Q4 2023 Earnings Summary
- Kimberly-Clark is shifting to a volume mix-driven plan, returning to its pre-pandemic approach, with expectations of volume growth and improved market share, especially in North America.
- Strong margin recovery in the Consumer Tissue business, achieved through disciplined revenue growth management and value-added innovation, positioning the company as a premier consumer franchise.
- Increased investment in advertising, with the advertising budget in 2023 increasing to more than 5% of net sales (approximately $200 million increase), supporting strong market share gains in key markets like South Korea, Australia, New Zealand, and China.
- Kimberly-Clark Professional (KCP) segment's volumes are significantly down—approximately 23-24% since 2019—due to structural changes such as increased work-from-home trends, and are not expected to recover quickly.
- The company is facing increased competition from private label brands, which are gaining market share in some categories, potentially impacting sales and margins.
- Exposure to hyperinflationary economies like Argentina is causing significant currency impacts on earnings, resulting in a net EPS impact of $0.16 for the year and $0.09 for the quarter, and may continue to pose financial risks.
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Organic Sales Growth Outlook
Q: What's driving strong organic sales guidance despite current trends?
A: Kimberly-Clark expects low to mid-single-digit organic sales growth in 2024, robust relative to the 3% growth in Q4. This guidance is driven by anticipated volume improvements from Q2 onward and pricing contributing around 200 basis points, mainly from hyperinflationary markets. -
Volume Improvement Expectations
Q: What factors are behind the expected volume pickup this year?
A: The company is shifting back to a volume mix-driven plan, as used pre-pandemic. They foresee consumers responding favorably, with pricing pressures receding. Market share improvements, especially in North America, are anticipated due to better supply conditions and strong growth drivers. -
Cost Inflation and FORCE Savings
Q: How are cost inflation and FORCE savings impacting margins and outlook?
A: While core commodity costs like pulp and resin are easing, other expenses such as distribution and labor remain headwinds, leading to a net cost headwind of around 100 basis points for 2024. FORCE savings totaled $325 million last year, and the company is focusing on integrated cost management to sustain productivity gains. -
Impact of Argentina's Devaluation
Q: What's the financial impact from Argentina's devaluation?
A: The mark-to-market impact on net monetary position was $115 million in 2023, affecting EPS by $0.16. For 2024, the company expects about half of that impact, primarily in the first half, and it's included in their outlook. -
Supply Constraints Resolution
Q: Have supply constraints from last year been resolved?
A: Significant supply constraints in North America, particularly in personal care and Kleenex, have been addressed. The company developed secondary supply sources, leading to improved market share and stronger commercial execution moving forward. -
K-C Professional Volume Decline
Q: Why has K-C Professional's volume declined since 2019, and how are margins unaffected?
A: Volumes are down about 23–24% due to reduced office occupancy from work-from-home trends. The company adjusted by rightsizing the business and focusing on cost management. Margins have been maintained through pricing, mix improvements, and innovations like the ICON dispenser. -
Market Share and Private Label Competition
Q: How is the company addressing market share challenges amid private label growth?
A: Despite previous supply constraints affecting share, especially in North America, Kimberly-Clark expects improved market share in 2024. They're investing in innovations and are committed to offering superior value across all price tiers to compete effectively with private labels. -
Investment in Advertising and Promotion
Q: How are investments in advertising affecting growth and margins?
A: Advertising spend increased by about $200 million in 2023, reaching over 5% of net sales, an increase of 100 basis points from the prior year. For 2024, the company plans to expand advertising at about half the pace of last year, focusing on high-return areas like digital marketing. -
2024 Guidance by Division
Q: Can you break down the 2024 growth guidance by division?
A: Personal Care is expected to grow in the mid-to-high single digits, driven by volume growth. Consumer Tissue and K-C Professional are projected to grow in the low single digits. Overall, the plan is largely volume and mix-led, with pricing contributing about 200 basis points due to hyperinflationary markets. -
First Quarter Trends and Earnings Phasing
Q: Why is a lower rate of organic growth expected in Q1?
A: Q1 is expected to be muted due to softer volumes and potential retail inventory softness. Significant growth is anticipated from Q2 onward as new programs and innovations are introduced, leading to progressively improving volumes and margins throughout the year.