Kimberly-Clark Prudently Embraces Brand Spending To Help It Weather Competitive Angst

Like peers, narrow-moat Kimberly-Clark faces a slew of challenges, including a tepid economic environment and elevated cost pressures. In this context, management has been forthright that its market share is lagging, and consumers are beginning to trade down to lower-priced options to perserve cash. Although we anticipate promotions could creep up (after being held back by industrywide supply/demand imbalances the past few years), we concur with the firm’s stance that discounting won’t drive long-term market share gains or support the intangible assets that underpin Kimberly’s narrow moat. On top of this, though, commodity cost inflation persists (serving as a 750-basis-point drag to gross margins in fiscal 2022), with Kimberly forecasting an incremental headwind of about $100 million this year, on top of a $3.0 billion step up over the past two years. And Kimberly is battling unfavorable foreign currency movements, which stand to eat into fiscal 2023 operating income to the tune of $300 million-$400 million.