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, Christina Chang.

Thanks, Shelby. Hello and welcome to our 2022 year-end earnings conference call. Joining us today are Mike Hsu, our Chairman and Chief Executive Officer, Nelson Ordoneta, our Chief Financial Officer, and Brian Ezell, our VP of Finance. We issued our press release and published supplemental materials that summarize our results and outlook this morning. You can find these resources in the event page of our Investor Relations website. Before we begin today, a few reminders. Our statements today will include forward-looking statements. Please refer to the latest Form 10-K or 10-Q for the list of factors that could cause our actual results to differ materially from expectations. Our remarks will focus on adjusted results, which will exclude certain items described in our Q4 2022 earnings news release. Please consult our press release and public filings for more information about these adjustments and a reconciliation to comparable GAAP financial measures. Mike will provide his perspective of the business, and then we will open the floor for a Q&A. With that, let me turn it over to Mike.

Okay, thank you, Christina, and welcome to KC. Good morning, and thank you all for joining us today. Back when we introduced our strategy in 2019, we could not have imagined the unprecedented challenges we were about to face. Over the past four years, KCers did what we do best, provide great care. Care that our consumers, our customers, our employees, and our communities needed all around the world. At the peak of the pandemic, people counted on our brands to support the health and hygiene of their families. And I'm proud of what our teams were able to achieve to fulfill our purpose of better care for a better world. Now, as we look back at our results, there are three themes I'd like to emphasize. Theme number one, our strategy to accelerate growth is working. Since 2019, we've grown our business by about $1.5 billion in sales and delivered 4% average organic sales growth. In that time, we've accelerated organic growth by improving our product offering and market positions with meaningful innovation and world-class commercial execution. In 2022, organic sales increased by 7% and over-delivery on our goals at the beginning of the year. This was achieved in what turned out to be a uniquely challenging global environment. 2022 also marked Kimberly Clark's 150th anniversary, a year in which we celebrated generations of category-defining innovation. We're proud to have created many of our categories, including feminine care and facial tissue, under the leadership of our Kotex and Kleenex brands. We are inventors at heart. New products created during the last three years contributed to over 60% of our organic growth in 2022. Whether it's Kotex DreamWear for ultimate overnight protection or Kleenexology comfort, our product obsession, advanced technology, and consumer-centric focus is enabling us to create meaningful value and accelerate category growth. This is perhaps most evident in China, where we continue to post double-digit organic growth in the face of a declining birth rate and challenging COVID operating conditions. With major upgrades in dryness and thinness, our products are among the best in the market, led by Huggy Super Deluxe, the softest diaper in China. Our strong portfolio, supported by superior technology, will continue to anchor Kimberly-Clark's leadership in the world's largest baby and child care market. Theme number two, we're making strong progress on margin recovery. Over the past two years, we've faced unprecedented inflation worth over $3 billion, a roughly 1,500 basis point headwind of gross margin. Our teams have done an excellent job mitigating this impact. Our product leadership, commercial agility, and cost discipline enable us to rapidly implement broad pricing actions and generate over $700 million in cost savings. The successful implementation of revenue growth management actions drove an inflection in our profitability in the second half of the year. Gross margins stabilized in Q3 and increased year-over-year in Q4 by over 200 basis points. This was our first major improvement in the last eight quarters. Collectively, these actions enabled us to fully offset inflation and currency headwinds in 2022 on a dollar basis. Recently, market prices of some inputs have begun to ease, although they remain elevated relative to pre-pandemic levels. While we're encouraged by this, it will take time for these benefits to work through our contracts and flow through the P&L. Nevertheless, we'll continue to leverage our scale to improve efficiency and reduce costs. At the same time, we expect our revenue management efforts will continue to positively impact this year. This will aid ongoing gross margin recovery while also enabling us to continue investing in our business. At the midpoint of our 2023 guidance range, we plan to improve operating margin by approximately 80 basis points. With incremental headwinds below the line, this translates to 2% to 6% growth in earnings per share in 2023. We also intend to increase our dividend for the 51st consecutive year. Theme number three, we will continue to invest to drive balanced and sustainable growth. We're scaling innovation that delivers better value, more benefits, and better care for our consumers. We continue to see strong demand for great performing products. New poise ultra-thins and expanded sizing for Dependro share gains in adult care, both from a dollar and unit standpoint this past year in North America. We'll be launching several exciting initiatives in 2023, including our Good Nights Youth Pan which can hold the equivalent of three bottles of water, exclamation point, as well as exciting performance upgrades for Huggies diapers. At the same time, we'll leverage the broad range of our offering to address the growing need for value through compelling commercial programs. Now to wrap up my prepared remarks, I'm very proud of KCers around the world. They continue to execute with excellence, standing tall in the face of countless challenges, all to fulfill our purpose of better care for a better world. We've assembled an excellent management team that has tremendous experience unlocking global growth. We have a long runway of growth ahead of us, and we'll continue to invest in balance and sustainable growth to create long-term value for our shareholders. Now, Shelby, if you wouldn't mind, let's open the line for questions.