Kimberly-Clark's stock jumps after earnings and promise of big news in the 'poop' category

By Tomi Kilgore and Ciara Linnane

It's all about 'a better clean,' Kimberly-Clark CEO says

Kimberly-Clark Corp.'s stock rose 3% Tuesday to propel it toward a one-year high after the parent of Kleenex, Huggies and Cottonelle brands posted better-than-expected quarterly earnings and raised its full-year guidance.

The company raised prices by 10% for a second straight quarter, which helped drive gross margins wider by 340 basis points. Rival Procter & Gamble also raised its prices by 10% in its latest quarter

"While we're encouraged with our progress, we're still operating in a challenging environment. Input costs have stabilized but continue to trade well above 2019 levels," Chief Executive Mike Hsu told analysts on the company's earnings call on Tuesday, according to a FactSet transcript.

Margins are some 200 basis points below where they were prepandemic, he said, meaning that further belt tightening is needed.

Like P&G , Kimberly-Clark (KMB) has managed to gain market share despite higher prices, although it is seeing some bifurcation in consumer demand. While the U.S. market remains resilient, lower-income countries are showing a trade-down to lower-priced products, especially within developing and emerging markets, he said.

As he did last quarter, Hsu flagged a new initiative in the "poop" category, expected in the second half. Kimberly-Clark owns many brands in the bath-tissue and diaper categories. In the former, it owns Scott Paper -- the original toilet-paper roll launched 120 years ago -- as well as Andrex and Cottonelle. In diapers, it owns Huggies, Pull-Ups, GoodNites, DryNites and Little Swimmers, as well as adult products under the Depend, Poise and Plenitud brand names.

See: An issue with your tissue? 'Forever chemicals' are in toilet paper, too

The company is "refreshing" its Cottonelle Ultra Comfort and Ultra Clean products in North America behind a powerful insight, Hsu said.

"Half the users in the category are dissatisfied with their existing 'soft and strong' bath tissue," he said. "We're focused on delivering a superior clean and will launch this initiative with some fairly provocative advertising that highlights 'down-there care,' and we're talking about the real down-there issues that we all face."

He later explained that women use greater amounts of bath tissue than men. "And just by that you can see the category doesn't set itself up that way, and so we definitely think there's a lot of ways to innovate from a product perspective and a communication perspective to deliver a better clean," he said.

The company posted net income of $566 million, or $1.67 a share, up from $523 million, or $1.55 a share, in the year-ago period. That beat the FactSet consensus for earnings per share of $1.32.

Sales grew 2% to $5.2 billion, above the FactSet consensus of $5.06 billion, as pricing and favorable product mix offset a 5% decline in volume.

Cost of sales fell 3% to $3.47 billion as gross margin improved to 33.2% from 29.8%.

For 2023, the company raised its earnings-per-share growth guidance to 6% to 10% from 2% to 6% but kept its sales growth outlook at flat to up 2%.

Chief Financial Officer Nelson Urdaneta said the company's input-cost assumptions for the year have improved but remain a headwind of $100 to $200 million. That's on top of the $200 million headwind from higher wages and other manufacturing costs the company warned of last quarter.

But the company expects headwinds to ease through the year and expects to exit the fourth quarter with wider margins than at the start of the year.

"At the very least, we're expecting to expand them around 230 basis points year over year, because we're expanding at the midpoint of our guidance operating margin by 130 basis points," Hsu told analysts.

The stock has gained 8% in the year to date, while the S&P 500 has gained 7%.

-Tomi Kilgore

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04-26-23 0827ET

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