Javier Escalante Manzo

Javier Escalante sought clarification on continued digital capability investments post-ERP completion and questioned the negative volume and pricing in the household segment, specifically regarding promotional spending in cat litter.

Answer

Luc Bellet, VP and CFO, confirmed that fundamental digital transformation investments, including ERP, are wrapping up by the end of Q3, with about $0.08 of adjustment in Q3. He noted ongoing technology investments are in the P&L, offset by productivity savings. For household, he attributed negative volume and pricing to consumption loss, market share decline, and shifts to larger sizes and different channels, creating a price mix headwind. Linda Rendle, Chairman and CEO, clarified that while overall category merchandising is higher, Clorox has also increased promotional levels intentionally to regain share, with significant promotion for Scoop Away at Costco disproportionately impacting Circana data.

Javier Escalante of Evercore ISI asked for the reason behind the significant negative price/mix in the quarter, particularly in the household segment, and questioned why the company doesn't consider a price realignment for its Glad and Cat Litter brands to stabilize market share.

Answer

CFO Luc Bellet attributed the abnormal price/mix decline to a one-time trade spending accrual adjustment; the underlying rate was closer to -2%. CEO Linda Rendle responded that for Cat Litter, the core issue is improving product superiority, not price. For Glad, she reiterated the strategy is to win through innovation and a better user experience that justifies a premium, rather than engaging in price competition.

Javier Escalante Manzo sought clarification on the Q4 organic sales guidance excluding the ERP transition and asked about competitive traction and potential structural pricing issues in the Glad and Cat Litter categories.

Answer

CFO Luc Bellet confirmed the Q4 organic sales growth, excluding the ERP impact, is expected to be around negative 3%, driven by the persistent consumption slowdown and retailer inventory reductions. CEO Linda Rendle addressed competition, noting increased promotional activity in Glad but confidence in their premium innovation. For Litter, she acknowledged it's a competitive category where they are making progress in regaining consumers post-cyberattack through innovation and investment.

Javier Escalante Manzo of Evercore ISI asked about the high cost of the company's digital transformation compared to peers and sought confidence in the underlying SG&A rate once the one-time project costs are complete.

Answer

CEO Linda Rendle justified the cost by describing the project as a comprehensive digital overhaul of the company's backbone, not just an ERP upgrade. CFO Kevin Jacobsen stated the goal is to lower the admin expense rate from 15-16% of sales during the investment phase to approximately 13% post-transformation by driving productivity and retiring legacy systems.

Javier Escalante Manzo asked for the company's underlying category growth assumption for the fiscal year and questioned if a hurricane might have artificially inflated Q1 results. He also asked for the top one or two factors that performed better than expected during the quarter.

Answer

CEO Linda Rendle reiterated the full-year category growth assumption of 0-1% and dismissed the idea that hurricanes had a meaningful impact on the quarter's results. She identified stronger-than-expected performance in the Health and Wellness portfolio as a key driver of the beat, specifically highlighting strong share growth in home care and laundry, as well as robust results from the Professional Products Division (PPD).

Javier Escalante from Evercore ISI inquired about the evolving competitive landscape in U.S. diapers, including the impact of private label and Chinese imports, Kimberly-Clark's Q4 marketing strategies, and efforts to avoid price wars amidst flat market volumes. He also sought insights into consumer reactions to new product introductions versus competitor offerings and strategies for driving positive mix.

Answer

CEO Mike Hsu and President & COO Russ Torres detailed Kimberly-Clark's innovation-led strategy, emphasizing product improvements across all tiers and strategic promotional timing. They highlighted strong Q3 diaper share gains in North America, the role of club channel growth, and confidence in their superior technology to compete effectively against low-cost alternatives and drive premiumization.

Javier Escalante inquired about the competitive dynamics in U.S. diapers, specifically regarding increased competition from private label and Chinese imports, the impact on Kimberly-Clark's marketing plans, and strategies to avoid a price war given low fertility rates.

Answer

CEO Mike Hsu acknowledged increased competitive activity but emphasized Kimberly-Clark's innovation-led strategy across all product tiers. President and COO Russ Torres confirmed shifting some Q3 promotional activity to Q4, noting solid performance and a 10 basis point share gain in Q3 (90 bps YTD) in U.S. diapers. He detailed new innovations like Blowout Blocker, HugFit360, and Snug & Dry improvements, explaining promotions are used for trial. Torres also discussed the impact of double-digit club channel growth on mix and the company's confidence in its product technology against low-cost competitors.

Javier Escalante Manzo asked about the company's use of pricing to drive mix, contrasting emerging markets with North America, and specifically inquired about the promotional environment and strategy in North America.

Answer

CEO Michael Hsu explained the strategy is to drive volume and mix growth while maintaining pricing discipline (PNOC). He characterized promotion not as a sustainable growth driver but as a useful tool for encouraging trial of new innovations. He stated the focus is on improving product quality across all tiers and allowing consumers to determine the final mix, rather than using aggressive pricing levers.

Javier Escalante Manzo asked for clarification on the impact of external factors like inventory destocking versus internal factors. He specifically asked about the private label exit timeline, the S/4HANA implementation's impact on visibility, and reports of the company evaluating strategic options for international businesses.

Answer

CFO Nelson Urdaneta quantified that transitory factors (inventory, hurricane, private label) negatively impacted Q3 growth by approximately 1.3 percentage points. CEO Michael Hsu reiterated the private label exit plan, praised the smooth S/4HANA implementation, and declined to comment on rumors about strategic options, but affirmed the company continuously optimizes its portfolio where it doesn't have a 'right to win'.

Javier Escalante inquired about the framework for the board's strategic review, drawing a parallel to P&G's past divestitures, and specifically asked how Kenvue views its Skin Health segment given its lower profitability and tough competitive dynamics.

Answer

Interim CEO & Director Kirk Perry reiterated that the strategic review is running in parallel with operational improvements and will consider all value-creation options. While declining to comment on any specific business segment, he stressed that poor execution has been a significant factor in underperformance and that focusing on controllable elements like brand building, innovation, and go-to-market excellence is a priority.

Javier Escalante questioned the framework for Kenvue's strategic review, drawing a parallel to P&G's history of divesting entire business units and asking specifically about the approach to the lower-profitability Skin Health segment.

Answer

Interim CEO Kirk Perry declined to comment on specific segments within the ongoing strategic review. He emphasized that poor execution has been a significant factor in underperformance and that the team is focused on controllable factors like demand creation through improved consumer insights, brand building, innovation, and go-to-market excellence.

Javier Escalante asked for justification of Kenvue's elevated SG&A as a percentage of sales and questioned whether the company is considering restructuring or portfolio rationalization now that the transition services agreement with J&J is complete.

Answer

CFO Paul Ruh explained that SG&A includes significant brand advertising investments, which increased by $400 million last year. He stated these investments are fueled by efficiencies from the 'Our Vue Forward' program, which is on track to deliver $350 million in savings by 2026. The focus is on leveraging the post-separation structure to drive cost efficiencies that can be reinvested into top-line growth.

Javier Escalante asked for details on the inventory issue by retailer and category, focusing on the drug store channel's importance for vitamins. He also requested management to unpack the drivers behind the weak April performance in the laundry detergent category.

Answer

Executive Richard Dierker acknowledged that the drug channel is highly promotional for vitamins and that the company is strategically retrenching its offerings there, while focusing more on the online channel, which represents half the category. For laundry, he stated that while Church & Dwight's brands are healthy and gaining share, the overall category is seeing noise from competitor pricing, concentration changes, and a new premium private label launch by a major retailer.

Javier Escalante Manzo asked for details on the international business's Q4 reinvestment plans and the success of the Deep Clean launch compared to a previous, less successful mid-tier entry.

Answer

CEO Matthew Farrell described the Q4 international spend as opportunistic across various markets rather than concentrated in one area. CFO Rick Dierker noted it was too early to comment on the recent Japan acquisition. Regarding Deep Clean, Dierker explained its success is due to leveraging the ARM & HAMMER brand, which is well-known for laundry. This contrasts with a prior attempt using the OXICLEAN brand, which consumers primarily associate with being an additive, causing confusion.

Javier Escalante Manzo asked if the new ARM & HAMMER Deep Clean detergent is driving trade-up or attracting new users, and also inquired about the speed at which promotional 'dry powder' can be deployed and its dependency on the supply chain.

Answer

Matthew Farrell (executive) explained that Deep Clean is attracting both existing ARM & HAMMER users trading up and consumers from other brands. Richard Dierker (CFO and Head of Business Operations) noted that while implementing entirely new promotions has a longer lead time, intensifying existing ones or using coupons can be done relatively quickly, reiterating it remains 'dry powder'.

Javier Escalante Manzo questioned the downbeat Q2 sales forecast given distribution gains and the Easter timing benefit, and also asked about the impact of channel shifts to online and club stores on future investment needs.

Answer

CFO Nathan Lowe explained that the Q2 Easter benefit is largely offset by an expected unwind of consumer pantry loading that occurred in Q1 ahead of tariffs. CEO Scott Huckins addressed channel shifts by acknowledging share gains in club and online, stating that Reynolds' online business is consistent with retailer trends and does not require a change in investment strategy beyond what has been outlined.

Javier Escalante Manzo from Evercore ISI requested details on repeat purchase behavior, including how it's defined and which areas are strongest for IL MAKIAGE. He also asked about the composition of Q1 growth, specifically the mix between new and existing users.

Answer

CEO Oran Holtzman clarified that repeat revenue grew to over 60% of the business in 2024, driven by same-product repurchases and wallet share expansion, with a 12-month net revenue repeat rate exceeding 100%. He confirmed that while Q1 is a significant quarter for new user acquisition, the very strong repeat business ensures the company can achieve its healthy EBITDA margin targets.