Kimberly Clark Corp (NYSE:KMB) announced a multi-year cost savings plan, one that will see the company lay off up to 5,500 people, or 13% of its workforce. While the company did not say where the job cuts would take place, roughly half of the layoffs will come from North America, which accounts for about half of Kimberly-Clark’s sales.
The struggling Dallas, Texas-based consumer goods company said it needs to lower costs to combat weak sales. The mass layoffs will also result in Kimberly-Clark shuttering or selling around 10 manufacturing plants. It is also looking to exit or sell low-margin businesses, mainly in consumer tissues, which together make up just around one percent of the company’s sales.
Kimberly-Clark expects the multi-year program to generate annual pre-tax cost savings of $500.0 million to $550.0 million by the end of 2021. The restructuring charges will result in pre-tax charges in the range of $1.7 billion to $1.9 billion.
The company behind brands like “Huggies” diapers and “Kleenex” tissues said that despite a strong economic climate and low tax rate, sales at Kimberly-Clark continue to lag. Rivals are cutting prices and retailers like Wal-Mart Stores Inc (NYSE:WMT) are promoting steeper discounts. What’s more, the cost for pulp, oil, and other materials has risen more than expected.
The biggest weak spot is North America, where fourth-quarter organic sales fell in personal care and consumer tissue, Kimberly-Clark’s two biggest segments. In the U.S., women are having fewer babies, putting a dent in demand for diapers and other products. In 2016, the U.S. birthrate hit a record low, and continues to fall in the first half of 2017.
News of the layoffs and factory closures come after Kimberly-Clark reported weak fourth-quarter and full-year results. In the fourth quarter, total sales increased one percent year-over-year to $4.6 billion. Fourth-quarter net income came in at $1.75 per share, compared to $1.40 a year ago.
For fiscal 2017, revenue was essentially flat at $18.2 billion. Net income was $6.40 per share, compared with $5.99 per share in 2016.
“Although we expect market conditions will remain challenging in the near-term, we plan to deliver better results in 2018 while we begin to implement our new restructuring,” said Thomas J. Falk, chairman and chief executive officer of Kimberly Clark Corp. “We will also continue to allocate capital in shareholder-friendly ways.”
What does that mean? Despite the 5,500 layoffs and factory closures, the company said it increased its quarterly dividend payment by three percent to $1.00 per share.
In 2017, Kimberly-Clark repurchased 7.2 million shares at a cost of $900.0 million. Investors will continue to benefit from share repurchases in 2018, when the company expects to spend up to $0.9 billion on its buyback plan.
“Kimberly-Clark Announces Year-End 2017 Results, 2018 Outlook, New Global Restructuring And Multi-Year Cost Savings Target,” Kimberly Clark Corp, January 23, 2018.