Kimberly-Clark continues to face commodity pressure and bifurcation in consumer demand

Cost pressures force Kimberly-Clark to raise tissue product prices, but wary of customers’ needs changing

Kimberly-Clark reported continuing pressure from commodity input and output costs while also aggressively raising product prices in the third quarter. Kimberly-Clark’s North American consumer tissue sales in dollars increased 5% in third quarter. Net selling prices increased 7%, while volumes declined 2% for the quarter.

A “bifurcated” consumer market

Chairman and CEO Michael Hsu also told of a “bifurcated” consumer buying market, with premium grades still moving better at higher prices than lower-value products.

Hsu called the consumer “resilient … but we are increasingly seeing some bifurcation in demand… (in which) we’re seeing two different patterns emerge.”

“And it’s mostly along, as you would expect, having socioeconomic lines,” Hsu said. "(In) North America, there’s a broad swath of consumers that their savings are still higher than they were three years ago. They’re employed. And while they may be curtailing some big-ticket purchases in our categories, which are essentials, we’re not seeing a discernible change in behavior there.”

“However, there’s about 40% of the population in the US that is more living paycheck to paycheck. I grew up in one of those households and I know what it’s like. And so we are seeing some changes in the consumption patterns, whether that is buying lower count packs or trading down a bit,” said Hsu.

The key for Kimberly-Clark is to find the right value and pricing for shoppers across the product price and value spectrum.

Optimism in restoring margins over time

Kimberly-Clark’s nine-month 2022 margin in consumer tissue globally was 7% on sales of $8.067 billion and the consumer tissue operating margin plunged 17% year-over-year to $567 million.

Hsu on October 25 said the company would continue in the fourth quarter to gain from higher selling prices. The margin was already improved in the third quarter, at 13.8% for the third quarter for the global consumer tissue business.

Kimberly-Clark Professional sales in North America increased 5% in the quarter and the business’s net selling price increased 14%. Hsu said the company’s cost condition continued to “pressure operating margin and earnings.” He said he remained “confident (that) we’ll restore our margins over time.”

CFO Nelson Urdaneta said that Kimberly-Clark for third quarter spent $360 million on commodity costs compared with $470 million in the first quarter and $405 million in the second quarter. The company expects $1.4 billion to $1.6 in commodity costs for the full year 2022. Company sales are on track to total roughly $20 billion to $21 billion.

Urdaneta told analysts that “first, on the pulp and fiber components, prices remain pretty elevated. Eucalyptus is trading today at around $1,600 (tonne). That’s an all-time high. And … while the market is projecting for some easing at the end of this year, we have yet to see that play out.”

Kimberly-Clark to sell Brazil plant to Suzano

Kimberly-Clark announced that it planned to sell its tissue business in Brazil to Suzano, the companies reported on Oct. 25. The cost of the transaction is estimated at $175 million, Suzano said.

Kimberly-Clark in Brazil operates a plant in Mogi das Cruzes, São Paulo state, with capacity of 130,000 tonnes/yr. The proposed transaction is subject to the fulfillment of conditions, such as approval by the Brazilian antitrust agency CADE.

Suzano mainly makes toilet paper, paper towels, and napkins. Kimberly-Clark in Brazil makes toilet paper, moist and dry wipes, towels, and facial tissue for consumer and Away-from-Home business. Suzano said that Kimberly-Clark product lines related to baby and childcare, incontinence, and feminine absorbents were not included in the transaction.

“This transaction specifically enables us to focus on our faster-growing, higher-margin Personal Care business in Brazil and creates a better future for both the Neve brand and the tissue business,” Kimberly-Clark’s Hsu said. “The Neve business in combination with Suzano is really going to be better positioned to adapt to the unique dynamics of the local market. And we fully expect our partnership – strong partnership with Suzano to continue (to be) well.”

This article was first published in PPI Pulp & Paper Week, the industry’s most trusted pulp and paper market news and prices for North America. Join paper industry executives, buyers, industry suppliers and financial institutions around the world and keep up to date on the latest market prices and information. Speak to our team to find out more and subscribe to our newsletters.

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