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. And 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.

Thank you, and good morning, everyone. Welcome to Kimberly Clark's third 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 summarized our third 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 our 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 may 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 outlook. Both exclude certain items described in this morning's news release. The release has further information about these adjustments and reconciliations to comparable gap financial measures. Now, I'll turn it over to Mike.

Okay, thank you, Taryn. Good morning, everyone. Before we get to your questions, I'd like to offer some perspective on our third quarter and further actions we're taking in response to this dynamic and challenging microenvironment. Organic sales were strong, up 4% in the quarter, and included the impact of pricing actions implemented in the second and third quarters. In North America, personal care organic sales were up 11%, driven by mid-single-digit increases in both net selling price and volume. In D&E markets, personal care organic sales were up 7%. Organic sales increased double digits in Argentina, Brazil, China, India, Eastern Europe, and South Africa. Our top-line performance was strong despite the resurgence of COVID, which impacted growth in ASEAN, Latin America, and KC Professionals. Our market positions remain strong and are improving, reflecting strong innovation and excellent commercial execution in nearly all key markets. Our share positions in North America remain solid with good sequential gains in personal care. Our share performance in D&E markets remains robust, where we continue to strengthen our diaper leadership positions in key markets, including China and Brazil. We also continue to focus on cost with our teams delivering solid savings of $150 million in the quarter. In addition, we reduced between the lines spending. Now clearly our margins and earnings were disappointing as higher inflation and supply chain disruptions increased our costs well beyond the expectation we established just last quarter. I'd like to highlight the effect of three areas of volatility that are most impacting our business. First, as we noted in July, and on the basis of external forecast, we had expected commodity prices to ease in the second half of 2021. Instead, prices for resident pulp increased further in the third quarter and are now expected to stabilize at a meaningfully higher level than our prior estimate. Second, a tight U.S. labor market and disruption in domestic and international transportation markets are having an elevated impact on our supply chain as we work to get our products to the shelf and meet consumer demand. Third, energy costs are up dramatically in Europe, where natural gas prices have risen as high as six times year-ago levels. Energy prices in North America are also up sharply, although not to the same extent. As a result, our margins are down, but we're down with declines only partially mitigated by the actions we've taken to date. We're not pleased with our results, and we're taking further action to mitigate the impact of higher input and labor costs. These steps include further pricing actions, additional initiatives to ensure we achieve our cost savings goals, and tightening discretionary spending. At the same time, we remain committed to investing in our brands and commercial capabilities. While we expect to see some benefit from these actions in 2021, we have further reduced our outlook for the year. This reflects our third quarter performance and our expectations for the fourth quarter. And while we're not ready to call our outlook for 2022, I will offer perspective on key variables that will affect our plan next year. First, we continue to build top-line momentum. In addition, our pricing actions, brand investment, and commercial program should provide further benefit in 2022. Second, some discrete headwinds we face this year will be behind us. This includes the U.S. winter storm and presumably consumer tissue destocking. Third, some headwinds we face this year may become more persistent. We're now expecting further inflation on several key commodities. We're also expecting continued tightness in the labor and transportation markets, which will continue to impact our global supply chain all the way to our customers. In addition, the going forward impact of COVID on both demand and supply remains very unpredictable. We will continue to move decisively and navigate changing market conditions, We'll also continue to invest in our brands and capabilities to maintain brand momentum. Our strategy is working, and we remain confident in our future and are confident in our ability to create long-term shareholder value. Now we'd like to address your questions.