The Global Demographic Tailwind

[DewDiligence]

KMB 4Q09 Results, 2010 Outlook Miss Street’s Estimates

[Modestly priced consumer-staples companies who are direct beneficiaries of TGDT are looking better these days relative to such riskier holdings as mining and energy stocks, IMO.]

http://www.reuters.com/article/idAFN2215202420100122

›Jan 22 2010 10:48 am ET
By Jessica Wohl

CHICAGO, Jan 22 (Reuters) - Kimberly-Clark Corp <KMB.N> posted a lower-than-expected quarterly profit and gave a disappointing 2010 forecast as consumers' preference for cheaper items pressured margins on its paper goods.

The maker of Kleenex tissues and Huggies diapers is planning for a "slow and modest" economic recovery in 2010, Chief Executive Officer Thomas Falk said in a statement.

Sales topped expectations, and shares of Kimberly-Clark, whose results kicked off the earnings season for U.S. household products makers, recovered a bit after falling 1.8 percent.

Margins, however, came in lower than analysts expected.

"We think spending and brutal performance in consumer tissue drove the weakness in margins," said JPMorgan analyst John Faucher. Gross margin was 33.4 percent, below his estimate for 34.7 percent.

Consumer tissue product sales in North America fell nearly 6 percent, with a double-digit drop in volume for paper towels such as Scott and Viva. Operating profit in the consumer tissue unit, which includes tissues, paper towels and toilet paper, plunged 18.1 percent.

"There seems to be a lot more promotion in this sector than I think I expected," Fitch Ratings Director Grace Barnett said. "I hope they are not going to get crazy here."

Kimberly-Clark competes with Procter & Gamble Co <PG.N>, whose paper products brands include Bounty, Charmin and Puffs.

Still, Barnett does not expect the pressure to pose as big of a threat to P&G, which will report its results next week.

"Procter has so many other sectors that the paper side or the tissue side is important, but it is much less relevant to their overall results than say for Kimberly," she said.

Kimberly-Clark shares were down 0.5 percent at $60.83 in morning trading, while P&G rose 1 percent to $60.41.

OUTLOOK BELOW EXPECTATIONS

Kimberly-Clark said fourth-quarter profit rose to $492 million, or $1.17 per share, from $419 million, or $1.01 per share, a year earlier.

Analysts on average expected $1.25 per share, according to Thomson Reuters I/B/E/S.

Sales rose 8.4 percent to $4.98 billion, beating Wall Street expectations of $4.92 billion, while the volume of goods sold rose about 2 percent. The acquisitions of I-Flow Corp and Jackson Safety added a percentage point of sales growth.

One bright spot was sales of healthcare products such as gloves and face masks, which jumped 22.1 percent as people try to protect against the H1N1, or swine flu, virus. The unit has done well recently, but is still the company's smallest.

Kimberly-Clark forecast 2010 earnings of $4.80 to $5.00 per share, compared with analysts' estimates of $5.14. The company expects sales to rise 5 percent to 6 percent, with volume up 2 percent to 3 percent.

Kimberly-Clark said it would resume share repurchases this quarter, with a goal of $500 million to $600 million in buybacks in 2010. It also expects its board to approve a high single-digit to low double-digit percentage increase in its dividend.

The company is still evaluating the rate it will use to translate its sales in Venezuela into U.S. dollars after the bolivar devaluation earlier this month. [ID:nN11158065] About 3 percent of its 2009 sales came from that country.

Kimberly-Clark expects to take a one-time charge of 14 cents to 22 cents per share in the first quarter for the currency issue, but does not expect the devaluation to materially affect 2010 earnings.

The company stood by its annual goals of 3 percent to 5 percent net sales growth and mid-to-high single-digit increases in earnings per share. It will detail more of its plans in March.‹