Updated: Kimberly-Clark faces diaper sales challenges in the Chinese market but maintains its annual performance outlook

Comments from the Chief Financial Officer have been added to paragraphs 6 and 9.

Alexander Marrow/Koyena Das

Reuters, Nov 5 - Huggies manufacturer Kimberly-Clark KMB.O on Thursday maintained its annual sales and profit forecasts, blaming a decline in organic sales on false accusations regarding the quality of its diapers in the Chinese market.

The diaper incident began in June when China’s State Administration for Market Regulation (link) launched an investigation after reports that Huggies, as well as Chinese brands Baby Le and Bibi Baby, sold diapers containing formamide—a substance that can irritate the skin, eyes, and respiratory system.

Despite the Chinese regulator announcing in October (link) that no formamide was detected in Kimberly-Clark’s products — effectively debunking the false accusations on social media — the company expects the fallout from this incident, which has already affected two consecutive quarters, to persist.

The Kleenex tissue manufacturer expects its annual organic sales growth to be about 100 basis points below the weighted average growth for its categories and countries. Kimberly-Clark said this mainly reflects about a 100 basis point adverse impact from the turmoil in the Chinese market.

The company recently completed its acquisition of Tylenol-maker Kenvue for approximately $40 billion and expects adjusted annual earnings per share at constant exchange rates to achieve high single-digit growth.

Chief Financial Officer Nelson Urdaneta stated that, like many peers, the company is driving innovation, such as launching “Pull-Ups” training pants with a special layer to help children differentiate between wet and dry, but rising costs may be a drag.

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Organic sales in the third quarter fell by 1.3%, impacted by a 270 basis point hit related to China-linked claims and also by changes in retail inventory levels in North America.

In the quarter ending September 30, North America saw a 2% increase in volume, while volumes in the international personal care division declined by 4.6%.

In prepared remarks, Urdaneta said that increased productivity was partially offset by intensified inflation triggered by conflict in the Middle East, as well as higher spot freight rates.

Adjusted gross margin was 35.5%, down 130 basis points from a year earlier, mainly due to a 1.1% drop in product pricing even as input costs rose and supply chain investments increased.

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