Kimberly-Clark's Q3 10-Q: Why the 40% Profit Drop is Misleading

Kimberly-Clark (NYSE: KMB), the company behind household staples like Huggies, Kleenex, and Scott, recently filed its quarterly report, offering a fresh look into its financial health. In this post, we'll dive into the numbers from its latest 10-Q filing for the third quarter ending September 30, 2025, to understand what’s truly driving its performance beyond the headlines.

Unpacking the Profit Numbers

At first glance, Kimberly-Clark's income statement might seem concerning. Reported Operating Profit fell sharply to $621 million in Q3 2025 from $1,026 million in the same quarter last year. This nearly 40% drop, however, requires a closer look.

The 2024 figure was significantly inflated by a one-time, $565 million pre-tax gain from the sale of its Personal Protective Equipment (PPE) business. Financial reports often include such unusual items that can distort the underlying performance of a company's core operations.

To get a clearer view, we can look at the company's "adjusted" figures, a non-GAAP (Generally Accepted Accounting Principles) measure that strips out these kinds of one-off events. On an adjusted basis, operating profit was remarkably stable, coming in at $683 million for the quarter, a slight increase from $682 million a year ago. This tells a completely different story: the core business is holding its ground.

The following flow diagram provides a visual breakdown of the company's revenues and expenses for the third quarter of 2025, showing how sales are converted into profit.

In the chart, the "Unallocated" cost of revenue represents corporate-level expenses not assigned to a specific business segment. For this quarter, these costs were approximately $45 million, with a significant portion ($34 million) relating to the company's ongoing restructuring program.

Steady Sales and Strategic Shifts

Kimberly-Clark's top-line revenue remained essentially flat at $4.15 billion. But underneath this stable surface, there's positive momentum. Organic sales, a key metric that excludes the effects of currency fluctuations and divestitures, grew by a healthy 2.5%. This growth was driven by a 2.4% increase in sales volume, indicating solid consumer demand for its products.

The company's two main segments showed resilience:

• North America: Organic sales grew 2.7%.
• International Personal Care (IPC): This segment saw organic sales rise by 2.1%.

A major strategic development is the company's ongoing "2024 Transformation Initiative." This restructuring plan is designed to streamline operations and sharpen strategic focus. While necessary for long-term health, these initiatives come with short-term costs. In the third quarter of 2025, the company incurred $62 million in charges related to this program, impacting reported profits.

Another key item is "Income from Discontinued Operations," which added $110 million to the net income this quarter. This reflects the performance of the International Family Care and Professional (IFP) business, which the company is in the process of separating. By reporting these results separately, Kimberly-Clark allows investors to better analyze the performance of its core, continuing businesses.

The Bottom Line

While the headline GAAP numbers might cause alarm, Kimberly-Clark's underlying performance appears more stable. Adjusted earnings per share (EPS) were $1.45, down a modest 7% from $1.56 in the prior year—a far cry from the nearly 60% drop in reported EPS.

The company is navigating a period of significant strategic change with its transformation initiative and the IFP separation. The key challenge ahead will be to manage the costs of this restructuring while translating solid volume growth and brand strength into improved profitability.