Consumer Staples Wipeout Continues With Kimberly-Clark

Kimberly-Clark

KMB -1.99%

on Wednesday continued a soft streak for makers of everyday household goods, putting up weak guidance for 2023 that disappointed investors. 

The maker of Kleenex tissues and Huggies diapers posted decent results for the fourth quarter of 2022. Sales were flat compared with a year earlier, but organic sales, which strip out the impact of currency fluctuations, were up 5%. That, and earnings per share of $1.50, were roughly in-line with analyst estimates. 

The company also said it expected organic growth this year of 2% to 4%, while analyst consensus, according to Visible Alpha, was for growth of just 2%. But the rub was profitability this year. At the midpoint of its guidance, Kimberly-Clark indicated it expected earnings per share of roughly $5.85 in 2023, up from an adjusted $5.63 last year. Analysts polled by Visible Alpha had expected earnings of $6.47.

Shares were down around 2.4% in afternoon trading Wednesday. 

There were a couple of big reasons for the shortfall in guidance. Kimberly-Clark said it expected foreign-exchange rates to reduce operating profit by $300 million to $400 million over the course of the year. Moreover, like

Procter & Gamble

earlier this month, the company signaled that it intends to keep spending on competitive positioning. 

“Marketing, research and general spending [are] expected to be up year-over-year driven by continued investment in the business, including higher advertising spending,” it said in a statement. P&G had similarly stated that it will keep investing in “product superiority” in 2023, eating into profits. 

The two companies are close rivals in areas such as diapers, toilet paper and paper towels. No doubt some of the impetus to spend comes from a desire to keep up with one another. It also likely reflects the necessity of staying ahead of private-label and other down-market competitors. Perceived product quality is key to limit how much consumers trade down amid inflationary pressures on household budgets. 

On a conference call with analysts, Chief Executive

Michael Hsu

foreshadowed innovation in the second half of the year  “that will blow your minds when you see it,” which “has to do with the poop side of things.” He even promised analysts a tour of “our war room on Poop Superiority.”  

“That’s kind of the business we’re in,” he added. It was unclear if he was referring specifically to diapers, toilet paper or something else. 

Investments of these kinds are a must, if only just to keep from falling behind. But with shares priced at 20 times forward earnings, higher than Kimberly-Clark’s 10-year average of 18.5 times, according to FactSet, investors’ lack of enthusiasm is natural.

Write to Aaron Back at [email protected]

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