The Kimberly-Clark Third Quarter 2023 Earnings Call began with a welcome from the operator and the introduction of host Christina Cheng. The presentation included forward-looking statements and non-GAAP financial measures, and the company's Chairman and CEO, Mike Hsu, and CFO, Nelson Urdaneta, discussed the company's strategic priorities, strong performance for the quarter, and raised full year outlook.

The company's third quarter and year-to-date organic sales have increased by 5%, with growth in all segments. The Personal Care segment has shown the strongest growth, with a 7% increase in organic sales and 2% increase in volume. The company expects volume trends to continue improving as they invest in their brands. Gross margin and operating profit have also increased, leading to a 24% growth in adjusted earnings per share. Due to their strong performance, the company has raised their 2023 outlook. Demand for their products remains resilient globally and market shares are improving in their largest markets. They have seen a sequential improvement in 6 out of 8 categories in North America and have gained market share in the U.K. and China.

In the third quarter, the company saw strong results with net sales increasing by 2% and organic sales increasing by 5%. This growth was led by high single-digit growth in the Personal Care segment and in North America. Volume improved sequentially, and price realization and mix also contributed to the growth. The company's focus on investing in technology and brand communications is expected to attract more consumers and drive category growth. The company also remains committed to expanding margins through commercial and productivity programs for long-term sustainable growth.

In the third quarter, the company's net sales were negatively impacted by currency and the exit of their Brazil tissue business. Personal Care organic sales increased by 7%, driven by price realization and volume growth. Consumer Tissue organic sales grew by 2%, with strong demand in North America and the UK. K-C Professional also saw organic growth of 4%, but lower volumes due to planned price adjustments. Overall, gross margin improved by 530 basis points to 35.8%.

The company's revenue growth management, input cost tailwinds, and FORCE savings offset other manufacturing costs and currency headwinds. The cost environment remains mixed, with higher raw material and labor costs. Operating profit and margin increased, despite a currency headwind and higher incentive compensation accruals. The adjusted effective tax rate remained consistent. Cash flow from operations was $2.3 billion and capital spending was $549 million. The company returned $1.3 billion to shareholders through dividends and share repurchases. The company has raised its full year guidance, expecting organic sales growth of 4% to 5%, net sales growth of 1% to 2%, and adjusted earnings per share growth of 15% to 17%.

The company is facing negative currency headwinds due to the strengthening of the U.S. dollar against other currencies. This is expected to have a significant impact on their top and bottom line, with projected headwinds of $450 million. They are also facing increased input and manufacturing costs, but are focused on cost discipline and productivity. Gross margins have returned to pre-pandemic levels and they expect to see growth in their commercial programs and advertising spend. They have updated their outlook for adjusted earnings per share growth to 15% to 17%. Despite the volatile environment, the company remains focused on executing their growth strategy and making investments for long-term value creation.

Chris Carey asks Michael Hsu about the impact of commodities on the company's near- to medium-term horizon. Hsu notes that there has been an inflection point in the cost environment and expects input costs to be a modest tailwind going forward. He also mentions the company's focus on expanding margins through revenue and cost management. Nelson Urdaneta elaborates on the savings seen in the quarter, which are driven by pulp, distribution, and other commodities.

The company has seen increases in resin-based materials and energy costs, but has also benefited from their FORCE program which includes negotiated material prices. They expect to be favorable in the fourth quarter and for the full year, but do not anticipate significant tailwinds. In the Personal Care division, North America has seen robust consumption with mid-single digit growth in all categories.

The speaker discusses how supply constraints affected their Personal Care and Kleenex businesses throughout the year, resulting in higher shipments than consumption. They attribute this to retailers replenishing their inventories and coming off allocation for certain brands in mid-September. The speaker also mentions a destock that occurred in the same quarter last year. The company is pleased with their gross margins, which were helped by lower input costs, but they expect some reversal of this in the future due to higher oil prices. They also saw cost savings in their FORCE program.

The company is expecting a headwind of $50 million for the full year, but still expects to be favorable in the fourth quarter. They are watching the oil markets and their impact on resin prices, which have begun to plateau. The company is encouraged by their cost savings program and expects gross margins to continue to grow. There may be some underlying volatility in input costs, but the company remains disciplined in revenue and cost management. Currency has also become more volatile.

The speaker discusses the strengthening of the U.S. dollar and its impact on the company's operating profit. They mention a sequential improvement in volumes from Q2 to Q3 and expect continued improvement in volume trends. The speaker also mentions private label pricing and promotional levels in North America, and a potential pickup in promotions at the end of the year. They also mention that some categories may be coming out of allocation.

The speaker discusses their view on trade promotion and how it fits into their marketing mix. They do not believe in using promotions to temporarily increase market share and have participated in some promotions but at levels below 2019. They mention that their pricing may look underpriced due to the metric used and the higher sheet count of their Scott 1000 brand. They are focused on increasing gross margins and believe it is possible to operate above 2019 levels.

The speaker outlines the three main goals that were set when they took on their role: accelerating organic growth, reducing earnings volatility, and enhancing margins. However, the unexpected challenges of COVID-19 caused a temporary setback in achieving these goals. The speaker emphasizes the importance of restoring and then continuing to enhance margins, and the company has been making investments in building capabilities and improving productivity to achieve this.

The company has been focused on delivering ongoing productivity and driving innovation, which has contributed to 60% of their revenue growth. They plan to continue this strategy to expand margins and drive balanced and sustainable growth for years to come. The company has also seen manufacturing cost inflation and has increased their call for the year to $250 million due to external factors such as service and lease inflation and hyperinflationary economies. Additionally, the company has been making strategic growth and commercial investments, including higher A&P and marketing spending, to drive their growth initiatives.

The speaker is pleased with the company's balanced and sustainable growth, with strong organic momentum and restored margins. They have made progress in investments and building capabilities, with a couple hundred basis points increase in advertising investment over the past 5 years. They plan to continue investing, but not necessarily at an accelerated pace, and aim to have a competitive spend rather than outspending their primary global competitor. They also recognize the need to leverage their current investments better.

The speaker explains that the company has caught up on underspending in the past and is now focusing on more opportunistic spending with strong ROI. They also mention that most of their pricing increases have already been implemented and there may be some carryover into 2024, but it will not be a major driver. They do not anticipate significant deflation in the near future, but there may be some modest tailwinds in the coming quarters.

The company has adjusted pricing in some markets due to fluctuating energy costs, but overall they have priced appropriately for the expected cost environment. The CEO is proud of the team for delivering balanced and sustainable growth and thanks everyone for their interest. The call has now ended.

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