Wayne R. Sanders always knew his engineering background would come in handy, but he never figured it would help him design a better diaper. Taking over Kimberly-Clark Corp.'s infant care unit in 1987, he found group members at wit's end. They had spent $12 million trying to make disposable pants for potty-training toddlers, but the team couldn't figure out how to make the pants stretchy enough that kids could pull them off by themselves. Sanders swung into action. Using a new synthetic fabric that the company was experimenting with elsewhere, he quickly worked up a prototype. The result was Huggies Pull-Ups, one of the company's most successful product introductions.
That sort of innovation has taken Kimberly-Clark a long way in recent years. Under Darwin E. Smith, chief executive officer from 1972 until last December, the stodgy newsprint and cigarette-paper maker blossomed into a consumer-products powerhouse. Last year, it earned $508.3 million on record sales of $6.8 billion, 82% of which came from consumer goods such as Kleenex tissues and Kotex feminine products. Since 1988, the Dallas-based company has generated a stellar 20% average annual return onequity.
Now, the task of maintaining that brisk pace belongs to Sanders, whose success with Pull-Ups helped propel him into the CEO's office. It's going to be rough. Already, the days of heady U.S. growth are history. Domestic markets for some of Kimberly's products, such as disposable diapers, are maturing, while price wars in such major segments as bathroom tissue are cutting into profits. Operating earnings last year fell by 1.6%. "Wayne is going to have a tougher job than I did," says Smith, who will pass the chairman's title to Sanders in April. "It's a lot easier to add 10% to a billion dollars than to add 10% to $7 billion, and that's what he has to do."
Sanders, 44, has little doubt about where growth lies: Europe. Although Kimberly has been selling its facial tissue, paper towels, and feminine products in Europe for decades, it is a decidedly North American company. In 1991, 80% of sales and 74% of net income came from the U.S. and Canada. European sales equaled only one-fifth, or $959 million, of North American revenue. While Kimberly also has a presence in the more robust Far East, Sanders sees the post-1992 Common Market as a simpler means for growth. But, he concedes, "we're playing catch-up in Europe. We've got a big building job to do."
HODGEPODGE. Does he ever. Lacking much of a European infrastructure, Kimberly is spending heavily to beef up its sales force, distribution network, and information systems there. A new tissue plant went on line in France last fahelped the 72-year-old company build a major presence in educational publishing. Scholastic offerings include 34 children's magazines, best-selling juvenile fiction titles such as the hugely successful Baby-sitters Club series, book clubs and fairs, educational software, and television and home video productions. Today, Scholastic figures that 80% of U.S. schools are using its materials. For the year ended May 31, the company's net income excluding one-time charges was $19.1 million, up 33%, on revenues of $489 million, up 16%.
SECOND TRY. In February, Scholastic, which Robinson took private in a 1987 leveraged buyout, went public again in a $90 million stock offering. Now, with the company cash-flush and almost debt-free, Robinson is aiming higher. Hisboldest move is a foray into the competitive $2 billion textbook market, where Scholastic has had little presence. The company is selling kits with a series of colorful new books for kindergarten through the eighth grade, along with audio and video cassettes and teachers' guides. It's investing some $20 million a year in the business, hoping that it will be worth $100 million in annual revenues by mid-decade.
There are big obstacles in Scholastic's path, though. Its chief competitors in textbooks are bigger and better established. They include Macmillan/McGraw-Hill (50%-owned by BUSINESS WEEK's publisher), Simon & Schuster, and Harcourt Brace Jovanovich. And Scholastic has struggled with this market before: In the late 1970s, it lost $1 million on its first try at textbook publishing.
The company had barely recovered from that debacle when, in 1984, it reported its first loss ever--$13.8 million on sales of $157.5 million. Robinson says the company had become complacent and allowed competitors to eat into its core kids' book business, while it fumbled an effort to computerize all its operations at once. "Almost everything seemed to go wrong," recalls Robinson. He brought in a new management team and revamped the entire book operation, from customer service to finances.
Robinson insists the latest foray into textbooks will be different. Because they include software, videos, and other high-tech teaching aids, Scholastic's new multimedia kits are designed to be more flexible for teachers and more attractive to students. For example, a science kit includes a unit titled Garbage. It has a chapter on recycling, a video segment showing what happens to garbage--and samples of types of trash. "It's not the traditional kind of textbook," says Barbara Ann Hawkins, a teacher at East Elementary School in Dillon, S.C.
Scholastic has a fast-growing market. Births are running at 4.1 million a year, vs. 3.2 million in the late 1970s. "The company is riding an excellent demographic wave," says Kenneth T. Berents, an analyst at Alex. Brown & Sons Inc., which took Scholastic public the second time.
MOVIE MISSTEP. It's all a far cry from 1920, when Maurice Robinson launched The Scholastic newsletter to bring contemporary literature and current affairs into classrooms. The magazine has been joined by 34 other titles, such as Junior Scholastic, Update, Scholastic News, and Scholastic Search, read by some 23 million students. The elder Robinson also introduced a series of book clubs for kids, now its most profitable unit.
To keep the profits coming, Scholastic is building a new distribution center in Jefferson City, Mo., which should help it move orders along. To fight the competition in book clubs, the company is stepping up its marketing: It gives away stuffed animals with subscriptions and offers free books to teachers. And it has made an aggressive move into cable and syndicated TV with shows based on The Baby-sitters Club, its fiction series featuring seven adolescent girls, and other properties. But it has pulled back on plans for theatrical movies, taking a $6.7 million write-down on several scripts that have been shelved. With all the other projects Robinson is juggling these days--not to mention that article he has to write--it's probably just as well.