Kimberly-Clark (NYSE:KMB) announced second-quarter earnings this week that showed no sign of a positive shift in its operating trends. Sales growth was negative, profits fell, and the consumer products giant lowered its growth outlook for the second time this year.

More on that slipping forecast in a moment. First, let's look at how the headline results stacked up against the prior-year period.

Kimberly-Clark earnings


Q1 2017

Q1 2016

Change (YOY)


$4.55 billion

$4.59 billion


Net Income

$540 million

$578 million


Earnings per share




Data source: Kimberly-Clark's financial filings.

A challenging quarter

Organic sales dipped by 1% to mark the second straight quarter of declines for the owner of the Huggies, Kleenex, and Cottonelle franchises. That slump was driven by falling demand in the U.S. market, which accounts for most of Kimberly-Clark's business.

A baby playing with toilet paper rolls.

Image source: Getty Images.

Organic growth fell 2% in that division thanks to spiking competition and a generally sluggish industry. Counteracting that trend was a 2% boost that the company enjoyed in demand from emerging markets.

Kimberly-Clark posted a 5% drop in operating profit, to $799 million, as higher material costs more than offset the savings it managed through its cost-cutting program. Through the first six months of the year, that initiative has saved $230 million to put the company ahead of its goal of removing $400 million of expenses during the year. The cuts were just enough to keep profits steady. Earnings per share through the first half of 2017 came in at $3.06, even with the prior year.

Management's take

CEO Thomas Falk described a difficult competitive environment that's making it harder for branded consumer goods giants to increase their sales without slashing prices. "Our second quarter results reflect a challenging environment," he said in a press release. "Nonetheless, we continue to manage our company with financial discipline, as we achieved $120 million of cost savings, improved working capital and returned more than $600 million to shareholders through dividends and share repurchases."

KMB Revenue (TTM) Chart

KMB Revenue (TTM) data by YCharts.

Falk and his team are looking to use this flat sales environment as an opportunity to improve profitability and reorganize the business around delivering faster product innovations. "We are focused on competing effectively in the near-term while we continue to execute our global business plan strategies for long-term success," they explained.

Looking ahead

Management accounted for the surprisingly sluggish operating trends by lowering both their top- and bottom-line forecasts. They now see organic sales coming in flat in 2017 compared to a 2% uptick in 2016 and a 5% spike the year before. Executives had -- as recently as April -- been expecting to match last year's 2% growth in 2017.

Kimberly-Clark will also earn roughly $6.20 per share this year, compared to the $6.28 per share it previously forecasted. That translates to a profit increase of less than 4%.

In response to the tightening finances, Kimberly-Clark is dialing back its capital spending slightly, and the good news is that move should leave executives plenty of room to continue allocating funds toward stock repurchases and a growing dividend. On the other hand, those direct cash returns are shouldering an increasing portion of total shareholder gains now that Kimberly-Clark is set to post its second consecutive year of reduced sales gains.

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