Kimberly-Clark Corporation (KMB) has reported adjusted earnings of $1.26 per share in the third quarter 2011, in line with the Zacks Consensus Estimate. However, the adjusted earnings increased 11% from the prior-year earnings.
The adjusted earnings in the third quarter of 2011 exclude the adjustment for charges related to the pulp and tissue restructuring of 17 cents per share. The results were benefited from sales growth, cost savings, a lower share count and a reduced tax rate. However, these were partially offset by rising input cost inflation and lower net income from equity companies.
Kimberly-Clark posted earnings of $1.09 per share in the reported quarter, including the one-time charges. It was, however, 4.4% lower than the year-ago quarter earnings of $1.14 per share.
For fiscal 2011, Kimberly-Clark has reduced the high end of its earnings forecast to the range of $4.80 to $4.90 per share, compared with the company’s previous expectations of $4.80 to $5.05.
Consolidated Revenue and Margins
During the quarter, net sales showed robust growth of 8.0% to $5.4 billion from $5.0 billion in the same period previous year. Kimberly-Clark’s sales also surpassed the Zacks Consensus Estimate of $5.3 billion.
Organic sales climbed 4% in the quarter, driven by increased sales volumes and price mix and higher net selling prices of 3%. Volumes increased in the third quarter of 2011 benefiting from product innovations and targeted growth initiatives, but were offset by the continued soft category demand in some parts of the Europe and North American market. Besides, changes in foreign currency exchange rates increased Kimberly-Clark’s sales by 4%.
For fiscal 2011, Kimberly-Clark revised its net sales guidance to increase by approximately 4% – 6% versus previous guidance of an increase of 5% – 7%. Organic sales guidance continues to grow at 2% – 3% versus previous expectation of 2% – 4%, while volumes are anticipated to grow at 1%, down from 1% – 2% as expected earlier. The company continues to expect the combination of higher net selling prices and improved product mix to contribute 1 – 2 points of additional growth.
Further, the company expects sales to increase by approximately 2% to 3% in 2011 versus the previous estimate of 3%, as a result of the weakening of most foreign currency exchange rates relative to the U.S. dollar and currency rates revisions.
Compared with the year-ago period, gross profit contracted 1.6% to $1.59 billion as compared to $1.61 billion in the prior-year quarter.
The company’s operating profit plunged 5.2% to $662 million in the third quarter of 2011 from $698 million in the same period in 2010. Excluding the costs for the pulp and tissue restructuring of $95 million, adjusted operating profit posted $757 million in the third quarter of 2011. Further, these results were benefited from sales growth and $90 million in cost savings from the Kimberly-Clark’s FORCE (Focused On Reducing Costs Everywhere) program.
Key costs rose by a total of $150 million, including $110 million for raw materials other than fiber, primarily polymer resin and other oil-based materials, $5 million in higher fiber costs, $20 million for energy and $15 million in distribution costs.
Kimberly-Clark assumes input cost inflation to be in the range of $575 million-$625 million compared to the previous assumption of $650 million-$750 million. The decreased inflation assumption is primarily due to lower pulp costs.
Segment Details
Personal Care: Sales grew 9% on a year-over-year basis to $2.4 billion, benefited from changes in currency rates, sales volumes, and net selling prices. Operating profit plummeted 7% on a year-over-year basis to $396 million in the quarter.
Consumer Tissue: Sales grew 4% year over year to $1.7 billion, driven by changes in currency rates, product mix, and net selling prices. However, the sales volume fell in the segment. Segment’s operating profit climbed 32% to $206 million in the quarter.
K-C Professional (KCP) & Other: Sales increased 10% year over year to $0.9 billion, on the back of changes in currency rates, net selling price and sales volumes. Operating profit for the segment increased 9% to $127 million.
Health Care: Sales advanced 11% year over year to $0.4 billion, resulting from increase in sales volumes and changes in currency rates, offset by the net selling prices. Operating profit was $56 million, up 14% year over year.
Pulp and Tissue Restructuring Update
In January 2011, Kimberly-Clark initiated a pulp and tissue restructuring in order to exit its remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of its consumer tissue and K-C Professional businesses.
The restructuring is expected to be completed by the end of 2012, with total costs of $280 to $420 million after tax.
