Kimberly-Clark Corporation

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

Thank you and good morning, everyone. Welcome to Kimberly Clark's first quarter earnings conference call. With me today are Mike Hsu, our chairman and CEO, Maria Henry, our CFO, and Nelson Ordeneta, our incoming CFO. Earlier this morning, we issued our earnings news release and published prepared management remarks from Mike and Maria that summarized our first quarter results in 2022 outlook. Both documents are available in the investor section of our website. In just a moment, Mike will share opening comments and then we'll take your questions. During this call, we may make forward-looking statements. Please see the risk factors section of our latest annual report on Form 10-K and the first quarter 10-Q for further discussion of forward-looking statements. We may also refer to adjusted results in Outlook. Both exclude certain items described in this morning's news release. The release has further information about these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn it over to Mike.

Okay, thank you, Taryn. Good morning, everyone. Before we get to your questions, I'd like to comment on our CFO transition, and then I'll provide a perspective on our Q1 results. First, I'd like to thank Maria Henry for seven years of outstanding leadership as CFO of Kimberly-Clark. As you saw from our news release, Maria has decided to retire effective September 1st. Maria will leave quite a legacy at KC. She played a key role in the design execution of our strategy, and her strong financial stewardship has positioned us well for the future. I'm grateful for all her contributions and very glad she'll be with us through the summer to ensure a smooth transition. I'd also like to welcome Nelson, our incoming CFO. Nelson brings strong operational and international experience to KC, and I'm looking forward to his leadership. I'm sure you'll enjoy getting to know him as he begins his new role. Now turning to our first quarter, I'm pleased that we started the year with double-digit organic sales growth and strong performance in all segments. Our teams are executing very well during a period of continued volatility and high inflation. Our strong fundamentals provide a solid basis for us to raise our sales outlook for the full year. We're driving growth by building strong commercial capabilities and deploying them with local agility. We're continuing to invest in our business, grow our categories, and deliver meaningful value to our consumers. We're continuing to face a dynamic environment. We're being thoughtful with actions to offset macro headwinds, balancing price, volume, and market share while we work to improve our margins over time. 2022 marks KC's 150th anniversary. Kimberly-Clark was founded on the core principles of quality, service, and fair dealing. These principles still reflect who we are and what we stand for today. We're led by our purpose of better care for a better world, and we're driven to perform so we can continue to make a difference in people's lives with the categories we create, the products we make, and the consumers we serve. Our purpose-led, performance-driven culture fuels our team every day to drive our growth and deliver long-term shareholder value. Now, with that, we'd like to address your questions.

At this time, we will open the floor for 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 in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. We'll take our first question from Kevin Grundy with Jefferies.

Thanks. Good morning, everyone. Maria, again, congratulations. All the best. And Nelson, we look forward to working with you. I wanted to start on the guidance. A couple more tactical questions, then, Mike, why don't we start with one sort of more strategic, I guess. Just sort of given the uncertainty and increasing concerns around the consumer and ability to cope with the higher levels of inflation, number one, are you seeing anything in your markets that gives you any pause about taking additional pricing? Was there any concern about that? Are you seeing any sort of trade down that made you potentially cautious even at this point to raise your organic sales growth outlook? And then I have a couple of follow-ups from Maria. Thanks, Mike.

Well, Kevin, overall, thanks for the question. Look, two big changes since our January update. I mean, one was obviously, you know, if you look at our results in the quarter, price realization is our execution is very effective right now, and the volume is trending better, I think, than we initially thought. So that's one part. But certainly, as you saw in our release, inflation is significantly worse. And so I would say those two big changes largely offset inflation. I do think our strong top line, Kevin, reflects the essential nature of our categories and the strength of our brands. I mean, we have been working over the last several years to really improve our brand fundamentals with strong innovation, great commercial execution, and as I mentioned in my remarks, we're really proud of our local agility. So I would say overall, we're cautiously optimistic, certainly we recognize the At the price levels we're putting into the market, they will create stress on the consumer. And so our approach is we're going to be very thoughtful about balancing growth, margin, and share, and we'll be very responsive and agile to the needs in the marketplace. But, you know, right now I'd say the pricing environment has been largely constructive. And, you know, I think we're on track with what we thought the pricing would do.

Got it. Thanks, Mike. And just to play that back, so is it the expectation that the incremental pricing will largely offset the incremental cost pressure, or are you guys at a lower point within your earnings guidance where it's not going to entirely offset the additional input costs that you're coping with?

Yeah, well, just as a principle, I would say generally I would expect our teams to offset input cost inflation with pricing over time. It may not occur within the year, but over time. And so that's our general principle. Obviously, we'll also deploy cost savings and productivity against that problem as well. But, again, that's kind of our overall principle. We have taken further action. You know, we announced, you know, a suite of actions at the beginning of the year, and then we've taken further action since we talked last January. And, again, I think our teams have been very responsive to what's happening in the marketplace.

Okay. I'll pass it on and hop back in the queue. Thank you very much for the time.

Thanks, Kevin.

We'll take our next question from Lauren Lieberman with Barclays.

Morning, Lauren.

Great. Thanks. Good morning. Thanks.

One of the things that jumped out at me in the results also was mix and the degree to which mix is continuing to contribute to top line. So I'm guessing this is tied, as you've mentioned, like the execution. But as you're thinking about how commercial execution may or may not evolve from here to thinking about merchandising on the shelf, what elements of your product suite are emphasized in store versus others to deal, you know, to try to support volume as you move through the year. How might you be thinking about how MIX may evolve as the inflationary pressures mount on the consumer? Thanks.

Yeah, thanks, Lauren. Yeah, we're very encouraged with the MIX performance. And, again, I think it dovetails or it's an outcome of our underlying strategy, which is to elevate our categories and expand our markets. And I think you might observe we've been driving MIX for a few years now. And the core underlying thought is we still think there is a lot of opportunity for premiumization in our categories. Recognize that I think the circumstances of this environment may require some slight adjustments. But the long-term opportunity, I think Allison talked about at the Cagney Conference, China, which is the largest diaper market in the world right now, still remains the largest market. The value per baby is less than half of what it is in developed markets like the United States. And so we still think Premiumization is an opportunity. That's what's driving our growth. We were up high single digits in China for another quarter. We're continuing to grow there and continuing to improve mix. And so that's a core idea for us. It's also what's driving our momentum in North America, double-digit growth in diapers and across personal care, all personal care categories in the U.S. We're continuing to drive innovation on the premium end. but also, you know, we brought a lot of improvements to our value tiers as well in North America and around the rest of the world. So, again, we're, you know, Elevate in our categories remains a core part of the strategy. We're not going to be niche premium, though, and so we want to be able to serve all consumers, and so we're balancing our investments and our investments in innovation across the value tiers.

Okay, great. Thank you so much. Really appreciate it, and I'll get back to you later.

All right, thanks, Lauren.

We'll take our next question from Chris Carey with Wells Fargo Securities.

Good morning, Chris. Hey, good morning. I just wanted to follow up on the question around pricing, your expectations, and how things have evolved. So the 4% to 6% organic sales growth, now includes volumes which are negative, which was the call before, implies pricing probably at least a couple hundred basis points higher than where you were before. I'm seeing pricing in the U.S. right now in the high single-digit range. So can you perhaps help us understand how much pricing you're expecting and how that has changed relative to prior expectations and maybe give us a sense of you know, pricing expectations in the U S versus internationally, like for example, is international pricing going to be as strong as the U S. And then just, um, you know, connected to that on, you know, Kevin's question around elasticities, you know, I did notice, um, in the prepared remarks, some comments around pricing impacting volume in some D and E markets. I think previously elasticities were a bit more conceptual. And I'm just wondering if now you're actually starting to see some of that volume impact play out.

Okay. Yeah, Chris, maybe I'll start and then maybe Maria will provide some additional color too. But overall, I'll just give you a sense of, you know, our pricing execution overall is on track. You know, volumes have been solid. I would say trending a little bit better than we initially thought. But as I mentioned earlier, we're going to be very alert in monitoring our price gaps carefully. I would say we've implemented multiple rounds of pricing. Given kind of what's happened in the first quarter, that is additional pricing or higher than we originally planned is kind of a key basis for why we're taking up our sales outlook. you know, overall in the marketplace, obviously trade discussions have been constructive. We have seen movement in other brands and in some cases private label. But there is a little stickiness in some markets as well, particularly in Western Europe and parts of Latin America. So, you know, I think that's why we're going to monitor the situation closely and try to balance, continue to balance our performance and growth and our share performance. But overall, we feel good about where we are in pricing and we feel good about our portfolio and the fact that we're strong in both the value end and the premium end, we'll be able to pivot and meet the consumer where they need us to be.

Yeah, and I would just add that if you look at the outlook for input costs, which did escalate in our outlook for the year, as you know from our prepared comments and news release, we did increase the number In terms of the inflation we expect for the year, a good portion of that comes outside of the United States. And so along with the intent to cover inflation with pricing, you should expect that a lot of the incremental pricing that we're putting into the market comes outside of the U.S.

And if I could just ask one follow-up there on the incremental inflation that you're seeing. You know, what are the specific baskets or cost items that are moving outside of the U.S. to cause this incremental pricing? Thanks so much.

Sure. At the midpoint of our new guidance versus where we were in January, we're up about $375 million in terms of our expectation for input cost inflation this year. That increase is across all of our baskets. But as you know, with a significant volatility in oil and energy, that is clearly one of the drivers. That's well over half of the increase that we're seeing since January. And the impact, particularly on the energy side, weights to Western Europe, UK. And there we have a sizable tissue business, which is a large consumer of energy. So that's kind of how the inflation basket plays out and why it's more weighted to markets outside of the U.S.

Okay. Thanks so much. Thanks, Chris.

We'll take our next question from Steve Powers with Deutsche Bank.

Morning, Steve. Good morning. Good morning. And congrats to Maria and welcome to Nelson as well for me. I think Picking up on the 375 and guidance, you know, that incremental 375 million at the midpoint headwind from higher inflation just seems to be substantially higher quantitatively than the uptick in revenue that you're calling for. So just in the components of your guidance, it just reads net negative. And obviously, you've maintained the full year range. So I'm just trying to figure out if there is something else that got better in your outlook versus the start of the year, or if we're now talking about the lower end of the range as opposed to the higher end prior. Just some help there would be helpful.

Sure. There clearly is a range. And coming into the year, we talked about the factors that could affect where we land in that range. And commodities have – or commodity – Inflation expectations clearly have increased. We talked about incremental pricing there. So how all of that plays out as we go through the year, we'll have to see. In terms of our expectations on the other lines of the P&L, we held our outlook for our force cost savings. Our other manufacturing costs are looking to be a bit better. We had talked about in January the pressure we were seeing from the surge in Omicron. Fortunately, that has resolved itself fairly quickly in North America, and it's helped us get our supply chain into a better place than what we suspected back in January. So that's a positive on that side of the house. And in the first quarter, Our GNA spending or between-the-line spending, when you net out all of the puts and takes, was a bit favorable, backing out currency and other things. In this environment, it's tough, and so we're going to very closely monitor our between-the-line spend for the year and how all those factors come together. It keeps us within the range of guidance that we set back in January, exactly where we'll land. There's still a lot of volatility and moving pieces, so we'll have to see there.

Dr. Steven, I would agree with you. 375 is a big number, but again, I think we're pleased with the team. I would say, again, as Maria mentioned, volume has been an important component for us. We plan the year with an estimate around elasticities. Still remains to be seen how things flow from there, but I think given our first quarter, I would say volumes are trending favorable to some of the things that we had originally thought. Yeah, very good.

Is there any, of that incremental of 375, was any of it realized in the first quarter? Is it just a cadence of how that's to flow through? Is that, I'm assuming, more back-end loaded, but Just any color there would be useful as well.

Sure. It did hit us in the first quarter. We saw a meaningful spike in commodity cost pricing, particularly in the month of March as global events unfolded. So, you know, probably a quarter of it hit in the first quarter, and the remainder of it will – come in the rest of the year.

Okay, so it's more prorated then. Okay, very good. And just one last thing if I could. Is there any, maybe I should know this already, but is there a way to quantify what the Texas storm impact was on growth in terms of the impact this year in terms of the benefits?

Well, I think in the first quarter it was probably worth about two points of organic for us. So again, we were primarily lapping, I think it was March of last year is when it really hit us. We're still going to be cycling maybe a month or two of that in this quarter as well, just so you recognize that. But that did have an impact.

Okay. Thank you very much.

Thanks, Steve.

We'll take our next question from Jason English with Goldman Sachs.

Good morning, Jason. Hey, good morning, folks. Thanks for slotting me in. Let me echo the sentiment. Congrats, Maria. Well earned. I think we've had the pleasure of working together for now well over a decade, and you will be missed. And Nelson, welcome on board. Looking forward to getting to know you. Digging into the business, a couple of questions. Geez, I guess let's first talk about D&E. We haven't seen a negative volume number in your personal care D&E business in quite some time. and I know it's only a negative one, so I'm not trying to sensationalize anything, but there's obviously some sensitivity around half of those markets. So can you unpack what drove it this quarter and then perhaps elaborate on how you're seeing concern behavior in emerging markets change in each of your core markets as inflation pressure mounts?

Yeah, Jason, maybe I'll start here. Overall, I think we're very pleased with our D&E growth overall. Personal care growth continues to be very strong behind what I mentioned earlier under Lauren's question, strong innovation. really strong local execution. Organic was up 11 and a quarter. High single digit on price, low single digit on mix, and then, yeah, as you mentioned, a 1% volume decline overall. I'd say it's kind of mixed across markets, and maybe the one area that I'd point out is in Latin America for us, a little softer on volume and a little softer on share. The big driver of that is, Jason, as you're well aware with our previous discussions, we're prioritizing margin recovery We want to be balanced and holistic about it. And so we're trying to balance margin recovery, organic growth, and share. And I would say we're probably faster on pricing in a number of our key markets, including Latin America. And so that's probably had an impact on both volume and share. And our shares are still overall up in over 50% of our what we call cohorts or market category combinations. So we feel good about that. It's a little less than what we've been doing the last couple of years, which is a about two-thirds, right? And so we'd like to be in that two-thirds range, but recognize that's a high bar. That said, we also recognize when we're moving quickly on price that we're gonna have some ebbs and flows on market shares and local markets.

Yes, that makes sense, thank you. Pivoting to the professional business, volumes still really, they haven't really recovered. If we look at pre-COVID for this quarter, 1Q22 versus where we were in 2019, I think your volumes are still down 17%, 18% off of the pre-COVID levels. So two questions. What needs to happen? What are the conditions that would get you back to bright there? And we're far enough in that I think it's probably prudent for us to say you probably aren't getting back to bright. Is there some sort of right-sizing type of initiatives you need to take from the organization to account for the now lower volume base?

Yeah, you know, overall, you know, Jason, I will say, you know, we're encouraged by, you know, the professional demand improving. You know, organic was up six in the quarter, and to your point, not back to where it was. But, you know, mid-single-digit growth in North America and high single-digit in the rest of the world. Washroom demands recovery was up 30% in the quarter and now back to 90% of our pre-pandemic levels. I think we do know enough, and I agree with you, that I don't think it's going to go back to where it was. I think our team is making the right plans to size the business appropriately and recognize this is the reality of where we are, and so we need to go from there. They've got a margin recovery plan and a cost plan and are diligently working on that. Obviously, a key component of that margin recovery plan is price, which we've executed very, very well, and we're encouraged with our start. I will point out we do expect better volume performance. I mean, we have great capability. We have great innovation in the market this year. We have this, what we're calling an icon, a better dispenser that our end users are very excited about, and that's driving our growth. So our shares... In the segment, especially North America are up. The team's performing well, but you're right. I think we have to recognize that probably the business is going to be a little different size than it was pre-pandemic, and we're going to be ready for that.

Yep, yep. Thanks, and congrats on a good start to the year. I'll pass it on.

We'll take our next question from Andrea Texteria with JPMorgan Chase.

Andrea, good morning.

Good morning.

Good morning. How are you? First, congrats to Maria and welcome, Nelson. Looking forward to work with you as well. So, first, a clarification that you removed the comments about SG&A and the forced savings and given the higher cost pressures. And from Maria's comments earlier, are you taking PROMO and marketing spending down since, you know, the consumer, particularly in the U.S., has been stronger than anticipated? And on the pricing commentary that I think it was incremental to what you had in plan, which categories are you hoping to get additional pricing from plan before and the timing of it? And just a follow up to Mike's commentary about China. I mean, impressive high single digit performance there for another quarter. So how are you training in April, given the lockdowns and what we hear about e-commerce also being impacted there? and what is your expectation for the category? Thank you.

All right. I'll go ahead and start on the cost side. As I mentioned, our outlook remains the same for the forced cost savings of $300 to $350 million for the year. A little bit more color on the first quarter. We did see very strong savings in our productivity programs and our pipeline of opportunities remains quite healthy on the cost savings side, and so we've got confidence in that forced cost savings range. We do expect that the savings will ramp through the year. As you know, our savings don't come in a straight line. They can tend to be a bit bumpy as we go through the year based on which projects and programs we're implementing and able to execute. In the quarter, what we saw is that the distribution cost increases were a meaningful headwind to our forced cost savings number. So as I've discussed before, the $50 million of savings is a net number. There's all of the positives from the actions that our teams are taking to drive productivity across the supply chain. But you have to clear a positive number there, and there's significant headwinds on the distribution side that are putting pressure on the net course cost savings number. But I'd wrap it up by saying that good delivery in the quarter, pipeline of opportunities remain strong. Between the lines comment that I made, thank you for the question, because it's important to clarify that we are not reducing brand support. Our advertising plans for the year continue to be strong, and we intend to continue to support our brands. Outside of advertising, when you look broadly at other RSG&A spend, we'll continue to be very disciplined on other spending and look to balance the profit delivery given the current conditions that we're facing, in particular with the escalation of input cost inflation. But advertising remains very, very healthy.

Andrea, maybe I'll just piggyback on that, what Maria is saying. We remain committed to delivering balanced and sustainable growth. And so our priorities are to accelerate growth and also recover the margins. But right now, I would tell you, our brands are strong, our categories are healthy, and we're going to continue investing. to build our categories, our brands, and our markets. So as I mentioned earlier, we're taking a very holistic approach to balance, to mitigate the inflationary pressure. We're going to balance price, volume, and share. You know, I think we've, to your second part of your question, I think we've taken price and recognized that our price realization has to increase. You know, we've done that in a number of ways, either through PAC counts, List price and also promotion reductions. I don't know that I would say it's uniform across markets. You know, we're relying on our markets to be agile and to respond to what the local situation requires. But in general, as you can observe overall, the overall pricing has gone up. In some markets, our promotions have come down. And in some markets, and that's been a way to deliver price. and in some markets it's gone a little bit up. North America, I would say, has gone up slightly because we were suppressed on the promotion front for a couple years. I'd say our promotional depth is still lower than it was three years ago overall, but again, it's just an artifact of kind of what are you comparing against. But overall, I think Maria's point is the main one, which is we believe in balance and sustainable growth and growing our brands, and so we're going to continue to support the brands in the appropriate way. And then the last point I think you asked on China, I think I'm not ready to comment on April yet. You know, we're only ready to comment on this quarter. I will tell you that, you know, we have been affected by some of the COVID lockdowns, as everyone else is, but we'll update you on that on our next call.

One last clarification, sorry, to a fine point on the pricing and the increase in So should we interpret what you're saying mostly that initially you were more cautious on basically the elasticity, the volume decline? I remember being, you know, a very strong volume decline that was embedded in the initial guide. And now you're having the same kind of thought about pricing, but, you know, it's slightly better now because it's been taking, you know, everyone is taking additional pricing. Your competitor announced another one in family care. the day before yesterday. So it's a mix of both, but mostly because elasticity has been coming in better than anticipated. Is that the way to interpret?

Well, I'd say volume has been a little bit better overall. I think we're still working through it and calibrating relative to the elasticity. I would say the overall volume in the first quarter came in a little bit better than planned. I still think we're waiting to see what the full impact of elasticity is. Although I do think the history is And if I go back to our last price set of pricing a few years ago, you know, I think volumes did come in better than predicted, you know, in some cases. And in other cases, pretty much on plan. So we're still working through it. But, again, I think that the net of it is our guidance increases. Certainly we're seeing, you know, we expect more pricing in the marketplace and then volumes a little bit better than we originally planned.

Perfect. Thank you so much. And I'll pass it on. Thanks again.

We'll take our next question from Peter Grom with UBS.

Morning, Peter.

Hey, good morning, everyone. I hope you all are doing well. So I kind of wanted to follow up on that last point just around elasticities. Can you just, you know, I was hoping that you just remind us what the assumptions are embedded in your guidance. Is it based on historical elasticities and Should that not occur, which seems to kind of be the case more broadly today, would that be upside, or does it kind of assume what you're seeing in the market today holds?

Yeah, I'll make a quick comment before Mike jumps in. What I would say is that our assumptions around elasticity have been informed by historical performance over a long period of time, and particularly looking at what happened during more challenging parts of the cycle. So that was an inform. But it's not an equal to. So it's not mathematical. We apply judgment based on what we're seeing today and where we stand today in each of the markets competitively with where the consumer is and the consumer dynamics in each of those markets. So You know, I'd say we apply judgment, but it's certainly informed by what's happened historically. But Mike, you probably have some comments.

No, I don't think I have much more to add to that.

Okay, no, that's helpful. And then I guess just, you know, turning to margins, and I appreciate all the color on it and inflation and pricing and release and prepare remarks, but I was just kind of hoping to drill down on just the phasing because there's just a few comments that stood out. I think Specifically, you said in the near term, these commodity costs, you know, will offset the top line growth. And then, you know, later you kind of mentioned improved financial delivery sequentially. So how should we think about the phasing of gross margins through the balance of the year or kind of just the balance of the commodity pressures that you've kind of outlined? And then, you know, based on kind of where things stand today, when should we kind of expect a return to margin expansion?

Yeah, I'll start. Let me... First, comment on phasing. You know where we came out in the first quarter. Where I would point you to is the second half of the year, which is where we are expecting improvement. My IR folks are looking at me, but in terms of the second quarter, The commodity situation that we're facing, I mentioned that commodity costs were escalating through the quarter with March prices being very high. And a number of our commodities are continuing to escalate. So I think looking to the next quarter, I think we're going to still have quite a bit of commodity pressure before things normalize. So how that will all play out, we'll have to see. But I would point you to the second half of the year on margin improvement. We intend to build momentum as we go through the year when pricing is more in line with the inflation. And as you know, we took pricing in the first quarter, so that hasn't really played out yet in the P&L, but as that does, that will certainly help our margins, our forced cost savings build as we go through the year. Again, maybe not in a straight line, but I would expect the second half to be stronger than the run rate that we saw in the first quarter. And so, you know, a number of moving pieces. I don't think we're prepared to tell you when we get back to the 2019 levels on margins, but we absolutely expect improvement this year.

Yeah, let me piggyback on that, Peter, because I think part of that is, you know, we definitely expect strong progress on price realization, you know, and you're seeing it. You know, I'm confident we'll be able to restore our margins and eventually expand them, okay? I think the big factor that Maria says we can't predict exactly when is because the core assumption is what happens with inflation. And so the reality is I expect reversion in the commodities. It's going to happen. We all know it well if you've been following this company for a long time. I think most of our long-term investors have seen it revert every time, right? But the reality is in the near term, inflation is well beyond any historical levels. I mean, just over, you know, between 21 and 22, if you do the math at the midpoint of our guidance, we're going to take on $2.7 billion of additional inflation, and that's a 1,400-point drag on the operating margin. I will tell you we will make progress restoring margins. We expect pricing to largely offset inflation. It may not all be in a year, but, you know, our teams are moving fast and making progress. And, again, as I started, commodities are going to revert, and then when they revert, that's going to accelerate our timeline of recovery. But, again, it's hard to say when that is because we expected it to decline a little bit, or at least we predicted a level at the beginning of the year, and obviously we took up that opportunity. inflation number by 375 at the midpoint, you know, three months later. So, again, there was not a war, you know, in our plan for, you know, as we put together our outlook in the beginning of the year, and that's clearly affected the energy markets.

Thank you for that.

And, Maria, congratulations and wishing the best of luck moving forward.

Thank you. We'll take our next question from Wendy Nicholson with Citigroup.

Hi, good morning. Good morning, Wendy. My first question has to do with private label because you're one of the few companies we cover that does do some private label manufacturing. So can you remind us, number one, just ballpark what percentage of your volume is for private label brands? And then second, just sort of, You know, if there's any outlook you have, I know that you said in the past that you only do private label when it's sort of to the benefit of your brands and strategic relationships. But can you give us a sense whether any of the big retailers you work with are coming to you saying, hey, we want to put more power behind private label given the pricing environment? Anything you can offer just in terms of, you know, where you're situated and whether you think private label is going to grow as a piece of your business kind of over the next six to 12 months?

Yeah, overall, I'd say, Wendy, you know, private label is not core to our overall growth strategy, and so it's a relatively small part of our business, and we do it selectively, as you mentioned, you know, whether for a strategic account or a strategic proposition. But, again, you know, our capacity is expensive to build, and so we want to focus that in general on the brands unless there is a very good strategic rationale for it. I will say private label did grow a bit more in the quarter, and that's a change from prior quarters. And I think it was up or even in about six of our eight categories that we track, and that's a change from the recent quarters. And while we're paying attention to that, we're really focused on improving and making sure that we have the right value proposition on our products. And that's why Even at the same time, Wendy, that we are taking price increases, we are also working hard to improve the product quality and the features and benefits of our brands as well.

Yeah, it's less than 5% of our sales. Less than 5%. Okay, and can you just clarify the strength that you saw in the quarter, again, even if it's small, was it in the U.S. or in Western Europe?

I would say I was commenting mostly on North America. I think in North America, the eight categories we tracked, it was even or up in about six of them.

Okay. Fabulous. And then just one more follow-up to an earlier question about China. Your strength, high single-digit growth in diapers and femcare, is obviously terrific and great to see, and a departure from what we've heard from other companies who've been struggling in China, not just with the supply chain but globally. Lots of different things. And so my question is, is it just a market share relative outperformance for you? Do you think there's anything different in terms of how you're distributed or are you promoting exceptionally a lot or anything different that's enabling you to do well in China maybe when some other companies are struggling more?

Yeah, I don't think it's a distribution channel thing and I don't think it's definitely not promotion because, you know, again, we're trying to be disciplined about pricing. So here's the thing, and I will say, Wendy, it's really what Allison talked about at Cagney, which is there is a lot of opportunity in a lot of our markets to premiumize our category. And I know that's a little bit different because given the conditions right now with pricing and inflation and what's happening to the consumer, but over the long term, as I mentioned earlier, the value per baby sold is less than half of what it is in the U.S. or other developed markets. And so there still remains a significant opportunity for us to premiumize our categories. And so mix for us has been an important driver. We've doubled our super premium mix just over the past 12 months. And so that's part of it. And then the other part of it is share. And we're really proud that we took share leadership in China in the diaper category. I'd say almost two years ago, and we continue to expand that. And so we're really proud of the work of our team, and we're excited about that. And recognize there's some trends that are not favorable. I mean, as you're well aware, bursts are down, but we still think there's an opportunity on value.

Terrific. Thanks so much for the call.

Thanks, Wendy.

We'll take our next question from Laura Lieberman with Barclays. Hey, Lauren. Thanks. Hey, sorry.

Sorry, I'm back again. I just want to talk quickly about consumer tissue. It tagged me in your comments. I think it was in Russell's comments. There was some discussion of just, you know, efforts behind the scenes to execute the same playbook that you've done so successfully now in personal care in tissue in terms of elevating the category sort of performance. it may be a tough time given just, you know, cost inflation and, you know, managing volatility at the moment. But anything you could share on strategies in that business, I would be curious if we have the time. Thanks.

Yeah. Yeah. Thank you, Lauren. Yeah, I think that's right. I mean, again, elevate the categories as, you know, I think we have an opportunity to elevate all of our categories. And I think that will apply. I think it's, Our teams have been busy working that across the globe on tissue. I think some of that's been drowned out because, especially like in North America, the high volatility over the last couple of years related to COVID. For reference, I think the bath category was up 28 in 2020 and then down 20 last year. And so there's been a lot of volatility there. That said, I'd say we still believe there's a lot of opportunity to elevate the category through better clean, let's say, on the tissue side. I think we have had some momentum on Kleenex and broadening out the usage. And so that's something we remain excited about and we're working hard on. I just think there's been a little more volatility in the tissue categories. In North America, because I would say the extreme volatility in demand, and then in other markets like Latin America, And in Western Europe, the pricing dynamic's been, you know, I would say a little more pressurized.

Okay, great. Thanks so much.

Okay. Thanks, Lauren.

Thank you. And Ms. Taryn Miller, I'm showing there are no more questions at this time.

Great. Thank you. So thank you for joining today on our conference call, and we look forward to talking to you soon. Thanks.

This concludes today's presentation. Thank you for your participation. You may now disconnect.