Kimberly-Clark cuts marketing spend to offset rising costs

Kimberly-Clark, the FMCG giant behind brands including Andrex, Huggies and Kleenex, has seen gross profit fall 7% to $1.5bn (£1.1bn) over the third quarter of the year, as significant inflation and ongoing supply chain disruption drive up business costs.

Operating profit fell by 1% to $657m (£477m). This is despite the business recording a 7% year-on-year increase in net sales, amounting to a little over $5bn (£3.6bn).

To help offset some of the rising costs, Kimberly-Clark reduced marketing, research and general spending over the quarter by 11% to $819m (£595m). While promising to continue investing in its brands, chairman and CEO Mike Hsu says the company will be “disciplined” in its spending over the near future.

The business is now targeting an organic sales decline of 1-2% for the end of 2021. The prior outlook was a decline of 0-2%. Adjusted operating profit is expected to fall 20-22% year-on-year, a notable drop from the previously anticipated decline of 11-14%.

We are being disciplined with the spending, ensuring we continue to invest in our brands.

Mike Hsu, Kimberly-Clark

“Our third quarter results reflect a dynamic and challenging macro environment,” Hsu says. “Our organic sales were strong, including double-digit growth in a number of our personal care markets, and improving performance in tissue and our professional business.”

However, costs increased “beyond what we anticipated”, he adds, and given the “significant and rapid” changes in the operating environment, the business has “reprioritised” investment spending.

“Our focus is to serve our consumers and we are investing in our supply chain to better meet the demand for our products. We have reduced spending in other areas such as advertising, and general and administrative spending. We are being disciplined with the spending, ensuring we continue to invest in our brands and commercial capabilities around innovation, consumer insights and digital for long-term growth,” Hsu adds.

“We will continue to invest in our brands and capabilities. Our strategy is working, and we remain confident in our future and our ability to create long-term shareholder value.”

Issues around supply chain and pricing are weighing heavy on companies across the FMCG sector. Last week Unilever pledged to maintain levels of brand and marketing investment, despite admitting it will have to raise product prices due to increasing commodity costs.

Likewise, Proctor & Gamble promised to continue to invest in marketing, while confirming prices will rise across its grooming, oral and skin care products. The strategy will be to increase the percentage spent on digital media globally, with a view to “targeting messaging to consumers.” The FMCG giant increased marketing spend by $130m (£94m) over the first quarter alone.

Elsewhere, this morning Reckitt announced that despite “significant cost pressures”, the company’s action on pricing was preserving profit margins. The business, which saw group like-for-like net revenue increase 3.3% to £3,275m during the third quarter, says nine of its 10 largest brands are in double digit growth on a two-year basis.

Reckitt’s ecommerce like-for-like net revenue grew 23% during the third quarter, registering two-year growth of 86%, and now accounts for 12% of group net revenue.