Kimberly-Clark at Goldman Sachs Forum: Strategic Shift Amid Challenges

On Tuesday, 13 May 2025, Kimberly-Clark (NYSE:AVNS) presented its strategic direction at the Goldman Sachs Global Staples Forum. Led by CEO Mike Hsu and CFO Nelson Urdanetta, the company discussed its shift towards volume and mix-led growth amidst economic volatility. While facing challenges like cost inflation and tariffs, the company remains optimistic about its future, driven by innovation and efficient cost management.

Key Takeaways

• Kimberly-Clark is transitioning from an EPS-focused model to a strategy emphasizing volume and mix-led growth.
• The company faced $3.5 to $3.7 billion in cost inflation between 2021 and 2022 but has taken steps to mitigate these pressures.
• Aiming for a 40% gross margin and 18-20% operating profit margin by the end of the decade.
• The impact of tariffs, primarily from China, is expected to be $300 million this year.
• The appointment of Russ Torres as COO is a strategic move to streamline operations and drive growth.

Financial Results

• Gross Margin:

- Ended Q1 with a 29.8% gross margin, 500 basis points below pre-pandemic levels.

- Improved to 36.5% or 200 basis points year-on-year in 2024.

- Targeting at least 40% gross margin by the decade’s end.

• Operating Profit Margin:

- Increased by 60 basis points year-on-year in 2024.

- Aiming for 18-20% by the end of the decade.

• Cost Inflation:

- Faced $3.5 to $3.7 billion between 2021 and 2022.

• Organic Growth:

- Increased from 1-2% to approximately 4% in the first five years of the "Elevate and Expand" period.

• Tariff Impact:

- Projected $300 million gross impact from tariffs, mainly due to production choices.

- Two-thirds of tariff impacts originate from China.

Operational Updates

• Reorganization:

- Implemented a simplified segment organizational structure in October of the previous year.

- Established a global supply chain organization on July 1st of the previous year.

• Supply Chain:

- Focus on reducing costs, driving standardization, and improving customer service.

- Achieved productivity delivery at the higher end of 6%.

- Further investments planned in the supply chain.

• Category Growth:

- Growth decelerated to 1.5-2%.

• Innovation:

- Emphasis on better innovations across value tiers.

- Huggies Snug and Dry received positive reviews, mostly five stars.

Future Outlook

• Growth Algorithm:

- Kimberly-Clark aims to grow ahead of category averages.

• Tariff Mitigation:

- Plans to reflow the network and utilize a range of tools to mitigate tariff impacts.

• Investment Strategy:

- Committed to maintaining investments despite tariff impacts.

- Doubling down on capital expenses and brand support.

• Innovation Pipeline:

- Innovations are expected to be more impactful in the latter half of the year.

• Pricing Strategy:

- Focus on volume mix rather than price increases.

Q&A Highlights

• Tariff Impact Discussion:

- Revised EBIT growth guidance reflects a potential $300 million gross tariff impact.

- Possible tariff pauses could reduce this impact.

- Mitigation strategies are being reassessed in light of new tariff announcements.

• Market Share Performance:

- Gained ten basis points in global market share last year.

• Shift in Diaper Business:

- North American diaper segment shifted from 55-45 value-premium to 85% premium.

• Promotions vs. Advertising:

- Promotions are intended to drive trials for innovations or underpenetrated brands, not just to increase market share.

For a complete understanding of Kimberly-Clark’s strategic plans and challenges, refer to the full transcript below.

Full transcript - Goldman Sachs Global Staples Forum:

Bonnie Herzog, Analyst: Good morning, everyone. Joining us today is Kimberly’s management team, including Chairman and CEO, Mike Hsu, who has been with the company since 2012 and as the CEO since 2019. Mike really has been instrumental in navigating the company through a significantly challenging environment, really, that the industry has faced since then. We’re also joined by CFO Nelson Urndetta, who joined the firm in 2022 from Mondelez and has decades of experience within CPG. So lastly, we also have their Head of IR, Chris Jakubik, who has been with the firm for well over a year now.

Nelson Urdanetta, CFO, Kimberly-Clark: Yeah.

Bonnie Herzog, Analyst: Right? All good. So the company really has made significant progress in evolving from its perception of a pulp proxy to focus on delivering volume mix led growth going forward, including a reorganization that they did last year. Consumer backdrop still does remain quite challenging, and there’s, I guess, in the context of that, a lot to unpack on how the company is navigating its way from one challenge to another. So it’s my pleasure to welcome all of you to our conference this year.

Thank you.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Great to

Nelson Urdanetta, CFO, Kimberly-Clark: be here.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Thanks for having us, Bonnie.

Bonnie Herzog, Analyst: So, Mike, I wanted to start with you if I could. We’ve really seen, you know, the company for many years and the industry at large, you know, going through significant periods of volatility. So could you talk through how you as a company really have evolved in the context of that? And how, if I think back to the reorganization that you announced, is really kind of helping you in today’s environment especially? And then I did want to ask on Russ Torres’ recent appointment as COO.

So if you could update us on, you know, what he will be focusing on and, you know, maybe how your role evolves in the context of that. I guess I’m kind of thinking about it in the thinking of succession planning, potentially.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Great. Yeah. Thanks for the question. Yes. It’s been an evolution, and and we’ve been on a on a journey with the company.

I’ve been with the company now. I think I’m in year 13 or 14. And I’m really proud of how the company has really navigated maybe many more externalities over the last ten years than I think anybody Right. Had done in their prior time in consumer goods. But I I’d say we’ve been working hard to build a better, more capable company.

And if you followed us for a while, I’d say when I got into this role, which is the COO role back, as you mentioned, back in 2019, I saw the company as, I would say, a little growth challenged. Some of that due to competitive markets and also some of it due to our own maybe getting in our way sometimes a little bit much. Right? I think back then, our five year compound annual organic growth was somewhere between one and two percent for five year, for the prior five years before I came into this role. And and and I think the company at the time was maybe the organization was a little bit more EPS focused.

Yeah. Right? And and you know kinda what happens when when when you become that way. Right? And so what we were really trying to do in that first stage was focus on growth and build growth capability.

And there are

Bonnie Herzog, Analyst: a couple different elements. One is, you know,

Mike Hsu, Chairman and CEO, Kimberly-Clark: the company always had a belief that innovation won the day, and I think that still remains true. Right? And but, you know, I think the opportunity that I saw for us was an opportunity to both, I use the term internally, elevate and expand the categories. Mhmm. Right?

That I I felt like with Kimberly Clark, there was a lot of all all the products were kinda compressed around a narrow range of price points.

Bonnie Herzog, Analyst: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: And if you thought about a lot of different other categories and Nelson and I were talking about we’re big toothpaste users. And so if you think about the expansion of of of the category in oral care over the last thirty years, you know, that was a pretty good model for us. Right? And so, really, we wanted to prove out the thesis that you could premiumize diapers and bath tissue and things like that. And then the other part of that was expand, and that is, hey, taking the leadership role to build out the emerging and developing markets.

And and I think by a large part, we’ve done that. And I think over the past you know, in my in in the first five years of that period, I call state kinda the first stage, you know, our organic growth shifted from one to 2% to about 4%. So so double. So I think I think we felt good about that. Phase two, which was powering care, which we announced last March, I think we just wanna take that same approach but dial it up further.

Maybe early on, we were spending a lot of time focusing on fundamental technologies. Mhmm. The thing about our categories is they’re highly engineered and it requires invention. We tend to specialize in inventing materials.

Bonnie Herzog, Analyst: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: So we invented tissue. We invented nonwovens, you know, that all the things that kinda comprise tissue or diapers, you know, we kind of invent most of those materials. Right? And so so some of the technologies underlying are either how you invent the materials, but also how you assemble them Mhmm. You know, we had to work on.

And so we spent five years kinda loading up the technology engine Mhmm. Getting it ready. So in this stage, what we really talk about the the planks are really around, a accelerating pioneering innovation. Right? And and we really want an onslaught of of innovation.

We wanted to get better at the marketing Yeah. Because I think we tended to rely a lot on the technology or the product speaking for itself, and the consumer will figure it out. But we wanna be able to be much better storytellers, right, and and shout the benefits and dramatize the benefits of our products. And then the third area under the other area under power and care was gosh. As we started bringing in more functional expertise at the at the maybe at the global level, you know, I think we realized that there’s a lot more opportunity for us in cost.

Right? We’ve put out this big 3,000,000,000 plus Right. You know, big, hairy, audacious goal.

Nelson Urdanetta, CFO, Kimberly-Clark: Right? It

Mike Hsu, Chairman and CEO, Kimberly-Clark: doesn’t seem so big and hairy anymore, but, you know, we can talk further about that. But we all and why is that? It’s because I think we found that because of our degree of decentralization in the past that different markets, even though that we run on the same equipment, do things differently. Mhmm. And there was a lot of opportunity for us to standardize and get much more efficient.

So those were the, I I think, the the the two big kind of operating planks, then the pull to power and your care power and care together is wiring the organization. And, again, I think that was the the biggest thing for me was that we had always performed because we were very agile in our local markets, and we’re very March market centric. The negative on that is we didn’t scale the things that we did really well enough. And so, really, the the focus on wiring the organization for growth was creating the power of a matrix. Right?

We want global experts on functional things like supply chain that I just talked about, r and d technology or you know, versus every country doing their own thing. Yeah. And and so I think that’s really where we’ve made a lot of progress. Russ’ elevation, the chief operating officer

Bonnie Herzog, Analyst: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: I think there’s two parts of that. One is, hey. He has all the business segments or reporting segments reporting to him. He has all the what I would call the operating functions. That’s the growth organization, the supply chain organization, the r and d organization, the DTS, digital technology services, all reporting in them.

So there’s, like, one team pulling Mhmm. Those issues altogether. And so that that’s kinda his primary role. Certainly, there’s an aspect that you talk about, which is, hey. It’s also we are long range planners on elect executive leadership development, and and, you know, we we see great potential in Russ, and he’s a great leader.

Bonnie Herzog, Analyst: Okay. That’s helpful. Thank you for that. And then for you, Nelson, I was hoping to get your perspective as well because you joined the company just a few years ago and came coming over from Monterley. So I’d love to hear from you.

What do you think most impressed you and that you thought was working well as well as maybe areas you might have identified as as opportunities, including, again, maybe love your thoughts on the reorganization and how you operate.

Nelson Urdanetta, CFO, Kimberly-Clark: Sure, Bonnie. And, yeah, I joined back early twenty twenty two. Yeah. And in fact I’m sorry. First conference was

Mike Hsu, Chairman and CEO, Kimberly-Clark: Oh, okay.

Nelson Urdanetta, CFO, Kimberly-Clark: Back in May. Mike and I were here Okay. In May ’3 years ago. And, you know, some of the things and what we call the fundamental cores of what make Kimberly Clark what it is. I mean, it’s a company that’s been around for over a hundred and fifty years, really making a difference in what I would say is three things.

One, it’s our pioneering innovation and our ability to have category bending products that are science based with proprietary technologies through iconic brands. If we think of Huggies, of Depend, of Kotex, of Kleenex, of Poise, these are brands that our daily use, Scott, they make a difference in people’s lives every day. Secondly, Kimberly Clark has not only created categories, but disrupted categories over time with products that are superior and solve unmet consumer needs. That is absolutely fundamental in in in the sector that we operate in. And then last but not least is the team of people that make Kimberly Clark, k Sears, as we call ourselves, who are truly committed to bring the purpose of the company to life day in, day out of Better Care for a Better World.

When I joined the company, it was in the midst of, you know, the twenty twenty one, twenty twenty two super inflationary cycle that, for many of us, has been the biggest inflation we’ve ever faced in our careers. To give you a perspective, between 2021 and 2022, pretty much split fifty fifty, we faced head on around 3 and a half to $3,700,000,000 of cost inflation.

Mike Hsu, Chairman and CEO, Kimberly-Clark: More more than our operating profit.

Nelson Urdanetta, CFO, Kimberly-Clark: That’s right. Yeah. That’s what we were facing. And and when I joined, it was right at the end of the first quarter, we hit a gross margin of 29.8%. That was 500 basis points lower than our pre pandemic levels.

And, you know, we we had to you know, that created a a situation of the need to drive change in terms of capabilities and harness capabilities that we were already building up as part of Elevate and Expand, which had been launched in 2019, as Mike explained before. And that also led to the develop of development of the new strategy that was rolled out building on Elevate and Expand last year. Because if if you recall, as Mike said, that was our KC strategy 2022. Mhmm. So we were working on that evolution while building capabilities and changing the organization.

So I’ll I’ll hone in on couple capabilities that I think were critical for us to rebuild our margins and really get us in a different trajectory of margins, which allowed us to go out with our bold ambition of margin change over time between now and the end of the decade beyond the innovation and our ability to change how we market products, which Mike already referred to. And these would be the first one was around our approach to risk management. We started transitioning into a much more proactive approach in how we handle overall risks. We have programmatic hedging that we’ve been driving very differently, over the last three years, and that’s on anything that we can hedge. Not to speculate, but to truly give us time and visibility into costs, that’s a little different than how we were operating before.

And that’s on things like resins, energy, currencies, and we continue to explore and add elements that were not possible before. The other element is around strategic supplier relationships. We’ve been continuing to build those in order for us to have much more visibility into costs and allow us to react. The other element is integrated margin management. It’s a totally different approach.

It’s not new to the world, but it is new to KC. Mhmm. And it’s really a discipline that’s allowing us to change our culture. One that’s end to end margin management. And that, in and of itself, is allowing us to look at all of the levers at our disposal, from revenue growth management to how we source commodities to how we look at productivity to how we look at overheads.

So that’s on those ends and, you know, the things on capabilities. Mhmm. From an organizational standpoint, couple of things. One, we launched in October of last year our new simplified segment organizational structure. That is helping accelerate some of the changes along with a matrix organization.

That’s really helping us be more efficient and quick in how we act and really bring the global fight global might to the local fight.

Bonnie Herzog, Analyst: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: And then

Nelson Urdanetta, CFO, Kimberly-Clark: the other bit is the supply chain. Mike said, we we didn’t have a global supply chain organization. We stood up that on July first of last year. I think you had a chance to go to Beach Island and kinda see that at play.

Bonnie Herzog, Analyst: Well, it’s fun.

Nelson Urdanetta, CFO, Kimberly-Clark: That’s coming together. Yeah. It Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: It was a good experience.

Nelson Urdanetta, CFO, Kimberly-Clark: Yeah. It really was. You’re lucky

Mike Hsu, Chairman and CEO, Kimberly-Clark: you weren’t there in August, by

Bonnie Herzog, Analyst: the Oh, yeah. Sure. Yeah. But it was fun to see how things are made, diapers especially. Yes.

Nelson Urdanetta, CFO, Kimberly-Clark: That’s right. And and and what that’s doing is really bringing this global supply chain organization team to help our local teams drive three things, lower costs for all of our platforms globally. Mhmm. Secondly, drive standardization on product platforms and specs, and also support us in how we serve our customers much better through three, elements of our supply chain. And, ultimately, we’re pretty pleased with the results so far.

Right. Productivity delivery at the higher end of 6%, pricing at a cost at least neutral achieved last year, changing the culture, and more to come as we progress on powering care.

Bonnie Herzog, Analyst: And you just announced further investments. Just trying to improve brand.

Nelson Urdanetta, CFO, Kimberly-Clark: And that’s why, you know, you’re seeing our our confidence in announcing further investments on the supply chain and in our capabilities and in our brands, which we have been doubling down over the last two, three years.

Bonnie Herzog, Analyst: Okay. So this is all good in terms of controlling what you can, doing your best there. So let’s shift to some maybe things that you can’t always control, which is the category and the slowdown that we’re seeing in the market. You know, thinking about when we headed into this year and you reported q four results, you talked about category growth decelerating to about 2%, and that’s below historic range of two to three.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yep.

Bonnie Herzog, Analyst: And then just with this most recent q one call, you talked about a little bit of further slowing to 1.5%, two % range. And in the context of that, you did lower your guidance for the full year. So I wanna make sure I understand your new lowered guidance. Does that consider or the expectation that the category will continue to grow at 1.5%, two %? Or would it consider some further deceleration within that guidance?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yes. Think we’re at this point, I think we would say our range is 1.5 to 2%. I think the guidance reduction the outlook reduction was primarily related to the tariff impact.

Bonnie Herzog, Analyst: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Right? That we were Okay. But I I would say so it has ticked down a bit, you know, from, you know, beginning of the year to the end of the first quarter. I I would say though, Bonnie, when we view it this way, which is, you know, we we work in essential categories, daily essentials. Yeah.

And so because of that, you know, demand tends to be Mhmm. Very resilient throughout the economic cycle. Right? And and I I know, you know, internally, and we kinda, you know, say, like, there our our products are tied to bodily functions Yeah. That don’t go that don’t use more product when things are on sale, and they and they don’t use less when things are not on sale.

Right? And so that’s kind of the the nature of the category. I would say, you know, depending on what market you’re in, there are some compensating behaviors when when I think the the checkbook is is tight, right, for consumers. In developing markets, we we do tend to see consumers tend to stretch out frequency. Mhmm.

So if they were using, let’s say, four diapers a day, they may go down to three. Right? And so and that largely has happened and that started happening back in COVID. And so we’ve kind of been in that environment

Bonnie Herzog, Analyst: I’m seeing that.

Mike Hsu, Chairman and CEO, Kimberly-Clark: In Latin America Mhmm. Since COVID Yeah. Parts of Southeast Asia. And then in developed markets like The US, what you may see is a little more more value seeking behavior. So if you know, a lot of consumers wanna stay in their brand, so they’ll want a a more competitive opening price point.

Bonnie Herzog, Analyst: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: And so let’s say, something, you know, at or below $10 is an important price point for consumers. Even even consumers with higher incomes will will seek lower price per unit. Right? And so bigger bigger packs at a at a lower per unit cost. So that those are the two behaviors.

I I I think the thing to point out though is there’s, you know and I said it on on multiple conferences and calls, which is that, you know, in big developed markets, there’s there is strong bifurcation that’s occurred. Right? There is, you know, higher income households, the spending continues, the premium end of the business continues to grow.

Bonnie Herzog, Analyst: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: But at the other other end, people that are, you know, a little more budget constrained

Bonnie Herzog, Analyst: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yeah, there is some value seeking behavior. And and I think we’ve said on on numerous calls, you know, we wanna serve effectively every rung of a good, better, best ladder.

Bonnie Herzog, Analyst: Yeah. And to that point, thinking about how your price pack architecture has evolved, do you feel like it’s in a good place right now to maybe prevent potential downtraining and you have those right price points?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yes. And and so and this year, we we have made some slight adjustments just to make sure that we are competitive and because we were we were recognizing what was happening with the economy that we wanna make sure that our pricing in our different categories is appropriate. So we’ve made some adjustments. And I think you noted Yeah. In the first quarter price mix prices come down a a little bit, just a touch.

Yeah.

Chris Jakubik, Head of IR, Kimberly-Clark: Yeah. And half points. Touch. It’s also making sure that we’ve got the right price points and the right pack sizes across channels Yeah. And making sure that, you know, as consumers migrate to different channels

Mike Hsu, Chairman and CEO, Kimberly-Clark: Mhmm.

Chris Jakubik, Head of IR, Kimberly-Clark: We’ve got the right, you know, as Mike said, you know, absolute price points on certain pack sizes Mhmm. And then, you know, price per each in certain channels.

Nelson Urdanetta, CFO, Kimberly-Clark: Yeah.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yep.

Bonnie Herzog, Analyst: So investments there won’t necessarily tick up through the year. It might depend on the consumer. You feel like you’ve made the adjustments you need?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Well, I’ll just go back to you know, when I again, when I came into this role, we were trying to prove out for the category the elevate thesis that you could premiumize these categories. I’ll just give you a a interesting factoid. You know, when I joined the company, our North American diaper business was majority value tier. So we are just just under 60% of our business was in the value tier. Okay.

Right? Sixty forty value premium. Fifty five forty five value premium. This year, we’re 85% premium. Right?

So it’s been a it’s been a big shift, and and and that’s where the growth in the business has come from. However, again, we our desire is to serve everyone at the, you know, on on the good, better, best continuum, and so we’re gonna make sure we’re offering a competitive offering at the value tier as well.

Bonnie Herzog, Analyst: Okay. That’s helpful. And then question for you, Nelson, thinking about guidance. You know, we talked about that the guidance, you know, change or revision was primarily a function of increased tariff related costs even though you you called out the, you know, slowing end market growth. But if the end market growth does weaken further, you know, does that present further risk to your bottom line, or do you think there’s enough flex, you know, within your p and l to manage through some, you know, further demand pressure?

Nelson Urdanetta, CFO, Kimberly-Clark: Yeah. So so I think, you know, first, looking at 02/2024 with which I think is a year that would serve as a as an example of, you know, managing through a volatile environment and the abilities that we have. In 2024, we shifted to a volume plus mixed life growth. Our market shares started to improve sequentially throughout the year. In fact, we gained ten ten basis points on weighted average market share globally last year, with strong innovation and continued investments behind our platforms, and we drove significant margin gains the second year in a row with our gross margins reaching 36 and a half percent or 200 basis points year on year.

Again, way ahead now of our pre pandemic levels. Our operating profit margin’s gaining a 60 basis points on the year, putting us well in our way to our stated ambition of exiting the decade at least at 40% in gross margin and at least in the 18 to 20% operating profit margin. We did face, as I stated, a few discrete one time items or ongoing items. And despite all of this, you know, we grew ahead of our long term algorithm, and we did not cut any investment. In fact, we doubled down on investments Okay.

Both on capital expenses and continuing to support the brands and everything we have. Our outlook, you know, and our algorithm is that we will grow ahead of the categories. That’s the that that that’s what’s for certain. That’s what we’re going to do. And as Mike stated, the categories have slowed down.

Our observation is now one and a half to 2%. Could that change? It could change. But it’s our latest observation that we’re seeing that’s vis a vis the 2% we were seeing before.

Bonnie Herzog, Analyst: Mhmm.

Nelson Urdanetta, CFO, Kimberly-Clark: The one thing I do wanna acknowledge is this. One, our categories have continued to grow volume and mix wise. Mhmm. That has not changed. Okay.

Secondly, we have important innovation hitting the market as we speak as well as activations happening. And we’ve made, you know, investments behind price value offerings that Mike just alluded to, which should help us continue to be able to address our consumers and meet them where they need us.

Bonnie Herzog, Analyst: Mhmm. Alright. Definitely wanna get into the innovation. But before I pivot to that, can we stick with tariffs? Tariffs.

Sorry.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Why would you wanna look that?

Nelson Urdanetta, CFO, Kimberly-Clark: Subject is Europe. We’re gonna talk about next year.

Bonnie Herzog, Analyst: I mean, wow. It’s just so much going on. But, you know, just think about in the context of your guidance change. You know, your adjusted EBIT growth guidance revision from the high single digits to flat to positive, and that does assume, I believe, the 300,000,000 gross impact

Mike Hsu, Chairman and CEO, Kimberly-Clark: Right.

Bonnie Herzog, Analyst: From tariffs for the year. So any update that you wanna provide for us today given what was just announced yesterday?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Can I just make a okay? Got a a a clearing kinda how we think think about it, which is, hey. We’re impacted by the tariffs, and we gave you the number. I’d say we view it as largely a result of, like, production choices we made. Right?

So at, you know, last at the end of last year, we’re getting ready to plan this year. We decided to produce some products for The US for out of China. Okay. That was by choice because it was, you know, lowest cost, most efficient path to get to The US for us. Right?

Similarly, you know, we we we produced in some other countries to flow to other other markets. Right? With the tariff environment, like, all those costs of the nodes change. And so, you know, our our approach is, like, we can mitigate this by reflowing the network. Okay.

Right? Versus you know, we’ll we’ll use price. Also, we’ll use the full basket of tools to kinda Mhmm. Offset tariffs over time. But, generally, we think it’s solvable through reflowing our network.

But that’s right.

Nelson Urdanetta, CFO, Kimberly-Clark: And, you know, obviously, new news last twenty four hours, Bonnie, and we

Mike Hsu, Chairman and CEO, Kimberly-Clark: She had a full head of hair yesterday. It’s all gone. So but

Nelson Urdanetta, CFO, Kimberly-Clark: yeah. So a lot of news. And, obviously, with what’s been announced on both China and The US Right. We would expect, as we work through all of the details, that if that stays in place Mhmm. There would be a lower impact than that 300,000,000 gross.

Bonnie Herzog, Analyst: Mhmm.

Nelson Urdanetta, CFO, Kimberly-Clark: And we’ll have to work through all the impacts of the mitigating actions because our plans might change. Right. And so we’re now arduously working through what is that gonna look like.

Bonnie Herzog, Analyst: Mhmm.

Nelson Urdanetta, CFO, Kimberly-Clark: And we’ll be ready to provide a full update when we report our q two earnings. Right. The one thing that I do want to highlight, though, is we we have been paying for the last six weeks all of those incremental tariffs.

Bonnie Herzog, Analyst: Okay. So you have been?

Nelson Urdanetta, CFO, Kimberly-Clark: Oh, we have been. Yeah. Because they’ve been in place since they were announced. So we’ve been bringing in whatever raw materials or finished goods we were bringing in into The US Mhmm. With the new tariffs for six weeks.

So we’ve been selling into the marketplace already with higher costs. We have inventory with that. Same goes for other locations. Mhmm. So we will see margin detriment, as I as I stated in the earnings call, in the second quarter.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Mhmm.

Nelson Urdanetta, CFO, Kimberly-Clark: And we have yet to quantify exactly how much that’ll be. Mhmm. We will see for the full year an impact because there’s no way that we can offset what’s gonna happen in the second quarter and how that inventory works through. And by the way, the tariffs that remain in place are still higher than what we had in January True. When we did our first outlook.

But as Mike said, there are a lot of actions that the team is taking to maneuver through it, and that’s what we’re revisiting because, again, this is hot off the press.

Bonnie Herzog, Analyst: No. Exactly. And then clarifying, so that was the worst case scenario when you issued or discussed this 300,000,000 growth. Have you stated what percentage is coming in from China for your business?

Nelson Urdanetta, CFO, Kimberly-Clark: So so a few things. We what we said is that around two thirds of the impact Mhmm. Was coming out of China Okay. Out of that 300,000,000 growth, give or take.

Bonnie Herzog, Analyst: Alright. So that’s already you’ve paid some, but then if there’s a pause

Nelson Urdanetta, CFO, Kimberly-Clark: We’ve already paid elements, and that’s what, you know, the teams are looking at, what’s our inventory, what’s been sold into the marketplace, etcetera.

Bonnie Herzog, Analyst: And depending on how this evolves, you know, there’s I assume a consideration as to what you might do with your guidance, whether you update that to reflect if the pause stays, or would you consider reinvesting? You know, how do you how are you thinking about that from a guidance perspective?

Nelson Urdanetta, CFO, Kimberly-Clark: Yeah. So so a few things. I mean, one, we we we were clear that we were not going to cut investments. K. And that that was one of the reasons why we said that we would now be flat to positive Mhmm.

And probably more flat than anything else. Because we have very strong innovation and activation coming into the marketplace,

Mike Hsu, Chairman and CEO, Kimberly-Clark: and and

Nelson Urdanetta, CFO, Kimberly-Clark: it would not be the right thing to do. So that’s gonna stay in place. The one thing that, again, we will need to work through are the mitigating actions. Okay. We might not take some of the actions that we were going to do based on the new news.

Okay.

Bonnie Herzog, Analyst: Well, let’s switch gears to something more fun. Okay. Innovation. Alright? So it seems to be much more focused on value oriented offerings.

You know, I’m thinking about the recent launches, you know, whether it’s the Huggies Snug and Dry after having launched Huggies Skin Essentials last year at the premium end. So could you maybe talk about the traction you’ve been seeing with Skin Essentials at the premium end

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yep.

Bonnie Herzog, Analyst: And then what you’re seeing at the value end with Snug and Dry?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yeah. And How you’re

Nelson Urdanetta, CFO, Kimberly-Clark: balancing those.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yeah. Bonnie, the so our overall philosophy and and I I think I was saying earlier, like, we’ve been spending, like, the prior five years, like, loading up our technology on bigger bet innovation more I would say, you know, in our categories, we really believe all paths of growth lead through great products. Right? And and and and and differentiating our products. And so we believe we have the best technology in our categories, and our and our technologists and scientists have been busy kinda creating new ones.

Right? And so the our our our approach, therefore, is we want to launch better innovations, but we wanna cascade throughout Yeah. All the value tiers.

Nelson Urdanetta, CFO, Kimberly-Clark: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Right? And so what we’ve done is and I think most logically, one of the reasons why we’ve made such a mix shift from value to premium over the years is we’ve launched we always launch first our best innovations at the at the top. Yeah. Right? And and so in China, which we have in the room today, you know, our most premium diaper sells at a three fifty index to the tier four diaper.

Okay. And and so and and sells quite well. Right? But but over time, one of the reasons you’re seeing the growth in China is it’s all this year, it’s all coming through tier four, the value tier.

Nelson Urdanetta, CFO, Kimberly-Clark: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Why? Because we’ve cascaded that same core technology into tier four. And that that’s kind of our plan. Why? Because we have another innovation coming at the premium tier, you know, coming out.

So, you know, that’s kind of our and that and that five years of development, it took that time to kinda get that stuff ready. And so that’s kind of the overall approach. So you asked about, like, skin essentials, similar thing. It was kind of a joint effort between US, Brazil, China. Mhmm.

Applied a lot of our learnings from China on the core technologies and and the materials. And so it’s our best product, you know, really protects baby skin, super comfortable to to to wear all that. Mhmm. So we launched that last year. It’s it’s going very well, and we’re excited about that.

Okay? This year, on Slug and Dry, we took some of the backbone of that technology, also architected off of the the diaper, the tier four diaper in China. Mhmm. And and the big difference there is the core. I I I don’t know if you recall at the Investor Day last year, you know, that there’s there’s, like, two or three generations of core.

The original diaper was just cotton cellulose fluff Mhmm. Right, absorbed. And then somebody invented something called super absorbent crystals. Right? They go into the fluff.

So it’s a fluff super absorbent core, and that that absorbs a little bit better. That’s what I call Gen two. Mhmm. Companies have been running on Gen two for, like, forty years. Yeah.

Right? And so we came out in 2018 with a Gen three, which is what we call internally a a multilayer core.

Bonnie Herzog, Analyst: Okay.

Mike Hsu, Chairman and CEO, Kimberly-Clark: The the analogy would be something. It’s not laser printing. Okay. But if you thought about you’re trying to engineer better placement of the absorbent material Right. And control it so you control leakage, that’s what that does.

Right? So we launched that in China. It’s what’s driven us to market leadership. We became the market leaders in China in in in in in 2020. Mhmm.

You know, we’ve extended our lead over the last four years. And so and then we’ve you know, snug and dry, we we’re bringing that technology to the Yeah. And so that’s kinda what’s underlying that, and it’s off to a flying start. Mhmm. Mostly five star reviews.

Okay. You can go check Yeah.

Bonnie Herzog, Analyst: Think I yeah.

Nelson Urdanetta, CFO, Kimberly-Clark: Right after this meeting.

Mike Hsu, Chairman and CEO, Kimberly-Clark: It’s it’s surprising how much consumers love it.

Bonnie Herzog, Analyst: No. Well, it makes sense when it works and it’s effective. If you think about your innovation pipeline, would you characterize it more front half loaded, back half

Mike Hsu, Chairman and CEO, Kimberly-Clark: Oh.

Bonnie Herzog, Analyst: Or pretty even throughout the year Okay. To roll out.

Mike Hsu, Chairman and CEO, Kimberly-Clark: I’ll I’ll I’ll tell you there’s, like, two things. There’s a multiyear K. Big bad pipeline Yep. That I will say, Chris, you can control me. If I think we’ll get better over time.

The thing is it takes a long like, we gotta invent stuff, and then we gotta figure out how to make it. Right? So it will get better over time. And then within this year, I would say the innovation is more back half loaded. Okay.

So for example, you know, we we we have some challenges and and some product challenges in in Latin America that we’re trying to address. The launch with the launching of the improved products is kinda coming out May, June. Mhmm. Right now? So Okay.

Yep. And so that’s why there’s there’s and North America, snug and dry, just started hitting the shelves at the April. Mid April?

Nelson Urdanetta, CFO, Kimberly-Clark: That’s right.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Last year? Yeah. This year? This year.

Bonnie Herzog, Analyst: So as I think about this and and the spend behind it, thinking about ad spend, again, ahead of some of this innovation, it’s been picking up over the last few years in terms of what you’ve spent behind advertising. So how do we think about maybe a reprioritization of promos in this environment given the consumer, what we just discussed, instead of ad spend in the near term to kind of drive growth? Or how are you balancing those two?

Mike Hsu, Chairman and CEO, Kimberly-Clark: Yeah. Well, as Chris pointed out to me that I I think our advertising spend has doubled since 2018 on a on a per percent of NSV base or percent of net sales basis. So so we’re delighted with that because I think we’ve, as I was saying, Bonnie, we’ve always made great products, but I think we have to do a better job explaining the benefits to the consumer. Right? Being better storytellers.

And so that reflects that advertising investment reflects that. You know, we have a new chief growth officer, Patricia Coursey, joined us probably about nine months ago. She’s brought in some unbelievable creative talent, and I think, you know, we’re very excited about if you haven’t seen our Huggies Spots on our three sixty below protection or glam soft and you’ll there’s a surprising person that’s describing the softness that you would never expect, you’ll you’ll see that we’re we’re talking about the brand in a different way. And and and so that’s something that we wanna continue to ramp up over time. If if you ask about promotions Yeah.

I I I’m not a fan of promotions. Okay. And and and especially in our categories, you know, I think promotion is a tool trade promotion Sure. Is a tool to drive trial on innovation or or brands that are under penetrated. But in and of itself, I don’t I’m not a fan of of using promotion to drive share.

Why? Because it’s it’s, at best, dilutive and, at worst, unprofitable. And I kind of always have viewed it as a lazy way to try to find growth. And and I think that and and the reason is dollar for dollar, I’d rather in an advertising because what we’re trying to do is build brand love.

Bonnie Herzog, Analyst: Mhmm.

Mike Hsu, Chairman and CEO, Kimberly-Clark: Right? And and promotions don’t do that. Okay.

Chris Jakubik, Head of IR, Kimberly-Clark: I think I about it. One thing, as you kinda track, like, promotional levels with us, it’ll coincide much more with the new product launch activations that we’re doing. You’ve seen it pick up in Kleenex where we’ve had activations and and and product improvements. You start seeing it in diapers, you know, behind the products that we’re trying to drive trial on.

Bonnie Herzog, Analyst: So we might be running out of time. But just then to clarify that, as I think about top line this year, how do we think about the mix between volume and price? I mean, should we expect to see price growth this year in the context of the consumer and the backdrop and everything we just talked about?

Mike Hsu, Chairman and CEO, Kimberly-Clark: I think our our plan this year is more volume mix driven. Right?

Nelson Urdanetta, CFO, Kimberly-Clark: Our our plan is to build on volume mix versus what we saw last year. We we expect to see, you know, kind of the price dynamic that you saw in the first quarter

Bonnie Herzog, Analyst: Okay.

Nelson Urdanetta, CFO, Kimberly-Clark: Continue to play out in the next couple quarters because of the actions that we purposely took to ensure that we have the right price pack architectures across channels. I think

Chris Jakubik, Head of IR, Kimberly-Clark: absolute levels on year on year, I think globally, you’d probably be relatively flat. Right. Okay. Yes.

Bonnie Herzog, Analyst: So Alright. I think that’s all we have time for. So thank you so much. There’s so much more to talk about, but another time.

Nelson Urdanetta, CFO, Kimberly-Clark: Thank you for having me. Thanks, everyone. K. Thank you. Appreciate it.

Thank you. One. Take care.

Bonnie Herzog, Analyst: Thank you. Appreciate it.

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