Good morning, and welcome to the Kimberly-Clark Second Quarter 2026 Earnings Call. At this time, all participants are placed on a listen-only mode. I'll now hand the floor over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Good morning, everyone. This is Chris Jakubik, 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 risk 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 reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I'll turn it over to Mike for a few opening comments.

Thank you, Chris, and thank you all for joining us today. Hey, as I mentioned in our prepared remarks, our second quarter results demonstrate the durability of the growth engine we've built through Powering Care. We delivered our 10th consecutive quarter of solid volume plus mix performance, held global weighted share, posted another quarter of industry-leading gross productivity, and continued to invest for impact. We did this even as consumers remained pressured and category growth is moderating at the same time results were impacted by a few discrete but significant one-off items in the quarter that underpin our decision to adjust our full-year outlook despite these headwinds the fundamentals of our business remain strong and we're confident in our momentum entering the second half and into 2027 our teams are executing with speed agility and great care to manage the business with discipline and navigate external dynamics we're delivering superior science-backed innovation and value propositions around the world through our proven repeatable playbook that positions us to continue to win with consumers advancing the next phase of Kimberly Clark's transformation and sharpening our focus on proprietary right-to-win spaces yesterday we unveiled a proprietary alternative natural natural fiber innovation program which has the potential to reshape the future of our industry this is the culmination of more than two decades of materials and plant science expertise brought to life through powering care believe the program will enhance product performance for consumers strengthen our long-term growth trajectory reduce exposure to natural forest fiber cost volatility and advance our natural forest fiber free ambition We also completed the successful launch of Arbex, our strategic joint venture with Suzano. We're making strong progress on our integration planning for ChemU as well. We're excited and ready for what's next. We have a unique generational opportunity to create a new kind of health and wellness company, reimagine care for billions of people around the world, and to create lasting value for shareholders.

With that, we'd like to open up the line for questions. certainly everyone at this time will be conducting a question and answer session if you have any questions or comments please press star one phone at this time we do ask that while posing your question please pick up your handset if you're listening on speakerphone to provide optimum sound quality your first question is coming from nick modi from rbc capital markets your line is live thank you good morning everyone morning so just like maybe you can unpack what exactly is going on in China you know in terms of like how this

all started and then what the path forward is and then I have one more question after that yeah I'll take that one hey Nick it's Russ yeah I would say the main message you know is that we were very you know confident in our products we make high quality products that are safe and perform well and so we think that's going to lead the way to recovery over time but just a little more context you know and I'll maybe make three three points first there really is no scientific evidence backing the claims we did as we noted in the remarks make multiple independent tests conducted by certified third-party lab that confirmed that our products are safe and there were non-detect tests Second, in terms of how we're handling it, you know, our team is doing an excellent job navigating the situation. We're continuing to cooperate with the Chinese authorities who are managing the issue. And our strategy really is to continue to invest aggressively behind reinforcing the facts about our products and communicating quickly with transparency to consumers and obviously engaging stakeholders like retailers and government agencies. And we've gotten excellent support from all the stakeholders, which we're really grateful for. And then third, in terms of the outlook and what we expect going forward, we are not seeing any sequential deterioration in our sellout in China, but it also hasn't inflected positively yet. So we think we've been appropriate in the outlook for the balance of the year, considering that uncertainty. And while we are cautiously optimistic in some areas, I think, you know, these incidents, you know, have been occurring with greater frequency, and consumers are pretty smart and getting savvy about these things. We're also realistic that it's going to take a little time, you know, to kind of work through this. So hopefully that gives you some sense.

Yeah, Nick, it's Mike. I'll just tag on, you know, one, you know, given kind of the social media environment, this is not the first time this occurred to us. It probably is the largest, though. But, you know, I would say, you know, our purpose as a company is better care for a better world, and we take our responsibility to consumers as paramount in that, and we would never trade that off. And so we're very confident in the quality of our products, and so we believe we'll get this back to the right place. I would like to add, Nick, though, that brand foundations globally remain strong in the face of some of the discrete impacts, including the China issue that we're working through. You know, just to point out, and I think I made this in my prepared remarks, you know, we're still sustaining positive volume plus mixed growth, I think, our 10th consecutive quarter of that. And then even in the quarter, I'd say, you know, holding overall weighted share in the quarter, although on the old cohort approach, up or even in about 70% of sales, you know, across the world. So, you know, I think we feel good about our brand fundamentals, and, you know, we're confident we'll be able to navigate this issue.

Great. And then, Mike, you know, it was a really noisy quarter, a lot of stuff going on. You know, maybe you could just give us some perspective on how you guys performed relative to your internal expectations just so we can kind of ground ourselves.

Yeah, I'll make a comment, but maybe I'll have Nelson give you that because I think he's a little prepared for that thought line of thinking. but also, you know, I would agree with you, it's a choppy environment, so I'll come back to that.

Yeah, so, Nick, just to unpack a little bit the quarter and where we're at, I mean, yeah, the second quarter, you know, organic growth came in below our expectations. However, strong execution, you know, and the tariff refund that we received in the second quarter drove the better than expected and solid operating profit growth and EPS performance in the quarter. If we look at organic sales in Q2, we were about 100 basis points or so below our expectations. This was driven primarily by the disruption in our China diaper business. The back half of June, keep in mind that was only just two weeks, as well as the trade inventory reduction in North America, which was largely concentrated in adult care and in one particular channel, and that was not something we contemplated when we gave you our outlook back in April. that bit, as well, lastly, as the softer category growth, because as you remember, we had talked about a 2.5 percent category growth trailing 12 months back in April, and now we're staring at about a 2 percent. As it relates to adjusted operating profit and EPS, the two came in ahead of expectations, as I stated earlier, and this is primarily due to the tariff refund benefit and the really solid productivity we deliver in the quarter, which was 6.4%, which both more than offset the higher levels of brand investment year over year. And, you know, overall, despite the challenging operating environment that Mike referred to, which included maneuvering through the L.A. distribution center fire, all the Middle East incremental costs they were managing through, and the China diaper disruption, we still had strong execution across, you know, all of our markets in general, and this enabled us to deliver solid bottom line in EPS, which was, again, ahead of expectations.

Yeah, and then, Nick, just back to your, you know, the point, I would recognize, I think it is a very choppy environment generally for us globally, you know, but I would say the category remains resilient in a choppy environment. You know, if you go on a trailing 12-month basis is for the past few years, our categories on average have been about two, two and a half. And I think that reflects the essential nature of our categories that yield a little more resilient, more stable demand than other categories that I've worked with in my past. That all said, though, I would say, Nick, I think you see it too. Consumers are clearly under increased pressure. I think we're seeing sentiment, especially among lower-income consumers, is weakening. And we're seeing greater variability in consumption. You know, weighted growth across our categories in North America moderated sequentially from 3.7% last quarter to 1.9%. If you go further back, Q4, I think, was plus 0.4, right? So it is choppy. But the thing I will tell you is at least some of that choppiness is potentially exacerbated by maybe promotional timing effects. And the reality of our categories compared to some of the food categories that Nelson and Russ and I have worked in the past is we tend to be more concentrated in a smaller number of large retailers. And so I think large promotional events can swing things. And I think we've seen that, you know, from quarter to quarter. And so, you know, I would say, you know, we expect promotion kind of variation to normalize over time.

Thank you, guys.

Thank you. Your next question is coming from Chris Carey from Wells Fargo Securities. Your line is live.

Hi. Good morning, everybody. Thank you. The first question is a clarification question. What was the tariff refund in the quarter, and do you expect any more? I'm trying to understand the full-year guidance, tariff refund versus inflation and the mitigation efforts that you're doing and so it'll help isolate some of those key buckets. Now, I'm going to follow up.

Sure, Chris. So a few things. I mean, in terms of the refund that we received in the quarter in North America, the U.S., it was $45 million, and that represents roughly about half of what we paid in North America as a whole. And keep in mind, that's not just the U.S., because there were some retaliatory tariffs that we paid earlier last year in Canada as well. So overall, this is reflected in our second quarter results and in our updated outlook. For the balance of the year, we don't have anything much more material factored in. So that's largely what's included in our outlook. And right now, beyond that refund, we're continuing to monitor the policy environment and what's out there.

And then going into 2027, you know, there had been an expectation for, I think, mid-single-digit dilution from deal activity. And then there was going to be an underlying assumption for base, you know, Kimberly-Clark. Just given what we're seeing in the backdrop for categories in North America and the competitive activity, given the volatility in China, and also your latest expectations for Kenview, which sounds like it's closing in Q4 with good line of sight on synergies. Do you continue to view the 2027 construct as you had laid out as still as tangible or firm as you had done before? Just give us a sense of maybe how a thought process may be evolving as you get a bit more information about both your legacy Kimberly-Clark business and also KedView as you go into next year.

Yeah, so Chris, let me unpack, you know, your question a little bit. So first, we remain very confident in our ability to create generational value through the Kenview acquisition, joining forces, the two companies. You know, based on what we know today, we do not believe the factors driving our lower standalone 26 earnings outlook, and that's for us, materially change the underlying earnings potential of either our standalone businesses or the combined company going forward. Now, clearly, the exact timing and pace of the recovery in China following the diaper disruption will influence how quickly results normalize. There's also some uncertainty around commodities and the broader macro environment. Given the ongoing Middle East crisis and volatility we're all managing through, the potential impacts on the inflation and consumers, as well as the exact timing of the further mitigating actions we may need to take. But some of those are already well underway, and that's why you see the outlook that we put forth. Given all those moving pieces, standing here today, it's early to provide a specific view on 27 because we still have a lot of things that need to land in the back half of the year, including the exact timing of the closing of the transaction. But as I said, we remain very confident in the underlying earnings power and growth potential of the new company. As we get closer to the close of the transaction and we have further clarity on all these move-in items over the next few months, we will provide an update on the overall view for 2027 and beyond. But rest assured that we remain very confident in the logic and the generational value that we see this transaction creating.

Thank you very much.

Thanks, Chris.

Thank you. Your next question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.

Thank you. Good morning, everyone. I have a question on North America, which came in a bit below our expectations. First, could you unpack the drivers of this softness, including underlying consumption trends versus retailer de-stocking, and ultimately, how your business in North America performed relative to your internal expectations? Then second, it sounds like you're expecting a stronger 2H, so could you talk through the drivers of this and maybe what gives you the confidence and visibility in this expected improvement?

Yeah, why don't I, let me unpack the quarter and the half in terms of the puts and takes and the drivers, and then Russ will chime in on why our conviction in the acceleration of the business as we go through Q3 and Q4 and our confidence, you know, in our overall North America business and the strength of our propositions for consumers and customers. But as we chatted back in April, Bonnie, I mean, underlying consumption, we expected it to be ahead of shipments for the second quarter in line with what we saw in the first And as we think about what transcended in the quarter, a couple of things. One, shipments in North America consumer categories, in fact, lacked consumption by about 170 basis points. And to be clear, the shipments were down about 1.4% in consumer, as opposed to a consumption growth, which was 0.3%. And that was mainly by two factors. The first one, as we chatted back in April, the L.A. Distribution Center fire would represent a headwind of around 80 basis points to top line in the quarter for North America, and that largely came in as expected, right around $22 million to be exact. And then in addition, we had the retailer inventory movements, which in total year on year impacted shipments growth by roughly 100 basis points versus last year. And of this, we had about half of that was not something we anticipated when we gave you our outlook back in April. And this had to do with a particular channel and largely the adult category. Taken together, these two factors largely explain the gap between shipments and consumption. If you look at the first half, three factors would have caused shipments to lack consumption by right around 200 basis points for the North America consumer business. And these are, one, the L.A. distribution fire, which was around 40 basis points of a headwind in the half. Then the retailer inventory movements, which for the half represented, again, about 100 basis points year on year. And then lastly, as we chatted back in April, we had heightened activation programming across several channels, particularly Club, which started early in Q1. And for these, we had made the shipments largely in the end of 2025. But to add some color on why we see the second half gaining steam, I'll, you know, I'll try and throw it over.

Hey, Bonnie. Yeah, I think overall, look, we are very confident in the health of our North America business. And while Nelson unpacked the drivers of the quarter, which was below expectations, you know, if you kind of look at the bigger picture, we've gained, you know, we've driven volume plus mixed-led growth in eight of the last 10 quarters, trailing 12-month share. We've gained share in 70% of our sales base in North America. And if you look at the share in the quarter, the majority of the weighted average share decline was driven by that club distribution loss, which we talked about previously in the last couple calls. And we do have a very strong innovation pipeline as well as brand investments coming. Our tissue business is performing extremely well. Our e-commerce business continues to perform really well. And in the second half, we'll be scaling those innovations, and we've got some very good activation planning as well as some revenue growth management actions coming. So we do feel confident in the second half, you know, that the outlook really is to grow in line with our categories that we'll be able to achieve that considering all the elements that Nelson went through.

And it's an easier comp as well. Easier comp. Because the other betas, remember, Q2 in North America, we had 5% volume growth in the prior year. So the comps get easier as we go into the second half of North America.

Okay. Helpful color. I'll pass it on.

Thank you. Your next question is coming from Michael Lavery from Piper Sandler. Your line is live.

Hey, Michael. Good morning. I just want to touch on innovation, and you've laid out a robust pipeline this year, obviously, and touched on some examples in the prepared remarks, which were great. Maybe just help us understand some of how it's running against expectations and timing, and I guess specifically how much wraps maybe into 2027 and, you know, maybe it's just overshadowed a bit this year by China disruptions and de-stocking. But then I would also love to understand the new fiber platform, maybe how quickly that could drive new end products and what, if any, upfront costs we should keep in mind about how you launch that.

Okay, thanks, Michael. Yeah, overall on innovation, you know, I'd say we feel great about our innovation that we're launching, and I think we said at the beginning of the year that this is probably the most commercial activation of innovation that we've had in my time here at Kimberly-Clark, and I would tell you, you know, I would say also, you know, that pipeline is good going forward. You know, I think if you see kind of what we're doing this year, you know, I think the stuff that we have coming in the next few years, I feel like we're going to be bigger and better than that, and so, you know, I'm really excited about our development, and And I think that reflects the discipline that we've had in our organization, and this is kind of an artifact of this kind of fast, agile matrix that kind of pulls the markets and the functions together. Michael, you know, I think we've started looking much further out, and one of our core metrics is future pipeline development. And, you know, we're feeling pretty good about, you know, the trajectory. But maybe, Russ, you may want to comment about some of the in here.

I'll just double-click a little bit, Mike, on that and talk a little bit more. You may recall our Chief R&D Officer, Craig Slapcheff, talking about the pipeline development. And that's one of the reasons why we're very confident, as we can see, into the future of the next three years. And the quality of our consumer insights has gotten better. And then the power and care matrix has really enabled us to scale innovations around the world much more quickly. And so we've done that in Femcare. You're seeing the impact of that in IPC, for example, where we've seen our organic growth accelerating, our share gains coming through in categories like diapers. And that really is significantly driven by innovation, and I think that's what's been powering the North America business, especially in personal care, and now you're seeing it come through in tissue. So it really is a broad-based set rather than any one particular innovation. I think we feel very good about the portfolio we're building and have continued visibility that that's going to take shape and gain traction over time through that three-year funnel process that we've been diligently building with the teams around the world. So do you want to talk about the fiber one?

Yeah, Michael, hopefully you can tell we're very excited about our Alternative Natural Fiber Program, and through that, we really believe we're going to positively impact the category, the planet, and the economics of the business. I think material invention has been a core of Kimberly Clark. Two weeks ago, I was up in Nina, and I was meeting with the family of the company's second CEO, a man named F.J. Sensenbrenner, and I was reminded by them that under his watch, they launched a product called Cellucotton, and that was an invention at the time, that ultimately became Kotex and Kleenex and then eventually Bat Tissue, but the creation of that tissue-based product. And so I would say this is similar, right, and, you know, this is the culmination of over two decades of material and plant science investment and development, you know, and I really do think this has potential to become our next great material platform in the, you know, with the heritage of, you know, Sully Cotton, you know, I think we believe we invented global or the non-wovens platform as well, and so this would be like that. And I think it's going to be great on the three dimensions that I mentioned earlier. Number one, better for consumers. This fiber has unique properties, and it pushes the frontiers of the softness versus strength kind of frontier, right? And so for a given amount of strength, it adds superior softness. And so that will enable us to make a superior tissue. So number two, obviously, you know, we believe it's better for the planet, Michael. You know, it's a farm crop, so that's going to replace natural forest fiber in our production mix. And so because of that, it's also super land efficient. If you think about, you know, our requirements for pulp, you know, that's, you know, harvested for millions of acres annually, right? And so, and, you know, this product would be very dense, very land efficient, and it's grown on a fraction of the acreage to source an equivalent amount of volume. So that's part two. And then part three, it's uniquely, it grows only in airy conditions, and because of that, it's a water miser, and so it does not consume very much water. And, in fact, being a farm crop, you know, then it would, you know, take on a fraction of some of the crops that are currently produced in the region. So, you know, we're excited about, you know, the impact on the planet that we have the potential to have. And then, obviously, we wouldn't be pursuing this if it didn't have good economics. And so it has the potential for us to, you know, enhance margins and then, you know, obviously, Michael, further reduce volatility. So that's an update on that.

And, Michael, on investments, just so you're on the loop, I mean, we, you know, this has been factored into our investment profile for the last years. And we, you know, anything we've invested and anything we've expensed has been part of the results we've been reporting, and we've included in our outlook for the next few years in our strategic plans the capital requirements to continue to drive this initiative of some of the other ones we're doing.

Yeah, and maybe the, I'm sure you may have a follow-up question, Michael, but I mean, you know, one of the reasons we're talking about it now is because getting out there and we're breaking ground on a pilot facility. you know we've already acquired thousands of acres of land to grow this on right and so that that we prefer not to acquire more land we prefer to uh to turn it into a cash crop for for for the farming community and so again uh having the you know the larger community understand kind of what we're trying to do here you know will also help us be a little more capital efficient i know that's great caller there i'll go ahead and pass it on thanks okay thanks michael thank you your next

questions coming from Steve Powers from Deutsche Bank. Your line is live.

Hey, great guys. Good morning. Thank you. Mike, I was hoping we could go back to North America and really the competitive and promotional environment. Just love a little bit more perspective on how you've seen, you know, those conditions evolve over the past six months.

You know, to what extent it's sort of exacerbated that that choppiness and maybe the lower category growth that you spoke to and most importantly how do you think it plays out over the balance of the year yeah let me let me start now rust that kind of rust is all over this but you know i would say uh i think if you look at the facts uh clearly you know the the promotion kind of environment is you know increasing slightly right and uh and we're seeing that both from the other big branded competitors but also some of the smaller brands Right. And and and so that I would say that, you know, that comes and goes in this category. And I've been this I think is my 14th year here. And so we've seen and I remember like periods of high promotion intensity. And then, you know, I would say the last several have been a little bit more moderated post COVID. You know, and I think the reality is, despite those swings, the reality is these are kind of very stable consumption categories where consumption doesn't change because of promotion, right? And so for us, you know, I think, you know, having a business that is a little bit more stable allows you to run it more efficiently and allows you to bring the innovation that can help expand the category over time. And so for us, that's why we're not big proponents of driving excessive promotion in our categories. But maybe, Russ, you can give them a little more color on that.

Yeah, absolutely, Mike, and you said it well. I think, Steve, we're focused on developing compelling value propositions at every tier every day while maintaining pricing and PNOC discipline over time. And, in fact, in 25, our promo activity was below both pre-COVID levels and the category. and through the first half of 26, our promotional levels were down versus the prior year and the category and the majority of our categories. We did see, and this is perhaps what you're referring to, tick up in competitive activity across multiple categories, as well as we did increase promotional support in some categories, especially diapers. And that was specifically done for a purpose that's consistent with what Mike was outlining in terms of the philosophy to drive trial on key innovation launches. And we did also put some promotional activity into the marketplace to help us transition from that club distribution change that we had been talking about for a while. And we'd expect that to normalize for us. And we're going to remain consistently focused on delivering the compelling value propositions every day, you know, and PNAC discipline. And so you look for that, you know, promo activity for us to normalize over the balance of the year. And we're going to continue focusing on winning with innovation and brand building. And as Mike said, I think we're confident that over time, the wisdom of the fact that promotion doesn't grow the category will find its way back into the market.

Great. Thank you for that. And then I guess, Russ, this may be for you as well, but when And you guys collectively talk about the CanView synergy planning running ahead of expectations. I guess for those of us on the outside, should we interpret that as greater confidence, maybe faster realization of the existing $1.9 billion cost energy target, or are you beginning to identify incremental synergy opportunities via those original assumptions?

Yeah, I think what it reflects is greater confidence in the path to achieve that we've outlined at this stage. It's still relatively early, but the bottom-up pipeline that we're building is based on specific initiatives in specific areas that are based on bottoms-up analytics. And now, as you probably noticed, we've got kind of 50 teams and 600 people working on this. So I would call them being execution, shovel-ready actions that we feel very confident and converting it to a plan that we can confidently forecast, you know, delivery of. And so that's exciting to us to have that visibility. It's probably a little early to, you know, see how that shakes out over three years, but we're working very quickly to fill that in and feel very confident that we're moving in the right direction at PACE. I don't know.

Yeah, and just to add, Steve, I mean, we're not getting into unpacking, you know, what the cadence will be at this stage, because obviously things are happening that you guys have seen in Kenview. I mean, they've already announced some actions that we are in the process of factoring in to our plans, which obviously to the extent that that's delivering savings that we would have contemplated, all the better. But, again, a lot of moving pieces that we're working through. The overall confidence really goes back to what you said first, our confidence in the total number of synergies. And we'll be back when we get to the closing of the transaction to give an update on what is that cadence, what are those numbers exactly, factoring in the actions that Kenview is taking this year such that you can do the updates and we can have that all cleared out.

Yeah, and Steve, maybe I'll just. Add a little top 10 on the thing, which is, you know, I think I said, you know, when I was with you over the summer, hey, you know, the closer we look at this thing, the better it gets. And part of it is, you know, certainly I think, you know, right now we're focused, and Russ is on point for helping us line up the synergy commitment, right? And so, but I would tell you, you know, so, you know, we're not signing up for more than that at this point, you know, but, you know, I would say we're feeling very good about the operationalization of that. We did have our leadership teams, the future leadership team together for a week last month, and then, you know, we've had these detailed assessments done of the entire management teams on both companies kind of brought in and just evaluate as we're selecting talent. And, you know, the thing that the lead facilitator from that organization pointed out was the extraordinary, unique kind of attribute of the combined team was a deep focus on execution. And we love that because we, you know, hopefully you guys are seeing that, you know, one of our calling cards is excellent execution. And so as kind of Russ helps us and the integration team leads us through the process, we're gaining confidence in that. That said, and, you know, so we're not signing up for more synergies, but I will tell you part of my the closer you look, the better it gets, is there's more growth in these categories than we originally thought when we did this deal. And I would say these categories are, you know, especially when we look on the Kenju side, all right, they tend to be a little bit more underdeveloped, you know, mostly because there's a pretty significant gap between the incidence of a health issue and treatment. And that's a little bit different for us, right? If you think about it, if you are going to the bathroom, you're probably in the bath tissue category, or if you have a baby, you're probably in the diaper category. So this gap to incidence isn't really common in our categories, but I think it's very common in the consumer health categories. And so we're really excited about that because that's something that can be expanded through the right category building programming.

I can sense your excitement, Mike. Thank you very much.

Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live.

Thanks so much. Just want to go back again to pricing and promotional environment in the U.S. I know, Russ and Mike, you just kind of covered off on this, but just getting a little bit more specific, I think when we look at Nielsen data, which I know is not the end-all, be-all for what's actually happening in the marketplace, But it's like some of the what was promotion has now been in the from you guys has now been in the market so long that it's actually showing up as lower price, not being captured as promotion. So as we think going forward, and with your comments on PNAC, and I think what implies some price increases from here, I wanted to try to understand how much of that is less promotional activity versus real list price increases as you manage through cost inflation.

Hey, Lauren, I'll take that one. Yeah, I think you're right to point that out. You know, and our focus has been growing volume and mix, and you hit the word on the PNAC discipline. And, in fact, what you're seeing on the headwinds, I think, have been a few temporary dynamics, and you called out a couple. We have had some temporary promotions in the marketplace, but also have made some targeted revenue growth management actions to address specific consumer-driven opportunities and sharpen value surgically. And also, you're also going to see a channel mix element as the consumer looks for more value, both in terms of what channels they're shopping in online and club and pack sizes. That has an impact on our pricing. And so that's part of what you saw in the first half this year of seeing total company pricing down 50 bps. And over time, innovation and brand activation are going to continue to drive that. But we will be taking pricing actions. You know, so to cover inflation in the second half of this year and, you know, the magnitude of that, if you think about that in the overall portfolio, will be, you know, low single digits overall. Those are in the marketplace now, and you'll be seeing those come through. And that's part of the balance of the cycle of trying to, you know, balance out, you know, PNUC discipline over time using all the levers in the toolkit. And, again, we've done that in some cases with innovation attached to it and, in other cases, targeted our revenue growth management actions. based on just commodity movements that we had to hit. So the main point is, I think, as part of the cycle, we're looking at innovation and brand building as the thing that will carry price mix over the long run, but we will be taking action in some areas to address some of those issues in the marketplace.

Great. And Russ, just to clarify, if I can, the low single-digit pricing statement, is that a North America number or a global number?

Yeah, it's primarily in North America. That number, I think globally, it's going to vary a lot based on the geography. So we have taken actions around the world as well.

We've taken actions across many countries, as you might imagine, Lauren. And the overall is following the principle of pricing that will cost neutral over time. But it's not just revenue growth management. Remember, we're also delivering the highest productivity we've ever delivered. We're also managing negotiations and contracts with our vendors and our suppliers, so it's the full toolkit and not just that. That's one lever.

Let me underscore, I'm sorry, Mike, just to underscore with that, the innovation is the key element to that that helps create premiumization and positive mix and also helps drive growth that really, to me, is the core of that engine.

Yeah, and maybe related to what Russ was just talking about, But, Lauren, like the guiding thing for us is, especially in this environment, we have to have a superior value proposition. And so that's kind of the company's focus. And so even though, you know, with inflation there are some PNAC actions we have to take, we're always going to be cognizant of making sure we're offering a great value. And, you know, and I think if you look at the past couple of years, we've paid particular attention to the value consumer or the middle-income consumer. I think they've been under more stress. And we think our approach to sharpen that offering, both in terms of product quality, you know, primarily through product quality, I think has worked really hard for us.

Thanks so much.

Thank you. Your next question is coming from Robert Moscow from TD Cowan. Your line is live.

Hey, thanks for the question. It may be too early to ask this about 2027, but, you know, with all of the noise this year from a lot of incidents that certainly could be considered transitory, would you consider 2027 to have an easy comparison at this point, or is it that, you know, these are volatile times, there's not a lot of visibility to that, and so, you know, don't get your hopes up. So maybe I could start with there.

Yeah, well, one, I'm going to let Nelson kind of weigh in here. But, Rob, I think, you know, the volatility is out there. And so I think that answer can vary a little bit depending on, you know, what the facts are kind of in the day. And so, you know, we're very focused on running the business for the long term. But, you know, I think the thing that you point out in your question is there is a lot of volatility in the marketplace, and we're trying to make sense of it.

Yeah, and Rob, to Mike's point, I mean, we've been around for 154 years and counting. So we've gone through a lot of, you know, these cycles in prior lives. And obviously, this has gotten a little bit more than norm in the last few years. However, you know, the underlying strength of the business, the power of our innovation pipelines, the executional prowess of our teams is second to none. and that I think is what carries the day I mean where we land in 2027 it's early to tell as I was sharing with Chris earlier the the thing is you know the speed of the recovery in China is going to be one and we factored in you know a significant amount for the balance of the second half even though we're going to get back to you know in in verse the second quarter because we're seeing the strength of the innovation pipeline and the executional plans that we've got in place. We're also managing through the inflationary impacts in the Middle East, and as you heard as we were chatting with Lauren, we are taking very clear actions to address them in a thoughtful manner because we want to make sure that we're addressing our consumer needs and we meet them where they need us to be. So that's all being factored in. We'll come back towards the end of the year, beginning of next year, with what is the view for 2027, factoring that in, but I would also like to highlight that the strength of our categories, the resiliency of our categories is there. I mean, we continue to grow trailing 12 months, about 2%. So that is solid. That is very solid. And we've been putting out their growth vol mix in the last nine, 10 quarters consecutively. So the strength of the business is solid. We're very confident in our plans and we'll just need to keep navigating the choppy waters we're in, as Mike referred to.

Okay, a quick follow-up. Is it going to be very easy for you to tell whether competition is following you on these price increases, particularly in North America? And you say that you expect the promotional environment to normalize eventually, or at least your promotions to normalize, you know, is it possible that if they don't follow that you might have to promote some of this back?

Yeah, I'd say, Rob, it's always possible, but that's just not, you know, that we're going to run our play. You know, our play is really bringing great innovation, helping consumers understand how our innovation uniquely solves their problems in a different, better way. We're going to drive productivity and our costs, and we want to be affordable. And so I think those are all the things, and I think that's the play. You know, are we paying close attention to the promotion environment? For sure, right? And we recognize we're not going to put our head in the sand. But, you know, I think, you know, we're also trying to manage, you know, our approach, you know, because we've seen the other approach, and it doesn't work.

Right. And the other one, Rob, is no one's immune in the mid-long term to the inflationary environment. The key is that you've got to manage the entirety of the toolkit. And that's why we've been so focused on the productivity bid. And as we've been sharing, we still have, in North America, a lot of room to go because we're still undertaking the $2 billion investment in the supply chain restructuring in North America that's coming on over the next few months, and it'll carry through in 27 and 28. So there's a lot of firepower on that end to manage. But, again, we need to see how things play out over the next few quarters. Right.

Rob, you may remember, I think I talked to you back when I used to work in the snack category, and there, promotions do drive incremental consumption. And by the way, so if your promotions are profitable, then that's a viable strategy. But this is not the case in these categories. It's the opposite.

Thanks, Mike.

All right. Thanks, Rob.

Thank you. Your next question is coming from Peter Grom from UBS. Your line is live.

Great. Thank you.

Good morning, guys.

I was hoping to just get some perspective, you know, on the input cost environment. So you noted in the preparer marks, you know, $150 million of inflation in the back half of the year, consistent with the range you provided back in April. You know, obviously it's a volatile external environment. So maybe can you help unpack what's embedded in that assumption? And as we think about the back half, is the headwind evenly weighted or more pronounced in the third quarter?

Yeah, so let me unpack a little bit what we've got for the second half, and then also an update versus what we shared back in April, because as you recall, we had not included the back half as part of the cost impact. So a few things. One, I do want to give a shout out to our teams. I mean, they've been working very diligently to manage through the volatility that we've got, first and foremost, to ensure that we have product availability so we can serve our consumers and our customers, and then also to be able to manage through the higher costs such that we can deliver on our commitments. And a few things there. As we look at what we said back in April, we said that for the second quarter, we expected inflationary headwinds to be around $50 million for the quarter, primarily related to the higher oil linked input costs as well as some of the impacts from the LA distribution center those impacts came through pretty much as expected and are reflected in our first half results as we look into the second half what we said back then was and that's in April that if oil prices were to remain at around a hundred dollars per barrel we could potentially face gross incremental input cost headwinds in the back half of the year of around 150 to 170 million dollars and that we have not included that nor any mitigating action in our back half outlook currently based on where oil prices are and the actions that we've started to undertake our estimate for the second half is to be right around 150 million dollars of gross input cost headwinds and these impacts are now fully incorporated into our outlook. Through a combination of mitigating actions already underway and the tariff refund benefit that we got in the second quarter, we now pretty much expect to fully offset these incremental costs and maintain pricing net of cost inflation at roughly neutral levels for the full year.

Great, and then just more of one of the housekeeping on kind of what's going on in China. You know, I think it was a 50 basis point headwind in 2Q. The guidance assumes 100 basis point headwind for the year. So just trying to understand how we should be thinking about the phasing in the back half, is it more pronounced in 3Q, and then you're assuming some improvement in 4Q. And then, Russ, I think you mentioned you haven't seen any sequential deterioration, but it hasn't yet inflected.

So just help us understand what you're kind of assuming in that 100 basis point headwind Yeah, so basically the 100 basis point that you would do is we, for the second half, that becomes about 200 basis points. And that's more or less evenly distributed in Q3 and Q4. That's kind of the way to look at it. And then from a profit standpoint, operating profit, also we expect roughly $70 million a headwind in the back half. Again, in operating profit, roughly half and half. That translates to about $0.16 of EPS, and that would be evenly split Q3, Q4. But I think you want anything else for us?

No, I think you said, well, I think we've assumed modest improvement in the trend, but no inflections at this stage, you know, because we do feel like it's prudent to be conservative, given that sometimes these things can take a long time, and we've got to see a lot more unfold before we're confident in changing an outlook on that great thank you so much I'll pass it on if we could take one more question and then wrap it up absolutely now our last question comes from a beer Escalante from ever core your line is live here how are you how are you I have a question for Ross and one from Mike hopefully the one on Ross

is not an overkill but if you can give us an update on diapers it feels as if that these imports and this is u.s diapers uh imports the ones backed by the retailers seem to be kind of like peaking so whether that is true uh and also there is uh any commentary on the overlap with the relaunch uh from, you know, by your main competitor in the U.S., any quarter there, that would be great. And in tissue, we do see an improvement in July, and there is this powerful shift to club and online, so if you can comment what's driving that. And I have a question for Mike. Thank you.

Hey, Javier, how are you doing? On the diaper question, I think you're right. You know, you probably, Javier, have followed the category enough to know that there's been a long history of new players coming in, and then, you know, sometimes, you know, they peak and then, you know, and then abate. You know, certainly there's a lot of those entering the marketplace right now, and that's a dynamic we're contending with. And so, you know, our focus, you know, in terms of how we deal with that is to just stay focused on executing our strategy, which I think has been very successful around the world, and that's to continue bringing innovation and, you know, focus on strong value propositions at every tier of good, better, best. And I think that has been working in North America prior to the club distribution change we've talked about. You know, we've gained chair two years in a row despite that competition, and, you know, we do have a good innovation agenda. I think we're now number one in social engagement in 26. We've got a lot of good actions happening on premiumization. So we're going to stay focused on that in terms of, you know, how the other things play out. You know, I think the consumers will decide, you know, and we're confident that if we stay focused on our play, it's been very successful around the world and that will continue to be true, you know, in North America. On the tissue, if I understood your question correctly, I think it was really just understanding a little bit more about what's maybe driving the improvement in our business. Is that right?

Correct.

Yeah, yeah. Well, I think it's, again, I hate to be boring and repetitive, but it's the same thing. We really took the thinking of what are our value propositions by value tier in the marketplace and really focused on sharpening the strength of our offerings and then improving our innovations. And so you've seen that in Viva, which we highlighted, I think, in the call where that's really been working for us. That's an example where we already have a great product. We just needed to activate it and do a better job in packaging it, communicating it, and building the brand, and that has been very successful. I think we gained 80 basis points of share in the second quarter on that. We've got great innovation on Kleenex, which has been really performing very, very well in gaining share consistently over the last several years, and we have some new innovations on format that have insights around them with respect to consumer usage occasions. And then on the dry bath side, you know, we've done a great job, I think, sharpening our value, which is very, very important to a large swath of consumers and have done extremely well in the good tier, you know, this year to date. So it's all those things together, Javier, with brand building activation and innovation, and we actually have some very good things coming as well next year and the year following on tissue that we're excited about in addition to the fiber thing. So there's a lot of good things happening there. So I'll turn it to Mike on the second part.

Yeah, I mean, Javier, just to tag on, I know you got a question for me separately, but I just want to emphasize, you know, like the environment we understand. I mean, the fact that there's more competitors entering categories in North America, I mean, it's something that we're very well aware of, you know, and I think you know we've been dealing with this for the past 10 years in China. There's 200 brands that we compete in diapers with in China. And, you know, we're very confident we have the best product in that market, which is why we became number one. And so the thing that maybe I'll just emphasize, and the playbook is right, but superior value proposition, I will tell you the anchor for our superior value propositions at KC is differentiated product technologies. And so we feel fantastic about the innovations we've brought in personal care. I promise you the innovations that you'll see the next three years on personal care will be better than the ones we've launched over the last 10 years. It's also why we're doing things in tissue like alternative natural fibers. It's going to, in my mind, change the category, you know, forever. And so, again, that's kind of our bet, which is like, and this is kind of the calling card of KC, which is we are technologists first, engineers, and we invent better stuff, and we're good at it.

Mike, thank you for that, Mike. With the completion of the Susano deal, right, talk about a little bit, I guess, better or expand on, you know, what does it mean for you operating without the international tissue business, right? What does it mean in terms of your capacity and resources to invest in international personal care and also readying the integration of KMVU? Thank you.

Yeah, for sure. We're really excited about the additional focus it brings, although that notwithstanding, in a few months there will be a broader swath of categories we'll have to focus on as well, but we feel very good about it. You know, I think – and maybe one of the best things, Javier, is I think in setting up Arbex, you know, it wasn't like we were trying to move on from a, you know, a problem or a challenge. You know, I think the whole fundamental premise of our joint venture with Susano to create Arbex is we're going to create a world-class global competitor in the hygiene and tissue business. And I think when you combine the scale and capabilities of what Susano brings with our commercial capability and knowledge of tissue making, I think that's a powerful combination. And so I think there's no team within our company that was more excited than the Arbex team kind of getting started off about their future. And so we're really excited for them. Obviously, we all knew that we had this other thing, this alternative natural fiber up our sleeve as well. But, you know, again, I think, you know, part of it is we want, you know, we want to create an advantage business on that side. And then certainly within our house, you know, the clear focus within personal care globally, you know, I think really, you know, helps us kind of drive the execution on that side.

Thank you very much.

Hey, Javier, just one last point, Russ, again, just, you know, on the diapers point that you made. Yeah, I just wanted to underscore that, you know, we have great respect for our competitors and for the things that are happening in the marketplace. But what gives us confidence, you know, as well, even beyond the United States, is just how things are unfolding around the world. And that really, and Mike just mentioned this, you know, the China product performance. You know, as we've rolled the playbook out to other markets in IPC, you can see the results coming through, you know, notwithstanding the recent China issue we've had, you know, we've been performing very strong in sequential improvements and double-digit gains in markets like India, Southeast Asia, Indonesia, and we're really strongly making progress kind of around the world, you know, especially when you look at things like market share and diapers, you know, 390 basis points up in Indonesia as well as 70 basis points up in Brazil if that playbook is working. So that gives us confidence that it's not just a regional battle, but that the global playbook is translating across geographies, and that is no different in North America. And so that's really what we're focused on activating against, and we believe in the long run that we'll be successful with that.

Much thanks for the great caller.

Thanks, Javier.

Well, we'll end it there for today and for analysts who have follow-up questions to take Thank you. everyone this concludes today's event you may disconnect at this time and have a wonderful day thank you for your participation