How Dependent Are Kimberly-Clark’s Expenses On Pulp Prices?

Kimberly Clark’s (NYSE: KMB) expenses have grown over the last 3 years, and now stand at 92.7% of total revenue, up from 88.6% in 2016. A large part of Kimberly-Clark’s expenses come from cost of goods sold, which eats into almost 70% of total revenue. This is largely due to the high cost of pulp, which is the primary raw material used in the production of tissues and other paper products.
Pulp prices rose significantly in 2018, as can be seen from the Pulp Producer Price Index, that rose from 177.20 in June 2017, to 217.10 in June 2018. This added more than $1 billion to Kimberly-Clark’s cost of revenue, significantly driving up expenses.
However, we expect things to get better through 2019 and 2020, as pulp prices have dropped significantly over the past year, and the Price index currently stands at around 147, its lowest since 2015.

You can view the Trefis interactive dashboard – Kimberly-Clark: Breakdown Of Total Expenses – to better understand how the company’s total expenses have moved over the years and what is causing this change.

Following is how each expense head has moved over the years. For more details of each expense please visit our interactive Dashboard on Kimberly-Clark’s Total Expenses:

• Cost of Goods Sold, which comes to almost 70% of total revenue, includes primarily the cost of procuring raw material (pulp), and the cost of processing it to manufacture tissue and other paper products. COGS as a % of total revenue, has risen from 63.4% in 2016 to 69.7% in 2018, on the back of a ~23% YoY rise in pulp prices. However, this year pulp prices have fallen rapidly, and are now at levels lower than those in 2014. We expect this to cause a significant drop in COGS by 2020, taking it to below 63% of total revenue.
• Marketing, research and general expenses, which stand at around 18.2% of total revenue, include advertising and marketing costs, research expenses, and the cost of selling and distribution of products. This metric has remained roughly flat between 2016 and 2018, and we don’t expect any significant changes going into 2020.
• Non-Operating and other expenses as a % of total revenue, have remained below 1%, and stand at around $164 million, as of 2018. This includes any restructuring expenses and non-operating costs. Again, Trefis does not expect any significant changes to this metric, going forward.
• Interest expenses dropped YoY in 2018, both in absolute terms, and as a % of Revenue. We expect this expense to be largely flat, through 2020.
• Income taxes dropped in 2018, both due to a drop in the statutory rate, and also the drop in Kimberly-Clark’s taxable income. We expect the statutory rate to remain unchanged, but an increase in EBIT, should lead to a rise in income taxes by 2020.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.