Keeping the Faith in Kimberly-Clark

There aren't a lot of companies that make products more basic than those of Kimberly-Clark (NYSE: KMB  ) . Sure, diapers and paper towels aren't terribly glamorous -- but we throw them into the shopping basket every week anyway.

Foolish investors expect consumer-staples companies to be like the products themselves: not highfliers, nor the first topic of conversation at a dinner party -- but safe and dependable.

It's a classic core portfolio strategy for choppy markets, but only if you can truly depend on the company to deliver. Kimberly-Clark's fourth-quarter results show the company continues to fit this bill, although I would add an asterisk or two.

Sales growth of 10.5% looks pretty solid and right in line with the previous quarter's results.

It also compares nicely with the latest quarterly sales growth of 8% at Procter & Gamble (NYSE: PG  ) and 12% at Colgate-Palmolive (NYSE: CL  ) .

Kimberly-Clark's volume growth (actual units of product sold) was 4%, with the balance coming primarily from foreign currency gains. The personal care segment (diapers and baby wipes) led the way with 10% volume growth. Sales of paper towels and toilet tissue were less robust, gaining 7% in dollars, 5% of which was generated from favorable exchange rates.

Operating profits grew 9.5% -- a tad slower than the sales increase -- held back by commodity cost inflation that's taken a bite out of most consumer-products companies this year. The company's earnings per share rose a modest 1.9% because of a higher tax rate and last year's gain on the sale of a Mexican paper and pulp business. Excluding these items, core profitability remains pretty healthy.

Kimberly-Clark is taking a conservative view toward 2008. Unit volumes are expected to grow 3% to 4%, with another 2% to 3% coming from pricing and foreign currency benefits. Commodity costs will continue to be a drag on earnings growth, partially offset by aggressive cost-containment efforts. Bottom line, company officials expect operating profit growth in the 5% to 8% range, including some price increases to take effect early in the year. They expect the back half of 2008 to bring stronger earnings growth than the front half.

In recent months, I've taken a favorable view of consumer products companies like Kimberly-Clark, Unilever (NYSE: UL  ) , Johnson & Johnson (NYSE: JNJ  ) , and Coca-Cola (NYSE: KO  ) . I like the predictable growth, low volatility, and the dividend yield.

There is a risk that in a recession, consumers could trade down from Kimberly-Clark's premium brands like Viva and Kleenex to generic store brands for the savings, but I don't think it's a major risk. Shoppers get very used to the brands they prefer. As long as Kimberly-Clark can continue to deliver dependable growth, I think this stock is one you can safely toss into your buggy.

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