Kimberly-Clark Q1 2023 Earnings Results & Report

Kimberly-Clark EPS Results

• Actual EPS: $1.67
• Consensus EPS: $1.32
• Beat/Miss: Beat by +$0.35
• One Year Ago EPS: $1.35
• EPS Beat Rate: 6 of last 8 quarters

Kimberly-Clark Revenue Results

• Actual Revenue: $5.20 billion
• Expected Revenue: $5.06 billion
• Beat/Miss: Beat by +$138.33 million
• YoY Revenue Growth: +2.00%

Kimberly-Clark (NASDAQ:KMB) (NASDAQ:KMB) is a global consumer products company that develops and markets personal care, tissue and professional hygiene products. Its portfolio includes products for babies and children, feminine care, adult care, family care and workplace hygiene.

The company’s well-known brands include Huggies diapers and wipes, Kleenex facial tissue, Cottonelle bathroom tissue, Scott toilet paper and paper towels, Kotex feminine care products, and Depend, Poise and GoodNites products. Kimberly-Clark also supplies hygiene and workplace solutions through its professional products business.

Founded in 1872 and headquartered in Dallas, Texas, Kimberly-Clark sells products in countries and territories around the world. Its brands are distributed through retail, e-commerce, healthcare and commercial channels, serving consumers, businesses and institutions across multiple international markets.

Kimberly-Clark Q1 2023 Earnings Call Transcript

Key Takeaways

• Kimberly-Clark delivered 5% organic sales growth in Q1, with net sales up 2% to $5.2 billion, gross margin up 340 bps and adjusted EPS up 24%, prompting management to raise full-year EPS guidance to 6–10% growth.
• Margin recovery remains a top priority, as strong pricing execution and stabilized input costs drove a 25% increase in adjusted operating profit despite gross margins still being ~200 bps below pre-pandemic levels.
• Core categories stayed healthy with personal care organic growth of 3%, consumer tissue up 7% and KC Professional up 11%, reflecting the essential nature of Kimberly-Clark’s portfolio amid consumer bifurcation between premium and value tiers.
• The company is boosting brand and innovation investments, rolling out products like Cottonelle Ultra Comfort, Goodnites XL Overnight Diapers, Kotex Polar Knight and the KC Professional Icon dispensing system to expand categories and meet evolving consumer needs.
• Kimberly-Clark generated roughly $600 million in operating cash flow in Q1, returned $425 million to shareholders via dividends and share repurchases, and plans to fund further marketing and innovation initiatives while maintaining disciplined capital spending.

Presentation

[Operator]

Good day, everyone. Welcome to the Kimberly-Clark First Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Christina Cheng. Ma'am, the floor is yours.

[Christina Cheng, Director of Investor Relations at Kimberly-Clark]

Welcome, everyone, to our first quarter 2023 earnings conference call. Before we begin, please note today's presentation will include forward-looking statements. Our actual results may vary materially from those expressed or implied in our forward-looking statements, and you should not place undue reliance on any forward-looking statements. Please refer to our SEC filings for a list of factors that could cause our actual results to deviate materially from our expectations. Our remarks today refer to adjusted results, which exclude certain items described in our news release. We use non-GAAP financial measures to help investors understand our ongoing business performance. Please consult our press release for a discussion of our non-GAAP financial measures and reconciliations to comparable GAAP financial measures. We have published supplemental material which can be found in the Investor Relations section of our website.

[Christina Cheng, Director of Investor Relations at Kimberly-Clark]

Participating in today's call are our Chairman and CEO, Michael Hsu, and our Chief Financial Officer, Nelson Urdaneta. Mike will start the discussion with our strategic priorities and provide an overview of our performance for the quarter. Nelson will provide a detailed discussion on our Q1 results and our outlook before we open the floor for Q&A. I turn the call over to Mike.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Thank you, Christina. I'm encouraged by our solid start to the year. We delivered organic growth of 5%, cycling 10% growth in the year-ago quarter. Category growth remained healthy, pricing execution was strong. Costs have begun to stabilize. These primary factors enabled us to continue improving gross margin, resulting in a 25% increase in adjusted operating profit and a 24% increase in adjusted earnings per share. Given our Q1 performance and increasing confidence in our underlying operating plan assumptions, we're raising our 2023 EPS outlook to 6%-10% growth. Margin recovery continues to be a top priority. I'm pleased with the strong progress we're making. This quarter, we expanded gross margin by 340 basis points versus year ago, building on our momentum from the second half of 2022.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

While we're encouraged with our progress, we're still operating in a challenging environment. Input costs have stabilized but continue to trade well above 2019 levels. With adjusted gross margins nearly 200 basis points below pre-pandemic levels, we'll continue to operate with cost and financial discipline. We're leaning harder into productivity and taking aggressive action to secure supply to better meet the needs of our customers. We remain committed to returning our margins to historic levels and eventually expanding from there. We've taken a thoughtful and holistic approach to mitigating inflationary pressures, carefully balancing price realization with our focus on offering a superior value proposition. This is to enable us to meet our enduring goal of growing market share. In Q1, we continued to gain or hold share in approximately 50% of our personal care cohorts.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We've invested in building strong revenue growth management capability, and that has been critical to our agile and effective price deployment globally. Category growth has remained healthy and broad-based as the elasticity impact on volume continues to be somewhat muted. This reflects the essential nature of the categories we lead. While our categories continue to grow, we see bifurcation in consumer demand. We've observed resilience in higher-income developed markets like the U.S., but also increasing demand for value in lower-income geographies, especially within D&E markets. We're meeting our consumers where they need us. As category leaders, we have a broad offering that spans value to premium. While we're continuing to see momentum in the premium tiers of our business, we're accommodating tighter budgets and more rapidly cascading innovation and product features through our portfolio, including our value offerings. Our brands offer excellent value.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

For parents economizing through usage, superior products like Goodnites Nighttime Underwear XL enable their children to get a better night's sleep with 35% less leaks. Goodnites serves an important need, we're stepping up our brand communications with breakthrough campaigns that highlight the superior performance and value of our offering. Advantage product technologies are key to our brand value propositions, over the past few years, concerted investment in innovation has resulted in an exciting pipeline that will help us elevate and expand our categories. I'll highlight a few that you'll see later this quarter. We're refreshing Cottonelle Ultra Comfort and Ultra Clean in North America behind a powerful insight. Half the users in the category are dissatisfied with their existing, quote, unquote, "soft and strong" bath tissue.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We're focused on delivering a superior clean. We'll launch this initiative with some fairly provocative advertising that highlights down-there care, and we're talking about the real down-there issues that we all face. Our suite of products will help address these unmet needs. In China, we're launching Kotex Extreme Night, our best-ever overnight feminine pad. Extreme Night offers superior protection from back leaks, one of the biggest issues for overnight users. Internationally, Kimberly-Clark Professional is debuting our new Icon collection, our most advanced towel dispensing system. Icon has fully customizable panels and ultra-high reliability, enabling end users to be more productive with labor and waste. Icon has been a hit in North America. We are excited to roll it around the world. We have more innovation to launch later this year, including exciting news on Huggies. Our teams are working hard on an innovation pipeline.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We're confident we'll bring more value to our consumers while elevating our categories and expanding our markets. In closing, we're encouraged by our strong start to the year and our momentum on the top and bottom line. We serve essential categories and demand for our brands remains healthy. We have a long runway of growth ahead of us, and we're committed to delivering balanced and sustainable growth to create long-term value for all of our stakeholders. Now I'll turn it over to Nelson.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Thanks, Mike. I'm pleased to report a solid start to the year. First quarter net sales were $5.2 billion, up 2% year-over-year. Organic sales increased 5% compared to last year's 10% increase. On a two-year basis, organic sales growth was consistent across all three segments, with approximately 8% average growth for the company. Strong revenue growth management delivered favorable price and mix benefits with a better-than-expected elasticity impact on volume. Organic growth for our personal care business, representing approximately half of the company's revenue, grew 3% with a healthy contribution from price and mix and healthy underlying consumption. Growth was negatively impacted by approximately 1 percentage point by the exit of a private label contract in North America.

[Nelson Urdaneta, CFO at Kimberly-Clark]

All personal care major geographies contributed to organic growth after lapping a particularly strong Q1 last year, with North America setting a new quarterly sales record. Feminine care and adult care grew at healthy rates. We continue to focus on the tremendous growth opportunities created by the aging population and ongoing innovation in women's health. In baby and childcare, gains from product innovation moderated the impact of lower birth rates in China and South Korea. Operating profit for the segment improved 3% in the first quarter. We are confident our strategy to address significant unmet needs will continue to unlock a long runway of growth for our personal care business. Organic growth in consumer tissue was 7%, with broad-based growth across all geographies. We continue to improve the profitability of our tissue business with operating profit for the segment up 40% for the quarter.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Finally, our Kimberly-Clark Professional business posted 11% organic growth. All geographies grew, with North America and developed markets delivering double-digit organic growth. Although volume remains below pre-pandemic levels, we remain focused on opportunities where we can deliver value and growth. Operating profit for our professional segment grew 77% in the first quarter of the year, and we are continuing to make investments in the business to drive long-term sustainable growth. First quarter gross margin increased 340 basis points to 33.2%. Pricing, in addition to FORCE savings of approximately $105 million, more than offset the impact of input costs of approximately $160 million, which represented a roughly 300 basis point impact this quarter.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Between the lines spending on an adjusted basis was 18.1% of net sales, up 60 basis points versus a year ago, driven by higher investments in our business. Adjusted operating profit for the quarter increased 25%, and operating margin was 15.1%, an increase of 280 basis points versus last year's adjusted operating margin. Foreign currency was a 12 percentage point headwind on operating profit in the quarter, of which 5 percentage points was due to the impact of translating our foreign subsidiary earnings into US dollars and the balance impacting input costs. We have made good progress on our margin recovery over the last few quarters. However, our gross margins are still approximately 200 basis points below pre-pandemic levels. We remain committed to restoring and expanding our margins over time.

[Nelson Urdaneta, CFO at Kimberly-Clark]

The effective tax rate was 24.5% compared to an adjusted effective tax rate of 21% in the year-ago period. Better than expected top line and margin performance resulted in earnings per share of $1.67, up 24% versus adjusted results last year. This quarter also resulted in strong cash generation. Cash provided by operations was approximately $600 million, driven by our healthy increase in operating profit and management of working capital. Capital spending was $201 million, compared to $253 million last year. During the first quarter, we returned $425 million to shareholders through dividends and share repurchases. Now let me say a few words about our outlook.

[Nelson Urdaneta, CFO at Kimberly-Clark]

We are raising our full year earnings guidance to reflect our Q1 performance and the moderation of commodity headwinds, increasing it to a range of 6%-10% growth from our prior guidance of 2%-6% growth. We've maintained a full year outlook for organic growth of 2%-4% as we lap last year's pricing actions against a softer economic backdrop. We are committed to investing behind our brands and people. We'll methodically assess incremental opportunities to drive near-term returns. As we scale recent innovation to more markets and advance our commercial capabilities, we expect to step up brand investments in the second quarter and the rest of the year, as we said last quarter. We are optimistic about bringing superior value propositions that will increase household penetration and market share over time.

[Nelson Urdaneta, CFO at Kimberly-Clark]

With the success from our innovation pipeline and brand investments, we have increased confidence in our ability to deliver in the top half of our guidance range for organic growth. Our input costs assumptions for the year have improved, but remain a headwind of $100 million-$200 million. In addition to the $200 million headwind from higher wages and other manufacturing costs, as stated last quarter. Most of the impact of input costs have been realized in the first quarter, and we expect headwinds to dissipate throughout the year. Bear in mind that the outlook for commodities remains mixed, and cost levels continue to hover significantly above 2019 levels. Our revised input costs assumptions take into account benefits from lower transportation and energy costs. However, beyond these, we have not seen material changes in other commodities versus our prior outlook, and markets remain volatile.

[Nelson Urdaneta, CFO at Kimberly-Clark]

For example, oil prices have reversed the downward trend with the recent round of supply cuts, and supply restrictions have contributed to higher prices in other raw materials. Global logistics are improving. However, the labor market remains tight. Certainly, we hope to see commodity abatement in the future, but we cannot count on it to recover the significant impact of inflation in the last 3 years. We are going to focus on what we can control, which is continuing to offer consumers superior products, maintain our focus on revenue growth initiatives, accretive innovation, and sustained productivity delivery. We are raising our outlook for operating profit growth to a low double-digit % range and for operating margin to increase by approximately 130 basis points at the midpoint of our guidance.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Currency is expected to impact operating profit by $300 million-$400 million, the majority of which will impact our costs. Based on these assumptions, we have increased our outlook for EPS growth to a range of 6%-10%. While we do not provide quarterly guidance, let me remind you that we are lapping tough sales comparisons and expect to have continued currency headwinds in Q2. As Mike said, we have a full slate of commercial programs coming up, and our teams are laser-focused on executing with excellence. I am proud of our team's execution leading to a strong start to the year, and we are committed to delivering balanced and sustainable growth that will create shareholder value. With that, we will open the floor for questions.

[Operator]

Certainly. At this time, we'll be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then reenter the queue. Once again, if you have any questions or comments, please press star one on your phone. Your first question is coming from Chris Carey from Wells Fargo. Your line is live.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Morning, Chris.

[Javier Escalante, Research Analyst at Evercore ISI]

Hi, Chris.

[Chris Carey, Senior Equity Analyst at Wells Fargo Securities]

Hi, hi, good morning. So I just wanted to start on the gross margin line. You know, clearly, you have strong expectations this quarter. You know, if anything the debate will be why can't you continue to sequentially climb from here as pricing remains strong and commodities continue to deflate. I wonder if you have any thoughts on just the sequential cadence of gross margin development here and perhaps any of the investments into that line item that might be a bit more atypical relative to what seems a pretty sequential, cyclical recovery in your gross margin, then follow up.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Okay, Chris, I'll start, but I'm sure Nelson will wanna give you some more color and texture. Definitely, encouraged by what I would say is excellent progress on margin recovery. You know, just for reference I'm really proud of the team the organization. We're accelerating growth and restoring margins while still investing to drive long-term balance and sustainable growth. So that's kind of what our overall play is. On the margin recovery, yeah in the margin, as we said on the prepared remarks.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Gross and operating margins were each up about 300 basis points. You know, we had excellent price execution. I'd say our pricing has been commensurate with what our expectations for cost net of our ramped-up productivity would deliver. So I think the teams have really done an excellent job around the world there. Input costs have stabilized. I think actually for the past 2 quarters, and this is the most stability we've seen, I think the call is about the same as it was back in January. So for that, we've had probably seen about 16 weeks of stability, which gives us something good to aim for. I think the teams have done a great job kind of working the productivity. We are seeing some green shoots, transportation being the current area.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Our current view is that the overall cost environment is gonna be fairly consistent with what we said overall. I mean, it's gonna be about half a billion. We're gonna pick up a little bit of favorability, we think. I would add though, Chris, I definitely see reversion, around the corner. You know, the costs We expect to be over the last three years, $3.7 billion of inflation. You know, I would expect if the history of these categories and our, and our commodities that we buy, it generally comes back out. I don't really see that thus far this year, but we will see maybe some moderation, in the second half of this year.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Nelson, you wanna give them a little more texture?

[Nelson Urdaneta, CFO at Kimberly-Clark]

Sure. Just to build on what Mike was saying, Chris, a few things. The majority of our cost headwind, and that's just the now $100 million-$200 million, would have hit us in Q1. We don't expect it to be too significant for the balance of the year. In fact, that we do expect that to begin subsiding as we go into the back half of the year. To your question specifically on, are we going to see further gross margin gains as the year progresses? The answer is yes. I mean, we expect gross margin to continue to gain as we go through the year. This marks the second quarter in a row that we expand gross margins, and by not an insignificant amount versus prior year.

[Nelson Urdaneta, CFO at Kimberly-Clark]

As a reminder the last time that had happened had been 8 quarters ago, if you step back in time. We are very encouraged by the progress made. A couple of things to keep in mind are the fact that we were early in terms of pricing, so we will begin to lap some of the pricing as we go into the second half of the year. Hence, why some of the increases that we've seen in last quarter and this quarter on gross margin in terms of absolutes, we don't expect that to remain.

[Nelson Urdaneta, CFO at Kimberly-Clark]

We do expect to exit Q4 at a higher gross margin than what we delivered in Q1, and that really puts us on good track to get back to our pre-pandemic level gross margin of roughly 35%, that we saw in 2019. In addition to that, we continue to have a very healthy pipeline of productivity, and the team's focused on managing through all the levers, to drive the margin recovery that we've committed to, and then start expanding from there.

[Chris Carey, Senior Equity Analyst at Wells Fargo Securities]

Thank you so much for that perspective. Just one quick follow-up. You know, your gross margins historically have recovered in quite a linear fashion in the same way that they've actually gone down during times of pressure. You know, is there any reason why your gross margin shouldn't step up kind of each quarter through the year in context of your Q4 exit rate being higher than Q1? I just wonder if you have that level of sequential gross margin progression. Can you just remind about your overall investment philosophies and your willingness to, or desire to put more spending back into the system as opposed to letting this flow to the bottom line?

[Chris Carey, Senior Equity Analyst at Wells Fargo Securities]

That could be for this year or going into next year as well. Thanks so much for that.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Sure. A couple of things. you know, we have seen an acceleration in the last 2 quarters, and it's been fairly strong, so I don't expect that to sustain because as I said, 2 things. One, costs will subside as we go into the second half, but pricing will also subside because we'll lap it. The good news is we do expect to be continuing to gain as the year progresses. Yes, it'll continue to be a straight line, but the slope will change and it will get a little bit more muted, and it's as expected. Going to the investment philosophy, I think it's important to highlight that this quarter, we increased our investment behind the brands and innovation versus prior year 60 basis points.

[Nelson Urdaneta, CFO at Kimberly-Clark]

As you remember, when we gave the outlook back in January, we said that for the full year, we were expecting at least about 100 basis points of investment. You would have seen in our prepared remarks that we have a very strong pipeline of innovation that's been input into market, and we are supporting it as we speak. This is really the key. Our philosophy, even with all the headwinds that we were facing last year and the prior year, has been that we're in this for the long run. We don't go for the quarters. We go for the long run. We've been around for 150 years and counting. The key has been we've been very disciplined about investing. We've been disciplined about our costs.

[Nelson Urdaneta, CFO at Kimberly-Clark]

We do expect, Chris, as the year progresses, to step up our investments. Hence why I'm highlighting the fact that we saw 60 basis points of investment increase. For the full year, we are expecting about 100 basis points when it's all said and done.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah, Chris, just to tack on we're continuing to invest in our, in our brands, to drive long-term balance and sustainable growth. You know, we're trying to create a virtuous cycle, right? We definitely see that this year and that opportunity this year. Certainly, I think the good start gives us a little more room and confidence to be able to invest further. Even beyond kinda what we had thought during the start of the year, I think we would probably look for additional opportunity because, one, we really are excited about our innovation. I highlighted a little bit of that in our prepared remarks, when we have great stuff for 2023.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, I think there's magic coming in poop, and kinda what we can do with poop. You know, I talked about Cottonelle with the superior clean comfort protection on diapers. We've got great news. The other thing that we're really focused on, and our retail partners, I think, value is, we're really focused on expanding the categories, right? Driving trial and penetration in these categories through advertising, that's what some of the investment will be earmarked for. We think there's great opportunity to expand penetration, even in the most highly developed category in the world, which is bath tissue, as I highlighted, because a lot of consumers are still unsatisfied with what the category does. You know, we feel like we're improving our brand propositions.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We have great news. Putting more money behind the brands, I think, will work very hard for us, and we're excited to do that this year.

[Chris Carey, Senior Equity Analyst at Wells Fargo Securities]

Okay. All right. Well, thanks so much.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Okay. Thank you.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Thank you, Chris.

[Operator]

Thank you. Your next question is coming from Kevin Grundy from Jefferies. Your line is live.

[Kevin Grundy, Managing Director at BNP Paribas]

Great. Thanks. Good morning, everyone, and congrats on the strong start to the year. I thought we'd pivot to the organic sales growth guidance. You decided to maintain it at this juncture of the year. Nelson, you talked about cycling some of the pricing taken. The guidance does imply a deceleration relative to the strong start to the year, call it up 1% for the balance, at the low end. The high end would imply something closer to 3-4% for the balance of the year. Comment maybe just on how you're thinking about the cadence and how that breaks down between price and mix.

[Kevin Grundy, Managing Director at BNP Paribas]

Mike, it'd be great to get your updated thoughts on how you view trade-down risk, which we've seen in some of your categories, and what's reflected in your outlook. I have a follow-up. Thanks.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Yeah. Let me start, Kevin, with the organic growth, outlook and how we see it evolving in the course of the year. Obviously, we've seen that pricing has continued to be the big driver behind our top line growth over the last three quarters. In this particular quarter, as we stated, our performance was better than what we had initially projected, and that had to do largely with the category dynamics. Categories were stronger than what we expected, and the impact of elasticities on volume was more muted, frankly, than what we had projected. That helped. Despite that, pricing continued to be the big driver of top line growth.

[Nelson Urdaneta, CFO at Kimberly-Clark]

What we expect to happen as we cycle many of the pricing actions that we took, because remember, we were one, we led in many of the markets, the pricing actions dating back to Q4 of 2021. We'll start to lap many of those as we exit Q2. Our expectation as the year progresses is that the volume impacts that we've seen, and we saw 7% in Q4, we saw 5% drop in Q1, will begin to taper off, because the impact of the pricing will go away. By the same token, as all the carryover pricing is lapped, we will also expect pricing to subside. It will turn into a more balanced algorithm in terms of top line growth as we progress through the back half of the year.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Yes, we did hold to our guidance of 2%-4%. We highlighted that we're aiming for the top end of the guidance, in light of the performance that we had in Q1, and also because we're taking into account the stronger category performance, that we've seen given the resilience of our consumers and the innovation that's being put into the marketplace. overall we are aiming for that top end of the guidance, as I just stated. You know, I've just given you a little bit of flavor of how we see the evolution of volume and pricing as the year goes by. Mike?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. Kevin, I'll comment on the categories, and you mentioned the down-trading risk. You know, one, I'd say through the first quarter, the categories remain healthy and the consumer remains resilient. You know, the strong core Q1, right, and probably stronger than we had anticipated at the start of the year, really on the back of category health. Just to give you a few numbers the North American consumer categories, overall, our categories are up about 9, so high single digit. Western Europe was up teens in consumption. Latin America was up double digits, and K-C Professional, organic was up double digits in every market. Again, I think the categories are performing well.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, as Nelson mentioned, the volume elasticity impact has been somewhat muted. Here's a few factoids just to give you a flavor for it. In the U.S. diaper, this is category numbers, not brand numbers. Category price was up 6%, volume was down 2%. In U.S. bath tissue, price was up 11% and volume was down 1%. In U.S. adult care, price was up 7% and volume was up 4%. You can see the definition of any relatively inelastic is if elasticity is below 1, right? These clearly at least in the recent period, it's kind of in that range.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

I think the notion is Kevin, that overall brand elasticities are higher than category elasticities, but our categories are generally relatively inelastic but I said this example before, but if the price goes up on bath tissue, generally doesn't mean you're gonna use the bathroom less, right? I think we do operate in essential categories that have less elasticity. You know, there is some downtiering out there, but I'd say it's not broad-based, and if I can use this word appropriately, it's not necessarily monolithic either. We're definitely maintaining momentum in the premium business, in the premium tiers of our business, that's especially true in developed markets.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

In China, our mix continued to be up high single-digit, and that's all shifting to what internally we call our premium tiers, tier 6 and 7. That momentum's proceeding. Similarly, in the U.S., we have strong momentum on our premium side. Even in a market like Brazil the market is actually premiumizing, if you look at the mix and volume. There's more going into premium than there is. And volume is, value is actually declining a little bit. There is definitely downtiering, and we see that. In the U.S., I think private label shares were up in, I think, four of the category, which was a tick up from the prior quarter.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

In markets like Argentina and Peru, which is a big market for us we are seeing some additional downtiering. We're sensitive to it. For us, as I mentioned in our prepared remarks we're gonna meet the consumers where they need us, and we're really focused on improving our value proposition first by hitting the price points that consumers need us to be at, and that's through price pack changes, but also cascading our innovation more rapidly through our portfolio, especially into the value tiers. That's kind of where we are. I'll pause there to see if you have any follow-up.

[Kevin Grundy, Managing Director at BNP Paribas]

Yeah, Mike, the quick follow-up, and I'll try to be brief with this 'cause that was a lot of fantastic color from you and from Nelson. It's just on trade promotion, right? The narrative, it's remarkable how quickly it can change. It was sort of drinking out of a fire hose with commodity costs, and now things moderate a bit, and the narrative is now a lot more worried about trade down and what's the potential for trade support to ramp significantly? What's the potential for some of the competitive players maybe to not play as nicely in the sandbox, whether this is in Europe with private label? What are your thoughts around that competitive intensity ramps here significantly as commodity costs moderate? I'll pass it on. Thank you.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. Great, you're on it, Kevin. I mean, we're we're seeing that in spots. In Latin America, we're seeing a little ramped-up promotion from both local players and other multinationals. Similarly, in parts of Africa for us and in a few categories in North America, childcare, Pull-Ups is one. You know, we periodically, there's a secondary or tertiary brands that make a distribution push and we see that from time to time, we see a little ramped-up promotion from time to time. You know, our thing is we've priced. I mean our margins are not whole yet from pre-pandemic levels. You know, we know what we need to get to.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We're prioritizing margin recovery, and we're gonna be disciplined about it. We've priced commensurate to our expectations for both input costs and what our net productivity is gonna be. We've got invested a lot in the last few years in building a great revenue growth management analytic capability. So we're gonna continue to be really agile and disciplined in our spending. The maybe the color commentary I'll give you, and this is philosophical, or my business philosophy is I'm not a fan of renting share through promotion. I mean, we've seen that movie. I've seen that over and over in a lot of categories, including in food and everything else, and I've always got out of the renting of share business.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

What I mean by that is over-promoting brands to kind of tick up shares. You know, I'd rather earn it through the base business, through advertising innovation and making the products better. That's kind of what our high road internally, we call our high road strategy, which is, hey, we want sustainable growth. We're gonna earn our share through a better brand value proposition, and we're gonna grow category penetration over time. That doesn't get done well through trade promotion. It'll be out there. obviously we're gonna wanna be competitive, but I think for us I think investing in advertising to grow the category and innovation is our preferred path.

[Kevin Grundy, Managing Director at BNP Paribas]

Okay. Very good. Thanks for all the time. I appreciate it. Good luck.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

All right. Thank you.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Thank you.

[Operator]

Thank you. Your next question is coming from Andrea Teixeira from JPMorgan. Your line's open.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Andrea, good morning.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Thank you. Good morning, everyone. I just wanted to go back to what you both talked about in terms of pricing, having, obviously rolling over or the comparisons getting tougher, but also, as we think about it, we step back in cycles, right? Two things. One is on utilization and consumers having to make tough choices in number of diaper changes. I'm sure it's not happening as we speak now, but in some countries where, definitely it's not only performance that drives choice, but also, at the end of the day, what they can afford. The premiumization sometimes also happens when you have to use a better diaper at night, and that's gonna be the only change.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Number one, is that something that you're positioning now as we go into rougher times? Second, when you think about, like, what happens to private label, which is, pulp price is obviously declining a bunch. We see local competitors in China, obviously, not sitting on their hands. When you think about what's gonna happen to the cycle, where some of the private label contracts automatically also passes through the way down, how to think... I'm not saying it's gonna happen now, but in 6 months from now, is that something that you embed in your guidance for margins? How to think of that.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

In particular, I would say diaper is not so much of a category, but perhaps even tissue as we go through this phase. I was wondering how to think of those.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. Okay. Yeah. First of all, I think on the. I mean, you're exactly right on the usage front. I mean, and we do see in some markets, and I'd say it tends to be more Developing in Emerging Markets where incomes are a little, budgets are a little tighter, that you see the trade down, and that's occurred, that occurred starting three years ago, four years ago now with COVID, and we saw that extensively in Latin America, where people were stretching out usage. If they were using, let's say, three diapers a day, they had gone down to two. In some cases, I think that would explain, to your point exactly, Andrea, where trading up to a higher quality, maybe higher capacity diaper. You know, We've seen some of that behavior.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, I think in Latin America, in particular, we've seen behavior shift. We had seen in the prior two or three years ago, some shift from premium to value. As I mentioned, we're now seeing some shift from value to premium the other way, but we've seen that usage change before. A little less I think we would observe that behavior a little less in developed markets like the US, but it still does occur nonetheless. That's kind of factored into our approach and that's why you'll see from us, and I highlighted it in the prepared remarks, I mean, we're really gonna emphasize in our advertising, the value of our products and the performance of our products.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

We're really we'll address it that way and also by cascading better features through our product line. I think that's maybe that's the first part. On the private label front I think your question is correct, and certainly as costs come down in the category we might expect some pricing to come down. You know, we're still working through that, you know? At this point, we're still operating at the peak. Even though we have a little bit relief we're still operating at the highs, and you can look at the forecast.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

I mean some of our column have come down a bit, but costs remain still well above $ billions over what they were 2 or 3 years ago. We will plan for that. Nelson, anything to add?

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

And, um-

[Nelson Urdaneta, CFO at Kimberly-Clark]

Yeah, no, I think you've said it all, Mike. Okay. Go ahead.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Yeah. Just as a quick one, Mike, this is super helpful. When you say it's gonna take a while, we're looking at, probably early next year where we might see things kind of leveling off or lapping on an inflation perspective.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Well, I mean, I would hope that it comes really fast, but you know, it's not in our call right now.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Mm-hmm.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, we have in the past, as you've covered this category for a while now and we've seen more rapid reversion in the past. If you recall, I think 2018, we went to a record high, and then on.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Mm-hmm.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Let's say Eucalyptus, then by 2020, we were down to maybe a 10-year low. It does move around quite a bit. We haven't seen that action yet in a significant way, but I would anticipate it.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Right. Just to build on that last point, Andrea Teixeira. You know, for this year, still, taking into account only commodities and Forex at the midpoint of our guidance, we're talking of another half a billion, you know. It's not an immaterial amount. Albeit, if we look at the prior two years, we were talking $3.2 billion. Net net, based on the outlook for this year when it's all said and done, we'd have about $3.7 billion of headwinds that we've had to manage over the last three years when the year is done.

[Nelson Urdaneta, CFO at Kimberly-Clark]

You know, they remain high. Commodities remain elevated. Forex remains volatile. Again, we're seeing green shoots, but that's the watch-out. We still have disruptions in Europe. We still have items that we're maneuvering through, but we are seeing some of the items also improve in things like transportation and energy to some extent. Again, we need to take it in strides and a quarter at a time as we progress.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Yeah, that's $500 million and that's an average. If you think about like how it's front-loaded, right? If it's the $500 million on average, I'm just making it up numbers, but let's say it's $1 billion in the first half, and then it's +$500 in the second half, reversing back. What I'm saying is that, okay, retailers are smart enough to know because they own the private label and they know the contracts. They will not immediately have that benefit or have to pass through that impact. What I'm saying is that it will coincide that you're gonna lap the pricing and you're gonna start to see your inflation going the other way. You're starting to see deflation, not on an annualized basis, but you're gonna see on a quarterly basis.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

I think what does that do with your When you're sitting down in the fall to talk about pricing into spring of the following, or into the beginning of next year?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. I mean, I think you're exactly right, and we'll definitely take that into account as we plan. Obviously, I won't wanna sit here and telegraph what we plan to do on pricing in the second half or next year.

[Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.]

Yeah, that's fair. All right. Thank you so much. Appreciate your time.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

All right. Thank you, Andrea.

[Operator]

Thank you. We do ask participants please ask 1 question and 1 follow-up, then reenter the queue. Your next question is coming from Jason English from Goldman Sachs. Your line is live.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Morning, Jason.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Hi, Jason.

[Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs]

Hey, good morning, folks. Thanks for slotting me in. perhaps I missed it, which is totally possible. Lots of distractions over here. where are you expecting gross margins to land for the year?

[Nelson Urdaneta, CFO at Kimberly-Clark]

Yep. For gross margins, Jason, at the very least, we're expecting to expand them around 230 basis points year-over-year. Because remember, we're expanding at the midpoint of our guidance operating margin by 130 basis points. We took that up 50 bps versus our prior outlook.

[Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs]

Mm-hmm. Mm-hmm.

[Nelson Urdaneta, CFO at Kimberly-Clark]

We are putting in the incremental 100 basis points at least of investments into the brands. That would put the year-on-year gain in gross margins at about 230 basis points at the bottom.

[Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs]

Got it. That suggests that you're gonna go kinda sideways from here. You've reached another level. but you're plateaued up here at this level, with no more sequential progression. What does it take then to, like, find the next level? You mentioned in prepared remarks you're still 200 bps below where you started. Is that, do we need commodities to come back in? Is that the enabler to get you next leg, and until that happens, sideways is the baseline expectation?

[Nelson Urdaneta, CFO at Kimberly-Clark]

That's a good follow-up, Jason. The thing would be it wouldn't be necessarily sideways, 'cause, as I said, I mean, we do expect to see continued progression in gross margin. I wouldn't call it linear. I don't expect it to be a straight line between now and Q4 because we have a few puts and takes with how commodities and pricing and FORCE will play. We do expect to exit the year above the average for the full year. Does that help?

[Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs]

Yeah. Or exit the full year at the rate you just delivered in Q1. I mean, that's what that 230 implies.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Well, let me just. I'll give you a little more perspective, Jason, 'cause here's the deal. Look, we updated the outlook. I think it definitely reflects the strength of the first quarter, relative to our expectations at the beginning of the year and our growing confidence in our underlying plan assumptions. I think we're off to a good start. The unsaid part of it is I would say Nelson and I, we probably had more muted expectations for our first quarter, closer to what you guys were all thinking. Hey, we had a very strong start. You know, as I mentioned, the other underlying category performance has been healthy. The cost environment has been stable.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

That said I would say also in the first quarter, the shape of the P&L has performed very well. I'd say the cost the quarter I think, exceeding our own internal expectations, pretty healthy in a way that I would say the primary drivers were volume, price, and cost. If you take those three factors, those are pretty good quality factors. You know, could it continue to get better? It could. I think we've made our call on the outlook and generally it feels a little soon to call revise our guidance up after the first quarter. Based on the strength of the first quarter we felt like we should.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, is there more room as we go through the year? There could be, but there's also a lot of volatility that remains, which is kinda why we called it the way we've called it. You know, what are the down factors on volatility? You know, we're all seeing the same reports about recessionary risk in the second half. You know, we don't exactly know what's gonna happen to the cost, input costs and currency. There are a lot of factors on both the plus side and the negative side. we're we feel like this is a good call for now, and we were I think I will retain the right to change our mind later.

[Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs]

Understood. Makes sense. I agree with all your comments in the first quarter. Congrats on a strong start. I'll pass it on.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Thanks, Jason.

[Nelson Urdaneta, CFO at Kimberly-Clark]

Thanks, Jason.

[Operator]

Thank you. Your next question's coming from Lauren Lieberman from Barclays. Your line is live.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Hey, Lauren.

[Lauren Lieberman, Managing Director at Barclays]

Great, hey, how are you?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Good.

[Lauren Lieberman, Managing Director at Barclays]

wanted to talk about consumer tissue innovation. I know it's a topic that we've touched on before without going back into the detailed poop conversation.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah.

[Lauren Lieberman, Managing Director at Barclays]

You guys have talked for a long time about the ability or the intention to elevate the category and bring innovation there, and this seems like the big the first kind of like big chunky move in that, in that direction. I was curious your view on kind of category development, right? If I, if I think about it, I would argue that you're probably the only player that's really focusing on innovation and premiumization in the category in this demonstrative a way. How do you kind of see the category evolving over time, right? Is there a higher margin profile that's structurally more interesting? Does this kind of raise the innovation game for everyone, more bifurcation between private label and brand?

[Lauren Lieberman, Managing Director at Barclays]

I'm just, yeah, curious on views and what your initial research and maybe test markets have shown you, if you've done that, on how the category could evolve thanks to this move on innovation?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

I mean, Lauren, we definitely think it's the right thing to do. I mean, this category, I mean, we invented the category. Scott Paper invented rolled bath tissue, over 120 years ago, and it hasn't changed that much fundamentally since then. You know, we all know the category talks about the attributes of soft and strong, and every bath tissue is a version of that. The reality is as our team has done a harder digging and the 50% of the consumers are dissatisfied with what the products deliver in the for them. We think the, the core of the issue is around a better clean.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

It turns out you may not be surprised to know this, but the vast majority of the consumption of bath tissue is female. Just by that, you can see the category doesn't set itself up that way. You know, we definitely think there's a lot of ways to innovate from a product perspective and a communication perspective to deliver a better clean. You're gonna see some of that in advertising. We have shared some of that with our customers. They're very excited. I think we're just at the beginning stages of this approach, but I think it's the right one for the category 'cause it's a huge category and there's a lot of different ways to build it.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

I think creating more value added, and giving consumers a better way to clean is a good one.

[Lauren Lieberman, Managing Director at Barclays]

Just from a profitability standpoint with this, right? You know, margins made a big step up this quarter in consumer tissue. If i think back, the story in this category for KC for a long time has been recognizing the cyclicality of the cost environment that you'll see here, but making the-- raising the bar, right? The highs are higher and so are the lows, right, in terms of margin %. As you push forward on innovation here, I mean, is there scope for this business to have peak margins that are, I mean, call me crazy, like 19%-20%?

[Lauren Lieberman, Managing Director at Barclays]

I think prior peak is maybe around 18%, but just not thinking this year, obviously, but over a multiyear horizon what this could mean structurally for profitability in the category.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. Well, let me go back broader, Lauren. I mean, when I, when I came into this role back in 2019, I think I started off with saying, "Hey, margin expansion is a goal," right? We, we got pushed back because when I said that, I wasn't anticipating $3.7 billion of additional cost and currency headwinds. You know, I think the team is doing an excellent job working to offset a lot of that, and I think you saw it this quarter. You know, right around that I'd say 2017, 2018, 2020 period our tissue margins in North America did kind of hit those rates. You know, our goal right now is to get back into that range.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

you know, certainly with the strategy that I just outlined and with the overall strategy of the company to elevate our categories and expand our markets I think the long-term goal remains margin expansion through innovation and building up the categories.

[Lauren Lieberman, Managing Director at Barclays]

Okay, that's great. Thanks so much.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Thanks, Lauren. Thank you.

[Operator]

Thank you. Your next question is coming from Javier Escalante from Evercore. Your line is live.

[Javier Escalante, Research Analyst at Evercore ISI]

Hi, good morning, everyone.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Good morning.

[Javier Escalante, Research Analyst at Evercore ISI]

Hello.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Hi, Javier.

[Javier Escalante, Research Analyst at Evercore ISI]

Good morning, guys. Question is, I wonder perhaps, Nelson, if you guys have an estimate on how much pricing have you taken, which is put us kind of like on a one-on-one basis relative to the cost, the $3.7 billion in cost. Do you have any estimate how much in the past 18 months, how much pricing you have taken?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah, let me Javier, that's a, that's a great question, and it helps build a bridge as to why we're where we're at right now and the recovery path that we've had on margins. Based on our outlook for this year, and the guidance that we're providing, we will be pricing, we will be realizing revenue growth management of around 85% of that $3.7 billion, give or take, just to give you a sense of what we've put in place when this year is done 36 months through.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Obviously, that doesn't get you there on a one-to-one basis to recover margins, and that's why our cost saving initiatives and FORCE come into play, in addition to our creative innovation, which is part of our Design to Value under the other initiatives that we have in place with the commercial team. Hope that provides some perspective.

[Javier Escalante, Research Analyst at Evercore ISI]

No, yeah, that's absolutely very helpful. I'm going to have a little follow-up. If you look at scanning data, particularly in U.S. tissue, you see private label and Procter, your main competitor, realizing more price mix. Is that real pricing, or it's just basically that because you have the Scott business, you are seeing trade-down within your portfolio under 4, you are realizing less pricing than what sold for your competitors and private label?

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Well, I think, Javier, I'm not exactly sure, but I suspect what you're also gonna see is also timing of pricing issues. I mean, I think Nelson mentioned earlier, we priced relatively fast relative to other manufacturers. So if you compare on a quarterly basis I think you're gonna see our pricing start to diminish, maybe starting next quarter relative to others. In a lot of categories, we are at least one, and in some cases, like diapers, three quarters ahead of the competition. So I think if you line it up that way I think it's a tough. It's not really an apples to apples comparison.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

On Scott we have taken significant pricing a few rounds, including double-digit pricing over the course of at the end of 2021 all the way through 2022. I think in the first quarter as well, we took another round of pricing overall. I think the pricing has been extensive. I haven't looked at that specific issue, and so we may have to follow back up with you on that one.

[Javier Escalante, Research Analyst at Evercore ISI]

I do have a third one, if you don't mind, and it goes back to the Professional business. I saw in the presentation that you said that the business is back to 2019 levels. I believe that probably is sales or price-.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

On a revenue basis.

[Javier Escalante, Research Analyst at Evercore ISI]

It has a lot of pricing. Exactly.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah.

[Javier Escalante, Research Analyst at Evercore ISI]

If you can give us similarly, do you have an estimate of, on a volume basis, how much are you back given all these issues about vacancies and stuff like that? If the volume is significantly, still significantly below 2019, does it open opportunities for optimizing the size of that business? Thank you very, very much.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah. Thanks, Javier. Great question. Yeah, revenue is now above pre-pandemic levels, mostly because our pricing volume is still below, I would say in the 80s, right, as a percentage, if you say, hey, the comparison is versus 2019 levels. A couple things. You know, one is I don't think I said this in a prior call. I think it was before you started covering this. You know, I don't expect it to come all the way back 'cause we all can see our own workplaces that the offices are not full. With work from home, I don't expect that in the near term. Do we expect to get that volume back over time? Yes, in a different way, though.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, we have to pursue other channels and classes of trade to build that business back. Do I expect to get that back over time or not even back, to grow our volume from where it is today? Yes. In terms of structural changes, yeah, there may be some tweaks for us. The thing for us is we were using a lot of external capacity to kinda support our business during that period. I would say the fixed cost overhang is probably less than you might imagine.

[Javier Escalante, Research Analyst at Evercore ISI]

Thank you very much.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Okay. Thank you, Alvaro.

[Javier Escalante, Research Analyst at Evercore ISI]

All right.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Thanks, Javier.

[Operator]

Thank you. The last question is coming from Steve Powers from Deutsche Bank. Your line is live.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Morning, Steve.

[Javier Escalante, Research Analyst at Evercore ISI]

Hi, Steve.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Morning. Morning. Thanks. Hey, I might just ask one 'cause we're short on time. The one I wanna ask first, just to clarify. You talked about a lot of good things that I think we all see as evident in the first quarter working in your favor and promise boding well for the year. The guidance raise really only only contemplates the $100 million relief in your commodity cost outlook. All the other levers of upside really implicitly in the guide are either implied to mean revert lower or, I guess provide you allowance to invest back against them.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

I just wanted to play that back and make sure I'm not sure it's the wrong outlook, it seems prudent, but I just wanted to make sure that's sort of the right characterization.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Yeah, definitely a preference to invest back, especially behind strong commercial programs and stuff that we have for this year, so which we're all very excited about. As I was mentioning to Jason we were let's see how it goes in the second quarter and definitely reserve the right to think about it again.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Yeah. Okay. Okay, maybe just real quick, just some perspective on market share. You talked about it earlier. I think it's clear you're prioritizing margin recovery, probably especially so in consumer tissue. You seem pleased overall. I think you mentioned personal care shares on a global basis were essentially holding or gaining in about half half your category country combinations. You know, we've seen I guess, softer trends in the track data, which has created some intra-quarter controversy. just maybe some perspective on that and where you see trends being a bit softer than you'd like or being a bit stronger, just to kinda help round us out relative to that data we all see.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You're exactly on the right. A great issue for us to focus on. I mean, we're pleased overall with our start, and I'm definitely very pleased with the margin recovery. We're not pleased with our market share performance. In personal care, we were up and even in about 1/2, a little softer than we would like overall. If you say, "Hey, that was personal care," for the business overall, it was a little bit below that, right? We were coming off of 2020 and 2021, where we were up and over 2/3. We kinda get used to that. We're not that pleased with about 1/2 or just slightly under 1/2, we know we gotta get better.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

I would say, though, Steve, it definitely comes with, or the share softness definitely comes with moving fast on pricing. What's happened is we've been other manufacturers have lagged significantly our pricing. I was just mentioning to Javier in some categories in North America, diapers, for example, we didn't equalize on price until 9 months after our price, our first price moved. I think there's been that lag effect, that some competitors have used that interim period to kinda pick up a little share. That's part one. then I'd say we're still working through a few hotspots. I mean, not everything is working perfectly within this company.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

You know, we flagged last quarter, hey, we've got some businesses in Southeast Asia. Certainly, you might understand with Eastern Europe and the ongoing effects of the war we're still building our business back in Ukraine, and so there has been some softness in some markets. We're on it, but definitely we are in the game for long-term market share gains, and that's an ongoing goal for us. You know, while the market share was okay in the quarter, we weren't happy with it.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Understood. Thank you very much.

[Michael Hsu, Chairman and CEO at Kimberly-Clark]

Okay. Okay, thank you all for taking the time be with us today. Again, we feel very good about our solid start to the year. We look forward to seeing you in the second quarter.

[Operator]

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

Participants

Executives

• Christina Cheng, Director of Investor Relations
• Michael Hsu, Chairman and CEO
• Nelson Urdaneta, CFO

Analysts

• Javier Escalante, Research Analyst at Evercore ISI
• Chris Carey, Senior Equity Analyst at Wells Fargo Securities
• Kevin Grundy, Managing Director at BNP Paribas
• Andrea Teixeira, Senior Equity Research Analyst at JPMorgan Chase & Co.
• Jason English, Managing Director and Senior Equity Analyst at Goldman Sachs
• Lauren Lieberman, Managing Director at Barclays
• Steve Powers, Equity Research Analyst at Deutsche Bank