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Mixed bag for Kimberly-Clark Corp.

Earnings rise 5.1% but don't reach estimates

Kimberly-Clark Corp., which has facilities in Ogden and Draper, said Monday that its third-quarter earnings rose 5.1 percent, short of analysts' estimates, as costs to make Kleenex tissues and market Huggies diapers increased. The company's shares dropped the most in two years.

Net income at the largest U.S. maker of disposable diapers climbed to $441.3 million, or 89 cents a share, from $419.7 million, or 83 cents, a year earlier, Dallas-based Kimberly-Clark said in a statement. Sales had the smallest gain in four quarters, rising 6.2 percent to $3.87 billion.

Chief executive officer Thomas Falk, following Procter & Gamble's move, increased prices 6 percent on average for Kleenex and Scott paper products to help cover higher pulp and energy costs. He also stepped up discounts to defend Huggies' U.S. lead over Procter & Gamble Co.'s Pampers.

"High pulp prices and heavy competition in diapers worldwide are limiting EPS upside," Andrew Shore, an analyst at Deutsche Bank who is based in Greenwich, Conn., wrote in a report. He has "buy" ratings on Kimberly-Clark and Procter & Gamble and doesn't hold the shares. Margins in Kimberly-Clark's personal care unit, which includes Depend adult incontinence products and Huggies, narrowed year over year as the company tried to staunch share loss in the United States, he wrote.

Per-share profit was 1 cent less than the 90-cent average estimate of 11 analysts surveyed by Thomson Financial.

Shares of Kimberly-Clark, which also makes Cottonelle bathroom tissue, fell $4.03, or 6.4 percent, to close at $59.03 on the New York Stock Exchange, erasing the year's gains. Shares of Procter & Gamble, maker of Bounty towels and Charmin tissue, declined 72 cents to $52.33.

Kimberly-Clark said it expects fourth-quarter profit will be 89 cents to 91 cents a share, including costs of as much as 5 cents related to the spin-off of its Neenah Paper unit and exit of paper operations in Asia. The spin-off will take place toward the end of the quarter, the company said. Analysts' average estimate from Thomson Financial, excluding costs, was 95 cents.

Kimberly-Clark earned 91 cents a share in last year's fourth quarter. Kimberly-Clark still expects annual earnings will rise to $3.55 to $3.65 a share. Analysts' average estimate was $3.66.

The diaper unit's third-quarter sales decreased 5 percent in Europe. Kimberly-Clark stepped up promotions after Procter & Gamble had a buy-one-get-one-free offer on diapers in France and a 17 percent discount in Belgium, Falk said on a conference call with investors and analysts.

Profit in the diaper unit declined 5.3 percent from a year earlier. The company gets about 40 percent of revenue from diapers.