Kimberly-Clark (KMB -1.00%) stock has been outperforming the market in 2022, and its recent announcement helps explain that outperformance. While the consumer staples giant faced higher costs and slowing economic growth, it still enjoyed strong demand in Q2 for essentials like tissue paper, diapers, and office cleaning supplies.
The company also passed along most of its rising costs to consumers, who continued to purchase branded products even as their budgets became more strained. Here's why Kimberly-Clark's business is looking solid heading into the second half of 2022.
Sales trends
Investors had high expectations heading into the report, given that Kimberly-Clark's organic sales jumped 10% in Q1. They weren't disappointed by the company's updated results that cover the selling period through late June.
Organic sales rose 9% overall, and those gains were supported by solid growth in developed markets like the U.S. and in Kimberly-Clark's emerging market division. "Our growth strategy is working," CEO Mike Hsu said in a press release.
It wasn't all good news on the sales front, though. Kimberly-Clark endured a 1% drop in sales volume, meaning all of its growth came from the impact of higher prices. That volume drop implies that consumers are becoming a bit more cautious in their spending as prices rise.
Protecting profits
The good news is that increased prices are protecting Kimberly-Clark's bottom line. Operating income rose 1% to $621 million, in fact, in Q2.
That stability is impressive considering that cost inflation pressured profits by over $400 million, according to the management team. The results "reflect significant input cost inflation," Hsu explained.
Other parts of Kimberly-Clark's finances looked strong, including operating cash flow. Gains here helped the company invest in areas like marketing while delivering cash to shareholders through dividends and stock buybacks. That balance helps explain why investors see the stock as being recession resistant.
Kimberly-Clark still trails its larger rival on this score. Procter & Gamble has been growing sales a bit faster and routinely generates more impressive cash flow and operating profit. Yet there can be several winners in this attractive consumer staples industry.
Higher outlook
Hsu and his team raised their 2022 outlook for the second straight time. After beginning the year targeting sales growth of between 3% and 4%, Kimberly-Clark now expects to expand by between 5% and 7% this year. For context, organic sales declined by 1% in 2021.
That meaningful acceleration should translate into solid investor returns, especially if Kimberly-Clark can maintain its profitability and defend market share against P&G.
Investors should keep an eye on sales volumes over the next few quarters as any further deterioration would suggest less room to raise prices. But the company's current trends show that consumers are still opting to purchase premium branded products even as their budgets are stressed by soaring inflation.
That willingness could change at any time, forcing Kimberly-Clark to slow its price increases. Yet the business still seems set to grow at a much faster pace in 2022.
