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.
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.
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.
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.