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hey everybody kevin here in this video i'm going to talk about one of the worst earnings calls that i've seen from the end of last week i read through every word of this and i'm a little bit nervous about what they had to say about inflation but they also give us some good news in terms of an outlook and this is really important for all sectors of our market now a lot of people keep saying oh but kevin kevin apple said that their supply chain issues were starting to u-turn yeah i have that right here because i actually read the transcript and i've talked about this and apple here says quote we still expect significant supply constraints but less than what we've seen in december that's good so far this is the only company that has given us positivity on supply chain constraints and that's apple but they still call the supply chain constraints quote significant but what we want to do is we want to look past companies like apple who have the biggest pricing in negotiating power and we want to understand what's it like being a manufacturer right now because that's where we're seeing the massive amounts of inflation coming from because they increase the prices of everything that consumers touch and that's why we've got to talk about this particular earnings call that i'm going to break up here and i'm going to give you all the specific details but first a quick message from our sponsor streamy are today go to mattkevin.com streamyard to learn everything that you need to know about professional live streaming and broadcasting software you can multi-stream throw comments up on stream it is what i use i absolutely love streaming art i use it every day i pre-schedule my live streams you see those pre-scheduled events it's all done through stream yard so check them out by going to mckevin.com streambeard all right let's jump over into this report and i'm going to keep this as quick and dirty as possible so we can get through this as fast as possible all right uh and i'll draw some conclusions as we go as well quote we took decisive action to offset the impact of higher costs with how did they do it how are they offsetting higher prices for their input costs well guess what significant pricing action in other words they're increasing prices like crazy over at kimberly clark remember these are manufacturers of things like toilet paper paper towels and so on and so forth now they say that their input costs have escalated well beyond previous levels and supply chain disruptions limited our ability to meet the full fully growing consumer demand okay so more demand supply chain issues look this is the same crap that we heard from raytheon 3m and general electric uh two weeks ago when they all came out and said we're basically getting reamed because of inflation and the related supply chain effects especially omicron but what i really want to show you here is how their their wording kind of changes this is just the intro and they go right into this but first take a look at this we've taken significant pricing action and expect pricing to offset a majority of the impact of the cost of inflation so in other words they're saying we think that demand is so strong that the the uh demand is so essentially inelastic in other words it doesn't matter what the price is people will pay for the product they just want their toilet paper they're not going to go shop at a different company they will pay a higher price and so this company's saying there's significant pricing in the plan and we've estimated the elasticity of demand and according to their what they call conservative consumptions they believe they're not going to have any issues raising prices if anything they might actually be able to raise prices more than they expect because they think they're being conservative by saying they're going to wash all of the inflationary impacts simply by raising prices remember folks every time you hear raising prices you should be thinking federal reserve reading this kind of report i'm sure they do or somebody summarizes for them who knows maybe they subscribe to the channel i hope you do anyway probably like okay all the more reason that we need to raise rates and even if they just talk about raising rates it lowers inflation expectations in the long term because it tells the market hey the fed's on the case and we're raising rates we're going to act we're going to walk the walk which is exactly what the feds started saying at the end of last week remember i broke down neil kashgari's discussion anyway and that's exactly what we said we got to walk the walk bostick said the same thing over at the fed but anyway look at this inflation outlook for 2022 this is crazy approximately half of the inflation for 2022 is expected to come from the distribution of their products and from energy so that means getting it moved around on trains or ocean liners or freight or whatever which i went through the earnings call for ups as well and one of the things that's making ups skyrocket is the fact that they're returning a lot of money to shareholders and this is literally what institutions want right now they're running away from tech and they're jumping over into dividend stocks and companies doing stock buybacks or whatever so ups killed it with their uh their expectations too and take a look at what ups says i know i'm jumping a little bit here briefly but from an inflation standpoint i think we would look for higher growth in the first half of the year versus the second half so ups talking about inflation a lot as well in the earnings call and the big takeaway from the ups earnings call was really that yeah uh prices are higher and we expect the first half of the year basically prices to continue to increase in fact they're talking about how what they're trying to do is not only increase their efficiencies in the long term like in the future what they're going to do is include rfid tags on all their packages they say so that way they can no longer have to manually sort 20 million packages a day and have computers do these but take a look at this demand for products going forward is continuing to be strong and ocean shipments were double digits uh growth were up double digits and container rates remain elevated so they're not seeing uh many much relief either in terms of supply chain issues and bottlenecks and that that's over at ups but anyway we're focusing on kimberly clark right now and so half of the inflation's coming from distribution and energy so in theory you could look at like gas prices and oil prices and go as long as those remain high probably going to have significant inflationary sort of tailwinds that keep pushing inflation figures up in addition to rising rents for consumers but anyway focusing on kimberly here uh so they talk about how and this was a crazy point the contracts that they have for the commodities so whether that's the pulp or the softwoods or whatever products they use to make their their stuff they use contracts to essentially say hey we'll continue to buy your softwood all year long at x price well the problem is those reset at the end and beginning of the year so basically we just hit the beginning here reset at the beginning of the year so we just hit a reset which basically means their costs are going to balloon in the first half of the year and they're going to raise prices to try to offset that over the next six to 12 months they say it specifically here there's some lag built into the high inflation that you see and so the rising costs that they're seeing from their contract resets aren't actually going to show up in consumer prices until probably the next three to six months in fact later in this they give this example about how they they increase prices in august on a particular product that they don't actually think is going to show up with actual increased prices yet until january because it takes them maybe that long to to shift pricing i'm not exactly sure why but it's something that they mentioned so big lag time they have here in inflation big priority in this conference call came up over and over and over again was they want to focus on getting their margins up and they plan to get their margins up primarily by raising prices and so far looks like people are just paying it now they do think that in the future we're going to see a reversion that means commodity prices come back down to normal but they spent a good portion of their conference call talking about how this time is different and i hate the phrase this time is different because i think history rhymes but when you're trying to rhyme history and you're trying to rhyme apple and orange it just doesn't work and no matter how you slice it it is different things are a lot worse this time than they had been in the past and that's exactly what kimberly clark here is saying they're saying this cycle is different because the peak is higher it's broader and it's longer lasting this means every aspect is more expensive for them uh from delivering to acquiring commodities to shipping them out uh to uh to their employee costs you name it now they do think that if commodity prices do revert down which they think will they they do believe that at some point we will see a reversion of commodities prices then their profits could recover faster but in the meantime they're talking about this atypical set of inflationary pressures that they really haven't seen before in the past they do expect to make progress on recovering their margins but like they said it's going to take time now the stock actually is only down about four and a half percent year to date one of the reasons for that in my opinion is because it's a dividend stock and people are like running to dividend stocks or manufacturers that they think are dealing with inflation by raising prices and that's kind of what you have here is a manufacturer that's like yeah we're going to raise prices a lot and we're going to pull it off really well distribution costs are up meaningfully and they will contin continue to be our expectation that will continue to be our expectation for 2022.
demand is exceeding our ability to supply at the moment taking any dime down okay but this is more talking about their machine and efficiency in this i'm going to step away from this basically really quick there's they were talking about hey like how about upgrading your machines so you can make your machines more efficient and they're like right now we're so overwhelmed with a crappy supply chain that we don't want any downtime on our manufacturing line right now we're all for innovating we're all for advertising and getting more business but right now the only thing we need to focus on is getting our margins up by increasing prices this is that's why this is like the craziest earnings call that i've seen in a while on on inflation and you know people are like oh but this you know inflation data looks backwards well guess what inflation data doesn't look backwards it's what companies are saying in their earnings calls that's why this is so important but anyway once they say here once the commodity pressure uh will oh well actually let me rephrase that here they say they've got a few issues the commodity pressure they believe will continue to be intense and inflation in the first quarter will be high uh the pricing isn't fully in yet either so this is where they just reiterate that uh we're expecting a lot of inflation in the first three to six months of 2022 and it's going to take us a while for us to actually raise prices which then thinking a step further that means consumer price the consumer price index might actually not come down as quickly as expected unless companies start you know stopping the price increases because remember if if apple let's say sells you a one hundred dollar pencil now for a hundred dollars and a hundred and ten dollars next year if they leave it at a hundred ten dollars well the cpi from here to here is actually zero percent growth right the issue what we're looking for is when is apple or whomever going to stop continually raising prices right and even though apple's like oh yeah maybe maybe it'll be slightly better in q1 for supply chains even though they're still going to have significant issues when would price increases actually stop in my opinion it only stops when consumers stop borrowing and to uh to essentially buy stuff and so far we're not seeing consumers stop at all in fact if anything uh there some folks are saying maybe we'll see a little bit of a pause because of omicron basically you get this like january pause brief period this brief little hole in mobility and spending but so far all the earnings calls i'm reading including ups uh the the banks the tech companies they're all saying they expect 2022 to be a banger year because people keep spending and spending like crazy and usually that's a good thing but it's not a good thing in an inflationary environment because it means the fed's going to come down harder so it's kind of like good news is bad news right okay we're in the midst of a pretty acute supply chain disruption caused by omicron so that's not bad they are do expect at some point commodity prices to go down we talked about that already we expect uh pricing to be fully built in the market in the second half so maybe by like july to august and september maybe we'll stop seeing that month-over-month increase in pricing because the companies will have fully built in their price increases we got hit with 1.5 billion dollars of inflation costs which is kind of insane given that this company nets like 1.8 billion uh but obviously that's net versus like cost but still it's crazy uh a ceo regularly talks about how they want to increase margins okay we got some other juicy things in here so uh the elasticity modeling that they're talking about they get asked basically about like how much do you actually think you're going to be able to raise prices right because prices have been going up quite a bit and so can you break down a little bit about how much y'all can raise prices and so they talk about that here first they start by saying they think they can raise prices over the course of a year mid to high single digits and that could vary based on conditions but what's really interesting here is not only do they talk about raising prices basically between five to ten percent but somebody else replies and says listen this very very smart question here is that the way we should be thinking for the total between 2021 and 2022 you're going to hit high single digit price increases is that the way to think so basically in total uh between 2021 and 2022 high single digits she's revising uh what they said here which is mid to high single digits and just saying you're hitting the high single digits aren't you for inflation and the executives are like uh yep pretty much uh so a lot of pricing power and they expect that to continue they did mention that private label sales were down specifically in things like diapers i don't know exactly how that affects honest but they did talk about this a little bit here they do again reiterate here that they want their pricing to offset as much of the inflation as possible but they do say here that if inflation continues to run will continue to price look how confident these freaking companies are they say that there's going to be a reversion at some point commodity prices will come down this is kind of like at some point supply chain conditions will get better right but here listen to the response but i don't want our teams waiting for commodities to come down to drive margin recovery in other words look we're not going to wait to make more money because supply chains get better we're going to raise prices so that way we can start dealing with our margins and if supply chains get better great then we'll just make more money at that point to me this is kind of like the fed this is kind of like the fed saying hey we're not going to wait for inflation to come down at this point we just need to act we need to walk the walk hopefully that sets expectations that inflation is going to come down and then because it's somewhat self-fulfilling maybe that inflation actually does come down but anyway again five plus percent pricing this year they expect their price increases to lag they do uh indicate that a bit obvious obviously office and business travel still below pre-pandemic estimates and they expect not to see a full recovery even this year in those particular sectors they do say they're in a very tough part of the cycle right now in terms of trying to make sure they deal with this inflation crisis and uh they also say that they're they're not investing as much money right now in advertising or big innovations even though those are really really important to advertise more you really don't need more customers right now because you're so overwhelmed and innovation is really really important but like they mentioned earlier earlier they don't want to take their machines off the line to replace them with new ones now's not the time to do it now it's just kind of like buckle down get the prices up and just put the product out there and sell it because prices are so freaking hot uh so that's a little bit of a summary here on innovation though they do try to they try to clear clarify this a little bit we're not pulling back on our innovation investment notice that sort of like more tilted towards the negative right instead of like oh we're investing heavily in innovation they're like we're not investing less in innovation they're just not a priority right now because we're getting reamed over here with inflation so that's the kimberly clock earnings call now takeaways from this okay to me this this is huge this is even though i don't know i bet you know maybe like one percent of us actually invest in kimberly clark unless it's through like an etf when we look at this or an index fund for that matter we look at this this is in my opinion quite nasty because it shows you that these companies they can't just raise prices once it's not like that apple pencil is going from 100 to 110 and then they're done they're raising they're they're cooking us like that lobster they're putting the live lobster in the pot and they turn the heat up not all the way up they just turn it up slowly they're boiling us slowly with these price increases and they're literally so confident that they can rip us off with higher prices why because we're paying it that's not good for the future of cpi and i'm not sure if the market is fully pricing in uh these inflation fears yet especially since as of three months ago and myself included there were 50 to 60 of people who were still in inflationist transitory you know in that camp in camp transitory right the more you see camp transitory become holy crap the fed's really got to deal with this and so far they're screwing i mean screwing us up i mean they're still printing money the more you could potentially continue to see pain in uh in this particular sector or really just well the sector of the stock market so basically everything when it comes to inflation so yeah anyway hopefully you found this helpful check out streamyard via the link it helpful please share the video and we'll see you next time thanks bye
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