Kimberly-Clark Corp. 2026 Q2 Earnings Call

Hello, this is Chris Jakubik, Head of Investor Relations at Kimberly-Clark. Welcome to our second quarter 2026 business update. Today, our Chairman and CEO, Mike Hsu, will provide an update on our overall business performance. Russ Torres, our Chief Operating Officer, will provide an overview of segment results and key market highlights, and Nelson Urdaneta, our Chief Financial Officer, will review our second quarter consolidated results and update our full-year outlook. We've also scheduled a separate live question and answer session with analysts. You can access our earnings release, supplemental materials, and audio of our Q&A session at investor.kimberly-clark.com. A replay of the Q&A session will be available following the event through the same website. During our review, 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 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, the GAAP results. 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 turn it over to Mike.

Thank you, Chris, and thanks to everyone for joining us. Our second quarter results reflect the durability of the growth engine we've built through Powering Care. This quarter was characterized by a pressurized consumer environment, moderating category growth, and a few discrete but significant one-off impacts. In the face of those headwinds, our teams around the world executed with speed and agility to manage the business with discipline and navigate externalities. We delivered our tenth consecutive quarter of volume plus mix-led performance, held global weighted share, posted another quarter of industry-leading gross productivity, and continue to invest for impact. We also completed a major step forward in our transformation with the successful close of our strategic partnership with Suzano. We unveiled our proprietary alternative natural fiber innovation program that has the potential to shape the future of our industry and further advance integration plans for our pending acquisition of Kenvue.

We will be ready to hit the ground running at close. We're excited and we're ready for what's next. We have a generational opportunity to create a new kind of health and wellness company, to reimagine care for billions of consumers around the world, and to create lasting value for shareholders. With that, let's turn to the quarter. The second quarter reinforced that the operating model we've implemented can build our brands and businesses in almost any environment. With new challenges continually emerging, our teams have demonstrated the ability to adapt and execute. Despite discrete headwinds, which we'll discuss, the fundamentals of our business remain strong, driven by our disciplined approach. First, we out-innovate, out-market, and out-activate to deliver superior value propositions across the good, better, best ladder. This enabled us to hold global weighted share on a trailing 12-month basis against a strong baseline.

Second, our cost discipline is a source of resilience that compounds over time. We delivered another strong quarter of productivity, advancing supply chain and AI capabilities to help us deliver the best product at the lowest cost around the world. Third, our fast and Agile operating model is fueling our ability to navigate new discrete headwinds while continuing to move the business forward. In the second quarter, we experienced a significant one-time external impact in China that has had a meaningful effect on the diaper business. As a result, we're adjusting our full-year outlook primarily to reflect our anticipated recovery timeline. Russ and Nelson will provide further details. We're disappointed, but remain confident in the underlying quality of our global innovation and commercial plans. We're working hard to correct the situation in China and expect to drive continued momentum on our brands around the world.

Last quarter, we told you that 2026 would feature one of our most active new product innovation agendas in recent history. We're delivering on that commitment with an onslaught of growth initiatives that are well underway. In North America, we're delivering superior value propositions across our categories. New skin health innovation and upgrades are moving through the Huggies portfolio, reinforcing our commitment to delivering meaningful performance improvements that consumers value. Viva is the number one cloth-like towel in the U.S., and it's a standout example of how out-innovate and out-market strategies come together to drive household penetration and share gains. As a purpose-driven company, we're working hard to reduce the stigma associated with some of our categories and take pride in helping consumers live better lives. Ahead of the world's biggest soccer tournament, Goodnites partnered with U.S. Men's professional team captain Tim Ream to help destigmatize bedwetting among children.

In international personal care focus markets, we have innovation-powered momentum. In Australia, our adult care innovation focused on delivering better fit, comfort, and discretion, resulting in meaningful share gains. In IPC enterprise markets, Vietnam and India continue to grow double digits and exemplify how we scale and tailor our proven playbook at speed. We're delivering winning innovation and reaching consumers with the right solutions in the right channels where social commerce is driving premium growth. The results we're generating in these markets are evidence of the durability of our Powering Care growth engine. Our focus on productivity is deeply embedded in our culture. For us, productivity is an operating muscle that's only getting stronger. It funds our investments in innovation, brand building, and activation while helping us navigate volatility from a position of strength.

We remain on pace for another year of industry-leading gross productivity of 5%-6% of adjusted cost of goods sold across our three productivity pillars, value stream simplification, network optimization, and scalable automation. We continue to build a robust pipeline of digital and AI-enabled initiatives. Together, these efforts support our commitment to delivering the best products at the lowest cost to consumers around the world. Three key initiatives are unlocking structural enhancements and cost efficiency. Having launched Coupa across our enterprise, we're leveraging a single global AI-powered solution that makes procurement smarter, faster, and more connected while providing enhanced visibility into global spend. We deployed an AI-powered manufacturing agent that puts more than 15 years of institutional knowledge at employees' fingertips. We're rapidly scaling this solution across our manufacturing network. Pilot results show the agent is making our workforce approximately 40%-50% more productive on knowledge search tasks.

It's also accelerating decision-making and training and driving more consistent execution of manufacturing best practices globally. As we continue our digital transformation, we're also equipping our technologists with the capabilities needed to run the supply chain of the future. We launched an academy-based learning program spanning 17 critical skill areas, including Agile, artificial intelligence, and data visualization. To date, the program has increased skill growth by 60% for more than 650 participants, and we're just getting started. We remain focused on performing while transforming. We're navigating a choppy external environment while driving disciplined performance on our base business. Through all this, we're making excellent progress executing three major strategic transformation initiatives. On July 1st, we successfully launched Arbex, our joint venture with Suzano, as an independent operating company.

Comprising substantially all assets of our former international family care and professional business, Arbex launches as a global tissue and hygiene leader with strong capabilities to grow and expand margins over time. The launch of the joint venture sharpens our focus on our highest value opportunities in personal care, meaningfully enhances our financial profile, and will further reduce future earnings volatility. We're also making excellent progress toward closing our acquisition of Kenvue. The regulatory process is on track, and integration planning is progressing well across all work streams. The closer we look, the better it gets. Having announced the future leadership team, we're finding the culture and capability fit is stronger than we had hoped. As we've engaged deeper in the planning process, we're gaining more clarity and conviction in our ability to capture this generational value creation opportunity. Third, we unveiled a proprietary alternative natural fiber innovation platform.

This exciting moonshot is brought to life by our Powering Care growth engine after decades of research. This initiative is the result of Kimberly-Clark's commitment to make bold, disciplined bets on category-transforming innovation that could reshape the future of care, our business, and our industry over the long term. Through this program, we're positioning Kimberly-Clark to sharpen our focus on proprietary right-to-win spaces that improve our growth trajectory, reduce exposure to natural forest fiber cost volatility, make meaningful progress against our company's natural forest fiber-free ambition, and build on our strong track record of U.S. manufacturing investment. Our pilot plant in Yuma, Arizona, marks our first facility in the region. We're honored to be part of the community as we become a new kind of global health and wellness leader. Now, I'll hand it over to Russ to discuss the progress of our transformation in greater detail.

Thank you, Mike. Despite what remains a challenging operating environment, we continue to make meaningful progress. Importantly, across our key priority sales, we're holding or gaining share across approximately 70% of our net sales base on a trailing 12-month basis and 62% in the second quarter. However, we did experience several discrete one-off factors that impacted our second quarter and some that will likely impact our full year. Our teams have proven time and time again that they're very resilient and agile, and they've remained focused on better innovation, stronger value propositions, and sharper execution. We remain energized and focused on executing our repeatable playbook and positioning the business for long-term success. In North America, our science-backed innovation and insight-driven marketing continue to resonate with consumers, strengthening our value propositions across the good, better, best ladder.

While consumers remain under pressure and month-to-month consumption patterns are choppy, demand across our categories has remained relatively stable. On the top line, organic growth declined 0.7% in the quarter, impacted by several temporary factors. These include about 100 basis point impact year-on-year from changes in retailer inventories and an additional 80 basis point impact from the distribution center fire. As a reminder, this was set against a difficult comparison in the prior year, when North America volume growth was approximately 5% in Q2 2025. Our tissue business is performing well. We saw strong volume plus mix-led growth in consumer tissue in our seventh consecutive quarter of volume growth in North America Professional. In fact, our consumer tissue business gained 10 basis points of weighted value share versus the prior year and improved our volume share by 70 basis points sequentially.

We've got the best slate of innovation in marketing we've had in my tenure. In our personal care business, we've been coming off six consecutive quarters of volume plus mix-led organic growth and two consecutive years of share growth. In Q2, we saw the full impact of the club distribution loss we noted in the last two calls in our diapers and training pants business, largely as planned. This was approximately a 240 basis point drag on our diaper share and a 290 basis point drag on our share in training pants in the current quarter. We saw increased competitive activity in some segments of personal care as well. As a result, share momentum was muted during the quarter, with a weighted share down 40 basis points versus the prior year.