Kimberly-Clark (KMB) Hikes Product Price to Fight Cost Inflation
Increasing commodity costs are exerting pressure on various consumer staple players, leading them to hike product prices. One company witnessing such trends is Kimberly-Clark Corporation KMB. The company said that it is notifying U.S. and Canada customers about plans to increase net selling prices for most of its North America consumer products business.
We note that percentage increase in prices will be in mid-to-high single digits. Almost all price hikes are expected to come into effect by the end of June. The hike will be carried out via changes in list prices. Incidentally, Kimberly-Clark’s baby and child care, adult care and Scott bathroom tissue businesses will be affected by this move.
Taking about other players in the consumer staple space — General Mills GIS— in its last earnings call highlighted that it has been witnessing broad-based inflation across commodities and logistics among others. The company had highlighted its intentions to increase net pricing thanks to such trends. The J.M. Smucker Company SJM, in its last earnings call, noted that it raised the price of Jif brand items to battle cost inflation.
Escalated Cost: A Concern for Kimberly-Clark
Kimberly-Clark, which shares space with Newell Brands Inc. NWL, has been encountering high manufacturing costs that include coronavirus-related expenses, for the past few quarters. Also, increase in advertising expenses, and escalated general and administrative costs have been weighing on profits. In the fourth quarter of 2020, adjusted operating profit came in at $767 million, down from $826 million in the year-ago quarter, thanks to a rise in input costs (to the tune of $40 million) as well as other manufacturing costs, including coronavirus-related expenses.
This Zacks Rank #4 (Sell) company anticipates a more difficult environment in 2021, wherein it expects commodity cost inflation of $450-$600 million. The company expects cost increases in most areas such as resins, pulp and recycled fiber, superabsorbent and distribution expenses. Also, a major rise in advertising expenses, elevated general and administrative costs and adverse impacts of unfavorable foreign currency translations are headwinds.
That being said, let’s see if the company’s pricing strategy can help it mitigate such headwinds. Apart from this, it is benefiting from the 2018 Global Restructuring Program and the Focus on Reducing Costs Everywhere or FORCE Program.
Shares of Kimberly-Clark have moved down 5.7% in the past six months compared with the industry’s 1.2% decline. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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