Please ensure Javascript is enabled for purposes of website accessibility

Kimberly-Clark Predicts a Growth Slowdown Ahead

By Demitri Kalogeropoulos - Updated Jan 27, 2020 at 8:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The consumer product giant's results looked weak in comparison to its chief global rival.

Kimberly Clark (KMB 1.80%) shareholders have had to endure mixed results from their investment lately. While the consumer staples giant posted faster growth and reduced costs in 2019, its rebound trailed the broader market, and looked weak in comparison to Procter & Gamble's (PG 1.44%) expansion.

The gap between the two businesses, which compete directly in areas like diapers and paper products, continued into early 2020. In fact, in earnings results posted Thursday, Kimberly Clark revealed operating and financial metrics that all suggest it is struggling to keep ahead of major changes in the global selling environment. 

A baby plays with tissue paper.

Image source: Getty Images.

Small steps forward

Kimberly Clark's organic sales improved by 3% in the fiscal fourth quarter, which translated into a 4% gain for the full 2019 year. That result was ahead of management's initial outlook, and represented a solid acceleration from the 1% uptick it logged in 2018. Executives noted that rebound, saying in a press release that the results "capped off a year of excellent progress ."

But the company's growth results look weaker in context. Rival P&G has been growing at about a 6% rate over the last six months, for example, and its sales gains are being driven by increasing volumes, which suggest rising market share. Kimberly Clark, meanwhile, is relying entirely on price increases to deliver its growth. This quarter was no different, as volumes declined 1% across its portfolio.

Stronger earnings

The news was a bit better on the financial side of the business, where falling input prices and cost cuts combined to support significant profit gains. Adjusted earnings jumped in the fourth quarter on what management described as "strong margin improvements." That boost delivered full-year adjusted profit growth of 4%, near the top end of the guidance that CEO Mike Hsu and his team had issued.

Cash flow declined a bit, which marked another area where Kimberly Clark and P&G are trending apart in recent quarters. Kimberly Clark also trailed its larger consumer products peer in core profitability metrics like operating margin and in the scale of its earnings rebound. P&G is expanding its core profits at a double-digit pace right now.

Looking out

Kimberly Clark's initial 2020 outlook syncs up well with the rebound path that Hsu and his team have been predicting for investors for at least the last year. Yet it's hard to view its expected growth rate as anything but disappointing.

The company sees organic sales gains slowing to 2% this year, while P&G is predicting a nearly 5% spike. Adjusted profit is set to rise by about the same 4% as last year, thanks to the combination of cost cuts and rising prices. P&G is growing earnings at almost triple that rate today.

Looking ahead, investors will be watching for signs that Kimberly Clark is beginning to close that performance gap. But with its sales volumes holding at or slightly below flat, there's no indication of that rebound having started.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
KMB
$134.46 (1.80%) $2.38
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$144.35 (1.44%) $2.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.