Kimberly-Clark Corporation (NYSE:KMB) has been reaping the benefits of crucial initiatives taken to reduce costs and improve the productivity of its supply chain despite the current inflationary climate. Interestingly, the consumer products company concentrates on three main strategic growth pillars and the K-C Strategy 2022.
Let’s dive further.
What Elements of Kimberly-Clark’s Strategy Are Proving Successful?
Kimberly-Clark has demonstrated a dedication to its three primary pillars of strategic growth. Among these include concentrating on growing its core business in developed regions, boosting the growth of its Personal Care division in developing and emerging markets, and improving its digital and e-commerce capabilities. The company anticipates achieving these goals by creating products that fall under a variety of categories and leveraging its expertise in marketing and sales. Kimberly-Clark has been making great strides toward achieving these goals, which have benefited both the expansion of its global business and its portfolio.
In February, the company completed the purchase of a majority stake in Thinx, Inc., which established the market for a reusable period and incontinence underpants. The acquisition of Softex Indonesia, a significant competitor in the personal care sector in Indonesia, was completed by Kimberly-Clark in October of the year 2020. The combined effects of the Softex takeover and business exits, which were implemented as part of the 2018 Global Restructuring Program, led to an increase in sales of almost 1% in 2021.
The K-C Strategy of Kimberly-Clark is centered on achieving both balanced and sustainable growth to provide value to shareholders in a challenging environment. In addition, the program emphasizes enhancing the breadth and depth of the company’s brand portfolio, conducting effective capital allocation, and maintaining stringent cost discipline.
Kimberly-Clark Is Facing Financial Obstacles
Since the beginning of the year, Kimberly-Clark has struggled with high input costs. The gross margin for the second quarter of 2022 came in at 30.2%, a decrease of 170 basis points compared to the adjusted gross margin for the same period in the previous year. The substantial increase in the cost of inputs hurts the gross margin. A surge in input expenses to the tune of $405 million during the quarter contributed to a decrease in the operating profit generated by the company. The operating profit was impacted due to the rising costs of marketing, research, and general expenses and the unfavorable impact of foreign currency.
The management anticipates that 2022 will see a decline in the mid-single digit percentage of the adjusted operating profit. It is anticipated that the costs of key inputs will rise by between $1.4 and $1.6 billion over the year. The company expects that prices for most inputs, such as pulp and other raw materials, as well as distribution and energy, will either increase or continue to soar. Due to significantly increased input cost predictions for the year, Kimberly-Clark anticipates that its earnings per share (EPS) for 2022 will be toward the lower end of the range that extends from $5.60 to $6.00.
Kimberly-Clark is focused on implementing suitable cost-cutting initiatives and pricing actions to combat inflation in 2022, even though input costs are forecasted to increase significantly that year. Focus on Reducing Costs Everywhere, often known as the FORCE Program, is Kimberly-Clark’s strategy to decrease costs aggressively and improve the productivity of its supply chain. It achieved cost reductions of $45 million thanks to the FORCE initiative during the second quarter. The management anticipates that the FORCE program will result in cost reductions of between $300 and $35 million in 2022.
In comparison to the 10.8% decline that was seen across the industry over the past three months, Kimberly-Clark’s share price only fell 4.3%.
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