 positions by the end of the year. The second quarter results included approximately $110 million, or $0.19 per share, in pre-tax severance costs for this initiative.
The company continues to expect that full-year severance and related costs will total $140 million to $150 million pre-tax, or about $0.25 per share. Related savings are expected to be approximately $60 million, or about $0.10 per share, to occur in the back half of the year. The company also said that expected annualized pre-tax savings remain at approximately $150 million.
Looking forward to the fiscal 2009, Kimberly-Clark now expects earnings per share in the range of $4.10 - $4.25, compared with its previous estimate range of $4.00 - $4.20. The company said that the outlook revision is due to additional cost savings, partial recovery in currency rates and continued successful revenue realization strategies
The company also said that the forecast includes the net drag of 15 cents per share from the organization optimization initiative. Street analysts expect earnings of $4.12 per share for the year.
Among others in the industry, Energizer Holdings Inc. (ENR) is set to announce its results on July 28. Wall Street analysts are of the view that the company will earn $1.03 per share in the quarter on sales of $1.00 billion.
Another peer, Procter & Gamble Co. (PG) is expected to earn $0.79 per share on sales of $19.38 billion, when it announces fourth-quarter results on August 5.
KMB is trading at $57.24, up $2.76, on a volume of 2.79 million shares.
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