Kimberly-Clark (KMB) and Colgate-Palmolive (CL) have been strong this year, driven by improved organic sales due to higher pricing. However, near-term sales and earnings weakness could weigh on these consumer packaged goods (or CPG) stocks. Soft sales and earnings pressure make their valuation unattractive, which could result in a pullback in their prices.
This year, Colgate-Palmolive and Kimberly-Clark had risen 10.9% and 7.1%, respectively, as of March 22. Meanwhile, Procter & Gamble’s (PG) improved performance has boosted its stock by 10.6%, and Church & Dwight (CHD) and Clorox (CLX) have risen 2.0% and 2.6%, respectively. The S&P 500 has risen 11.7%.
What could hurt KMB and CL stock?
We expect Kimberly-Clark’s and Colgate-Palmolive’s top lines to be weak in the first half of this year, reflecting currency volatility and heightened competition. Whereas their organic sales could maintain their momentum, driven by higher pricing, their growth could be low.
These CPG companies’ margins are expected to be pressured by continued inflation in raw material, packaging, and transportation costs. Soft sales and weak margins are expected to impact the companies’ bottom lines, pulling them down in the near term. Also, their tax rate is expected to be higher than last year’s, which could suppress earnings further.