By Sharon Terlep 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 23, 2020).

The people who churn out oversize rolls of flimsy toilet paper for the office have a new assignment: make the good stuff.

Kimberly-Clark Corp., maker of Cottonelle and Scott toilet paper, is looking to overhaul its massive bathroom-tissue operations to meet record demand fueled by the coronavirus pandemic, executives said Wednesday.

The Irving, Texas-based consumer-products company makes toilet paper both for consumers and businesses. Americans are scrambling to find enough toilet paper, but demand has plunged for tissue sold in bulk to offices, hotels, restaurants and other businesses as many of those establishments remain closed.

CEO Mike Hsu said the company has no plans to start selling its bulk product -- the thinner, scratchier tissue that comes on oversize rolls -- directly to consumers. Instead, it is working to repurpose manufacturing capacity to make more consumer-quality products.

"The products will be every bit the same and of the quality that consumers expect," Mr. Hsu said. "There is a lot that will be involved if we do this," he said, noting that each line has different tissue technology.

Even the fundamental materials used to make tissue are different. Bulk toilet paper is generally made with pulp that comes from recycled material, while bathroom tissue used in homes isn't.

U.S. sales of consumer toilet paper are up 65% for the four-week period ended April 11, according to Nielsen. Rival consumer-products company Procter & Gamble Co. has also scrambled to ramp up production for its Charmin toilet paper and Bounty paper towels. P&G doesn't have a separate line for bulk sales to businesses.

Uncertainty over future demand complicates planning, executives said. Demand is clearly high now, but as consumer stockpiling abates and Americans return to work, there is a risk of amassing a costly glut of product later in the year.

Some commercial-quality toilet paper has begun to be available to individual consumers on online platforms such as Amazon.com Inc. and by way of businesses and smaller retailers who have begun to redirect those oversize roles to consumers desperate for any supply.

Kimberly-Clark and P&G have said they are able to make enough toilet paper to meet demand even as more people stay home, but that consumers stocking up along with the length of time it takes to get toilet paper from factories to stores has led to empty shelves across the country.

The company on Wednesday said organic sales, a measure that strips out currency moves and deals, rose 11% in the recent quarter as consumers stocked up on household staples.

Executives warned that fallout from the pandemic could quickly reverse the company's fortunes, explaining why it pulled financial guidance for the year and halted a share buyback program.

Sales for the period ended March 31 were up 13% in Kimberly-Clark's consumer tissue business, which includes toilet paper, Kleenex tissue and Scott paper towel. Sales were up 6% in the personal-care segment, which includes Huggies diapers and Kotex feminine-care products.

The company's professional unit, which covers bulk sales to businesses, rose 4% for the period, though executives said demand began to fall in March and is expected to decline further as businesses are forced to remain closed. Broadly, office use is down 80%, while hotel occupancy is at 21% capacity, the company said.

The company's net income climbed 45% to $660 million. Kimberly-Clark's earnings were $1.92 a share, up from $1.31 a share a year earlier. Adjusted earnings were $2.13 a share.

Kimberly-Clark executives said uncertainty over the future is weighing heavily. The company has teams poring over epidemiological studies in hope of getting a read on the path of the virus, Chief Financial Officer Maria Henry said. Unknowns around the length of the economic shutdown, whether the infection rate will force major factory shutdowns and what consumer spending will look like in an all-but-certain recession make it impossible to predict the future, she said.

The company is looking at models for the virus's eventual toll, and the data shows an eventual infection rate anywhere between 1% and 50%.

"In our jobs, I don't think we ever thought we'd be arguing over epidemiology models," Mr. Hsu, the CEO said. "And we are."

Write to Sharon Terlep at sharon.terlep@wsj.com

 

(END) Dow Jones Newswires

April 23, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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