Household products company Kimberly-Clark (NYSE:KMB) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 3.5% year on year to $4.95 billion. Its non-GAAP profit of $1.83 per share was 7.2% above analysts’ consensus estimates.
Revenue: $4.95 billion vs analyst estimates of $5.05 billion (1.9% miss)
Adjusted EPS: $1.83 vs analyst estimates of $1.71 (7.2% beat)
EBITDA: $1.35 billion vs analyst estimates of $972.1 million (38.4% beat)
Gross Margin (GAAP): 36%, in line with the same quarter last year
Free Cash Flow Margin: 16.1%, up from 14.9% in the same quarter last year
Organic Revenue rose 1% year on year (5% in the same quarter last year) (miss)
Sales Volumes were flat year on year (-1% in the same quarter last year)
Market Capitalization: $48.57 billion
"Our third quarter results reflect strong execution across the business as we transform our organization," said Kimberly-Clark Chairman and CEO, Mike Hsu.
Company Overview
Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE:KMB) is now a household products powerhouse known for personal care and tissue products.
Household Products
Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.
Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
Kimberly-Clark is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have). However, its scale is a double-edged sword because it's harder to find incremental growth when you've already penetrated the market.
As you can see below, Kimberly-Clark’s 1.3% annualized revenue growth over the last three years was weak as consumers bought less of its products. We’ll explore what this means in the "Volume Growth" section.
Kimberly-Clark Total Revenue
This quarter, Kimberly-Clark missed Wall Street’s estimates and reported a rather uninspiring 3.5% year-on-year revenue decline, generating $4.95 billion of revenue.
Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection is underwhelming and indicates the market believes its newer products will not lead to better top-line performance yet. At least the company is tracking well in other measures of financial health.
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Kimberly-Clark generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Kimberly-Clark’s average quarterly sales volumes have shrunk by 1.5%. This decrease isn’t ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Kimberly-Clark was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 4.5% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren’t sustainable over the long term unless the business is really really special.
Kimberly-Clark Year-On-Year Volume Growth
In Kimberly-Clark’s Q3 2024, year on year sales volumes were flat. This result was a well-appreciated turnaround from the 1% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.
Key Takeaways from Kimberly-Clark’s Q3 Results
We were impressed by how significantly Kimberly-Clark blew past analysts’ EBITDA expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street’s estimates. On the other hand, its organic revenue unfortunately missed analysts’ expectations and its revenue missed Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.4% to $142.30 immediately after reporting.
