Q1 2025 Kimberly-Clark Corp Earnings Call
How is Jakubik exactly? Do you remember? Thumbs Up? Declines? Thumbs Down
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Speaker Change: Good morning and welcome to the Kimberly Clark First Quarter 2025 earnings call question and answer session. I will now hand it over to Chris Jakubik, Vice President and Vesta Relations. Please go ahead.
Speaker Change: Thank you and good morning everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly Clark, and thank you for joining us.
Speaker Change: I would like to remind everyone that during our comments 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 and our filings with the SEC. We will also discuss some non-GAAP financial measures during these remarks. Thank you very much.
Speaker Change: These non-GAAP financial measures should not be considered a replacement form and should be read together with gap results.
Speaker Change: and you can find the gap to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.comberley-Clark.com
Speaker Change: With that, I will turn it over to Mike for a few opening minutes. Okay, thank you Chris. In the first quarter we continue to make solid progress across the three pillars of our power and care strategy.
Mike: Building on the strong foundation we established in 2024. While our top line was somewhat softer than our expectation, the first quarter overall was consistent with our full year plan.
Mike: Our results demonstrate that our cascative innovation across the Good Better Best Value Spectrum is winning with consumers.
Mike: We held global weighted share while navigating dynamic environment, volume plus mix was solid, demonstrating that demand in our categories remains resilient.
Mike: We made strong progress optimizing our margins and continued to deliver world-class gross productivity enabled by our integrated margin management approach.
Mike: Our freshly wired enterprise matrix organization is playing a key role scaling initiatives in 2025, and this is enabling us to bring the best of Kimberly Clark to all markets faster and better than before.
Mike: In addition, we're on track to generate approximately 200 million of SGNA savings in the next few years.
Mike: We remain confident in our ability to execute the plan we outlined for this year, even as we navigate a rapidly evolving external environment. In fact, powering care gives us our running start.
In this evolving environment, we see three keys to winning.
Mike: We will deliver stronger differentiation at every realm of the good-better best latter.
Mike: We will deliver industry leading productivity to generate funds to reinvest in the business, drive profitable growth, and address external headwinds.
and we will continue to enable a faster, more agile organization.
Mike: We're continuing to perform while transforming, we're scaling our transformation and reshaping our portfolio for stronger, more profitable growth over the long term.
Mike: As we move forward, we will stay true to our purpose and values to deliver better care for a better world and we remain confident in our ability to unlock our long-term potential for our consumers, our company and our shareholders. And with that, I'd like to open up the line for questions.
Speaker Change: Certainly, everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time.
Mike: We do ask that while posing your question, please pick up your handset if you're listening on speaker phone to provide optimum sound quality.
Mike: Once again, if you have any questions or comments, please press star one on your phone.
Mike: Your first question is coming from Lauren Lieberman from Barclays. Your line is live.
Lauren Lieberman: Great. Thanks. Good morning. I know there's a lot to cover today, but I was hoping we could start with organic growth.
Lauren Lieberman: So, results in North America significantly trailed what we'd seen in Scanner, which was, you know, pretty strong actually, and we didn't see in Scanner the kind of deceleration a lot of other companies and categories saw in Scanner.
Lauren Lieberman: during the quarter. And I know in the prepare mark you mentioned there was no retellity stocking, so it'd be great if you could just...
Lauren Lieberman: You know, help articulate, you know, what drove the gap in North America performance reported versus what we saw on Scanner.
Lauren Lieberman: and then secondly, to get to something north of one and a half to two percent organic sales growth for the year, so better than category growth. It implies a significant ramp after the first quarter results globally, so helping you just talk a little bit about why we should.
You know, expect to see that acceleration. Thanks
Thank you for watching!
How we expect the balance of the year to evolve, the acceleration that we are-
Speaker Change: for saying and volume and mix, especially as we go into the second quarter. And then I'll ask Mike if he can jump in in terms of some of the key initiatives that are being taken across the globe as we speak. [inaudible]
Speaker Change: So, firstly, as Mike said, in our organic sales, we're slightly below our expectations for the first quarter, while profitability was in line with what we expected, supported by strong productivity delivery, both in costs and overhead.
Speaker Change: As a reminder, we're we're lapping the strongest quarter in 2024 in which we grew 5.6% organically
Speaker Change: There were four factors that played in the first quarter when we unpacked organic sales growth, which helped bridge scanner data, consumption to what our organic sales came in. Firstly,
Speaker Change: As we stated, weighted average category growth, we had expected to be around 2% coming into the year. That's what we had seen at the end of 2024.
Speaker Change: whereas for the first quarter we're in the one and a half 2% range. So that's the first factor. The second is this year has one last day of shipments in the first quarter.
Speaker Change: as well as in the full year, whereas scanner data is apples to apples in terms of days and weeks versus the prior year. And this is representing about a 100 basis point impact to organic sales in the quarter. And this is representing about a 100 basis point impact to organic sales in terms of days and weeks versus the prior year.
Speaker Change: Thirdly, we're facing lower year on year in North America private label shipments outside of the private label diaper business exit we've been highlighting
Speaker Change: And this as a whole represents about 40 basis points to total company organic sales and in the case of North America which you asked, it's about two times that, about 80 basis points of a headwind.
And then lastly, we have planned strategic.
Speaker Change: Pricing investments in price, the architecture across several markets and categories, including US consumer, which started happening at the very end of 2024.
Speaker Change: U.S. Professional, where we've been maneuvering through a highly competitive environment in certain segments within professional, as well as some of our emerging markets.
Speaker Change: Now, going into the full year and our expectations in the year to go.
Speaker Change: First, consistent with our long-term algorithm, we continue to target a volume and mixed-based organic growth for the year. That's ahead of the categories in our markets.
Speaker Change: We have a strong slate of new product and go to market activations that are happening as we speak. They're being ramped up. We started at the end of March, and that's happening through Q2, parts of Q3, and investing heavily behind it, and that's one of the pieces that should...
Accelerate, volume and mix, and Q2 and on.
Speaker Change: The other bit is when we do the comparison against the prior year.
Speaker Change: Assuming shipments are in line with consumption, we should see just less than 40 basis points of the tailwind in 2025 versus 2024 from the retail destox that we experienced last year. And that's all built into our outlook for 2025.
Speaker Change: So as we get into the quarterly perspective, it's really going to be basically on the year-to-go, a comparison of quarter over quarter.
and that's the progression that we're seeing.
Speaker Change: and Q2 in particular should be one of the easiest comps that we have because of the destack level that we saw in North America
Speaker Change: which overall would represent a tailwind of around 80 basis points for the company and again that's primarily in North America.
Speaker Change: So overall, we are expecting to see volume and mix to accelerate in the balance of the quarters for the year and I'll turn it over to Mike for some further perspective on the initiatives. Yeah, Lauren, I'd say one we have a strong pipeline to improve our consumer value propositions around the world and that's why we have a strong pipeline to improve our consumer value.
Mike: We felt like it was very important, despite some of the external headwinds we're seeing to preserve the fundamentals of our plan and execute it. And so, you know, overall, I'm going to say a couple things, you know, growing faster than our categories in markets depends on how well we provide better care for our consumers. [inaudible]
Mike: We expect to deliver healthy volume and mix-driven organic growth. And as Nelson points out, you know, we do believe that will accelerate in Q2.
Mike: What's behind that is, you know, a slate of innovation that we've launched. I mean, I mentioned in my prepared remarks.
Mike: Huggies Snug and Dry North America that's only recently started shipping and it's barely started shipping and it's a great product
Mike: that I've yet to start shipping in international, including Latin America, where we have seen a little bit more soft this recently.
Mike: and we're going to make some significant product improvements.
Mike: and Internationally, along the same lines, improved product quality. And so that's really the basis, you know, our whole strategy is predicated on we're going to make better products at a lower cost.
Mike: and we're going to innovate to do so, and we're going to pull on the matrix to work faster to bring the depth of what we have to markets around the world.
Mike: Thank you. Your next question is coming from Nick Modi from RBC Capital Markets. Your line is live.
Yeah, thank you very much. Thank you.
Nick Mody: Oh, good job. So I guess like the question is just given, you know, the value-seeking pressures that we're seeing pretty broadly that I think we can all agree we'll probably persist for at least the next few quarters.
Nick Mody: You talked about innovating at different tiers, but having managed that along with the price mix.
Nick Mody: You know, and kind of your margin cadence, right? So just trying to get an understanding like is the revision just a tariff related thing or are you are you also baking in some some kind of mixed week as you kind of innovate more in the more of the value end of the market? [inaudible]
Nick Mody: Yeah, Nick, I would say the revision and the outlook is primarily headwind cost-related, right? And so, and I'll say strategically, I think as we're implementing our innovation strategy and our marketing strategy, I think we've accounted for some of the mixed differences but...
Speaker Change: I want to say a couple things, one is that our categories continue to exhibit very resilient demand. I mean, the category of growth, as Nelson pointed out, has to celebrate it, but it's so remains healthy, it's one and a half to 2% versus two-ish at the start of the year.
Speaker Change: That reflects a little bit less pricing as we had highlighted in international and then there is some frequency and softness across Latin America which is under the gun economically as well.
Nick Mody: You know, I will say though, in our categories, that they are daily use categories and consumers remain interested in the product performance and they're interested in better performance products. I think Nick increasingly afford abilities become paramount.
Nick Mody: You know, more than kind of it's been in my dozen years, dozen plus years here at KC, and so we're very focused on that. We recognize that situation and we understand. Thank you.
Nick Mody: The burden that I would say the middle income to lower income households are dealing with.
Nick Mody: and so we are, you know, our strategy is to, we've said in a couple of remarks, cascade our innovation from premium throughout the tiers.
Nick Mody: But also, I'd say we're going to prioritize winning the consumer. [inaudible]
Nick Mody: and we needed to share, and then part of management's job is to figure out how to solve the mix issues and our teams are doing that. So what we want to do is put the best product in front of the consumer and get them into the Huggy's brand or the Kotex brand, or...
Nick Mody: that depend, you know, brand, and that's our job, you know, job one, and then, you know, secondarily, you know, we'll be able to manage the mix over time we think.
Great. Thanks, Mike.
Okay, thanks a second.
Speaker Change: Thank you. Your next question is coming from Dara Mosinian, from Morgan Stanley . Your line is live.
Thank you for watching!
Hey, good morning. Hey, Dara.
Hey, Dara.
Speaker Change: It did sound like previously you felt the terror of impact will be more manageable, so really two questions, just first short term Nelson
Y, the situation more burdensome than previously believed. [inaudible]
Speaker Change: Can you give us some detail on where specifically the incremental 300 million is coming from? Is it pulp? Is it China? How much are other buckets, etc.? And how much you're assuming you can offset through both price and productivity when you look at the full-year guidance? It's true.
Speaker Change: And then the second, maybe a similar question just from a long-return perspective, you know, Mike or Nelson back in the last 13 months ago, there was a lot of time spent on how you're able to potentially price quicker, more precisely, drive mixed, offset cost issues, etc.
Speaker Change: Just, you know, where you stand is an organization 13 months later. Should we think of this just as more of a...
Speaker Change: Has something changed in your ability to sort of use agility and flexibility to manage through the cost environment as you outline down an analyst day as we move sort of past the tariff impacts we're talking about today. Thanks.
Speaker Change: Yeah, let me start. I'll ask Nelson to provide the details on kind of what changed, but I will say the whole underlying strategy and why we're rewiring our organization for growth is we want more agility. And so all the things you talked about, Dara...
Speaker Change: Okay, can we move fast, whether it's on revenue management or on cost management? We're able to, we're able to move faster now than we were just one year ago, right? So that's kind of, you know, one of the key points.
Nelson: I would say just a comment on what change I would say, what change is...
Nelson: and the gree of terrorists and also, you know, the country is involved, I think, has changed significantly since.
Nelson: You know, maybe where we were, you know, at the end of the last quarter. And so I think that there has been a, as everybody notes, a very volatile kind of environment, and there's been a lot of change back and forth, and continues to have change. And so this is kind of represents our best view of what we see today, which I'll let Nelson talk a bit more about. [inaudible]
Sure, end up.
Speaker Change: and a few things. So back in December , Daro and Chris and I were at the….
Speaker Change: At your conference, we chatted, we shared at the time that the majority of what we sell in the US is sourced and made locally. Here in the US and that in terms of raw materials and finished goods are combined exposure to three specific countries.
Speaker Change: China, Mexico and Canada was just less or around 10% of our total cost of goods. If we factor in all of our raw materials and finished goods imports for our US business, 80% of our total costs in the US are US-based.
Speaker Change: So only 20% of our U.S. costs are exposed to tariffs
Speaker Change: As Mike indicated in the last 20 days, we've had to reflect cost impacts of actions on three fronts, which also include the depth of the actions.
Speaker Change: First is the aggregate U.S. tariffs on China of 145%. This is driving about two-thirds of the $300 million gross impact that we have shared today. That's largely on finished goods. [inaudible]
for your ask of the breakdown.
Speaker Change: The other element is U.S. reciprocal tariffs, to Mike's point about breath and reach.
Speaker Change: And that's about 10% that have been put in place on other countries, which we source from. And this is representing about 10% of the 300 million dollar impact.
Speaker Change: and then lastly is the set of retaliatory tariffs that have been announced by other countries on the U.S. And this is representing around 25%
of that $300 million million dollars.
Speaker Change: We're working, you know, fast through actions to mitigate these costs and frankly the learnings that we had in the 21-22-23 cycle have come in pretty handy.
Speaker Change: and the other bit is that we're one year into our power and care transformation.
Speaker Change: We recently hosted many of you at our beach island facility to showcase some of that transformation and in action and what we're doing about it. And frankly at this moment we're much better positioned to handle through many of these
Speaker Change: Headwinds. Now it takes a little bit of time. You can't solve that overnight because we're having to re-accommodate some of the elements of our supply chain and we intend to already be able to address about a third of the impact this year.
Speaker Change: Now, it'll take us through 2026 to pretty much be able to address the whole element in a consistent manner based on what's been enacted today. As always, we will keep our consumers at the center of any course of action that we take to make sure that we're having the right value props in place.
Dara: Alright, Dara, we're going to give it to you like a fire hose because you know I saw we got a lot to say on this but I will say...
You know, the big thing I want to emphasize is...
Dara: And there may be some semantics here, but you know, you mentioned, is it a discrete item? And you know, at this point, I am treating it as a discrete item, right? There's an externality that we don't think will continue to recur over time.
Dara: and so, you know, what we want to do is run the play, run our plan as intended, right, and give the innovation in the marketing.
Dara: You know, and all the productivity plans, you know, room to breathe and so we want to execute those. So our global network, I really feel strongly positions us to navigate this volatility in the environment very, very well.
Dara: You know, and so as I mentioned, power and care, the strategy that outlined, you know, I think we continue to be very committed to that strategy. We want to differentiate our brand through superior innovation.
Dara: and Activation. We want to deliver world-class levels of productivity, we want the organization to work faster, and so those are all, I would say, evergreen things that would be good in any economic environment, but especially in this environment.
Dara: And then the other thing I want to point out is that this change in the tariff environment, while it presents a near-term challenge that we just kind of went through, it also presents some opportunity and so, you know, we feel like the best approach. [inaudible]
Dara: to mitigate the headwinds is, you know, to re-optimize the network, right? And so, you know, what this has done is changed kind of like...
Dara: The cost of different nodes of our network and change some of the operating constraints and so we just have to rerun the model and in my words kind of re-optimize you know what our flows are right and so that's and so we just have to rerun the model and change some of the operating constraints and so that's
Dara: You know, that's, you know, part of, you know, what we all signed up for.
Dara: I think the other thing is, you know, over the last couple of years, we've really enhanced our ability to deliver better products.
Dara: at Lower Cost, Huggy Stung and Dry is a great example, with the U.S. China and the rest of the world working together to deliver a superior proposition. And so we also think there's going to be more value-oriented volume to be earned and work confident in our ability. So, we're going to maintain brand and product support.
Dara: that we anticipated the start of the year, and then we are working hard to accelerate, you know, saving so that, you know, that we can drive terrible solutions.
Can I just look at all of them?
Dara: Yes, no, that very helpful in a lot of detail. The value-conscious consumer that you've talked about in the prepared remarks and so far in Q&A
Dara: How much of that have you seen so far versus it's more of a forward expectation? Sounds like that's more expected from here? And you obviously talked about the broader product offering the innovation, winning with consumers.
Dara: But just can you talk about the need for maybe investing in affordability and the pricing side of things, particularly given the pricing result that we saw in the quarter here in Cuba, that be helpful.
Dara: Thanks. Yeah, I mean, I think it was it's a subtext in our in our in our whole discussion are you know, which is we've been seeing it there and you probably have seen it in our categories over the past year. [inaudible]
You know, I think there's been a migration to...
Michael Hsu
Dara: You know, that's primarily for lower income households, I think on the higher income households, they're even seeking value by I would say larger accounts at lower price per unit, right? And so we've seen both ends of it.
Dara: and I think if you, this was in the prepared remarks, what do you do? If you look at the impacts on costs that are going to be hitting the average consumer in the US,
Dara: You know, I think budgets are going to be tight. And so affordability for us is core to our strategy here. It's why we highlighted what we're doing on Snugg and Dry, which is our mainstream value play here on diapers in the US.
Dara: We have that same strategy around the world and also across our categories. We want to offer a great product offering at the premium end and that is going to continue to be a big road driver for us.
Dara: What we want to cascade, you know, the product innovation that we have at the premium men throughout the tiers that we offer. And then we'll let the consumer decide about which products they want.
Thanks so good back and cute.
Okay, thank you, Dar, thanks, Dar [inaudible]
Speaker Change: Thank you. Your next question has come from Anna Lizzul from Bank of America. Your line is live.
https://www.kenhub.com
Speaker Change: Hi, good morning, and thank you so much for the question [inaudible]
Speaker Change: First, I did a touch on cost as well. The cost environment is certainly creating more pressure and it is a very fluid environment.
Speaker Change: You're just related to marketing. Is this impacting your ability here to invest? Are you considering different means of where and how you're reaching different consumers now? Just given they are more pressured? [inaudible]
Speaker Change: and then related to innovation. Of course, understanding that plans have been made for this year, consumers are expecting to be more value conscious. You know, this has impact your longer-term strategy at all and thoughts around and more premium portfolio.
Speaker Change: Yes, so a few things. I'll start with a cost environment and what we're facing. So I'd like to separate it into two elements, and I'll build on the discussion we just had on the $300 million linked to the terrace. [inaudible]
Speaker Change: Coming into the year, we expected costs to be largely in line in terms of inflation.
Speaker Change: versus what we experienced in 2024. And that was around $200 million. That remains about the same. That has not changed. So costs excluding the impact from tariffs have remained largely in line with what we expected at the beginning of the year.
Speaker Change: So that's one. What we're having to address is the $300 million of incremental gross impact from the tariffs.
Speaker Change: Moving to address at least a third this year and the balance of it going into next year.
Speaker Change: The reason why we are calling or changing our guidance for the year to about flap an operating profit and EPS has to do with the fact that we do not intend to cut investments behind our innovation and our plans.
Speaker Change: For the first quarter of the year, we invested at around a 6% level of advertising behind our marketing initiatives and our new products and existing platforms which was largely in line with prior year.
Speaker Change: and we intend to continue doing that as the year progresses because we've got significant innovation that's been put into the marketplace and it's going in into the market. There are pockets of
Speaker Change: of initiatives that will be taken as well in terms of investments. [inaudible]
Beyond Just Brands and it has to do with our supply chain. We intend to maintain our investments in the business
that we just talked about.
Speaker Change: So overall, I would say there's no in fact in the long-term strategy and we remain steadfast [inaudible]
Speaker Change: on progressing our power and care strategies and ensuring that we can drive sustainable profitable growth with solutions to unmet consumer needs for years to come.
Mike: Yeah, and at the risk of providing too much transparency, here's what I'll say, which is, look, we recognize that there's this the screen cost had went.
Mike: We believe we can, you know, generally offset that over time by reflowing our network, right, bye.
Mike: Resourceing kind of where we're making product and where we're shipping it from and you know as you you know take that into account there mostly supply chain moves that are that are the solution so if we you know so if we believe that Anna then then what we're trying to avoid doing is [inaudible]
Mike: Reducing quality in our product that's working or cutting marketing that's working and giving our our plan a chance to breathe and perform like as we're seeing you're to date, right? And so that's really the kind of the underlying thesis that we have and we feel like it's the right play for us.
That's very helpful. Thank you so much.
Speaker Change: Thank you. Your next question is coming from Javier Escalante from Evercore. Your line is live.
Good morning, Mike, Nelson, Chris. My question has to do with the area.
Speaker Change: Hey, how are you guys? My question has to do with the use of pricing to try Max.
and if you can split the discussion between emerging markets
Speaker Change: You know the price investment is not necessarily correlated with what you are taking prices to do the so-called peanut so that one aspect that particularly also in North America. [inaudible]
As you look to dry mechs [inaudible]
Speaker Change: Are you increasing promotions in the high end? What exactly if you can talk strategically about how you're using pricing to reconfigure the portfolio in the US and internationally, that will be very helpful.
For more information visit www.FEMA.gov
Speaker Change: Yeah, maybe I'll start with a headline, Javier, that kind of says, it were focused on driving volume and mixed growth.
Speaker Change: while maintaining PNOC or pricing net-of-commodity discipline, right? So we're trying to be disciplined on price and maybe there's all there's [inaudible]
Speaker Change: More embedded in that than may appear. You know, the strategy is we're going to make our products better, right? And I just kind of mentioned that Dara, you know, every run of the good, better, best ladder and then we'll let the consumers vote as to what the mix ends up being.
Speaker Change: You know, our job is to make sure that, you know,
Whatever Mix
Speaker Change: flows based on how the consumer votes that it's accessible to us, right? And that's part of management's job, right? But the other part of what's implied in that statement focused on volume and mixed growth while maintaining peanut discipline is that, you know, the categories have seen, you know, a significant wave of pricing over the last several years, right? We just kind of [inaudible]
Speaker Change: Or maybe two years removed from what I would call an inflation super cycle.
Speaker Change: And so what we've been a little more focused in our current strategies really anchored on Hey improving the product quality, driving positive mix through premiumization by making premium products of a consumer's desire.
Speaker Change: and then over time cascading that innovation throughout our value tiers. So that's really what we're driving. There's no really significantly different strategy.
Speaker Change: on a country-by-country or category-by-category basis to kind of optimize based on pulling different pricing levers. I mean, again, we're going to our teams, the directions of the teams is they have to have...
Speaker Change: You know pricing net of commodity impact discipline and but we want to drive
If you can comment on the promotional environment.
Speaker Change: As you see it, all you saw it in Q1, and what we should expect
Speaker Change: For the balance of the year given that you have more innovation coming in.
and I suppose you want people to try that out.
Speaker Change: the balance of the year use of pricing relative to your innovation.
Speaker Change: Yeah, well, I think maybe it starts with the philosophy that you know we don't really see promotion as a sustainable driver of growth [inaudible]
Speaker Change: You know, we do see it as a useful try of vehicle for innovation, right? So that's kind of the focus [inaudible]
Speaker Change: You know, why do we have that attitude? We offer daily essentials that have, as you know, low substitution. So really, if you think about our categories, promotion overall for the category doesn't grow consumption. [inaudible]
Speaker Change: Right, you know, just because I promote that tissue doesn't mean you're gonna you're gonna go more often, right? And so
Speaker Change: You know, thus far what we're seeing is, sorry, you're happening. The category to man remains resilient, right? And you know, but you know, we do see promotion as an important tool to support trial.
Speaker Change: You know, we did promote Kleenex and merchandise it and we think merchandising has been an important strategy or important driver that growth in the quarter we are up another hundred and fifty or so basis points.
Speaker Change: Kleenex. So that's a good one. You know, with Huggy Stubbins Rye and, you know, Huggy Skin Essentials, they're great new products. We want them in consumer's hands.
Speaker Change: You know, we are going to spend some time promoting them, right? But you know, it's not a promotion driven strategy but it is part of the overall plan to drive trial of the products that we want consumers
Speaker Change: in the consumer's hands, right? So that's kind of what we're doing and I would say we're operating consistently around the world on that. The big thing for us is
Speaker Change: You know, and this is beyond North America, we want to cascade great innovation, you know, we want to drive it into the premium tiers and we want to cascade it throughout our tiers around the world.
Speaker Change: and just to build one more point, Javier. I mean, the...
Speaker Change: You're always going to see some elements of moves across channels and price back architectures and that's something that again we activated at the end of last year as part of our
Speaker Change: Reaccommodation of the channel strategy, but that's more of adjusting to the realities of the marketplace and where we see the growth come in, but that's not in it for us to be promoting, as Mike said, so it's very different. Thank you very much.
And the other bit is, remember, integrated margin management.
Speaker Change: Including our productivity plans allow us to be able to flex when needed to make sure that we remain competitive not just in the US but across the globe.
Okay, thanks, Javier.
Speaker Change: Thank you. Your next question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.
All right. Thank you. Good morning
Bonnie Herzog: I have questions on guidance. I guess I'm trying to bridge the gap between your new EPS guidance versus prior, so hoping you could maybe walk through the different puts and takes
Bonnie Herzog: You know, you're now guiding currency neutral EPS growth of 50 bits at the midpoint versus roughly 6.5% prior
Bonnie Herzog: You know, you certainly highlighted the negative impact from tariffs of $3,000,000,000.
Speaker Change: So could you walk through some of the other assumptions or puts in takes to your new EPS growth guides? I guess hoping you could, you know, help quantify the impact you expect from stepped-up productivity savings.
Speaker Change: You know, your competitiveness, especially private label pressures, intensify in an economic slowdown. Ultimately, I'm just trying to understand what's factored into your guidance, your new guidance. Thank you.
Durban, so N.
Speaker Change: In a nutshell, the real big change in terms of our guidance is the new news on the cost front, and $300 million gross, which on a net basis is around $200 million That's the real move and that's what brings us to about flat
Speaker Change: on the year of different take on both operating profit and EPS.
Speaker Change: They're also moved elsewhere. That's not really driving it. It boils down to the $200 million net headwind that we see for the year. That's really what's in it.
Speaker Change: You know, it is reflected in terms of our expectations of gross margin, and that's what we're building inherently in the outlook that we're providing today because what's going to happen and what we foresee is Q2 will be the biggest impact from a...
Speaker Change: Headwind related to the tariffs. They're in full swing right now and again we've only reflected in this out and acted both domestically here in the US and outside of the US in the US and in the US and in the US and in the US
Speaker Change: And as such, thinking about the quarters, we would expect a headwind of around 200 basis points for Q2 versus prior year, as we progressed through the year, that would be mitigated as we enact all the... [inaudible]
Speaker Change: Different changes we're doing in terms of our supply chain and the mitigation plans are being enacted and implemented.
Speaker Change: The other bit is does it impact our ability to invest? No, as we stated at the beginning we intend to keep investing behind the innovation and...
Bonnie Herzog: The other thing I'll add, Bonnie, and I think part of your question was on the stretch consumer and what do we do about that? I think...
Bonnie Herzog: You know, one is this is not a new trend. And so, you know, we all kind of saw where the puck was going, you know, last year. And so, you know, one of the hallmarks of the plan for this year is.
Bonnie Herzog: You know, what we're doing, what I mentioned on Snuggendry or our mainstream value, which is we want to improve our mainstream value offering [inaudible]
Bonnie Herzog: Our approach would be, let's improve the product and give that a chance for the consumers to touch and feel that and get that in the house. Apparently, I was just looking at the online reviews yesterday at some retailers, and the new Sunday dry is almost five stars out of five, right? And so...
Bonnie Herzog: It's a great product. You know, we feel great about that and that approach. It compares favorably with the Tier 5 or the premium products.
Bonnie Herzog: But that's okay, I think our philosophy internally would be, hey, let's make a great tier 4 product. [inaudible]
Bonnie Herzog: and the Tier V team can figure out how to beat that. And that's kind of how we're approaching things.
Bonnie Herzog: You know, I do recognize that promotion has picked up just I would say a touch in personal care in North America not to be getting lead. You know, we're at this point we're still running our play. We had a plan for promotion. It's it's more focused on trial of the new products and so that's kind of the play that we're running now, but we recognize we're going to have to continue to be agile. [inaudible]
Speaker Change: And Bonnie, I would like to ask... Sorry, go ahead. Oh, no, no, please. Go ahead.
Speaker Change: Yeah, I would just like to add one other thing in terms of, you know, as you think about the margin progression and some of the elements that are on play.
Speaker Change: We are already seeing some of the $200 million in SGNA savings that we had committed to starting in 2025 through 2026, coming through in Q1, so those savings, I mean just to give you a perspective on overheads SGNA alone [inaudible] I'm sorry, I'm sorry, I'm sorry
Speaker Change: We were at around 13% for the quarter versus a 13.2% prior year. So those savings are given us some leverage in terms of offsetting and maneuvering through some of the headwinds but also delivering the fuel to be able to continue reinvesting.
Speaker Change: But I think you have something else you want to bring up? No, no, that was honestly exactly what where I was going with it. So it sounds like you do have the flex [inaudible]
Speaker Change: You know, if the environment deteriorates further so you can remain competitive it sounds like yes exactly what you just said you you have some of the fewer leverage to kind of reinvest in the business, etc I draw.
Speaker Change: So that's how it's all. Yeah, I mean, we have it. We have it. And the whole thing is that again, it's not immediate. And that's why we're saying that it takes a little bit of time for things to work through, but midterm, long term, we do see the solves. [inaudible]
Bye!
Bonnie Herzog: Yeah, I just want nobody. I would say that's kind of why we made the change of the outlook we did. It's given us the opportunity to preserve the plan that we believe in and that we believe is working. Thank you very much.
Bonnie Herzog: All right, thanks again. If we could take one more question, I'll be great.
Speaker Change: Certainly, your last question is coming from Chris Carey from Wells Fargo Securities. Your line is live.
Speaker Change: Hey, Chris. Hey, Chris. Hey, hey, hey, everyone. So one kind of around colleagues and then a separate question that bigger picture. The the savings program.
Speaker Change: So you're going to be a bit higher this year than your goal and expectations. This is going to be the second year running, it would appear, that you're running ahead of the multi-year plan on gross productivity savings.
Speaker Change: So are you pulling forward future savings? Are you now thinking that the savings program will be bigger over time than your prior expectations? So if you can just expand on that. And then if I could just secondly.
I'm struck by the conversation during this earnings call.
Speaker Change: But, nevertheless, it is interesting in the context of your analyst day when it was-
Speaker Change: You know, you're kind of making the case that you can manage these cost environments maybe a bit more with a bit more agility. And so is this your decision, you know, to basically take a little bit of the hit on tariffs to keep the plan in place or are we perhaps talking about a retail environment where you're unable to pass through. So
Speaker Change: Higher cost for tariffs as retailers themselves are dealing with a lot of incremental tariffs on gender merchant and other such categories. I wonder if you could just [inaudible]
Speaker Change: Comment on maybe like why you're sticking to this pricing program outside of just, well, we want to stick to the plan I wonder if there are other things going on so thanks for those two items yeah at the risk of oversharing I was just trying to illustrate a little bit because it's a complex.
The terror situation creates...
Unusual complexity, because companies have different positions and different...
Speaker Change: I would say sourcing strategies for different markets, right? And so, you know, it's not as simple as, well, terrorists are in, so you price it all away, right? And in our case, why wouldn't we do that? Well because we believe we can mitigate most of the cost
by switching sourcing. [inaudible]
Speaker Change: So in some cases, we have competitors that don't have to squit sourcing because they're sourcing locally and so you would price yourself to be uncompetitive.
Speaker Change: and risk kind of eroding that business or taking it out. [inaudible]
Speaker Change: Why you could have solved it by switching your sourcing solution. The problem with the sourcing is it takes longer because we don't have everything where we need exactly where we need it now. Right and so because the world changed. [inaudible]
Speaker Change: And so that's why there's a hit to this year, which we think we will mitigate into next year or the year after is because...
Speaker Change: We can mitigate it over time with supply chain moves, but they take some time to manifest and so really, that's kind of why you're getting the guide that you're getting. It's not an external kind of set of factors, it's more about...
Speaker Change: You know, us wanted to preserve kind of the plan that we have that we think is the right plan and working and then you know also recognizing that we have a solution but that solution is going to take a little time [inaudible]
https://www.kenhub.com
Speaker Change: And then on the savings program and the progress that we're making against our stated target of 3 billion in five years. Chris, as you rightly mentioned, I mean we had a very good year.
Speaker Change: in 2024, our first year of the program in which we delivered 5.9% of gross productivity about 745 million dollars of savings.
Speaker Change: And for this year we've had a good start. We Q1 was about 5.2% [inaudible]
Speaker Change: and we stated that our aim is to be in the upper end of the range of the five to six percent, so we are projecting another strong year in terms of gross productivity. The approach on integrated margin management that we started working on a couple years ago is paying dividends. [inaudible]
Speaker Change: and really it's being embedded in our culture and it's given us enterprise-wide visibility and accountability to be able to drive over time, margin.
Speaker Change: Enhancement across all of our businesses and be in line to deliver in our stated target of at least 40% gross margin by the end of the decade and at least 18 to 20% operating profit margin.
as we exit this decade.
Speaker Change: It's not going to be linear, as we said. We look at it more on a year-over-year basis and a sustained period of time.
Speaker Change: In terms of, you know, are we prepared to take up the $3 billion for the five-year at this moment? We want things to kind of play out over time. We're very encouraged by the opportunities that we see ahead of us.
Speaker Change: We were very encouraged by the second year that's in front of us, but we're only in a year anniversary since we launched the Powering Care Program. So excited about the future on this end and the opportunities that this will create for us.
Thank you for watching!
Speaker Change: Thanks, thanks guys. It's a complicated world. I appreciate the candor. Thank you
Okay, thank you, Chris.
Speaker Change: All right, well, thanks for everybody for joining us and for the animals who have follow-up questions after the call here, we'll be available. So, appreciate the time.
Speaker Change: Thank you. Everyone is concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Thank you for watching!