Kimberly-Clarks struggles in the face of restructuring

By Simon Pitman

- Last updated on GMT

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After a run of strong results from international personal care
players, Kimberly-Clark's latest results show it is struggling as
it is faces restructuring charges, passing costs on to consumers in
the US and Europe.

As a result the company reported a 17 per cent fall in fourth quarter net income, which it also attributed to rising costs.

Although sales for the quarter rose 2.8 per cent to reach $4 billion, net income dropped 17 per cent, down from $445 millon to $371 million in view of the mounting costs.

The maker of Kleenex, Huggies and related personal care lines, is six months into a plan to reduce its workforce by 10 per cent in an attempt to cut costs and reduce profits.

The company has had a run of largely flat sales in recent year. This, combined with a steep rise in the cost of materials, has forced the company to implement the 'Force' restructuring plan.

The underlying trend for the company does look a little brighter. In the third quarter, it reported a 9 per cent increase in net profits, excluding charges.

Further to this, the most recent quarterly results highlight a rise of 70 basis-point in return on invested capital in 2005, which the company says is evidence that it is making progress in the face of cost inflation.

"Even though we had to absorb cost inflation of approximately $400 million in 2005 - more than double the level expected heading into the year - we stepped up our brand building efforts, investing about $90 million in incremental marketing and research expenses,"​ said CEO Thomas Falk.

Global sales of personal care products, which include wipes and skin care ranges, grew by 2.4 per cent during the quarter, while net selling prices were up 2 per cent, reflecting retail price rises.

In North America sales were largely in line with the figures for 2004, although net selling price was up 2 per cent.

In Europe sales decreased by 15 per cent, down 10 per cent excluding currency, with volume sales down 5 per cent. The company pointed out that sales in the four core markets - UK, France, Spain and Italy - rose by 4 per cent.

Sales in developing countries rose 13 per cent, particularly driven by strong growth in Latin America.

Looking to the full year ahead, the company said that its cost restructuring programme should save a total of $150 million in the year, together with a further $80 - 100 million from other cost reduction initiatives.

This leads it to believe that in 2006 it will achieve revenue growth of between 3 - 5 per cent and a growth in operating profits of between 3 - 6 per cent.

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