Good morning, and welcome to the Kimberly-Clark Second Quarter 2025 Earnings Question-and-answer Session. I will now hand over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Good morning. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I'd 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, which 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. 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 will hand it over to Mike for a few opening comments.

Okay. Thank you, Chris. The second quarter was one of the strongest and most active in our recent history. Our results are indicative of the excellent progress we're making executing Power and Care. We accelerated momentum on the top line and delivered solid organic sales growth, fueled by our strongest volume quarter in the last five years. On a global basis, we gained weighted share and made significant share gains in several key categories in our largest markets. Now regarding our top line 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 strategy to deliver exceptional brand propositions across the value spectrum is paying off. Consumers seeking better value are trading within our portfolio, and we're delighted to retain them within our brand franchises, as you can see in the U.S. scanner data. Third, our performance is driven by excellent commercial execution, superior innovation, and strong investment to differentiate our brands. We delivered another quarter of industry-leading productivity, enabling us to reinvest when and where we see opportunity to support profitable growth. 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 Suzano will unlock the full potential of International Family Care and Professional. For Kimberly-Clark, it 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 great opportunities 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.

Your first question is coming from Nik Modi from RBC Capital.

Maybe you could just talk about, obviously, 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 any more specifics in terms of really what drove this level of outperformance. But more importantly, given everyone is kind of moderating their expectations for the back half of the year and you guys obviously are suggesting otherwise, what gives us the reasons to believe on why we should feel comfortable with kind of the outlook in the back half?

Okay. Thanks, Nik. Great question. There's a lot to unpack in there. Maybe I'll start with, how do we see the state of the consumer? One, you could see in our approach overall that we've been talking about for a few quarters now, our approach is to meet consumers where they need us, right? And so that's kind of our starting point. I'll talk about maybe how we're seeing it and perhaps with a tilt toward North America. But I do see purchasing power under pressure for consumers. And frankly, we don't really see a catalyst for that dynamic to change in the near to medium term. So for us, that does affect the categories. However, I'll say the other thing that we've talked to you about our categories is they are essential. There's not a whole lot of substitutes for our products. And so because of that, demand remains resilient, and the categories continue to demonstrate durable growth, right? And that's kind of a big deal for us. I think that sets our categories apart from what you're seeing in some of the other categories. If I just click through a couple of areas, I'd say definitely North America would exhibit durable growth. We're seeing penetration and frequency stable. Obviously, the bifurcation trends are continuing. But I think your question about, hey, why did it perform better than maybe what some expected? We took on this approach, which I think we started doing last year, which is, hey, we want to have a great value proposition in 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 tiers. And I would say, if you looked in the quarter, what's driving our demand is the innovation. So I think we feel good about that. I'd say in international markets, we have seen some frequency declines, notably in, I would say, more informal economies where pay is less stable, like in Latin America, we've seen that occur. But in international in our larger developed markets, we are seeing demand continue to be fairly stable. So we feel good about our progress through the first half. And therefore, I think your question about the second half, what gives us confidence? I think we feel great about our pipeline. Again, I think the vast majority of the growth we've 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 a lot of that is just hitting in the second quarter. And so we expect to continue to perform as we go through the balance of the year because we have great innovation at the premium tiers and at the mid-tiers to serve our consumers well. So again, we expect continued strong performance through the balance of the year.

Your next question is coming from Lauren Lieberman from Barclays.

Wanted to just talk for a second about North America, performance was so strong there this quarter and really was quite different than what we saw in scanner. I had actually expected the professional business to be a drag on performance, kind of going the other way versus scanner. So I was wondering if you could kind of square that for us a bit. And then also, I know you just spoke to Nik about confidence for the balance of the year, but I was curious about pacing. There was a bit of noisiness in the second half last year. So just anything you can share on phasing in the back half would be great.

Yes. Maybe, Lauren, I'm going to pass it over to Nelson, but I'll just share my overall thoughts on pacing. When you're thinking about comps, there's a lot of noise in the year ago, and there's noise this year, too. So when you think about comps, there's just a lot of choppiness going on in the numbers.

Right. And I'll seek to unpack that, Lauren. So a few things. On North America, in both scanner and reported results, we're seeing building momentum from a strong pipeline of activations and innovations that are winning with consumers across all the value tiers. In Q2, in particular, shipments in North America consumer were about 100 basis points ahead of consumption, which was at 4.5% branded consumption. This was driven by a tailwind in retailer inventory shifts. These are made up of two things. One, we're lapping prior year destock that we saw in Q2. And then we had a 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 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. And this was driving about 60 basis points of impact to total company organic sales in the first half and about one point to North America. Secondly, there's one less day of shipments for the first half this year, whereas scanner data is apples-to-apples in terms of days, weeks versus the prior year. This represents about 50 basis points of impact to organic sales at both enterprise and North America. This was partially offset by the tailwind from retailer inventory shifts in North America, which was about 50 basis points at 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, we have a strong slate of new product and go-to-market activations and innovations that have been ramping up as of Q2. We expect to have that continue into the second half. This will help us drive or sustain a volume mix-led growth in the balance of the year. Consistent with our long-term algorithm, we're continuing to target growth for the balance of the year that will be volume mix led. Currently, our categories, when we think of North America and International Personal Care, are growing at a weighted average of around 2%. From a quarterly perspective, the third quarter and the fourth quarter will be driven by the year-ago comparison as much as anything else. Q3 will have the easiest of comps versus prior year. There’s about a 30 basis point tailwind at the enterprise level and 50 basis points for North America from hurricane impacts on our shipments at the very end of September of last year, which were recovered in Q4. As we think of the fourth quarter, last year, we also saw the benefit from panic buying due to the port strikes, which was about 40 basis points of benefit in the quarter for the enterprise and 60 basis points of benefit for North America. The combined impact from the hurricane and panic buying will result in about a 70 basis point headwind to Q4. Overall, we're expecting to maintain a solid volume mix-driven organic growth in the second half and for the full year, leading category growth.

Sorry, we're throwing a lot at you. But can I just add one point? I want to go back and emphasize, here's where you started, strong performance in North America; underlying driver is great innovation. I think there's really strong improvement in our marketing. The customer plans are as good as the innovation. I think we're working exceptionally well with customers. And so that's what's driving it. North America, as Nelson mentioned, consumption in the second quarter was up 4.5%. The range of our categories was from, I would say, low single digit, with bath tissue around 4%, low single digits to up to near double digits in adult care. So I think consumption remains robust in our categories, as I said earlier to Nik; consumption is very durable in our categories, and that's really driven by excellent innovation and execution.

Your next question is coming from Steve Powers from Deutsche Bank.

Nelson talked about volume mix led growth in the back half. So I wanted to talk a little bit about the pricing environment and your pricing outlook. On one hand, if we think about what we've heard year-to-date and through the second quarter, I think we've seen pockets of increasing promotion and competitive activity in certain areas, particularly in the U.S. On the other hand, there are inflationary pressures building, and indications suggest we should see some kind of pricing rolling through as we move through the back half into next year. So I guess in that context, just your overall assessment of competition, your pricing outlook for the balance of the year and any expectations or considerations you have for customer and consumer acceptance of that incremental pricing if it comes.

I will begin by stating that our primary focus at this time is on increasing volume and improving our product mix, while also ensuring discipline in maintaining pricing net of commodities. Our goal is to keep this figure at zero or above. We have consistently implemented targeted revenue management strategies across all areas. Earlier this year, we raised prices in certain categories, while in others, particularly for entry-level products and some larger account sizes, we have lowered prices. Regarding promotions, we see them as a tactical tool to encourage trials of our innovative products. However, I do not support using promotions to drive growth, as in our fixed-consumption categories, they do not facilitate category expansion. Our promotional intensity remains below the category average and is lower than what it was in 2019 before the pandemic. We are not relying on pricing as a means to achieve growth due to the promotional dynamics at play.

Yes. I guess in summation, what I'm gleaning from what you're saying is that where you need it and where you see opportunities, you feel good about your pricing power and are not overly concerned about the competitive environment. Is that a fair summation?

Yes. That's a fair summation. Our approach is we have to offset commodities and expand margins over time. That's just a discipline we have to employ.

Your next question is coming from Michael Lavery from Piper Sandler.

Just wanted to unpack the outlook update a little bit. There are some constants, but obviously also some changes with tariffs or some of the impact on the portfolio reshaping. You gave some details in the prepared remarks, but maybe just bridge the changes for us and put the spread trends together. It feels like there are a good number of moving parts from three months ago until now.

Sure. There's been a lot happening in the last 90 days, and we'd expect more to come. A few things as I unpack the outlook and bridge it to April. Our outlook reflects the momentum we have in the business, which is grounded in sustainable actions, strong innovation, and the execution plans that our teams in the field are carrying out. We're focusing on winning where it matters, which is with consumers through our superior product offerings. On the top line, we're well positioned to deliver sustainable growth ahead of the categories through a volume and mix-led growth. Our organic growth is now based on our business in North America and IPC, where the weighted average category growth is around 2% compared to the 1.5% to 2% growth we had back in April, which included IFP. So we're excluding that; that's why you see category growth weighted slightly higher, still at the same levels we had back then. We plan to continue to gain share, as we did this quarter with about 10 basis points of share gains on a weighted basis. As we look at operating profit, we're supporting a significant step-up in new product activations and launches across key markets. Gross productivity will continue to be a strong driver of our ability to do that. As of the second quarter, we delivered about 5.5% of gross productivity as a percentage of total cost of goods. For the second quarter, it was actually 5.8%. We aim to be at the top end of the 5% to 6% range in gross productivity, and that's unchanged from what we laid out in April. We're making strong progress on the SG&A overhead savings, the $200 million we had planned as part of Power and Care from last year. And as we said back then, this would ramp up in 2025 and 2026. We're seeing that play out in the first half, and that will continue through the second half based on our plans. As we look at adjusted operating profit growth, this will be based on the performance of North America and IPC, as now IFP is part of discontinued operations. One of the elements is negative overhead growth this year, which is built into the plan. Right now, 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 in terms of operating profit. The change in our operating profit growth rate from flat to positive to low to mid-single digits reflects a combination of the lower expected net tariff impact. We currently expect a gross tariff impact of around $170 million, which is $130 million lower than the $300 million we estimated back in April; we expect to offset about one-third or $50 million of that $170 million. Furthermore, we saw some favorable currency conditions compared to April, as it’s about half of what we expected then. Lastly, we’re pausing depreciation and amortization on our discontinued operations of IFP, which represents about $0.16 of EPS for the full year. We expect $0.02 to flow in the second quarter and about $0.14 would flow in the back half. Overall, we will keep investing. We expect our advertising and brand support to step up in the back half of the year to around 7% versus the 6.4% to 6.5% we've seen in the first half. Again, if we see the opportunity, we will invest more to sustain the volume/mix momentum we've seen in the first half of the year.

Just sneaking a quick follow-up on the brand spend. You also called out some of the awards at Conn and just how much improved that performance is. What's driving the better execution? Is it just a bit more spend? Is it better capabilities? Or is there a pivot in how you approach it?

Yes. Great question, Michael. I'm glad you picked up on that. I would say it's all about better capability and more focus from the company. Historically, our marketing was very decentralized. We had a lot of agencies and individual markets making independent decisions. While they still have much to say and control over the marketing, this new organization under Patricia Corsi's leadership, our Chief Growth Officer, is bringing a different philosophy. What we had to invest more effort in is developing an emotional connection to our brands. We were always great at bringing technical features and differentiation to the product. We were okay at demonstrating those features through demos. But we're focusing more on building brand love or that emotional connection. The operative word that's leading to our improved performance is in-house. We're bringing a lot of capabilities in-house. We still use agencies, consolidating to a few great ones, but a lot of what we're doing is in-house. For example, in China, we are producing many, many ads daily that are AI fueled and those are in-house generated, and then deployed to media. This capability is newer to us just over the past few years and brings us speed of execution and improved creative quality. We doubled our award total from the prior five years just this year at Conn. I think we're heading in the right direction.

Your next question is coming from Bonnie Herzog from Goldman Sachs.

I had a quick question on your JV deal with Suzano. With IFP out of the base business, how should we think about the organic sales growth and margin EPS accretion to your long-term algorithm? You touched on this a bit, but volume in the quarter was strong and broad-based. I wanted to verify that there wasn't any pull forward. 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 it in the second half. Ultimately, should we assume volume growth in the second half?

Yes. Let me just start on the volume matter. I’m pleased with the performance; our consumption globally was strong. It all starts with consumption, and we manage on consumption. We recognize there are inventory changes, but we don't overly manage retail inventory changes because, in the long run, shipments must equal consumption. For example, in North America, we saw 4.5% consumption growth on our brands in the second quarter. There was a little inventory build for the reasons Nelson articulated, but there was also some retail inventory takeout in the first quarter. Overall, we feel good about that. Regarding IFP, we remain committed to our long-term algorithm presented at Investor Day last year. This transaction should improve our reliability to deliver consistent top-tier growth over time. Our organic growth, which was predicated on growing ahead of our categories, is positively impacted by a personal care category which is margin accretive and more consistently growing. We expect our growth profile to continue to improve over time due to our innovation, marketing, and activation strategies. On the bottom line, we’re making very good progress on margins. We have great visibility to our 40% gross margin and 18% to 20% operating profit aspirations by 2030. Note that these are milestones, not targets. We aim to surpass them. I do think the IFP transaction creates a one-time impact, accelerating us a bit further on margin. We will update you on the details as we get closer to the close.

Right. Just building on that, Bonnie, when we strip out IFP, we're seeing underlying category growth that’s slightly higher than before, supporting our thinking around a North America and International Personal Care business that grows faster with a higher gross margin. We expect to continue to grow through volume and mix in the foreseeable future – this is what we believe. We are on pace to get to that 40% gross margin and 18% to 20% operating profit sooner than 2030 due to the strategic move we made.

We reached the allotted time for Q&A. I'll now hand the conference back to Chris Jakubik for closing remarks. Please go ahead.

Well, thanks, everybody, for joining us. We know there are multiple calls today that you need to get to, so we appreciate your attention. If you have any follow-up questions, we'll be around to take them for the remainder of the day. Thanks again, and have a great one.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.