Even Toilet-Paper Sales Suffer in Recession

K-C Blames Disappointing Earnings on Economy but Reports 5% Organic Sales Growth

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BATAVIA, Ohio (AdAge.com) -- People long have taken for granted that some categories, such as toilet paper, truly are recession-proof. Turns out that, like many assumptions, is wrong.

As a result of the recession, consumers went beyond trading down to cheaper, private-label products and actually bought less toilet paper of any kind.
As a result of the recession, consumers went beyond trading down to cheaper, private-label products and actually bought less toilet paper of any kind.
The recession has turned bad enough that people bought less toilet paper -- about 5.5% less last quarter in the U.S., according to Kimberly-Clark Corp. Chairman-CEO Tom Falk, who today blamed the economy for disappointing fourth-quarter earnings and a weak forecast for 2009.

Lest things seem too bleak, however, K-C's organic sales growth still came in at 5% globally, and Alberto-Culver Co., which also reported earnings today, had a robust 9.5% increase in organic sales growth and an 8% sales increase in the U.S., as that company continued to see some consumers trading up to higher-priced products.

Not just trading down
K-C's downturn in category sales -- a result of people going beyond trading down to cheaper, private-label products and actually buying less toilet paper of any kind -- may come as a surprise. But Mr. Falk said he doesn't believe people have cut back for good; they're just drawing on supplies in their pantries and buying fewer big packs because of the slumping economy and rising prices in the category.

Consumers appear to be staying away from buying larger packs in addition to buying cheaper private labels, Mr. Falk said in a conference call with analysts today. "They are conserving cash and don't want to build any household inventory," he said. "And things like [paper] towels and facial tissue, which are a little more discretionary, if you [run out] at home, it goes on the list, but ... it may wait till the next purchase cycle."

Retailers, too, are tightening up inventories, which contributed to K-C's volume drops of 7% in personal care and 10% in tissue and towel products in North America.

Rosier picture
K-C and other players in the industry so far have turned in results that paint a somewhat rosier picture than that suggested by industry leader Procter & Gamble Co. last month, when it indicated its organic top line would grow 3% or less this quarter.

In addition to Alberto-Culver's strong results today, Johnson & Johnson reported a surprisingly strong 7% increase in global organic sales for its consumer business last quarter when it released earnings last week. Beiersdorf, which also reported earlier this month, disappointed analysts with its top line but still managed a 4.2% organic sales growth increase.

With volumes down, K-C turned in earnings per share of $1.01, which came in below the $1.02 to $1.07 previously projected. Despite that, however, Mr. Falk said the company had increased its "strategic marketing investment" by $25 million in the quarter and $95 million on the year.

Surprising growth
For Alberto-Culver, strangely, premium hair-care lines Tresemme and Nexxus each saw double-digit sales growth last quarter, CEO James Marino said on a conference call, even as sales of its value-priced VO5 line declined slightly.

"What you're seeing in hair care, certainly here in the U.S., is that although you have consumers trading down, you also have some consumers who are trading up. So it's a combination of the two," Mr. Marino said. "So when you look at those consumers who may be trading down, the way they trade down is they may buy in a different channel. They may wait until their favorite brand is on promotion. Or they may trade down to a mid-tier brand but not all the way down to an opening-price-point brand. ... Some of that is offset by consumers who have decided to literally trade up and treat themselves to a small indulgence in a very, very difficult economic environment."

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