Kimberly-Clark Presses Ahead on Brand Spending to Curtail Mounting Competitive and Macro Challenges

Like peers, narrow-moat Kimberly-Clark faces a slew of challenges, including a tepid economic environment and elevated cost pressures. In this context, management has been forthright that its market share has lagged, and consumers are beginning to trade down to lower-priced options in select categories to preserve cash. Although we anticipate promotions could creep up (after being held back by industrywide supply/demand imbalances the past few years), we concur with the firm’s stance that discounting won’t drive long-term market share gains or support the intangible assets that underpin Kimberly’s narrow moat. On top of this, though, commodity cost inflation persists (with resin-based materials and energy costs trending higher), and as such, Kimberly is forecasting an incremental headwind of about $50 million this year, on top of a $3.0 billion step up over the past two years. This pressure is compounded by unfavorable foreign currency movements, which stand to eat into fiscal 2023 operating income to the tune of $450 million.