Good morning, and welcome to the Kimberly-Clark Second Quarter 2025 Earnings Question-and-answer Session. I will now hand over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Good morning. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I'd like to remind everyone that during our comments today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties, and these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures during these remarks. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results, and you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I will hand it over to Mike for a few opening comments.

Okay. Thank you, Chris. The second quarter was one of the strongest and most active in our recent history. Our results are indicative of the excellent progress we're making executing Power and Care. We accelerated momentum on the top line and delivered solid organic sales growth, fueled by our strongest volume quarter in the last 5 years. On a global basis, we gained weighted share and made significant share gains in several key categories in our largest markets. Now regarding our top line momentum, I'd like to emphasize 3 points. First, we're energized by our progress in China and the early returns on how our playbook is being applied globally. Second, we believe it's important to meet consumers where they need us. Our strategy to deliver exceptional brand propositions across the value spectrum is paying off. Consumers seeking better value are trading within our portfolio, and we're delighted to retain them within our brand franchises, as you can see in the U.S. scanner data. Third, our performance is driven by excellent commercial execution, superior innovation and strong investment to differentiate our brands. We delivered another quarter of industry-leading productivity, enabling us to reinvest when and where we see opportunity to support profitable growth. Our organization rewiring is enhancing our agility. We're bringing the best of Kimberly-Clark to the world faster with better consumer solutions and lower product costs. We also took decisive action to focus our portfolio. We're confident our joint venture with Suzano will unlock the full potential of International Family Care and Professional. For Kimberly-Clark, it enables laser focus on our higher growth, higher-margin North America and International Personal Care businesses. As we enter the second half of the year, we expect to continue performing while transforming. We're realizing the vision of a refreshed and refocused Kimberly-Clark. We're confident in our ability to deliver consistent top-tier growth. We have great opportunity ahead of us. We will continue to enhance our capability to provide better care for a better world and create value for our shareholders. So with that, I'd like to open up the line for questions.

[Operator Instructions] Your first question is coming from Nik Modi from RBC Capital.

Maybe you could just talk about, obviously, a very strong quarter within the context of what's been going on pretty broadly across the space. So just kind of 2 questions, like any more specifics in terms of really what drove this level of outperformance. But more importantly, given everyone is kind of moderating their expectations for the back half of the year and you guys obviously are suggesting otherwise, what give us the reasons to believe on why we should feel comfortable with kind of the outlook in the back half?

Okay. Thanks, Nik. Great question. There's a lot to unpack in there. Maybe I'll start with, hey, how do we see the state of the consumer. One, you could see in our approach overall that we've been talking about for a few quarters now, our approach is to meet consumers where they need us, right? And so that's kind of our starting point. I'll talk about maybe how we're seeing it and maybe with a tilt toward North America. But I do see purchasing power under pressure, right, for consumers. And frankly, we don't really see a catalyst for that dynamic to change in the near to medium term. So for us, that does affect kind of the categories. However, I'll say the other thing that we've talked to you about our categories is they are essential. There's not a whole lot of substitutes for our products. And so because of that, demand remains resilient and the categories continue to demonstrate durable growth, right? And that's kind of a big deal for us. And I think that sets our categories apart from maybe what you're seeing in some of the other categories. If I just click through a couple of areas, I'd say definitely North America would exhibit durable growth. We're seeing penetration and frequency stable. Obviously, the bifurcation trends are continuing but I think your question about, hey, why did it perform better than maybe what some expected is we took on this approach, I think we started doing this last year, which is, hey, we want to have a great value proposition in every tier of the good, better, best ladder. And so we've been cascading some of our best kind of product features to our value tiers. And I would say, if you looked in the quarter,…

Your next question is coming from Lauren Lieberman from Barclays.

Wanted to just talk for a second, Honan, in particular, on North America, performance was so strong there this quarter and really was quite different than what we saw in scanner. And I had actually expected the professional business to be a drag on performance, so kind of going the other way versus scanner. So I was wondering if you could kind of square that for us a bit. And then also, I know you just spoke to Nik about confidence for the balance of the year, but I was curious about pacing. There was a bit of noisiness in the second half last year. So just anything you can share on phasing in the back half would be great.

Yes. Maybe, nor, I'm going to pass it over to Nelson, but I'll just -- my overall is on pacing. When you're thinking about comps, there's a lot of noise in the year ago, and there's noise this year, too. So when you think about comps, there's just a lot of choppiness going on in the numbers.

Right. And I'll seek to unpack that, Lauren. So a few things. And I'll Honan on North America. In both scanner and reported results, I mean, we're seeing building momentum from a strong pipeline of activations and innovations that are winning with consumers across all the value tiers. In Q2, in particular, shipments in North America consumer were about 100 basis points ahead of consumption, which was at 4.5% branded consumption. This was driven by a tailwind in retailer inventory shifts which are made up of two things. One, we're lapping prior year destock that we saw in Q2. And then we had a little bit of pipeline build this year related to some of the innovation that we've been putting into the marketplace and Mike just talked about. This amounted to about 110 basis points at the enterprise and about 170 basis points for North America. This was partly offset by lower private label shipments outside of the private label diaper contract that we exited in Q1 of this year. And what this is driving is about 60 basis points of impact to total company and to North America, about 1 point in the quarter. Now as we think about the first half, shipments actually lagged consumption. And that was about 60 basis points when we think of the enterprise. Firstly, we're facing lower year-on-year North America private label shipments outside of the private label diaper contract that we exited, and we've been highlighting over the last couple of quarters. And this was again about 60 basis points of impact to the total company organic sales in the first half and about 1 point to North America. Secondly, there's -- this year, there's 1 less day of shipments for the first half, whereas scanner data is apples-to-apples in terms…

Sorry, we're throwing a lot at you. But -- can I just lob in one? I'll go back to sorry. But Nelson is loaded for bear here. But the -- here's where you started, strong performance in North America, underlying driver, great innovation, I think really strong improvement in our marketing. And then I would say the customer plans are as good as the innovation. And I think you know we're top rated at an advantage. I think we're working exceptionally well with customers. And so that's kind of what's driving it. And I don't see what data you're looking at, and I should probably try to reconcile that. But North America, as Nelson mentioned, consumption in the second quarter was up 4.5%. The range of our categories was from, I would say, low single digit, and that would be like bath tissue around 4%, low single digit to up to near double digit in adult care. So I think consumption remains robust in our categories or as I said earlier to Nik, the consumption is very durable in our categories, and that's really driven by, I think, excellent innovation and excellent execution.

Your next question is coming from Steve Powers from Deutsche Bank.

So Nelson talked about volume mix led growth in the back half. So I wanted to kind of talk a little bit about the pricing environment and your pricing outlook. On the one hand, if we think about what we've heard year-to-date and through the second quarter, I think we've heard and we've seen pockets of increasing promotion and competitive activity in certain areas, particularly in the U.S. On the other hand, obviously, there are inflationary pressures building and indications that we should see some kind of pricing rolling through as we move through the back half into next year. So I guess in that context, just your overall assessment of competition, your pricing outlook for the balance of the year and any expectations or considerations you have just for customer and consumer acceptance of that incremental pricing if it's to come?

Yes. I'll start, Steve, with -- I'll say our overall kind of philosophy on this is, right now, we're really focused on driving volume and mix, but we have to maintain PNOC or pricing net of commodity. We have to have discipline on that, right? And so our approach is that PNOC, pricing net of commodities has to be 0 or greater, right? And so -- and so that's kind of what we're trying to -- that's kind of our overall approach. And so we've continuously deployed, I would say, targeted revenue management actions across the Board. And so in some cases, we have taken pricing earlier this year in some categories. And then in some categories, we have adjusted downwards, particularly in opening price point packs and also some large account sizes. But that's kind of our overall approach year-to-year. In terms of the promotional environment, again, philosophically, we view promotion as a tactical lever to drive trial of great innovation. I'm not a fan of using it to try to drive growth because in our categories where consumption is more fixed, it doesn't -- promotion does not expand our categories, not these. And so again, we use it. If you look at us, our promotional intensity is, I would say, below what the category average is and remains that and a little bit below what it was pre-COVID time period back in 2019. And so that's kind of our overall approach because we feel great about the other levers that we are applying, which is great innovation, great marketing, great customer plans. So I don't know if that answers everything you're asking about.

Yes. I guess in summation, just I guess, I'm gleaning from what you're saying is where you need it, where you see opportunities, you feel good about your pricing power and not overly concerned about the competitive environment. Is that a fair summation?

Yes. Well, yes, I think -- again, I think our approach is we have to offset commodities and to be able to expand margins over time. And so that's just a discipline that we have to employ. And we're not using pricing as a growth driver because, again, of the category dynamics of promotion.

Your next question is coming from Michael Lavery from Piper Sandler.

Just wanted to unpack the outlook update a little bit. There's some constants, but obviously also some changes with tariffs or some of the impact on the portfolio reshaping. And you gave some details in the prepared remarks, but maybe just bridge the changes for us and put the spread trends together and it feels like there's a good number of moving parts from 3 months until now -- 3 months ago until now.

Sure. Sure, Michael. There's obviously been a lot going on in the last 90 days, and we'd expect more to come. So -- but a few things as I unpack and the outlook and bridge it to April. Our outlook is reflecting the momentum that we have in the business, which is grounded in sustainable actions, strong innovation and the execution plans that our teams in the fields are carrying out. We're focusing on winning where it matters, and that's with consumers through our superior product offerings. On the top line, we're well positioned right now to deliver sustainable growth ahead of the categories and through a volume and mix-led growth. Our organic growth is now based on our business in North America and IPC, where weighted average category growth is, as I said before, around 2% compared to the 1.5% to 2% growth that we had back in April, which included IFP. So we're excluding that. That's why you see category growth weighted a little bit higher, but still at the same levels that we had back then implied. And we plan to continue to gain share as happened this quarter where we had around 10 basis points of share gains on a weighted basis. As we look at operating profit, we're supporting a significant step-up in new product activations and launches across key markets. And gross productivity will continue to be a very strong driver of our ability to do that. As of the second quarter, we delivered on the first half about 5.5% of gross productivity as a percent of total cost of goods. And for the second quarter is actually 5.8%. We are aiming to be at the top end of the 5% to 6% range in gross productivity, and that's unchanged versus what we laid…

Just sneaking a quick follow-up on the brand spend. You also called out some of the awards at Conn and just how much improved that performance is. What's driving the better execution? Is it just a bit more spend? Is it better capabilities? Or is there a pivot there and how you approach it?

Yes. Great question, Michael. I'm glad you picked up on that. I would say it's all about better capability and I would say, more focus from the company. I think what -- I'd say the focus part is, again, historically, and this comes with our rewiring of our organization, our marketing was very decentralized, right? And we had a lot of agencies and a lot of individual markets made individual decisions, all those kinds of things. And while they still have a lot to say and control over the marketing, I think this new organization for us under Patricia Corsi's leadership, our new Chief Growth -- she's not new anymore, but our Chief Growth Officer, is really bringing a different philosophy, right? And so -- and I think the opportunity that she pointed out is that what we really had to invest more effort in is developing an emotional connection to our brands. We've always been great at bringing technical features and differentiation to the product. We're okay. We are historically okay at demonstrating those technical features through demos. But really, what we're focusing more on is building that brand love or the emotional connection. And so maybe the operative word that I will tell you that's leading to our improved performance is in-house. We're bringing a lot of capability in-house. We still use agencies. We've consolidated to a few great ones. But a lot of the stuff we're doing in-house. For example, in China, we're making a lot -- many, many, many, maybe hundreds of ads a day that are AI fueled, but those are in-house generated, right, and then in-house deployed to media. And that's a different capability that is newer to us just over the past few years. And that's -- we feel like in that instance,…

Your next question is coming from Bonnie Herzog from Goldman Sachs.

I had a quick question on your JV deal with Suzano. With the IFP out of the base business, how should we think about the organic sales growth and margin EPS accretion to your long-term algo? And then you touched on this a bit, but volume in the quarter was strong and broad-based. But I guess I just wanted to verify, there wasn't any pull forward. I mean you highlighted some benefits given changes in retail inventory. So maybe hoping for just a little bit more color on that and how you're thinking about that in the second half. Ultimately, should we assume volume growth in 2H?

Yes. Let me just start on the volume with. Here's the thing for us. And where I'm pleased with the performance is our consumption globally was strong. And it all starts with consumption. And actually, we tend to manage on consumption. And then we recognize there's inventory changes, but we don't overly try to manage the retail inventory changes because in the long run, shipments must equal consumption. And that's kind of what I tend to focus on. And so as I just mentioned, North America, 4.5% consumption growth on our brands kind of in the second quarter. And then again, the range, pretty good performance internationally as well on that front. And so we feel good about that. There was a little bit of inventory build for the reasons that I think Nelson articulated, but there was also some retail inventory takeout in the first quarter, which we didn't really talk about either. So I think overall, we feel good about that. I think with regard to IFP, maybe a couple of points. I would say we remain committed to our long-term algorithm that we presented at the Investor Day last year. I would say that this transaction should improve our ability or reliability to be able to deliver consistent top-tier growth over time, right? So our algorithm on organic was predicated on growing ahead of our categories. And the personal care categories globally are, for us, a little bit margin accretive and also more consistently growing. And so we expect our growth profile to continue to improve over time and as a function of the innovation that we have, the marketing and the activation. On the bottom line, again, I think we're making very, very good progress on the margins. We have great visibility to our 40% gross margin and 18% to 20% opRoss aspirations by 2030. I did want to point out, those are milestones, not targets, right? And so we're not trying to get there. We're trying to get beyond there. We just put out an interim milestone. I do think -- and Nelson, you may want to comment, the IFP transaction does create a onetime impact. So it's going to accelerate us a little bit further on the margin side. But we'll update you on what that's going to be when we get closer to the close.

Right. And just building on that, I mean, Bonnie, two things as we think about IFP, and I talked about it earlier, what's happening is when we strip out IFP, we are seeing underlying category growth that's a tad higher than what we had before. And this buttresses our thinking around the fact that we have a North America and International Personal Care business that's growing faster, that has a higher gross margin. And overall, we expect to continue to grow through volume and mix in the foreseeable future ahead of the categories. And that's really what this is. As we think about the milestone that Mike talked about, it's -- we are on pace to get to that 40% -- at least 40% gross margin and at least the 18% to 20%. And if anything, it would be faster than 2030 because of the move that we've made.

We reached the allotted time for Q&A. I'll now hand the conference back to Chris Jakubik for closing remarks. Please go ahead.

Well, thanks, everybody, for joining us. We know there are multiple calls today that you need to get to. So do appreciate your attention today. If you have any follow-up questions, we'll be around to take them for the remainder of the day. Thanks again, and have a great one.

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