Kimberly-Clark Corporation

Ladies and gentlemen, thank you for your patience and holding. We now have your presenters in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of this morning's short remarks, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question. It is now my pleasure to introduce today's first presenter, Taryn Miller, VP of Finance and Interim Head of Investor Relations.

Thank you, and good morning, everyone. Welcome to Kimberly Clark's second quarter earnings conference call. On the call with me today are Mike Hsu, our chairman and CEO, and Maria Henry, our CFO. Earlier this morning, we issued our earnings news release, and we also published prepared management remarks from Mike and Maria that summarize our second quarter results and full year 2021 outlook. Both documents are available in the investor section of our website. We hope you find it valuable to have prepared remarks ahead of this call. In just a moment, Mike will share a few opening comments, and then we'll take your questions. During this call, we will make forward-looking statements. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements. We may also refer to adjusted results and outlooks. Both exclude certain items described in this morning's news release. The release has further information about these adjustments and reconciliations to comparable GAAP financial measures. Now, I'll turn it over to Mike.

Okay, thank you, Taryn. Good morning, everyone. Before we get into the Q&A, I'd like to offer some additional perspective on our performance. Clearly, our results did not turn out as we expected, and we knew it was a tough comp given our strong growth and record profitability in the year-ago quarter. Now, while we expected volatility this year, the external environment has proven to be even more volatile than our expectation at the beginning of the year and versus our April update. Since we spoke in April, commodity inflation has spiked higher and our supply chain has been challenged. These dynamics are impacting us and more broadly the industry. We're also navigating historic levels of demand volatility in consumer tissue. Last year, we worked really hard to support our consumers and our customers as demand increased at a record pace. While we expected the category to retract this year, that decline has meaningfully outpaced our expectations. This has been driven by reduced at-home consumption due to increased mobility and destocking of both consumer pantries and retailer inventory. Consumer tissue has historically been very stable, and we expect demand to normalize over time. We remain confident in our brand fundamentals, even as we acknowledge that the short-term tissue outlook has been difficult to call. We've taken decisive action to offset the impact of raw material inflation. We've announced pricing in key markets around the world. Our pricing actions are on track, and we expect to fully offset the effects of input cost inflation over time, as we've done in previous cycles. We've also taken prudent steps to control and reduce discretionary spend across the business. We expect this to be reflected in our results as we continue to implement these actions. We view this level of input cost inflation and the COVID-driven demand volatility to be discrete issues. We will continue to take appropriate action to reduce the impact of volatility over time. At the same time, we remain confident and committed to our approach to building brands. Despite near-term challenges, we have plenty of bright spots in our business Our strategy to invest in our brands is working. You can see this in our second quarter results broadly across personal care and especially in D&E markets. Excluding North American consumer tissue, our organic sales were up 4%. Personal care organic sales were up 6% globally, driven by a 4% volume increase. In D&E markets, personal care organic sales were up 8%, with very strong market share performance, including in China, Brazil, throughout Eastern Europe, India, Peru, and South Africa. We've recently captured number one diaper share positions in China and Brazil, which reflects the strength of our brand fundamentals with consumers. Importantly, we're starting to see green shoots in KC Professional. The business grew year over year and sequentially as we saw strength in international markets and positive trends in washroom products. As more companies transition back to in-person environments, we expect KCP momentum to improve in the back half. We're encouraged by our underlying brand performance and have made significant progress in addressing the supply challenges we faced earlier this year in our North American personal care business. Looking forward to the second half, we are expecting better results across the business. We believe the major factors impacting this quarter do not reflect the fundamental health of our business. We remain committed to our strategy to deliver balanced and sustainable growth for the long term. We'll continue to execute KC Strategy 2022 and we'll invest in our business for the future. This includes investments in innovation, commercial capabilities, and technology. Importantly, I also want to emphasize that we are acutely aware of the impact that this pandemic continues to have on our employees, our consumers, and our partners and the world. We will continue to prioritize the health and safety of our people and all that interact with Kimberly-Clark. Now with that, we'd like to address your questions.