After the reams of layoffs we heard about on Monday from big-name, blue-chip companies, fourth-quarter earnings could definitely have been worse for Kimberly-Clark (NYSE:KMB). At least the company didn't tell us that anyone's getting a pink slip.
But overall, things weren't much better for the maker of brand-name consumer products, including Huggies diapers, Kleenex tissues, and Scott paper towels.
Net sales dropped by 3.4%, accompanied by an 8.1% drop in net income and a 5.6% decline in diluted earnings per share. K-C's Professional division, delivering about 16% of total sales and specializing in paper products for corporate clients, generated an 8.5% sales decline and an 18.5% profit drop, driven by the weak economic climate and rising unemployment rates.
Personal-care products (including disposable diapers) and consumer-tissue sales dropped by 2.5% and 2.6%, respectively, for the quarter, with unfavorable foreign exchange rates and weak consumer product demand combining with product-pricing increases as the recipe for stagnating revenue. Operating profits took a hit from a combination of commodity cost inflation and a corporate restructuring/cost reduction program, which was completed at the end of 2008.
As you might have guessed, K-C doesn't paint a sunny picture for 2009. It forecasts a net sales decline of as much as 5%, with currency exchanges cutting sales by 7%. Product prices should deliver a moderate increase of about 2%, which is much lower than this year's inflation-driven pricing frenzy. The company continues to increase marketing spending and admits that lowered commodity pricing should help with profitability for the short term.
The strengthening dollar has been slamming the results of consumer-products companies not prepared for global currency fluctuations. Heinz (NYSE:HNZ) prepared for the potential of currency moves through hedging and was justly rewarded. But companies that haven't strategically hedged foreign currencies have been burned in the past few months.
Compared with consumer-products peers Procter & Gamble (NYSE:PG), Unilever (NYSE:UL), and Colgate-Palmolive (NYSE:CL), K-C has a tough road ahead, with such a large part of its portfolio hinging on fellow blue-chip companies for success. As corporate America cuts back wherever it can, you have to believe that more companies will continue to examine their paper-products spending and either negotiate better pricing or go with a lower-cost supplier. Combine that with fewer folks in the office and continued pressure from private-label manufacturers on the consumer-products front, and it looks as though there won't be any sunshine band for K-C.
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