What’s Next For Kimberly Clark?

Kimberly-Clark stock (NYSE: KMB) gained 33% in 3 years, with the stock price rising from $103 at the end of 2016 to about $137 at the end of 2019. Despite the COVID-19 pandemic, the stock is roughly flat on the year. Because of the COVID-19 pandemic, the stock dropped to as low as $110, but is now back up to $137 as hygiene products are the need of the hour.

But how did they pull off this gain with revenues roughly flat between 2016 and 2019? Well, here is the answer – investor outlook surrounding the company, amidst strong earnings margin recovery between 2018 and 2019. Turns out Kimberly-Clark’s earnings margins (profits as a % of revenue) dropped from 11.8% in 2016 to 7.6% in 2018, before rapidly jumping back up to 11.7% in 2019.

So what has changed for Kimberly-Clark over the past 3 years? You can find a detailed analysis in our interactive dashboard Why Is There A Mismatch In The Rate At Which Kimberly-Clark’s Revenues And Stock Price Have Changed?

Kimberly-Clark saw margins drop sharply in 2018, to 7.6% from 12.4% in 2017, owing to rising pulp prices, that drove up Kimberly-Clark’s cost of sales, in turn driving down gross profit. The US pulp producer price index rose from around 170 in Jan ’17 to 201 in Jan ’18. This drove cost of sales up 10% Y-o-Y with revenues coming in at the same level. This was the reason behind the EPS drop from $6.44 in 2017 to $4.05 in 2018. However, the US pulp producer price index dropped to around 185 as early as June 2017, and even lower to 140 by December 2017, where it currently trades. This led to a drop in cost of sales for Kimberly-Clark in 2019, driving net margins up to 11.7%. The continued drop in pulp prices means that cost of sales could shrink further in 2020, and this has made investors hopeful for the future. Also, Kimberly-Clark’s primary products are paper and tissue products and personal care and hygiene items, for which demand is expected to spike given the current COVID-19 pandemic and the heightened need for strict hygiene practices.

These factors have helped drive Kimberly-Clark’s P/E multiple to almost 22x as of May 2020, from the low of 17x in 2016, which has been the key driver of Kimberly-Clark’s share price growth.

To find out how COVID-19 has affected Kimberly-Clark’s consumer products peer P&G, view our interactive dashboard 2007-08 vs. 2020 Crisis Comparison: How Did Procter & Gamble Stock Fare Compared With S&P 500?.

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