Kimberly-Clark Earnings: Tariffs to Dent Profits, but Focus on the Long-Term Proving a Prudent Path

Morningstar’s Metrics for Kimberly-Clark

• Fair Value Estimate: $142.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Kimberly-Clark’s Earnings

Kimberly-Clark’s KMB first-quarter organic sales slumped 1.6%, a byproduct of lower prices, but margins held up. The adjusted gross margin contracted just 20 basis points to 36.9%, while the adjusted operating margin was flat year over year at 17.4%.

Why it matters: Thus far, Kimberly has withstood angst around tariffs and the secondary effects on global consumer spending that have been plaguing firms throughout the consumer products realm.

• However, the firm now expects an additional $300 million in costs due to impending levies, even as 80% of its US costs result from its home turf. Indeed, two-thirds of the incremental cost it foresees stems from the level of tariffs placed on China.
• A year ago, Kimberly set out to unlock $3 billion in efficiency savings by further optimizing its network and scaling automation—efforts that will be accelerated. Productivity savings amounted to 5.2% of adjusted cost of goods sold in the quarter, with aims to reach 6.0% this year.

The bottom line: We intend to trim our $142 per share fair value estimate for narrow-moat Kimberly by a low-single-digit percentage on stepped-up near-term cost pressures. But we anticipate its stringent cost management agenda will still facilitate high-teens operating margins long term.

• Even after a low-single-digit pullback on the print, shares trade in a range we’d consider fairly valued. However, if heightened consternation manifests around competitive and/or macro headwinds, we’d look to recommend the stock.

Between the lines: Lower-income consumers, particularly in Latin American emerging markets, are being squeezed, resulting in reduced purchase frequency.

• Even still, we’re encouraged that management isn’t siphoning brand investment. Rather, it is investing in consumer-valued innovation across price tiers to appeal to consumers at all income brackets.
• We expect research, development, and advertising spending to approximate 8% of sales ($1.8 billion) annually over our 10-year explicit forecast.