Kimberly-Clark’s Q3 Earnings Take a Dip

Kimberly-Clark will continue investing in its key brands despite a net income drop of nearly 9%, the company said today as it reported third quarter earnings.

The maker of Huggies and Kleenex tissues reported a decrease in net income to $413.1 million, or 99 cents per share, from $453.1 million, or $1.04, in the same year-ago period. Escalating raw material costs for fuel and paper-based items and the company’s failure to raise prices adequately, combined with private label growth in the paper towel segment, were the main reasons for the decline, the company said.

Nonetheless, Kimberly-Clark CEO Thomas Falk remained optimistic, pointing out the decreases were offset by growth in all four of the company’s business units, including the Personal Care division. Sales in this sector were 11.7% higher than the previous year. Huggies baby wipes, for example, saw double-digit growth. Diaper sales rose slightly, while sales of the child, feminine and incontinence care brands were down.

“We still expect to maintain higher levels of investment in strategic marketing and customer development,” Falk said in a statement, but also cautioned that current market volatility would likely have a negative impact on Q4 growth. Kimberly-Clark projects Q4 2008 earnings per share to be in the $1.02-1.07 range, compared to $1.11 in Q4 2007.

Price increases and cost-cutting measures weren’t enough to offset a $250 million spike in oil-based goods such as polypropylene, which is used in diapers. Meanwhile, price increases on the Viva, Cottonelle and Pull-Ups brands resulted in consumers switching to private label. Tissue sales also dropped 7%.

Last month, Kimberly-Clark and rival Procter & Gamble both introduced new versions of tissues. Kimberly-Clark added 3-ply lotion Kleenex tissues that are 17% more durable than previous introductions. P&G focused on growing its lotion shares through the addition of Puffs with shea butter.

Kimberly-Clark is closely monitoring the effect of price increases on facial tissues this quarter. “Going into cold and flu season, we’ll see how we do in that environment,” Falk said.