) recently hiked prices for several of its popular global brands
such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend holds
No.1 or No.2 market share positions in over 80 of the 150 countries
in which it sells its personal care products while touching the
lives of nearly a quarter of the world's population. Kimberly-Clark
makes paper and pulp based consumer products and competes with
companies such as Procter & Gamble (
) and Colgate-Palmolive (
) in other consumer products.
Kimberly-Clark is proposing to raise prices of baby care
products in the range of 3-7% and around 7% for consumer tissues.
The risk associated with raising prices is that it could driver
consumers away to competition. This is particularly evident in
products such as diapers and tissues where this is not much product
differentiation and consumers are price elastic. Manufacturers
often absorb the cost increases until the industry as a whole has
repriced in order to sustain market share.
Since Kimberly-Clark has only issued a tentative timeline for
its price increases, we expect to see how competition responds
before making gross margin assumptions.
Other Levers Kimberly-Clark Can Use
Kimberly-Clark could improve margins in the medium-term by
seeking operational efficiencies and emphasizing premium products
that can demand a higher price point. While focusing on innovation
might require investment in the near-term, this strategy could have
a more sustainable impact in terms of market share gains and higher
prices of its products in general.
One example of this is Kimberly's Pulp and Paper Restructuring
Program (2011-12) where the company plans to sell off or close down
five to six of its manufacturing facilities that currently make
about 8% of the 2.5 million tons of pulp that it uses a year. This
aims at restoring the profitability of its $6.5 billion worth (in
sales) consumer tissues business, which makes items such as toilet
paper, paper towels and tissues.
Stock Price Impact
While the recently announced price increases are expected to
have negligible impact on Kimberly-Clark's stock, we have already
incorporated the impact of the above restructuring program to
improve operating margins, in our
$69 Trefis process estimate of Kimberly-Clark's
You can see a detailed analysis of our
$69 Trefis price estimate of Kimberly-Clark's stock