Kimberly-Clark Corporation

Good day, everyone, and welcome to the Kimberly-Clark Third Quarter 2025 Earnings Call Question and Answer Session. It is now my pleasure to hand the floor over to your host, Chris Jakubik, Vice President, Investor Relations. Sir, the floor is yours.

Thank you, and good morning, everyone. This is Chris Jakubik, Vice President, Investor Relations at Kimberly-Clark, and thank you for joining us. I would like to remind everyone that during our comments today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties, and these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures during the remarks, and these non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. And you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I will turn it over to Mike for a few opening comments.

Okay, thank you, Chris. Good morning, everyone. Our third quarter results underscore the strong progress we're making to transform Kimberly-Clark into an industry-leading personal care company. Despite a dynamic external environment, powering care continues to power our performance. It's enabling us to deliver solid results and, importantly, better care for a better world. Our inflection to volume plus mixed-led growth that began last year continued into the third quarter. Q3 marked Kimberly-Clark's seventh consecutive quarter of volume plus mix-led growth, even as volume growth has been somewhat challenging to achieve across the broader CPG industry. We're growing volume and mix because we're meeting consumers where they need us, across the good, better, best spectrum, and we're well positioned to post similar growth in the fourth quarter. We held global weighted market share despite an uptick in competitive promotion activity in the quarter. We're leveraging our scale to deliver more consistent profitability in a challenging environment. In the third quarter, we deliver consistent operating margin expansion and another quarter of industry leading productivity, our strongest of the year, to support reinvestment and profitable growth. Our rewired organization is fast tracking the best of Kimberly-Clark across our markets. The promotion of Russ Torres to President and Chief Operating Officer is accelerating our momentum. I'm pleased to have Russ with us today for his first earnings call as Chief Operating Officer. We're in the fourth quarter and we're playing a win. We have sustainable momentum and the discipline and ingenuity to effectively execute our innovation-led volume plus mix driven growth strategy. We're confident in our ability to unlock our long-term potential and deliver more value for our consumers our team, our partners, and our shareholders. So with that, I'd like to open the line for questions.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then re-enter the queue. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Javier Escalante from Evercore ISI. Your line is live.

Hey, good morning. Hey, how are you guys? Good morning. Congrats on the strong results. I wonder whether you could give us an update on the competitive dynamics in U.S. diapers. When you spoke in early September, you indicated delays in marketing plans because of increased competition from retailers' private label and their Chinese imports despite tariffs. So did you resume marketing plans in Q4? What's the consumer and retailer reaction to it? in a bigger sense, is there something you can do to steer the market away from a price war, given that the U.S. diaper market will likely trend volumes flattish given low fertility rates? Thank you.

Hey, Javier, great question. You know, I would tell you, you know, we saw increased competitive activity and uptick in activity earlier in the quarter. I would say our teams navigated it pretty well. And I would say your point around, you know, how we want to drive the business, I think I said it in my prepared remarks, our strategy is totally innovation-led. And so we're really focused on making our products better at every tier of the good, better, best spectrum. And I think that strategy, as you can see in our results, is paying off pretty well. But I'm going to ask Russ to comment because I think, you know, he's kind of closer to the action in North America and having just come out of that role. And so maybe, Russ, you may want to give them a little bit more detail.

Sure, sure. Absolutely. Hey, Javier. Yeah, I would say, overall, as the quarter played out, you're right. We did make the decision to move some promotional activity from the third quarter to late in the third quarter, mainly the fourth quarter. And so just the update on that is we are seeing solid performance in diapers in North America. And so we're I think that has worked out thus far. So we gained 10 basis points of share in diapers in the third quarter, which frankly was maybe a little better than what we had expected. And we're up in share 90 basis points year to date. But I would maybe unpack a couple of topics just that I think are notable that may give you a little bit more insight to what you and everyone else might be seeing in the scanner data. And that's promotion activity and club would be the two things. So let me start with the promotional activity. Just to remind everyone, I think we mainly see promotion as a tactic to drive trial for innovation. To Mike's point, we're very focused on driving innovation and brand building and cascading that innovation across every tier of the good, better, best spectrum. We would say that overall promotion across all of our categories within North America, and that includes diapers, is well down versus our 2019 levels. But you may see the promotional levels tick up as a result of that trial activity I talked about. And the reason for that is we've got a great lineup on innovation. You know, we have probably the most active lineup we've had in quite some time across the good, better, best tiers. And just to remind everyone, we launched the blowout blocker earlier this year, HugFit 360 in our little movers tier, which is doing quite well. And then, of course, we have a very significant improvement in the value proposition in our mainstream lineup in snug and dry, where we've made great product improvements to improve softness and comfort and have introduced a superior core, Generation 2 core, that will improve protection. And that's off to a great start from rating. So our strategy had been to really use promotion to drive trial because we know when people try the product, they're going to love it and come back. And so what you're seeing is probably an uptick in that promotional activity But I would also point out that our promotional activity in general in diapers is lower than the category, and we'd expect that as we get through the trial period, that promo activity to normalize as we get through the fourth quarter and towards the end of the year. So that's just a little bit of an explanation behind what you might be seeing there. And then on the Club Mix piece, I just wanted to you know, talk for a second about that, you know, that you may see coming through as a little bit of negative mixed headwind in U.S. diapers. And what's happening there, as everyone knows, is we've been experiencing double-digit growth in the club channel. And that really is, you know, in response to both the consumer shifting to the club channel, as well as some changes in assortment that have positively impacted our business in certain retailers. And so, We are also in parallel driving premiumization, so that's important. Like the HugFit 360 that I mentioned is going to drive continued premiumization and positive mix over time. So hopefully that sheds a little bit more light on the situation.

Yes, it does. Yes, it does. I have a follow-up.

You'll be proud to know that Chris's team sent me that chart that you drew up three times.

I'm sorry for that. But the one thing that I would love to hear is driving positive mix, because this has been your focus for a long time, right? And from the retailer's standpoint, what they're doing with the Chinese diapers is a positive mix, but not necessarily to you. So what are you seeing in terms of consumer reaction to the Chinese diapers versus your intro? Is there anything that you have learned so far that give you encouraging or is it makes it more challenging driving positive mix? And thank you very much for the follow-up.

I may start. Yeah, go ahead, Mike. Just the one thing I'll say overall that, you know, we're starting to see is I think the brand interaction tends to interact more with private label. And so there's kind of a swap in and out at the same tier. But, you know, Russ, you may want to comment further.

Yeah, I think we're doing a lot of things to drive positive mix, and I think overall, Javier, I would say we're very confident because of our experience around the world, including in China, that we make great products and consumers respond to those, and that's what the testing data shows, and I believe that's what the market reaction to our current position is showing. So while you may feel like I think retailers understand that they have to balance mix, but I think more broadly what's happening is there's a value-seeking consumer out there, and the retailers are trying to adjust their assortment to help serve those needs, and so are we. And I think that's why we're seeing positive volume mix growth. And so I think we feel comfortable with our levers. You know, we're doing things on pack sizes and other areas. So we're still early on in the progression of that, though, so we're going to see how that plays out. But I would say that given our experience globally and in North America, we're confident in our plans.

Yeah, the confidence in our plan, Javier, comes from the fact that we're very confident in our technology and our product quality. We're competing with the low-cost diapers that you mentioned in other markets, particularly in Asia, and our products are superior, and we believe our costs are very, very competitive, if not better. So we feel good in our plan.

Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live.

Great, thanks. Hey, good morning. In the prepared remarks that you guys published this morning, you opened the door a little bit to 26 and talked a little bit about momentum into next year. So I wanted to know if you could talk a little bit about the shape of the P&L in 26 and 27. I know you've spoken about the dilution, assuming that the IFPHE kind of goes through as planned. but I think numbers are a little bit all over the place, so anything you could do to shed some light on shape of the P&L 26 and 27 would be really helpful. Thanks.

Well, we're still in the throes of working through it, Lauren, so I think it's premature for us to share too much, but I think Nelson probably can maybe make a few remarks here.

Sure. So, Lauren, just to provide some perspective, and again – without getting into specifics on point estimates, because we'll be providing a thorough outlook when we report our Q4 and full year results early next year. You know, it is important to highlight that we continue to target organic growth ahead of our categories, consistent with our long-term algorithm. At operating profit, we are in the midst, as Mike said, of building plans for the next few years. that should deliver our long-term constant currency operating profit growth in line with what we committed to and looked at as our long-term algorithm. And this includes the mitigation of the stranded costs that will result from the IFP transaction that, again, we expect to close sometime middle of next year. I'd also point out that we continue to be targeting to achieve, you know, our milestones on gross margin of at least 40% and an operating profit of at least 18 to 20, you know, before the end of the decade. And we're tracking fairly well on that in terms. And as you say, as we get into the details of the outlook and how we think about it, first EPS. And then the next couple of years, we need to distinguish between EPS from continuing operations, which exclude discontinued operations, from EPS attributable to total KC, which includes earnings from discontinued operations. So that's the first step. So for constant currency adjusted EPS growth from continued operations in the next couple of years, all else equal, and assuming that we close the transaction sometime middle of 26, we should see a step up in growth in EPS. in EPS from continuing ups, as income from equity companies would increase by approximately 30% year on year, and we'd also benefit from the use of proceeds for share buybacks. Then the second item is adjusted EPS attributable to total KC, which, again, assuming that we close the transaction mid-2026, then constant currency growth should be somewhat more muted. As we see about half of the discontinued ops income go away, and then as we go into 27, all of it go away. In the near term, we're going to continue driving underlying growth consistent with the long-term algorithm, and we will see a partial offset because of the dilution that we've been talking about.

Okay, great. That's super helpful. Thank you.

Okay. Thank you, Lauren.

Thank you. Your next question is coming from Peter Grom from UBS. Your line is live.

Great. Thanks, guys. Good morning. Good morning, guys. So I wanted to ask you on North America, just the performance in the quarter relative to what we can see in the track trends, it was a bit stronger. So I know in the prepared remarks, you talked about some hurricane shipment dynamics, but can you just talk about what drove the gap in the quarter there? And then maybe as we look ahead, would you anticipate a similar gap as we continue to monitor the data here in the fourth quarter?

Hey, Peter, maybe that's a good topic because I would say in our discussions, I think the source of data you look at is very – it tends to be very different from our data. And so I know there's – different analysts use different sources. The thing about our business, we skew to a few – larger customers that are untracked or not well tracked. So even if Rust Club is in the system, depending on what source you're using, it may be panel data versus what Russ is getting is live feeds. Absolutely.

And then let me maybe just unpack a little bit the numbers. And I think two things from there. I mean, both scanner and the reported results, we are seeing sustained momentum from all the innovation and activation that we're doing across the markets in the U.S. and the categories. Focusing specifically in North America, I think it's important to highlight that from a year-to-date standpoint, shipments are largely in line with consumption. And as we've said, you're always going to see some noise quarter on quarter. And specifically for Q3, as we stated in our prepared remarks, what you're seeing is two things playing out. The first one is lapping last year's hurricane-related impacts on shipments, which drove around 50 basis points year on year. And then the second item, and we've been talking about it Russ mentioned it a little earlier today, is the timing of the promotional expense, particularly year-on-year. And that drove, you know, a timing on the realization of those promotional activities. So those are largely the two items that would have had overall shipments or organic growth ahead of what we would have seen in consumption for the quarter, but the year-to-date numbers are largely in line.

Yeah. And, Nelson, if I could just tag onto that and build on what Mike was saying You know, I think we're focused on meeting consumers where they need us at every price tier, but also in every channel. And what you're seeing is really, as Mike alluded to, is a significant migration of consumers to e-commerce and club. And so if those are not as well-tracked, there can be a disconnect there, and you're certainly missing some of the growth that's happening. So just bring that to life with an example. In digital channels in North America, 99% of our growth last year came from digital. And this year, it's 100%. And we have a seven-point share benefit. Our share is higher by seven points on digital versus brick and mortar. And so that can have a pretty significant skew. And so that tracking piece tends to be The volumes there also tend to be a little bit lumpy and somewhat volatile, and so that tracking piece, I can understand, maybe creates an additional noise in tracking things. But it is strong growth, and we're focused on executing our plans and delivering for consumers in all channels.

Great. Thank you so much. I'll leave it there.

Okay. Thanks, Peter. Thanks, Peter.

Thank you. Your next question is coming from Chris Carey from Wells Fargo. Your line is live.

Hello, Chris. Hey, Chris. Hey, good morning, everyone. So I wanted to come back to the promotional activity in North America and how you're responding. But I specifically wanted to dig a bit deeper on the comment that North America is kind of tracking well quarter to date. It's not really about a quarter to date question per se, but you've shifted promotional activity into Q4. I'd love to get a bit more detail on how you think that's doing. How is that improving your competitiveness? And Nelson, just any margin implications that we should be thinking about from this increased promotional activity?

Yeah, I would start maybe with a broader statement there on just what's going on in North America overall. You know, we're growing volume and mix, as you see in our results, because we're focused on meeting consumers where they need us. And clearly what you see right now is that consumers, you know, are really under pressure and their purchasing power is under pressure. We don't really see, candidly, a catalyst for that to change any time in the near term. However, our categories are essential categories with low substitution, and they're very important to people's lives. And so that's what I think why you see the demand remain relatively resilient. And from a promotional standpoint, that's exactly why we tend to view promotion as a tactic to drive trial. It doesn't really expand our categories. I think our retail partners understand that as well. And so our focus is really on strengthening our offerings by investing in value propositions and differentiated innovation at every rung of the good, better, best ladder, especially cascading those innovations across the portfolio, and that's exactly kind of what we're doing. So that shows up in the form of strengthening the value offerings, like I just talked about with Snug and Dry a minute ago, for value-seeking consumers, improving the product quality so they're getting more value for money, as well as elevating benefits to drive trade-up and premiumization. And we see the premium segment of the category healthy and still growing kind of across our portfolio. And one more thing I would note is just the vol mix growth in North America, I think is the proof point that that is working. You know, if you look at North America, we're kind of getting vol mix growth on top of vol mix growth. So year to date, our vol mix growth in North America was about 2.2%. And if you looked at that on a two-year stack basis, it would be 2.9. And so that really is kind of how things are unfolding. So the promotional dynamics You know, our strategy was really to, you know, really focus on executing the play that I just described.

Yeah, and then maybe, Chris, I'll add, you know, I think earlier in the quarter we saw competitively some deeper discount, deeper than we had seen discounting. It probably didn't have as much of an impact as we had originally thought. So that's kind of one delta. And then the other delta then also is our trial driving on our new innovation strategy. And, you know, as Russ said earlier, you know, we're really only promoting the brand to drive trial and innovation. And so, you know, I think that is getting traction. So, you know, overall, I'd say our brands are very, very durable, especially in this environment.

And to your question, Chris, related to margins, I mean, a few things that we expect to unfold in Q4 as it relates to gross margin. Because of the timing of some of our investments, both on the supply chain and the mitigating actions realization related to the tariffs, we actually would be expecting gross margins to get back to expanding as we head into the fourth quarter. As you think about operating profit margin, though, we are stepping up investments marketing-wise. sequentially in the quarter and not in an immaterial manner because we're supporting all of the initiatives that we have. So from an operating profit margin, we'd actually expect to be not too different from what we would have seen last year in the same quarter. Delivering a full year expansion of gross margin, of operating profit margin, is kind of our expectation at this point.

Okay. Thank you. One quick follow-up. I couldn't quite tell, but did your commodity outlook, if you exclude the impact of tariffs, come up a bit today? Maybe I'm misreading that. If so, what's driving that? And maybe just more broadly, how you see the cost outlook evolving here? If you'd like to add a bit of thoughts on how the tariff backdrop is evolving, that may also be helpful. Thanks so much, guys.

Yeah, so before I get to tariffs, one thing is I think I said, you know, versus prior year. So versus prior year, we would see an expansion in operating profit as well. I was referring more to quarter on quarter. It would be not too dissimilar. It would be largely a little bit below because of the investment. In any case, getting to tariffs, two things that I've played out on tariffs. One, on the gross element of tariffs, we are down 10%. and improved about $70 million. So we were about 170 million. We're down to about 100 million gross tariffs. On the mitigating actions, we're still mitigating around 50 million because of the timing of that, and we do expect to be able to largely mitigate them all as we get through last year. So that should play out. Obviously, on the tariffs front, there's a lot of moving pieces, Chris, and we're staying attuned to what's happening on that front But overall, the good news is that we are seeing the mitigating actions coming through. We expect that to play through as we go into Q4 and early 2026. And our teams are activating all the elements in the toolkit to offset.

Thank you. Your next question is coming from Nick Mody from RBC Capital Markets. Your line is live.

Yeah, thanks. Good morning, everyone. Hey, Mike. So just maybe you could just give some clarity on the full 2025 guide, just on the top line. Obviously, over-delivery this quarter, but it looks like there's a little bit of a step back in 4Q. So just wanted to just understand, is there something you're seeing, or is it just the environment is volatile, so you're just kind of appropriating your guidance accordingly? And then just I'll ask my follow-up now. Procter & Gamble talked about some exclusions on tariffs or some inputs. And I'm just curious if you're seeing that as well. Thanks.

Yeah, maybe I'll just comment briefly on the last. Yeah, some, right? And so an important, you know, important you have to recognize some of our products are daily essentials. And so, you know, there is an exclusion for Brazilian eucalyptus. And so that's obviously an important factor for us. So that's one big area that, you know, I think, you know, we're very pleased to have been able to, you know, receive.

Do you want to comment on the – I can go on the guy for the top line, Nick. So I think a few things to unpack. On a year-to-date basis, our organic sales are 1.6%. And we – You know, what we're seeing on the categories at this stage is that the categories would grow around 2%, and our expectation right now is to grow largely in line with the categories for the full year. So, in essence, I mean, we would see an acceleration in Q4, if not at least at the same level of what we saw growth in Q3 based on all of our programs. Does that clarify?

Yes, that does. Thank you so much.

And, Nick, one more thing I'll add is just, as you know, we always talk about driving the virtuous cycle in our business. And so we have seen a little strength, and we started off the year well. Third quarter came in good. So we're going to continue to reinvest in our brands and make sure that we can drive ongoing momentum as we get into next year.

Helpful.

Thank you, guys.

Thanks.

Thank you. Your next question is coming from Anna Lizell from Bank of America. Your line is live.

Hello, Anna. Hi, good morning. Thanks so much for the question. I was wondering if we could take a step back on the diaper category. We're seeing the category evolving here with certain ultra-premium players expanding the market on the top end. I was wondering how you see Kimberly competing in this environment where, you know, we're seeing growth but also increased competition at the mid-tier and value ranges, but more robust growth on the ultra-premium side with some newer brands in the U.S. So I was wondering, is this an area in ultra-premium where Kimberly could compete through innovation or potentially through M&A? And then how do you see the overall category dynamics developing from here? Thanks.

Yeah, the great thing about the diaper category and also all of our categories is that performance is what really, really matters. And so, Anna, we're very confident that we have the best technologies. We have a great pipeline of technology, you know, in our go-forward years. Next year's innovations will be better than this year's, and 27 innovations will be better than 26's. And so there's that. I would say our strategy, as we've said, kind of, you know, You've probably heard us say it a lot. Hey, we want to win at every rung of the good, better, best ladder. And that's what's driven our business globally is really expansion, premiumization of the category through better features and products worth paying more for. Just to give you an example, in North America, our shift of the last 10 years or so, our premium mix has gone from 40% of our business in North America to just under 70%. In China, our premium mix has gone from 6% five years ago to well over 40%. That's our underlying strategy. However, in this environment, we also recognize we have to have a great value proposition in the value tiers. We don't want to be a niche premium brand. This is why Russ has talked about us cascading our best innovation, our best features into the I would say the mid-tiers, and so that we can have a superior offering across the line. But maybe, Russ, you may want to add a few thoughts.

Yeah, I'd just add something. You mentioned super premium. I think we're excited about that, and that's consistent with what we're seeing, just because I think it illustrates that there's plenty of room for us to continue to premiumize the category. And you see that demand on the premium and super premium side is is out there. And so continue to look for us to both drive that, as Mike just talked about, the premiumization success we've had, both in the United States and other markets, including China. We're going to continue to focus on that in addition to bringing great value at the mainstream and premium tiers.

Great. Thanks so much. And just one follow-up on the cost side. You did mention in early September your expectation to reduce your volatility to fiber, and that would approach zero following the JV agreement. So I was wondering if you could elaborate on that more and the efforts that you're making toward that so far.

Yeah, maybe I'll start, Anne. I'd say one thing. You know, I'd say, yeah, volatility is one of the big things that we've been working on because we recognize, like, that was one of the features of, like, you know, Canby stock, you know, that was different from maybe some other companies. And so one of the key sources of that volatility was fiber prices, right, or our cost of fiber was more volatile, you know, historically. I'd say this transaction and partnership on our international family and professional business with Susano really does a couple things. One, it really kind of stabilizes the source of the fiber costs, you know, partnering with one of the most efficient producers of fiber in the world has some strong advantages. And so, you know, I'd say, you know, that brings an advantage. Obviously, the nature of the joint venture itself by reducing our stake in that business internationally inherently reduces our volatility. And then I would also say by nature of our strong partnership with Susano, you know, we have – You know, since Nelson has joined us and brought some of our kind of, I would say, risk management mindset that he and I used to have at our prior company, you know, here, we have worked hard to smooth out and take out volatility in the input costs that we've had. And hopefully you can see that, you know, in your models.

And just to build on what Mike is saying, you know, the transition that we've been doing over the last, two and a half, three years, the integrated margin management has really percolated across the entire organization. The notion of pricing net of cost at least neutral in the mid to long term is gaining hold across the organization, and that's really a way of working that has allowed us to have more proactive management of the volatility separate from all the other actions that we're taking. So that is a big, big cultural change across the organization, and we're seeing that play out over the last two to two and a half years, and that's what also gives us the confidence of being able to attain our milestone margin targets before the end of the decade, both on the gross margin and the operating margin as we continue to progress in this power and care transformation journey.

Great. Thanks so much.

Okay. I think we'll end it there for today. For anybody that has any follow-up questions, you know, the IR team will be around all day to take them. I know there are other calls that people need to get to. So thanks, everybody, for joining us, and have a great day.

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.