It's steady sailing for Kimberly-Clark (NYSE: KMB) right now. The consumer goods giant recently announced first-quarter earnings results that kept it right on track to meet the modest goals that CEO Mike Hsu and his team have set out for 2019. These include slightly faster sales growth than last year and an uptick in profitability thanks to the combination of cost cuts and higher prices on products ranging from diapers to tissues.
Following the earnings report, Hsu and his team held a conference call with analysts to put the latest results into perspective and add detail to their 2019 predictions. Below are a few highlights from that presentation.
Trading higher prices for lower volumes
Our pricing initiatives are on track, and to date, the impact on our volumes has been reasonable. -- Hsu
Just as executives warned back in January, the price increases they've been applying pressured Kimberly Clark's sales volumes. Pricing changes delivered 4% higher sales, in fact, to more than offset a 2% decrease in unit sales.
Executives said this result met their expectations, but it still demonstrated weak selling conditions. That's clear given that rival Procter & Gamble (NYSE: PG) was able to raise prices and volumes at the same time. P&G's 5% organic sales gain outpaced Kimberly Clark's 3%.
Image source: Getty Images.
Overcoming financial challenges
Our focus on achieving higher net selling prices offset much of the commodity and currency headwinds we faced in the quarter. -- CFO Maria Henry
Rising commodity costs took another big pinch out of profits, this time hurting earnings by $135 million as inputs like pulp and plastics became more expensive. Management was encouraged by the fact that prices improved compared to the prior quarter, though, which bodes well for earnings going forward. It's also a good sign that both gross and operating margins inched higher versus 2018's full-year result.
Confirming a conservative outlook
Our teams have a lot to execute over the next nine months and we're going to continue to closely watch the overall environment. -- Hsu
Management chose to downplay the improved earnings profile for now and simply affirm their full-year outlook that calls for profits to rise by about 5% as organic sales inch up by 2%. That revenue increase would mark an acceleration from the 1% Kimberly-Clark achieved in 2018. However, it doesn't compare favorably to the 4% P&G is now predicting. Kimberly-Clark is also forecasting more modest earnings gains than its larger rival.
The company isn't as far along in its restructuring and portfolio reshaping initiatives as P&G, so it's understandable that market-share growth is lagging. The global consumer products industry is trudging along at a weak pace, too, which makes it a tough time for both companies to try to roll out price increases. "We have more work to do and we continue to operate in a competitive environment," Hsu told Wall Street analysts.
That said, executives believe their solid start to the year puts them in a great position to meet their earnings targets while investing more cash into the business. Shareholders are hoping that this spending will ensure that 2019 is just the first fiscal year out of several that is marked by faster sales gains and rising profitability.
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