Q3 2023 Kimberly Clark Corp Earnings Call
Okay.
Speaker 1: Good day and welcome to the Kimberly Clark third quarter 2023 earnings call.
Good day and welcome to the Kimberly Clark third quarter 2023 earnings call.
Speaker 1: At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
Speaker 1: It is now my pleasure to turn the floor over to your host, Christina Chang. Ma'am, the floor is yours.
It is now my pleasure to turn the floor over to your host Christina Cheng.
Ma'am the floor is yours.
Speaker 2: Welcome everyone to our third quarter 2023 earnings conference.
Welcome everyone to our third quarter 2023 earnings conference call before we begin. Please note today's presentation will include forward looking statements.
Speaker 2: Before we begin, please note today's presentation will include forward-looking statements. Actual results may vary maturely from those expressed or implied in our forward-looking statements. And you should not place any undue reliance on our forward-looking statements.
Actual results may vary materially from those expressed or implied in our forward looking statements and you should not place any undue reliance on our forward looking statements.
Speaker 2: Please refer to our SEC filings for a list of factors that could cause our actual results to deviate maturely from our expectations.
Please refer to our SEC filings for a list of factors that could cause our actual results to deviate materially from our expectations.
Speaker 2: Our remarks today refer to adjusted results, which exclude certain items described in our news release.
Our remarks today refer to adjusted results, which exclude certain items described in our news release.
Speaker 2: We use non-GAAP financial measures to help investors understand our ongoing business performance.
We use non-GAAP financial measures to help investors understand our ongoing business performance.
Speaker 2: Please consult our press release for a discussion of our non-GAAP financial measures and reconsiderations comparable to GAAP financial measures.
Please consult our press release for a discussion of our non-GAAP financial measures and reconciliations to comparable GAAP financial measures.
Speaker 2: We have published supplemental materials which are found in the investor relations section of our website.
We have published supplemental materials, which are found in the Investor Relations section of our website participating in today's call are chairman and Chief Executive Officer, Mike Shoe and our Chief Financial Officer, Nelson <unk>, Mike will start.
Speaker 2: Participating in today's call are our Chairman and Chief Executive Officer Mike Hsu and our Chief Financial Officer Nelson Urdaneta. Mike will start the discussion with our strategic priorities and provide an overview of our performance for the quarter. Nelson will provide a detailed discussion on our Q3 results and our outlook before we open the floor to Q&A. With that, I will turn the call over to Mike. Thank you, Christine.
Start the discussion with our strategic priorities and provide an overview of our performance for the quarter.
Nelson will provide a detailed discussion on our Q3 results and our outlook before we open the floor to Q&A.
With that I will turn the call over to Mike.
Thank you Christina.
We delivered another quarter of strong results.
Speaker 3: I'm proud of how our teams around the world are executing our growth strategy.
I am proud of our teams around the world are executing our growth strategy.
Speaker 3: Our innovation and commercial programs are contributing to top line momentum with improving volume and market share trends and strong gross margin expansion.
Our innovation and commercial programs are contributing to the topline momentum.
With improving volume and market share trends and strong gross margin expansion.
Speaker 3: Based on the strength of our year-to-date performance, we are raising our full year outlook.
Based on the strength of our year to date performance, we are raising our full year outlook.
Speaker 3: Third quarter and year-to-date organic sales increased 5% with growth across all segments.
Third quarter and year to date organic sales increased 5% with growth across all segments.
Speaker 3: Personal care, our largest business, led the way with 7% organic growth and importantly 2% volume growth.
Personal care, our largest business led the way with 7% organic growth and importantly, 2% volume growth.
Speaker 3: Further gains in price and mix were enabled by strong revenue growth management capability.
Further gains in price and mix were enabled by strong revenue growth management capability.
Speaker 3: while volume improves sequentially for a third consecutive quarter.
While volume improved sequentially for a third consecutive quarter.
Speaker 3: We expect volume trends to continue improving as we cycle prior pricing actions and continue
We expect volume trends to continue improving as we cycled prior pricing actions and continued to invest in our brands.
We also continue to make excellent progress on margin recovery.
Speaker 3: We also continue to make excellent progress on margin recovery. Gross margin was up 530 basis points and exceeded 2019 levels, an important milestone in our commitment to restore our gross margin.
Gross margin was up 530 basis points and exceeded 2019 levels and an important milestone in our commitment to restore our gross margin.
Speaker 3: Operating profit was up 18% and adjusted earnings per share grew 24%
Operating profit was up 18% and adjusted earnings per share grew 24%.
Operator: Good day and welcome to the Kimberly-Clark 3rd quarter 2023 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation.
Speaker 3: Given the strength of our year to date performance, we're raising our 2023 out.
Given the strength of our year to date performance, we're raising our 2023 outlook.
Speaker 3: We now expect organic sales to grow 4 to 5% and adjusted earnings per share to increase 15 to 17.
We now expect organic sales to grow 4% to 5% and adjusted earnings per share to increase 15% to 17%.
Christina Cheng: It is now my pleasure to turn the floor over to your host, Christina Cheng. Ma'am, the floor is yours.
Christina Cheng: Welcome everyone to our 3rd quarter 2023 earnings conference call. Before we begin, please note today's presentation will include forward-looking statement. Actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place any undue reliance on our forward-looking statements. Please refer to our SEC filings for a list of factors that could cause our actual results to deviate materially from our expectations. Our remarks today refer to adjusted results, which exclude certain items described in our news release. We use non-gap financial measures to help investors understand our ongoing business performance. Please consult our press release for a discussion of our non-gap financial measures and reconcilations to comparable gap financial measures.
Speaker 3: Global demand in our categories and for our brands remains resilient.
Global demand in our categories for our brands remains resilient.
Speaker 3: In key markets, we're seeing a healthier balance of growth in both price and volume.
In key markets, we're seeing a healthier balance of growth in both price and volume.
Speaker 3: In North American consumer, organic sales were up 7% with volume up 3%. Dynamics
North America consumer organic sales were up 7% with volume up 3%.
Dynamics were similar in EMEA.
Speaker 3: In China, organic sales and volume were both up double digits despite ongoing category soft...
In China organic sales and volume were both up double digits, despite ongoing category softness.
Speaker 3: While growth across B&E continues to be mixed, consumption increased double digits in Latin America.
While growth across DNA continues to be mixed consumption increased double digits in Latin America.
In our largest markets our market shares are improving.
Speaker 3: In North America, we saw sequential improvement in six of eight categories.
In North America, we saw sequential improvement in six of eight categories.
Speaker 3: This was enabled by strong commercial execution, marketing activation,
Unknown Executive: We have published supplemental material to which are found in the investor relations section of our website.
This was enabled by strong commercial execution marketing activation.
Speaker 3: and a significant easing of year-to-date supply constraints in personal care of patients.
Significant easing of year to date supply constraints and personal care facial tissue.
Christina Cheng: Participating in today's call or chairman and chief executive officer Mike Schoo in our chief financial officer Nelson Ordenetta, Mike will start the discussion with our strategic priorities and provide an overview of our performance for the quarter. Nelson will provide a detailed discussion on our Q3 results in our outlook before we open the floor to Q&A.
Speaker 3: In the UK, new performance enhancing designs, price pack offerings and digital initiatives have resulted in over 200 basis points of year over year share gains for entry.
In the UK, new performance enhancing designs price pack offerings and digital initiatives have resulted in over 200 basis points of year over year share gains for <unk>.
Speaker 3: And in China, we're continuing to see strong market share momentum with huggy share up nearly 200 basis points.
And in China, we're continuing to see strong market share momentum with huggies share up nearly 200 basis points in the quarter.
Michael Hsu: With that, I will turn the call over to Mike. Thank you, Christina. We delivered another quarter of strong results. I'm proud of how our teams around the world are executing our growth strategy. Our innovation and commercial programs are contributing the top line momentum with improving volume and market share trends and strong growth margin expansion.
Speaker 3: As market leaders, we're raising the bar by elevating and expanding our categories with superior products and advantage technology to address unmet needs.
As market leaders, we're raising the bar by elevating and expanding our categories with superior products and advantaged technology to address unmet needs.
Speaker 3: We're also committed to meeting consumers where they need us by offering a comprehensive range of products across the value spectrum.
We're also committed to meeting consumers, where they need us by offering a comprehensive range of products across the value spectrum.
Michael Hsu: Based on the strength of our view-to-date performance, we are raising our full-year outlook. Third quarter and year-to-date organic sales increased 5% with growth across all segments. Personal care, our largest business, led the way was 7% organic growth and, importantly, 2% volume growth. Further gains in price and mix were enabled by strong revenue growth management capability, while volume improves sequentially for a third consecutive quarter. We expect volume trends to continue improving as we cycle prior pricing actions and continue to invest in our brands.
I'll highlight a few examples.
Speaker 3: In China, we introduced a breakthrough design for Huggies with innovation that whisks away both forms of baby's mess to reduce the frequency of diaper rest.
In China, we introduced a breakthrough designed for huggies with innovation that whisks away both forms of babies mess.
To reduce the frequency of diaper rash.
Speaker 3: This is a foundational element of our global skin health plan.
This is a foundational element of our global skin health platform.
Speaker 3: In North America, we launched new Poi's 7-drop ultra-absorbency pads and 8-drop overnight.
In North America, we launched new poise, seven drop ultra absorbency pads and eight drop overnight.
Speaker 3: These higher capacity designs provide better absorbency and protection than daytime pads.
These higher capacity designs provide better absorbency and protection and data pads.
Speaker 3: Also in North America tissue, Scott 1000 lasts longer and dissolves faster. And this has been core to Scott's powerful proposition among value-oriented consumers. And that's why Scott continues to deliver robust growth in this important daily use segment.
Also in North America tissue, Scotland last longer and results faster and this has been core to Scott's powerful proposition among value oriented consumers and it's why Scott continues to deliver robust growth in this important daily use segment.
Michael Hsu: We also continue to make excellent progress on margin recovery. Growth margin was up 530 basis points and exceeded 2019 levels and important milestone in our commitment to restore our growth margin. Operating profit was up 18%, and adjusted earnings per share grew 24%.
Speaker 3: We believe our ongoing investment in the Vantage technology and brand communications will attract more consumers
We believe our ongoing investment in the vantage technology and brand communications will attract more consumers.
Speaker 3: increase usage occasions, and ultimately grow our category.
Increased usage occasions, and ultimately grow our categories.
Speaker 3: I'm proud of the progress we've made to offset the multi-year impact of inflation on our P&L.
Michael Hsu: Given the strength of our year-to-date performance, we are raising our 2023 outlook. We now expect organic sales to grow 4% to 5%, and adjusted earnings per share to increase 15% to 17%. Global demand in our categories and for our brands remains resilient. In key markets, we are seeing a healthier balance of growth in both price and volume, and North America consumer. Organic cells were up 7% with volume up 3%. Dynamics were similar in the EMEA.
I am proud of the progress we've made to offset the multiyear impact of inflation on our P&L.
Speaker 3: For storing margins to pre-pandemic levels with a milestone and not our end goal, we will continue to expand margins by executing our commercial and productivity programs to deliver balanced and sustainable growth for the long term.
Restoring margins to pre pandemic levels was a milestone and not our end goal.
We will continue to expand margins by executing our commercial and productivity programs to deliver balanced and sustainable growth for the long term.
I'll now turn it over to Nelson to provide more details on our third quarter and outlook for the remainder of the year.
Speaker 3: I'll now turn it over to Nelson to provide more details on our third quarter and outlook for the remainder of the year.
Thanks, Mike.
Speaker 3: We delivered another quarter of strong results across the comp-
We delivered another quarter of strong results across the company.
Speaker 3: Net sales were $5.1 billion, up 2% versus last year. Organic Sales
Michael Hsu: In China, organic cells and volume were both up double digits despite ongoing category softness. While growth across B&E continues to be mixed, consumption increased double digits in Latin America. In our largest markets, our market shares are improving. In North America, we saw sequential improvement in six of eight categories. This was enabled by strong commercial execution, marketing activation, and a significant easing of year-to-date supply constraints in personal care and facial tissue. In the UK, new performance enhancing designs, price pack offerings and digital initiatives have resulted in over 200 basis points of year-over-year share gains for Andrex.
Net sales were $5 1 billion up 2% versus last year.
Organic sales increased 5% led.
Speaker 3: led by high single digit growth in the personal care segment and in North America.
Led by high single digit growth in the personal care segment and in North America.
Speaker 3: Volume improves sequentially for the third quarter in a row to minus one percent.
Volume improved sequentially for the third quarter in a row to minus 1%.
Speaker 3: While a prize realization was 5% and mixed contributed one point of growth.
While our price realization was 5% and mix contributed one point of growth.
Speaker 3: Currency negatively impacted net sales by approximately 200 base
Currency negatively impacted net sales by approximately 200 basis points to.
Speaker 4: the exit of our Brazil tissue business had an additional impact of 100 basis points, primarily on consumer tissue and our professional business.
The exit of our Brazil tissue business had an additional impact of 100 basis points, primarily on consumer tissue and our professional business.
Let me spend a few minutes on each of our segments.
Speaker 4: First, personal care organic sales increased 7% this year.
Michael Hsu: And in China, we're continuing to see strong market share momentum with hugged share up nearly 200 basis points in the quarter. As market leaders were raising the bar by elevating expanding our categories with superior products and advanced technology to address unmet needs. We're also committed to meeting consumers where they need us by offering a comprehensive range of products across the value spectrum.
First personal care organic sales increased 7% this quarter.
Speaker 4: Prize Realization drove four points of growth and MIX contributed one point of growth.
Price realization drove four points of growth and mix contributed 1%.
Speaker 4: Volume turned positive for the first time in five quarters. With an increase of two...
Volume turned positive for the first time in five quarters with an increase of 2%.
Speaker 4: North America and developing and emerging markets' organic sales grew in the high single digits, with volume increases in North America. Developed markets.
North America, and developing and emerging markets organic sales grew in the high single digits with volume increases in North America <unk>.
Developed markets grew low single digits.
Michael Hsu: I'll highlight a few examples. In China, we introduced a breakthrough design for huggies with innovation that whisks away both forms of baby's mess to reduce the frequency of diaper rash. This is a foundational element of our global skin health platform. In North America, we launched new poise, seven drop ultra-observancy pads, and eight drop overnight. These higher capacity designs provide better observancy and protection than daytime paths. Also in North America tissue, Scott 1000 lasts longer and does all faster, and this has been core to Scott's powerful proposition among value-oriented consumers, and it's why Scott continues to deliver robust growth in this important daily use segment.
Speaker 4: Within personal care, each of our subcategories grew high single digits.
Within personal care each of our subcategories grew high single digits.
Speaker 4: Operating margin for the segment improved 250 basis points versus year ago, driven by gross margin improvement while we continue to increase our investments in our brands. Second.
Operating margin for this segment improved 250 basis points versus year ago, driven by gross margin improvement, while we continue to increase our investments in our brands.
Second organic growth in consumer tissue was 2%.
Speaker 4: Within consumer tissue, North America delivered 4% organic growth, driven by healthy demand in dry baths and towels.
In consumer tissue, North America delivered 4% organic growth driven by healthy demand and dry bath and towels.
Outstanding results from the UK drove 2% growth in the developed markets on top of last years, 11% increase.
Speaker 4: Operating margin for the segment was up 320 basis points versus year.
Operating margin for the segment was up 320 basis points versus year ago driven.
Driven by revenue growth management and improved service levels.
Michael Hsu: We believe our ongoing investment in the vanish technology and brand communications will track more consumers, increase usage occasions, and ultimately grow our categories. I'm proud of the progress we've made to offset the multi-year impact of inflation on our P&L. For storing margins to pre-pandemic levels with a milestone and not our end goal, we will continue to expand margins by executing our commercial and productivity programs to deliver balanced and sustainable growth for the long term.
Finally, our K C professional business posted 4% organic growth despite challenging comparisons against last year.
On a two year average organic sales growth was 7%.
Demand for our Washington business remains healthy and.
And new commercial programs drove share gains in North America.
Strong revenue realization was partially offset by lower volumes.
Speaker 4: which were partly driven by the timing of select planned price adjustments.
Which were partly driven by the timing of select planned price adjustments.
Nelson Urdaneta: I'll now turn it over to Nelson to provide more details on our third quarter and outlook for the remainder of the year. Thanks, Mike. We delivered another quarter of strong results across the company. Net sales were $5.1 billion, up 2% versus last year. Organic sales increased 5%, fed by a high single-digit growth in the personal care segment and in North America. Volume improves sequentially for the third quarter and a row to minus 1%.
Speaker 4: Operating margin for professional improved by 550 bases.
Operating margin for professional improved by 550 basis points.
Which was broadly in line with the first half of 2023.
Turning to the rest of the VNS.
Third quarter gross margin increased 530 basis points to 35, 8%.
Revenue growth management input cost tailwind and about $90 million in <unk> savings more than offset other manufacturing costs and currency headwinds.
Nelson Urdaneta: 1% While a prize realization was 5% and mixed-contributed one point of growth. Currency negatively impacted net sales by approximately 200 basis points. The exit of our Brazil tissue business had an additional impact of 100 basis points, primarily on consumer tissue and our professional business.
The cost environment remains mixed.
Speaker 4: with favorability and raw materials, so offside by higher energy prices, currency headwinds, and higher labor.
With favorability in raw materials, offset by higher energy prices currency headwinds and higher labor costs.
Speaker 4: Other manufacturing costs were 30 million higher than last year.
Other manufacturing costs were $30 million higher than last year.
Speaker 4: Between the lines spending was 20.7% of net.
Between the lines spending was 27% of net sales up 310 basis points versus year ago, reflecting year on year inflation and investments in our brands our people and our capabilities.
Speaker 4: up 310 basis points versus year ago, reflecting year on year inflation and investments in our brands, our people and our capabilities.
Nelson Urdaneta: Let me spend a few minutes on each of our segments. First, personal care organic sales increased 7% this quarter. Prize realization drove four points of growth and mixed-contributed 1%. Volume turned positive for the first time in five quarters, with an increase of 2%. North America and developing and emerging markets organic sales grew in the high single digits, with volume increases in North America. Developed markets grew low single digits. Within personal care, each of our subcategories grew high single digits. Operating margin for the segment improved 250 basis points versus year ago. Driven by gross margin improvement while we continue to increase our investments in our brands.
Speaker 4: These results also reflect higher year on year incentive compensation.
These results also reflect higher year on year incentive compensation accruals.
Speaker 4: Operating profit for the quarter increased 18.
Operating profit for the quarter increased 18% and operating margin improved by 210 basis points to 15, 1%.
Speaker 4: operating margin improved by 210 basis points to 15.1.
Speaker 4: This includes a currency headwind of 135 million or a 21% percentage point profit impact of which four points were due to the translation of earnings from non-US operations. And the balance was largely driven by transactional
This includes a currency headwind of $135 million or a 21 percentage point profit impact of which four points were due to the translation of earnings from non U S operations and the balance was largely driven by transactional costs.
Speaker 4: Lastly, the adjusted effective tax rate for the quarter was 22.5% in line with last year's 22.3%.
Lastly, the adjusted effective tax rate for the quarter was 22, 5% in line with last year's 22, 3%.
Nelson Urdaneta: Second, organic growth and consumer tissue was 2%. Within consumer tissue, North America delivered 4% organic growth, driven by healthy demand and dry baths and towels. Outstanding results from the UK drove 2% growth in the developed markets on top of last year's 11% increase. Operating margin for the segment was up 320 basis points versus year ago, driven by revenue growth management and improved service levels.
Speaker 4: Our operating results, coupled with lower net interest expense and gains in equity income, drove a 24% growth in adjusted earnings per share to $1.74 in the third quarter. ? signs claim to the
Our operating results, coupled with lower net interest expense and gains in equity income drove a 24% growth in adjusted earnings per share to $1 74 in the third quarter.
Turning to balance sheet and cash flow highlights for.
Speaker 4: Through the first nine months of the year, we generated $2.3 billion in cash flow from operations.
Through the first nine months of the year, we generated $2 3 billion in cash flow from operations.
Speaker 3: Capital spending was 549 million compared to 679 million last
Capital spending was $549 million compared to $679 million last year.
Speaker 4: We expect to end the year with CAPEX of approximately 800 million.
Nelson Urdaneta: Finally, our KC professional business posted 4% organic growth despite challenging comparisons against last year. On a two-year average, organic sales growth was 7%. The man for our washroom business remained healthy and new commercial programs drove share gains in North America. Strong revenue realization was partially offset by lower volumes, which were partly driven by the timing of select planned price adjustments. Operating margin for professional improved by 550 basis points, which was broadly in line with the first half of 2023.
We expect to end the year with Capex of approximately $800 million.
Speaker 4: Here to date, we return $1.3 billion to shareholders through dividends and share repurchases. That's...
Year to date, we returned $1 3 billion to shareholders through dividends and share repurchases.
Now, let me say a few words about our outlook.
Speaker 4: Based on our strong results, we are raising our full-year guidance. We now expect organic sales growth of 4 to 5 percent and net sales growth of 1 to 2 percent.
Based on our strong results, we are raising our full year guidance. We now expect organic sales growth of 4% to 5% and net sales growth of one 2%, reflecting the impact of unfavorable currency and divestitures.
Speaker 4: reflecting the impact of unfavorable currency and divest-
Speaker 4: We also now expect adjusted earnings for share growth of 15 to 17.
We also now expect adjusted earnings per share growth of 15% to 17%.
Speaker 4: Currency headwinds continue to worsen given the recent strengthening of the US dollar against the Argentina peso and other key currencies
Currency headwinds continue to worsen given the recent strengthening of the U S dollar against the Argentina peso and other key currencies.
Nelson Urdaneta: Turning to the rest of the VNL, third quarter gross margin increased 530 basis points to 35.8%. Revenue growth management, input cost tailwinds, and about 90 million in four savings, more than offset other manufacturing costs and currency headwinds. The cost environment remains mixed, with favorability and raw materials offset by higher energy prices, currency headwinds, and higher labor costs. Other manufacturing costs were 30 million higher than last year. Between the lines spending was 20.7% of net sales, up 310 basis points versus year ago.
Speaker 4: Based on recent currency forward curves, we are projecting that currency will have a negative e
Based on recent currency forward curves, we are projecting that currency will have a negative top line impact of approximately 300 basis points and a bottom line headwind of approximately $450 million.
Speaker 4: and a bottom line headwind of approximately 450 million.
Speaker 4: Up from our previous assumption of 300 to 400 million for the
Up from our previous assumption of $300 million to $400 million for the year.
Speaker 4: On input costs, we now expect headwinds of approximately 50 million versus the previous outlook of 100.
On input costs, we now expect headwinds of approximately $50 million versus the previous outlook of $100 million.
Speaker 4: Other manufacturing costs are now expected to increase by approximately 250 million compared to 200 million
Other manufacturing costs are now expected to increase by approximately $250 million compared to $200 million in our prior outlook.
Nelson Urdaneta: Reflecting year-on-year inflation and investments in our brands, our people, and our capabilities. These results also reflect higher-year-on-year incentives compensation accruals. Operating profit for the quarter increased 18% and operating margin improved by 210 basis points to 15.1%. This includes a currency headwind of 135 million or a 21%-page-point profit impact, of which 4 points were due to the translation of earnings from 9% on U.S, operations, and the balance was largely driven by transactional costs.
Speaker 4: With Gross margins returning to pre-endemic levels in the quarter, we remain focused on driving cost discipline and productivity to create more fuel for growth.
With gross margins returning to pre pandemic levels in the quarter, we remained focused on driving cost discipline and productivity to create more fuel for growth.
Speaker 4: For the full year, we project force to deliver 300 to 350 million, reflecting favorable results from ongoing negotiations of our materials purchases.
For the full year, we project for us to deliver $300 million to $350 million, reflecting favorable results from ongoing negotiations of our materials purchases.
Speaker 4: Continued progress in gross margin recovery puts us in a great position to advance our commercial program.
Continued progress in gross margin recovery puts us in a great position to advance our commercial programs and we continue to expect advertising spend to increase by approximately 100 basis points for the full year.
Speaker 4: We continue to expect advertising spend to increase by approximately 100 basis points for the
Speaker 4: Overall, we now expect operating margin to increase 170 basis points at the midpoint of our guide.
Overall, we now expect operating margin to increase 170 basis points at the midpoint of our guidance.
Nelson Urdaneta: Lastly, the adjusted effective tax rate for the quarter was 22.5% in line with last year's 22.3%. Our operating results, coupled with lower net interest expense and gains in equity income, drove a 24% growth in adjusted earnings per share to $1.74 in the third quarter.
Speaker 4: compared to an increase of 150 basis points in our July guide.
<unk> to an increase of 150 basis points in our July guidance.
Speaker 4: below the line, net interest expense is expected to decline in the high single digits.
Below the line net interest expense is expected to decline in the high single digits.
Speaker 4: We have also updated our assumption for adjust the tax rate to 23 to 24%.
We have also updated our assumption for adjusted tax rate to 23% to 24%.
Nelson Urdaneta: Turning to balance sheet and cash flow highlights, for the first 9 months of the year, we generated 2.3 billion in cash flow from operations. Capital spending was $549 million, compared to $679 million last year. We expect to end the year with capex of approximately 800 million. Here to date, we returned $1.3 billion to shareholders through dividends and share repurchases.
Speaker 4: These improvements result in our full-year outlook for adjusted earnings per share growth of 15 to 17.
These improvements result in our full year outlook for adjusted earnings per share growth of 15% to 17%.
Speaker 4: In closing, while we continue to operate in a volatile environment, we remain focused on executing our growth strategy, including continued investments in our brands and capabilities for long-term value creation. With that, we will open...
In closing, while we continue to operate in a volatile environment. We remain focused on executing our growth strategy, including continued investments in our brands and capabilities for long term value creation with that we will open the floor for questions.
Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
Speaker 1: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Nelson Urdaneta: Now, let me say a few words about our outlook. Based on our strong results, we are raising our full-year guidance. We now expect organic sales growth of 4-5% and net sales growth of 1-2%. Reflecting the impact of unfavorable currency and divestitures. We also now expect the adjusted earnings per share growth of 15-17%. Currency headwinds continue to worsen, given the recent strengthening of the U.S, dollar against the Argentina peso and other key currencies.
Speaker 1: We do ask the while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
We do ask that what posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker 1: Once again, if you have any questions or comments, please press star 1 on your phone. Please hold wallypole for questions.
Once again, if you have any questions or comments. Please press star one on your phone please.
Please hold while we poll for questions.
<unk>.
Your first question is coming from Chris Carey from Wells Fargo. Your line is live.
Speaker 1: Your first question is coming from Chris Carey from Wells Fargo. Your line is live.
Hi, Good morning, Hey, Chris Hey, Chris.
Nelson Urdaneta: Based on recent currency forward curves, we are projecting that currency will have a negative top-line impact of approximately 300 basis points and a bottom-line headwind of approximately 450 million, up from our previous assumption of 300 to 400 million for the year. On input costs, we now expect headwinds of approximately 50 million versus the previous outlook of 100 million. Other manufacturing costs are now expected to increase by approximately 250 million, compared to 200 million in our prior outlook.
Speaker 3: So one question just around commodities, so clearly continuing to see favorability, but we have seen some firming of late and I just wonder how you see things over.
<unk>.
One one question just around commodities, so clearly continuing to see favorability, but we have seen some firming of late and I just wonder how you see things over kind of a near to medium term horizon from specifically the commodity basket. So basically trying to balance the fact that you're seeing favorability this year.
Speaker 5: have a near to medium term horizon from specifically the commodity basket. So basically trying to balance the fact that you're seeing paper building this year, you have hedges and there's there's timing impacts that aren't really going to impact this year, but just how you're watching this overall commodity environment. I'm really asking you to contact.
You have hedges and timing impacts that arent really going to impact this year, but just how youre watching this overall commodity environment and I'm really asking in the context of.
Speaker 5: You know, the potential need to take pricing against volumes and how that balance is going to work over the medium term.
Yes, the potential need to take pricing against volumes and how that balance is going to work over the medium term.
Speaker 3: I'll start with a quick comment and then I'll ask Nelson to kind of give you a lot more additional context and detail. But you know, one Chris, I'd say, hey we finally saw inflection in the cost environment for us. As you know, we've taken on a lot of inflation.
I'll start with a quick comment and then I'll ask Nelson kind of give you a lot more additional context in detail, but one Chris I would say and we finally saw inflection in the cost environment for US as you know we've taken on a lot of inflation over the past couple of years and even this year.
Nelson Urdaneta: With gross margins returning to pre-pandemic levels in the quarter, we remain focused on driving cost discipline and productivity to create more fuel for growth. For the full year, we project force to deliver 300 to 350 million, reflecting favorable results from ongoing negotiations of our materials purchases. Continued progress in gross margin recovery puts us in a great position to advance our commercial program, and we continue to expect advertising spend to increase by approximately 100 basis points for the full year.
Land was additional between currency and commodity is about $500 million of impact and so in the quarter. So our first quarter were the costs actually were favorable and so that's a significant inflection point for us as you expect input cost to be a modest tailwind.
Going forward, but don't expect necessarily that theres going to be a lot.
Abacus come behind that the one thing is though we do believe.
Speaker 3: you know, and I mentioned this in the prepared remarks, that hey, it's our job to expand margins over time.
And I mentioned this in the prepared remarks that ASR job to expand margins over time, and we believe we have a lot of.
Nelson Urdaneta: Overall, we now expect operating margin to increase 170 basis points at the midpoint of our guidance, compared to an increase of 150 basis points in our July guidance. Below the line, net interest expense is expected to decline in the high symbol digits. We have also updated our assumption for adjusted tax rate to 23 to 24%. Ethan Provements result in our full year outlook for adjusted earnings per share growth of 15 to 17%.
Speaker 3: We believe we have a lot of opportunity to do that on an ongoing basis. Between what we're doing on the revenue side and also on the cost side. But Nelson maybe.
A lot of opportunity to do that on an ongoing basis between what we're doing on the revenue side and also on the cost side, but also maybe just to elaborate a little.
Chris on what Mike was walking you through so at this stage, what we've seen in the quarter and it's playing out the way we had forecast back in July .
Speaker 6: Chris on what Mike was walking you through. So at this stage, what we've seen in the quarter, and it's playing out the way we had forecast back in July .
Speaker 6: In general, the savings that we're seeing are driven by pulp, distribution, and other commodities. And we've actually seen some increases, especially as we look forward, on resin-based materials and energy costs.
In general the savings that we're seeing are driven by pulp distribution and other commodities and we've actually seen some increases.
Michael Hsu: In closing, while we continue to operate in a volatile environment, we remain focused on executing our growth strategy, including continued investments in our brands and capabilities for long-term value growth.
Especially as we look forward on resin based materials and energy costs.
We.
Speaker 6: had our first quarter of a benefit, so 75 million. And as you remember for the first half of the year, we were negative around $190 million. Based on where we stand today, we still project that we will be favorable in the fourth quarter of the year by an amount that's not that dissimilar from what we had in the fourth quarter of the year. And for the full year, we would be around 50 million in terms of commodity.
Had our first quarter of a benefit so $75 million.
And as you remember for the first half of the year, we were negative around $190 million.
Operator: But that, we will open the floor for questions. Certainly, everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we pull for questions.
Based on where we stand today, we still project that.
We will be favorable in the fourth quarter of the year by an amount that's not that dissimilar from what we had in the fourth quarter of the year and for the full year, we would be around $50 million in terms of commodities.
Speaker 6: negatively impacted. One thing to keep in mind is, we've also been driving a lot of benefits through our force program. Remember, we engage in negotiations in some of the materials where there's no clear market for us to engage in hedging. And we've been actively pursuing this over the last few court.
Negatively impacted one thing to keep in mind is we've also been driving a lot of benefits creators through our force program.
Remember, we engage in negotiations and some of the materials, where there is no clear market for us to engage in hedging and we have been actively pursuing this over the last few quarters. So that's also been a contributor for US which includes our net.
Christopher Carey: Your first question is coming from Chris Carey from Wells Fargo. Your line is live. Hi, good morning. Hey, Chris. So one question just around commodities, so clearly continuing to see favorability. But we have seen some affirming of late. And I just wonder how you see things over heaven near the medium term horizon from specifically the commodity basket. So basically trying to balance the fact that you're seeing favorability this year. You have hedges and there's timing impacts that aren't really going to impact this year.
Speaker 6: So that's also been a contributor for FORCE, which includes our negotiated material prices, and that's flowed through. As Mike said, we don't expect tremendous tailwinds going forward, but we're pleased with where the overall costs are.
Our negotiated material prices and that flowed through as Mike said, we don't expect tremendous tailwind going forward.
But we're pleased with where the overall costs are at this stage.
Speaker 3: That's very helpful. And then one follow up just on personal care, and specifically the North America, you know, part of the personal care division, the volume growth there. Can you just talk to the durability? What year ago comps had to do with that event within the North America business? I wonder if you can talk about what categories are driving this? Yeah, great question, Chris. I'll give you the thing, maybe a view on a couple different components. You know, one, I'd say overall North America consumption.
That's very helpful. And then one follow up just on personal care and specifically the North America.
Christopher Carey: But just how you're watching this overall commodity environment. I'm really asking you to contact those. You know, the potential need to take pricing against volumes and how that balance is going to work over the medium term.
Part of the personal care division the volume growth. There can you just talk to that.
Durability, what year ago comps had to do with that event within the North America business I Wonder if you could talk about what categories are driving this great question, Chris I'll give you.
Michael Hsu: Yeah, I'll start with a quick comment. And then I'll ask that Nelson, they kind of give you a lot more additional context in detail. But you know, one, Chris, I'd say, hey, we finally saw inflection in the cost environment for us. As you know, we've taken on a lot of inflation over the past couple years. And even this year, you know, the plan was additional, you know, between currency and commodities, about 500 million of impact.
Michael Hsu: And so in the quarter, our first quarter were the costs actually were favorable. And so that's a significant inflection point for us. I do expect input costs to be a modest tailwind, you know, going forward, but don't expect necessarily that there's going to be a lot, you know, a lot that's come behind that. The one thing is though, we do believe, you know, and I mentioned this in the prepared remarks that it's our job to expand margins over time. And we believe we have a lot of opportunity to do that on an ongoing basis between what we're doing on the revenue side and also on the cost side.
Maybe of you in a couple of different components, one I'd say overall North America consumption remains robust and I think that really does reflect the essential nature of our category our consumption.
Speaker 3: remains robust and I think that really does reflect the essential nature of our category. Our consumption in North America for KC was up mid-single digit with solid growth across all categories. And then, you know, I think one thing I did mention in the prepared remarks is we are coming awesome fairly significant supply constraints that affected most of our personal care businesses and our clean-ex.
In North America for Casey was up mid single digit with solid growth across all categories.
And then.
I think.
One thing I did mentioned in the prepared remarks since we are coming off some fairly significant supply constraints that affected most of our personal care business and our Phoenix business.
Speaker 3: mostly throughout the year. And so we did have shipments that were a little higher than consumption. I'll give you an example in baby care. Organic shipments were up in the teens, low teens. One was up about between three and four.
Mostly throughout the year and so we did have shipments that were a little higher than consumption.
Give you an example in baby care organic shipments were up in the teens low teens, where consumption was up about between 3% and 4% after.
Speaker 3: Because of that really reflects, I think, even retailers getting their inventory back in position. We had been allocating shipments on Huggies since the beginning of the year. And we had a pretty significant supply situation with a supplier outage that it constrained our vime and it's actually kind of constrained our share throughout the course of the year on a number.
So that really reflects I think inventory retailers getting their inventories back in position we have.
Nelson Urdaneta: But Nelson, maybe yeah, just to elaborate a little, Chris, on what Mike was walking you through. So at this stage, what we've seen in the quarter, and it's playing out the way we had forecast back in July. In general, the savings that we're seeing are driven by pulp, distribution and other commodities. And we've actually seen some increases, especially as we look forward, on resin-based materials and energy costs. We had our first quarter of a benefit, so 75 million.
Been allocating shipments on huggies since the beginning of the year and we had a pretty significant.
Against supply situation with a supplier.
Outage that have constrained our volume is actually kind of constrained our share throughout the course of the year on a number of brands and so we came out of that we came off allocation across all brands.
Speaker 3: So we came out of that. We came off allocation across all brands. At some point in mid-September, and so that's kind of why shipments were probably ended up in the...
At some point in mid September and so thats kind of why shipments were probably ended up in the quarter a little bit higher.
And on the comp Chris also remember the last year in Q3 in September we had.
Speaker 6: And on the comp, Chris also remember the last year in Q3. In September , we had a bit of a destock. So that's also kind of weighing in. But very pleased with where we ended up. And more importantly, the underlying consumption.
Nelson Urdaneta: And as you remember for the first half of the year, we were negative around 190 million dollars. Based on where we stand today, we still project that we will be favorable in the fourth quarter of the year by an amount that's not that dissimilar from what we had in the fourth quarter of the year. And for the full year, we would be around 50 million in terms of commodities negatively impacted. One thing to keep in mind is, you know, we've also been driving a lot of benefits through our force program.
A destock. So that's also kind of weigh in in.
But very pleased with where we ended up.
And more importantly, the underlying consumption in North America.
Okay. Thanks, so much okay. Thanks, Chris.
Speaker 1: Thank you. Your next question is coming from Anna Lizal from Bank of America. Your line is live.
Thank you. Your next question is coming from Anna <unk> from Bank of America. Your line is live.
Speaker 6: Morning. Hi. Morning. Thank you for the question. I also had a question on the better gross margins, which clearly benefited from the lower input cost. You know, I was wondering, you know, are you seeing a reversal of that recently with the input cost like the higher oil price? It's just a follow up on Chris' question. And also, if you can elaborate on what you're of the better cost savings enforce this quarter. Thank you. Well, be sure, and so a few thanks.
Good morning.
Hi, Anthony Thank you for the question.
Nelson Urdaneta: Remember, we engage in negotiations and some of the materials where there's no clear market for us to engage in hedging. And we've been actively pursuing this over the last few quarters. So that's also been a contributor for force, which includes our net negotiated material prices, and that's flowed through. As Mike said, we don't expect tremendous tailwinds going forward, but we're pleased with where, you know, the overall costs are at this stage. That's very helpful.
Also had a question on the better gross margin.
Which clearly benefited from the lower input costs.
I'm wondering.
Are you seeing first of all of that recently with the input costs.
Oil prices just to follow up on Chris's question and also if you can elaborate on what drove the better cost savings enforced this quarter. Thank you.
Sure So a few things.
As we as we go through.
Speaker 6: second half of the year, we still, as I indicated to Chris, we still expect to have, based on current assumptions, favorability on commodities heading into Q4 on a net basis. Because remember through the first...
The second half of the year, we still as I as I indicated to Chris we still expect to have based on current assumptions favorability on commodities heading into Q4 on a net basis because remember through the first.
Christopher Carey: And then one follow-up just on personal care, and specifically the North America, you know, part of the personal care division. The volume growth there, can you just talk to, you know, the durability, what year ago comms had to do with that event within the North America business? I wonder if you can talk about what categories are driving this.
Speaker 6: Half of the year we were around 190 million negative. We were 75 favorable in third quarter and we're calling for the full year an estimate of 50 million of the headwind in net. So we still expect to be.
Half of the year, we were around $190 million negative we were 75 favorable in the third quarter and we're calling for the full year, an estimate of $50 million of headwind in net so we still expect to be.
Michael Hsu: Yeah, great question, Chris. I'll give you maybe a few of you in a couple of different components. You know, one, I'd say overall North America consumption remains robust. And I think that really does reflect the essential nature of our category. Our consumption in North America for KC was up mid-simal digit with solid growth across all categories. You know, and then, you know, I think, you know, one thing I didn't mention in the prepared remarks is we were coming awesome, fairly significant supply constraints that affected, you know, most of our personal care businesses and our Kleenex business, mostly throughout the year.
Favorable in the fourth quarter.
Speaker 6: Having said that, we're of course watchful of what's happening with the oil markets and the implications for resins. They don't
Having said that we're of course watchful of what's happening with the oil markets and the implications for resins. They don't.
Speaker 6: immediately impact the resins, but we have seen resins begin to plateau at the level of prices. And in fact, I mean, curves are starting to move a little bit upwards and we're watching.
Immediately impact resins, but we have seen resins begin to plateau at the level of prices and in fact, I mean curves are starting to move a little bit upwards.
We're watching that but overall, we still expect commodities to be down over the next quarter or so at least.
Speaker 6: But overall, we still expect commodities to be down over the next quarters.
Speaker 6: The other bid in Gross Margin, as you said, was force. We had a strong delivery of four savings for the quarter. On a year-to-date basis, we're at 275 million. And we've actually taken up our call for the year to 300 to 300.
The other bidding gross margin as you said it was for US we had a strong delivery of force savings for the quarter on a year to date basis were $275 million and we've actually taken up our call for the year to $300 million to $350 million. So.
Michael Hsu: And so, you know, we did have shipments that were a little higher than consumption in, I'll give you the example on baby care. Organic shipments were up in the teens, low teens. Well, consumption was up about between 3 and 4%. So that really reflects, I think, even retailers getting their inventory back in position, you know, we had been allocating shipments on huggies since the beginning of the year. And, you know, we had a pretty significant supply situation with a supplier outage that it constrained our vitamins, actually kind of constrained our share throughout the course of the year on a number of brands.
Speaker 6: So net, I mean, we are encouraged by the overall cost savings and our program in force. And in terms of gross margin, keep in mind it's not linear. We don't expect gross margins to grow linearly quarter after quarter because there are always puts and takes, quarter to quarter. But having hit the 35.8 percent mark is an important milestone for us as we look forward to then expand margins down.
Net net I mean, we are encouraged by the overall cost savings and our program in force.
And in terms of gross margin keep in mind, it's not linear we don't expect gross margins to grow linearly quarter after quarter, because there are always puts and takes quarter to quarter, but.
Adding him to 35, 8% market is an important milestone for us as we look forward to then expand margins down the road.
Michael Hsu: And so we came out of that, we came off allocation across all brands at some point in mid-September. And so that's kind of why shipments were probably ended up in the quarter a little bit higher. And on the comp, Chris also remember the last year in Q3 in September, we had a bit of a destock, so that's also kind of way, in in, but very pleased with where we ended up and more importantly the underlying consumption in North America. Okay, thanks so much. Okay, thanks Chris. Thank you.
Speaker 3: And then Anna, maybe just like additional comment. And I think maybe the maybe underlying your question and
And then maybe just additional comment I think maybe the maybe underlying your question and Christmas before was hey, there appears to be some underlying volatility and costs input costs and there likely isn't.
Speaker 3: before was, hey, there appears to be some underlying volatility and costs in put costs. And they're likely as in that we've dealt with that significantly over the past several years. I would say longer term, we believe it's our job to continue in hand margins, so we would remain just.
We've dealt with that significantly over the past several years I would say longer term. We believe it's our job to continue to enhance margins. So we would remain disciplined in terms of our revenue management program and capability and also our cost management capability.
Speaker 3: terms of our revenue management program and capability and also our cost.
Speaker 6: And again, and another item to add Anna as you think about, you know, the next few quarters.
And again and another item to add Ana as you think about.
Anna Lizzul: Your next question is coming from Anna Lizzul from Bank of America. Your line is live. Morning. Thank you for the question. I also had a question on the better gross margins. Which clearly benefited from the lower input costs. You know, I was wondering, you know, are you seeing a reversal of that recently with the input cost like the higher oil prices, just to follow up on Chris's question. And also if you can elaborate on what drove the better cost savings and forced this quarter. Thank you.
The next few quarters as currency currency has gotten more volatile I mean, we've seen the strengthening of the U S dollar and as you would've seen in our outlook, we did take up our expected headwinds from currency on our operating profit.
Speaker 6: Currency has gotten more volatile. I mean, we've seen the strengthening of the US dollar. And as you would have seen in our outlook, we did take up our expected headwinds from currency on our operating profits.
Speaker 6: And again, we're watching that carefully as we think about 20.
And again, we're we're watching that carefully as we think about 2024.
Speaker 7: Great, that's very helpful. And just as a follow up, you did have the benefit from better than expected pricing in the quarter while volumes were soft. You did see a nice sequential improvement in the change of volumes from QT to Q3. I was wondering how we should think about this sequential improvement potentially from Q3 to Q4 and volumes.
Great. That's very helpful and just as a follow up you did have the benefit from better than expected pricing in the quarter, while volumes were soft, but you did see a nice sequential improvement in the change of volumes from Q2 to Q3 I was wondering how we should think about the sequential improvement potentially from Q3 to Q4.
Nelson Urdaneta: Sure. So a few things, you know, as we as we go through the second half of the year, we still as I as I indicated the Chris, we still expect the half based on current assumptions, favorability on commodities heading into Q4 on a net basis, because remember through the first half of the year, we were around 190 million negative. We were 75 favorable in third quarter, and we're calling for the full year and estimate of 50 million of the headwind in net.
And volumes.
Speaker 3: Well, we've had, I would say, four quarters of excessive volume improvement. So I think we were down seven, down five, down three, whatever, down one. And importantly, personal care, you know, vines were up this quarter. So I'd say, you know, we're making solid progress for seeing solid volume momentum. And I think I said in the prepared remarks that, you know, we would expect, you know, continued improvement. We're not ready to call 24 yet, but, you know, I think volume...
Well, we've had I would say four quarters of successive volume improvements. So I think we were down seven down five down three whatever down one and importantly personal care.
Volumes were up this quarter. So I'd say, we're making solid progress we are seeing solid volume momentum and I think I said in the prepared remarks that we would expect continue.
Nelson Urdaneta: So we still expect to be favorable in fourth quarter. Having said that, we're of course watch full of what's happening with the oil markets and the implications for residents. They don't immediately impact the residents, but we have seen residents begin to plateau at the level of prices. And in fact, I mean curves are starting to move a little bit upwards and we're watching that. But overall, we still expect commodities to be down over the next quarter or so, at least.
Continued improvement, we're not ready to call 'twenty, four yet, but I think volume.
Speaker 3: We've cycled most of our big pricing actions from last year, and so we would expect volume
We cycled most of our big pricing actions from last year, and so we would expect volume trends to continue to improve as we drive.
Speaker 3: as we drive our commercial programs and invest behind our brains.
Our commercial programs and invest behind our brands.
Alright, Thank you very much.
Speaker 8: Thank you. Your next question is coming from Xavier Escalante from Evercore ISI. Your line is live. Javier, good morning. Hi, Javier. Hey, guys. Good morning, everyone. My question has to do with the pricing side.
Thank you. Your next question is coming from Xavier Escalante from Evercore ISI. Your line is live Javier Good morning, Hi, Javier Hey, Hey, guys. Good morning, everyone. My question has to do with.
Nelson Urdaneta: The other bid in gross margin, as you said, was force. We had a strong delivery of four savings for the quarter on a year to date basis were 275 million and we've actually taken up our call for the year to 300 to 350 million. So net net, I mean, we are encouraged by the overall cost savings and our program and force. And in terms of gross margin, keep in mind, it's not linear.
The pricing side.
Speaker 8: It continued, particularly in North America, which is 80 percent of your profits and is where we have more visibility on. The pricing seems to be constructive, right, for private label. Promotion levels are below 2019.
It continues particularly in North America, which is 80% of your profits and what do we have more visibility on.
The pricing seems to be constructive right for private label.
Promotional on levels are below 2019.
Speaker 8: But we did see a little bit of a pickup on your end, at least in track channels. So if you can talk about whether what are these promotional, is it what categories?
But we did see a little bit of a pick up on your end.
Nelson Urdaneta: We don't expect gross margins to grow linearly quarter after quarter, because there are always puts and takes quarter to quarter. But having hit the 35.8% mark is an important milestone for us as we look forward to then expand margins down the road.
At least in tracked channels. So if you can talk about weather.
What I'd promotion Ali.
Is it what categories.
Speaker 8: What's the point? Is it because some of your categories are coming at a location? If you can comment on that, and then I have a more strategic question.
What's the point is it because some of your categories are coming out of allocation. If you can comment on that and then I have a more strategic question after that.
Michael Hsu: And then maybe just like additional comment. And I think maybe the maybe underlying your question and criticism before was, hey, there are appears to be some underlying volatility and cost input costs. And there likely is. And then we've we've dealt with that significantly over the past several years. I would say longer term, you know, we believe it's our job to continue in hands margins. So we would remain disciplined in terms of our revenue management program and capability and also our cost management capability.
Speaker 3: Yeah, well I'd say part one, Javier, you know, I think I said this in the past and philosophically, you know, I think we view trade promotion as a path to drive trial.
Well I would say part one Javier I think I said this in the past it philosophically.
I think we view trade promotion is a path to drive trial, especially of new items, and so that's kind of where it fits in our.
Speaker 3: Especially with new widens, and so that's kind of where it fits in our...
Speaker 3: marketing mix and so I'm not a fan of using promotion to rent or borrow share for a period of time.
Marketing mix and so I'm not a fan of using promotion to rent or borrow share for a period of time and so I think any any data that you might say I would say we are promoting.
Speaker 3: So I think any data that you might say, I'd say we are promoting, still below, as you point out, 2019 levels, but I think we have participated in some...
Anna Lizzul: And again, and another item to add Anna, as you think about, you know, the next few quarters is currency. Currency has gotten more volatile. I mean, we've seen the strengthening of the US dollar. And as you would have seen in our outlook, we did take up our expected headwinds from currency on our operating profits, and again, we're watching that carefully as we think about 2024. Great, that's very helpful.
Still below as you pointed out 2019 levels, but.
I think we have participated in some promotions I did see your note and I would say one thing that.
Speaker 3: I did see your note and I would say one thing that kind of skews the analysis a little bit is this whole metric that the denominator is EQ or equivalent units.
Kind of skews.
The analysis is a little bit is this whole metric that provides.
Nominate her as EQ right or equivalent units and for all.
Speaker 3: all the tissue categories, the equivalent unit is 10,000 sheets, and for diapers, it's 1,000 diapers. And so when you do it on that basis or on a per piece basis, you're going to have to
All the tissue categories. The equivalent unit is 10000 sheets and for diapers, It's 1000 diapers and so when you do it on a on it.
Michael Hsu: And just as a follow-up, you did have the benefit from better than expected pricing in the quarter, while volumes were soft. So you did see a nice sequential improvement in the change of volumes from Q2 to Q3. I was wondering how we should think about this sequential improvement potentially from Q3 to Q4 and volumes. Well, we've had, I would say, four quarters of success of volume improvement. So I think we were down seven, down five, down three, whatever, down one.
On that basis or on a per piece basis.
Speaker 3: You know what happens, especially in our consumer tissue businesses, you know, Scott 1000 by definition has 1000
What happens, especially in our consumer tissue businesses. Scott 1000 by definition has 1000 sheets and so that's about let's say between four and six times more than any other brands and so that tends to skew kind of the measure is a little bit makes us look a little bit under price. When you do it on an acute basis, but overall I think we are.
Speaker 3: So that's about, you know, say between four and six times more than any other brands. And so that tends to skew kind of the measures a little bit and makes us look a little bit underpriced.
Speaker 3: But overall, I think we've taken pricing, we've probably moved faster on pricing than other brands. And so I'd say, to me, our normal price gaps have begun to normal.
We've taken pricing, we'd probably move faster on pricing than other brands and so I would say to me are normal price gaps or have begun to normalize.
Michael Hsu: And importantly, personal care, you know, volumes were up this quarter. So I'd say, you know, we're making solid progress, we're seeing solid volume momentum. And I think I said in the prepared remarks that, you know, we would expect, you know, continued improvement. You know, we're not ready to call 24 yet, but, you know, I think volume, you know, we cycled most of our big pricing actions from last year. And so we would expect volume trends to continue to improve as we drive, you know, our commercial programs and invest behind our brand.
Unknown Executive: Great. Thanks so much. Thank you.
Speaker 8: Very helpful on the note. The other is given the setup, right? Do you think that there is the possibility of gross margins going forward to be higher?
Okay very helpful.
To note.
The other is given the setup right do you think that there is the possibility.
Gross margins going forward to be higher.
Speaker 8: Done to 2019. Given the mix.
That in 2019, given the mix given the.
Speaker 8: Given the issue of volume plus makes you are already running flat, do you think that that is possible that, you know, going forward, we're going to be operating?
Volume mix.
Mix you are already running flat do you think that that is possible.
Xavier Escalante: Your next question is coming from Xavier Escalante from Evercore ISI. Your line is live. Have a good morning. Hi, have a good morning. Hey, hey guys. Good morning, everyone. My question has to do with the price inside. It continues, like, particularly in North America, which is 80% of your profits. And it's where we have more visibility on the prices seems to be constructive. Right for private label. Promotional and levels are below 2019.
Going forward, we're going to be operating.
Speaker 3: at gross margins above 2019 levels. If there is something structural that cannot happen. I'll start and then I'll let Nelson correct me. But I would say, you know, it's our job. And so, you know, from my chair, I would say we have to do it. Right. And so and the backstory.
Gross margins above.
2019 levels of there is something structural that that cannot happen.
I'll start and then I'll, let Nelson correct me, but I would say.
It's our job and so from my chair I would say we have to do it right and so in the back story and I know you came out of last year or so Javier but when we came when I came into this role the three things that we set out to do was one accelerate organic growth.
Speaker 3: And I know you came out in the last year or so, Javier, but when I came into this role, the three things that we set out to do was, one, accelerate organic growth.
Xavier Escalante: But we did see a little bit of a pickup on your end. At least in track channel. So if you can talk about whether, what, what are these promotionally? Is it, is it, is it what categories? What's the point? Is it because some of your categories are coming at a location? If you can comment on that.
Second.
Reduce our earnings volatility and the third thing importantly is enhance our margins and so that was a fundamental goal.
When I came into this role.
The kind of a curve ball that came in in between that was COVID-19 the demand shock supply shocks and everything else and the inflation shocks.
Michael Hsu: And then I have a more strategic question after that. Well, I say part one, Xavier, you know, I think I said this in the past and it feels topically, you know, you know, I think we view trade promotion as a path to drive trial, especially of new items. And so that's kind of where fits in our, in our, you know, marketing mix. And so I'm not a fan of using promotion to rent or borrow share for a period of time.
And so.
Over the last couple of years, we said Hey, we've got an interim goal of a one we got to restore our margins, which I think this quarter kind of marks a pretty significant point for us that hey, we are back.
Pre COVID-19, our 2019 levels, but still it would be.
Talk internally, it's our job to enhance margins from here.
Michael Hsu: And so I think any, any data that you might say, you know, I'd say we are promoting, you know, still below, as you point out, 2019 levels. But, you know, but I think we have participated in some promotions. I did see your note and I would say one, one thing that kind of skews the analysis a little bit is this, this whole metric that the, the denominator is EQ, right, or equivalent units.
That's what I was saying is we have to continue to be disciplined around our commercial programming our innovation.
Our revenue management and also just the discipline on the cost program and I still see further opportunity for us to expand our margins, but maybe I'll give you I'll ask Nelson that kind of give you some more specifics around the near term.
Yes, so just to build on what Mike said, I mean, and we've been talking about this.
Michael Hsu: And for all the tissue categories, the equivalent unit is 10,000 sheets and for diapers at the thousand diapers. And so when you do it on a, on a, on that basis or on a per piece basis, you know, what happens, especially in our consumer tissue businesses, you know, Scott 1000 by definition has 1000 sheets. And so that's about, you know, let's say between four and six times more than any other brands.
Since we had.
Our lowest point in gross margin.
99, 8% about five quarters ago, and our whole point was that we were going to get back to.
The 35%, which was a milestone and not an end state.
Speaker 6: And really what's happened is we've made, and we've been making, and you can see it, significant investments behind building capabilities in the organization. So we've been building a lot of muscle around revenue growth management, and this includes price pack architecture and the ability to have also the right packs and sizes and formats for the different cost.
And really what's happened is we've made and we've been making and you can see significant investments behind building capabilities in the organization. So we've been building a lot of muscle around revenue growth management and this includes price pack architecture and the ability to have also the right.
Michael Hsu: And so that tends to skew kind of the measures that makes us look a little bit under price, when you do it on a new two basis. But overall, I think we've taken pricing, we've probably moved faster on pricing than other brands. And so I'd say to me, our normal price gaps have begun to normalize. Very helpful on the note.
And sizes and formats for the different.
Customers that we deal with across the globe.
Speaker 6: Secondly is around productivity. We've made sure that we strengthen and buttress our overall gross margin productivity pipeline and that remains strong today and then you can see how we've been Delivering that over time and we intend to deliver on goal in productivity gross productivity as an element to drive
Secondly is around productivity, we've made sure that we strengthen and buttresses. Our overall gross margin productivity pipeline and that remains strong today and you can see how we've been delivering that over time, and we intend to deliver ongoing productivity gross productivity as an element to drive that and then the other bidders.
Michael Hsu: The other is given the setup, right? Do you think that there is the possibility of gross margins going forward? To be higher than 2019, given the mix, given the, if you add volume plus mix, you're already running flat. Do you think that that is possible that, you know, going forward, we're going to be operating at gross margins above 2019 levels of there is something structure of that that cannot happen. I'll start and then I'll let Nelson correct me, but I would say, you know, I vote, you know, it's our job.
Speaker 6: And then the other bit is around our innovation. We've increased our focus around innovation. Last year it drove 60% of our revenue growth. And it's a creative innovation. And if you combine these three, that's really the way we're staring at.
Around our innovation, we've we've increased our focus around innovation last year drove 60% of our revenue growth and its accretive innovation and if you combine these three that's really the way we're staring at.
Speaker 6: expanding margins over time, gross margins, and that's truly what's going to drive balance and sustainable growth for years to come.
Expanding margins over time gross margins and that's truly what's going to drive balanced and sustainable growth for years to come for us.
Speaker 8: Thank you very, very much, okay? Congratulations. Thank you, Harvey. Thanks, Elia.
Thank you very very much great. Congratulations thank you Javier thanks Javier.
Michael Hsu: And so, you know, from my chair, I would say we have to do it, right? And so, and the backstory. And I know you came out last year or so, Javier, but you know, when I came into this role, you know, the three things that we set out to do is one, accelerate organic growth. You know, second, reduce our earnings volatility and the third thing importantly is enhance our margins. And so that was a fundamental goal, you know, when I came into this role, the kind of a curve ball that came in in between that was COVID, the demand shocks, supply shocks and everything else in the inflation shocks.
Speaker 1: Thank you. Your next question is coming from Steve Powers from Deutsche Bank. Your line is live.
Thank you. Your next question is coming from Steve powers from Deutsche Bank. Your line is live.
Speaker 3: Good morning, Steve. Thank you and good morning guys. Hey. So two questions. The first one, just Nelson, maybe you could...
Steve Thank you.
Morning, guys.
Hey.
Two questions. The first one just now.
And also maybe you could.
Speaker 3: expand a bit on the other manufacturing cost inflation and the higher call for the year that you've made today. Maybe a little bit for the detailist of the drivers there and where we are in that cycle as we look forward.
Expand a bit on the other manufacturing cost inflation.
The higher call for the year that you've you've you've made today, just maybe a little bit further detail as to the drivers there and where we are in that cycle as we as we look forward.
Speaker 6: Sure, so as you indicate, we took our call from 200 million to 250 through the first three quarters of the year were close to 200 just a tad below. And you know, what's really driving this is a few things. One, keep in mind that a lot of the service inflation and these inflation, et cetera, and some cost inflation flow through this number. And...
Sure so as.
Michael Hsu: And so, you know, you know, so, you know, over the last couple of years, we said, hey, we've got an interim goal of one, we got to restore our margins, which, you know, I think this quarter kind of marks, you know, a pretty significant point for us that, hey, we are back to, you know, pre-COVID or 2019 levels, you know, but still, you know, as we talk internally, it's our job to enhance margins from here. And that's what I was saying is we have to continue to be disciplined around our commercial programming, our innovation, our revenue management and also just as discipline on the cost program. And I still see further opportunity for us to expand our margins.
You indicated we took our call from 200 to 250 through.
The first three quarters of the year were close to 200, just a tad below and.
What's really driving this is a few things one keep in mind that a lot of the service inflation and lease inflation et cetera, and some cost inflation flow through.
This number and.
It's being weighed in by some of the Hyperinflationary economies that we deal with so we're being impacted on that end because we've seen some costs accelerated outside of the U S. Steve So thats part of whats driving that 250.
Nelson Urdaneta: But maybe I'll give you, I'll ask Nelson to kind of give you some more specifics around the near term. Yeah, so how do you just to build on what Mike said? I mean, and we've been talking about this, you know, since we had our lowest point in gross margin at, you know, 29.8% about five quarters ago. And our whole point was that we were going to get back to the 35% which was a milestone and not an end state.
Based on where we're at at this stage.
Speaker 9: Okay, thank you for that. And then Mike, maybe...
Okay. Okay. Thank you for that and then Mike maybe.
Speaker 9: bigger picture, you've been, you talked about the higher AMP and marketing spending this year and just in general there's been a lot of
Bigger picture.
You've been you.
Talked about the higher A&P and marketing spending this year and just in general there's been a lot of the.
Speaker 9: and commercial investments that you've been making. I guess as you think about the
The strategic growth initiatives and commercial investments that you've been making I guess as you think about the.
Nelson Urdaneta: And really, what's happened is we've made, and we've been making, and you can see it, significant investments behind building capabilities in the organization. So we've been building a lot of muscle around revenue growth management and this includes price back architecture and the ability to have also the right packs and sizes and formats for the different customers that we deal with across the globe. Secondly, is around productivity. We've made sure that we strengthen and buttress our overall gross margin productivity pipeline.
Speaker 9: The aggregate investment that you've made over the last couple years in that regard, just where do you think you are versus your long-term strategic priorities? And do you see...
The aggregate investment that you've made over the last couple of years in that regard.
Nelson Urdaneta: And that remains strong today. And then you can see how we've been delivering that over time and we intend to deliver on goal and productivity, gross productivity as an element to drive. And then the other bit is around our innovation. We've increased our focus around innovation. Last year it drove 60% of our revenue growth. And it's a creative innovation. And if you combine these three, that's really the way we're staring at expanding margins over time, gross margins. And that's truly what's going to drive balance and sustainable growth for years to come for us.
Where do you think you are versus your long term strategic priorities and do you see.
Speaker 9: you know, opportunity or need to kind of continue to invest at an accelerated pace.
Opportunity or a need to kind of continue to invest at an accelerated pace.
Speaker 9: As we think about next year, is that is it an investment year? Is it a year where you're growing investments more in line with sales? Or are you at a point where you can actually start to leverage and lever from a margin expansion standpoint? Some of the investments you've been making over the past couple years. Thank you.
As we think about next year or is that or is it an investment year is it a year, where you youre growing investments more in line with sales or are you at a point, where you can actually start to leverage and lever from a margin expansion standpoint, some of the investments we've been making over the past couple of years. Thank you, yes, thanks and thanks, Steve.
Speaker 3: Hey, yeah, thanks. Thanks, Steve. You know, one, I'm really, you know, pleased with, you know, with the team, you know, we are delivering, you know, what we set out to do, which is balance and sustainable growth.
I'm really pleased with.
With the team we are delivering what we set out to do which is balanced and sustainable growth.
Speaker 3: You know, as you could see, you know, the organic momentum remains very strong. The margins are coming along as we mentioned.
As you can see the organic momentum remains very strong the margins are coming along as.
As we mentioned.
Speaker 3: you know, restore them to the pre-COVID levels. And so we feel good about that. I would say, you know, we've made a lot of progress in the investment, we've made a lot of progress in building improved capability. We've made a lot of progress in improving our innovation capability and the innovation pipeline.
Restore them to pre COVID-19 levels and.
So we feel good about that I would say we've made a lot of progress in the investment we've made a lot of progress in building improved capability. We've made a lot of progress in improving our innovation capabilities and the innovation pipeline and so I think over the last five years, we're probably up a couple of hundred basis points in advertising investment.
Unknown Executive: Thank you very, very much. Okay. Congratulations. Thank you.
Speaker 3: So I think over the last five years, we're probably up a couple hundred basis points and that's...
Steve Powers: Your next question is coming from Steve Powers from Deutsche Bank. Your line is live. Thank you.
I think from there, we really need to make that investment at this point, we're approaching 6%.
Nelson Urdaneta: And good morning, guys. Hey, so two questions. The first one, just Nelson, maybe you could expand a bit on the other manufacturing cost inflation and the higher call for the year that you've, you've made today just maybe a little bit of further detail us to the drivers there and where we are in that cycle as we look forward. Sure. So as you indicate, we took our call from 200 million to 250 through the first three quarters of the year were close to 200, just a tad below.
We're all sales and so I would say thats competitive in our business is perhaps not as much as our primary global competitor, but.
Our plan is not to outspend outspend them and our plan would be to drive great innovation, great commercial programming and have a competitive spend and so I don't expect Steve I don't think I'll go and say hey, we need to continue.
<unk> advertising investment and the straight line infinitely.
Do I think there's some opportunity for us to continue to invest yes.
But.
I think we also have to leverage the investments we've already made better better yes.
Nelson Urdaneta: And, you know, what's really driving this is a few things. One, keep in mind that a lot of the service inflation and these inflation, et cetera, and some cost inflation flow through this, this number. And it's being weighed in by some of the high inflationary economies that we deal with. So we're being impacted on that end because we've seen some costs accelerate outside of the US, Steve. So that's part of what's driving that 250 based on where we're at at this stage.
Okay.
Yeah, Yeah, no. So I play it back it sounds like you've is it the catch up that you might have identified four or five years ago, you feel like you've done and now it's it's more opportunistic spend whether it's.
As a clear ROI, but you don't feel a huge need to.
Catch up because you're under spending yes, because five years ago, we were spending in the threes and so that was I think I felt like too low for our company.
The categories that we operate in.
I feel competitive at this point, but we also have great opportunities to spend on Rois are great and so, especially as we continue to migrate more and more to digital and so theres going to be plenty of things that we're going to want to invest in.
Nelson Urdaneta: Okay. Thank you for that. And then Mike, maybe bigger picture, you know, you've been, you've talked about the higher AMP and marketing spending this year. And just in general, there's been a lot of strategic growth initiatives and commercial investments that you've been making. I guess as you think about the, you know, the aggregate investment that you've made over the last couple of years in that regard. Where do you think you are versus your long-term strategic priorities?
Very good thanks, so much.
Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Your next question is coming from Andrea <unk> from Jpmorgan. Your line is live.
Hey, Andrea Hi, Andrea Hi, this is savana on for Andrea.
Nelson Urdaneta: And do you see, you know, opportunity or need to kind of continue to invest at an accelerated pace? As we think about next year, is that, is it an investment year? Is it a year where you're growing investments more in line with sales, or are you at a point where you can actually start to leverage and lever from a margin expansion standpoint, some of the investments you've been making over the past couple of years.
Hi, Thank you for the question I just wanted to ask you can you. Please add color on your views regarding carryover pricing into 2024, and how to think about.
Possibly the need to roll back some of this pricing into 2024 special with retailers seeing some commodity is coming in better I mean, I understand you just elaborate at the pulp is slower but.
Present may potentially go up, especially with oil coming in higher if you could just like in aggregate give us.
Nelson Urdaneta: Thank you. Yeah. Thanks. Thanks, Steve. You know, one, you know, I'm really, you know, please, you know, with with the team, you know, we are delivering, you know, what we set out to do, which is balance and sustainable growth. You know, as you, as you could see, you know, the organic momentum remains very strong. The margins are coming along. We've, as we mentioned, you know, restored them, the pre-COVID levels. And so we feel good about that.
A little bit more picture.
Yes, maybe ill start I would say.
Most of our pricing went in last year and so we did have some pricing. This year. So there will be a little carryover I wouldn't say, it's a huge driver of.
Nelson Urdaneta: I would say, you know, we've made a lot of progress in the investment. We've made a lot of progress in building improved capability. We've made a lot of progress in improving our innovation capability and the innovation pipeline, and so I think over the last five years, we're probably up a couple hundred basis points in advertising investment. I think from there, we really need to meet that investment. At this point, we're approaching 6% overall sales and so I would say that's competitive in our business.
He will be a huge driver of the planned next year.
Given what we just discussed on the cost environment you can see cost this year are still up.
After being up significantly in 'twenty, one and 'twenty, two and so we're not seeing a ton of deflation.
There might be we're starting to see some modest tailwind that may continue for a few quarters, but I'm not seeing.
At least.
In the near term huge deflation, we have rolled back some pricing because it notably in <unk>.
Nelson Urdaneta: It's perhaps not as much as our primary global competitor, but our plan is not to outspend them and our plan would be to drive great innovation, great commercial programming. And have a competitive spend and so I don't expect, Steve, I don't think I'll go and say, hey, we need to continue with, you know, increase advertising investment in the straight line infinitely. Do I think there's some opportunity for us to continue to invest?
Professional in Europe , we had energy costs.
Really shot up and then came back down and so we have adjusted some pricing in some markets and we will do that.
Where it makes sense, but in general I think we've priced appropriately.
For the cost environment that we anticipated in that environment is playing out as thus far is as we expected.
Alright, Thank you I'll pass it on.
Nelson Urdaneta: Yes. But do I think we also have to leverage the investments we've already made better? Yes. Yeah, so I play it back. It sounds like you've the catch up that you might have identified, you know, four or five years ago, you feel like you've done and now it's more opportunistic spend whether there's a clear ROI, but you don't feel a huge need to catch up because you're understanding. Yeah, because five years ago, we were spending in the threes and so that that was, I think I felt like too low for a company, you know, the categories that we operate in.
Okay. Thank you.
Thank you that concludes our Q&A session I will now hand, the conference back to Chief Executive Officer, Mike <unk> for closing remarks. Please go ahead.
Well as I said.
Proud of the team that we are successfully developing.
Delivering balanced and sustainable growth.
Thank you for your interest in Kimberly Clark and we will see you next quarter.
Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Nelson Urdaneta: You know, I feel competitive at this point, but you know, we also have great opportunities to spend on and ROI is our great. And so, especially, you know, as we continue to migrate more and more to digital. And so there's going to be plenty of things that we're going to want to invest in.
Thank you for your participation.
Okay.
Okay.
Yes.
Yes.
Michael Hsu: Very good. Thanks so much. Thank you.
Operator: Once again, everyone, if you have any questions or comments, please press star then one on your phone.
Shavana: Your next question is coming from Andrea Tiharia from JP Morgan. Your line is live. Hey, Andrea. Hi, this is Shavana on for Andrea. Hi, Shavana. Hi, thank you for the question.
Shavana: I just wanted to ask you, can you please add color on your views regarding carry over pricing into 2024 and how to think about the possibly the need to roll back some of this pricing into 2024. I mean, I understand you just a lot more rated that pulp is lower, but, um, present may potentially go up, especially with all coming in higher, if you could just like in aggregate, give us a little bit more picture.
Shavana: Thank you. Yeah, maybe I'll start. I would say, you know, most of our pricing went in last year and so we did have some pricing this year, so there will be a little carry over. I wouldn't say it's a huge driver of, you know, will be a huge driver of the plan next year. Given what we just discussed in the cost environment, you can see costs this year are still up, you know, after being up significantly in 21 and 22.
Shavana: And so, you know, we're not seeing a ton of deflation, you know, while, you know, there might be, you know, we're starting to see some modest tailwinds, you know, that may continue for a few quarters. But I'm not seeing, you know, at least some, you know, in the near term, you know, huge deflation. We have rolled back some pricing because it notably in the professional in Europe, you know, we had energy costs that, you know, really shot up and then came back down.
Shavana: And so we have adjusted some pricing in some markets and we'll do that, you know, where it makes sense. But, you know, in general, you know, I think we've priced appropriately, you know, for the cost environment that we anticipated and that environment is playing out as thus far as.., as we expected. Great, thank you. I'll pop it on. Okay, thank you. Thank you.
Unknown Executive: That concludes our Q&A session.
Michael Hsu: I'll now hand the conference back to Chief Executive Officer, Mike Hsu, for closing remarks. Please go ahead. Okay, well, as I said, you know, proud of the team that we're, you know, we are successfully developing, developing, delivering balance and sustainable growth. You know, thank you for your interest in Kimberly-Clark and we will see you next quarter. Thank you, everyone.
Operator: This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation. John I don't know, I don't know, I don't know,[inaudible] . . [inaudible] a lot of work to do, she's got a lot of work to do, she's got a lot of work[inaudible] do, she's got a lot of work
[music].
[music].
[music].