Kimberly-Clark on Tuesday pared back its full-year sales and profit expectations, saying that unverified allegations about the safety of its Huggies diapers in China have continued to weigh on sales through the second quarter.
The maker of Kleenex said it has countered the social-media claims by pointing to independent testing conducted by a government-certified third party that found no formamide in its diapers. Nonetheless, the company acknowledged the claims have had commercial impact in China, where media reports in June - just ahead of the key "618" shopping period - said Huggies and two local brands, Babycare and Bibabebe, tested positive for formamide, a substance that can irritate skin, eyes and the respiratory system if inhaled.
China’s market regulator opened an inquiry into the reports without naming any particular company or brand and has not, to date, provided an update on that investigation. Kimberly-Clark said the continuing attention to the issue is affecting consumer behavior in that market.
"While we are cautiously optimistic in some areas, I think these incidents have been occurring with greater frequency, and consumers are pretty smart and getting savvy," CEO Mike Hsu said. "We’re also realistic that it’s going to take a little time to kind of work through this."
The company, which is on track to complete its roughly $40 billion acquisition of Kenvue by year-end, now anticipates 2026 organic sales growth will lag the weighted average growth of its categories and markets by about 100 basis points, versus its prior expectation that growth would be in-line. Kimberly-Clark noted those categories expanded roughly 2% over the past year.
Kimberly-Clark also trimmed its adjusted earnings per share outlook, shifting from an earlier projection of double-digit growth to a forecast of high-single-digit growth on a constant-currency basis. The revised outlook factors in an estimated roughly $150 million headwind tied to higher oil prices, which sits at the low end of the range the company indicated in April.
Chief Operating Officer Russ Torres described the China episode as a "one-time external impact," but said the company expects it to reduce organic growth in its International Personal Care segment by three to four percentage points and to restrain operating profit growth by 10 to 12 percentage points this year. Kimberly-Clark said it is investing aggressively to defend its market position in response.
Executives said the setback in China has overshadowed broader gains the company has made through cost-saving and transformation measures, and has added a new challenge as consumers remain cost-conscious.
"A prolonged reputational issue could delay market share recovery even after regulators close their investigation," said Brian Mulberry, chief market strategist at Zacks Investment Management.
In other corporate moves, Kimberly-Clark last month completed the sale of a 51% stake in its international tissue business to Suzano, forming the $3.4 billion Arbex joint venture intended to compete with rivals including Procter & Gamble and Essity.
For the quarter, net sales rose 0.6% to $4.19 billion, slightly below analysts’ estimate of $4.22 billion. Adjusted operating profit increased 6.2% to $757 million, aided in part by tariff refunds of about $45 million. The company’s shares were volatile in early trading following the guidance revision and market reaction to the China-related reports.
Kimberly-Clark faces a mix of operational and reputational pressures: an ongoing inquiry in China with unclear timing, the need to rebuild consumer trust in an important growth market, the financial impact from higher commodity costs, and the integration of sizable corporate transactions such as the Kenvue acquisition and the Suzano joint venture.