Key facts
- Kimberly-Clark kept its annual sales and profit forecast and blamed weaker organic sales on false China diaper claims.
- Third-quarter organic sales fell 1.3%, including a 270-basis-point hit from the China-related claims.
- The company expects annual organic sales growth about 100 basis points below its weighted average category and country growth.
- Chinese authorities cleared Kimberly-Clark's products in October, saying no formamide was detected.
- Adjusted gross margin was 35.5%, down 130 basis points from a year earlier.
- CFO Nelson Urdaneta said higher costs could weigh on new products such as Pull-Ups training pants.
Kimberly-Clark kept its annual sales and profit forecast on November 5 and attributed a decline in organic sales to false claims about the quality of its diapers in China, Reuters reported.
The issue began in June, when China's state market regulator opened an inquiry after reports that diapers sold by Huggies and Chinese brands Babycare and Bibabebe contained formamide, a substance that can irritate the skin, eyes and respiratory system. Chinese authorities cleared Kimberly-Clark's products in October, saying no formamide was detected, which the company says effectively disproved the social media claims. The company said the matter is set to continue to affect results.
Kimberly-Clark expects annual organic sales growth to be about 100 basis points below its weighted average growth in the categories and countries where it competes, primarily reflecting an unfavorable impact of around 100 basis points from the China disruptions. It expects annual adjusted earnings per share to grow in high single digits on a constant-currency basis.
Third-quarter organic sales fell 1.3%, hurt by a 270-basis-point impact from the China-related claims and by changes in retailer stock levels in North America. Volumes in North America grew 2%, while the international personal care segment fell 4.6% in the quarter ended September 30.
Adjusted gross margin was 35.5%, down 130 basis points from a year earlier, hurt by a 1.1% price decrease despite higher input costs and supply-chain investments. Chief Financial Officer Nelson Urdaneta said productivity gains were partly offset by higher inflation stemming from the Middle East conflict and by incremental spot freight costs, and that higher costs could weigh on new products such as Pull-Ups training pants. The company recently completed its roughly $40 billion acquisition of Tylenol-maker Kenvue.