Q1 2024 Kimberly-Clark Corporation Earnings Call
Good morning, everyone and welcome to the Kimberly Clark first quarter 2024 earnings call.
Operator: Good morning, everyone. And welcome to the Kimberly-Clark first quarter 2024 earnings call. At this time, all participants have been placed on a listen-only mode.
At this time all participants have been placed on a listen only mode. We will open the floor for your questions and comments after the presentation.
Operator: We will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Jakubik. Sir, the floor is yours.
It is now my pleasure to turn the floor over to your host Chris Jacobi, Sir the floor is yours.
Christopher M. Jakubik: Thank you. And hello, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark. And welcome to our Q&A session for our first quarter 2024 business update. During our remarks today, we will make some forward-looking statements that are based on how we see things today. However, actual results may differ due to risks and uncertainties, and these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures today, and these non-GAAP financial measures should not be considered a replacement for, and should be read together with, GAAP results. You can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com.
Thank you and Hello, everyone. This is Chris Jakubik head of Investor Relations, Kimberly Clark and welcome to our Q&A session for our first quarter 2024 business update during our remarks today, we will make some forward looking statements that are based on how we see things today actual results may differ due to risks and uncertainties and these are discussed in our earnings release.
<unk> and our filings with the SEC.
We will also discuss some non-GAAP financial measures today, and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results and you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at Investor <unk>, Kimberly Clark Dot com.
Mike Hsu: Before we begin, I'm going to hand it over to our Chairman and CEO, Mike Hsu, for a few quick opening comments. Okay. Hey, before we get into the Q&A, I would like to start by saying thank you to all my colleagues at Kimberly-Clark who have worked really diligently over the past few years to build our strong foundation and to deliver these Q1 results that provide a very good start to our next chapter of growth. Our strategy to elevate our categories with breakthrough innovation and expand our markets is working. We are effectively navigating the ever-changing external dynamics of today's new normal while driving our consumer-centric culture.
Before we begin I'm going to hand, it to our chairman and CEO, Mike <unk> for a few quick opening comments, okay. Thank you Chris.
Before we get into the Q&A I would like to start by saying. Thank you to all my colleagues at Kimberly Clark, who worked really diligently over the past few years to build our strong foundation and to deliver these Q1 results that provide a very good start to our next chapter of growth.
Our strategy to elevate our categories with breakthrough innovation and expand our markets is working.
We are effectively navigating the ever changing external dynamics of today's new normal while driving our consumer centric culture.
Mike Hsu: We are making the company better, stronger, and faster. I'm very, very proud of our progress to date, and I'm confident that we're going to continue to leverage our core strengths to achieve our potential. We are on an exciting path and are well-positioned to deliver durable growth and sustainable shareholder returns. So with that, I'd like to open it up to your questions. 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.
We are making the company better stronger and faster.
I am very very proud of our progress to date and I'm confident that we're going to continue to leverage our core strengths to achieve our potential we are on an exciting path and are well positioned to deliver durable growth and sustainable shareholder returns so with that I'd like to open it up for your questions.
Speaker Change: Certainly everyone at this time be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
Operator: We do ask that while asking your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Bonnie Herzog from Goldman Sachs. Your line is live. Morning, Bonnie. All right. Hi, Bonnie.
We do ask about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Your first question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.
Bonnie Lee Herzog: Bonnie Bonnie good morning, Hope, you're all well on first I have a quick question on your guidance.
Bonnie Lee Herzog: Good morning. Hope you're all well. First, I have a quick question on your guidance. You reported a better-than-expected Q1. I'm curious to hear why you didn't pass through the full Q1 beat.
Bonnie Lee Herzog: We're part of that better than expected Q1, So I'm curious to hear why you didn't have to default Q1 beat and then also hoping for a little more color on the better than expected volume growth you saw in the quarter.
Bonnie Lee Herzog: And then also hoping, you know, for a little more color on the better-than-expected volume growth you saw in the quarter. What were the key drivers behind this? And, you know, ultimately, how sustainable is this moving forward? And, you know, curious, was there any pull forward, for instance, or should we expect to see continued volume improvements as the year progresses? Thank you.
Bonnie Lee Herzog: What were the key drivers behind this and ultimately how sustainable is this moving forward and.
Bonnie Lee Herzog: Curious was there any pull forward for instance, or should we expect to see continued volume improvement as the year progresses.
Mike Hsu: Nelson will talk about what we decided to pass through and our logic for that. But really, you know, I'm encouraged by a good start. You know, I think our organization is running very, very well in what we would call internally our new normal, right? And I think this is like the first year in a few that we've had kind of a stable business, despite a lot of the geopolitical things that are going on. So, you know, the underlying strength in the quarter was predicated on, you know, a couple of good fundamental factors. One, better volume, which you observed, and there was no pull forward. In fact, it was the opposite.
Speaker Change: Yeah, Bonnie I'll, maybe I'll start and I also want to talk about what we decided to pass through in our logic for that but really I'm encouraged with our good start I think our organization is running very very well in what we would call internally, our new normal right and I think this is like the first year and a few that we've had kind of a stable business. Despite a lot of the geopolitical things that are going on.
Speaker Change: So.
Speaker Change: The underlying strength in the quarter was predicated on a couple of good fundamental factors, one better volume, which you observed and there was no pull forward in fact, it was the opposite we had an inventory retail inventory reduction in the quarter, but kind of I think the volume be inherent strength and the consumption kind of overshot over compensated for that.
Mike Hsu: We had an inventory, retail inventory reduction in the quarter, but I think the volume, the inherent strength, and the consumption kind of overshot, overcompensated for that. And so I think that was part of when also the market shares are moving kind of in the right direction. So I think we feel very good about the underlying volume momentum in the business. And then on top of that, with a stable input cost environment, the productivity that was strong in the quarter tends to drop a little bit more through the bottom line.
Speaker Change: And so I think that was probably one also in the market shares.
Speaker Change: Moving kind of in the right direction. So I think we feel very good about the underlying volume momentum in the business and then on top of that then with a stable input cost environment. The productivity that were strong in the quarter tends to drop a little bit stronger through the bottom line and so that's the underlying kind of driver our strong Q1, and we feel really great.
Speaker Change: The team has done a great job.
Speaker Change: Operating there is still a couple of wars going on in the world as you're well aware, Argentina has been very volatile and our teams are doing a great job there. So.
Mike Hsu: And so that's the underlying kind of driver of our strong Q1. And we feel really great about it. The team's done a great job, you know, operating. There are still a couple wars going on in the world, as you're well aware, Argentina's been very volatile, and our teams are doing a great job there.
Speaker Change: We feel like we're really running well in a new normal environment Nelson.
Awesome, Yeah, and just to add a few details on what happened in Q1, Bonnie. So first obviously very pleased with the start of the year and Q1 was particularly strong as we saw a significant benefit in China.
Nelson: From our Chinese new year execution, and particularly in March I mean, the trends in the business continued China grew volumes double digits in the quarter.
Nelson: And in North America in particular, as Mike said, while the trade destock happened as we had projected back in January and just for perspective total company that was around 80 basis points of growth.
Nelson Urdaneta: So, you know, we feel like we're really running well in a new normal environment. Yeah, and just to add a few details on what happened in Q1, Bob. So first, obviously very pleased with the start of the year, and Q1 was particularly strong as we saw significant benefits in China from our Chinese New Year execution, and particularly in March. I mean, the trends in the business continued, China grew volumes double digits in the quarter.
Nelson: That still we came in March and had a much better much better consumption in the month in March which flowed through in the quarter. So that was the other bid on volume as we thought about what happened and reconciled the numbers for the quarter, having said that as we look at what's going to happen in the balance of the year.
Nelson Urdaneta: And in North America, in particular, as Mike said, while the trade destock happened, as we had projected back in January, and just for perspective, total company, that was around 80 basis points of growth. But we came in March and had a much better, you know, much better consumption in the month of March, which flowed through in the quarter.
Nelson: All of things one as Mike said were cautious cautiously optimistic a few things that we're all aware of as we still as geopolitical challenges underway and we have begun to see some of our commodities begin to uptick just for perspective in the first quarter, we've seen how.
Nelson: Pulp and fiber complex has increased.
Nelson: In the single digits in the first quarter sequentially versus Q4 for.
Nelson: For perspective in the full year, we now expect commodities to be the net input cost the total basket to be around 200 and <unk>.
Nelson Urdaneta: So that was the other bit on volume as we thought about what happened and reconciled the numbers for the month. Having said that, as we look at what's going to happen in the balance of the year, a couple of things. One, as Mike said, we're cautiously optimistic.
Nelson: $50 million inflationary. So we are taking that into account that's within the range that we have provided back in January but it's still something that we're watching.
All of other things to keep in mind is that as we head into the back half of the year, we expect to see about an <unk> <unk> headwind from the personal protective equipment divestiture.
Nelson Urdaneta: A few things that we're all aware of are that we still have geopolitical challenges underway, and we have begun to see... Some of our commodities begin to uptick. For Perspectives, in the first quarter, we saw how pulp and the fiber complex increased, you know, in the single digits in the first quarter sequentially versus Q4.
Nelson: And profit that's built into our outlook, but that is something that we that is new news versus the outlook. We provided back in January and the other bit to keep in mind is.
Nelson: We will further step up investments as the year progresses on a year over year basis, our advertising spend increased 50 basis points that was largely in line with what we had in Q4 and what we said at the beginning of the year is that as our innovation pipeline builds up in that starting in Q2, we will further.
Nelson Urdaneta: For perspective, in the full year, we now expect commodities to be around, you know, the net input cost, the total basket to be around $250,000. [inaudible] in profit that's built into our outlook, but that is something that we that is new news versus the outlook we provided back in January. And the other bit to keep in mind is, you know, we will further step up investments as the year progresses. On a year-over-year basis, our advertising spend increased by 50 percent.
Nelson: Up investments as the year progresses, and we expect it to be around another 50 basis points for the balance of the year.
Speaker Change: Alright, thank you.
Speaker Change: Great. Thanks Bonnie.
Speaker Change: Thank you. Your next question is coming from Anna <unk> from Bank of America. Your line is live.
Anna: Hi, good morning, and thank you for the question.
Anna: I was wondering if you can comment on market share at competitor mentioned that.
Operator: That was largely in line with what we had in Q4. And what we said at the beginning of the year is that as our innovation pipeline builds up, and that's starting in Q2, we will further step up investments as the year progresses. And we expect it to be around another 50%. All right, thank you.
Anna: SAP on their part with a lack of innovation at the lower end of the pricing ladder and toilet paper, which caused some pressure. There. So I was wondering if that helped you to pick up share and if you can comment on how you're progressing in terms of market share also on a weighted category basis that would be helpful.
Anna: And then as a follow up volumes are clearly better than expected. Despite the retail inventory reductions in the quarter that you had anticipated for Q1. So I was just wondering to what extent that ended.
Anna Jeanne Lizzul: Thank you. Your next questions come from Anna Lizzul from Bank of America. Your line is live.
Anna Jeanne Lizzul: Hi, good morning, and thank you for the question. I was wondering if you could comment on market share. A competitor mentioned a misstep on their part with a lack of innovation at the lower end of the pricing ladder in toilet paper, which caused some pressure there, so I was wondering if that helped you to pick up market share.
Anna: I ended up impacting the quarter and how should we be thinking about it for the full year. Thank you.
Anna: Okay.
Speaker Change: And thanks for the question Great question.
Speaker Change: Sure.
Speaker Change: I'm very encouraged I think we've made very very solid progress on overall market share I expect further improvement as the year progresses.
Speaker Change: Overall in the quarter were up and even in just under 60% of our market category combinations.
Mike Hsu: And if you can comment on how you're progressing in terms of market share, also on a weighted category basis, that would be helpful. And then, as a follow-up, volumes were clearly better than expected, despite some retail inventory reductions in the quarter that you had anticipated for Q1. So I was just wondering to what extent this ended up impacting the quarter and how we should be thinking about it for the full year. Thank you. Okay, yeah, Anna, thanks for the question. Great question.
Speaker Change: Although I would say also flat on a weighted basis and we look at churn in two ways on both metrics.
Speaker Change: Importantly, I'd say North America improving.
Speaker Change: North America was up or even in six of eight categories.
Speaker Change: We were soft in 2023 years as you may recall, a lot of that was predicated on.
Speaker Change: Severe supply constraints that we had last year and so I think this was like maybe the second quarter that we've had in a row of Unconcern unconstrained supply and I think that.
Mike Hsu: You know, market share, I'm very encouraged. I think we've made very, very solid progress on overall market share. I expect further improvement as the year progresses. You know, overall, in the quarter, we were up and even in just under 60% of our market category combination, although I would say also flat on a weighted basis, and we look at share in two ways on both metrics.
Speaker Change: That kind of performance reflects our ability to ship product and kind of restore promotions just for reference.
Speaker Change: <unk> in the quarter was up 400 basis points on share or more than 400 basis points on share what drove it well we did have new social media campaign around cold flu and allergy season, which I think has been very very good but the other part is we restored merchandising, which we had been off from for several months and so so again I think.
Speaker Change: Our merchandising we still plan, we're probably still under index versus the the overall category.
Mike Hsu: Importantly, I'd say North America is improving. North America was up or even in six of eight categories. You know, we were soft in 2023, as you may recall. A lot of that was predicated on the severe supply constraints that we had last year. And so I think this was maybe the second quarter that we've had in a row of unconstrained supply. And I think that kind of performance reflects our ability to ship product and kind of restore promotion, just for reference. CleanEx in the quarter was up 400 basis points on share or more than 400 basis points on share. You know, what drove that?
Speaker Change: And we're just kind of returning to kind of normalize.
Speaker Change: Merchandising behavior. So so we feel good about our performance overall and again market share in other markets like in China. We were up a couple of a couple of hundred basis points on Huggies diapers had a very very strong Chinese new year execution. So volumes were up double digit against the category that was still down about 10%.
Speaker Change: In China, So so I think overall, we're feeling.
Speaker Change: Very optimistic about the performance of the business and feel good about the volume delivery of the business.
Speaker Change: And just to build on Mike's point and to your question on what to expect on volumes for the balance of the year.
Mike Hsu: Well, we did a new social media campaign around the cold, flu, and allergy season, which I think has been very, very good. But the other part is that we restored merchandise, which we had been off from for several months. And so, you know, again, I think our merchandising, we still plan, you know, we're probably still under indexed versus the overall category. We're just kind of returning to kind of normalized merchandising behavior.
Speaker Change: As we said in January I mean, 2024 should mainly reflect the pacing of our innovation pipeline and end market programming.
Speaker Change: We still have the innovation and a lot of the programming coming into place as we go into Q2 and the second half of the year, Hence why from an overall perspective and volume plans, we don't see any changes versus what we had planned back in January.
Speaker Change: Taken into account the volume over delivery that we had in Q1.
Mike Hsu: So, we feel good about our performance overall. And again, market share and other markets, like in China, we were up a couple hundred basis points on Huggies diapers had a very, very strong Chinese New Year execution. So, you know, volumes were up double digits against a category that was still down about 10% in China.
Speaker Change: Thank you very helpful. Okay. Thanks Ana.
Speaker Change: Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live good.
Lauren Rae Lieberman: Morning, Lauren Lauren.
Lauren Rae Lieberman: Good morning, Hey, guys.
Lauren Rae Lieberman: So first thing I wanted to ask about was the productivity.
Lauren Rae Lieberman: In the release or in the prepared remarks, you called out $120 million realized this quarter.
Mike Hsu: So, I think overall, we're feeling, you know, very optimistic about the performance of the business and feel good about the volume. And just to build on Mike's point and to your question on what to expect in terms of volumes for the balance, as we said in January, I mean, 2024 should mainly reflect the pacing of our innovation pipeline and in-market program. We still have...
Lauren Rae Lieberman: I was just curious how to think about that in the context of the $3 billion and productivity and also $200 million of SG&A savings that you articulated at the Investor day. So that's just my first question.
No.
Lauren Rae Lieberman: I also will comment on is I would say a good start and we're tracking well.
Yes, and then to just to give a little bit of color on the $3 billion in the $200 million Lauren so.
Lauren Rae Lieberman: Overall first it's based on the integrated margin management process that we unveiled in our Investor day at the end of March.
Nelson Urdaneta: The Innovation and a lot of the programming coming into place as we go into Q2 and the second half of the year. Hence why, from an overall perspective and volume plans, we don't see any changes versus what we had planned back in January and taking into account the volume over delivery that we had. Thank you. Very helpful.
Lauren Rae Lieberman: This has really given us a new enterprise wide visibility discipline accountability end to end across the whole value chain and really its about a focus on driving lower cost at a total to deliver cost which is a very different approach is what we had in the past and we've been working on it.
Lauren Rae Lieberman: The last year or so as you said, we had a strong start to the year on gross productivity.
Lauren Rae Lieberman: Ill reiterate this is non procurement related savings and this is the $120 million that we talked about in the release and in our prepared remarks, and we also had additional savings that were.
Operator: Okay. Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live. Good morning, Lauren. Hi Lauren.
Lauren Rae Lieberman: <unk> delivered from the procurement side of the house and Thats embedded in our net input costs, which again.
Lauren Rae Lieberman: Hey, good morning. Hey, guys. So the first thing I wanted to ask about was productivity. In the release or in the prepared remarks, you called out $120 million realized this quarter. And I'm just curious how to think about that in the context of the $3 billion in productivity and also $200 million of SG&A savings that you articulated at the investor day. So that's just my first question. Nelson can comment on that.
Lauren Rae Lieberman: <unk>.
Lauren Rae Lieberman: And net not that much of a headwind in the first quarter because of all these efforts as we think about the cadence and what we expect to have on the $3 billion. We're off to a good start on that number and we would expect that to be roughly.
Lauren Rae Lieberman: Bout linear over the next few years as we deliver the whole 3 billion in terms of the $200 million of SG&A savings as a reminder, we will go live with our new operating model on October one of this year. So we don't expect much of that $200 million in savings in SG&A to materialize. This year that will really come.
Lauren Rae Lieberman: And to play more in 2025, and 2026, but again really good start to the year in productivity and procurement related savings.
Mike Hsu: I would say a good start and we're tracking well. Yep. And then just to give a little bit of color on the $3 billion and the $200 million, Lauren. So, you know, overall, first, it's based on the integrated margin management process that we unveiled at our investor day at the. This has really given us new enterprise-wide visibility, discipline, and accountability, end-to-end across the whole value chain. And really, it's about focusing on driving lower costs at a total delivery cost, which is a very different approach from what we had in the past, and we've been working on it for the last year or so.
Speaker Change: Okay. That's awesome, so just as a follow up.
Speaker Change: On the SG&A side of things what was interesting to see this quarter is that.
Speaker Change: Pretty good operating leverage there because in the prepared remarks that you've called out a 50 basis point increase in advertising.
Speaker Change: As a percentage of sales this quarter, which implies some pretty again like I said on solid operating leverage on SG&A and that's different than what we've seen I guess the last couple of years frankly so.
Speaker Change: Where do you stand let's call it on sort of reinvestment because one of the thing that struck me from my.
Speaker Change: Follow up conversations with people at the Investor Day.
Speaker Change: There was a lot of the things you talked about doing going forward a lot of questions I got from people are like well why haven't they've been dealing it yet and my thought was perhaps it's been about investing to get the capabilities to be able to do these things going forward. So.
Mike Hsu: As you said, we had a strong start to the year on gross productivity. I'll reiterate, this is non-procurement-related savings, and this is the $120 million that we talked about in the release and in our prepared remarks.
Speaker Change: Is that a reasonable way of thinking about it is that reinvestment level kind of know where call it complete but like where it needs to be such that we should see.
Nelson Urdaneta: And we also had additional savings that were delivered from the procurement side of the house, and that's embedded in our net input costs, which, again, we're not, you know, in net, not that much of a headwind in the first quarter because of all these efforts. As we think about the cadence and what we expect to have on the $3 billion, we're off to a good start on that number, and we would expect that to be roughly about linear over the next few years as we deliver the whole $3 billion.
Speaker Change: Operating leverage on SG&A.
Speaker Change: Advertising.
Speaker Change: And before you start to get some of those that $200 million in savings in that 25 and 26, yes.
Speaker Change: One I'll start Laura.
Laura: But one we feel great about our investments in advertising and I think we're.
Laura: We've made significant progress I think we're up to 300 basis points. Since I became came into this role. However, I would say, we're probably still under spend relative to our peer set and so do we do we need I think I said this in Investor day, and I don't know that we have to match them right, but I would like to continue to increase our investment I think you are.
Nelson Urdaneta: In terms of the $200 million of SG&A savings, as a reminder, we will go live with a new operating model on October 1st of this year. So we don't expect much of that $200 million in savings in SG&A to materialize this year. That will really come into play more in 2025 and 2033. But again, really good start to the year in terms of productivity and procurement. Okay, that's awesome.
Youre exactly right on.
Speaker Change: Hey, well Theres two factors that kind of.
Speaker Change: Causes to phase our investment I would say if you if you recall back in 2018 2019, I did not feel like we had all the capability we needed to spend that that significantly and I think you may recall in some sessions, we had or some calls.
Lauren Rae Lieberman: So just as a follow-up, on the SG&A side of things, what was interesting to see this quarter is that you saw pretty good operating leverage there. Because, in the prepared remarks, you also called out a 50 basis point increase in advertising as a percentage of sales this quarter, which implies some pretty solid operating leverage on SG&A. And that's different than what we've seen in the last couple of years, I guess, frankly.
Speaker Change: People were asking why didn't you reset invest harder.
Speaker Change: At that point I wasn't confident what the advertising was going to do right and so in the last five years I think we've really built.
Speaker Change: We characterize as kind of a world class capability on the commercial front through the help of Allison as you are well aware and so we've done that and we made progress. So that was one factor we were building the capability and right now our returns on investment on our advertising, particularly on digital and we've migrated from not having a whole lot of digital.
Speaker Change: Five or 10 years ago to almost being entirely digital and those returns are significantly higher that we're driving now so that's one factor the other.
Lauren Rae Lieberman: So, Where do you stand, let's call it, on sort of reinvestment? Because one of the things that struck me in some of my follow-up conversations with people at Investor Day was a lot of the things you talked about doing going forward. A lot of questions I got from people were like, well, why haven't they been doing it yet?
Speaker Change: Other big factor I think that people forget is.
Speaker Change: We had two years of a super inflation cycle, we had more than offset more than.
Speaker Change: And our full years of operating profit in that cycle and so we're busy doing.
Mike Hsu: And my thought was perhaps it's been about investing to get the capabilities to be able to do these things going forward. So is that a reasonable way of thinking about it? Is that reinvestment level kind of now, I don't want to call it complete, but like where it needs to be such that we should see operating leverage on SG&A, ex-advertising, even before you start to get some of that $200 million in savings in 2025 and 2026? Yeah, I mean, one. I'll start, Laura.
Speaker Change: Im trying to recover margins as well so theres a lot going on in addition to all the geopolitical issues that I think we'll learn youre really well aware so theres a lot of things going on and so we're making steps in the right direction, where not all the way to where we want to be.
Speaker Change: But we think we can kind of manage the business in the right way to kind of deliver both a healthy topline healthy bottom line, while continuing to invest in our business for the long term.
Speaker Change: Okay, great. Thanks, so much.
Speaker Change: Thank you. Your next question is coming from Nik Modi from RBC capital markets. Your line is live.
Sunil Harshad Modi: Good morning, Nick Good morning, good morning.
Sunil Harshad Modi: Just a quick clarification, if you could just provide context on the destocking in terms of where you saw it.
Sunil Harshad Modi: And then the actual question is.
Sunil Harshad Modi: Obviously, the feedback broadly speaking has been.
Mike Hsu: But one, we feel great about our investments in advertising, and I think we've made significant progress. I think we're up 200 to 300 basis points since I came into this role. However, I'd say we're probably still underspent relative to our peer set.
Sunil Harshad Modi: The consumers under pressure.
Sunil Harshad Modi: Our results today obviously.
Sunil Harshad Modi: You seem to have outperformed a lot of that backdrop of commentary. So just Mike would love to get your perspective on kind of category health consumer health kind of what you guys are seeing I said.
Mike: Part of the guide and not flown everything to us because maybe there is some uncertainty, but I'd love your thoughts on that yeah. Thanks, Nick Yeah.
Mike Hsu: And so do we need, and I think I said this on Investor Day, I don't know that we have to match them, but I would like to continue to increase our investment. I think you're exactly right on kind of, hey, well, there's two factors that kind of cause us to phase our investment. I would say, if you recall back in 2018, 2019, I did not feel like we had all the capability we needed to spend that significantly.
Great Great questions, Yes, we did see our retail inventory reduction in the first quarter as expected and we were given a heads up on that and so we planned for it. It was about an 80 basis point headwind to global and about 170 bps of North America sales and so.
Mike: I'd say that the behaviors typical I don't think it's unusual.
Mike: Tend to see in that December January timeframe.
Mike: Taylor was trying to get a little more efficient with how much inventory they're carrying.
Mike: We tend to be very very efficient with retailers and I think they like our our logistics capability and so we're kind of generally early adopters of all the new systems that retailers go on to kind of try to manage their inventories better. So so we're kind of on top of it.
Mike Hsu: And I think you may recall in some sessions we had or on some calls, people were asking, why didn't you reset and invest harder? At that point, I wasn't confident in what the advertising was going to do.
Mike Hsu: And so in the last five years, I think we've really built what I would characterize as kind of world-class capability on the commercial fronts through the help of Allison, as you're well aware. And so we did that. We made progress. So that was one factor.
Mike: It's been baked into our outlook for the full year, but I don't know that I expect a whole lot different going forward, but it's.
Mike: What we expected in Q1 did in fact happen.
Mike: I think I said earlier our volume.
Mike: A little bit stronger than we had anticipated so more than fully offset that so I think that was the first part.
Mike Hsu: We were building the capability, and right now, our returns on investment on our advertising, particularly on digital, have migrated from not having a whole lot of digital maybe five or 10 years ago to almost being entirely digital. And those returns are significantly higher than what we're driving now, so that's one factor. The other big factor I think that people forget is that we had two years of a superinflation cycle.
Speaker Change: Is that enough clear enough on your retail inventory.
Speaker Change: Like I just.
Speaker Change: Any specific categories you can call out was it some care because thats P&G call that out, but I was just trying to get category perspective on that.
Speaker Change: No for us across the board and just just to note nothing unusual in our mind, it's like typical for what we see every year.
Speaker Change: That's part one I think your question on the consumer.
Speaker Change: I guess I would characterize it.
Mike Hsu: We had offset more than a full year's of operating profit in that cycle, and so we were busy trying to recover margins as well. And so there was a lot going on in addition to all the geopolitical issues that I think, Lauren, you're really well aware of.
Speaker Change: The consumer environment overall for us globally.
Speaker Change: Especially in North America is resilient.
Speaker Change: Still bifurcated.
Speaker Change: Part of that bifurcated is actually adding to category growth as well. So the category demand overall remains very very robust as you can see in North America. Our categories on average overall were up about 5% or mid single digit.
Lauren Rae Lieberman: So there's a lot of things going on. We're not all the way to where we want to be, but we think we can kind of manage the business in the right way to kind of deliver both a healthy top line and a healthy bottom line while continuing to invest in our business. Great. Thanks so much.
Speaker Change: Yeah.
Speaker Change: As you all know we make daily essentials, and so there is low substitution in our categories and so I think thats reflected in the overall category demand.
Speaker Change: Importantly to note. Nick is premium continues grow very very robustly, especially in developed markets like the U S.
Operator: Thank you. Your next question is coming from Nick Modi from RBC Capital Markets. Your line is live. Good morning, Nick. Good morning, everyone.
Speaker Change: Like in China.
Speaker Change: U K South Korea, but what's also.
Speaker Change: Premium is growing and developing and emerging markets like Brazil, and so we're continuing to see that demand there.
Sunil Harshad Modi: Just a quick clarification, if you could just provide context on the destocking in terms of where you saw it. And then the actual question is, you know, obviously, the feedback, broadly speaking, has been, you know, consumers under pressure, though your results today, obviously, you seem to have outperformed a lot of that backdrop or commentary. So just, Mike, I would love to get your perspective on kind of category health, consumer health, kind of what you guys are seeing. I said, part of the guide, you know, and not flowing everything through is because maybe there is. Yeah, we did see a retail inventory reduction in the first quarter as expected.
Speaker Change: That all said.
Speaker Change: Clearly.
I would say middle to lower income households.
Speaker Change: It looked like they are they are becoming more stretched based on all the economic data we're seeing.
Speaker Change: So I would say the bifurcation is I see a limited trade down in a few categories, notably.
Speaker Change: Adult care.
Speaker Change: Some in.
Speaker Change: Household towels.
Speaker Change: But we have a very very detailed tracker across every category I think we're tracking like nine different dimensions and.
Speaker Change: I'd say, so we're very vigilant about monitoring that.
Speaker Change: The thing about it is.
Speaker Change: Trade down is limited at this point, but we really intend to be more valuable to our consumers at every rung of the good better best ladder and so what that means is.
Sunil Harshad Modi: And we were given the heads up on that, and so we planned for it to be about an 80 basis point headwind to global sales and about 170 bps to North American sales. And so I'd say that the behavior is typical. I don't think it's unusual.
Speaker Change: Sure.
Speaker Change: I think.
And it was asking about private label or valued.
Speaker Change: Value to your quality I mean, we're making our all of our products better across the board and that certainly I think the growth driver for us over the long term is by making our products better premium rising elevating our categories.
Mike Hsu: You know, we tend to see in that December, January timeframe, retailers trying to get a little more efficient with how much inventory they're carrying. You know, we tend to be very, very efficient with retailers. And, you know, I think they like our logistic capability. And so we're kind of generally early adopters of all the new systems that retailers go on to kind of try to manage their inventories better.
Speaker Change: We want to serve the value oriented consumer as well too and we have big brands like Scott Bath and Kleenex mainline <unk>.
Speaker Change: <unk> main line that serves those consumer as well too.
Speaker Change: Excellent. Thanks, Mike Okay. Thanks, Nick.
Speaker Change: Thank you. Your next question is coming from Chris Carey from Wells Fargo. Your line is live Hey, Chris Hey, Chris Hey, Good morning.
Christopher Michael Carey: Just a couple of follow ups.
Christopher Michael Carey: Just on China, and the U S right so in China.
Mike Hsu: So we're kind of on top of it. It's been baked into our outlook for the full year, but I don't know that I expect a whole lot different going forward. But it's, you know, what we expected in Q1 didn't actually happen. You know, I think I said earlier, our volume was a little bit stronger than we anticipated. So, you know, more than fully offset.
Christopher Michael Carey: Clearly good numbers, but I also think one of your peers delivered quite good numbers as well.
Christopher Michael Carey: And I guess the question in a way is are we seeing the category churn in China.
Christopher Michael Carey: Benefits from perhaps Chinese new year.
Christopher Michael Carey: Or are you both just gaining relative market share clearly is a strong number so I'm just trying to.
Mike Hsu: So I think that was the first part. Is that clear enough on your retail inventory part, Nick? Yeah, Mike, what, any specific categories you can call out? Was it Femcare because that's P&G called that out, but I was just trying to get a category perspective on the stock. No, for us across the board, and just to note, nothing unusual in our mind. It's like typical for what we see every year.
Speaker Change: I understand this.
Speaker Change: I think a bit deeper I guess and then secondly on the U S.
Speaker Change: It's really the same question on relative outperformance to category and I know you've mentioned it a bit more and are more interested in the China comment, but if you could just expand there because that stood out to me as well.
Speaker Change: Yes, I'll start on China again.
Speaker Change: If you kind of saw the Investor day presentation with Katie's leadership, our China team is doing a fantastic job there and they've grown.
Speaker Change: <unk> consistently double digits over the past five years and it's become one of our best one of our best performing businesses in the company I would say.
Mike Hsu: So I think that's part one. I think your question about the consumer, I guess I would characterize the consumer environment, overall for us globally, but especially in North America, as resilient. Still bifurcating, but part of that bifurcation is actually adding category growth as well. So category demand overall remains very, very robust. As you can see, in North America, our categories were on average up about 5% or mid-single digit.
Speaker Change: I think the driver performance, there's a couple of factors certainly a strong Chinese new year execution.
Speaker Change: But overall, we make a great product I believe its the best product in the marketplace I think consumers are.
Speaker Change: <unk> are excited about the products that we offer and then we have really really strong digital executions that really kind of drive that relationship with consumers and so so.
Speaker Change: To answer your question I think it's more of a share pickup the category itself based on the data I am seeing we're still down about 10% in the quarter.
Speaker Change: System with the birth rate trends and everything else, we're seeing so it's a share pickup and all.
Mike Hsu: I think that, you know, as you well know, we make daily essentials, and so there is low substitution in our categories, and so I think that's reflected in the overall category. And finally, the note, Nick, premium continues to grow very, very robustly, especially in developed markets like the US, uh... like China, the UK, South Korea, but it's also, you know, premium is growing and developing in emerging markets like Brazil And so we're continuing to see that demand there. That all said, clearly, I would say middle to lower income households look like they are becoming more stretched based on all the economic data we're seeing.
Speaker Change: I'll point out.
Speaker Change: We're the market leader in China.
Speaker Change: But that's predicated we're only at a I would say a mid to high teens share at this point and so so we feel very good about positions, but it's a fragmented category and so theres a lot of opportunity for us.
Speaker Change: Two.
Speaker Change: Two.
Speaker Change: Drive further share growth in the market.
Speaker Change: Importantly, I think for US we're also picking up on our mainstream business and part of the strategy when I say, hey, we want to be great at every tier where every rung of the good better best ladder.
Speaker Change: We want accelerated innovation at the top and then Cascade that quickly through online and so we're doing that and I think.
We're seeing that in our results in China for sure and similarly.
Mike Hsu: So, you know, I would say the bifurcation is I see a limited trade down in a few categories, notably, you know, adult care, some in household towels. But you know, we have a very, very detailed tracker across every category. I think we're tracking like nine different dimensions.
Speaker Change: Similarly in the U S.
Speaker Change: And then if I could just one follow up would be.
Speaker Change: Clearly pulps are on the move it's a bit more of a front end of the curve.
Speaker Change: In the back half of year 2025, but.
Speaker Change: This is going to be perhaps the first moment to really kind of show the ability to work through this this cycle just just any thoughts on the moves that you are seeing it.
Mike Hsu: And you know, I'd say, we're very vigilant about, you know, monitoring that. The thing about it is, you know, the trade down is limited at this point, but we really intend to be more valuable to our consumers at every rung of the good, better, best ladder. And so what that means is... You know, I think Anna was asking about the private label, you know, or value for your quality.
Speaker Change: The types of actions that you might defer to if these.
Speaker Change: Moves crude durable it even accelerated between pricing productivity and whether you see any potential kind of margin issues on the horizon or.
Speaker Change: Feels very much.
Speaker Change: Manageable at this point.
Speaker Change: Well I'm going to start with Nelson could disagree with me if you want no I would say manageable at this point because I.
Nelson: I said, hey, new normal I think this is what I would characterize as a more normal year for CPG for the first time in the last three or four years for us, which is hey, a stable input cost environment, it's still not deflationary at some 0.1 would hope that it becomes deflationary, but I'd say, hey, it's slightly.
Mike Hsu: I mean, we're making all of our products better across the board. And certainly, you know, I think the growth driver for us over the long term will be by making products better, premiumizing, and elevating our categories. But you know, we want to serve value-oriented consumers well, too, and we have big brands like Scott, Bath & Body Works, and Kleenex Mainline and Depend Mainline that serve those consumers.
Nelson: <unk>, but relatively stable.
Nelson: Then in the past three or four years for us and so I.
Nelson: Think for US we have very good productivity plans and so if the cost for main input costs remained stable. We can we can operate very very well.
Sunil Harshad Modi: Excellent. Thanks, Mike. Okay. Thanks, Nick.
Operator: Thank you. Your next question is coming from Chris Carey from Wells Fargo. Your line is live. Hey, Chris. Hey, Chris.
Nelson: Cable cost environment, and let that productivity drop through.
Christopher Michael Carey: Hey, good morning. Just a couple follow-ups. Just on China and the U.S., right?
Nelson: So that's one part and then the other part of the normal is I think.
Christopher Michael Carey: So in China, clearly, good numbers, but I also think one of your peers delivered quite good numbers as well. And I guess the question, in a way, is, are we seeing the category turn in China? Benefits from perhaps the Chinese New Year?
Nelson: There's been a lot of volatility in demand with Covid and everything else over the past few years.
Nelson: I think we're starting to see demand stabilize.
Nelson: And so with those two factors I think we can operate well, we're very cognizant and Nelson will talk about it that were there are some some demand signals around around different pulp environmental changes, but.
Christopher Michael Carey: Are you both just gaining relative market share? Clearly, it's a strong number. So I'm just trying to understand this, you know, like a bit deeper, I guess.
Mike Hsu: And then secondly, on the US, it's really the same question on relative outperformance by category. And I know you mentioned it a bit more, and I'm more interested in the China comment. But if you can just expand there, if you kind of saw the investor day presentation with, you know, Katie's leadership, our China team is doing a fantastic job there, and they've grown consistently double digits over the past five years.
Nelson: We're well aware of that and we think we have that accounted for in our in our current call, but I'm also sure. So just to build on.
Nelson: What Mike was saying increase so a few things.
Nelson: I'll start with we've built significant capabilities over the last five years in order for us to be able to maneuver through the ups and downs. Obviously, if we have a shock like what we saw two or three years ago. That's a different situation that we'd have to maneuver through but as Mike said and as we've said back in January.
Mike Hsu: And it's become, you know, one of our best performing businesses. Unknown Executive, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee. But overall, we make a great product. I believe it's the best product in the marketplace.
Nelson: We see the situation is manageable.
Nelson: Reiterated I mean, when we talked in January we talked about $200 million to $250 million of net input costs. All in that included currency other costs as well as commodities, which we still see deflationary for the full year for us now.
Mike Hsu: I think consumers are excited about the products that we offer. And then we have really, really strong digital executions that really kind of drive that relationship. And so, you know, to answer your question, I think it's more of a share pickup.
Nelson: On that range were now staring at the high end of that range, which again, we see as manageable as Mike said.
Nelson: Couple of things to keep in the back of your mind as you look at the numbers core commodities like bulk resin based materials energy in dollar terms, while they are a little bit more unfavorable today versus what we were seeing back in January because were seeing some upticks still for the full year. They would remain a tailwind we continue to see.
Mike Hsu: The category itself, based on the data I'm seeing, we're still down about 10% in the quarter, consistent with the birth rate trends and everything else we're seeing. So it's a share pickup, and, you know, I'll point out that we're the market leader in China. But that's predicated on us being only at a, I would say, a mid to high teen share.
Nelson: Logistics and labor costs as inflationary for the year.
Nelson: And then obviously for non U S operations currency will be a headwind in costs, because they are buying pulp and many of the.
Mike Hsu: And so we feel very good about positions, but it's a fragmented category. And so there's a lot of opportunity for us to drive further share growth in the market. Importantly, I think for us, we're also picking up on our mainstream business. And part of the strategy, when I say, hey, we want to be great at every tier or every run of the good, better, best ladder, we want to accelerate innovation at the top and then, We're seeing that in the results, in China for sure, and similarly in the U.S. And then, if I could, just one follow-up would be, clearly, you know, pulps are on the move, you know, it's a bit more on the front end of the curve than in the back half of year 2025, but this is going to be perhaps the first moment to really kind of show the ability to work through this cycle.
Nelson: Input inputs that they used to manufacture the products in hard currencies. So on a net basis thats, how we get there.
Nelson: Also keep in mind is that.
We expect the facing of our input cost inflation to be more muted in the first half of the year and this follows the trend that we saw in Q3 and Q4 of 2023 that would carryover.
Nelson: Pretty much through Q2, and we will see an uptick of this as we go into the back half of the year, but again, it's all factored into our outlook and the only difference is really were more at the high end than the range that we had given before.
Speaker Change: Yes, Chris just to calibrate you I think belsen like when we're looking at a couple of hundred million dollars of inflationary impact just to calibrate you in 2021 and 2022, we took on one 6 billion and $1 7 billion respectively. So the.
Mike Hsu: Just any thoughts on, you know, the moves that you're seeing and, you know, the types of actions that you might defer to if these, you know, moves prove durable and even accelerate, you know, between pricing, productivity, and whether you see any potential kind of margin issues on the horizon, or if this feels very much, you know, manageable at this point. Thanks.
Speaker Change: I would say that's kind of why we feel like that's one reason why we feel like it's more manageable to scale is totally different and then the other thing is as Nelson pointed out we've changed how we manage the business in some ways to try to become a little more predictable and we have better tools that we had maybe five years ago, and so totally understood and just to build on Mike's point on.
Christopher Michael Carey: Well, I'm going to start with, and Nelson can disagree with me if he wants, Nelson, but I would say manageable at this point. Because here's, you know, I said, hey, new normal. I think this is, you know, what I would characterize as a more normal year for a CPG for the first time in the last three or four years for us, which is, hey, a stable input cost I'm very cognizant, and Nelson will talk about it, that we're, you know, there are some, you know, some demand signals around different pulp environmental changes, but, you know, we're well aware of that, and we think we have that accounted for in our current call, but Nelson.
Tools as a reminder, I mean, we have a very strong pipeline of productivity initiatives. We're looking out three years and have been chatting about this for the last few quarters that pipeline remains strong you would've seen that non procurement related productivity was very strong getting out of the year and the team is very confident in our ability to continue to.
Speaker Change: Liver and not just in this year, but in the following two to three years, which builds on our ability to deliver on the $3 billion commitment of overall productivity gross productivity in the next five years or so.
Speaker Change: So that's built into how we're looking into into costs and inflation for the next few quarters.
Speaker Change: Thank you very much very helpful. Okay. Thanks, Chris.
Speaker Change: Thank you. Your next question is coming from Steve powers from Deutsche Bank. Your line is live.
Christopher Michael Carey: Sure, so just to build on what Mike was saying, Chris, a few things. You know, I'll start with, we've built significant capabilities over the last five years in order for us to be able to maneuver through the ups and downs. Obviously, if we have a shock like what we saw two, three years ago, that's a different situation that we'd have to maneuver through.
Stephen Robert R. Powers: Good morning, good morning, Thank you.
Stephen Robert R. Powers: Hey, two questions if I could the first one that builds on the conversations we're having with Chris.
Stephen Robert R. Powers: Around around commodities and managing it through the cycle.
Stephen Robert R. Powers: I guess I'm curious as to.
Stephen Robert R. Powers: The steps you've taken to better maneuver through input cost cycles.
Mike Hsu: But, as Mike said, and as we said back in January, we see the situation as... To reiterate, I mean, when we talked in January, we talked about $200 to $250 million of net input costs, all of which included currency, other costs, as well as commodities, which we still see deflationary for the full year. On that range, we're now staring at the high end of that range, which again we see as manageable, as Mike said.
Stephen Robert R. Powers: Essentially better protect this year.
Stephen Robert R. Powers: Does that include different ways of sourcing and contracting and hedging but in effect pushes out.
Stephen Robert R. Powers: Yes.
Stephen Robert R. Powers: On the cost curve as we would typically know Kimberly Clark I guess, what I'm thinking about is it in the past if we saw re inflation like we have year to date, we'd be thinking about that kind of flowing through and impacting.
Stephen Robert R. Powers: Ladder.
Stephen Robert R. Powers: A third about a quarter of the current fiscal year kind of a six months, maybe six to nine month lag. It sounds now like <unk> got better visibility I am wondering how much of that is just pushed out that that re inflation into 'twenty five.
Mike Hsu: A couple of things to keep in the back of your mind as you look at the numbers. Core commodities like bulk resin-based materials and energy in dollar terms, while they're a little bit more unfavorable today versus what we were seeing back in January because we're seeing some upticks, still, for the full year, they would remain a tailwind. We continue to see distribution, logistics, and labor costs as inflationary for the year. And then, obviously, for non-U.S. operations, currency will be a headwind in costs because they're buying pulp and many other things. Inputs that they use to manufacture the products in hard currency.
Stephen Robert R. Powers: Maybe I'll.
Speaker Change: I'll say a couple of things.
Speaker Change: One Steve is.
Speaker Change: I think the analyst Committee community and the Investor Community I think made very clear to me when I came into this role one of the one of the issues they have with our with can be.
Speaker Change: The earnings volatility and so I've been very cognizant of that fact, and so we over the past five years kind of worked.
Speaker Change: Significant work pretty hard to kind of reduce some of the underlying volatility in our business.
Speaker Change: Allison with an outside perspective has really worked hard to bring some different kinds of tools into our thinking and so we've been applying that over the last couple of years and so we feel very good about that certainly there is inherent volatility in our.
Nelson Urdaneta: So on a net basis, that's how we get. The thing to also keep in mind is that... We expect the impact of our input cost inflation to be more muted in the first half of the year. And this follows the trend that we saw in Q3 and Q4 of 2023 that would carry over. We took on $1.6 billion and $1.7 billion, respectively. So I would say that's one reason why we feel like it's more manageable. The scale is totally different.
Speaker Change: <unk> and our business certainly in pulp when we think at some point with the with the Super cycle of inflation that we have on pulp, but still elevated and at some point it needs to come back down history would say it is going to come back down further.
Speaker Change: That said I think we've built the right tools and Nelson you may comment about.
Nelson: What we're doing there sure thing and just to build I mean, the the.
Nelson: The integrated margin management approach.
Nelson: Steve that we we've been working on for the last year or so really addresses part of this volatility. It is end to end as we chatted.
Nelson Urdaneta: And then the other thing is, as Nelson points out, we've changed how we manage the business in some ways. We try to become a little more predictable, and we have better tools than we had maybe five years ago. Totally, and just to build on Mike's point on the tools, as a reminder, I mean, we have a very strong pipeline of productivity initiatives. We're looking out three years, and I've been chatting about this for the last few quarters. That pipeline remains strong.
Nelson: On March 27th and it looks at all the elements that drive total delivered cost as well as margins and it starts with we have been building muscle around revenue growth management and Thats very important price pack architectures, what kind of prospects that we have for the different channels and how do we tackle that.
Nelson: <unk> promo activity et cetera, which is very important across all the geographies we work in <unk>.
Nelson: Secondly are the tools that Mike was talking about on how do we handle costs. We don't reveal what are the contract structures that we have in place or the hedging activities, but we obviously have gotten into.
Nelson Urdaneta: You would have seen that non-procurement-related productivity was very strong coming out of the year, and the team is very confident in our ability to continue to deliver, not just in this year, but in the following two, three years, which builds on our ability to deliver on the $3 billion commitment of overall gross productivity in the next five years. So that's built into how we're looking at cost and inflation for the next. Thank you very much.
Nelson: Much more proactive risk management to be able to have visibility into costs and give us time to react and what do we react with we react with productivity initiatives and elements of revenue growth management. That's the that's.
Nelson: That's a big difference on how we were approaching it five years ago, and we've been building that muscle over time and Thats then drives into this visibility into the productivity.
Christopher Michael Carey: Very helpful. Okay. Thanks, Chris.
Nelson: Element, which right now we've split it and we're being very clear of this is the productivity within the four walls. That's the $120 million that we talked about and then we have productivity and procurement, which is embedded in our net input costs and that clearly gives accountability across the supply chain on how to drive lower total.
Stephen Robert R. Powers: Thank you. Your next question is coming from Steve Powers from Deutsche Bank. Your line is live. Good morning. Good morning.
Stephen Robert R. Powers: Hey, two questions, if I could. The first one builds on the conversation we had with Chris around, around, you know, commodities and managing them through the cycle. You know, I guess I'm curious as to the steps you've taken to better maneuver through input cost cycles and, essentially, better protect this year. You know, does that include, you know, different ways of sourcing and contracting and hedging that, in effect, pushes out, you know, the cost curve as we would typically know it for Kimberly-Clark?
Nelson: Deliver costs or at least manage through their margins. So yes, I'd say its muscle we've been building over the last five years as Mike said, and obviously, we're not going to be immune to moves in commodities, but the visibility we have today the ability to react is different than what we had in the past.
Yes, Okay, that's very helpful.
Speaker Change: And this this answer next question May be short if you've already addressed that you can tell me to just go read the transcript afterwards I joined late I apologize, but.
Stephen Robert R. Powers: I guess what I'm thinking about is that, you know, in the past, if we saw re-inflation, like we have year to date, we'd be thinking about that kind of flowing through and impacting the latter, you know, the latter third, latter quarter of the current fiscal year, kind of a six month, maybe, six to nine month lag. It sounds now like you've got better visibility.
Speaker Change: In the <unk>.
Speaker Change: Steve.
Speaker Change: In the prepared remarks, you mentioned private plans to exit private label businesses.
Speaker Change: I know those plans are still under.
Speaker Change: Under construction, but you did make mention of it was some impacts in 'twenty five.
Speaker Change: Anything further you can say on that today that'd be great. Thanks, Jay just to be clear Steve that question was not asked so it's a great question.
Speaker Change: Hey, just on that I did want to flag that we are strategically let me just tell you.
Mike Hsu: I'm wondering how much of that is just pushed out as that re-inflation into 25. Hey, maybe I'll say a couple things. You know, one thing Steve is saying is that, you know, the analyst committee, the community, and the investor committee made it very clear to me when I came into this role that, you know, one of their issues they had with our KMB is, you know, earnings volatility. And so I've been very cognizant of that fact.
Speaker Change: We're focusing on differentiating our brands with proprietary science based innovation that was kind of a big theme that we shared with you all at our Investor Day, just to give you some context today or last year private label production represented about 4% of our global sales.
Speaker Change: And so what we announced today.
Speaker Change: We will likely cut that in half by the end of 2025.
Mike Hsu: And so we've, we've, we've, over the past five years kind of worked, you know, significant, Nelson, you know, with an outside perspective has really, you know, worked hard to bring some different kinds of tools into our thinking. And so we have, you know, been applying that over the last couple years. And so, you know, we feel very good about that. You know, certainly, there is inherent volatility in our, in our, in our, in our business, certainly in pulp. One would think at some point with the, with the super cycle of inflation that we have on pulp, it's still elevated. And at some point, it needs to come back down.
Speaker Change: The thing I'll say is and it takes two parties to make a decision so I won't get into any specifics, but I would say.
Speaker Change: Our RM.
Speaker Change: As you think about what we say is <unk>.
Speaker Change: Science is our competitive advantage the investments, we're making in our new personal care core technology.
Speaker Change: That resides in our diapers and our feminine care pads in our adult care also to get to natural forest free all of that development. That's all going to take some pretty pretty chunky capital and so we are making significant technology and capacity investments and so we really want to be more choice full as we go forward about where we spend that capital.
Speaker Change: And so thats really kind of.
Speaker Change: Underlying some of that decision making.
Speaker Change: These decisions are going to enable us to focus our tech investment on what we see as our greater strategic priorities.
Mike Hsu: And so we would say it's going to come back down further. That said, I think we've built the right tools. And Nelson, you may comment about, you know, you know, what we're doing there. Sure thing.
Speaker Change: And I might note our exposure to private label.
Speaker Change: Could decrease further over time.
And just to add further color on what we would expect from a bottom line standpoint, Steve It should be consistent with what youre seeing in the top line.
Nelson Urdaneta: And just to build, I mean, the Integrated Margin Management Approach, Steve, that we've been working on for the last year or so, really addresses part of this volatility. It is end-to-end, as we chatted about on March 27th, and it looks at all the elements that drive total delivery cost as well as margin. And it starts with, we've been building muscle around revenue growth management. And that's very important.
Speaker Change: And then obviously, we're working through supply chain transition repurposing and related cost opportunities within the context of our whole network optimization initiative, which is one of our three strategies in the supply chain strategy that we unveiled at Investor Day, We will have more to say as we go into 2020.
Speaker Change: <unk> guidance period.
Speaker Change: Okay. That's good color. Thank you. Thank you both okay. Thanks ill take maybe one more question that would be great.
Nelson Urdaneta: Priceback architectures, what kind of pricebacks do we have for the different channels, and how do we tackle that, including promo activity, etc., which is very important across all the geographies we work in. Secondly, the tools that Mike was talking about on how we handle costs. We don't reveal what the contract structures that we have in place or the hedging activities are, but we obviously have gotten into much more proactive risk management to be able to have visibility into costs and give us time to react. And what do we react with?
Speaker Change: Certainly your next question is coming from Xavier Escalante from Evercore. Your line is live.
Unknown Attendee: Hey, how are you.
Unknown Attendee: Hello, Matt Yeah, good morning to everyone.
Unknown Attendee: I do have kind of like a quick clarification to Lauren's question first.
Unknown Attendee: Because he is in the context of.
Unknown Attendee: Guidance versus what is incremental in terms of the restructuring and whether the Simpsons to me from the outside.
Unknown Attendee: It's kind of I.
Nelson Urdaneta: We react with productivity initiatives and elements of revenue growth management. That's a big difference from how we were approaching it five years ago, and we've been building that muscle over time, and that then drives this visibility into productivity. [inaudible] Lower Total Deliver Costs, or at least managed through the margins. So yes, I'd say it's muscle we've been building over the last five years, as Mike said.
Unknown Attendee: Coming to do it earlier.
So basically the $120 million in savings that you flag are.
Unknown Attendee: Are they part of the 3 billion that you spoke of.
Speaker Change: A month ago or not and then we can address the other piece. If you don't mind, yes. The short answer Javier is yes. It is part we said that our new chapter started in Q1 of this year and Thats.
Nelson Urdaneta: And obviously, we're not going to be immune to moves in commodities. But the visibility we have today, and the ability to react is different than what we had in. Okay, that's very helpful. Um, and this, this answer to the next question may be short, if you've already addressed it, you can tell me to just go read the transcript afterwards. I joined late; I apologize. But, um, in the... We would never be that rude, Steve.
Part of the five years commitment to deliver that the 120 as part of that and then there is an element of procurement savings that we're not disclosing today, we are committed to disclosing the entire savings, including procurement annually. So that you get a perspective of how we're tracking against the $3 billion that we committed to.
So congratulations on that.
Speaker Change: They're very early start.
Speaker Change: Because you also see that the October the new organization is starting in October I thought that it would be something of a 2025.
Speaker Change: So if.
Stephen Robert R. Powers: In the prepared remarks, you mentioned, uh, private, you know, plans to exit some private label businesses. Um, I know those plans are still, you know, kind of under construction, but you did make mention of them with some impacts on 25. If you could, if there's anything further you can say on that, that'd be great. Thank you.
Speaker Change: Is that true right if savings have come in earlier.
Speaker Change: Why is it that the guidance and is it the other thing that I get from your.
Speaker Change: Your.
Speaker Change: Transcript.
Speaker Change: Prepared remarks is is that revenue realization.
Speaker Change: <unk> said you have faster.
Speaker Change: In your realizations from Forex right.
Speaker Change: Have faster savings coming from and they are sizable rise $3 billion.
Stephen Robert R. Powers: Okay. Just to be clear, Steve, that question was not asked. So it was a great question.
Coming from the restructuring.
Mike Hsu: Okay. All right. Uh, hey, just on that, yeah, I, I did want to flag that we are, you know, strategically, let me just tell you that we're focusing on differentiating our brands with proprietary science-based innovation. That was kind of a big theme that we shared with you all at our investor day. You know, just to give you some context today, our last year's private label production represented about 4% of our global sales.
Speaker Change: I understand that you wanted to be conservative but.
Speaker Change: If we take you literally the numbers for the violent something year needs to come down is that what you want in terms of.
Speaker Change: Consensus was to look like very simple.
Speaker Change: Well I'll just start.
Speaker Change: Javier I would say hey, we're still early in the year and we feel really good about our start.
Speaker Change: We feel very confident in our performance this year, but that said theres as Nelson pointed out in his remarks.
Speaker Change: In our prepared remarks, there is still a lot of uncertainty out in the world right now both in terms of the geopolitical situation.
Speaker Change: Effects that could have on.
Speaker Change: On a global demand, but also as you purchased in the last few questions on the input cost environment. So I, probably would say, yes were taken a were taken a.
Mike Hsu: And so what we announced today will likely cut that in half by the end of 2025. The thing I'll say is, and it takes two parties to make a decision, so I won't get into any specifics, but I would say, you know, our end, you know, is you think about what we say is, you know, science is our competitive advantage, the investments we're making in our new personal care core technology that resides in our diapers, in our feminine care pads, in our adult care. And so we really want to be more choiceful as we go forward about where we spend that capital. And so that's really kind of, you know, underlying some of that decision making.
Speaker Change: A prudent approach to make on our call, but certainly.
Speaker Change: Encouraged by our start to the year and would love to drive to a very strong result, this year, but nothing yes, and just to build on Mike's points of the year I mean, a couple of things we're focused obviously on margin trajectory over time.
Speaker Change: And margins will move quarter to quarter, and they have to do with country and category mix timing of our innovation pipeline as well as changes in absolute productivity delivery productivity delivery is not linear I mean, the timing of when projects come online and how quickly we can really.
Mike Hsu: You know, these decisions are going to enable us to focus our tech investment on what we see as our greater strategic priority. And I might note, our exposure to private label, you know, could decrease further. And just to add further color on what we would expect from a bottom line standpoint, Steve, it should be consistent with what you're seeing on the top line. And then, obviously, we're working through supply chain transition, repurposing, and related cost opportunities within the context of our whole network optimization initiative, which is one of our three strategies in the supply chain strategy that we unveiled at Investor Day. We will have more to say as we go into 2025 guidance. That's a good color.
Speaker Change: The benefits, we have an estimate but again you got to get them through we have a full outlook for the year and that's embedded there and were very.
Speaker Change: Encouraged by how the whole year started but we have a lot of activities still coming our way, including a very strong innovation pipeline for which we're going to be putting money.
Speaker Change: Money into the business, we're going to be stepping up investments at least 50 basis points for the balance of the year and if we see opportunities to invest more in the business and more in our transformation to accelerated we will so we're taking all that into account and also take into consideration the sale of our.
Speaker Change: PPE business, which we built into the forecast, which is about a headwind of <unk> <unk> for the balance of the second half of the year.
Speaker Change: Well I would take that as a conservative guidance. Thank you very much okay.
Stephen Robert R. Powers: Thank you. Thank you both. Okay, thank you.
Operator: If you could take maybe one more question. Sure. Your next question is coming from Xavier Escalante from Evercore. Your line is live. Javier, how are you?
Speaker Change: Thank you Javier thanks, Thanks Javier.
Speaker Change: Great well. Thank you everyone for joining us today for those of you have follow up questions.
Speaker Change: I assure you and myself will certainly be available for follow ups. So.
Unknown Attendee: Hey, Javier. Hello, man. Yeah, good morning, everyone. I do have kind of a quick clarification question for Lauren first, because she's in the context of... Guidance versus what is incremental in terms of the restructuring and whether it seems as if, from the outside, it is kind of like coming through earlier. So basically, the $120 million in savings that you flag, are they part of the $3 billion that you spoke of a month ago or not? And then we can address the other piece, if you don't mind. Yeah, the short answer, Javier, is yes, it is part.
Speaker Change: Thanks, again, and we look forward to.
Speaker Change: Seeing going forward.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.
Speaker Change: Okay.
Nelson Urdaneta: We said that our new chapter started in Q1 of this year, and that's part of the five-year commitment to deliver it. The $120 million is part of that.
Nelson Urdaneta: And then there's an element of procurement savings that we're not disclosing today. We are committed to disclosing the entire savings, including procurement, annually, so that you get a perspective of how we're tracking against the $3 billion that we can. So congratulations on the very early start, because I also see that the new organization is starting in October. I thought that it would be something in 2025.
Speaker Change: [music].
Unknown Attendee: So is that all true, right? If savings are coming through earlier, why is it that the guidance, and this is the other thing that I get from your transcript, prepared remarks, is that revenue realization is faster. So you have faster revenue realizations from Forex, right? You have faster savings coming in, and they are sizable, right?
Unknown Attendee: $3 billion coming from the restructuring. So I understand that you wanna be conservative, but if we take you literally, the numbers for the balance of the year need to come down. Is that what you want in terms of? Consensus to look like? Very simple.
Mike Hsu: I'll just start. Javier, I would say, hey, we're still early in the year, and we feel really good about our start. We feel very confident in our performance this year. But that said, as Nelson pointed out in his remarks and in our prepared remarks, there's still a lot of uncertainty out in the world right now, both in terms of the geopolitical situation and the effects that could have on global demand, but also, as you've heard just in the last few questions, on the input cost environment.
Mike Hsu: And so, yeah, I probably would say, yeah, we're taking a prudent approach to make on our call but certainly, you know, encouraged by our start to the year and, you know, would love to, you know, drive to a very strong result this year. But Nelson?
Nelson Urdaneta: Yeah, and just to build on Mike's point, Javier, I mean, a couple of things. We're focused, obviously, on margin trajectory, and margins will move quarter to quarter. And they have to do with country and category mix, timing of our innovation pipeline, as well as changes in absolute productivity. Productivity delivery is not linear. The timing of one project.
Nelson Urdaneta: Come online, and how quickly we can realize the benefits. We have an estimate, but again, you got to get them through. We have a full outlook for the year, and that's embedded there. And we're very encouraged by how the whole year started. But we have a lot of activities still coming our way, including a very strong innovation pipeline for which we're going to be putting back money into the business.
Nelson Urdaneta: We're going to be stepping up investments, by at least 50 basis points for the balance of the year. And if we see opportunities to invest more in the business and more in our transformation to accelerate it, we will. So we're taking all that into account and also taking into consideration the sale of our PPE business, which we've built into the forecast, which is about a headwind of $0.08 for the balance of the second half of the year. But I would take it that that is conservative guidance. Thank you very much.
Unknown Attendee: Okay. Thank you, Javier. Thanks, Javier.
Operator: Great. Well, thank you, everyone, for joining us today. For those of you who have follow-up questions, you know, Aishwarya and myself will certainly be available for follow-up. So thanks again, and we look forward to hearing from you. Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day.
Operator: Thank you for your participation. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good morning, everyone, and welcome to the Kimberly-Clark first quarter 2024 earnings call. At this time, all participants have been placed on a listen-only mode.
Christopher M. Jakubik: We will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Jakubik. Sir, the floor is yours.
Christopher M. Jakubik: Thank you. And hello, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark. And welcome to our Q&A session for our first quarter 2024 business update. During our remarks today, we will make some forward-looking statements that are based on how we see things today. However, actual results may differ due to risks and uncertainties, and these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures today, and these non-GAAP financial measures should not be considered a replacement for, and should be read together with, GAAP results. You can find the gap to non-gap reconciliations within our earnings release and the supplemental materials posted at Investor.
Mike Hsu: Kimberly-Clark.com. Before we begin, I'm going to hand it to our Chairman and CEO, Mike Hsu, for a few quick opening comments. Okay. Hey, before we get into the Q&A, I would like to start by saying thank you to all my colleagues at Kimberly-Clark who have worked really diligently over the past few years to build our strong foundation and to deliver these Q1 results that provide a very good start to our next chapter of growth. Our strategy to elevate our categories with breakthrough innovation and expand our markets is working. We are effectively navigating the ever-changing external dynamics of today's new normal while driving our consumer-centric culture.
Speaker Change: [music].
Good morning, everyone and welcome to the Kimberly Clark first quarter 2024 earnings call.
Speaker Change: At this time all participants have been placed on a listen only mode. We will open the floor for your questions and comments after the presentation. It.
Mike Hsu: We are making the company better, stronger, and faster. I'm very, very proud of our progress to date, and I'm confident that we're going to continue to leverage our core strengths to achieve our potential. We are on an exciting path and are well-positioned to deliver durable growth and sustainable shareholder returns. So with that, I'd like to open it up to your questions. Certainly. Everyone at this time will be conducting a question and answer session.
Speaker Change: It is now my pleasure to turn the floor over to your host Chrystia Koubek, Sir the floor is yours.
Chrystia Koubek: Thank you and Hello, everyone. This is Christian Kubik head of Investor Relations, Kimberly Clark and welcome to our Q&A session for our first quarter 2024 business update during our remarks today, we will make some forward looking statements that are based on how we see things today actual results may differ due to risks and uncertainties and these are discussed in our earnings release.
Mike Hsu: If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while you are posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
Chrystia Koubek: As in our filings with the SEC.
Chrystia Koubek: He will also discuss some non-GAAP financial measures today, and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results and you can find the GAAP to non-GAAP reconciliations within our earnings release and supplemental materials posted at Investor <unk>, Kimberly Clark Dot com.
Operator: Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Bonnie Herzog from Goldman Sachs. Your line is live. Morning, Bonnie. All right. Hi, Bonnie.
Chrystia Koubek: Before we begin I'm going to hand, it to our chairman and CEO, Mike <unk> for a few quick opening comments, okay. Thank you Chris.
Bonnie Lee Herzog: Good morning. I hope you're all well. First, I have a quick question on your guidance. You reported a better-than-expected Q1, so I'm curious to hear why you didn't pass through the full Q1 beat. And then also hoping, you know, for a little more color on the better-than-expected volume growth you saw in the quarter. You know, what were the key drivers behind this? And, you know, ultimately, how sustainable is this moving forward? And, you know, curious. Was there any pull forward, for instance, or should we expect to see continued volume improvements as the year progresses? Thank you. Yeah, Bonnie, maybe I'll start.
Mike: Before we get into the Q&A I would like to start by saying. Thank you to all my colleagues at Kimberly Clark, who work really diligently over the past few years to build our strong foundation and to deliver these Q1 results that provide a very good start to our next chapter of growth.
Mike: Our strategy to elevate our categories with breakthrough innovation and expand our markets is working.
Mike: We are effectively navigating the ever changing external dynamics are today's new normal while driving our consumer centric culture.
We are making the company better stronger and faster.
Mike: I am very very proud of our progress to date and I'm confident that we're going to continue to leverage our core strength to achieve our potential we are on an exciting path and are well positioned to deliver durable growth.
Mike Hsu: Nelson will talk about what we decided to pass through and our logic for that. But really, you know, I'm encouraged by a good start. You know, I think our organization is running very, very well in what we would call internally our new normal, right? And I think this is like the first year in a few that we've had kind of a stable business, despite a lot of the geopolitical things that are going on. So, you know, the underlying strength in the quarter was predicated on, you know, a couple of good fundamental factors. One, better volume, which you observed, and there was no pull forward. In fact, it was the opposite.
Speaker Change: And our sustainable shareholder returns so with that I'd like to open it up for your questions.
Speaker Change: Certainly everyone at this time 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 we're posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Your first question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.
Bonnie Lee Herzog: Alright Goodbye good morning, hope, you're all well.
Bonnie Lee Herzog: First I have a quick question on your guidance you reported a better than expected Q1. So I'm curious to hear why you didn't pass through the full Q1 beat.
Bonnie Lee Herzog: And also hoping for a little more color on the better than expected volume growth you saw in the quarter what were the key drivers behind this and ultimately how sustainable is this moving forward and just curious was there any pull forward for instance, or should we expect to see continued volume improvements as the year progresses. Thank you.
Mike Hsu: We had an inventory, retail inventory reduction in the quarter, but I think the volume, the inherent strength in the consumption kind of overshot, overcompensated for that. And so I think that was part of when also the market shares are moving kind of in the right direction. So I think we feel very good about the underlying volume and momentum in the business. And then on top of that, with a stable input cost environment, the productivity that was strong in the quarter tends to drop a little bit more through the bottom line.
Speaker Change: Yeah, Bonnie I'll, maybe I'll start and I also want to talk about what we decided to pass through in our logic for that but really.
Speaker Change: Encouraged with our a good start.
Speaker Change: Our organization is running very very well in what we would call internally, our new normal right and I think this is like the first year and a few that we've had kind of a stable business. Despite a lot of the geopolitical things that are going on so.
Speaker Change: The underlying strength in the quarter was predicated on a couple of good fundamental factors, one better volume, which you observed and there was no pull forward in fact, it was the opposite we had an inventory retail inventory reduction in the quarter, but kind of I think the volume the inherent strength of the consumption kind of overshot over compensated for that.
Mike Hsu: And so that's the underlying kind of driver of our strong Q1, and we feel really great about it. The team's done a great job, you know, operating. There are still a couple wars going on in the world, as you're well aware, Argentina's been very volatile, and our teams are doing a great job there.
Speaker Change: And so I think that was probably one also the market shares.
Nelson Urdaneta: So, you know, we feel like we're really running well in a new normal environment. Yeah, and just to add a few details on what happened in Q1, okay. So first, obviously very pleased with the start of the year, and Q1 was particularly strong as we saw significant benefits in China from our Chinese New Year execution, and particularly in March. I mean, the trends in the business continued, China grew volumes double-digit in the quarter.
Speaker Change: Moving kind of in the right direction. So I think we feel very good about the underlying volume momentum in the business and then on top of that then with a stable input cost environment. The productivity that were strong in the quarter tends to drop a little bit stronger through the bottom line and so that's the underlying kind of driver of our strong Q1, and we feel really great about.
Speaker Change: The team has done a great job.
Speaker Change: Operating Theres still a couple of wars going on in the world as you're well aware, Argentina has been very volatile and our teams are doing a great job there. So.
Speaker Change: We feel like we're really running well in a new normal environment Nelson.
Nelson Urdaneta: And in North America, in particular, as Mike said, while the trade destock happened, as we had projected back in January, and just for perspective, total company, that was around 80 basis points of growth. But we came in March and had a much better, you know, much better consumption in the month of March, which flowed through in the quarter.
Nelson: Yeah, and just to add a few details on what happened in Q1, Bonnie. So first obviously very pleased with the start of the year and Q1 was particularly strong as we saw a significant benefit in China.
Nelson: From our Chinese new year execution, and particularly in March I mean, the trends in the business continued China grew volumes double digit in the quarter.
Nelson: And in North America in particular, as Mike said, while the trade destock happened as we had projected back in January and just for perspective total company that was around 80 basis points of growth.
Nelson Urdaneta: So that was the other bit on volume as we thought about what happened and reconciled the numbers for the month. Having said that, as we look at what's going to happen in the balance of the year, a couple of things. One, as Mike said, we're cautiously optimistic. A few things that we're all aware of is that we still have geopolitical challenges underway, and we have begun to see...
Nelson: That still we came in March and had a much better much better consumption in the month in March which flowed through in the quarter. So that was the other bid on volume as we thought about what happened and reconciled the numbers for the quarter, having said that as we look at what's going to happen in the balance of the year Cup.
Nelson Urdaneta: Some of our commodities have begun to uptick. For Perspectives, in the first quarter, we've seen how the bulk and the fiber complex increased in the single digits in the first quarter sequentially versus Q4. For perspective, in the full year, we now expect commodities to be around, you know, the net input cost, the total basket to be around $200 billion. Transcripts provided by Transcription Outsourcing, LLC. in profit That's built into our outlook, but it is something that we that is new news for the outlook we provided back in January. And the other bit to keep in mind is that we will further step up investments as the year progresses. On a year-over-year basis, our advertising spend increased 50%.
Nelson: Full of things one as Mike said were cautious cautiously optimistic a few things that we're all aware of is we still have geopolitical challenges underway and we have begun to see some of our commodities begin to uptick just for perspective in the first quarter, we've seen how.
Nelson: Pulp and fiber complex has increased.
Nelson: In the single digits in the first quarter sequentially versus Q4 for.
Nelson: For perspective in the full year, we now expect commodities to be the net input cost the total basket to be around 200 and.
Nelson: $50 million inflationary. So we are taking that into account that's within the range that we provided back in January but it's still something that we're watching.
Nelson: Couple of other things to keep in mind is that as we head into the back half of the year, we expect to see about an <unk> <unk> headwind from the personal protective equipment divestiture.
Operator: That was largely in line with what we had in Q4, and what we said at the beginning of the year is that as our innovation pipeline builds up, and that's starting in Q2, we will further step up investments as the year progresses, and we expect it to be around another 15 years. All right, thank you.
Nelson: And profit that's built into our outlook, but that is something that we that is new news versus the outlook. We provided back in January.
Nelson: The other bit to keep in mind is we will further step up investments as the year progresses on a year over year basis, our advertising spend increased 50 basis points that was largely in line with what we had in Q4 and what we said at the beginning of the year is that as our innovation pipeline builds up.
Anna Jeanne Lizzul: Thank you. Your next question is coming from Anna Lizzul from Bank of America. Your line is live.
Anna Jeanne Lizzul: Hi, good morning, and thank you for the question. I was wondering if you could comment on market share. A competitor mentioned a misstep on their part with a lack of innovation at the lower end of the pricing ladder in toilet paper, which caused some pressure there, so I was wondering if that helped you to pick up market share.
Nelson: And that starting in Q2, we will further step up investments as the year progresses, and we expect it to be around another 50 basis points for the balance of the year.
Alright, thank you.
Speaker Change: Okay. Thanks Bonnie.
Speaker Change: Thank you your next questions come from Anna <unk> from Bank of America. Your line is live.
Mike Hsu: And if you can comment on how you're progressing in terms of market share, also on a weighted category basis, that would be helpful. And then, as a follow-up, volumes were clearly better than expected despite some retail inventory reductions in the quarter that you had anticipated for Q1. So I was just wondering to what extent this ended up impacting the quarter and how we should be thinking about it for the full year. Thank you. Okay, yeah, Anna, thanks for the question. Great question.
Anna: Hi, good morning, and thank you for the question.
Anna: I was wondering if you can comment on market share at competitor mentioned that.
Anna: SAP on their part with a lack of innovation at the lower end of the pricing ladder and toilet paper, which caused some pressure. There. So I was wondering if that helped you to pick up share and if you can comment on how you're progressing in terms of market share also want no weighted category basis that would be helpful.
Mike Hsu: You know, market share, I'm very encouraged. I think we've made very, very solid progress on overall market share. I expect further improvement as the year progresses. You know, overall in the quarter, we're up and even in just under 60% of our market category combination, although I would say also flat on a weighted basis, and we look at share in two ways on both metrics.
Anna: And then as a follow up volumes are clearly better than expected. Despite some retail inventory reductions in the quarter that you had anticipated for Q1. So I was just wondering to what extent that ended up impacting the quarter and how should we be thinking about it for the full year. Thank you.
Anna: Okay.
Speaker Change: Thanks for the question Great question market share.
Speaker Change: I'm very encouraged I think we've made very very solid progress on overall market share I expect further improvement as the year progresses.
Speaker Change: Overall in the quarter were up and even in just under 60% of our market category combinations.
Mike Hsu: Importantly, I'd say North America is improving. North America was up or even in six of eight categories. You know, we were soft in 2023, as you may recall. A lot of that was predicated on the severe supply constraints that we had last year. And so I think this was maybe the second quarter that we've had in a row of unconstrained supply. And I think that kind of performance reflects our ability to ship product and kind of restore promotion. Just for reference, CleanEx in the quarter was up 400 basis points on share or more than 400 basis points on share. You know, what drove it?
Speaker Change: Although I would say also flat on a weighted basis and we look at churn in two ways on both metrics.
Speaker Change: Importantly, I'd say North America improving.
Speaker Change: North America was up or even in six of eight categories.
Speaker Change: We are soft in 2023 as you may recall.
Speaker Change: A lot of that was predicated on.
Speaker Change: Severe supply constraints that we had last year and so I think this was like maybe the second quarter that we've had in a row of Arkansas.
Speaker Change: Unconstrained supply and I think that that kind of performance reflects our ability to ship product and kind of restore promotions just for reference.
Speaker Change: <unk> in the quarter was up 400 basis points on share or more than 400 basis points on share what drove it well we did have new social media campaign around cold flu and allergy season, which I think has been very very good but the other part is we restored merchandising, which we had been off from for several months and so so again I think our.
Mike Hsu: Well, we did a new social media campaign around cold, flu, and allergy season, which I think has been very, very good. But the other part is we restored merchandise, which we had been off from for several months. And so, you know, again, I think our merchandise, we still plan, you know, we're probably still underindexed versus the overall category.
Speaker Change: Our merchandising we still plan, we're probably still under index versus the the overall category.
Mike Hsu: Well, we're just kind of returning to kind of normalize merchandising behavior. So we feel good about our performance overall. And again, market share and other markets, like in China, we were up a couple hundred basis points on Huggies diapers and had a very, very strong Chinese New Year execution. So you know, volumes were up double digits against a category that was still down about 10% in China.
Speaker Change: We're just kind of returning to kind of normalize.
Speaker Change: Merchandising behavior. So so we feel good about our performance overall and again market share in other markets like in China. We were up a couple of couple of hundred basis points on Huggies diapers had a very very strong Chinese new year execution. So.
Speaker Change: <unk> were up double digit against the category that was still down about 10% in China. So so I think overall we're feeling.
Nelson Urdaneta: So I think overall, we're feeling, you know, very optimistic about the performance of the business and feel good about the volume. And just to build on Mike's point and to your question on what to expect in volumes for the balance, as we said in January, 2024 should mainly reflect the pacing of our innovation pipeline and in-market program. We still have...
Speaker Change: Optimistic about the performance of the business and feel good about the volume delivery of the business and.
Speaker Change: And just to build on.
Speaker Change: Mike's point and to your question on what to expect on volumes for the balance of the year.
Speaker Change: As we said in January 2024 should mainly reflect the pacing of our innovation pipeline and end market programming.
Speaker Change: We still have the innovation and a lot of programming coming into place as we go into Q2 and the second half of the year, Hence why from an overall perspective and volume plans, we don't see any changes versus what we had planned back in January.
Nelson Urdaneta: The innovation and a lot of the programming coming into place as we go into Q2 and the second half of the year. Hence why, from an overall perspective and volume plans, we don't see any changes versus what we had planned back in January and, you know, taking into account the volume over delivery that we had. Thank you. Very helpful. Okay. Thanks, Anna. Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live. Good morning, Lauren. Hi Lauren. Hey, good morning.
Speaker Change: And.
Speaker Change: Taken into account the volume over delivery that we had in Q1.
Speaker Change: Okay.
Speaker Change: Thank you very helpful. Okay. Thanks Ana.
Speaker Change: Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live.
Lauren Rae Lieberman: Hey, good morning, Hey, guys.
Lauren Rae Lieberman: Hey, guys. So the first thing I wanted to ask about was productivity. In the release or in the prepared remarks, you called out $120 million realized this quarter. And I'm just curious how to think about that in the context of the $3 billion in productivity and also $200 million in SG&A savings that you articulated at the investor day. So that's just my first question. Nelson will count us.
Lauren Rae Lieberman: So first thing I wanted to ask about was the productivity.
In the release or in the prepared remarks, you called out $120 million realized this quarter.
Lauren Rae Lieberman: I'm just curious how to think about that in the context of the $3 billion and productivity and also $200 million of SG&A savings that you articulated at the Investor day. So that's just my first question.
Nelson Urdaneta: I would say a good start and we're tracking well. Yep. And then just to give a little bit of color on the $3 billion and the $200 million, Lauren. So, you know, overall, first, it's based on the integrated margin management process that we unveiled at our investor day at the. This has really given us new enterprise-wide visibility, discipline, and accountability, end-to-end across the whole value chain. And really, it's about focusing on driving lower costs at a total delivery cost, which is a very different approach from what we had in the past, and we've been working on it for the last year or so.
Lauren Rae Lieberman: Nelson will comment on is I would say a good start and we're tracking well.
Nelson: Yes, and then to just to give a little bit of color on the $3 billion in the $200 million Lauren so.
Nelson: Overall first it's based on the integrated margin management process that we unveiled in our Investor day at the end of March.
Nelson: This has really given us a new enterprise wide visibility discipline accountability end to end across the whole value chain and really its about a focus on driving lower cost at a total to deliver cost which is a very different approach is what we had in the past and we've been working on it for them.
Nelson: Last year or so as you said, we had a strong start to the year on gross productivity I'll reiterate this is non procurement related savings and this is the $120 million that we talked about in the release and in our prepared remarks, and we also had additional savings that were.
Nelson Urdaneta: As you said, we had a strong start to the year on gross productivity. I'll reiterate, this is non-procurement-related savings, and this is the $120 million that we talked about in the release and in our prepared remarks. And we also had additional savings that were delivered from the procurement side of the house, and that's embedded in our net input costs, which again, we're not, you know, in net, not that much of a headwind in the first quarter because of all these efforts.
Nelson: Delivered from the procurement side of the house and Thats embedded in our net input costs, which again were.
Nelson: Net not that much of a headwind in the first quarter because of all these efforts as we think about the cadence and what we expect to have on the $3 billion. We're off to a good start on that number and we would expect that to be roughly.
Nelson Urdaneta: As we think about the cadence and what we expect to have on the $3 billion, we're off to a good start on that number, and we would expect that to be roughly about linear over the next few years as we deliver the whole $3 billion. In terms of the $200 million of SG&A savings, as a reminder, we will go live with a new operating model on October 1st of this year. So we don't expect much of that $200 million in savings in SG&A to materialize this year. That'll really come into play more in 2025 and 2035. But again, a really good start to the year in terms of productivity and procurement. Okay, that's awesome.
Nelson: <unk> linear over the next few years as we deliver the whole 3 billion in terms of the $200 million of SG&A savings as a reminder, we will go live with our new operating model on October <unk> of this year. So we don't expect much of that $200 million in savings in SG&A to materialize. This year that will really come.
Nelson: And to play more in 2025, and 2026, but again really good start to the year in productivity and procurement related savings.
Speaker Change: Okay. That's awesome, so just as a follow up.
Lauren Rae Lieberman: So just as a follow-up, on the SG&A side of things, what was interesting to see this quarter is that you saw pretty good operating leverage there. Because in the prepared remarks, you also called out a 50 basis point increase in advertising as a percentage of sales this quarter, which implies some pretty solid operating leverage on SG&A. And that's different than what we've seen in the last couple of years, I guess, frankly.
Speaker Change: On the SG&A side of things what was interesting to see this quarter is that you saw pretty good operating leverage there because in the prepared remarks that you've called out a 50 basis point increase in advertising.
Speaker Change: As a percentage of sales this quarter, which implies some pretty again like I said, all solid operating leverage on SG&A and that's different than what we've seen I guess the last couple of years frankly so.
Lauren Rae Lieberman: So, Where do you stand, let's call it, on sort of reinvestment? Because one of the things that struck me in some of my follow-up conversations with people at Investor Day was a lot of the things you talked about doing going forward. A lot of questions I got from people were like, well, why haven't they been doing it yet?
Speaker Change: Where do you stand let's call it on sort of reinvestment because one of the thing that struck me and for my follow up conversations with people at the Investor Day.
Speaker Change: A lot of the things you talked about doing going forward a lot of questions I got from people are like well why haven't they been dealing it yet.
Mike Hsu: And my thought was perhaps it's been about investing to get the capabilities to be able to do these things going forward. So is that a reasonable way of thinking about it? Is that reinvestment level kind of now, I don't want to call it complete, but like where it needs to be such that we should see operating leverage on SG&A, ex-advertising, even before you start to get some of that $200 million in savings in 2025 and 2026? Yeah, I mean, one. I'll start, Laura.
Speaker Change: My thought was perhaps it's been about investing to get the capabilities to be able to do these things going forward. So.
Speaker Change: Is that a reasonable way of thinking about it is that reinvestment level kind of know where call it complete but like where it needs to be such that we should see.
Speaker Change: Operating leverage on SG&A.
Speaker Change: Advertising.
Speaker Change: Before you start to get some of those that $200 million in savings in that 25% and 26, yes.
Speaker Change: I'll start Lauren.
Lauren Rae Lieberman: But one we feel great about our investments in advertising and I think work.
Mike Hsu: But one thing, we feel great about our investments in advertising, and I think we've made significant progress. I think we're up 200 to 300 basis points since I came into this role. However, I'd say we're probably still underspent relative to our peer set. And so do we need, and I think I said this on Investor Day, I don't know that we have to match them, but I would like to continue to increase our investment. I think you're exactly right on kind of, hey, well, there's two factors that kind of cause us to phase our investment. I would say, if you recall back in 2018, 2019, I did not
Lauren Rae Lieberman: We've made significant progress I think we're up to 300 basis points. Since I became came into this role. However, I would say, we're probably still understand relative to our peer set and so do we do we need I think I said this in Investor day, and I don't know that we have to match them right, but I.
Lauren Rae Lieberman: I would like to continue to increase our investment I think youre exactly right on.
Lauren Rae Lieberman: Well Theres two factors that kind of.
Lauren Rae Lieberman: Kind of causes to phase our investment I would say if you if you recall back in 2018 2019.