Q4 2020 Kimberly-Clark Corp Earnings Call
Ladies and gentlemen, thank you for your patience and holding we now have your presenters in conference. Please be aware that each of your line is in a listen only mode. At the conclusion of this morning's remarks, we'll open the floor for questions at that time instructions will be given us sort of the procedure to follow if you would like to ask a question. It is now my pleasure to introduce today's first presenter.
Mr. Paul Alexander.
Thank you and good morning, everyone welcome to Kimberly Clark's year end earnings Conference call. This morning, you'll hear from Mike <unk>, Our chairman and Chief Executive Officer, and Maria Henry Our CFO, We sincerely hope everyone is continuing to stay healthy and safe and then keeping with our social distancing procedures. This morning, Mic Maria and I are.
Each in different locations in our Dallas office.
As a reminder, we will be making forward looking statements today. Please see the risk factors section of our latest annual report on form 10-K for further discussion of forward looking statements.
Finally, we'll be referring to adjusted results and outlook both exclude certain items described in this morning's news release that release has further information about these adjustments and reconciliations to comparable GAAP financial measures now I'll turn the call over to Maria.
Thanks, Paul and good morning, everyone. Thanks for joining the call. This morning, let.
Let me start with the headlines for the full year results, we delivered strong top and bottom line growth and exceeded our previous outlook, we significantly increased our brand and capability investments and improved our market shares we generated excellent cost savings on cash flow and we returned significant cash to shareholder.
<unk>.
Now, let's cover the details of our results starting with sales.
Full year net sales were $19 $1 billion, that's up 4% year on year and included a two point drag from currency rates.
Organic sales grew 6% with healthy underlying performance and increased demand related to COVID-19.
Volumes were up four per cent and net selling prices and product mix each increased one per cent.
Mike Mike is going to provide some more color on our top line and market share performance in just a few minutes.
Moving on to profitability.
Full year adjusted gross margin was $37 one per cent of 210 basis points year on year.
The gross profit increased 10%.
We generated $575 million of cost savings from our force and restructuring programs that.
That was well above our initial target and slightly better than we expected in October.
For 'twenty 'twenty, one, we're targeting $400 million to $460 million in total cost savings.
Commodities were favorable by $175 million in 2020, although they churned inflationary in the fourth quarter.
We're planning for commodity inflation of $450 million to $600 million in 2021.
Costs are projected to increase broadly in most areas, including pulp and recycled fiber.
Resin Super absorbent and distribution expenses.
Other manufacturing costs were higher in 2020, including costs related to COVID-19.
Foreign currencies were also of headwind, reducing operating profit at a high single digit rate.
Moving further down the P&L.
Between the line spending was up 110 basis points as a percentage of sales.
That was driven by advertising, which was up 90 basis points.
SG&A spending also increased and included higher incentive compensation, along with capability building investments.
Adjusted operating margin was $18 seven per cent up 90 basis points and adjusted operating profit grew 9%.
In terms of company profitability for 'twenty 'twenty, one the midpoint of our planning assumptions implies a 70 basis point decline in adjusted operating margin.
And while there are a number of moving pieces, it's likely that adjusted gross margin will be down somewhat more than that.
Turning back to 'twenty 'twenty result, full year adjusted earnings per share were $7.74 up 12%.
Our October guidance was for earnings of $7.50 to $7.65.
In addition to the strong growth in adjusted operating profit at the bottom line benefited from higher equity income a lower share count and a slight decline in adjusted effective tax rate.
Now, let's turn to cash flow.
Let's see.
Cash provided by operations was an all time record $3 $7 billion up $1 billion, a year on year, reflecting outstanding working capital performance and strong earnings.
Cash flow is expected to be down year on year in 'twenty, 'twenty, one driven by higher cash taxes and working capital.
Nonetheless cash flow should remain strong and well above 20 of 19th level.
Capital spending was $1.2 billion in 2020 in line with plan and the prior year.
We plan to spend between 1.2 and $1 $3 billion in 'twenty, 'twenty, one including activity for our restructuring program and the pickup in growth projects.
Based on an initial outlooks at longer term opportunities, we believe spending will be elevated again in 'twenty 'twenty two.
On capital allocation dividends and share repurchases totaled $2.15 billion.
That's the 10th consecutive year, we've returned at least $2 billion to shareholders.
We expect to return a similar level of cash to shareholders in 'twenty 'twenty one and.
And as mentioned in the earnings release, our board has already approved our 49th consecutive annual dividend increase and authorized a new 5 billion dollar of share repurchase program.
Let me finish with a short update on our restructuring program.
We continue to make significant progress as we head into the last year of this program. We're about 85 to 90 per cent three of the total pretax charges, which we've increased somewhat to reflect delays as a result of COVID-19 and costs for additional savings opportunities.
So far we've generated $420 million of savings and expect to achieve between 540 and $560 million of savings by the end of 'twenty 'twenty one.
Our original savings estimate was $500 million to $550 million.
Finally at this point cash payments are about 75% to 80% complete.
Overall, it was an excellent year financially, while we invested more in the business for the long term and navigated the COVID-19 environment.
I'll now turn the call ever heard of Mike.
Thank you Maria good morning, everyone.
Hey, let me begin by saying that I'm very proud of our KC team on our accomplishments in 2020.
We worked tirelessly to protect the health and safety of each other by setting of maintaining strict safety protocols all of which are on players today.
We kept our global supply chain running and safely serve the needs of our consumers and customers and in many cases delivering record output.
At the same time, we delivered healthy top line growth across our portfolio gained market share invested of strength of long term brand fundamentals and delivered strong financial results.
Looking more closely at our business segments, we saw excellent performance on personal care with 5% organic sales growth and strong share performance.
The North America organic sales rose, 6% driven by broad based growth in baby and child care.
Our market shares were up nicely on both huggies diapers and Goodnight youth pants.
Indeed, the markets personal care organic sales were also up 6% despite volatile market conditions.
More specifically personal care organic sales were up double digits in China, India, and South Africa up high single digits in Eastern Europe, and up low single digits on Latin America.
We also improved our share positions in many of Dnb markets.
Looking at our other segments organic sales were up 13% in consumer tissue and down 7% and KC professional.
As expected both businesses experienced the effects of COVID-19 on the shift to more consumers working from home.
We're pleased with how our KC team managed through that volatility.
To meet elevated demand of consumer tissue, we significantly reduced our SKU count and leveraged our global supply network to increase production, including support from KC P.
We continue to focus on category expanding in brand building programs, while improving our market execution.
Those actions helped us gain market share for kleenex facial tissue in North America and Europe.
And KC P, where the wash from category continues to be a significant part of our business. We made good progress pivoting the growth opportunities in other parts of the business, including in wipers and safety products sales of those products were up double digits in North America.
Importantly, we grew or maintained market share in approximately 60 per cent of the ADT cohorts that we track.
I'm pleased to see our brands winning in the marketplace.
Overall, our results were strong and I'm encouraged by the way we executed in 2020.
Next I'll turn on of our outlook for 2021.
We expect a more challenging environment, especially compared to last year.
More specifically, we expect some of the net benefit from Covid dynamics, including higher consumer the man to reverse in addition commodity costs are rising globally, and we're also reflecting our latest view on economic conditions on birth rate trends.
Despite these factors we're confident in our ability to deliver top line growth and expect to strengthen our market positions and improve our company for long term value creation.
Our plans call for total sales growth of 4% to 6% in 2021.
And that includes two points from the soft ex acquisition and a one to two point benefit from currencies.
We expect to grow organic sales of one of the 2%.
We plan to leverage and scale, our brand building capabilities and investments that we've made over the past two years.
We have a healthy innovation pipeline, including near term launches for Huggies in North America, China, Eastern Europe, and Latin America.
We've also upgraded products for our global Kotex brand in several markets.
We expect to benefit from selective pricing actions and other revenue management programs, but we're not currently planning for broad based on list price increases.
And we'll continue to make capability and technology investments to drive long term success.
On advertising spending should be similar to 2020 levels.
And this reflects the increases we've made over the last two years and confidence in the strong rois from digital.
We believe this level of investment is sufficient to support our growth plans on the current environment.
On the bottom line, we're targeting adjusted earnings per share of 775 to $8.
That's even to up 3% year on year.
We're focused on delivering our annual plan, while managing of the quarter to quarter volatility there could be higher than normal in this environment.
Finally, because of the different Covid dynamics in 2020 in 2021, we think it is relevant to consider our performance over both years.
So on that basis, using the midpoint of our 'twenty 'twenty one outlook, we're projecting the grow organic sales of approximately 4% and the increase adjusted earnings per share of 7% on average over that two year period.
Those growth rates are slightly above our medium term objectives.
In conclusion, we are on track with KC strategy of 'twenty 'twenty, two and we're managing effectively through a very challenging environment.
We're improving our top line and strengthening our brands our market positions in our company for the long term.
We continue to be optimistic about our opportunities to deliver balanced and sustainable growth and create shareholder value.
That concludes our prepared remarks, and so now we'll be happy to take your questions.
Thank you ladies and gentlemen at this time, we will open the floor for your questions. If you would like to ask a question. Please press the star key followed by the one key on your Touchtone phone now.
<unk> will be taken in the order, which they are received if at any time you would like to remove yourself from the question in Q Press Star two.
Our first question comes from Lauren Lieberman with Barclays.
Thank you good morning, Hi, I'm kind of.
Lastly, I guess the the first thing is the area that I'm hearing and I guess more concerned about on the outlook for next year is on sales and organic and it's also the one to two is kind of of baas.
What we were thinking was likely and I just was curious to kind of maybe.
Understand a little bit about how market growth is playing into that outlook. How mix I know you said no pricing, but the perhaps mix of the bigger part of it then the maybe as externally appreciate it and then also you've got the big lapse in consumer tissue. So.
I would be curious a little bit more on that bill to organic sales being up in 'twenty, one with the backdrop of off of the the type of birth rate environment.
Yeah worn on the 'twenty 'twenty outlook definitely reflects our confidence in our ability of sustained healthy brand performance.
But we do expect to have a net drag due to the COVID-19 overlap or.
Or the Covid affected demand overlap from 2020. So you know the wanted to organic it's on the lower half of our range, but it does reflect healthy underlying performance in both personal care on consumer tissue personal care of being up as I mentioned about 5% organic in the fourth quarter.
Oh, and then we believe towards the second half of an improvement in KC professional of the drag from consumer tissue you know as the way, we're looking at that business and we're tracking.
We think theres a pretty good correlation with mobility data, we do expect the the current environment in developed markets. The look similar to what it is right now through the first half and then for people to gradually begin returning to work in the second half and so that's what we factored in we know there will be a cycle and in our plans right now that certainly a part of it will be there will.
We'll be lapping some big stock up activity that occurred toward the end of the first quarter of last year and throughout the second quarter of last year. We know we'll be cycling that but we do still expect at home consumption of be somewhat more elevated than the certainly than 2019.
Oh, you know down from 2020, but still certainly a little more elevated and then we feel like we have strong momentum in our personal care business globally and as you go cross markets, we saw robust growth and share growth against most of our personal care businesses across markets.
Okay, and what are you assuming for the birthrate I know Theres just in of bookings Institute study the talks about the birth rate being down an estimated 8% and.
In 2021 in North America is that sort of what folding into your outlook on.
On you know or is it something less severe than that.
Yeah, we have it all we have on our outlook in North America of birth rates of client and not as severe as that I would say, but in the in that mid single digit range. However, you know I do think the you know on the most of.
The more recent category of data would suggest that the categories of running a little ahead of that and so so we've seen that data on our team, especially in North America is working closely with that Oh, you know I will say the category or our sales were up about.
But the category of about 3% in the quarter and so the for the past several quarters I think the North America category, that's print they've been trending ahead of that.
Okay, Great and then just the last thing on consumer tissue was about promotional activity and so it was really just in the fourth quarter you had this very strong pricing.
Pricing number you specifically talked about the lack of promotion in those numbers, but I was just curious on given the forecast of pulp inflation, given what you've talked about in terms of inflation. That's in your outlook on I know you said no no pricing assume but.
You know how do we think about promotion may be coming back into the marketplace and in 'twenty. One is that you know to what degree of that off of contemplated in the organic sales outlook.
Yeah, Oh, yeah in North America.
Oh go ahead go ahead Maria [laughter] No no. Please go ahead Mike.
Okay.
Sorry, we're in different rooms on supposed to do a better job of playing the traffic cop on staff.
I'll just start here and Maria kicked the can also add sort of pause, but definitely the the promotion activity in the fourth quarter was down as it was in most of the year for us in North America, we're expecting with it where with where demand is and where we're still catching up to the to support.
Line on our customers that promotion intensity will still be down on the in the first quarter at least of probably the first half.
We expected to return to more normalized levels in the back half of but again.
Our plans are for lower promotional activity in the first half certainly given where commodities are you know, we we expect to.
To make the moves that we need to make to make sure that we can continue to drive on margins and so certainly additional cost savings and additional activities on our G. M selective price increases will be on the plate for us.
Alright, great. Thank you sorry on.
Yeah, the only thing I would add there I Lauren is that in the the fourth quarter of the North America consumer tissue pricing with a bit elevated because we evaluate our trade programs on the full year basis and as we closed out of the here there was a bit of <unk>.
Credential benefit in the number.
Okay. The timing also the sort of reflect on their back with line.
Okay alright. Thank you so much that's helpful.
Thank you. Our next question comes from Olivia Tong with the Bank of America.
Great. Thanks, Good morning wanted to see if you could talk a little bit about more about the components of your 2021 organic sales outlook, whether volume versus price mix or by product segment or geography.
Just like similar to 2020 are you expecting in fiscal 'twenty, one to show segment growth and in two of three segments, while one clearly lags.
And then just a little bit more color on the North American consumer tissue pricing I know you said that that was a little bit of timing. So is it just a function of you know of sort of like marking to market essentially at the end of the year and Q4 will obviously set up on more dramatic comp next year or is there something else in that and then I have.
Follow up on on pricing.
Yeah Olivia.
Maybe I'll start there just the overall on the consumer tissue again, I think the the certainly will be of lap in the first half and are in the developed markets like North America, we saw significant elevated demand through the by March of last year and that ran through all of the second quarter.
There was two components of that one is just people being at home more and therefore driving elevated consumption and then the other part was as you read about in the papers the the the high stock up levels and people carrying a lot more inventory at home. We do think that we're gonna have to cycle some of that extreme stock up behavior, but we do think.
Consumption levels at home of woman remained elevated at least through the first half and then Oh tailored.
Further down in the in the back half of the year.
So that was the part one I forgot what of your part of other part was of your question.
Yeah, I think it was around the North America the queue again.
Right.
Yeah, so any of that.
China on what.
Yeah sure. So our we we manage the trade programs on a on a full year basis, and we make ongoing assessments throughout the year.
Two to keep those those estimates updated given the unusual year that we had this year and in consumer tissue in the way the demand and supply have played out.
Customer specific plans and events have changed more dynamically than they have in previous years and that made it even harder to forecast so as we closed out the year and.
I'm really scared they there's balance is we had a bit of an incremental benefit in the <unk> in the fourth quarter and so if you think about that is it's really timing timing related to.
Each of the you know versus the previous quarters of the of the year. So that that was part of it. It's on our important to emphasize though also in the fourth quarter with the dynamics, we did indeed have lower promotional activity.
Right. Okay. Thanks, and then I know you said that you weren't.
Got it in the 'twenty one outlook is no pricing them, but now of pulp prices are obviously up a lot, but they're still below prior peak. So can you just like is it possible to take price increases.
And if if pulp continues to to continues to inflate or does it have to reach the prior peak in order to even consider that.
Olivia I think we said we didn't say no price when we had we said no kind of broad based list price increases, but we have.
Plenty of of select pricing actions across our businesses in multiple markets and so we will be making price moves whether that you know we have some plans around count we have some selective list price actions in some markets and then certainly with revenue growth management, how we manage our trade funding and how we get more efficient of our trade funding.
We will be making some moves there. So so you know I think there's no absolute rules in terms of what Youre cycling in in terms of the commodity and everything else, but you know our goal is.
The drive margin expansion, it's corridor of KC 'twenty 'twenty two strategy and we're confident in our ability of the liberal of a long term I think given kind of the the the heavy puts and takes driven by the current environment. You know, it's it's it's reasonable expect some choppiness from quarter to quarter, whereas in the case of this year or even year to year, but you know.
Long term our intent is to drive margin expansion and cost management and pricing management is a core aspect of that.
Great. Thank you.
Hey, Thanks Colby.
Thank you. Our next question comes from Dara <unk> with Morgan Stanley.
Hey, guys one of the war.
So just two questions first I just wanted to follow up on pricing.
The commentary was helpful. But you are looking at significant commodity cost increases as you outlined for 2021 so.
Maybe just talk a little more conceptually about you know your approach to pricing.
Are you a little more hesitant to be aggressive in terms of pushing of giving you were coming off of a couple of years of gross margin expansion is there maybe more pricing later in the year just sort of how you think about pricing across your portfolio in light of what does it looks like it'll be pretty significant commodity pressure.
And then secondly, we did see some slowdown on the scattered in the U S. In December January is that more temporary factors, whether it be supply constraints or consumer day loading is that expected to be more of a temporary phenomenon or how are you thinking about trends over the next couple of months given given what we've seen in the recent U S scanner data. Thanks.
Yeah, Okay, Yeah, maybe I'll start with the last part first which is I think yeah, we did see a run up.
In December our you know from consumption, particularly on tissue.
It has it has softened a little bit and so we saw that throughout last year and so it's moving around quite a bit from month to month and that actually week to week. If you look at the details.
So that's something we expect but we do think that the the fundamental dynamic as you know there are more people at home.
At this time than they were last year.
That will continue through a you know a big chunk of 2021.
And then at some point of when hopefully when the populations and markets get vaccinated and people people will be returned on work and we will see a decline in some at home tissue consumption at that point, but for the for our purposes I think we've got that in the call and we've we've we've.
Gone through a thorough throw of forecast of that.
With regard to the pricing of.
Again, you know, we do expect some significant cost inflation in the year, it's in our plans and that's going to affect both the consumer tissue side and the personal care side.
We're gonna take appropriate actions and and certainly that's going on you know if we're going to pull all the levers and I've mentioned already certainly around cost management, but in addition to that.
It's one of the reasons why we're very pleased that we've got a robust revenue growth management capability up and running will go globally across our regions.
And you know the levers will be are working I mentioned, Olivia will be selective count changes on.
Some select the price list price increases and then a lot of work around trade efficiency and managing the promotions on the promotion from you know I would say the pricing environment. You know, we expect that to remain constructive for the dynamics I just mentioned with the Olivia which as you know I think demand will continue to be a little bit elevated with supply.
Under pressure in developed markets, especially in North America, and so we feel good about the progress we've made on our high voltage strategy and I'm really not interested long term on on kind of renting share through promotion activity and so so we're going to work hard to continue to drive a strong base of robust base business.
Great. Thanks.
Thanks Dara.
Thank you. Our next question comes from Kevin Grundy with Jefferies.
Great. Thanks, Good morning, everyone and congratulations on the strong year, particularly in the current environment.
The Marine first question for you just on on on commodities because naturally it's a big big focus for the company can you maybe just spend a little bit of time on some of the key assumptions by your key commodity exposure. That's embedded in your 2021 outlook and then I believe its fairly common not to enter into any notable hedging maybe just confirm that.
If you do have any hedging in place and then I have a follow up thanks.
Sure.
I'll start with the hedging of questions. We we probably don't don't use hedging.
We do take advantage of our contract negotiations to try to put some parameters around the the highs and lows that are that we will experience on uncertain commodity is but no no formal no formal hedging.
In terms of the 'twenty 'twenty one outlook.
It is a reminder of commodity cost in general we're at low levels in 2020, particularly in the first half of the year.
And costs from many inputs are excluding health starting to move higher sequentially over the last couple of months and exited the year already meaningfully above 2000 Twenty's for your average so many of those are expected to to me of higher again in the early part of 'twenty 'twenty one.
If you look back three months ago, we were expecting some inflation in 2021 and the forward outlook has has moved higher just in the last 60 days the top two inflation drivers for this year are expected to be pulp and polymer based on materials.
Together, the two input costs represent more than half of the inflation outlook sat Fi.
Take true, but a few things.
[noise] Virgin pulp, we're expecting inflation and that follows a year and a half of very low pricing from Virgin pulp, we're looking for it to be up high single digits on average.
Polymer resin, we're expecting to be up significantly high 30 per cent or or maybe even higher in a in North America.
Non woven and Super absorbent, well life will follow that but to a lesser degree of those dynamics are largely supply driven at a at this point recycled fiber, we're expecting to be up on.
Mid teens distribution costs, we're expecting should remain inflationary.
And that's mostly due to industry supply constraints and other material such as third party purchased safety gloves and P. P and K C. P are facing significant increases. If you are if you look at what's happening in are in those markets. So that's.
That's the assumption for 2021.
Health and that's very helpful. Maria Thank you Oh, My God I'm going to apologize ahead, [laughter] I'm going to ask on pricing, maybe a little bit differently not to beat the dead horse here, but just on on the heels of of of what Maria just communicated and the fact that the commodity increases like you know roughly of 300 basis point unfavorable impact understanding.
Youre coming off of a of a strong gross margin year.
Also understanding you said at this point, you're not planning on broad a broad base list price increases what do you think that either you or retailers want to see I know, sometimes there is you know retailers want to see certain permanence. If you will the price increases they don't want to waste prices around frankly, nor to you as the brand owner, but given the fact that you are looking at it.
300 basis point headwind close to it and then and then you sort of tumble through the numbers from what you guys outline for for savings and restructuring and Theres not a big offset not a tremendous offset outside of those two favorable numbers at least from kind of doing the math right in terms of what youre getting around revenue growth management etcetera. So it kind of begs the question why not.
Not with with respect to pricing behind the strong brand portfolio. So I hope hopefully I actually had a little bit differently.
Just would be great to get your response, and then I'll pass it on thank you.
Yeah, I mean, Kevin Yeah, Kevin I think the you know we're still working through kind of the mechanics of how we all drive the realization I will I will say that the pricing calls or are you now have come in and more recently and so they've changed over over the last several months and so we are working through that and but certainly we recognize the goal is that we've got the drive Ah <unk>.
The expansion and we need to recover some of the input cost increases and so for us pulling every lever across both of the commercial side and our cost side of what that supply chain costs or or or being a little bit more.
Aggressive on on taking on on taking the right pricing actions are.
For us is going to be important for this year and so we are going to make those moves.
As we kind of work through the plant.
That's helpful. Thank you very much I'll pass it on good luck.
Thanks, Kevin.
Thank you. Our next question comes from Steve powers with Deutsche Bank.
Hey, great. Thanks, Good morning morning, Steve.
Hey, So I have the question also on guidance, but more on the drivers as it relates to the operating income. So if I if I take the midpoint of your sales guidance and apply it to 2000 Twenty's operating income base.
Grow at say, 5% subtract out the midpoint of your inflation outlook add back expected savings also round about the midpoint of essentially tie out to your 2% Oi growth guidance.
So first I just want to kind of validate if that's a fair way to think about it and if it is I guess I'm a little surprised of its simplicity and so I'm guessing that there are some moving parts around around those those variables if you could.
The call out from some of those moving parts on and think about how you're thinking.
Thinking about them and why they sort of cancel each other out of it looks like you get a little bit of debt leverage on on sort of constant dollar based marketing spend but.
I'm just struggling to find out some of the nuance around our around the the Oh My God.
Sure I'll Oh go ahead on and take that one of it. Thank you.
Thinking thinking about it the right way Steve.
If I look at R. R of 'twenty 'twenty, one outlook, we're expecting a solid benefit from top line growth.
On the organic side of that we're expecting a positive volume mix and price.
And then in addition to that as Mike mentioned, we've got the benefits from soft tax and currencies will be are expected to be of benefit on the on the top line.
In addition to the benefits from sales.
We are expecting a good cost savings in our in this year and going the other way, we've got commodity inflation, which we which we talked about.
And we're also continuing to invest in the business and experienced kind of general non commodity inflation and you know it is pretty straightforward. It is as you've you've done the.
The math that kind of gets you to you our guide on on operating profit.
And then but the low that we would expect the lower share count non.
Non operating expense will be lower equity income will be about similar.
Similar maybe up slightly.
And of that.
That will be offset by a slightly higher effective tax rate and that's how you want to pick up the.
Additional point on the top end of the the EPS growth. So I think in terms of some of the some of the nuances on advertising spend we've given you the numbers for 2020.
We would expect that to be roughly similar on a dollar basis in 'twenty 'twenty, one and we think that's appropriate for the environment that we're in and it follows two years of meaningful increases in our advertising investment.
We would expect to continue to invest in our capability building and technology on the between the line side of the house.
And I think those are already went through the you know the commodity assumptions and we've talked about our pricing assumption as it relates to that.
Yeah. Okay. That's that's helpful. At the confirming I guess, there's just a little bit I guess versus my own coming in of expectations is a little bit less net.
The net capabilities investment that's the.
Envisioned them based on the the rough math and I guess is that just because you know maybe Mike is is that just because we've been able to fast track more of those investments.
And on the prior two years, especially in 2020 and now you got a little bit ahead of the curve or.
Is this sort of more in line with with the the relative reinvestment that you'd always anticipated coming into 2022, yeah maybe.
Yeah. There is definitely a couple of things you know one we feel great about the investments we've made we've put in as you probably can do the math.
Pretty significant investment over the last couple of years and we feel like that's working really hard and it's driving broad based growth across most of our markets. At this point, so we feel great about that.
We did say in my remarks that advertising will be you know I think well 2021 levels will be similar to 2020 levels. I think we feel like that is sufficient for the growth that's in our plans for this year.
But but you know on in the near term, we want that that debt to get more efficient, especially given what everything that the everybody's asked about with regard to commodity as well so we're expecting productivity.
And in terms of how we spend our advertising of how we make that are more efficient in how we spend our trade and how we make that more efficient as well as it throughout the throughout all of the supply chain. So so that's one part we feel like it's sufficient for our growth plans for this year that said I will tell you that you know we do have additional plans and we are going to invest in.
In other capability areas.
This year as well right and certainly as we continue to drive our digital marketing programs. That's an area that we've continued invested in terms of capability will be it will be investing more in our cost management capability. We brought in of new supply chain leader from the outside who see some good opportunities for us and we.
We'll be investing to take the organization and bring the tools.
And so we can systematically drive a better planning and better capability across the organization across markets and deliver.
We see productivity is a key enabler to our long term strategy and the fuel the investments that we need. So you know and then the last part of it I would say Steve as you know I do think that over time I would like the investment levels to be higher for the company and we'll continue to do that.
As we continue to build our plans and gained confidence on our ability to do that.
Great if I can.
Could squeeze one more in all the different line of questioning.
Dnb markets I'm just curious the used your assumptions are around just overall volume growth in those markets. The outlook. There just in light of the economic backdrop birth rates in those markets et cetera.
And relatedly any commentary on how you're thinking about pricing in those markets.
Just given that I think you'd expect a little bit less dollar based inflation, given where FX is thanks.
Thanks, so much.
Yeah, Yeah, Steve I mean overall, our business is fundamentally strengthening.
Globally, but I would say, especially on DNA and we feel like we're building a better company.
That improvement is really driven by better execution and the investments that we just talked about in innovation advertising and our commercial capabilities. So I. So the the improvement is really broad based and if I just think about Danny I think growth in the fourth quarter was <unk>.
Crossed every region. So we saw double digit increases in China, Argentina, India.
India, which is a you know.
An important long term growth market for Us Africa, which I may have mentioned for the first time on the call here and then we had high single digit growth in Eastern Europe, and Brazil. So we feel good about the the the performance of our markets.
I think the one area on the.
Of 2021 are the.
We're going to continue to expect uncertainty due to COVID-19, particularly in Dnb markets and the reason I say that that on that uncertainty is likely the higher this year than it was last year because of infections are climbing at a higher rate than they were last year and so we are going to see new ways, we're expecting additional ways to hit line to occur in Latin America.
Soon and I think we're actually starting to see that now and so that's going to have an ongoing effect that it's just hard to quantify our experience last year was an economy would maybe go on restriction on the mobility with decline for a period and then bounce back and then we saw that in Brazil. So for example.
I think in the third quarter of the economy was locked down for for quite a bit of time and then in the fourth quarter. We had of high single digit organic growth increase in Brazil share growth in Brazil on a very strong fourth quarter performance and so of our experience would tell us we're going to expect and see some bumps along the way and Danny but we are where we are.
We're planning for overall growth.
Okay very helpful. Thank you so much.
Okay. Thank you.
Thank you. Our next question comes from Nik Modi with RBC capital markets.
Good morning.
Morning.
Mike I just wanted to probe on online.
If I could just a few thoughts you know one just give us the channel perspective on how how you guys are progressing there.
Two.
Is there any way you can measure of increments of Yahoo.
Online business in terms of how many new consumers of actually bringing into the portfolio versus just share of migration from other channels and then three just wanted to get your assessment on on private label on and how it's performing online because my understanding is that it's actually doing quite well relative to brick and mortar, but I just wanted to get your views on that thanks.
Yeah over overall online and.
Maybe I'll start with the the E Commerce side, Nick are going very well for us over all of the company.
Drew over well over 30 per cent for the full year.
Heartening to know that our biggest ecommerce business was was by far our fastest growing business and grow well north of that and so so we feel really good about that and certainly you can recognize in the North America, what's happening with all of the retailers go into the omni channel.
It's driving that grocery pick up and everything else. The the Incrementals of the question, we're still working through the math of trying to track that.
The data is evolving because you know at this point of it's still tough for us the separate out you know we do track online enabled but when you get into things like grocery pickup. It's it can be a little bit difficult to parse and so I don't have a great answer for you right now, but Oh, that's something we're working on but we do feel.
That we are gaining share on the online channels and growing.
Growing well and that's globally and so we're really excited about our capability of there I think underneath it as you know our focus on on data and our data analytics capabilities and the primary E commerce markets really.
And in these categories is very effective and our customers like that and they want to leverage that to be able to market to their constituents and their their consumers and shoppers more effectively.
Okay.
Alright, I think I missed one part of your question Nick.
The private label share dynamic online versus what we see in brick and mortar.
Yeah.
You know I don't have the specifics of off the top of my head I do I will say generally are certainly across all channels, we saw of private label.
The share is down in general across the marketplace, but I'll have to get back to you on on the online component.
Great. Thanks, Mike Best of luck the here.
Okay. Thank you Nick.
Thank you. Our next question comes from Andrea to share on what the J P. Morgan.
Good morning on I hope, you're all well Hello. Good morning, So a could you help us quantify the cadence of the first quarter. If I understood correctly. Your guide for 'twenty or 'twenty, one is more back loaded into the second half because youre lapping this 8% the grocery volume of the first quarter and if my math is.
Correct you have of two years back in the last quarter that just closed of about 1% volume growth. So how can we bridge.
Into into the first quarter I understand that you have used the comps for January and February on tougher just from March.
So is that because you were building in those market share gains that you talked about and can you give us an idea of the volume share and dollar share in consumer tissue in the U S and globally on how you stack them most recently.
And on a follow up question earlier about the pantry stocking of responses to indicate that you expect on something to improve through January and February at least to what we have seen in the U S scanner data and and it seems like you should be seeing some destocking happening early January but do you expect that true to normalize into the.
Best of each of the rest of the quarter. Thank you.
Okay, and maybe Maria do you want to talk about the phasing of it will come back and talk about the stocking.
Yeah that sounds good and as you know, we don't provide specific quarterly guidance and current volatility.
In the end this macro environment is certainly making forecasting.
A bit more challenging.
What I would say, though is that the pace of our earnings in 2020 was unusual and we're gonna have to face that lap as we go through this year. If you look at how 'twenty 'twenty played out we had that very strong run on tissue at the end of March which enabled us to deliver a record level of sales in <unk>.
Q1, followed by record record profit delivery in the second quarter. So you know that the first half has had very challenging year over year comps for us just just by the math.
We do expect the.
The <unk> benefit from things like our growth in revenue management initiatives that we've talked about.
Our cost savings programs should build as the year progresses, and you put all of that together and you'll you'll kind of get a picture of how the the quarters in the first half second half my time might play out, but I'll turn it back to Mike to talk a little bit more about the specific dynamics on the.
Top line.
Yeah, Andrea maybe I'll talk more to consumer tissue in North America, but you know as we're site as we think about cycling.
The demand from last year, I think there's one component which is in general right. Now I think we're still living in a world with elevated at home tissue demand with more people at home translates to more usage of critically bath tissue at home. The worse, obviously, there's elevated consumption of towels as well because people are cleaning more often so that's one overall effect.
Specific to last year, though it's starting with the I think it was the third with the second or third week of March we started to see extreme elevated levels of consumption with consumers stocking up and that's when you'll recall the shelves were empty Ah I.
I think the third week of March last year or the the scanner data would say of the category was up 212%. So that's one left I think we will not see that as much this year and that's that's certainly a piece of it we're gonna have to cycle and we saw that behavior starting in March and it remains through a big piece of the of the of the second quarter.
So so I think the the consumer stock up effect will come out over time, but I think for the first half of at least we will continue to see elevated at home usage.
That's helpful on the market share can you help us like bridge.
You mentioned that you're at market channel, which which makes a lot of sales so.
When I, if you'll give us the cadence when your share of really.
<unk> got better so that's why you're probably building into that as well from a volume and the and endless amount of of value perspective.
Yeah, Andrew and then when the share of question, you're talking about North America tissue of brought more broadly.
Well, if you can open up both of the whole gig super useful.
Yeah overall, I would say in North America tissue or our shares are I would say our shares of our kind of even with year ago, you know and and the or even down a little bit on our bath tissue, primarily driven driven by supply constraints and so the demand is there we're shipping everything we can.
Make and trying to fill up both consumer and customer demand there, but we're actually down a little bit on share of.
But you know I think we you know the category had unprecedented the 20% growth over the over the year last year on North American so so.
We've really kind of moved mountains to serve the demand I think overall our shares were very strong for the year as I mentioned on the remarks, we were up or even in about 60% of our markets globally or of course T cohorts globally.
And I think we saw progression through the year and really strengthening in the second half of the year.
And that's really factored into our thinking of it in and it is why we believe particularly on our personal care business globally, which has been less affected by Covid and if anything I think the categories have been more a face more headwinds due to COVID-19 and the tailwind globally, but the.
For the year personal care was up 5%, we did see acceleration of the back half and you know very comprehensive growth of across markets. If I. If I. If I will just tell you on the share growth was very broad based we saw very strong performance in China in both Fem care and diapers, Brazil in the fourth quarter of Argentina.
Oh, well, we took on share leadership in diapers during the year, our Peru, which I mentioned was a challenging market for us in 2019 has really improved and we were up by multiple share points in.
In the back half of the year Eastern Europe, Russia continues to see strong robust share of growth.
And as I mentioned, the kind of the important emerging markets for us like Africa, and India. We are also seeing good robust share growth as well.
That's super helpful. Thank you I'll pass it on.
Okay. Thank you Andre.
Yeah.
Thank you. Our next question comes from Jason English with Goldman Sachs.
Good morning, guys good morning folks huh.
Happy new year.
I don't think it's too late to say that just yet still January.
A couple of things.
Thank you a couple of cleanup questions first in response to Lauren's question on birth rates. So you you talked about the category of the last year or so growing grown well above infant population I guess my question is why do you think that is it just like of Covid benefit parents at home changing more frequently than the caregiver usually would is it the stock up.
The dynamic or is there something perhaps more enduring that would prevent this category from mean reverting back to the population or maybe even overshooting on some of the stuff on ones.
Yeah, well you know Jason I would say the category has behaved as at least the data would suggest meaning the last date of the we had you know in the birth rate data does lag by about a year or so the last piece of data, we saw was down about one or 2% and actually.
As we got into 2020, you know I think of slight improvement I think it was down one versus it was down to the prior year in 2019 and in that range and so on so I think the category at least lagging year.
Would say Ah has behaved similarly in the sense of volume I think for the categories has been from quarter to quarter down one or two ish right in that range. So consistent with the birth rate the category dollar value has grown.
Because of the premium position and I think you know that is our core strategy for big developed markets. We still think there's a lot of opportunity for us to elevate our categories our customers.
Believe that and I think we're seeing that in the performance, particularly with huggies in North America for the quarter I think we were up over three share points in.
In the diaper category and if you try to kind of put your finger on exactly what that is it's a there's nothing there's no one silver bullet theres a lot of things going on and we're excited about the innovation we brought to the category. We have more calm comprehensive innovation, we're bringing this year I think we're touching on <unk>.
Because on premium this year and I think we're touching 75 per cent of our portfolio with really good innovation and so we're really excited about that but I you know I don't know that we're defying the laws of gravity for category in the birth rate, it's been consistent the things Youre here, Jason around eight five or Lauren mentioned, 8% category. The claims those are forecast from third.
Parties, but we haven't seen that in the data yet.
Yeah, No no sure that's the the on packing of between pre musicians volume and volume really helpful. So I appreciate that but let's let's stick on the topic quickly the the the Brookings Institute as one source of projected North America. There's reports abundant reports of across the developed markets from Japan, and Australia, It's of Europe et cetera of talking about declines during COVID-19.
And also the deceleration or even the declines in emerging markets.
What are you what are you expecting on a more global basis in terms of income population and what if any implications do you think this could have on competitive intensity, assuming that the addressable audience does shrink.
Yeah, I mean, certainly we're keeping close tabs on all of that and we have seen some some.
Some deceleration in categories.
I wouldn't I I don't know enough data yet to call of birth rate, but certainly COVID-19 related or population related. So certainly you know we saw a decline in the in burst in the in Russia that debt that actually tracks with the population dynamics with fewer women of childbearing age there Korea.
<unk> to I think we've seen improvement over the last couple of years. The continues to be negative and so I think in a in a in a handful of markets. We are seeing that and Danny I think are a little tough to call right now and and one of the things is I think the Covid impact has a has been.
A little of sporadic in those markets, where we've seen declines when the when the markets go into Lockdown, but then as I mentioned earlier on with Brazil.
On a pretty good bounce back once the economy reopens.
Got it. Thank you guys so much.
Okay. Thanks, Jason.
Thank you. Our next question comes from Chris Carey with Wells Fargo Securities.
Hi, good morning, Chris.
Good morning.
I guess you know.
By my math, maybe portfolio wide.
Promotions are still running down I don't know the 700, 700 800 basis points as a percentage of sales relative to the end of last year and I guess I'm hearing comments about you know how to be more efficient on trade spending.
And maybe even how thats.
Potentially sustainable so I guess you did is you know promotional levels stay lower over the course of of.
2021, especially if demand remains elevated and I guess, just like more simply put.
Can you just lower promotional levels stick longer than I think what people.
I had been anticipating right because that would that would potentially have pretty important implications for our competitors.
Competitors, the the broader sector and so maybe I'm reading too much into that but if you could just talk about you know.
If if you've learned something from this.
Past year about how much you do need to spend and how sustainable that might be going forward.
I'd appreciate any perspective there.
Yes, well of course, I think youre hitting a kind of a unimportant spot from me I mean philosophically I just I don't like I don't believe in over promoting categories and really for me. The purpose of promotion the at least the that I tend to sign up for US. It's the drive trial of your brand right and whether you have important news.
We're trying to get that brand to a population that hasn't experienced before so so that's for me the strategic point I do think when categories get over promoted it tends to drive some commoditization and and over time I think it lowers the growth potential of that category. So so for me I would like all of them.
Organization be very disciplined about how we reintroduce promotions into the marketplace are you know certainly I think we.
We have great partnerships with our customers and recognize the importance.
For it to build their business and we're going to be great partners with them, but I do think.
You know, how we think about promotions I think you're asking the right questions and so the for us to be continue to be very disciplined about how we think about it and how we manage it.
Will be important going forward and the other the other part of it is it's a big spend for us and it's not in any given year. The the money is not perfectly spent and so we can always get better. That's why we've invested in capability and brought on a lot of tools on our revenue management capability to give us the the analytics to help us.
The spend that money more wisely going forward.
Okay.
Okay. Thanks, and maybe just one follow up just just.
Longer term and.
I guess to use your word maybe maybe philosophically.
The professional channel right, it's obviously going to come back to a certain degree whether it comes back to the levels that it had pre COVID-19 as you know people change how they work.
And in general how they interact with these locations.
Can you just talk about maybe the capacity in this business and what if what if you know people are going to these channels much less often.
What you might need to do to rightsize the organization for the long term or where the spare capacity can be used for other things. So just.
Basically on a longer term perspective on all of that professional business maybe over the next couple of years.
Yes, Great point also as well Chris and.
I will say our professional team has done a great job pivoting and so we did see strong sequential improvement in the quarter behind their pivot to too.
You know, it's a wipers and safety products and and but you're right the core washroom.
The business, while the improved sequentially as well from the third quarter still down you know I think our you know the the having both sides of the business both the professional side.
And the consumer side is a it's a good benefit for us and so it does give us the ability to move capacity around to some degree you know certainly on the professional side. We do have some assets that are unique the professional but over time I think we are expecting the professional of the business too.
The return it may not return I don't I don't know yet whether it will return to <unk>.
Pre 2020 levels that that remains to be seen.
You know I do hope that that does but I think we have we will have proven over time to be able to manage our capacity and our asset investments to rightsize the business for either growth or to ship businesses or ASIC capability to other businesses, we can utilize those assets more efficient.
So we will make the right business decision and I'll just I'll just point out that again margin expansion. It's core to kind of you know our job on what we do and so we'll continue to make the right management decisions over the long term.
Yes.
Yeah.
Thank you. Our next question comes from Lauren Lieberman with Barclays.
Thank you.
Sorry, I didn't.
I'd like to get back in.
The other question about longer term margins, Mike and rent I mean, I know the 2022 plan.
On speaks took all of longer term margin expansion and you mentioned it again today in passing is the is something that's important for the business, even if it the challenge and.
And in 'twenty, one, but I was just curious about any kind of view on margin trajectory from here of let's say over like a three year time horizon.
Just given the conversation on commodity costs, given that you've had some nice benefits this year from the higher throughput.
I was just curious if you thought margins would kind of hit but one of the call at peak level or if there's still margin expansion opportunity here for the company over the next kind of of two to three years.
Yes, Maria I don't know if you want to lead off there.
Yeah sure I think I, one line longer term our outlook for the margins of our three segments Havent Havent changed as and as you know this is the this year has some unusual dynamics as did as did last year, but over time.
Line. It is it is our expectation and intent to improve.
Improve the the margin of the business over time and that that will go hand in hand with a number of the key things that we're working on.
Additional support on the on the top line and we'll get leverage on that on the top line growth continued.
Our focus on productivity.
Not done on the productivity side of the house, there's there's more and more to come there and then the the meaningful investments that we have been making and continue to make in terms of commercial capabilities.
Better positioning us to to respond to what might happen in the macro environment all of that is the.
Kind of the basis for our I, our belief that we can continue to expand margins over time, and we've talked about personal care and the very high teens to low twenties tissue in the in the mid to high teens and.
So we continue to we continue to to have those that's our long term objectives.
Okay. That's great. Thanks for letting me sneak that in.
Okay. Thank you Lauren.
Thank you at this time, we have no other questioners on the Q.
Yeah.
Okay, well, thank you I sort.
We feel like were very well position of our categories of our essential our brands on healthy and we think theres lots of room for us to elevate and expand our categories. So thank you for joining us today.
Thank you very much.
Thanks, everyone.
Ladies and gentlemen that concludes this morning's presentation you may disconnect your phone lines and thank you for joining us today.