Q4 2022 Kimberly-Clark Corp Earnings Call

The assistance during your comments today, Please press star zero.

Ladies and gentlemen, thank you for your patience and holding we now have your presenters in conference. Please be aware that each of your lines 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 Christina Cheng.

Thanks, Shelby Hello, and welcome to our 2022 year end earnings Conference call.

Joining us today are Mike shoe, our chairman and Chief Executive Officer Nelson.

Our Chief Financial Officer, and Bryan Adel, our VP of finance.

Issued a press release and published supplemental materials that summarized our results and outlook. This morning, you can find these resources and events page of our Investor Relations website.

Before we begin today a few reminders statements will include forward. Our statements. Today will include forward looking statements. Please refer to the latest forms 10-K or 10-Q for a list of factors that could cause our actual results to differ materially from expectations.

My remarks will focus on adjusted results, which exclude certain items described in our Q4 2022 earnings news release, please consult our press release and public filings for more information about these adjustments and a reconciliation to comparable GAAP financial measures.

Mike will provide his perspective on the business and then we will open the floor for Q&A.

Let me turn it over to Mike Okay. Thank you Christina and welcome to Casey Good morning, and thank you all for joining us today.

Back when we introduced our strategy in 2019, we could not have imagined the unprecedented challenges we are about to face.

Over the past four years Casey Yours did what we do best provide great care.

That our consumers our customers our employees and our communities needed all around the world.

At the peak of the pandemic people counted on our brands to support the health and hygiene of their families.

And I'm proud of what our teams were able to achieve to fulfill our purpose of better care for a better world.

Now as we look back at our results there are three things I'd like to emphasize.

Theme number one our strategy to accelerate growth is working.

Since 2019, we've grown our business by about $1 5 billion in sales and delivered 4% average organic sales growth.

In that time, we've accelerated organic growth by improving our product offering and market positions with meaningful innovation and world class commercial execution.

In 2022 organic sales increased by 7% and over delivering on our goals at the beginning of the year.

This was achieved in what turned out to be a uniquely challenging global environment.

2022 also Mark Kimberly Clark's 150 at the anniversary a year in which we celebrated generations of category defining innovation.

We're proud to have created many of our categories, including feminine care and facial tissue under the leadership of our Kotex in Kleenex brands.

We are inventors at heart new products created during the last three years contributed to over 60% of our organic growth in 2022.

Whether it's Kotex dream, where ultimate overnight protection or kleenex algae comfort, our product obsession advantaged technology and consumer centric focus is enabling us to create meaningful value and accelerate category growth.

This is perhaps most evident in China, where we continue to post double digit organic growth in the face of a declining birth rate and challenging COVID-19 operating conditions.

With major upgrades and dryness and thinness our products are among the best in the market led by Huggies Super Deluxe, the softest diaper in China.

Our strong portfolio supported by superior technology will continue to anchor Kimberly Clark's leadership in the world's largest baby baby and child care market.

Theme number two.

We're making strong progress on margin recovery over.

Over the past two years, we faced unprecedented inflation worth over $3 billion, a roughly 500 basis point headwind to gross margin.

Our teams have done an excellent job mitigating this impact our product leadership commercial agility and cost discipline enable us to rapidly implement broad pricing actions and generate over $700 million in cost savings.

The successful implementation of revenue growth management actions drove an inflection in our profitability in the second half of the year.

Gross margin stabilized in Q3 and increased year over year in Q4 by over 200 basis points.

This was our first major improvement in the last eight quarters.

Collectively these actions enabled us to fully offset inflation and currency headwinds in 2022 on a dollar basis.

Recently market prices of some inputs have begun to ease although they remain elevated relative to pre pandemic levels.

While we are encouraged by this it will take time for these benefits to work through our contracts and flow through the P&L.

Nevertheless, we will continue to leverage our scale to improve efficiency and reduce costs.

At the same time, we expect our revenue management efforts will continue to positively impact this year.

This will aid ongoing gross margin recovery, while also enabling us to continue investing in our business.

At the midpoint of our 2023 guidance range, we plan to improve operating margin by approximately 80 basis points.

With incremental headwinds below the line this translates to 2% to 6% growth in earnings per share in 2023.

We also intend to increase our dividend for the 50 <unk> consecutive year.

Theme number three we will continue to invest to drive balanced and sustainable growth.

We're scaling innovation that delivers better value more benefits and better care for our consumers.

We continue to see strong demand for great performing products.

New poised ultra thins and expanded sizing for depend drove share gains in adult care, both from a dollar and unit standpoint, this past year in North America.

We will be launching several exciting initiatives in 2023, including our Goodnights youth pants, which can hold the equivalent of three bottles of water exclamation point as well as exciting performance upgrades.

For Huggies diapers at the same time, we will leverage the broad range of our offering to address the growing need for value through compelling commercial programs.

Now to wrap up my prepared remarks, I'm very proud of case years around the world.

They continue to execute with excellence standing tall in the face of countless challenges all to fulfill our purpose of better care for a better world.

We've assembled an excellent management team that has tremendous experience unlocking global growth.

We have a long runway of growth ahead of us and we'll continue to invest in balanced and sustainable growth to create long term value for our shareholders.

Now Shelby if you wouldn't mind lets open the line for questions.

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 on your Touchtone phone now.

<unk> will be taken in the order in which they are received please limit yourself to one question and one follow up question.

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

We'll take our first question from Dara <unk> from Morgan Stanley Good.

Morning Dara.

Hey, how are you.

Good job.

So.

I just wanted to go into the 2023 outlook in a little more detail.

First Mike can you just outline what youre assuming for pulp prices as you look out to next year I'm, assuming you're not fully using the risi forecast, but maybe you are just any clarity there would be helpful.

And then you talked about the greater investment in growth and people buy a 100 basis points. The margin can you just help us understand the motivation behind that are there specific areas of opportunity.

Is it more you have to pull back a little bit in 2022, just given such a tough commodity environment. How are you sort of thinking about that and also maybe just a little more detail on functionally where youre spending is that AD spend or is it other areas of head count.

And maybe geographies and product categories, you plan to invest so.

That'd be helpful. Thank okay will do.

First of all I feel great about where the brands are globally, and where our businesses and we can talk about performance in the fourth quarter and I know, we will get to that but overall I would say we plan to deliver a better performance in 2023 for sure.

We're going to build on our organic growth momentum.

Dara clearly and the plan for next year.

Plenty of carryover pricing, but there are new pricing actions in the plan as well most of those have already been announced to our customers.

But in terms of the investment I would say I'm really excited we got a robust innovation and commercial program for 'twenty three in some ways. If I calibrate I think this year will be stronger than last year, and we feel good about that consumer demand in our categories generally remains very resilient.

And so so I think from that aspect, we have good things to invest in.

In terms of the overall spending.

We are taking the advertising back up a little bit more.

Just for reference and we haven't discussed as much but obviously with the challenges that we've had over the last couple of years, we had pulled back slightly and over the last couple of years, but.

So some of this.

Is returning back to where we were back in perhaps in back in 2020, but beyond that I'd say, it's more based on the merits of the commercial programs that we have and we're excited about the programs that we have and we want to invest behind them and at this point you are probably aware Dara we're pretty good at it.

Evaluating the returns of our investment and making sure that they pay out and so we feel great about that and so so.

So from the organic momentum we need to see that.

I will say, we expect continued progress on margin recovery, while we're making that investment.

We've got high single digit operating profit growth, while offsetting I think what we said in our release about $600 million and inflation and FX headwinds and so yeah. We are restoring some between the lines.

But obviously as you saw the nonoperating.

Items really kind of get us back to that mid single digit EPS guide or low to mid single digit EPS guide, So I will say and before I'll, let Nelson Nelson will comment on the on the pulp.

I will say Dara, we are aiming for the top of our range internally right and.

We did the same thing last year I'm glad we did because when we came out at this time last year I think we are calling for about $700 million of cost inflation. We ended up seeing closer to the $1 7 billion and still stay within our original range.

As I mentioned, we have very high quality plans for this year, we're really excited about that so we're aiming for the top end of the range.

Why are we call. It the way we are the volatility remains extraordinarily high and so if you have a good call on interest rates FX The war energy supply chain Covid civil unrest.

There's a lot going on so so that's a mouthful, maybe I'll pause and let Nelson comment on pulp and then and then sorry, if you have any follow ups.

Yes and to add.

Dara in terms of pulp and fiber complex as a whole I think just to give a little bit of context of where we're at.

Overall, the fiber market prices have plateaued in Q3, and they actually began to turn slightly in Q4.

And to your question as to do we take <unk> as a reference yes, we take it as a reference.

<unk>.

Just reiterating where we're at today.

Prices have more or less remained largely in line with where we were in Q3 and what we're projecting into this year is that on average Eucalyptus is an has an example would be down 10% for the full year.

Now.

Same goes for fluff and NBS gay and some of the other components of the whole fiber complex, we would see prices begin to ease throughout 2023.

One thing that we need to take into account is that we don't cover at <unk> I mean, we actually enter into specific contracts and all of the different components of fiber. So what you see in <unk> or some of these indexes does not necessarily translate one to one at that time to our P&L. So that's also what's playing out to give you.

<unk> context out of the commodity inflation of $200 million to $300 million that we're quoting in our guidance.

The pulp complex as a whole is right around half of that at the midpoint. So we will see pulp as a whole be up for us in 2023 based on what we're forecasting at this stage all David.

A very small number.

Compared to what we've seen before.

And markets are giving up on that end.

I think I'll add Dara also.

Well I'll take it will take some of those declines that you see in receipt will take a little time to work through our system.

I would say if you saw spot in what we're paying you would want to pay what we're paying.

Yes.

Great. That's helpful and just one quick follow up.

On the higher AD spend are there specific geographies or product categories, you're most focused on Mike and then if I can slip one additional question and also just the FX guidance for 2023, the revenue guidance is worse than our currency models indicate based on your country exposures. So just.

Any clarity there would be helpful. But also the flow through to profit look pretty severe in terms of the.

FX impact to profit relative to revenue so any clarity there would be helpful. Thanks.

The spending Dara I would say.

It's broad improvements I mean, certainly you know in our major markets like the U S. In the diaper category for sure. We have great news that we want to make sure that we're supporting appropriately.

I cannot share exactly what that news is because it's coming out in the second half and the second half, but it will blow your mind when you see it in.

It has to do with.

Not to say this on an earnings call, but the <unk> side of things and so that's kind of the business. We're in and so we'll do miraculous things with coop and so so that's one set of areas. We've got a huge momentum in China, and we feel great about that team is doing a fantastic job, we're going to continue to plough and invest.

And the brand and the advertising and our digital capabilities in China, and so those are two core areas, but obviously we have.

Strong traction around the world and we feel good about our investments around the world.

And addressing the question on the Forex Dara just to unlock that a little bit. So for next year on the top line. We've said that for the full year, we're talking around two percentage points of a drag.

And it's important to highlight that we are seeing that concentrated in the first half of the year.

When we do the comps year over year, I mean, we would not we would see that really east or not be that much of a headwind as we say as we get into the second half from a top line standpoint, So you could work that out in there.

And then when we go down the flow through to the bottom line.

A couple of things as a reminder, we've got about half of our revenue coming from overseas and about a third of our profit coming from overseas, but we do have a significant amount of costs.

That impact the P&L, they're exposed to hard currencies in the foreign subs in which we operate.

The other element you need to take into account as you model is that we're not covering at spot rates. I mean, we have particular risk management strategies in place that I'm not going to.

Get into details in the call, but we have to work through those risk management strategies as they flow through the P&L and as you know that's not a one to one if you're engaging in hedging and doing risk management strategies that we do.

Great. Thank you okay. Thanks Dara.

We'll take our next question from Chris Carey with Wells Fargo.

Good morning, Chris.

Good morning.

I just one follow up on the on the currency piece and then.

And then another question.

But just just on the currency piece.

I think it's getting so much attention this morning.

Because it's such an atypical multiplier versus what we've seen here right.

And so.

And I appreciate there is hedging and it sounds like that's something you have good visibility into so maybe I'll just take that as a given.

And what was whats how should we think about an improvement in currency or a worsening in currency. So you're hedged does this now is this now the outlook or.

Changes in currency.

Imply a change in what's going to be flowing through on your model. This year. So perhaps you can just help us.

That's a fair question, Chris and a couple of things obviously on top line it'll be what it'll be because we don't we don't hedge topline so.

That's in essence, what's going to happen that will translate when you go to costs.

We have.

Models in place for risk management strategies, and there are currencies, we hedge currencies, we don't hedge and it depends on the amounts we do so it's model driven.

So changes in currency to your question would have impact now are willing to apply to all the currency pairs because it depends on where we're at in any given point in time.

Definitely on top line, yes, we will see that very fluid as markets move and that's happening literally on the hour.

As the profits we will also see to some extent some flow.

The currency changes and we update our models, depending on what's hedged and what's not hedged.

Okay.

Thank you.

Just just given.

I think one other thing this morning is that.

The commodity outlook relative to what we can see on EBIT forward prices would suggest.

Worse than expected probably on that front, clearly youre, saying more of thats happening in international markets, maybe harder harder to track.

So.

I think that makes sense, but nevertheless, we'll probably end the year now.

At <unk>.

Gross margin of say, 32% fill a few hundred basis points below pre pandemic operating margins, even farther below pre pandemic and I think conceptually the organization does have a.

Goal to get back to that margin structure. It just feels like.

With commodity volatility in the nonoperating inflation that youre talking about.

You still think that's a realistic medium to long term objective or is the inflation has been such that there's probably not enough pricing and savings to get there.

Or at least it will take a very long time. Thanks for your thoughts on that yes, Chris I definitely feel like it's a realistic.

Goal and I think we will get there.

View is we've turned the corner on our margin recovery.

Graham.

Obviously, we saw in the fourth quarter continued strong organic performance.

But.

I said this in my prepared remarks pricing exceeded input cost inflation for the full year.

And so we fully offset inflation and FX for the full year last year. So I think the teams did a great job there.

And our operating margin.

As I said stabilized in Q3 and expanded by 200 basis points in Q4.

In terms of the cost outlook. So I think we're making great progress there.

Now, let me say this about costs.

From my seat I will say there is I see green shoots okay.

But even though we'd still see cost headwinds coming into the year. There are green shoots and we have seen selected commodities start to ease.

And I'll also say having been in this in this company for 10 years reversion is around the corner and when it happens it happens fast.

We offset extraordinary headwinds over the last couple of years.

As I mentioned.

We see another 600 this year historically, though there has been rapid reversion.

And we've seen some signs of it I don't have a timetable for that and I don't know if its going to hit this year or not but at some point.

It will happen and when that does happen it will accelerate our margin recovery as I said in the past, we're not counting on reversion to deliver the margin recovery.

But when it does it will accelerate our timeline that which is why I feel confident about it because we all know.

$3 billion over two years.

It's not going to stay at that level at some point, it's going to come back down.

And just to add a little flavor on the gross margin too Chris.

Couple of things, we had three quarters in a row, where we.

We actually expanded gross margin and as Mike pointed out for the first time in Q4, we grew gross margin year over year.

Nurses.

The last time, we ever did that was back in mid 2020. So it had been a few quarters of that that has not been the case and that reinforces Mike's point that we have been talking about since July of really remaining committed and having line of sight to recovery in the margins is going to happen.

As we stare at this year, our plan calls for year over year margin expansion.

In gross margin every quarter.

What we have in place I think you quoted 32% of gross margin essentially higher what we're aiming for at.

For the full year, because we're expanding operating margins at the midpoint of our planned by 80 bps.

If you look at what we put out in the release and the remarks, we're investing about 100 basis points of net sale.

The brands. So we got to add that back to that 80 bps and that gives you a sense of.

What at least is going to be in the gross margin expansion that we have planned in here. So we definitely have.

We're building on those green shoots that Mike, saying, but we're not staying.

Sitting here I mean, we're moving on the productivity line, we're moving on the margin accretive innovation and we're also moving on the net revenue.

Growth management programs that we have in place. So all of that is really putting us there and as Mike said in the past reversion will accelerate this that's the only thing that would do that.

So can I, just confirm and I apologize because I've gotten questions on this and I'm going to get back in the queue do you expect gross margins up but the 100 basis points as to what you're investing in to gross margin. So can you just maybe confirm what your expectation for gross margin is yes, let me comment.

Their health and confusion, yes, hopefully to add right. So it would be like this we have 80 basis points of operating margin.

You add 100 basis points that we are reinvesting into the brands that gives you a 180 basis points by which at least gross margin would have to expand.

So that makes it okay. Thanks, so much.

That's the math.

Thank you Bob Okay. Thanks, Chris.

We will take our next question from Steve powers with Deutsche Bank.

Steve Hello, Good morning, good morning, just to pick up on that math, because that's that's sort of the math that we were working with two but that implies if you take the numbers literally the 23 gross margin objective is.

You know a tick below.

The <unk> 22 gross margin that you realized so just.

Nelson's point about seeing that progressive gross margin improvement sequentially.

It doesn't it doesn't imply a lot more movement in 'twenty three so maybe just talk about that in the context of overtime.

Using using cost some alike.

Wrote the margin recovery is on bumpy one Chris.

Steve.

Yes.

So Steve I think a few things that just to add a little bit of color on how we get there on the math. So I think the important the important thing to take into account as well.

We're staring right now at about two.

$250 million of commodity costs at the midpoint.

We've guided we have about.

And in terms of currency about $350 million at the midpoint in currency and then in other costs, we have around $200 million.

So when you add it all up.

We will be for another year in a row, having a significant revenue growth management reallocation that we've planned for which by the way around two thirds of that is solely carryover from 2022.

So what happens at the end dates for the year, we're going to be.

Realizing positive pricing net of commodity and Forex, whereas last year, we were pretty much neutral we were able to fully offset the $1 7 billion. So that's going to flow through and exiting Q4, Q, it's not a straight line as Mike indicated because again the quarters are pretty <unk>.

Different than the dynamics between the categories and the mix and how cost impact us differs but the reality is that on a year over year basis, we continue to expand margins and it would be quite the game because if you recall our pre COVID-19 gross margins were around 35%. So we would be getting we would be making pretty good advance on the full year.

Year with the movement that we're planning for Steven.

Stephen and maybe I'll just add for context, I mean, I wasn't trying to sound facetious.

So what I would say, it's a bumpy road.

I'm not one for hyperbole in I think I said in my prepared remarks unprecedented a few times and so theres been unprecedented effects kind of on the demand side.

And on the supply side, just in terms of demand, obviously COVID-19 in and out the war, which caused demand to change in and out.

Sure.

Then you have all the supply issues either associated with Covid, the wall or just product.

Product availability of our transportation available. So there's a lot of things moving around then you throw in our Texas storm, which at this point I'm on the third order of impact of the Texas storms and so you got all that.

There's a lot of volatility inherent.

And the numbers and there were not consistent quarter to quarter and very unusual in our business because typically I think.

I think you all right this tends to be a very stable business, but because of that both from a demand perspective, and a cost perspective things are going to move around from quarter to quarter a little bit.

Okay, that's fair and I agree unprecedented and has become a new precedent.

Okay.

So.

Two other I guess, a follow ups if I could.

One is on the enhanced.

Enhanced.

Essentially net pricing revenue growth management, I guess, you talked about mostly carryover that's great that makes sense in terms of the incremental is there do you anticipate incremental actual pricing actions versus just kind of other <unk>.

Just some color around where those might occur and what portion of them are actually list price movements versus count reductions that kind of thing would be helpful. And then another thing that you mentioned in the release, it's been a topic across.

Other companies that have been reporting just in terms of <unk>.

Our retail inventory levels and some some down shifting in terms of trade inventory levels.

Some color around what you've seen and how you are thinking about destocking inventory levels across the trade as you go through 'twenty three.

So much yes, thanks, Steve.

First of all we've moved fast on pricing.

The last couple of years right and so I'm really proud of the team their ability to fully offset inflation on a dollar basis in 2022.

But for the plan this year I would say the majority of our pricing is like there is going to be carryover, but we have taken new actions. Some list pricing, which is in general across most markets already been announced.

Into the marketplaces, but there are additional <unk> actions were taken as well that you might say whether it's.

Promotional changes or productivity around trade trade spending.

Those are the more typical that are kind of evergreen programs that we're going to have in place but overall.

We feel very good about our GM, our revenue growth management capability.

Executing well if we didn't if we had not invested in it over the past five years, we would not have been able to make the moves that we're making and then in general I think it's been working very very well in general I would say demand is holding up pretty well I know of that will be a topic people will want to double click on but I would say the elasticities are holding up.

In general better than we modeled originally.

Maybe hopefully that's it on the pricing one and any follow up.

Steve on the pricing no. That's that's great. Thank you, Okay, and then retail inventory was interesting Nelson and I are aware.

At a conference in September Laurens Conference in September .

Almost every investor asked us about retail inventories because it was starting to change for a couple more.

Manufacturers.

Not affected us at that was back in September I would say subsequent to that meeting, perhaps a week or two afterwards, we started getting news from retailers that they were going.

To look.

At retail inventories as well in our categories.

And it's happened I would say it's been typical.

Generally typical to kind of what we've experienced year on year over year. So in the fourth quarter I'd say it came in about what we forecast it did affect the consumption because if you look at North America.

I think our overall organic between tissue and personal care was up one, which which is a little soft relative to what the consumption was in.

In my mind.

Consumption is really what the business is really performing at and so youre going to have some other changes that affect your shipments.

But over the long term shipments must equal consumption in my book and so consumption for the quarter was up 7% in personal care and 7% in tissue. So we feel like the business remains very healthy.

But we've worked through some typical retailer inventory issues.

Okay very good. Thank you okay. Thanks, Steve.

We will take our next question is from Ana <unk> with Bank of America.

Good morning.

Hi, good morning, Thank you so much.

I was wondering if you can comment from your guidance on most of your inflation is outside of the U S. In 2023 meeting what is different really in terms of the market outside of the U S. In terms of rising costs and then I have a follow up.

Yes, and general inflation, so a couple of things.

Out of the commodity.

Inflation. The one we're quoting the 200 to 300 impact the majority of that bucket is on the international markets.

So the U S would be not that big.

The market largely impacted by that bucket. However, when we move down the line, obviously forex would be closely would be the international markets.

As you can see but then on the other costs. It's broad based so that would be broad based across the portfolio.

Yeah.

Okay, and then just how should we think about the phasing of your force cost savings through the year, just given that rising input costs are more pronounced in the first half should we expect greater cost savings to offset that in the first half as well.

Yes, as we've said in the past.

Our force savings are not linear and.

They.

It all depends on movements within the quarter is go lives of projects and it is very difficult for us to predict exactly how it comes into play.

I would not skew force into the first part of the year because typically we've got a lot of projects that are going live we're still dealing and managing through it.

Some challenges.

Especially internationally on the supply chain bid and that weighs in into how force place throughout the year, but I can't give you a specific.

Percentage of what you should be planning, but I hope that helps guide you as to how we're thinking about it.

Okay. Thanks, very much okay. Thank you Ana thank you.

We will take our next question from Andrea Teixeira with Jpmorgan.

Andrei Andrei.

Thank you good morning, how are you.

So I wanted to just perhaps hoped to breach the topline guidance a bit between volume and.

And in pricing and also I understand you mentioned, obviously you have some carryover impact of about two thirds I think you've called out the film.

From pricing so it implies that potentially you are announcing when embedding some additional pricing. So first of all I wanted to check on that end and by my math, probably embedding flattish to slightly up volume for.

2023, some hoping to to figure out what regions would that be.

And related to that from a regional perspective.

It was a bit softer in the fourth quarter I understand like you called out South East Asia, and I'm thinking and correct me, if I'm wrong soft tax being in.

Acquisition, they've made towards the end of 2021, perhaps there is some puts and takes there.

Anything you can add in terms of like training.

2022, it seems to me it was a year that had a very strong year.

And.

Actually sorry developed markets had a very strong <unk> was a bit softer.

Is that gonna we've worse because you obviously you have tougher comps in China and in developed markets. So if you can help us with that.

Okay, maybe Andre I'll start with the DNA and then maybe Nelson you can come back in on the.

Bridging the topline.

Yes. It did soften so in Q3 I think we were up about 11, Andrea and then it was plus two in the fourth quarter.

I would say as you already.

Talked about primarily due to what I would call discrete discrete challenges in southeast Asia.

So what we're doing as well.

We're excited about our business in Indonesia, great business Great brand.

I'd say were working through some some.

Business approaches that we prefer and so thats had an effect of the year. They did things a certain way I prefer to just from a different way and so we're just working through that and that had an impact on sales kind of in the quarter hopefully we're through that and then.

Beyond beyond Indonesia.

We're seeing a little increased competition.

<unk> in India, and so we're going to work through that and something that's been been gone off and on for a couple of years now.

Beyond Southeast Asia.

China was up double digits Latin America was up in the twenties.

In Middle East and Africa was up mid single digit for us. So we're still we still feel very good about our DNA performance overall, but recognize we have a little bit of work to do in southeast Asia. I mean, the team overall is doing a great job executing.

Bringing innovation into these markets draw.

<unk> the price execution, which we've talked about.

And we feel great about our commercial programming for this coming year.

Does that does that.

Give you enough on the team.

Yeah, No I guess on the developed markets, though what is embedded in your guidance because I'm. Assuming you are you thinking of elasticity kicking in Shanghai for the year or.

Because it seems as if at least in North America I know the puts and takes from a North America growth was subdued in.

The fourth quarter, so hoping to see if there is any puts and takes as you took more pricing and what is the what are you embedding into.

Into 2023, yes, well, let me just say we had great performance across developed markets in the fourth quarter I think generally approaching the double digit in developed markets outside the U S. U S. As I mentioned was up I think if you add tissue and personal care was up about 1%, mostly driven by <unk>.

Inventory changes differences, we exited a private label contract there was pretty significant we exited four change timing on a pretty significant promotion at a big retailer and so that affected I would say the fourth quarter overall in the U S.

But overall I don't think were putting out a number there specifically on on each of these segments, but we are expecting continued good performance both in North America and developed developed markets internationally and very excited about the plans go in there too.

Strong innovation as well I mean for all the developed markets, we've got very pretty strong innovation pipeline that.

That will come through but going back to your deconstruction of the top line.

A couple of things that I'd like to highlight.

On the year and how to think about it.

First and foremost we.

As we go through the year, it's important to note that the first half of the year will be more muted and.

And when we say more muted is important to take into account. The fact that one that we will still lapped the private label exit.

In North America that we talked about just now so that will continue to impact us in the first half and then the other bit is also we.

We're lapping very strong comps from last year as you remember we grew 10% in the first half and we grew 5% in the second half and then the third point is we will still have a lot of pricing that on a year over year basis is coming through in the first half because of the carryover. So.

All of that put together.

Would put pressure on volumes because of those three reasons as we think of the first half of the year.

As we go into the second part of the year, then that would ease and that's our expectation and that's the way that I would think about it.

Andrea.

That's helpful.

One clarification, that's missing on that when you said two thirds of the.

Correct me, if I'm wrong I understood is that everything that you have in plan.

Terms of pricing is about two thirds carryover. So it implies that you have another one third of pricing to come through.

Yes, and I said earlier I can't remember maybe it was with.

With Steve, but yes, we are.

We have a significant.

Portion of carryover pricing that was launched last year that still carries over into this year and then and then we've taken additional pricing actions. Since then and so we generally announced.

<unk> actions across markets that are taking and have taken effect this quarter and so thats also factored in the plan, yes. They go into effect in the biggest markets at the end of Q1.

And then on top of that as I said to Steve we have additional <unk> actions or revenue growth management actions that are more typical in evergreen.

Hyperinflationary markets, where we have that pricing is part of the of the overall number.

Super helpful. Thank you for the clarification, okay. Okay. Thank you Andrea.

We will take our next question from Lauren Lieberman with Barclays.

Good morning, Lauren great. Thank you Lauren good morning. Thanks.

So wanted a little bit about consumer behavior in North America.

And elasticity, so I guess first on personal care and Im sure Youre not going to give us a number but if I make some rough assumptions around the private label exit and inventory destocking. It looks like elasticity is less than kind of a one for one on the North America personal care business.

So just kind of curious on your perspective on that and knowing how much of your innovation has been premium over the last few years, what youre seeing in terms of trade down behavior, because the market share data.

It looks not great.

<unk> brand is losing share to private labor label overall, but your shares look a little bit softer.

And then just on tissue there, obviously expect there'll be significant elasticity there always is.

But what are you seeing there in terms of that timeline to that kind of stabilizing.

Should we think about it is when you start to lap the pricing that the volume stabilizes or is the consumer under so much direct there is space for that trade down to persist.

Okay. Laurent I knew you were going to ask this and so Russ and I were on the phone last night working through this and so.

So anyway, here's a couple of things one let me just say in North America, and I would say globally overall, we're seeing a resilient consumer and I think that does reflect the essential nature of our categories.

Generally.

Our Pos.

Or consumption volume or the Pos Nielsen sales.

As in line with expectations as I mentioned, our shipment volatility has been a little higher just because of some of these discrete items that we worked through.

This is the thing.

Russ and how were looking at last night.

I definitely would say observed elasticity was slightly higher.

Or the elasticity impacts on volume was a little bit higher in the second half than the first half.

But remains I would say far below what's modeled and I think that does reflect the nature of our categories as being essential.

I'll throw a couple of numbers at you.

These are category numbers, so not not Brandon public anyway. So.

Not proprietary but in Q4.

<unk> was up 7% in diapers.

EQ right equivalent units the measure of volume was down three and so I think as you pointed out.

Therefore, the implied that elasticity impact is less certainly far below one to one.

With that I would throw in there on top of that.

In the second half.

Our competitors have made a lot of account changes across all of these categories and so the EQ definition includes count reductions because it's based on a standard unit right. So.

I might venture to guess almost half of the volume decline is related to account and tissue she count changes.

So that was diapers and then back to issue, yes for the fourth quarter.

Price was up 11 for the category and volume was down seven and recognize.

Factor in three or four points of that 7% is likely to be seat count changes.

And then adult care of the outlier because price was up up eight and then <unk>.

<unk> was still up right up to and the Delta I think those are all fourth quarter numbers.

And the reason I say, the elasticities kind of seems like the impact has increased slightly in the second half.

As in the first half.

Pricing was up mid to high single digit in volume continued to be up and so there is a difference.

I think the consumer environment was different I do think there is more pressure on the consumer but I still think.

The category remains very resilient because of the essential nature of the category. So I'll pause there Laurence does that answer yet.

Great and just the one piece that you missed was on the relative market share performance.

Oh, yes, critical care and any kind of mix dynamics.

EMEA ambition, yes, again again, we feel we feel very good about overall performance.

The brands I think.

In adult care, we were up 12% in consumption in the quarter feminine care were up almost double digits.

Cypress was down five and the big the biggest driver behind that.

Private the private label exit was a minor one for us but the bigger one was we have a large retailer that we know when we shifted an event from Q4 last year.

Prior year into Q3 of this year. So we lost that on top of that they had a big private label event, which we know about.

Planned for and.

That moved from Q3 to Q4, so there is a double whammy on the share side and that accounted for the majority of our share impact in the quarter.

And that happened in October I think the cycle for us and so we saw later in the quarter certainly better performance from <unk>, and we feel great about where we stand and as I have.

As I told you we have the <unk>.

Disney 100, so we've got great commercial programs for our characters on our products. We've got great innovation that we're really excited about I hate to say, but.

When you come out and visit with US will take you through our war room on poop superiority and.

And so but we feel very good about.

Our offering and what we're going to be doing there.

I'm going to put the poop superiority visit.

My agenda.

It sounds plenty on our call. This is the business I'm in yeah, No I got it I got it.

And then I'd be remiss, if I didn't jump in on a on a modeling question.

But just briefly on that.

FX headwinds relative to what just seem like not terribly well timed hedges. Unfortunately, and then the wage inflation that you called out.

Just any dimension you sound like gross margin versus Opex.

Treat those as we worked through the pieces.

Yes so.

The $200 million is on the other operating costs. That's all gross margin as you model it.

And the in terms of the <unk>.

Transaction Forex.

Meaningful portion of it would be gross margin there is a little bit on translation because of earnings and Theres a little bit on.

Mark to market of any liabilities or assets, we have in foreign currency, but the lion's share of it would be in gross margin.

Okay, Alright, great. Thank you so much alright, thank you Lauren.

We will take our next question from Javier Escalante with Evercore.

Javier good morning, everyone.

Morning, everyone.

I would like to come back to these elasticity question.

So you mentioned that is healthier, but yet your volumes are down seven and I'm sure you could have itemized how much is yours.

Underlying volume growth versus market growth. So if you can give us that so why do you think underlying growth without going to these happening.

<unk> or diapers, just tell us of the 7% volume decline how much were one timers because the other branded competitors are also sold volumes declined 6% and my concern is how.

What makes you think that you can keep pricing at these levels given what this contradiction between the elasticity that you mentioned that is better but we see these.

Mid to high single digit volume declines.

Javier I think the thing that you have to get.

Picture is there's a difference between what's happening consumption.

What's happening is sold through to consumers versus shipments right and so and I think that's what maybe the other manufacturer I didn't listen to their call, but I'm also supposedly I think they'd probably lived through some of the same effects as us theres a difference between what's consumed right and so I said for the quarter in North America across our.

Our personal care business grew in consumption by 7% our tissue business grew by 7%.

In the long run I think youll have to hopefully you will agree that in the long run shipments should equal consumption right. So youre not going to perpetually delete the retailer inventories were virtually retailer inventories over time right. So generally that's kind of what I look at it as kind of the ongoing health of the business.

In the quarter, we did see some discrete changes, particularly as it relates to one retailer inventory, which was probably the biggest impact for us in the quarter.

But the other the other aspect for us as we did exit a pretty significant private label contract which added.

A piece of it as well so those are discrete items.

In general and I said on an earlier question the retailer inventory changes for us it's about typical for what we normally see and so.

And it goes back and forth from year to year and so it tends to build itself back up over time.

And that's why.

Don't view retailer inventory changes as representative of whats happening to elasticity I view, what's happening to consume volume and consumed.

Consumer dollars right as to what's happening with loss activity.

That makes sense, yeah, I couldn't agree more but you have not quantified those.

One timers, so what I'm asking us to tell me what do you think is underlying category growth for you.

Well, Brian that competitor.

Lucifer private label because you are talking about.

Price increases in addition to whatever carryover comps from this year and we wonder to what extent you are.

Taken too much pricing and whether you can keep it.

Well.

All I'll say is the underlying category growth in the fourth quarter was 7% for both personal care and tissue.

But what about volumes not pricing.

Turning to volume declines of 7% Mike.

Volume declines and then the consumption volume decline was low low single digit low to mid single digits.

And Blake.

Go ahead.

Javier going back to your question to answer the question that you have on the one timers, we have about three points would have been the one timers.

Great have you think of the inventory destock. If you think of the private label contract that would have been about three points out of that.

Excellent and then I have a more strategic question when it comes to private label.

What do you see probably what they were roll in diapers, both in the U S and Europe and to what extend that.

It makes sense to hold on to your operations in the U K.

Thank you.

We exited our personal care business, primarily our especially our diaper business in the UK about 10 years ago, So I'm not sure what you're referencing there.

<unk> the tissue business as well.

Yes, I mean, yes, we have yes, we have a great tissue business, it's the market leader in the U K what is the question.

Question is if you can tell us how is private label pricing in the U S versus the U S.

The U K, which we don't have I personally don't have access to and whether it makes sense to hold on to the tissue operations in the U K given the situation there okay I got it I understand yes.

Yes, overall again, we feel great about our brands and where their position is and Rex.

We have taken significant pricing just as we've done in the U S. This year.

It continues to perform well and despite the price increases.

It has grown share and so it's a leading brand in the United Kingdom.

And.

Much abide by consumers and so it's a great business for us certainly this.

This year there is room for improvement because of all the cost pressure and so that's the priority for us as you've heard all year as we've been working to recover our margins on our brand new businesses to offset the significant inflation that we've had over the course of the year and I think the teams have done a fantastic job of that.

Said, our margins are still below where they were.

Pre pandemic and so we're working our way back up towards that.

Thank you so very much very helpful. Okay. Thank you Javier.

Well take our last question from Kevin Grundy with Jefferies.

Kevin Hi, Kevin.

Great. Good morning, everyone. Thanks for squeezing me in and Christina Congratulations and welcome.

Mike just maybe tie together some of the more recent questions.

Hit on your U S market share, which I think Laurent touched on a bit and then the promotional environment, which Javier I think kind of getting out a little bit, but very specifically how this plays out with the promotional environment. Some of the conversations we have with investors now is the pricing stick is the consumer going to be able to withstand it particularly in some of your categories and then obviously.

Honestly, what's going on with commodities is not lost on retailers, either theres still kind of a long way to go to get back to gross margin targets, but still more benign oil pulp etsy.

Et cetera.

And then I'm sure you share is not quite where you wanted to be in some categories, where it's eroded tissue diapers wipes et cetera. So.

Question, just around promotional environment, how you see this playing out in your categories given the recessionary backdrop in more benign commodity cost environment than maybe what you've embedded in your outlook and that'll do it for me. Thanks, guys. Jay Yes, Kevin Let me try to let me try to package that up I mean, one let me start with the share.

It was a bit softer than we liked in Q4, but.

I feel confident we're moving on the right track I mean, the softness was primarily in diapers for the reason I told Lauren which is we had a big event come out and then a big private label event, which we happen to supply go in and so that a big impact on market share in the quarter for.

For the full year were up or even in five of eight categories. We were down 5% in Q4, that's why I said, it's softened in Q4, but we'll get it back on the right track.

I do think.

I feel really good about our plans for this year and feel confident in our commercial activation in North America, and then and then in nearly all markets around the world. When we have a few discrete items, we're working across international markets.

In terms of the pricing environment I would say the promotional environment right now remains.

Competitive, but I would say overall constructive given the cost environment, we've seen kind of obviously the broad pricing actions.

Most manufacturers across categories.

Promotion frequency.

Has returned to normal levels, both in tissue and personal care and that happened a while back I would say the depth of promotion remains a bit shallower and shallower.

Historical and I think that's related to the cost environment.

However on the consumer side.

Certainly.

My comments on the plasticity and essential nature of our categories, notwithstanding I do sense that consumers under pressure and so we've been.

Talking to our top customers and so we recognize that the consumer is.

Working through some challenges pocketbook wise and so we're going to meet them, where they need us and make sure that we're continuing to offer a strong value.

Across our business and the thing about US is our aim is to lead our categories and so we're not really we're not a niche premium player we want to play across both value and premium and so we have a broad offering and we want to make sure we support our consumers effectively along that but for the most part yes, we have taken significant pricing.

Managing our promotions with discipline and we will continue to do that I don't know if that answer is exactly what youre looking for Kevin.

I think that helps but just to kind of tie that in with your intentions on the advertising and marketing is it fair to say that should the promotional environment pick up because of a weaker consumer.

From your position trade down in your categories that you, it's not optimal but you kind of view that 100 basis points in advertising and marketing if you have to reallocate that to trade promotion as the year progresses, then Youll cross that bridge. When you get there is that a fair way to think about it yes, yes.

I will say, yes, we'll cross that bridge when we get there.

My personal bias is I'm not a fan of driving the business through promotion.

I can.

We can do it effectively because we know our rois on trade promotion as well as we know our advertising rois and so and frankly now the returns on both our okay.

I like the advertising months better and so that's kind of my go to.

And I think it's better for the long term health of the brand and frankly, Kevin related to question you were asking our customers expected.

They're concerned about value for their shoppers and so they're not the biggest fans of all these price increases.

But part of part of what they're looking for from US is to make sure that we're bringing in commercial procurement and grow the category for a long term and they're so they're excited about our innovation and they are excited about.

The commercial ideas that we're bringing this year and so they want us to bring it in so that's probably the bigger reason why we've ticked up the investment in our in our advertising.

Very good guys. Thanks for all the time and good luck.

Thank you alright, Thank you, Kevin and Shelby I am going to make my closing comments.

I'll just say a couple of things one I am confident in the strength of our brands and our commercial capabilities are positioning Kimberly Clark for the long term.

I'm really proud of the focus leadership talent in this organization and confident that will drive business drive our business, great long term shareholder value and fulfill our purpose of better care for a better world. So I want to thank you all for joining us today and with that we'll sign off.

That concludes today's teleconference. Thank you for your participation you may now disconnect.

[music].

Okay.

[music].

Sure.

Okay.

[music].

Okay.