Kimberly-Clark de México

Hello and welcome everyone joining today's Kimberly Clark de México second quarter 2026 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. To register to ask a question at any time, please press star 1 on your telephone keypad. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to CEO Pablo Gonzalez.

Thank you so much. Good morning, everyone. Hope you're all doing well and thanks for participating in our call. As usual, provide some brief remarks and then we'll open it up for questions. We had another strong quarter and a good first half of the year with record revenue and we continue to make progress on our KCM Plus innovation, growth and transformation strategy. More on that, Dr. Javier takes you through our second quarter results. Javier.

Thank you. Good morning, everyone. During the quarter, our sales were 14.4 billion pesos, a 2.7% increase versus the second quarter of 2025, and an all-time high. Total volume was up 3.1%, driven by consumer products, while price mix was flat. Net sales were led by consumer products, which grew 5.2%, With a 4% volume increase and 1.2% price and mix growth, while away from home decreased 5.1%. Exports were down 11.1%. Cost of goods sold decreased 3%. Our cost reduction program once again had very good results and yielded approximately 450 million pesos of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing, and the use of alternative fibers, product redesigns, and the introduction of new raw materials in non-golden fabrics, diaper geometry redesigns to improve material efficiency, and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing, and logistics. In addition to these actions, compared last year, fibers and fluff were favorable while superabsorbent materials and resins compared negatively. The FX was lower, averaging around 11% less than last year. Growth profit increased 11.9% and margin was 41.6% for the quarter. SG&A expenses were 11.5% higher year over year, and as a percentage of sales were up 140 basis points. Distribution expenses were higher while we continued to invest behind our grants and work to improve our footprints and streamline logistics operations. Operating profit increased 12.2% and operating margin was 23.7% up 50 basis points sequentially. We generated 3.9 billion pesos of EBITDA A 9.6% increase year-over-year, with EBITDA margin at 27.1% above the long-term range, representing 40 basis points sequential improvement. Cost of financing was 470 million pesos in the second quarter, compared to 352 million pesos in the same period last year. Net interest expense was higher, since we have more debt. During the quarter, we had a 50 million pesos FX gain Thank you very much. We debit at a net interest coverage of nine times. Thank you.

As mentioned, we had a strong first half of the year despite still subdued economic growth and private consumption. As we move into the second half, we expect consumer products businesses to continue to lead the way, the away-from-home business to grow during the second half of the year, and parent role sales will be lowered due to more tissue required for consumer product sales Thank you very much. In the meantime, we will accelerate our price realization efforts and stay focused on operational efficiencies and ensuring another good year in our cost reduction efforts. Of greater importance, we continue to make good progress on our KCM Plus strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant, and differentiated innovation, together with greater engagement and improved commercial execution. Further, we continue to make inroads in private label and continue to work with our strategic partner to strengthen the North American supply chain. When it comes to new areas of growth, we continue to make progress on pet food and are actively analyzing the CanView opportunity. All in all, our KCM Plus initiatives focused on accelerating growth are going well. Equally important, our efforts to develop our skill set, better utilize data, We hope these comments provide a good picture of where we stand. With that, we open the call for questions. Thank you.

If you would like to ask a question, please press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star and 1 to ask a question. We'll take our first question from Alejandro Fuchs with Itaú. Please go ahead, your line is open.

Thank you, operator. Thank you for the questions and congratulations on the results. I have two quick ones that I made. The first one, Pablo, I wanted to see if maybe you can elaborate a little bit. What are the main differences driving growth for the consumer segment relative to the away-from-home Thank you. Thank you. Thanks, Alejandro.

Thanks for the questions. And they're both very, very important. Look, as you mentioned, we've got very good quarters on the consumer side, and that's driven by strong innovation behind our brands. and relatively strong market shares plus making inroads in certain opportunities that we've identified. So doing well both in our core categories and accelerating our growth in our diamond category. So overall, I would say consumer products is going well, particularly when it comes to volume. So we're pretty happy with that performance and we're working hard to make sure that continues. When it comes to away from home, I mean, we've been talking a little bit about, one, distributors being a little bit more careful given the economic scenario. And now what we also saw happening is that they became a little bit more aggressive betting on the outcome on consumption given the World Cup experience. And what we actually saw is that those expectations did not materialize. and as a result really competition to drive volumes intensified and that negatively impacted pricing so we did see in a way from home sequentially volume improvements but pricing was affected because of this competition again to get more volume into the market that may continue here in at least July but we expect that to subside as the year progresses and I have Inventories and the business returned to more normal levels. It will still probably be lower growth rates because again the economic conditions are not conducive for our distributors to supply more products to restaurants, to hotels, etc. But we do expect it to come back to growth end of this quarter and certainly in the fourth quarter of the year. Thank you, Alejandro. Thank you.

Our next question comes from Bob Ford with Bank of America. Please go ahead.

Thank you so much. Good morning, Pablo, Javier. Thanks for taking my questions. Pablo, your export business was down year on year, but up quarter on quarter, right? And you mentioned master roles being down. How should we think about the mix? And how are you thinking about sales over the balance of the year? And then I was hoping, you know, given the outlook for some of the inputs over the balance of the year, how are you thinking about industry pricing dynamics, particularly during the summer selling season, but from this position of strength with respect to your shares right now?

Thanks, Bob. Thanks for the questions. First, on the expert business, yeah, you're right. Our expert to finish product was down versus last year, but it was up sequentially. Our export or parent rolls was also down versus last year, but was also up sequentially. And this has to do particularly with the export of finished product side with a couple of things. One, the exchange rate differential, of course, versus last year. Two, that we were comparing to a record quarter in exports of finished product sales last year. Third quarter was also up pretty strong. and a slightly lower volume demand from our partner. So just it was really timing in the second quarter and there will be a little bit of that in the third quarter. But as you know, overall, we've been working with our partners to position ourselves to strengthen the North American supply chain and we still believe that's the case and we're finding good opportunities. And so over a longer period of time and certainly for next year, We're seeing very, very good. Our expectation is for a strong growth certainly in that business. When it comes to parent roles, again, it depends on how much we consume internally and we're consuming more internally because of how strong our performance has been in consumer products. But we're also finding ways to produce more. So hopefully we'll be able to find here a combination where we can both use more internally but also supply more externally and at least have that be less of a drag as we move forward. When it comes to the cost side, again, hard to say how long this will last. I mean, we expected this to be a very short time and with relatively lower impact, but it's dragged on for a little longer. I think that pretty much everyone expected it. It didn't get as bad as also some people expected it could get, but it certainly had an impact. So we will see some of that impact and cost here in the third quarter. And hopefully, as we mentioned, if you go back to fundamentals, those support lower dollar prices in raw materials. So hopefully we get back to that by the end of the year. Having said that, we will see more pressure on this quarter. We still expect to be within the range of our EBITDA margin target for the quarter, notwithstanding those cost pressures. And again, hopefully even improving in the fourth quarter as we move along. Now, given that this is happening, we will continue to monitor. Any opportunity for price realization? It's always tough during the promotional summer season and this one has been particularly aggressive again as consumption has been subdued so some of the retailers and some of our competitors have been a little bit more aggressive so it's really hard at this time to really reflect pricing but we also expect that to start to die down as this And if I could just follow up, Pablo, you touched on private label in your comments.

and now it's true that you're seeing a downtrend within your own price tiers and how are you thinking about participating in private label and the equilibrium with the branded side of the business?

Sure, that's a great question Bob. I mean what we're seeing, not different from other economies, is we're seeing what many are calling the K-shape, right? So consumers who are buying premium products continue to do so but we do see some consumers on the Value segment trending down to economy segment and in some cases trending down to private label offerings, particularly when it comes to hard discounters and some of the more economy driven formats, for example, Bodega Herrera, etc., where there's also a big push to help consumers and provide these products at a lower cost. So, certainly that dynamic is happening. As you know, our strategy has always been to have this Thank you very much. Thank you. That we put into place this year and we love how it looks going forward. So that will certainly help. We've also said that we want to be more strategic about participating in private label and given that it's a trend that continues and certainly something that retailers want to push forth, we see an opportunity for growth there if we participate. So we're making inroads. We're working with quite a few of them and starting to supply some of their products Thank you very much. to be able to meet the demand of both our customers and our clients. So a dual strategy which started to pay off, but a lot, lot more to do there, a lot of room for improvement and growth.

Very helpful, Pablo. Thank you so much.

Thank you, Bob.

Thank you. Our next question comes from Antonio Hernandez with ActingDeer. Please go ahead, your line is open.

Hi, good morning. Congrats on your results. Well, actually following up on the last transfer that you provided, can you share more light on how much is private level as a share of sales? How much has it been growing within Kimberly-Clark and maybe how much of a potential do you see there? and also within innovation, how much of that innovation is addressing both the trade-off or the trade-down, I mean the cash-shift economy. Thanks.

Sure, Antonio. I mean, innovation still a, sorry, credit label still a small business for us. We expect that maybe this year it'll be around 800 million pesos. That's about double what we did last year. But again, with expectations that it can continue to grow, and a very interesting clip in the next couple of years as we gain traction behind our initiatives. So a lot of focus there to make that happen. In terms of innovation, I mean, Really, the strong performance behind consumer products, diapers, bathroom tissue, feminine care, incontinence, both on our core categories and some of our diamond categories, is supported by strong innovation. We've been able to, in every category, bring new products to market, of course, together with a good commercial execution. So, from new offerings in cottonel, in bathroom tissue, to new offerings in Pretty much every tier in our diaper business, and we will be introducing more innovations in the premium side of the business this year to improvements in the value and economy tier in the wipes business and a new product line in feminine care, a new product line in incontinence. So I would say that it's broad-based. And that is in a very important way why we've been able to continue to grow at a very good clip in consumer products despite the consumer environment.

Okay. Makes sense. Thanks a lot for the call, Alonso. Thank you, Antonio.

Thank you. We will move next with Reed Monahan with Barclays. Please go ahead.

Hey, thank you for taking the question. So I was wondering with quarterly savings of, or I guess another quarter, with savings around 450 million pesos and even margins holding above the long-term target range, sort of how much of the current savings or run rate, savings run rate would you consider structural versus timing related as we look towards 2027, how sustainable are these current margin levels and What do you expect through our material and FACS conditions as that plays out?

The way we usually not usually, the way we account for the cost savings is we only include cost savings that are for the most part for the long term. These are things that we can add on one year and go forward. So They're more structural than conjunctural. That was your question, right?

Yeah. Yeah, and then also sort of how you see, I guess, material costs, you know, play out over the course of the year.

Yeah. I mean, let me just touch a little bit on what Javier said in terms of this being a and we mentioned in our comments a couple of the things but maybe that's useful because for example when we were generating savings through global fiber contracting initiatives and changing sources sourcing in different raw materials so of course that's structural I mean we route there I'm going to say around the world looking for sourcing the best prices in our materials and when we find that it doesn't end there we continue to look For the best sourcing possible that we've been able to source materials from different parts of the world that preferred costs. And that's one example of the things we continuously do. So that's really structural because it's behind our culture of just being out there and making sure we find the best opportunities. And the same can be said for product redesigns and some other efficiencies. So again, always Always looking to structurally improve our cost structure and our efficiencies. Going forward, as we say, I mean, hard to tell. If it was just by fundamentals, we should be seeing lower dollar prices in most of our raw materials because there's quite a bit more... In many of them, quite a bit more supply than demand, and in many areas of the world, subdued domestic consumption. But that's being interrupted because of the current geopolitical tensions. How long that lasts is anyone's guess. So right now we will see an impact, but eventually we believe we will see those raw materials come back to fundamentals and that will support lower costs and certainly That together with our efficiency center cost efforts help us continue to deliver good margins and certainly within our target range. This was the 13th consecutive quarter within or above our range, and we certainly expect that to continue as we move into the rest of the year in 2027.

All right. Thank you. Appreciate it.

Thank you. Our next question comes from Ferlin Mendez with JP Morgan. Please go ahead.

Hello, Jens. Thank you very much for taking my question. Another question on private label. Pablo, how do you define the point where more private label starts hurting the branded business? I don't know if it's through the price gaps The Shell Space or even these consumers trade down but away from your portfolio. And how do you decide when to lean into private label to keep your plant utilization high and maybe even contain competition versus, you know, stepping back to protect your branded mix? That's my first question. And the second, these extra gain on margins, Ahead of the guidance range, given the overall weak consumer backdrop that we're seeing, how much of this extra gain do you think you should need to invest into pricing or marketing into the second quarter? Or is this something that you think can go throughout the year and really go above the guidance for the full year? Thank you.

Let me start by this second one for you, and thanks for the question. Again, as we said, on the cost side, the third quarter will certainly be more challenging sequentially and to some degree versus last year because of everything that we mentioned so far, particularly when it comes to all derivatives. And, I mean... Thank you very much. On pricing, that's on the cost side, and on pricing, again, we'll continue to look for opportunities for price realization, but it is clear that as we're in the summer promotional season and the economies are growing much, there's quite a bit of pricing going into the market, and so it won't be that easy to be able to achieve higher pricing within the quarter, but still we think we'll be able to deliver now Thank you very much. It's just that now we have the cost pressure also on top of that. When it comes to private label again and leaning into it, it's a combination of all of the things you've mentioned, right? There's a trend given that the economy has not really grown too much over the past decade and inflation has been higher. Consumers are stretched and so it's become more of a trend that they're really trying to look for Thank you very much. As we've always done with our brands through innovation and commercial execution to be able to provide offerings at every tier in the market. It'll be a dynamic that will unfold here for the coming years and we want to make sure we participate in both and we want to make sure we're successful in both and that that helps us drive revenue growth for the company.

Great, Pierre. Thank you very much. Thank you.

Thank you. We will move next with Nicolás Rodríguez with Citi. Please go ahead.

Hi, Pablo. Good morning. Regarding consumer products which deliver like 5% of growth, could it provide more color in the categories and commercially needed? Thank you for the question.

I mean, when it comes to consumer products, we see our core categories, that's bathroom tissue, diapers, napkins, or biggest categories with strong performances. We call it low to mid single digits. and of course those are the biggest categories so those are to some extent driving the overall growth. And then our diamond categories which are those with what we see greater opportunity because of penetration, distribution, greater usage, etc. Like for example wipes, incontinence, feminine care, even our even flow bottles, etc. Those we're seeing high single digit growth. So overall a good Thank you.

If I may, this quarter the margin was above your long-term range. Could you help us understand how do you think about the sustainability of this margin in the second half? Thank you.

Here again, the margin was higher because we had a both strong performance from consumer products behind volume, but there was also a little bit of a price and mix in there. Plus, we had a good cost during the quarter. As I've mentioned, costs during the third quarter, given geopolitical tensions, will be higher, particularly when it comes to oil derivatives. So we expect within the quarter to deliver every gram margin within our target range. Most likely not at this rate of 27% or 27.1% that we delivered this quarter, but within our target range. And as the geopolitical tensions subside and raw material costs come back to fundamentals, then we will be able, we expect to be able to improve on the performance of the third quarter. So it'll be Probably assuming that the cost fundamentals come back by the end of the year, it will be a mixed second half with probably the fourth quarter being stronger than the third. But again, very important in all cases, our margins being within our target. And as we've said, this was the 13th consecutive quarter within or above our range, and we expect that to continue for the rest of the year and into 2027.

Thank you so much.

Thank you.

Thank you. And once again, if you would like to ask a question, please press star 1 on your keypad. We will move next with Juan Duman with Deutsche Bank. Please go ahead.

Hi. Good morning. Pablo Javier and all the team and congrats on another solid quarter. Thanks for the space for questions. Just a quick one here regarding the dynamics on SD&E expenses. I suspect there's some brand and top line reinvestments embedded there, but also there might be some impact of higher price or distribution expenses. I don't know, so I just want to be sure what you're expecting here, what's the breakdown, if possible, and what are you seeing for the coming quarter.

Thank you very much. The main things that you're seeing Well, first of all, the main thing that you're seeing in SG&A beyond what you already mentioned of investing behind the brands, which is key given all the things that we've talked about and which has been one of the drivers behind the performance of our consumer products. The other thing that you see there which is growing more than the top line is compensation related expenses or provisions particularly the profit sharing as you know we pay 10% of profit sharing directly and we've been doing that for many years so that's Together with other compensation-related items, add to the SG&A, I don't know if you, Pablo, have something else.

No, that's true. The other thing that we're seeing there, particularly when it comes to the sales side, is more use of the technology and information platforms of our customers. and of course they're trying to monetize that and we're participating and we're making very very good use of that information to figure out trends to figure out what's happening in the market and determine our strategies and commercial execution so that is increasing year over year it'll certainly won't look that way next year but for this year there's an important increase in that line item and it'll continue again being Thank you very much.

Super clear. Thank you very much.

Thank you. We do have a follow-up from Bob Ford with Bank of America. Please go ahead.

Thank you so much for taking the follow-up question. And I was curious with respect to Canview, do you need any additional debt to close on Canview or do you expect to wrap up the transaction with existing resources? And then I was curious, how are you and KCC thinking about Canview markets in Latin America outside of Mexico?

Thanks Bob, thanks for your question. I mean, our discussion with Kimberly Clark is strictly for Canview Mexico, for the Canview Mexico business. We're trying to figure out what's the best structure for the deal going forward. And that's really where we stand. But we, assuming this goes forth, we absolutely would be able to deliver on it with our current structure. Certainly adding some of Kenview's because as you know, given the products that they sell, particularly they have a sales force that visits doctors, et cetera, that is a key item or key element of how they do business, a very important one. So it would be a combination, but for the most part, Thank you. Appreciate it. Thank you so much. And again, congratulations on the quarter.

Thank you, Bob. I appreciate the questions. Thank you.

And at this time, there are no further questions in queue. I will now turn the meeting back to CEO Pablo Gonzalez for closing comments.

Well, just thank you for participating in the call. I hope you all have a wonderful summer and looking forward to having our conversation after the third quarter. And just thanks again.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation.