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Kimberly-Clark Reports 2008 Results

Kimberly-Clark Corporation (Kimberly-Clark) has reported net sales of $19.4 billion for year 2008, up 6.3%, compared with the net sales of $18.3 billion in the previous year-end. It has also reported a net income of $1.7 billion, or $4.04 per share, for the year 2008, down 7.3%, compared with the net income of $1.8 billion, or $4.09 per share, in the previous year-end.

Kimberly-Clark has reported net sales in the fourth quarter of 2008 decreased 3.4% to $4.6 billion, as the effect of weaker foreign currency exchange rates more than offset organic sales growth of around 5%. The growth in organic sales was driven by higher net selling prices, favorable product mix and continued improvement in sales volumes across developing and emerging markets. Overall sales volumes, however, were below prior year levels due primarily to lower shipments of Huggies diapers and Pull-Ups in North America, as well as the company’s consumer tissue and K-C Professional products in North America and Europe. Sales volumes for the quarter also trailed planned levels as customer and consumer demand was impacted by deteriorating economic conditions in these geographies.

Diluted net income per share for the quarter was $1.01 compared with $1.07 in the prior year. Adjusted earnings were $1.01 per share versus $1.11 per share in the fourth quarter of 2007 and below the company’s previous guidance range of $1.02 to $1.07 per share. During the quarter, the company made further progress in improving revenue realization, which contributed to an increase in operating profit margin from recent lows. Nonetheless, operating profit and margin were down compared with the prior year, mainly as a result of higher manufacturing costs, including inflation of about $135 million, and unfavorable currency effects, along with the decline in sales volumes and higher expenses included in other (income) and expense, net. Meanwhile, the company continued to boost marketing investment, increasing spending by more than $25 million compared with the fourth quarter of 2007. Overall, currency effects reduced earnings in the fourth quarter of 2008 compared with the prior year by more than 20 cents per share, including around 8 cents per share as a result of significant currency losses incurred by the company’s equity affiliate, Kimberly-Clark de Mexico.

Chairman and chief executive officer Thomas J. Falk said, “During the fourth quarter, economic weakness impacted our categories more than anticipated, particularly in North America and Europe. We believe some of the effects are temporary, reflecting customer warehouse and consumer pantry inventory reductions; however, consumer trade-down also affected our sales in several categories. We are fine tuning our pricing and promotional plans to ensure we remain competitive, particularly in diapers and training pants in North America.

“Reflecting on the year, we made solid progress on a number of fronts while managing through a challenging business environment. Kimberly-Clark teams have delivered solid organic sales growth, above the high end of our long range target, brought innovative new and improved products to market, enhanced the competitive position of our brands, deepened our relationships with key customers and maintained a strong financial position. I am also encouraged that our focus on revenue realization has contributed to positive operating profit margin momentum as we enter 2009.”

Review of fourth quarter sales by business segment

Sales of personal care products decreased 2.5% from the fourth quarter of 2007. Net selling prices increased 6%, product mix improved 1% and sales volumes were flat, while currency effects reduced sales by almost 9%.

Personal care sales in North America declined about 2% versus the year-ago quarter, as an improvement in net selling prices of 6% was more than offset by a 7% drop in sales volumes and unfavorable currency effects of 1%. The higher selling prices resulted from increases implemented earlier in 2008 across all categories, net of increased promotional activity primarily for Huggies diapers to match competitive moves. The decrease in sales volumes was primarily attributable to lower shipments of the company’s diaper and child care brands, which were down around 10% overall, as customers adjusted inventory levels, child care category sales slowed and some consumers switched to lower-priced product offerings. Meanwhile, sales volumes for Kotex feminine care and Depend and Poise adult care products experienced a low single-digit decline.

In Europe, personal care sales fell around 16% in the quarter, mainly as a result of a 14% impact from weaker currencies. Sales volumes were even with the year-ago quarter, while net selling prices decreased about 2% in continued competitive market conditions. Sales volumes of Huggies diapers in the company’s four core markets of the U.K., France, Italy and Spain were unchanged compared with the fourth quarter of 2007.

In developing and emerging markets, personal care sales slipped about 1%, as continued strong growth in organic sales was more than offset by negative currency effects of almost 17%. Sales volumes increased by more than 5%, while net selling prices improved about 8% and product mix was better by around 3%. The growth in organic sales was broad-based, with particular strength in China, Russia, Turkey, Vietnam, Brazil and the Andean region in Latin America.

Sales of consumer tissue products declined 2.6% in the fourth quarter. Although net selling prices climbed around 11% and product mix was favorable by 1%, overall sales volumes were down 6% compared with the prior year and unfavorable currency exchange rates reduced sales by more than 8%.

In North America, sales of consumer tissue products increased more than 3% in the fourth quarter, as an increase in net selling prices of almost 13% and improved product mix of about 1% were partially offset by a 10% decline in sales volumes and currency effects of 1%. The improvement in net selling prices reflects price increases implemented across the bathroom tissue, paper towel and facial tissue categories during the course of 2008. This focus on improving revenue realization, along with slower category growth and consumer trade-down, particularly in paper towels, contributed to the lower sales volumes. For the quarter, shipments were down more than 10% for Viva and Scott paper towels, around 7% for Cottonelle and Scott bathroom tissue and about 3% for Kleenex facial tissue. A portion of the overall volume decline also was due to the company’s decision in late 2007 to shed certain low-margin private label business.

In Europe, consumer tissue sales fell about 14% compared with the fourth quarter of 2007, with weaker foreign currency exchange rates accounting for the entire decline. Sales volumes were down around 5%, due mainly to lower sales of Andrex and Scottex bathroom tissue and Kleenex facial tissue in response to higher prices and continued softness in category sales, particularly in the U.K. Net selling prices improved 4%, primarily reflecting list price increases across multiple markets, and product mix also was better by 1%.

Consumer tissue sales in developing and emerging markets were lower by about 2%, as unfavorable currency effects of around 17% more than offset robust growth in organic sales. During 2008, the company raised prices in most markets to recover higher raw materials costs and drove improvements in mix with more differentiated, value-added products, strategies that resulted in higher net selling prices of nearly 13% and better product mix of 2%. Meanwhile, sales volumes were even with the year-ago quarter.