uploads///KMB Margins

Why Kimberly-Clark Stock Is Down 12.5% Year-to-Date

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Dec. 4 2020, Updated 10:53 a.m. ET

Sluggish margin trend

Similar to its peers, Kimberly-Clark stock is also trading in the red and is down about 12.5% on a YTD (year-to-date) basis as of March 26, 2018. Weak sales in North America and South Korea and sluggish margin trends are taking a toll on the stock’s performance. The graph shows that Kimberly-Clark’s margins are falling on a YoY (year-over-year) basis as soft sales, increased competitive activity, lower pricing, and inflation in input product costs are adversely affecting its margins.

Kimberly-Clark’s management expects to generate $400 million in cost savings through its FORCE program. Meanwhile, it plans to save about $50 million–$70 million in its 2018 global restructuring program, which is expected to support its margins. 

Kimberly-Clark embarked on a restructuring program aimed at lowering costs and driving efficiency. The company is exiting low margin businesses and shuttering ten manufacturing facilities, resulting in the elimination of 5,000–5,500 employees to reduce cost and improve margins.

However, inflation in commodities is expected to hurt its profitability by $300 million–$400 million in 2018. Meanwhile, soft sales in the US and South Korea, competitive activity, lower net price realization, and investments in marketing and advertising could remain a drag.

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Low sales growth rate

Kimberly-Clark’s top line is witnessing low growth as the competitive activity in the US and challenges in the diaper category in South Korea remained a drag. Also, tight inventory management by retailers poses challenges.

The company’s management expects its organic sales to increase 1% in 2018, mainly driven by new innovation-based product launches and brand reinvestments. Meanwhile, its overall sales are projected to increase by 1%–2%, benefiting from the joint venture in India.

However, increased competitive activity and low birth rates in the US and South Korea are likely to hurt its top-line performance in coming quarters.

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