Kimberly-Clark Going Back to the Well

Have you noticed that it isn't only gas prices that are heading north? If by chance you haven't been to the grocery store recently, check out any aisle. Energy-cost inflation is rippling through the economy in a big way.

Kimberly-Clark (NYSE:KMB), which makes such consumer staples as Kleenex tissues and Huggies diapers, announced a few weeks ago that it's heading back to the price-increase well for the second time this year. The company's second-quarter earnings release explains why.

Sales growth is tracking at a solid 11% pace, helped by 3% more case volume along with the benefits of previous pricing moves and favorable currency effects. But that sales growth hasn't been enough to offset raw-material and transportation-cost increases, which caused product and manufacturing costs to expand by more than 15%. The upshot was that second-quarter adjusted earnings per share fell to $1.03, a penny less than last year.

Management admitted in the earnings conference call that costs continue to rise faster than forecast -- $180 million in this quarter alone, or $50 million more than they expected just three months ago. That sliced quarterly earnings by $0.08 per share, no small change.

If there's any good news, it's that all the consumer-product giants from Procter & Gamble (NYSE:PG) to Kraft Foods (NYSE:KFT) are taking price increases as quickly as they think the market will reasonably bear. And so far, they aren't seeing a noticeable falloff in volume. While consumers are buying less stuff these days, there still appears to be some elasticity left in their pocketbooks for truly staple products, like toilet paper and laundry detergent.

Meanwhile, could we be starting to see some cracks in the bull thesis for oil prices? Energy prognostication is not my strongest suit, but I've been encouraged to see oil pull back by 10% to 15% the past couple of weeks. If this trend continues, a lot of consumer-product companies -- such as Unilever (NYSE:UL) and Colgate-Palmolive (NYSE:CL) -- could be positioned for earnings improvement.

Perhaps it's too soon to get excited about this safe, defensive, dividend plays sector. But stay tuned -- it may be getting ready to make a move.

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