07.25.11
Kimberly-Clark Corp. said Monday that it will keep raising prices to deal with rising costs for raw materials—a sign that it believes people are willing to shell out more for household products like Huggies diapers and Kleenex tissues.
That news was part of the company's earnings report. Kimberly-Clark said its second-quarter net income fell 18% despite revenue rising 8% to beat analysts' estimates. The manufacturer said it was paying 15% more to make and transport its products.
"The going is not getting easier," Weeden & Co. analyst Javier Escalante wrote in a note to clients Monday morning.
U.S. companies selling products from hamburgers to clothing to bottled soft drinks have raised prices this year, saying they had no choice because they're paying more for raw materials. So far, customers have generally gone along. Even though prices on some materials, such as corn and fuel, have fallen since spring, they're still up significantly from a year ago.
Dallas-based Kimberly-Clark said it expects expenses increases to cost it $650 million to $750 million this year, up from the $450 million to $550 million annual increase it predicted three months ago and the $200 million to $250 million it predicted three months before that. Chief financial officer Mark Buthman said the company's costs for oil-based materials, such as the polymer resin used in a diaper's outer cover and leg elastic, have risen even though oil prices have fallen in the past three months. He blamed a tight supply driven by strong demand in China.
Buthman told The Associated Press that Kimberly Clark will hike North American prices 3% to 7% on average in the second half of the year, partly by raising list prices and partly by making smaller packages, he said. Prices won't rise on adult care brands Poise and Depend or on the company's feminine care brands.
"I don't think any of us want to raise prices for our consumers," Buthman added, though he said that retailers have been "understanding" because the company has been open about its cost structures. He said the company is trying to mitigate the increases by making supply chain changes, like offering diapers in bags instead of more-expensive cardboard boxes. CEO Tim Falk said during a conference call with analysts that Kimberly-Clark also is cutting overhead like administrative expenses.
Falk said sales of baby products have been hurt by the falling birth rate. According to the U.S. Census Bureau, there were 60 births per 1,000 U.S. women in 2010, down from 64.2 in 2008.