In its last fiscal year, global consumer products giant Kimberly-Clark (KMB -0.46%) generated just over $2 billion of net income from its revenue base of $18.2 billion. Most those earnings came from just a few of its most popular brands, Huggies, Kotex, and Kleenex and were produced in one critical market: the United States.

Huggies and Depends

Kimberly-Clark's personal care division was responsible for half of its sales last year -- up from 39% in 2003 to mark a 6% compound annual growth rate over the last 13 years. That segment is home to the company's single biggest franchise: Huggies, and generated $1.86 billion, or 56% of total operating profit in 2016.

A baby having its diaper changed.

Image source: Getty Images.

The Huggies brand trails Procter & Gamble's (PG 0.35%) Pampers, which by itself delivers $9 billion in annual sales for the consumer goods titan. Yet Kimberly-Clark still gets plenty of value from its prime positioning in the diaper and baby care markets. The personal care segment posted 4% higher volume in 2016 and only a slight decrease in average prices. Operating margin for the division is 20.5% -- higher than the company's overall average margin of 18.4%.

Kimberly-Clark is the market leader in the adult diaper segment behind the Poise and Depend brands, too. Its long-term plan aims to advance market share in that and the baby care segment primarily through frequent innovation like the recent Huggies premium upgrades and new pull-up pants styles.

Behind personal care sits Kimberly-Clark's tissue segment that's anchored by its blockbuster Kleenex tissue brand. With volume running flat last year, management sees less room for organic growth in this division, but instead aims to boost operating margin through cost cuts. In 2016, the company succeeded in raising tissue segment profitability by more than a percentage point to 18.7% of sales. 

The U.S. market

Kimberly-Clark is heavily reliant on the U.S. market, which last year accounted for 52% of sales and a whopping 70% of profits. That's a far higher proportion of revenue than rival P&G, which counts 44% of its business from its U.S. segment. The extra dependence on the rich, but mature, U.S. economy means Kimberly-Clark enjoys relatively high profit margins but lower organic growth. Its 18% operating margin trounces global rival Unilever. On the other hand, Unilever is expecting to grow organic sales by between 3% and 5% this year, while Kimberly-Clark is projecting its second straight year of 2% gains.

Sluggish growth in the U.S. played a key role in Kimberly-Clark's underperformance last year when, rather than expanding at a 5% rate, as management originally projected, organic growth ended up at 2%. The segment has been an even bigger drag on results so far in 2017. Organic growth declined 3% in the U.S. in the fiscal first quarter as the industry slowed and competition heated up.

Management believes sales trends will start improving in the second half of 2017 with help from innovative new product launches in the Kotex, Huggies, and Kleenex brands. However, generally weak industry conditions mean most of its profit growth in the coming year will likely come from cost cuts that ideally will continue pushing profitability toward 20% of sales.

Foreign currency swings will be much less of a drag on results in 2017, but that benefit should be offset by rising commodity prices. That's why executives still see earnings improving by between 3% and 5% this year even as sales growth, targeted at 1.5%, comes in well below their long-term target of between 3% and 5%.