Kimberly-Clark (NASDAQ:KMB) said its second-quarter results reflected continued volume-plus-mix growth and productivity gains, though several one-time disruptions and a softer consumer backdrop prompted the company to lower its full-year outlook.
Chairman and CEO Mike Hsu said the company delivered its 10th consecutive quarter of positive volume-plus-mix performance, maintained global weighted market share and generated what he described as industry-leading gross productivity. However, results were affected by disruptions in its China diaper business, retailer inventory reductions in North America, a Los Angeles distribution center fire and higher costs tied to the Middle East situation.
China Diaper Disruption Weighs on Outlook
President and COO Russ Torres said Kimberly-Clark is working through a disruption involving its diaper products in China following claims that he said lack scientific support. The company conducted tests through certified third-party laboratories that confirmed its products were safe, according to Torres.
Kimberly-Clark is cooperating with Chinese authorities and investing behind communications intended to reinforce product safety facts with consumers, retailers and government agencies. Torres said the company has not seen sequential deterioration in China sellout trends, though sales have not yet turned positive.
CFO Nelson Urdaneta said the China diaper disruption, which began in the latter half of June, was a principal reason second-quarter organic sales growth came in about 100 basis points below the company’s expectations. For the second half, Kimberly-Clark expects the China issue to represent roughly a 200-basis-point headwind, split relatively evenly between the third and fourth quarters.
The company expects the disruption to reduce second-half operating profit by about $70 million and earnings per share by about $0.16, also spread roughly evenly across the two quarters. Urdaneta said the outlook assumes modest improvement in the trend but no significant inflection.
North America Shipments Lag Consumption
In North America, Kimberly-Clark said shipments in its consumer business declined 1.4% in the second quarter, while consumption rose 0.3%. Urdaneta attributed the gap primarily to the Los Angeles distribution center fire and retailer inventory movements, particularly in adult care and one channel.
- The Los Angeles fire created about a $22 million sales headwind in the quarter, or approximately 80 basis points for North America.
- Retailer inventory movements reduced year-over-year shipment growth by roughly 100 basis points, with about half of that impact not anticipated in April.
- For the first half, inventory movements represented about a 100-basis-point year-over-year headwind, while the distribution center fire accounted for about 40 basis points.
Torres said the company expects North America to gain momentum in the second half, supported by innovation launches, brand investment, activation plans and revenue growth management actions. He said the company has gained share in 70% of its North American sales base on a trailing 12-month basis, while its tissue and e-commerce businesses have performed well.
Management acknowledged that category growth has moderated and consumers, particularly lower-income shoppers, are under pressure. Hsu said North American weighted category growth slowed to 1.9% from 3.7% in the prior quarter, though he characterized the company’s categories as resilient due to their essential nature.
Pricing, Productivity and Input Costs
Kimberly-Clark said it received a $45 million tariff refund in the second quarter in the U.S., representing about half of tariffs paid in North America, including prior Canadian retaliatory tariffs. The benefit, combined with 6.4% productivity in the quarter, helped drive better-than-expected adjusted operating profit and earnings per share despite higher brand investment.
Urdaneta said the company does not expect additional material tariff refunds during the remainder of the year. It expects about $150 million in gross input-cost headwinds during the second half, primarily connected to oil-linked inputs and external volatility. Those costs are now incorporated into its outlook.
The company expects tariff refunds and mitigation actions already underway to substantially offset the incremental costs, keeping full-year pricing and cost inflation at roughly neutral levels. Torres said Kimberly-Clark is implementing low-single-digit pricing actions primarily in North America during the second half to address inflation, while continuing to emphasize innovation and value propositions rather than relying on promotional activity.
Management said promotional intensity has increased among competitors and some smaller brands, but maintained that promotions do not meaningfully expand consumption in its categories. Kimberly-Clark expects its own promotional activity to normalize over the balance of the year.
Innovation, Fiber Program and Portfolio Changes
Hsu highlighted the company’s newly announced alternative natural fiber program, which Kimberly-Clark believes could improve tissue softness and strength, reduce exposure to natural forest fiber cost volatility and advance its natural-forest-fiber-free ambition. The company said it has invested in the technology over more than two decades and is breaking ground on a pilot facility after acquiring thousands of acres of land for cultivation.
Management said investments in the fiber initiative have already been incorporated into reported results and strategic plans. Hsu said the crop is designed for arid conditions and could be more land- and water-efficient than alternatives.
The company also said it has completed the launch of Arbex, its strategic joint venture with Suzano, and is progressing with integration planning for its proposed Kenvue acquisition. Torres said 50 teams involving about 600 people are working on Kenvue integration planning. Management reiterated confidence in the previously disclosed $1.9 billion cost-synergy target but said it was too early to provide a detailed 2027 outlook or synergy cadence.
Hsu said Kimberly-Clark sees growth opportunities in Kenvue’s consumer health categories, where treatment rates can lag the incidence of health issues. The company plans to provide a fuller update on 2027 and beyond as the transaction closing and other external variables become clearer.
About Kimberly-Clark (NASDAQ:KMB)
Kimberly-Clark Corporation is a U.S.-based multinational manufacturer of personal care and consumer tissue products. The company develops, produces and markets a range of consumer brands and professional products, including facial and bathroom tissues, disposable diapers and training pants, feminine care, incontinence products and workplace hygiene solutions. Known for consumer-facing names such as Kleenex, Huggies, Kotex, Cottonelle and Scott, as well as professional offerings under Kimberly-Clark Professional and KleenGuard, the company supplies goods to retail, healthcare and institutional customers.
Founded in 1872 in Neenah, Wisconsin, Kimberly-Clark has expanded from its 19th-century paper-making roots into a global household and workplace products company.
