Kimberly-Clark Corporation (KMB Quick QuoteKMB - Free Report) is at a crossroads amid a challenging consumer and retail landscape. Over the past three months, the company’s shares have tumbled 8.3%, underperforming the industry’s decline of 2.7%. This personal care and consumer tissue product company has also lagged the Zacks Consumer Staples sector’s drop of 7.8% and the S&P 500's growth of 5.3% in the same time frame.

KMB 3-Month Price Performance vs. Industry, Sector & S&P 500

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Technical indicators are also not supportive of KMB’s performance. The company is trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.

Challenges Hindering KMB’s Momentum

Like many other staple companies, such as General Mills (GIS Quick QuoteGIS - Free Report) , Conagra Brands (CAG Quick QuoteCAG - Free Report) and B&G Foods (BGS Quick QuoteBGS - Free Report) , Kimberly-Clark has been encountering a dynamic consumer landscape, which is putting pressure on its performance.

On its third-quarter 2024 earnings call, management highlighted that demand has softened in several key international markets, including parts of Asia, Latin America and North America’s professional segment. Southeast Asia and Latin America, in particular, are experiencing a reduction in purchase frequency due to economic pressures. Declining birth rates in markets such as China and South Korea continue to impact demand for products like diapers.

Kimberly-Clark’s third-quarter 2024 revenues of $4,952 million declined 4% year over year. The company attributes much of this revenue shortfall to transitory factors, including retail inventory reductions, hurricane-related disruptions and lower demand in certain international markets. However, the impact of inventory issues has proven persistent, reflecting not only supply-chain adjustments but also weakening demand in specific channels, such as the North American professional segment. These persistent headwinds raise concerns about the company’s ability to drive top-line growth in the near term.

The current economic environment has necessitated promotional strategies to maintain consumer demand amid high price sensitivity. Kimberly-Clark increased its advertising spend by 60 basis points in the third quarter and anticipates stepping up advertising and brand investments by at least the same amount in the fourth quarter. These rising promotional costs, alongside pressures to avoid downtrading in core categories, could limit margin expansion and compress profitability.

What to Expect From KMB in Q4?

Kimberly-Clark anticipates that its fourth-quarter top-line performance will closely mirror that of the third quarter. This forecast reflects a challenging consumer landscape, with noticeable slowdowns in certain markets and professional channels, coupled with the ongoing risk of further retail inventory reductions, which could constrain year-over-year growth. In terms of operating profit for the fourth quarter, the company expects minimal growth. Kimberly-Clark plans to increase investments in its operations and brands, which is likely to be offset by sustained productivity savings and a decrease in Other Income and Expenses compared to the previous year.

Kimberly-Clark's Strategic Initiatives Show Promise

Kimberly-Clark is on track with its Powering Care Strategy, which is focused on three main areas —  accelerating innovation, optimizing margin structure and restructuring for growth. The strategy aims to solidify KMB’s position as a category leader globally by balancing investments in high-growth segments, introducing transformative innovations and driving productivity across operations.

Innovation remains a core priority for Kimberly-Clark’s Powering Care strategy, and the company is actively introducing new products across all price tiers. The recent launch of Skin Essentials, with its skincare benefits, has been well-received by consumers. The company’s commitment to delivering unique and higher-value products should drive premiumization, catering to evolving consumer demands while enhancing its brand strength. This innovation strategy is expected to maintain consumer loyalty and support top-line growth across key categories.

With a volume-and-mix-led growth model, Kimberly-Clark prioritizes premium products that not only address evolving consumer preferences but also drive higher margins. The company’s transition to a volume-and-mix-led growth strategy is yielding results, with the third-quarter 2024 consumer offtake in North America increasing by 3.2% in both the Personal Care and Consumer Tissue categories. This approach has positioned Kimberly-Clark favorably within its categories, helping it outperform category averages and support sustained organic growth.

Kimberly-Clark has set an ambitious productivity target of $3 billion in savings over the next few years, with $130 million achieved in the third quarter of 2024 alone. The Powering Care Strategy’s emphasis on the supply chain and operational efficiencies has been instrumental in Kimberly-Clark’s recent margin expansion, bringing the gross margin up to 37% year to date, per the third-quarter earnings release. This focus on productivity is intended to counterbalance inflationary pressures and currency fluctuations, which have impacted costs. By reducing expenses and reallocating resources to high-margin products, the company reinforces its ability to achieve its long-term margin goals, including a 40% gross margin target by 2030.

Navigating KMB Stock: A Guide for Investors

Kimberly-Clark faces significant challenges, including a softening consumer demand in key international markets, inventory disruptions and economic pressures that have impacted revenue growth. Rising promotional expenses may constrain margin expansion in the near term. However, the company’s Powering Care Strategy and focus on innovation, premiumization and operational efficiency offer a pathway to potential recovery and growth. While the near-term outlook remains uncertain, KMB’s strategic efforts are likely to support sustainable growth in the medium to long term. For now, maintaining positions in the stock appears prudent. KMB currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.