Kimberly-Clark Halts Production in Venezuela, Violates Law

Kimberly-Clark Corp.KMB has suspended its operations in Venezuela, without prior notice, and fired around 1000 workers, thus violating the South American country's laws, per media sources.

The consumer-products giant reportedly said that it would shut down its two-decade old Venezuela operations, as it is struggling to obtain raw materials and facing a shortage of hard currency and dealing with soaring inflation.

Venezuela's socialist government responded by taking over and re-activating the affected plant, located in the central provincial city of Maracay. A similar takeover was seen in 2014 when The Clorox Co. CLX announced that it was shutting production.

Kimberly-Clark further stated that the Venezuelan government will look after the well-being of the workers and the physical assets, equipment and machinery in the facilities once it takes control of Kimberly-Clark's facilities and operations.

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Kimberly-Clark's decision to stop production would likely add to the shortages already prevailing in Venezuela for the past few years after the ruling socialists capped the price on many consumer basics below production costs. While shoppers struggle and spend long hours in front of stores to purchase essential products, companies face hefty losses on price-controlled goods.

Also, Venezuela is witnessing inflation since early 2014 and basic food and products are increasingly scarce.

Like Kimberly-Clark, several big companies like Bridgestone, General Mills Inc. GIS, and Procter & Gamble Co. PG have scaled back operations in Venezuela amid this economic crisis.

Overall, we are impressed with Kimberly-Clark's cost saving initiatives and continued product innovation that have been driving earnings for the past many quarters. The company also achieved higher organic sales on the back of volume growth and better pricing in the last eight consecutive quarters. This Zacks Rank #3 (Hold) company is scheduled to release its second quarter 2016 results on Jul 25.

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