Kimberly-Clark (NYSE: KMB), maker of such household name brands as Kleenex, Cottenelle, and Huggies, announced yesterday that it will raise prices on its signature toilet paper, paper towel and napkin brands by about 6%, effective this summer.
Kimberly's move follows a similar decision by archrival Procter & Gamble (NYSE: PG), which announced its own 6% price hike in February. Both companies blame the rising costs of raw materials, including wood pulp and energy (to both power their machinery and deliver their goods) for the increased prices.
Meanwhile, Canada's privately held Kruger, which owns Scott Paper and markets bargain-brand Scotties tissues in the U.S., has not announced yet whether it will follow suit. Nor has Brawny and Northern brands-owner Georgia-Pacific (NYSE: GP) said whether it will join in the fun.
Until these two latter companies break their silence, we would seem to have here a situation in which the two goliaths of the personal hygiene world are handing their rivals market share on a silver platter (or a paper plate, perhaps?).
True, Kruger and Georgia-Pacific must pay the same higher energy costs to transporters such as Kinder Morgan (NYSE: KMI) and suppliers such as ExxonMobil (NYSE: XOM) as do Kimberly and P&G. Also true, Kruger and Georgia-Pacific may find that the prices for paper-bleaching chemicals sold by companies such as Dow Chemical (NYSE: DOW) are also rising as the U.S. economy revives. But both of these costs are really incidental to the cost of the main input in producing what are, after all, paper products -- to wit, the wood pulp that is processed into the paper.
Unlike Kimberly and P&G, Kruger and Georgia-Pacific have extensive forestry and pulp-manufacturing operations. Logically, these operations offer the latter two companies a considerable buffer against the kinds of raw material costs that prompted the price increases already announced by Kimberly and P&G.
Thus, the savings on these raw materials should give Kruger and Georgia-Pacific a considerable edge over their rivals. Kruger and Georgia-Pacific can stand pat on their current prices. Or they can match Kimberly's and P&G's price hikes and rake in the profits. Or they can raise prices less than their rivals, use that as a means of increasing market share, and yet still increase their profits.
As prospects go, those are nothing to sneeze at.
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Fool contributor Rich Smith
owns no shares in any of the companies mentioned in this article.
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