It’s the latest and to date biggest in an epidemic of restructurings
|Kimberly-Clark said it will boost ad spending $160 million or more a year by 2009 after announcing it is cutting 6,000 jobs and closing 20 plants.
Energizer Holdings, a fourth industry player undergoing major restructuring, is the primary global rival of Gillette Co., a similarly dominant player being acquired by P&G in a $57 billion deal pending review by the U.S. Federal Trade Commission. P&G will cut 6,000 jobs of its own as part of the takeover.
Kimberly-Clark’s announcement came despite surprisingly strong sales and earnings results for the second quarter. Sales rose 8.1% to a record $4 billion, with 3 percentage points coming from currency gains. Earnings per share declined 2.2% to 88 cents, but were up 8% to 95 cents excluding unusual items, including the tax hit from repatriating $660 million in overseas earnings. That beat consensus analyst estimates by 2 cents.
Chairman-CEO Thomas J. Falk, however, said the restructuring is necessary to “instill financial discipline throughout the company, invest in businesses and opportunities with high-growth potential and support those businesses that already command strong positions in their markets.”
The job cuts will come both in administrative and manufacturing areas, affecting primarily North America and Western Europe as K-C focuses more on what it calls the “Bicrit” countries of Brazil, India, China, Russia, Indonesia and Turkey. Sales in such markets rose 18% last quarter.
But the company also said it would focus more research and marketing dollars everywhere on its stronger, higher-growth categories, including the Huggies “mid-tier” diaper business, Pull-Ups, Huggies children’s toiletries and Poise incontinence products. It will also focus on Kotex feminine care in the Americas and Asia.
The restructuring will generate $675 million to $725 million in after-tax charges in total over the next three and a half years and $300 million to $350 million in annual savings by 2009, Kimberly-Clark said.
Strategic marketing outlays
Part of the savings will be used to boost what the company termed “strategic marketing” outlays by a total of 1% of sales by 2009. K-C’s ad spending as a percent of sales was among the industry’s lowest at 2.8% last year. That’s less than a third of P&G or Gillette’s rate in often higher-margin categories than Kimberly-Clark, which also has substantial business-to-business operations that spend little on ads.
The increased marketing spending of $160 million and up would represent a 38% increase on the $421.3 Kimberly-Clark spent on advertising last year, though some of the increase appears likely to come from consumer and trade promotion reported as a reduction of net sales.
The company will also use restructuring savings to boost R&D more than 50%, or more than $140 million, by 2009.