A little over a month ago, Kimberly Clark (KMB) announced it was raiding North American nurseries and bathrooms with price increases:
“[The] baby and child care and consumer tissue businesses are notifying customers of plans to raise prices in North America during the second and third quarters of 2011…
…Net selling prices in the U.S. and Canada for Huggies baby wipes and diapers, Pull-Ups training pants and GoodNites youth pants will increase on average between 3 and 7 percent, with implementation timing ranging from June 19, 2011 to August 17, 2011. In addition, net selling prices in the U.S. for Cottonelle and Scott 1000 bathroom tissue will increase approximately 7 percent, effective June 19, 2011. The price changes vary by brand and pack size.”
KMB blamed, you guessed it, the rising costs of commodities and raw materials. In today’s earnings release, KMB increased its inflation expectations:
“Inflation in key cost inputs of $450 to $550 million compared to the previous assumption of $200 to $250 million. This reflects estimated average market pricing for benchmark northern softwood pulp of $1,000 to $1,020 per metric ton and average oil prices of $100 to $105 per barrel for the year. The increased inflation assumption is primarily due to higher costs for virgin pulp, polymer resin and most other oil-based materials. “
From the earnings conference call (following quotes from Seeking Alpha transcripts):
“Clearly, the environment is much more challenging since we talked to you last at the beginning of this year. Market pulp costs did not fall in the first quarter like we and most others had assumed. Instead, costs rose in March, and over the next few months, are likely to hit or potentially even exceed the peak levels that occurred last summer.
In addition, as we all know, oil prices have risen rapidly to over $100 a barrel, this is well above what we planned for and it’s caused prices for many of our oil-based cost inputs to increase considerably. For example, polymer costs are up about 20% both year-over-year and sequentially from the fourth quarter of 2010. Similarly, superabsorbent costs are up 15%, and costs for both of these key materials are expected to increase further in the near term.”
During the earnings conference call, KMB made it clear that they are taking a multi-faceted approach to addressing their inflation problem:
“We’re responding to the significant pickup in cost inflation in three primary ways: First, we’re raising selling prices across a number of our businesses; second, we’re accelerating or implementing additional FORCE cost savings programs; and third, we’re focused on managing our overhead spending aggressively.”
In addition to March’s announced price hikes, KMB will be taking pricing actions worldwide:
“We’re also in the process of raising prices in many areas of K-C International, particularly in Latin America.
And our B2B businesses are also taking pricing action, including a North American K-C Professional price increase that we announced last week. So as a result, we now anticipate that price and mix improvements will deliver 1 to 2 points of revenue growth in 2011. That’s up from our original assumption of about 1%.”
It seems there more and more upward pricing pressures are surfacing for the Federal Reserve to dismiss. Investors did not dismiss the bad news, sending KMB down 2.7% on the day.