The beauty of investing in consumer staples is that the products never go out of style. Demand for essentials like bathroom tissue, diapers, and paper towels tends to grow right along with the economy during boom times while staying steady through recessions.

The industry is enduring a slow-growth period right now that has reduced the operating outlook for the biggest players. And Kimberly-Clark (NYSE:KMB) -- because of its heavy exposure to the competitive U.S. market -- is facing particularly big challenges.

As a result, sales are likely to remain sluggish in 2018 compared to rivals Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL). On the bright side, the company should achieve a few important financial wins during the year.

A baby having his diaper changed.

Image source: Getty Images.

Growth challenges

The company is limping into the new year. Organic sales growth was flat in the third quarter compared to 1% decrease in the prior quarter. Gains in international markets haven't been enough to offset weakness in the U.S. division, which delivers most of its profits.

By comparison, P&G, which competes against Kimberly-Clark's core Huggies diaper brand, has been expanding organic sales at a 2% pace, while Unilever (NYSE:UL), whose business is more heavily tilted toward developing markets, is growing by a robust 4%.

Kimberly-Clark is expecting to see roughly flat sales for full-year 2017 to trail both of these rivals. That result would also mark its second straight annual growth deceleration. Comps improved by 2% in 2016 and by 5% the year before.

Profits and cash returns

CEO Thomas Falk and his executive team can't do much about the weak industry conditions, which is why they're focused on building a leaner business. They sliced over $400 million from expenses in 2016 and intend to boost that figure to as much as $450 million in 2018. Kimberly-Clark has dramatically improved on key efficiency metrics, too, including its cash conversion rate and return on invested capital.

These initiatives have helped gross profit margin climb to 37% of sales from 33% just five years ago. Operating margin is at a record 18% of sales, compared to 14% back in 2012, which puts the company right between P&G and Unilever on profitability.

KMB Operating Margin (TTM) Chart

KMB Operating Margin (TTM) data by YCharts.

The brightening financial position means that investors can expect large (and growing) cash returns in 2018 -- even if sales growth stays sluggish. Kimberly-Clark intends to raise its dividend at the same pace as per-share earnings, and that implies an income boost of around 3% to 5% for the year as the company inches toward its long-term target of between 5% and 8% annual growth.

Those returns will be supplemented by aggressive stock repurchase spending. Management allocated $750 million toward that capital return channel in 2016 and is on pace to spend $1 billion buying back its stock in 2017. Thus, its outstanding share count will continue shrinking (it's down 30% since 2003 ).

Put it all together, and 2018 should be a mixed bag for Kimberly-Clark shareholders. They'll probably see modest earnings growth as the consumer goods giant achieves impressive records on profitability and cash returns. Investors will likely demand aggressive strategic changes, though, if the company fails to avoid posting its third consecutive year of decelerating organic sales.

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