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 remarks, we'll 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, Mr. Paul Alexander.

Thank you, and good morning, everyone. Welcome to Kimberly Clark's year-end earnings conference call. This morning you'll hear from Mike Hsu, our Chairman and Chief Executive Officer, and Maria Henry, our CFO. We sincerely hope everyone is continuing to stay healthy and safe. And in keeping with our social distancing procedures, this morning Mike, Maria, and I are each in different locations in our Dallas office. As a reminder, we will be making forward-looking statements today. Please see the risk factors section of our latest annual report on Form 10-K for further discussion of forward-looking statements. Finally, we'll be referring to adjusted results and outlook. Both exclude certain items described in this morning's news release. That release has further information about these adjustments and reconciliations to comparable gap financial measures. Now I'll turn the call over to Maria.

Thanks, Paul, and good morning, everyone. Thanks for joining the call this morning. Let me start with the headlines for the full year results. We delivered strong top and bottom line growth and exceeded our previous outlook We significantly increased our brand and capability investments and improved our market shares. We generated excellent cost savings and cash flow, and we returned significant cash to shareholders. Now let's cover the details of our results, starting with sales. Full-year net sales were $19.1 billion. That's up 4% year-on-year and included a two-point drag from currency rates. Organic sales grew 6% with healthy underlying performance and increased demand related to COVID-19. Volumes were up 4%, and net selling prices and product mix each increased 1%. Mike is going to provide some more color on our top line and market share performance in just a few minutes. Moving on to profitability, full-year adjusted gross margin was 37.1%, up 210 basis points year on year. Adjusted gross profit increased 10 percent. We generated $575 million of cost savings from our force and restructuring programs. That was well above our initial target and slightly better than we expected in October. For 2021, we're targeting $400 to $460 million in total cost savings. Commodities were favorable by $175 million in 2020, although they turned inflationary in the fourth quarter. We're planning for commodity inflation of $450 to $600 million in 2021. Costs are projected to increase broadly in most areas, including pulp and recycled fiber, resin, superabsorbent, and distribution expenses. Other manufacturing costs were higher in 2020, including costs related to COVID-19. Foreign currencies were also a headwind, reducing operating profit at a high single-digit rate. Moving further down the P&L, between-the-lines spending was up 110 basis points as a percent of sales. That was driven by advertising, which was up 90 basis points. SG&A spending also increased and included higher incentive compensation along with capability-building investments. Adjusted operating margin was 18.7 percent, up 90 basis points, and adjusted operating profit grew 9 percent. In terms of company profitability for 2021, the midpoint of our planning assumptions implies a 70 basis point decline in adjusted operating margin. And while there are a number of moving pieces, it's likely that adjusted gross margin will be down somewhat more than that. Turning back to 2020 results, full year adjusted earnings per share were $7.74, up 12%. Our October guidance was for earnings of $7.50 to $7.65. In addition to the strong growth in adjusted operating profit, the bottom line benefited from higher equity income, a lower share count, and a slight decline in adjusted effective tax rates. Now let's turn to cash flow . Cash provided by operations was an all-time record $3.7 billion, up $1 billion year-on-year, reflecting outstanding working capital performance and strong earnings. Cash flow is expected to be down year-on-year in 2021, driven by higher cash taxes and working capital. Nonetheless, cash flow should remain strong and well above 2019's level. Capital spending was $1.2 billion in 2020, in line with plan and the prior year. We plan to spend between $1.2 and $1.3 billion in 2021, including activity for our restructuring program and a pickup in growth projects. Based on an initial outlook, At longer-term opportunities, we believe spending will be elevated again in 2022. On capital allocation, dividends and share repurchases totaled $2.15 billion. That's the 10th consecutive year we've returned at least $2 billion to shareholders. We expect to return a similar level of cash to shareholders in 2021. And as mentioned in the earnings release, our board has already approved our 49th consecutive annual dividend increase and authorized a new $5 billion share repurchase program. Let me finish with a short update on our restructuring program. We continue to make significant progress as we head into the last year of this program. We're about 85 to 90% through the total pre-tax charges which we've increased somewhat to reflect delays as a result of COVID-19 and costs for additional savings opportunities. So far, we've generated $420 million of savings and expect to achieve between $540 and $560 million of savings by the end of 2021. Our original savings estimate was $500 to $550 million. Finally, at this point, cash payments are about 75% to 80% complete. Overall, it was an excellent year financially, while we invested more in the business for the long term and navigated the COVID-19 environment. I'll now turn the call over to Mike.

Thank you, Maria. Good morning, everyone. Hey, let me begin by saying that I am very proud of our KC team and our accomplishments in 2020. We worked tirelessly to protect the health and safety of each other by setting and maintaining strict safety protocols, all of which are in place today. We kept our global supply chain running and safely served the needs of our consumers and customers, and in many cases, delivering record output. At the same time, we delivered healthy top-line growth across our portfolio, gained market share, invested a strength in long-term brand fundamentals, and delivered strong financial results. Looking more closely at our business segments, we saw excellent performance in personal care, with 5% organic sales growth and strong share performance. In North America, organic sales rose 6%, driven by broad-based growth in baby and child care. Our market shares were up nicely on both Huggies diapers and Good Nights youth pants. In D&E markets, personal care organic sales were also up 6%, despite volatile market conditions. More specifically, personal care organic sales were up double digits in China, India, and South Africa, up high single digits in Eastern Europe, and up low single digits in Latin America. We also improved our share positions in many D&E markets. Looking at our other segments, organic sales were up 13% in consumer tissue and down 7% in KC professional. As expected, both businesses experienced the effect of COVID-19 and the shift to more consumers working from home. We're pleased with how our KC team managed through that volatility. To meet elevated demand in consumer tissue, we significantly reduced our SKU count and leveraged our global supply network to increase production, including support from KCP. We continue to focus on category-expanding and brand-building programs while improving our market execution. Those actions helped us gain market share for Kleenex facial tissue in North American Europe. In KCP, where the washroom category continues to be a significant part of our business, we made good progress pivoting to growth opportunities in other parts of the business, including in wipers and safety products. Sales of those products were up double digits in North America. Importantly, we grew or maintained market share in approximately 60% of the 80 key cohorts that we track. I'm pleased to see our brands winning in the marketplace. Overall, our results were strong, and I'm encouraged by the way we executed in 2020. Next, I'll turn to our outlook for 2021. We expect a more challenging environment, especially compared to last year. More specifically, we expect some of the net benefit from COVID dynamics, including higher consumer demand, to reverse. In addition, commodity costs are rising globally, and we're also reflecting our latest view on economic conditions and birth rate trends. Despite these factors, we're confident in our ability to deliver top-line growth and expect to strengthen our market positions and improve our company for long-term value creation. Our plans call for total sales growth of 4% to 6% in 2021, and that includes two points from the soft tax acquisition and a 1 to 2 point benefit from currencies. We expect to grow organic sales of 1 to 2%. We plan to leverage and scale our brand-building capabilities and investments that we've made over the past two years. We have a healthy innovation pipeline, including near-term launches for Huggies in North America, China, Eastern Europe, and Latin America. We've also upgraded products for our global Kotex brand in several markets. We expect to benefit from selective pricing actions and other revenue management programs, but we're not currently planning for broad-based list price increases. and will continue to make capability and technology investments to drive long-term success. On advertising, spending should be similar to 2020 levels, and this reflects the increases we've made over the last two years and confidence in the strong ROIs from digital. We believe this level of investment is sufficient to support our growth plans in the current environment. On the bottom line, we're targeting adjusted earnings per share of $7.75 to $8. That's evened up 3% year-on-year. We're focused on delivering our annual plan while managing the quarter-to-quarter volatility that could be higher than normal in this environment. Finally, because of the different COVID dynamics in 2020 and 2021, we think it is relevant to consider our performance over both years. So on that basis, using the midpoint of our 2021 outlook, we're projecting to grow organic sales approximately 4%. and the increase adjusted earnings per share 7% on average over that two-year period. Those growth rates are slightly above our medium-term objectives. In conclusion, we're on track with KC Strategy 2022, and we're managing effectively through a very challenging environment. We're improving our top line and strengthening our brands, our market positions, and our company for the long term. We continue to be optimistic about our opportunities to deliver balanced and sustainable growth and create shareholder value. That concludes our prepared remarks, and so now we'll be happy to take your questions.

Thank you. Ladies and gentlemen, at this time, we will open the floor for your questions. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. Questions will be taken in the order which they are received. If at any time you would like to remove yourself from the questioning queue, press star two. Our first question comes from Lauren Lieberman with Barclays.

Thank you. Hi. I guess the first thing is the area that I'm hearing, I guess, more concern about in the outlook for next year is on sales and organic. And it's also the one to two is kind of above what we were thinking was likely. And I just was curious to kind of maybe understand a little bit about how market growth is playing into that outlook. how mix, I know you said no pricing, but perhaps mix is a bigger part of it than maybe is externally appreciated. And also you've got the big lapse in consumer tissue. So we'd be curious a little bit more on that build to organic sales being up in 21 with the backdrop also of the tougher birth rate environment.

Yeah, Lauren, the 2020 outlook definitely reflects our confidence in our ability to sustain healthy brand performance. but we do expect to have a net drag due to the COVID overlap or the COVID-affected demand overlap from 2020. So, you know, that one to two organic, it's in the lower half of our range, but it does reflect healthy underlying performance in both personal care and consumer tissue, personal care being up, as I mentioned, about 5% organic in the fourth quarter. And then we believe toward the second half an improvement in KC Professional, The drag from consumer tissue, you know, the way we're looking at that business and we're tracking, we think there's a pretty good correlation with mobility data. We do expect the current environment and developed markets to look similar to what it is right now through the first half, and then for people to gradually begin returning to work in the second half. And so that's what we factored in. We know there will be a cycle, and in our plans right now, certainly a part of it will be we'll be lapping some big stock-up activity that occurred toward the end of the first quarter of last year and throughout the second quarter of last year. We know we'll be cycling that, but we do still expect at-home consumption to be somewhat more elevated certainly than 2019, down from 2020, but still certainly a little more elevated. And then we feel like we have strong momentum in our personal care business globally. And as you go across markets, we saw robust growth and share growth against most of our personal care businesses across markets.

Okay. And what are you assuming for the birth rate? I know there's this, you know, Brookings Institute study that talks about the birth rate being down an estimated 8% in 2021 in North America. Is that sort of what's folding into your outlook, you know, or is it something less severe than that?

Yeah, we have in our outlook in North America a birth rate decline of Not as severe as that, I would say, but in that mid-single-digit range. However, you know, I do think, you know, the more recent category data would suggest that the categories are running a little ahead of that. And so we've seen that data. Our team, especially North America, is working closely with that. You know, I will say the category or sales were up about, for the category, about 3% in the quarter. And so for the past several quarters, I think, the North America category has been trending ahead of that.

Okay, great. And then just the last thing on consumer tissue is about promotional activity. And so it was really just in the fourth quarter that you had this very strong pricing number. You specifically talked about the lack of promotion in those numbers. But I was just curious on, given the forecasted pulp inflation, given what you've talked about in terms of inflation that's in your outlook, and I know you said no pricing assumed, but You know, how do we think about promotion maybe coming back into the marketplace in 21? Is that, you know, to what degree is that also contemplated in the organic sales outlook?

Yeah, in North America... Oh, go ahead, Maria.

No, no, please go ahead, Mike. Okay.

Sorry, we're in different rooms. I'm supposed to do a better job of playing the traffic cop, but... No, it's great. Yeah, I'll just start here, and Maria can also add some thoughts, but... You know, definitely the promotion activity in the fourth quarter was down, as it was in most of the year for us in North America. We're expecting, with where demand is and we're still catching up to supply and our customers, that promotion intensity will still be down in the first quarter, at least, and probably the first half. We expect it to return to more normalized levels in the back half, but again... you know, our plans are for lower promotional activity in the first half. Certainly, given where commodities are, you know, we expect to make the moves that we need to make to make sure that we can continue to drive our margins. And so certainly additional cost savings and additional activities in RGM, selective price increases will be on the plate for us. Okay.

All right, great. Thank you so much.

Yeah, the only thing I would add there, Lauren, is that in the fourth quarter, the North America consumer tissue pricing was a bit elevated because we evaluate our trade programs on a full-year basis. And as we closed out the year, there was a bit of incremental benefit in the number.

Okay. Those timings also sort of reflect in their backward-looking timing.

Right.

That's right. Okay. All right. Thank you so much. That's helpful.

Thank you. Our next question comes from Olivia Tong with the Bank of America.

Great. Thanks. Good morning. I wanted to see if you could talk a little bit more about the components of your 2021 organic sales outlook, whether volume versus price mix or by product segment or geography. First, similar to 2020, are you expecting fiscal 21 to show segment growth in two of three segments while one clearly lags? And then, just a little bit more color on the North American consumer tissue pricing. I know you said that that was a little bit of timing. So, is it just a function of, you know, sort of like marketing to market, essentially, at the end of the year? And, you know, Q4 will obviously set up for a more dramatic comp next year. Or is there something else in that? And then, I have a follow-up on pricing. Thanks.

David Chambers- Yeah, Olivia, maybe I'll start there. Just overall, On the consumer tissue, again, I think there certainly will be a lap in the first half in developed markets like North America. We saw significant elevated demand by March of last year, and that ran through all of second quarter. There was two components of that. One is just people being at home more and therefore driving elevated consumption. And then the other part was as you read about in the papers, the high stock-up levels and people carrying a lot more inventory at home. You know, we do think that we're going to have to cycle some of that extreme stock-up behavior, but we do think consumption levels at home will remain elevated at least through the first half and then, you know, tailored, feathered down in the back half of the year. So that was part one. I forgot what your other part was of your question.

I think it was around North America tissue again. Right. Yeah, so on that one. Yeah, sure. So we manage the trade programs on a full year basis and we make ongoing assessments throughout the year to keep those estimates updated. Given the unusual year that we had this year in consumer tissue and the way that demand and supply have played out, customer specific plans and events have changed more dynamically than they have in previous years. And that made it even harder to forecast. So as we closed out the year and really squared those balances, we had a bit of an incremental benefit in the fourth quarter. And so if you think about that, it's really timing related to the you know, versus the previous quarters of the year. So that was part of it. It's important to emphasize, though, also in the fourth quarter with the dynamics, we did indeed have lower promotional activity.

Right. Okay. Thanks. And then I know you said that you weren't embedded in the 21 outlook. There's no pricing. But, you know, pulp prices are obviously up a lot, but they're still below prior peaks. So can you just, like, is it possible to take price increases? if Pulse continues to inflate, or does it have to reach the prior peak in order to even consider that?

Olivia, I think we said, we didn't say no price, and we said no kind of broad-based list price increases, but we have plenty of select pricing actions across our businesses and multiple markets, and so we will be making price moves, whether that, you know, we have some plans around We have some selective list price actions in some markets. And then certainly with revenue growth management, you know, how we manage our trade funding and how we get more efficient in our trade funding, we will be making some moves there. So, you know, I think there's no absolute rules in terms of what you're cycling in terms of the commodity and everything else. But, you know, our goal is, you know, to drive margin expansion. It's core to our KC2022 strategy. and we're confident in our ability to deliver over the long term. I think given kind of the heavy puts and takes driven by the current environment, you know, it's reasonable to expect some choppiness from quarter to quarter, whereas in the case of this year, even year to year. But, you know, long term, our intent is to drive margin expansion. And cost management and pricing management is a core aspect of that.

Great. Thank you.

Okay, thanks. Love you. Thank you. Our next question comes from Dara Mosinian with Morgan Stanley.

Hey, guys. Morning, Dara. So just two questions. First, I just wanted to follow up on pricing. Your commentary was helpful, but you are looking at significant commodity cost increases as you outlined for 2021. So maybe just talk a little more conceptually about you know, your approach to pricing. Are you a little more hesitant to be aggressive in terms of pushing it, given you're coming off a couple years of gross margin expansion? Is there maybe more pricing later in the year? Just sort of how you think about pricing across your portfolio in light of what does look like it'll be pretty significant commodity pressure. And then secondly, we did see some slowdown in the scanner day in the U.S. in December and January. Is that more temporary factors, whether it be supply constraints or consumer deloading? Is that expected to be more of a temporary phenomenon, or how are you thinking about trends over the next couple of months, given what we've seen in the recent U.S. scanner data? Thanks.

Yeah.

Okay.

Yeah, maybe, Dara, I'll start with the last part first, which is I think, yeah, we did see a run-up in December, you know, from consumption, particularly on tissues. it has softened a little bit. And so we saw that throughout last year. And so it's moving around quite a bit from month to month, and actually week to week if you look at the details. So that's something we expect. But we do think that the fundamental dynamic is, you know, there are more people at home at this time than there were last year. That will continue through, you know, a big chunk of 2021. And then at some point, when hopefully when the population's in markets get vaccinated and people will be returning to work and we'll see a decline in some at-home tissue consumption at that point. But for our purposes, I think we've got that in the call and we've gone through a thorough forecast of that. With regard to the pricing, again, you know, we do expect some significant cost inflation in the year that's in our plans and that's going to affect both the consumer tissue side and the personal care side. We're going to take appropriate actions, and certainly that's going to, you know, we're going to pull all the levers, and I've mentioned already, certainly around cost management. But in addition to that, it's one of the reasons we're very pleased that we've got a robust revenue growth management capability up and running globally across our regions. And, you know, the levers will be our work, and I mentioned Olivia, will be selective count changes, some selective list price increases, and then a lot of work around trade efficiency and managing the promotions. On the promotion front, you know, I would say the pricing environment, you know, we expect that to remain constructive for the dynamics I just mentioned with Olivia, which is, you know, I think demand will continue to be a little bit elevated with supply under pressure in developed markets, especially in North America. And so we feel good about the progress we've made on our high-vote strategy, and I'm really not interested long-term on, kind of renting share through promotion activity. And so we're going to work hard to continue to drive a strong base, a robust base business.

Great.

Thanks. Thanks, Dara. Thank you. Our next question comes from Kevin Grundy with Jefferies.

Great. Thanks. Morning, everyone. And congratulations on a strong year, particularly in the current environment. Maria, first question for you, just on commodities, because naturally it's a big, big focus for the company. Can you maybe just spend a little bit of time on some of the key assumptions by your key commodity exposure that's embedded in your 2021 outlook? And then I believe it's fairly common not to enter into any notable hedging. Maybe just confirm that if you do have any hedging in place, and then I have a follow-up. Thanks.

Sure. I'll start with the hedging questions. We broadly don't use hedging. We do take advantage of our contract negotiations to try to put some parameters around the highs and lows that we will experience on certain commodities, but no formal hedging. In terms of the 2021 outlook, As a reminder, commodity costs in general were at low levels in 2020, particularly in the first half of the year. And costs for many inputs, excluding Pulse, started to move higher sequentially over the last couple of months and exited the year already meaningfully above 2020's full-year average. So many of those are expected to move higher again in the early part of If you look back three months ago, we were expecting some inflation in 2021, and the forward outlook has moved higher just in the last 60 days. The top two inflation drivers for this year are expected to be pulp and polymer-based materials. Together, those two input costs represent more than half of the inflation outlook. So if I tick through a few things, Virgin pulp, we're expecting inflation and that follows a year and a half of very low pricing. So in virgin pulp, we're looking for it to be up high single digits on average. Polymer resin, we're expecting to be up significantly, 30% or maybe even higher in North America. Nonwovens and super absorbent will follow that but to a lesser degree. Those dynamics are largely supply-driven at this point. Recycled fiber, we're expecting to be up mid-teens. Distribution costs, we're expecting to remain inflationary, and that's mostly due to industry supply constraints. And other materials, such as third-party purchased safety gloves and PPE and KCP, are facing significant increases if you look at what's happening in those markets. So that's the assumption for 2021.

That's very helpful, Maria. Thank you. Mike, I'm going to apologize ahead. I'm going to ask on pricing maybe a little bit differently, not to beat the dead horse here. But just on the heels of what Maria just communicated and the fact that the commodity increase is like roughly a 300 basis point unfavorable impact, understanding you're coming off of a strong gross margin year, also understanding you said at this point you're not planning on broad-based list price increases. What do you think that either you or retailers want to see? I know sometimes retailers want to see a certain permanence, if you will, to price increases. They don't want to whip prices around, frankly, nor do you as the brand owner. But given the fact that you're looking at a 300 basis point headwind close to it, and then you sort of tumble through the numbers for what you guys outlined for forced savings and restructuring, And there's not a big offset, not a tremendous offset outside of those two favorable numbers, at least if we're kind of doing the math right in terms of what you're getting around revenue growth management, et cetera. So it kind of begs the question, why not, with respect to pricing, behind a strong brand portfolio? So hopefully I asked that a little bit differently. It would be great to get your response, and then I'll pass it on. Thank you.

Yeah, I mean, Kevin, I think we're still working through kind of the mechanics of of how we will drive the realization. I will say that the pricing calls have come in more recently, and so they've changed over the last several months. And so we are working through that. But certainly we recognize the goal is that we've got to drive margin expansion, and we need to recover some of the input cost increases. And so for us, pulling out of our lever across both the commercial side and our cost side, whether that's supply chain costs, or being a little bit more aggressive on taking the right pricing actions for us is going to be important for this year. And so we are going to make those moves as we kind of work through the plan.

That's helpful. Thank you very much. I'll pass it on. Good luck.

Thanks, Kevin.

Thank you.

Our next question comes from Steve Powers with the Deutsche Bank.

Hey, great. Thanks. Good morning. Morning. Hey, so I have a question also on guidance, but more on the drivers as it relates to operating income. So if I take the midpoint of your sales guidance and apply it to 2020's operating income base, grow it, say 5%, subtract out the midpoint of your inflation outlook, add back expected savings, also round about the midpoint, I essentially tie out to your 2% OI growth guide. So first, I just want to kind of validate if that's a fair way to think about it. And if it is, I guess I'm a little surprised at its simplicity. And so I'm guessing that there are some moving parts around those variables. So if you could maybe call out some of those moving parts and think about how you're thinking about them and why they sort of cancel each other out. It looks like you get a little bit of net leverage on sort of constant dollar-based marketing spend. But I'm just struggling to find out some of the nuance around the OI guide.

Sure. I'll go ahead and take that one. I think you're thinking about it the right way, Steve. If I look at our 2021 outlook, we're expecting a solid benefit from top-line growth. On the organic side of that, we're expecting a positive volume mix and price. And then in addition to that, as Mike mentioned, we've got the benefits from soft tax and currencies are expected to be a benefit on the top line. In addition to the benefits from sales, we are expecting good cost savings in this year. And going the other way, we've got commodity inflation, which we talked about. And we'll also continue to invest in the business and experience kind of general non-commodity inflation. And, you know, it is pretty straightforward as you've done the math that kind of gets you to our guide on operating profit. And then below that, we would expect a lower share count, non-operating expense will be lower, equity income will be about similar, maybe up slightly, and a that will be offset by a slightly higher effective tax rate. And that's how you pick up the additional point on the top end of the EPS growth. So I think in terms of some of the nuances on advertising spend, we've given you the numbers for 2020. We would expect that to be roughly similar on a dollar basis in 2021. And we think that's appropriate for the environment that we're in. And it follows two years of meaningful increases in our advertising investment. We would expect to continue to invest in capability building and technology on the between the lines side of the house. And I think those are, I already went through the you know, the commodity assumptions, and we've talked about our pricing assumption as it relates to that.

Yeah, okay, that's helpful. It's confirming. I guess it's just a little bit, I guess, versus my own coming in expectations, it's a little bit less, you know, net capabilities investment that's envisioned based on the rough math. And I guess, is that just because, you know, maybe Mike, is that just because you've been able to fast track more of those investments you know, in the prior two years, especially in 2020, and now you're a little bit ahead of the curve, or is this sort of more in line with the relative reinvestment that you'd always anticipated coming into 2022?

Yeah, maybe. Yeah, there's definitely a couple things. You know, one, we feel great about the investments we've made, and we've put in, as you probably can do the math, a pretty significant investment over the last couple of years, and we feel like that's working really hard, and it's driving broad-based growth across most of our markets at this point, and so we feel great about that. I did say in my remarks that advertising will be, I think 2021 levels will be similar to 2020 levels. I think we feel like that is sufficient for the growth that's in our plans for this year. But in the near term, we want that to get more efficient, especially given everything that everybody's asked about with regard to commodities. So we're expecting productivity in terms of how we spend our advertising and how we make that more efficient and how we spend our trade. and how we make that more efficient, as well as throughout all the supply chains. So that's one part we feel like it's efficient for our growth plans for this year. That said, I will tell you that we do have additional plans, and we are going to invest in other capability areas this year as well. And certainly, as we continue to drive our digital marketing programs, that's an area that we've continued to invest in in terms of capability. We'll be investing more in our cost management capability. We've brought in a new supply chain leader from the outside who see some good opportunities for us and we will be investing to take the organization and bring the tools so we can systematically drive better planning and better capability across the organization, across markets and deliver. We see productivity as a key enabler to our long-term strategy and to fuel the investment that we need. So, you know, and then the last part I would say, Steve, is, you know, I do think that over time, I would like the investment levels to be higher for the company, and we'll continue to do that as we continue to build our plans and gain confidence in our ability to do that. Great.

If I could squeeze one more in on a different line of questioning. D&E markets. I'm just curious as to your assumptions around just overall volume growth in those markets, the outlook there just in light of the economic backdrop, birth rates in those markets, et cetera. And relatedly, any commentary on how you're thinking about pricing in those markets, just given that I think you'd expect a little bit less dollar-based inflation given where FX is. Thanks so much.

Yeah. Yeah, Steve, I mean, overall, our business is fundamentally strengthening Globally, but I would say especially in D&E, and we feel like we're building a better company, that improvement is really driven by better execution and the investments that we just talked about in innovation, advertising, and our commercial capabilities. So the improvement is really broad-based. And if I just think about D&E, I think growth in the fourth quarter was across every region. So we saw double-digit increases in China, Argentina, India. India, which is an important long-term growth market for us. Africa, which I may have mentioned for the first time on the call here. And then we had high single-digit growth in Eastern Europe and Brazil. So we feel good about the performance of our markets. I think the one area in terms of 2021 that we're going to continue to expect uncertainty due to COVID, particularly in D&E markets. And the reason I say that, that uncertainty is likely to be higher this year than it was last year because infections are climbing and at a higher rate than they were last year. And so we are going to see new waves. We're expecting additional waves to hit Latin, you know, to occur in Latin America soon. And I think we're actually starting to see that now. And so that's going to have an ongoing effect that is just hard to quantify. Our experience last year was an economy would maybe go on restriction on the mobility with decline for a period and then bounce back. And then we saw that in Brazil. So, for example, I think in the third quarter, the economy was locked down for quite a bit of time. And then in the fourth quarter, you know, we had a high single-digit organic growth increase in Brazil, share growth in Brazil, and a very strong fourth quarter performance. And so our experience will tell us we're going to expect and see some bumps along the way in D&E. But we are planning for overall growth.

Okay, very helpful. Thank you so much. Okay, thank you.

Thank you. Our next question comes from Nick Motey with RBC Capital Markets. Morning, Nick.

Hi. Good morning. Mike, I just wanted to probe on online, if I could. Just a few thoughts. One, just give us general perspective on how you guys are progressing there. Two, is there any way you can measure incrementality of your online business in terms of, you know, how many new consumers you're actually bringing into the portfolio versus just share migration from other channels. And then three, just wanted to get your assessment on, on private label and how it's performing online. Um, cause my understanding is that it's actually doing quite well relative to brick and mortar, but I just wanted to get your views on that. Thanks.

Yeah. Over overall online. And, uh, maybe I'll start with the E the e-commerce side, Nick, uh, Going very well for us. Overall, the company grew well over 30% for the full year. Heartening to know that our biggest e-commerce business was by far our fastest growing business and grew well north of that. So we feel really good about that. Certainly, you can recognize in North America what's happening with all the retailers going to Omnichannel. you know, it's driving that grocery pickup and everything else. The incrementality question, we're still working through the math and trying to track that. You know, the data is evolving because, you know, at this point it's still tough for us to separate out, you know, we do track online enabled, but when you get into things like grocery pickup, it can be a little bit difficult to parse. And so I don't have a great answer for you right now, but, you know, that's something we're working on. But, you know, we do feel that we are gaining share on the online channels and growing well, and that's globally. And so we're really excited about our capability there. I think underneath it is our focus on data and our data analytics capabilities in our primary e-commerce markets really in these categories is very effective, and our customers like that, and they want to leverage that to be able to market to their constituents and their consumers and shoppers more effectively. Sorry, I think I missed one part of your question, Nick.

Just the private label share dynamic online versus what we see in brick and mortar.

Yeah, you know, I don't have the specifics off the top of my head. I will say, you know, generally, certainly across all channels, we saw private label shares down in general across the marketplace. But I'll have to get back to you on the online component.

Great. Thanks, Mike. Best of luck this year.

Okay. Thank you, Nick. Thank you. Our next question comes from Andrea Teixeira with JP Morgan.

Good morning, Andrea. Well, good morning. So could you help us clarify the cadence of the first quarter? If I understand correctly, your guide for 2021 is more back-loaded into the second half because you're lapping this 8% growth in volume the first quarter. And if my math is correct, you have a two-year stack in the last quarter that just closed of about 1% volume growth. So how can we bridge into the first quarter? I understand that you have easy comps for January and February and tougher just for March. So is that because you're building in those market share gains that you talked about? And can you give us an idea of the volume share and dollar share in consumer tissue in the U.S. and globally and how you stack most recently? And a follow-up question earlier about the pantry stocking. Your response seems to indicate that you expect consumption to improve through January and February. at least to what we have seen in the U.S. scanner data, and it seems like we should be seeing some of this stocking happening early January, but you expect that to normalize into the rest of the quarter. Thank you.

Okay. And maybe, Maria, do you want to talk about the phasing, and then I'll come back and talk about the stocking?

Yep, that sounds good. As you know, we don't provide specific quarterly guidance, and current volatility And in this macro environment, it's certainly making forecasting a bit more challenging. What I would say, though, is the pace of our earnings in 2020 was unusual, and we're going to have to face that lap as we go through this year. If you look at how 2020 played out, we had that very strong run on tissue at the end of March. which enabled us to deliver a record level of sales in Q1, followed by record profit delivery in the second quarter. So you know that the first half has very challenging year-over-year comps for us just by the math. We do expect sequential benefit from things like growth and revenue management initiatives that we've talked about. our cost savings programs should build as the year progresses. And you put all of that together and you'll kind of get a picture of how the quarters in the first half, second half might play out. But I'll turn it back to Mike to talk a little bit more about the specific dynamics on the top line.

Yeah. Andrea, maybe I'll talk more to consumer tissue in North America, but as we think about cycling, the demand from last year, I think there's one component which is, in general right now, I think we're still living in a world with elevated at-home tissue demand. With more people at home translates to more usage of particularly bad tissue at home. Obviously there's elevated consumption of towels as well, because people are cleaning more often. So that's one overall effect. Specific to last year, though, starting with I think it was the second or third week of March, we started to see extreme elevated levels of consumption with consumers stocking up, and that's when you recall the shelves were empty. I think the third week of March last year, the scanner data would say the category was up 212 percent. So that's one left. I think we will not see that as much this year, and that's certainly a piece that we're going to have to cycle. And we saw that behavior starting in March, and it remained through a big piece of the second quarter. So I think the consumer stock-up effect will come out over time, but I think for the first half at least, we'll continue to see elevated at-home usage.

That's helpful. On the market share, can you help us bridge? I know you mentioned that your market share is up, which makes a lot of sense. When, if you give us the cadence, when your share really got better, so that's why you're probably building into that as well from a volume and a value perspective.

Yeah, Andrea, and then on the share question, you're talking about North America tissue or more broadly?

Well, if you can open up both, that would be super useful.

Yeah. Overall, I would say in North America tissue, Our shares, I would say our shares are kind of even with a year ago, you know, and we're even down a little bit in our back tissue, primarily driven by supply constraints. And so the demand is there. We're shipping everything we can make and trying to fill up both consumer and customer demand there. But we're actually down a little bit on share. But, you know, I think the category had unprecedented growth. 20% growth over the year last year in North America. And so, you know, we've really kind of moved mountains to serve the demand. I think overall our shares were very strong for the year. As I mentioned in the remarks, we were up or even in about 60% of our markets globally or key cohorts globally. And I think we saw progression through the year and really strengthening in the second half of the year. And that's really factored in our thinking. And it is why we believe particularly in our personal care business globally, which has been less affected by COVID. And if anything, I think the categories have been more, faced more headwind due to COVID than tailwinds globally. But, you know, for the year personal care was up 5%, we did see acceleration in the back half. And, you know, very comprehensive growth across markets. I'll just tell you, Andrea, the share growth was very broad-based. We saw very strong performances in China in both Femcare and diapers, Brazil in the fourth quarter, Argentina, where we took on share leadership in diapers during the year. Peru, which I mentioned was a challenging market for us in 2019, has really improved, and we were up by multiple share points in the back half of the year. You know, Eastern Europe, Russia continues to see strong, robust share growth. And as I mentioned, kind of the important emerging markets for us like Africa and India, we're also seeing good, robust share growth as well.

That's super helpful. Thank you. I'll pass it on.

Okay. Thank you, Andre. Thank you. Our next question comes from Jason English with Goldman Sachs. Good morning, Jason.

Good morning, folks. Hey, Happy New Year. I don't think it's too late to say that just yet. It's still January.

Happy New Year to you.

Thank you. Thank you. A couple of cleanup questions. First, in response to Lauren's question on birth rates, you talked about the category of the last year or so growing well above infant population. I guess my question is, why do you think that is? Is this like a COVID benefit, parents at home changing more frequently than the caregiver usually would? Is it a stock-up dynamic? Or is there something perhaps more enduring that would prevent this category from even reverting back to the infant population or maybe even overshooting some of the stuff on ones?

Yeah, well, you know, Jason, I would say the category has behaved as at least the data would suggest, meaning the last data that we had, you know, and the birth rate data does lag by about a year. So the last piece of data we saw was down about one or two percent. And actually, you know, as we got into 2020, you know, I think a slight improvement. I think it was down one versus it was down two the prior year in 2019, in that range. And so I think the category, at least lagging a year, you know, would say has behaved similarly in the sense of volume, I think, for the categories has been from quarter to quarter down one or two-ish, right, in that range. So consistent with the birth rate. The category dollar value has grown, because of premiumization. And I think, you know, that is our core strategy for big developed markets. We still think there's a lot of opportunity for us to elevate our categories. Our customers believe that. And I think we're seeing that in the performance, particularly with Huggies in North America. You know, for the quarter, I think we were up over three share points in the diaper category. And, you know, if you try to kind of put your finger on exactly what that is, there's nothing, there's no one silver bullet. There's a lot of things going on. And, you know, You know, we're excited about the innovation we've brought to the category. We have more comprehensive innovation we're bringing this year. I think we're touching our focus on premium this year, and I think we're touching 75% of our portfolio with really good innovation. And so we're really excited about that. But, you know, I don't know that we're defying the laws of gravity for category and the birth rate. It's been consistent. The things you hear, Jason, are around 85% or, as Lauren mentioned, 8% category declines. Those are forecasts from third parties, but we haven't seen that in the data yet.

Yeah, no, no, sure. The unpacking between premiumization and volume is really helpful, so I appreciate that. But let's stick on the topic quickly. The Brookings Institute is one source projecting North America. There's reports, abundant reports across the developed markets from Japan to Australia to Europe, et cetera, talking about declines during COVID-19. and also deceleration or even declines in emerging markets. So what are you expecting on a more global basis in terms of infant population? And what, if any, implications do you think this could have on competitive intensity, assuming that the addressable audience does shrink?

Yeah, I mean, and certainly we're keeping close tabs on all that. And we have seen some deceleration in categories, you know, I don't know enough data yet to call it birth rate, but certainly COVID-related or population-related. So certainly, you know, we saw a decline in births in Russia. That actually tracks with the population dynamics with fewer women of child-rearing age there. Korea, you know, continues to – I think we've seen improvement over the last couple of years, but continues to be negative. And so I think in a handful of markets – We are seeing that. In D&E, I think a little tough to call right now. And one of the things is I think the COVID impact has been a little sporadic in those markets where we've seen declines when the markets go into lockdown. But then, as I mentioned earlier with Brazil, a pretty good bounce back once the economy reopens.

Got it. Thank you guys so much.

I'll pass it on. Okay. Thanks, Jason. Thank you. Our next question comes from Chris Carey with Wells Fargo Securities.

Hi. Good morning. So I guess, you know, by my math, maybe portfolio-wide, promotions are still running down, I don't know, 700, 800 basis points as a percentage of sales relative to the end of last year. And I guess I'm hearing comments about, you know, how to be more efficient on trade spending, and maybe even how that's potentially sustainable. So I guess, do these promotional levels stay lower over the course of 2021, especially if demand remains elevated? And I guess, just like more simply put, can these lower promotional levels stick longer than I think what people have been anticipating, right? Because that would potentially have pretty important implications for competitors, the broader sector. And so maybe I'm reading too much into that, but if you could just talk about, you know, if you've learned something from this past year about how much you do need to spend and how sustainable that might be going forward, you know, I'd appreciate any perspective there.

Yeah, well, Chris, I think you're hitting kind of a, an important spot for me. I mean, philosophically, I just, I don't like, I don't believe in over-promoting categories. And really, for me, the purpose of promotion, at least that I tend to sign up for, is it's the drive trial of your brand, right? You know, whether you have important news or you're trying to get that brand to a population that hasn't experienced before. So that's, for me, the strategic point. I do think when categories get over-promoted, it tends to drive some commoditization. And over time, I think it lowers the growth potential of that category. So for me, I would like our organization to be very disciplined about how we reintroduce promotions into the marketplace. Certainly, I think we have great partnerships with our customers and recognize the importance for it to build their business, and we're going to be great partners with them. But I do think... you know, how we think about promotions. I think you're asking the right questions. And so for us to continue to be very disciplined about how we think about it and how we manage it will be important going forward. And the other part of it is it's a big spend for us. And it's not, you know, in any given year, the money is not perfectly spent. And so we can always get better. That's why we've invested in capability and brought in a lot of tools in our revenue management capability to give us the analytics to help us

uh spend that money more wisely going forward okay thanks and maybe just one follow-up just just um you know longer term and and um i guess use your word maybe maybe philosophically um you know the professional channel right is obviously going to come back to a certain degree whether it comes back to the levels that it had pre-coveted as you know people change how they work um and in general how they interact with these locations. Can you just talk about maybe the capacity in this business and what if people are going to these channels much less often, what you might need to do to right-size this organization for the long term or whether spare capacity can be used for other things? So just basically a longer-term perspective on that professional business maybe over the next couple of years. Thanks.

Yeah, great point also as well, Kristen. And, you know, I will say our professional team has done a great job pivoting. And so, you know, we did see strong sequential improvement in the quarter behind their pivot to, you know, to wipers and safety products. But you're right, you know, the core washroom, you know, business, while it improved sequentially as well from the third quarter, still down. You know, I think our, you know, having both sides of the business, both professional side and the consumer side is a good benefit for us. And so it does give us the ability to move capacity around to some degree. You know, certainly in the professional side, we do have some assets that are unique to professional. But over time, I think, you know, we are expecting the professional business to return. It may not return. I don't know yet whether it will return to, you know, pre-2020 levels. That remains to be seen. You know, I do hope that that does, but, you know, I think we have, we will have proven over time to be able to manage our capacity and our asset investments to right-size the business for either growth or to shift businesses or asset capability to other businesses where we can utilize those assets more efficiently. So we'll make the right business decision. And I'll just, you know, point out that, again, margin expansion is core to kind of you know, our job and what we do. And so we'll continue to make the right management decisions over the long term.

Thank you.

Our next question comes from Lauren Lieberman with Barclays.

Oh, thank you. I'm sorry, I didn't expect to get back in. I had a question about longer term margins, Mike and Maria. I mean, I know the 2022 plan you know, speaks to a goal of longer-term margin expansion. And you mentioned it again today in passing as something that's important for the business, even if it's a challenge in 21. But I'm just as curious about any kind of view on margin trajectory from here, let's say over like a three-year time horizon, just given the conversation on commodity costs, given that you've had some nice benefits this year from the higher throughput. I was just curious if you thought margins had kind of hit what one would call a peak level or if there's still margin expansion opportunity here for the company over the next kind of two to three years.

Yeah, Maria, I don't know if you want to lead off there.

Yeah, sure. I think, Lauren, longer term, our outlook for the margins is of our three segments haven't changed. As you know, this year has some unusual dynamics as did last year. But over time, it is our expectation and intent to improve the margin of the business over time. And that will go hand in hand with a number of the key things that we're working on, additional support on the top line. We'll get leverage on the top line growth, continued focus on productivity. We're not done on the productivity side of the house. There's more to come there. And then the meaningful investments that we have been making and continue to make in terms of commercial capabilities better positioning us to respond to what might happen in the macro environment. All of that is kind of the basis for our belief that we can continue to expand margins over time, and we've talked about personal care in the very high teens to low 20s, tissue in the mid to high teens, and so we continue to have those as our long-term objectives.

Okay, that's great. Thanks for letting me sneak that in.

Okay. Thank you, Lauren. Thank you. At this time, we have no other questioners in the queue.

Okay. Well, thank you. You know, certainly we feel like we're very well positioned. Our categories are essential. Our brands are healthy, and we think there's lots of room for us to elevate and expand our categories. So thank you for joining us today.

Thank you very much.

Thanks, everyone.

Ladies and gentlemen, that concludes this morning's presentation. You may disconnect your phone lines, and thank you for joining us today.