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    Kimberly-Clark Corp (KMB)

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    Kimberly-Clark Corporation is a global company specializing in the manufacturing and marketing of products made from natural or synthetic fibers and materials. The company operates through three main business segments, offering a variety of personal care, consumer tissue, and professional products. Kimberly-Clark's product portfolio includes well-known brands such as Huggies, Kleenex, and Scott, which hold leading positions in their respective markets .

    1. Personal Care - Manufactures and markets disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, and reusable underwear under brands like Huggies, Pull-Ups, Kotex, and Depend .
    2. Consumer Tissue - Offers facial and bathroom tissue, paper towels, and napkins under brands like Kleenex, Scott, and Cottonelle .
    3. K-C Professional - Provides wipers, tissue, towels, and personal protective equipment with brands including Kleenex, Scott, and WypAll .
    Initial Price$139.14July 1, 2024
    Final Price$142.41October 1, 2024
    Price Change$3.27
    % Change+2.35%

    What went well

    • Kimberly-Clark's gross margin has expanded to approximately 37% year-to-date, with consistent gains over the last 8 quarters. The company has strong confidence in achieving its long-term goal of at least 40% gross margin and operating margins of 18% to 20% before the end of the decade, driven by meaningful innovation and proactive cost management.
    • Significant productivity savings of $130 million in the quarter are fueling investments in innovation and growth initiatives. The company has a strong pipeline as part of its Powering Care strategy, aiming to deliver $3 billion over the next few years.
    • Positive progress on market share, particularly in the U.S., where the company is up or even in 7 of 8 categories compared to a year ago and 8 of 8 sequentially, driven by investments in pioneering innovation, improved advertising, and strong commercial execution.

    What went wrong

    • The company is experiencing weaker-than-anticipated demand in certain markets, including Latin America, Southeast Asia, and the North American professional channels, which is creating pressures on growth in the near term.
    • Category growth is expected to be closer to 2%, down from the previously anticipated 2% to 3% range, due to factors such as reduced pricing benefits and market softness, potentially impacting organic sales growth.
    • Kimberly-Clark is considering strategic options for its international tissue and professional businesses, which may indicate challenges in these areas and could affect future growth and profitability.

    Q&A Summary

    1. Gross Margin Outlook
      Q: Is current gross margin expansion sustainable?
      A: Management is pleased with the trajectory of gross margins, averaging around 37% year-to-date and making strong year-over-year gains. They expect gross margin improvements to continue, supported by meaningful innovation, proactive cost management, and strong productivity from supply chain transformation. They also plan to increase advertising spend by at least 60 basis points in Q4. Overall, they remain confident in achieving their long-term gross margin goal of at least 40% by 2030.

    2. Exiting Private Label Business
      Q: How will exiting private label impact growth and margins?
      A: The company is focusing on proprietary, science-based innovation behind their brands and has been exiting private label businesses over the past 18 months. This has enabled growth in branded products, like Kleenex, which increased market share by nearly 500 basis points this quarter. They will cease production for a large club private label diaper business in the U.S. in 2025, creating a headwind of about 2% next year. As a result, private label mix will shrink from about 4% of sales in 2023 to about 2% next year, and they expect it to decline further over time. ,

    3. Organizational Changes
      Q: How will the new structure impact growth and visibility?
      A: The new "Wire for Growth" organization, officially implemented on October 1, is progressing well, with benefits already being realized. The structure enhances visibility and responsiveness, focusing on big markets and categories. Management remains largely unchanged in local markets, ensuring continuity. Despite some softness in Southeast Asia and Latin America, they feel confident in their ability to drive growth and manage the business effectively. ,

    4. Inventory Destocking
      Q: How is inventory destocking affecting results?
      A: Retail inventory reductions are impacting shipments, creating a disconnect with strong consumer consumption, which grew 3.2% in North America across Personal Care and Consumer Tissue. Transitory factors like inventory changes, hurricane impacts, and exits from private label contributed to about a 1.3 percentage point headwind in Q3, equating to an 80 basis point impact year-to-date. They expect inventory levels to normalize but acknowledge some dynamism in the environment. ,

    5. Market Share and Innovation
      Q: How are market shares and innovation efforts progressing?
      A: Management is pleased with market share progress, being globally flat on a weighted basis and making strong gains in the U.S., where they are up or even in 7 of 8 categories year-over-year. Innovation plays a key role, aiming both to grow market share and expand categories. Premium innovations like Skin Essentials are delivering great consumer benefits, while they continue to offer value across all tiers. The focus is on delighting consumers to drive both share gains and category expansion.

    6. Q4 Profit Outlook
      Q: What are expectations for Q4 operating profit?
      A: They expect to continue making year-over-year progress on margins but anticipate some pressures in Q4 due to increased investments in advertising and brand support by at least 60 basis points, discretionary costs hitting the P&L, and back-half-loaded input cost inflation. However, they project stronger top-line growth in Q4 compared to Q3, normalized for transitory factors, and remain focused on driving volume and mix-led organic growth. ,

    7. Strategic Options for Businesses
      Q: Are there strategic changes for international tissue and professional businesses?
      A: While management did not comment on news articles or rumors, they emphasized their commitment to adding value in categories where they have a right to win. They have made tough decisions in the past, such as exiting the Consumer Tissue business in Brazil due to structural factors, and will continue to optimize participation where appropriate.

    8. S/4HANA Implementation
      Q: How will S/4HANA impact volatility management?
      A: The organization successfully implemented S/4HANA in North America at the end of July, with minimal disruption. This advanced system enhances visibility and control, allowing better management of the cost basket and improved forecasting capabilities. The company believes this will contribute to managing volatility and supporting strategic initiatives moving forward.

    Guidance Changes

    Annual guidance for FY 2024:

    • Gross margin: 37% year-to-date with consistent year-over-year gains expected into Q4 (no prior guidance)
    • Operating margin: Aiming for 18–20% by the end of the decade (no prior guidance)
    • Private Label Exit: Plans to reduce private label from 4% of total sales in 2023 to 2% in 2025, with an expected 2% headwind to sales growth in 2025 (no prior guidance)
    • Productivity Savings: Targeting $3 billion over the next few years; delivered $130 million in gross productivity savings in Q3 2024 (no prior guidance)
    • Market Share and Consumption: Emphasis on volume and mix-driven organic growth, disciplined pricing, and promotional activities (no prior guidance)
    • Retail Inventory Reductions: 1.3 percentage-point headwind in Q3 2024, expected to normalize over time (no prior guidance)
    NamePositionStart DateShort Bio
    Michael D. HsuChairman of the Board and CEOJanuary 2019Michael D. Hsu, 59, has served as Chairman of the Board since January 2020 and as Chief Executive Officer since January 2019. He joined Kimberly-Clark in 2012 and has held various leadership roles, including President and COO from 2017 to 2019 .
    Ehab Abou-OafPresident of K-C ProfessionalJanuary 2022Ehab Abou-Oaf is responsible for Kimberly-Clark's global business-to-business operations. Before joining Kimberly-Clark, he worked at Mars, Inc. for 19 years and at The Procter & Gamble Company for ten years .
    Doug CunninghamPresident, K-C Europe, Middle East & Africa2021Doug Cunningham, 52, is responsible for Kimberly-Clark's consumer business in the EMEA region. He previously served as Vice President and Managing Director for Australia & New Zealand starting in 2019 .
    Tamera FenskeSenior Vice President and Chief Supply Chain OfficerSeptember 2022Tamera Fenske is responsible for procurement, manufacturing, logistics, transportation, safety, and sustainability. She joined Kimberly-Clark from 3M Company, where she held various roles, including Senior Vice President, U.S. and Canada Manufacturing and Supply Chain .
    Zackery HicksChief Digital and Technology OfficerJuly 2022Zackery Hicks is responsible for all aspects of the company's information technology and digital functions. Before joining Kimberly-Clark, he served as Executive Vice President and Chief Digital Officer at Toyota Motors North America, Inc. .
    Sandra R.A. KarrmannSenior Vice President and Chief Human Resources Officer2020Sandra R.A. Karrmann, 58, is responsible for the design and implementation of all human capital strategies. Before joining Kimberly-Clark, she served as Executive Vice President and Chief Human Resources Officer at Tenet Healthcare Corporation .
    Alison LewisChief Growth Officer2019Alison Lewis, 56, joined Kimberly-Clark from Johnson & Johnson, where she served as Chief Marketing Officer of the Global Consumer business .
    Robert LongChief Research and Development Officer2021Robert Long, 66, is responsible for the company's global research and development, quality, and regulatory functions. He joined Kimberly-Clark from The Coca-Cola Company, where he served as Senior Vice President for Global R&D and Chief Innovation Officer .
    Grant B. McGeeSenior Vice President and General CounselFebruary 2024Grant B. McGee, 43, rejoined Kimberly-Clark from American Airlines, where he served as Vice President, Deputy General Counsel, and Corporate Secretary. He previously served in various roles at Kimberly-Clark from 2015 to 2022 .
    Jeffrey MelucciChief Business and Transformation OfficerJanuary 2024Jeffrey Melucci, 53, previously served as Chief Business Development and Legal Officer. He has held various positions at Kimberly-Clark, including Senior Vice President, Business Development and General Counsel .
    Paula S. Vaz RamosChief Strategy and Transformation OfficerOctober 2021Paula S. Vaz Ramos, 44, is responsible for the company's global enterprise strategy and transformation activities. She joined Kimberly-Clark from McKinsey & Company, where she worked for 18 years .
    Russell TorresGroup President, K-C North America2021Russell Torres, 52, is responsible for Kimberly-Clark's consumer business in North America. He joined Kimberly-Clark from Newell Brands Inc., where he served as Group President .
    Nelson UrdanetaSenior Vice President and Chief Financial OfficerApril 2022Nelson Urdaneta joined Kimberly-Clark from Mondelēz International, where he served as Senior Vice President, Treasurer. He has held various roles at Mondelēz since 2005 .
    Gonzalo UribePresident, K-C Latin America2020Gonzalo Uribe, 52, is responsible for Kimberly-Clark's consumer business in the Latin America region. He joined Kimberly-Clark from Mondelēz International, where he held multiple roles .
    Tristram WilkinsonPresident, K-C Asia Pacific2021Tristram Wilkinson, 55, is responsible for Kimberly-Clark's consumer business in the Asia Pacific region. He joined Kimberly-Clark in 1995 and has held various positions within the company's EMEA operations .
    1. "You've noted that the exit from private label businesses will create a headwind of about 2% in 2025 due to ceasing production for a large club private label diaper business in the U.S. ; with this significant impact on revenue, what specific strategies are you implementing to offset this loss and drive growth in your branded products?"

    2. "Given that your gross margin has expanded year-to-date and is tracking ahead of pre-COVID levels , but you're facing soft organic sales and potential need to increase promotions due to consumer pressures, how sustainable are these margin levels, and what risks do you see to maintaining them in the coming quarters?"

    3. "Despite implementing your new organizational structure as of October 1 , you expect category growth to decelerate to the lower end of your long-term range ; how will this restructuring help drive the intended growth, and what challenges do you anticipate in achieving your goals?"

    4. "Amid significant organizational changes and market volatility, including demand deceleration in key regions and channels , how has your visibility into business performance and forecasting accuracy been affected, and what measures are you taking to improve it?"

    5. "With innovations like Skin Essentials reportedly exhibiting high cannibalization rates , how do you assess the effectiveness of such products in driving net incremental growth versus merely shifting sales within your portfolio, and what strategies are in place to ensure innovation leads to market share gains?"

    Program DetailsProgram 1
    Approval DateJanuary 22, 2021
    End Date/DurationN/A
    Total additional amount$5 billion
    Remaining authorization amount33,695,323 shares
    DetailsAllows repurchase of 40 million shares

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Gross Margin: Focus on achieving at least 40% long-term, currently averaging around 37%.
      2. Organic Growth: Expected to be closer to 3% for the full year.
      3. Private Label Business: Reduction from 4% to 2% of overall sales by 2025.
      4. Advertising and Brand Support: Increase by at least 60 basis points in Q4.
      5. Pricing and Costs: Pricing expected to offset cost inflation.
      6. Category Growth: Full-year growth likely closer to 2% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance: The documents do not provide specific details on the exact guidance metrics from the Q2 2024 earnings call. The discussion primarily focuses on volume improvements, cost inflation expectations, pricing strategies, and investment plans, but it does not explicitly list specific guidance figures or metrics .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Volume Growth: Better-than-expected growth, with continued improvements expected.
      2. Commodities and Input Costs: Net input costs around $250 million inflationary.
      3. Advertising Spend: Increase by 50 basis points for the year.
      4. Impact of Divestitures: $0.08 headwind from divestitures.
      5. Productivity and Cost Savings: $120 million in Q1 savings, aiming for $3 billion over the next few years.
      6. Market Share: Optimistic about improvements.
      7. Innovation Pipeline: Increased investments starting in Q2 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Sales Growth: Low to mid-single-digit range.
      2. Reported Net Sales Growth: Negative impact from currency and divestitures.
      3. Operating Profit Growth: High single-digit to low double-digit range.
      4. Earnings Per Share (EPS) Growth: High single-digit range.
      5. Pacing of Sales and Earnings: Balanced between first and second half.
      6. Cost Environment: Net cost headwind around 100 basis points.
      7. Monetary Losses in Hyperinflationary Economies: Reduced rate compared to 2023 .

    Competitors mentioned in the company's latest 10K filing.

    • Global, regional and local manufacturers: These include private label manufacturers which offer products typically sold at lower prices. The private label market share has been increasing in the tissue category, which could reduce net sales of Kimberly-Clark's higher-margin products and negatively impact profitability .
    • Well-known, branded products and low-cost or private label products: Competitors in both domestic and international markets include these types of products. Some competitors may have better access to financial resources and greater market penetration, enabling them to offer a wider variety of products and services at more competitive prices .
    • Private label manufacturers: These competitors may have significantly lower product development and manufacturing costs, allowing them to offer products at a lower price .