Kimberly-Clark (KMB) Q3 Earnings call transcript Oct 22, 2024

In the third quarter of 2024, Kimberly-Clark held its earnings call, highlighting the company's performance and outlook. During the call, Michael Hsu, the Chairman and CEO, discussed the company's strategic progress, financial performance, and future plans.

Strategic Progress and Financial Performance

Hsu expressed confidence in Kimberly-Clark's ability to lead market growth, emphasizing the company's focus on driving consumption and growing market shares across categories and markets. He noted that productivity is fueling the company's investments in innovation and achieving key milestones in its transformation strategy. The company completed its new organizational structure on October 1, 2024, positioning it to navigate a dynamic consumer and retail environment and accelerate investments across the enterprise.

Despite some headwinds, including retail inventory reductions, lower demand in private label businesses, and weaker-than-anticipated demand in North American professional channels, Kimberly-Clark remains optimistic about its growth prospects. Hsu acknowledged the challenges but assured investors that the company is taking appropriate actions to navigate these challenges and position itself for long-term success.

Financial Metrics and Outlook

The company reported that retail inventories look consistent with historical levels, and it expects to be mostly through the inventory reductions by the end of the year. However, retailers' fiscal year-end inventory reductions could result in a 3% organic growth for the full year, subject to further reductions in Q4. Kimberly-Clark's gross margin remains strong, with a focus on driving meaningful innovation and managing costs effectively. The company aims to reach a gross margin of at least 40% by 2030, a testament to its financial health and strategic vision.

Innovation and Market Share

Hsu emphasized that Kimberly-Clark is investing in innovation to expand its market share and drive growth. The company has seen strong progress in market share, with the U.S. market performing particularly well. Consumption in Personal Care and Consumer Tissue categories grew ahead of the market, indicating a strong consumer interest in the company's products. Hsu highlighted Skin Essentials as an example of the company's innovative approach, which is focused on delivering superior benefits to consumers.

Private Label Business and Organizational Changes

Kimberly-Clark has been exiting some private label businesses, which impacted its performance in Q3. The company expects to cease production for a large club private label diaper business in the U.S. in 2025, leading to a 2% headwind in gross margin next year. The shift away from private label businesses is part of Kimberly-Clark's strategy to focus on proprietary science-based innovation in right-to-win spaces. The company's new organizational structure, which took effect on October 1, 2024, is expected to drive more visibility into the business and enable faster responses to market conditions.

Future Outlook

Looking ahead, Kimberly-Clark remains focused on leading market growth and enhancing value for all stakeholders. The company's strategic priorities include driving consumption, expanding its innovation pipeline, and managing costs effectively. Despite the challenges, Kimberly-Clark is well-positioned to navigate the dynamic consumer and retail environment and capitalize on growth opportunities.

In conclusion, Kimberly-Clark's third quarter earnings call provided insight into the company's strategic progress, financial performance, and future outlook. The company's focus on innovation, market share growth, and organizational transformation underscores its commitment to driving long-term success. Kimberly-Clark's ability to navigate market challenges and capitalize on growth opportunities positions it well for future success.