Kimberly-Clark De Mex A

Good day everyone and welcome to Kimberly Clark in Mexico third quarter 2025 results. At this time all participants are in a listen only mode. Later you will have an opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and one on your telephone keypad. You may withdraw your question from the queue by pressing star two. Please note this call is being recorded and I will be sending by should you need any assistance. It is now my pleasure to turn the conference over to CEO Pablo Gonzalez. Please go ahead.

Hello, everyone. Hope you're doing well and thanks for participating on the call. We'll go straight to results and then we'll make some brief comments about the quarter and our expectations going forward. Javier?

Thank you. Good morning, everyone.

Results for the quarter were better, with net sales growing and gross and operating profits recovering. During the quarter, our sales were 13.4 billion pesos, a 2% increase versus last year. Hardware sales impacted total volume, which was flat, and price mix was up 2%. Consumer products grew 5%, 1% volume and 4% price mix. while away-from-home remained flat. Exports were down 15%, impacted by a 32% decrease in hardwood sales, while finished products grew 7%. Cost of goods sold increased 3%. Against last year, SAM, resins, and virgin fibers were favorable. Recycled fibers were mixed, while fluff compared negatively. The FX was slightly lower, averaging 1% less. During the quarter, our cost of goods sold reflected the higher prices of raw materials from prior months, and very significantly, the much higher FX, including the hedges, as those trickled down the inventory layers. 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 was flat and margin was 38.7% for the quarter. SG&A expenses were 4% higher year over year and as a percentage of sales were up 30 basis points as we continue to invest behind our grants. Operating profit decreased 4%, and the operating margin was 21.3%. We generated 3.4 billion pesos of EBITDA, a 3% decrease, but within our long-term margin range at 25%. As mentioned, the benefits of better raw material prices and a stronger peso take time to show up on the actual cost of goods sold, due not only to inventories, but also to contracts, transit time, and particularly in this case, the currency hedges. Having said that, our gross margin did improve 50 basis points sequentially from the second quarter to the third quarter. That improvement does not go down to the operating profit or EBITDA level because the SG&A remained constant and was therefore higher as a percentage of sales because the third quarter sales are traditionally lower than the second quarter sales. Cost of financing, was $404 million in the third quarter, compared to $287 million in the same period last year. Net interest expense was higher at $401 million versus $290 million last year, despite our lower gross debt because we earned less on our cash investments. During the quarter, we had a $3 million FX loss, which compares to a $4 million gain last year. Net income for the quarter was 1.7 billion pesos with earnings per share of 56 cents. We maintain a very strong and healthy balance sheet. Cash position as of September 30 was 11 billion pesos. We have no debt maturing for the rest of the year and maturities for the coming years are very comfortable. Net debt to EBITDA ratio is one time and EBITDA to net interest coverage is 10 times. Over the last four months, We have repurchased close to 50 million shares, around 1.5% of shares outstanding, which brings the total payout to shareholders to approximately 7%. And with that, I turn it back to Pablo. Thank you. So, we continue to operate against a soft consumer backdrop, but we manage to increase sales and post EBITDA margin within the target range. Growth in consumer products was significantly better, supported by innovations and commercial initiatives, together with a strategic decision to reduce spending during the heavy summer promotional season to protect the value of our brands, as well as reduce the negative price effects. Volume was slightly ahead of last year, an important improvement, but consumers remained stretched and cautious, given the increased uncertainty, job growth deceleration, remittances slowdown, and overall lack of economic growth. We see no significant catalyst for this to change in the short term and are strengthening strategies accordingly. Still more relevant and differentiated innovation, more effective engagement with consumers, efficient execution hand-in-hand with our clients, and importantly, relentless focus on our most important opportunities by category, channel, and brands will guide all our actions. In a market that's not growing much, Gaining share and playing in areas where we haven't participated, at least not aggressively, will be key to accelerate our growth. We look forward to sharing more details on the strategies as we get into 2026. The same holds true for away-from-home business, and we expect experts of finished products to continue to grow and accelerate in the coming years behind a concerted effort with our partner, Kimberly Clark Corporation. With respect to costs, We have yet to see the full effect of lower input prices and results, and lower sequential volumes, typical of the third quarter, meant we had weaker operating leverage. Despite these headwinds, margins remain strong. As we get into the final stretch of the year, and particularly into next year, we will see lower costs reflected in our numbers. We expect lower pulp prices, stable recycled fibers, lower resins and superabsorbent materials, plus a stronger peso to beat tailwinds going forward. In summary, our results continue to improve, and despite an expected continued weak consumer environment, we are executing strategies that will translate into stronger results in 2026 and years to come. With that, let's start the questions.

Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad. We'll take our first question from Ben Surer with Barclays. Please go ahead, your line is open.

Yeah, good morning, Paula Javier. Thank you very much for taking my questions. Congrats on the results despite the challenging environment. I wanted to follow up a little bit on just the consumer sentiment and what you've been seeing across the different categories. So maybe help us understand and kind of like getting a bit closer into that 4% price mix change. How were you able to kind of like implement that and at the same time actually get about a 1% volume growth just given the consumer's week, but it felt like a very good execution on price mix with volume growth, so that would be my first question.

Sure, and thanks for the question. Look, as I mentioned, we see a stretched consumer, and this is not news to you, but there's a lot of uncertainty, and as I mentioned, job growth has decelerated, remittances have slowed down. I mean, overall, the economy is pretty slow, and consumers' sentiment is not at its best, if you will, So, consumers are being very careful in how they are spending. We do see a fork, if you will, with consumers that continue to spend on premium products, but there are those who are trending down from value to economy products, not at a very marked rate, but there's certainly something happening there, given how the consumer stretched. Well, the way we were able to put all of this together, and let me say, by the way, the growth in our categories is pretty muted. Some of them, the categories that don't have such high penetration like kitchen towels and others are growing at higher rates, but even those, the rates have slowed down a little bit. And the more, if you will, mature categories are flat or slightly growing when it comes to volume. So what we did is one Remember, we decided not to play as aggressively on the summer promotional season because what we were seeing over the past couple of years is that when you did that, the price would take a hit not only within the promotional season but then beyond that because consumers ended up with some inventory on their hands, so then it was a little harder to move more in sports. So we were very careful on how we managed that and I think we were successful in doing so. Plus the fact that we are through a revenue management revenue growth management capabilities found certain instances where we could adjust pricing and move forth. So that's how we were able to keep prices going and then volume really helped because of innovation and all of our commercial activities during the third quarter. So it was really a combination of executing on price and innovations that allowed us to put together both growth in price and for the first quarter of the year, growth in volume.

Okay. And then just one quick follow-up. You've called out the software hard roll sales volume. Was there a technical issue, the demand issue on the expert side? What's been driving that?

Really, I think what's happening there is that there's a lot of supply of card rolls in the U.S., a combination of companies with excess capacity sending it to the U.S., and then maybe a little bit of companies buying before some of the tariffs came into effect. So there's paper out there that I think the system's going through, and hopefully that'll become more – normalized, if you will, in the fourth quarter, certainly I think by the first quarter of next year, but overall just oversupplying the market of hard rolls in the U.S.

Okay. Understood. Thank you very much. I'll pass it on.

Thank you.

Thank you. We will move next with Bob Ford with Bank of America. Please go ahead. Your line is open.

Thank you so much, and good morning, everybody. You know, Pablo, I also was impressed by the growth in consumer, given your intent to stay away from some of the summer promotions. Can you give some examples, maybe, of some more successful innovation and execution of efforts that are enabling you to improve pricing and take share? And with respect, you know, to the export mix between hardwares and finished product, can you give us a sense, both in volume and value, in terms of the breakdown of those exports? And then how should we think about current capacity utilization rates for both pulp and finished product? Thank you.

Thanks, Bob. Thanks for your question. Yeah, look, I mean, when it comes to innovation, as I mentioned earlier in the year, we have strong innovations for all of our categories throughout the year. And by the way, we have a very, very strong pipeline for the coming years, so we're very excited about that. And a couple of particular examples are on the dive front, where we pretty much improved on every single tier of our offerings. And when you take a look at our shares, even though the category is, as I said, pretty flat, we're gaining share in pretty much all of the channels, given the – on all of the channels and all of the tiers, given the innovations that we were able to put into the market. And, again, those have to do with better absorbency core, better fit, better stretch, better softness. So, depending on the tier, again, we improved every single one of them, and that's a category where we see our shares improving nicely. Also, for example, the bathroom tissue, the premium tier, where we've introduced a couple of new features and new sub-brands under Kinect's . Absolutely convinced we have the best product in market and products that can compete with products anywhere in the world. And they've been very, very well received by consumers. And as well, we also made some innovations through economic product, particularly Vogue in the wholesale channel, and we've been able to gain ground with that product consistently and significantly. Again, innovation at the core of everything we do, and I'm very, very excited with what we see for the coming years when it comes to innovation. With respect to the breakdown of our exports, I mean, hard roll sales represent 46% of the sales, and finished product, 54%. And hard rolls, as I mentioned, hopefully volumes will stabilize here in the coming quarters. and we expect that to continue to be, hopefully, be a tailwind, and if not, certainly not a headwind going forward. On the finished product, we're excited. I mean, we've had a couple of meetings with our partner, and we're looking at opportunities in the coming years to further integrate our supply chain. We've done a good job here in the past couple of years, but many more things that we can do, and we're working very closely together to make that happen, and we're excited with the opportunities we see for it. And as we move and are able to turn more of our capacity into finished product, then certainly our hardware sales will decline accordingly. Because as you know, what we do is our excess capacity is what we turn into hardware sales and sell outside. So as this plans with our partner materialize, little by little we'll start to see lower hardware sales, but finished product sales increase hopefully significantly.

You know, and that was actually the idea behind the question on capacity utilization is we agree. We see this massive opportunity in exports, a finished product, and that's why we're a little curious in terms of where you are right now in terms of capacity utilization both at pulp and then how should we think about, you know, where you are today on finished product, and, you know, we can make some estimates in terms of what you need to add.

Yeah. It's a great question, Robin. Let me put it this way. We have enough capacity to grow and finish products aggressively together with our partner in the coming years. And not only what we're producing right now, but we're putting plans together so that we can get more throughput through our equipment or through our machines. So we will be able to support growth with them and I think we will still continue to be able to put a decent amount of overall sales out there in the U.S. So I think the combination over the coming years will certainly support our growth and support our margins going forward.

Great to hear. Thank you so much.

Thank you, Bob.

Thank you.

Thank you. Our next question comes from Alejandro Fuchs with ITAO. Please go ahead. Your line is open.

Yes. Thank you, operator. Good morning. Thank you for the questions. I have two very quick ones. you know, if you can discuss a little bit about competition, right?

How is the competition today in Mexico? Given the interest in price themselves, maybe the competitors following, are they being more aggressive promotionally? And if you can also discuss maybe your expectations into next year, hopefully with a better consumer environment in the country, maybe you can talk about what do you expect going forward? Thank you.

Sure. Look, when it comes to competition, I mean, you know our categories have always been very competitive. And we maybe are seeing a little bit more from some participants, not all, when it comes to their promotional aggressiveness. I wouldn't say it's something that is radically different, but a little bit more, as, again, the pie is not growing. Some are losing share, so they're trying to recoup some of that and are being a little bit more aggressive on it. But not, again, not something that it's too surprising or too different from other instances. And the fact also that our retailers are, one, continuing to keep inventories and overall working capital under control, they're putting a lot of pressure on that. And two, trying to keep prices, it seems to me, a little bit more consistent. I mean, that helps in terms of the aggressiveness of promotions not being even more so that it could have been in other instances when the economy is not growing. So, a little bit more, but really nothing marked, if you will. Coming into next year, I mean... We hope that a lot of the, or at least some of the uncertainty that is hanging over the economy can be resolved, or at least we get a clear direction as to where it's going. Certainly that's coming from the USMCA revision or renegotiation and what will happen with that. I mean, we've heard that in a couple of weeks we'll be hearing from our government as to some of the agreements they've come to with the US administration. So hopefully that'll start to settle down and we'll know a little bit better where it heads. Hopefully as we get into the first or the workings of the judicial reform, we start to see how it works and we start to see some decisions that support Again, giving more certainty to investment. And again, just hopefully some of this uncertainty start to play out and we start to get better sense of what's going on. We know then what to expect. And if that happens, I think the economy will be able to start growing again at a faster clip. Maybe come back to what we were doing before all of this uncertainty, about a 1.52% rate, which at this stance would be pretty good. Not what we need, certainly as a country. I mean, we really should be working hard to take all of the obstacles away from investment so that we can start growing at 3% or higher rates. But that's going to take some time, and uncertainty is key for that. So, That will hopefully play out by 27, but at least by 26, if we can get some uncertainty out, we'll see greater economic growth, and then we might see a consumer that feels a little bit better about things, and then domestic consumption can start to pick up again. That's our expectation, but let's see how quickly it unravels and happens. Thank you very much, Pablo. Thank you.

Thank you. Our next question comes from Renata Cabral with Citibank. Please go ahead. Your line is open.

Hi. Good morning, everyone. Thank you so much for taking my question, and congrats on the results. So my first question is still about the consumption environment, but specifically to understand if consumers are making the trade-outs, and if you see a bigger penetration of private label in the categories that the company has. And the second question is related to cost. In the initial remarks, I understood that the company expects that their material prices should maintain the need for the upcoming month. I would like just to confirm if that's the view, and for the first quarter, if the company has any hedges for the effects. Thanks so much.

Thanks, Renata. I hope I can answer your questions. We're not coming through too clearly, but if I don't, please let me know. Again, when it comes to consumers, we're seeing a divergence. Those that buy premium products continue to do so. Those consumers that are used to buy either value or economy products, we see a little bit of trade down to the economy segment. Not a big trade down, but a little bit of trade down given how stretched they are. And tied to that, we are also seeing growth in penetration of private labels in the country. and it's a combination of the economic situation and retailers being a little bit more aggressive when it comes to pushing their private label. When it comes to costs, again, we already have seen in our purchases lower costs of most of our raw materials, excluding fluff, and that's just taking a little bit of time to reflect on our cost of goods sold, but we expect that to continue to start to happen certainly in the fourth quarter and no doubt early in 2026. And our expectations for costs in the 2026 is that we will come in with, again, most of them on a downward trend, and that will certainly be tailwinds for our costs together with the exchange rate, which will compare very favorably this first half of the year. So that should be very, very helpful going forward. And when it comes to hedges, no, we have no more hedges during this quarter, and we don't expect to hedge going forward.

Thank you so much. That was very clear.

Thank you.

Thank you. We will move next with Antonio Hernandez with Atinter. Please go ahead. Your line is open.

Just following up on the question, should we expect that because of the and so on, that maybe in the short term has already hit rock bottom? Is that like you see basically upside going forward?

Yeah, absolutely. And it's interesting how you put it rock bottom when it's 25% and it's still one of the best EBITDA margins out there for any consumer products company in the world. But, yeah, we probably have hit rock bottom. And going forward, we should expect better margins, no doubt.

Exactly. Yeah, I mean, rock bottom considering they came back to 27%.

Yeah, no, no, I understand. I understand. I just, quite frankly, I just used it to make a point. Sorry. Exactly. It's all relative in the end, but just pretty good margin. Just a quick follow-up. In terms of innovation and how you're also treating these consumers that are willing to buy these premium products, if you could provide any follow-up on how much do they represent or innovation in terms of sales, anything like that would be helpful. Thanks. Look, I think most of our growth really is coming from products where we've innovated. And again, we're very excited with what we've done, but even more so with what we have coming. And early in 2026, we hope to share a little bit more of our strategies when it comes to areas, main areas of focus and opportunities by category, channel, and brands, and Also, what we see would be some of the very exciting innovations that we're going to be putting into the market. So let's hold on that until the first quarter of 26, and we'll be able to provide you more insight and details into what it's done and how we expect it to contribute to our growth going forward.

Okay. Thanks again. Thanks. How am I doing? Thank you. I appreciate it.

Thank you. And as a reminder, that is star and 1 if you would like to join the queue. We will move next with Jeronimo de Guzman with Inka Investments. Please go ahead. Your line is open.

Hi. Good morning. So with a follow-up on the cost side, you mentioned that there's no hedges impacting the fourth quarter, but I just wanted to understand how much did FX hedges impact the third quarter? I would probably say they did impact about 50% of our purchases for the second quarter and for the first part of the third quarter. So, assuming that what we saw on the third quarter was mostly based on those purchases, you could say that approximately 50% of our dollar denominated purchases were impacted by those hedges in the quarter. I don't know if that makes sense. But only half? But only for half of the third quarter? Yes, because of the... No, I would say for the full quarter, about... 50% of our U.S. dollar purchases, which are about 50% of our cost, were hedged. Got it. Okay. And what was the average asset for those hedges? $2,070. Okay. $2,070 something. That would be a big improvement in them. Just wanted to understand, given the much better cost outlook and the fact that these hedges are less of a headwind going forward or not a headwind going forward, how are you thinking about pricing going forward? Look, we continue to take a very close look at each category and each tier and each channel to see where there are opportunities for pricing. Yeah, we see tailwinds when it comes to costs of raw materials. We see headwinds in other costs, for example, in labor, costs which have been increasing in Mexico for quite some years. And when you compound their impact over the years, it's becoming a little bit more impactful, if you will, and some other issues. And plus, we want to continue to generate important resources margins and profits so that we can further invest behind our brand. So pricing will not be as maybe in the past where you would just go, we're going to increase 4% in the diaper category in March and period. It's going to be more of a strategic analysis, again, by tier, by channel, et cetera, to determine what the opportunities are, together with a very important push-behind mix for our brands given the innovation we have. And so we will continue to look for opportunities to price and opportunities to improve our mix going forward. Okay. Yeah, that's helpful. So the 4% that you had this quarter, year-on-year, how much of that was mixed versus actual pricing? Or was it just left for motions versus the year-on-year, I guess, which is kind of a factor? It was about half and half. It was about two price, two mix. Okay. Got it. Great. Just one other question on the competitive environment. Wanted to get your sense on market share trend in general, kind of where, in what areas are you seeing maybe more pressure on the market share side and where you're seeing more of the market share gains that you're having? Overall, I think we have a very stable market shares, maybe except in diapers, as I mentioned, we see that share growing. When you take a look at bathroom tissue, we're fairly stable. Napkins, we're growing share. Kitchen towels, we're growing share. Wipes, we're growing a little bit on value, not on volume. But that's a category where we have lost a little bit of ground to not only private label, but a whole bunch of offerings coming from Asia and other parts of the world at very cheap prices. So we've got plans to attack there and recoup some of the share. And I would say about that, I mean, facial tissue is flat at about 92%. I mean, our shares are pretty stable overall. Okay. Oh, sorry, one more question on the new JV, the pet nutrition, any updates on that? On what, sorry? The new business, the pets, the animals, the pet business. No, no, thanks for the question. Yeah, we continue to make inroads. I mean, we're getting catalogs and more retail chains and improving our reach within them, so getting more SKUs in there and getting into more stores. And again, the consumer reaction so far has been very, very good. The retail reaction has also been good. So right on track where we wanted to be, and hopefully that will accelerate in 2026. Again, this is a long-term play, but we absolutely should see this business accelerate in 2026. Great. Sounds good. Thank you. Thank you.

Thank you. We will move next with Miguel Ulloa with BBVA. Please go ahead. Your line is open.

Hi. Thanks for taking my question. It could be regarding the capex for next year and any changes in the repurchase program. Thank you very much.

Hello, Miguel. Capex will remain very likely in the $112 million range. could be a little bit more if some of the opportunities for exports capitalize, but nothing that could change significantly the capital allocation. For buybacks, this year we will complete our 1.5 billion program. Still too early to talk about next year. We will definitely have retained earnings from the net income this year to grow the dividend. And as usual, whatever we have left, we will devote to buybacks. So that we'll have to see after we end the year.

Thanks, that's helpful. And just one, if I may, is regarding further investments or big investments in land for, capacity in coming years?

Right now, it doesn't look like we need to do anything beyond that 120 average capex. Again, if we see more opportunities, we could see a couple of years of ramp up, and even if at some point we need a tissue capacity, which at this point it doesn't look like, but hopefully that changes, then we would see a couple of years of 150 maybe, somewhere around that. Again, nothing that should change significantly the capital allocation.

Thank you very much. You're welcome.

Thank you. And this concludes our Q&A session. I will now turn the call over to Pablo Gonzalez for closing remarks.

Thank you. Nothing else to say. Just thanks for participating in the call. I hope you'll have a terrific weekend. And since this is our last call before the year end, I know it's early, but I hope you'll have happy holidays and a terrific New Year's. And I look forward to talking to you early in 2026. Thank you.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.