CHICAGO (Reuters) - Kimberly-Clark Corp (KMB.N) plans to get out of the business of making the pulp used in its paper products, closing several plants, as it looks to improve profitability as costs jump.
The maker of Kleenex tissues and Huggies diapers also said it plans a 6 percent dividend increase and $1.5 billion in share buybacks, and posted quarterly profit that beat analysts’ expectations.
Kimberly-Clark is paying more for oil and the fiber used in its paper goods. At the same time, a heavy dose of discounting in the household products sector is putting pressure on sales.
Chairman and CEO Thomas Falk said he expects the environment to remain difficult this year.
Kimberly-Clark said the pulp and tissue restructuring, which mainly impacts its consumer tissue business, should cost $280 million to $420 million after tax. By 2013, the move should reduce annual net sales by $250 million to $300 million and boost operating profit by at least $75 million a year, the company said.
Getting out of the pulp manufacturing business should improve the profitability and return on invested capital of its consumer tissue and K-C Professional businesses, the company said. It will streamline, sell or close five or six manufacturing facilities and move some production to lower-cost facilities.
The company also plans to stop making certain products, mainly non-branded ones.
Kimberly-Clark plans to repurchase $1.5 billion of its stock this year, including $700 million funded by incremental debt financing.
Shares of Kimberly-Clark rose 0.3 percent to $64.15 in premarket trading.
Fourth-quarter profit was $520 million, or $1.20 per share, compared with $522 million, or $1.17 per share, a year earlier. Analysts, on average, expected $1.15 per share, according to Thomson Reuters I/B/E/S.
Sales rose 1.9 percent to $5.08 billion, ahead of analysts’ forecast of $5.03 billion.
Organic sales, which strip out foreign currency fluctuations and acquisitions, rose 3 percent. Volume was flat.
Costs rose $220 million from a year earlier, including $130 million in higher fiber costs.
The company forecast 2011 earnings of $4.90 to $5.05 per share, excluding costs associated with the restructuring, with sales up 3 percent to 4 percent.
Kimberly-Clark’s results kicked off earnings in the U.S. household products sector. Results will follow over the next couple of weeks, including from Procter & Gamble Co (PG.N) and Colgate-Palmolive Co (CL.N) on Thursday.
Reporting by Jessica Wohl; editing by John Wallace