Conference Transcript - KMB 2026-09-09

Speaker 2

Okay, good morning, everyone. We are pleased to kick off this busy day with Kimberly Clark. We've got the full team here. We've got Mike Hsu, Chairman and CEO, Russ Torres, President and COO, and Nelson Erdinets, a CFO, and Chris, I don't know your proper title other than... IR, Head of Investor Relations. And whatever else. I knew that part. Well, thank you for joining us, everybody. So, Mike, to say a little, you know, like a lot has changed at Kimberly Clark over the past two years, and that's probably an understatement. Before we get into that, though, I wanted to start just with the Powering Care strategy that you introduced at the March 2024 Investor Day. For those that may not be up to speed, could you just maybe give an overview of that strategy and detail how it differed from the company's prior strategy?

Mike Hsu, Chairman

Okay. All right. Thanks for having us here, Lauren. Great conference, and we're excited to be here. Yeah, Powering Care, we introduced, as Lauren said, at our Investor Day back in the spring of 2024, and we've been operating on that pretty consistently. It really has three big planks. Pike number one, we call externally learn, accelerate pioneering innovation. Internally, we call it onslaught, because that's kind of really the intent of what we're looking for, which is an onslaught of pioneering innovation, marketing, and activation. But I think the core idea there is, hey, to understand what consumer needs are that are kind of unmet. You know, we want to deliver obvious superiority. And then for us, superior performance is another way to deliver superior value. And so that's our big focus there. The second big plank is what we call optimize the margin structure. We felt like we had some room to improve in terms of our cost structure. We really think about that as how do we offer the best possible product at the lowest possible cost. And internally, it's not lower cost, it's lowest possible cost. And so we operate that way, and we've made strong progress, as you've seen over time, enhancing our margins. And then the third plank is wire the organization for growth. And historically, Kimberly Clark was a very decentralized company, which led to a lot of positive things, Lauren. Very entrepreneurial, very agile in markets, but we under-leveraged our scale. And so a big part of wiring the organization for growth is how do we leverage our scale more effectively and enable ourselves to go faster by bringing global might to the local fight. So I'll pause there. I would say since 24 when we've been operating, I think it has helped us deliver consistent organic growth. I think we're in our 10th quarter of volume and mix growth. We've expanded our margins and really dramatically reduced our earnings volatility, which you may remember from the bad old days.

Speaker 2

The many, many battles. Yeah, definitely. So in that context, you gave us a little lead-in. Let's dive into the business performance, just looking at the company, excluding what's now in the IFPJV. So over the medium term, organic sales have held in well at 3.9% in 2024, 4, 1.7% in 25, but things have slowed down again more recently. Can you just speak to how you aim to drive top-lining categories that many would still say are very slow growth, and then also touch maybe on trends you've seen closer in that resulted in you taking down your fiscal year organic guidance, which was reported in August?

Mike Hsu, Chairman

Yeah, thanks for that. Maybe I'll lead off, Lauren, and I'll ask Russ and Nelson to comment with a little more detail, but I would say The headline for us is the categories we operate in, I would say, are very durable and resilient, and our focus is on superior value and expanding the categories, and that's really kind of how we're driving our growth. The resilient and durable category part, I mean, the reality is if you look at our categories like diapers, adult care, back tissue, they really kind of, if left alone, grow with population growth, right? And so that's kind of the thing. And so it's not a fast-growing category, it tends to grow with population, but we feel like we can accelerate that category of growth by adding premiumization into the mix. And that's what we've done in our two largest markets in North America and in China. I think back when I started with the company, I think we were about 70% business was mixed, driven by value, in our value performance tiers. Today, we're over 80% premium. China, if you went back to 2019, was 6% premium. Today it's well over 50%. So I think one way we accelerate it is bring value-added innovation to drive the premiumization of the category, and I think it's been working. And then the other big area is we feel like we can expand the category as category leaders by driving category consumption. And so an area that we focused on more recently in the last three years was on Kleenex, and we've been able to successfully drive household penetration over the last three years by focusing on kind of the category growth drivers. I think we've seen, Russ, maybe about, I think, 7% compounded growth over the last three years on Kleenex. And so there are ways that we think about that we can drive it. I would say your note on, you know, what's been happening this year, you know, I think, one, I would say the category has been choppier. We have seen an uptick in promotional intensity by competitors over the last few quarters. And, you know, whether they're new small brands or some of our major competitors, you know, we have seen that occur. You know, I think our point on it is, and you've heard me say this before, Lauren, is like we're not really – it doesn't really make sense for us to try to rent additional share through promotion. And the reason I say that in our categories, since they grow up the population, they're kind of fixed consumption in a lot of ways. And so when you overpromote the category, you kind of drive, you know, all you're doing is buying forward inventory, you know, or pantry loading consumers. And, you know, that's not really that valuable for consumers or the retailers.

Russell Torres, COO

Yeah, Mike, I'd just add you mentioned choppiness. It is a choppy environment out there, and I think our teams have demonstrated very good agility in responding to those one-off impacts. You know, we talked about the China situation in our call in the second quarter, and just for those who didn't hear, that was going to be an impact on the full year of about 100 basis points to our organic growth rate for the total company and about 18 cents of EPS. And that will come through in a more significant way in the third quarter, so it's about a 250 basis point headwind for that. But our teams have really pivoted and focused on taking the playbook and applying that to other markets internationally. So we've seen very good growth in share gains accelerating in markets like India, Vietnam, Korea, Indonesia, around the world. So our teams are pretty resilient. Since the second quarter, we did in North America see three additional challenges arise that will likely cause the third quarter to come in softer than we had expected. The first was we had an innovation launch that we postponed due to some production issues. The second is in our professional business, we saw some pretty significant distributor disruptions. And that's a business that we've grown volume seven quarters in a row. We've gained share in all of our categories in the second quarter. But that distributor disruption is going to cause a significant inventory deload for us. And each of those two will be about a point of growth in our North America business, respectively, in the third quarter. And then third, we've seen some, as you probably have heard from others, the freight market and logistics market in North America is tightening. So we've seen the prices go up there. We're a little more exposed to that than we usually would be because of the Los Angeles Distribution Center fire. So we had a lot more things that are being moved around, and that will also be a significant impact in the quarter of about $30 to $40 million of incremental costs. And so our team in North America is working on offsetting all those things, but, you know, it is a choppy period. we're going to continue to execute our play and feel like we do believe at this point the full year will be consistent with what we had talked about on the second quarter call.

Speaker 2

Okay. All right. So, Nelson, just to bring this to you. So no impact to the full year, top line and bottom line, is that correct? This is all within 3Q?

Nelson Urdaneta, CFO

Well, let me unpack it a little bit more. So as we've said in the past, we focus on managing to the year, the midterm, and the long-term, not really the quarter. I mean, there's just a lot of moving pieces. And more importantly, our focus is on profitable growth. You know, over time, you know, things will move, but what Russ just explained is going to have an impact on the third quarter. That's the one thing we know. And as we looked at the third quarter right now, we are projecting that we're going to see our revenue contract into low single digits with a low teens decline in our EPS versus the prior year. There are a lot of moving pieces, and our teams are currently working through the action plans that will address some of those new news that we have, and we didn't have that at the time we reported earnings back in early August. If anything changes on the full year, Lauren, we'll provide an update concurrent with our next earnings call. Now, the important thing to highlight is that for 2027 and 2028, we're still in line with the expectations that we have laid out post-acquisition in terms of our algo. For 2027, that is no more than a mid-single-digit dilution versus our baseline standalone EPS for 2026. And then for 2028, an algorithm year where we would see earnings per share growth growing in the mid-to-high single-digit constant currency on a compounded basis versus our baseline 2026 standalone EPS.

Speaker 2

Okay. A couple things I want to just come back on. One was China. I know you said specifically 250 basis points in 3Q. Just any updates there? How are things progressing? The 100 is still probably the right ballpark for the years, it's also going to go in the bucket of we'll get an update at 3Q.

Russell Torres, COO

Yeah, we haven't seen on the consumer offtake side any change in the situation versus what we had talked about in the second quarter call. So while we haven't seen any sequential deterioration in offtake, we haven't seen any meaningful improvement to normalize either. And the team's doing a very, very good job of executing the strategy, focusing on communicating our quality and safety to the stakeholders and working with the government and other retail partners to help get through the transition as quickly as you can and then obviously communicating with transparency. So we don't have an update at this point, and certainly if something changes, we'll let everyone know.

Speaker 2

And then just in terms of category growth, we've heard generally, and we're a day into this, but that consumers generally holding in despite some macro headwinds. And just wanted to get a sense from you, like, why do you think your categories in particular have been choppy? Why have things slowed? We've heard sort of a more positive stance, arguably, on the consumer environment.

Mike Hsu, Chairman

Yeah, I think, Lauren, I'd say definitely I would still say our categories are very durable, despite the environment overall, I think, being very choppy. It's pretty clear that I think middle- to low-income households are under increased pressure, and I think that by now, I think that's obvious. I think we've hung in better over time because I do think we made a pivot a few years ago to focus on superior value at all rungs of the good, better, best ladder. And so what we've done is things like bring our best innovation. In fact, in U.S. diapers, I think our most advanced absorbing core, we launched first in our value tier product before rolling it through premium tier. So I think making the products better has helped us throughout this. However, we are seeing, you know, the choppiness is driven by, you know, I think I mentioned earlier, you know, increased promotional intensity. There is some shifts in our business among quarters between when a big retailer promotion kind of happened and, you know, year ago versus this year. So I think there's those kind of effects. And then there has been some, you know, inventory changes. Generally, you know, we don't get too obsessed over retail inventory changes because in the long run, shipments, you know, line up with consumption. They kind of have to. And so we're, as kind of Nelson and Russ both point out, we're pretty, I would say, consistent in how we manage the business. We're managing the business for the long term, and we recognize that the environment's a little choppy, but we're going to navigate through it.

Speaker 2

Okay, great. And then coming back also to cost inflation as a result of the Middle East, you discussed $150 million in incremental inflation in the second half in order to stay PNAC neutral, that you'll leverage not just the tariff-free funds but also pricing. What can you tell us about pricing so far, and do you think that you'll expect to take incremental pricing in 27 to hit PNAC neutral next year as well?

Nelson Urdaneta, CFO

Let me give you some of the context and recap what we talked about in the earnings call and build in the new news that we just shared. And then Ross might chime in on pricing and how that's going through. But the first thing is, you know, we're proud of how our teams are maneuvering through what's a very dynamic environment. We've had significant experience over the last few years in managing through significant volatility and being able to deliver growth consistently over the last four or five years or so. And the one thing is that at our August earnings update, we shared that we had built into our outlook for the second half $150 million of incremental gross input cost inflation and that we expect to offset this pretty much through all the mitigating actions that are being undertaken, including pricing in several markets that is going into place or has already gone in place, and the one-time benefit from the second quarter collection of a tariff refund that took place in North America. However, as Ross shared, we now have new news in terms of some headwinds in costs, particularly in North America. The first is the one related to the spot freight transportation, which could amount to around $35 to $40 million in the balance of the year, with a meaningful impact already in the third quarter. And then the retaliatory tariffs that went into effect in Canada this week, that has the potential to add up to another $10 million of headwinds in the balance of the year. The teams are currently working through all the mitigating actions, and, again, if we see any change in our full-year view, we'll provide an update at our next earnings call. As to 2027, it's important to highlight that we will benefit from the carryover impact of the actions taken in 2026. Whether or not we need to take more incremental actions or other elements, it's too early to tell at this stage.

Russell Torres, COO

I'll just tag on to that quickly just to reinforce that our strategy is to focus on growing volume mix and maintaining PNUC discipline over time and those pricing actions are flowing through you'll start to see that in the scanner data in North America and in other geographies the ones we've already taken but pricing is just one lever we also really focus on innovation and mix and revenue growth management actions like price back architecture as well as driving the cost cycle over time to get to that profitable growth So, you know, we look at it as a balanced mix, but we'll use all the tools in the toolkit to help manage PINAC over time.

Russell Torres, COO

And, Lauren, if I could just add, I want to come back on the choppiness in terms of demand and the demand profile in the categories. I mean, as Mike said, I mean, we are in categories that are essentials. And the variability that we've seen, you know, quarter to quarter has been greater than the variability that we've seen on, say, a trailing 12-month basis. Our categories have been pretty consistent between 2% and 2.5% over the last few years on a trailing 12%. But we have seen more choppiness month-to-month and a bit quarter-to-quarter. But I think relative to a lot of other categories that you follow, I think our demand profile is a lot stabler.

Speaker 2

Yep. Okay. You've been pretty active on portfolio reshapings. We're going to step back a little higher level for the moment. Before we get to Kenview, I just wanted to talk about the joint venture with Susano. So just to refresh for people here, about 15 months ago, you announced a deal to sell 51% of your international family and professional care business to Susano. The deal finally closed on July 1st, so it created a company called Arbex. Can you just speak to the strategic rationale for this transaction?

Mike Hsu, Chairman

Well, I would say a big part of it is we're really excited to team up with Susano to create the international tissue leader. And they've been a great partner. They're our largest fiber supplier in the world. We work closely together with them. And so I think the rationale on this is you're going to combine Casey's great tissue-making expertise, our commercial, global commercial acumen in marketing tissue products, with Susano, which has the lowest fiber cost in the world, right? And so when you put those together, what you have is a great business with inherently stable cost base. And that makes it a better business than the two businesses being separate. So what I think we would expect to see is inherently in that business a set of winning capabilities plus volatility reduction within the business. And then, obviously, for our portfolio, Lauren, and you've seen this evolve over time, which is, you know, one of the things we've been focused on since I came into this role was to reduce our volatility on EPS. You know, I think we looked at the math, and, you know, I think one of the things holding our stock back was I think the investors, like in this room, didn't care for the excess volatility that occurred in our stock. And so what was driving that volatility is the price of fiber. And so, you know, certainly by putting this business together, it reduces that volatility and then reducing the mix in our overall composition within our portfolio does as much.

Nelson Urdaneta, CFO

And just to add a couple of things there, Lauren. So partnering with Susano under a joint venture structure maximizes the future value of both Arbex, the new joint venture, and Kimberly-Clark. And four things that drive that. The first one is it halves our exposure to fiber-based inputs. For Arbex, fiber-based inputs will represent right around 15% of net sales, whereas for us it will now be in the range of 6% to 8%. Secondly, it brings in a partner with significant capabilities and experience which will allow Arbex to truly compete effectively for market share in the markets it's in. Thirdly, we will benefit from the fact that we're expanding a strategic relationship with the world's preeminent fiber manufacturer, and that will yield benefits for our global personal care business as well as our North America tissue and professional business. And then lastly, we stand to benefit from the way we've structured the joint venture. First, it's because we're getting a cash up front, which we will deploy to fund part of the cash consideration for the Canview acquisition. Secondly, we will benefit from the upside of, you know, Arbex, which we see a lot of upside as it stands up and grows over the next three years. And then lastly, there's a clear exit mechanism in place in case Suzano chooses to buy our remaining stake down the road.

Speaker 2

Okay, great. There was one thing I wanted to follow up on with this business is the work that you've been doing on forest-free fibers. So you found an alternative to wood pulp that could be cheaper and better for the environment. Just curious on the impact that this could have on North America and IPC, and then could it drive even lower volatility for Arbex, and how might it impact also the relationship with Susano, given they are the biggest wood pulp producer?

Mike Hsu, Chairman

Well, we're really excited about it. Hopefully you can tell, Lauren, you know, what we're calling our Alternative Natural Fiber Program, you know, I think is going to be a huge benefit for consumers, the planet, and certainly the economics of our business. It's something we've been working on, and we've been consistent in our investment. It's over two decades of investment, and if you think about where we've been over the last, just the last 10 years, you know, we've been able to invest consistently to kind of drive this kind of breakthrough innovation that's new to the world. You know, for consumers, this fiber has a unique property that it delivers superior strength and superior softness at the same time. It kind of breaks the bounds of what traditional fibers deliver. So the consumers are going to see a better product that's soft and strong. I think for the planet, I would say it's the ultimate regenerative initiative. You know, this fiber kind of grows like grass. and harvesting it is like mowing grass and so you can think about it's incredibly land efficient the fiber that we use today is harvested from millions of acres of natural forest this will be in the tens of thousands of acres of farmed land and so for that effect it's very very land efficient it also only grows in arid conditions, it's a desert plant and so it's incredibly water are efficient. And so there's a lot of huge benefits for the planet. And then perhaps equally important, it's good for the economics of the business. We expect it will be cost neutral or better over time. And we're excited about that. And then we don't expect it should have very low volatility in the production cost. And so I think overall it's a win-win-win for consumers, the planet, and certainly for the business.

Nelson Urdaneta, CFO

And if I may add, because it's important from a capital allocation standpoint, we're applying the same disciplined approach to the alternative fiber platforms as we do with the rest of the portfolio. This alternative platform has the potential to create economic value, and it's likely to improve our margins over time as well as further reduce our input cost volatility. We will need to prove that it's scalable. Once we prove that, we will lay out the best path to implement it, which could include potential partners.

Speaker 2

Okay, great. Let's switch and talk a little bit about Kenview. So first thing I just wanted to ask is if there's any update on the closing timeline for the deal.

Mike Hsu, Chairman

I think we're still very confident in our Q4 close timing, and I think we've followed in all the jurisdictions. We're getting positive feedback. You may have noticed we've made a number of transactions or select divestitures, but we feel like we're on track for a Q4 close.

Speaker 2

Okay, great.

Nelson Urdaneta, CFO

And then one thing on that, just to kind of highlight, we will need to do a few divestitures, and some have been announced already. So just to make it clear for everyone, any potential divestiture has no impact on the potential earnings, potential of the new company. That's very important to highlight. Collectively, the divestitures will not amount to more than 1% of the aggregate revenue and profit of Kenview. And importantly, it doesn't impact the economics or the value prop of the acquisition.

Russell Torres, COO

Not more than 1%, not Kenview, but the combined company.

Speaker 2

And then we get feedback from investors that Kenview's categories are just fundamentally different from KC's. We've heard things like channel mix, seasonality, competitive concentration, bears to entry, and even geographic exposure and expertise. So how would you respond to that?

Mike Hsu, Chairman

Yeah, maybe I'll start with part one, Lauren. Like we're really excited about the Kenview opportunity and teaming up with the Kenview team. You know, one, it increases our exposure to what I would call triple crown categories. Triple Crown, in my parlance, I'll say higher growth, higher margin, and then really highly expandable, right? And I'll just give you an inside baseball story. I think when I was selecting the leadership team of the future combined company, I was interviewing one of the Kenview regional leaders, and I was saying, well, how are you feeling about your year? You know, he's got this high single-digit organic growth plan for the year. I'm like, well, that seems like a lot. You know, how are you feeling about that? He goes, well, pretty good since, you know, my categories are growing 6.5%. You know, and I think that's a difference. You know, there is some good growth in some of these categories, and then we see the opportunity, you know, because there's a huge gap between, I think, incidence of a health problem for a lot of consumers and treatment. You know, the example I'll give you is if you think about allergy care, you know, we've done a lot of market research and structured research in these categories trying to understand the need states, you know, what consumers are using these products for, and then what are the opportunities to market them. And in allergy, you know, our assessment is less than 20% of the population that has an allergy problem are actively treating it, right? And I think that goes to the marketing opportunity to expand the category, kind of like we've been doing with Kleenex or Depend, you know, actively trying to grow the category. And so we're really excited about that. And I think to your question, you know, our view would be we recognize there are different categories, but the tenets of what we're trying to do with Powering Care apply. You know, the core strategy of Powering Care is we want to get these brands on a virtuous cycle of growth, right? And that means we have, you know, a strong pipeline of innovation, marketing, kind of sales activation ideas that we can invest in, that we support the brands with, you know, a great cost position, right? best product, lowest cost, and we drive that through an effective organization that's very agile and very focused on execution. I think the thing about, you know, Kenview is, you know, one, in terms of the insights, and I think, you know, I think they haven't had as much maybe the time to kind of develop those levers, and so we've had a number of meetings with the future joint combined team, which interestingly, you know, turned out to be 50-50, right, and 50% KC leaders and 50% Kenview leaders, and so we've been working through this, and I think in our discussions we'd say, hey, the structured understanding of needs and then putting the resource investment behind the brands like we've done on the alternative fiber for the last 20 years, I mean, that's not easy to do, you know, investing through a cycle when you've got price wars happening or COVID this, but I think we've retained that executional discipline, and so I think being very systematic about where you're going to put your innovation investment is something, you know, I think we feel like we're very good at and we can help Kenview with. You know, second is, you know, on best product, lowest cost, you know, Kenview has fantastic margins and, you know, but however, I think they would also say they got great margins, but they're not low cost. And so, and the way we view it is, even though you have high margins, we're going to continue to watch every nickel because every nickel that we save is a nickel that we can earmark for further investment to grow the business, right? And so I think that's the second part. And then maybe the area that, you know, I think we spent maybe the most time talking about is how do we kind of create the kind of executional focus? You know, I think that's execution for KC has been, you know, we feel like our calling card. You know, we have discipline execution. We're very market-centric, locally agile. And then we've been able to, in the last couple of years, better apply our global scale. And I think that's a trait that we think we bring that could really kind of help Kenview. And I think they've kind of struggled a bit because they've been through, Lauren, maybe I think about four different organizational operating models over the last seven years. And so just having a consistent operating strategy, operating model, I think will be a big benefit. So we really believe the tenets of powering care and getting a company on a virtuous cycle is going to apply very, very well to Kenview.

Speaker 2

Okay, great. Maybe we can talk a little bit about integration. So, you know, investors typically get pretty nervous about transactions of this size. So, Russ, you've been leading integration efforts. Sounds like you've been doing a lot to get a running start. So you can maybe give us some color and also at the same time maybe touch on cost synergies and work you've been doing on that front, and is there maybe upside? It's already a big number you've thrown out, but is there potential for upside?

Russell Torres, COO

Yeah, sure, a few things. First of all, I would say the synergy and integration plan is going very well at this stage. In fact, we're probably ahead of where we had expected to be from the synergy planning point of view. Operationally, we're ready for day one, and we have plans to bring the company together over time, and there's a couple of X factors I would point out that give us confidence in the way we're approaching it. One is we've got a proven leadership team that's really capable, and they've demonstrated that they can grow the company, drive cost reduction, and transform at the same time. And that's the same group plus some great additions on the Kenview side that will be leading this. The second thing is the culture. That's always a big concern of anybody who's been involved in integration, and the mesh has been really, really good. In fact, I think both companies' engagement scores have gone up after we announced the transaction, and our advisors told us they hadn't really seen anything like that occur before. On the synergy specifically, though, we have very good line of sight and visibility developing. All our plans are bottoms-up, analytically based. We've been working on them for many months. We've got 50 integration teams and hundreds, if not thousands, of people at this point that are working on those with the future leaders. You're right, we're not ready to call up yet, but we have high visibility and high degree of confidence in our ability to achieve. I'll just give you a little bit on a couple points. In the COGS area, that's an area that, as we've dug in, we have found more opportunities. so you're probably going to see that be more a part of the mix, and we'll keep you apprised of that going forward. And the three big buckets we're going after really are duplication and integration activity, and that's things like just overlaps as well as leveraging the combined scale of the company. That'll be kind of the first big wave. The second one will be combining the operations commercially, route to market, and supply chain. That'll probably be in years two and three in terms of carrying the water there for the development. We're very excited about the potential there. And then the third one will be really transforming the company in new ways that we haven't done before, using AI or simplification and developing new processes. So we feel like we've got it lined up and have confidence we're going to hit the ground running.

Speaker 2

Okay, great. And then let's talk for a second about revenue synergies. You've discussed $500 million in incremental operating profit from revenue synergies and plans to reinvest about $300 million back into the business. In what sense is this like low-hanging fruit? You know, that's sort of how you've described the opportunity, just trying to understand the short-term versus the long-term opportunity that's being captured in this.

Russell Torres, COO

Yes, same thing. I think we've got both short-term and long-term opportunities, bottoms-up planning. Our teams are engaged on it. I'll just give you some texture of some of the areas that might pop out. You know, in North America, for example, there's some things that might not be immediately obvious, but Kenview has a great selling organization to health care professionals, which we can use in our category and the KC categories. And likewise, the KC categories have a great professional channel that Kenview really hasn't tapped into. I could go on. There's capabilities like e-commerce and such, but those are the types of things we'll be tapping into and applying the best to both companies. In China, we've got a great e-commerce capability on the KC side that Kenview will benefit from. And, of course, from a geographic standpoint, there's capabilities and distribution positions Kenview has in Western Europe or India, and KC has in markets like Mexico or Indonesia that we're going to be leveraging. So I know we're short on time, but we're very excited about what that holds in the future.

Mike Hsu, Chairman

Well, and I'll say beyond the short term, and, you know, I think we're, again, I think Russ and the team were feeling very good about the revenue synergies. But beyond that, I would say in the medium term, you know, the opportunity around category penetration is a big one, Lauren. And I think the reason I flag that is because we didn't know that as much going in, right? And so we've been doing a lot of market research to understand these categories. And those are some insights I think that even Kenview didn't understand. And so I think, and it takes a little time to kind of work to kind of develop marketing that expands the category, but I think that's something that we're going to be very, very focused on. I think in the medium term is also product design. You know, I think that one of the reasons why, you know, maybe investors thought it was not intuitive for us to be interested in skin care, but it turns out scientifically we have a great deal of research on skin because our products are in contact with skin 24-7. And so there's still that opportunity we feel like to put maybe their skin knowledge and our skin knowledge together that will result in breakthrough products for consumers down the road. And so we just think there's a lot of great opportunities to drive that. And then the last area for us is what we're calling internally smarter health. I think this notion around how do you expand the category, having consumers treat themselves better, You know, we do think, you know, we've been investing a lot in our digital capability with consumers, and so we do think that is a really robust area for growth further down the road. And so, again, we remain really excited about the synergies that we have committed to, but also we think there's going to be more beyond.

Speaker 2

Okay, great. I did just quickly want to ask you about the Tylenol litigation. In July, the Second Circuit, you know, revived the lawsuit. So just does this change your thinking at all on deal math?

Mike Hsu, Chairman

No. One, we feel very confident in Kenview's approach to defending Tylenol. I think the science supporting the safety and efficacy of Tylenol continues to grow. Kenview's defense has been based on sound science and legal merit. I think you may have noticed that the second surrogate came out in July, but also I think five new studies published, including one which is a paired sibling study, which is, in our minds, maybe one of the strictest tests. And so all of them confirm the safety and efficacy of Tylenol. And so we feel very, very good on the scientific grounds. And then also I think we feel very good about the legal merits of the case and continue to feel very confident.

Speaker 2

Okay, great. We're going to have to wrap there. So please join me in thanking the Kimberly Clark team for being with us today. Thank you.