Kimberly-Clark Reports Mixed Q4 Earnings Amid Challenging Market Conditions

Multinational personal care corporation Kimberly-Clark (KMB) recently released its Q4 (Dec) earnings report, missing analysts' expectations by $0.03 per share. Excluding non-recurring items, the company reported earnings of $1.51 per share, falling short of the estimated $1.54. However, its revenues showed growth, rising 0.7% year-over-year to $5 billion, surpassing the $4.99 billion forecast.

Kimberly-Clark's organic sales grew by 3% in the quarter, driven by a 2% increase in price from revenue growth management programs and a 1% favorable product mix. Volumes remained consistent with the prior year period, and volume trends continued to improve for the fourth consecutive quarter.

In addition to the earnings report, the company announced a 3.4% increase in its quarterly dividend to $1.22 per share. Kimberly-Clark is expecting low-to-mid single digit growth in organic net sales for 2024, with high-single-digit growth forecasted for adjusted earnings per share (EPS) on a constant currency basis.

While Kimberly-Clark's results did not meet the high expectations following Procter & Gamble's (PG) strong performance, the company's focus on improving margins led to price hikes and increased trade-down activity, which weighed on revenue growth. Compared to pre-pandemic levels, volumes are significantly lower, primarily due to KMB's exposure to the office market through its KC Professional segment.

Despite a decent job of recapturing margins over the past several quarters, Kimberly-Clark still has work to do. While operating margins contracted by over 80 basis points year-over-year to 13.5%, they are still above the 10.5% figure posted in Q4 2021. However, the margin compression in Q4 led to the company's first earnings miss since Q3 2022.

Kimberly-Clark's product portfolio consists of daily essentials, which makes them a staple for consumers. However, management acknowledged that the full effects of rate hikes and economic policy impacts on consumers might not have fully materialized. The company's FY24 guidance reflects the mixed demand environment, projecting a low-to-mid single-digit increase in organic net sales and high-single-digit growth in adjusted EPS in constant currency.

The challenge for Kimberly-Clark moving forward lies in the growing competition from private labels offered by mass merchants and club retailers. In the past two quarters, private label share has been increasing across some of KMB's categories, indicating a relatively weaker price elasticity for its brands. Despite management's confidence in the stickiness of its brands, such as Kleenex and Cottonelle, it remains to be seen whether they can hold up against the encroaching private labels in the market.

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