Kimberly-Clark (KMB -1.04%) shares haven't performed well compared with either the market or rivals like Procter & Gamble (PG -0.37%) in recent months. The consumer staples giant has been struggling with relatively weak sales trends, and earnings have been hit by soaring costs. Those factors suggest investors are better off owning P&G if they want exposure to this steady growth niche.
But Kimberly-Clark just gave investors a few reasons to question that bearish outlook. In its fiscal first-quarter earnings report, the owner of hit brands like Kleenex and Huggies revealed accelerating sales growth and robust cash flow. And while the company is still trailing P&G in key operating metrics, the stock seems more attractive today.
Let's look at a few reasons to like Kimberly-Clark shares.
1. Keeping pace
The main knock against Kimberly-Clark has been that it routinely underperforms its bigger rival on growth and market-share metrics. Organic sales fell 1% in 2021, after all, while P&G enjoyed much faster gains.
That gap is looking much better lately. Kimberly-Clark notched a record 10% organic sales spike in Q1, or roughly even with P&G's result. The company didn't have to rely entirely on higher prices to drive that growth, either. Yes, prices rose 6%. But sales volumes rose 2%, and Kimberly-Clark also benefited from a shift toward its higher-margin products.
Overall, the company was able to fully capitalize on positive trends in the consumer staples industry. "Our growth strategy is working and we're continuing to invest in the business," CEO Mike Hsu said in a press release.
2. Raising prices
The company wasn't immune to the soaring cost trends that are impacting the industry. Profitability fell again due to rising input and transportation expenses.
Yet the cost spike was less intense than in the previous quarter, suggesting stabilizing earnings trends. Kimberly-Clark also noted no struggle in keeping sales volumes rising even as it passed along a 6% increase in prices.
Taken together, these trends suggest that the company might be able to start reaching toward P&G's industry-leading profitability, which today is about 10 full percentage points higher. "We ... remain committed to improving our margins over time," Hsu told investors.
3. Better values
Like P&G did earlier in the week, Kimberly-Clark made some big adjustments to its 2022 outlook. The company now sees organic sales rising by between 4% and 6%, up from the prior range of 3% to 4%. For context, P&G is expecting to grow at a 6% to 7% pace through late June. Kimberly-Clark affirmed its adjusted profit outlook, too, despite accelerating inflation costs.
The broader outlook still shows the company trailing P&G on growth and earnings. But that performance gap might shrink over the next few quarters. Meanwhile, investors might be attracted by the relative value offered by Kimberly-Clark's stock today.
You can own shares at just 2.2 times annual sales, compared with over 5 times for P&G. Its dividend yield is more than a full percentage point higher, too. While there's still no question about P&G's continued dominance of the consumer staples niche, the list of reasons to like Kimberly-Clark's stock is growing.