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.