NEW YORK – Kimberly-Clark Corp. (KMB) on Monday posted third-quarter profit that met Wall Street's expectations as price increases for Huggies diapers helped offset higher costs for energy and raw materials.
The results reassured investors who were concerned about the increased costs. Shares of the maker of Kleenex tissues rose as much as 4 percent even though restructuring charges pushed net income down 26 percent.
The company also said full-year results would probably come in toward the lower end of its previous forecast.
Before special items, third-quarter profit was $451.7 million, or 95 cents per share, in line with a forecast the Dallas-based company gave in July and matching the average forecast of analysts polled by Reuters Estimates.
"We think negative news was already priced in and that Kimberly meeting estimates is enough for shares to rise after its recent decline," said Bear Stearns analyst Justin Hott, who has a "peer perform" rating on the shares.
He said Kimberly-Clark's meeting Wall Street estimates could have a "positive bearing" on the households products sector.
Third-quarter net income, including restructuring charges, fell to $325.3 million, or 68 cents per share, from $441.3 million, or 89 cents a share, a year earlier.
"Kimberly did not miss, so we expect investors will gain more faith that other companies yet to announce, such as P&G, Colgate and Alberto-Culver, will also have some more optimistic news to share with the market," Hott said.
Kimberly-Clark's sales in the third quarter rose 6 percent to $4 billion, just topping analysts' average forecast of $3.99 billion. Volume rose about 4 percent and currency benefits added nearly 2 percentage points to sales growth.
The company's shares were up $1.36, or 2.4 percent, at $58.18 in midday New York Stock Exchange trade after climbing as high as $59.01.
The stock fell 5.4 percent during the third quarter and 4.5 percent in the last three weeks. The six-company S&P Household & Personal Products Index, which includes Kimberly-Clark, rose 6.8 percent during the quarter, driven by expectations for P&G's acquisition of Gillette Co.
Kimberly-Clark shares trade at about 15 times this year's earnings, giving them a lower valuation than Colgate, which is further along in its restructuring program and trades at a multiple of about 19.8.
In July, Kimberly-Clark announced plans to cut its work force by about 10 percent and to close or sell 20 plants as it works to improve its diaper and health-care businesses and expand in emerging markets.
The company said higher-than-expected energy costs and expenses due to Hurricane Katrina reduced earnings by about 2 cents per share in the third quarter.
Kimberly-Clark expects conditions to remain very challenging in the fourth quarter due to higher costs after Hurricanes Katrina and Rita.
It forecast fourth-quarter earnings of 94 cents to 96 cents a share before special items, but reflecting expectations for an impact of about 5 cents per share from higher costs. Analysts were expecting 97 cents.
"Management's ability to hold it together in a tough operating environment is commendable, but pricing dynamics in U.S. and Europe personal care remain worrisome," said Deutsche Bank analyst William Schmitz, who has a "hold" rating on Kimberly-Clark shares.
Kimberly-Clark has started to discuss raising prices on consumer tissue in Europe in 2006, but is not planning many other price increases at this point, executives said on a morning conference call. The company is also still increasing marketing spending, despite higher costs.
"In this environment, we must find ways to offset the cost pressures without compromising our growth initiatives," Chief Executive Thomas Falk said during the call.
Full-year 2005 earnings should still be $3.77 to $3.83 per share, though probably toward the lower end of that range, the company said. Wall Street's average estimate is $3.79.
The company did not give a forecast for 2006.