Kimberly-Clark Earnings: Brand Investment Rises, Fueled by Efficiency Gains; Shares Tad Undervalued

Against a backdrop of retail inventory destocking aimed at reaching normalized, prepandemic levels, narrow-moat Kimberly-Clark posted a decent 2% increase in volume mix, though on a 1.5% pullback in pricing (after adjusting for hyperinflationary price hikes in Argentina). Concurrently, Kimberly's productivity initiatives—including the completion of its integrated global supply chain—unlocked $250 million in savings in the first half as part of its broader initiative to achieve $3 billion in efficiencies. This helped boost adjusted gross margin by 290 basis points to 36.9% in the quarter. As such, management raised its adjusted earnings per share growth outlook to a mid to high-teens rate from low teens, leading us to adjust our low-teens forecast to align with the revised range. However, we don't intend to materially alter our $144 per share fair value estimate and suggest investors keep an eye on shares, following a mid-single-digit percentage decline on the news.