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Motley Fool Issues Rare “All In” Buy Alert

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Kimberly-Clark (KMB 0.49% ) has been a winner so far in 2022. The consumer staples stock has outperformed both the wider market and peer Procter & Gamble (PG 0.61% ) this year as investors seek stability and a growing dividend payment.

That bullish investing thesis will be put to the test in a few days when Kimberly-Clark updates shareholders on its latest growth trends. We'll learn about how well its market share is holding as people return to work and shift their home maintenance spending back toward more normal rates.

Here's what to watch in Kimberly-Clark's upcoming announcement set for July 26.

Most investors who follow the stock are looking for sales to rise 5% to nearly $5 billion. That result would mark a slowdown from the prior quarter's expansion pace, but there's a wider context to consider.

Watch organic sales trends for signs of a rebound in the business. Kimberly-Clark has been trailing P&G on this core growth metric for much of the pandemic, in part because its professional segment endured major pressure as offices sat dormant. Now, with many people around the world returning to in-office work, Kimberly-Clark should see more balanced growth coming from its consumer segment and its enterprise division.

The other trend to watch here is the balance between price increases and volume gains. Ideally, Kimberly-Clark can achieve both in Q2. If, instead, growth comes from higher prices as volumes are flat or decline, then that's a bad sign for the second half of 2022. Such a trend might hurt the stock even more if P&G shows a better balance here in its earnings report slated for later in the week.

A major reason why investors are flocking to Kimberly-Clark stock is the prospect of steady earnings growth through a volatile economic period. Branded consumer staples like diapers and tissue paper should maintain positive sales trends even as prices rise, making this industry a top contender for recession-proof status.

Profits and cash flow are the best metrics to follow in judging whether Kimberly-Clark is benefiting from that prime positioning. Gross profit margin has been falling, and remains well below P&G's, but profitability could rebound over the next few quarters as the company rolls out wider price increases.

KMB Gross Profit Margin data by YCharts.

Watch cash flow for a clearer picture of Kimberly-Clark's financial strength, since those resources allow for aggressive spending in areas like marketing, even as the company pays out a growing dividend and directs more cash toward stock buybacks.

Executives said in their late April update that organic sales will rise between 2% and 4% this year as adjusted operating profit declines slightly. The revenue forecast was an upgrade from the prior outlook, and investors are hopeful about another slight boost to the sales prediction ahead.

The short-term earnings outlook, on the other hand, is weak. In April, Kimberly-Clark raised its estimate of cost inflation's hit to the business. That figure will be as high as $1.3 billion in 2022, it said, up from the prior prediction of around $900 million.

Investors wouldn't be excited to hear more bad news on the expense outlook, but the stock could continue beating the market in 2022 so long as growth trends keep accelerating.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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