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Kimberly-Clark’s Earnings Miss Dragged Stock Down

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Cost headwinds continue to hurt

Kimberly-Clark (KMB) posted mixed fourth-quarter results on January 23. However, its stock fell 2.7%, as earnings fell short of analysts’ estimate. Significant inflation in commodities and currency volatility adversely impacted its net sales and margins, and in turn, its adjusted EPS growth rate. Kimberly-Clark’s top line declined on a YoY basis, as adverse currency rates remained a drag. However, net sales came in better than what analysts expected thanks to the improvement in organic sales.

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Kimberly-Clark’s organic sales increased 3% during the fourth quarter driven by higher net pricing across all business segments. However, the Consumer Tissue segment reported lower volumes. Kimberly-Clark’s margins continued to decline, reflecting higher pulp and other raw material costs partially offset by productivity and cost savings.

Lower volumes and weak margins limited the bottom-line growth, which fell short of analysts’ expectations. However, the lower effective tax rate continued to cushion the bottom line. In comparison, Procter & Gamble (PG) posted impressive quarterly results on January 23. The company exceeded analysts’ expectations both on the sales and earnings front thanks to higher organic sales, lower taxes, and share repurchases.

We expect Kimberly-Clark’s top and bottom lines to remain challenged in 2019 as currency volatility, increased competition, and a higher adjusted effective tax rate are expected to hurt its financials.

Stock performance

Kimberly-Clark stock is trading in the red so far this year following yesterday’s decline. In comparison, Colgate-Palmolive (CL) and Procter & Gamble (PG) are up 4.8% and 3.2%, respectively. Meanwhile, Clorox (CLX) and Church & Dwight (CHD) stock are down 1.6% and 0.4%, respectively.

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