Greetings and welcome to the Kimberly-Clark 4Q 2024 Earnings Call. All participants are in a listen-only mode at this time. A question-and-answer session will take place after the formal presentation. Please be aware that this conference is being recorded. I will now hand over the call to your host, Chris Jakubik, Vice President of Investor Relations. You may begin.

Good morning, everyone, and thank you for joining us. I just want 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. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. And you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I'm going to turn it over to Mike for a few opening comments.

Okay. Thank you, Chris. 2024 was an outstanding year for our team and the future of Kimberly-Clark as we launched our multi-year Powering Care transformation strategy. Last year, we built the foundation to accelerate our growth in the years to come. We rewired our organization into three powerhouse segments to become a better, faster and stronger organization. We pivoted to volume plus mix-driven growth and established strong market share momentum. And we made the successful transition from margin recovery in 2023 to establishing a new phase of margin expansion in 2024. Our progress enabled us to deliver full-year results that exceeded our long-term algorithm even as we absorbed discrete headwinds. Now we enter 2025 with good visibility on the key drivers of our growth and profit potential. We're confident in our plans to deliver innovation-led growth ahead of the categories in which we compete. We're continuing to invest in product quality, brand support and capability building, and we're bullish on our ability to continue powering investment and bottom-line growth with industry-leading productivity and SG&A savings through wiring for growth. This year, we'll continue to transform while performing, scaling our playbook and capabilities across the globe and shaping our portfolio for stronger, more profitable growth over the long term. Through Powering Care, we're taking actions that are enabling us to navigate a dynamic environment and provide better care for a better world. Now with that, we'd like to open the lines for your questions.

Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from Dara Mohsenian with Morgan Stanley.

Good morning, Dara.

Hey, Dara.

Hi, good morning. So just hoping to spend some time on the top-line, maybe we can split it into the long-term versus the short-term. Maybe, Mike, you can just take a step back now that we're at year end, give us a review of where you think you stand on the organizational front with the rewiring plans you announced at Analyst Day, both in terms of reorganizing the way you approach the business, but also some of the tangible benefits from that. You talked about greater, more impactful innovation, more effective marketing, etc. So are you pleased with where you stand today? Maybe give us an update? And as you think about 2025, is it more of a step function in yielding some of those benefits from all those changes or do you see those benefits building more over time?

Thank you for the question. There's quite a bit to cover, so I'll address everything as best I can, with some help from Nelson and Chris. Overall, I feel positive about our position for 2025 and the long-term outlook. One key external factor is that our categories continue to show strong growth. The demand remains healthy, and we're seeing expansion in both revenue and units. We've identified three main drivers of long-term growth. First, there's penetration, which still presents opportunities. The good news is that the rate of decline in growth has stabilized, and in some markets, particularly Korea, we've seen positive growth for the first time in eight years. There's also been positive growth in China. So, with penetration, we’re noticing early signs of stabilization in growth rates. The aging population in adult care categories continues to be a significant advantage, especially in developed markets like South Korea, China, and the U.S. Additionally, in many developing countries, the growing middle class is another important driver for us. The second major aspect is that frequency remains strong, although there are some weaknesses in parts of Latin America and Southeast Asia. Nonetheless, overall frequency is still robust. One of our significant opportunities lies in consumers’ interest in higher-performing products, which is driving growth in the premium segment of our categories. In terms of short-term expectations, we anticipate a 2% category growth this year. Although that's on the low end of our projections, it still indicates durability for our categories. The key is that our products are daily essentials, so their demand tends to remain stable over time. In the long run, we feel well-positioned to achieve consistent growth in volume and product mix. We believe our growth trajectory will continue to improve gradually over time, driven by demographics, income growth, and all the investments we're making to enhance our categories, products, and brands. As we mentioned during our Investor Day last March, we expected average category growth to return to a historical range of 2% to 3%. Last year, we performed slightly above that in the first half, but after adjusting for price changes from the previous year, we've seen reduced frequency in some markets and a slowdown in professional consumption in North America. Overall, however, our categories have performed well globally. For the remainder of the year, I don't anticipate significant new pricing to boost growth. My expectation is that we'll maintain about 2% this year, aiming for longer-term growth of 2% to 3% driven by volume and mix, which I believe is a reasonable goal, and we want to exceed that. I'll stop there, as I've covered a lot, and I'm open to any additional questions you have.

That was very comprehensive. I think you got it all, but maybe I'll just follow up on 2025 specifically. It didn't sound like you expect a lot of pricing. Maybe just take me through your decision process on pricing, particularly given some FX pressure and how you think about the balance between price and volume as you look out to 2025 and just level of visibility you can do at two-plus or better than category growth, presuming it stays in that 2% range. Just given if we strip out hyperinflation, you've been a bit below that the last few quarters. I know some of that's probably inventory, but just how you think about the level of visibility also specifically.

I'll ask Nelson to give our thoughts on that.

Yes, Dara. Let me outline the top-line expectations for 2025 and discuss the pricing trends we've observed in 2024, as they influence our 2025 outlook. Overall, we anticipate that enterprise pricing will remain relatively flat. In 2024, the full-year pricing realization was around 200 basis points for the enterprise, with hyperinflationary factors in Argentina contributing approximately 300 basis points. This contribution decreased quarterly throughout 2024, from 450 basis points in Q1 to 160 basis points in Q4, coinciding with the tapering of inflation in Argentina due to governmental actions from the previous year. For 2025, we expect Argentina to contribute around 30 basis points or less to top-line growth, meaning that pricing will not be a significant growth driver; rather, we will see volume and mix-led growth, reflecting a shift that began in 2024. In that year, volume and mix contributed 1.2 points to growth, with volume accounting for 0.8 points. This trend accelerated to 1.5% growth in Q4. We also anticipate continued gains in market share, with our weighted average market share gain in 2024 being 10 basis points, and we expect at least that amount or more as we move into 2025.

Great. That's very helpful. Thanks, guys.

Your next question is from Robert Moscow with TD Cowen.

Hey, Rob.

Hey, Rob.

Hi, good morning. The productivity savings are really outstanding at 5.9% and it sounds like you're guiding to that again in 2025. And I wanted to know, in 2024 did any of that productivity savings help you on pulp costs? Because it would appear that pulp costs are going higher in 2025, do you have productivity baked in your procurement estimates for that and any other commodities? And then secondly, you're confident in your PNOC outlook for 2025. Maybe give a little more color on that and how it compares to how you did in 2024? Thanks.

Yes, we're very pleased with the first year of our $3 billion five-year productivity target, which has started off solidly. We established our global supply-chain organization on July 1, 2024, marking the first year of our global supply chain transformation. We achieved historically high productivity, primarily through our integrated margin management efforts focusing on optimizing our manufacturing facilities with networking, automation, and value stream improvements. Regarding pulp and any related productivity savings, we have been actively managing the commodity basket rather than reacting to changes. Over the past couple of years, we've formed strategic relationships with our suppliers, which has helped us navigate the volatility experienced in prior years. Looking ahead to 2025, we expect productivity to be around 5%, slightly lower than the 5.9% we achieved, but still within best-in-class levels. We have significantly enhanced our cost visibility for the next couple of years as part of our integrated margin management and risk management strategies. We are confident in our ability to maintain a neutral pricing strategy net of cost, which was favorable in 2024, and we will continue to improve our team's skills in managing this approach in 2025.

Yes, maybe, Rob, I'll just add, from my view, I'd say our Powering Care strategy is powering what we want to be on algorithm performance. And I think we feel very good about how our plans line up for this year based on what we're seeing in the current environment. And I think one of the most important things is, we know we're lapping some discrete factors like this big private label exit and the PPE exit and some of the other things. But we do have very strong visibility into productivity and we feel great about that. And that's been the key driver for us to fuel our investment in the business and fuel our bottom-line growth. And then commensurately in last year and this year in this plan, we will continue to invest in pioneering innovation, strong commercial activation to drive volume and mix. And then on top of that, we're expecting to see some SG&A leverage through our wiring for growth initiative this year. So again, we're feeling very good about overall the productivity and our visibility into it.

Great. Thank you.

Your next question for today is from Steve Powers with Deutsche Bank.

Hey, Steve.

Thank you. Good morning. I want to clarify something related to SG&A based on Rob's question. Specifically regarding PNOC, since it will be a volume-driven year for the top line and considering potential cost inflation, it seems you may need to address some net negative PNOC this year. Please let me know if I'm misunderstanding your previous comments.

Yes, that's likely not what we intended to express. To elaborate on costs, it's important to share our perspective for the year. In December, we indicated that we expected costs for 2025 to remain relatively low and manageable. Our projection for 2025 is that costs will still be elevated, and in total, including currency effects, we anticipate they will be around $200 million, similar to what we experienced in 2024. This is within the manageable range. Regarding pricing net of costs, to answer your question directly, we still expect our teams to maintain a neutral position on pricing after accounting for costs. There may be instances where we make strategic pricing decisions or engage in competitive tactics that involve some tactical investments. However, we anticipate that our teams will ultimately lower total delivered costs over time. This is a core principle of our Powering Care initiative and the way we have re-structured the company, enabling us to achieve the lowest possible costs for our products globally while ensuring optimal performance in each category. That’s to clarify on the PNOC, Steve.

Yes, Steve, to start, I want to provide some context on our current thinking. We have moved past a period we refer to as an inflation super-cycle, where we experienced significant inflation over the past couple of years. Since last year and into this year, our main focus has been on achieving growth driven by volume and product mix while adhering to our pricing and cost strategies. We’ve seen that the need for pricing adjustments to counteract inflation has diminished, as expected. Going forward, it’s crucial to maintain our discipline in pricing and costs. We feel confident about our cost visibility and believe that pricing, when adjusted for commodity costs, will be favorable in the long term. Additionally, we have enhanced our tools for revenue growth management, which supports our ability to manage revenue effectively. Our immediate focus is to drive volume and product mix through innovative approaches and strong commercial execution.

And just to add there, Steve, keep in mind the productivity plan we are currently implementing. We expect productivity to also contribute positively and offset costs as part of our margin management for this year, aiming for at least a 5% improvement, which will signify another strong year of productivity in 2025.

Yes. And actually that segues into my main question because it feels like this year, a lot of the overall productivity savings that will enable underlying profit growth to hit that high-single digit run-rate on a constant currency basis, seems like a lot of that's going to come from SG&A. So could you give us a bit more detail on the sources and timing of that productivity, your line-of-sight to achieving it cleanly and your confidence to be able to kind of get there without having to walk back some of the value-added investments that you made in 2024. Thank you.

Okay, Steve. Maybe I'll start with an overall perspective on marketing and then ask Nelson to comment specifically on the SG&A program. But I'd say overall, we're very comfortable with our current investment level in marketing. We're comfortable investing more to support faster, more profitable growth also, right? And to give you a little more perspective, our advertising spend has more than doubled since 2018, and we feel like we've gotten very strong returns on those investments. We closed last year 2024 at what I would say is a healthy 6.5% and Patricia Corsy, our new Chief Growth Officer, she's really, really here focused on helping us become world-class brand storytellers. And so, under her direction, we're doing a lot of things to improve our creative. One of the important ones is, we're consolidating our agency partners both behind creative and the media side and that's going to both improve the content that we have and also the efficiency in spending. So with that set-up, I'd say, we're expecting to spend at a similar level in 2025, and we feel good about that. And as we drive additional productivity, we're going to continue to look for opportunities to spend more.

Yes. And as it relates to the overhead savings in particular. When we were at our Investor Day on March 27, we said that our plan was to deliver as we went through our Powering Care program around $200 million of SG&A savings. And they kick-in once we were fully operational under our new segment structure. And that happened in Q4 of 2024. So we went live with the three new segments on October 1 and our organizational changes are pretty much in place as we speak. So we expect those SG&A savings, to your point, to begin to kick-in a material manner in 2025 and that's built into our outlook. So, we said it will take us around two years for that to materialize. So this would be the first of the two years where we would begin to see those savings flowing through. And of course, we will make investments as we create space on the P&L, but we expect that to be part of the rationale of why we expect operating margins in 2025 to grow at a faster pace than gross margins.

Yes. Okay. Very clear, very comprehensive. Thank you both. Appreciate it.

All right. Thanks, Steve.

All right.

Your next question is from Lauren Lieberman with Barclays.

Hey, Lauren.

Hi, Lauren.

Hey, how are you guys? Good morning.

It's been a bit lengthy today, so…

It's going to do a lot to say. It's all good. So I wanted to just talk a little bit about sources of growth. So a lot of talk so far on the call about pricing, but one thing that stood out to me this quarter was the volume growth. And China numbers on Personal Care specifically cited in the release. You also had good volume growth in North America and in personal care in particular. But I was curious sort of when we can expect to start to see volume growth coming through from other markets because we're very US and China weighted at the moment. Share gains have continued versus Procter seemingly in those categories just based on what they've had to say about those businesses. And so, I was just curious if you could talk a little bit about broadening out sources of volume growth in terms of other geographies and just any kind of signs of changes in competitive dynamics that you may or may not be seeing? Thanks.

Thank you for the question. I appreciate you bringing that up. To give you some context, about five years ago during a board meeting, we identified the US and China as crucial markets that we need to focus on, given their significance in the global landscape. I'm happy to say that our strategic emphasis in these areas is yielding positive results, and we are proud of the progress our organization has made. However, I want to point out that our focus extends beyond just the US and China. For instance, we're seeing improvement in our market share, and while I'm pleased with that progress, I'm also striving for more. Our goal remains to develop superior product offerings across all tiers, which sets us apart. Our weighted share for 2024 increased by around 10 basis points, with notable growth in North America, especially in categories like diapers, adult care, and facial tissue. In North America, our personal care segment saw a rise of 80 basis points in market share, and overall, consumer products grew by about 10%, with gains in seven of eight categories. Furthermore, in key markets outside of China, we're also seeing solid growth. For example, in the latest quarter, Huggies in China increased by 200 basis points. In the UK, Andrex has seen a rise for three consecutive years, with an additional 100 basis points, and Kleenex there grew by nearly 400 basis points. In the US, Kleenex also improved by almost 400 basis points. We achieved share growth in Australia and Indonesia in Feminine Care, and in South Korea's diaper market, we saw a significant increase of nearly 400 basis points. These are signs of growth across various regions. The point you raised about broader volume sources aligns with our recent reorganization efforts. The aim is to accelerate the implementation of our global growth strategy. We believe this restructuring will allow us to maximize our scale and deliver the best of our capabilities more efficiently than individual markets can achieve. As I mentioned during our Investor Day, we possess impressive technology that has not yet been fully utilized worldwide. This organizational change is designed to foster quicker implementation of successful strategies across different markets. I'm observing the advantages of our focused segments and witnessing how effectively great ideas are being introduced to various regions. This is contributing to an uptick in productivity as we streamline supply chain initiatives across our organization.

Okay, great. Thank you so much.

Okay. Thanks, Lauren.

Your next question is from Bonnie Herzog with Goldman Sachs.

Good morning, Bonnie.

Good morning, Bonnie.

Thank you. Good morning. I was hoping to get some color on phasing this year. There are several moving parts, including the impact from potential retailer destocking, FX, your private label exit, etc. So…

I think we just lost you. I don't know we just left. Holly are we still on.

Yes, Bonnie, your line is live.

Maybe, Nelson, you want to answer and then we can follow-up when she is back.

Let me provide some insights into 2024 and the phasing we experienced. We encountered several one-time factors that affected sales, which did not align with consumer offtake. In North America, consumer offtake for the year exceeded our sell-in figures. This situation also influenced the distribution of earnings throughout the year. It's important to acknowledge the efforts of our teams in navigating these challenges while still achieving a solid full year that surpassed the targets we established earlier in the year. The most significant challenge we faced was the reduction of retail inventories, primarily in the US. It's worth noting that the impact of inventory changes on organic growth in any given period primarily reflects a change in change, relating shipments to consumption from the prior year compared to what occurred this year. In 2024, the restocking we observed in 2023, particularly following the normalization of our supply chain in Q3 of 2023, along with the trade destocking throughout 2024, resulted in a total enterprise impact of about 60 basis points on full-year sales. This impact was more pronounced during the first three quarters of the year and created some discrepancies in the reported organic growth figures, though not in consumption. Looking ahead to 2025, assuming shipments align with consumption for the year, we anticipate a tailwind of less than 40 basis points compared to 2024, reflecting adjustments in trade stocks. This expectation is part of our outlook. Importantly, our growth will primarily be driven by volume and mix throughout the year. We plan to capitalize on the share momentum we witnessed in 2024, where we achieved a 10 basis point share gain, and we expect to maintain or even accelerate this growth. Regarding our overall P&L, we predict revenue sales will be fairly evenly distributed between the first and second halves of the year, and we have a similar outlook for profits. We expect a more balanced distribution in 2025 compared to 2024.

All right. I don't know if you can hear me, but thank you.

Okay, we have you back. Thank you, Bonnie. Is there anything else? So...

No, I think that covers that. I appreciate it. Thank you.

All right.

Your next question is from Anna Lizzul with Bank of America.

Good morning.

Hi, good morning.

Hi, Anna.

Thank you so much for the question. In the prepared remarks, you mentioned that in international Personal Care, you're going to continue to be choiceful about the markets where you invest. You had exited markets like Nigeria. Just as you look at the business now, are there any other markets or regions where this might also be the case? And then separately in professional, this picked up nicely in Q4. Just wondering if you can talk more about the momentum that you're seeing there and any other color on volume expectations here for 2025? Thank you.

Yes, we have experienced several business exits, including some business lines like the private-label contract and the PPE business. Additionally, we exited a couple of markets, including Nigeria and Bolivia. Overall, we are pleased with our portfolio and the categories we operate in. We are taking steps to ensure that our categories continue to be strong and reliable contributors to our growth. Where we don't see a competitive advantage, as in our Brazilian tissue business, we've made different choices to optimize our involvement. We will remain disciplined in our approach. Regarding the professional segment, we are confident in our global position. I did mention some softness in the washroom business in North America, but our team has implemented the right plans for this year, and we anticipate improvement. Internationally, we believe we are making the right moves, increasing volume, gaining market share, and driving the business in the right direction.

All right. Thank you so much.

Okay.

Your next question is from Peter Grom with UBS.

Hey, Peter.

Peter.

Good morning, everyone. I was hoping to get more information on something mentioned in the prepared remarks regarding the decreased frequency of product use due to consumer pressures in Latin America and parts of Asia. Can you elaborate on that? Is this a widespread issue across all consumer packaged goods categories, or is it more specific to the areas where you operate?

I’m not focusing on the categories where we don't compete as much anymore, so I’ll stick to what I'm observing within our company. I would say there’s a dynamic occurring in our categories globally, particularly in countries with informal economies. For example, in Peru, around 80% of the population is paid on a daily basis. When economic conditions become tougher and some individuals earn less or work less, their spending patterns shift because they have no other option. This is evident during COVID and continues to be the case now. What makes this unique to our categories is that, on average, people use four to five diapers a day. Even if they have less money, they want to stay in the category. Instead of completely exiting, they may reduce their usage from five to three diapers. We see this behavior in informal economies when economic conditions get tighter, particularly in certain areas of Latin America and Southeast Asia recently. It happens annually, but I mention it because it is occurring now, and our teams are addressing it.

No, that's really helpful. And then just maybe a follow-up just on Bonnie's question on the phasing. So totally hear you, just 50-50 just in terms of profitability earnings. But in terms of growth, it's a pretty different trajectory first-half versus second-half. So maybe just walk through that a little bit. And I guess maybe what's the degree of confidence or maybe said another way, what's the cushion you've embedded in the back-half outlook? Should some of these external variables like inflation or demand move against you? Thanks.

Yes, Peter. Let me elaborate a bit. We expect the year to be balanced between the first and second halves. Regarding year-on-year growth, we are comparing against a stronger base, especially in Q1, which was our best quarter last year. This will affect our growth figures. As for pricing, it has been decreasing over the past year, and this year will focus more on volume and mix. We generally anticipate pricing to remain flat, with only a slight contribution from hyperinflationary economies factored into our projections at this point.

Great. Thanks so much.

Thanks, Peter.

Maybe we'll take one more question.

Your final question for today is from Korinne Wolfmeyer with Piper Sandler.

Good morning, Korinne.

Good morning. Thank you for taking my question. I would like to understand the details regarding the gross margin expectations for 2025 and how we should view the expansion throughout the year. What are the key differences to consider for 2025 compared to 2024? Additionally, as this affects the operating margin, how should we approach the timing of marketing and advertising spending throughout the year? Thank you.

Certainly. Regarding gross margin, we have seen a positive trend in margin expansion over the past two years, achieving an increase of about 300 basis points in 2023 and 200 basis points the previous year. Our operating profit margin has also improved, growing by approximately 150 basis points each year, although at a slower rate than gross margin due to increased investments in our brands. In 2023 and 2024, we increased our investments by about $250 million in advertising to support this innovation and drive volume growth. Looking ahead to 2025, we anticipate continued gross margin expansion, though at a slower rate compared to the previous two years. This will be supported by ongoing productivity improvements, which we estimate will be around 5%. However, the impact from pricing will be limited. Additionally, we have plans to invest in our supply chain, focusing on network optimization and automation, which will further drive productivity. As for operating margin, we expect to benefit from SG&A savings of $200 million from our Powering Care program, which will become more significant in 2025 and 2026 due to our new organizational structure already being in place. Consequently, we project that operating profit margins will increase more than gross margins, which will also grow but at a reduced pace.

Very helpful. Thank you.

All right. Well, thanks everybody for joining us. If you have any follow-up questions, we'll be available all day to take them. So thanks again and have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.