Kimberly-Clark's stock falls after second-quarter sales miss offsets profit beat

By Ciara Linnane

CEO says consumer and retail environments remain 'choppy'

Kimberly-Clark Corp.'s stock fell 3.9% Tuesday, after the parent to consumer brands including Huggies, Kleenex and Scott toilet paper posted weaker-than-expected sales for its second quarter to offset a profit beat.

The company had net income of $544 million, or $1.61 a share, for the quarter, up from $102 million, or 30 cents a share, in the year-earlier period. Adjusted for one-time items, the company had earnings per share of $1.96, ahead of the $1.71 FactSet consensus.

Sales fell 2% to $5.029 billion, below the $5.098 billion FactSet consensus.

Chief Executive Mike Hsu said in prepared remarks that the company was making progress in a dynamic and choppy retail and market environment.

The company announced plans to reorganize its business segments and overhaul its supply chain at an investor day in March. The program is expected to cost about $1.5 billion in restructuring charges over the next three years.

The new structure divides the business into three segments: North America, International Personal Care and International Family Care and Professional. Kimberly-Clark is expecting the changes to generate about $200 million in savings over the next few years.

The company is also refocused on growing its top 12 brands, which account for more than 80% of its sales in core segments, with the aim of becoming more agile and boosting profitability.

"We delivered more than half of our profit objectives for the year in the first half, and this actually gives us flexibility for the second half to further invest in strengthening our brands and our innovation pipeline, especially as we manage through some of the challenges in the macro environment and some of the increased and consumer pressure that we're all seeing," Chief Financial Officer Nelson Urdaneta told analysts on the company's earnings call, according to a FactSet transcript.

Sales in the quarter were weighed down by currency moves as well as the divestiture of the Tissue and K-C Professional business in Brazil in June of last year.

In North America, organic sales rose 1%, driven by 5% growth in personal care, which was partially offset by a 4% decline in K-C Professional and 2% in consumer tissue.

In developing and emerging markets, organic sales rose 12% due to higher prices and volume and mix gains.

Developed-market organic sales were down 3%, hurt by lower pricing and the impact of temporary price increases related to energy surcharges in Western Europe in the year-earlier period.

The company now expects full-year adjusted EPS to grow at a mid- to high-teens percentage rate on a constant-currency basis, an increase from previous expectations of low-teens growth.

It still expects organic sales, which exclude currency and the impact of acquisitions or divestitures, to grow at a mid-single-digit rate, while reported sales are still expected to be hit by 400 basis points of currency translation and 120 basis points from divestitures.

TD Cowen analysts said the strong profit in the second quarter "is consistent with our thesis on Kimberly-Clark's earnings power and ability to manage through volatility."

Cowen has a buy rating on the stock and a stock-price target of $161, which is about 12% above its current price.

The stock has gained 14% in the year to date, while the S&P 500 has gained 17%.

-Ciara Linnane

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07-23-24 1026ET

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