Title

Presentation

Kimberly-Clark Corporation beats earnings expectations. Reported EPS is $1.97, expectations were $1.92.

Christopher Jakubik: Good morning, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I’d like to remind everyone that during our comments today, 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 also 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 GAAP results. And 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 for a few opening comments.

Michael Hsu: Okay. Thank you, Chris, and thanks to everyone for joining us this morning. Our first quarter results underscore the strong progress we’re making towards creating a company unlike any other in our industry today. Our Powering Care growth engine is enabling Kimberly-Clark to continue building industry-leading base business momentum. We are delivering differentiated science-backed innovation in all rungs of the Good, Better, Best ladder. In the first quarter, innovation helped fuel our delivery of solid organic sales growth with volume plus mix growth increasing to 3%. This builds on 2 consecutive years of broad-based volume plus mix growth. We’re building market share across our key focus areas of Baby Care, Women’s Health and active aging and with a second quarter launch late that’s 1 of our most active ever across the categories and markets where we compete.

Our supply chain team continues advancing our commitment to deliver the best product at the lowest cost. We generated another quarter of industry-leading productivity, enabling us to continue investing for impact. Our fast lean operating model is making us more agile, navigating external turbulence. It’s also helping us continue to bring the best of Kimberly-Clark to the world with speed and efficiency. We’re still in the early innings of our potential, and we’re well positioned and continue accelerating our virtuous cycle of value creation. We look forward to seamlessly plugging Kenvue?brands and businesses into our proven durable operating model. We’re ready to raise the standard of care for billions of people around the world and deliver generational value for shareholders.

I’m very proud of our teams for their passion and dedication as we work to make our bold ambition a reality. And with that, I’d like to open the line for questions, operator.

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Operator: [Operator Instructions]Our first question is coming from Dara Mohsenian of Morgan Stanley.

Dara Mohsenian: First, maybe just a clarification on the full year guidance, obviously, we’re seeing commodity pressure today, oil stays with now above $100 a barrel, that’s not officially in guidance nor is the mitigating actions. But Nelson I was just hoping you can walk us through the range of potential actions you would take to help offset any pressure on full year earnings if oil stays up here, maybe rank order how you think about pricing versus productivity versus flex on ad spend? And just conceptually, do you think it’s realistic, you can offset most of that if oil stays up here, understanding it’s very volatile. And then Mike, if we can drill down a bit I did want to delve more into the pricing side in North America.

We’ve obviously seen a pretty promotional industry environment the last couple of quarters. At the same time, you’re generating very healthy volume growth on your portfolio within that environment and now we have this unexpected cost ramp up externally. So just a lot of moving pieces, and I was hoping you could help us understand strategically how you plan to manage pricing in North America given all those factors.

Michael Hsu: Okay. Thanks for the question, Dara’s a lot to unpack that. Let me kind of give you kind of the overall framework of how we think about it, and then I’ll ask maybe Nelson can give you some of the details about how we’ll process it and also — and maybe ask [ Russ ] to click in on some of your questions about pricing. But I’d say, overall, that I feel like we’re making great progress creating a new kind of health and wellness leader. And we’re really encouraged by the strong base business momentum we’re seeing. 3% volume mix in the quarter builds on I think sorry, ninth or tenth quarter of solid volume mix growth. And so we feel great about that. And the important thing, I think, as you kind of embedded in your question is that, that volume mix growth is being driven by innovation, right?

And we’re not renting that through promotion. The promotion is supporting the innovation. And so that’s kind of the big deal for us. On top of that, we feel like our supply chain is in full swing and generating industry-leading productivity, which we feel great about. And that enables us to reinvest back in the quality and the marketing of our brands. So I think we’re feeling good about our underlying base business momentum. I’d say the environment promises to remain turbulent, but we’re going to remain agile and disciplined. We’ve been through a number of these things over the last — well, in my tenure in this role, right, if you go through COVID and a few other wars, unfortunately, and other commodity or input cost situations. So we’ve had a lot of experience navigating a lot of different disruptions, including this quarter.

And I’d say, overall, our process is to remain very disciplined. And 1 concept that we’ve felt very important is PNOC or pricing not a commodity input cost discipline. And we expect that to be at least neutral over time, and we’re going to leverage all the tools that we have to make sure that we continue to do that. And so I think the key thing for us is we have a lot of levers to pull in terms of how we’re managing our cost profile, which Nelson is going to talk more about right now. But I also say having that discipline on pricing net of cost is an important concept for us.

Nelson Urdaneta: Yes. Picking up where Mike left Dara, a few things. As we look at the overall input cost inflation for the year and what we have factored into the outlook, and I think it’s important to bring up the last 2 years. So for 2024, 2025, we faced right around $200 million of input cost inflation. As we got into this year in January, that was really flattish all in. So we were staring at about a flat input cost inflation outlook. And with the latest data and information that we’ve got, let me unpack what’s in the outlook and what we’ve yet to build into the outlook, including the mitigation actions, as you stated. So for the second quarter, a couple of things. As we stated in the prepared remarks, we’re going to be facing around a $20 million top line impact from the California DC fire, which for North America would be in the 70 to 80 basis points of headwind in the quarter.

Then in the bottom line, we expect to have in the second quarter around $50 million, stemming from the inflationary impacts that we’re seeing as a result of the Middle East war. And some of the impacts related to the LA DC fire, which as you stated, we expect to recover that in the second half of the year. If we look into the back half of the year, and we assume that oil prices remain at around $100 per barrel on average, we will be facing potentially gross incremental input costs of around $150 million to $170 million. We’ve not built this into the outlook because there’s a lot of moving pieces as we speak, but we have also not built in any potential mitigations, which our teams are currently working through as we roll through the different scenarios.

It’s important to highlight that we, as Mike said, have instituted this philosophy of pricing net of costs, over time, neutral. And this is really embedded in our integrated margin management process, which ensures that over time, we expand margins, and keep on track with our plan stated our Powering Care plan rollout back in March of 2024. As such, we have several levers in there. First one, revenue growth management. Second one, a very strong pipeline of productivity initiatives. We’ve delivered 2 years of 6% gross productivity back to back. And this first quarter of the year, we’re already at 6%, and our plans are to deliver for the full year 6%. The pipeline is very rich. We’re making significant investments in the North America supply chain with the $2 billion announced a few quarters back, and that’s progressing as planned.

And then lastly is the whole strategic relationships with our suppliers in terms of pricing contracts as well as hedging programmatic elements that we’ve put in place. I’d also remind everyone that we’ve got a solid track record over the last 4 years of recovering any input cost inflation and actually expanding margins. If you look at 2023 through 2025, we expanded both gross margins and operating profit margins beyond the levels prepandemic. So we’re confident in our ability to cover all these input costs over time. And again, we will be back with more news in our next earnings call.

Michael Hsu: Sorry, I’m keeping track for you. So sorry, if our answers are a little full, but I’m going to ask Russ to comment on the promotional environment.

Russell Torres: Yes, sure. Thanks. Dara. So I would say, just underscoring what Mike said that growing volume and mix profitably while maintaining PNOC discipline really is the key focus for us. And innovation is really the key to that. And specifically within North America, if I were to just double-click on that, you were asking about the promo environment. I would say that our overall pricing was in line in the first quarter, as you saw. And in fact, our overall weighted average promo intensity in North America is down versus pre-Covid versus category levels. And that’s because we’re focused on driving innovation. You will see innovation tick up when — sorry, promotion tick up when we have an innovation agenda that’s really strong because we’re trying to drive trial, and that’s exactly what you’re seeing in diapers right now.

We are using more promotion to drive trial. And we talked about that in the fourth quarter. We promoted Snug & Dry. We have a great innovation there that drives softness in our new absorbent core and we’re pleased with the results there. We’ve seen household penetration and velocities up on that post promotion. And we’ve also shifted some investments across channels with surgical programming to ensure — our loyal huggies buyers can find us after the recent distribution change, as we talked about in the last call in the club channel. But I’d expect that to normalize as we go through ’26. And the bottom line is in North America diapers, our ’25 promo was below category for the year, and it’s below 2019 levels. So just to give you some context.

Operator: Our next question is coming from Peter Grom of UBS.

Peter Grom: Great. Thank you, operator, and good morning, everyone. So you updated your outlook for category growth to 2.5% versus 2% previously. Can you maybe just unpack that a bit more what regions or categories are you seeing a stronger performance, and then I think in the prepared remarks, you noted stronger category growth in North America, call it, I think it was 3.3% though, do you think that’s a realistic run rate moving forward? Or do you think we could see a bit of a step back just given more uncertain operating backdrop.

Michael Hsu: Okay. Peter, I’ll start, and I’ll ask Russ to weigh in here. I would say we’re very encouraged by the resilience of our categories and the impact of our commercial programming. I’d say, notably, North America categories rebounded strongly in Q1. That was driven by some shifts in timing of competitive promotion activity, particularly and I think in the paper categories, but also — you may recall in Q4, I think the categories had slowed down to just under 1 point. And that was really related to, I think, some things that happened in the year ago, port strikes and all this other stuff that happened. And so we’re cycling that. But as we got into the end of the year, we’re still a little unclear whether the slowdown was going to be endemic to the category or it’s a one-off?

And it turns out — it looks like having cleared the quarter with a strong kind of increase in the category and in our organic, I think we feel like that was a one-off. And so I think our outlook for the year on a rolling 12 months, it’s like 2.5% across our categories globally is what we have, and that’s kind of the way we’re looking at it. And so we feel good about the progress.

Russell Torres: Yes. And I’d just add, I think Mike, you said it well. I’d just add, we aren’t really seeing any large-scale shifts in consumer buying behavior. And we are still seeing consumers under pressure, but that’s not a new dynamic. And so we’re — I think our trailing 12-month weighted average category growth is around 2.5%, and we don’t see a reason for that that to evolve too much. And there are some puts and takes, as Mike mentioned, with respect to specific dynamics, but hopefully, that helps.

Operator: Our next question is coming from Javier Escalante of Evercore.

Javier Escalante Manzo: Thank you, operator. My question is on the merged entity. Mike, you laid out a new organizational structure. If you can help us understand it better. So how will it help restore growth Kenvue?while preserving the competitiveness of the core stand-alone Kimberly-Clark. What are the biggest changes that you made? And if you can explain how you see those working. And also finally, on the combination, if you can give us updates on the completion of the joint venture with [indiscernible], you may have some of it in the prepared remarks, as you can expand on that? And also, what is the status of the approval for the merger.

Michael Hsu: Okay. All right. There’s a lot to unpack there. I’ll try. You can remind me, [ Ravi ] if I’m missing something — let me start with — after working on this since November, I would tell you for me and our team, and I think the team on both sides, the Kenvue?view side and the KC side, I would say, for all of us, even more conviction in the growth potential of the company that we’re about to create. Kenvue?is going to report their first quarter results in early May, and that’s consistent with their typical timing. So I’m not going to — I’m not going to have your prejump that. But I will say, we’ve been working through kind of in our preparation for integration planning, some category reviews, Nelson, Russ and I with the Kenvue?teams.

And I would say our view is that the recent challenges, although widely reported have been largely executional, and we don’t see them as being structural. And in fact, there are pockets or more than pockets of strong profitable growth throughout the company. I would say a lot of that’s been overshadowed by a few notable large challenges. I would say, primarily North America skincare, North America Oral Care has been a challenge and some of their business in China. So I think those are notable. But I would say, if you look at kind of how we’ve structured the management team, I think the management team and the combination of both KC and Kenvue?players reflects, I would say, the strong performance that I observed in the businesses on both sides.

The other thing I’ll say is Kirk and that management team at Kenvue? have taken some strong positive steps. And we’re confident that Kenvue?will improve this year. And 1 of the moves they did make was adopt their operating model, and they announced that change back in February. And I would say it’s very consistent with our kind of market-centric balanced matrix approach to operating. So I think we’re very encouraged with kind of the progress on their side and also in the integration planning. And then as you kind of raised, I’m very pleased with that we’ve been able to assemble what I would view as a world-class team to create the preeminent health and wellness leader. And I think roughly, the bench from both sides is about 50-50. So the leadership team composition reflects strong talent that reflect — that exist within both organizations.

I think there’s a great blend of market experiences, functional capability and technical expertise. And we felt like it was important to retain kind of the knowledge and leadership of what’s working and also retain the strong institutional knowledge that exists in both companies. And like I said, I think if you look at the composition of the leadership team, it also reflects the strong performance in some of the Kenvue international markets. And so I’m pretty bullish on kind of what this team is going to do together. I will tell you, the operating model is going to be very market-centric but also leverage global scale. The culture, I think, will be ownership, speed and competitiveness. And I think that dovetails well, as I mentioned earlier, with what Kenvue has been doing.

So maybe I’ll — I know I said a lot there. And Javier, I think Russ has got some comments as well.

Russell Torres: Yes, I was just going to pick up on what Mike was talking about around execution. I think that really has been something we’ve been building and strengthening at KC for many years as those who followed us know both in terms of how to drive growth, but how to drive productivity and SG&A efficiency. And by the way, doing all those at the same time. So we’ve been basically taking that approach and applying it to the synergy process. We now have over 40 integration teams that are working on planning the combined company post close to build the future of the company to drive the synergies and ensure we can operate effectively together. And that process, I would say, is going very well. I’ve been very impressed with the actions that Kenvue?has been taking recently, Mike talked about in their base business and what they’re bringing to the table for how we’re looking at the future together.

And we are seeing very good line of sight to synergies in all areas, COGS, I’ll just give 1 quick example, their product is pretty small and dense. And so therefore, they tend to weigh out their trucks and ours is bulky and light, and we tend to cube out trucks. And so we’re shipping to the same places, let’s put them on the same truck. And there’s actually quite a lot of value there. And SG&A, lots of examples we could highlight beyond just duplication we’re really looking at it as an opportunity to leverage the combined scale to work differently, and that’s simplification of the systems environment, SAP in, application rationalization consolidating processes, accelerating global business services using AI, lots of things there. And on the revenue side, we’re really excited.

I think there’s tons of opportunities in distribution and leveraging commercial capabilities like e-com, all of which require getting the execution fundamentals in place, and that’s really what we’re emphasizing. And we’re not waiting for the close. We are working on those things, as Mike mentioned, I know Kenvue?is working on them in their base business hard, and so is KC. So we feel like we’re pretty well positioned to hit the ground running.

Javier Escalante Manzo: Go ahead, Mike, just like a high-level thought. Do you think that part of these execution issues on the Kenvue?side had to do with the fact that the demerger from J&J at a time of a great deal of retail changes both in the U.S. and China? Do you think that, that’s what led to underperformance.

Michael Hsu: I don’t think I can — I know enough to comment on that, Javier, right? But all I’ll say is running these kinds of businesses is hard. There’s a lot of things that add up to being, what feels like small decisions end up having big impacts. And so that’s why as I met with some large investors, and that’s the question I asked, which is why does quality of management matter so much? It’s because these are arcane businesses that have a lot of operating and running rules and they can be very difficult and things that feel small, like small inconsequential decisions end up having at times a big impact. And Nelson, and Chris and I saw plenty of those are craft back when we were at that company back in those days. And so — so I wasn’t there for that, and so I won’t comment however here, but I would just say doing this is hard and making sure that you’re kind of lined up correctly across all fronts of operating a business is really, really important.

Operator: Our next question is coming from Lauren Lieberman of Barclays. .

Lauren Lieberman: I was hoping you could just talk a little bit about the shipment timing that you mentioned in the prepared remarks on North America because it’s category growth has accelerated. I don’t recall if you guys use Nielsen or Sarcoma, but the Nielsen trends, including Costco, your business grew 5% and you reported in sub-Q. So just if you could discuss kind of in what categories, in particular, you’re seeing those headwinds. Is it an inventory kind of correction? Or is it something that is timing related and kind of picks up in 2Q?

Nelson Urdaneta: Yes. Sure, Lauren. So a few things. As you say, scanner data consumption data very strong. And as we’ve seen in many years, many quarters, there’s always going to be some noise within the quarter between shipments and consumption. The key is really consumption. And looking into North America consumer specifically, as you point out, consumption was ahead of shipments by around 200 basis points, and trying to piece through the entire noise, I’d say, trade stocks inventory is not really the big thing there. It’s more having to do with the fact that we had very strong activation programming in the first quarter, which started in January. So we had some shipments that came through in December, and that kind of anticipated what we went through.

And that had to do a little bit with what you’re seeing there and the difference. I think it’s also important to highlight that as we think of the second quarter, we do expect organic sales growth to be slightly below Q1. And 2 things to keep in mind on that end. The first 1 we’re going to have the strongest comp versus 2025, in which for total enterprise last year, we grew about 4%, and in North America, volume was actually 5%. And again, that goes back to the quarter-on-quarter can be a little noisy. And in last year’s situation had to do with the fact that we had a series of product launches, particularly in baby and child care, which drove strong shipments in the second quarter. And then the other bid for the second quarter is we’re going to be having a little bit of a headwind from the distribution center fire in California, as Russ had mentioned in his prepared remarks, that will be around $20 million or 70 to 80 basis points for the North America segment.

But as we go into the second half, we expect that organic growth to actually accelerate because some of these noise elements we don’t project.

Lauren Lieberman: Okay. Is my line still open?

Nelson Urdaneta: Yes, yes.

Lauren Lieberman: Oh, cool. Okay. Awesome. So for her asking myself a question. Okay. So the operating profit headwind that you talked about for 2Q, which largely reflects the incremental inflation and also some of the pressure from the DC fire. So you’ve included that, let’s call it, roughly $50 million for 2Q, you’ve held the guidance for the year. So what are the mitigating impact for the inflation you’ll feel in Q2 specifically? And then if you’re handling it that way for 2Q, why not, let’s just call it, like complete the plan for the full year to talk about whether or not how you’re going to be offsetting because the 6% productivity rate, while super impressive, you’re already at that level. So I don’t feel like — it doesn’t strike me as an easy task to up that rate of productivity to deal with this incremental $150 million to $170 million of potential pressure in the back half.

Michael Hsu: Laura, maybe I’ll just say 1 thing. Nelson is ready to pounce. But the 1 thing I will say is that the underlying assumption we’re making is that we know what the cost impact is going to be. And we don’t really feel like we know that yet. It’s early. It’s — we know what it is today. We don’t know what it’s going to be tomorrow or through the balance of the year. And so that’s kind of why we’re kind of keeping the cards a little close to the best.

Nelson Urdaneta: But building on that, Lauren, I mean, 2 things. As you say, the $50 million for the second quarter, we feel pretty confident we can maneuver through that. So that’s not something that, again, we’re bringing up as a major, major situation because it’s not. As a reminder, we’re about 80% covered in the entire cost basket between contractual arrangements, programmatic hedging and other items we’re doing. . We’ve got the full set of toolkits within our integrated margin management approach. And it starts with the philosophy of pricing net of costs. And if you think about that toolkit, it includes revenue growth management. It includes the productivity. And yes, 6%. We’re already at that level, but we’ve had quarters that have been ahead of 6%.

We have a very strong pipeline of initiatives and our team is not sitting still as we’re going through this. The reason why we didn’t get into what would the specific mitigating actions be for the second half is that the teams are actually working through them today. We are having sit-downs with all of our suppliers, where force majeure or surcharges are being enacted. We’re sitting down and renegotiating and opening up contracts as need be. We’re looking at price pack architecture. And we’re looking at all other elements of the toolkit. As I said, in the last 2 years, we faced about $200 million of incremental costs. And if you add up what we sort of estimate right now, and it’s a point in time, plus the 50, you’re right around that level.

So again, as Mike said, we want to take the time to do this right. We want to see where things kind of settle because it’s moving by the day. And we’ll do what’s right. We’ll continue to invest behind the innovation and to do revenue growth management, it takes a little bit of time, but it’s something that we know how to do. We’ve done it in the past, and it’s going to be part of the toolkit.

Operator: Our next question is coming from [ Anna Lizzul ] of Bank of America.

Anna Lizzul: I was wondering if I could build on Lauren’s question, Nelson, if you could comment, I guess, on the pacing of the top and bottom line as we move through the year, with both the impact from the distribution center fire in Q2? And then as you were mentioning, the other impacts down the line of oil and raising input costs. On the margin side, if you could talk about maybe the impact between Q3 and Q4, that would be really helpful.

Nelson Urdaneta: Sure. A lot to unpack there, Anna. But let me kind of give you a little — start with the top line. So as we mentioned, strong start to the year at the 2.5% organic growth as we go into the second half, we do — the second quarter — pardon me, — we expect to be slightly below that for the reasons I explained in the prior question, largely with lapping the strongest quarter of last year at around 4% organic growth. North America volume 5% and obviously, the $20 million headwind that we’ll face because of the distribution fire in California. But heading into the second half, we’ve got an acceleration in top line, and that’s what’s embedded in our outlook for the full year at this stage. As we look at the bottom line, a few things to unpack.

First, we expect overall margins to actually pick up as the year progresses. We had in the first quarter, an expansion of gross margin sequentially versus Q4, and gross margin versus the prior year was slightly down 60 basis points, but that was largely expected because we are at the last full quarter of an impact from our exit of the private label contract in North America. Heading into the second quarter, third quarter, fourth quarter, we’re largely going to lap that, plus — and we expect gross margins to actually be expanding on a continuous basis for the balance of the year based on the outlook of what we have today. On operating profit margin, we expanded operating profit margins again this quarter by about 20 basis points, partly driven by the 90 basis point improvement year-on-year, from overheads, overhead of 13%, 90 basis points lower than the prior year.

And we’re getting good traction on delivering the full $200 million or exceeding it in savings as part of our Powering Care program. And we expect for the balance of the year to continue to see expansion in operating profit margins. For the full year, we expect gross margin, operating profit margin to expand both in the vicinity of 70 to 80 basis points. So that’s largely a construct of what we see between the following quarters and the first quarter for both top line and margins.

Operator: And our next question is coming from Robert Moskow of TD Cowen.

Robert Moskow: I just wanted to test the overall theme of the call here that the business is truly resilient to all of these unexpected cost headwinds because when I look back to 2025, you had the tariffs was the big unexpected factor. And even though tariffs were mitigated for the full year, you still had to lower your profit guide for 2025. So when I’m looking at the 2026 number, the $150 million, $170 million is actually higher than what the tariff headwind ended up being. So I’m just trying to figure out how nervous to be about the ability to offset that much cost.

Michael Hsu: Yes. I mean I think, Rob, I’ll give you a little bit of historical background, and maybe I’ll ask Nelson to comment. I would say, again, — if you look at our recent history, back in 2022 and 2023, the business took on, I think, $1.6 billion of additional costs and $1.7 billion consecutive years. And so I’d say what we’re looking at here is a fraction of that, right? And so I think what happens — those were like all-time high I would say, inflation super cycle for us. And while the costs haven’t receded, we’ve been able to manage through that cycle with discipline on this pricing that net of cost impact, right, or commodity impact. And so — so I’d say at the level we’re talking about, we feel like the business should be able to operate and manage through things, we’ll let you know.

And certainly, I think 1 of the reasons why we’re hedging a little bit here is because we don’t know what the costs are going to be. We know what they’re going to be as of today or what the outlook is as of today, but it’s still kind of a moving target. But I think our thing is I think since the 2022, 2023 period, I think we’ve developed much stronger cost management capability, which is why we’re delivering industry-leading productivity. We’ve been really enhanced our RGM or revenue growth management, discipline. And so we feel good about our capability. And then the other thing I will tell you is we feel very bullish about the base business, right? Our organic growth being driven by a rebounding category, but also, hopefully, you saw in that presentation, the fact that we were up in 95% of sales weighted markets on share in North America and 84% in international.

I think we feel great about that. And just to give you a comparison on the old metric that we use, which is just a pure count of cohorts, we’re up in about 80% — a little over 80% of cohorts, right? And so I think we feel good about the momentum of the business.

Operator: Our next question is coming from Edward Lewis from Rothschild & Co Redburn.

Edward Lewis: Just a couple of questions from me. Just be interested to hear how — if we think about the good, better, best, how you’re performing on those is good doing better than better or is better doing better than best? Just interesting to hear some commentary around that. And then I look at the international business, you called out good share gains in some of the markets. Just wanted to sort of get a sense check for how you’re feeling about those markets given what’s going on in the straight and the concerns people have about the impact and particularly in sort of the Southeast Asia region from the slowdown in shipping or in, I guess, in tankers coming out of the strait. Any update, any commentary there would be appreciated.

Michael Hsu: I’ll ask Russ to comment on the good, better, best. But I will say, unfortunate situation that we’re operating in yet another region with another conflict. And so number one, Ed, I’ll tell you thankfully, all of our people and employees have been safe and operating through this. And so — and they been really kind of working overtime to make sure that we continue to kind of operate the business while keeping everybody safe. I will say business and performance has continued to be robust, especially in international markets. I think in multiple markets, strong double-digit growth. Interestingly, especially in Southeast Asia, our [indiscernible] business was strong double-digit growth, share up significantly. Russ, you may want to comment — but the thing I’ll also hit is in developed Asian markets like Korea, we’re seeing a baby boom.

So I think births were up 6.5% last year in 2025. And so the category was up 20% in Korea, where we have over a 60% share. So that’s pretty meaningful for us, Ed. And so I think we’re feeling very good internationally. And Russ you may want to comment a little further and then the good better best.

Russell Torres: Yes, I agree. We’ve seen a lot of strength, especially in Southeast Asia, as Mike talked about, also India, Australia, kind of across the board. So we haven’t yet seen a significant impact on the strait impacts yet. It’s not to say that it wouldn’t happen, but we’re feeling pretty good right now. In terms of the Good, Better, Best question, I would say the premium side of the business remains healthy and it’s continuing to grow, and it’s the key to category growth. The consumers with higher incomes have remained resilient. And then on the good and the better, we’re not seeing any specific patterns. I think what it comes down to is the strength of the value proposition to the tiers. And that really is what’s winning.

I think consumers are getting more choiceful for their money. I would note that, for example, in personal care, the penetration of private label continues to fall overall. And what’s winning is the branded value propositions that are offering compelling value for money and those aren’t necessarily in the lower price tiers. They’re more of the mid-priced tiers. They’re just providing a great proposition in consumers, especially in our categories are willing to pay. So that’s our focus is to have the winning value propositions in all the tiers and let the consumer choose what’s most appropriate for them. So we haven’t seen very significant shifts into the good tier if that’s kind of where you were going. It really depends on the specifics.

Michael Hsu: Yes. I think Ed, interestingly, I think what’s driven our growth over multiple years is the premiumization or kind of improving the product quality at the premium tiers and driving positive mix. And that’s been consistent for the past, I would say, 7 years for us. I think what’s changed is that it’s not a pivot. It’s just that we’re applying the same approach to the value tiers. And so interestingly, we did in North America was bringing some of our best product technology from China and implemented it first in the value tier. And it will eventually go to all our products here in the U.S. But again, I think the fact that I think, as Russ says, we’re bringing our best product at every run of the good, better, best ladder is kind of the real core strategy for us. Great. If we could take 1 more question?

Operator: Our next question is coming from Chris Carey of Wells Fargo Securities.

Christopher Carey: So I just kind of tend to wrap up a couple of key concepts explored on the call. Just number one, just — I’ve gotten a decent amount of questions on the commodity outlook and mitigation as could be expected. But I thought I would just ask it this way, right? Like at the Investor Day, you had talked about changing your ability to confront different commodity cycles. Can you just give us a sense of how you feel differently right now, whether that’s the time lag when commodities hit your P&L, that’s the mix changes from portfolio adjustments. How are we different today versus, let’s say, the last commodity cycle? And then secondly, just on the conversation around PNOC. I think embedded in some of your comments is the prospects of potentially looking at pricing?

Or I think, Nelson, you said that RGM takes time. So maybe RGM is a potential lever here do you think that incremental pricing or incremental RGM could disrupt some of the volume improvement that you’ve been seeing, which is partly helped by some of the demand building activity that you’re doing? Or do you think that you can continue to deliver volume if you were to kind of lean in a bit more on price or RGM, if you want to control PNOC if inflation stays higher, so appreciate those 2.

Michael Hsu: Okay. Chris, let me start. Nelson is going to want to weigh in here on the commodity kind of management, but let me just start with the — I would tell you, in my tenure, everything has changed about commodity management since we’ve been here. And I think I think in the past, I think we used to let things flow quite a bit. I think — and I think I may have mentioned this, Chris, as we kind of looked at what was like holding the stock back, it was kind of the earnings volatility, and when you look at what’s driving earnings volatility, it was input cost volatility, right? And so we — with Nelson coming in, we made a very conscious effort to kind of reduce the volatility of input costs by using all available techniques to do that.

And you can see that in terms of how we buy and how we contract, but also in some of the partnerships that we’ve developed over time. And so we feel very good about the progress we’ve made. And hopefully, I think the facts are that the beta on the input cost volatility has reduced significantly in the last 5 or 10 years. And so — but Nelson, you may want to comment on.

Nelson Urdaneta: Yes. And just building on that, Mike. And Mike mentioned it before, — when I joined, we were going — we were getting into the second year of the heightened inflation related to COVID. That’s the second year in which we faced $1.7 billion of costs. And as I’ve said in some of the calls and in some of our investor meetings, we learned from that. We developed a lot of muscle around risk management over the last few years. We’ve instituted not just programmatic hedging but also strategic relationships with suppliers that allow us to have more visibility into costs and allow us to have flex to manage through the whole process. Before four years back, we would probably been talking about a different number today.

But given what we’ve instituted on that end, this allows us to be able to manage any shocks much better. The other bid, and it’s not the commodity itself, but it’s how proactive are we on the rest of the toolkit. And that’s why we refer to the pricing at a cost philosophy and the integrated margin management approach which is a philosophy that we’ve been embedding in the organization. It’s very different. We’re managing end-to-end. We’re measuring the team’s end-to-end, and that leads to different outcomes. And that’s why our level of confidence in being able to manage through these cycles is much better at this stage, Chris.

Michael Hsu: Yes. And then I’ll mind you, we’re not in previous cost shocks, but I think we’re in much better position than we were, let’s say, 5 or 10 years ago. . Great Okay. All right. Well, thanks, everybody, for joining us. For analysts that have further questions, Investor Relations will be around all day. So thanks very much, and have a great day.

Operator: Thank you very much. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

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