Kimberly-Clark (KMB -0.55%) isn't done feeling the positive impact of soaring demand for consumer staples. The owner of the Huggies diaper and Kleenex tissue brands just announced surprisingly strong third-quarter sales growth while lifting its short-term outlook.
The company joined rival Procter & Gamble (PG 0.14%), which reported results two days earlier, on those encouraging big-picture operating trends. But there's evidence that P&G is gaining more than its fair share of market growth.
Image source: Getty Images.
Market share battles
Organic sales came in a bit stronger than expected at 3%. But that performance still marked Kimberly-Clark's second straight quarter of slowing growth. P&G, on the other hand, saw growth speed up to 9% from 6% in the most recent quarter.
The industry leader stood out in a few other key growth metrics, too. Volumes rose 7% compared to Kimberly-Clark's 2% uptick. And P&G gained market share in the key U.S. market, where organic sales rose 16% versus Kimberly-Clark's 8% boost.
CEO Mike Hsu and his team still sounded a positive tone about the broader results and about Kimberly-Clark's improving competitive position in baby care. That was the only product category that declined in P&G's results earlier in the week. "Our market share positions are healthy overall and we are on track to achieve excellent financial results this year," Hsu said in a press release.
Rising costs
Kimberly-Clark is apparently losing ground in the profitability race, too. The company reported higher manufacturing costs, increased advertising spending, and extra investments in labor. Cost cuts helped blunt the impact from these spikes, but adjusted operating profit still fell to $806 million from $859 million a year ago. P&G, meanwhile, reported inflating profit margins as consumers flocked toward its new product introductions in niches like laundry care.
KMB operating margin (TTM) data by YCharts. TTM = trailing 12 months.
Cash flow trends weakened, as management had predicted they would. Yet Kimberly-Clark found enough room to invest heavily in the business while paying out a substantial dividend and spending nearly $200 million on stock repurchases.
Looking ahead
Kimberly-Clark's new outlook contained several upgrades, just like P&G's did a few days earlier. But investors might find the 2020 forecast lacking. The company now sees organic sales rising by about 5% compared to the prior prediction, which ranged from 4% to 5%. Earnings will grow a bit faster than expected, too.
The company isn't expanding its sales footprint as quickly as global peers, though. Management seemed to admit that shortcoming when it projected sustained spending aimed at closing some of Kimberly-Clark's innovation gaps. "We are significantly increasing our growth investments for future success," Hsu said.
Ideally, these investments won't pressure the company's profitability for too long before sales growth picks up in its core consumer staples categories. That means investors will be watching the balance between organic sales and operating profit margin over the next few quarters for signs that Kimberly-Clark's rebound plan is keeping it from losing more ground to P&G and other players in this attractive industry.
