Kimberly-Clark Corp said on Tuesday that quarterly profit jumped a better-than-expected 22 percent as cost cutting efforts helped offset higher costs for the fiber used in its products, and raised its full-year earnings forecast.
The company, known for Kleenex tissues and Huggies diapers, also set up a $2 billion share repurchase plan, and its board approved more buybacks. Shares of Kimberly-Clark rose as much as 3 percent. Second-quarter profit increased to $461.8 million, or $1 per share, from $377.6 million, or 82 cents per share, a year earlier.
Excluding items from cost-cutting and restructuring plans, earnings increased to $1.04 per share from 95 cents. The results surpassed the company's adjusted profit forecast of $1.01 to $1.03 per share and the analysts' average outlook of $1.03, according to Reuters Estimates.
Sales rose 8.2 percent to $4.50 billion, coming in slightly ahead of analysts' average view of $4.44 billion. Kimberly-Clark, which announced its restructuring plan two years ago, lowered expected after-tax charges to a range of $615 million to $650 million from $665 million to $700 million. The write-downs will be taken through the end of 2008.
Deutsche Bank analyst Bill Schmitz said Kimberly-Clark "continues to show incremental progress" despite rising pulp costs and signs of macroeconomic pressure in the United States, and maintained his "hold" rating on the stock and a $71 price target.
Dallas-based Kimberly-Clark absorbed about $85 million in higher materials costs during the quarter, including about $55 million for fiber. It also spent $13 million more to promote products such as diapers and tissues, which compete directly with brands from larger rival Procter & Gamble Co.
Kimberly-Clark said it expects to overcome cost pressures with strong growth in developing and emerging markets, price increases in the consumer tissue and professional units and cost cutting. Kimberly-Clark now expects to earn $4.20 to $4.25 per share on an adjusted basis this year, up from its prior forecast of $4.10 to $4.20. Analysts, on average, called for $4.21.
The company sees adjusted profit of $1.04 to $1.06 per share for the third quarter, including a benefit of 1 cent per share from its accelerated share repurchase plan. Analysts, on average, expected a profit of $1.06 per share. Under a new agreement, the company will buy about 29.6 million common shares for $2 billion from Bank of America. It plans to fund the buybacks by borrowing $2 billion under a short-term facility established with Citibank and other banks.
Including that agreement, Kimberly-Clark now expects to repurchase $2.8 billion worth of its stock this year, up from its original target of $600 million to $800 million. The company's board also approved the repurchase of an additional 50 million shares during the next several years.
Shares of Kimberly-Clark were up $1.63 at $69.11 after rising to $69.49 on the New York Stock Exchange. The shares trade at about 14.8 times next year's expected earnings, while Procter & Gamble trades at about 18.2 times its expected 2008 profit, according to Reuters data.