Tale of Two Staples Giants

An earnings quality comparison of CL and KMB

Staples companies including packaged food and household products companies are finally starting to attract negative investor attention as the limits of price elasticity come into focus. We have been pointing to the risk some of these companies face in the inability to forever raise prices at double-digit paces to our institutional clients for some time. Our May Substack piece The Organic Growth Illusion also explored the topic. We believe recent earnings quality will be especially important to consider moving forward as the tailwinds from price increases disappear and the pressure builds to increase advertising and promotional activity to spur volume growth.

With this in mind, we will examine earnings quality risk factors for two household products giants- Kimberly-Clark (KMB) and Colgate Palmolive (CL). One has a history of being a serial restructurer with regular non-operational benefits to earnings which we believe has recently cleaned up its act. The other is a company trying to turn itself around and regain the market’s favor but we continue to see underlying weakness and potential risks in results.