Replies to post #203 on The Global Demographic Tailwind

[DewDiligence]

Georgia-Pacific Makes Big Investment in Toilet Tissue

[GP shares can’t be bought because the company is private, but you can buy KMB, which is a direct competitor and a cheap stock (#msg-48227633).]

http://online.wsj.com/article/SB10001424052702303601504575154102121346436.html?ru=yahoo&mod=yahoo_hs

›MARCH 30, 2010, 8:39 P.M. ET

By ELLEN BYRON

Confident that premium-priced consumer products will regain their appeal, Georgia-Pacific LLC is placing a large bet on a basic household staple: toilet paper.

Closely held Georgia-Pacific, which makes Quilted Northern toilet paper, Brawny paper towels and Dixie cups and plates, plans to announce Wednesday that it will invest about $500 million in new paper-making equipment and technology, namely for the production of a new premium toilet tissue.

The $500 million investment includes installation of new technology on two paper machines inside one or two of Georgia-Pacific's 12 U.S. facilities. Pending the site selection, operation of the new equipment will begin in mid-2012, the company said.

Georgia-Pacific's investment in premium goods comes as other major consumer-product makers say they see indications that shoppers are loosening the purse strings. Last week, General Mills Inc.'s CEO Ken Powell said that the packaged-food maker has seen some evidence that sales of competing, cheaper private-label goods are moderating. And Procter & Gamble Co. CEO Robert McDonald told analysts in January that "the idea that this economy is causing everyone to trade down is overly general and too broadly applied."

Still, paper products, including toilet paper, napkins, plates and paper towel, suffer some of the stiffest competition from cheaper private-label options. The category is often considered a leading indicator of household spending because it is one of the first places where consumers switch to less-expensive options in a downturn. [Corollary: these products generally do quite well during an economic recovery, and they are beneficiaries The Global Demographic Tailwind.]

Last year, as shoppers tightened their belts, U.S. sales of private-label toilet paper surpassed branded versions, posting sales of $724 million, up 9% over the year before, and up 47% since 2005, according to figures from research firm SymphonyIRI Group. Figures exclude data from Wal-Mart and club stores.

Some analysts predict that consumers won't switch back even when the economy improves. "More frugal shopping patterns that emerged during [the] recession are expected to continue even after the recession ends, further driving growth of already strong private label," according to a January paper-products report by research firm Euromonitor International Inc.

Georgia-Pacific executives acknowledge the pressure of private-label competition, but say their toilet paper sales are increasing faster. Company representatives point to the success of its recent launches of Brawny, Dixie and Quilted Northern premium products as proof of demand for higher-end goods. The Atlanta-based company introduced its most premium toilet paper, a three-ply tissue called Quilted Northern Ultra Plush, in September 2008, just as the economy plummeted. In its first year on the market, Ultra Plush posted $135 million in sales, according to SymphonyIRI, which named the product the most successful nonfood product launch of 2009.

"Consumer spending in general still remains relatively flat, but we are very much on this mission of making products better than everybody else" says Kathy Walters, Georgia-Pacific's executive vice president of global consumer products. "It's the little things that make your life better at home."‹

[DewDiligence]

KMB sold off modestly Thursday and Friday because the company said
2010 non-GAAP EPS will come in at the low end of the $4.80-5.00 prior
guidance range. If we assume the 2010 EPS will be 4.80, the share price
represents a P/E of 12.7x, which is cheap for a fine company like KMB
that’s a major beneficiary of The Global Demographic Tailwind.

Why did KMB say 2010 EPS will come in at the low end of the prior
guidance range? Because pulp prices have skyrocketed to $1,000/ton,
and pulp is the main raw material in KMB’s tissue and personal-care
products. However, KMB forecasts that pulp prices will fall about 10%
by year-end as more mothballed manufacturing plants come back online,
so the margin squeeze ought to peak in 2Q10 and be lower in the second half.

KMB has a thriving healthcare segment where 1Q10 sales rose 23% YoY;
however, the healthcare segment accounts for only 8% of KMB’s sales, so
this stellar growth does not yet move the needle much.

You want a good dividend? You got it! At the recently increased annual
payout rate of $2.64/sh, the stock is yielding 4.3%.

http://finance.yahoo.com/news/KimberlyClark-sees-cost-rb-2007227124.html?x=0&.v=3

›Kimberly-Clark Sees Cost Pressures in 2010

Thursday April 22, 2010, 2:56 pm EDT
By Jessica Wohl

CHICAGO (Reuters) - Kimberly-Clark Corp (NYSE: KMB) said higher pulp costs and increased marketing spending to promote new products will weigh on profit this year as it posted lower first-quarter earnings.

The company, known for Kleenex tissues and Huggies diapers, said this year's profit is more likely to come in toward the low end of its forecast that it reconfirmed just a month ago. Some analysts had already said that Kimberly-Clark's outlook for a profit of $4.80 to $5 per share was too high.

The company is seeing much higher costs for pulp and other materials than it had previously anticipated. It plans to offset some of that pressure with $50 million more in savings from cost cuts and fresh price increases on paper goods.

At the same time, Kimberly-Clark is seeing some improvement in its core consumers' buying habits as the economy perks up.

"CEO Mom is pretty stable at this point; she hasn't gotten a lot more confident but it is not getting worse," Chairman and Chief Executive Thomas Falk said during a conference call.

First-quarter profit fell to $384 million, or 92 cents per share, from $407 million, or 98 cents per share. Excluding a currency-related charge [for the devaluation in Venezuela], the company earned $1.14 per share versus analysts' average forecast of $1.16 per share.

Sales rose 7.6 percent to $4.84 billion, but much of that lift came from foreign currency exchange rates. The volume of goods sold rose just 1 percent.

Analysts, on average, expected Kimberly-Clark to post $4.9 billion in revenue, according to Thomson Reuters I/B/E/S.

"I don't think there were an awful lot of surprises," said Edward Jones analyst Jack Russo, who noted that Kimberly-Clark is more exposed to commodity costs than rivals with broader lineups, such as Procter & Gamble Co (NYSE:PG).

FEWER KLEENEX SOLD

In the North American consumer business, the volume of Kleenex tissues sold fell 3 percent, due in part to a mild cold and flu season, while paper towel sales continued to be hit by consumers opting for cheaper private label goods.

Businesses that showed growth included international operations and the health care division, where demand for face masks increased due to the H1N1 flu virus.

"For the most part their products are holding up really well," said Derek Maupin, research analyst at Hodges Capital Management, based in Kimberly-Clark's hometown of Dallas.

The company, which competes against powerhouse P&G in categories such as diapers, tissues and tampons, must prove it can sell higher-end products while facing pressure from branded rivals and a variety of heavily-marketed store-branded goods.

P&G and other major household products makers are also ramping up their marketing behind a bevy of new goods this year, hoping to gain the attention of shoppers ready to buy.

Kimberly-Clark is spending more to market products such as U by Kotex tampons and Kleenex hand towels. It also plans improvements to its premium and main lines of Huggies diapers later this year after P&G replaced its higher-end Swaddlers and Cruisers lines with thinner, more absorbent diapers.

While U by Kotex just hit the U.S. market, sales have been good so far, Chief Financial Officer Mark Buthman said in an interview.

For 2010, Kimberly-Clark expects sales to rise 4 percent to 6 percent, instead of 5 percent to 6 percent, as it sees a lower benefit from currency as the euro and the British pound have weakened relative to the dollar. On a more positive note, it expects higher prices and a better mix of products to add 1 point to sales growth after predicting those factors would not be beneficial.

Kimberly-Clark previously expected to pay $300 million to $400 million more for pulp, oil-based materials and other raw materials this year and now sees such costs up $600 million to $700 million. Most of the increase stems from pricier pulp.

The company already cut the number of sheets in rolls of Cottonelle toilet paper and is looking at more ways to raise prices on paper goods, Buthman said.‹