Kimberly-Clark de México

Good day, everyone, and welcome to the Kimberly Clark New Mexico 2Q25 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note, this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Pablo Gonzalez, CEO. Please go ahead.

Thank you. Hello, everyone. Hope you're having a good summer. Thanks for participating on the call. We'll go straight to results, and then we'll make some comments about the quarter and our expectations going forward, as well as update you on some important initiatives underway. So, Javier. Thanks, Pablo. Good morning, everyone. During the quarter, our sales were 14.1 billion pesos, basically flat versus last year, 1.7% higher than the first quarter and an all-time quarterly record by a couple of million. Total volume was down 3.3% and price mix was up 3.3%. Consumer products and away from home decreased 2.2% and 7.8% respectively. Exports were up 24.5%, with double-digit increases in both converted products and hardware sales. Cost of goods sold increased 7.2%. Against last year, salmon resins were favorable, virgin fibers were mixed, while recycled fibers and fluff compared negatively. The FX was significantly higher, averaging 17.3% higher. Our cost reduction program once again had very good results and yielded approximately 500 million pesos of savings in the quarter. These savings are mainly at the cost of goods sold level, and are generated by sourcing, materials improvement, and process efficiencies. Gross profit decreased 9.7%, and margin was 38.2% for the quarter. Mix was negatively affected by an increase in lower margin hardware sales. SG&A expenses were 3.6% lower year over year, and as a percentage of sales were down 60 basis points. Operating profit decreased 13.9% and the operating margin was 21.7%. We generated 3.6 billion pesos of EBITDA, an 11.5% decrease. As we had anticipated, even with the significant test of depreciation, we were able to maintain our EBITDA margin within our long-term range at 25.4%. Cost of financing was 352 million pesos in the second quarter, compared to 356 million pesos in the same period last year. Net interest expense was slightly higher, at 373 million pesos versus 319 million pesos last year. During the quarter, we had a 21 million pesos foreign exchange gain, which compares to a 37 million pesos loss last year. Net income for the quarter was 1.9 billion pesos with earnings per share of 62 cents. We maintain a very strong and healthy balance sheet. Cash position as of June 30th was 11 billion pesos. We have no debt maturing for the rest of the year and maturities for the coming years are comfortable. Net debt to EBITDA ratio is 1 and EBITDA to net interest coverage is 10 times. Over the last 12 months, we have repurchased close to 50 million shares, more than 1.5% of the shares outstanding, which brings the total payouts to shareholders to 7.5%, including the cash dividend. Thank you. As expected and mentioned in a prior call, the first quarter trend continued during the second quarter and resulted in top line basically flat versus last year, albeit a quarterly record, lower bottom line margin, but improving sequentially, and EBITDA still within our target range, despite significant uncertainty, consumption deceleration, raw material cost increases, and very negative exchange rate. Once again, this reflects the strength and resiliency of KCM. On the top line, we compared to a very strong second quarter of last year, and we faced a challenging environment, with leading indicators signaling a slowdown of the economy and private consumption. A key indicator for us is that volume growth in some of our most important categories is muted, and even in higher growth ones, it spins lower. In addition, we continue to see clients aggressively manage their inventories, given the economic conditions and uncertainty. Plus, and this is very important, we intentionally reduced our support during the heavy summer promotional season. The strategic decision had an important negative effect on our volumes, but it's intended to protect the value of our brands as well as reduce the negative pricing effects, and it means that both consumers and clients did not stock up on our products, which should translate into healthier volumes and prices during the second half of the year. This, together with our accelerated innovation plan, and I'll have more on that in a moment, increased investment behind our brands and execution behind the opportunities we've identified should translate in growth accelerating in the coming quarters. With respect to costs, the higher exchange rate plus the fact that the anticipated relief in bulk prices did not materialize, particularly in softwood pulp and cloth, which were at record levels, had a meaningful impact. Given soft demand from China, we're finally seeing prices come down, but slowly. Going forward, we expect dollar-denominated costs on tissue-run materials, that is pulp and recycled fibers, to have a more modest impact. And we expect a mixed picture in personal care, higher fluff with lower resins and superabsorbent materials. Having said that, it's clear that the lack of certainty and many different moving parts could change the outlook. Accordingly, we've carried out selective price increases, have put in place actions to support a richer mix and are well on their way to achieving record savings for the year. Now let me turn to innovation and provide an update on the launch of the pet business. During 2025, we will introduce product improvements in every category in which we participate. So far, we've introduced important innovations in the diaper, wipes, and incontinence categories, among others. And in the coming quarters, we'll continue to strengthen our offerings to consumers in bathroom tissue, incontinence pads, and feminine care. We'll be in a position to share more details on this in future calls. Also, continue to make progress to bring to market technologies and products that will increase consumer preference for our brands in the coming years. Finally, as we've discussed with you, in the medium term, we expect to accelerate our growth rate by achieving double-digit growth rates in categories with higher growth potential, like wipes, kitchen towels, facial tissue, and wipers, among others, as well as through adjacencies and entries into new categories. With respect to adjacencies, the recent integration of 4E Global into the KCM operation is creating opportunities to strengthen our position and capabilities in the soap and toiletries categories, as well as to participate in shampoos and other liquid-based product categories. As we move ahead with our plans, we expect sales to accelerate in these categories during the second half of the year, and particularly during 2026 and 2027, as we bring our pipeline of innovations to market. And when it comes to our entry into the pet food business, we are in the process of gaining distribution behind our brands, and have started the commercial and marketing efforts to support them. We have received excellent feedback from consumers, And we'll embark on an aggressive sampling program to get more consumers to try our superior products and start to position and grow our brands. We're in the first mile of a marathon. We are excited with the consumers' very positive reaction to our products. We'll keep you updated on our products. With that, let's turn to your questions.

At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll take our first question from Alejandro Fuque with Itaú. Please go ahead.