Q2 2025 Kimberly-Clark Corp Earnings Call
Good morning, and welcome to the Kimberly-Clark Second Quarter 2025 Earnings Question and Answer session.
I will now hand it over to Christian Cubic, President and Chief Executive Officer. Please go ahead.
Good morning. This is Chris, Cubic, head of Investor Relations at Kimberly-Clark, and thank you for joining us. 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 in our filings with the SEC. We will also discuss some non-GAAP financial measures during these remarks.
These non-GAAP financial measures should not be considered a replacement for, and should be read together with, GAAP results. You can find the GAAP and non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I will hand it over to Mike for a few opening comments.
Hey, Chris.
The second quarter was 1 of the strong.
And most active in our recent history.
Our results are indicative of the excellent progress we're making in executing power in care.
We accelerated momentum on the top line and delivered solid organic sales growth fueled by our strongest volume quarter in The Last 5 Years.
On a global basis. We gained weighted chair and made significant share gains in several key categories in our largest markets.
Now regarding our topline momentum, I'd like to emphasize three points.
First, we're energized by our progress in China and the early Returns on how our Playbook is being applied globally.
Second, we believe it's important to meet consumers where they need us.
Our organization rewiring is enhancing our agility. We're bringing the best of Kimberly Clark to the world faster, with better consumer Solutions and lower product costs.
We also took decisive action to focus our portfolio. We're confident our joint venture with with Susanna will unlock the full potential of international Family Care and professional.
For Kimberly Clark and enables laser focus on our higher growth higher margin North America and international Personal Care businesses.
As we enter the second half of the year, we expect to continue performing while transforming.
We're realizing the vision of a refreshed and refocused Kimberly-Clark.
We're confident in our ability to deliver consistent top tier growth.
We have a great opportunity ahead of us. We will continue to enhance our capability to provide better care for a better world and create value for our shareholders.
So with that, I’d like to open up the line for questions.
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Your first question is coming from Nick Modi from RBC Capital. Your line is live.
Yeah, thanks. Good morning, everyone. Um, good morning, Nick. Maybe you could, uh, good morning. Good morning. Uh, maybe you could just talk about, obviously, you know, a very strong quarter within the context of what's been going on pretty broadly across the space. So just kind of two questions, like, you know,
Any more specifics in terms of really what what drove this level of outperformance, but more importantly, you know, given everyone is kind of, you know, moderating their expectations for the back half of the year and you guys obviously are are suggesting otherwise, you know what's give us the reasons to believe on on why we should feel comfortable with with kind of the the Outlook uh, in the back half. Thank you.
Okay, thanks Nick, great question. There's a lot to unpack in there, you know. Maybe I'll start with. Hey, how do we see the state of the consumer? Um, you know, 1 you could see in our approach, overall, you know, that we've been talking about for, for a few quarters. Now, you know, our, our approach is to meet consumers where they need us, right? And and so, that's kind of our starting point. I'll, I'll talk about may, maybe how we're seeing it and, and maybe with a, a tilt toward North America. Um, you know, but I do see purchasing power under pressure, right for consumers. And, and frankly, we don't really see a catalyst for that Dynamic to change in the near to medium term. So, you know, so for us,
you know, that that does affect kind of the categories. However, you know, I I'll say the other thing that we've talked to you about about our categories is they are essential, there's not a whole lot of substitutes for our products. And so because of that, um, the man remains resilient and the categories continue, uh, demonstrate durable growth, right? And that's kind of a big deal for us. And I think that sets our categories apart from, maybe what you're seeing in some of the other categories. Uh, if I, if I just click through a couple areas, you know, I'd say definitely North America would exhibit durable growth.
You know, we're seeing penetration in frequency staple. Uh, obviously the bifurcation Trends are continuing, but I think, you know your question about, hey, why did you perform better than than maybe what some expected is?
You know, we we took on this approach, you know, I think it would start doing this last year, which is hey, we want to have a great value proposition and every tier of the good better best ladder. And so we've been cascading some of our best kind of product features to our value tier and and and I would say if you looked in the quarter was driving, our demand is is the Innovation. So
Our our progress through the first half. Um, and then therefore, you know, I think your question about the second half. What gives us confidence?
You know, I think we feel great about our pipeline, you know. Again I I think the vast majority of the growth we've demon, uh, delivered in the first half has been driven by Innovation, I think I said in the script in the prepared remarks 85% of our organic sales is driven by Innovation, right? And so um and a lot of that is just hitting in the second quarter. Um and and so you know we expect, you know, to continue to perform as we go through the balance of the year because we have great Innovation you know at the premium tiers and at the mid tiers to serve our consumers as well. So you know, again we you know, we we expect um, you know, continued strong performance through the balance of the year.
Right, I'll pass it on. Thank you.
Okay. Thanks. S
Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live.
Great, thanks. Good morning. Um, wanted to just talk for a second, um, honing in, in particular on North, America performance was so strong there. This quarter and really was quite different than what we saw in scanner, um, and I had actually expected the, um, professional business to be a drag on performance. So it's kind of going the other way versus scanner. So I was wondering if you kind of square that, uh, for us a bit and then also, I know you just, you know, spoke to Nick about confidence for the balance of the year. But I was curious about pacing. There was a bit of noisiness in the second half.
Half of last year, so just anything you can share on, um, on phasing in the back. Half would be great. Thanks.
Yeah, maybe no, I'm going to pass it over to Nelson but I'll just My overall is on pacing when you're thinking about comps. There's a lot of noise uh in the year ago and there and there's noise this year too. So you know so when you think about comps there's there's just a lot of choppiness going on the numbers, so? Right? And I I'll seek to unpack that Lauren. So so a few things um and and I'll own inn on North America but in both scanner and reported results. I mean, we're seeing building momentum from a strong pipeline of activations and innovations that are winning with consumers across all the value tears.
In Q2 in particular shipments in North America consumer or about a 100 basis points ahead of consumption, which was at 4 and a half percent branded consumption.
Um, this was driven by a Tailwind in retailer inventory, shift, uh, shifts we which are made up of 2 things 1. We're a lapping priority here at dto that we saw in Q2. And then we had a, a little bit of pipeline, build this year related to some of the Innovation that we've been putting into the marketplace and Mike just talked about
This amounted to about 110 basis points at the Enterprise level and about 170 basis points for North America.
This was partly offset by lower private label shipments outside of the private label diaper contract that we exited in Q1 of this year.
Um, and what this is driving is about 60 basis points of impact to the total company, and, uh, to North America, about a point in the quarter.
Now, as we think about the first half shipments, actually lagged consumption, and that was about 60 basis points. When we think of the Enterprise, firstly, you know, we're facing lower year-on-year North America private label shipments.
Outside of the private label uh diaper contract that we exited and we've been highlighting over the last uh couple quarters. And this was again about 60 basis points of impact to the total company organic sales in the first half and about a point to North America.
Secondly, there's year this this year there's a 1 last day of shipments, uh, for the first half. Um whereas scanner data is Apple's to Apples. In terms of days weeks versus the prior year, and this represents about 50 basis points of impact to organic sales at both Enterprise and whatnot. And then in North America,
And then this was partially offset by the Tailwind. From retailer inventory ships in North America, which is about 50 basis points on the Enterprise and 80 basis points for North America.
In terms of what to expect or how to think about the balance of the Year. Couple of things on building on what Mike said, we have a strong slate of new product and go to market, activations and innovations that has been ramping up.
As of Q2, and we expect to have that continue into the second half. Um, and that will not just be in North America but across, you know, our different markets in international personal care.
Uh, currently our categories when we think of North America and International Personal Care are growing at a weighted average of around 2%. And that's consistent with what we saw back in April. Uh, but remember in April, when we talked about 1.5% to 2%, that included our discontinued operations. So this is solely for North America and IPC combined from a quarterly perspective here on a year. The third quarter and the fourth quarter will be driven.
By the year ago, comparison as much as anything else, Q3 will be the easiest of Cubs versus prior year. There's about 30 basis points of tailwind at the enterprise level and 50 basis points of tailwind in North America from the hurricane impacts on our shipments at the very end of September of last year, which were recovered in Q4 as we spoke in January.
Then, as we think of the fourth quarter last year, we also saw, um, you know, the benefit from panic buying due to the port strikes, which is about 40 basis points of benefit in the quarter for the Enterprise and 60 basis points of benefit for North America.
The combined impact of the hurricane and the Panic buying will result in about a 70 basis point headwind to Q4. Uh, but overall, we're expecting to maintain a solid volume. Mixed driven organic growth in the second half and for the full year, leading category growth. But as you can see as Mike pointed out, there's a little bit of noise and, uh, wanted to unpack that. So you can, you can have the details. Did you get all that Lauren? Sorry, we're throwing a lot at you but maybe. Maybe
Can I just lob in the 1? I'll go back to
But sorry, but yeah, Nelson's loaded for bear here, you know, but but the here's where you started strong performance in North America, underlying driver great Innovation. I I think really strong improvement in our marketing. And then I, I would say the customer plans are as good as the Innovation, you know. And I think, you know, you, you know, we're, we're top rated and advantage or I think we're working exceptionally well with customers. And so, that's kind of what's driving it and and I don't see what data you're looking at. And you know, I should probably try to reconcile that but North America is not any Nelson mentioned consumption in the in the second quarter was up 4 and a half percent. Uh the range of our categories was from I would say you know, low single digit. Um you know, and that would be like um,
Uh, you know, back tissue around 4% low single digit to, to up to near double digit in adult care. So I, I think consumption remains robust in our categories. Or, as I said earlier to Nick, you know, the, the consumption is very durable in, in our categories. And, and that's really driven by I think,
You know, um, you know, excellent Innovation and excellent uh execution.
Thanks so much.
Okay.
Thank you. Your next question is coming from Steve Powers from Deutsche Bank. Your line is live.
All right, good morning everybody. Thank you. Um, so you know, Nelson talked about uh, you know, volume mix LED growth in the back half. So I wanted to kind of talk a little bit about the pricing environment in your, in your pricing Outlook. We we on the 1 hand, you know, if we think about what we've heard year to date, and through the second quarter, I think we've we've, we've heard, and we've seen pockets of increasing promotion and competitive activity, uh, in certain in certain areas, particularly in the US.
on the other hand, you know, obviously there are inflationary pressures building
An indications that, you know, we should see some kind of pricing rolling through as we as we move through the back half into into the next year. So I guess in that context just your your overall assessment of um of competition, uh your pricing outlook for the balance of the year and and any expectations or or considerations, you have just for, you know customer and consumer. Acceptance of that incremental pricing. If it's to come
Thank you.
Yeah. Um, I'll start, Steve, with, you know, I'll say our overall kind of philosophy on this is, you know, right now we're really focused on driving volume and mix.
But we have to maintain, you know, P KnocK or Pricing, net of commodities in, uh, this, you know, we have to have discipline on that, right? And so, our approach is that Pinnock pricing net of commodities has to be zero or greater, right? And so, um, and so that's kind of what we're trying to, you know? That's, that's kind of our overall approach. And so we've, you know, continuously deployed, I would say, targeted revenue management actions across.
Large count sizes. Um, but you know but that's kind of our overall approach year to year. Um, you know, in terms of the promotional environment
Again, philosophically we view promotion as a tactical lever to drive trial of great Innovation. Um, I'm not a fan of using it to try to drive growth because in our categories, where the consumption is
You know, more, you know, fixed, you know, it doesn't promotion does not expand our categories, not these. And so, um, so again, we we, you know, we we use it, you know, if you look at us, um, you know, our promotion intensity,
Is uh, I would say below what the category average is, and remains that, and, and a little bit below what it was, pre-covered overall approach because we feel great about the other levers that we are applying, which is, you know, great Innovation, you know, great marketing, great customer plans. So I I don't know if that answers everything you're asking about.
Yeah, it's a I guess it's an in in summation. Just, I guess I'm gleaning from what you're saying is is where you need it. Uh, where you see opportunities. You feel good about your, your pricing power and not overly concerned about the competitive environment. Is that a fair summation?
Yeah. Well, uh, yes. Well I yeah, I I I think again, I I think our approach is, you know, we have to offset Commodities and and, and, and, and to be able to expand margins over time. And so that's just a discipline that we have to employ. Um, and and we're, we're not using, you know, pricing as a growth driver because again, like of the category dynamics of promotion. So understood, thank you very much. Okay, all right. Thank you.
Thank you. Your next question is coming from Michael LaBrie from Piper Sandler. Your line is live.
Thank you. Good morning.
Morning, Michael. Michael.
I just wanted to unpack the Outlook update a little bit. Uh, there are some constants, but obviously, there are also some changes with terrorists or some of the impact on the portfolio reshaping. You gave some details in the preparatory remarks, but you know, maybe just bridge the changes for us and put the breadcrumbs together. It feels like there's a good number of moving parts in three months till now.
but 3 months ago, till now,
Sure, sure, Michael that there's obviously been been a lot going on in the last 90 days, and we'd expect more to come. So but but a few things as I unpack and the Outlook, and, and Bridge it to April, you know, our Outlook is reflecting the momentum, uh, that we have in the business, uh, which is grounded in sustainable actions, strong Innovation, uh, and the execution,
Yushen plans that our teams in the field are carrying out. We're focusing on winning where it matters, and that's with consumers through our superior product offerings.
Uh on the top line, we're well positioned right now to deliver sustainable growth ahead of the categories.
um,
And and through a volume and mix lead growth. Uh, our organic growth is now based on our business in North America and IPC. We're weighted average category growth is, as I said before around 2% compared to the 1 and a half to 2% growth, that we had back in April, which included ISP, so we're excluding that. That's why you see, categorical growth weighted a little bit higher but still at the same levels that we had back then implied, um, and we plan to continue to gain share as as happened this quarter, where we had around 10 basis, points of share gains on a weighted basis.
As we look at operating profit, uh, we're we're supporting a significant step of a new product activations and and launches key markets. Uh and growth productivity will continue to be a very strong driver of our, of our ability to do that. Um,
As of the second quarter, we delivered on the first half about 5 and a half percent of gross uh productivity uh as a percent of of of total cost of goods. And for uh the second quarter is actually 5.8%. Uh, we are aiming to be at the top end of the 5 to 6%, um, range in gross productivity and that's on changed versus what we laid out in April. Uh, the other bid is that we are making very strong progress on the sgna, overhead savings. Uh, the 200 million that we had planned as part of powering care last year. And as we said back, then this would ramp up in 2025 and 2026 and we're seeing that play out in the first half and that will continue through the second half based on our plans. So, that again, is unchanged versus April
Because now, IFP is below. OP is discontinued operations.
Um, one of the elements is negative overhead growth. Uh, this year that's built into the plan. And right now, um, at the midpoint, we expect to deliver low single-digit growth on a constant currency basis, with a range that's in the low to mid.
uh, in terms of operating profit, uh, the change in in our operating profit growth rate from 5 to positive, uh, to low, to mid single digits is reflecting a combination of
The lower expected net tariff impact as that Z, laid out in the prepared remarks. Right now, we expect a gross tariff impact of around 170 million which is 130 million lower than the 300 million. That we had estimated back in April and we expect to offset around a third or 50 million of that of that 1 170 million. Um and then an adjusted earnings per share. We've had favorability on 3 areas, uh 1 is the net Tara of impact which I just spoke and that's built into the Outlook. Uh, we're seeing some favorable currency as we laid out. It's about half of what we expected in April, uh, All In.
And then um we're pausing uh depreciation and amortization on our discontinued operations of ifp and that in and of itself represents about 16 cents of eps for the full year. We saw 2 cents flow in the second quarter and about 14 cents would flow in the back half. Um, so overall, you know, we, you know, we will
Keep investing. We expect our uh, advertising and brand support to step up in the back, half of the year to around 7% versus a, 6.4 6.5 that we've seen in the first half. Um, and, and that that's something that again, if we see the opportunity, we will invest more uh, to to, to be able to sustain the the V mixed momentum, that we've seen in the first half of the year.
I think in a quick follow-up on the brands, spend, uh, you you also called out some of the awards, um, at at Khan and just how much improved that performance is what's driving? The better execution is, is, is it just a bit more spend? Is it better capabilities or is, is there a pivot there and how you approach it?
Yeah, a great question, Michael. Glad you picked up on that, you know, I I would say it's all about better capability and and, and I would say more focused from the company. You know, I think, uh, uh, 1, you know, I, I'd say the focus part is again, historically, and this comes with our rewiring of our organization, you know, our our, our marketing was very decentralized, right? And we had a lot of agencies. And and, and, and, you know, a lot of individual markets, made individual decisions all those kinds of things. And while they still have a lot of say, um, and control over the marketing, you know, I think this new Organization for us under Patricia corse's, leadership, our new Chief growth, of course, she's not new anymore, but our chief growth officer, you know, is really bringing a different philosophy, right? And so, and I think the opportunity that she pointed out, is that what we really had to invest more effort in is, is developing an emotional connection to Our Brands. Um,
You we've always been great at bringing technical features and differentiation to the product. We're okay, we are a historically. Okay, at demonstrating those technical features through demos, um, but really what, we're focusing more on is building that brand love or the emotional connection. And so maybe the operative word that I will tell you that that's leading to our improved performances in-house. You know, we're bringing a lot of capability in-house. We still use agencies with Consolidated to a few great ones.
if you looked at the slide deck that we presented,
Uh earlier, you know, there's this 1 with the poop Poncho, you know, which I I said it's kind of a tongue and cheek thing, but if you look at that ad and you just thought about that idea, it could have gone really gross or it could have been really flat or really boring or stupid but you know, I I think the creative came out great and is doing everything we want to do because I think the creative team took exceptional care in all the details of the execution of that ad. And and so that's kind of what's going on. It's a, it's a new us.
Uh, as I mentioned, I think we, we, we doubled our award total from, you know, from from, from the prior 5 years, just this year at Khan. And so, uh, and and so, I think, you know, we're we're heading in the right direction.
Very helpful. Thanks so much.
Okay.
Thank you. Your next question is coming from Bonnie Herzog, from Goldman Sachs, your line is live.
Hi. Hi, good morning. I am. Um, I had a quick question on your JV deal with susanoo, you know, with the ifp out of the base business, how should we think about the organic sales, growth and margin EPS accretion to your long-term algo and then you touched on this a bit but volume in the quarter was strong and broad-based. But I I guess I just wanted to verify there wasn't any pull forward. I mean you highlighted some benefits given changes in retail inventory so maybe hoping for just a little bit more color on that and how you're thinking about that in the second half? You know, ultimately
Really should we assume volume growth in 2s?
Yeah. Hey. But let me, let me just start on the, on the volume. Where the, you know, um, here, here's the thing for us and, and we're where I'm, you know, please put the performance is our consumption globally with strong and, and it all starts with consumption. And actually, we tend to manage on consumption. And then we recognize, there's inventory changes. But we don't, we don't overly try to manage the, the retail inventory changes because in the long run shipments must equal consumption. And that's kind of what what I tend to focus on. And so, as I as I just mentioned, you know, North America, you know, 4 and a half percent, you know, consumption growth, uh, on on our, On Our Brands kind of in the second quarter. And then, you know, again, the range, you know, pretty good performance internationally as well on that front. And so, we feel good about that. There was a little bit of inventory, build for the reasons that I, I think Nelson, uh, articulated. But there was also some retail inventory takeout in the first quarter, which we didn't really talk about either so. So I think, I think, overall, we, we feel good about that.
I think with regard to IFP, you know, maybe a couple points I would say are we may remain committed to our long-term algorithm that we presented at the Investor Day last year.
I would say that this transaction should improve our ability or a liability to be able to deliver consistent top tier growth uh over time. Right? You know, so our our algorithm on organic was predicated on growing ahead of our categories. Um, and you know, you know, the personal care category is, you know, globally, you know, are you know, for us a little bit margin accretive and also more consistently growing um and and so you know, we expect our growth profile to continue to prove over time and and, you know, as a function of, you know, the Innovation that we have the marketing and the activation um, on the bottom line again, you know, I think we're making very, very good progress on the, on the margins, we have great visibility through our 40% gross margin and 18 to 20% operos aspirations by 2030. I, I did want to point out, those are Milestones not targets, right? And so, we're not trying to get there. We're trying to get beyond their, uh, we just put out an interim milestone.
I I do think and Nelson. You may want to comment they the ifp transaction does create a 1-time impact. So it's going to accelerate this a little bit further on the margin side. But you know, we'll update you on what that's going to be when we get closer to the close, right? And just building on that, I mean Bonnie 2 2 things as we think about ifp and I I talked about it earlier. What's happening is
When we strip out IFP, we are seeing underlying category growth. That's a tad higher than what we had before, and this um buttresses, you know, our are.
You know, thinking around the fact that we have a North America, an international personal care business, that's growing faster that has a higher gross margin and overall, you know, we we expect to continue to grow, um, through volume and mix in the foreseeable future ahead of the categories.
40% at least, 40%, gross margin and at least the 18 to 20 and if anything it would be faster than 2030,
Because of the move that we've made.
Okay, thank you, very helpful. I'll pass it on.
Thank you, great. Um, you can reach the allotted time for Q&A. I'll now hand the conference back to Chris, Chuck for closing remarks, please go ahead.
Well, thanks everybody for joining us. We know. Uh, there there are multiple calls today that you need to get to. Uh, so do do it? Uh, appreciate, uh, your attention today. Uh, if you have any follow-up questions, uh, you know, uh, we'll be around to, uh, to take them, uh, for the remainder of the day. Uh, thanks again and have a great 1.
Thank you. Everyone concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.