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Raw-Materials Inflation Hammers Kimberly-Clark

Could Cut Ad Spend as Hunt for Global Marketing Chief Continues

By Published on .

CINCINNATI (AdAge.com) -- Rising raw-material costs are dampening growth in advertising spending for Kimberly-Clark Corp. as the company nears naming its first-ever global chief marketing officer.
Sales of K-C's Huggies, Pull-Ups and Depend brands led to 6% sales growth in its North American personal-care business in the second quarter.
Sales of K-C's Huggies, Pull-Ups and Depend brands led to 6% sales growth in its North American personal-care business in the second quarter.

Conference call
On a conference call today discussing second-quarter financial results, K-C CEO Thomas J. Falk said he had "interviewed several candidates" and is "making good progress" toward naming a global CMO, adding: "I hope to get something done in the next several months."

The move is the latest in what's turning into a broad marketing overhaul for K-C, which in May consolidated advertising duties for its core North Atlantic personal-care business, which covers North America and Western Europe, with WPP Group's JWT.

Seeking a replacement
A K-C spokesman said the company also is seeking a top marketing officer for that North Atlantic unit to replace Kim Feil, who left last year for Sara Lee after a brief stint in the new role for K-C. Details still haven't been worked out, he said, including whether the position would report to the CMO or to the business unit executive.

The CMO would be responsible for global agency relationships and training of marketers, the spokesman said, but he didn't know if the marketing chief also would oversee media buying and planning. The new position stems from a need for a marketing executive to report directly to the CEO as K-C places growing emphasis on building brands and expanding into emerging markets globally, he said.

The winning candidates will have a little less to spend than originally planned. Raw-material inflation for the year will come in at $300 million to $350 million for the $16 billion company, up from the $250 million previously anticipated, Mr. Falk said. Besides hoping to step up price increases to make up the $50 million to $100 million difference, K-C is cutting costs, including pulling back on earlier plans to use restructuring savings to increase ad spending.

No 'dramatic pullback'
"My guess is, for the full year, [ad spending will] be flat to up slightly," Mr. Falk said. "So we won't be investing quite as much this year as we had, given the cost environment. But you won't see a dramatic pullback vs. the prior year, either. So it won't be increasing this year as a percent of sales."

Overall, K-C hit the top end of a prior quarterly earnings guidance, excluding restructuring charges, of 95 cents a share, aided in part by one-time financial gains from Mexico and share buybacks. K-C's sales were up 4.4% globally to $4.2 billion in the second quarter, with around half of the gain coming from higher net selling prices. Mr. Falk said prices for the year can rise 1% to 2%, up from prior forecasts of 1%, though K-C's gross margin has suffered some from rising costs of energy and materials so far this year. An average 2% price increase would almost fully cover projected materials costs, while a 1% increase would cover about half.

Sales of K-C's Huggies, Pull-Ups and Depend brands led to 6% sales growth in its North American personal-care business last quarter. But a relatively weak 1% growth for tissue and towel brands, particularly Kleenex, pulled down results.

People familiar with the matter report that Costco, the nation's No. 2 diaper retailer, will bring back rival Procter & Gamble Co.'s Pampers to its stores, after selling Huggies and private-label made by K-C exclusively for the past year. Mr. Falk said the Costco deal was not a significant factor in the growth of K-C's broader personal-case business last quarter or for the year but declined to comment further.
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