Q2 2022 Kimberly-Clark Corp Earnings Call
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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. Please go ahead.
Thank you and good morning, everyone welcome to Kimberly Clark's second quarter earnings Conference call.
With me today are Mike <unk>, our chairman and CEO and Nelson our CFO .
Earlier. This morning, we issued our earnings news release, and published prepared remarks from Mike and Nelson that put summarized our second quarter results and 2022 outlook.
Both documents are available in the investors section of our website.
And just a moment, Mike will share 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.
And the second quarter 10-Q for further discussion of forward looking statements.
We may also refer to adjusted results and outlook.
It excludes certain items described in this mornings news release.
The release has further information about these adjustments and reconciliations to comparable GAAP financial measures.
Now I'll turn the call over to Mike.
Thank you Tara and good morning, everyone.
I'm proud of our team's execution as we closed our first half with 9% organic sales growth in the second quarter.
We delivered robust gains in all segments. Our growth strategy is working and our teams are executing with excellence and what continues to be a volatile operating environment.
Clearly our results reflect this ongoing volatility for.
For the year, we're now anticipating $300 million of additional input cost inflation.
We remain committed to recovering and eventually expanding our margins.
Thus, we have taken further action to realize additional pricing and cost savings to mitigate these headwinds.
We continue to expect pricing and cost savings to fully offset the effects of inflation over time.
Based on the strength of our top line, we're raising our full year organic sales outlook, two increased 5% to 7%.
We're maintaining our adjusted EPS guidance, however, based on current conditions, including our updated input cost outlook. We now expect to be in the lower end of that EPS range.
Okay.
We will continue to manage our business with discipline as we navigate near term headwinds.
Based on the pace and breadth of our pricing actions, we anticipate some volume impact over the balance of the year.
Still we are encouraged by the overall health of our categories and our brands our brands remain essential.
We also know consumers are seeking greater value and we'll continue to sharpen our offering to enhance our market position.
We remain committed to delivering balanced and sustainable growth in the near term, we are taking necessary actions to recover margins.
We're also continuing to invest in our brands to enable us to grow sustainably now and for the long term.
Now we'd like to address 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 is that any time, you would like to remove yourself from the question in queue. Please press star two.
Our first question will come from Dara <unk> with Morgan Stanley . Your line is now open good.
Morning Dara.
Hi, guys good morning.
So.
First just a couple of clarity questions. The increase in your full year organic sales growth guidance for 2022 is that driven by higher pricing or a higher volume assumption.
And then second with the $300 million in higher cost pressures now expected for the full year, you, obviously mentioned a combination of pricing and cost savings to help offset that can you just be a bit more specific if if you are planning additional price increases specifically in the back half of the year does that offer.
A good amount of the cost pressures, how should we sort of think about the pricing outlook changing in response to the cost outlook, specifically in the back half of the year.
Yeah, Thanks, tore I'll start and maybe <unk>.
Also can provide some additional color, but overall I think be but organic outlook and the increase in the outlook reflects both volume and price you know overall, we feel like our pricing execution has gone very well.
Driving the realization you can see it in the numbers.
But the second part of it is also the volume is holding up a little bit better than we originally planned and I think that reflects.
One you know, what we said before which is resilience and the consumer overall.
But also the strength of our brands and we feel really great about the commercial execution that we have around the world and that includes launches of innovation improvements in product quality, our digital marketing programs I think the execution, we are driving at shelf and so overall that still working.
Despite.
The necessity for us to price our products to recover the cost and the margin. So so overall I'd say, it's a pretty good balance of both volume and price.
On the organic outlook.
And then on the cost front.
Yes, we're going to need it.
We have taken additional pricing actions.
That's globally and.
We've taken.
A few actions since the beginning of the year actually we announced another action in North America, just last week and so we continue to execute and again overall philosophically.
In the past or that we expect pricing to generally offset the effects of inflation over time.
It gets tougher.
The increases come towards the towards the middle or end of the year to kind of catch up to it but again, we are expecting our teams to be able to offset inflation over the long term.
Yes, absolutely.
Absolutely and I would add Dara a couple of things there as well I mean.
Yes, as Mike said, I mean pricing is one of the key levers as we are seeking to offset the pricing pressures that we're having but also we've got to keep in mind, our cost savings forced program, which will accelerate as we go into the second half. So the combination of those two will help us offset.
So as we exit the year that bid.
Okay. That's helpful. And then maybe taking a step back and thinking about the broader pricing environment in general.
Geographically first just in the U S. There's obviously been some very public margin pressures that are playing out at some of your larger retailer partners Theres worries about consumer pressure points and macros, you mentioned internally the historical pricing called well the volume.
Elasticity has been limited but.
Have you seen any change in retailers' receptivity in the U S to pricing.
Given some of the dynamics I mentioned earlier does that sort of require a more judicious approach to pricing on your part in the U S specifically and.
Then second just in some of your key emerging markets. Maybe you can give us an update on consumer demand elasticity, there to higher pricing and what youre seeing from a competitive standpoint.
Yeah, great great questions Dara, a couple of things and you and I have talked about this in the past.
I would say that.
The retail behavior is I know theres, a lot being set out there I find it to be consistent with what its been historically over my 30 years of working in this industry.
And I think it starts with the fact that I think we've learned over time, our interests are generally aligned I mean, and what do I mean by that.
One is we're both after the long term growth of our categories right. We jointly run these categories together for them it's in their store for us.
It is our business overall.
We're after kind of a long term sustainable growth.
That's one big thing second Big thing. We're after is delivering consumers a great value and that comes in many different ways in some ways. It comes with.
Solid price points that consumers that reflect the value consumers are seeking and a lot of ways, especially in our categories. It reflects.
Means the right kind of innovation and product quality that delivers the consumers.
The benefits that are seeking and so so I think with those two foundational points.
We are sensitive to the pricing.
But we also do both.
I'd say on both sides understand that we need to be able to profitably grow for the long term.
Again, we're sensitive to.
The pressure Thats out there we read that somewhere news reports, we've had the discussions with our customers and we have been taking price, but we are doing it.
I would say thoughtful thoughtfully and plant fully.
So maybe that's part one and then on the <unk> question, Yes, I think overall price.
Pricing and volume of strength really reflects the consumer resilience and the essential nature of our categories overall I.
I would say Dara that.
Consumers.
Appear to be somewhat more resilient in developed markets our performance.
High single low double digit growth across all of our developed markets multiple sharepoint growth.
Multi point share growth in most of our developed markets.
We have seen some price lagging in DNA from competitors and so our shares have softened a bit in <unk> and <unk>.
While we have been driving price, we recognize that we've advanced pricing, maybe further and faster than some of the competition. So we're going to have to continue to monitor that situation closely. The other thing that we're seeing a little bit more in <unk> than we are in developed markets is a bit more trade down I wouldn't say significantly more but there is a difference there.
And I think I've talked about this in past calls in Latin America, we have a leading the leading value offering and the leading premium offering and we're really glad we have the breadth of that scope because that allows us to pivot our business appropriately when the consumer is looking for that so overall, we feel good about.
Where we stand.
Our watching price gaps and DNA, a little bit in North America, as well and we're sensitive to that.
Great. Thanks, guys. Appreciate it thank you.
Thank you. Our next question will come from Lauren Lieberman with Barclays. Your line is now open good.
Good morning, Laura Great. Thanks, Hi, Thanks, Tom Thanks, so much.
So just just following on that thread.
Around some sensitivity and watching for trade down and the mention of the portfolio breadth you have in Latin America I was curious on what if anything you are doing in terms of shelf sets merchandising.
Of the more value, we're mid tier products in the portfolio versus the premium and are there things that you are doing.
Proactively rather than Reactively too.
Shift the mix of what you are supporting.
And if not why not.
Because your categories do you over time.
And to feature on the higher end of the list of those that can see trade down and be more sensitive not in terms of overall consumption, but rather than what is being what is being consumed.
Yes, yes.
Yes, great Great point Lauren.
Disappointed we have discussed in the past and I would say, yes, particularly <unk> youre seeing.
Student body shift to the left right and we shipped to the right just a few years ago and I think.
A couple of years ago, we were.
Highly developed value business and a very small premium business and this is maybe about three or four years ago, we were down and.
There was a big shift to premium is at that point I think the market receptive to it. So we've made a lot of progress.
All the things you talk about the appropriate pack counts of improvements in product quality, the merchandising and everything else.
So we made a huge shift in terms of our premium mix.
Market like Brazil.
Two years ago, when the economy started softening we started shifting.
Started shifting back and we're glad we did and that that yielded us last year as a leading position in both value and the leading position in premium we felt great about that and so and those are all the taxes.
Play out for us.
Not just in developing and emerging markets, but we do that in developed markets as well and Youre, absolutely right and we think again, our broad portfolio of premium through value offering.
<unk> enables us to flex with demand.
And as I pointed out in the near term, we are prioritizing margin recovery and so our pricing is advance and so we are watching the price gaps and we will make the appropriate adjustments as we go through the year.
Okay great.
Then on the cost savings and as Nelson you mentioned there is significant it looks like will be more for savings in the back half of the year.
Just knowing that not just for Kimberly Clark, but for many of your peers in the industry getting it productivity has been pretty tough in this environment, whether it's asking suppliers for better pricing, whether its getting into the plants and working on putting you're putting in place.
And your cost savings mechanisms or project. So I was curious you frankly, a degree of confidence in that acceleration. What is it that you expect to change that should allow for you to see greater for savings in the back half of the year.
Sure Lawrence.
I'd start by.
Remaining.
Reminding us that for us isn't necessarily a straight line I mean, it tends to build throughout the year and thats kind of our historical trend.
In particular for each one of this year I mean, we continued to drive solid savings from our productivity initiatives on a gross basis.
But these savings were somewhat offset by some of the cost headwinds that we've been facing particularly in North America as we've been investing heavily.
Over the last couple of quarters.
To improve overall service levels, which were.
We're pretty pleased that we're getting back to more normal levels as we exited Q2, so having said that as we go into the second half I would say a couple of things we're going to have some of these incremental expenses behind us or largely behind us.
And then secondly, we're going to have.
<unk> pipeline, which is pretty strong at this stage come through so overall that gives us the confidence of seeing around little over $200 million of delivery and for us as we go into the second half.
Okay, great. Thanks, so much I'll pass it on.
Thanks Lauren.
Thank you. Our next question will come from Kevin Grundy with Jefferies. Your line is now open.
Great. Thanks, Good morning, everyone first one for Nelson just kind of taking a step back I would be interested to get your early impressions.
And perhaps maybe you are two to three biggest priorities over the course of the year to ensure a smooth transition Maria was of course, very well thought out, but a fresh perspective can always bring to bear some new ideas and potentially some opportunities for for shareholders. So I think your early observations would be helpful. And then I'd like to pivot to the cost out.
Look.
Sure.
So Kevin I mean overall.
A few things I would highlight I mean, I'm pretty impressed by by the team and the resilience of the team and the focus and their priorities in the strategic imperatives ive been able to see that as I've been getting out there in the field and working through.
All the difficulties and challenges that we've been seeing I think it's a very resilient organization and there's very strong capability in muscle that's been built which has allowed us to deliver the kind of results, we're delivering as of the first half of the year in Q2.
Secondly, I mean, one of my key priorities is working with the team is to continue to push forward on the margin recovery. I mean this is something that is critical for us and we're very focused on it from all angles and we're going to do it in a smart way.
We'll continue to invest in the business that is something that we've done in the first half of the year.
And we've got to keep doing that because that's what will allow us to drive forward.
Sustainable profitable growth as we as we progress.
So overall I'd say those are all my key priorities at this moment in terms of capital allocation and other elements I don't have a different opinion versus where we're at today I believe those are the right buckets, where I stand today and as we progress over the plans and what we've got for the future years.
We'll come back with what we've got.
Got it. Thanks, a quick follow up is maybe just sort of go through your commodity exposures around energy packaging et cetera walked through your updated assumptions for us whats driving the.
The worst outlook there from a commodity perspective, and then relatedly to that just your view on level of conservativism in the guidance I think it's obviously been an extraordinary environment. So it's not necessarily fatigue as much as sort of an observation just in terms of maybe a greater level of conservativism to offset what continues to be volatile.
So kind of two parts there on the guidance I'll pass it on after that thank you.
Sure. So first I mean to cover the to give you.
Walk through the commodity update that we've got right now and.
So as we pointed out in the remarks I mean, we are calling now for the year a range of one four to one six at the midpoint is $1 5 billion.
This is an increase of $300 million and what we're seeing is really.
First on fiber fiber, we're hitting all time highs in U as we exited June we saw sequential growth in prices for you.
Through the month of June hit historical high in June we're also seeing in other pulp grades.
Elevated prices and that's that's one of the key drivers behind what we're calling secondly, its energy if we think about energy.
And natural gas in particular, we've seen in Europe , a 10 X versus year ago and prices and.
In our western European UK business, which has a sizable tissue business. It is energy intensive and that's bearing and kind of what we're projecting at this at this stage.
And then the other one is distribution costs overall.
Overall were seeing distribution costs also increase and I would say this is more largely on the international side of the house and this is reflecting an bearing on what we're showing in terms of our expectations at the midpoint.
Our guidance for costs.
Green shoot or a benefit we're beginning to see is in resins I mean, that's probably the only big element within our cost bucket that we're beginning to see prices to come down on a sequential basis and again. This is the one I would highlight as I as I look at it.
Overall I'd like I think it's also important to highlight that in a two year stack. We're staring at a 3 billion overall incremental cost which is.
North of 500 basis points of margin that we're taking a hit.
As a business in Italy, and 24 months. So it's quite sizable that we're managing through and then that takes me to your point around conservatism on the guidance.
The first thing is we.
Overall in the bottom line and the EPS, we've made our best estimate based on what we're seeing today.
And what what's playing out in the market. We've also.
Taken into account all of the cost saving initiatives as I, just talked about before for us and Thats embedded in what we have here and then lastly, it's also our pricing.
We were very encouraged by how our pricing came through our teams did pretty well in terms of executing the pricing in the second quarter, which sequentially was much better than what we had in the first quarter and that's the other element that would bear and how we would see the second half playing out.
Very good pipe in there Kevin I'd say on the guide.
Tougher since Nelson's still brand new he doesn't have a calibration of how we got it.
What kind of a relative but I'd, probably say no.
For the rest of our outlook.
We feel confident that we're in that range. It is at the lower end of the range. At this point are we feel that it's more likely to be in the lower end of the range I would say, there's probably there's two probably big puts and takes though.
On the one and the one wildcard, which is additional input cost volatility and so we're calling it based on what the input cost at Nelson just kind of talked about right. So that's that's one big thing and.
So that could shift up or down right and then the other the other wildcard probably is the volume side and.
Again, I think we have said that the volumes have come in slightly better than our original expectation given given all the pricing that we've taken.
We could do a touch better in the second half, but that remains to be seen there is there's been a lot going on and our volume is with cycling in the winter storm in North America.
Covid in and out locked down all of that and so it's a little bit tough to call, but again I would say.
We feel like we're calling it down the middle here and we feel confident we are in the range.
Okay very good thanks for all the color guys I appreciate it best of luck.
Kevin Thank you.
Thank you. Our next question will come from Chris Carey with Wells Fargo Securities. Your line is now open Hey, Chris Hey, Chris.
Hi, good morning, everyone.
<unk> commented on margins being a key focus of yours going forward.
In KCP, we saw some sequential deterioration there again, despite the topline I was wondering if you can give some insights onto.
What you think is needed.
Based on your early analysis of the business there to return to historically, what it's more of a mid to high teens margins.
Or whether that target EBIT looks.
Realistic anymore.
Sure, Chris and yes, absolutely our targets in the way of looking at it or mid long term targeted margins for KCP remains unchanged at the high teens.
Our aiming for that and we will get back the plans are in place.
I think it's important to recall that.
Casey our KCP business has been the most impacted by COVID-19, including the reduced travel the shift to remote hybrid work and thats been bearing on the business. The business has continued to recover.
With high single digit topline growth and Washrooms sales are already over 90% of pre pandemic levels. In fact in North America, it's even at the very high end, we're almost there and full time full recovery.
Margins as you said I mean did slide from Q2, a bit but this was really a combination of two factors one we had the acceleration in commodities.
Lots of it impacting tissue.
Which hit us in Q2.
And then it's the timing of the pricing I mean, we enacted pricing in Europe North America went into effect in May late may.
And I think it's important to highlight that on a sequential basis within the quarter. We actually saw an acceleration in gross margins in June . So this this is really pointing to as the pricing is landing.
We're seeing that the margins are recovering already in the latter part of the quarter and we expect this to continue as we head into Q3 and Q4.
Also as we go into the second half of the year and based on our current assumptions and what we know we do expect the impact from commodities to tone down in the second half of the year versus what we saw in the first half of the year, even with the incremental costs that we've put in place the other bid.
It's also important I talked about it in productivity the team has been focused.
That very much in terms of right sizing managing the business and doing it the right way there is a strong pipeline of productivity that should be coming through and again I remain encouraged by what the team is doing and our commitment to getting the business back to the high teens and where it where it's been in the past.
Ah.
Tag on there Chris.
ACP is a great business for us.
And I believe it remains a great growth opportunity for US overall, we are cycling demand volatility in the near term, but that professional market globally is big it's fragmented and it's got a lot of underserved segments and theres been a lot of noise in our demand because we've got a couple of things going on washroom is recovering, but because of COVID-19 spikes and everything else are.
We're lapping big increases in PPE and gloves in the year ago period and also.
Our other parts of our safety business in wipers right. So there is a lot of things going on but overall, we still think.
It was a great growth opportunity I do think if you look at offices, where we are a little bit more exposure.
That business is probably not going to come all the way back to where it is I don't think everybody is going back to work full time, 100% in office and so that's going to change, but our attitude is well that's the base and we got to grow from there and there's still a lot of opportunities for us to innovate and to serve our end users.
Wei.
That's very helpful. I, just have a couple of questions on Europe , and I'll jump back in.
Just in the personal care business.
It's the first quarter in a while.
Maybe five years, excluding the Texas storms, where volumes have gone negative, but it looks to be happening all almost entirely.
In Eastern Europe .
Within the overall global personal care business.
Can you just comment on what's going on in that market, specifically and whether you think that headwind.
Could persist here.
And then just secondly on the cost side in Western Europe Nelson mentioned.
Tissue business is being very energy intensive comment well taken.
Just with natural gas availability looking like it could get even worse given some news this week.
Maybe just talk about.
How you are framing or preparing for potential risk of <unk>.
For us to measure because of lack of energy or paying any surcharges to procure low availability of natural gas. Just these types of situations seem to be coming ahead. So just curious your thoughts there. So thanks for that.
Hey, Christine maybe I'll start on the on the on the personal care and then maybe Nelson can cover a little bit on the.
On the energy and the supply side, but.
<unk> DNA again, very strong price execution in the quarter, 8% organic.
I think we are paying a little bit closer attention to the volumes because they are a little softer and our market shares across DNA.
Juruti or the bulk of the volume impact.
<unk> was eastern Europe , and really Chris it's it's a straightforward as it's the effects of.
The war and the impact on Russia, and the impact on Ukraine, and so we are still operating well under those circumstances.
As you can imagine the circumstances are pretty challenging we remained operational across the region.
Including in Ukraine.
Building our business back in Ukraine.
Organic is down low double digits as we can.
Curtailed operations in Russia and were actively.
Building the business back in Ukraine, but we are actively and proactively complying with all the sanction activity on that though that obviously it takes.
<unk> is a bit of a volume impact on the business. So I don't know if that it's Chris addresses kind of what you are asking on the volume side.
Yes that was very helpful. Thanks, Okay, right and then.
To address the energy question.
Chris I mean couple of things I mean, one one.
As we all know the energy situation in Europe is pretty dynamic and yes. The all natural gas situation is something we're staying on top and developing contingency plans as we speak and then the team is really working thoroughly throat.
Have details to share today, but our teams are really on it and.
It is a priority for us I will highlight I mean in Germany, we only have one factory.
So again, it's not like we have a concentrated risk just in one of the key markets, where this could be one of the biggest challenges at this point so.
Yes, I think I'll tack on there, though Chris and Western Europe again, the operating conditions remain very challenging and volatile.
I would say that our pricing and the volume and the organic was up low double digits with price up double digits in volume up high single digits. So again thats a developed market I think the consumer has proven to be resilient. Our teams are doing a terrific job executing.
I am sure you are familiar with being a very challenging environment. So.
Again, we're paying close attention and the team is doing a very good job running in a tough environment.
Okay. Thanks, so much.
Thank you. Our next question will come from Steve powers with Deutsche Bank. Your line is now open.
Hey, Steve Steve.
Hey, sorry, thanks that was us.
Mute there.
Hey, good morning so.
I guess, just maybe to build a little bit on the costs just to clean it up a little bit.
Given where we are in the year natural timing lags and supply chain your hedge positions.
I guess.
My inclination is to say that your line of sight to the one four to $1 six.
6 billion.
Cost is now.
Fairly well locked in.
Is that the case or is it is it more that.
You still see realistic risk of about 1416 could still shifts around if we saw further cost volatility and if so is it the energy bucket. That's the biggest swing factor or is it is it is it equal across energy and pulp and distributions.
Yes, I might I might say locked in is an interesting term because.
Some of our biggest commodities it was not a traded market anymore.
That's right yes.
There is there is not I mean, some of our key commodities are not as liquid as we'd have in the CME. So the reality is not all of this is locked in today I think one of the important things to highlight is right now based on where we're at and at the one and a half.
1 billion midpoint.
Our forecast would call for $875 million already hit us in the first half and then $625 million would hit us in the second half based on what we know today Steve.
Theres moving pieces I mean, we do expect fiber to remain elevated based on whats out there and what's public you can see it in the indices and we would expect some some easing as we go into the back half Q4, the year on the fiber side, that's what we're projecting at this moment, but again, it's a moving situation overall.
Okay. Okay.
So just.
Well I guess that means that as your as your contract my impressions your contract.
Okay.
For the next year on things like pulp and fiber.
Disproportionately the contracting season. So you are at this point youre, hoping for expecting some relief until that contracting season, because I'm, assuming that current prices are well above where you contracted in 'twenty one.
Yes, Stephen May as I've been here.
We don't we do we have shared before that we have.
I think negotiated material prices, we don't reveal the specifics or disclose the specifics of those contracts I think what.
Fair to say a reasonable to assume in the cost outlook building.
Nelson said is that again based on our current assumptions the fiber prices.
Elevated again in Q3 before easing somewhat in the later part of Q4, I think energy and distribution, particularly international distribution are the two that we're seeing some of the more volatility and we will look through the balance of the year.
And then okay. That's helpful color. Thank you.
If I can please.
Different topic, we've talked at.
A decent amount already at the start about consumers, having or being expected to have a sharper focus on volume value going forward and I guess, you talked about how that manifest in your categories and how you're pivoting to meet the consumer.
Intersection of enhance value I guess, just to get underneath that a bit more.
Do you see that more in consumer tissue versus personal care and as you are moving in that direction and theoretically competitors are moving in that direction, how do you balance the.
The desire to kind of go.
Go where the puck is going versus.
Pushing so hard on the on the value side of things that you actually entice entice trade down and kind of create a problem that you might not have.
If you would.
If you and the whole industry had moved in that direction. Just how you think about that balance of going where the consumer is going but not necessarily all enticing them to go there right great great push Steve I mean, that's exactly that's exactly the issue and I think if you.
And when you listen to the.
The earnings call from some of our big customers I mean, I think they'll stay the same thing which is there is a segment of consumers, let's say in a developed market like the U S that is trading down, but it's not all consumers.
There may be a few more consumers that are more price sensitive in the developing market, where there is not the government subsidy in a tough time like Covid and lets say in Brazil.
As much as there was in the U S. So so consumers are little more effective there, but I think that's right, we do see it across personal care and tissue.
Typically in the U S in a market like the U S. What youll see is maybe a trade down means maybe not trading the brand out, but moving to a smaller count pack right to me.
It more affordable in the short term and so and Lauren mentioned earlier, so there's a host of moves that we make in partnership with our customers to kind of.
Shifting merchandise, what's appropriate for the consumer but again I think we also want to be very cognizant.
We don't want to move the whole market that way.
There are plenty of consumers.
That.
Hey.
Despite.
Some of the impact of the economy.
The affordability in our categories remains strong and and again they are still looking to trade up and where we're seeing the growth that is kind of the old barbell description, we're seeing great growth on the high end as well and and we're continuing to innovate and promote our brands in and advertise our brands on the high end.
That's what's been driving China I'd say.
Again Super strong performance on mix double digit organic growth in the quarter against the category Thats down multiple sharepoint growth on diapers.
And Thats, all driven by value added consumer benefits, we've really upgraded our line over the last couple of years.
And feel great about the technology that we have.
And all of our key markets and I think that's reflected in the momentum that we're seeing let's say in diapers. When you look at all developed markets. I mean, we have multipoint share gains in our biggest markets U S was up huggies was up three points in the U S in the quarter.
<unk> was up almost two points South Korea for us which is our.
Our second largest market was up four share points in the quarter. So again.
We're scaling that as you say skating to where the puck is we want to be able to meet the consumer where they need us to be and some are still looking for better quality and premium amortization and others are looking for us to extend them a better value and we're doing both.
Great. Thank you very much alright, thank you Steve.
Thank you. Our next question will come from Jason English with Goldman Sachs. Your line is now open.
Hey, Jason Hey, Jason Good morning. Good morning, Thanks for Slotting me congrats on that market share momentum that you just referenced in personal care.
I did want to note, though it is a little more sluggish I mean, we're under our goal because our goal is to be growing share and more than half of our markets and you know the last couple of years were up and two thirds of our markets and so.
We're a little we're a little bit under half right just a couple of points under 50, and so we're watching it closely we're up and developed.
As I mentioned, we're seeing some pricing lagging.
Across DNA and so our price gaps have widened a little bit and so we're keeping.
Close attention to that now.
I appreciate that flag.
And.
So you're actually not lagging a little bit on that side of the business. It certainly seems like you're lagging on the pro business to which I want to come back to I know you referenced some choppiness in terms of like Covid costs, but even comparing to 2019 I think your volume is down now in the twenty's versus high teens before.
So we're kind of fallen away and eroding versus 2019.
I appreciate the offices are component, but it seems like office occupancy sequentially has gotten better not worse why is your volume sequentially getting worse.
Can you help us understand what's what's happening within that business a.
A couple of things going on that one I would say professional demand overall is improving and so for the quarter and I don't know if you saw the facts, but the organic was up high single digits overall.
North America was up eight and our <unk> was up six the washroom is recovering I would say, though there is a big component of pricing in that so washroom sales were up 30% in the quarter.
And if you add on a dollar basis at 98% of pre pandemic level.
I would say volumetric, it's still lagging right and.
Because we have significant pricing in the last couple of years.
In professional so.
It reflects significant pricing, but the volume is still soft and again I think as I would say I don't think all of that office demand is coming back in a minute, but that said, that's where we're that's where our mix has been and we've got to go from there and so we have a great team we have great innovation, we have strong momentum.
And our share is up across across the washroom business, we have icon dispenser, which is a home run with end users we have an improved how offering.
And so we're seeing strong momentum on the business, but I think youre right I think we've got to build our business back to the other thing that's amplifying maybe.
The numbers that Youre looking at Jason as we are cycling strong pandemic related volume that was in wipers and PPE.
And <unk> was a very significant seller for us.
In 2020 in 2021.
It's gone the other way this year and so.
We have other effects going on as well for sure for sure which is why Im trying just to like look at 2019 and sit and look at the volume of that.
Is that because I appreciate the noise.
And back to your comment on some areas, where you've got some price gaps that you're trying to manage.
Or are we at a point, where you would expect to start to maybe give us some of the pricing back to get a little more promotional juice into the market to try to manage those price gaps or.
Or is it not meaningful enough to have two to start to do some of that said those activities.
I wouldn't say that yes, I mean again overall the way I'll say it Jason is.
Prioritizing of Nelson is prioritizing the margin recovery in the near term.
What I will tell the teams internally the conversation is like I'm not after renting hello share right and so.
So I don't I don't really want to.
Jerk, our teams back and forth.
We're trying to deliver balanced and sustainable growth for the long term, we have to get pricing to improve the margins and restore our margins that's part one.
We want to grow our shares over the long term sustainably over a long term and so we're going to monitor that but again I'm not ready to.
<unk> back and forth quite yet.
Makes sense, thanks, a lot I'll pass it on okay. Thanks, Jason Thanks.
Thank you. Our next question will come from Andrea Teixeira with Jpmorgan. Your line is now open.
Good morning, Andrea Andrea Good morning, Thank you.
First one for Mike on pricing and I don't know, we obviously spend a lot of time on this on this call on this but can you provide the magnitude of the new pricing announced in the U S.
Last weekend and it seemed that it also more pricing power.
We just took a pause now given the higher there or even perhaps thinking of western Europe , where.
Natural gas prices have been higher.
And one for Nelson and carry a clarification on the cost outlook.
Most of you that contracted prices that Terry mentioned and then what's floating based on spot prices because I think so.
Also.
Spoken Nelson spoke about potentially using.
Declines ahead on the forward curve.
So that we have.
Right.
Thank you.
Okay I'll start on the pricing Andrea yes, yes.
If you.
Track.
Our.
Go with the fact that we expect pricing to offset inflation over time.
Obviously, we'd like to get as much as that as soon as possible.
So if you looked over the course of the year.
Some of the pricing our inflation impacts outside of the U S. Earlier this year and then more recently there have been more impacts in the U S and so.
No.
I'd say our pricing around the world has kind of followed worthy inflation initiatives around the world more directly.
We did announce pricing in the U S last week it was.
Typical for what we've done in prior rounds, which is about mid single digit increase.
And again were.
We're still in the early stages of execution on that end.
And then we've announced similar actions at different times throughout throughout the year and.
In the rest of our markets.
Yes.
I can answer that.
Or.
Yeah, I would say Latin America generally overall, we're up double digits on pricing so.
Significantly higher that reflects whats going on in the local market there.
Okay.
Okay and then on the.
On the question around what prices are reflecting in terms of our outlook.
We base it off the industry forecast Andrea I mean, that's the best view we've got.
For whatever we haven't covered so that's there.
That's what we're seeing and what we reflected in the forecast at this stage.
And now so how long do you think Cobra now, we'll just say support the school berthing contracted prices.
Just wondering how much the same.
Yes.
Yes.
In DRAM, we don't disclose that bid so I.
We don't get into disclosing them.
Okay and then.
If I can on China, and sorry, if I missed that how much was the drag in the quarter for the any.
What is with the reopening how much has been improving or hasn't been that.
Continue to be able to given that you are widespread.
I'm not sure if I'm understanding the question correctly, but I am saying I would say China was not a drag it was a star in the quarter. It was up overall double digits.
In the quarter and that was based on great diaper technology, great digital execution, our share was up a couple of points organic was up in the mid teens and that's against the backdrop of a category thats been down high single digits over the last couple of years and that's what's really driving it is robust.
The balance of.
Volume mix and price and.
So we feel really great about our China business team is doing an excellent job executing in a tough market we were not impacted as.
As much by the Covid Lockdowns I mean, everybody was impacted but we have a very locally agile team that developed backup options for supply in <unk>.
Our manufacturing operations were not in locations that were locked down and so that may have been a little bit different for us than for others, but again, we feel great about our China performance in the quarter.
Congrats to the team.
I'll pass it on.
Thanks Andrea.
Thank you. Our next question will come from Peter Grom with UBS. Your line is now open.
Hey, Peter Hey, good morning, everyone.
So yes, I just kind of wanted to understand how we should think about the phasing of margin in the back half of the year or specifically how much of that remaining $625 million should hit in <unk> versus <unk> and then I guess I just I appreciate the commentary around margin improvement about previously there seems to be some sort of expectation that we could potentially.
Again to margin expansion at some point in the back half of the year and I know it will take time to fully recover margin but.
Based on where things stand today, when do you expect to see kind of margin expansion. Thanks, Hey, maybe I'll start Peter.
One I would say, yes, right now we're prioritizing restoring our margins I still remain confident that we'll be able to restore our margins and eventually expand our margins over time.
I think I said that in January as well.
Before we had an additional I don't even know $800 million of additional inflation.
In our forecast and so.
Again, and I think that.
My confidence is still.
Hi that we'll be able to expand margins over time, but I guess I think the timetable shifts a little bit because there's a.
A bigger.
Nut to crack on that front.
Yes.
Adding to that I mean, Peter a couple of things one we did expand gross margins in Q2 by 40 basis points.
I mean, we realized significant pricing already versus Q1, so we saw that sequential improvement.
In Q2, and as we head into the back half and we don't give guidance on quarterly margins, but we remain confident that based on what we know today, we will continue to expand margins I mean, the plans are in place as a reminder, we we will continue to realized pricing and based on what we've got today and what we saw in Q.
Two that will play out in the second half.
Secondly.
We've got our force cost savings, which will accelerate in the back half versus what we saw in the first half and that's a second component and then as you said there is a.
More subdued year over year impact of the commodities in the back half. So we will see as you mentioned $625 million, which.
Im not going to give the breakdown between Q3 and Q4, but we will see that in the back half versus the 875 that we saw in the first half so that gives us the confidence based on what we say that we will see progressive margin improvement in the second half and I feel like Peter that our team has made great progress on pricing and margin recovery.
Even even it may not show up on the operating number but for the quarter, our pricing did it offset inflation overall and I think that was strong progress now the the additional work for US is yes, the inflation forecast got bigger for the balance of the year and so we've got to solve that as well, but overall.
We feel good about our progress we know there's more work to do we're.
We're still confident we'll be able to expand our margins over time and then in addition, we all know commodities are going to revert and they always do and when we do that we're not going to rely on reversion for our margin expansion, but when it does do it will accelerate our timeline.
Okay. That's super helpful. And then I guess, maybe following up on that.
Hi.
I wanted to ask you about how we should think about.
Pricing and promotion should we actually reach in a deflationary environment and I know historically, you've kind of held onto pricing as you don't typically priced in peak inflation, but I just would be curious just given the amount of pricing that's being taken over the past year year and a half.
Kind of layering in that retail pressure that Dara was alluding to earlier I mean, what if anything do you think could be different this time around.
Well I think Peter the Big thing is.
Pricing and promotion.
Theres a lot of things going on but one youre using it to support the brands and for me typically that would be to support great innovation that you are launching that I find tends to grow the category a little bit more effectively and what we're really after is as overall category growth and that's what the retailers thereafter, as well and so so from a pricing.
And promotion as a component.
Not in Endo.
Opponent of an overall strategy our growth strategy.
The business.
That said.
There are fixed cost in this industry and so volume does matter and so so theres a tactical application of that but.
You look at the market I think the price of the input cost levels are so high while promotion is that I would call. It a typical level.
The depths are probably a little shallower than historically, they've been and I think thats reflective of the cost environment that the industries.
Working in.
I don't know if that really addresses what you're asking.
No that's helpful. I appreciate it thanks, so much guys. Okay. Thanks, Peter Thanks, Peter.
Thank you there are no further questions at this time I will turn the call back over for closing remarks.
Thank you great. Thank you operator, and thank you everyone for joining us today on the call and this will conclude our call for our second quarter.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
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