* Q3 EPS $1.40; analysts' forecast $1.13
* Sales down 1.7 pct to $4.91 bln
* Raises FY EPS view, sees smaller sales drop
* Assumes relatively stable economy for rest of 2009
* Shares up 5.1 percent after hitting year-high (Adds CEO and analyst comments, byline; updates stock move)
By Jessica Wohl
CHICAGO, Oct 22 (Reuters) - Kimberly-Clark Corp (KMB.N) raised its forecast for the year after blowing past third-quarter earnings expectations on cost-cuts and increased demand for face masks to protect against the H1N1 flu virus.
The maker of Kleenex tissues and Huggies diapers expects to cut costs even more, feel less of a hit from foreign currency and see sales improve this year. Its shares rose 5.1 percent to $62.74 in afternoon trading.
The company is "assuming the economic environment will remain relatively stable for the balance of 2009," said Chairman and Chief Executive Thomas Falk.
Consumers are buying household and personal products, but they continue to feel some pressure, he noted.
"I wouldn't say it's getting a lot worse, but it's not getting a lot better, either," Falk said in an interview.
Kimberly-Clark, which also makes Depend undergarments for incontinence, still sees shoppers timing purchases to their budgets.
"Certainly, in categories like incontinence, you're seeing the senior that's on a fixed income is tending to load up at the beginning of month," Falk said.
Also, parents continue to keep children in diapers longer, rather than moving to the company's more expensive Pull-Ups training pants, he said. "But for most part you're not seeing huge shifts in consumer behavior."
PROFIT UP MORE THAN 40 PERCENT
Kimberly-Clark said on Thursday it earned $582 million, or $1.40 per share, in the third quarter, up sharply from $413 million, or 99 cents per share, a year earlier.
Analysts, on average, expected $1.13 per share, according to Thomson Reuters I/B/E/S.
Analysts said the results were strong overall, even though some categories saw pressure, and were pleased with the company's improved margins.
"If Kimberly-Clark is any indication, this bodes well for (third-quarter) performance across the group," especially for Procter & Gamble, Sanford Bernstein analyst Ali Dibadj said.
Shares of P&G, which reports on Oct. 29, rose 0.8 percent.
Kimberly-Clark's sales fell 1.7 percent to $4.91 billion. Analysts had expected $4.87 billion. The volume of goods sold was little changed from a year earlier.
One bright spot was healthcare, where sales rose 15.8 percent and volume jumped 18 percent. About 40 percent of the volume growth stemmed from face mask demand. [ID:nN22177970]
Sales fell in other units. The consumer tissue unit, whose brands include Kleenex, Cottonelle and Scott, posted the biggest drop with a 5 percent decline.
Kimberly-Clark has seen distribution change as retailers sharpen their focus on product selection. For example, its Scott paper towels are no longer sold at Target (TGT.N), which has focused on more premium products such as Kimberly-Clark's Viva brand and P&G's (PG.N) Bounty. But Scott towels were added to the lineup at Wal-Mart's (WMT.N) Sam's Club warehouse stores.
"Our overall distribution is pretty similar, but it's more concentrated in individual outlets than it used to be," Falk said.
Kimberly-Clark said it now expects to earn $4.50 to $4.60 per share this year, up from a July forecast of $4.10 to $4.25. Analysts' average forecast was $4.26.
The company now expects sales to fall about 2 percent this year. In July it forecast sales would fall 4 percent to 6 percent, versus a prior view of a 6 percent to 8 percent drop.
Kimberly-Clark said it has found additional savings in sourcing and supply chain and now expects to save about $250 million this year, versus prior guidance for savings of at least $200 million.
In June, the company set plans to cut about 1,600 salaried jobs, or roughly 3 percent of its workforce. Under an earlier cost-cutting plan, it eliminated some 6,000 jobs and closed about 20 manufacturing plants. (Reporting by Jessica Wohl; editing by John Wallace and Steve Orlofsky)