Kimberly Clark 4Q16 Earnings Call Notes

posted in: Notes | 0

Thomas J. Falk

Expect another year of significant volume growth in China

“Looking ahead in the China market, we expect another year of significant volume growth. Category demand should remain strong and we have lots of innovation coming on Huggies including a new super premium diaper pants that we recently launched on Singles Day in November. Based on market trends in the last 2016 were cautiously optimistic that pricing in China will be less negative than 2017”

We’re not counting on a lot of price in 2017

“I think I would say, we’re going to have some carry-over price drag in places like China. We still probably will get some additional positive price in markets like Brazil and Argentina, but we’re not counting on a lot of price. In some of these markets the consumer has been pushed pretty hard and we just don’t see of a big opportunity to take price. And even in markets like the U.K. where you’ve had though the Brexit phenomena, we will try to take some small positive price increases, but we’re not counting on a lot of that to drive our year in 2017. So I think while the currency hit isn’t as big as it’s been in the past, the commodities we’re assuming that oil is up double digits and secondary fiber is up double digits. But some others like eucalyptus pulp is going to be pretty flat, but we’d just say the net of that is we’re not counting on a lot of price in 2017.”

Growth rates in a lot of our categories have slowed

” growth rates in a lot of our categories have slowed. We said we were expecting category growth rates of roughly 2%. We would have said several years ago three to four was probably more what we were trending. So growth rates have come down, there’s still lots of competition including local competitors who are aggressively pursuing business and we’re trying to make sure we’ve got the right innovation, we got the right price point, we’re executing well in market and that probably makes it a little tougher in this environment to get price increases, in a market like Brazil, where the category is going backwards 3% to 4% in volume and you’re taking list price up, you can generate some short-term category value increases, you don’t want it to be a race to zero either.”

E-commerce is driving more of an EDLP environment

“I think the point I would make there is that e-commerce is making pricing more transparent everywhere. So there’s more – you know if retailers just to comp each other’s promoted prices and now e-commerce you can go comp three websites quick and easy and there’s apps that’ll do it for you and so I think that’s probably driving more of an EDLP type environment recognizing, there’s still room for some promotion. I don’t know Mike if you’ve got a view of that of what you see in North America.”

Global consumer is a bit of a mixed bag

” So the global consumer I would say probably a bit of a mixed bag if you’re in a economy that had oil as a large part your economy, but you’re feeling still some pressure. So now you saw negative GDP in Russia. Nigeria, certainly under pressure, very slow or negative GDP per capita growth there. Some of the challenges in Brazil have been there as well. So if you’re a oil consuming nation you’ve got a big windfall in 2016 and so a pretty good GDP per capita growth generally or improving. So I would say if you look at a market like China, the underlying category demand growth, the birth rate those are all really positive signals. Despite a little bit of a little bit of a slowdown in their overall GDP growth, you still saw a really good growth in GDP per capita and more consumers coming in reach of our products and entering the category and starting families et cetera. And you’d see some similar things. Vietnam is a very a good market for us as well”

There are gains to be had in automating back office, but we’ve still got a long way to go to get there

“if you could think about the perfect order or the perfect payables transaction or the quantity, the price, the delivery terms, everything lined up perfectly with the purchase order or it could sale right through your system and get paid without any human involvement, that would be the gold standard. I’d say too often some of those things don’t work out and you need human beings to fix and adjust and correct all those minor errors that happen. And if you think about a customer transaction, if we could take the customer’s order, get the price exactly right, the quantity shipped on the date they wanted it with the correct terms. So it applies right through our system and their system without any additional intervention that’s a big opportunity and it takes friction out of everyone’s transaction costs. But we still got a long way to go to get to that.”