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Why Kimberly Clark Corp. Stock Gained 13% in 2017 So Far

By Demitri Kalogeropoulos - Jul 18, 2017 at 12:21PM

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While sales growth is slowing, investors are focusing instead on the consumer products company's rising profitability.

What happened

Consumer products giant Kimberly-Clark (KMB -0.76%) stock added 13% through the first half of 2017, according to data provided by S&P Global Market Intelligence.

The boost has helped shareholders recover some of ground they lost after the Huggies and Kleenex brand owner underperformed the market by a wide margin in 2016.

KMB Chart

KMB data by YCharts

So what

Kimberly-Clark hasn't posted a sales rebound this year. In fact, its growth pace is slowing.

Organic sales rose by just 2% in fiscal 2016, the company announced in late January, compared to a 5% gain in 2015. The good news is that Kimberly-Clark still hit its earnings growth target, thanks to aggressive cost cutting. It successfully defended its market position from rivals, too. "While we experienced a challenging economic and competitive environment in 2016," CEO Thomas Falk said in a press release, "our market share positions remained broadly healthy."

A baby has its diaper changed.

Image source: Getty Images.

Its first-quarter report paired more bad news on the growth front with steady earnings gains. Organic sales declined by 1% due to surprising weakness in its core U.S. market. Yet profitability ticked higher, and net income improved by 3% to $563 million.

Now what

Kimberly-Clark in late April lowered its full year outlook; it's now targeting growth of between 1% and 2% rather than the firm 2% that CEO Thomas Falk and his executive team had originally projected. Investors aren't faulting the company for this slowdown, especially since its major peers, including Procter & Gamble and Clorox, are pulling back their forecasts due to the same disappointing industry trends.

While Kimberly-Clark's stock has outperformed these rivals so far this year, it will likely take a rebound in sales growth for shares to see market-beating gains over the long term.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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