Kimberly-Clark Corporation KMB has been battling a dynamic consumer and retail environment, which is putting pressure on its performance. Elevated promotional investments are also likely to impact its margins. These factors are reflected in the company’s guidance for the fourth quarter of 2024.
In fact, the Zacks Consensus Estimate for fourth-quarter earnings per share has declined 2 cents to $1.49 over the past 30 days. However, the consensus mark for the current year and full year earnings per share have increased by a cent each to $7.27 and $7.55, respectively, indicating favorable ongoing prospects despite the short-term hurdles.
Let’s delve deeper.
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What’s Pulling KMB Down?
A shifting consumer and retail environment presents headwinds for Kimberly-Clark, particularly in key international markets like parts of Asia, Latin America, and North America's professional segment. Economic pressures in Southeast Asia and Latin America have reduced purchase frequency while declining birth rates in China and South Korea have weakened demand for products such as diapers.
Kimberly-Clark’s third-quarter 2024 revenues of $4,952 million declined 4% year over year. The company attributes much of this revenue shortfall to transitory factors, including retail inventory reductions, hurricane-related disruptions and lower demand in certain international markets. These headwinds raise concerns about the company’s ability to drive top-line growth in the near term.
Kimberly-Clark has actively reduced its exposure to low-margin private label products, a strategic decision aimed at focusing on branded, higher-margin offerings. While this move is intended to improve profitability over time, it also creates a near-term headwind for revenue growth. In the third quarter of 2024, private label exits and weaker demand in remaining private label channels contributed to a 1.3-point decline in quarterly revenue growth. This decline is expected to accelerate, with a further revenue headwind of around 2% anticipated in 2025 as additional private-label diaper contracts in North America are phased out.
To sustain demand amid heightened price sensitivity, Kimberly-Clark has ramped up promotional efforts. The company increased its advertising spend by 60 basis points in the third quarter and anticipates increasing advertising and brand investments by at least the same amount in the fourth quarter. These measures, while intended to prevent consumer downtrading, may limit margin expansion and dampen profitability in the short term.
KMB’s Q4 View Reflects Challenges
Kimberly-Clark anticipates that its fourth-quarter top-line performance will closely mirror that of the third quarter. This forecast reflects a challenging consumer landscape, with noticeable slowdowns in certain markets and professional channels, coupled with the ongoing risk of further retail inventory reductions, which could constrain year-over-year growth. In terms of operating profit for the fourth quarter, the company expects minimal growth. Kimberly-Clark plans to increase investments in its operations and brands, which is likely to be offset by sustained productivity savings and a decrease in Other Income and Expenses compared to the previous year.
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Strategic Vision Offers Long-Term Potential for KMB
Kimberly-Clark's Powering Care Strategy represents a central pillar of the company’s transformation, targeting accelerated growth, operational efficiency and enhanced organizational alignment. Through its Powering Care Strategy, the company has focused on three main areas — accelerating innovation, optimizing margin structure and restructuring for growth. The strategy aims to solidify Kimberly-Clark’s position as a category leader globally by balancing investments in high-growth segments, introducing transformative innovations and driving productivity across operations.
Innovation remains a core priority for Kimberly-Clark’s Powering Care strategy, and the company is actively introducing new products across all price tiers. The company’s transition to a volume-and-mix-led growth model has yielded positive results. In North America, third-quarter consumer offtake grew 3.2% in the Personal Care and Consumer Tissue categories. This strategy not only aligns with evolving consumer preferences but also supports margin protection and organic growth
Kimberly-Clark is also making strides in productivity, with an ambitious target of $3 billion in cost savings over the next several years. By achieving $130 million in savings in the third quarter and bringing gross margins to 37% year to date, the company is making progress toward its goal of a 40% gross margin by 2030.
Final Take on KMB
While Kimberly-Clark faces short-term challenges from a dynamic retail environment, softer demand in key markets, and higher promotional costs, its long-term strategic initiatives provide a foundation for optimism. The Powering Care Strategy and focus on premium products, innovation, and operational efficiencies position the Zacks Rank #3 (Hold) company for sustained growth and profitability.
Shares of KMB have lost 2.9% in the past three months compared with the industry’s dip of 0.2%.
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