Huggies diapers made of plant-based materials lead Kimberly-Clark's turnaround

Huggies Special Delivery diapers say a lot about where 147-year-old consumer products giant Kimberly-Clark (KMB) is today, and where it’s headed after several years of market share struggles in many of its top markets.

Released in early July, Huggies Special Delivery diapers have been dubbed by Kimberly-Clark as the perfect diaper. Sporting edgy black packaging (against a sea of traditional white packaging down the diaper aisle), the diapers are made from plant-based materials and are said to be absurdly soft (per the parental reviews out there). It’s the most ideal diaper for picky millennial parents: cool-looking box, soft fit, and an Earth-saving story.

All from a company that is approaching 150 years old.

“Somebody told me to call it Beyond Diapers,” joked Kimberly-Clark CEO Michael Hsu in an interview with Yahoo Finance. Of course Hsu was referencing the wildly popular plant-based food maker Beyond Meat (BYND).

Importantly for Kimberly-Clark, the new diapers are selling like hotcakes and are priced at a premium to most other Huggies and rival offerings.

For Hsu, a long-time consumer products executive who took over in January after a six-year stint rising up the ranks at Kimberly-Clark, the diapers are part of his early efforts to make the company’s products more relevant to shoppers. By building in added bells and whistles into Huggies, Depends undergarments (think more flexible materials) and Cottonelle toilet paper (yes, toilet paper can always be softer) Hsu believes Kimberly-Clark could command higher price points in some ultra competitive product categories.

“After a previous few years of slower growth, we are really trying to re-accelerate our growth. We have had some challenging market positions,” Hsu concedes.

So far, so good

Kimberly-Clark’s second quarter earnings took most on Wall Street by surprise, giving Hsu an early win and bolstering confidence that his strategy is the right one.

Second quarter earnings of $1.67 beat analyst forecasts by 3 cents. Organic sales rose 5%, no small feat for Kimberly-Clark. Wall Street was impressed by 8% organic sales growth in the personal care business, along with an improvement in diaper sales in China.

Hsu lifted the company’s full-year organic sales and operating income guidance, too.

Kimberly-Clark’s stock is hovering around a 52-week high.

Now, Hsu and his team just have to prove to Wall Street the second quarter wasn’t a fluke. And that investments in improving product quality won’t chip away too much at the bottom line.

“We see near-term stock upside in Kimberly-Clark with conservative fiscal year guidance, but still harbor longer term concerns about the sustainability of strong recent top line results,” wrote Morgan Stanley analyst Dara Mohsenian in a note to clients.

Said Goldman Sachs analyst Jason English, “We remain Neutral rated on the stock as we try to balance the potential of sustained top-line momentum with a lower flow through to profitability and earnings per share.”

Key to impressing investors

Hsu does have a secret weapon besides softer Huggies to please investors. That is a massive cost-savings plan. Kimberly-Clark recently took the cover off a new $500 million to $550 million cost savings program that will end by 2021. The company is 18 months into the operational fine-tuning — it has realized 40% of the savings so far.

“We are executing the largest restructuring in our history right now, it’s structurally lowering our cost base,” Hsu proclaims.

Black packaging for Huggies diapers though... who would have thought?


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