Costs take a swipe at Kimberly-Clark's profit

CHICAGO (Reuters) - Kleenex tissue maker Kimberly-Clark Corp posted a steeper-than-expected drop in quarterly profit on Monday and cut the low end of its full-year forecast as costs of pulp and other goods are rising more than twice as much as it expected.

The maker of Huggies diapers and Scott paper goods will raise prices on a swath of items, including most of its North American consumer products, to offset the impact of higher costs, Chief Executive Officer Thomas Falk said in a statement.

Shares of Kimberly-Clark fell 3.8 percent to $63.55 in morning trading.

"For the next few months it's going to be tough sledding for this company, more so than others," said Edward Jones analyst Jack Russo, adding that companies such as Clorox Co will see a lot of the same pressures.

Kimberly-Clark is one of the U.S. household product makers most exposed to rising commodity costs, since a large portion of its sales come from diapers, which contain oil-based materials, and paper goods.

The results kicked off the earnings season for the sector, with Procter & Gamble Co and others reporting later this week and in early May.

Russo, who cut his rating on Kimberly-Clark to "hold" from "buy" early this year, said P&G and Colgate-Palmolive Co would also feel cost pressures, but to a lesser degree, because their portfolios are more diversified.

COSTS SOAR

Kimberly-Clark paid about $80 million more for fiber during the quarter than a year earlier, $95 million more for polymer resin and other raw materials, $10 million in added distribution costs and $10 million more for energy.

The company now expects materials costs to rise $450 million to $550 million this year, up from a previous assumption of $200 million to $250 million. It cited increases in everything from pulp to oil-based materials.

In March, Kimberly-Clark said it would raise North American prices on products such as diapers and toilet paper by about 3 percent to 7 percent starting in June.

Kimberly-Clark earned $350 million, or 86 cents per share, in the first quarter, down from $384 million, or 92 cents per share, a year earlier.

Excluding certain items, earnings fell to $1.09 per share from $1.14. Analysts on average had expected $1.17, according to Thomson Reuters I/B/E/S.

Sales rose 4 percent to $5.03 billion, topping the analysts' average forecast of $4.98 billion.

Sales rose, but operating profit declined, in each of the company's four segments. Volume rose in most categories, but was flat in the consumer tissue business, known for Kleenex, toilet paper and paper towels. Its other brands include Scott, Cottonelle, Viva and Andrex.

Kimberly-Clark announced plans in January to exit the pulp making business. It is also cutting spending to help mitigate the impact of higher costs.

The company is not just feeling the cost pressure in the United States. Kimberly Clark de Mexico , Mexico's leading paper products company, posted a dip in first-quarter profit earlier this month as costs rose.

Kimberly-Clark now expects to earn $4.80 to $5.05 per share this year, excluding special items, compared with its January outlook of $4.90 to $5.05. Analysts on average expect $4.95.

The company raised its 2011 sales growth outlook to a range of 4 percent to 6 percent. In January, it had forecast an increase of 3 percent to 4 percent.

(Reporting by Jessica Wohl, editing by Maureen Bavdek and Lisa Von Ahn)