Kimberly-Clark (NYSE:KMB) and its peer Procter & Gamble (NYSE:PG) have both been left out of the 2021 stock market rally as investors chase exciting growth potential in the tech and e-commerce niches. Yet that underperformance could start to change in the next few days.

Both consumer staples giants report earnings results in late July and will update investors on their profit trends and cash return targets. Kimberly-Clark steps up to the plate a few days earlier than P&G, so let's look at what shareholders will be looking to hear on July 23 from the owner of the Kleenex tissue and Huggies diaper brands.

A baby having their diaper changed.

Image source: Getty Images.

Getting past a bad quarter

Kimberly-Clark's previous quarterly report was packed with disappointing news on the growth front. Organic sales fell 8% after having jumped 5% in the prior quarter. Not only did that result trail P&G's performance, but it was also worse than most investors had expected.

Management blamed a tough comparison with a year ago when pantries were being stocked with products like toilet paper in the early phases of the pandemic. There were some one-time challenges, too, including bad weather and supply chain bottlenecks. Kimberly-Clark's enterprise segment was also pressured by another period of weak demand.

Those temporary issues won't repeat in this period, so look for sales to improve on last quarter's results. Organic should tick higher through the rest of fiscal 2021, in fact, and investors will be watching for a balance between rising prices and higher volumes.

Handling price increases

Kimberly-Clark's pricing power will be tested this year as costs rise for everything from labor to paper pulp and transportation. Wall Street is worried that the consumer staples giant might have trouble passing along all those boosts in the form of higher prices, as it has in previous inflation bouts.

KMB Gross Profit Margin Chart

KMB Gross Profit Margin data by YCharts

The company has a stronger portfolio today, though, and consumers are arguably more attached to brands like Scott and Huggies. Innovative product launches are spurring people to trade up for more premium offerings, too.

We'll learn on Friday whether these moves are working by following profitability metrics. Gross profit margin should rise, if management is executing those price increases, without sacrificing much in the way of growth.

Looking ahead

Investors will be focused on CEO Mike Hsu's comments about the rest of fiscal 2021. Heading into Friday's report, executives have been targeting a tiny sales increase following last year's surge. But Kimberly-Clark scaled back that forecast in late April, and Wall Street is worried about another potential downgrade this week.

Investors will need to put the new outlook in context with comments from Procter & Gamble, which reports earnings early the following week. But for now it looks like Kimberly-Clark will continue to trail its larger rival in key metrics like sales growth and profitability. That stubborn underperformance is the biggest factor behind its weak stock price returns since the start of the pandemic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.