Please ensure Javascript is enabled for purposes of website accessibility

Kimberly-Clark Posts Another Quarter of Surging Cash Flow

By Demitri Kalogeropoulos – Jul 23, 2020 at 3:14PM

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 staples giant issued a bullish forecast for the full year after market share gains continued into the second quarter.

Investors had modest expectations heading into the second-quarter report from Kimberly-Clark (KMB 0.77%). Yes, the company in April announced double-digit sales growth as the COVID-19 pandemic began pushing demand toward its staple products like diapers and tissue paper. But the lift wasn't expected to persist deep into its fiscal 2020.

On Thursday, Kimberly-Clark's actual results confirmed the slowdown that shareholders were bracing for. Yet the company exceeded many of the low expectations that investors had for the business. Sales growth was solid, earnings and cash flow spiked, and Kimberly-Clark issued a positive outlook for the full year.

Let's take a closer look.

A baby having her diaper changed.

Image source: Getty Images.

Easing back down to normal

As expected, sales gains decelerated from the 11% spike that Kimberly-Clark reported back when consumers were stocking up on supplies during stay-at-home orders. But the company is still expanding at a more robust rate than before the pandemic.

Organic sales rose 4% overall, compared to 2% in late 2019. The mix of sales contained a healthy balance between increased volumes, higher prices, and a shift toward more premium products. The company's gains were particularly impressive in the U.S. geography, where sales jumped 12%. That impressive figure was offset by weakness in developing markets, especially in Latin America.

That level of growth could translate into market share gains against peers like Procter & Gamble (PG 0.18%), but investors will have to wait until P&G's report on July 30 to directly compare the two companies' expansion rates.

Surging profits

The brightening financial picture that investors saw in Q1 continued into the second quarter. Kimberly-Clark generated a record $1.6 billion of operating cash flow. Gross and operating profit margins both improved thanks to reduced expenses and lower commodity prices, and all these trends combined to push adjusted earnings up 32% to $2.20 per share.

"We achieved very good organic sales growth," CEO Mike Hsu said in a press release, "and all-time record adjusted earnings and cash flow." Kimberly-Clark's operating profit through the first half of the year is $2 billion compared to $1.6 billion a year earlier.

A brighter outlook

All that financial success has executives feeling more confident about the short term, even though COVID-19 still threatens to keep demand trends volatile. Management is restarting its stock buyback program and has issued a new operating outlook after withdrawing its forecasts in April.

That forecast calls for organic sales to grow by between 4% and 5%, translating into a significant increase from Kimberly-Clark's initial prediction of around 2%. Procter & Gamble's most recent forecast was for a similar growth rate for the consumer staples titan. Kimberly-Clark's adjusted earnings should rise to as high as $7.60 per share, too, compared to the earlier target of $7.35 per share. "We are delivering excellent financial results," Hsu said.

Better still, management has plenty of resources available to direct toward growth investments in places like marketing and product innovation thanks to its lower cost profile and surging cash flow. Those bets are the surest path toward sustaining Kimberly-Clark's improving market share position and delivering strong total returns to shareholders.

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

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 Stock Quote
$135.03 (0.77%) $1.03
Procter & Gamble Stock Quote
Procter & Gamble
$146.72 (0.18%) $0.27

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

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.