Q4 2021 Kimberly-Clark Corp Earnings Call

January 26, 2022

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 short remarks, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask.

a question. It is now my pleasure to introduce today's first presenter Terran Miller.

Thank you and good morning, everyone. Welcome to Kimberly Clark's year end earnings conference call. On the call with me today are Mike [inaudible], our chairman and CEO and Maria Henry our CFO.

Earlier this morning, we issued our earnings news release, and we also publish prepared remarks from Mike and Maria that summarized our fourth quarter and full-year 2021 results.

Both documents are available in the investors section of our website.

We hope you find it valuable to have our prepared remarks ahead of this call.

In just a moment Mike will share a few opening comments and then we'll take your questions.

During this call, we may make forward-looking statements. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements.

We may also refer to adjusted results and outlook. Both exclude certain items described in this morning's news release.

The release has further information about these adjustments and reconciliations to comparable GAAP financial measures.

Now I'll turn it over to Mike.

Great. Thank you, Taryn and good morning, everyone.

Before we get to your questions, I'd like to offer some perspective on our results and outlook.

In 2021, we continue to execute our strategy to elevate our categories and expand our markets. While our overall financial results were disappointing we took decisive action to offset the impact of higher costs.

With significant pricing actions.

These actions, which began in the first half to help us deliver organic sales growth and improved net selling prices in the second half of the year, including strong fourth-quarter performance.

We continue to make significant progress accelerating organic growth in personal care.

Through the year, our team launched strong innovation and support it with superior local market execution, all of which contributed to strong share gains in numerous key markets.

We also strengthened market positions in several important growth markets by integrating Softex in Indonesia.

Commissioning a state of [inaudible] production facility in Nigeria, and advancing our route to market in India.

While we are encouraged with our top-line performance and the way our teams executed in a very dynamic environment, our margins and earnings were negatively impacted by a challenging operating environment.

Input costs escalated well beyond previous levels and supply chain disruptions limited our ability to fully meet the growing consumer demand for our products.

In 2022, we intend to accelerate organic growth further we have strong brands and healthy categories will continue to support our brands with breakthrough innovation agile digital and superior local market execution.

We also expect performance in our tissue businesses to improve as we cycle the volatility in demand we've experienced over the past two years.

We are committed to recovering and eventually expanding our margins and we expect to make progress this year.

We've taken significant pricing actions and expect pricing to offset a majority of the impact of cost inflation.

We're confident in our ability to restore margins to pre pandemic levels over time.

We remain confident in the potential of our brands and categories and in our ability to create meaningful shareholder value. While we work to achieve our purpose of better care for a better world.

Now we'd be happy to take your questions.

Thank you. At this time, we will open the floor for questions. If you would like to ask a question. Please press the star key followed by the one key that is star one on your touchtone phone now. Questions will be taken in the order in which they are received.

If at any time, you would like to remove yourself from the question in queue. Please press star two.

Thank you. Our first question will come from Chris Carey with Wells Fargo Securities.

Good morning, Chris.

Can you just maybe to start just to help frame the volume impact.

That you are expecting from the price hikes. I guess based on your comments around pricing that's going to cover the majority of inflation.

It seems like you're suggesting maybe 4% to 5% range on pricing.

Maybe volumes down about 1%. Is that fair?

And then maybe where you expect the volume has to play out.

Clearly there is some momentum in personal care.

Consumer tissue is coming off.

A year where comps should really be too much of an issue.

I wonder if you could just dimensionalize.

That comment around pricing versus volumes. And how you're seeing it play out and whether you could see some upside if [inaudible] stay where they are.

Yes. I think that's a good point, Chris and I think that's right, which is overall, we feel good about the momentum of our business overall personal care.

<unk>, Chris and I think Thats right, which is overall, we feel good about the momentum of our business overall personal care.

For sure a strong performance and we're expecting that performance to continue. We've got great innovation coming and great brand support throughout the year. On both our consumer tissue and personal care businesses. And so so I think we feel good about the commercial programming that said there is significant pricing in the plan and so there will be an elasticity impact, which we have estimated.

So we have volume down a little bit.

Offsetting some of the organic growth that strip being driven by the commercial programming and so.

The reality is thus far I would say.

The categories, our categories are essential and I think the demand that we saw in the fourth quarter kind of highlights the essential nature of our categories and despite the price increases.

We're seeing good volume performance and so.

I'd love to see that our elasticity assumptions are a little conservative.

And potentially there could be a little upside.

Generally in our categories.

The market moves in a direction generally elasticities are a little lower.

Okay.

And just a. Yes. That's helpful. Thanks, and just one.

Helpful. Thanks, and just one.

One follow up on on the on the outlook for.

For input cost inflation, I think maybe that's part of the surprise today.

Can you just maybe dimensionalize the significance of distribution.

The significance of distribution.

Of energy, you called out polymer based materials I guess pulp is.

Secondarily, it is secondary [impact relative] to those.

Relative to those.

But can you just frame the relative impact of these? And weather.

Then.

The line of sight or whether you're just taking a bit more of a conservative view cognizant of what you said in the prepared remarks that visibility is a bit lower in this environment. So thanks for that.

Sure, Chris. Let me let me.

Spend a minute on our inflation outlook for 2022.

You just mentioned, it continues to have volatility around it.

For perspective.

We had given given you our outlook on the October call.

We would have been $300 million lower than the outlook that we're providing today, so it's been quite volatile.

And we're kind of calling it a tough part of the cycle.

Hence the range around it. But let me talk about what we see. Approximately half of the inflation for 2022 is expected to come from distribution and energy.

And then of the raw material component the inflation will be led by polymer-based purchase materials, so things like

Super absorbent and nonwovens.

And then followed by by pulp and so let me just.

Spend a minute on the two areas that will make up our commodity inflation.

Number one is what happens with market prices.

And I'll give you a little more detail there in a minute, but the second one is how inflation commodity inflation flows through our P&L. And as you know we use contract structures to manage some of the volatility on commodities.

And some of those contracts reset.

Contracts reset.

In the beginning of the year or so they reset at higher prices this year.

And then some of them also have some timing lag built-in. So some of the high inflation that you would see in the market in the fourth quarter will flow through our P&L.

In the early part of 2022.

But that said on the market prices.

I'll tell you what we're seeing. So the market price in North America for Eucalyptus, that will be down the market price for softwood, We're expecting to be down in a similar amount in eucalyptus in the full-year average polypropylene prices will also be down.

For market pricing in 2022, so those are the things you hear us talk about the most.

But then the inflation is coming from other areas in 2022. Let me comment on market pricing that we expect to be up fluff pulp, we expect to be up, recycled fiber expect to be up, nonwovens expect to be up, super-absorbent up sizably next year.

Distribution up and energy up so the basket of commodities.

The traditional ones.

Thankfully, we expect to be coming down and we're already seeing that in the fourth quarter.

There is meaningful portion of our basket that the market prices will be up on in 2022, and that's what's reflected in the outlook that we provided.

Yes, so Chris, maybe I'll just tack on. I mean, historically, what we see is.

A quick reversion in our commodities look typically in 2018 right. The big driver of our increase was pulp. And so that quickly receded in 2019, and 2020 to some extent. And so that's typically we will see in our categories. We will see reversion. It always happens in our categories and so I expect fully expect overtime pulp to come down.

And the resin-based, whether it's super absorbent for non-absorbent to come back down, but this cycle is a little different because the peak is higher.

It's broader and it's longer and so regardless of what's happening with the cycle.

We are going to restore our margins with both price and cost initiatives and we expect our teams to cover the majority of all inflation with pricing. So that's part one.

If we get a little more reversion, we're not expecting a version this year.

And if we do, then.

Our recovery would be a little faster. That said, there will be reversion at some point, but given the call and I think what's maybe a little confusing to maybe some of the analysts and investors.

As Maria mentioned, it's a broader set of inflationary impacts than we typically talk about which is typically.

Energy is a big one and labor and freight are big ones that we typically haven't talked about in the past, but our big ones for this year.

Okay. Thanks so much for all that perspective.

Okay. Thank you, Chris.

Thank you. Our next question comes from Lauren Lieberman with Barclays.

Great. Good morning, hi.

I wanted to have a little bit about about pricing.

In the release there was a mention of.

[inaudible] during the prepared remarks [inaudible].

But about the incremental pricing so simplistic question of their new price increases.

There have been announced that we expected to start flowing through.

But then perhaps more interestingly I was curious.

About the ability to price.

For energy, for logistics.

And then also for the fact that contract resetting higher. Because I was just wondering is it more difficult.

If market pricing is down.

So that what your customers see the better relatively speaking better environment.

I think you're talking about your contract resetting higher and that being part of the difficulty here. Is it more difficult to get incremental pricing through when that kind of a construct driving inflation?

Yeah. Thanks, Lauren.

A couple of things. One, we've executed multiple rounds of pricing and I would say globally and generally, our pricing is on track we announced I'll just give you an example, North America. I think we announced.

In March and August and November and then I think we may have had another announcement in December as well, so there's been multiple rounds.

I will tell you and that's happened globally in most markets around the world for us, I will tell you in most markets. The trade discussions have generally been very constructive. I think our customers are seeing the same things happen, especially as you mentioned in some of these other areas, they're more affected by freight and distribution and some of those things and we are since its.

A bigger component of their P&L.

So I would say the discussions have generally been constructive.

We've seen some movement in other brands and some movement in private labels.

There is a little stickiness in some markets like in Western Europe, and Latin America for us.

As I mentioned there, Chris.

The consumer demand reflects the essential nature of our categories and so we expect to make progress on pricing, we expect to make progress on recovering our margins.

And as a principle, I would say we're expecting our teams to be able to price to offset the majority of the inflation.

Okay. Great and then just one other question I had was on cost savings.

Restructuring is complete now.

Now.

Ongoing for savings. The force forecast of 300 to 350 is a little bit low by recent standards and I know in the also in the prepared remarks that release, you mentioned less savings on the negotiated raw material prices.

But I think one thing we talked about last quarter and a couple of other companies as sort of the difficulty of achieving.

Typical run rate productivity.

In a constrained environment.

Whether it's because of labor, access to the plant, COVID and [inaudible] environment.

<unk>.

Covid and absenteeism.

Challenges throughout the supply chain I was wondering if you could comment a little bit on that on the absolute level of for savings for this year and just your.

Sorts of impediments are part of why the number might be a little bit lower than you might typically target.

In such a deeply inflationary environment.

Yes, Laura and you're spot on with what you are hearing from other companies. It's the same thing that we are seeing within our force cost savings negotiated material price component will be down meaningfully. If you think about that.

The benefit of our contracts in 2021 was.

2000.

2021 was.

significant as those reset as we move forward. That's less of a benefit for us in 2022, but we do you still expect to see benefits from product changes.

And from ongoing productivity improvements.

The other line that's in our force cost savings is distributions so under normal circumstances.

We would be driving productivity in distribution expenses every year those are going the other way right now the distribution.

Costs are up meaningfully and they will continue to be is our expectation in 2022.

And then as you said, given what's happening in the supply chain, where our demand is exceeding our ability to supply at the moment, taking any downtime on.

On any of our machines is very punitive and so finding the time.

To do the work to drive the savings is a bit challenged and that's really what's behind the range I will say.

That the team kicked off a program in 2021.

Program in 2021.

To really look at the multiyear pipeline that we have around force cost savings and we have better visibility today than we than we've ever had in terms of what those what those opportunities are.

And how we need to how we can unlock those and that includes some investment behind the supply chain that you see.

Showing up in.

Other areas of the P&L, but we've never had better visibility to what those opportunities are and they continue to be meaningful for the company and as things.

When things normalize around supply chain will be able to want to drive a higher number on that force cost savings line.

Thanks so much. I'll pass it on.

Okay. Thank you, Laurent.

Thank you. Our next question comes from Steve Powers with Deutsche Bank.

Good morning, Steve. Yeah. Hey. Thanks, good morning.

Maybe a little more clarity and color around your guidance.

Clarity and color around your guidance.

I guess from two perspectives. First is.

Yes.

In the first quarter.

Your prepared remarks suggest incremental difficulty in that first quarter.

Was a sequential decline in earnings. I would think you might have some room for sequential acceleration on revenue, even with a higher FX burden. So I'm guessing that incremental pressure is coming from.

Cost pressure and margin pressure, but again, maybe you can dimensionalize that.

And I want to juxtapose that against your.

The strategic ambition to restore margins and I'm really curious as to where do you think you can get to on that on that objective by year-end. So I guess I'm trying to get a little bit more depiction of my mind about what the kind of improvement curve looks like throughout the year as you slide south in 1Q and then build back.

Where do you think you can get to on that on that objective by year end. So I guess I'm trying to get a little bit more depiction of my mind about what the what the what the kind of improvement curve looks like throughout the year as you as you slide slide South <unk> and then build back.

I'm trying to get a sense of where you think like the exit rate is in '22 with the base case.

Sure. I'll start and then.

Mike will add some comments, but let me address the first quarter first. We usually don't give quarterly guidance and even when you are when you push us to do so. We generally don't do it. But I think it's very important to understand.

Some comments, but let me address the first quarter first we usually don't give quarterly guidance and even when you are when you push us to do so we generally don't do it but I think it's very important to understand.

What we think is happening in this quarter, because we do expect that our earnings will be lower than they were in the fourth quarter and that's driven by a few things. One.

The commodity pressure will continue to be intense.

And inflation in the first quarter will be high.

The pricing isn't fully in in the fourth quarter.

And then we're in the midst of pretty acute supply chain disruption caused by omicron. So, but we are seeing as are other companies and as our suppliers and as our customers, but we are seeing higher absentee rate.

Which is stressing our our ability to fulfill the demand that we see and get the products manufactured and get them to the customers and the customers to get them on shelf.

So that is all happening live right now.

And they were calling, we're calling the year at a very challenging time to call the year given the amount of volatility right at this moment.

And then as I look at 2022, in total, we're expecting stronger second-half earnings.

Earnings and.

And we are expecting a ramp. What's causing the ramp, some commodity costs.

Are expected to ease and while I talked a bit about contract structures and other things.

We also have exposure to the spot market on commodities. So we are expecting commodities to ease and that is as you know just on comparisons of the $1 billion in a high inflation that we saw in 2021 $1 billion of that came in the second half and so if you're looking year over year.

And easier lap in the second half. The other thing is we expect the pricing that we currently see to be fully in the market in the second half and then our cost savings also ramp as we go through through the year. So those are the factors.

That drive the ramp.

We are very focused on margin recovery, recognizing what the billion and a half of inflation from last year and then the added inflation this year.

Does to the margin structures, we are very focused on recovering the margins of this business to pre-pandemic level and then expanding them over time, we expect to make progress on that as we go through this year.

Again, we're calling the year in a very difficult part of the cycle. So when I look here today and say this is what our fourth quarter is going to look like.

There is some volatility around that.

Yes.

There is some volatility around that so.

So that said, with our current assumptions, we will make progress on the on the margin recovery through the year after the first quarter.

And we would expect to be in a better place by the time, we exit this year.

And moving forward, but Mike.

Unless you got some comments.

Great question, Steve. Let me hit. There's really three strategic imperatives for us as a management team I mean number one is we got to accelerate organic growth and you can see all the work we've been doing the last several years doing that. And I think we're making progress and we expect our tissue businesses to improve now that we cycled a lot of the COVID-19 demand volatility.

That's part one. Part two, we got enhanced margins and so I'll come back to that in a second and part three is I want to reduce our earnings volatility. Obviously with this volatile environment I'm not going to talk much about that but just you should know that we've got smart people working on that because I recognize that's a strategic issue for the company and we do want to reduce our earnings volatility over time.

On the margins, my goal is to enhance margins over time over the long term.

And that's kind of the basis of our elevate and expand strategy is the reason why we want to elevate our categories and expand our markets is to do that that's a core component of it.

I will say given the fact that we've taken on last year, I think 2X.

Our previous all-time high and inflation, obviously, our margins have taken a substantial hit and we're very focused on the near term on margin recovery.

I don't think we're going to give you specific timing, but here's what I will say is.

I'm targeting for us to deliver on the upper end of our range.

And I expect our teams to perform that way and if our assumptions coming into the year hold.

Then we will have by year end delivered.

Delivered.

A substantial improvement in our gross margin performance over the course of the year and that's how I'm thinking about it and then if we get a little reversion in the commodities.

Then that will accelerate that further.

Okay. Thank you.

I appreciate it.

The difficulty of trying to call full year at this point. So thank you for that color, but I guess, maybe Mike a little bit just if I could on that.

So just the point on that is, the one point I would make is the COVID-19 environment, well I would say the demand environment has kind of stabilized.

Particularly in our tissue business is booked KCP and consumer tissue.

As Maria talks about, the supply environment is probably more volatile now than we've seen throughout the whole COVID-19 period, right because it's affecting absenteeism, whether it's in the distribution centers of the plants or our suppliers.

Missed deployments on pick up so it's a very volatile environment. I think you're seeing that more broadly as you kind of look at other industries.

Yes, for sure. I think we'll continue to hear more about the coming days and weeks.

Just on that demand environment, Mike if I could just I think you gave us some good color in the conversation with Chris about how you're thinking about volumes in reaction to pricing this year, but I guess.

I'm curious as to how your underlying elasticity assumptions.

Compare with historical elasticity, if you could just how you approach coming to that conclusion.

<unk>.

Just again sort of what the basis for your assumed elasticity isn't where maybe you are expecting more versus less any color. There would be helpful. Thank you.

Yes.

Tough question, because that's the trick of the elasticity modeling is where beyond the range of estimation.

That's the difficult part of it Stephen so you're kind of estimating what's happened historically and the price points are higher than they've been.

That said, our past experience is

On our last round of pricing, elasticities have come back the market generally moved in a direction and elasticities were a little less than we initially estimated and that's been our kind of recent history and so that's what we're going on I think the important thing is.

We've got very strong growth playbook, that's working hard. We've got very good commercial programming across both our professional and consumer businesses and so there's really good underlying brand momentum.

Very strong growth playbook, that's working hard we've got very good commercial programming across both our professional and consumer businesses and so there's really good underlying brand momentum.

And so we expect that to continue and we recognize that we are.

Our.

Putting significant pricing out there but I think as I mentioned earlier, we're seeing.

The impact of the essential nature of our categories.

Okay, very good, thank you so much.

Thanks, Steve.

Thank you. Our next question comes from Kevin Grundy with Jefferies.

Hello, Kevin.

Thanks, everyone.

Yep.

A question for Maria. I think on the outlook first and then I have a

Follow up.

So the guidance and how you pulled it together.

How would you characterize the level of conservatism?

In the outlook or I guess said differently, just given the volatility in sort of the unprecedented cost pressure and I'm not asking you to review it all the earlier question on what's embedded around commodities and input costs, but have you built-in sort of additional cushion than you typically would just given the

Volatility in how challenging '21 was in the number of downward revisions.

'twenty one was in the number of downward revisions.

<unk>.

Additional built in typically.

Investors can get some level of comfort as best we can in this environment that this is hopefully soon.

[inaudible].

Yes. It's a great question, you can imagine we spent considerable time.

Hi.

It's a great question you can imagine we spent considerable time.

Getting arms around our owned planned for calendar 2022, and what we're going to hold ourselves accountable from

An internal plan standpoint, and as we reviewed that.

And as we pulled together our internal plan.

What I would tell you is at this point in time here in the middle of January, it's tilted more toward risk.

And for all the reasons, we talked about in,

I won't repeat them.

It has tilted more toward risk and so that's how we put the guidance range together. So we've got our internal plan.

Which is what all of our teams are focused on either delivering or beating and then looking at the risks and opportunities. It is tilted to risk.

That's what we used to influence our guidance range. If that's helpful.

That is helpful.

Sticking with that for a moment, an area which was a little bit surprising to me I guess like where our model was what is the level of Opex inflation. I think it's been a great deal of time around modeling Cogs and gross margins for all the reasons that we know, but I think the level of Opex inflation was also a little bit surprising. So maybe just if you wouldn't mind and then I'll pass it on spend a moment.

On that and how much is sort of fixed versus variable, we're sort of if need be there's an opportunity to sort of tightened a little bit and pulling the strings to offset further inflation that's not currently anticipated.

Yes, I think it's a very important area to want to talk about so we are continuing to invest in our business we are.

Bullish about our long term prospects. And we think the investments that we have been making and that we've ramped up over the last several years since we kicked off KC 2022 strategy.

Are paying off. They are working. And so we talk about advertising and what we're doing to support the brands with effective marketing, but they've been those investments go beyond just advertising we've talked about.

Investing in innovation, we've talked a lot about investing in our commercial capabilities. And we're going to continue to do those things because they're working and they're paying off and the ROIs are there.

And it's those investments that are helping us have meaningful growth in especially in our personal care.

Segment of the business. When we look at 2022 versus 2021.

We've also talked about the benefit that we had in our between the line spending.

In 2021, due to lower variable compensation expense that normalizes for 2022.

And the last area I'd comment there on between the lines in investments as we are also making a few.

What I would call foundational investments and we're very committed to those as we think.

That they're very meaningful to

The long term health of the company. First, we're opening our North America commercial center in Chicago. This spring, which we're very excited about and our North America team is handling that transition quite well and early signs are very positive, but it is an investment.

And the other one I would call out that I had.

Mentioned before is we are, we did start our program to upgrade.

SAP for Hana, we began that last year.

That ramps up even more in 2022 and that investment is showing up both in the P&L as well as in our capital.

Expenditures.

We're sticking with the investments that we know are working and that are fueling the topline. We've got some foundational investments and then we have some expenses that were lower in '21.

That will step up in 2022 around employee costs, and that's really what's behind it but Mike just important they are important investments SAP.

Obviously, that investment is going to fuel our cost savings for the future too. And so so we feel very good about those and we are going to continue to be very disciplined about our spending but we feel like we're making the right investments for the long term health of the brands and also for the organizational health.

Got it. Thank you both, that's great color and good luck.

Thanks.

Thank you. Our next question comes from Andrea [inaudible[ with JPMorgan.

Morning, Andrea. Thank you, good morning, good morning.

So my question, Mike.

I guess, Maria if we should expect nominal pricing to be in the mid to high single digits. When it's all said and done.

That may positively range or pretty much what you're expecting for sales on the [inaudible] nominal.

And in decades.

It implies probably you're getting additional pricing in the spring resets.

And I just want to confirm that because you did imply obviously FX being a negative and then.

And then negative volumes.

And then related to that, are you seeing private label getting.

I mean, some of the categories, obviously had a lot of shelf space.

During the pandemic, but some of the other categories do not. So I was thinking.

Are you seeing private label in particular in diapers coming back?

As we go into that, is informing you not only about demand elasticity, but also in terms of availability of the product.

That you may want to break for some private-label concessions here. Thank you.

Great for some private label concessions here. Thank you.

Yeah. Hey, just on the pricing, Andrea.

I would expect over the course of the year.

Mid to high single digit increases on pricing.

That could vary a little bit based on conditions, but again, that's kind of what we are marching against.

And thus far as I mentioned earlier, we've executed multiple actions and there are generally on track and so we feel good about that progress and obviously, we're keeping a close eye on that.

In terms of private label.

And I'll maybe I'll talk North America differently, I would still say private-label is still down in most categories. I think it was up a little bit in bath tissue, but down in most of the other categories.

We're going to continue to be very focused on but we're very pleased with our brand momentum.

And I think.

Although we're making progress on organic in North America. Some of that is still muted because we're still working through supply challenges.

As you recall, we had significant challenges in the first half because of the storm down here in Texas.

We recovered very well from that. And so really saw our service levels improved throughout the course of the year, but I'd say, even in the fourth quarter, we as Maria mentioned, we under shipped demand because we're having difficulty getting carriers are getting supplies and all the other things that are associated with what's happening with omicron in COVID-19.

So again.

We're keeping a sharp eye on private label, but we're

Really focused on driving our business and we feel good about the progress we're making.

And in terms of like, when you said mid-single digits on top of like low single digits call it [inaudible] you already implemented.

Is that the way we should be thinking.

In total between 2020, one and 2022 you are going to hit.

High single digit price increase.

Is that the way to think?

Yes, in general again, yes, we again as I mentioned, we've made multiple rounds.

If you go back and look at our kind of maybe what's happened in pricing in North America already pretty significant moves.

Okay, Great. I'll pass it on. Thank you so much.

Thank you, Andrea.

Thank you and again as a reminder, please press star one if you would like to ask a question. Our next question comes from Dara Mohsenian with Morgan Stanley.

Good morning, Dara.

Hey, guys good morning.

So just to follow up on Andrea's question. Can you give us a little more granularity on what product categories and geographies incremental pricing that's coming in 2022 will be focused on? Is it more just sort of across the board and everything? Are there specific areas where.

Sure.

There is more aggressive pricing posture again in terms of the incremental increases in 2022.

And then given that a lot of these categories we're talking about.

Multiple times that you take incremental pricing. Can you just talk about your experience historically when you've been in situations where there's multiple rounds and how the elasticity might be different than in situations where you just had one round of price increases has been necessary?

Hey, Dara, just as a policy, though I will just to clarify, I'll talk about the pricing we've implemented I will not talk about any future pricing actions.

Although I will say I think as they approach, I do expect pricing to offset

A significant portion of inflation. So that's just kind of a principle.

That I kind of put out there, but I'll talk about what's already occurred and I'll focus on North America as a starting point, we announced mid to high single-digit increases.

In March, largely in our personal care business in North America.

And about 60% of our consumer business last March.

We took some further actions primarily in tissue on talent back in August and that was effective this quarter and then we took additional actions that were announced in Q4 generally about a mid-single-digit lift increase across most of North American consumers. So so that kind of should give you a sense of kind of what's been happening in the marketplace.

In North America, I would say.

In international markets similar, multiple rounds in Europe.

Multiple rounds in some cases monthly in Latin America. Unfortunately.

And of course in Asia as well, so it's pretty extensive.

Okay. And it sounds like it's generally broadly across the board I don't know if you want to.

If you don't want to get into too much specifics, but.

Generally, we're expecting pretty broad increases in 2022 incrementally. Is that fair?

Well, yes, I think.

That's the case and we're expecting the pricing that we have and the flow-through.

Substantively.

Okay, and then on the margin side. The comments about returning to pre-pandemic levels over time. Can you just be a bit more specific on the timing of that is that possible at some point in calendar '23 or is that more of.

For our multi-year goal, how do you think about that? And also does it require cost levels to come back down or is it realistic if you add current cost levels in terms of the ability to recover fully through pricing offsets overtime.

Yeah, Dara.

I'm not going to give a specific.

Timeframe .

I would say that the

Driver of that is is really the volatility around the factors that are causing the margins to be depressed in the first place and it's just it's too hard to call.

<unk>.

Beyond 2022, what I can tell you though is that.

I am very confident that we will take, we are taking and we will take the right actions to recover the margins.

Of the business. Whatever that looks like so we've shared with you what our assumptions are for 2022 in terms of all of the moving pieces and if it turns out to be different than that if that turns out to be upside thats great for all of us if it turns out that the.

Environment's rougher than what we're thinking. We will take the right actions. So if inflation continues to run, we'll continue to price.

We'll continually look at the cost structure of the business.

And take the right actions.

But I can't today.

Give you the exact timing of when we'll.

Have the margin structure.

Where it was in 2019 before the pandemic began.

The other thing that I'll comment on when we think about that and the actions and kind of managing through that going back a bit to what.

Kevin was probing on in terms of the cost structure.

This is probably the right time to call out we did wrap up the global restructuring program that we kicked off in 2018, and we successfully delivered that with annualized savings of $560 million, 40% of those accrue to between the lines and so.

So when you look at our cost structure today outside of the supply chain.

We really did restructure the between line spending of the company.

<unk>.

<unk> spending of the company.

We took almost 200 basis points out and and then we invested back in the areas where.

We will have competitive advantage and differentiating capability. So when I look at the cost structure between the lines today.

We are in good shape, and we actually benchmark in the top quartile in terms of between the line cost structure. So feel good about where we are and that.

We are.

We're optimized and we're investing in places that have heart high ROI.

So I do want to call that out.

As the environment changes.

Changes over time.

That part of the P&L.

I feel good about.

The other thing I'll add is the fundamentals would suggest in our core commodities, there's going to be reversion.

But I do not want our teams.

Waiting for commodities to come down to drive margin recovery. And so we're our plan is to work to recover margins in and then if the commodities when they do revert.

Then that will affect, that will change the timing and hopefully move it up.

That's helpful. Thanks, guys.

Great. Thank you, Dara.

Thank you. Our next question comes from Jason English with Goldman Sachs.

Good morning, Jason.

Hey, good morning, folks, thanks for slipping me in.

And Happy New year, I know, it's late but I still think January still slip it in.

Happy New year, I know, it's late but I still think January still slip it in.

It looks like the Chinese of your time. [inaudible]

There you go. You're going to be Chinese business too. So there you go. Exactly.

A quick question for clarification in response to an earlier question. I think many people will have interpreted your comments to suggest that you expect to realize around 5% plus pricing this year.

But many times throughout the call you suggested that you expect prices to lag inflation have our price cost deficit.

If you got 5% flowing through the P&L, that would be almost $1 billion and would eclipse your cost inflation.

Can you clarify what seem to be two conflicting comments?

Yes. I think that's the numbers that you quoted are right and when I look at.

I think that's the numbers that you quoted are right and when I look at.

Currency commodity price.

For 2022 that should be about even.

For 2022.

The margin story is that that was not even in 2021, given the billion and a half of of in place inflation that we saw it was I think it was about 30% drag.

To operating profit growth in '21.

So while it is even for 2022, we haven't yet recovered.

The impact from the spike in inflation in 2021, Jason. If that's helpful. Sure. No. It's really helpful. Because I think you said you expect to offset the majority of cost inflation next year and you said it many times, but the reality is you expect price to offset not just all the cost inflation, but most of the currency, which is I think is just a different conclusion.

And then to get down to your numbers.

Really have to take an axe to volume, if you're going to get that much price.

So I guess my question is.

Where's are you expecting volume to fall short? Because you're telling us that you under shipped this year. So at some point hopefully you catch up and we replenish we catch up on some of that so you get a benefit.

Professional, I think is still tracking down 16%, 17% volumetric lead to pre-COVID-19 levels. I imagine that's going to be a pretty strong tailwind.

Tell me if that's not. So where's the big offset?

Well again, I think that's the key.

Here's a couple of things that I think you're right. Jason, I think we're expecting improved performance and growth in both consumer tissue business and the professional business. I think on professional though I would not expect a snapback right. Because I think what it has done is stabilized at a lower level, we're running below about 85, our Washington business is running at about 85%

of what it had done pre-pandemic and that's because.

I don't know if you are in your office.

We haven't seen a full scale return to offices and I don't expect that in the near term.

We haven't seen a full-scale return to travel, especially business travel and I don't think we're expecting that in the near term. And so I think we are dealing with professional business that's going to grow and we're pretty excited about the growth plans that we have this year the innovation and the commercial trends we have in the business this year.

But it's not going to revert to pre-pandemic levels. This year at least and so that's part one consumer tissue same thing.

And I think.

There's been a lot of volatility in the last couple of years, driven by consumer stock up and then destocking. So forth when you when it all shakes out it's a very stable business is probably one of the most stable businesses in consumer and consumer.

And that in the last couple of years, a two-year stack of our fourth quarter would be plus three right and so so we're expecting solid growth.

On the consumer tissue and then our personal care business globally is doing very, very well as you can see in the fourth quarter.

Being up double digits, and we're expecting continued growth there.

The offset really from us is we're pushing.

Prices at a pretty high level and so that's going to have an effect and we hope that our lessee assumptions prove out to be a little conservative.

Yes, I'm going to try to squeeze one more real quick. A share repo you effectively paused at back half of the year. You're guiding down free cash flow for next year.

Im going to try to squeeze one more real quick a share repo you effectively paused at back half of the year Youre guiding down free cash flow for next year.

When should we expect to see you back in the market buyback stock?

Yes, as soon as we've got the excess cash flow that will allow us to do it. So again, we're in a tough part of the cycle here in terms of.

Capital allocation, nothing on capital allocation and how we think about it has changed and those steps are invest in the business look to grow the dividend.

Which I am pleased to say we will do again for the 15th consecutive year.

And then beyond that with the remaining cash flow, we're always looking at M&A, but assuming there's nothing there. Then it goes to two why share buyback so when the margins recover.

Let me start at the top rate, we're expecting.

A strong topline growth in our business, we're expecting the margins to recover.

And when those two things happen, we will get back to the cash generation levels that will enable us to do share repurchases. So we're committed to shareholder-friendly capital allocation practices as we've done in the past.

We're at about, I think we finished with leverage at 2.3 times excluding restructuring.

That's ahead of kind of the 2.0 that the agencies like to see for the single A rating and we do remain committed to the single A ratings so.

That's a point in time.

The way the numbers line up.

Yes.

We don't have the cash within the rating to do buybacks, but I very much look forward to being able to get back to doing so.

Understood. Thank you, all, be well. Bye.

Okay. Thank you, Jason.

Thank you. Our next question comes from Peter Grom with UBS.

Good morning, Peter. Hey, Good morning. Hey. Good morning, guys. So just a quick follow up on Steve's question.

I know you don't want to give a specific timeframe, but I just wanted to get some clarification around the comment which I think was significant gross margin progress in 4Q. Is that simply just margin expansion or should we read that comment as a suggestion that the fourth quarter is really when you expect to see margins return to closer to those pretty bad debt levels?

Yes, I think we do expect gross gross margin.

We do expect gross gross margin.

Progress versus pre pandemic levels.

To happen faster than on the operating profit line for the investment reasons that we talked about before.

But we are expecting to have progress.

Expecting to have progress.

We're not expecting to be back to pre pandemic levels.

But.

But the actions that we've taken for the environment that we're in and that we think we're going to be in during this year as those materialize through the P&L during the course of the year, I think we're going to be on a good path.

If the environment is what we think it is today, which we know that it won't be because it's too difficult to predict, especially with the volatility, but if it were if I was able to hold that constant I think we'd be on a good glide path.

But I would say that recognizing with the volatility.

It's too difficult to call.

What the environment will look like and exactly when those margins will we will hit the pre-pandemic levels.

But again, we're taking all the right actions in the business to do that.

And we talk a lot about margin, which we're very focused on because we're focused on the overall health.

Margin, which we're very focused on because we're focused on the overall health.

of the financial structure of the company. So we feel it's appropriate.

I'd call out a few things though, that.

Though that that.

Getting back to Jason's question, what generates the cash so that we can provide healthy returns.

It was actual dollars. So when we look at operating profit growth.

That's very important and I think it's worth noting a few things.

First, on margin recovery, we will get there faster on consumer than we will on professional because professional.

Today we had a cost structure that was built for a business that's larger than one that's producing today.

So there was a misalignment between the revenue of the business and the cost structure of the business, we will get that corrected but that will take some time. So the [inaudible] to recover we will come faster on consumer.

But then going to the profit dollars I'd call out in 2021

Consumer tissue for all the reasons that we've talked about that was 75% of the operating profit decline. So they were very specific dynamics that caused it.

The operating profit decline. So so they were very specific dynamics that caused it.

It was the big driver of the profit decline, but if you look at our personal care business, which is half of our company strong grow strong market shares.

It actually grew operating profit in the fourth quarter. It also grew in the third quarter. So the second half of the year, the personal care segment, which is very healthy.

It's actually growing operating profit.

And in the near term, I will take the dollars recognizing in the long term. I have to get the margin structure to the to the right place. So just thought I'd give a little bit more color by segment there.

Give a little bit more color by segment there.

That's incredibly helpful and then just.

Completely shifting gears here. I would love to get an update on the performance and the [Dnb] markets.

Which seem to perform quite nicely in the quarter. Can you maybe provide a bit more color on kind of the health of the consumer in those reasons regions? Like what is driving the stronger growth whether it be category or Kimberly Clark specific? And then I guess on pricing and how have pricing actions have been received.

in those markets versus what you see.

What you're seeing in developed markets.

Yes. Thanks for the question, Peter. Great performance in developed and emerging markets. Overall in the quarter I think it was in our statement, but organic up 10 in the quarter and eight for the full year.

And that was composed of really a healthy balance of price.

Volume and mix importantly, and then we saw solid growth in all regions high single-digit gains in Asia, and Latin America and double-digit growth.

In EMEA.

And then really strong double-digit growth in China, India, Russia, Eastern Europe, and Africa, which are kind of the important future growth markets for us. So we're really excited to see that and I think what's driving it as I've mentioned kind of in my prepared remarks, really really great innovation, we're doing a really good job our teams around the world doing a great job.

Are scaling really what I would call breakthrough innovation.

Across markets. We're up multiple share points in Korea in the fourth quarter. That is a version of the Chinese diaper technology that we've put out there which is related to the type of technology that we have in North America, which is the same technology that we put out in Australia, which was also up multiple share points.

Multiple share points in Korea in the fourth quarter that is a version of the Chinese diaper technology that we've put out there which is related to the type of technology that we have in North America, which is the same technology that we put out in Australia, which was also up multiple share points and so.

And so I think really really good consumer-inspired innovation, and then superior local market execution around digital.

Marketing and sales execution, so it's kind of all the things.

And they are all working very hard for us.

One of our business leaders calls is [all oars] in the water meeting we used to be over reliant on one thing to drive the business.

Was it.

All oars in the water meeting we used to be over reliant on one thing to drive the business.

We're really part of our commercial capabilities that we're developing as we want everything out there working and working in the same direction. And we do that we tend to see the results that we think we're seeing now.

Thank you. Best of luck.

Okay. Thank you.

Thank you. Our next question comes from Nik Modi with RBC capital markets.

Good morning. Good morning, Mike.

So just two quick questions for me just on the upstream innovation agenda. Mike, can you just talk about what's going on there? I mean, it hasn't had to take a back seat just given all the situations that you've been dealing with COVID et cetera.

And then.

We talk a lot about labor and transportation and input cost, but we don't talk a lot about retailer media, which seems to be a growing demand from your customer base. So I was hoping you could provide a little bit of context on that and how that's hitting your P&L.

Yeah. Okay, yeah, great questions. Thank you.

I think the flavor, maybe could've gotten from arrears commentary earlier I mean, we're continuing to invest in the foundational things that are going to make this group business healthy for now in the long term. And we recognize we're working through some choppy waters, but we're committed to growing this business for the long term in the right way and so yes, so we haven't.

We're not pulling back on our innovation investment and our insights and our technology investments. And we're excited about it and I think the reason you're seeing the results that we're realizing around the world is because we're just doing a better job of scaling big ideas and big innovations that are really grounded in great technologies.

We're continuing to do that. Maria mentioned the visibility of our pipeline on cost savings is probably better than it's ever been while the visibility of our pipeline of our technology innovations better than it's ever been too. And that's one of the things as we

coming into this role we wanted the organization to work longer term. And we're here for today and we're also here for tomorrow, and then be able to balance that. And so we're really pleased with that progress. And so which is why I would say we're confident that we're going to continue to be able to invest and grow in our businesses both in personal care.

Professional and consumer tissue.

So that's one. I think with regard to retail [unit], yeah. it is becoming.

A bigger topic I will say. I feel very good about our digital capability and we're very disciplined.

So much data around.

As Maria mentioned earlier, digital ROIs, I mean we know exactly what it is we've made significant progress in ROIs.

Over the course of the last three or four years, and we know what the investments are worth and so we're very capable.

To gave the right sort of data as you might expect to be able to work with our retailers and make the right investments. And frankly.

Some of those investments are really, really good for us. And we're really excited to do that with them. And others.

We're going to need to see a little more improvement, but overall I think it's an operational.

Issuing capability that our organization is really well equipped to deal with.

Great. Thanks, Mike.

Thank you, Nick.

Thank you. At this time I am showing no further questions. I'll turn the call back over for closing remarks.

Thank you.

In closing, I'd like to really reinforce a few key points from my opening remarks.

Three years ago, we launched our strategy to deliver balanced and sustainable growth. And that plan is anchored on our strategy to accelerate topline growth by elevating our categories and expanding our markets.

Now to do this we have invested in our brands and capabilities and our people.

This growth is fueled by improvements to our cost base. Delivering strong annual productivity through our force and global restructuring programs.

By improvements to our cost base.

Delivering strong annual productivity through our force and global restructuring programs.

It's pretty clear, we're executing our strategy in a very dynamic environment. And our teams have faced challenges well beyond what we or anyone else had anticipated. But that's a reality and we expect the volatility in the environment to persist this year. We're committed to our strategy and we're executing well evidenced by our growth in personal care.

Strengthened market share performance and the actions we've taken in a very volatile environment. We're excited about the potential of our brands and categories and our ability to develop innovative products that will enhance our portfolio and the value we provide our consumers.

We're also committed to restoring our margins and expect to make progress this year.

This commodity cycle is clearly different from past cycles, and the time to recover will be elongated due to continued inflation.

We're confident in the actions we're taking in and our ability to create meaningful shareholder value over time.

I'm especially grateful for the dedication of our talented teams and we will continue to do all we can to ensure a safe and rewarding work environment in the year ahead. Thank you, all for joining our call today.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Okay.

[music].

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 short remarks, we will open the floor for questions at that time instructions will be given after the procedure to follow if you would like to ask a question.

It is now my pleasure to introduce today's first presenter Terran Miller.

Thank you and good morning, everyone Kimberly welcome to Kimberly Clark's year end earnings conference call on the call with me today are Mike <unk>, our chairman and CEO and Maria Henry our CFO .

Earlier. This morning, we issued our earnings news release, and we also publish prepared remarks from Mike and Maria.

Summarized our fourth quarter and full year 2021 results.

Both documents are available in the investors section of our website.

We hope you find it valuable to have our prepared remarks ahead of this call.

And just a moment Mike will share a few opening comments and then we'll take your questions. During this call. We may make forward looking statements. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward looking statements.

You May also refer to adjusted results and outlook both exclude certain items described in this morning's news release.

The release has further information about these adjustments and reconciliations to comparable GAAP financial measures.

Now I'll turn it over to Mike.

Great. Thank you Darren and good morning, everyone.

Before we get to your questions I'd like to offer some perspective on our results and outlook.

These actions, which began in the first half to help us deliver organic sales growth and improved net selling prices in the second half of the year, including strong fourth quarter performance.

We continue to make significant progress accelerating organic growth in personal care.

Through the year, our team launched strong innovation and support it with superior local market execution, all of which contributed to strong share gains in numerous key markets.

We also strengthened market positions in several important growth markets by integrating soft Tex in Indonesia.

Commissioning a state of the art production facility in Nigeria.

And advancing our route to market in India.

While we're encouraged with our top line performance and the way our teams executed in a very dynamic environment, our margins and earnings were negatively impacted by a challenging operating environment.

Input costs escalated well beyond previous levels and supply chain disruption limited our ability to fully meet the growing consumer demand for our products.

We also expect performance in our tissue businesses to improve as we cycle of volatility and demand we've experienced over the past two years.

We are committed to recovering and eventually expanding our margins and we expect to make progress this year we've.

We've taken significant pricing actions and expect pricing to offset a majority of the impact of cost inflation.

We're confident in our ability to restore margins to pre pandemic levels over time.

We remain confident in the potential of our brands and categories and in our ability to create meaningful shareholder value. While we work to achieve our purpose of better care for a better world.

Now we'd be happy to take your questions.

Thank you at this time, we will open the floor for questions. If you would like to ask a question. Please press the star key followed by the one key that is star one on your Touchtone phone now questions will be taken in the order in which they are received.

Any time, you would like to remove yourself from the question in queue. Please press star two.

Thank you our first question will come from Chris Carey with Wells Fargo Securities.

Good morning, Chris.

Can you just maybe to start just help frame the volume impact.

That you are expecting from the price hikes I guess based on your comments around pricing that is going to cover the majority of inflation.

It seems like you're suggesting maybe 4% to 5% range on pricing maybe.

And maybe volumes down about 1% is that fair.

And then maybe where you expect the volume has to play out.

Clearly there is some momentum in personal care.

Consumer tissue is coming off.

A year, where comps shouldnt really be too much of an issue.

I'm wondering if you could just dimensionalize.

Hi.

That comment around pricing versus volumes and how you're seeing it play out and whether you could see some upside if elasticity stay where they are.

Yes, I think thats, a good push Chris and I think Thats right, which is overall, we feel good about the momentum of our business overall personal care.

For sure a strong performance and we're expecting that performance to continue we've got great innovation coming and great great brand support throughout the year on both our consumer tissue and personal care businesses and so so I think we feel good about the commercial programming that said there is significant pricing in the plan and so there will be an elasticity impact, which we have est.

<unk>, so we have volume down a little bit.

Offsetting some of the organic growth that strip being driven by the commercial programming and so.

The reality is thus far I would say.

The categories, our categories are essential and I think the demand that we saw in the fourth quarter kind of highlights the essential nature of our categories and despite the price increases we are.

We're seeing good volume performance and so.

Love to see that our elasticity assumptions are a little conservative.

Potentially there could be a little upside.

Generally in our categories.

Other market moves in a direction generally elasticities are a little lower.

Okay.

Yes, yes.

Thanks, and just one.

One follow up on the on the outlook for.

For input cost inflation.

Maybe that that's part of the surprise today.

Can you just maybe dimensionalize.

The significance of distribution.

<unk> energy you called out polymer based materials I guess pulp is.

Secondarily in the.

Secondary.

Impact relative to those but can you just frame the relative impact of these and and weather.

Again.

Sure, Chris Let me let me.

I'll spend a minute on our inflation outlook for 2022.

You just mentioned it continues to have volatility around it for.

For perspective, if we had given given you our outlook on the October call.

We would have been $300 million lower than the outlook that we're providing today. So it's been quite volatile and we're kind of calling it a tough part of the cycle hence.

Hence the range around that but let me let me talk about what we see.

Approximately half of the inflation for 2022 is expected to come from distribution and energy.

And then of the raw material component the inflation will be led by polymer based purchase materials, so things like <unk>.

Super Absorbent nonwovens.

And then followed by by pulp and so let me just.

Spend a minute on the two areas that will make up our commodity inflation.

One is what happens with market prices.

That can be a little more detail there in a minute, but the second one is how inflation commodity inflation flows through our P&L and as you know we use contract structures to manage some of the volatility on commodities.

And some of those.

Contracts reset.

In the beginning of the year, so they reset at higher prices this year.

And then some of them also have some timing lag built in so some of the the high inflation that you'd see in the market in the fourth quarter will flow through our P&L.

In the in the early part of 2022.

But that said on the market prices.

I'll tell you what we're seeing so the market price in North America for Eucalyptus will be down the market prices for softwood, we're expecting to be down in a similar amount in eucalyptus in.

In the full year average polypropylene prices will also be down for.

For market pricing in 2022, so those are the things you hear us talk about the most.

The inflation is coming from other areas in 2022, let me comment on market pricing that we expect to be up fluff pulp, we expect to be up recycled fiber and expect to be at nonwovens expect to be up Super absorbent up size of Lee next year does.

<unk> up and energy up so the basket of commodities, while the traditional ones. Thanks.

Thankfully, we expect to be coming down and we're already seeing that in the fourth quarter.

There is.

No meaningful portion of our basket that the market prices will be up on in 2022, and that's what's reflected in the outlook that we provided.

Yes, so Chris maybe I'll just tack on I mean, historically, what we see is.

A quick reversion in our commodities look typically in 2018 right the big driver of.

Our increase was pulp and so that quickly receded in 2019, and 2020 to some extent and so that's typically we will see in our categories. We will see reversion. It always happens in our categories and so I expect fully expect overtime pulp to come down in the resin based whether it's super bored absorbing for nonwovens to come back down, but this cycle is a little different because the peak.

It's higher.

It's broader and it's longer and so regardless of what's happening with the cycle, we are going to restore our margins with both price and cost initiatives and we expect our teams to cover the majority of all inflation with pricing. So that's part one if.

If we get a little more reversion, we're not expecting a version this year and.

And if we do then.

Recovery would be a little faster that said there will be reversion at some point, but given the call and I think what's maybe a little confusing to maybe some of the analysts and investors.

As Maria mentioned, it's a broader set of inflationary impacts than we typically talk about which is typically.

Energy is a big one and labor and freight are big ones that we typically haven't talked about in the past, but our big ones for this year.

Okay. Thanks, so much for all that perspective.

Okay. Thank you Chris.

Okay.

Thank you. Our next question comes from Lauren Lieberman with Barclays.

Good morning, Hi.

I wanted to have a little bit about about pricing.

In the release there was a mention of I heard the prepared remarks, you have a lease but.

About some incremental pricing. So simplistic question are there new price increases.

That have been announced that we expected to start flowing through.

But then perhaps more interestingly I was curious about the ability to price.

For energy for logistics.

And then also for the fact that contactor resetting higher because I was just wondering is it more difficult.

If market pricing is down.

So that you know what your customers see the better relatively speaking better environment.

But youre talking about your contracts resetting higher and that being part of the difficulty here is it more difficult to get incremental pricing through in that kind of a construct rising inflation.

Yeah, Thanks, Lauren Yeah.

Couple of things one we've executed multiple rounds of pricing and I would say globally and generally our pricing is on track we announced I'll just give you. An example in North America I think we announced.

In March and August and November and then I think we may have had another announcement in December as well, so theres been multiple rounds.

I will tell you.

Happen globally in most markets around the world for US I will tell you in most markets. The trade discussions have generally been very constructive.

Our customers are seeing the same things happen, especially as you mentioned in some of these other areas, they're more affected by freight and distribution and some of those things and we are since it's a bigger and bigger component of their P&L.

So I would say the discussions have generally been constructive.

We've seen some movement in other brands and some movement in private labels.

There is a little stickiness in some markets like in Western Europe , and Latin America for Us.

But as I mentioned there Chris.

Consumer demand reflects the essential nature of our categories and so we expect to make progress on pricing, we expect to make progress on recovering our margins and as a principle.

I'd say, we're expecting our teams to be able to price to offset the majority of the inflation.

Okay, Great and then just one other question I had was on cost savings and restructuring.

Restructuring is complete now.

Ongoing for savings there.

<unk> is forecasting 300 to 350 is a little bit low by recent standards and I know in the also in the prepared remarks that release you mentioned.

<unk> savings on that get negotiated raw material prices.

I think one thing we talked about last quarter and a couple of other companies as sort of the difficulty of achieving typical run rate productivity.

A constrained environment.

It's because of labor access to the plants with Covid and absenteeism.

I'll just throughout the supply chain I was wondering if you could comment a little bit on that on the absolute level of <unk> savings.

This year and just yet.

These sorts of impediments or are part of why the number might be a little bit lower than you might typically target in such a deeply inflationary environment.

Yes, Laura and Youre spot on with with what Youre hearing from other companies at the same thing that that we are seeing within our force cost savings negotiated material price component.

We'll be down meaningfully if you if you think about that.

The benefit of our contracts in.

2000.

2021 was well.

Significant.

Those reset as we as we move forward that that's less of a benefit for us in in 2022, but we do do you still expect to see benefits from product changes.

And from ongoing productivity improvements.

The other line that's in our force cost savings is distributions so under normal circumstances.

We would be driving productivity in distribution expenses every year those are going the other way right now the distribution.

Costs are up meaningfully and they will continue to be is our expectation in 2022, and then as you said given what's happening in the supply chain, where our demand is exceeding our ability to supply at the moment.

Taking any downtime on any of our machines is is very punitive and so finding the time.

To do the work to drive the savings is a bit challenged and that's that's really what's behind the range I will say.

The team kicked off.

Our program in 2021.

To really look at the multi year pipeline that we have around force cost savings and we have better visibility today than we than we've ever had in terms of what those what those opportunities are.

And how we need to how we can unlock those and that includes some investment behind the supply chain that you see showing up in.

Other areas of the P&L, but but we've never had better visibility to what those opportunities are and they continue to be meaningful for for the company and as things.

When things normalize around supply chain, we'll be able to you want to drive a higher number on that force cost savings line.

Thanks, So much I'll pass it on.

Okay. Thank you Lauren.

Thank you. Our next question comes from Steve powers with Deutsche Bank.

Good morning, Steve Yeah, Hey, Thanks, good morning.

Okay.

Maybe a little a little more.

Clarity and color around your guidance.

I guess from two perspectives first is.

In the first quarter.

Prepared remarks suggest incremental difficulty in that first quarter.

There was a sequential decline in earnings I would think you might have some room for sequential acceleration on revenue even with the higher FX.

<unk>.

So I'm guessing that incremental pressures coming from cost.

Cost pressure and margin pressure, but just again, maybe you can dimensionalize that.

And I want to juxtapose that against your.

The strategic ambition to restore margins and I'm really curious as to.

Where do you think you can get to on that on that objective by year end. So I guess I'm trying to get a little bit more depiction.

Mind about what the what the what the kind of improvement curve looks like throughout the year.

Slide slide South <unk>, and then build back.

I'm trying to get a sense of where you think like the exit rate is in 'twenty two with the base case.

Sure I'll start and then.

Mike will add some comments, but let me address the first quarter first we usually don't give quarterly guidance and even when you are when you push us to do so we generally don't do it but I think it's very important to understand.

What we think is happening in this quarter, because we do expect that our earnings will be lower than they were in the in the fourth quarter and Thats driven by a few things one.

The commodity pressure will continue to be intense and.

Inflation in the first quarter won't be high.

<unk> isn't fully in in the fourth quarter.

And then we're in the midst of pretty acute supply chain disruption caused by omicron. So, but we are seeing as are other companies and as our suppliers and as our customers that we are seeing higher absentee rate.

Which is stressing our our ability to fulfill the demand that we see and get the products manufactured and get them to the customers and the customers to get them on shelf.

So so that is all happening live right now and.

They were calling we're calling the year at a very challenging time to call the year given the amount of volatility right at this moment.

And then as I look at 2022 in total we're expecting stronger second half.

Earnings and.

We are expecting a ramp what's causing the ramp some commodity costs are expected to ease and while I talked a bit about contract structures and other things.

And easier lap in the second half. The other thing is we expect the pricing that we currently see to be fully in the market in the in the second half and then our cost savings also ramp as we go through through the year. So those are the factors that drive the rash.

And.

We are we are very focused on margin recovery, recognizing what the billion and a half of inflation from last year and then the added inflation this year.

Does to the margin structures, we are very focused on recovering the margins of this business to pre pandemic level and then expanding them over time, we expect to make progress on that as we go through this year.

Again, we're calling the year in a very difficult part of the cycle. So when I look here today and say this is what our fourth quarter is going to look like.

Yeah.

There is some volatility around that so.

That said with our current assumptions, we will make progress on the on the margin recovery through the year after the first quarter.

And and we would expect to be in a better place by the time, we exit this year.

And moving forward, but Mike.

Got some comments.

Great Great question, Steven Let me, let me hit there's really three strategic imperatives for us as a management team I mean number one is we got to accelerate organic growth and you can see all the work we've been doing the last several years doing that and I think we're making progress and we expect our tissue businesses to improve now that we cycled a lot of the COVID-19 demand volatility.

That's part one part two we got enhanced margins and so I'll come back to that in a second and part three is I want to reduce our earnings volatility obviously with this volatile environment I am not going to talk much about that but just you should know that we've got smart people working on that because I recognize that as a strategic issue for the company and we do want to reduce our earnings volatility over time.

On the margins.

My goal is to enhance margins over time over the long term.

And thats kind of the basis of our elevate and expand strategy is the reasons why we want to elevate our categories and expand our markets is to do that that's a core component of it.

I will say given the fact that we've taken on last year I think two weeks.

Our previous all time high and inflation, obviously, our margins taken a substantial hit and we're very focused on the near term on margin recovery.

I don't think we're going to give you specific timing, but here's what I will say is I am targeting for us up to deliver in the upper end of our range.

And I expect our teams to perform that way and if our assumptions coming into the year hold then we will have by year end.

Delivered.

A substantial improvement in our gross margin performance over the course of the year and that's how I'm thinking about it and then if we get a little reversion in the commodities.

Then that will accelerate that further.

Okay. Thank you.

I appreciate it.

The difficulty of trying to call the full year at this point. So thank you for that color, but I guess, maybe Mike a little bit just if I could on that sorry go.

So just the point on that is yes.

The one point I would make is the COVID-19 environment, while I would say the demand environment has kind of stabilized, particularly in our tissue business book KCP and consumer tissue.

As Murray talks about the supply environment is probably more volatile now than we've seen throughout the whole COVID-19 period, right because it's affecting absenteeism, whether it's in the distribution centers of the plants or our suppliers and missed appointments on pick up so it's a very volatile environment I think youre seeing that more broadly as you kind of look at other industries.

Yes for sure I think we'll continue to hear more about the coming weeks.

Yes.

Just on the demand environment, Mike if I could just I think you gave us some good color in the conversation with Chris about how youre thinking about volumes in reaction to price in this year, but I guess.

I'm curious as to how your underlying elasticity assumptions.

Pair with historical last if you just how you approach coming to that conclusion.

And just again sort of what the basis for your assumed elasticity isn't where maybe you are expecting more versus less any color. There would be helpful. Thank you.

Yes.

Tough question, because the trick of the elasticity modeling is where beyond where beyond the range of estimation. So.

That's the difficult part of it Stephen so so.

Youre kind of estimating what what's happened historically and the price points are higher than they've been.

That said, our past experience as well.

And our last round of pricing elasticities have come back the market generally moved in a direction and elasticities were a little less than we initially estimated and thats been our kind of recent history and so thats what were going on I think the important thing is we.

We've got <unk>.

Very strong growth playbook, that's working hard we've got very good commercial programming across both our professional and consumer businesses and so there's really good underlying brand momentum.

And so we expect that to continue and we recognize that.

We are.

Putting significant pricing out there and but I think as I mentioned earlier, we're seeing.

The impact of the essential nature of our categories.

Okay very good thank you so much.

Okay. Thanks, Steve.

Thank you. Our next question comes from Kevin Grundy with Jefferies.

Hello, Kevin.

Good morning, everyone I might I'm Maria.

A question for Maria.

The outlook first and then I have a follow up.

Yes.

So the guidance and how you pulled it together.

How would you characterize the level of conservatism.

In the outlook.

Said differently, just given the volatility in sort of the unprecedented cost pressure and I'm not asking you to review it all the earlier question on what's what's embedded around around commodities and input costs, but have you built in sort of additional cushion than you typically would just given the volatility and how challenge.

'twenty one was in the number of downward revisions.

<unk> built.

Built in typically.

Investors can get some level of comfort as best we can in this environment that this is hopefully soon.

Yes.

It's a great question and you can imagine we spent considerable time.

Getting getting our arms around our owned plan for calendar 2022, and what we're going to hold.

And hold ourselves accountable from a <unk>.

Internal plan standpoint, and as we reviewed that and as we pulled together our internal plan.

What I would tell you is at this point in time here in the middle of January it's tilted more toward toward risk.

And for all the reasons, we talked about and I won't repeat them.

It has tilted more towards the risk and so that's that's how we put the guidance range together. So we've got our internal plan, which is what all of our teams are focused on either delivering or beating and then looking at the risks and opportunities and it's tilt into risk.

That's what we used to influence our guidance range. If that's helpful.

That is helpful sticky.

Sticking with that for a moment the area with a little bit surprising to me I guess like where our model was what's the level of Opex inflation I think it's been a great deal of time around modeling Cogs and gross margins for all the reasons that we know, but I think the level of Opex inflation was also a little bit surprising. So maybe just if you wouldn't mind and then I'll pass it on spend a moment.

<unk> on that and how much is sort of fixed versus variable. We are sort of if need be there is an opportunity to sort of tightened a little bit and Paul and the strength to offset further inflation that's not currently anticipated.

Yes, I think I think it's a very important area to us to talk about so we we are continuing to invest in our business we are.

Bullish about our long term prospects and we think the investments that we have been making in that we've ramped up over the last several years since we kicked off K C 2022 strategy.

Paying off they are working and so we talk about advertising and what we're doing to support the brands with effective marketing, but they've been those investments go beyond just advertising we've talked about.

Investing in innovation, we've talked a lot about investing in our commercial capabilities and we're going to continue to do those things because they are working and they are paying off and the rois are there.

And it's those investments that are helping us have meaningful growth in especially in our personal care.

Segment of the business when when we look at 2022 versus 2021.

We've also talked about the benefit that we had in our between the line spending.

In 2021 due to lower variable compensation expense that normalizes for 2022, and the last area I'd comment thereon on between the lines in investments as we are also making a few.

Recall foundational investments and we're very committed to those as we think.

Theyre very meaningful too.

For the long term health of the company first we're opening our North America commercial center in Chicago. This spring, which we're very excited about and our North America team is handling that transition quite well and and early signs are very positive, but it is an investment.

And the other one I would call out that I had mentioned before is we are we did start our program to upgrade.

As for Hana, we began that last year.

That ramps up even more in 2022 and that investment is showing up both in the P&L as well as in our capital.

Expenditures so.

We're sticking with the investments that we know are working and that are fueling the top line. We've got some foundational investments and then we have some expenses that were lower in 'twenty one.

That will step up in 2022 around employee costs, and that's really what's behind it but Mike just important they're important investments SAP, obviously that that investment is going to fuel our cost savings for the future and so so we feel very good about those and we are going to continue to be very disciplined about our spending but we feel like were made.

On the right investments for the long term health of the brands and also for the organizational health.

Got it. Thank you both that's great color and good luck.

Thanks.

Thank you. Our next question comes from Andrea <unk> with J P. Morgan.

Good morning, Andrea Thank you good morning, good morning.

So my question my team and I guess Maria if you if we should expect nominal pricing to be in the mid to high single digits. When it's all said and done.

That may positively or range or pretty much what youre expecting for sales of the treated for nominal.

And in decades.

Implies that probably you are getting additional pricing in the spring resets.

And I just wanted to confirm that because you did imply obviously FX being a negative and then and then negative volumes.

And then related to that are you seeing private label getting some.

I mean, some of the categories, obviously had a lot of shelf.

Shelf space.

Condemning but some of the other categories, you're not so I was thinking.

You've seen private label in particularly in diapers coming back.

We I think pointed that index is what is informing you not only about demand elasticity.

Also in terms of availability of the product.

You may one.

Great for some private label concessions here. Thank you.

Hey, just on the pricing entre.

I would expect over the course of the year mid to high single digit increases on pricing.

That could vary a little bit based on conditions, but again, that's kind of what we are marching against.

And.

And thus far as I mentioned earlier, we've executed multiple actions and there are generally on track and so we feel good about that progress and obviously, we're keeping a close eye on that.

A private label I think and I'll and I'll, maybe I'll talk North America differently, I would still say private label still down in most categories. I think it was up a little bit in bath tissue, but down in most of the other categories.

We're going to continue to be very focused on but we're very we're very pleased with our brand momentum.

And I think.

Although we're making progress on organic in North America some of.

Thats still muted because we're still working through supply challenges as you recall, we had significant challenges in the first half because of the storm down here in Texas.

We recovered very well from that and so really saw our service levels improved throughout throughout the course of the year, but I'd say, even in the fourth quarter, we as Maria mentioned, we under shipped demand.

Because we're having difficulty getting carriers are getting getting supplies and all the other things that are associated with what's happening with omicron in COVID-19 and so so again.

We're keeping a sharp eye on private label, but we're really focused on driving our business and we feel good about the progress we're making.

And in terms of like when you said mid single digits on top of like low single to as you call. It keeps a four year right implemented.

The way, we should be shrinking in total between 2020 , one and 2022 youre going to hit.

High single digit price increase.

The way to think.

Yes in general again, yes, we again as I mentioned, we've made multiple rounds.

If you go back and look at our kind of maybe what's happened in pricing in North America already pretty significant moves.

Okay. Great question al. Thank you so much.

Alright, Thank you Andrea.

Thank you and again as a reminder, please press star one if you would like to ask a question. Our next question comes from Dara <unk> with Morgan Stanley .

Good morning Dara.

Hey, guys good morning.

So just to follow up on <unk> question can you give us a little more granularity on what product categories and geographies incremental pricing thats coming in 2022 will be focused on is it more just sort of across the board and everything are there specific areas where.

Sure.

There is more aggressive pricing posture again in terms of the incremental increases in 2022.

And then given that a lot of these categories, we're talking about.

Multiple times that you take incremental pricing can you just talk about your experience historically when you've been in situations, where there's multiple rounds and how the elasticity might be different than in situations, where you just have more around the price increases has been necessary.

Hey, Dara just yes, just as a policy, though I will just to clarify I'll talk about the pricing we've implemented I will not talk about any future pricing actions.

Although I will say I think as they approach I do expect pricing to offset.

Inefficient portion of inflation. So that's just kind of a principle.

It all kind of put out there, but I will talk about whats already occurred and I'll focus on North America as a starting point, we announced mid to high single digit increases.

In March largely in our personal care business in North America, but.

About 60% of our consumer business last March.

We took some further actions primarily in tissue on talent back in August and that was effective this quarter and then we took additional actions that were announced in Q4 generally about a mid single digit lift increase across most of north American consumers. So so that kind of should give you a sense of kind of what's been happening in the marketplace.

In North America, I would say.

International markets similar multiple rounds in Europe .

Multiple rounds in some cases monthly in Latin America. Unfortunately.

And of course in Asia as well, so it's pretty extensive.

Okay and it sounds like its generally broadly across the board I don't know if you want to.

If you don't want to get into too much specifics, but.

Generally we're expecting pretty broad increases in 2022 incrementally is that fair.

Well, yes, I think yes.

That is the case and we're expecting the pricing that we have enough flow through subs.

Substantively.

Okay, and then on the margin side the comments about returning to pre pandemic levels over time can you just be a bit more specific on the timing of that.

Possible at some point in calendar 'twenty, three or is that more of.

For our multiyear goal how do you think about that and also does it require cost levels to come back down or is it realistic. If your current cost levels in terms of the ability to recover fully through pricing offsets overtime.

Yeah Dara.

I'm not going to give a specific.

Time frame and.

I would say that the driver of that is is really the volatility around the factors that are causing the margins to be depressed in the first place and it's just it's too hard to call.

Hi.

Beyond 2022, what I can tell you though is that.

I am very confident that we will take we are taking and we will take the right actions to recover the margins of the business whatever that looks like so we've shared with you what our assumptions are for 2022 in terms of all of the moving moving pieces and if it turns out to be different.

And that if that turns out to be upside thats, great for all of us.

If it turns out that the.

Environments rougher than what we're thinking we will take the right actions. So if if inflation continues to run we'll continue to price.

We will continually look at the cost structure of the business and.

And take the right actions, but.

I can't today.

Give you give you the exact timing of when we'll have.

The margin structure.

Where it was in 2000 2019 before the pandemic began.

The other thing that I'll comment on when we think about that and the actions and kind of managing through that going back a bit to what.

Kevin was probing on in terms of the cost structure.

This is probably the right time to call out we did wrap up the global restructuring program that we kicked off in 2000 2018, and we successfully delivered that with annualized savings of $560 million, 40% of those accrue to between the between the lines.

And.

So when you look at our cost structure today outside of the supply chain.

We we really did restructure.

Between the line spending of the company.

Almost 200 basis points out and and then we invested back in the areas where.

We will have competitive advantage and differentiating capability. So when I look at the cost structure between the lines.

Hey.

We are in good shape, and we actually benchmark in the top quartile in terms of between the line cost structure. So we feel good about where we are and that we are we're optimized and we're investing in places that have heart high ROI.

So I do I do want to call that out.

The environment.

Changes over time.

That part of the P&L.

I feel good about the other thing I'll add is the fundamentals would suggest in our core commodities, there's going to be reversion, but I do not want our teams.

Waiting for commodities come down to drive margin recovery and so we're our plan is to to work to recover margins in and then if the commodities when they do revert.

Then that will affect the metal change the timing and hopefully move it up.

That's helpful. Thanks, guys.

Great. Thank you Dara.

Thank you. Our next question comes from Jason English with Goldman Sachs.

Good morning, Jason.

Hey, good morning folks thanks for slipping me in.

And how.

Happy New year, I know, it's late but I still think January right I can still slip it in.

So those are the Chinese are your time so.

There you go you're going to be Chinese business too. So there we go exactly.

A quick question for clarification in response to an earlier question I think many people will have interpreted your comments to suggest that you expect to realize around 5% plus pricing this year.

But many times throughout the call you suggested that you expect prices to lag inflation have our price cost deficit.

If you got 5% flowing through the P&L that would be almost $1 billion and would eclipse your cost inflation. So can you clarify what seem to be too conflicting comments.

Yes.

I think that's the numbers that you quoted are right and when I look at.

Currency commodity price.

For 2022 that that should be about even for.

For 2022.

The margin story is that that was not even in 2021, given the billion and a half of of in place and inflation that we saw it was I think it was about 30% drag.

<unk> operating profit growth in 'twenty one.

So while it is even for 2022, we haven't yet recovered.

The impact from the Spike in inflation in 2021, Jason If that's helpful. Sure No. It's really helpful. Because I think you said you expect to offset the majority of cost inflation next year and you said it many times, but the reality is you expect price to offset not just all the cost inflation, but most of the currency which is I.

I think it's just a different conclusion.

And then to get down to your numbers.

Really have to take an axe to volume if youre going to get that much price.

I guess my question is when.

Where's the phone, where you're expecting volumes to fall short because you're telling us that you under shipped this year. So at some point hopefully you catch up and we replenish we catch up on some of that so you get a benefit professional I think is still tracking down 16%, 17% biometric lead to pre COVID-19 levels I would imagine that's going to be a pretty strong tailwind.

Tell me if that's not so where's where's the big offset.

Well again I think the key here is.

A couple of things and I think you're right, Jason I think we're expecting improved performance and growth in both consumer tissue business and the professional business I think on professional though I would not expect a snapback right. Because I think what has done has stabilized at a lower level. We're running below about 85, our washroom business is running at about 85% of.

They had done pre pandemic and thats because.

I don't know if you are in your office, but.

We haven't seen a full scale return to offices and I don't expect that in the near term.

We haven't seen a full scale return to travel and specialty business travel and I don't think we're expecting that in the near term and so I think we are dealing with professional business thats going to grow and we're pretty excited about the growth plans that we have this year the innovation and the commercial trends we have in the business this year.

But it's not going to revert to pre pandemic levels. This year at least and so that's part one consumer tissue same thing and I think.

There's been a lot of volatility in the last couple of years, driven by consumer stock up and then destocking. So forth when you when it all shakes out.

A very stable business is probably the one of the most stable businesses in consumer and consumer.

And that in the last couple of years, a two year stack of our fourth quarter would be plus three right and so so we're expecting solid growth.

<unk> tissue and then our personal care business globally is doing very very well as you can see in the fourth quarter.

Being up double digits, and we're expecting continued growth there.

Really from US is we're pushing.

Prices at a pretty high level and so that's going to have an effect and we hope that our lessee assumptions prove out to be a little conservative.

Right.

Try to squeeze one more real quick a share repo you effectively paused at back half of the year Youre guiding down free cash flow for next year.

When should we expect to see you back in the market buy back stock.

Yeah as soon as we've got the excess cash flow that will allow us to do it. So again, we are in the top part of the cycle here in terms of.

Capital allocation nothing on capital allocation and how we think about it has has changed and those steps are invest in the business look to grow the dividend, which.

I am pleased to say, we will we will do again for the 15th consecutive year.

And then beyond that with the remaining cash flow.

Always looking at M&A, but assuming theres nothing there then it goes to two why share buyback so when the when the when the margins recover.

Let me start at the top right we were expecting.

<unk> strong topline growth in our business, we're expecting the margins to recover.

And when those two things happen, we will get back to the cash generation levels that that.

<unk> will enable us to do share repurchases.

No.

We're committed to shareholder friendly capital allocation.

Practices as we as we've done in the past and.

We're at about I think.

Finished with leverage at two three times excluding restructuring.

That's.

That's ahead of kind of the two point out that the agencies like to see for the single a rating and we do remain committed to the single a ratings so.

The point in time.

The way the numbers line up.

Yes.

We don't have the the cash within the rating to to do buybacks, but I very much look forward to being able to get back to doing so.

Understood. Thank you I'll be well bye.

Okay. Thank you Jason.

Thank you. Our next question comes from Peter Grom with UBS.

Good morning, Peter Hey, Good morning, Hey, Good morning, guys. So just a quick follow up on Steve's question.

No you don't want to give a specific timeframe, but I just wanted to get some clarification around the comment which I think was significant gross margin progress in <unk> is that simply just margin expansion or should we read that comment is a suggestion that the fourth quarter is really when you expect to see margins return to closer to those pretty pandemic levels.

Yes, I think we.

We do expect gross gross margin.

<unk> versus pre pandemic levels.

Q2 happened faster than than on the operating profit line for the investment reasons that we talked about.

About.

Before but we are expecting to have progress.

We're not expecting to be back to pre pandemic levels. So.

But.

The actions that we've taken.

The environment that we're in and that we think we're going to be in during this year as those materialize through the P&L. During the course of the year I think we're going to be on a good path.

If the environment is what we think it is today, which we know that it won't be because it's too difficult to predict, especially with the volatility, but but if it were if I was able to hold that constant I think we'd be on a on a good glide path.

But I'd say that recognizing with the volatility.

I just.

It's too difficult to call what.

What the environment will look like and exactly when those margins will will hit the pre pandemic levels, but.

Again, we're taking taking all the right actions in the business to do that.

And we talk a lot about.

Margin, which we're very focused on because we're focused on the overall health.

Health of the financial structure of the company. So we feel it's appropriate.

We'd call out a few things.

Though that debt.

Getting back to Jason's question.

<unk> the cash so that we can provide healthy returns.

It was actual actual dollars. So when we look at operating profit growth.

That's very important and I think it's worth noting a few things first.

Hi on margin recovery, we will get there faster on consumer than we will on professional because professional.

We had a cost structure that was built for a business that's larger than one that's producing today.

So there was a misalignment between the revenue of the business and the cost structure of the business, we will get that corrected but that will take some time. So the rent to recover we will come faster on consumer.

But then going to the profit dollars I'd call out in 2021.

Consumer tissue for all the reasons that we've talked about that was 75% of.

The operating profit decline so so.

There were very specific dynamics that caused it.

Was the big driver of the profit decline, but if you look at our personal care business, which is which is half of our company.

<unk> grow strong market shares.

It actually grew operating profit in the fourth quarter. We also grew in the in the third quarter. So the second half of the year the personal care segment, which is which is very healthy.

<unk> growing operating profit.

In the near term I will take the dollars recognizing in the long term.

To get the margin structure to the to the right place. So just thought I'd.

Give a little bit more color by segment there.

That's incredibly helpful and then just completely.

Completely shifting gears here I would love to get an update on the performance of the Dnb markets.

Seem to perform quite nicely in the quarter can you maybe provide a bit more color on kind of the health of the consumer and those reasons regions like what is driving the stronger growth whether it be category or Kimberly Clark specific and then I guess on pricing how have pricing action has been received.

Guys versus what you see.

What youre seeing in developed markets.

Yes. Thanks for the question Peter Great performance in developed and emerging markets overall in the quarter I think it was in our statement, but organic up 10 in the quarter and eight for the full year.

And that was composed of really a healthy balance of price.

Volume and mix importantly, and so and then we saw solid growth all regions high single digit gains in Asia, and Latin America and double digit growth.

EMEA.

And then really strong double digit growth in China, India, Russia, Eastern Europe , and Africa, which are kind of the important future growth markets for us. So we're really excited to see that and I think whats driving it as I've mentioned kind of in my prepared remarks, really really great innovation, we're doing a really good job our teams around the world doing a great job.

Scaling really what I would call breakthrough innovation.

<unk> markets were up.

Really really good consumer inspired innovation, and then superior local market execution around digital.

Marketing and sales execution, so it's kind of all the things in.

And they are all working very hard for us.

One of our business leaders.

Was it.

All oars in the water meeting it we used to be over reliant on one thing to drive the business.

We're really part of our commercial capabilities that we're developing as we want everything out there working and working in the same direction and we do that we tend to see the results that we think we're seeing now.

Thank you best of luck.

Okay. Thank you.

Thank you. Our next question comes from Nik Modi with RBC capital markets.

Good morning, Thanks, Good morning, Mike.

Just two quick questions for me just on the upstream innovation agenda. Mike can you just talk about what's going on there I mean, it hasn't had to take a back seat just given all the situations that <unk> been dealing with with Covid et cetera.

And then.

I know, we talk a lot about labor and transportation and input cost, but we don't talk a lot about retailer media, which seems to be a growing demand from your customer base. So I was hoping you could provide a little bit of context on that and how that's hitting your P&L.

Yeah, Okay, yeah, great questions. Thank you.

We recognize we are working through some choppy waters, but we're committed to growing this business for the long term in the right way and so yes. So we haven't we're not pulling back on our innovation investment and our insights and our technology investments and we're excited about it and I think the reason youre seeing the results that we're realizing.

Around the World is because we're just doing a better job of scaling big ideas and big Big innovations that are really grounded in great technologies and so we're.

We're continuing to do that Maria mentioned, the visibility of our pipeline on cost savings is probably better than it's ever been while the visibility of our pipeline of our technology innovations better than it's ever been to and that's one of the things as we can.

Coming into this role we wanted the organization to work longer term and we're here for today and we're also here for tomorrow and to be able to balance that and so so we're really pleased with that progress and so which is why I would say, we're confident that we're going to continue to be able to invest and grow our businesses both in personal care.

<unk> in consumer tissue.

So that's one I think is with regards to retail it is becoming.

A bigger topic I will say I feel very good about our digital capability and we're very disciplined and we have so much data around.

Maria mentioned earlier digital Rois I mean, we know exactly what it is.

We've made significant progress in Rois.

Over the course of the last three or four years, and we know what the investments are worth and so we're very capable.

The right sort of data as you might expect to be able to work with our retailers and make the right investments and frankly.

Some of those investments are really really good for us and we're really excited to do that with them and others.

We're going to need to see a little more improvement, but overall I think it's an operational.

Issuing capability that our organization is really well equipped to deal with.

Great. Thanks, Mike.

Okay. Thank you Nick.

Thank you at this time I am showing no further questions I'll turn the call back over for closing remarks.

Thank you.

Closing I would like to really reinforce a few key points from my opening remarks.

Three years ago, we launched our strategy to deliver balanced and sustainable growth and that plan is anchored on our strategy to accelerate topline growth by elevating our categories and expanding our markets.

Now to do this we have invested in our brands and capabilities and our people.

This growth is fueled by improvements to our cost base.

Delivering strong annual productivity through our force and global restructuring programs.

It's pretty clear, we're executing our strategy in a very dynamic environment and our teams have faced challenges well beyond what we or anyone else had anticipated, but thats a reality and we expect the volatility in the environment to persist. This year, we're committed to our strategy and we're executing well evidenced by our growth in personal care strength and market share performance and the actions we've taken.

A very volatile environment, we're excited about the potential of our brands and categories and our ability to develop innovative products that will enhance our portfolio and the value we provide our consumers.

We're also committed to restoring our margins and expect to make progress this year.

This commodity cycle is clearly different from past cycles, and the time to recover will be elongated due to continued inflation. We're confident in the actions, we're taking in and our ability to create meaningful shareholder value over time, I'm, especially grateful for the dedication of our talented teams and we will continue to do all we can to ensure a safe and reward.

Adding work environment in the year ahead. Thank you all for joining our call today.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Q4 2021 Kimberly-Clark Corp Earnings Call

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