This paragraph introduces the Kimberly-Clark Second Quarter 2023 Earnings Call, which will be hosted by Christina Cheng, the Vice President of Investor Relations. Michael Hsu, the Chairman and CEO, and Nelson Urdaneta, the Chief Financial Officer, will be participating in the call. Hsu will provide an overview of the performance for the quarter, and Urdaneta will discuss the results and outlook before opening the floor for questions and answers. The company delivered a solid quarter with 5% organic growth. Organic sales rose across all segments, with personal care and consumer tissue each up 4% and professional at 13%.

Kimberly-Clark saw strong performance in the quarter, with a 380 basis point increase in adjusted gross margin and 17% increase in adjusted operating profit. They are raising their full year outlook to 3-5% organic growth and 10-14% adjusted EPS growth. They are seeing double digit increases in key developed markets, and double digit increases in Latin America. They are focusing on value to premium options, enhancing large count packs and big box channels, and making entry prices more affordable and small format channels. They are also accelerating innovation and cascading technology through their product offerings in order to deliver a superior value proposition to consumers.

In the last six months, Kimberly-Clark has seen an improvement in market share, especially in North America, due to their enhanced commercial capabilities. They have also launched various campaigns such as Huggies' Baby Butts campaign and Kotex Intimus She Can campaign, which have been successful and have helped them expand their market leadership. They have also introduced a new overnight pad with a proprietary design in China, which has driven growth in the overnight segment.

Kimberly-Clark recognized impairment charges related to their purchase of Softex Indonesia in order to expand their presence in the personal care market. The charges reflect updated projections for the business, and the company has taken actions to improve the business processes and their go-to-market approach. In addition, they recently closed the sale of their Brazil tissue business, resulting in a pretax gain of $74 million and $30 million of related expenses.

This paragraph discusses the successful completion of a business transaction, which resulted in a pretax noncash impairment charge of $658 million. The company also reported net sales of $5.1 billion, up 1% year-over-year, and organic sales increased 5%. The Personal Care segment grew 4% organically, while the Consumer Tissue and KC Professional segments grew 4% and 13% respectively. All geographies grew, and notably, volumes turned positive in North America after six quarters of decline.

KC Professional saw significant improvement in operating profit in the quarter due to favorable product mix and cost savings. Revenue growth management and FORCE savings offset cost inflation and currency headwinds. Labor costs are higher due to cost of living adjustments and a tight job market. Between the lines spending increased and operating profit rose 17%, with a 190 basis point improvement in operating margin. The adjusted effective tax rate for the quarter was 20.5%, lower than the year ago period. The company is focusing on productivity to restore margins to pre-pandemic levels and expand them over time.

The company's strong performance and lower tax rate resulted in adjusted earnings increasing by 23%, and they generated $1.4 billion in cash flow from operations. Year-to-date, they have returned $850 million to shareholders through dividends and share repurchases. They have raised their full year guidance for organic growth of 3%-5% and adjusted EPS growth of 10%-14%. They expect input costs to be a headwind of approximately $100 million, and advertising spend to increase by approximately 100 basis points for the full year. They expect operating profit growth in the low double digit range, and an operating margin increase of approximately 150 basis points.

Michael Hsu explains that while there was a slight dip in consumer tissue margins sequentially, there was a 200 basis point increase year-over-year. Nelson Urdaneta adds that the transition to new artwork and upgrades for Cottonelle in North America has been slower than planned, but is progressing and contributing to the overall upward trend in margins.

Michael Hsu adds that Kimberly-Clark Clark is investing in all their businesses around the world, including consumer tissue, personal care, and professional. This investment is reflected in the UK with organic growth up double digits and share remaining strong and robust. To address questions about pricing pressure in consumer tissues in Europe and the US, Hsu notes that they have upgraded the quality of their products in the last couple of years and are investing in their brands, resulting in 190 basis points of between the lines investment over the prior year.

Michael Hsu states that pricing initiatives and net revenue management initiatives are on track, and there may be more promotional activity than in the past six months, but it has not impacted results. Western Europe had double digit growth in demand and organic volume. Kimberly-Clark and Procter have different roles when it comes to international tissue business, and Kimberly-Clark has recently conducted a strategic review and exited Brazil and Indonesia. Javier Escalante is asking about the difference between labor inflation and investing in enhancing products, as well as the role of international tissue business and its margin profile.

Michael Hsu and Nelson Urdaneta discuss the increase in "between the lines" costs, which are divided between advertising and promotional activities and investments in capabilities, labor inflation, and system upgrades. Hsu also states their commitment to elevating and expanding all of their businesses, with a focus on the North American consumer tissue market due to its higher profitability.

Michael Hsu explains that the decision to exit Brazil tissue was specific to the local market conditions, and that they are looking to add businesses with a focus on personal care internationally. He states that Indonesia is a great example of this, and they remain committed to it for the long term. He also adds that in countries where they have very large personal care businesses, they may continue to divest tissue businesses if they have enough critical mass to run them independently.

Mike Hsu states that while they have seen a sequential improvement in volume trends overall and by sector, their market share is a bit lower than they would prefer. He then suggests that as they have already moved quickly on pricing, they expect to see their volume trends improve in the back half of the year and that they will be looking to take actions to drive better volume performance.

The company is facing competition in terms of pricing, as well as supply and cycling challenges. They are investing more in their brands and commercial programs to improve their performance in certain markets. They are focusing on encouraging consumers to try their products and have them stay for the long term, rather than driving promotion to earn back share. The company has seen improvement in their volume trends.

Nelson Urdaneta explains that the company's input cost inflation has improved since April, when it was expected to be $100 million. This improvement has resulted in a $90 million benefit for the company, which will be seen in Q3 and Q4. Specifically, the fibre complex and distribution costs have improved, leading to the better outlook.

Michael Hsu believes that despite the record inflation in 2021 and 2022, the cost environment has stabilized and is now modestly inflationary, leading to a more stable supply environment. He is confident that share trends will improve in the back half of the year, and plans to drive this improvement through increased promotion and innovation.

The company is confident in their programming and innovation, but there has been some softness due to the faster price advances last year. The North American market is facing a tough comparison due to the restocking and reselling impacts from the previous year. The company is investing in their brands and advertising to encourage consumers to try their products. The company is excited about innovation and believes it will contribute to sales growth over the next couple of years.

Michael Hsu discussed the success of innovation in the company, specifically in China where organic sales were up nearly double digit and the super premium mix doubled. He mentioned two new products, Cottonelle six funnel and Oxygen Bar Pro, which have been successful with Chinese moms. He concluded by addressing feedback from the retail community that everyone is being very active with innovation due to products that were not launched during the COVID timeframe.

Michael Hsu discusses the increased investment levels of the company over the past five years, and how they are focused on investing in advertising to support innovation. He mentions the importance of unmet consumer needs, such as absorption and protection, skin health, comfort, fit and breathability, and how they are working to make sure they can drive the conversion in the minds of the consumer. He also acknowledges that there will be more innovation from other manufacturers, but their focus is on driving the big innovations they have.

Michael Hsu of Procter & Gamble stated that the consumer demand for their products remains resilient and healthy, with North American consumer categories up in the high single digits and Western Europe and Latin America in double digits. Price elasticity has been muted so far, and the company expects volume trends to improve in the back half of the year due to commercial programming and innovation.

Michael Hsu states that they are managing through pockets of downturn in certain areas such as Southeast Asia and Latin America by sharpening their value propositions, adjusting counts, sharpening entry price points, and cascading innovation through their tiers from premium to value. He also states that they are highly efficient in their marketing spend when compared to peers.

Nelson Urdaneta and Mike discussed the company's investment strategy and how they are investing differently in each of their three segments. They are focused on return on investment and being efficient with their spending, and they are getting strong realization on pricing and are ahead of their competitors.

Michael Hsu is expecting an inflection point in volumes at some point, but he can't give a specific inflection point. He is investing in innovation and commercial programs to help the business grow in the long term. He also mentioned that pre-COVID, the business was primarily volume driven and he expects that to continue. He also mentioned that the $9 million benefit from the prior outlook will give a 45 basis points benefit for the year and the tax benefit from the impairment will be $0.05.

Nelson Urdaneta explains that the company has seen an improvement in volume over the past few quarters, which is due to pricing initiatives, product innovation, and increased investment in the brands. He goes on to explain that this has led to a better performance in the first half of the year and a better outlook on costs, resulting in a better outlook for EBIT and EPS.

Michael Hsu explains that while competitors have lagged in terms of pricing, they have made up for it in terms of promotional activity. He states that while list prices have lagged for a period, most brands have now caught up. He emphasizes that they will be smart about their promotional tactics, as it is not the best way to build their business in these categories.

Nelson Urdaneta outlines the outlook for gross margin improvement, which is expected to be at least 230 basis points, and he explains that this is due to increased ad spending of 100 basis points and other cost pressures. He also explains that this outlook may be conservative, given the current cost pressures.

In the second quarter, gross margins have reached 34%, and the company is aiming to recover back to pre-COVID levels of 35%. Year-over-year gains in gross margins are expected in the second half, though not at the same pace as in the first half. Costs are expected to remain stable, and the company is confident in its underlying plan and investments.

Michael Hsu is pleased with the progress made in restoring the company's margins to where they were in 2019. He also mentioned that they are aiming to expand their margins over time. He does not yet have guidance for 2024 but is confident that they are making progress towards their goals.

Michael Hsu and Peter discussed a plan to restore and expand their business. This plan involves managing revenue and costs to drive ongoing margin expansion. The call concluded with Michael Hsu looking forward to seeing everyone at the end of Q3.

This summary was generated with AI and may contain some inaccuracies.