Here’s Why Emerging Markets Could Be A Key Long Term Growth Driver For Kimberly Clark?

by Trefis Team
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As it struggles to grow revenues in a tough economic environment, Kimberly-Clark (NYSE:KMB) is looking at developing and emerging markets to drive growth in the long term. In Q3 2106, organic sales in these markets grew by 3%, (compared to a flat growth overall) as the company faced a challenging environment in Latin America – especially in Brazil and Argentina. However, despite this slowdown, Kimberly Clark has strong growth prospects in developing economies such as China and Brazil. This is primarily due to the low penetration of its category products in these regions and the likely increase in the consumption of these products with economic development. If Kimberly Clark is able to innovate and develop a strong competitive edge in these regions, they can be key drivers for its long term growth.

See our complete analysis for Kimberly-Clark here

Brazil Holds Strong Growth Potential

Kimberly Clark has a strong presence in Brazil and had posted a 14% increase in revenues in the region in 2015. While Brazil is the world’s third largest market for disposable diapers, (the first two being U.S. and China), average number of diapers used per day in the country is four, as opposed to seven in developed countries. This shows that there is a strong growth potential for Kimberly Clark’s Huggies & Pull ups Baby Care segment in this region. According to our estimates, the global market size of baby diapers will increase steadily from $51 billion in 2016 to nearly $80 billion by the end of our forecast period and Kimberly Clark should be able to maintain its market share at around 10% of this growing market.

China Could Be A Key Growth Driver

The Chinese baby diaper market reported consumption of 27.4 billion pieces in 2015 and with an increase in the per capita disposable income in the region along with relaxation of the “one child policy”, the baby diaper market is expected to grow at a rate of 10% or above in the next five years.  Kimberly Clark is witnessing strong volume growth in China and this market can be a key growth driver for the company. While competitive pricing is impacting revenues in this region despite high sales, we believe as the company works on its cost saving program, it might be able to offer lower prices (and compete better) without impacting its margins. Competition in the region is high with several players looking to grab abigger piece of pie in this growing market. In the long term, if Kimberly Clark is able to innovate and offer competitive prices, it can strengthen its position in the region.

We believe there is a strong growth potential for Kimberly Clark in emerging economies, where demand for its product categories is likely to grow in the long term. However, the company needs to develop a competitive edge in terms of both innovation and pricing. If it is able to deliver on these counts, emerging markets can drive growth for the company in the long term.

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