Thursday, July 02, 2009

Hidden Labor Costs at Kimberly-Clark?


Kimberly-Clark's (KMB-$53.79) plans to layoff three percent of its salaried employees, or 1,600 positions, will lead to an estimated savings of about $150 million annually. Chairman and chief executive Tom Falk said the move was necessary—and in step with other cost-reduction plans—if the personal care products company was to stay competitive against an increasing threat from private-label brands. If the company's latest recovery plan falters, however, union workers could be next up to fall by the roadside.

Huggies diapers, Kotex feminine products, Kleenex tissues, and Scott paper towels—sales volumes of these key products declined in the
first-quarter, losing customers to the lower-cost store brands sold by retailers, such as Wal-Mart, and other consumer products companies, like Procter & Gamble (Bounty paper towels, Charmin toilet paper, and Luvs diapers). Nonetheless, the company still achieved three percent sales growth in the quarter, driven by selective price hikes.

Given the weak economy and growing threat from competitors, there is little wiggle room for the company to raise prices in coming months. Ergo, sequential margin improvements must spring from improvements in manufacturing efficiencies (such as transportation cost-savings resulting from moving diaper-making facilities to high-growth regions) and inventory control (March-ending quarter saw a seven-day sequential decline in inventory levels compared to year-end 2008).

Improved working capital performance, however, is being partially offset by poor returns on its defined contribution pension plan assets. …Continue Reading….

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

4 comments:

ed simmons said...

WHEN ARE THEY GETTING RID OF FALK ..HE IS A SANDERS LOSER ..WE NEED A AL DUNLAP ..HE WILL FIX KC MESS ..THE STOCK HAS NOT SPLIT IN 14 YEARS ..IT USED TO SPLIT EVERY 5 YEARS ..FALK AND THEM ARE JUST FILLING THERE OUN POCKETS ..

Anonymous said...

When you mention "Defined Contribution Plan", I think you mean "Defined Benefit Plan". There is a lot that goes into benefit plan accounting to determine pension expense, so to say that actual expenses could be much higher and the assumed rate of return is "unrealistic" is a bit oversimplified and misguided in my opinion. You could say that about every pension plan in the country. The fact is that the long term assumed rate of return is just that - an assumed rate over the long term, not an exact prediction year over year. An assumed rate of 8-9% is very consistent in the industry and is likely supported by historical returns.

Freezing the plan is a huge first step in controlling future pension costs and should be viewed very positively IMO. When the markets recover and the calculations begin to swing the other way, you will be amazed at how fast the $1.8 billion unfunded liability shrinks.

David J. Phillips said...

re: "Freezing the plan is a huge first step in controlling future pension costs and should be viewed very positively IMO. When the markets recover and the calculations begin to swing the other way, you will be amazed at how fast the $1.8 billion unfunded liability shrinks."

Valid points; however, regarding the second issue: "when the markets recover"--I have a nagging fear that the typical recovery cyle--trough to peak--may not manifest itself this time around, due to overwhelming reliance on Keynesian deficit spending. Trillions in deficit spending may not stimulate recovery this time around, which could delay a material rebound in stock performance for years!

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