The numbers were pretty disappointing when Kimberly-Clark
Revenue increased approximately 4% year over year, to $5.0 billion. However, the cost of goods sold increased 11.9%, dragging margins down. The company also expects inflation for input costs to be $450 million to $550 million, compared with its previous assumption of $200 million to $250 million for the year 2011. Yowza!
Cost inflation comes largely from the prices of northern softwood pulp and oil. These pressures will add to the cost of goods sold and pinch margins in the future. Continued upward volatility in crude oil prices could certainly drop (or not drop) down to the bottom line.
The company has planned to pass on "most, if not all," of the growing costs to customers, which will help Kimberly-Clark resurrect its deteriorating margins. On the other hand, higher pricing might not weigh on sales as much since Kimberly-Clark's biggest competitor, Procter & Gamble
Not surprisingly, Kimberly-Clark's operating profit plummeted 18% year over year. Kimberly-Clark derives a majority of its revenue from two segments of its business -- personal care and consumer tissue. Operating profit for the personal care segment and the consumer tissue segment has declined by 17.6% and 17.1%, respectively. Declining operating margin is obviously a trend to watch, especially as the business begins to tackle the challenges of higher input costs.
Foolish bottom line
The company derives a slim majority of its revenue from the U.S., where consumers are struggling. However, there is a silver lining. Kimberly-Clark, with its strong brands and operational efficiency, can look to expand its presence beyond the U.S. to keep competitors Johnson & Johnson
Bibhudutta Subhasish does not own shares of any of the companies mentioned in this article. Johnson & Johnson is a Motley Fool Inside Value pick. Johnson & Johnson, Kimberly-Clark, and Procter & Gamble are Income Investor selections. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Johnson & Johnson. Alpha Newsletter Account, LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.