Q3 2024 Kimberly-Clark Corp Earnings Call - Q&A
Speaker Change: Greetings. Welcome to the Kimberly Clarks 3rd quarter, 2024, Question and Answer session. I will now turn the conference over to your host, Chris Jakubik, Vice President and Vesta Relations. You may begin.
Speaker Change: Thank you, and hello, everyone. This is Chris Jakubik, head of Global Investor Relations at Kimberley Clark, and welcome to our Q&A session for our third quarter 2024 Business Update.
Speaker Change: 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 in our filings with the FCC.
Speaker Change: We will also discuss the non-gap financial measures today. These non-gap financial measures should not be considered a replacement for, and should be read together with gap results. And you can find the GAP to non-gap for consultations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com.
Speaker Change: Before we begin, I'm going to hand it to our Chairman and CEO Mike Schu for a few quick opening comments. Thank you, Chris, and good morning, everyone. I want to let you know our team has made great strides advancing our power and care strategy, both through our confidence to deliver a above our long-term growth algorithm in 2024.
Speaker Change: To be global category leaders, we must lead growth in our categories, we're executing the making steady progress on our strategy to achieve this.
Speaker Change: We're driving consumption and growing our share across categories in markets, driven by our acceleration and innovation and enhanced commercial execution.
Speaker Change: Our productivity, spilling our investments in innovation, is a port-art growth initiative, while delivering our bottom line growth aspiration.
Speaker Change: We would achieve deep milestones and our transformation is on track with no disruptions.
Speaker Change: and notably on October 1, we successfully completed our new organizational structure to become a better, faster, and stronger organization.
Speaker Change: will rapidly transforming Kimberley Clark to thrive in an increasingly complex and competitive global environment.
Speaker Change: However, there are some discreet headwinds that we are creating pressures on growth in the near-term. And these include retail inventory reductions as a service levels improve, lower demand in private label businesses that we're exiting, and weaker than anticipated demand in North American professional channels, and some pockets of this celebration in Asian and Latin America.
Speaker Change: On the actions that we're taking as part of our transformation strategy, our positioning us to navigate a dynamic consumer and retail environment. Accelerate investments across the enterprise so that we can lead market growth and enhance the value of Kimberly Clark for all of our stakeholders.
Speaker Change: So with that I'd like to open it up for questions.
Speaker Change: Certainly, at this time, we will be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star one on your telephone keypad.
Speaker Change: Your first question for today is from Lauren Lieberman with Barclays.
Lauren Lieberman: Hey, good morning, so I wanted to just touch first on retail inventory because you had talked about before the quarter, you know, some expectation you were laughing some rebuild last year, but this has really been
Lauren Lieberman: I guess, a source of volatility. So, we've curious to be talking about kind of how you think about it, we're service level, dance day, and also, you, is there anything going on from a shelf-based?
Speaker Change: Shelf Space Stand Point, because again, the disconnecting shipment and consumption has been such a source of volatility. Thanks. Yeah, thanks, Lauren. Yeah, no disconnect from a shelving. I mean, we feel very good about our distribution growth.
Speaker Change: and scared count, you know, I think remains robust and you know, we have a great innovation pipeline that we're bringing in.
Speaker Change: that will continue to support that. So I would say the Retailment or Reluctions.
Speaker Change: You know, maybe a little localized us and do reflect as you point out, Lauren, reflect, you know, the supply challenge we had last year. Just to give you a little, you know, just to remind you, we had a packaging supplier that was down for several months last year that impacted most of our personal care brands in North America. So, and as we got back into supply,
Speaker Change: You know, I think we got fully back in a supply third quarter of last year and so you could see in that chart that we had in our presentation kind of a spike in inventories in the third quarter last year and we're cycling in that this quarter so I think that's really the
Speaker Change: You know, the overall driver. So, you know, between restocking last year, reductions this year in the hurricane.
Speaker Change: You know, we've seen about an 80 basis point, overall had went to global net sales year to date primarily in North America and I said that reflects, you know, I'd say an improving service environment from our side and potentially, you know, impact from higher financing costs for inventory.
Speaker Change: You know, at the end of a quarter I'd say retail inventory is look consistent to us with historical levels so hopefully I think we should be mostly through it.
Speaker Change: You know, but I would say, hey, you know, you are working through some dynamism in the environment and so we could still see some further reductions.
Speaker Change: You know, through the retail or fiscal year ends, which happened in Q3 of next year, so if that persists, you know, at several levels in Q4, you know, we could be closer to a 3% organic row for the full year.
Speaker Change: And a few things just to add on as we think about the inventory, the hurricane impacts and what we had in Q3 for.
Speaker Change: the quarter consumer off-date in North America is pretty strong, both in.
Speaker Change: Personal Care Consumer Fisher combined in group 3.2% so ahead of a category.
Speaker Change: and this can argue if you will, it's really with the shipments and that was impacted by a couple of factors, one transitory factors and that's the retail inventory changes, which again, we left the bill last year, we had a slide.
Speaker Change: Reduction and Inventories again in Q3 of this year, then we had the impact that are hurricane at the end of the quarter, with shipments out of the southeast, and then lastly some drops in private naval.
Speaker Change: Williams from both, this is as we're exiting as well as some of this lecture next year.
Speaker Change: The other big to take into account is there was some underlying demand weakness in professional and some international markets that might refer to, but the key is the shortfall in Q3 about two thirds is attributable to the transitory factors that I just referred to.
Speaker Change: and if you think about the North America, this is in particular.
Speaker Change: The combination of these two led to about a 280 basis point headwind in North America personal care, whereas in consumer issues that was around 350 basis points in consumer issues in North America. So overall that's how you would be able to bridge the two numbers.
Speaker Change: Okay, great. Thanks so much and I was just curious, just um...
Speaker Change: You know, in the Nielsen data for what it's worth, we've seen, you know, a surge in some of your categories in and around. Poor strikes, there's been questions around, you know, consumer takeaway ahead of the hurricane.
Speaker Change: Did you see that? Anything to just consider in terms of shipment dynamics and any, you know, things to think about for, for a four kill, no deal. Yeah, Laura, I would say, and we're not really expecting any benefit from any stock-up behavior by consumers, you know, and say, Yeah, we did see a little bit of it related to both the hurricane and hurricane.
Speaker Change: potentially the poor strike, you know, I'd say not meaningful at an enterprise level and, you know, you know, we would, you know, expect will kind of work through that in the quarter.
Lauren Lieberman: Okay, perfect. Thanks so much. Thanks Lauren. Thank you.
Speaker Change: Your next question is from Nick Modi with RBC Capital Markets.
Nick Modi: Morning, Nick. Morning. Morning, guys. So, Mike, maybe you can just talk about market shares in the release, you know, suggested things looked.
Nick Modi: Pretty good from that standpoint, so I wanted to kind of get your thoughts on that and just a competitive environment general, but just kind of...
Nick Modi: Tagging on to that on innovation. I mean, some of the data we've seen, you know, out of numerator on some of your innovation, like,
Nick Modi: Skin Essentials, with the objective of a very high cannibalization rate. And so I just wanted to get your thoughts on kind of how you think about...
Nick Modi: Innovation and the role it's going to play is this really about market share gains or is this about kind of expanding the value pool as you've been projecting with some of the price share opportunities that you have in the US and other markets.
Speaker Change: Okay, I'll try to answer all that Nick, because you'll have to steer me depending on how I answer, but I think the short answer is, hey, we're after growing our market shares overall, and we're after expanding the category, so it's both of those.
Speaker Change: I feel very good about the progress overall that we're making on Mark the Chair and for the quarter I think overall I think we're globally overall about flat on a weighted basis.
Speaker Change: and on a cohort basis, I'd say we've slightly more than half, which is an improvement versus this time of year ago, pretty significant improvement.
Speaker Change: Importantly, I think in the U.S. where we're making strong progress and so what we have at this script and thinking consumption consumption is very solid and we're up or even in seven of eight categories versus year ago and a quarter and eight to eight sequentially. So I think we're making good progress.
Speaker Change: on the market, and that's really driven by the strategy that we've been talking to all about Nick, which is, hey, we're investing.
Speaker Change: To make better products in pioneering innovation, you know, we're investing to improve our advertising and driving strong commercial activation and we're pulling all those lovers together.
Speaker Change: So I think your question on innovation is, you know, in overall, you know, as we look to, you know, primamize or, or drive trade-up on our categories.
Speaker Change: Obviously, our preferred path is to do that in a margin of creative way, right? So if you're driving premium innovation, that should be at a higher margin, you know, I'd say the overall goal is to delight the consumer in whatever way that we need to. And so, you know, in a lot of ways like skin essentials, I feel great about the product that delivers really great.
Speaker Change: Benefits from a skin care perspective, that's kind of a new feature in the category, and I'm excited that consumers can see that worth.
Speaker Change: Investing in, right? And so that's a great thing. But we also are focused on every tier on the good, better, best spectrum, right? And so we're going to bring cascading our innovation throughout all of our tiers to make all of our products better. And so the short answer, which may be frustrates some of my organization sometimes when they ask me, you know, what do you want? You know, do you want the trade-up or do you want the value? And I say yes, right? Because our job is to deliver across all tiers of that good, better, best spectrum. And so that's what we're going to do.
Speaker Change: Thanks so much, a person. Thanks, thanks.
Speaker Change: Your next question for today is from Anna Lizole with Bank of America.
Anna Lizole: Hi, what are you morning? Thank you so much for the question.
Anna Lizole: I was wondering if you could talk about the private label businesses, you did exit certain private label businesses, which impacted this quarter, so you could give us more detail on where you are now in that process, maybe what we should be expecting, moving forward and just how it says overall, helping you get to your longer term growth margin goal of at least 40% by 2030. Thank you. Yeah, thanks Anna. Yeah, I think the overall kind of
Speaker Change: You know, underlying strategy behind, you know, the private label, you know, shift for us is, you know, we're really focused on, you know, proprietary science-based innovation in right-to-way, when spaces and that's really behind our brands. So, I really want to focus our capacity and technology investment in the brands to drive further differentiation. And so, we've been moving out of some private label business for the past 18 months. [inaudible]
Speaker Change: You know, that has enabled us to step up our growth in our branded business, for example, Kleenex which was up almost 500 basis points in share of this quarter or last quarter. You know, that part of that is because we've been able to expand some of the capacity that we've had behind the brand.
Speaker Change: So I think that's been an important move. I think the last quarter and Q3, it's the first time that the exit combined with maybe some weaker private label sales that some customers was material enough for us to call out. And I think we noted that in our presentation. You know, I did highlight last quarter that in 2025 will cease production for a large club private label diaper business in the U.S. And that's going to create a headwind of about
Speaker Change: 2% for us next year and so as a result our private label mix will shrink from about 4% in 2023 to about 2% next year and I expect that to decline further over time.
Speaker Change: Your next question is from Bonnie Herzog with Goldman Sachs.
Bonnie Herzog: Good morning, Bonnie. Good morning.
Bonnie Herzog: The morning, I wanted to ask about your gross margin, which it's expanded meaningfully year to date and tracking ahead of pre-COVID levels.
Bonnie Herzog: Just wondering how we should think about the sustainability of these marginal levels, especially given the softer, organic sales and probably the possibility that promos need to step up, given pressures on the consumer and to limit downturning. I guess what's the right level of support you see from a benign input cost environment and considering also your ongoing productivity savings. Thank you. Thank you.
Speaker Change: Yeah, so a few things, Bonnie, overall, we're pretty pleased with the trajectory of our gross margins operating profit margins and more importantly, gross margin dollars. I mean that's our focus at the end of the day because that's what really funds our ability to invest in the business, invest behind the brands, and drive the sustainable innovation that we've been putting in the marketplace which Mike was just talking about. [inaudible] I'm sorry, I'm sorry
Speaker Change: For the year, what we've seen is we're right around an average of 37% gross margin, which is a pretty healthy gain and we've been doing consistently for the last eight quarters or so, gain some gross margin quarter after quarter year over year. And we still expect as we exit the year to continue to have gains on gross margin on a year over year basis.
Speaker Change: A few things that's played out in terms of what's driving the gross margin and why we still have strong confidence in our ability to get to our...
Speaker Change: Long-term state of goal of at least 40% gross margin or operating margin in the range of 18 to 20% before the end of the decade.
Speaker Change: and what's playing out is following. One is, first and foremost, our focus on driving meaningful innovation and focus on...
Speaker Change: making it a creative to overall margins. Secondly, is our shift.
Speaker Change: The really managing our cost basket in a different way than what we did say three or four years ago. We're much more proactive around risk management strategies. We look at the cost basket overall and that allows us to have more visibility into what's coming our way so we can react appropriately.
Speaker Change: The third element, and it's been playing out very well this year, and it's part of our power and care strategy. These are transformation and supply chain.
Speaker Change: We've delivered very strong productivity through the first three quarters of the year. We're...
Speaker Change: This past quarter, 130 million, and that's just in our gross productivity from manufacturing and supply chain, not including procurement, and we have a very strong pipeline going forward as part of our power and care strategy over the next few years, as we...
Speaker Change: really get underway to deliver that 3 billion. So we see that as a very sustainable over time. A key point that they can do a calendar is margin progression is not linear.
Speaker Change: So there will be ups and downs, quarter to quarter. The important thing is what's happening from a year to year basis and over time.
Speaker Change: So overall, very pleased where we stand right now. We obviously from a cross-basket that was part of your question. Right now, we are still staring at about the same number that we had.
Speaker Change: Provided as an outlook at the beginning of the year, we've seen a bit of an uptick on cost in Q3, but that's exactly in line with what we had projected. And we expect Q4 to kind of have the same...
Speaker Change: and trajectory that we have seen in Q3, so no change at this stage versus over-saint. And Bonnie, maybe it's just on pricing or the motion environment. I'll just say, you know, the overall, you know, we're really focused right now on volume and mixed-driven organic growth.
Speaker Change: and to do that, you know, I think we're also very focused on driving what we call pinaka, price net of commodity.
Speaker Change: Discipline, right? And so, you know, and the magic of that is if we had that discipline on Peanock, then, you know, the productivity kind of drives the margin out expansion on its own.
Speaker Change: But you know, I would say overall, pricing to offset cost inflation is receding as we had planned throughout the year. You know, we really want to be, as I just mentioned earlier, you know, better value at every run of a good, better best ladder.
Speaker Change: and so are focused on building the brands with innovation.
Speaker Change: World-class advertising or storytelling in our vernacular and really strong commercial execution. That's kind of how we want to play it. I would say, we do use promotion and but primarily at a trial driver with our pioneering innovation. That's how we think about it.
Speaker Change: The next question is from Chris Carey with Wells Fargo's Securities.
Speaker Change: Egress Echrist,
Chris Carey: Hey everyone, so I just have a question about...
Chris Carey: You know, the new organizational structure and category growth, and I'm going to sneak one in on just a Q4 operating profit expectation.
Chris Carey: So regarding the...
Chris Carey: You know, there's a new organizational structure that you haven't placed at the October 1st.
Chris Carey: You also have an expectation for category growth.
Chris Carey: to discellerate, or at least to be the lower end of your long-term range, I think I saw that in the, in the prepared remarks.
Chris Carey: and so...
Chris Carey: How do these two things fit together, right? So, you know, the outlook for Q4 is, I think, similar to...
Chris Carey: Q3, so maybe even a bit below that global category growth rate and yet you have the new organization in place. How long before this organization is really driving the outcomes that you're looking for and specifically with an eye on on 2025 where perhaps you'll have a little bit less pricing than you've had this year and where those organizational changes are going to be an important part of driving organic sales growth next year and I just wonder how you see that kind of top-line trajectory coming together. And if I could just sneak in on Q4, but is the operating cross rate being muted in Q4?
Chris Carey: for, is that really a discretionary decision behind investment? Should we be expecting— [inaudible]
Chris Carey: some narrowing of gross margin performance. How would you characterize the relative differences between Q4 and gross margin, and just the certain thing that you're being a bit more offensive about from an investment standpoint? So thanks so much.
Speaker Change: Okay, Chris, you're up early. There's a lot of questions I'm tackling there, so just steer me, steer us around if we're...
Speaker Change: If you forget to address something, but one out, I will say I'm really pleased with the progress.
Speaker Change: that our organization is making and implementing our wire for growth organization. And we've been operating that as we said in October 1 officially, the truth behind that is we've been doing that on an informal basis earlier. So I think it's gone off very, very well and we're starting to see the benefits of kind of moving in that structure. I'll hit on the categories...
Speaker Change: You know, I'd say, hey, the overall categories remain resilient. You know, underlying category growth, I think Chris remains very healthy.
Speaker Change: Consumer Interest in Better Performing Products remains healthy, especially in the developed markets, but in developing and emerging.
Speaker Change: Markets as well.
Speaker Change: You know, we're still very mindful about affordability.
Speaker Change: and our need to strengthen our brand value propositions.
Speaker Change: So, you know, I'd say the overall the categories are growing in dollars and units.
Speaker Change: You know, the underlying demand drivers remain healthy and that includes penetration, which I think overall is stable and, you know, long term for us remains a big opportunity. You know, we are seeing in some markets like lower bursts as you're well aware of like in South Korea and China, but that has tempered.
Speaker Change: and slow down, the kind in the birth rate have slow down. I'd say they actually have trot.
Speaker Change: and so, you know, and our businesses are still performing well in that kind of environment.
Speaker Change: We have a lot of markets with categories.
Speaker Change: that still remain at the very early stages of development across developing an emerging markets and then, of course,
Speaker Change: This aging population is a strong tailwind for our adult care business across developed markets. So I think penetration, I think it's a good story. Trade up remains a big driver of the category, especially in developed markets, but even including developing emerging markets. And we're still seeing the demand for premium products.
Speaker Change: continue to grow both in the U.S. and developing emerging markets.
Speaker Change: I think frequency is where we see typically some softness right now, typically in a top for economic environments, consumers and some markets.
Speaker Change: notably like in Latin American Southeast Asia, tend to spread a stretch out there. There are money a little bit by using the products for a little bit longer duration.
Speaker Change: and so we are seeing a little bit of softness.
Speaker Change: in Latin American Southeast Asia.
Speaker Change: and in addition, I think we mentioned in our presentation, we're seeing some traffic slow down in our North American professional businesses. So as a result, I think our full year waited category growth.
Speaker Change: is likely to be closer to 2% versus the 2-3 range that we had highlighted previously. That said, I'd say we remain on algorithm. Of course, our goal is to lead category growth, which we will continue to do, we think. And then, you know, as we're flat to slightly up on share across our businesses globally this year.
Speaker Change: Organic growth has come down as expected. For the quarter we were only 1% pricing, but if you go back to Q1 that was 4. So it's been coming down and we expect that to pretty much be the case as the year closes also because pricing and eye-print-finitionary economies has been coming down. The other bit is that it's also having an incidence on the category growth. While VQ has remained healthy, et cetera, we're seeing that pricing and you're seeing an Nielsen data is also coming down and that's having an impact on what you see in overall category growth rates. So that's something we expect to have. But overall the key element is
Speaker Change: As we said at our investor day, this new phase is really about volume mixed lead growth and that's what we expect for Q4. If you look at our outlook for Q4, the implication of what we're stating is that we do expect our top line for Q4 to be actually stronger than what we saw on Q3, once we normalize for the trans story factors that we saw. And again, there could be one-offs, we can't predict what we don't control, but based on what we know, we'd expect that to happen on the top line.
Speaker Change: in terms of the gross margin for Q4 a few things.
Speaker Change: We are stepping up investments behind our brands and our platforms.
Speaker Change: We saw that play out in Q3, as we had signaled in July, we stepped up advertising stand by 60 basis points, we expect.
Speaker Change: the step of advertising and brand support.
Speaker Change: by at least that amount in Q4. So...
Speaker Change: The combination of the two should be north of seven percent, so that's one element to be taken into account.
Speaker Change: Secondly, there are some discretionary costs that we expect to hit the RPML in Q4.
Speaker Change: And last but not least is, we had indicated back in January out of our bucket of input cost inflation, including currency because of the timing of some of the pricing actions in hyperinflationary economies last year and how these costs would flow in. We would be more back half floated, that played out in Q3, that will play out in Q4.
Speaker Change: That overall, the key thing is we are making year-on-year strong progress on margins and we expect the continued to do that over time.
Speaker Change: What do we miss, Christina?
Christina: Your next question for today is from Kevin Grundy with B&P Parabas.
Speaker Change: Hey Kevin, hey Kevin. Hey, hey morning guys, morning Mike, morning Nelson. Question for you on, um, as the follow up on first this question, a bit of a different angle though. Um, just as it pertains to visibility on results.
Speaker Change: sort of amidst, Michael, this organizational change that you've kind of been pushing through in what is still a pretty dynamic environment. So I asked that in the context, you know, the quarter fell a bit short of your own internal expectations in the street. Some of these factors evolved throughout the quarter. There's something like the inventory bill was known. You know, when you're speaking with the street is recently as early September . It didn't sound some of these factors were really being amplified, such that, you know, the street was kind of braced for the magnitude of it. You know, it's been a while. It's been a while. It's been a while. It's been a while.
Speaker Change: So I can appreciate the volatility of the environment, Nelson, your point and what the organization has done around productivity and visibility there further down the P&L, certainly well taken. But my question for both of you really kind of speaks to the visibility you have as you're sort of contending with all of this organizational change.
Speaker Change: and why investors should not be concerned that this is really kind of a setback quarter in terms of the visibility that you're conveying in the guides to the street. So thanks for all that.
Speaker Change: Yeah, I think I'll start Kevin with, you know, one I'm really, really pleased with the strong execution globally that we have from the team around the world
Speaker Change: You know, overall I'd say, you know, I'm really...
Speaker Change: Please, that we are managing the controllables very very well. I think what happened in the quarter, you know, I would certainly, I think you understand on the retail inventory.
Speaker Change: You know.
Speaker Change: Very certainly to be a transitory impact. You know, I do think part of it is, you know, we're reacting to evolving market conditions. And so we're, we start to see a little softness in Southeast Asia and in Latin America. And as we, as we enter in our professional business.
Speaker Change: I think, you know, for us, you know, the opportunity to, you know, we have good visibility on it. I think the organizational change.
Speaker Change: has gone very, very well. We've been operating, I would say, in our words, internally, a soft, a soft, reworked condition, you know, for the past six months. And so I think we have pretty good visibility and operationally.
Speaker Change: and importantly, you know, management in the markets, you know, that running the businesses has not changed significantly. So I think that should give us...
Speaker Change: you know, we're investors comfort there.
Speaker Change: I think what we are, you know, calling out is, though, there is some softness and some markets that we're all aware of, you know, some of that is certainly category conditions are the things that we could be doing better from a product perspective or a marketing perspective sure. And so I think the thing I like about our rewiring, you know, for growth is it's, it's creating more visibility into the big markets that make the biggest impact. And that's, you know, international personal care for us. North America and some are a big consumer tissue markets.
Speaker Change: And so we're able, I would say, to diagnose what's going on and respond much quicker, and some of the areas that we have opportunity to work on harder, or co-tex in China, even though it was up slightly on share in the quarter, it's softened a little bit, our Femte Air business in Brazil similarly. That tissue in South Korea was a little soft in the quarter. One of the things that, the reasons why we saw a little bit of a slowdown in Korea in the quarter was [inaudible]
Speaker Change: You know, we have been growing multiple share points that all said some of the category conditions and now that, you know, we're only growing, you know, a little bit of share, or, you know, you know, say a hundred-based points of share rather than three hundred, you know, that, that float on the category growth hits home a little bit harder.
Speaker Change: So I think we have some opportunity there, and then lastly, you know, Huggies and parts of Latin America, you know, I think we do have some product improvement opportunities.
Speaker Change: which we're all over. And so, again, I feel good about the visibility and I feel good about where we are in the reorganization, but Nelson Urdaneta. Yeah, so just to add...
Nelson Urdaneta: Kevin, a few things. One, we will remain, and we've been instilling a lot of discipline in the business around our approach to volume, consumption, and how we...
Nelson Urdaneta: Manage on that end, so we will remain.
Nelson Urdaneta: Step Fast on Who.
Nelson Urdaneta: The role that promotions play, and we're not going to be chasing volume, we're going to be chasing consumption and that's what we're doing. We're pleased with the fact that in North America consumption remains strong. Again, there's a disconnect between shipments and consumption and there are elements there that we can't predict on a month-to-month basis because they just happen. Our focus and our discipline has also remained around how we manage bottom line overall profitability of the business to be able to generate the fuel to invest back in the business. Our performance has been strong on that end. And again, we're getting...
Nelson Urdaneta: Better by the day as we execute our teams, you know, I've been going through a lot of change over the next, over the last few months and we're very proud of what they've accomplished and how they're looking at what we're going to be doing over the next few years as we carry out our power and care transformation. So overall, you know, we'll manage through the next few quarters and there'll be market dynamics, but ultimately our objective is to lead category growth in a profitable and sustainable manner. And that's what we're setting the organization to do.
Speaker Change: Your final question is from heavier escalante with ever core ISI.
Speaker Change: Good morning, I'll be here. Hi, hello guys. Good morning everyone.
Speaker Change: I'm going to revisit some of the items this caused in a way that I think that it may be simpler because there is a lot of moving pieces. So stay kind of like external issues versus internal factors. So the external one, the bigger one is this inventory is stopping is not just you, you know, we have been talking about this with other. Okay.
Speaker Change: With some of your peers, if you can talk about what's driving it, is it?
Speaker Change: Is it just mechanics of private, is it?
Speaker Change: Shift to e-commerce that they are using the stores differently and if you can basically say, I think that you heard that it was 80 basis points on a year-to-day basis. You can just simply tell us what was the impact on Q3.
Speaker Change: So that's the personality.
Speaker Change: Can I, I'll wait, but I, I would like to go more into the internal key
Speaker Change: which to me is more interesting. So if you can address that and then give me a minute for the internal question. So Abou, let me reconcile the numbers for you just to give the sense of what's that 80 basis point on Q3 and you can get to that and say but as you state I mean there are externalities inventory movements we had a bill last year especially particularly in Q3 as there's a light chain normalized in the U.S. and then we had a bit of more destock in Q3 following what had happened in Q1 and Q2 of this year. We also have the hurricane impact at the very end of...
Speaker Change: The Quarter will ask 3-4 days of shipments, and then the other element was the private label shipments. I mean, we exceeded some contracts, and then on top of that we had software demand in other private label that materialized at the end of September.
Speaker Change: Those three elements that we've called that offer for a two as trans-story factors.
Speaker Change: added to a slightly north of one point of growth in the quarter, so roughly 1.3 points if you want me to round it to be exact.
Speaker Change: Act, that's what that drove for the enterprise.
Speaker Change: Over all in growth.
Speaker Change: That's the 80-bip's give-or-take that might refer to for the year.
Speaker Change: If you had all that. Yes, so basically the re-requestance is the following, right? So you basically you're doing a lot.
Speaker Change: This is a highly decentralized company, but at the same time the categories are roughly the same.
Speaker Change: So basically you are...
Speaker Change: Yenow.
Speaker Change: RIPP.
Speaker Change: Movie the way from Pirate Babel so if you can tell us.
Speaker Change: How you are in that process again, so what was your, at the beginning of the year?
Speaker Change: You're what percentage of global sales wearing private label, where they are now, what is the plan for next year? Because there is the in bending exit of a private label business that is two points.
Speaker Change: coming into 2024, I suppose you can.
Speaker Change: playing that, you know.
Speaker Change: Afanite Malone
Speaker Change: So then, if you... if you... there is...
Speaker Change: There is the implementation of for Hassanat to what extent.
Speaker Change: That had an impact or give you more visibilities so you can guide better going into next year.
Speaker Change: And there is another item that came out in Newspotten.
Speaker Change: in terms of you guys being evaluating.
Speaker Change: Institute of the Acoptions for...
Speaker Change: The International D-Sue and Professional Businesses, which in my math is about 7% of the profits.
Speaker Change: So...
Speaker Change: You seem to be doing a lot, very at the same time, so tell us how the organization is responding. Do you have the system to manage this, so you can control the volatility going forward. Thank you.
Speaker Change: Yeah, I think I'll start maybe, and you know, as I said, I think we've been very pleased with the organization's response to the reorganization.
Speaker Change: and Javier, as I mentioned, we built a switch on the new operating model or new operating infrastructure up over one.
Speaker Change: But the reality is, we have been running in a kind of a soft mode for several months leading up to it. And the reality is, what's happening in each of the markets, you know, we haven't changed management significantly in any of the local markets that kind of deliver the P&L. And so, you know, our expectation would there be little disruption. [inaudible]
Speaker Change: and in my mind there hasn't been very much disruption at all. So again, I think we feel very good about how the organization is proceeding and our visibility into kind of looking at the business remains.
Speaker Change: remains very, very good. I say in the private label, again, I think I mentioned earlier, you know, this year it will be about 4% of our overall sales of the company. Next year after the exit it will be about 2% private label and then our plans would be, you know, probably work our way down from there. So, you know, so that's that part. I forgot what the
Speaker Change: What, what also do you want to explore on that?
Speaker Change: We got a question on S4, have you? So, we uh...
Speaker Change: and go ahead and actually the question is more about...
Speaker Change: You know, whether for Hazana will give you the capacity to...
Speaker Change: to basically better for CDs, volatility, because there is this news item about you guys looking for a strategic option for.
Speaker Change: for Davis, or I don't know whether he is, but International T-Shroom Provisness, which is about 7% of profit. First, Lohar, since you opened the door at my DTS, my Digital Technology Service Organization will be really missing me if I don't compliment them, but we did flip the switch on our North American S-4HANA implementation.
Speaker Change: at the end of July . Actually, the weekend before the earnings call last quarter, and contrary to what most experiences are, nobody noticed. Other than it was easier to run. And so I think our organization has done a great job. I think actually the vendor who provides the software wants to meet with us to see how did we pull that off without any slippage. So I think we've done a very good job there. [inaudible]
Speaker Change: and so, you know.
Speaker Change: From that perspective, you know, I think, again, the organization I think continues to perform extremely, extremely well.
Speaker Change: You know, with regards to your questions on international, family care and professional.
Speaker Change: and I'd say, you know, we're taking important steps to make that a more robust and predictable contributor to growth.
Speaker Change: and returns for us. And, you know, for me, obviously as a matter of fact, I'm not going to comment on news articles or rumors and I'll let you know when I think there's something that you need to know. But we like the categories that we're in, we believe we can add a lot more value, you know, to our categories, our consumers and our customers.
Speaker Change: That said, Javier, I think you'll also recognize that, you know, in places where we don't feel like we have a right to win in the long term we'll look to optimize our participation in those assets, you know, and, you know, the example that I think you and I have discussed is in Brazil where we saw some structural factors that made it difficult for us to compete. On the consumer tissue side of the business, due to some, I would say some government incentives that we couldn't access that made the category more difficult to compete in. And, you know, we made a different decision that I think was a very good one for the company. And so, you know, I think we'll continue to make those tough decisions, but, you know, again, I think we'll let you know if there's anything to think about regarding the tissue business.
Speaker Change: Thank you very much, guys. Okay, thank you all here. Well, thanks everybody for joining us today and for anybody who has follow questions, you know, investor relations will be around to take a course. So thanks very much and have a great day.
Speaker Change: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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Speaker Change: Greetings. Welcome to the Kimberly Clarks 3rd quarter 2024 Question and Answer session. I will now turn the conference over to your host, Chris Jakubik, Vice President and Vesta Relations. You may begin.
Speaker Change: Thank you, and hello, everyone. This is Christina Kivik, head of Global Investor Relations at Kimberly Clark, and welcome to our Q&A session for our third quarter 2024 Business Update.
Speaker Change: 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 in our filings with the SEC.
Speaker Change: We will also discuss some non-gap financial measures today. These non-gap financial measures should not be considered a replacement for, and should be read together with gap results. And you can find the gap to non-gap for consultations within our earnings release and the supplemental materials posted at investor.com.
Speaker Change: Before we begin, I'm going to hand it to our chairman of CEO Mike Hsu for a few quick opening comments. Thank you Chris and good morning everyone. I want to let you know our team has made great strides advancing our power and care strategy bolstering our confidence to deliver above our long-term growth algorithm in 2024.
Speaker Change: To be global category leaders, we must lead growth in our categories, we're executing the making steady progress on our strategy to achieve this.
Speaker Change: We're driving consumption and growing our share across categories in markets, driven by our acceleration and innovation and enhanced commercial execution.
Speaker Change: Our Productivity, Spreling Art Investments and Innovation, is a Porter growth initiative while delivering our bottom line growth aspiration.
Speaker Change: We would keep milestones and our transformation is on track with no disruptions.
Speaker Change: and notably October 1, we successfully completed our new organizational structure to become a better, faster, and stronger organization.
Speaker Change: We're rapidly transforming Kimberley Clark to thrive in an increasingly complex and competitive global environment. However, there are some discrete headwinds that we are creating pressures on growth in the near-term. And these include retail inventory reductions as a service levels improve, lower demand in private label businesses that we're exiting, and weaker than anticipated demand in North American professional channels, and some pockets of this celebration in Asian and Latin America.
Speaker Change: When the actions that we're taking as part of our transformation strategy are positioning us to navigate a dynamic consumer and retail environment, accelerate investments across the enterprise so that we can lead market growth and enhance the value of Kimberly Clark for all of our stakeholders. So with that, I'd like to open it up for questions.
Speaker Change: Your first question for today is from Lauren Lieberman with Barclays.
Lauren Lieberman: Hey, morning and warm. Hey, good morning. Hey, good morning. So I wanted to just touch first on retail in Ventory, because you had talked about before the quarter, you know, some expectation you were laughing, some rebuild last year, but this has really been, I guess, a source of volatility. So with curious if you talk about kind of how you think about it, where service level stands there. And also, you know, is there anything going on from a shelf? Okay.
Speaker Change: Shelf Space Stand Point, because again, the disconnect between shipments and consumption has been such a source of volatility. Yeah, thanks, Lauren. Yeah, no disconnect from a shelving. I mean, we feel very good about our distribution growth.
Speaker Change: and Scoot Count. I think remains robust, and we have a great innovation pipeline that we're bringing in that will continue to support that. So I would say the retail inventory reductions, they may be a little localized to us and do reflect as you point out, Lauren. The supply challenge we had last year, just to remind you, we had a packaging supplier that was down for a couple months last year that impacted most of our personal care brands in North America. So...
Speaker Change: And as we got back into supply, I think we got fully back into supply third quarter of last year and so you could see in that chart that we had in our presentation, kind of a spike in inventories in the third quarter last year and we're cycling that this quarter. So I think that's really the overall driver. So between respocking last year, reductions this year in the hurricane. Okay.
Speaker Change: You know, we've seen about an 80 basis point overall had when the global net sales year to date primarily in North America and I said that reflects, you know, I'd say an improving service environment from our side and potentially, you know, impact from higher financing costs for inventory.
Speaker Change: You know, at the end of a quarter, I'd say retail inventories look consistent to us with historical level. So, you know, hopefully I think we should be mostly through it. You know, but I would say, hey, you are working through some, you know, some dynamism in the environment. And so we could still see some further reductions. [inaudible]
Speaker Change: You know, through the retail or fiscal year ends, which happened in Q3 of next year. So if that persists, you know, at similar levels in Q4, you know, we could be closer to a 3% organic growth for the full year. [inaudible]
Speaker Change: Yeah, and a few things just to add on as we think about the inventory, the hurricane impacts, and what we had in Q3, Lauren. The quarter consumer off-take in North America is pretty strong, both in personal care consumer tissue combined. It grew 3.2%, so ahead of the category. And the, you know, the disconnect if you will is really with the shipments. And that was impacted by a couple of factors. One transitory factors, and that's the retail inventory changes, which again, we lapped a bill last year, we had a slide.
Speaker Change: Reduction in Inventories, again in Q3 of this year, then we had the impact of the hurricane at the end of the quarter, which shipments out of the southeast, and then lastly some drops in private label volumes from both businesses we're exiting as well as some businesses we'll actually next year. The third is attributable to the transitory factors that I just referred to.
Speaker Change: and if you think about the North America business in particular, the combination of these two led to about a 280 basis point headwind in North America personal care, whereas in consumer tissue that was around 350 basis points in consumer tissue in North America. So so overall that's how you would be able to bridge the two numbers.
Speaker Change: Oh, okay, great. Thanks so much and I was just curious just, um...
Speaker Change: In the Nielsen data, for what it's worth, we've seen a surge in some of your categories in and around court strikes. There's been questions around consumer takeaway ahead of the hurricane. So, did you see that anything to just consider in terms of shipment dynamics and any things to think about for a full queue? I would say we're not really expecting any benefit from any stock up behavior by consumers. I'd say we did see a little bit of it related to both the hurricane and potentially the poor strike. I'd say not meaningful at an enterprise level and we would expect we'll kind of work through that in the quarter.
Lauren Lieberman: Okay, perfect. Thanks so much. Thanks Lauren. Thank you.
Speaker Change: Your next question is from Nick Modi with RBC Capital Markets.
Nick Modi: Morning, Nick. Hey, Nick. Morning. Morning, guys. So, Mike, maybe you can just talk about market shares, you know, in the release you, you know suggested things looked. [inaudible]
Nick Modi: Pretty good from that standpoint, so I wanted to kind of get your thoughts on that and just a competitive environment general, but just kind of...
Speaker Change: Tagging on to that on innovation. I mean, some of the data we've seen, you know, out of numerator on some of your innovation, like,
Speaker Change: Skin Essentials, with suggestive, a very high cannibalization rate. And so I just wanted to get your thoughts on kind of how you think about, you know, innovation and the role it's going to play. Is this really about market share gains or is this about kind of expanding the value pool as you've been suggesting with some of the price share opportunities that you have in the US and other markets. [inaudible]
Speaker Change: Okay, I'll try to answer all that Nick because you may have to steer me depending on how I answer but I think the short answer is hey we're after growing our market shares overall and we're after expanding the category so it's both of those. I feel very good about the progress overall that we're making on market share and for the quarter. I think we're globally overall about flat on a weighted basis.
Speaker Change: and you know on a cohort basis you know I'd say we've slightly more than half.
Speaker Change: which is an improvement versus this time of year ago, pretty significant improvement.
Speaker Change: Importantly, I think in the U.S. where we're making strong progress and so what we have at the script and scene consumption consumption is very solid and we're up or even in seven of eight categories versus you're going to quarter and eight of eight sequentially. So I think we're making good progress.
Speaker Change: on the market, and that's really driven by, you know, the strategy that we've been talking to you all about Nick, which is, hey, we're investing.
Speaker Change: to make better products in pioneering innovation. You know, we're investing to improve our advertising and driving strong commercial activation and we're pulling all those levers together. So I think your question on innovation is, you know, overall, you know, as we look to, you know, primimize or drive trade up on our categories, obviously our purpose for our path is to do that in a margin a creative way, right? And so if you're driving premium innovation, that should be an higher margin. You know, I'd say the overall goal is to delight the consumer in whatever way that we need to. And so, you know, you know, in a lot of ways like skin essentials, I feel great about the product that delivers really great.