The Kleenex maker said claims circulating on Chinese social media that its Huggies diapers contained formamide, a substance banned in multiple countries, weighed on demand despite independent testing by a government-certified third party confirming their quality and safety.
Beijing-based media outlet Economic Times Daily reported in June that Chinese brands Babycare Bibabebe and Kimberly-Clark's Huggies tested positive for formamide, according to the Hong Kong Free Press. The toxic substance can irritate the skin, eyes and breathing if inhaled.
The allegations emerged just ahead of China's annual "618" shopping festival, one of the country's biggest e-commerce events. Kimberly-Clark said the disruption would continue to pressure sales and earnings in the near term.
On June 22, China's market regulator said it had established a joint investigation team to look into "formamide issues in infant diapers", without naming any company or brand. Authorities have not provided an update on the status of the probe.
"We're disappointed but remain confident in the underlying quality of our global innovation and commercial plans," CEO Mike Hsu said in a statement.
The unexpected challenges in a key international market overshadowed cost-saving efforts, resetting expectations for investors who had been guided for stronger growth.
Kimberly-Clark, on track to complete its roughly $40 billion acquisition of Kenvue (KVUE.N) by the year-end, now expects 2026 organic sales growth to trail the weighted average growth of its categories and markets by about 100 basis points. Those categories grew about 2% over the last 12 months.
It had previously forecast growth in line with or above the then weighted category average of about 2.5%.
The company expects annual adjusted earnings per share to grow at a high-single-digit rate on a constant-currency basis, compared with its earlier forecast for double-digit growth.
Kimberly-Clark labeled the disruption a "one-time external impact". It will temper organic growth in International Personal Care segment this year by three to four percentage points and hold back operating profit growth by 10 to 12 percentage points, COO Russ Torres said, "as we invest aggressively to defend our franchise".
Last month, Kimberly-Clark finalized the sale of a 51% stake in its international tissue business to Suzano (SUZB3.SA), creating the $3.4 billion Arbex joint venture to compete with rivals Procter & Gamble (PG.N) and Essity.
Net sales rose 0.6% to $4.19 billion for the three months ended June 30. Analysts on average expected $4.22 billion, according to data compiled by LSEG.
Adjusted operating profit increased 6.2% to $757 million, helped by tariff refunds, productivity savings and favorable currency effects.
Shares of the company were flat in premarket trading.
