Kimberly-Clark's China diaper woes linger as it stands by annual outlook

By Alexander Marrow and Koyena Das

Nov 5 (Reuters) - Huggies maker Kimberly-Clark KMB.O maintained annual sales and profit forecast on Thursday, and blamed a decline in organic sales on false claims about its diaper quality in China.

The diaper issue emerged in June when China's state market regulator launched an inquiry following reports claiming that diapers sold by Huggies and Chinese brands Babycare and Bibabebe contained formamide, a substance that can irritate the skin, eyes and respiratory system.

While Chinese authorities cleared Kimberly-Clark's products in October, saying no formamide was detected and effectively disproving the false social media claims, the saga that has hindered the company for the last two quarters is set to continue.

The Kleenex maker expects annual organic sales growth to be about 100 basis points below its weighted average growth in the categories and countries it competes in. This primarily reflects unfavorable impact of around 100 basis points from the China disruptions, Kimberly-Clark said.

The company, which recently completed its roughly $40 billion acquisition of Tylenol-maker Kenvue, expects annual adjusted earnings per share to grow in high single digits on a constant-currency basis.

Like many peers, Kimberly-Clark is pushing new innovations, such as Pull-Ups training pants with a layer to help children learn the difference between wet and dry, but higher costs could be a drag, Chief Financial Officer Nelson Urdaneta said.

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Third-quarter organic sales fell 1.3%, hurt by a 270-basis-point impact from China-related claims, and changes in retailer stock levels in North America.

Volumes for North America grew 2%, while in international personal care segment fell 4.6% during the quarter ended September 30.

Productivity gains were offset in part by higher inflation stemming from the Middle East conflict and incremental spot freight costs, Urdaneta said in prepared remarks.

Adjusted gross margin stood at 35.5%, down 130 basis points from the year earlier, hurt by 1.1% price decrease despite higher input costs and supply-chain investments.

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