earnings for Kimberly Clark (KMB): implications?

KMB reported earnings late last week. I’m not really that interested in the company, other than as an indicator of market sentiment, since KMB seems to me to be a quintessential stay-at-home stock in a very mature industry. I was particularly struck, though, by the Wall Street Journal article I read that outlined the results and management comments.

What I thought was important (the whole story is a little more complicated):

–US consumers buy about $9 billion worth of KMB toilet paper in a typical year. Sales growth is likely a function of population growth, implying that revenues only increase at a glacial pace. In 2020, however, sales jumped by a third to about $12 billion, despite a falloff in business to away-from-home customers. Quantitative evidence, in other words, of what everybody sort-of knew–major-league hoarding during the early days of the pandemic. We began to realize equally that shortage days are behind us when store shelves began to be full and remain full of hand sanitizer and paper towels and toilet paper before last Christmas.

–KMB management expressed surprise that sales fell below typical-year levels in 1Q21. I wonder why they didn’t consider that customers with four months extra worth of toilet paper on hand (which could be 3x the normal amount, although I’m just making that figure up), and ample supplies in the stores, wouldn’t cut back on buying

–the stock fell 5% on the earnings report. Again, how could the market not have anticipated this sales and profit weakness, despite company guidance?

But then I thought, maybe it did.

So I went back to look at KMB’s relative performance over several periods in the recent past. Here are the results:

1/1/20 – 3/18/20 the downward slide

KMB -8%

ARKW -19% ARK internet

ARKK -20% ARK innovation


S&P 500 -25%

AAL -64% American Airlines

DIN -78% Dine Brands ( = Appleby’s + IHOP)

3/18/20 – 9/26/20 sharp bounceback

ARKK +140%

ARKW +132%

DIN +87%


S&P 500 +32%

KMB +2%

AAL -18%

9/26/20 – 3/31/21 market rotates

AAL +94%

DIN +65%

ARKW +42%

ARKK +33%


S&P 500 +21%

KMB -6%

past month (if I had to name this, I’d say awaiting more input)


ARKK +8%

ARKW +7%

S&P 500 +7%

DIN +3%

KMB -3% (-5% since posting 1Q21 results)

AAL -7%.

As I read the four periods, during the earliest, the slide into pandemic, KMB outperformed substantially. Domestic reopening stocks–restaurants and airlines–were crushed.

During the initial bounce back, the ARK funds soared. They were in the ideal position, full of secular growth stocks with the smallest possible exposure to the medical disaster and the ever more explicit white racism emanating from the administration in Washington. DIN rebounded, although the low starting point makes its relative performance a bit deceptive. At the the end of the period it was still 60% below its 2019 close. KMB tread water. AAL continued to decline, on worries about its ability to survive.

From late September until the end of March, roles were reversed to a great extent. AAL and DIN shot through the roof. The ARK funds outperformed a bit, based mostly on their performance through their January creating. In contrast, KMB sagged in a serious way–indicating to me that the market of six months ago was already beginning to heavily discount stocks that could be hurt by reopening, i.e. “pure” stay at home beneficiaries.

During the past month, the market seems to have stabilized. While I think it’s too soon to argue that the worst is over for the ARK funds, they have at least been able to more or less keep pace with NASDAQ. DIN has lost some of its steam, although after a fabulous run. AAL seems to me the easiest to interpret. It’s in the worst shape of the major domestic airlines. For an investor, this means it’s the most highly leveraged to both good and bad news. My sense is that for travel/vacation stocks like AAL, the market is beginning to move away from the general concept of recovery to a closer examination of how recovery will actually work out–to look for the warts, as it were. And in the case of airlines there are plenty of them, I think. My guess about KMB is that as a stock it has already entered a more advanced phase of recovery assessment, one where reported earnings will count for a lot more than the promise of a future rebound. Sooner or later, the rest of the market will come under the same kind of scrutiny. The safer course for us is always to prepare for “sooner,” even though my sense is that with KMB we’re seeing port-pandemic earnings performance of a type we won’t get for much of the rest of the market for another three to six months.

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