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Huggies cuts six thousand jobs Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aqTJa0.tMGHU&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aqTJa0.tMGHU&refer=home
Kimberly-Clark Profit Declines, Cuts Up to 6,000 Jobs (Update7)
July 22 (Bloomberg) -- Kimberly-Clark Corp., the maker of Scott tissue and Huggies diapers, posted its third straight profit decline and plans to cut as many as 6,000 jobs after losing sales to Procter & Gamble Co.
The company will take a charge of as much as $775 million for the 10 percent workforce reduction. Dallas-based Kimberly- Clark also said in a statement today that its second-quarter net income declined 7.2 percent to $421.8 million as higher oil, resin and marketing costs outweighed a sales gain of 8.1 percent.
Kimberly-Clark plans to save as much as $350 million by 2009 through job cuts and selling or closing 20 factories. Chief Executive Officer Thomas Falk will use the savings for promotions in Europe and to accelerate growth in markets including China, Brazil and Russia as Procter & Gamble, the No. 1 household goods maker, takes share in diapers and tissue.
``They've been decimated by higher paper and energy costs,'' said Jake Dollarhide, who oversees $25 million at Tulsa, Oklahoma-based Longbow Asset Management Co. The firm sold its Kimberly-Clark shares in 2004. ``They're operating in a whole new world dominated by players with higher-margin products.''
The company said it earned 95 cents a share excluding a 7- cent cost to repatriate foreign earnings. On that basis, Kimberly-Clark was expected to earn 94 cents a share, the average estimate of 12 analysts surveyed by Thomson Financial.
Third-quarter earnings, excluding costs, will rise to 94 to 96 cents a share, from profit from continuing operations of 87 cents a year earlier. The company revised its annual forecast from a gain to $3.70 to $3.85 a share to $3.77 to $3.83 a share excluding costs.
`Competitive Every Day'
Kimberly-Clark said it'll streamline manufacturing and administrative operations mainly in North America and Europe. Falk, on the conference call, declined to disclose the exact locations for the job cuts, which will be completed by the end of 2008. He said the company first has to inform workers who'll be affected.
``We've got to be competitive every day,'' Falk said. ``To fund that, we've got to get our cost structure in line.''
Shares of Kimberly-Clark rose $1.21, or 1.9 percent, to $64.06 at 10:52 a.m. in New York Stock Exchange composite trading. Before today, they have declined 4.5 percent this year.
Kimberly-Clark earned 88 cents a share in the quarter, from $454.3 million, or 90 cents, a year earlier. Sales rose to $3.99 billion.
Sales increased 7.4 percent in the personal care division, which accounts for about 40 percent of revenue and includes diapers and Depend adult incontinence products. Tissue, which includes brands such as Kleenex, Cottonelle and Viva, gained 13 percent.
Discounts
Falk, 47, spun off the Neenah Paper unit in November and closed pulp mills to focus on more-profitable businesses such as diapers. Operating profit fell 2.5 percent in the diaper division last quarter as Kimberly-Clark increased promotions on Huggies to defend the brand's lead over Cincinnati-based P&G's Pampers in the U.S.
``Competition remained intense, particularly in the diaper category,'' the company said.
P&G and discount retailers are also hurting Kimberly-Clark in Europe, where the keep spending on discounts. ``Europe remains challenged and hopefully Kimberly-Clark can find the panacea to fixing this business and regaining volume and share,'' wrote Jason Gere, an analyst at A.G. Edwards in New York, who rates Kimberly-Clark ``hold.''
The company lost share in categories that contributed 61 percent of its sales in the quarter, though it gained back some share from Georgia-Pacific Corp. in bath tissue, wrote William Pecoriello of Morgan Stanley in New York.
Marketing Spending
The company expects $150 million to $200 million of the restructuring costs will come in 2005, and benefits from the plan will begin next year, Falk said on the call. Research and development spending will rise to more than $400 million by 2009, while marketing spending as a percent of sales is expected to increase by 100 basis points. A basis point is one one-hundredth of a percent.
Raw materials hurt the company's profit by 7 cents a share in the quarter, according to estimates by Pecoriello. Oil and derivatives costs rose, while spot prices for pulp were likely below Kimberly-Clark's budget, which assumes $700 per ton for this year, he wrote.
Price increases taken by the company last quarter in response to commodity costs include a 12 percent sheet reduction in Cottonelle tissue, at least 7 percent fewer sheets per roll of Viva paper towels, and a 4 percent to 6 percent increase in the price of Depend adult incontinence products.
Pricing Power
The company also plans to increase prices on Huggies this quarter by at least 4 percent, following Procter & Gamble and some store brands.
``Historically larger firms are not the job creators, they are the job shedders in America,'' Drew Matus, senior economist at Lehman Brothers Holdings Inc., said in an interview. ``There's very little inflation in the economy, therefore there's little ability for firms to pass on costs to consumers (so) they look for other ways to save money.''
The company has factories in the U.S. and 39 other countries including Argentina, Australia, Brazil, India, Italy, Mexico, Philippines, Saudi Arabia, South Africa and Spain.
Last Updated: July 22, 2005 11:51 EDT
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