Household goods makers show resilience in second quarter

Thu Jul 26, 2012 1:31pm EDT

(Reuters) - Makers of consumer products like toothpaste, toilet paper and even chocolate bars said they found growth in emerging markets and raised U.S. prices, easing concerns that shoppers were pulling back in a weak economy.

Kimberly-Clark Corp (KMB.N) and Colgate-Palmolive Co (CL.N) on Thursday had somewhat positive outlooks about the rest of the year, while Hershey Co (HSY.N) said price increases helped quarterly profit and it raised its full-year earnings forecast.

Kimberly-Clark, known for its Kleenex tissues and Huggies diapers, saw relief in key commodity expenses, saying pulp costs should be lower than previously expected.

Kimberly-Clark's quarterly profit beat expectations and the company raised its 2012 forecast, while Colgate's earnings were in line with estimates and it held to its earlier forecast.

Colgate's shares jumped 3.6 percent to $105.91, while Kimberly-Clark gained 3.2 percent to $86.04. Shares of both rose in the second quarter while the broader U.S. stock market declined.

"These stocks have really been on a tear. Investors are seeking safety, they're seeking dividend yield, so that's the good news," said Edward Jones analyst Jack Russo. "But the challenge is when you report earnings you've got to support the lofty valuations out there, and I think both of these companies did that."

EMERGING MARKETS HELP

Kimberly-Clark forecast 2012 adjusted earnings per share of $5.05 to $5.20, up from its previous target of $5.00 to $5.15.

Colgate's sales topped Wall Street's average estimate, as 13 percent organic sales growth in emerging markets stood out against 2.5 percent growth in developed regions. Organic sales strip out the impact of foreign exchange, acquisitions and divestitures.

"The read-through for the U.S. consumer is still pretty lukewarm, but thankfully these companies have a global footprint," Russo said. "The emerging markets really carried the day, especially at Colgate, and growth was slower, as we expected, in Europe and the U.S."

Results at larger European rival Unilever NV (ULVR.L) (UNc.AS) were helped by strength in emerging markets, though the maker of Lipton tea and Dove soap said it is seeing some commodities costs edge up.

The results came weeks after Procter & Gamble Co (PG.N), the world's largest household products maker, cut its forecast and still tries to set the right prices in slowing global economies -- issues its smaller competitors have more nimbly managed. P&G is set to report quarterly results on August 3.

Hershey, meanwhile, was able to raise prices despite economic uncertainty. Sales rose 7 percent to $1.41 billion, mostly on price hikes.

BY THE NUMBERS

Kimberly-Clark's second-quarter profit rose 19.9 percent to $498 million, or $1.26 per share. Adjusted earnings per share, excluding restructuring costs, rose to $1.30 and topped the average estimate of $1.28, according to Thomson Reuters I/B/E/S.

Sales rose 0.2 percent to $5.27 billion, just shy of analysts' expectation of $5.28 billion.

Colgate's profit was up less than 1 percent to $627 million, or $1.30 per share. Excluding items, Colgate earned $1.33 per share, matching expectations. Sales increased 2 percent to $4.27 billion, ahead of estimates of $4.25 billion.

Both companies are increasing advertising spending to entice consumers with new products, such as Kimberly-Clark's Depend and Poise pads for female incontinence, and Colgate's Colgate Optic White toothpaste.

Kimberly-Clark and Colgate have also raised prices.

At Kimberly-Clark, the volume of goods sold increased 2 percent, and prices were up more than 2 percent. At Colgate, volume rose 5 percent, and pricing was up 3.5 percent.

Kimberly-Clark now expects key commodity costs will be unchanged to down $100 million this year, versus an earlier expectation that such costs would range from $50 million in deflation to $50 million in inflation.

Kimberly-Clark now expects to spend $1.3 billion on share buybacks, subject to market conditions, up from a prior target of $900 million to $1.1 billion, as it expects to have more cash, including proceeds from stock option exercises.

Colgate still expects double-digit growth in earnings per share this year on a currency-neutral basis, though at current rates, foreign exchange would cut 2012 earnings per share growth by about 6 percent to 7 percent, Chief Executive Ian Cook said.

(Reporting by Jessica Wohl in Chicago; additional reporting by David Jones in London and Martinne Geller in New York; editing by Jeffrey Benkoe)

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