MILWAUKEE — The sluggish retail environment — with shoppers spending sparingly and retailers focusing on top sellers — coupled with fluctuating production costs is forcing Kimberly-Clark Corp. to make cautious predictions for 2010.
The maker of Kleenex, Huggies and Scott paper towels, which has a tissue mill and a pulp mill in Everett, reported Friday that its fourth-quarter profit rose 17 percent, but the results fell short of analyst predictions.
The company said promotions it launched to keep consumers spending cut into profits and it’s likely the trend will continue in 2010, in which the company predicts a “slow and modest economic recovery.”
Overall, Kimberly-Clark has been weathering the recession well, analysts say, by raising prices as far back as 2008 to account for rising costs for key components like pulp. While those hikes helped protect its profit, the company then had to offer promotions on products like Kleenex to stimulate sales, and that in turn hurt profits.
It finished fiscal 2009 with earnings per share of $4.52, an 11 percent rise, but it expects to earn between $4.80 to $5 per share this year. Analysts, meanwhile, are expecting $5.14 a share for fiscal 2010, which ends in December.
Kimberly-Clark’s growth could slow as commodity prices rise, Deutsche Bank-North America analyst Bill Schmitz Jr. said in a note to clients, adding that it remains unclear how shoppers will spend this year.
“Consumer tissue sales and margins remain disappointing as (the) company cedes share and commodities start to rise,” he wrote.
Its overall consumer tissue product revenue — including sales of Scott paper towels — edged up just 0.9 percent to $1.66 billion in the three months that ended Dec. 31.
In North America, those sales fell 6 percent, the net selling price fell 3 percent because of promotions and sales of paper towels tumbled in the double digits because shoppers traded down to less-expensive brands.
But sales of Kleenex tissues rose 7 percent due to a combined boost from the cold and flu season and promotions.
As consumers continue trying to save money, the company must boost its marketing to keep them spending, said Jack Russo, an analyst for Edward Jones.
“It’s hard to distinguish yourself from everybody else, especially at a time when consumers are watching their spending,” he said.
CEO Thomas Falk said Kimberly-Clark plans to come out with new products in the first part of the year to keep shoppers — and retailers — interested.
“I think retailers are continuing to push. They want innovation, they want to make room for innovation, so they’re going to be pushing manufacturers to make sure their product lines are performing,” he told investors on a conference call.