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Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKimberly-Clark shares rose on Thursday after the Huggies parent reported better-than-feared third-quarter results, showcasing the defensive characteristics that attracted us to the stock in the first place. Revenue in the third quarter dipped 0.4% year over year to $4.13 billion, in-line with the LSEG consensus of $4.13 billion. Adjusted earnings per share (EPS) fell 7% from a year ago to $1.70, exceeding analyst expectations of $1.66, according to LSEG data. KMB YTD mountain Kimberly-Clark YTD Shares of Kimberly Clark were up about 1.5% on Thursday as investors gravitated toward defensive stocks and dumped AI data center names. We started a position in the parent company of Cottonelle, Huggies, and Kleenex brands in early September to shift some of our portfolio’s exposure away from the AI buildout. Though things got off to a rocky start, the stock has been a ballast since early October, when the tech-heavy Nasdaq topped out. With a 5% sell-off Thursday, the Nasdaq sank into correction territory, meaning it’s down over 10% from a recent high. Bottom line We’re reiterating our buy-equivalent 1 rating on Kimberly-Clark and price target of $120 per share. The sell-off in artificial intelligence winners underscores the need to own defensive stocks like Kimberly-Clark. And on the fundamental side, the company earlier this week completed its acquisition of Tylenol and Band-Aid owner Kenvue, giving the company direct exposure to the consumer-health category. We’re also hopeful that some of the headwinds facing Kimberly-Clark’s legacy business — specifically in China, where now-debunked social-media claims crushed baby diapers sales — have peaked. The Kenvue deal is an exciting part of the Kimberly-Clark story. We think this merger will help drive shares higher in the coming quarters and beyond, as Kimberly-Clark’s increased scale enables cost cuts, and the combined company finds ways to boost sales of each others’ products. For example, Jim Cramer believes Kenvue — which was spun out of Johnson & Johnson in 2023 — had an inadequate e-commerce and warehouse strategy, which Kimberly-Clark can rectify. There are geographic differences between the companies. On Thursday’s earnings call, CEO Michael Hsu explained that Europe and India are two markets where Kenvue has a stronger presence and distribution network than Kimberly-Clark. “The flip of it is the same,” he said. “Within Kenvue, they’ve got a relatively smaller business in markets like Mexico and Korea, where we are over $1 billion in both those businesses just on the K-C side. .. We feel like there’s some pretty good opportunity.” In the here and now, Hsu said he’s pleased with Kenvue’s business momentum so far this year, including a mid-to-low single-digit increase for Tylenol in the wake of last year’s controversy, and a 30% year-to-date increase for sales of Rogaine hair-loss medication. He suggested that could be driven by adoption of GLP-1s, which carry hair loss as a potential side effect. To be sure, Hsu stressed that “we’re not out of the woods yet” with Kenvue, pointing to the skin care business (including Neutrogena and Aveeno) and oral care (Listerine) as examples of categories where improvement must be made. That includes things like better marketing and potential resets to the product assortment. We hope to hear more about the strategy at the CAGNY conference in February. As for Kimberly-Clark’s third-quarter results themselves, keep in mind the company preannounced partial results on Oct. 15 as part of the Kenvue closing process. As we wrote in the Homestretch at the time, the preliminary sales and earnings figures were better than feared. It was a real sigh of relief because in September, the company provided a disappointing earnings update at an investor conference that sent shares tumbling. One reason for the negative September revision was an increase in spot freight rates, which caused the company to increase its second-half inflation expectations to $200 million (from roughly $150 million before). CFO Nelson Urdaneta said on Thursday’s earnings call that there’s been no change to that outlook, which we’ll take as a small win because it didn’t get worse. China is the other big part of the Kimberly-Clark story right now. The company’s organic net sales decline of 1.3% in the quarter included a 2.7 percentage point hit tied to the Chinese social media disruption. In other words, organic growth would’ve been positive if not for the China decline, which arose in June and caused the company to cut its full-year guidance in August , before we owned a position. In October, the Chinese government refuted claims that its baby diapers contained a toxic chemical called formamide and declared the products safe. On Thursday’s call, Hsu said that demand has since stabilized and even “improved slightly.” However, Hsu stressed that the “recovery is going to take time because here’s what I’ve learned, which is like bad news goes viral and good news does not, right?” Finance chief Urdaneta added that the business will still be “subdued in the fourth quarter,” due to the timing of the allegation refutation. “But again, we will take the time, we will make the right investments in order to make sure that Huggies gets back to its rightful place in China,” he said. “And as a reminder, right before this, we were right around 20% leadership, number one, gaining share for five years straight at about 200 basis points a year in our business in diapers in China. And we’re absolutely focused in making sure that we regain that.” We’re keeping our expectations in check around the recovery timeline — but in general, we appreciate management’s messaging and commitment to rebuilding the business. Outlook For 2026, management reaffirmed its full-year outlook for standalone Kimberly-Clark. This includes organic sales growth 100 basis points below its weighted average category growth rate in the countries and categories it competes in, which is approximately 1.7% on a trailing 12-month basis. In other words, they are guiding to about 0.7% organic sales growth. Despite the dip in organic sales growth, adjusted operating profit is expected to increase mid single digits on a constant currency basis. Adjusted EPS attributable to Kimberly-Clark is expected to decline by a low-single-digit rate on a constant-currency basis. As for the financial impact of the Kenvue integration, the company expects 2027 adjusted EPS dilution of no more than mid-single-digits versus standalone Kimberly-Clark. One driver of the dilution is the shares they issued in the cash and stock deal to acquire the Tylenol parent. Looking ahead to 2028, management expects double-digit EPS growth as benefits from the combined company are realized. By mid-February, we will see more historical pro-forma financial information for the combined company. (Jim Cramer’s Charitable Trust is long KMB and CAH. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.Read More