July 24, 2018 / 6:52 PM / a month ago

RPT-UPDATE 4-Kimberly-Clark cuts profit forecast on surging commodities costs

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By Richa Naidu and Aishwarya Venugopal

July 24 (Reuters) - Kimberly-Clark Corp on Tuesday slashed its full-year profit forecast as the maker of Huggies diapers and Kleenex tissues warned of higher-than-expected costs for raw materials and a stronger dollar.

Packaged goods companies, including Kimberly-Clark, have been grappling with surging commodities and transportation costs. The industry is also being rocked by changing consumer habits and pricing pressure due to the rise of e-commerce.

Kimberly-Clark, the world’s No. 2 maker of toilet paper and diapers, also missed analysts’ quarterly sales estimates due to weakness in its personal care business, which includes Kotex sanitary pads and Depend adult incontinence products. Shares in Kimberly-Clark were flat after marketing cost cuts helped the company beat earnings estimates of $1.57 per share by 2 cents.

“It’s been a while since we’ve had commodities costs at this kind of level,” Chief Executive Thomas Falk said on a call with analysts, adding that the company would “suffer” while it was working to raise prices for some of its products.

Kimberly-Clark, which gets nearly half its sales from outside the United States, said full-year operating profit would be hurt by about 20 percent to 25 percent due to higher commodities costs and the strong dollar. This translates to full-year adjusted earnings per share of $6.60 to $6.80, down from a prior estimate of $6.90 to $7.20.

“Commodities were a drag of $200 million in the quarter primarily due to higher pulp costs and, secondarily, inflation in other raw materials,” Chief Financial Officer Maria Henry said. The Irving, Texas-based company expects full-year commodity costs to rise by between $675 million and $775 million, up from its previous estimate of between $400 million and $550 million.

“We continue to remain concerned about long-term structural headwinds, including higher private label penetration and Kimberly-Clark’s limited pricing power,” Wells Fargo analyst Bonnie Herzog wrote in a note.

Earlier this year, Kimberly-Clark said it would consider exiting some lower-margin businesses, mainly in the consumer tissue segment, which bears the brunt of higher pulp costs and is facing competition from retailers’ private-label brands.

Sources told Reuters last week that Kimberly-Clark was exploring a sale of its European tissue business, a deal likely to fetch more than 1 billion euros ($1.17 billion).

The company also said this year that it planned to close or sell 10 of its worldwide 91 factories and cut 5,000 jobs - about 13 percent of its workforce - as it strives for more than $2 billion in cost cuts by 2021.

$1 = 0.8562 euros Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sai Sachin Ravikumar and Tom Brown

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