Kimberly-Clark and Quest Illustrate the Differing Impact of Tariffs on Results and Stocks
One supports our margin concerns while the other sets a favorable stage for a holding's upcoming earnings report.
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Continuing with our review of quarterly earnings reports out this morning and connecting the dots to the The Street Pro Portfolio's holdings, let's dig into comments from Kimberly-Clark KMB and Quest Diagnostics DGX.
Kimberly-Clark and Tariffs
Reaffirming our view that the impact of tariffs and other factors will weigh on margin expectations and companies' adjusted EPS expectations, Kimberly-Clark, citing an incremental $300 million in tariff-related costs, now sees its adjusted operating profit for this year as flat to positive on a constant-currency basis compared to a previous expectation of high single-digit growth on that basis.
The standout comment to us from CEO Mike Hsu was the following: "The current environment will now mean greater costs across our global supply chain versus our expectations at the beginning of the year.”
We expect to hear similar comments from KMB's competitors, including Church & Dwight CHD, Colgate-Palmolive CL, and Clorox CLX when they report in the coming days and weeks.
Quest Diagnostics Sets Tone for Labcorp
Lab testing and diagnostics company Quest Diagnostics reported consensus-topping March-quarter results as it benefited from double-digit volume gains in the quarter, largely from what initially appears to be from acquired businesses. Quest also reiterated its 2025 guidance that implies high-single-digit top-line growth.
This is no surprise to us given that Quest, as well as our own Labcorp LH, target nip and tuck, and sometimes even larger, acquisitions to drive overall growth. Some acquisitions expand their reach from a geographic perspective while others expand their product and testing reach. The latter allows them to cross-market and grow across existing testing sites, driving organic revenue over time. During Quest’s earnings call, we’ll be listening for revenue expectations between organic and M&A-related drivers as well as pricing and other margin levers.
This strategy as well as the demographic wave of the aging population and the growing battery of medical tests as we age, keep us long-term bullish on LH shares. That combination has prompted comments about LH shares being a safe haven for investors, and we’re incline to agree. At nearly 3.6% of the portfolio’s assets, LH represents a relatively good-sized position, but the current share price is a nice place for members who are underweight the shares to add some ahead of the company’s earnings report on April 29.
At the time of publication, TheStreet Pro Portfolio was long LH.
