Higher commodity costs hit Kimberly-Clark profits

By Simon Pitman

- Last updated on GMT

Related tags Raw material costs Cost

Kimberly-Clark has reported lower profits on higher raw material and commodity costs, despite second quarter sales being at record levels.

The personal care, tissue product and diaper manufacturer said that net sales rose 8 percent to $5.3bn, a figure that was positively impacted from currency translation by approximately 5 percent.

Sales gains were highlighted by an 8 percent rise in its K-C International operations, underlining big gains in new and developing markets as well as a 7 percent gain in European sales.

CEO Thomas Falk said that the K-C planned to make further sales gains in the rest of the financial year with the launch of a range of innovative new products worldwide.

Personal care records healthy gains, but US market is slow

For the company’s personal care division, which is the biggest, sales grew by 7 percent to reach $2.34bn, despite the fact that in the mainstay domestic market the division was hit hard by tough trading condition, which meant sales there fell by approximately 2 percent

Net income fell by 17.4 percent to $432m, hit hard by the fact that key costs grew by $180m during the quarter, mainly attributable to a €110m increase in raw material costs, specifically polymer resin and other oil-based materials.

On the subject of costs, he also underlined the fact that the company was hoping to underpin rising commodity and raw material costs by continuing to deliver significant improvements in overall cost savings.

Cost savings should underpin inflation threat

“We plan to offset the incremental inflationary headwinds we now expect largely through incremental cost savings and overhead reductions, along with favorable currency exchange rates,”​ said Falk.

“Nonetheless, without some moderation in input costs, it's more likely that 2011 adjusted earnings per share will be in the lower half of our guidance range."

In view of the latest results the company has raised sales forecasts for the full year, predicting growth of between 5 to 7 percent, compared to a figure of 4 to 8 percent at the beginning of the year – a figure that will be driven by both organic sales gains and currency translation.

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