DIAPER WARS TAKE TOLL ON KIMBERLY-CLARK

Company Expects Lower Sales Following Moves by Rival P&G

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CINCINNATI (AdAge.com) -- Kimberly-Clark Corp. today said it will miss its fourth-quarter earnings guidance by 11% to12% as it expects both sales and earnings to drop amid fierce competition in diapers from rival Procter & Gamble Co.

The maker of Huggies diapers and Pull-Ups training pants said it expects fourth-quarter net income of 72 cents to 76 cents a share, down from previously estimated 82 cents to 86 cents and from last year’s 82 cents.

Competitive challenge
About half of the earnings shortfall

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comes from lower sales from competitive challenges in North America and Europe in diapers and training pants, President-CEO Thomas J. Falk said in a statement. The rest of the shortfall comes from weaker-than-expected sales in Latin America and Asia.

Kimberly-Clark in October rolled back a 5% price hike to be taken through a package count reduction in diapers and pants after P&G didn’t follow suit. P&G in February is also reducing package counts, but cutting prices accordingly.

And in anticipation of the Kimberly-Clark move and launches of improved products thoughout the Huggies and Pull-Ups lineups, P&G in the fall launched heavy trade promotions of 20% to 41% off the case cost of Pampers diapers and pants, according to promotion-tracking firm Promodata.

P&G said Tuesday it had increased promotion spending in anticipation of Kimberly-Clark's package count reduction so that Pampers wouldn't be undercut by Kimberly-Clark on the shelf.

Cutting costs
Kimberly-Clark will cut costs $175 million to $200 million in 2003, though the company didn’t specify in what areas. But with a pension funding increase of $145 million, the company projected earnings still may be flat in 2003 on sales growth in the low to mid single digits.

In a conference call with analysts today, Mr. Falk said the cost cuts would come from purchasing and supply-chain efficiencies and that Kimberly-Clark will continue to spend on marketing to defend its market share in diapers against P&G.

He called P&G's recent promotional spending levels in diapers "unprecedented and unthinkable."

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