Consumer goods giant Kimberly-Clark (NYSE:KMB) reported solid sales growth during its second quarter, though higher commodity costs continued to weigh on near-term profits. The outlook over the longer haul looks stronger, as growth in international markets should boost overall growth and help shareholders garner double-digit annual total returns on their investment.
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Second Quarter Recap
Sales advanced 8% to $5.3 billion on 8% international growth and an overall increase in product volumes and net selling prices. Management detailed that organic growth was 3% and benefited from new product innovation and related growth initiatives. Personal care sales grew 7% to account for 43.4% of total sales on a 19% jump in international sales. The unit also reported decent trends in North American adult care and baby wipes sales, including well-known brands such as Depends and Huggies that compete with the likes of National Presto's (NYSE:NPK) absorbent products segment and Procter & Gamble's (NYSE:PG) Pampers franchise. The other major segment is consumer tissue, which accounted for 32% of the total top line and grew an even stronger 9%. International growth again led the way with 14% growth. North America was also strong with 5% sales growth on robust demand for Kleenex, though Scott paper towel sales fell in the low single digits.

Kimberly-Clark continues to see commodity cost inflation on raw materials that include oil-based materials, absorbent supplies and packaging materials. This pushed total product costs up 15.2% during the quarter and sent gross profits down 5.3% to $1.6 billion. Selling and related costs rose a very modest 1.2% to push operating income down 12.1% to $625 million. Higher interest expense sent net income down further as earnings declined 18.1% to $408 million. Share buybacks tempered the diluted EPS decrease to 14.2% as earnings fell to $1.03. Profits beat analyst projections.

Outlook
Management boosted its full-year sales growth projections to between 5% and 7% off of last year's total sales of close to $20 billion. It didn't break out earning guidance, but analysts currently project $4.85 EPS. This would represent year-over-year growth of about 8.5%.

The Bottom Line
Over the past five years, Kimberly-Clark has managed to leverage 4.4% annual sales growth into nearly 6.3% annual profit growth. This is respectable performance over a period that included a severe global recession and more recent cost pressures due to rising commodity costs. Combined with a current dividend yield of 4.1%, that exceeds P&G's current yield of 3.3% and Unilever's (NYSE:UN) (NYSE:UL) current payout of 4%. If current growth trends persist going forward, investors should be able to count on double-digit total returns over the long haul. (For related reading, see A Guide To Investing In Consumer Staples.)

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