Kimberly-Clark revenue dips as China diaper sales remain weak

Kimberly-Clark reported third-quarter revenue of $4.13 billion on Thursday, a 0.4% decline compared to the same period last year. The figure matched the consensus estimate of $4.13 billion recorded by LSEG. Adjusted earnings per share dropped 7% to $1.70, surpassing analyst expectations of $1.66.

The company preannounced these preliminary results on Oct. 15 during the closing process for its acquisition of Kenvue. This followed a disappointing earnings update in September that caused shares to tumble. That earlier revision raised the company's second-half inflation expectations to $200 million from roughly $150 million. Chief Financial Officer Nelson Urdaneta stated on Thursday that this inflation outlook has not changed.

A major drag on performance was the Chinese market. Organic net sales declined 1.3% in the quarter, including a 2.7 percentage point hit from disruptions in China. The issue began in June when social media claims alleged Huggies diapers contained a toxic chemical called formamide. The company cut full-year guidance in August in response. In October, the Chinese government refuted the claims and declared the products safe.

Chief Executive Officer Michael Hsu said demand has stabilized and improved slightly since the government's declaration. He noted that bad news tends to go viral faster than good news, so the recovery will take time. Urdaneta added that the business will remain subdued in the fourth quarter due to the timing of the refutation. He emphasized the company's focus on regaining its previous position of market leadership in Chinese diapers, which had held a roughly 20% share for five consecutive years.

The company completed its acquisition of Kenvue, the owner of Tylenol and Band-Aid, earlier this week. Hsu pointed to geographic differences between the two firms as an opportunity. Kenvue has a stronger presence in Europe and India, while Kimberly-Clark dominates in Mexico and Korea, where it generates over $1 billion in sales in each market. Hsu expressed satisfaction with Kenvue's momentum, citing a mid-to-low single-digit increase in Tylenol sales and a 30% year-to-date rise in Rogaine sales.

Management reaffirmed its full-year 2026 outlook for standalone Kimberly-Clark. The company expects organic sales growth of about 0.7%, which is 100 basis points below the weighted average category growth rate. Adjusted operating profit is projected to increase mid-single digits on a constant currency basis. Adjusted earnings per share are expected to decline by a low-single-digit rate.

For 2027, the company anticipates adjusted earnings per share dilution of no more than mid-single digits due to the stock portion of the Kenvue deal. Looking ahead to 2028, management expects double-digit earnings per share growth as benefits from the combined company are realized. More historical pro-forma financial information for the combined entity is expected by mid-February.