Kimberly-Clark (KMB -2%) is experiencing a decline after announcing its Q1 results. The company reported a modest EPS increase, while revenue dropped by 6% year-over-year to $4.84 billion, aligning with expectations. The primary concern is the reduced FY25 guidance due to anticipated higher costs.

• Q1 sales decreased due to the PPE divestiture, exit from the private label diaper business in the US, and FX impacts. Organic sales fell by 1.6%, with a 1.5% price decrease, while volume and mix remained steady compared to the previous year. Notably, Q1 was compared to KMB's strongest growth quarter in FY24. Organic sales slightly missed internal expectations, although profitability met expectations.
• During the earnings call, an analyst highlighted that KMB's North America segment lagged behind scanner retail data. KMB explained that category growth was 1.5-2.0%, below the expected 2%. Additionally, the quarter had one fewer day compared to scanner data. The company also made strategic pricing investments in various markets and categories.
• For guidance, KMB anticipates tariffs will increase global supply chain costs more than initially expected. The outlook for adjusted operating profit is now flat to positive on a constant-currency basis, down from prior high single-digit growth expectations. Adjusted Free Cash Flow for FY25 is projected at approximately $2 billion, down from previous guidance of over $2 billion.
• The challenges are primarily cost-related rather than sales-related. KMB's well-known brands (Huggies, Kleenex, Scott, Kotex, Cottonelle, Depend) continue to show strong demand. The company emphasizes affordability, especially as middle to lower-income households face financial strain.

Overall, Q1 was solid for KMB, though North America's weakness was unexpected. The lowered guidance is the main reason for today's decline. Consumer products are typically defensive, as essentials like diapers and toilet paper are always in demand. However, they are not immune to tariffs, which impact costs due to global supply chains. Similar challenges may be reported by Procter & Gamble (PG, Financial) when it announces its earnings on Thursday.