Kimberly Clark (KMB 1.61%) is in the middle of an historic spike in demand for its consumer staple products. This week, the owner of brands like Kleenex tissues and Huggies diapers said organic sales jumped as the COVID-19 pandemic forced a reordering of priorities for consumers in the fiscal first quarter.
The company's growth stood out even against industry leader Procter & Gamble (PG 1.58%). Yet these recent developments weren't enough to convince the management team to lift is short-term outlook. Instead, Kimberly Clark withdrew its financial forecasts for full-year 2020.
Let's take a closer look at the latest operating trends.
Organic sales gains landed at 11%, which marked a sharp acceleration from the prior quarter's 3% increase. And in a welcome change, Kimberly Clark outperformed P&G, which notched 6% growth through late March. The company likely benefited from its relatively high exposure to the U.S. market, where consumers were busy stocking up on essential cleaning and home care products during the final weeks of the quarter.
The growth was also more balanced than it has been in recent quarters with volume rising 8%, and prices and product mix up 1% each. "A combination of increased consumer demand for our products," CEO Mike Hsu said in a press release, "and strong execution by our teams is reflected in our first-quarter results."
Kimberly Clark's strongest product categories were tissues, adult care, and feminine care. The baby segment was the worst performer, likely because bulk purchasing of diapers led to temporary out-of-stock notices at many retailers. But even then, U.S. volumes for that category increased mid-single digits during the quarter.
The company's financial metrics were strong across the board, with gross and operating profit margins expanding nearly five and four percentage points year over year, respectively. These wins combined with a sharp drop in commodity costs to push adjusted earnings 28% higher to $2.13 per share.
Operating cash flow spiked to $704 million, compared with $317 million in the prior-year period. Executives credited the earnings spike, plus more effective management of working capital, for the bounce. "We increased investments in our business, and our market positions remain broadly healthy," Hsu explained.
The company took on more debt over the last few weeks in a cautionary move to protect against the long economic slump that could potentially follow the COVID-19 outbreak. That financial security, plus the surging sales trends, imply investors might see much improved overall results this year, compared to 2019's near-flat figures.
But Hsu and his team are taking a cautious approach to the short-term outlook, choosing to withdraw their forecast that had called for 2% organic sales gains this year. P&G, in contrast, affirmed its fiscal-year predictions and still sees growth landing at 4% to 5%.
Given the strong start to the year, Kimberly Clark might outpace even that figure, but consumer spending behavior is changing rapidly, and the path of the virus is still unknown.
Those variables put a premium on caution. "Given the lack of visibility and uncertainty about the pandemic and its potential effects [...] we are temporarily suspending our forward-looking guidance," Hsu said. Kimberly Clark is expecting to have more concrete predictions at its next earnings announcement in late July.