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Following a somber start to today's trading session on weaker-than-expected Q4 earnings, Kimberly-Clark (KMB) is steadily being pulled up, trading above yesterday's highs. The household durables maker, known brands like Cottenelle and Kleenex, still delivered a healthy top-line beat. Also, KMB issued a relatively encouraging FY25 outlook, particularly when backing out FX and M&A impacts. Meanwhile, the company hiked its dividend slightly, increasing its annual yield to 3.8%.

• KMB's bottom line contracted by just under 1% yr/yr to $1.50. However, adjusted gross margins expanded by 50 bps to 35.4%, aided by productivity gains, showcasing management's pivot from margin recovery in 2023 to its new phase of margin expansion in 2024.
• Revenue inched 0.8% lower to $4.93 bln. However, this represented a decent improvement over the past three quarters, particularly Q3, when revs fell by 3.5% yr/yr, marking KMB's worst quarter since 1Q21. Furthermore, organic sales, which removes the effects of FX and M&A, climbed by 2.3%. For FY24, organic revenue grew by 3.2%, landing near the lower bound of KMB's +3-4% forecast.
  • Since the previous quarter, KMB changed its reporting structure. The company no longer divides its performance into three segments based on categories, e.g., Personal Care, Consumer Tissue, and K-C Professional, breaking down each by region. Instead, KMB's transformative multi-year Powering Care strategy rewired its organization into three main segments: North America (NA), International Personal Care (IPC), and International Family Care & Professional (IFP).
• In Q4, every segment posted positive volume growth yr/yr, culminating in a 1.5% improvement overall, KMB's highest quarterly volume growth all year. NA led the way, delivering 1.9% volume growth supported by improving trends, especially in diapers, adult, and facial tissue categories. KMB added that seven out of the eight categories in North America enjoyed volume growth. China was a significant highlight outside of NA, boasting double-digit volume growth in IPC during Q4. Meanwhile, other categories gained in the U.K., Australia, South Korea, and Indonesia.
• Looking ahead, KMB expects FY25 organic sales growth to outpace the weighted average growth in the categories and markets it competes with, which are growing at around +2%. Management mentioned that it observed some lower frequency across a few markets and some slowdown in North American professional consumption in Q4, which could create some near-term headwinds. However, management noted it provided a reasonable growth target given economic volatility. KMB also expects adjusted EPS to grow at a mid-to-high single-digit rate on a constant currency basis.

Overall it was a solid quarter from KMB, helped by the relative inelasticity of household durables, as consumers must purchase these regardless of economic conditions. However, that does not shield KMB from other name-brand competitors or private-label alternatives. For instance, KMB exited its private label diaper business in the U.S., contributing to a 240 bp hit to the company's FY25 reported net sales forecast, highlighting private labels' relative significance on annual growth. Still, as Proctor & Gamble (PG) signaled last week, the end consumer is stabilizing, supporting steady growth over the near term.