Kimberly-Clark de Mexico’s (KCDMF) CEO Pablo Gonzalez on Q3 2018 Results – Earnings Call Transcript

Kimberly-Clark de Mexico, S.A. de C.V.A (OTCPK:KCDMF) Q3 2018 Earnings Conference Call October 19, 2018 9:30 AM ET

Executives

Pablo Gonzalez – Chief Executive Officer

Xavier Cortes – Chief Financial Officer

Analysts

Benjamin Theurer – Barclays

Rodrigo Alcantara – UBS

Nicolas Larrain – JPMorgan

Miguel Ulloa – BBVA

Alex Robarts – Citigroup

Pedro Leduc – JPMorgan

Robert Ford – Merrill Lynch

Mohammed Ahmad – FGP

Operator

Ladies and gentlemen, thank you for your patience in holding. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of our speakers’ presentation, we will open the floor for questions. [Operator Instructions] It is now my pleasure to turn this conference over to Mr. Pablo Gonzalez, CEO.

Sir, you may begin.

Pablo Gonzalez

Thank you, Chantal. Good morning, and thanks, everyone, for attending the call. Yesterday, we posted Kimberly-Clark de Mexico’s third quarter results. While we continue growing the top and bottom lines, our margins continue to be under pressure. Price increases, together with a successful cost reduction program, have not offset the continuous and strong cost inflation we faced under an unprecedented raw material environment.

On the top line, product consumption in Mexico remained stable, although growth in our categories is subpar. In addition, the continued efforts to increase prices in view of the cost pressures, including the implementation of the latest round at the end of this third quarter, are having a negative impact on our volume growth. However, the positive price and mix comparison resulted in sales growing for the 16th consecutive quarter.

On the cost side, we continue experiencing consistent and remarkable raw material cost inflation. And as you all know, virgin fiber prices have increased significantly over the past 18 months, and this past quarter was no exception. More recently, recycled fibers as well as oil derivatives and superabsorbent materials have also increased. In addition, we faced significant energy cost increases given the unexpected and nonmarket-related changes to the formula used by CFE to establish electricity prices.

On the positive side, higher selling prices, strong manufacturing efficiencies, our cost reduction program and efficient SG&A spending, allowed us to slightly improve our operating margin and to achieve bottom line growth. In summary, for the third quarter, we continue to grow but we face a very challenging environment and are acting accordingly to deliver better results and improve our profitability.

Xavier will now give you more details on the quarter.

Xavier Cortes

Good morning. Second quarter sales were MXN 9.9 billion, this represents an 8% increase versus the same quarter of 2017. Top line growth benefited from price and slightly better mix that added 9 percentage points while volumes were down 1%. Growth by line of business was as follows: consumer products increased 5%; Away from Home products, 8%; and exports increased 46%. Cost of goods sold increased 9%. Prices of most raw materials had a very significant negative impact on costs.

Fibers continued increasing with virgin and imported recycled comparing very negatively, some of them more than 30% higher in dollars. While in part, oil derivatives were also much more expensive with resin’s prices higher by more than 30% as well, and electricity prices were almost 50% over last year. Finally, the average FX over the quarter was above by approximately 8% versus last year, adding to the pressure. This cost inflation was partially mitigated by the results from our cost reduction program, which generated more than MXN 380 million in the quarter, a new record for KCM.

Gross profit margin was 33.9% for the quarter, 90 basis points lower than last year. As mentioned in our press release, in addition to the cost inflation, the margin was negatively impacted by the strong growth of our exports business, which normally have lower margins and which were also impacted by the strong cost inflation. SG&A grew 1%, much lower than sales, as we continued to work as efficiently as possible while we – while also maintaining our investment in advertising and promotion and point of sales efforts to strengthen our brands and support our innovation program.

Operating profit increased by 8.2% and the margin expanded 10 basis points to 17.1% on a year-over-year basis. During the quarter, we generated MXN 2.1 billion of EBITDA, a 6% increase; and EBITDA margin was 20.8%, cost of financing was MXN 400 million in the third quarter compared to MXN 312 million in the same period of last year. Interest expense was higher from increased debt at higher interest rates.

A foreign exchange loss in the period of MXN 7 million compared to an exchange gain of MXN 10 million in the previous year. Net income for the quarter was MXN 900 million, a 6% increase and the earnings per share was MXN 0.29. Finally, during the quarter with the company paid debt of MXN 1.5 million in Certificados Bursatiles. Pablo will talk about our expectations for the coming months, and then we will take your questions.

So going forward, on the macro side, we expect domestic consumption to remain stable as inflation trends lower, the salary mass increases and remittances continue to grow. We have yet to see the policies of the elected government, but early indications are encouraging in terms of macroeconomic and fiscal discipline, and we expect the Mexican economy to continue growing in line with recent years. On the trade side, the new USMCA should provide certainty, although the agreement still needs to be approved by the legislatures of the three countries.

However, we can expect significant noise because of the upcoming U.S. election and the increased trade tensions between the U.S. and China, which could mean increased volatility for the Mexican peso. In KCM, given the cost pressures we faced, at the end of the third quarter, we implemented another round of price increases of roughly 4% to 5%. We will continue to look for ways to spend more efficiently, while we support our brands and businesses through our strong innovation and investment plan.

As already mentioned the increases have had a negative impact on our volumes, so we’ll monitor the development closely and react if needed. On the cost front, we don’t see the pressure in virgin or recycled fibers easing, and there’s no additional capacity coming online in the near future while demand will continue to be strong, unless a slowdown occurs in China. Also, oil derivatives may be higher given oil’s recent upward run; and electricity prices, which we expect will remain stable, will compare negatively until the third quarter of next year.

Thus, we will focus on operating even more efficiently and we’ll continue to look for additional cost savings opportunities. For the year, we will again surpass the MXN 1 billion mark in operating savings. And at this point, we are targeting between MXN 1.2 billion and MXN 1.3 billion. This will make 2018 the fifth consecutive year that our efforts reduced at least 5% of our costs. These savings are extremely important and we’re already working to identify additional opportunities for 2019 and beyond.

In summary, we continue to face a very challenging cost environment, but we don’t expect it to improve anytime soon. However, the rate and consistency of raw materials price increases could slow down. If that is indeed the case, our price and mix efforts, together with higher efficiencies and our continued focus on reducing costs, should allow us to catch up and show not only top line and bottom line growth, but also margin improvements.

So we will stay focused on improving the top line through innovation, investment, volume, price and mix and continue to put great emphasis on the purchasing, manufacturing and cost savings fronts.

Thanks for participating in the call, and we’ll be glad to take your questions.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] Our first question will come from Benjamin Theurer, Barclays.

Benjamin Theurer

Good morning Pablo, good morning Xavier. Well thank you very much for taking my question. I just wanted to follow up on the price initiatives. And obviously, what you’re trying to somehow offset, that significant pressure on the input cost side, which has gone even worse, it seems over the most recent quarter. Now you’ve mentioned that it’s like it continue to be challenging and that you expect hopefully the pace to reduce. Do you still see the need to further push on pricing even if that’s having a little bit of a negative impact on volumes to kind of offset all that price pressure, be it on the energy side, be it on the recycled and virgin fibers side and on the absorbents? I mean, is there – how much more room do you think you have for price increases or whether you get to the point where consumers are just going to be not responsive to the price increases. That will be my question. Thank you.

Pablo Gonzalez

Thanks for the question Benjamin. Yes, as you consider that we’ve been increasing prices here for the last 18 months and that overall, our prices in most of our categories are high single digits, in some cases, even double digits, it certainly becomes more difficult to continue that run. And that run that we’ve had here for the last 18 months again is also having an impact on volumes. So certainly, the space is being reduced for us to continue to increase prices, not necessarily for mix. And we will continue to push mix as aggressively as we can but we’re having less room going forward.

So we will continue again to focus, as we always have, very, very aggressively on our operating expenses, our costs and try to find either more and more ways of being more efficient and reducing the same to offset the costs that we, again, continue to see as very, very challenging going forward.

Benjamin Theurer

Okay. As a follow-up quickly, I mean, competitors must be in a similar situation. I mean, they face the same raw materials to a certain degree. I mean, they need the superabsorbents, they need the virgin and the recycled fiber. They also have to use energy in order to produce the product. So has – how’s the response been by the competitors in order – on the price increase side, if they’ve been following, if they’ve been reluctant, is there is increased competition for volume? How for volume? How do you feel about the competitors having actually the same pressure you have?

Pablo Gonzalez

Yes, they should have the same pressures we have over the quarter. I agree, we were surprised that when you hear the you hear the respective conference calls, they’re all talking about the need, given the costs to move ahead with pricing. Having said that, they were very, very aggressively on the promotional side here in the summer promotional season, so that’s somewhat surprising. Again, there seems to be a mismatch between what they’re saying in the conference calls and the way they’re acting, at least, in Mexico.

But we’ll see what happens because, again, they are under the same cost pressures. It’s too early to tell what happens with this latest round of price increases because we implemented it at the end of the third quarter and are actually in the process of finalizing that implementation as we speak. So too early to tell whether they will follow what we’re doing, and we will monitor that very closely. We expect them to follow, but if they don’t, we will react accordingly.

Benjamin Theurer

Okay. Perfect thank you very much. I’ll leave it here.

Pablo Gonzalez

Thank you, Benjamin.

Benjamin Theurer

Thanks.

Operator

Thank you very much. Our next question will come from Rodrigo Alcantara, UBS.

Rodrigo Alcantara

Hey guys, thanks for taking my questions. Just a follow-up on the price increase. Considering the behavior we have seen in volumes, in which categories, in your view, we could see the higher resistance from consumers? That will be my question. Thanks.

Pablo Gonzalez

It’s a good question Rodrigo. When you take a look at our volumes overall for the year, let me say it this way, category volumes for the year, for the most part, growth has been flat, and in some cases, even decreasing slightly. So growth, in our categories, even for the retailers, has, for the most part, come from the pricing side or mix side. So given that growth is already subpar, if you will, we do expect that any additional pressure on the pricing side could have an impact on growth in the categories. An addition will impact the growth in the categories.

Now, we – given the cost scenario we have, we feel that it’s necessary to continue to move ahead and take that risk, but we will monitor that very closely. Now, are there categories, as you say that could be further impacted than others? Yes, most likely the categories that have higher penetration because those that have low penetration still have quite a bit more room to grow, so in those ones, even with the pricing we’re seeing – we’re still seeing volume increases lower than we were seeing last year but still seeing volume increases lower than we were seeing last year but still seeing volume increases.

Rodrigo Alcantara

Okay. Got it. So I mean, perhaps would it be fair to assume that – I mean, perhaps the tissue segment could be – we could see a higher resistance? Or what do you think about this?

Pablo Gonzalez

Well, it really remains to be seen, Rodrigo.

Rodrigo Alcantara

Okay. Okay, thank you.

Pablo Gonzalez

Thank you.

Operator

Thank you. Our next question will come from Nicolas Larrain, JPMorgan.

Nicolas Larrain

Hi, Pablo. How are you? Thank you for the call. Thank you for taking my question. I wanted just to go back to the volumes a bit. If you think there was maybe another factor behind the volume decline or was it only your efforts in pricing that actually affected volumes? Or is there a maybe demand a little bit more sluggish than what you expected? And also on the expense side, do you think that this is the expense level that we should expect going forward after the efficiencies you mentioned?

Xavier Cortes

Nick, let me get to the volume side again. There’s quite a few factors affecting volumes here. One, volume growth in the categories for the year has been subpar. That means either flat or declining so categories as a whole have not been growing. When you add to that the fact that we have been increasing prices and again they’re in the process of another round of increases, well, so far, competitors have not done so on the country. They’ve been very aggressive on the promotional side. So our volumes are contracting more than the volumes of the category.

Now that’s not surprising whenever we increase prices because it’s been historically the case that we increase prices and competitors lag in doing so. And so that’s pretty much what’s happening at this point, together with the fact that so far they’ve been aggressive on the promotional side. So that’s why you’re seeing our volumes fall. We expect those volumes to come back as competitors move forward on pricing or, again, if they don’t, and we react, then volumes again should come back. So that, I hope, answers your questions on the volumes.

On the expense side, we, again, have been very, very aggressive on looking at any opportunity to be more efficient and we will continue to do so going forward. Having said that, I think this quarter was extraordinary. We took extraordinary efforts to reduce SG&A. And going forward, if things start improving on the other fronts, we may see this going up a little bit. So I will consider this as a proxy for future. But I would also say that we will – and as Pablo said, we will continue being very cautious there and cutting everything that is not necessary.

Nicolas Larrain

Super clear. Thank you very much.

Xavier Cortes

Thank you, Nicolas.

Operator

Thank you very much. Our next question will come from Miguel Ulloa, BBVA.

Miguel Ulloa

Hi, good morning. Thanks for taking my question. This would be regarding working capital pressures. Do you foresee something similar levels there going forward? Or should we think about some efficiencies in there? Thank you very much.

Xavier Cortes

Miguel, what we’re seeing in working capital, as you say, some pressures, but we’re working very strongly to correct those. As you can see, on our balance sheet, our payables is doing very well. So that’s somehow compensating for the pressure that we’re seeing on inventories. And I’d say that there’s opportunities there, not major, but there’s opportunities on every front that we will keep on working to capture them.

Pablo Gonzalez

Let me add something on the inventory side. Of course, inventories are being pressured because of the increases in raw materials – the significant increases in raw materials. But they also, during this quarter, were pressured at the end of the quarter because of the – as many of you have asked, because of the lower volume growth. And as you try to close the purchasing or the tap so that raw materials don’t keep coming in, that takes a little bit of time. And as volumes came down, we ended up with more finished product inventory that we wanted and it takes a little bit of time again to close the tap for raw materials. So we’re working very aggressively in both fronts, on being – purchasing less and being more disciplined in that front. And as volumes pick up, we will reduce our finished product inventory. So we expect inventories from here until the end of the year to improve.

Miguel Ulloa

Thank you very much.

Pablo Gonzalez

Thank you, Miguel.

Operator

Thank you. Our next question will come from Alex Robarts, Citigroup.

Alex Robarts

Thanks for taking my question. Hi, everybody. I want to just go back to the cost scenario for you guys looking out over the next couple of quarters. The first one is on the recycled fibers. And it seems to me that that’s been more of a recent phenomenon that we saw last year, and you commented as well how kind of China pulled back from buying and then pouring recycled materials across-the-board, and that gave you some relief. But it seems more recently, I guess, other countries have come into the market. And if you could talk about that dynamic, is this – do you feel kind of a structural step-up in what these recycled fibers might cost for you over the next couple of quarters? Or is it perhaps more of a short-term phenomena?

And then the second part on the cost is you mentioned an expected deceleration, right, in the rate of the cost increase. If you could go through the kind of the three or four buckets, absorbents, oil derivatives, virgin, recycled fibers, where do you see the rate of cost increase slowing down first? And is it something that perhaps we will have to wait until next year? Thanks very much for taking the question.

Pablo Gonzalez

Sure. I’m taking note here, sorry. Give me a second, Alex. Okay. Let me see if this helps. I’ll try to go through a couple of the different items. Again, virgin fibers, as you know, have been on a tear really on the last 18 months-or-so and have increased not only significantly but consistently. And as Xavier mentioned, many of them are more than 30% over other rates of last year. We expect the pressure on virgin fibers to continue given that, as we mentioned, there’s no additional capacity coming on the market and demand continues to be strong. Even when demand seems to be stabilizing, if you will, not even increasing, we’ve seen the producers come into unplanned downtime.

And so the balance of supply and demand has continued to be very, very tight. And again, we don’t expect that to change until more capacity comes into the market unless we see a further slowdown in China or if we continue to see this trade issue between the U.S. and China mean that more tariffs come into effect for fibers, then something could offset that very tight balance between supply and demand.

So on the – on virgin fibers, that will continue. Now they’ll continue from a higher base, so the increases in terms of percentage would moderate, one. And two, we are seeing or hearing comments from some of the producers of fibers being a little bit more careful with the fact that many in our industry have not been able to pass on the prices reflecting those costs and that then maybe the rate at which they can continue to increase, as they had in the past pretty much monthly, might not be sustainable going forward. But we will see what happens with that.

On the recycled fiber front, the issue is that, again, as fiber – as virgin fibers have been on a tear, many are turning to recycled fibers and looking to those substitutes wherever they can for virgin fibers. And that’s why recycled have been on – have been pressured more than they were in the first half of the year, together with the fact that they compare in the second half of the year with a period where recycled fiber prices were down. So the comparison is also putting some pressure on recycled fibers. So again, what happens with recycled fibers going forward, it really depends on what happens with virgin fibers and how many producers like us find a way to substitute recycled for virgin.

On the oil derivatives side, really, it’s hard to tell. Oil has been on a recent run. We’ll see what happens going forward. A lot of noise with Iran sanctions, maybe something that would happen with Saudi Arabia. The U.S. is having a more difficult time getting all of their oil to markets because people and infrastructure limitations. So we’ll see where oil prices lead and then what happens then with oil derivatives. But most likely, the pressure in the – will continue going forward.

Energy, again, this was an added pressure in the third quarter and it has to do with the fact that the pricing that CFE used to – for energy in the first quarter of this year and very early in the second quarter, they used a formula that, for what we understand, was incorrect and they’re trying to make up for that. So they very aggressively increased prices every single month starting, I believe, in May and through September. We see that in October they’re not further increasing prices, but still they’re at very high rates and they compare negatively to last year. And given that, again, in the first quarter of this year they made a mistake and now they’re trying to make up for it, we don’t – we see energy prices compared negatively at least for the next two or three quarters.

Gas has also been increasing. What should not be an additional pressure, if it continues to be at these levels, might be the exchange rate, which was again 8% higher in the third quarter than last year. But at this rate, it should be pretty similar to where it was fourth quarter last year and then maybe even a positive again if it stays at this rate in the first quarter and the second quarter of last year. So pressures will continue to be there. What we say – or what we want to say when we talk about slowing down or moderating again has to do with the fact that the pass-through from pulp producers to all of the industry has been so significant and so consistent that it’s reached a point where comparisons, percentage-wise, will not be as big, one. And two, that it will be, I think, harder and harder for them to continue to pass prices at that rate because we are all, in the industry, under a lot of pressure because we haven’t been able to pass such important cost increases over to the consumers. I hope that helps, Alex.

Alex Robarts

Very, very clear, indeed. And the rate of increase looks poised to slow down and that’s going to be interesting to monitor that going forward. Just kind of taking advantage of a follow-up here. This is the first call we’re having with Kimber postelection in Mexico, and there have been several ideas floating around with the economic policies in – that could occur. And one thing that kind of sticks out is this idea that the minimum wage early next year could have a larger, bigger increase than it’s been historically. So just any thoughts about the new administration on your business on the consumer over the short term. I understand that the minimum wage potentially increase doesn’t really affect a big portion of the workforce. But is that something that you’re monitoring? And any thoughts around that would be great. Thanks again.

Pablo Gonzalez

Sure. Alex. Well again, as we mentioned, I think the early indications from the new government in terms of the economy, I think are encouraging. The fact that they are really keen on maintaining macroeconomic and fiscal discipline is absolutely key to gain trust and confidence for the market. And they know that’s very, very important so that the economy can continue to grow, hopefully, even at higher rates than it has been growing in the past, but at least at the rate it has been growing here in the past. And any – every – absolutely every indication and every conversation we’ve had with them goes in that scenario. So that’s very positive. The other positive side is that they supported the negotiation of the new USMCA, and they are happy with the outcome, and that takes a lot of uncertainty away.

So again, from a macro perspective, we believe things will go well and that will allow the economy to continue to perform in a good manner. If you add to that the fact that we continue to create jobs but we expect inflation to, overall, to trend lower and that we do expect, given the state of the U.S. economy for remittances to continue to be strong and tourism to be strong, we expect the domestic consumption to remain at least stable. And then when you add to that the fact that I believe that there is no doubt there’s going to be increases in the minimum wage, it still remains to be seen in what percentage, but there will be increases in the minimum wage. And let’s see then that whole pie together of remittances, more jobs, higher wages, inflation coming down. I mean, all of that together – if it comes together, might mean a stronger consumer, so stronger domestic consumption. So early signs are positive, but we still need to see how it develops here in the coming months and how it’s executed.

Alex Robarts

Very helpful. Thanks again.

Operator

Thank you very much. Our next question will come from Pedro Leduc, [JPMorgan] Asset Management.

Pedro Leduc

Yes, of course your $1.5 billion debt [indiscernible] budget for the CapEx next year. How are you guys thinking about capital deployment [indiscernible] back? And how are you….

Operator

Can you speak – we don’t hear you very well.

Pablo Gonzalez

Sorry, for some reason, the connection is not very clear. So if you can repeat, we’ll see if we could catch your question.

Pedro Leduc

Okay. In terms of capital deployment, cash flow outlook, budget for CapEx and unpaid debt, the MXN 1.5 billion one you have, and perhaps maybe share repurchase again and just how you guys are thinking about the capital deployment for next year.

Xavier Cortes

Pedro, in terms of CapEx, as you know, we – the way our CapEx works is we usually have cycles where our loan rates CapEx for product improvements, cost savings and management is around $18 million a year. That hasn’t varied much recently. And on top of that, every two, three, four years, depending upon our growth, we add capacity or we call major capacity in tissue or in some of the nonwoven products. And that gives – that increases CapEx for a certain year or for a certain couple of year, probably to double our loan rates. We’ve just passed that cycle. We added capacity last year in tissue. We added capacity last year in tissue. We added capacity last year as well in nonwovens.

And with the growth since – with the growth rates that we’ll be having in volume, we shouldn’t be adding additional capacity, at least in the next couple of years. Hopefully, I’m wrong, and hopefully, demand proves me wrong, but so far that’s what we’ve seen. So we will be down to our $80 million to $100 million for the next couple of years. And the rest, we will continue paying dividends. That’s always been our history and is our policy. That’s – those two are probably going be the major uses of capital in the coming two or three years.

Pedro Leduc

Okay. And the second, in terms of buying back shares, we will hear about it early next year, right?

Pablo Gonzalez

I think the share buyback program will be on hold very likely for – at least for next year.

Pedro Leduc

Okay. Thank you.

Pablo Gonzalez

You’re welcome.

Operator

Thank you very much. Our next question will come from Robert Ford, Merrill Lynch.

Robert Ford

Good morning everybody. I know that you’re probably not very pleased, but given the pressures on the business, I thought that your results were exceptional. Pablo, could you comment a little bit on industry production capacity, utilization rates right now outside of Kimber in Mexico? And as you assess the competitive landscape, how do you think about your different competitor cost structures and the relative competitive advantages between you and your principal rivals?

Pablo Gonzalez

Sure, Bob. Thanks for your questions. Well, in terms of capacity utilization, I think, here, recently, I mean, the numbers we have would suggest that some of our competitors should be filling their capacity and not having additional opportunity for growth unless they bring additional capacity to market, which as you know, takes some time to do. But again, we’ll see how they behave and follow – if they follow the price increases and we regain some of the volume where that leads.

But in any case, I think their capacity utilization is – should be high at this point. In terms of competitive advantages, as – I mean, what we see, as you know, given the public information out there, our margins are higher than those of our competitors, because our cost structure seems to be more efficient. So that is indeed the case, and we are under pressure.

They should be – they should have the same pressure and should be considered – considering moving forward. Again, what we’ve heard in their conference calls over the past quarters is exactly that, that they need to move forward, but we haven’t seen that executed at least in Mexico here in the – recently. Now that also has to do with the fact that the retail environment in Mexico is very, very aggressive on the promotional front and we just went through the summer promotional season.

And that’s always a tough period to read in terms of strategies because, again, retailers are going at each other with very, very aggressive promotions and many of the suppliers get cut off in that. So it remains to be seen as we move ahead with further pricing how our competitors behave here in the fourth quarter. And hopefully, they will move forward because they have the same, if not stronger, pressures than we do. And if they do, terrific. If they don’t, we’ll react accordingly.

Robert Ford

That’s very helpful. Thank you very much.

Pablo Gonzalez

Thank you, Bob.

Operator

Thank you very much. Our next question will come from Mohammed Ahmad, FGP.

Mohammed Ahmad

Hi, guys. Thank you very much for taking my question. Just a couple of them. One is just what’s your consumer product volume growth specifically? And then I have one follow-up.

Pablo Gonzalez

I mean, our consumer products volume declined. Of course, it’s not higher than the overall decline for the company because of the reasons that I just mentioned during the call.

Mohammed Ahmad

Okay. Is it still low single digits? Or is it worse than that?

Pablo Gonzalez

It’s low single digit.

Mohammed Ahmad

Okay. The second question I have is if you compare Q3 2016 to Q3 2018, what would be the raw materials to sales ratio? Because clearly, it’s been an exceptional environment with regards to raw material, when you’re talking electricity, gas, fiber, energy. Can you give us a sense of what percentage of sales all of these costs together whereas percentage of revenue say in Q3 2016, where your gross margin was around 38% versus Q3 this year where it’s about 34%?

Pablo Gonzalez

We would have to get those numbers specifically, Mohammed, I mean, when you’re comparing Q3 2018 to Q3 2016. What no doubt about this that our cost of goods sold as a percentage of sales as you compare 2016 to 2018, have gone up by at least, I would say, yes – 3Q 2016, the margin – the gross margin was 38.4%. Now we’re at 33.9%, so it’s 50 basis points. I’d say, as a percentage of sales, most of that increase, if not all, comes from raw material increases.

Xavier Cortes

That’s right.

Mohammed Ahmad

Yes. No, like, my thought would have been that it might be even higher than – sorry?

Pablo Gonzalez

Raw material increases in pesos, so that takes into account.

Xavier Cortes

The FX.

Pablo Gonzalez

The raw materials and the FX.

Mohammed Ahmad

No, no. I understand that. And I guess the point that I was thinking a little bit was that it might actually be even more than that given that you do cost savings outside of raw materials so that’s why. Maybe I’ll follow up post the call, just offline, just to get some more details individually.

Pablo Gonzalez

Sure. You could follow up – we can provide you information on, again, on large items of raw materials. We can provide what those costs were in 2016, 2018 so you can get a big picture and some information on that.

Mohammed Ahmad

Okay, maybe, thank you. Helps a lot. Thanks.

Pablo Gonzalez

Thank you, Mohammed.

Operator

Thank you very much. Speakers, at this time, we have no further questions in the queue.

Pablo Gonzalez

Well, thanks everyone for participating in the call. I know it’s early because it’s October, but we won’t be talking to you until the first quarter of next year. So our very, very best wishes for the end of this year and coming into 2019. And we certainly expect that – or we give those wishes also to Kimberly-Clark de Mexico so that we can continue to execute on our price increases and mixes and reduce costs and eventually catch up on this very, very aggressive and unprecedented volatile cost environment and not only grow top line and bottom line but increase profitability. So thanks for attending and talk to you in January. Thanks, so much.

Operator

Thank you very much. Ladies and gentlemen, at this time, this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.

Hinterlasse jetzt einen Kommentar

Kommentar hinterlassen

E-Mail Adresse wird nicht veröffentlicht.


*