Health and hygiene products company Kimberly-Clark Corp. (KMB) on Thursday reported a 41% surge in profit for the third quarter from last year, helped by improved selling prices for its products and lower commodity and energy costs. Organic sales growth for the quarter was aided by higher sales at the company's health care segment, reflecting strong results in nitrile gloves and increased global demand for face masks due to the H1N1 flu virus. For fiscal year 2009, the company raised its earnings outlook, citing increased cost savings, better organic sales growth and a further recovery in currency exchange rates.
Third-Quarter Results
For the third quarter, net income attributable to Kimberly-Clark surged to $582 million, or $1.40 per share, from $413 million, or $0.99 per share, in the previous-year quarter.
The company noted that the growth in earnings per share was achieved despite unfavorable currency effects of approximately $0.15 per share.
On average, nine analysts polled by Thomson Reuters expected the company to report earnings of $1.13 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter decreased 1.7% to $4.91 billion from $5.00 billion in the same period last year, but topped analysts' consensus revenue estimate of $4.87 billion for the quarter.
The company noted that the effect of weaker foreign currency exchange rates more than offset organic sales growth of about 3% during the quarter. The growth in organic sales was driven by higher net selling prices, which increased approximately 3%, while overall sales volumes were essentially even with year-ago levels.
Sales volumes continue to reflect challenging economic conditions, particularly affecting the company's K-C Professional and Consumer Tissue businesses in North America and Europe, along with the company's focus on improving net realized revenue.
Commenting on the results, Thomas Falk, Chairman and Chief Executive Officer of Kimberly-Clark said, "We delivered outstanding third quarter results in a challenging environment, while maintaining a strong focus on doing what's right to sustain our long-term growth. Third quarter performance was highlighted by strong margin expansion in each of our four business segments, record earnings per share and excellent cash flow."
Peer Performance
Procter & Gamble Co. (PG) is slated to announce its financial results for the first quarter on October 29. Analysts expect the company to report earnings of $0.99 per share for the quarter on revenues of $19.83 billion. Other Metrics
Kimberly-Clark's gross profit for the third quarter was $1.73 billion, up 18% from $1.46 billion in the year-ago period.
Operating profit surged 42.8% to $871 million from $610 million in the same period last year. The results for the quarter were aided by higher net selling prices and lower costs. Results also included about $12 million in severance and related costs to streamline the organization, more than offset by related savings of about $24 million.
The company said that cost savings from its Focused On Reducing Costs Everywhere, or FORCE, program and strategic cost reduction plan totaled $47 million and $14 million, respectively.
The company's total debt and redeemable securities was $6.7 billion at the end of the third quarter, down from $7.0 billion at the end of 2008. Segmental Results
Sales of personal care products, which includes Huggies baby wipes and Little Swimmers diapers, declined 0.7% in the third quarter to $2.13 billion, while operating profit for the segment increased 15.6% to $467 million. Net selling prices increased 5% and sales volumes improved about 1%, while weaker currencies reduced sales by 6%.
Personal care sales in North America decreased nearly 1% compared to the prior-year quarter, and declined about 9% in Europe. In developing and emerging markets, personal care sales were up 2%, as continued double-digit growth in organic sales was mostly offset by negative currency effects of 11%.
Sales of consumer tissue products, including Kleenex facial tissue, Cottonelle toilet paper and Scott towels, declined 5% from a year ago to $1.63 billion. Operating profit for the segment rose 74% from the prior-year quarter to $232 million.
Although net selling prices increased 4%, overall sales volumes were down 2% and unfavorable currency exchange rates reduced sales by about 5%. In North America, sales of consumer tissue products declined 2% as higher net selling prices were more than offset by a decline in sales volume. In Europe, consumer tissue sales dropped approximately 14%, while in developing and emerging markets, sales were down about 3%.
Meanwhile, sales of K-C Professional, or KCP, and other products decreased 4.5% in the third quarter to $805 million. Operating profit surged 37% from the prior-year quarter to $163 million. Overall sales volumes fell 4%, reflecting challenging economic conditions, particularly affecting businesses in North America and Europe.
Economic weakness and rising unemployment levels in North America and Europe continued to have a significant effect on KCP's categories in the third quarter. In North America, sales declined about 1%, while in Europe, sales dropped 20% from last year. Across developing and emerging markets, sales rose approximately 7%.
Sales of health care products, which include surgical gowns and face masks, increased 15.8% from last year to $335 million. While sales volumes climbed about 18%, net selling prices were lower by nearly 1% and unfavorable currency exchange rates reduced sales by 2%.
The company noted that the business continued to benefit from strong results in nitrile gloves, including the new Lavender offering introduced late last year. Also, about 40% of the total gain in health care volumes in the quarter was attributable to increased global demand for face masks due to the H1N1 flu virus.
Year-To-Date Results
For the nine months of fiscal 2009, Kimberly-Clark reported net income attributable to the company of $1.39 billion, or $3.35 per share, up from $1.27 billion, or $3.02 per share, in the same period last year.
Net sales for the period declined 4.6% to $14.13 billion from $14.82 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 third-quarter results included approximately $12 million in pre-tax severance costs for this initiative, while year-to-date costs were $122 million.
The company now expects that full-year severance and related costs will total $130 million-$140 million pre-tax in 2009, down from the previous estimate of $140 million-$150 million. Related savings from this initiative in the third quarter were approximately $24 million, with full-year savings anticipated to be about $55 million. Earlier, the company had forecast related savings for the year to be about $60 million, or $0.10 per share. The company now expects annualized pre-tax savings of about $135 million compared to the previous estimate of about $150 million.
Outlook
For fiscal 2009, Kimberly-Clark raised its earnings outlook to a range of $4.50-$4.60 per share, up from the prior estimate of $4.10-$4.25 per share. Analysts currently anticipate the company to earn $4.26 per share.
The revised earnings outlook reflects combination of increased cost savings, better organic sales growth and a further recovery in currency exchange rates, the company said.
Falk said, "Based on our new outlook, we now expect full-year earnings per share to grow 9 to 11 percent compared to adjusted earnings per share in 2008. That's at the high end of, or slightly above, our long-range Global Business Plan target and is a credit to the hard work of our worldwide team."
Kimberly-Clark now forecasts net sales for the year to decline about 2%, compared to the previous guidance for a decline of 4%-6%. Analysts have a consensus revenue estimate for the year of $18.82 billion.
The company said that deflation in key cost inputs is expected to be within its previous expectation of $600 million-$700 million. However, pulp prices have moved higher than previously estimated, the company noted.
The company forecasts cost savings from the FORCE program and strategic cost reduction plan to be about $250 million, up from the prior guidance for savings of at least $200 million. The increased savings expectations are primarily due to the company's continued efforts to identify and implement incremental savings opportunities in sourcing and supply chain activities.
Stock Quotes In Thursday's regular trading session, KMB is trading at $63.37, up $3.68 or 6.17% on a volume of 3.54 million shares. In the past 52 weeks, the stock has been trading in a range of $43.05-$63.57.
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