Kimberly-Clark Slides as Inflation Hurts Toilet Paper Maker

(Bloomberg) -- Kimberly-Clark Corp.’s shares fell after the maker of household supplies missed Wall Street’s expectations for second-quarter earnings and trimmed its annual forecast, saying inflationary pressures and slowing toilet paper demand are hurting results.

Profit this year will be $6.65 to $6.90 a share, the company said Friday in a statement, down from a prior expectation of as much as $7.55. It also reduced its projection for net sales growth to a range of 1% to 4%.

“We are facing significantly higher input costs and a reversal in consumer tissue volumes from record growth in the year ago period as consumers and retailers in North America continued to reduce home and retail inventory,” Chief Executive Officer Mike Hsu said in the statement. The company has raised prices “to mitigate inflationary headwinds.”

The difficult quarter highlights the challenge of maintaining momentum for makers of household staples, which saw sales surge amid consumer stockpiling early in the pandemic. As demand returns to a more normal level, companies are also contending with rising commodity costs and supply chain problems. Like many companies, the maker of Cottonelle raised prices to offset the impact.

The shares fell 3% at 9:56 a.m. in New York. Kimberly-Clark’s stock was essentially unchanged this year through Thursday’s close.

What Bloomberg Intelligence Says

“Cutting marketing and other spending to soothe some margin pain could impede Kimberly-Clark’s midterm volume recovery, as a souring outlook raises questions about whether premium launches in personal care are enough to offset faster-than-expected consumer-tissue sales declines and pulp inflation.”

--Diana Gomes, consumer-products analyst

Click here to read the research.

In the second quarter, organic sales, which strips out items like acquisitions and currency effects, fell 3%. Analysts had expected a decline of 0.88%, based on the average of estimates compiled by Bloomberg. Adjusted earnings slid to $1.47 a share, short of Wall Street’s expectations.

The “brutal quarter” included the worst gross margin compression in at least 20 years, Bernstein analyst Callum Elliott said in a note.

Kimberly-Clark’s consumer tissue business faced a tough comparison from last year’s spike, with quarterly sales tumbling 13%. The company attributed the decline to lower retail shipments as reopening economies and pantry destocking muted demand. The unit’s sales in North America plunged 26%.

There were some bright spots, including a pickup in the K-C Professional business as workers increasingly return to offices. The unit’s revenue rose 6%.

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