October 24, 2012 / 3:53 PM / 8 years ago

Kimberly-Clark to exit low-profit European businesses

(Reuters) - Kimberly-Clark Corp (KMB.N) plans to stop selling its Huggies diapers in much of Western and Central Europe as part of a plan to leave low-profit businesses in that region.

The maker of Kleenex tissues also reported lower quarterly sales due to the stronger U.S. dollar, but earnings rose, and it raised its profit forecast for the year.

Kimberly-Clark said on Wednesday it would remain in the diaper business in Italy. It also plans to sell or exit some lower-margin businesses, mostly in its consumer tissue unit. The company plans to cut 1,300 to 1,500 jobs, which include closing or selling five manufacturing plants.

“We’ve been in the European diaper market for more than 20 years and we’ve made a number of attempts to find a winning business model there,” Chairman and Chief Executive Thomas Falk said during a conference call. “We’ve concluded that we can create more shareholder value by getting out of this business rather than by continuing to try to turn it around.”

The businesses Kimberly-Clark will exit or divest generate annual net sales of about $500 million and negligible operating profit. The company would not identify all of the specific markets or products those businesses entail.

Kimberly-Clark rings up more than $3 billion in European sales each year as part of its overall sales of $20.85 billion. The European market remains challenging, Falk said.

“We are pleased that (Kimberly-Clark) has made this deliberate choice,” said BMO Capital Markets Connie Maneaty, who has been looking for household products companies to manage costs better in a slow-growth environment.

Kimberly-Clark has been cutting costs and has benefited from a decline in commodity costs, which for years had been a pressure point for the tissue, toilet paper and diaper maker. Still, the impact of the stronger U.S. dollar crimps overseas sales, and the company has been spending more on marketing to compete against larger rivals such as Pampers diaper maker Procter & Gamble Co (PG.N).

Shares of Kimberly-Clark were down 0.9 percent at $85.16 in late morning on the New York Stock Exchange, while shares of rival P&G were up 1.2 percent at $68.27. P&G is set to report its results on Thursday.


Kimberly-Clark earned $517 million, or $1.30 per share, in the third quarter, compared with $432 million or $1.09 per share a year earlier.

Excluding restructuring costs, earnings per share rose to $1.34 from $1.26, topping the analysts’ average estimate by a penny, according to Thomson Reuters I/B/E/S.

Sales fell 2.5 percent to $5.25 billion, missing the analysts’ average forecast of $5.35 billion. Foreign exchange rates reduced sales by 5 percent, Kimberly-Clark said.

Organic sales, which exclude the impact of foreign exchange rate fluctuations and sales lost due to the restructuring of the pulp and tissue business, rose 3 percent.

The company said it expected to earn $5.15 to $5.25 per share this year, excluding restructuring costs. In July, it had forecast $5.05 to $5.20.

Back in January, Kimberly-Clark said 2012 would be a tough year and set its profit target at $5.00 to $5.15 per share, below the analysts’ average estimate of $5.24 at the time. Since then, Wall Street has cut its forecast to $5.18.

Kimberly-Clark said it expected deflation of $100 million to $150 million in key commodity costs this year, with pulp prices falling and oil toward the high end of the company’s prior outlook. It had previously expected key commodity costs to be flat to down $100 million this year.

Kimberly-Clark will trim its European manufacturing and administrative teams as part of its international overhaul. Related after-tax restructuring costs should reach $250 million to $350 million through 2014, the company said.

The company said it may have to take a fourth-quarter charge depending on how many former workers participate in a plan to receive a lump sum distribution of their pension benefits.

Reporting by Jessica Wohl in Chicago; editing by Gerald E. McCormick, Maureen Bavdek, Lisa Von Ahn and Matthew Lewis

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