WORST Report Yet for Stock Market [Warning].

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

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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

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