Second Half Margin Outlook
Q: How will margins and EPS evolve in the second half?
A: Nelson explained that despite a sizable margin and EPS beat in Q2, they expect increased investments in the back half. Top-line growth is anticipated to be similar to Q2, driven by volume and mix. Margins will be affected by lower absolute dollar productivity, tapering benefits from pricing net of costs, increased brand investments (spend rising to close to 7% of sales in the second half from 6% in the first half), and a 180 basis point profit headwind from divesting personal protective equipment. Additionally, the adjusted effective tax rate is projected to increase to 23%-24% for the full year, up from 22.3% in the first half. -

Volume and Mix-Driven Growth
Q: Will volumes improve in the second half, especially in tissue?
A: Michael stated they've shifted emphasis to volume and mix-driven growth and expect positive volumes across all businesses, including North American tissue. He feels confident about their brands and progress, despite some inventory noise. -

North American Pricing and Promotions
Q: What's the outlook for pricing and promotions in North America?
A: Michael noted that the pricing environment remains stable, with promotions normalized post-pandemic. While recognizing increased consumer price sensitivity, they focus on profitable growth through advertising and innovation rather than over-promotion. They maintain pricing net of input cost discipline and aim to offer robust value propositions across the value spectrum. - , -

Cost Savings and Supply Chain Transformation
Q: What are the sources and progress of cost savings?
A: Nelson explained that the main source of savings is the supply chain transformation, targeting $3 billion over the next five years. This includes value stream simplification, network optimization, and scalable automation. Productivity delivery is ahead of plan, with about $255 million saved year-to-date. Additionally, overhead savings of $200 million are expected over the next 2-3 years, mainly after the new organizational model is fully in place later this year. -

Market Share Gains
Q: How are market share trends across key markets?
A: Michael reported progress globally, being even on a weighted basis and up or even in about half of cohorts. In China, Huggies' share was up 180 basis points; in the U.K., Andrex was up 350 basis points; in South Korea, Huggies increased over 800 basis points since 2019 and over 300 basis points in the quarter; in Brazil, they were up about 100 basis points. Although making progress, there's still work to do, focusing on systematic implementation of their playbook and sharpening brand propositions. - , -

Organizational Changes and New Hires
Q: How do recent organizational changes and new hires support the strategy?
A: Michael highlighted interim organizational moves effective July 1 to smooth the transition to the new structure. He's excited about new hires Patricia (Chief Growth Officer) and Craig (Head of R&D). Patricia brings experience from Kraft, Unilever, Heineken, and Bayer, focusing on marketing and advertising, while Craig brings transformational leadership from Unilever, Sun Products, and Campbell's. They are expected to advance their Power and Care strategy. -

Consumer Demand and Investment Balance
Q: How are you balancing pricing and investments amid cost inflation?
A: Michael observed resilient demand across categories globally, with opportunities to expand penetration. They are mindful of the consumer environment, seeing some value sensitivity, particularly among mid- to lower-income households. The focus is on sharpening positioning across the value spectrum and investing in brands and innovation, while maintaining discipline to be at least pricing net-of-cost neutral for the year. Nelson added that no material change in cost inflation is expected, and they anticipate positive contributions from volume and mix. -

Retail Inventory and Volume Trends
Q: What's the impact of retail inventory changes on volumes?
A: Michael emphasized that shipments must align with consumption, which remains healthy. While there was some inventory noise due to retail inventory changes in North America, he doesn't expect ongoing contractions. Overall, he's encouraged by the volume trends and the progression of volume and mix in the right direction. -

Tissue Business Performance
Q: What's affecting tissue volumes and share in North America?
A: Michael explained that while consumption was up 3% in the quarter, organic numbers were affected by a retail inventory change. They've made strong progress on Kleenex, with share up almost 500 basis points. However, bath tissue share was a bit soft, down about 1 point, due to a packaging change on Cottonelle and supply constraints on Scott 1000. He feels good about the progress and expects to be mostly through the inventory changes. -

Promotional Strategy in Tissue
Q: Will you increase promotions to drive tissue volumes?
A: Michael recognizes increased consumer price sensitivity but focuses on ensuring robust value propositions rather than over-promotion. He emphasizes the use of analytics to make informed promotional decisions, aiming for profitable growth. Trade promotion is viewed as a tool, not a strategy, with efforts concentrated on growing categories through advertising and innovation. -