Yesterday, Nippon Shokubai Co.'s (NPSHY.PK) plant Himeji experienced a chemical tank explosion in Japan. This explosion can heavily affect diaper production, as Nippon Shokubai is one of the world's biggest makers of acrylic acid, the main ingredient of a resin called SAP, which is used in diapers. This plant produces around 20% of world's SAP and 10% of global acrylic acid. It is reported that plant's operations are likely to be halted for a long time. It seems that there is no back-up production for diaper companies as other SAP resin makers are currently operating at full scale.
Jiji Press/AFP - Getty Images
A cloud of smoke rises from a chemical plant in Himeji city, Hyogo prefecture on Saturday. - NBC news
For P&G, a billion dollar diaper brand is Pampers. The brand belongs to "Baby Care and Family Care" operating segment of P&G business. P&G is having as high as 35% of the global market share in diapers and baby wipes, mainly with Pampers, the company's largest brand. It generates around $10 billion in annual net sales for P&G. Last year, "Baby Care and Family Care" was the fastest growing segment in terms of net sales.
The segment grew 6%, mainly due to the increase in the price factor, whereas the company's growth average was 3%. A segment enjoyed a 12.9% net margin in 2011. So with $10 billion annual sales, the Pampers brand generated nearly $1.3 billion for P&G profit, translating into $0.47 EPS, accounting for 15.1% 2011 P&G's EPS of $3.11.
For Kimberly Clark (KMB), diaper is an important business with Huggies brand, in Personal Care business segment. Diapers took approximately 23.5% of total Kimberly Clark's revenue. In 2011, it generated $4.9 billion, out of $20.8 billion in sales for the whole company.
The operating margin for the segment was 16.7%. So for $4.9 billion in sales, diaper business might generate around $800 million in profit for Kimberly Clark. With nearly 395 million shares outstanding, it translated into $2 EPS. That represented around 44% of company's EPS for 2011, $4.54 per share.
The explosion in the chemical plant in Japan will cut down supplies for diaper manufacturing and that would lead to the decline in diaper production. As significant profits are coming from diaper businesses for both P&G and Kimberly Clark, those two companies' revenue and profit might be negatively affected in the near term. I think because of the explosion news, PG and KMB stock prices will move lower for a while.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.