) is a world-leading producer of diapers, sanitary pads and
tissues. Its portfolio of popular brands includes Huggies and
Pull-Ups in baby care, Kotex and Depend in feminine care, and
Kleenex and Scott in personal and professional tissues. The company
traditionally competes with
Procter and Gamble
) across a variety of business lines.
Kimberly Clark sells to consumers in over 150 countries, with
manufacturing facilities spread over 41 countries. Localized
operations are key to the company's success, and the company
maintains one of the top two brands in its respective product
segments in over 80 countries. However, almost 53% of its sales
still come from the US and 15% from Western Europe, with developing
markets contributing less than 32%.
Here we explore how proximity to consumers affects Kimberly
Clark's business and how a greater presence in emerging markets
could impact the company's stock value.
Low Usage of Tissue Products in Developing Markets
We estimate that tissues are the second largest product segment
within Kimberly Clark after baby care, and constitute 28% of our
estimate stock value. Our
$74.48 prices estimate
stands roughly 17% ahead of market price.
A close look at global trends in the consumption of tissues
reveals a notable growth opportunity for Kimberly Clark. The
per capita consumption of tissue varies from over 23 kilos in the
US to as low as 0.48 kilos in Vietnam. Even within Asia,
consumption varies from Japan's 14.25 kilos per consumer to
Thailand's 1.08 kilos.
Even more encouraging than the opportunity to reduce this usage
gap is the double-digit rate at which consumption is increasing in
Asia. In mature markets such as North America and Europe, growth is
effectively limited to an increase in the number of consumers and
gains in market share from competitors. Unfortunately, growth of
consumer base in these markets is limited to population growth and
market share gains involve aggressive marketing and advertising,
putting strain on operating margins.
Given low usage in emerging markets like Asia and Latin America,
Kimberly Clark could focus on driving usage of tissues by
communicating health and hygiene benefits or the importance of
preserving water. The company could also strategically launch more
specific tissue products (such as car tissues, summer tissues with
enhanced sweat absorbent properties for the tropical climate, etc).
This does not necessarily warrant increased advertising spending,
but rather effective communication of a targeted message in order
to increase consumption per user.
Such strategic initiatives, combined with high population growth
rates and an expanding middle class in emerging markets like China
and India, could provide Kimberly Clark with sizable long-term
volume growth rates.
mportance of Local Manufacturing
To fully benefit from emerging market growth, Kimberly Clark
must not only sell to these markets, but also be able to
manufacture locally. These consumers are often highly price
conscious, so to compete with local and private labels, Kimberly
Clark must price its products accordingly.
Tissue products are relatively voluminous, i.e. occupy more
space for a given weight. The same truck can carry higher weight of
detergent than toilet paper, for example, since the latter occupies
more space and consequently requires more trucks for transport.
Hence, moving tissue supplies over long distances could burden
operating expenses with relatively higher logistics and warehousing
costs. A positive here for Kimberly Clark is its already
geographically dispersed manufacturing footprint.
What is the Upside for Kimberly Clark?
We currently estimate Kimberly Clark's share of consumer i.e.
use-at-home tissues will decline slightly in the years ahead, from
an estimated 11% in 2010, due to loss of sales volume to local
competitors in emerging markets. If Kimberly Clarks were to
increase its emphasis on these markets, however, the company could
generate upside to market share beyond our forecasts. We note that
our $74.48 price estimate already stands well ahead of market
price, so any further upside in global market share would further
solidify our bullish projections.
Drag the trend line in the modifiable chart above to see the
impact of various global tissue market share scenarios on
Kimberly Clark's stock value.
Register to win a free iPad. Visit our home page
See our detailed analysis for
Kimberly Clark's stock here