Kimberly-Clark Aktie

All right, everybody. Welcome back. Thank you. For our next session, we have Kimberly-Clark Corporation back at the conference. There's a lot of...

Thank you for having us, Steve.

Thank you, Steve.

With us, we have Chairman and Chief Executive Officer, Michael Hsu.

He told me right before this, this is like #21.

We're getting there. We're getting there. And Chief Financial Officer, Nelson Urdaneta. So thanks, guys, for being back.

Thanks for having us.

There's a lot going on. So Mike, I'm going to start with you just to frame what you've talked about as a generational moment for Kimberly-Clark, both in terms of business momentum and the Kenvue transaction. So maybe we just start there and maybe expound on what you mean by that.

Yes. Well, Stephen, thanks for having us. We're really excited about our base business performance and probably even more excited about having the opportunity to build a -- what we're saying is a preeminent health and wellness leader. I think embedded within that, what's driving our base performance and what we think we have, is a powerful value creation engine with our Powering Care strategy, right? And I think that's driving consistent volume and mix growth, consistent share growth. And I think you've seen that through the first quarter and probably for the last 9 quarters from us. And so we feel great about that.

And then, in terms of building a preeminent health and wellness leader, together with these companies combined, we think we can really elevate the standard of care for all consumers. We tend to play in the same life stages. So if you take our portfolio, Baby, Kenvue have -- obviously has a portfolio that lines up against Baby, Women, Family and Seniors. And so I think it's a powerful portfolio where we can really serve all these life stages more effectively. So again, we're really excited about the opportunity.

Great. And you have -- I mean, we focus on the base business for a bit, I mean you focused -- you've delivered multiple quarters now of volume-led growth in categories that historically have been volume-challenged. So I think what do you think has structurally changed the most in the model, whether around innovation or brand investment execution? Just what's driving that? And what gives you confidence that that's durable?

Yes. The -- Steve, the idea is superior product equals superior value and that drives volume mix. And that's kind of how we approach it, which is we're a company of engineers. We invented most of the categories we operate in. We believe there are real differences in performance that exist. And I think that's different than maybe what outsiders perceived back when I joined the company. I think many viewed these categories as commodities. And I said, well, gosh, mom and dads entrust their most important thing in their life to us. There are real things that we can do to take care of baby better, right?

And if you extend that through our portfolio, I think we've demonstrated that. And so I think going back over the years, the opportunity that we saw was an opportunity to really elevate the category or premiumize the category by adding better features and benefits that maybe consumers hadn't envisioned that would be valuable, but turned out to be very valuable. So we've really, Steve, premiumized the business, and that's really driven a lot of our growth over the last 5 years.

The example I'll give you is when I joined the company back in 2012, maybe 65% of our Huggies business in the U.S. was in the value tier. Today, we're 80% premium, right? So that's a big move. But I think what's also driving our growth in the last couple of years is that we said, hey, we're not going to be just a niche premium player. If we want to lead our categories, we need to serve all consumers. And so we've really sharpened our offering, particularly with the value consumer. And I think that in China in the last 2 years, in the U.S. last year and this year, I think that play is really working hard for us. And we really made some significant improvements to our Snug & Dry line, which is the value tier Huggies in the U.S., and you could see that impact on the volume.

Yes. Okay. Great. Let's stay on the U.S. for a second. Nelson, there's been volatility between consumption trends and your reported shipments. So maybe just walk us through some of those disconnects and how that's going to map out. But also just what -- and Mike, you can jump in on this as well, but just what you're seeing in the North American consumer in general? How that's impacting your balance of year expectations?

Sure. Let me unpack a little bit what we saw in the first quarter. But we've seen, Steve, over the last 2 years, and even in the first quarter of this year, sustained momentum in both our global business and our North America business with consistent volume plus mix-led growth from very strong pipelines of innovation and activations across all of our categories and across all of our value tiers.

As it pertains to the first quarter of the year, we saw shipments lag consumption by around 200 basis points. In fact, consumption grew by 3.7% in our consumer categories in North America versus shipments, which grew 1.4%. And there were a lot of moving pieces in the quarter, but one to highlight is the fact that we have strong programming in the club channel at the beginning of the quarter for which shipments actually took place in the latter part of Q4 of 2025.

As a reminder, in our April update of earnings -- Q1 earnings, we highlighted that we still expect the second quarter to see a similar trend. And there's 2 factors at play in the second quarter. In the case of North America, we are foreseeing headwinds of around 70 to 80 basis points on our shipments related to the recent L.A. distribution center fire. And also, for the second quarter, we're going to be lapping the strongest comp versus 2025. Because as you'd recall, last year in this quarter, our North America business grew volumes north of 5% from a very strong pipeline of new products that we were putting out, particularly in our Baby and Child Care business.

For the second half, we expect shipments to accelerate, firstly, because our innovation pipeline remains strong. And then secondly, we will be lapping a lot of the stronger comps from the first half.

And then lastly, for the full year, and I'll let Mike chime in on the state of the consumer, for the full year, we stated that we still expect to have growth that's at or above our categories, weighted average growth of the categories, which trailing 12 months as of the end of March was right around the 2.5% range.

Yes. And maybe just to tack on, on the state of consumer, my view would be that consumer in North America, particularly, which I think you're asking about, resilient, resilient. And I think maybe my lens is may be colored, Steve, by the categories we operate in. And as you guys are familiar with our categories, like diapers and bath tissue, Kotex, like they're pretty stable categories, daily use categories, and consumption doesn't change much based on pricing, right? So I think -- so that's kind of maybe one aspect of it. And it's reflected in our Q1, where I think our volume mix was up about 3%. Organic overall was up 2.5%. We grew share in, I think, 90-plus percent of our business.

And so I think we feel good about that. But we're also cognizant since the start of the war that the elevated fuel and fuel prices have an impact, especially on the consumers at $100,000 income and below, which is 90% of the U.S. households. And so that really kind of plays into the strategy that we've been on, which is we pivoted to strengthening value within the value tiers in addition to premium, and I think that's working hard for us.

Great. So if we pivot overseas, international personal care, IPC, just standout performance, both in terms of growth and margin expansion. I guess, talk first about your confidence of that and the sustainability of that because I think you are confident in that. But then, also any watchouts given the same macro context?

Yes. Great momentum. I'll remind everybody that in our categories, D&E, or developing/emerging, markets are still very early in the stages of development. And, however, in the quarter, you may have caught like -- Steve, like I think double-digit growth in Brazil. I think our Indonesia business was up 30%. It's a business that had been challenged for a few years. Vietnam was up 40%. Even Korea, the diaper category in Korea, Steve, was up over 20%. There's a baby boom because as you know, the births have been declining in Korea for like 15 years. And last year, the births were up 6.5%, which is driving a bit of a boom in some of our categories. So we feel good about that.

What's driving it? I do -- I would say the Powering Care strategy. And the core elements are we kind of mixed -- made up our minds. We have to have product superiority. We really invested to create differentiated product offerings. I think we've really improved, and we think we have some of the best digital and social marketing methodologies out there. We're excellent at managing data and mining data and then marketing consumers directly through social channels. So that's driving it. And then the last thing that makes it all work is we said we're going to have best product at the lowest cost. You can see the productivity flowing through, and that gets us on this virtuous cycle of growth.

Yes. Yes. Great. In many markets, I think this is true in Brazil. It's true in North America. So I'm going to focus the question there. And you mentioned this like the Snug & Dry, you've been pushing essentially premium features into value tiers, which is enhancing the product offering. You've also been promoting to drive trial against those innovations. And that's created some concern among investors as to is this -- is it trial-driving activity only? Or is it going to be a structural pricing stance? And does it risk creating a competitive situation that is not productive for the category? How do you think through that?

Well, one, our strategy is consistent, which is we're growing by driving innovation and innovative features. We're advertising to support those features and to grow the category. We're activating in store with great execution, but promotion is really only to support trial of the innovation. And so -- and I know like some analysts or other companies, U.S. is promoting more. But if you look at the math, we haven't even returned to 2019 levels of promotion, and we promote less than all the other branded competitors in the category. So -- and part of that is because I don't like to promote from a trade promotion perspective. I think it's at best dilutive. At worst, it's unprofitable. And I think it gets you into this doom cycle where you invest too much to promote and then you end up cutting the product quality, which drives the category into a downward spiral. So I'm -- we'll never go that way. And so despite the rhetoric, I would urge you to look at the facts.

Okay. And Nelson, I think that, that dovetails into what you've been consistent about for a while in terms of the positive PNOC, price net of commodity costs, and that being a core principle for you. Just given what we're seeing in the cost backdrop, how are you thinking about the balance of pricing, productivity, investment to maintain that PNOC as we go forward?

Sure. So Steve, the environment promises to stay quite volatile, and we will remain very agile and disciplined throughout it. In the past few years, we've gained a lot of experience in how to manage through this type of volatility and disruption as shown in the super inflationary cycle that we just went through in 2021, 2022, when, as you know, we faced about $3.4 billion of incremental cost headwinds in the course of 2 years. And because of our discipline, our agility and our focus on our playbook, we were able to quickly recover our margins to pre-pandemic levels. And in the past 3 years, we've actually been expanding them.

Our teams are very clear that we expect them to manage the pricing net of costs of at least neutral over time. And they need to leverage all their tools within our integrated management framework -- margin management framework to ensure that we recover those costs over time. Right now, we don't have any update versus what we provided back in Q1. Our teams are diligently working through identifying what the exact impacts are going to be. And more importantly, what are the actions that we're going to take, leveraging all the tools at our disposal.

The one thing that I will reassure you is we're not going to cut back investments behind the innovation and behind the brands. We have a very solid pipeline of products we're going to put into the marketplace and solutions, and we will be balanced in our approach, but we will ensure that our teams remain fairly disciplined.

Okay. We were talking a little bit about this before we got on stage. But back at your Investor Day, you targeted $3 billion of stand-alone Kimberly-Clark cost savings over time, which is a big number. And so, I guess, maybe where are you in that journey? How much left us to go, especially in the areas we're talking about in terms of network optimization, value stream simplification and some of the manufacturing platforming that you're doing across facilities?

Sure. We're actually tracking ahead of plan on the $3 billion 5-year productivity program, and we have line of sight to continue to deliver strong productivity over the next few years. Through the first quarter of this year, we've actually delivered 56% of the target, and every segment has contributed its fair share. If we look at our continuing operations made up of North America and our International Personal Care business, the average delivery program to date has been 6% of gross productivity.

Now, peeling the onion into the 3 components of our supply chain strategy, the sources of the productivity, the value stream simplification has delivered roughly 50% of that number program to date, whereas the network optimization and the digital scalable automation have each delivered around 25% of that target. And we expect those to ramp up, particularly the network optimization over the next few years, as we stepped up the capital investments in 2026, and that will remain very near that level for 2027.

We're very confident about the size of the productivity pipeline looking forward. And one thing to keep in mind is that you're aware of the $2 billion investment that we're making in the North America network. That productivity -- in fact, we were at Beech Island last year visiting the facility. That's one of the places where we're making a very big investment in distribution on top of our greenfield facility. We -- that productivity is going to kick in starting 2027, hence, our confidence in our ability to continue to deliver on strong productivity over the next few years.

Yes. Steve was commenting before we got on stage that he was reflecting on his visit to the Beech Island, which is our largest facility in the world, and we make almost every product that we offer in that facility. And so it's a big complex operation. And so I think you're commenting, well, it may be hard to kind of drive the productivity because there's so much to kind of get your arms around. But I think the thing that I said is a couple of things happened, which is, one, bringing on some very good outside perspective, starting with Tamera Fenske, our Global Chief Supply Officer, joined us after a long career at 3M, just got a different lens on how manufacturing should be done. And then, she's brought in some other people from the outside.

So I think they could take an objective look, Steve, at like how K-C did things and really kind of found a lot of good opportunities for us to simplify. So that, I think, is a good starting point. And then, the other side of it is we are a company of engineers. We're kind of nerdy. And so because of that, people like to get stuff done, and they execute really well. And so, even though it looked very complex, I think there is structuring kind of how people are organized.

Yes. The other thing -- I mean, there's the raw cost-out efficiencies, but also a lot of what you're doing is going to enable faster speed to market and more commonality in terms of what you bring to market, which I think we're already seeing the early signs of in this wave of innovation.

Yes. Actually, we kind of refreshed some of our manufacturing assets over the last year. We did this restructuring back in 2017, if you recall. And part of that was to update the fleet of assets. And part of what we're doing is, one, commonizing them so that like all of our diaper assets are the same around the world now. But the other thing that we were doing was increasing the flexibility of each, right, so that we could run value tier and premium tier on the same asset and make feature adjustments without increasing capital costs.

Yes.

Okay.

Kenvue.

Yes. It was all about that. Right.

Yes. He was talking about Kenvue.

So -- I mean, you've been clear that this is about creating a broader health and wellness platform. And so let's just kind of start there. And I guess, as you've gotten further into this process, updated thoughts on why you think this is -- this combination is going to be uniquely positioned to win. And I guess, how you've been viewing recent progress at Kenvue?

Yes. We had a global town hall with the Kenvue organization 2 weeks ago up in New Jersey, and Kirk had me out there. And so that was kind of their question, like you're 6 months in, what are your thoughts? And I said, like the headline is, the closer you look, the better it gets. Like -- and on our side, the K-C side, and I think increasingly on the Kenvue side, we couldn't be more excited. And so what are some of the things about why is it better? Number one, I would say -- and I didn't realize this as closely, even though we do a lot of due diligence, but we've been doing these category deep dives in each of the Kenvue categories. And I will tell you, the state of development of these categories, they're very early in the journey.

And even though a lot of these categories have been around, like [indiscernible], I think, launched in 1954. So it's been around for 70-plus years. But I would say -- the reason I would say that categories are early in the stage of development is I think there's a huge gap between incidence of a health issue and treatment. And this is in almost every category that Kenvue operates in. The example I'll give you is allergy. When we're doing our deep dive on allergy, and when we do these deep dives, we kind of assess the structure of the category and all the subcategory components. We interview consumers, and we understand kind of what the big unmet needs are and how they think about the category.

On allergy alone, Nelson, I think the number is 100 million allergy sufferers in the U.S. alone that don't treat, right? They're not even aware they have an allergy, right? And so I think that for us as there's a big opportunity for, I would say, a company and our approach with a more traditional CPG mindset is to come at these categories and say, how do we systematically develop them. And so I think that's part one, which is we see, one, these are the biggest categories in CPG among the fastest growing, and they're underdeveloped, right? And so I think that's one big thing.

The second area where I say, "Oh, the closer you look better it gets". And I think you wouldn't see this in what's available publicly. But since we're doing our monthly trading updates with Kenvue, and we do the business reviews, I would say there's a lot of good performance in that business that you all cannot see. And why can't you see it? It's because they tend to report by category, Steve, right? And so you just see the overall. But there's a lot of markets and a lot of -- particularly in international, where I've seen very good performance across many brands. And that's reflected in the appointments that we made. We announced our senior leadership team for the future company post-close back in April. And people were surprised that there's a pretty good mix, balanced mix between K-C and Kenvue.

Well, when I was interviewing some of the Kenvue executives, let's say, Carlton Lawson, who runs EMEA, and Leo, who runs Latin America, I said, "Hey, your performance is as good over the last 5 years as anything that we've got on our side, right"? And so -- and I was super-encouraged by that because international has more of the complexity than North America, right? And the Kenvue portfolio overall is a little more complex than ours, right? And so, however, they've been managing that pretty well. So I think there -- so that's the encouraging thing.

And then, as we get further into it, and as we meet with the Kenvue management side and so forth and do our category dives, everything that we're doing in powering care, right, which is like, hey, make the innovation better, differentiate the product through value-added innovation, Kenvue is spectacular on the science front. The big thing that we did at K-C that they told me to go through is when we did our market structure, we understood where the biggest consumer unmet needs were going to be. And then, we just said, we're going to pour all of our R&D resources into those things. And that was a little bit different than how K-C used to do, which is kind of like self -- you guys self-determine what you want to work on, right? And so when you concentrate your firepower, that's where you get the breakthroughs. So that's one area.

The second big area is the marketing and where we have made a ton of progress, and that's evidenced by our surge to market leadership in China is. I think we're one of the best companies, and our customers would tell us that we're among the best at digital marketing and social media marketing and e-commerce marketing and all those things. And so we've really invested in a lot of capability in that. We're very good at it.

We tend to index higher on e-commerce. I think we're, on average, 700 basis points higher share on e-commerce than offline. Kenvue is the other way, right? So that's going to be a great opportunity for us. So I think there's going to be a lot of -- we're really excited to apply kind of our value creation model to the Kenvue portfolio.

Is there -- I don't know if you're prepared to do this, but is there a way to take us underneath the covers a bit and talk about how the integration office is being structured in terms of just the work streams that you're kind of putting on papers? Because I think there's a big concern that once the deal gets regulatory approval and closes, then the complexity really kind of hits home. So how are you getting ahead of that?

Yes. So the integration management office is up and running since we announced the deal. It's being headed by our Chief Operating Officer, Russ. And we've got over 40 work streams underway with over 400 people involved. Obviously, no gun jumping and following all the regulatory requirements, but we're not wasting time in getting ready, Steve. I mean, these work streams are allocated to each or organized to each of the functions, organized within the segments and with the new segment leaders that have been announced because we've got to focus on multiple elements of the integration.

One is obviously a work stream around people and culture. That's plowing ahead and moving forward. And you've seen that Mike already named the leadership team, and we will keep progressing on that element of the integration. Secondly is on the cost side. We have very ambitious cost synergies that we feel very confident in our path to deliver them as committed. And we have been working very diligently on that. I mean, we started on this as we were doing the due diligence, but obviously, we wasted no time in ensuring that everyone within every function is clear on what the plans are and what the cadence is going to be between year 1 and year 3 to accomplish the task.

And then, the most important and exciting aspect of the entire integration is the revenue side, the growth, because this transaction, above anything else, is about growth, about really leveraging the potential that the categories have and the potential to serve consumers across all life stages. So that's up and running, up and going and more to come, and it's not going to be a day 1, wake up, see what you're going to do.

Good. As a follow-up on that, so the cost synergy target, nearly $2 billion, $1.9 billion. Are there areas where you're gaining conviction or seeing potential upside? And then, I guess the other side of that coin is as we've seen Kenvue make margin progress. And one of the concerns or one of the questions I've raised, investors are thinking the same, is Kenvue -- it's good, but is Kenvue kind of getting ahead of the synergies? Is it change -- so how do you respond to that?

Yes. So a few things. First, as I mentioned just now, we continue to gain clarity and confidence on our path to delivering and/or beating the synergy and earnings levels objectives that we have for the transaction. The sources of the cost synergies are areas in which we, Kimberly-Clark, have been building significant execution capabilities over the last few years. Our results in the last 2 years and even in Q1 are proof points that we can drive sustainable volume-led mix growth, that we can drive record levels of consistent productivity level, that we can drive overhead efficiency all at the same time.

There's 3 sources of productivity that we shared on November 3 when we announced the transaction. And we continue to gain more confidence in each of the 3. On the overheads, it goes beyond duplications. The approach of plug-and-play, as we call it, is going to allow us to rapidly leverage capabilities like revenue growth management, global shared services, areas in which we've been investing over the last few years. That will drive over 1/3 of the productivities. We're confirming that over the last 6 months.

Secondly, it's on costs. Mike talked about transportation just a few minutes ago. We're seeing those opportunities, particularly in a market like North America, which will be $18 billion out of the $32 billion in revenue, give or take. We tend to cube out a truck at about 50%. Kenvue tends to weigh out at about 50%. And we tend to deliver at almost the same drop-off points. So that's a key source of productivity. But it goes beyond that. If you look at procurement, we're going to be having a much bigger scale and many materials that are shared. And on top of that, we'll be able to drive efficiencies through standardization, leveraging the tools that we've been deploying, which, by the way, has been one of the sources of the productivity we were just talking about a few minutes ago.

And then lastly, sales and marketing, again, beyond duplications, we see opportunities on agency consolidations, things we've done at Kimberly-Clark 2 years ago. We see opportunities on driving efficiencies on nonworking media, on trade spend. Again, things we've been doing. In terms of the recent actions that Kenvue announced and their organizational structure, we're encouraged by that. We feel that that's a great move. And frankly, if that drives acceleration in earnings and efficiencies sooner than what we planned for, all the better.

Yes. And maybe just -- right, we're focused on for both companies, I mean, what Kirk is on his side and we're doing on our side. We're trying to expand the earnings capacity of both companies. And so the last restructuring, they did reorganization. I would tell you, we were excited because it moves their operating model closer to how we operate. And so we think we'll link up at some point as we close, and it will be a very smooth transition.

Good. What about on the growth side? Because in addition to those cost synergies, there are revenue opportunities, too, Mike. Just I guess, your increasing understanding and optimism around that potentially.

Yes. I'm a bull on the revenue synergies, but, Steve, I was told that investors don't care about revenue synergies until they make it into the algorithm. So I'll temper, but I'll just tell you why I'm excited, right, which is there's a lot of stuff near term that's very obvious. And what's obvious is like distribution opportunities, where one company has either channel or market strength and the other doesn't, right? And so I talked about e-commerce. So on e-commerce in North America, we're 700 basis points higher share than offline. They're the reverse. They're under-shared on e-commerce and below what the category development is for some of their categories. And so we've developed outstanding relationships with the big e-commerce retailers in this market here in the U.S., and we're confident our capability can help accelerate that. So that's kind of one near-term one.

If you get into like markets where Kenvue has scale and we do not, right here in Europe, they are over $3 billion in Europe. After our IFP transaction, we'll be about $100 million, right? And so -- and we used to have an over $1 billion Personal Care business in Europe. And certainly, that may be an opportunity for Carlton and the team to consider going forward. And they have great strengths across retailers in Europe, but also healthcare provider networks and other channels that we wish we had back when we were a stand-alone company or before this.

The other area where they have strength is India. And I think they have about distribution in about 3 million points of distribution in India. We're primarily an online player, and we struggled with physical distribution. And so we think Huggies will be a good opportunity for the Indian market. If you go to the flip side, where K-C has strength, Mexico, a $3 billion business for K-C to Mexico, where Kenvue is very relatively small in Mexico. We're well over $1 billion in Korea, where they have a small business. And so again, I think just through sheer distribution growth, that provides significant near-term opportunity.

And then longer term, I think the combination of our engineers and their scientists to put together some of these products. The examples I'll give you that are obvious are they're great at skin care. Our diaper products, whether it's the Depend or Huggies are in contact with skin 24/7. And so there's certainly some things that I think both teams can bring together to really improve the condition for consumers in that space. So we think there's great opportunity.

And then probably the biggest one goes back to this underdevelopment of categories. And again, it may be an artifact of kind of maybe the pharma approach to -- which is more product-centric, I think, and we tend to be more category growth centric. And so the example I'll give you is with 50 shares in Kleenex across most markets, it's our responsibility to grow the category. And we hadn't done a good job with that for a while. But over the last 5 years, we've put dedicated effort. And so household penetration has been growing, especially in our biggest market, the U.S., for the past 3 years because we put effort into that. It's also why in the U.S., if you're familiar, you'll see Deion Sanders on Depend and Katherine Heigl on Poise, it's because we're trying to help consumers understand that these categories -- these products can help serve needs that they weren't thinking about.

Yes. Great. And maybe lastly on this, just confidence in the path back to 2x net debt-to-EBITDA leverage post-close, Nelson. That's a big focus for investors.

Yes, sure. So firstly, Steve, we remain committed to having strong cash returns to our shareholders, as we manage through the 2 transactions, forming the JV with IFP middle of this year as well as closing the Kenvue transaction.

As we've shared, we -- as we go through it, our commitment is to remain or to keep a strong balance sheet as well as flexibility. And firstly, when we close the transaction, our expectation is to be at around 2.9x of leverage, 2.9x of EBITDA. And we expect this to reduce to around 2x EBITDA within 24 months through a combination of growing earnings as well as reducing our debt.

Importantly, I'd also like to highlight that we made the decision when we announced the transaction that we're going to deploy the cash proceeds from the JV formation to fund part of the cash consideration for the Kenvue acquisition. Beyond that, our capital allocation priorities remain unchanged. First, we have tremendous confidence in our science-based proprietary technologies, and we will continue to invest behind our business to drive profitable, sustainable growth over time.

Secondly, it's our dividend. We are committed to our dividend to growing it over time. This year marks the 54th consecutive year of growing our dividend, and we intend to continue doing that. We will preserve the Kimberly-Clark dividend policy as we merge the 2 companies.

And then lastly, we will deploy any excess cash to purchase -- to the share repurchases on an opportunistic basis.

Perfect. Perfect. In the couple of minutes we have left, Mike, maybe paint for us a picture of your end-state vision for the combined company and maybe -- highlight maybe the 1 or 2 things that investors should be focused on over the next year as we approach close.

Yes. Yes. I mean, I'll finish where we started, Steve, which is our focus is on building the preeminent health and wellness leader. And we're really excited about that opportunity. And first of all, there is a multi-decade demographic tailwind for health and wellness. The aging population isn't just a trend in developed markets, it's a trend in every market. And as the population ages, there's going to be more need for health products, right? And so we're excited about the built-in tailwind there.

And then, when you click on and understand that these categories still have a huge opportunity to be further developed, right, through communications and marketing and partnership with retailers, we're further excited about that. And we feel like we have the capability to kind of accelerate the Kenvue portfolio on that journey.

And then, the last thing I'd say is with respect to the synergies or efficiencies, we're very proud that we're able to deliver world-class productivity and a couple of years consecutively of 6%, which is probably the highest in the industry right now. And to be able to apply that to the Kenvue portfolio, we're very confident in the synergies. And so I think in the near term, we're focused on improving the base execution of our business. We're watching closely with Kenvue, not managing, but we're encouraged by the progress that I think Kirk and the Kenvue team are making on parts of their portfolio. And I think our integration team is working very well together to bring this to hopefully a very boring close.

And I'd just add to Mike's point, when we complete the integration and we're through with the process, we should expect to be in a position to consistently deliver leading organic growth in the industry with top-tier gross margin and EBIT margin, all resulting in double-digit returns to shareholders through a combination of earnings growth, a healthy dividend as well as share repurchases.

Perfect. Well, we welcome you back here next year to talk about how we're going to realize that vision. Thank you so much.

All right. Thank you.

Hello, and welcome to the Annual Meeting of Stockholders of Kimberly-Clark Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mike Hsu, Chairman and CEO of Kimberly-Clark. Mr. Hsu, the floor is yours.

Good morning, everyone, and welcome to Kimberly-Clark's Annual Meeting. This meeting is called to order. Before we get started with the business of the meeting, I will comment briefly on our recent performance and strategic transformation. Over the past 2 years, our Powering Care strategy has put us on a virtuous cycle of value creation. Through our team's excellent execution of our strategy, we have created a durable growth engine that is enabling Kimberly-Clark to win with consumers around the world. In 2025, we accelerated our momentum across the board, delivering strong results while navigating a dynamic external environment. We took several decisive actions to pivot our portfolio to higher growth, higher-margin personal care categories. We announced our pending acquisition of Kenvue, a powerful next step in our transformation to create a new kind of health and wellness leader and serve billions of consumers across every stage of life. This transaction is a generational opportunity to reimagine care and create lasting value for shareholders. We remain on track to close the acquisition in the second half of 2026.

To lay important groundwork for our acquisition of Kenvue, we announced a strategic joint venture with Suzano to create a preeminent international tissue and professional products company with substantially all the assets of our IFP business in which we'll own a 49% stake. This joint venture positions Kimberly-Clark and IFP to move forward with clarity and seize the tremendous opportunities ahead. We remain on track to close this transaction in mid-2026. Additionally, in 2025, we took a decisive step to optimize our supply chain network in North America with a $2 billion investment focused on building a new advanced manufacturing facility in Warren, Ohio, and an automated distribution center at our Beech Island, South Carolina plant. These investments will accelerate our innovation plans, support our growth ambitions and enable us to serve consumers even better.

Our 2025 results reflect the enhanced strength and resilience of our business. Our teams around the world continue to perform while transforming, and I want to thank them for their passion and dedication. The investments we made in innovation and marketing are differentiating our products across the good, better, best ladder and strengthening brand love with consumers. This has driven our strong shift to delivering broad-based volume plus mix-led growth even while volume growth has been somewhat challenging to achieve across the broader CPG landscape. At the same time, through Powering Care, we have transformed our organization and processes to maximize returns on those investments. We've wired Kimberly-Clark for speed and consistency with a lean and agile operating model. We have improved enterprise-wide visibility and discipline with a focus on delivering the best products at the lowest cost across all price value tiers and in every category market where we compete.

Critically, we've embedded a growth and accountability mindset across the organization. These fundamentals help us deliver financial performance that gives us the flexibility to reinvest and sustain the virtuous cycle. Our growth engine is innovation-led and amplified by emotionally resonant advertising and superior commercial activation. As we deliver volume and mix growth and industry-leading productivity, we use the savings to invest for impact and fuel the cycle. I want to thank our Board of Directors who are with us on today's call. They have played a key role in overseeing our transformation and are committed to serving our global consumers and driving balanced sustainable growth that enhances shareholder value.

We're building for the future and working to create a company unlike any other in our industry today through our acquisition of Kenvue. We've hit the ground running in 2026, and we are excited to seamlessly plug Kenvue's brands and businesses into our proven durable operating model. Together, we will unlock a new phase of growth and capitalize on the opportunity to provide extraordinary everyday care to billions of people around the world and deliver generational value for shareholders. I now invite Courtney Roane, our Vice President and Corporate Secretary, to inform us of housekeeping matters and open the polls.

Thank you, Mike. I will first go over a few housekeeping matters. Today's virtual-only meeting is a live webcast. Through the meeting portal, you will find our agenda and rules of conduct. The portal also has links to our annual report and our proxy materials for the meeting. A representative from our Inspector of Election is in attendance and has confirmed that a quorum is present. If you have not voted or wish to change your vote, you may do so during the meeting through the virtual meeting portal by clicking on the vote icon located in the upper right-hand corner. However, any stockholder who has already voted and does not want to change his or her vote need not take any further action. The polls are now open. We will accept votes until the polls close later in the meeting.

[Voting]

Feel free to ask a question at any time during the meeting by clicking the message icon in the upper right-hand corner of the screen. We will respond to questions and comments later in the meeting after we close the polls. We have 4 proposals for this meeting: first, the election of 13 directors; second, ratification of the selection of our independent auditors; third, approval of the compensation of our named executive officers; and fourth, a stockholder proposal to require an independent Board Chair. Each proposal is described in our 2026 proxy statement.

I would like to introduce our director nominees who are all in attendance on today's call: Sylvia Burwell; John Culver; Mike Hsu, who is our Board Chair; Mae Jemison, Deeptha Khanna, Todd Maclin, Deirdre Mahlan, Sherilyn McCoy, Christa Quarles, Jaime Ramirez, Joe Romanelli, Dunia Shive, Mark Smucker. Also joining this meeting are representatives of Deloitte & Touche, our independent auditors. Melissa Cloniger, who is the partner in charge of our 2026 audit, is in attendance today. The proponent of Proposal 4 is Mr. Matt Prescott, acting on behalf of the Accountability Board, which owns greater than $25,000 of the company's common stock. Operator, could you please play Mr. Prescott's prerecorded statement in support of this proposal?

Hi, everybody. I can keep our remarks brief today for the sake of everybody's time and just say that we think the proposal speaks for itself and would refer anybody with questions about it to the proxy statement. Only want to add that Institutional Shareholder Services and Glass Lewis are both recommending a vote in favor of the proposal. And obviously, we also encourage shareholders to vote for it. Thank you very much.

Mike, I will now ask for a motion that the 4 proposals listed on the agenda be introduced for a vote by the stockholders.

Moved.

I second the motion. For the reasons stated in the proxy statement, the Board of Directors unanimously recommends that you vote against Proposal 4. We'll now have a brief pause to allow any stockholders desiring to submit or change their vote now to do so.

[Voting]

I now declare that the polls are closed. The inspectors have advised me based on preliminary results that all 13 nominees have been elected to the Board. Our stockholders have approved the proposal to ratify our independent auditors and approve our executive compensation. The stockholders did not approve the proposal to require an Independent Board Chair. We will announce the final voting results in a current report on Form 8-K to be filed with the SEC within 4 business days of today's meeting. We will now consider questions you may have about Kimberly-Clark. It is possible that our responses will include forward-looking statements or certain financial measures that have not been calculated in accordance with generally accepted accounting principles. Please see the meeting rules of conduct for more information on these matters.

Great. Mike, we have one question already from Phil Brown, a long-time shareholder, he notes he's enjoyed our dividend over holding our stock. However, is concerned that the payout ratio, his math has now reached a higher level. Could you please comment on that?

Yes. Mr. Brown, thank you so much for the question, and thank you for being a long-time Kimberly-Clark shareholder. Hey, we're really proud of our 54-year history of increasing the dividend, but also recognize that we do that with, I would say, discipline and rigor, right? And so I think your question is appropriate. In 2025, as we looked at the payout ratio, I think your number -- your math is correct. However, there were some restructuring charges that were noncash that affected kind of the stated earnings. And so we feel great from a cash flow perspective that the dividend is an appropriate ratio for what the company can afford. And so we're going to continue to work hard to continue to increase I would say, the growth and the profitability of the company over time, and we'll continue to strive to drive for an increased dividend to satisfy long-term shareholders like you.

Mike, we have not received any additional questions via the virtual meeting portal. And with that, I will ask you to please adjourn the meeting.

Okay. We thank you all for your continued support of Kimberly-Clark. This meeting is now adjourned.

The meeting has now concluded. You may now disconnect.

Good afternoon, everyone, and thank you for joining us. I'm pleased to welcome you to a fireside chat with Kimberly-Clark today. The company is in the midst of a strategic evolution, a significant one, reorienting the portfolio by reducing its international consumer tissue exposure through a joint venture with Suzano while expanding into consumer health with the proposed acquisition of Kenvue, which will create a broader platform across personal care and consumer health. To discuss the strategy, the rationale behind these moves and how management is thinking about execution and value creation from here, I'm joined by Mike Hsu, the company's Chairman and Chief Executive Officer; Nelson Urdaneta, the company's Chief Financial Officer; and Chris Jakubik, Head of Investor Relations. So thank you all for being here. Thanks so much for making the trip to London.

Great to be here, Lauren.

Thank you.

So we'll get started. So first thought was that given many investors here today have a somewhat outdated perspective of the company, I wanted to start off at a high level. So over 2 years -- just about over 2 years ago, you announced the Powering Care strategy. Mike, could you start by giving an overview of that strategy and perhaps where it suggests the greatest change from how the company was operating previously.

Okay. Yes. Thank you, Lauren. Yes, I think the core idea of Powering Care is the concept of getting the company on a virtuous cycle of growth. And most companies talk about that, Lauren, and that's something I think most companies aspire to. The thing about it within CPG, as you well know, there's a lot of factors conspiring to kind of knock companies off of staying on that virtuous cycle. So it's notoriously hard to do, right? But the core elements of what we're trying to do is really make products better that the consumers want to drive volume, drive great marketing to get consumers interested in our products, great execution in stores, and that will drive the volume.

At the same time, we're working to get much more efficient on cost and then reinvest that savings back into product quality or marketing or advertising or anything else. And so hopefully, if you get that cycle right, it starts that virtuous cycle of growth. I think -- so that was kind of the goal. I think the key elements of the strategy, I mean, there's really 3 big components. One, we call accelerate pioneering innovation, right? But the real thing about that is at the time, and you've seen us for a long time. I think at the time I joined K-C, there was a question about whether superior performance was possible in these categories, right?

A lot of people externally and even some within the company said, aren't these categories commodities? And how are you really going to differentiate a diaper or bath tissue or whatever product you want to think about. And I would say, so for us, step one is that, hey, superior performance is possible, and it's not only possible, but it's necessary. And I think over time, and I think you've seen what's driving our volume is that we've really found a way to make our products superior and desirable, right? And so that's part one.

Part 2 is what -- another thing that's really changed is our cost structure. And I think we've been driving industry-leading productivity gains over the last few years. I think the big change in K-C over the last maybe 10 years or so is it turns out there is one best way, right? And I think we were kind of a decentralized confederation of companies that operate in local markets. Products were different in markets. Our manufacturing process could be different. Our assets or our manufacturing assets could be different. And I think what we've learned over time is that now consumers are more similar. It doesn't mean all products are identical between the U.S. and China or Brazil, but they're more similar than they are different. And so it does turn out there tends to be one best way to make stuff efficiently.

And so -- and that's kind of what's behind the margin improvement that you're seeing with us. And then the last thing is a change in our operating model. Again, I think a calling card of K-C and what makes us special is we're very attuned to local market competitions. We run our business through the markets. And so that's something we'll always want. But I think what we've done is overlaid that local agility with a little more considered global scale to help the markets go faster. And so I think those are the big changes that are driving the performance that you're seeing.

Okay. Great. So with that as context, let's talk about top line trends over the past 2 years for North America and then the International Personal Care business. Organic sales have performed well. And more notably, volume mix has been positive, which is not what we can say for most of U.S. staples. Just to specify for people here who don't know, the company had 1% volume mix growth in 2024. That accelerated to 2.5% in '25, and they grew 3% in the first quarter of '26. So how is it that you've been able to drive this in categories that I think many think of as sleepy and really just linked to population growth at best?

Yes. I think the main thing I'll say, Lauren, and we'll see if you think this is interesting, but superior product performance equals superior value. A lot of time when you say value, people think you're going to pull price down, right? And price matters. But actually, we believe since you -- people experience our products and if you're wearing a diaper, whether you're a baby or a senior adult or a Kotex pad, you're wearing it 24/7, right? So it's on you.

So people really notice differences in performance. And so I'd say we've made a conscious effort to differentiate our products. We think they are superior than anything that's in the category. And it's been that way for a few years now. And I think that's what's driving the volume. The how did we get there? If you reround 12 years when people thought these were commodities, I think what we ended up doing was going through a process of like, "hey, we're going to get pickier about how consumers use these products." And they're not just looking for absorption, right? Things about like comfort, fit, breathability, skin health, all these things matter. And so we're going to spend a lot of time trying to understand how needs will evolve. I will tell you, Lauren, our big exposure and big business in China really helped us because I think that's where we saw both in Korea and China, the Asian markets, the sophistication of the consumer over the last 20 years has really accelerated.

There's a lot of manufacturers, a lot of brands. In diapers alone, there's 200 brands in China. So the competition is very aggressive, and that competition forces companies to get better and forces companies to innovate. And so I think what we did was really kind of develop multiple angles of product differentiation, whether that's on comfort, fit, absorption. And I will tell you, we have a big pipeline. We are very proud of big ideas that we have in the pipeline that's coming. We have this -- a lot of the growth that you're seeing is on what we call a Gen 3 diaper core. We have Gen 4 and 5 in the works that's going to be better than Gen 3. And so we're really excited about that.

The other thing that's happened this year, and maybe it started happening in '24 was our emphasis on the value tiers. It turns out consumers in a market like North America are really under stress. And while our premium business continues to grow, and we're driving the premium business very hard with innovation, 90% of the population has incomes at $100,000 or below, right? And so as category leaders, we don't really want to ignore, right, the bulk of the population. And so we decided to innovate as aggressively in our value tiers.

And in fact, in the U.S. on Snug & Dry, I think you understand that we brought our best innovation and most advanced technology and launched it in our value tier first before we've launched it into our premium tiers. And that's what's behind a lot of the volume momentum that we're seeing right now.

It's really interesting you brought that up because one of the things that I have very casually said when asked by investors, like why do I think there's no volume growth? Or what's the big challenge in the industry overall. And I always come back to 80% of U.S. consumers are under a lot of pressure and the staples companies have to sell to all 100% of U.S. consumers, right, not just the top 20. And so we care about it -- our industry cares about everyone.

And we decided we're not going to be a niche premium company, right? We're going to serve everyone or try to.

Yes, that's great. Okay. I wanted to touch quickly on the impact you've seen from the conflict in the Middle East. Back at earnings just last week, you noted the potential incremental inflation should oil remain elevated, but you stopped sort of including that in the formal guidance. Can you just walk through that decision, why not to bake it in. And just kind of what mitigation might look like as you think through the rest of the year?

Yes. Let me just make a quick comment and then Nelson will -- I would say it's an unfortunate circumstance that the company and our management has become very accustomed to dealing with these situations, right? And so this is I think the third military conflict -- the first one in Ukraine and Russia was the first one kind of on our watch for a multinational deal with in quite a long time. And so then you had Israel and now this one. And so I think operating in a volatile environment is something that we're becoming accustomed to. Our underlying principle, which I think Nelson will want to talk more about is, right, PNOC or price net of commodity cost discipline, right? And so generally, we expect our PNOC to be neutral to positive, right? And so adhering to those principles is pretty core to how we think about our business.

Yes. And Lauren, just to provide a little more color on the situation. So 2 things. One, from a capability standpoint, as we went through the whole COVID situation, all these learnings have been built into our toolkit. And as you remember, we overcame $3.4 billion of costs between 2021 and 2022. And we emerged out of that fairly successfully. We recovered our margins and actually started expanding our margins beyond pre-pandemic levels at the end of 2023, and we've been on that trajectory.

Now as it relates to the outlook in particular, for the second quarter, we did include and we advised that we expected about $50 million of gross input cost inflation, largely related to the volatility we're seeing in the oil markets. As a reminder, we have about 80% of our input costs already covered either through contractual structures or programmatic hedging programs.

As it relates to oil-linked commodities or costs, about 25% of our basket is exposed on one extent or the other. And if you add distribution, it's a little bit higher than that. So the $50 million that we included for the second quarter, we expect to be able to fully mitigate it as the year progresses. That also includes a slight impact from the California distribution center fire that we experienced a few weeks back. Now what we don't know is going to happen in the second half of the year because prices have remained fairly volatile in terms of oil as well as some of the surcharges and force majeure that's being declared by some of our suppliers.

So we did some estimates around a scenario of what if oil were to stay at around $100 a barrel. And that's what yields a scenario of around $150 million to $170 million of gross input costs that we would face in the second half of the year. That's not built into the outlook, neither any mitigating actions that we would take to tackle them. As Mike pointed out, our teams know that we expect them to manage to at least neutral pricing net of cost over time. And they need to leverage all the toolkits within the integrated margin management approach that we've developed over the last few years. That includes revenue growth management, productivity where we've delivered 6% gross productivity in '24 and '25 in Q1, and we're projecting that for the full year as well as the always-on overhead savings that we've been delivering over the last few years.

Our plan is we should have much more clarity in terms of what that will be, gross impacts as we close the second quarter. So when we give the update on performance for the second quarter in August, we'll be able to provide a more clear view of what that will look like from a growth standpoint, how much of that can we mitigate and what, if any, net impact we foresee to the bottom line in the balance of the year.

Okay. Great. Before we get into talking about Kenvue, I wanted to just talk about the joint venture with Suzano a little bit. So for those in the audience who might not be aware, when Kimberly announced Powering Care, there was a third segment as well called International Family and Professional. In June of 2025, they announced a deal to sell 51% of that to Suzano forming this joint venture we're going to talk about. So could you just talk a bit about the strategic rationale for that transaction, why -- and also why Suzano is the right partner?

Yes. They're a great partner. I think that this transaction is really about building a better tissue business. And I think we realized, Lauren, that wholly controlled by ourselves, I think we had structural challenges to enable us to do that. And what were the structural challenges. Our International Family and Professional business or the tissue business, maybe the biggest component is here in Western Europe, right? And so Andrex here in the U.K. and then we're in most markets on the European continent.

But given the share positions in Europe, I would say the margins in Western Europe are structurally lower, right? And because of that, our earnings were highly volatile. And why were they highly volatile? The only thing that fluctuated was pulp costs, right? And so it made it difficult within our control, we had to cope with the volatility of the input costs while the margins were kind of at a fixed amount. And so really, the magic of this transaction is in partnership with Suzano, which is our second partnership, we did a similar transaction with our Brazilian tissue business, and we sold that 100% of them a few years back. But their cost structure on fiber is inherently stable, right?

So the only thing that fluctuates is the price, right? And so what you're marrying and creating a business that has stable prices, stable costs and they can operate more effectively in this environment. On top of that, I would say both companies have operating strengths. Ours is papermaking or tissue production. Theirs tends to be more industrial, pulp production, agriculture. Ours is also commercial execution, right, selling, marketing, all those things that they don't do as well. And so the reason why it's a joint venture is we both bring strengths to the party that we both value, right? And so we think there's a great structure, and this is going to build a business that's going to be a very good tissue business.

Okay. In Brazil, though, you sold it 100%. So just did they have a different capability set in that market with regard to the commercial aspects or the paper making that made Europe a different decision.

Not because of that. I would say they're doing a great job with it. And so I forecast this will go very well here as well. I think maybe the reason why it wasn't a full exit is I think we will evolve over time. That's part one. But part 2 is there's more behind what we're doing on either side, right? They have more capability they're developing. We're having more capability we're developing on the tissue business, and we both want to be able to participate in sharing that. So there is a reason why it's kind of a measure. But I think over time, could they increase their ownership stake? It's possible.

Okay. And just to add, I mean, 3 things where we see also benefits from how we structured the transaction, Lauren. So the first one, with a 49% stake once the transaction closes, we expect our shareholders to participate in the value creation that we foresee in the following years. Secondly, there's an important cash amount that will be received by Kimberly-Clark at the moment of the close, which we will deploy for the Kenvue acquisition as part of the cash consideration, which again will allow us to maintain a strong balance sheet post the close of Kenvue. And then lastly, adding on what Mike said, there is a fixed mechanism for us to be able to exit at a time when Suzano offers to purchase our remaining stake.

Okay. Great. Perfect lead into Kenvue. So that was June. So then in November, you announced plans to acquire Kenvue.

It was a busy year.

Busy year. Yes. Thanks, guys. So while I'm sure most of them are well aware of the deal, maybe you could just talk a little bit about the strategic attractiveness of this business combination or just plainly like why are Kimberly and Kenvue better together?

Yes. Okay. I know for some outsiders that may not be the most intuitive, we're excited. And we're excited about, in our minds, creating the preeminent health and wellness leader globally, right? And that's kind of what we're doing. And so -- and what do we mean by that? One, there's a couple of things. And you know covering our categories. I think we've done a great job growing our categories.

I would say our categories this year are growing about 50% -- 2.5%. And that's kind of the historical range of kind of where we are. I would say the Kenvue categories grow at a higher rate to start with, and they have built-in multi-decade tailwinds. And so that was both in health and wellness, driven by the logic of a globally aging population, right? And so -- and as the population ages, demand for the Kenvue portfolio, along with ours, like our adult care businesses will continue to grow. So there's some strong built-in tailwinds.

But really, what we're trying to do is similar to what we talked about with diapers, serve 100% of the population, what we really want to do and believe we can do is raise the standard of care for all. So our goal is to provide extraordinary care for all. What does that mean? I would say our view is a lot of these health and wellness categories, particularly within self-care, we view are lower penetration and relatively underdeveloped, even though they're great solutions and have been around for a long time. And so we believe working together and understanding kind of markets and need spaces more structurally that we can help expand the categories over time in a more disciplined manner.

I think, obviously, there's tremendous geographic complementarity between our portfolios. If you're not as familiar, they're very big in Europe. They're about a $3 billion business in Europe. After our IFP or our Suzano transaction, we'll be about $100 billion in Europe. And so there's an opportunity for us to grow our business here. Similarly, they're very big in India, which is a market that we've struggled in with our Huggies brand. And so we think there's great opportunities there.

If you flip it around the other way, we're about a $3 billion business in Mexico, and they're just a few hundred million there. And so I think we see from a geographic perspective, Lauren, an opportunity to kind of grow both businesses through distribution, right? So that's kind of one set of areas. The other is, if you think about the consumers that we're serving, we're covering basically the same life stages through different ends of the category. So we're in baby. Obviously, they started their business or their company within baby care. And so -- and we're obviously in baby, but then you keep going serving women, whether that's through feminine care products or skin care or beauty or whatnot.

All family, we do it primarily through tissue, but they have a lot of products like Listerine and Band-Aid that cover all family. And then finally, the active aging, which we primarily do through Poise and Depend. And so we think there's a lot of complementarity in terms of serving life stages. And maybe the opportunity for us, Lauren, is we've been working in a lot of markets, primarily in Asia and the U.S., but increasingly across our other focus markets to develop an advantaged consumer engagement model powered by digital. And we've made a lot of progress, I would say, over the last 10 years. And I think that's an opportunity that we feel like we can really expand with the Kenvue portfolio as well.

Okay. Great. So one pushback that we've heard pretty often is that Kenvue's categories are fundamentally different from yours. Things mentioned are like channel mix, seasonality, competitive concentration barriers to entry. I'll skip the geographic exposure. You just commented on that and just even expertise. So how would you respond to that, the fundamental differences between the businesses.

All right. Here's my argument, Lauren. I want to tell you that when you asked about Powering Care, I'll say the tenets of Powering Care apply to Kenvue's categories, too, right? And if you just click through what are those? I would say how we've been able to manufacture growth in what you would characterize are slower growth categories, I would say it's a deep understanding of need states and really being, I would say, very specific about what sophisticated consumers are looking for.

And even when -- and consumers -- it's very hard for consumers to say, this is what I want for the future, right? And so you have to kind of -- you have to piece it together, right, through insights and research and understanding. And then -- but I think we've been able to do that, right? And I'll just -- like one example, right? This whole thing around our current product on Kotex that's selling great globally has this liner that pulls the menses or the liquid away from the surface of the pad and then channels it into other parts of the pad, right, to spread it out and disperse it, right? That's -- no consumer can ever tell you that's what they want, right?

But what they said was we want to feel dry, right? And that's kind of how we deliver it. And so I think the core idea is we've got to understand what the need states are and what they're trying to solve. And then what we do well is we declared like this is what we're going to win on. And we declared that like 10 years ago. And then we kind of plowed all of our financial R&D researches into solving those problems, right? And so I'd say need state and then aligning the tech pipeline to support those need states.

Second, this consumer relationship model. I think interestingly, I told you we've been investing a lot in digital. Our e-commerce shares, and I think you probably know this fact, our e-commerce shares are 700 basis points higher in North America than our off-line shares, right? And so we think we have an advantaged model. We have an advantaged model in China, in Korea. Increasingly, I think we're feeling great about Indonesia and Brazil and what we're doing online there. And so we do think there is a different engagement model that's going to be much more efficient than the traditional marketing model that also applies to the Kenvue brands.

The third area I talked about margin management. And I think it's early, but we're excited about the integration planning. I think even though they're high margin, and I think their average is close to 60%, right, our average is approaching 40%. So they're much higher margin, but we also think there's much more opportunity to improve the margins on the Kenvue side through cost discipline. And our calling card given that our margin structure is lower is cost discipline, execution discipline, and I think a lot of that applies to Kenvue.

So I think while the categories look and feel different, I think as you may be familiar with, in the world of CPG, I think the basic principles apply. I mean, honestly, the 3 of us that are sitting in the front of the room, you know we all came from Kraft, and we didn't even know how to spell diaper if you spotted us to D 12 years ago, right?

I'm sure your...

Sorry, I didn't mean it to sound that way.

Okay. A few weeks back, you announced a leadership team for the combined entity. Not surprisingly, many come from K-C, but there's a few that come from Kenvue. So can you just give an overview of the new organization structure for the combined company, the leadership team and through that decision calculus when bringing over talent from Kenvue.

Yes. Okay. Interesting, world-class team. I'm excited. We had a -- so anyways, the process -- I'll just give you a little on the process. So obviously, I met with all the leaders on both sides. And we put everybody through this rigorous process with a third-party assessment, right? And so -- and that way team evaluated them and then I had my own individual discussions with every leader.

So a rigorous assessment and -- but we wanted to set the principle of we're just going to take the best of both. Like we don't really care which side they're from. It's -- we're just going to pick the best, right? And that's part one. I will say number one, I would -- exceptional market and operating expertise. And if you look at our business leaders, a couple of them, John, who runs North America for us; Katie, who runs focus markets and you met her. I mean everything is growing. I think you saw in the quarter, I think, John, 95% of his sales were growing share. Katie, 84% of hers.

And by the way, for Katie, all of her markets when I gave her those markets were declining when she got them. So I think -- so 18 months later, they're all growing and growing share. So I think we've got exceptional leaders on the K-C side. John is going to lead North America. Katie will have 5 markets primarily in Asia, which includes China and Indonesia and things like that.

I think on the Kenvue side, Carlton, who runs their EMEA business, Leo, who runs Latin America. I think if you look at those 2 businesses, this is what happened when we started doing our internal business reviews just to get to know the categories. I said, "Wow, I don't think we have any markets that performed as well as you guys did," and we're pretty proud of our performance. But I think what got lost, Lauren, is there's some pretty outstanding performance that they've had on their side that kind of got swamped by a few big problems out there. And we know those markets, and they're very difficult to operate within. And I think they've done a really nice job.

So I'd say with those leaders, Carlton, Leo, Andy in Asia Pacific, Andy is going to lead enterprise markets, which is part of Asia and Latin America, together with Leo, I'd say they've got exceptional market expertise. I think they've done a great job with the Kenvue brands. Andy is newer, but has engineered quite a turn in performance in some of the businesses in Asia. So we're excited about, I would say, the market operational capability of the team. And then functionally, again, we picked the best of both. But I'd say primarily with a focus on the capabilities that we think we need to grow the business now.

And I would say on R&D, and you've met Craig, Craig has experience in some of the Kenvue categories. He spent a long career starting at Procter and Unilever before going to Campbell's and then coming to us. So I think he's a real R&D pro. I think Tamara, she's helping us deliver multiyear industry-leading productivity, and she's going to be great at that. And then interestingly, on the growth side, we tapped Carlos from Kenvue and Jon Halvorson from the Kenvue side. Why? I think we were really excited with Carlos' experience, having been an operator and coming from Procter, right, in this past, but detailed operator for a long time and having a disciplined operating mindset to think about category growth. We really love that idea.

And then together with Carlos and Jon and Mike Wondrasch, who is going to be our digital leader, I'm going all in on digital, right? This whole thing around the consumer engagement model, that thing is going to be a competitive advantage for us, and we're investing a lot to build it.

It's interesting, too, because, obviously, Kenvue and Hyzight didn't stand still, right? When Kirk came in, they made some really fantastic hires that you're now bringing over.

Yes.

Okay. Looking at time. Okay. So cost synergies that you've discussed are on the high end as far as CPG deals go. So $1.9 billion or 13% of Kenvue's 2025 sales. You've given us good detail on the breakdown. So just for anyone here, it's 30% in sales and marketing, 30% in COGS and 40% in G&A and time line largely realized by year 3. But we still get pushback that the number is just too high, just it's too high. So how would you respond to that?

Yes. So a few things, Lauren. So we've continued over the last months since November 3 of the announcement to build our clarity and confidence on the path to delivering and/or exceeding the synergies. I mean, Russ last week at our earnings update was providing some updates around all the hundreds of work streams that are underway, getting ready for that day 1. .

When you look at the benchmark in deals, yes, in traditional consumer staples deals, the average is more around the 8% level. But when you look at consumer health, that average is actually 13%. So our 12% which is kind of the number, is very reasonable when you look at it from that end. The other element that's important to note is that the 3 sources that you've quoted as it relates to how we drive and attain those synergies are things that we have been executing over the last 4 years at Kimberly-Clark. That's what's allowed us to drive in the last 2.5 years, increasing better performance on the top line, driven by volume/mix gains consecutively quarter-by-quarter, expanding margins, increasing our investments behind innovation and brands, driving better cash flow. And at the end of the day, all of this happening simultaneously.

If you look at the 3 buckets on overheads, it's not just the duplicate structures that we will tackle. It's the fact that by us leveraging our plug-and-play approach that we've been talking about, we'll be able to accelerate things like revenue growth management or global business services. If you look at cost of goods sold, it's the same thing. We've chatted about the benefits we'll derive on the transportation side because there are synergies, they weigh out, we cube out on procurement. There's a lot we've done over the last 3 years in terms of driving digital capabilities in procurement that's driving the productivity.

And then in sales and marketing execution, we've done a lot in that space. Think of all the agency consolidations that we've done, look at how we've optimized then our working media spend. Look at how we've optimized trade spend. That's what's been allowing us to grow over the last few quarters, and that's what's going to bring all these synergies to life as we go into the deal closing. We're very excited about what they've announced earlier this year in terms of their organizational structure changes because that's basically just setting it up for a way that for day 1, we'll be much ready to execute.

Okay. Talk about revenue synergies. Actually, no, I'm skipping revenues. We might run out of time. I'm going to come back to -- I'm going to skip it because -- we may come back if we have time. I wanted to talk about the scale and then the long tail within Kenvue's portfolio. So they've shared finally that they have 115 brands and 74% or less than 25% of sales -- sorry, 74 brands. So -- and a significant portion of SKUs are just 1% of sales. So we haven't seen any divestitures yet from them. I thought that, that would have happened by now prior to Kimberly's involvement. So just sort of what's your approach going to be. Do you think -- should we think about divestitures? Because there's a lot to be cleaned up there, it would always seem to me.

Yes, I'll say -- and I think Nelson will have some comments, too. But I would say, hey, the portfolio can always get better, right? I think portfolios are never fixed. I would say a couple of things. One, we're seeing it. I think one of the reasons they're pausing it is with the deal and everything happening, there's a lot going on. And so I think we're waiting to kind of make sure that we can close properly and get all the work done.

But the thing that I also say is it is not as complex as it appears. Because what happens is because of regulatory requirements on a country basis and some brand choices they made, they -- again, they probably -- at some point in time, they operated very decentralized, right? And so there's a lot of brands and formulations for the same category, right? And so if you add it up by category, let's say, pain care, there's dozens of brands and different formulations, but it's all serving the same kind of need, right?

And so on the surface, it looks very complex, but from an operating perspective, a little less. Part 2 is while there is a tail, and Nelson and I have some experience from our Kraft days, we also ran a portfolio that was incredibly complex at Kraft, but has also delivered all the profit of the -- or most of the profit of the company. And so I would tell you that the tail is profitable in general, right? And so it's not as easy as striking the tail.

And then the third thing that I will say is a lot of the tails in international, and I think I had just mentioned, international, particularly in Latin American and EMEA is where the performance has been good. And so I think they've developed a way or a path to manage that complexity effectively. It doesn't mean that it's going to stay fixed this way because I think over time, there will be some things that would say, hey, not a great fit long term for what we want to do. There may be some things that we may want to come into the portfolio at some point, depending on how we think about need states and everything else. And so I would say there's always going to be an opportunity to get better. But Nelson is going to say we're going to stay disciplined on capital allocation.

Yes. And I'll -- just to add to Mike's point, we've demonstrated, Lauren, over the last 3, 4 years, our discipline around portfolio management, where we identify that there is no clear path for a right to win, be it for a brand, be it for a country, be it for a category, we will make determinations on the portfolio. Back in 2023, we sold our Brazilian tissue and professional business. Back in 2024, we sold our personal protective equipment business. We exited private label largely. And we -- right now, we will be probably less than 1% of our revenue exposed to private label.

And we are executing the transaction in the International Family and Professional Care business middle of this year. We'll be disciplined. We always want to make sure that we are creating and protecting shareholder value. It's an always on. And of course, it will apply to the new portfolio once we've closed the transaction with Kenvue, but in a disciplined manner.

Okay. Great. I need to talk about Tylenol and also Talc, particularly since we're here. So big concern from investors still that we definitely get questions about. From the S-4, we know that your bid for Kenvue came down pretty substantially throughout the process, given all of this, the elevated risk. So just maybe you could share with the audience how you grew comfortable with the potential liability that's, again, potentially unknown size?

Yes. One, I'll start with the science supporting the safety and efficacy of acetaminophen continues to grow. And there's a report that came out at the beginning of this year that kind of further support of the safety. And in fact, it's -- I think even today, by almost every governmental health agency, including the U.S. FDA, still recommends Tylenol is the only safe pain and fever reliever for pregnant women, right?

And so we stand behind with Kenvue on the science, and we're confident in that. In addition, and as we went through our due diligence process and recognize that we have directors like Sheri McCoy, who ran this business for a long time, and Joe Romanelli, who was at Merck. The Board -- Sylvia Burwell, who was the Head of the Health and Human Services department for the U.S. So the Board requested that we really get thorough. And so we did bring in some of the best advisers. Kenvue has hired excellent counsel who's been defending the case very well, and they're from Kirkland & Ellis. We brought in Gibson Dunn, Ted Boutrous, who I think is generally regarded a top litigator within the U.S.

We brought in King & Spalding, who's been arguing and defending successfully some of the Zantac cases. And so I think we brought in a really accomplished advisory team. And so we went through with an econometric firm to estimate what the liabilities are and everything else. And I would say, number one, we feel very good about the science and the defenses of Tylenol itself. And then I think I've said this publicly a few times, and we've gone through different scenarios of litigation. And I would say all scenarios end up being significant or I would say, generational value creation even if you assume some number for the litigation side. So we feel very good about both the science and then the economics of the deal.

Okay. So to round this out, I want to maybe take a step back. So you're -- the company is in the midst of a transformation that is finally taking hold optically stand-alone, Kimberly, I think, from a fundamental standpoint. Clearly, really excited about the opportunities in front of you. But M&A of this scale often proves more disruptive than initially expected. So I guess, why acquire Kenvue and introduce more complexity to now to a story that was really beginning to take off? And what do you think Kimberly looks like in 5 years?

Yes. So that's exactly the -- I will say, Lauren, because I think you're channeling some -- a subset of investors, Chris, that are a little frustrated with me because they saw the play happening, Powering Care working, it's going to move in the right direction, right, finally, all that kind of stuff.

But I guess my retort is, okay, we definitely believe, we believe our organic play is going great, and Powering Care is going to continue to go great. We're very confident. I think the thing is, though, we're building a company for the next 50 years, not for the next 5. And so if you look at the portfolio combined, I think there's going to be built-in tailwinds that are going to be tremendous for multi-decades. And I think not in 50 years, but in like, I would say, in 5 years, you're going to say, "Well, I can't believe you didn't think about this earlier." And so -- and we're going to do it the right way, right, by generating a virtuous cycle.

And we're really excited about the potential. We're really excited about the Kenvue team, the organization. Our cultures end up being surprisingly similar, Lauren, in the fact that care is kind of at the core, like what motivates K-C'ers and what motivates Kenvue'ers is taking care of their consumers and help them live healthier lives. And so I think we'll be able to do that together better.

Okay. Great. We have to wrap there. But thank you so much. I learned new things today despite how much I already know about your company. So thank you for coming you.

Thank you.

Thank you.

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.

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.

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

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.

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.

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.

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.

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.

Our next question is coming from Peter Grom of UBS.

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.

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.

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.

Our next question is coming from Javier Escalante of Evercore.

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.

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.

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.

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.

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.

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

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?

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.

Okay. Is my line still open?

Yes, yes.

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.

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.

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.

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

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.

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.

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

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.

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.

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

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.

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.

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.

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?

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

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.

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.

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.

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.

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.

Hi, everyone. Our next presenter is Kimberly-Clark, which is currently in the midst of one of the largest transactions and biggest corporate transformations in CPG history. The team is led by Chairman and CEO, Michael Hsu. Since taking the helm in 2019, Mike could do reach within the company, building a veteran leadership team with extensive experience in key areas and reshaping the portfolio to become a leader, a global leader in branded personal care. Under its power and strategy, Kimberly-Clark has been one of the few in the industry to inflect positive volume-driven organic growth while [indiscernible] profit margins from strong productivity.

Today we look forward to hearing how the company will continue the momentum it's built and how we can bring that to [ continue ] when the transaction is expected to close in the second half of 2026. Following the presentation, members of the management will be available for Q&A. Please ensure to make your way outside during lunch to their signature island. And a big thank you to Kimberly-Clark for sponsoring today's lunch.

So just a reminder, the breakout will be at lunch. With that, it's my pleasure to hand it over to the company. Please welcome, Mike Hsu, Chairman and CEO of Kimberly-Clark, who will be joined today by Russ Torres, President and COO; Craig Slavtcheff, Chief R&D Officer; Patricia Corsi, Chief Growth Officer; and Nelson Urdaneta, Chief Financial Officer. Thanks, Mike.

[Presentation]

Okay. That was a little bit about us. For K-Cers, it's a powerful reminder of our mission. This is why we do what we do. We provide the best, most innovative to deliver better care to our consumers every day. This is what makes a K-C-ers tick and precisely what makes Kimberly-Clark a very special company. For more than 150 years, Kimberly-Clark has been there for people at their most important moments. People place their trust in us. From the beginning of life to the very end, consumers invites us into their lives, and we're proud to be with them every step along the way. With innovative products that solve their most intimate challenges.

Babies with Huggies and Pull-Ups, young women experiencing their first period with Kotex, adults with incontinence living fully with Poise in the pen. Every day essential like Kleenex and Cottonelle are iconic brands deliver for our consumers when they need us most. So by caring for people throughout the journey of life, Kimberly-Clark is there for moments of connection. We form deep connections with consumers that establish brand preference for years and decades. We reinforce that brand love with powerful consumer-inspired innovation in storytelling that resonates emotionally. Moments of connection are how we drive brand love and lifetime bonds that translate to superior lifetime value.

Now our presentation today is about the operating model we've built, the momentum we've established and how it positions us to capture the generational value creation opportunity we have as we prepare to integrate Kenvue. Our products are everyday essentials that serve 1 in 4 people every day in categories for the most part, we invented. We have $6 billion global brands and leading positions in over 80% of our key markets. We're pivoting the portfolio towards personal care categories with attractive long-term growth potential and where we're executing at a high level.

Powering Care has established industry-leading momentum. We're performing well transforming in a difficult environment by accelerating pioneering innovation, optimizing our margin structure and wiring our organization for growth. Our momentum is reflected in our financial performance. We've delivered 2 consecutive years of broad-based volume plus mix growth and accelerated our rate of growth in 2025. We're delivering that level of growth in categories growing on average about 2%. And we're excited about the opportunity to accelerate growth in Kenvue categories, many of which are currently growing faster than [indiscernible].

We're on a sustainable path towards the margin milestones we established 2 years ago. Industry-leading productivity gains are funding investments to improve our brand proposition, drive brand love and enhance our commercial capability. We've also made significant investment in our capabilities and our infrastructure. Those investments set us up for where we are today, ready to capture a generational opportunity with the acquisition of Kenvue.

Powering Care is our proven and sustainable value creation engine. This approach is designed to generate a virtuous cycle of growth. The components of Powering Care are mutually reinforcing and designed to drive durable, sustainable and profitable growth, even when the environment delivers the unexpected. Powering Care is enabling us to make the best most innovative products for the lowest cost, build brand love and drive robust volume plus mix growth. Today, we're going to double-click on out innovate and out market and will illustrate how we pull all together to create lasting impact for our consumers.

Science is our competitive advantage. Our innovation approach uniquely pairs our scientific expertise and our obsession with solving the consumers' most important problems. This approach has accelerated our pace and impact of innovation. We focus on the most important consumer needs in our categories, leak-free confidence, garment-like comfort, healthy skin and sleep full night. This focus provides us to deliver these benefits with compelling offerings and value at every run of the good, better, best ladder. Our innovation is to deliver category shaping performance. We've led the premiumization of our categories by redefining the boundaries of what performance means.

As we look ahead, we're excited about our innovation pipeline and have convictions that our next 10 years will be even stronger than our last 10 years. We build brand love by visualizing our groundbreaking benefit in the context of life's most intimate moments. We're leveraging content at scale that builds brand love to extend our category leadership. We've experienced notable successes across the Pen, Poise and Kleenex not to mention Huggies in North America. We've built a unique and advantaged digital commerce engine in China, a market that is comprised of some of the world's most discerning consumers and a leading edge demand ecosystem. This is the platform for our digital commerce engine that fuels KC globally. We've also been thinking outside the box and built differentiated in-house creative capability that is generating award-winning creative. We're breaking stigmas and building a deeper brand connection.

At retail, we're fostering better, frictionless shopper journeys online and offline and backing it with flawless end-to-end execution. We strengthened strategic customer partnerships through joint business planning over an extended financial [ driver ]. And this approach has been recognized by all our top customers. We're supporting them to help shape the future of digital commerce. Powering Care is a repeatable [indiscernible] by our acquisition of Kenvue. Like us, Kenvue's iconic brands form lifelong bonds with consumers. Together, our powerful stable will raise the standard of care for millions of people around the world. And I should note, like many of you, I was at Johnson's Baby. The earliest memory I have of my mother is of her washing my hair with Johnson's Baby shampoo. Joining forces with Kenvue presents a generational opportunity to create the preeminent personal wellness company that provides extraordinary everyday care.

Together, we'll have leadership positions in many of the industry's largest, most attractive category. These categories have favorable growth and penetration trends across Baby Care, Women's Health and [indiscernible]. We'll be uniquely positioned across these core growths to grow as they grow. We'll earn the trust of more people by helping them raise their children, care for themselves and care for their loved ones. And doing this will create durable value for our shareholders. We're ready to accelerate into our next chapter. And for today, we'll highlight those capabilities and how they set us up to hit the ground running with Kenvue.

We have a generational opportunity for us. We've established strong repeatable growth momentum that's grounded in a fast and agile operating model. It's driving a successful transformation, building differentiating capability and core financial strength. The repeatable, durable model of Kenvue will seamlessly plug into.

So next, Craig, Patricia and Russ will illustrate how we out-innovate, out-market, out-activate and deliver the best product at the lowest cost to our consumers and customers.

Thanks, Mike. Hello, everyone. I'm Craig Slavtcheff, and I lead Research and Development at Kimberly-Clark. At our core, we are a company of inventors and discovering science that serves consumers, as Mike said, is our competitive advantage. It's what energizes our 1,300 scientists and engineers around the globe, solving for the biggest consumer challenges. And we built a system that turns that into profitable growth consistently. Today, I'm going to walk you through the transformation that has put us on new path, one that out-innovates, out-markets and out-activates competition and delivers real measurable results.

So how do we do it? Well, it starts with our innovation ecosystem. We have transformed against 3 simple pillars: First, consumer intimacy that leads to insights that then frame the need [indiscernible] to solve against. Second, connecting our efforts on short, medium and long-term innovation through our matrix wiring. Then doing so allows us to aggressively scale innovations in the short term, accelerate the launch of large technology platforms in the medium term and drive our future disruptive thinking in the form of [indiscernible]. And lastly, we have embraced agile design methodology across the organization in support of pipeline [ acquisition ], allowing us to put our best minds on the biggest technical problems we see shifting our project delivery from years.

So as I said, [indiscernible] consumer insight. Now these consumer need states with the demand signals that direct all of our future innovation, marketing and activation. Now some of these are intuitive and a bit obvious at this high level, leaks-free, fresh and oder-free, et cetera. But double-clicking on each reveals the richness of category-specific insights that are the genesis of our pipelines. And broader insights allow us to innovate in nonobvious [ medicine ] areas, and therefore, premiumize the category to grow value. Globally relevant, drawn from jobs to be done, shaped by emotional and functional drivers and weighted by how dissatisfied consumers are with what's currently available in the market. Those need states don't just shape our product road map, they direct us to where we push the science. Now Kimberly-Clark has a long history of pushing the boundaries of science. That hasn't changed, but how we direct it has. Our scientific discovery is laser-focused on areas, all driven by foresight and deep consumer understanding.

Like our global need states, there are some usual suspects here on this page. For example, next-generation absorbent systems and materials, designed to bend the performance curve of our personal care products. Mothers push the boundary of the premium benefits we see to deliver to our consumers. Most notably, advancing of the human microbiome and its impact on human health and skin physiology because really, every one of our products is used on skin that is vulnerable to [ insult ] and our goal is to bring the latest science to maintain health and comfort. But breakthrough science only matters if we can get it to every market and price point where our consumers [indiscernible]. That's where our wiring comes in.

Our wiring gives us on powerful, visibility and access to the best technology and consumer insights across the globe, leveraging the latest AI tools and our matrix structure to do so. That's how we drive portfolio harmonization. Now here's what that looks like in practice. In baby and child care, across 65 countries that make up our enterprise market segment, we went from 300 individual and independent projects to 11 scalable benefit platforms, all within 12 months. Then we deploy best performance, best cost technology into each market to make sure we are delighting consumers everywhere we compete. And at the end of the 2025 after 12 months, we have moved 70% of our geographies to winning product designs with plans to close the remaining 30.

Now wiring also allows us to drive connectivity between short-, mid- and long-term technology efforts into one integrated system with commercial governance across all 3. Near term, we're scaling aggressively. Our 3-year pipeline has benefited from over $500 million in incremental net sales from scaling launches alone. Midterm, we're investing in a simple list of 10 core technology platforms that will shift performance curves across our categories in the next 3 to 5 years. And we're getting new platforms to market in as little as 18 months. Long term, 5 simple but stretching moon shots over the next 5 to 10 years, instructing not only category bending science that will direct the future of our categories, but new claims space to continue driving premiumization.

So what does it all add up to? Let me show you. Kimberly-Clark's growth in 2025 was overwhelmingly boosted by innovation. This isn't a 1-year story. Our innovation portfolio has over-indexed on contribution to organic growth for over 3 years running, and it continues to be margin accretive. The numbers tell the story. Over 75% of volume plus mix-led growth came from innovation and the innovations we launched [ posted ] average margins that were 280 bps accretive.

Looking ahead, the pipeline is extremely healthy. Our F'26 to F'28 pipeline is 160% the size of our pipeline in 2020. And the average margin of our full pipeline is 670 basis points accretive to our current base business. This system is working and we're building on it. So scaling innovation into multiple markets increases the ROI on our innovation investment. And to be candid, historically, our global scaling efforts were slow. Our generation 3 absorptive core, no wiring, 20 years, only 3 launch countries. Since then, we have flipped that entirely.

In Baby Care, our Cloud Waistband premium feature wraps a baby's waist in a plush, cushiony cloud that moves when they move. It was launched as a premium feature and top tiers diapers initially. Fast forward with global wiring, 3 years, 57 launch countries. That's what the system delivers. Now speed is one thing, but we also need to make sure innovation reaches every consumer at every price point. And a key part of out-innovate is continuously scaling premium innovation features down through the value tiers, driving towards best product, lowest cost. We take premium features and value engineer them to scale across the good, better, best ladder. Cloud Waistband is a great example.

As I said, we started with the most premium design at the top tier. Been engineered a second generation of that feature at 75% lower cost, 75% lower capital and runs on more assets, expanding our launch reach dramatically. Most notably launching in Tiers 3 through 7 across the globe. That's how we scale what we have.

Let me share a fem care example. Kotex Gravity is a breakthrough Feminine Care innovation that delivers a step change in performance. Consumer testing confirms superior cleanliness, dryness and comfort driven by a proprietary absorptive core technology that rapidly pulls fluid away from delicate [ volvo ] skin. Compared with the conventional core, Gravity delivers 120% faster absorption, 60% less surface residue, 30% improved dryness and at the same time, can absorb 20 times its weight and fluid.

Now scaling across 27 markets with strong IP protection, Gravity strengthens competitive advantage for Kotex and elevates the standard of menstrual care for women worldwide. Pretty awesome. And consistent with our playbook, we are building premium benefits on top of this scale technology. One of our newest innovations, Kotex BioCare, was built off of a key insight. Traditional period pads can disrupt intimate skin's natural barrier, trapping excess moisture increasing skin PH, leaving skin susceptible to irritation and discomfort Kotex BioCare is pH proactive proprietary technology is designed to help you protect it and support a healthy PH and help defend against odor and irritants. This is a game changer for the category. BioCare takes our winning globally scaled Gravity core and builds a premiumization benefit on top of it. And you all will have a full pack of BioCare before it's available in the U.S. in your gift bags out in the lobby.

So now recall that I talked about longer-term disruptive technology. One of our [ fine ] Moonshots is called sleep uninterrupted. And as part of that, we asked a bold question, how much can a diaper actually influence a baby's quality of sleep? And by inference, mom and dad's quality of sleep? Well, we tested it, and we prove just how much it matters. In China, the Deep Sleep Master launch is our hero with consumer tests showing significantly more total sleep a significantly more deep sleep time, delivered through faster absorption, better breathability, better leak protection. This launch has led to 210 basis points of share gain in the very competitive top tier diaper market in China. That's what happens when future-directed science meets a consumer insight, no one else has sell before.

So we're not just meeting needs. We're anticipating them the proprietary solutions no competitor can match. But breakthrough innovation is only the first step. Innovation creates the substance, creativity creates the connection. And that's where my partner, Patricia comes in with marketing.

Over to you, Patricia.

Thank you, Craig. Good morning, everyone. My name is Patricia Corsi, I'm the Chief Growth Officer at Kimberly-Clark. Out-innovating with our products is just one of the powerful tools that we have in our toolbox. And today, I want to share with you another 2 out-market and out-activate. We have a disciplined approach to leverage these 3 pillars and unlock long-term growth. We are going to focus on these 3 key areas, Holistic Blueprint for Growth, Building Brand Love, and Digital Transformation. And with those, we are going to deliver end-to-end superior experience to our consumers and deliver best-in-class performance results.

And we are well positioned with our categories to benefit from demographic and populational shifts. We are seeing healthy growth categories and in a rates that are much higher than historically. The acquisition of Kenvue will give us further relevant moment of connections with well-known and loved brands globally. And to fully benefit from these positive trends, we will apply our holistic Blueprint for Growth. This is a systematic consumer grounded and repeatable approach that focus on how to unlock the biggest opportunities. With it, we simplify it and we make it actionable in the marketplace. With more users, usage and occasions, we will continue to unlock growth. And in our categories, there is a wealth of opportunity ahead of us.

And I'm going to show you just a couple of examples, starting with this one with Baby and Child care. With innovation and non innovation-led growth opportunities in the different pillars also in different geographies and an increasing bifurcated world, this allows us to serve better and more consumers. And this is just another example from Feminine Care category, just to showcase to you that we are implementing this in all our categories and geographies. And as you can imagine, there is much more behind these boxes than you can see today.

And we are building Brand Love, and you heard Mike talking about it. Our transformation does not only rely on data. We are building Brand Love and building a generational value to moments of connection. We are grounding ourselves in consumer differentiated insights and we will continue our product superiority focus while building much, much stronger brands that consumers love and admire. And this is not marketing fluff. It is important and why it's important because building Brand Love drives loyalty, repeat, trial and increase brand equity. And all of this deliver much stronger results.

And I'm going to show you some examples, starting with the Baby and Child Care category. And by the way, for all of them, I'm going to show you the results that we are getting in the marketplace. First, video, please.

[Presentation]

This is the first example. It comes from a home country, Brazil, where product insight was translated into communication, leaving parents free of worry of diaper marks. This showcase our end-to-end approach yields superior results.

Let's start with market share gains, almost 300 basis points, and we reached over 1 billion media impressions since the launch. This was an end-to-end because we have launched new product innovation, new packaging, visual identity and also new communication campaign. And from Brazil, we move to Indonesia, and I'm going to do a little bit of [ front 2 ]. This was our previous Sweety brand packaging in Indonesia. And let me show you what we have done last year. New product, winning concept, new design, new communication and of course, the results show 34% growth in the premium segment. Not only that, the consumer response as well, 4.9 stars on TikTok, #1 premium seller on Shoppe and 5 stars in Lazada.

And let me go to the last example on the BCC category. Video, please.

[Presentation]

I'm sure you agree with me that it has nothing to do with the traditional diaper advertising, and this is how we are transforming Kimberly-Clark. Another example, this time from the U.S. end-to-end new product, new brand visual identity and new campaign, over 1.8 billion impressions and around 30% better return on investment. When I say it's not marketing fluff, it's really not marketing fluff. And share gain again. So this is how we are delivering it in BCC.

And now moving to Adult Care, showing that we can use creativity to build Brand Love but also deliver better consumer experiences. Impactful creativities, even more needed in categories that are so stigmatized. Over 1/3 of the men in here and in the world and 2/3 of the women will suffer bladder leakage in any point on their lives. And this is a topic that you can imagine nobody wants to talk about. But we are here to help this discussion to start. And in Australia, you can see that with the new packaging design that helps you clarify what the product does and how to help consumers, we are taking the stigma of being seen in front of the shelf. And in the U.S. We partner with Katherine Heigl, and we are helping women to stop whispering in fun sports and digital content. And in both cases, you can see market share gain once again.

And my last one on this pillar, very close to my heart. This has just been launched last week in the U.S. It's a new Kotex platform. And I'm going to let it speak for itself on your [ floor ].

[Presentation]

Now I think you would agree with me that this is putting this brand back or where it should be. So this is from where we were and this is where we are going to go. We are completely relaunching Kotex in the U.S., new product you have heard from Craig with Gravity technology, bamboo and BIO-CARE. We have new packaging design and an end-to-end consumer discovery on shelf and online. And this is a global platform. This is going to go to multiple countries across the globe showcasing that what we are doing is a repeatable model, and it delivers economies of scale.

So I'm going to move now to the third and last part, but before that, I'm not going to have the chance to show all the transformation that we have been doing in the past 15 months. Brands like Kleenex, Poise and Andrex have also been recognized not only externally but have been delivered with Brand Love an outstanding creativity, household penetration gains, market share gains and also sales growth. You will have the chance to see it during lunch on our screens.

Now I'm going to move to the last and third pillar of my presentation today, Digital Transformation. We continue to elevate our capabilities on digital transformation with really important strides in AI, data, social and agentic commerce. And I'm going to show you today, 3 examples on how this is already delivering results in the marketplace. I will start with China. And as Mike said, really, really important market and digital is leading in there. We are leading in social commerce with superior results with our best-in-class social first model. It includes co-creation of products and designing concepts to win in social platforms. We have placed big bets on creators, and we are doing partnerships that build content that is both journey and occasion led.

With that, again, I know that I'm sounding like a broken record, market share gains, 890 bps and 60% lower cost per view. I'm going to show you just very short videos on how does it work in digital in China.

[Presentation]

And the next one, needless to say that can be applied to any country. I think in Brazil, it's with [ Carameelo ]. And if we move to the next one, this model continue to be expanding. In Indonesia, it has delivered exactly the same outstanding results. And soon, it will scale up to Brazil.

And lastly, we are coming to e-commerce. In the U.S., our business benefits from 700 bps share in online versus offline. And because of that, one of -- this is one of the reasons why Kimberly-Clark U.S. was selected as a -- by a key e-commerce player as a beta partner for its new Gen AI capability. With this platform work that previously took 2 weeks now takes 2 days. We have piloted with Huggies and Wipes, and we are going to scale this up to our brands. This data-driven approach is really transforming category discovery and has delivered over 200 basis points of share growth in this critical channel.

And this is how we are transforming Kimberly-Clark from a company of inventors to a company that has brands and innovation that transform and improve consumer lives. With our holistic Blueprint for Growth, Building Brand Love and with Digital Transformation, this is our playbook to win with consumers and customers.

Over to you, Russ.

Okay. So I know lunch is next, so I'm going to bring us home. I'm Russ Torres, the President and Chief Operating Officer of Kimberly-Clark. And I can tell you, I've spent a lot of time with our teams and customers around the world and what is unmistakable is the incredible momentum we have here at KC. And our people are the key. They possess a sense of purpose that's not just cultural. It's a competitive advantage that powers our execution every day.

Mike outlined the Powering Care strategy. Craig talked about driving pipeline strength and product superiority. Patricia just showed you how we're unlocking Brand Love and driving growth in users and usage. And I'm going to talk about our focus on volume growth, our drive to be the lowest cost producer and accelerate investments and how our operating model brings it all together to help us win in our markets.

We are seeing the results of Powering Care in top-tier volume plus mix-led growth, 2.6% in 2025, 8 consecutive quarters of solid performance, and it's also showing up in our share. Even in a dynamic consumer environment, we have driven share gains in 2/3 of our key category country sells. And a key differentiator for us is driving to best product and the lowest cost. We want both. We're focusing on driving to the lowest cost with 3 key pillars: value stream simplification, optimizing our global network and scalable automation. And those pillars are delivering. We've had 2 years in a row of 6% productivity. We're 50% of the way towards our $3 billion productivity commitment, and that's well ahead of schedule. And we have strong visibility to our future delivery. And we've done it all while improving product performance and dramatically increasing the pace and the quality of our innovation. These capabilities are going to drive about 1/3 of the cost synergies we expect to deliver from the Kenvue acquisition.

And we're driving this approach in North America. Our new mega plant in Warren, Ohio will serve as a productivity engine capable of delivering best-in-class throughput, enhanced product performance and significantly lower unit costs. We're going to cut miles on the road by 22%, reduce the number of DCs we have, double the volume we're directly shipping to our customers and dramatically improving our automation and therefore, our converting costs. And we've got visibility here again to a consistent stream of strong productivity gains in the years to come.

Let me bring this idea of best product at lowest cost to life with an example, and that would be Vietnam, already a relatively sizable but fast-growing market for us. Our local team was faced with increased competition from Chinese OEMs, and they were targeting growth amongst value-seeking consumers with offerings at significantly lower prices than our premium Huggies products. So we assembled a cross-functional team of experts to leverage the best of KC and build a solution. And in just 5 months, we launched a high-performing diaper under the Sweety brand, and we believe we now are the lowest cost producer. In fact, we were able to create a 25% converting cost advantage versus those Chinese OEMs by leveraging our global capabilities, but also high-speed automation.

So the result, a $0.07 diaper that is preferred by 2/3 of consumers and most importantly, at attractive margins because of that cost position. And in the marketplace, Vietnam gained 50 basis points of share in the fourth quarter in part due to that activity. So we're really excited about the potential to replicate this concept of best product at the lowest cost across the world, and we can't bring -- wait to bring that mentality to Kenvue.

So that growth in cost work is enabling us to reinvest a portion of those savings and impact to drive the cycle. So for A&P, Advertising and Promotion, that means we invested $150 million more per year than just a few years ago. And we're accelerating our capital investments as well to approximately $1.3 billion in 2026 to support our growth and transformation plans. And these investments, they're paying off. They're helping us drive the results that you're seeing today.

Just as importantly, our Powering Care operating model has wired our teams together with a shared mindset of speed, accountability and collective agility. And that model also is a key driver of the momentum you're seeing. Now this matrix structure chart, you may look at it and say, this looks like everyone else's. But the key driver of its effectiveness is the market-oriented way we run it. Our markets own the business end-to-end and are empowered to be locally agile. And the role of those functions is to bring KC's best capabilities to the markets at speed to help them win. The goal is to bring global might to the local fight.

The 2 best examples of this are our 2 biggest markets, North America and China, and they strengthen each other. The real unlock with Powering Care has been creating less friction for ideas to move between the 2 at pace and then scaling them throughout the rest of the world. China's digital and content commerce playbook is now flowing into North America, while North America's retail partnership approach and premium innovation and execution capabilities are being leveraged across IPC. Over the last several years, we've transformed our North America business from a cash generator to an engine for growth.

And we did it with 4 key actions. First, we invested heavily in improving innovation. We tripled our forward-looking innovation funnel, and we strengthened our consumer value propositions in every price tier. Second, we invested in building an advantaged digital engagement capability in North America, leveraging and adapting some of those capabilities from China. And third, we built a world-class commercial execution engine, transforming our retailer partnerships and dramatically strengthening our modern marketing capabilities, especially in the areas of creative and social. And last, we improved our margins through stepped-up productivity, revenue growth management and premiumization.

So since 2021, North America has delivered a 3% organic sales CAGR with consistent volume plus mix growth, improved our operating margins by 300 basis points, all while increasing that marketing investment by 33%. We gained or held volume share in 7 of 8 categories in the year of 2025. And we're leading the industry with 3 consecutive years ranked #1 in the Advantage retailer survey, and I believe the best is yet to come.

China continues to be proof that our scalable proven model works even in the most competitive market in the world. Over the last decade, we've doubled revenue and tripled gross profit, and we have built an advantaged digital capability. Our e-commerce share today is more than 2x our brick-and-mortar business. And we've sustained incredible brand performance despite the very difficult competition. Huggies share is up more than 890 basis points and Kotex share is up roughly 260 basis points since 2019. And those gains came from a strategy with 4 key elements: a compelling consumer promise, science-powered innovation at pace, best-in-class digital engagement, and a premiumization engine that's fully integrated with the business model. And this is scalable. It's not just a China or U.S. story. We're now lifting the elements of these capabilities into other priority markets to accelerate our growth.

As you can see from the left-hand chart, across our international markets, we saw a meaningful sequential organic growth acceleration last year. And on the right-hand side, we gained weighted average share across both focus and enterprise markets with accelerating momentum across the year. And the share gains are broad-based and they're being driven by the playbook. As you can see, many, many markets are delivering strong gains despite tough competition. And these elements are somewhat plug and play and can be leveraged by Kenvue as well across the world.

Our pending acquisition of Kenvue is a really unique and exciting opportunity. Our integration machine is up and running. We have a global integration management office that's a blend of talent from both companies about 50-50 with over 30 work streams currently operating globally. The acquisition was overwhelmingly approved by shareholders of both companies with well over 96% of the Kimberly-Clark shareholders voting yes, and we've secured regulatory clearance in the U.S. and we remain on track to close in the second half of 2026. And we're using that time to drive to deliver $2.1 billion in total net synergies.

Beyond the normal G&A synergies you might expect, we see future value creation coming from 3 big buckets. First, supply chain. And this is going to include all sorts of things like consolidating distribution to better fill trucks and ship more directly to our customers. And we think there's great opportunities here as well to take the proven 3 pillars I just talked about and apply them to Kenvue. The second big bucket, SG&A. We see opportunities in commercial spending optimization and scaling our functions and optimizing our joint IT landscape to deliver even more value. And we're really, really excited about the growth opportunities.

I'll just give one example, India. Kenvue has the potential to quadruple our distribution in the traditional trade. And we see similar distribution-based opportunities in Mexico, Indonesia, Brazil, the United States, Eastern Europe and many more. And we believe we can leverage many of the capabilities we've talked about earlier today within Kenvue to accelerate growth. For example, our top-rated sales team in North America or our digital commerce capabilities. We're also being deliberate about what we're doing because we want to make sure that we stay focused on where the value is. We're being very choiceful about prioritization and sequencing to focus on the places where there's real tangible value.

So in summary, we built a company that knows how to execute with speed, discipline and accountability. And we have the will and the capabilities and the operating model to drive that into results. And you're seeing it in our performance today, and you're going to see it in the way we integrate and scale Kenvue upon closing the transaction. And I believe we're still in the early innings of what this organization delivered.

Thanks, Mike. I'll hand it back to you.

All right. Thank you. Okay, thank you, Russ. All right. For more than 150 years, we've delivered essential everyday care to improve the lives of our valued consumers. So today, we're better positioned to carry that out that mission than at any time in our company's history. Powering Care has created a virtuous cycle of value creation driven by an innovation-led volume and mixed growth model, industry-leading productivity and an organization wired for local agility, global scale and speed. Our acquisition of Kenvue builds on our successful transformation. And together, we will be a preeminent consumer health and wellness company, serving billions of consumers around the world across every stage of life. We'll be there for more moments of connection, delivering more innovation and growing Brand Love while delivering generational enhancement of shareholder value.

So thank you for your time and interest in Kimberly-Clark.

Thanks, everybody, for joining us. We invite you to join us outside for lunch where we'll have management there for you all to grow.

Greetings. Welcome to the Kimberly-Clark 4Q 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Chris Jakubik, Vice President of Investor Relations. Chris, you may begin.

Thanks so much, and good morning, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I would 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 the remarks and 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 and non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-cark.com.

Finally, I will apologize in advance if there are issues with the quality or delays in our audio today because we are all working remotely due to the winter storms. So with that, I'll turn it over to Mike for a few opening comments.

All right. Thank you, Chris. 2 years ago, we launched Powering Care to unlock Kimberly-Clark's next chapter of growth, building on our 150-year legacy. Now since then, we've made tremendous progress and accelerated our momentum across the board, our execution of Powering Care is driving strong results even amidst a dynamic external environment. In 2025, we continue to advance our volume plus mix growth model, delivering an eighth consecutive quarter of solid volume plus mix performance in Q4. We gained enterprise weighted share and we marked a second straight year of industry-leading productivity with our fourth quarter being the strongest of the year. .

The energy across our company is palpable. We are introducing consumer-directed science-based innovation and breakthrough marketing across brands and markets faster than ever before. We're exercising cost discipline in deploying our greatest capabilities across the enterprise to optimize our margin structure and we've rewired our organization for growth, including strengthening our bench of exceptional leaders and pivoting our portfolio to higher growth, higher-margin personal care categories. We've hit the ground running in 2026 and are energized by the opportunity ahead. We've built a robust achievable plan focused on further differentiating our trusted brands, and ensuring we have healthy levels of investment across our value chain.

We expect pressure on the consumer and a focus on value to persist. We're confident in our strategy and committed to giving our brands the fuel to thrive. Powering Care has put Kimberly-Clark on a virtuous cycle of growth and positioned this great American company for a better future. We have the right foundation and a proven playbook to capitalize on our pending acquisition of Kenview, acquiring Kenview a powerful next step in our transformation that will compound our momentum. It will advance our trajectory toward higher growth, higher-margin spaces and create a global health and wellness leader positioned to serve consumers at every stage of life. We're excited to see the vast opportunity ahead and confident we will create significant value for our consumers, our partners and our shareholders.

So with that, let's open the line for questions.

[Operator Instructions] And the first question today is coming from Bonnie Herzog from Goldman Sachs.

All right. So I guess I was hoping to hear some color on the state of the consumer and what you're doing different in this environment Mike, I asked because you're growing volumes, whereas this really has been challenging for others? And then how are you thinking about this going forward? And you guided organic sales growth to be aligned to ahead of the category in '26. So hoping you could share what your expectations are for category growth this year and whether it will accelerate from the 2% growth currently. I guess, essentially, do you need end market growth to improve to hit your mid-single to high single-digit EBIT growth guidance.

Okay. Bonnie, great question. Thanks for that. I'll open and I think Russ has a lot more texture that he's rearing to inform you all of. And then I might even ask Nelson to cover a little bit about how it affects the outlook. But one, -- and I think you raised the point that we are growing, and it's a tough environment out there. However, I think the big thing is that maybe 2, 2.5 years ago, Bonnie, we did see that pressure in almost all markets was going to increase on the consumer and especially in North America, kind of given the state of the middle-class consumer. And so we started to focus on was delivering superior propositions at what we said is every rung of the Good, Better, Best ladder, right? And so we've worked really hard to do that, and we continue to see ample opportunity to do that and do that better and also continue to elevate and expand our categories globally.

I have a couple of additional comments. We feel consumers remain interested in better performing products, and that's at all price tiers. In this environment, as I think you're pointing out, Bonnie, strong value proposition is the paramount thing. And so we're growing because what we're doing is strengthening our offerings at every run, and that means -- we're continuing to bring great innovation at the top end, and then we are rushing that innovation through into our value tiers. And I think our consumers are really noticing that. We've really worked hard to deliver superiority at a very, very competitive cost. So we see further opportunity to expand our categories, expand penetration and premiumize over time. And so we've developed a robust pipeline of innovation that the world hasn't seen yet.

I will tell you, parenthetically, I'm more excited about our next 3 years innovation than what we've done in our past 3. And so we're really excited about what the company has been working on. So with that, maybe I'll kick it to Russ and maybe you can provide a little texture.

Yes. Thanks, Mike. Bonnie, yes, you're right. I don't think we are expecting, as Mike noted, the consumer focus on value to change anytime soon. And as Mike noted, I really think our mantra has been to meet consumers where they need us. And that's where the combination of innovation, marketing and activation. And like other categories, we are seeing consumers demand shift across channels. They're looking for different pack sizes, purchase frequency in some parts of the world, especially internationally and in developing markets is being impacted a little bit, and that's clearly led to kind of more choppy month-to-month consumption data.

So in terms of your question, I think Mike nailed it. I would just add a little bit more texture on it is that we're really focused on serving consumers on every run with a compelling value proposition. I think that's the reason why we're growing volumes right now. We have made a number of targeted price pack adjustments as well as paying extra special attention to channel participation and ensuring we have really compelling offerings at the good tier as well as the better and the best here. And we put an extraordinary effort into driving elevated benefits on the trade-up side to maintain that category growth. And I think in North America, if you pick that as an example, that's really helped us on the volume side in Q4, as you saw from our results, our volume mix was up 1.7%. But on a 2-year stack basis in Q4, was up 3.6%. And then on the full year basis, in North America, volume mix was up in Q4, 2.1%. And on a 2-year stack basis, it was up 4.1%. And I agree with Mike 26 should probably be one of our best years for innovation, and we're going to continue executing that strategy and are optimistic we'll continue to be able to deliver what consumers are looking for.

Yes. And then, Bonnie, just to follow up on your -- on the final part of your question. I think our '26 kind of implies our category outlook is around 2% globally, plus or minus. And there's been -- if you look at the last 4 quarters, there's been a little choppiness around that. But -- if you think -- if you look specifically at our categories, we tend to be more resilient and demand tends to be a little bit more stable because of the categories that we're in. .

The next question will be from Lauren Lieberman from Barclays.

Just wanted to follow on, on some of those thoughts and particularly holding in on price and mix. In North America, we've seen pricing took another step back this quarter after being up in 3Q and mix persistently negative. I know you look at vol/mix, but price/mix is decelerating, not improving. So just wondered if you could comment on that. And because you've mentioned price investments a couple of places in the release. .

Let me take that one, Mike?

Yes. Go ahead.

So yes. I would say there's really 3 things going on there on the price mix. The first thing that I would say is there is a promo dynamic, if you recall, in the third quarter, call, we talked about the competitive activity in North America in the second half being some fairly significant promotional activity. And we, as a result of that, rephased some of our planned activation activity around innovation into the fourth quarter. So you're seeing that come through and specifically, just to remind you, as Mike said, we're in essential categories we don't believe that promo drives incremental consumption, but we will use it as a tactic to drive trial, especially related to innovation that is really sensorial. And we did have a strong agenda of innovation in 2025, and you probably saw some of that. For example, we -- we did move some of that programming on [indiscernible] Drive, which we have a great innovation. It's the softest [indiscernible] in the value tier. Our new generation 2 core, which provides better protection and more comfort it was named the #1 diaper good housekeeping, disposable diaper, great consumer reading. So we wanted to get that in the hands of consumers to drive trial.

We had other innovations as well, and we did that in the fourth quarter and those performed relatively well. I would say just last thing on the promo dynamic before I move on is our end market promotional activity for the year remains below the category and 2019 levels. And again, we expect that to flow with our innovation. The other 2 dynamics, I'll hit briefly. One is club mix. That's just the consumer moving channels, and that has come through a little bit in our pricing because they're buying larger pack sizes at a lower price per unit. So you see more volume, but a little bit of a drag on the pricing piece there. And again, that's our philosophy of just serving consumers in the channel that they want to shop in.

And then the last thing is we did talk about several times making strategic investments in pack sizes and choices to better align our good, better, best pricing value-adders across the channels, especially ahead of some of the innovation we have coming and we had made some choices to sharpen the competitiveness of our value proposition. So over the long term, we're going to stay focused on maintaining PNOC's discipline while growing volume and mix. profitably. And that will be led by innovation and the focus on category development. And we have a great lineup in '26 to that end. So that's kind of the direction we're headed and we're excited about it.

The next question will be from Nik Modi from RBC Capital Markets.

Just like a quick clarification. I didn't see anything in the release regarding any updates on closing timing or regulatory filing timing. So if you could provide any clarity on that, that would be helpful. But my main question is really just the state of the U.S. [indiscernible] category, especially the dynamics at play at Costco, given Procter is now entering after decades of exclusivity for [indiscernible]. So if you can provide any kind of thoughts on that? Is that kind of embedded in your outlook? How are you going to respond, et cetera, et cetera?

Okay. Nick, maybe I'll ask Russ, maybe you can talk about the U.S. diaper category, and then I'll come back, Nick, and answer your questions on the acquisition.

Yes, sure. Yes, in terms of diapers, again, we're growing by driving innovation and brand building that grows the category and cascading that to all tiers. And -- that model has worked well for us around the world in the United States before I get to the U.S., I'll just hit a couple of highlights around the world in the fourth quarter. We grew share in many of our key markets, including China, up 210 basis points; Korea up 30 basis points; Brazil, up 50 basis points; Indonesia, up 230 basis points. So that strategy that we're executing is working in North America as well. In the fourth quarter, we grew share about 100 basis points, and we've grown share in diapers 2 years in a row. But with -- just with respect to the club situation, the way we look at it is we're really focused on providing consumers with differentiated brand value propositions no matter what channel they're shopping in.

And we're widely available, so is our competition. However, we did see a major club player has moved away from branded exclusivity in our category. And so we'll see partial loss of diapers and pull-ups distribution in the North America Club channel and that will start in the first quarter here. And this is incorporated to your question in our full year expectation of growing, as Nelson mentioned, in line or to better than weighted average category growth. So we're focused on continuing to execute the strategy, and there might be some ebbs and flows over time, but we're very confident in the long term. We're going to continue to move in the right direction as our current performance indicates.

Just to clarify for what's built into the forecast, Nik. We -- as Russ mentioned, we expect this distribution loss to commence in Q1 -- it is reflected in our full year outlook, and it's a headwind of around 60 basis points for the full year.

And then, Nik, just regard to the Kenview process, we -- the shareholder vote is on the 29th of Thursday. I will tell you expect the vote to reflect the very positive feedback we've heard from our investors. And so through yesterday, pretty good chunk of shareholders have already voted and it's well in excess of 90% in favor. So we feel good about that. And then with regard to timing of close, we still expect somewhere in the back half. I think the regulatory process is on track and consistent with our initial expectations. And maybe you didn't ask this part, but I will tell you, our IFP transaction remains on track for a midyear closing this year, still subject to regulatory approvals.

And then we work closely with Kenview to file shortly after announcing the transaction, submitted the U.S. antitrust filing, and we'll complete filing all applicable international jurisdictions by early February. And so again, I think we're on track to close in the second half of this year.

The next question will be from Steve Powers from Deutsche Bank.

Maybe just to round out the top line conversation a bit. Just maybe a little bit more precision around how you expect the overall 2% category growth to shake out North America versus rest of world? And I guess in light of the 4Q dip that you noted and the overall choppiness we've seen, do you see that backdrop existing pretty steadily in 2016, I guess, inclusive of the first quarter? Or will it -- are you assuming that it takes more time to ramp. That would be helpful. And if I could, I know I'm supposed to have one question, but I'm going to try to get 2. .

Nelson, in the prepared remarks, you talked about visibility in achieving that 40% future adjusted gross margin before the end of the decade. I'm assuming that target existed before Kenview. So it's independent of Kenview contributions I guess. Maybe just an update on how are you seeing the primary drivers shaking out there? And then just how much progress roundabout you think you might be able to make in '26.

Let me just open with maybe just an overall comment on the sales outlook. And then Nelson kind of will give you a little more texture on the pace and then we can hit the margin thing, Steve. But one, I just wanted to kind of emphasize that our volume momentum, and I think Bonnie noted that the volumes were, in our minds, performing well. The volume momentum really this year -- or last year in '25 really reflects, I think, the compelling offering that we have. And as I mentioned earlier, we're even more bullish on our innovation and marketing initiatives this year. And so I think our focus on strengthening the value propositions at every tier has been very, very important. We have a very strong pipeline coming this year. And so we expect a meaningful step-up as we get through the year to support our new launches. And so we feel very good about the plan for this year. But I'll let Nelson, you may want to comment a little bit more on the pacing.

Sure, Mike. So a few things, Steve, and I'll unpack a little bit Q4. But to start with, for 2026, as Mike mentioned in his prepared remarks, I mean, we have a very strong, and I'd say the strongest pipeline of innovation and activation programs that we've had in quite a few years across all of our markets. And we are -- our plan is to continue to build the momentum on volume plus mix-led growth that we saw play out in 2024 with an acceleration in 2025. Now as you rightfully mentioned, for the fourth quarter of 2025 on the surface weighted global average category growth dropped to around 0.6%. And that compares to about 2% that we were staring at right around between Q1 and Q3 of last year. And there were a few discrete factors that weighed on this drop, particularly in North America. And as you know, we have the impact in '24 of Hurricane Helene, the port strikes, panic-related buying and to a lesser extent, in 2025, there was a little bit of pantry loading in North America diapers in Q3 or '25. So that all kind of played out into the weighted average growth of 0.6% for the category in the last quarter.

For the full year, as I mentioned, category grew weighted right around 2%, and our categories have remained resilient. As we think about the last 4 weeks data that we've got, we're hovering around that 2%. So we think that a good starting point for weighted average category growth for the start of the year is around that level. We are maintaining our disciplined approach to grow in the categories and the brands through the innovation, the differentiation, and we expect both North America and our international personal care business to grow in line or ahead of the categories for the full year.

In terms of net sales, we expect both the first half and the second half to be roughly 50-50, so pretty even. But when you look at the growth in terms of quarterly pacing, we are planning for the innovation and the brand support to ramp up as we progress through the first quarter and then into Q2 and the balance of the year. So I would expect, as we built our outlook to see organic growth to accelerate in the back half versus the first half of the year.

As it relates to the visibility of achieving the 40% before the end of the decade and the drivers and the progress, a couple of things. I mean, as we stated, Margin progression is not going to be linear quarterly or year-on-year. However, we've made very strong progress over the last 2 years. We take -- we took a little bit of a step back on gross margin in 2025, and that partly was impacted by, one, the inflationary elements that we were dealing with. As a reminder, we had around $200 million of input costs that we dealt with last year, and that included the headwinds, which were unexpected related to tariffs.

As we go into this year, though, we're not expecting that. I mean we're expecting costs actually to be largely flat. So that's one. Secondly, we are expecting to deliver very strong productivity in the year. Another year that will hover around 6%, building on what we achieved in 2024 and 2025. So all in, we expect to expand margins, both gross and operating profit margins in the year in 2026, putting us well on pace to achieve our objectives of at least 40% before the end of the decade for gross margin and at least 18% to 20% in operating profit before 2030. So well on pace to deliver that. And again, that excludes any favorability or impact as we carry out the integration of Kenview, Stephen?

The next question will be from Chris Carey from Wells Fargo Securities.

You gave some information just about the model from 2026 kind of through 2028 with phasing and obviously implied in there is some medium-term growth expectations as well. You also established some of these expectations in the S/4. And can you just help reconcile or clarify whether there's been any evolution in the expectations as of the S/4 relative to where we are today. And -- and maybe just because so much of this medium-term CAGR is anchored to an acceleration in 2028. Just help us understand the -- the visibility that you have and the confidence that you have that you can achieve those outcomes in a few years from now?

Sure. So from a modeling standpoint, let me walk walk you through what we had in the S/4 and what we have for 2026. And to your point, our visibility and confidence in getting to our ambitions before the end of the decade. So firstly, I mean, a couple of things. We've built into the outlook for this year, the momentum that we've got based on the innovation and all the activation plans that we've been building on through 2025 and what we have in place as we commence this year. There are two factors that are coming into the picture as we speak, for the outlook for the year, and they've come up in the past couple of months. The first one is we've had a bit of softer than anticipated fourth quarter in the demand in North America and enterprise markets. And this resulted in a lower base of volumes and EBITDA for 2025, and that's reflected in the outlook.

The second bit is really around the partial loss of the diapers and training pants distribution in the North America club channel that we just talked about, both Ross and myself, which we are not able to fully offset in 2026. And as I mentioned, that will be a headwind of around 60 basis points of growth on the year that is reflected in our outlook. And that, of course, will be a difference that you would see versus what we would have had in the S/4. That said, our ongoing business is well positioned to deliver results consistent with the long-term algorithm that we laid out in March of 2024. And these 2 factors are reflected in the outlook.

On the top line, we -- based on all the innovation plans that we have, the commercial plans, we expect to deliver growth that's at or above global weighted average category growth globally. We are aiming for operating profit growth that's at the higher end of our mid- to high single-digit range. And as we support a significant step-up in new product activation across key markets, in another year of gross productivity that will approach 6% of cost of goods sold, and we will maintain our discipline on SG&A savings that you've seen flow through in the last couple of years through our Powering Care transformation.

If you look at adjusted EPS, we expect to be in line with 2025 levels on a constant currency basis, Chris, and this will reflect 2 things: one, the underlying growth, which will be consistent with our long-term algorithm. But there will be an offset. And that's because of the reduction in income from discontinued operations, which we expect to be roughly half of what we saw in 2025 levels with a midyear projected close of the IFP transaction.

And then, Chris, I think you may not have asked us specifically, but I would say from the Kenview perspective, I'll tell you, and we've been getting [indiscernible] into the integration management process. I would tell you, we haven't seen anything that would change our view on the potential of this combination. Kenview, they're going to be set to report the results on the usual timing, I think, which is early to mid-February. And then if you looked at the S/4 pretty hard, we did take a fairly -- or a somewhat more conservative view of their outlook and near midterm financial profile. -- we plan to make pretty good investments into their brands and their portfolio and capabilities. And so we still see a generational value creation opportunity by putting these 2 companies together. Our focus is on making sure that both companies have great earnings capacity over the long term.

Yes, keep going.

Yes, you have a question on the visibility. Yes, you have the question on the visibility. And I'll reiterate that we have strong visibility into our plans on the productivity front to achieve the margin expansion and fund the brand investments that we have for the following years as well as on the top line, our ability to grow at or ahead of the categories, largely driven by the very strong innovation pipeline that we've got for the next few years as well as our executional plans across the globe.

The next question will be from Mike Lavery from Piper Sandler.

I just want to follow up a little bit, I guess, on Steve's bonus question on the margins. Just would love to understand you called out the significant reinvestment that you're expecting post deal. Just maybe how -- you said, of course, that it's not linear, but maybe how bumpy does it get? And we know some of the synergy pacing and how that plays out. But kind of just maybe how much more can you unpack the path to 40% gross margins and 18% EBIT.

Yes. Well, Michael, thanks for the question. Just a comment, I would say -- and I'm presuming you're talking about kind of our stand-alone on our path to 40%. I think we're -- overall, we feel like we're making strong progress. We have good -- very good visibility into our path to the 40% and 18% to 20% [indiscernible] aspiration by 2030. In fact, I think we're probably pacing slightly ahead of what we originally planned. Just to confirm or reiterate, Michael, these margin targets are milestones not a destination. And so we expect to kind of exceed that when we can. And then you'll note that the IFP transaction does create a onetime impact and a better business for both businesses longer term. And we'll update you on that as we get closer to close. But again, I think we feel very good about our productivity delivery. We feel very good about the innovation that we have in the pipeline that's enabling us to drive positive mix and premiumize at the top end of the category and then grow volume by cascading those features down through the tiers. So I'll pause there. I don't know if there's anything else we want to click on there.

The next question will be from Robert Moskow from TD Cowen.

Thanks for the question. Nelson, the argument for gross margin expanding this year, I think, reflects, you had $200 million of input costs last year you didn't expect. And then it's not going to happen this year. But if I look back at '25, I mean, one of the -- was that pricing turned negative the environment got a lot more competitive. What's to stop that from happening again in 2026. It seems like the environment continues to be really competitive. You're losing some distribution in Costco. You might have to take steps to defend your turf and other retailers. I mentioned the name of the club. I'm just speculating, of course. But so how much cushion do you have in the model in case it does get into that kind of environment again?

Yes. So a few things there, Ross. First, yes, as you rightfully say, as you unpack why we expect margins to expand. One, costs are projected to be neutral year-on-year versus 2 years in which we faced about $200 million of costs. Secondly, productivity, gross productivity is expected to be right around the 6% level, which will be at the high end of our 5% to 6% and again, another record productivity level for us in the year. And then on the pricing bid, I think it's very important to go back to what we chatted early last year on what Russ mentioned. We made some strategic price pack architecture and channel price investments, particularly in North America in -- towards the end of Q4 of 2024. So as you head into 2026, we're going to be lapping largely that. So that is going to be something that, again, based on what we've modeled and what we put together, that is one asset that will be different as we go into the year. So that changes year-on-year and it's reflected there. .

The channel mix and all that [indiscernible], that will continue to play out to some extent, but that's factored into the model, Rob. So hence, why we do see a little bit of a difference between '25 and '26 from that end and why we're at this stage, confident in our ability to expand margins in 2026 back to where we had modeled before.

And maybe, I'll [indiscernible] on Rob. I think part of it is also philosophically, we're really not interested in renting share through promotion. And especially, I think Russ mentioned it earlier on the call, which is -- it doesn't make sense in a category where consumption is relatively stable or almost fixed in a category like that tissue or diapers. And so what we're really focused on -- and I think we had this in our prepared remarks, is kind of having an operating model and a culture that's driving this notion of the elusive virtuous cycle, which we think is delivering great results. And that includes innovating at all runs of good, better, best, especially at the top end and pulling it through the value tiers. .

And then as you're kind of asking about, making sure that we can invest for impact. And I think we've done a very good job of increasing our investment over the last several years, but also improving our -- maybe the effectiveness of our advertising and our marketing. And for us, we feel like that's a much more powerful lever to pull than trade promotion. And so that's kind of where we've been investing, and we're really seeing great results. And I think that's leading to -- that's been a driver of our last couple of years of strong volume plus mix growth. And we feel very well positioned for more volume and mix growth in 2026.

At the same time, to get this virtuous cycle, we have to have leading productivity, which we're delivering. And so we're really proud of. And so I think that's our focus and that's how we're going to run the play in 26.

Yes. I got it. I guess my question is, Nelson, you said that price realization was lower in because of decisions you made in fourth quarter of '24. But with -- from our modeling, the pricing was weaker than expected during the course of '25 compared to the original guidance. Am I wrong? Or was a down year for pricing always part of the plan? It seems like it was weaker than you thought. That's all I was asking.

We always factored into the plan on the pricing actions that we were going to take at the end of the quarter in 2024. And there's always going to be a little bit of shift in programming, Rob, that place into in the year, and that comes up in actuals. But that was largely it. I mean there will be a bit of move across channels, as Russ referred to. But overall, based on what we're planning we wouldn't see what we saw in '25 at this stage.

And keep in mind, I think Russ had mentioned earlier that -- and we've talked about on last quarter's call, where because of competitive activity, we held back on some of our Q3 programming, and we shifted it into Q4. So that would explain some of what you're looking at on a sequential basis.

And the final question today is coming from Edward Lewis from Rothschild & Co.

Yes. I guess a quick one just looking at the international business. So good share gains. You note again and obviously a good end to the year there. And as I look at the results for 9 months on the international gross margins, there's around about a 7 percentage point gap between that and North America. So am I right in thinking that the international gross margin is a big opportunity? And what do you see as the drivers there.

Yes. Good to hear from you. Yes, international margins are an opportunity. It's something we're focused on improving. I'll let Russ talk a little bit more about it. We feel very good about the progress we're making in international especially our focus markets. .

Yes. Yes. I would say a few things. First, I do think that a key part to the equation for us growing is to meet consumer demand at every tier, and we talked a lot about the good and the better, but the best is a big opportunity for us. And we've seen that where we've expanded margins in international geographies is developing that premium segment. And we believe that there's very, very significant upside in that, especially in geographies where the consumer is still developing and GDP growth continues to allow people to have more money to spend. And so that's one.

I think the second thing is we've had no less of a focus on productivity internationally, and we've come up with some really great ways through the wiring that we've executed to be able to leverage our global scale that we've got in markets like North America and China and other geographies to help drive costs down. And so that's another big component. I would just note that we've been growing significantly, and we've seen that sequentially unfold for us in the markets outside of North America and China. Brazil diapers, organic growth, mid-single-digit. South Korea diapers positive organic growth. Indonesia, positive organic growth, gaining share in Australia. So infant care and adult care. So that's another element to it. It's just the leverage that we'll get as we continue to scale the business and looking forward to Kenview, we think that's another really big opportunity potentially for us. So that's kind of what I would say.

And then, Ed, I'm excited about our share momentum. I mean we did see significant growth across [indiscernible] markets in 2025. Just to give you a few examples. I mean, overall, our focus markets, our top 6 markets in IPC were up about weighted share 50 basis points. China was up 270 basis points on diapers. And then outside China, fem care in Indonesia was up almost 200 basis points. Korea was up 60%, Australia up 50%; Brazil, up 40. And so -- so I think we're making very good progress across the board. And then if you think about international in 2016, we expect to drive positive volume and mix-led growth ahead of the category. We are targeting weighted share growth again long by -- led by our strong innovation and premiumization and then expect operating profit dollar and margin gains reflecting the strong productivity and overhead management that we're doing. So thanks for the question, Ed.

Thank you. And that does conclude our Q&A session for today. I will now hand the call back to Chris Jakubik for closing remarks.

Great. Well, thanks, everybody, for joining us today for analysts who have follow-up questions, the Investor Relations team will be around all day to take them. So have a great day, and again, I appreciate the interest.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, everyone. Welcome back to day 2 of Morgan Stanley's Global Consumer and Retail Conference. I'm Dara Mohsenian, Morgan Stanley's Household Products and Beverage analyst. Just before we get started, a quick disclosure. Please see the Morgan Stanley research website at www.morganstanley.com for important research disclosures and contact your Morgan Stanley representative if you have any questions.

And with that, I'm very pleased to welcome Kimberly-Clark back to our conference. They're coming off a transformational acquisition announcement of Kenvue. So it's a great time to have you guys here as you take another step in your transformation in recent years. With us today on stage are Chairman and CEO, Mike Hsu; and CFO, Nelson Urdaneta; and Head of Investor Relations, Chris Jakubik. Thank you, guys, for being here today.

All right. Great to be here today.

Thank you.

So Mike, I thought, first, we could start off big picture around the Kenvue deal. It's obviously very topical right now. You've built real momentum at Kimberly-Clark over the last couple of years. Powering Care is working, productivity has picked up, you've accelerated organic sales growth, market share performance. Help us understand why now was the right time for Kimberly to take on something as large and complex as Kenvue versus continuing to pursue that lower risk strategy of executing on the base business, which seems to be working. So it creates a higher bar.

Yes. Great question. We feel great about our base business, and we can talk more about that later, but -- and the momentum that we've been building in our core business trajectory. But what we're really focused and excited about is building the preeminent personal wellness leader, right? And that's where we feel like we have a great opportunity in joining forces with Kenvue. And really, what we're trying to do is we see the opportunity to deliver extraordinary everyday care as a combined entity.

I would say, and as you point out, there, that our performance has been improving significantly over the last 10 years. We've built an operating model and I would say, an accountable culture that has been leading for the last, I would say, 2 years, industry-leading results, right? And that's really driven by -- I think that maybe you put in that note last quarter, we've really focused on having superior value propositions at every run of the good, better, best ladder, including the good tier. Even though our strategy long term has been to premiumize our categories, we made a shift and we're emphasizing the value tiers the last couple of years, and that's having great effect.

Secondly, we have really worked hard to improve our supply chain. We are putting up world-class or industry-leading productivity last year, this year as well. And then we've got an operating model that we think is different than a lot of companies, and we see it as -- we're trying to be lean, fast and agile. And so those are kind of the things that we bring. And then with Kenvue, though, we see kind of the crown jewel of health and wellness, right, a crown jewel portfolio with iconic brand portfolios, leading market positions.

And then I think really preeminent science, medical regulatory knowledge that really can catapult us in this space. And so together, we think -- well, we haven't done one of this magnitude since Scott tissue days and my predecessor, Tom Falk. But the 3 of us, Nelson, Chris and I, we were all at Kraft and what we observed at Kraft that worked well for us there was we call internally the plug-and-play approach, right?

You saw over time, things come in and out of Kraft or even the split between Kraft and Mondelez, the backbone of that was a really good management system that we could -- people could plug into or you could plug businesses in like Cadbury and then unplug from. And so we've worked really hard over the last couple of years to build a better plug-in-socket system with our management systems, and we think we have a very effective and efficient operating model and an efficient set of management systems to help do this.

Great. That's helpful. You ran through the attributes of Kimberly-Clark as well as the Kenvue's side and their iconic brands. What do you bring to each other in terms of incremental value?

Yes. Well, I think the biggest thing is our focus strategically has been to shift our mix to, as you probably observed, higher margin, higher-growth categories. We really want to shift our mix. And when you think about that, and we took an exhaustive look at all categories, this goes all the way back to 2017 when I became the Chief Operating Officer, we've constantly looked at all consumer categories in our space and then further out. But health and wellness always came to the top of the list.

And the biggest reason there, you're probably fully aware, we have exposure to an aging population through our adult care business, Poise and Depend. And we see the trends, not just in the U.S., which has been growing near double digits, the whole time I've been at KC. And that's because of the aging population in the U.S. But that population is not just aging in the U.S., it's all developed markets and then increasingly developing and emerging markets as well.

And so as the population continues to age, and I'm still fortunate enough, I have 4 parents still with us. They're all in their 90s. But as the population ages, the need for health and wellness products becomes more and more acute. And so -- and as Kirk and I -- the Kenvue CEO, Kirk Perry and I got together, we did feel like, there's going to be a unique opportunity to tap into that. And the combination of our portfolios, there were a couple of unique things. One is -- and Kirk recognized this from his Proctor days because he competed in all of our categories for most of his tenure there.

But what we would say is we tend to be daily use long duration, high frequency, high ring. And so because of that, consumers want a long-term relationship with our brands. And so we've invested a lot there in building digital social capability to have a continuous relationship with our consumers. We don't do the old-fashioned marketing acquisition anymore, right? We bring them in and they stay with us. I think a lot of other brands haven't done that, and it's been a little more difficult for some of the Kenvue brands to do that because the spend is not as great, right?

If you're buying Band-Aid, you're probably not spending $1,000 a year like you're spending on Huggies. And so we build those relationships, and we're able to bring other brands along like we're doing in some markets like, say, in the baby care life stage or in the women's life stage or in the senior care life stage, and so what we recognized is we serve the exact same life stages. We come at them from different ends, their pills and lotions and medicine. And then we come at with absorbing most of your bodily fluids, right? So it's a different angle, but we're really going after the same consumer. And so we felt like, gosh, we put their science and our engineering together, we can come up with some really great solves for the consumer.

Right. And as you've gone through more due diligence work, anything that's emerged that has excited you or maybe wasn't something that was on your radar screen as much originally?

Well, maybe the -- you may want to jump in, Nelson, but probably the biggest thing was the word geographic complementarity or the portfolio complementarity. I don't use 6-syllable words very often. I can barely say it.

Dangerous.

Right. But the degree of the complementarity of our portfolios is extremely high. I mean -- and the obvious one is on the geographic side. And from a revenue perspective, and it's funny, one of the directors said, well, I don't really usually put much stock in the revenue synergies, right? But this is one where it's pretty clear. You might say, hey, revenue synergies tend to be a little ephemeral. But our experience, and Nelson was in the Asia Pacific chair when Kraft bought Cadbury.

And in Asia, we had struggled with Oreo distribution in India and in China. But when the Cadbury came into the system and LU came into the system, which had great distribution, and you may want to talk about it, Chris, in China, those brands went from low, low, low double-digit millions of revenue to triple digits, pretty solid triple digits pretty quickly. And so for us, maybe the one that was shocking to us was in our largest markets, there was a high degree of complementarity.

So for example, on the Kenvue's side, Europe ends up being a pretty big market for them. After our spin of our international family professional business, we'll almost have no business in Europe. And so -- and not only are they strong in Europe, but they're also a multibillion-dollar business in Europe, but also really strong in the pharma channel, really strong in the medical channel, which is areas that we didn't have access as much to. So that's one.

Second, for them, India. We struggled -- we used to be in a joint venture with Unilever. We struggled on physical distribution since. We're doing fine online, but Kenvue is in 3.1 million out of 5 million points of distribution in India. And so that one is going to be an exciting opportunity that we all got excited about.

If you flip it around, where are we really big? KC de M xico is a $3 billion business. They're a couple of hundred million in Mexico. And so we've got all these markets where Korea for us is a very large business, it's smaller for them. China, we've been, as you know, doing very, very well, and they've been struggling a little bit in China. And so it just felt like there's a lot of fast opportunities to work really aggressively on driving distribution of the portfolio brands -- complementary portfolio brands to build both businesses.

Great. That's helpful. And Nelson, maybe we can turn to cost synergies from revenue synergies. The target as a percent of Kenvue's revenue sits at the high end of what we've typically seen in CPG transactions. Why should investors feel confident around that level of delivery, especially given the limited overlap between the 2 businesses? What really gives you confidence there? And what's sort of behind those numbers?

Sure. So a few things. We built our acquisition model on a set of conservative assumptions that were thoroughly validated through the due diligence process. The nature of the integration, as Mike was explaining, the plug and play as well as the high visibility to the synergies give us high confidence to be able to deliver the $1.9 billion of cost synergies throughout the 3 years following the close of the transaction.

If we look closely at the portfolio, there are a lot of commonalities actually between the 2 companies, as Mike was stating. First is the geographic bid. Just to highlight, we largely operate in the same markets. And actually, in 80% of the markets, we're bigger. Secondly, we are serving a very similar amount of customers, both brick-and-mortar and online. So there's a lot of synergies to be had on that end. And then thirdly, there's a lot of benefits to be realized by joining our supply chain.

If we look at the process that we followed to come up with the synergies, a few things. One, we spent the time together with the team at Kenvue to validate all the synergies, both from a country-by-country basis as well as functions. We triangulated with external sources, and then we did this bottoms-up validation as part of the due diligence. The other bit is we took a top-down approach. And we looked at, as you said, CPG benchmarks, which run in the 8% to 9% range. But if you look at consumer health, average deals have been more on the 13% level with a few deals actually higher than that.

So if we look at the landing of our assumption, which is about 12% of net sales at Kenvue, that's spot on where we'd expect to land. The other bit to take into account is we've set aside in our modeling about $2.5 billion of costs to deliver the $1.9 billion of cost synergies. That's about a 1.3x ratio, which lands pretty much where benchmarks are at.

Great. That's helpful. Maybe can you take us under the hood a bit more in terms of cost synergies? What are really the key buckets? What are the key areas you're going after functionally?

So let me peel the onion a bit. So it's going to be 3 buckets. that will help us deliver. And actually, our expectation is to be ahead of the cost synergies that we've been communicating. And we are confident that we'd be able to deliver about 80% of those synergies within the first 2 years after the merge. These buckets are as follows: One, it's G&A overhead, which will drive about 40% of the savings.

And as you think about the drivers of the G&A overhead savings, 3 things to take into consideration. One is merging, synergizing corporate as well as some of the centralized functions. The second bucket that we would be driving is going to be within G&A. The fact that we're going to be driving joint efforts around real estate, office space, et cetera, and that's going to be in that space. And then the third bucket is around non-people-related costs. Think of systems, HR, finance, all of that will be one.

The second bucket that drives these synergies will be procurement, and supply chain and distribution. So as you look at distribution and network design for the products that we distribute, take into account that, one, we have developed very strong digital tools that have been driving significant savings in our procurement organization.

Secondly, as you think about distributing products together, Kenvue's products tend to weigh out pretty quickly on a truck. Ours tend to cube out pretty quickly. So by optimizing mix, that's going to drive benefits. And then the other bit is that within supply chain, we've been driving over the last 2 years best-in-class productivity, as Mike mentioned. We've been delivering about 6% gross productivity in 2024 and 2025. And as we bring to bear these capabilities, that will support this delivery.

And then the last bucket of savings for the synergies is in sales and marketing, which will drive about 30% of those savings. And in their examples, you have, one, trade spend optimization. We've been doing a lot of revenue growth management buildups and capabilities in the last few years. We'll bring those capabilities to bear. Secondly, when you look at nonworking media spend, our ratio is about 20%, Kenvue's is 40%. So there is room for us to do savings there.

Thirdly, eliminating duplicate customer teams by bringing best of both in both sales and marketing. So as you look at that, those savings would be there. And then the last bit that I'd leave you with is we expect those savings to flow to the bottom line because as we did the modeling, the base plan for Kenvue, excluding synergies, we brought it down by around 200 basis points, the EBITDA margin for 2027 versus what you would have seen in consensus right up to the moment that we announced the transaction because we are planning on the base plan for Kenvue to step up investments in both R&D and marketing.

Okay. Great. You mentioned you're not necessarily stopping at your targets, right? You're looking to generate upside. Where do you see the potential areas of upside from a cost synergy standpoint? Is it mainly within the buckets you mentioned? Are there certain areas you're not putting into your original synergies? Just thinking about where there could be upside potentially.

And if I just interject with -- just the one thing I'll add leading up into that, Dara, and it applies across G&A and the cost of goods set of costs, which is the paradigm, we tend to operate in lower gross margin categories, right? And so because of that, we've held our organization standard to be the most efficient, right? And so we're proud of the fact that we operate on a very lean basis. Our G&A levels tend to be -- are mandated internally by us, I guess, to be top quartile, right?

And so -- and that's a very different perspective than what we learned in our discussions with Kenvue management on, they tend to be higher on that G&A form. Some of it because coming out of that spin, maybe their systems and staffing weren't as fully developed. But I think therein lies, I think, where some of that upside opportunity is going to come from because, again, you're marrying up a lean organization with one that is a little less lean, and we're going to find a way to get lean.

And just for reference, I think to kind of understand the order of magnitude on the G&A side, if you look at SG&A and you take out R&D and the marketing pieces, we tend to be in the 11.5% to 12% of revenue range. And I think they're closer to about...

17%.

17% right now. So there's a lot of space in there.

So it's in those buckets. I mean, at the end of the day, it's in those buckets, the benchmarks clearly point to the opportunity. And we -- as Mike said, we've been doing that for many years. We have lean structures that are able to operate very effectively. And that's why we feel that there's upside actually to the savings.

I think on the revenue piece as well, when you look at the revenue synergies that we've laid out, the complementarity is just -- geographic complementarity makes up the vast, vast majority of the revenue synergies that we've laid out. But as we look longer term in terms of bringing the R&D together and what you can do in terms of adjacencies and leveraging the know-how of each side, our expertise in materials, their expertise in more of the molecules, if you will, that really hasn't been built into the revenue synergy piece.

Great. Mike, you mentioned the great brands on the Kenvue side. They've had more of a tough time since the separation. What's your plan to revitalize the brands? And what gives you confidence in your ability to do so?

Confidence in the ability -- well, it's because I've been in the exact same shoes, probably worse. You were covering us in 2017, weren't you? Do you remember those days?

Yes. Yes.

Do you remember how bad that was for me?

Yes.

That was my first year as Chief Operating Officer. I think at the half, I think our business revenue -- revenue in North America was down 7% that year. There was a diaper war happening and all others, you may recall. But beyond that, I would say tough performance and worse than what Kenvue's performance is now. I think I said on our post-announcement call, I had 23 reporting units, P&L units reporting in at the time.

This is my second quarter as COO, 22 of them were declining, right? And so I kind of been exactly in these shoes. What was the core problem? I mean, one, there was a competitive issue, but that wasn't the biggest thing. I think the competitive issue knocks you off your plan, your game a little bit. And then what happens is the organization was kind of conditioned to deliver OP or EPS. The company is very focused on EPS growth.

And so when you are operating in that mode, some of the growth muscle goes away over time. And we've been operating in that mode for quite a long time. I think in our discussions with Kenvue, I would say the symptoms are the same, right, which is -- and you've covered them for a long time. I think internally, maybe there was more of a cash focus while they were under the corporate banner of the preceding company. But coming out of the spin, I think a pretty strong focus on the plan, EPS growth and all those things. And so I would say some of that growth muscle had eroded.

And so what became clear in our discussions that we had with the Kenvue management team is we have developed approach. I mean coming out of 2017, we said, hey, we got to found a way to grow the business profitably. And at the same time, we're going to build world-class consumer capability to kind of manage the business more effectively longer term. And so we talked about with the Kenvue team is, I'd say we have a readymade approach to get companies on a virtuous cycle and get off of that vicious cycle, right?

And so it becomes, what are those things? One, it starts, and this is probably the most important one, getting the organization into a growth and accountability mindset, right? They have to have clarity on who owns a number, what they're accountable for, and they -- you got to be able to count on them to deliver. And that's harder than it looks, but it's like the prerequisite for everything. You can't do anything until you get that.

Second big thing is that we talk a lot about is maybe taking the time to have the skill and the will to invest for impact. I mean, because people pop in investment on things and then you kind of wonder where it went. I think what we did, even in those darkest days of 2017, we made some big technology investments. We identified where the growth drivers in our personal care business is going to be, where the big demand spaces that consumers would feel like would be worth paying more for over time.

The reason we're winning right now in the last couple of years is because of this Gen 3 diaper that we've been talking about that we invested in initially back in 2017. That's when we laid the bet. And so it's like you have to have the conviction, you have to have the insight, you have to then set the money aside and let the teams work. And so I'd say we've developed that skill and will, not just in technology, but also in the marketing front, the sales execution front, the investments we made to build a great productivity -- world-class productivity pipeline.

So I think that's the second big thing. And then the last one is maybe the hardest one, but it's mostly his job in mine, which is then we have to set the right investor expectations and be willing to take a punch and maybe make you guys not so happy with us so that we can continue to invest and create that virtuous cycle.

Great. That's helpful. Maybe I can tie that back to revenue synergies a bit. Just I think one of the lessons we've learned historically, you go back decades in CPG, we all do on stage, is sometimes when you bring 2 entities together, there's incremental opportunities, but sometimes you get base business distraction. So how do you guard against that on the Kimberly-Clark side and the momentum you've created behind the innovation and the other areas that you mentioned?

Yes. Well, we're really excited about our plan. And I've been saying publicly, gosh, our innovation in the next 10 years is going to be way better than the last 10 years. And next year is going to be better than this year. And so we feel very good about our pipeline across the board. And that's pipeline of innovation, our pipeline of marketing ideas, our pipeline of productivity ideas. And so I think for the KC side, all we're asking our organization to do is just keep running that play, right?

And yes, we -- one of the key things, and we started just this week on our initial integration management office meetings with the Kenvue team -- our team and the Kenvue team, and one of the things we said is, "hey, they have a strong plan that they're excited about, we have a strong plan, we got to keep our teams from being distracted, right?" But the next sets of things is I think we have to be very surgical about realizing the cost synergies, which is a fact of life for what we're trying to do.

But we also want to get a great start on the revenue synergies. And we think, again, as I said, in the near term, there's some obvious brand distribution opportunities in markets like Mexico for the Kenvue brands, Korea for the Kenvue brand, India for us, leveraging the Kenvue capability. And so we want to really get behind those and prime the pump on those. Obviously, there's no gun jumping, so we won't be doing anything before the close, but we can plan for that.

Right, okay. And then on Tylenol, there's clearly been some external noise around the brand, and that's impacted consumer sentiment to some extent, got the talk, exposure in Europe. So just level of confidence around those risk points as you do due diligence here and what gives you confidence that those risk points are manageable?

Yes. So I've got a fairly experienced and seasoned Board, you might expect. So Sher McCoy, our Lead Director. She grew up in R&D at J&J Consumer. And then she was the Vice Chair of J&J Consumer. We have Deeptha Khanna, who ran the Global Baby business at J&J. I've got Joe Romanelli, who was at Merck in the pharma business, so he understands that side as well. And then Sylvia Burwell, who was the former Secretary of HHS.

So I'd say, given those players, they know the company to some extent and also know kind of the medical science world, their expectations for due diligence were pretty high. And so we retain what we would say are the foremost experts from a legal perspective, medical, regulatory perspective, we brought in Ted Boutrous from Gibson Dunn, who's typically considered one of the top litigators on these types of cases in the U.S., Arnold & Porter, who has a lot of regulatory experience, especially with the FDA and brought that to bear. We had Hilary Marston, who was the former Chief Medical Officer of the FDA advising us.

And so that team kind of put together, took a part, I would say, everything starting with the science. And I would say we felt convicted and staying with Kenvue that the science is clear, and we believe it's safe and the safest alternative, which I think the FDA has actually said in the last couple of weeks that remains the safest alternative for pregnant moms to use. And they also, I think, said that there has no -- not been a causal link established between autism and the use of acetaminophen. So we went clinically through the scientific research on a case-by-case basis. And so -- and I would say Dr. Marston was pretty clear in terms of her opinion on that side.

And then similarly, we went case by case on all the plaintiff cases that you could say are precedent type cases. And so the only thing -- I won't give you a number as to what we used in our calculations, hopefully, the investors would understand I would pick it up in the same way that you might, which is in my head, I'm calculating expected value, right? And so what I would tell you is that there's no scenario that we came across that where the liability would be greater than the synergy creation -- the value creation of the synergies.

Right. Great. That's helpful. So looking at the Kenvue portfolio, there is an underperforming tail piece of the portfolio. Obviously, there's some very large brands with great brand equity, but there's also a tail. Just as you think about the combined businesses and look out 5 to 10 years, is there further opportunity in your mind to sort of prune or reshape the portfolio, whether it's tail brands or potentially sort of unlocking value when you look at the Kenvue brand portfolio? How do you think about that holistically?

Yes. I can take that.

Yes.

So a few things there. I mean we remain very disciplined and focused on driving and creating long-term shareholder value. I think we've clearly demonstrated that over the last few years, Dara. So if you look at the moves we've made in our portfolio, starting with in 2023, we sold our Brazilian tissue and professional business. Last year, we sold our personal protective and equipment business, we've exited about $650 million ongoing private label business. So our exposure for the remaining portfolio in private label is going to be de minimis going forward.

We recently announced the creation of a joint venture with Suzano, which we expect to go into place right around midpoint of next year, which will leave us with a company that has exposure to higher growth and higher-margin categories. So we've been very disciplined. As you look at Kenvue, first, I want to be clear, we like the categories we're in, we like the brands that they have. Having said that, there's always opportunities to optimize the portfolio in order to be driving better shareholder value.

The team at Kenvue, as you point out, the leadership team is already executing a strategy on that regard. And what our conviction is as long as it's driven by driving and ensuring that long-term shareholder value is protected and created, that's the approach that should be taken. So no different to the playbook we have today.

We've spent a lot of time on Kenvue. So maybe let's get to the base business. First, just -- look, the consumer environment is difficult. We've heard that from CPG companies at this conference pretty consistently over the last couple of days. Just give us a little bit of update on what you're seeing from a consumer sentiment standpoint. You're obviously in pretty defensive categories, but also from a promotional standpoint as you look at the reaction from some of your peers that compete across HPC in the U.S. and if there are any international markets you would point out?

Yes. I'll start with one that -- we still see a long runway of growth by elevating and expanding our categories over time. And I will stipulate, hey, the current environment, especially here in the U.S. or North America is tougher than it has been in the past. But our categories, we still see a long runway of growth.

And I'll tell you a couple of reasons why. One, we did see that the impact on the American consumer, especially on household incomes of $100,000 and below, were going to be tougher. And you could do the research and see where inflation has impacted the market basket of goods, where, hey, the stimulus payments ran out and savings rates have actually dipped below where they were pre-COVID. So all those things have happened.

We saw that coming maybe 2 years ago. And so what we did, Dara, and this goes back to the note that you published last quarter, as we pivot our strategy, even though our long-term strategy is to premiumize our category, and we've made tremendous progress. I think in North America, we went from it being a 40% premium business to 70% premium business over 10 years. So that's the core strategy. But that said, we want to lead. And so what we said is we have to have a superior value proposition in every run of the good, better, best ladder, and that includes the good tier.

So for us, like in U.S. Huggies, that would be our Snug & Dry tier or our value tier brand. And so what we've done, and you know, we've made a lot of progress rolling out our Gen 3 diaper, it's behind what drove us to market leadership in China. It's taken our -- I think we've grown our share in Korea and Australia separately by 15 points each. We're now in the 60s on share in those markets. And so every market that we take that Gen 3 diaper into, our share really, really improves. And so we brought that into the U.S. on Snug & Dry first this year, our Tier 4 or our value tier product.

And so I think that's what's really behind our strong vol mix performance this year. It's mostly strong volumes because we've cascaded our best technologies into our value tiers. And so we're really proud of that. That notwithstanding, the promotion environment has ticked up. I know Nelson is going to want to comment on it, but I will tell you that promotion is not a growth driver for us.

We see promotion purely as a trial driver on the innovation that we want to get in the consumers' hands. And so -- and the reason we do it that way, our philosophy is that is you know our categories there they go with a biological cycle. And so promoting them isn't going to make anybody use the products more, right? And so that's our focus is on driving innovation to grow the category, not by promoting our way there. But...

Yes. Let me just add a little color to kind of the environment that we're facing today. And I'll start with for the last 7 quarters, talk about 2 years, we have been growing volume and mix because we're meeting consumers where they need us. We sensed and we saw the pressure on consumer purchasing power a couple of years ago. And we pivoted, as Mike said, and we don't see today a catalyst in the short term.

As it turns and looking at the categories, categories in the last few weeks have been softer than we expected. That includes the U.S. But I'd like to highlight a couple of things. Our tissue business in North America has been growing despite a tough comparison versus prior year. But if we look at the discounting activity, particularly in diapers in the U.S., which we saw in the value tiers in the third quarter, it's kind of rolled forward into the fourth quarter.

We have been holding share. However, we've chosen not to participate in kind by promoting. What this translates into is as we look at the fourth quarter, our expected organic growth for the quarter should be more in line with the growth of the weighted average of the categories globally, which is right around 2%, and for the year, that would put organic growth slightly at or below that level. But the important thing is we are growing volume and mix. Our profitability remains strong. We are executing our investments in line with our plan, and we remain fully focused on having the best performing products in the marketplace at the lowest cost at every price tier, and that is our winning platform.

Great. That's helpful. Maybe to wrap up, Mike, we've seen share price dislocation since the Kenvue announcement, obviously, not uncommon in large deals. How would you respond to that reaction just in terms of your viewpoint on Kimberly's ability to drive shareholder value from here going forward?

All right, Dara. Don't shoot me if it seems flip. I'm going to say, hey, it's a great buying opportunity.

Okay.

And why don't I say that one, I would say, hopefully, you get the conviction. We feel great about our base plan and our innovation and our marketing pipeline, our productivity, how money comes. So we feel very strong about that. I feel like the combination with Kenvue is going to give both companies together the opportunity to provide extraordinary everyday care.

But I would say a couple of years into the combination after close, we expect to be a company that's going to have top-tier margins in CPG and growth rates on the top and bottom lines that are as good as anyone's or better, right? And so -- and that would warrant, I think, a stronger valuation than where both companies sit today. And so we're really bullish on the whole premise of the logic of the transaction. We're very excited to partner with the Kenvue team to build a better business.

Great. That's very helpful. Well, with that, we're out of time. So we'll wrap up. But thank you so much, gentlemen, for being here. We appreciate it.

Thank you for having us.

Thank you. We appreciate it.

Good morning. Welcome to today's conference call to discuss Kimberly-Clark's acquisition of Kenvue. [Operator Instructions]. With that, I would now like to turn the call over to Chris Jakubik, Kimberly-Clark's Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark and thank you for joining us on today's call to discuss Kimberly-Clark's acquisition of Kenvue. As a reminder, this call is being recorded and a press release and slide presentation regarding today's news are available at the Investor Relations sections of each company's website. Before we begin, I'd also like to remind everyone that all statements made during the call that relate to future results and events, including the proposed merger, are forward-looking statements that are based on current expectations.

Actual results and events could differ materially from those discussed, and we will discuss some non-GAAP financial measures during these remarks. These non-GAAP financial measures should be considered a replacement for and should be read together with results. Please refer to the information on the forward-looking statements slide here as well as the additional information contained in SEC filings for both companies. Presenters on today's call include Mike Hsu, Chairman of the Board and Chief Executive Officer of Kimberly-Clark; Kirk Perry, Chief Executive Officer and Board member of Kenvue; Sherry McCoy, Lead Independent Director of the Kimberly-Clark Board; and Nelson Urdaneta, Senior Vice President and Chief Financial Officer of Kimberly-Clark.

At this time, all participants are in listen-only mode. The call will be open for analyst questions following the presentation. With that, I'll turn the call over to Mike.

Okay. Thank you, Chris. Good morning, everyone. It's great to be here with all of you. I'm excited to announce a transformational transaction that will bring together 2 iconic American companies to create a global health and wellness leader. Throughout our century-plus history, 1 thing has remained constant for Kimberly-Clark, a focus on developing science and technology to provide extraordinary everyday care. Kimberly-Clark's and Kenvue's combined brands carry deep meaning for billions around the world. For so many parents, Huggies and Johnson's baby shampoo remind them of when their kids were born. Our collective brands help parents raise their children and continue to play an important role throughout consumers' lifetime in moments of need and vulnerability. Together, we will be the largest pure-play consumer health company, caring for even more people around the world and delivering even better solutions to their important everyday needs.

At Kimberly-Clark, we spent years positioning our business for this moment. Today, we are a faster, leaner, pure-play personal care company, and we have industry-leading operational and brand momentum. As we've executed Powering Care, both on the portfolio and operations side, we've had our eye on how we can take this transformation to the next level. We're wired now for this next major step forward. We have the playbook, the experience and the team in place. We're no strangers to driving discipline, quality, productivity and efficiency. It's what we focus on every day. We'll unite these brands and the best scientific minds in a new home that will drive a relentless focus on innovation and rigor.

Together, we will achieve sustained global leadership and create a durable long-term value for our combined shareholders and most importantly, better care for a better world. We have an incredible opportunity before us to create the preeminent consumer health and wellness company. Our portfolios are highly complementary across categories and geographies. Our combination will drive growth, innovation and commercial strength, backed by a powerful commercial engine and a playbook that can scale globally. Our complementary capabilities and greater scale will enable us to move faster and accelerate our capacity to serve customers and drive significant efficiency. Both companies bring strong talent, and we will leverage our respective strengths to ensure 1 plus 1 equals 3.

We're going to be built to win with a best-of-both approach to the combination and we're united by purpose-led, performance-driven cultures with shared values. Together, we'll advance our mission to create better care for a better world. The result is significant value creation opportunity for Kimberly-Clark and Kenvue's shareholders. On Slide 6, you'll see how we stack up against our peers on a pro forma basis. When you look at sheer scale together, we will be a leading global health and wellness player with the wherewithal to compete, drive significant investment and win. The right side of the slide illustrates how bringing these brands together creates a truly comprehensive offering of consumer-centric care.

Together, we'll serve a broader range of consumers through every stage of life. Many of our combined products are used on a daily basis and complementary, which means we can enhance lifetime value. We'll be there for our consumers at every turn, and we see particular growth opportunities in Baby Care, Women's Health and Active Aging. But now I'll turn it over to my great partner, Kirk Perry, Kenvue's CEO.

Thanks, Mike. Since launching as a stand-alone company, Kenvue has made important progress to strengthen our foundation. Thanks to the contributions of Kenvue's talented team, we are now well positioned to deliver on our tremendous potential as part of Kimberly-Clark. This transaction represents the culmination of our Board's month-long review of strategic alternatives for Kenvue and one that we believe is a truly fantastic outcome. We are delivering significant immediate value to our shareholders, who will have the potential to benefit from substantial upside as part of the combined company. I got to know Mike and the team very well during this process. It quickly became clear to our team that these companies have amazing strategic alignment. This transaction joins 2 highly complementary portfolios comprised of everyday essentials that people trust and count on throughout their lives and teams who share a passion for delivering science-backed solutions.

We are confident that bringing together Kenvue's and Kimberly-Clark's strengths, capabilities, resources and geographic reach will empower the combined company to innovate even faster and continue to grow our brands. As a combined global leader in health and wellness, we will unlock the full potential of our portfolio as we serve consumers at every stage of life. I have closely followed Kimberly-Clark's evolution. In fact, my last 15 years at Procter & Gamble competed head-to-head with them, and I'm excited about our ability to leverage the strong operating foundation that this team was built to unleash the full potential of Kenvue's brands. What's more, both Kenvue and Kimberly-Clark are driven by a deep commitment to caring for people and making a positive impact. And we expect the combined company to create new and different potential growth opportunities for our employees.

I am confident Kenvue has a very bright future with Kimberly-Clark, and I look forward to working together to successfully complete this transaction and bring the 2 companies together. Finally, I also want to note that we released our third quarter 2025 results this morning and reaffirmed our outlook for the year. In light of the transaction, we will not hold our previously scheduled earnings conference call, but we have posted remarks to our IR site. On this call, we're excited to talk about this compelling combination and we look forward to discussing our results separately with analysts and investors. With that, I'll hand it back to Mike.

All right. Thank you, Kirk. Before we get into the transaction in further detail, I've asked Kimberly-Clark's Lead Independent Director, Sherry McCoy, to say a few words as her deep experience in this space and involvement in this process from the store has been invaluable to us.

Thanks, Mike. Kimberly-Clark is a 150-year-old iconic American company built on tested everyday essentials. In my 7 years as a Kimberly-Clark Board member, I have seen firsthand the power of our brands and the team's commitment to driving quality innovation. This transaction is a significant opportunity and one that I am personally very excited about. Bringing these 2 companies together makes incredible sense, and we'll combine -- we'll position the combined company to achieve great things on behalf of consumers and shareholders. My confidence stems from my history with the Kenvue business. I spent 30 years at Johnson & Johnson and know the brands intimately. They are powerful and valuable for the billions of people around the world who need them. Consumers feel a deep emotional connection to them. I know these brands have found a great home at Kimberly-Clark.

I began my career as a scientist and approach every business decision through that lens. Our Board reviews this opportunity in the same way that Mike and the team run the business and the same way that our scientists invent every day with incredible rigor, thoughtfulness and discipline. We came away with deep conviction in the value creation potential of this combination. Mike has recruited a world-class leadership team. I've watched them transform the business over the past several years and they are firing on all cylinders. Through its transformation, Kimberly-Clark has built the foundation it needs to take this next step. And Mike and the team have the right platform in place to deliver on this opportunity.

This management team will be outstanding stewards to nurture and reinvigorate everything that makes Kenvue's brands essential. Hand in hand with the combined company's amazing scientific talent, they will apply the rigor and discipline these brands need to get to the next level. Together, these companies will serve billions of consumers across every stage of life, and create a global leader positioned for the next 150 years. So Mike, back to you.

Okay. Thank you, Sherry. Okay. Now on Slide 10, you're going to see a snapshot of what Kimberly-Clark is today, a truly global leader in personal care and hygiene. We have scale and reach with 6 brands that generate more than $1 billion in sales annually and serving more than 1/4 of the world on a daily basis. We have a strong global presence across our categories in key regions. We're also demonstrating an ability to continue excelling, led by great innovation. We're executing with discipline through an innovation-led volume plus mix driven growth model, the breadth and scale of our market position is a compelling advantage for us that will only be compounded by acquiring Kenvue.

I want to step back and highlight just how far we've come in the past few years. Less than a decade ago, when I took over as CEO, our results and the valuation of our stock suffered from below-average organic growth, margins that were lower than our peers and earnings that were more volatile than they needed to be. Since then, we've made significant progress in accelerating our growth, growing our gross margins beyond what had seemed a historical cap of 35% and significantly reducing our earnings volatility. Now we started by focusing on elevating our categories, expanding our markets and building a more consumer-centric culture. 18 months ago, we took that transformation to the next level with the launch of Powering Care.

We've accelerated pioneering innovation, building our engineering -- on our engineering heritage to bring category-bending science-based products to market faster than we ever have. We've made strong progress optimizing our cost structure enabled by an integrated margin management approach. We've rewired our organization to become better, faster and stronger and have taken decisive action to focus on right-to-win spaces. Importantly, we've done this while fostering a purpose-led, performance-driven culture. Today, Kimberly-Clark is a business with higher growth, higher margins and lower earnings volatility but what we've achieved is just a milestone, not an endpoint.

As we've executed on this transformation, we've always had our eye on how we can take it to the next level. We're constantly looking for opportunities to progress faster and deliver more for our brands, for our customers, our people and our shareholders. And we're confident that acquiring Kenvue will be a catalyst to achieving just that. Our transformation has yielded a powerful value creation model that leaves us uniquely positioned to unlock the immense potential of Kenvue's brands. Bringing together Kimberly-Clark and Kenvue is a special opportunity for our companies and our shareholders. Companies like these can't be built overnight. These assets are unparalleled and the brand equity is vast. We will deliver on this opportunity by leveraging our ability to out-innovate, out-market and out-activate, paired with our cost discipline and manufacturing expertise.

We're driving organic momentum and gaining steam across our business. Every day, our focus is on out-innovating, out-marketing and out-activating our peers. We're introducing new innovations and premiumizing our categories bringing standout features to drive consumer preference across the good, better, best spectrum, across the categories and geographies we compete. We've raised our marketing game to reinforce love for our iconic brands as we build industry-leading capabilities in digital engagement and creative development. And we earned a #1 advantage score for 3 consecutive years, demonstrating our value to our retail partners. All of this is underpinned by a growth and accountability mindset, which we work to embed across the entire organization.

So on Slide 13, you're going to see the fruits of their work to instill a culture of accountability, discipline and operating excellence. On productivity and cost discipline, we are generating tremendous savings across our supply chain and now expect to achieve more than $3 billion in cumulative cost of goods sold savings by 2030. Just last week, we reported our strongest quarterly productivity level yet delivering savings at a rate of 6.5% of adjusted cost of goods sold. We're successfully executing 3 key strategies that help us deliver the best products at the lowest cost. We're optimizing our value stream. We've revamped our product platforms, raw material sourcing and manufacturing processes.

We're optimizing our network, driving efficiency, speed and lower cost across manufacturing and distribution. Our global supply chain organization is working hand-in-hand with our local teams to automate and digitize our supply chain. Importantly, we're confident in our ability to sustain momentum for years to come and bring these best practices to optimize the Kenvue footprint. Finally, we've enhanced our focus on right-to-win spaces through our wiring for growth efforts. On Slide 15 are some specifics on the significant moves we've made in the past few years. This includes the exit of about $650 million of private label contracts in North America, which will bring private label production to less than 1% of our ongoing sales.

Most recently, our announced joint venture with Suzano will sharpen our focus on our core personal care categories and reduce our exposure to highly variable fiber costs. All these actions also optimize our capital intensity and they're centered around creating a higher-growth, higher-margin portfolio. Taken together, we've made tremendous progress in a short time, our team is performing at a very high level and are well equipped for this next powerful step in our transformation. The acquisition of Kenvue is that powerful next step. As you've heard today, the combination of these great categories and great brands creates a global health involvement leader. We will apply the Kimberly-Clark management system to Kenvue, a lean, fast, agile operating model, disciplined management system and world-class commercial and cost capability.

We've built a world-class team and world-class capability to compete effectively in the toughest categories in CPG. We're confident in Kimberly-Clark's long-term path and believe our technology and innovation pipeline will continue to get even better. We believe we can create tremendous shareholder value by applying our domain expertise to higher growth, higher-margin categories. We're confident we can help Kenvue improve execution, will serve consumers better. Our high geographic complementarity creates outsized revenue opportunity. Our lean operating mindset will drive significant cost synergies unlocking significant capacity to invest back into the business and create significant shareholder value.

Kenvue is very well situated at the intersection of CPG and healthcare. They have strong talent and amazing brands. We have tremendous complementarity across categories in critical markets. And together, we will create best-in-class consumer-driven company. Kimberly-Clark will enhance the potential and performance of Kenvue's portfolio, uniting our proven commercial activation engine and go-to-market playbook with Kenvue's beloved brands will accelerate growth. We will harness our combined global scale to accelerate our capacity to search consumers and deliver efficiencies. With a broader product range and greater reach, we will be better equipped to invest behind driving household penetration and we will realize exceptional synergies that will fuel a powerful financial algorithm.

From the start, we'll be a $32 billion powerhouse generating approximately $7 billion in EBITDA annually. We'll have 10 iconic billion-dollar brands that touch more than 1 billion people across every stage of life. Those brands will be fueled by science-backed pioneering innovation that will continue to deliver new technology for consumers. To get the most out of these brands, we will leverage Kimberly-Clark's brand building and commercial engine. We've already proven we can do it at Kimberly-Clark and we'll leverage that experience as we bring in Kenvue. All of this leads to an attractive financial profile with greater scale.

Now on this slide, you'll see the range of large, essential and highly complementary consumer categories that the combined company will serve. We'll have deep reach and strategic alignment to capture -- better capture growth from both further premiumization and, in some cases, huge demographic tailwinds that are possible across these categories on a global basis. We know that consumers are increasingly prioritizing health and wellness, which now comprises $800 billion of annual spending. Kenvue's brands are among the leaders in attractive categories delivering outsized market growth, including over-the-counter, Skin Care, Oral Care and Wound Care.

Kimberly-Clark has exposure to structural tailwinds across age cohorts within each of our categories with significant growth across Adult Care, Baby Care, Family Care and Feminine Care. Together, we'll be well positioned to lead category growth over time in each of these areas. Over the past 10 years, we've built world-class CPG executional capability. We built the engine, and we're eager to deploy it to Kenvue. We developed the skill and the will to invest for impact. In North America, we're an execution machine. In the Advantage survey, we went from 26 globally when I started at the company to third globally this year and #1 in North America 3 years in a row. We've built a winning playbook that's enabled us to double our revenue and triple our profitability in China, the world's largest and most competitive market for our categories.

Bringing that capability and experience together with Kenvue will create a health and wellness leader with scale in key categories. Here you can see the many areas of opportunity for us to apply that playbook and complement each other's respective geographic areas of strength. The transaction will fuel growth in Kenvue's brands globally as Kimberly-Clark's capabilities are applied across the combined product range, and our commercial playbook is activated in more markets, for example, Mexico, South Korea, India and China. In markets where Kenvue already has strong business, for example, India and Western Europe, applying our commercial playbook to our brands will take our combined market position to new heights. With that, I'm going to turn it over to Nelson and he'll review the transaction and financial details.

Thank you, Mike. I'll start by expressing how excited we are for both companies and the tremendous opportunity we have to create lasting value from this combination. We have a clear path to delivering exceptional cost and growth synergies that we expect to total $2.1 billion of EBITDA, net of a meaningful level of reinvestment back into the business. Our synergy's realization will be bolstered by the work we have already done to rewire our organization and to optimize our margins. Driving cost discipline, productivity and efficiency is what we are doing so effectively through Powering Care. We have built the capabilities for this moment. We have a fit-for-purpose operating model and high conviction in our ability to achieve these targets. This includes approximately $1.9 billion in cost synergies and approximately $500 million in incremental profit from revenue synergies, of which we will reinvest approximately $300 million. We expect to realize the cost synergies in the 3 years following closing, while revenue synergies are expected to be captured within 4 years.

Turning to the next slide. We show the breakdown of where we see opportunities to unlock cost savings across the combined enterprise. Through our diligence process, which included teams from both organizations, we've done an extensive bottoms-up analysis of every cost package, from procurement, to conversion, to sales, distribution and overheads. Result of this process is a well-balanced and robust set of opportunities across cost of goods, sales, marketing and trade spend as well as G&A.

In each of these areas, our Powering Care strategies have given us both a strong foundation of capabilities and momentum from which to build. In productivity, we will leverage our integrated margin management capability and discipline on pricing net of cost to drive industry-leading productivity, having already identified potential gains in procurement and distribution. In sales, marketing and trade spend, we'll leverage our commercial playbook and sales talent across categories, rationalizing and deduplicating systems and processes, so we run lean and fast. And as Mike mentioned, we will adopt our balanced matrix approach to the organizational design, to ensure that we have a fit-for-purpose set of global functions that are there to support local markets in executing with excellence and speed.

To drive these savings, we project onetime costs of approximately $2.5 billion in the first 2 years following the close of the transaction. As we bring together an exceptional portfolio across complementary geographies and consumer need states, we will accelerate growth for the combined entity. We will pursue opportunities across every stage of life where we will have excellent consumer value propositions, enhancing our ability to serve customers. We plan to reinvest a meaningful portion of the revenue-related profit synergies to fuel Kenvue's brands and drive market-leading growth. Mike shared, we see opportunities to scale each other's business in key geographies, where one of us has a stronger foothold. Turning to the next slide, The transaction values Kenvue at approximately $48.7 billion.

Upon closing, Kenvue's shareholders will receive $3.50 in cash and 0.14625 Kimberly-Clark shares for each Kenvue share, representing total consideration of $21.01 per share. The total consideration represents an acquisition multiple of approximately 4.3x Kenvue's last 12 months EBITDA or 8.8x including expected run rate synergies of $2.1 billion net of reinvestment. Current Kimberly-Clark shareholders are expected to own approximately 54% and current Kenvue shareholders are expected to own approximately 46% of the combined company on a fully diluted basis.

Upon closing, the Kimberly-Clark Board of Directors will add 3 members from Kenvue. We expect the transaction to close in the second half of 2026 subject to the receipt of Kenvue and Kimberly-Clark shareholder approvals, regulatory approvals and satisfaction of other customary closing conditions. The transaction is structured for financial flexibility, consistent with our long track record of disciplined capital management. The structure of this transaction is designed to allow us to delever on an accelerated basis to levels consistent with our current credit rating.

Importantly, as the vast majority of the consideration is in stock, we will be taking on a very manageable increase in leverage. In addition, we will deploy the meaningful upfront net cash proceeds from the formation of our international family and professional joint venture with Suzano to help fund part of the cash consideration. We are targeting a leverage ratio of approximately 2x EBITDA to be achieved within 24 months post close, which is consistent with our current credit rating. Until that target leverage is achieved, share repurchases will be limited to offsetting dilution from equity compensation.

Finally, this transaction will not only enhance our financial profile but it will unlock a powerful financial algorithm to drive significant shareholder value. We start from a strong foundation, built upon pro forma annual net revenues of approximately $32 billion and $7 billion of EBITDA presynergies. We've built our financial outlook on a conservative set of assumptions, including a gradual recovery in Kenvue organic growth, back towards its weighted average category growth, meaningful investment levels on the base business and 3-year and 4-year time horizons on cost and revenue synergies, respectively.

At the same time, the magnitude of synergies we expect to deliver should result in no more than mid-single-digit EPS dilution in year 1 and deliver solid EPS accretion in year 2 following the close of the transaction. And we will be well positioned for long-term sustainable returns thereafter, driven by adjusted organic growth ahead of the weighted average category growth in the markets in which we'll operate, adjusted top-tier operating profit margins. top-tier constant currency EPS growth, all of this resulting in double-digit total shareholder return.

Again, we see this as a tremendous opportunity to create value for both companies and our respective shareholders. I'll now turn it back to Mike for a few closing thoughts.

Okay. We believe that Kenvue is the perfect partner for Kimberly-Clark. We share common values and a common vision to deliver superior care for billions around the world. Our combined brands are enduring trust and carry deep meaning. This is at the heart of what will make this combination so powerful and why we have such high conviction that together will create significant value. For both companies, this is the right transaction at the right moment. I want to reiterate how deeply excited we are for the opportunities ahead for our shareholders, our consumers and customers, employees and our communities. We thank you all for joining us this morning. And with that, I'd like to open up the line for questions.

[Operator Instructions] And our first question for today will come from Nik Modi with RBC Capital Markets.

So I guess 1 question for you and 1 question for Kirk. Mike, can you just maybe help us understand as you're doing the due diligence, like what gives you the confidence that you can actually turn some of the Kenvue -- struggling Kenvue brands around? And if you can be specific in terms of kind of how we should think about it based on a lot of the capabilities that you've been building over the last 5 years or so. And then for Kirk, maybe just help us understand kind of organizational priorities between now and close. Just if you could just give us some direction on kind of how you're thinking about it.

Yes. Actually, Nik, I'm going to ask Kirk to help me answer the first part as well because that's the whole basis for the idea here. And we had an initial conversation and I proposed an idea, but I think we had to understand what -- I didn't exactly understand what was challenging the company, right? And so -- and I think in our discussion, I think what Kirk's kind of initial assessment of why the company was struggling was really centered around executional discipline. And I will tell you Nik, I would say executional discipline is our core strength. And hopefully, that you've seen with us improve in that area over the years. And I think in the last couple of years, I think we've been executing a very, very high level.

I just -- I did want to say, well, first of all, Kirk knows I think this -- I thought he did a fantastic job on his first earnings call with some difficult numbers. I will tell you, and I told this to Kirk, I've walked the marathon in his shoes because I was in the same boat on my second earnings call. Nik, you may remember July of 2017, and you guys don't know this, but I had at the time when I was the Chief Operating Officer was my second earnings call with Kimberly-Clark. I had 23 operating units reporting. We were down in 22 of them, and our largest operating unit, North American Baby Care was down 7% at the term. right?

So very tough times. Of course, when I met Kirk, I tried to blame him, but he told me he had already been long gone from P&G at the time. But in any case, hey, from those troubles, and you -- those numbers on an order of magnitude, those are more than what Kenvue's experiencing right now. I will tell you that we put our heads down -- and we said, "Hey, we're going to fix this plane while we're flying it. We're not working just to get a business performance result. We're going to build a world-class company." And so from there, one, we made long-term investments on breakthrough technologies, some of what you're seeing now like our Gen3 Core, but some is still coming, and that our customers know about, Kirk knows about, but we haven't shared broadly with investors yet.

I think we've shared at -- maybe the last -- a little bit more at the last couple of investor conferences, okay? Second, I'd say we've built an advantaged social marketing model that has really helped us double our revenue and share in China, the world's largest and competitive market for our categories. We've built, as you saw on the slide, a top-rated customer selling organization and that's been rated by our leading retailers. And then a supply chain as you see with our productivity that really is focused on delivering the best product at the lowest cost. So we have that capability. And on top of that, I would say the management systems, the information, the visibility and the growth in accountability mindset that I think in our discussions that I think Kirk saw value in. But maybe, Kirk, I'll let -- maybe I'll let you talk.

Thanks, Mike. I would tell you, Nik, on the first question, as we looked at this, there was such a significant wealth of capabilities that Kimberly-Clark had built over the last several years. As I mentioned earlier, I competed with these guys for 15 years head-to-head.

Nik, he was clear he was beating us when he ran.

Yes, I was beating them. But we -- so I saw it firsthand and now several years later, just the efficiency through which they have done this. And so as we think about the challenges we have at Kenvue around things like our go-to-market strategy in terms of what we have there, thinking about things like revenue growth management for one, Mike talked about category management with Advantage Solutions being the #1 rated company in North America, huge capability there, e-com, another capability. These guys are juggernauts in China. I mean it is a machine and their ability to drive that across the rest of the globe is very evident. That's another insights and brand building. And we talked about this on my first call in August, is really having that capability.

We have it in pockets, but not at scale. And so what this does enables us to significantly pull forward those capabilities into Kenvue brands. We'll talk more next separately on our Q3 results, but we had a really good October that really helps us feel confident that we're putting those things in place. And as we move to close on this transaction, we'll be even in a stronger place. But the second question was what are the priorities as we go forward. I mentioned in August, there were 4 things I was focused on: leadership, second was strategy, the third was our structure operating model and the fourth was execution. Those will not change.

In fact, today, we announced some leadership changes. I became the permanent CEO of Kenvue which means I'm going to carry this through the transaction to make sure that we're staying on course and delivering what we promised. Now it's Carlos De Jesus running our North American business; and John Halvorson taking over as our Chief Digital and Marketing Officer. Strategy. We're going to be super focused and strategic as we go forward. We're not going to be everything to everyone, but we'll talk more about that with you all in the analyst community in terms of what our strategy is. By the way, a great dovetail with where Kimberly-Clark is today.

Our structure operating model, we're going to make some changes, which make it crystal clear who the decision-makers are and making sure we have end-to-end accountability. Again, almost a perfect dovetail with where Kimberly-Clark is now and a relentless focus on our execution. So those are going to be the priorities that we have as we move from now to close to make sure that we're consistently delivering on the results that we should be delivering on with the core brands that we have.

Yes. Nik, maybe I'll add, Kirk, I maybe a little of -- we know and we're excited about Kirk being the permanent CEO because we know he will move in the right direction. I have many people that work for Kirk when he was at Procter and they always tell me, Kirk is the best leader they've ever worked for. Just so you guys get that. The other thing that should give you some reassurance, Nik, is if you listen to what Kirk is describing, it's exactly the challenges we had. I mean we're very similar companies historically. I'd say a lot of decentralization, which has a lot of pluses, but has its drawbacks, right? And so -- so decision-making historically dispersed. Lack of clarity on who owns the number, you heard Kirk mention that. We've been through that too. And then also the thing that we also talked about was like us, I think, Nik, you may remember us, we were probably a little too earnings focused in our past.

And I think Kenvue and maybe even within J&J and Consumer, had a similar perspective. And so what that -- you start to atrophy some of the growth capabilities when you do things that way. And so we've been -- and when I said I've walked a marathon on those shoes, it's exactly the whole journey that we've been on. And that's why I'm so confident that we can work together and really help the Kenvue brands really take off.

Next question will come from Lauren Lieberman with Barclays.

Two sets of questions. So first is just piggybacking off of just your discussion pointing out, Mike, some of the similarities between the companies historically. But there's also some interesting differences, right? Like Kimberly-Clark a much -- let me go back to historical, right, much more commodity exposed and sort of low gross margin, heavy CapEx, technical innovation and manufacturing, a very tight portfolio of brands, right? Kenvue's got a very long tail, I believe, that needs some cleaning up. I think Kimberly always had a pretty clear strategy, given the limited category footprint, right? So maybe been a little bit different by market. But at the end of the day, it was a pretty clear direction of travel given the categories in which you competes. Kenvue's very, very broad. So I wanted to talk about maybe some cleanup work that still needs to happen at Kenvue. How much, Kirk, do you think you can start to take on, I mean over the next 9 months, it might be a little tough. But I think that's a big topic because everything in the slide speaks to the big brands and arguably, maybe still too many geographies, but this is a very, very -- Kenvue was complex to begin with.

And now this becomes more complex for Kimberly-Clark to take on, which is a very different mode of operation, also, Mike, that you've been moving in, right? You've been trying to tighten things up. and now you're going to get very broad again. So -- and then I'll ask my second question.

Yes. Maybe Kirk, I'll start. I just -- the 1 thing I want to clarify is kind of like, hey, because this is kind of a different set of categories for us. That's clear. It's a different kind of pivot for us. I will tell you, Lauren, like everything that we've been doing in our transformation was designed to meet this moment. I mean that's really the focus like we've built a world-class team that's enabling us to win in the toughest Kirk, you would agree, the toughest categories. We're very confident in KC's organic path, right? And I'll be clear and you got some click further on this. I'm way more excited about our next 10 years and think our innovation for the next 10 years is way more than what we had in the last 10 years. And so I think we've got some big stuff coming on organically within Kimberly-Clark.

However, the strategic logic, Lauren, is I really wanted the company to have greater exposure to higher-growth, higher-margin categories. That's why we made some of the portfolio we moved with our international tissue business, private label, PPE, some of those things. But -- and then as we did an exhaustive diagnostic of the whole CPG universe and beyond the CPG universe. And I would say everything led us to health and wellness because the macro trends of the global population aging, right? So the U.S. population and developed markets are clearly aging. But even developing markets, are going to see that, and you're starting to see that impact.

And so for us, when you think of an aging global population, health and wellness has the biggest tailwind behind it. And it's just going to continue accelerating for the next 30 years, right, in that direction. So that was kind of some of the strategic logic. So then once you cross the bridge and say, oh, health and wellness. And I know you guys like have been under pressure and everything else. For you, for us, like Kenvue was always like the crown jewels, like the #1 name that we have been thinking about for a long time. And so -- and obviously, I think you know that the brands are so great. And so with that, I'll pause there and let maybe Kirk address some of your.

So on the brand question, you're 100% right. We talked about this back in August. We have 115 brands that are in the portfolio, 41 really are multiregional or global and represent the core of our business. And as we go forward, I think about it in terms of between now and close, back to my 4 priorities as I think about strategy and execution on the strategy front, we're going to be talking more to you all about this related to what it is we can really uniquely have a point of difference on with our brands, and that is around 3 things. One is the insights, true insights, not facts, not consumer -- accepted consumer but insights that open the hearts and minds of consumers that we build our innovation on and are marketing on. The second piece is claimable science-based advantages. And the third is healthcare professional recommendations. Those are our 3 nodes we call them, and we're going to be relentlessly focused on that.

If the brands don't fit into the ability to do that, obviously, we're going to look at ways to optimize our portfolio to make sure that we can focus on those 3 things as an example. Again, something we talked about our top 10 markets and top 10 brands in those markets represent north of 75% of our sales. So we're very concentrated. And we know that if we focus on them and we grow share on them, the rest will take care of itself. The other thing is from an executional standpoint, we know that and I mentioned this, our bottom 30% of SKUs that really bog us down operationally. We have -- we are actually implementing this now. We're reducing the bottom 30% of our SKUs in all of our core regions, which will allow us to focus on the bigger part of our portfolio and get a lot of the execution muck out of the way.

So we are going to continue to focus on that. So yes, there are things in the portfolio that won't fit long term. And as we get closer to close, we will obviously have more aggressive discussions about that.

Yes. I think, Lauren, I forgot to mention that part, which is the complexity, yes. I mean, I definitely see that Kenvue has a more complex product and geographic portfolio. The thing I'll also say as Kirk works through that prioritization process, Nelson and I are not strangers to portfolio complexity. We led the profit center, the biggest profit center at Kraft. In our grocery division, Nelson, we had, as I recall, 40 categories and 47 brands. And in our tenure, I would say, our performance of the division that when we were there was 4% top line and 10% bottom line. We knew we learned how to manage through that complexity. So I would say, yes. again, we want to have operational discipline look to have kind of an efficient portfolio, but there are ways to manage complexity efficiently as well.

Great. And then sorry, just 1 big follow-up or separate question really is just to talk about lawsuits and liabilities. So talk in the news more recently. I know with Tylenol, there's no new science, but there's certainly been headlines and noise. I just wanted to -- for you guys to comment perhaps on how that is factored into deal consideration and so on.

All right. Should I address the deal consider -- all right. I'll do that. I just want to make sure that, Lauren, that you know we reviewed this transaction in the same way that we run the business with incredible rigor, right, thoughtfulness and discipline. And so the Board carefully considered all of the risks and all the opportunities. And then we had multiple sessions with the Board, with the world's foremost scientific medical, regulatory and legal experts. And so going through that process multiple times, I think the worker firm that this is a generational value creation opportunity for both companies.

Yes. Well, I mean, Lauren, as you can expect, I'm limited in what I can say on litigation, but what I can say is there is nothing that is more important to us and the health of the people who use our products. And so on both the things you mentioned on talc and acetaminophen, we -- we've said this multiple times, it's on our website. We stay normally behind the science and the safety of our products. I mean, these things have been studied for decades, and we continue to stand by that science as the medical community does as well.

Our next question will come from Dara Mohsenian with Morgan Stanley.

So Mike, can you just give us a bit more insight for how this deal came together from a Kimberly-Clark standpoint? It's clearly a very sizable bet. As Kimberly been looking more for an entry into consumer health or another like growth for the company was looking for more global scale, a big focus? Is it more opportunity circumstances of the 2 companies coming together? Just trying to understand the decision-making process on your end and timing of when this deal came together. And the juxtaposition is versus the base business where you've been transforming the base business and seemingly a lower risk or more visible strategy there of sticking with the status quo. So it'd be helpful to understand more the motivation behind the deal from your standpoint on top of some of the attributes you're excited about going forward.

Yes. Dara, so great question. I will tell you definitely not opportunistic, definitely strategic. I was on with our top leaders at KC just before this call. I said, Hey, like this was always in the back of my mind, right? And -- and you could -- actually, you might see it's reflected in our Board composition and our leadership composition that I -- this has always been in the back of my mind. Not in the front, but maybe someday, right? And so this was always the -- Kenvue was always the bell of the ball for me. And so because of the great collection of brands and capabilities that the company has, as I mentioned earlier, we've been migrating our portfolio to focus on higher growth, higher margin personal care. And then within that, health and wellness to me was, by far, the most attractive aspect of personal care because of the macro trends of an aging population globally.

And so again, with the built-in tailwind, we wanted to increase our exposure and the other thing is -- and I think there's an important idea here, and this is something that I think Kirk sparked to the first time we talked, and I think it clicked with you right away, which is like the combination is going to enable us to provide comprehensive everyday care. And everyday is a Kenvue term was on adopting because I love it. The extraordinary power of everyday care is their purpose. And I wish I thought that myself. But we can deliver comprehensive everyday care way better than either of us can do on our own. Because the reality is, when Kirk and I got together was clear. We serve every important stage of life, and both of us do it from opposite sides of the category, right?

So if you think about it is our Baby Care and all things baby, women's care or feminine care. We do it through Kotex. They have a bunch of products that serve women. Family care more broadly. I think, Kirk, you guys probably would call that essential care, but it's essentially family care for us. It tends to be the tissue category for us, but much broader play. Active aging, which is the one that puts us on to the macro trend, right? These categories are continuing to double and the needs of aging seniors is going to continue to expand. So those are kind of like the big life stages that we really address. And there's probably more if we think harder about our portfolio.

But the interesting thing and where I think there's a powerful combination here is our brands in KC are very high penetration. If you're in the category, everybody is in it, right? They're high frequency, meaning you're using them every day, and then they're long duration. So if you're in Femcare, you're going to be using Kotex for 40 years. If you're in the pen, you're going to be using the pen for 40 years, right? Baby Care is probably the shortest but you're in our suite of products for maybe somewhere between 3 and 5 years, right? And so there is like long duration, frequency. There's a lot of expenditure for consumers. And so because of that, they want to have an ongoing relation with us. And that's why we really prioritize what Kirk was talking about, a digital, social, marketing approach where it's kind of a continuous loop that we have a direct connection with consumers. And so if you think about that social digital capability, we think by bringing more brands that address the same consumer segment that we can deliver a much higher standard of care. I don't know Kirk if you have any.

Well said.

Dara, I hope I didn't go off on the tangent there.

No, that was helpful. And then can we just touch on revenue synergies? How much confidence do you have there? You're both students of the CPG industry having been in the industry for decades what's made sense on paper in a number of deals in terms of revenue synergies has often proven more difficult than originally expected. So level of confidence there and really the key buckets within the revenue synergies and obtaining those synergies.

Yes. Dara, I can start and Mike jump in. I mean what was interesting is we sat down to go through the synergies, both on the cost side and the revenue side. I mean this is the first time I've had this happen where we had the entire leadership team sitting down and going through this, country by country, category by category. It became very clear because as you point out, revenue synergies are harder to execute than cost synergies because we've both been doing this a long time. But this is the first time I've ever honestly looked at it, where we started with a lower number, and we continue -- usually try to bring that 1 down for the reason you point out, but we continue to add to it because as we went country by country, category by category, the synergies were really terrific.

Just even as you think about our technical competencies in the background, us with molecules and Kimberly-Clark with paper and substrates and you bring those things together. That's just 1 example, and we don't want to give away all of our secrets in terms of revenue synergies, but they are low hanging and significant is what I would say.

Yes. I think there maybe a couple of things, and I was just telling my leadership group. We're going to be inventing new stuff to serve like this -- provide this comprehensive everyday care better, like better than we could because we were kind of trapped into our own different segments, right? But I think we can do a better job. So I think the products will evolve. I will say the immediate low-hanging fruit from a revenue synergy is the geographic complementary, right? We said it's a hard work for me to say, there's 5 syllables, I am a monosyllabic guy, but the thing about it, India, we struggled in India to build a distribution network. And so we're probably right around, let's say, $100 million in India, right? And they're a multitude of that. And they're -- I think, Kirk, I heard, as I recall, 3.1 million points of distribution in India, which is hard to build, right?

And so that will be great for Huggies and some of the other brands that we have. And so that's 1 example. The other example, it turns out are that I guess we have been -- Kimberly-Clark has high distribution and big businesses in a lot of markets where people still smoke a lot. And so I've never been so excited about smoking cessation and I think that's a good product to market. And that's what Kirk's CFO on it was like reading into my head, the whole discussion. And so -- because as you recall, like we have a large position in Indonesia. We have a large position in China, Korea, everything else. And so yes, there's a lot of -- those are just probably 2 minor examples, but we feel a lot of those opportunities.

The other thing I'll add is beyond the revenue synergies. And by the way, in our plan that we're presenting after Nelson laid out, we put in a pretty conservative number for the revenue synergies because we know the market tends to be a little more skeptical of those. So I would probably say, and Kirk, I don't know if you would agree we would intend to beat that And so that's on the revenue side. And then you didn't ask about the cost side, but I would say cost discipline. KC, we are a top quartile efficient overhead company, right? Our discipline is since our gross margins are a little lower than the average of the industry, we have to be the lowest on SG&A. And so we are, and we've always been that.

And so -- and I would say, and Kirk, you may comment coming out of a higher-margin pharma business, our observation, I think Kirk and Amit was that the cost structure for Kenvue is a little higher than for a CPG of the size. And so there's some opportunity there.

Yes, for sure. I mean our stand-alone focus would have been very much attacking that. But you're right. I mean we came out of a pharma industry where SG&A, COGS are just higher. And obviously, you all work in an industry where every penny matters. And so that combination is going to be fantastic.

And Dara, I think it's important also to highlight the fact that one, these synergies will be realized in the course of 4 years. And we are reinvesting close to 60% of the profit coming from these synergies back into the business. That's built into our business model. So to Mike's point, how -- the approach we've taken here, and as Kirk said, we spend time looking at each of the components, we are doing this reinvestment to also ensure that we're putting back money into the business to strengthen the overall profile as the 4 years progress.

Your next question will come from Chris Carey with Wells Fargo Securities.

Just 2 questions, please. So first, on Nelson, I think you mentioned mid-single-digit dilution. Is that inclusive of the proceeds that you'll be using from the IFP deal for this transaction. Said another way, does this change your expectations for the Suzano JV? Is that included in the mid-single digits? And then just secondly, can you just maybe balance this dynamic around the need to invest in relative to your confidence in the synergy target, how conservative or optimistic do you think the synergy target is? It's a fairly sizable percentage of acquired profitability. So just love a bit more detail on that front as well.

Sure. So let me address the dilution and the linkage to the Suzano transaction. So the linkage of the Suzano transaction, Chris, is solely because of the net proceeds that we project of $1.8 billion that when we announced the Suzano transaction, we were deploying the share buybacks. That's not going to happen because right now, with the transaction and in our approach, to being prudent on the balance sheet and the leverage and our commitment to our credit rating, we are going to deploy that to pay for the cash consideration. So that -- if you run the math, and we'll be happy to talk to you later, that is what's driving that bit of the dilution, but nothing else related to our assumptions on the Suzano transaction. That remains the same as what we had announced back in June.

Chris, you may want to repeat that. I think it was -- we didn't hear the second part of your comment.

Well, the second question was just confidence on the synergy number. It's a relatively big percentage of acquired profitability and just a bit more detail on some of the drivers.

So sure. So let me walk through the cost synergies. The cost synergies amount to $1.9 billion. And what we've done is a fairly detailed bottoms-up approach function by function. And this covers all elements of the P&L. So we've gone through distribution by market and we've come up with the synergies that this would drive. We've gone into SG&A line item by line item, looked at the structures of the 2 organizations and the geographies and come up with it. And the other bit is as you look at the overall phasing of the synergies, the cost synergies, we're doing these in -- throughout the first 3 years of the transaction, a little bit more of synergies coming in, in year 1, year 2, but the completion of the synergies would largely be achieved through the third year. As we compare it against further transactions, both in CPG and the healthcare space, all of the ratios that we had are right on benchmarks that have happened, and we looked at this in depth, both ourselves and with our advisers.

Next question will come from Javier Escalante with Evercore ISI.

A lot to digest here. I was expecting that Clorox would be complication today. So on the deal, right, the combined entity kind of like rough math, give you SG&A between 17% and 18%. And the portion of SG&A alone, right, which is about $750, takes SG&A to 15% around, which is still above the peer group. And I know that Nelson referred to the reinvestment. So I don't know whether this is -- given the scale of what you are doing, is this conservatism in terms of the savings target? Or this is net of reinvestment because it is not in the slide, this commentary that Nelson just made. So if you can clarify that? And then I have a question -- a common question to Sherry and Kirk because Sherry knows long time no speak. Sherry knows both companies and Kirk come from a highly centralized company like Proctor. So I would love to hear thoughts on that. But first on the pure math of the synergy, please.

I'm going to try. Nothing may have to correct me. But here's, I think, Kirk, where I think your analysis, Javier, is definitely correct and it's kind of our starting point. I think as we got into the due diligence phase, there are some things that they classify as SG&A that we didn't, we thought we were less addressable in that area. And so kind of our estimate here is based on an apples-to-apples, had a lineup of the P&L based on how we understand it.

Yes, that -- that's right. Yes, just different categorizations.

And then you mentioned also, it's related to this, but you mentioned also that there's going to be portfolio simplification. Is this portfolio sortification going to be on hold through next year because the transaction is not going to close in a while or it's going to start happening, say, the noncore assets like hair care, stuff like that is going to start being divested as we speak.

Yes, Javier. What I would tell you is we're going to continue to operate the 2 companies on a stand-alone basis until we close. And so whatever we need to do in the due course of business to make sure we deliver what we promise, we will do. So we're actively looking at the portfolio as we speak. And obviously, we were looking at multiple paths on this front. And so now that we've made this decision, we're moving forward with this. We will view it through that lens.

Okay. So the question is to Sherry and then for sure, Kirk, because you come from kind of like the opposite side of how conglomerates like this has been run, right? So Sherry, you know long time no speak, you come from Johnson & Johnson, right and is very decentralized. So was Kimberly-Clark and the whole point of both companies where they were trying to centralize to improve execution. So basically, when do you think that this decentralization helps to keep execution risk low? And then on the Kirk side, what do you see here, right, borrowing your knowledge from Procter that can be applied to this new entity, which is very interesting in itself.

Great to hear from you, Javier. As it relates to Kimberly-Clark and Kenvue, I think the similarities are that they are very consumer-oriented facing companies. People are very focused on in the market so that decentralization you talk about is still present in both companies. And I think it's important, and I think what Mike has done is really brought together a matrix approach where they have the right balance between ensuring that we understand what's going on in the market, the people are running their markets, but we're actually benefiting from the global scale and the capabilities in the center. And so I don't like to use the word centralization because I don't think -- I guess maybe because I grew up in J&J for 30 years, it's sort of like a bad word.

But I do think the idea of the power and the scale that you have by getting the capabilities at the center and then looking at how you wire the organization and have the connective tissue. So the people in the markets and running the categories understand how to drive that business is critical. But at the same time, they have the power internally in the central core. And I see that Kimberly-Clark perhaps, again, I haven't been close to Kenvue businesses in a while, but they may be further along in the journey in terms of getting that balance and getting that wiring right so that people can actually have the scale. Because to me, it's about having the customers the right science capabilities and then ensuring people can go off and do the right thing from a consumer product standpoint.

Yes. And I would say, Javier, for me, I've worked across very different models in CPG, tech and data and analytics. And any model can work. But to me, the models that work the best, and the principle I try to live by is as common as possible as different as necessary. And so there is a level of global scale that you get that benefits the entire company, but there is a customization locally that enables you to win at the local level. And so another concept that I've seen that works really well, and this is something we did at Procter, hard point soft points where you take those things that have to be common and they are just the law. But then the soft points are what has to happen locally to enable you to win. And I would tell you, 1 of our challenges at Kenvue right now is we're living in between, which is no place to live in the murky middle and so I think that's what Kimberly-Clark has done an amazing job of defining those hard point soft points that common as possible different as necessary focus that we're moving to now as we go toward the close of this merger so that when we come out on the other side, we will enable it to be a nice dovetail into what they've already done.

Javier, I know you're not asking me, but I can't resist to chime in a little bit. But if you look at our org chart, if you look at our org chart, it would probably look -- Kirk, -- it's a matrix. It's a regular matrix like everybody else so it probably looked pretty similar to P&G, right? I think the difference in ours is the spirit of ours, and I was explaining to Kirk, like our whole organization and this rewiring was designed to help the markets win. Like what we're prioritizing is like winning in the local market. And the markets have the P&Ls, they are the best to figure out how to win. But we want to leverage the scale as Sherry said. And so the functions are wired to help the markets win, but bring the best of what they see around the world at KC in to help that market win.

So again, we're not a centralized company, and we're not decentralized. We're kind of a little bit of a hybrid, but it's working for us because I'm seeing -- we're 18 months into our Powering Care and our rewire and everything else. The speed of which the transformation is taking place is a lot faster than I think any of us on our leadership team had foreseen.

And Kirk, remind me, the P&L responsibility in Kenvue was at the local level? Or was it at a brand level?

So it is at segment level. So we have 3 segments how your self-care, essential health and skin health and beauty.

Great. I think we're run past time here. So we'll end it there. Thanks for everybody for joining. And we'll be around to take any follow-up questions.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to the Kimberly-Clark Third Quarter 2025 Earnings Call Question-and-answer Session. It is now my pleasure to hand the floor over to your host, Chris Jakubik, Vice President, Investor Relations. Sir, the floor is yours.

Thank you, and good morning, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I would 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, and 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.

Okay. Thank you, Chris. Good morning, everyone. Our third quarter results underscore the strong progress we're making to transform Kimberly-Clark into an industry-leading personal care company. Despite a dynamic external environment, Powering Care continues to power our performance. It's enabling us to deliver solid results and importantly, better care for a better world.

Our inflection to volume plus mix-led growth that began last year continued into the third quarter. Q3 marked Kimberly-Clark's seventh consecutive quarter of volume plus mix-led growth even as volume growth has been somewhat challenging to achieve across the broader CPG industry.

We're growing volume and mix because we're meeting consumers where they need us across the good, better, best spectrum, and we're well positioned to post similar growth in the fourth quarter. We held global weighted market share despite an uptick in competitive promotion activity in the quarter.

We're leveraging our scale to deliver more consistent profitability in a challenging environment. In the third quarter, we delivered consistent operating margin expansion and another quarter of industry-leading productivity, our strongest of the year to support reinvestment and profitable growth.

Our rewired organization is fast tracking the best of Kimberly-Clark across our markets. The promotion of Russ Torres to President and Chief Operating Officer is accelerating our momentum. I'm pleased to have Russ with us today for his first earnings call as Chief Operating Officer.

We're in the fourth quarter, and we're playing to win. We have sustainable momentum and the discipline and ingenuity to effectively execute our innovation-led volume plus mix-driven growth strategy. We're confident in our ability to unlock our long-term potential and deliver more value for our consumers, our team, our partners and our shareholders. So with that, I'd like to open the line for questions.

[Operator Instructions]

Your first question is coming from Javier Escalante from Evercore ISI.

Congrats on the strong results. I wonder whether you could give us an update on the competitive dynamics in U.S. diapers. When you spoke in early September, you indicated delays in marketing plans because of increased competition from retailers' private label and their Chinese imports despite tariff.

So did you resume marketing plans in Q4? What's the consumer and retailer reaction to it? And in a bigger sense, is there something you can do to steer the market away from a price war given that the U.S. diaper market will likely trend volumes flattish given low fertility rates?

Javier, great question. I would tell you, we saw increased competitive activity and uptick in activity earlier in the quarter. I would say our teams navigated it pretty well. And I would say your point around how we want to drive the business, I think I said it in my prepared remarks, our strategy is totally innovation-led. And so we're really focused on making our products better at every tier of the good, better, best spectrum. And I think that strategy, as you can see in our results, is paying off pretty well. But I'm going to ask Russ to comment because I think he's kind of closer to the action in North America and having just come out of that role. And so maybe, Russ, you may want to give him a little bit more detail.

Sure. Sure. Absolutely. Javier, Yes, I would say, overall, as the quarter played out, you're right, we did make the decision to move some promotional activity from the third quarter to late in the third quarter, mainly the fourth quarter. And so just the update on that is we are seeing solid performance in diapers in North America. And so I think that has worked out thus far.

So we gained 10 basis points of share in diapers in the third quarter, which frankly was maybe a little better than what we had expected, and we're up in share 90 basis points year-to-date. But I would maybe unpack a couple of topics just that I think are notable that may give you a little bit more insight to what you and everyone else might be seeing in the scanner data, and that's promotion activity and club would be the two things.

So let me start with the promotional activity. Just to remind everyone, I think we mainly see promotion as a tactic to drive trial for innovation. To Mike's point, we're very focused on driving innovation and brand building and cascading that innovation across every tier of the good, better, best spectrum. And we would say that overall promotion in -- across all of our categories within North America, and that includes diapers is well down versus our 2019 levels.

But you may see the promotional levels tick up as a result of that trial activity I talked about. And the reason for that is we've got a great lineup on innovation. We have probably the most active lineup we've had in quite some time across the good, better, best tiers. And just to remind everyone, we launched the blowout blocker earlier this year, HuggFit 360 and our Little Movers tier, which is doing quite well. And then, of course, we have a very significant improvement in the value proposition in our mainstream lineup in Snug & Dry where we've made great product improvements to improve softness and comfort and have introduced a superior core, Generation 2 core that will improve protection, and that's off to a great start from ratings.

So our strategy had been to really use promotion to drive trial because we know when people try the product, they're going to love it and come back. And so what you're seeing is probably an uptick in that promotional activity. But I would also point out that our promotional activity in general in diapers is lower than the category. And we'd expect that as we get through the trial period, that promo activity to normalize as we get through the fourth quarter and towards the end of the year. And so that's just a little bit of an explanation behind what you might be seeing there.

And then on the club mix piece, I just wanted to talk for a second about that. That you may see coming through as a little bit of negative mix headwind in U.S. diapers. And what's happening there, as everyone knows, is we've been experiencing double-digit growth in the club channel. And that really is in response to both the consumer shifting to the club channel as well as some changes in assortment that have positively impacted our business in certain retailers.

And so we are also, in parallel, driving premiumization. And so that's important, like the HuggFit 360 that I mentioned is going to drive continued premiumization and positive mix over time. So hopefully, that sheds a little bit more light on the situation.

Yes. Yes, it does. I have a follow-up.

You'll be proud to know that Chris' team sent me that chart that you drew up 3 times.

I'm sorry for that. But the one thing that I would love to hear is driving positive mix because this has been your focus for a long time, right? And from the retailer standpoint, what they're doing with the Chinese diapers is a positive mix, but not necessarily to you. So what are you seeing in terms of consumer reaction to the Chinese diapers versus your intro? Is there anything that you have learned so far that give you encouraging? Or is it makes it more challenging driving positive mix?

I may start.

Go ahead, Mike.

Just the one thing I'll say overall that we're starting to see is I think the brand interaction tends to interact more with private label. And so there's kind of a swap in and out at the same tier, but Russ, you may want to comment further.

Yes. I think we're doing a lot of things to drive positive mix. And I think overall, Javier, I would say we're very confident because of our experience around the world, including in China that we make great products and consumers respond to those. And that's what the testing data shows, and I believe that's what the market reaction to our current position is showing.

So while you may feel like -- I think retailers understand that they have to balance mix, but I think more broadly, what's happening is there's a value-seeking consumer out there, and the retailers are trying to adjust their assortment to help serve those needs, and so are we. And I think that's why we're seeing positive volume mix growth. And so I think we feel comfortable with our levers.

We're doing things on pack sizes and other areas. So we're still early on in the progression of that, though. So we're going to see how that plays out. And -- but I would say that given our experience globally and in North America, we're confident in our plan.

Yes. The confidence in our plan, Javier, comes from the fact that we're very confident in our technology and our product quality. We're competing with the low-cost diapers that you mentioned in other markets, particularly in Asia. And our products are superior, and we believe our costs are very, very competitive, if not better. So we feel good in our plan.

Your next question is coming from Lauren Lieberman from Barclays.

In the prepared remarks that you guys published this morning, you gave -- you opened the door a little bit to '26 and talked a little bit about momentum into next year. So I wanted to know if you could talk a little bit about the shape of the P&L in '26 and '27. I know you've spoken about the dilution assuming that the IFP JV kind of goes through as planned. But I think numbers are a little bit all over the place. So anything you could do to shed some light on shape of the P&L '26 and '27 would be really helpful.

Well, we're still in the throes of working through it, Lauren. So I don't -- I think it's premature for us to share too much, but I think Nelson probably can maybe make a few remarks here.

Sure. So Lauren, just to provide some perspective. And again, without getting into specifics on point estimates because we'll be providing a thorough outlook when we report our Q4 and full year results early next year. It is important to highlight that we continue to target organic growth ahead of our categories, consistent with our long-term algorithm.

At operating profit, we are in the midst, as Mike said, of building plans for the next few years that should deliver our long-term constant currency operating profit growth in line with what we committed to and looked at as our long-term algorithm. And this includes the mitigation of the stranded costs that will result from the IFP transaction that, again, we expect to close sometime middle of next year.

I'd also point out that we continue to be targeting to achieve our milestone on gross margin of at least 40% and an operating profit of at least 18% to 20% before the end of the decade, and we're tracking fairly well in that terms. And as you say, and as we get into the details of the outlook and how we think about it, first, EPS.

And in the next couple of years, we need to distinguish between EPS from continuing operations, which exclude discontinued operations from EPS attributable to total KC, which includes earnings from discontinued operations. So that's the first step. So for constant currency adjusted EPS growth from continuing operations in the next couple of years, all else equal and assuming that we close the transaction sometime middle of '26, we should see a step-up in growth in EPS, in EPS from continuing ops as income from equity companies would increase by approximately 30% year-on-year, and we'd also benefit from the use of proceeds for share buybacks.

Then the second item is adjusted EPS attributable to total KC, which, again, assuming that we close the transaction in mid-2026, then constant currency growth should be somewhat more muted as we see about half of the discontinued ops income go away. And then as we go into '27, all of it go away. In the near term, we're going to continue driving underlying growth consistent with the long-term algorithm, and we will see a partial offset because of the dilution that we've been talking about.

Your next question is coming from Peter Grom from UBS.

So I wanted to ask on North America. Just the performance in the quarter relative to what we can see in the track trends, it was a bit stronger. So I know in the prepared remarks, you talked about some hurricane shipment dynamics. But can you just talk about what drove the gap in the quarter? And then maybe as we look ahead, would you anticipate a similar gap as we continue to monitor the data here in the fourth quarter?

Peter, maybe that's a good topic because I would say in our discussions, I think the source of data you look at is very -- it tends to be very different from our data, and so I know there's different analysts use different sources. The thing about our business, we skew to a few larger customers that are untracked or not well tracked. So even if Russ, club is in the system, depending on what source you're using it, maybe panel data versus what Russ is getting as live feeds, right?

Absolutely.

And then let me maybe just unpack a little bit the numbers. And I think two things from there. I mean both scanner and the reported results, we are seeing sustained momentum from all the innovation and activation that we're doing across the markets in the U.S. and the categories.

Focusing specifically in North America, I think it's important to highlight that from a year-to-date standpoint, shipments are largely in line with consumption. And as we've said, you're always going to see some noise quarter-on-quarter. And specifically for Q3, as we stated in our prepared remarks, what you're seeing is two things playing out.

The first one is lapping last year's hurricane-related impacts on shipments, which drove around 50 basis points year-on-year. And then the second item, and we've been talking about it and Russ mentioned it a little earlier today, is the timing of the promotional expense, particularly year-on-year. And that drove a timing on the realization of those promotional activities. So those are largely the two items that would have had overall shipments or organic growth ahead of what we would have seen in consumption for the quarter, but the year-to-date numbers are largely in line.

Yes. And Nelson, if I could just tag on to that and build on what Mike was saying. I think we're focused on meeting consumers where they need us and at every price tier, but also in every channel. And what you're seeing is really, as Mike alluded to, is a significant migration of consumers to e-commerce and club.

And so if those are not as well tracked, there can be a disconnect there, and you're certainly missing some of the growth that's happening. And so I'll just bring that to life with an example. In digital channels in North America, 99% of our growth last year came from digital. And this year, it's 100%. And I would -- we have a 7-point share benefit.

Our share is higher by 7 points on digital versus brick-and-mortar. And so that can have a pretty significant skew. And so that tracking piece tends to be -- the volumes there also tend to be a little bit lumpy and somewhat volatile. And so that tracking piece, I can understand maybe creates an additional noise in tracking things. But it is strong growth, and we're focused on executing our plans and delivering for consumers in all channels.

Your next question is coming from Chris Carey from Wells Fargo.

So I wanted to come back to the promotional activity in North America and how you're responding. But I specifically wanted to dig a bit deeper on the comment that North America is kind of tracking well quarter-to-date. It's not really about a quarter-to-date question per se, but you've shifted promotional activity into Q4. I'd love to get a bit more detail on how you think that's doing? How is that improving your competitiveness? And Nelson, just any margin implications that we should be thinking about from this increased promotional activity?

Yes. I would start maybe with a broader statement there on just what's going on in North America overall. We're growing volume and mix, as you see in our results because we're focused on meeting consumers where they need us. And clearly, what you see right now is that consumers are really under pressure and their purchasing power is under pressure.

We don't really see candidly a catalyst for that to change anytime in the near term. However, our categories are essential categories with low substitution, and they're very important to people's lives. And so that's what I think why you see the demand remain relatively resilient.

And from a promotional standpoint, that's exactly why we tend to view promotion as a tactic to drive trial. It doesn't really expand our categories. I think our retail partners understand that as well. And so our focus is really on strengthening our offerings by investing in value propositions and differentiated innovation at every rung of the good, better, best ladder, especially cascading those innovations across the portfolio, and that's exactly kind of what we're doing.

So that shows up in the form of strengthening the value offerings like I just talked about with Snug & Dry a minute ago for value-seeking consumers, improving the product quality, so they're getting more value for money as well as elevating benefits to drive trade-up and premiumization. And we see the premium segment of the category healthy and still growing kind of across our portfolio.

And one more thing I would note is just the volume/mix growth in North America, I think, is the proof point that, that is working. If you look at North America, we're kind of getting volume/mix growth on top of volume/mix growth. So year-to-date, our volume/mix growth in North America was about 2.2%. And if you looked at that on a 2-year stack basis, it would be 2.9%. And so that really is kind of how things are unfolding. So the promotional dynamics, our strategy was really to really focus on executing the play that I just described.

Yes. And then maybe, Chris, I'll add. I think earlier in the quarter, we saw competitively some deeper discount, deeper than we had seen discounting. It probably didn't have as much of an impact as we had originally thought. So that's kind of one delta. And then the other delta then also is our trial driving on the -- on our new innovation.

And as Russ said earlier, we're really only promoting the brand to drive trial on the innovation. And so I think that is getting traction. So overall, I'd say our brands are very, very durable, especially in this environment.

And to your question, Chris, related to margins. I mean, a few things that we expect to unfold in Q4 as it relates to gross margin -- we -- because of the timing of some of our investments, both on the supply chain and the mitigating actions realization related to the tariffs, we actually would be expecting gross margins to get back to expanding as we head into the fourth quarter.

As you think about operating profit margin, though, we are stepping up investments marketing-wise sequentially in the quarter and not in an immaterial manner because we're supporting all of the initiatives that we have. So from an operating profit margin, we'd actually expect to be not too different from what we would have seen last year in the same quarter, delivering a full year expansion of gross margin -- of operating profit margin is kind of our expectation at this point.

Okay. One quick follow-up. I couldn't quite tell, but did your commodity outlook, if you exclude the impact of tariffs come up a bit today? Maybe I'm misreading that. And if so, what's driving that? And maybe just more broadly, how you see the cost outlook evolving here? If you'd like to add a bit of thoughts on how the tariff backdrop is evolving, that may also be helpful.

Yes. So before I get to tariffs, one thing is I think I said versus prior year. So versus prior year, we would see an expansion in operating profit as well. I was referring more to quarter-on-quarter, it would be not too dissimilar. It would be largely a little bit below because of the investments.

In any case, getting to tariffs, two things that have played out on tariffs. One, on the gross element of tariffs, we are down and improved about $70 million. So we were about $170 million. We're down to about $100 million gross tariffs. On the mitigating actions, we're still mitigating around $50 million because of the timing of that, and we do expect to be able to largely mitigate them all as we get through last year. So that should play out.

Obviously, on the tariffs front, there's a lot of moving pieces, Chris, and we're staying attuned to what's happening on that front. But overall, the good news is that we are seeing the mitigating actions coming through. We expect that to play through as we go into Q4 and early 2026 and our teams are activating all the elements in the toolkit to offset.

Your next question is coming from Nik Modi from RBC Capital Markets.

Mike, so just maybe you could just give some clarity on the full 2025 guide just on the top line. Obviously, over delivery this quarter, but it looks like there's a little bit of a step back in 4Q. So I just wanted to just understand, is there something you're seeing? Or is it just the environment is volatile, so you're just kind of appropriating your guidance accordingly? And then just I'll ask my follow-up now. Procter & Gamble talked about some exclusions on tariffs or some inputs. And I'm just curious if you're seeing that as well.

Yes. Maybe I'll just -- I'll comment briefly on the last. Yes, some, right? And so -- and importantly, you have to recognize some of our products are daily essentials. And so there is an exclusion for Brazilian eucalyptus. And so -- and that's obviously an important factor for us. So that's one big area that I think we're very pleased to have been able to receive. Do you want to comment on the?

I can go on the guide for the top line, Nik. So I think a few things to unpack. On a year-to-date basis, our organic sales are 1.6%. And we -- what we're seeing on the categories at this stage is that the categories will grow around 2%, and our expectation right now is to grow largely in line with the categories for the full year. So in essence, I mean, we would see an acceleration in Q4, if not at least at the same level of what we saw growth in Q3 based on all of our programs. Does that clarify?

Yes, that does, thank you, so much.

Nik, and one more thing I'll add is just, as you know, we always talk about driving the virtuous cycle in our business and so we have seen a little strength, and we started off the year well. Third quarter came in good. So we're going to continue to reinvest in our brands and make sure that we can drive ongoing momentum as we get into next year.

Your next question is coming from Anna Lizzul from Bank of America.

I was wondering if we could take a step back on the diaper category. We're seeing the category evolving here with certain ultra-premium players expanding the market on the top end. I was wondering how you see Kimberly competing in this environment where we're seeing growth but also increased competition at the mid-tier and value ranges, but more robust growth on the ultra-premium side with some newer brands in the U.S.

So I was wondering, is this an area in ultra-premium where Kimberly could compete through innovation or potentially through M&A? And then how do you see the overall category dynamics developing from here?

Yes. The great thing about the diaper category and also all of our categories that performance is what really, really matters. And so -- and Anna, we're very confident that we have the best technologies. We have a great pipeline of technology in our go-forward years. Next year's innovations will be better than this year's and '27 innovations will be better than '26. And so there's that.

I would say our strategy, as we've said kind of -- you've probably heard us say it a lot, hey, we want to win in every rung of the good, better, best ladder. And so -- and that's what's driven our business globally is really expansion, premiumization of the category through better features and products worth paying more for.

Just to give you an example, in North America, our shift over the last 10 years, 10 years or so, our premium mix has gone from 40% of our business in North America to just under 70%. In China, our premium mix has gone from 6% 5 years ago to well over 40%, right? And so that's kind of our underlying strategy.

However, in this environment, we also recognize we have to have a great value proposition in the value tiers. We don't want to be a niche premium brand, and so this is why Russ has talked about us cascading our best innovation, our best features into the, I would say, the mid-tiers and so that we can have a superior offering across the line. But maybe, Russ, you may want to add a few thoughts.

Yes. I'd just add something. You mentioned super premium. I think we're excited about that, and that's consistent with what we're seeing just because I think it illustrates that there's plenty of room for us to continue to premiumize the category. And you see that demand on the premium and super premium side is out there.

And so continue to look for us to both drive that, as Mike just talked about, the premiumization success we've had, both in the United States and other markets, including China. We're going to continue to focus on that in addition to bringing great value at the mainstream and premium tiers.

Great. And just one follow-up on the cost side. You did mention in early September, your expectation to reduce your volatility to fiber, and that would approach 0 following the JV agreement. So I was wondering if you could elaborate on that more and the efforts that you're making towards that so far.

Yes. Maybe I'll start Anna. I'd say one thing. I'd say -- yes, volatility is one of the big things that we've been working on because we recognize like that was one of the features of the KMB stock that was different from maybe some other companies. And so -- and one of the key sources of that volatility was fiber prices, right, or our cost of fiber was more volatile historically.

I'd say this transaction and partnership on our international family and professional business with Suzano really does a couple of things. One, it really kind of stabilizes the source of the fiber cost, partnering with one of the most efficient producers of fiber in the world has some strong advantages, and so I'd say that brings an advantage.

Obviously, the nature of the joint venture itself by reducing our stake in that business internationally inherently reduces our volatility, and then I would also say, by nature of our strong partnership with Suzano, we have since Nelson has joined us and brought some of our kind of, I would say, risk management mindset that he and I used to have at our prior company here, we have worked hard to smooth out and take out volatility in the input costs that we've had. And hopefully, you can see that in your models.

And just to build on what Mike is saying, the transition that we've been doing over the last 2.5, 3 years to integrated margin management, Anna, has really percolated across the entire organization. The notion of pricing net of cost at least neutral in the mid- to long term, is gaining hold across the organization, and that's really a way of working that has allowed us to have more proactive management of the volatility separate from all the other actions that we're taking.

So that is a big, big cultural change across the organization, and we're seeing that play out over the last 2 to 2.5 years, and that's what also gives us the confidence of being able to attain our milestone margin targets before the end of the decade, both on the gross margin and the operating margin as we continue to progress in this Powering Care transformation journey.

Okay. I think we'll end it there for today. For anybody that has any follow-up questions, the IR team will be around all day to take them. I know there are other calls that people need to get to. So thanks, everybody, for joining us, and have a great day.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

All right. Well, thanks, everyone, for coming. It's -- welcome to, this is Piper's Fourth Annual Growth Frontiers Conference. It's our pleasure today to have Kimberly-Clark here with us. We've got Mike Hsu, the Chairman and CEO; Nelson Urdaneta, CFO; and Chris Jakubik, Head of IR.

Mike's been CEO since 2019 and has driven an interesting evolution of Kimberly-Clark by reshaping the portfolio, a greater focus on premium, more value-added offerings and stronger on brand building and building a consumer-centric team. I actually knew the company about 15 years ago as the junior, at a different firm, and it's quite a different story today and much more interesting in my opinion.

Maybe Mike, could you just start with some of the ways that the transformation has gone in recent years, and how you've reshaped the portfolio and really changed it from a bit more of an industrial type company to really CPG focused?

Okay. Mike, thanks for having us. It's great to be here in Nashville. Yes. I think -- so this year, the company is 153 years old, right? Founded as -- I think we invented paper in the U.S. And for much of the company's history, we were a very industrial company, as you mentioned. Like we -- if you name a paper, we probably invented it, and we are the leader of it, cigarette paper, newsprint, stationary, you name it, right? So I think that was the heritage of the company, and there -- and if you listen to that background, the company didn't decide to become a consumer company until, I would say, the late '80s, early '90s. And so we're a very young CPG company. I was brought in by my predecessor, Tom Falk, in the Board because recognizing that we want to be a world-class CPG. I was the first senior executive to come from a consumer packaged goods company, right? So in my mind, a pretty clear remit, which is -- and we all work -- including Michael, we all used to work at Kraft, right, and recognizing -- and where it's a different company than it was 20 years ago, but we -- I viewed Kraft as what I called an academy company that had world-class capability. And so really my focus was to instill world-class consumer products capability into the company. And where I'd say the great starting point that Kimberly-Clark always had, Michael, is if you listen to all that -- all the categories that we are in, the common thread is the company has fantastic science and engineering. Like we invented most of our categories. We invented how to make most of our products. And we still build the machines that make our products today, right? So that's the kind of -- we're a very engineering-centric company. So that was great base to start from. If you have to have 1 thing, you have to have the product, right? I think where we were able to enhance the capability is more of the consumer perspective. And I would say starting with like dividing great consumer understanding, consumer insights, laddering that into how we communicate with consumers through our marketing, digital, how we execute at retail with our customers. And then lastly, while we are great manufacturers, I think strengthening our productivity cost discipline has been a real big focus. So I'd say from a capability perspective, what we're trying to build is like world-class capability. And I think we've come a long way in mind. I think I'm in year 13 now. And so we feel good about that. The other thing that had to change is kind of where you led off, Michael, was on the portfolio we had to reshape the portfolio. One of the challenges that I was wrestling with, as I came into this role about 7 years ago, was it was clear that our valuation or multiple relative to our peer set was lower. And if you looked at -- asked the question, and I'm a quant, so we built multiple regression models to kind of explain the variance. Number 1 driver was we had lower organic growth in our peer set. Since I came into this role, we've been growing at about 4% compounded. We had the lowest gross margins of our peer set. You'll hear us talk more about productivity, and why that's so important, why we feel very bullish about that. The third one is one that people don't talk about as much, Michael, which is we had the highest EPS volatility of our peer set, and why? And it's primarily driven by our exposure to pulp cost. And so while the price of tissue does not vary in the market at retail, the cost of pulp varies quite a bit. And so that's the impetus behind our last move that we announced earlier this summer, where we we've entered in a joint venture with Suzano, who is the largest producer of eucalyptus pulp. We're the largest customer globally, and they're taking the majority ownership of our international family and professional business, and we'll be the 49% owner. But there are couple of things. One, certainly, when you have a very efficient eucalyptus producer, majority owning that business, inherently, I think you might understand that the volatility behind that business is going to be reduced significantly. And then secondly, importantly, I think by deepening our relationship with them and recognizing the volatility isn't great for either of us, I think it gives us better visibility into the other parts of our tissue business that are remaining with the company. So again, I think those are the big areas, both capability and then portfolio reshaping the structurally reduced volatility.

No, that's great stuff. And we'll come back and drill into a little bit more of the marketing side and brand building piece. But maybe first, Nelson, can you touch on some how the portfolio evolution impacts or shapes, you're thinking on your 2030 targets, which I think if I've got them right or like a 40% gross margin and 18% EBITDA.

Sure. So happy to be here and a few things. I mean we've been building great momentum on the business in the last couple of years since we launched our Powering Care transformation. We've transitioned to a volume mix led growth in the last 1.5 years or so. And we've made significant progress in our margin progression targets, which again, those are milestones, those are not end states. And with the recently announced transaction, we should see an acceleration in reaching those milestones. As we said, that was an objective by 2030, but because of the mix of the portfolio and North America and IPC being higher margin businesses, we should be able to get to that milestone ahead of what had been planned. Few things on that end. One, we are ahead of where we expected to be on the gross productivity front. We announced a $3 billion-plus program for the next 5 years, and we are tracking ahead of that in terms of the timing of when we expect to deliver that. Added to that is the SG&A savings, which was another $200 million, and that's an enabler to push margins ahead. And that's also tracking very well as we're in about half the year where we said in 2 years, we'll be delivering that number. We expect all of our businesses to deliver at least their fair share of these savings. And with IFP in the transaction, we still expect the benefit from the ongoing savings that the IFP business will continue to drive with Suzano, a very strong operator and an expert in fiber bringing to bear at that end. There will be some stranded costs as a result of the transaction, say about $150 million, which we pointed out when we announced it. And we're confident in our ability to add that to our objective of savings going forward. We're working on those plans, and we'll be sharing them as we get closer to closing the transaction in midway through next year.

Two quick follow-ups. On the stranded cost mitigation or ultimately ideally removal. Any sense of what that timing might be, or is that still a bit to be determined? And then the second 1 with the divestiture, can you give a sense of how to think about the go-forward portfolio, whichever way might be the most helpful to split it. The family products, I think is mostly things like toilet tissue, the feminine care and diapers are more value added or have room for premiumization. If you maybe kind of think about the more differentiated or premiumizable categories versus the rest of -- how does that look now for where you...

So I'll touch upon the stranded a little bit in the portfolio, and if Mike or Chris want to add anything. But on the stranded, a couple of things. One, we expect in the immediate years, and that's -- once we close the transaction, we'll action the plans to address the $150 million. It will take not an unreasonable amount of time for us to address it. We're talking in the $0.30 to $0.40 out of the gate EPS. That's kind of the impact that we've guided to. But we expect to be in a position to fully offset that in the next few years right after the transaction. Again, those costs are related to largely shared services that we have across the enterprise, global supply chain costs and unallocated overheads. But again, given our track record of cost savings, delivery over time and being ahead of where we expect it to be, that should be something we can address. On the portfolio, a couple of things to keep in mind, 2/3 of our portfolio of the remaining company will be personal care. So very different margin profile to begin with. And of the tissue and professional business, that's in North America, which is a fairly profitable business. I mean that's a business that has an operating profit that's around 20%. So it will be a very different profile than what we were seeing before. And hence, why Mike was referring to before, the fact that it was a much lower business, the IFP. Premiumization, all the portfolio that remains is subject to premiumization. There's ample opportunity for us to keep elevating our categories in the way we talk internally because there are unmet needs across both tissue and the personal care categories that we have.

And then back to some of the brand spending, you've been increasing it, both quantity and quality seems to be improving. Can you maybe give us some context for that and maybe touch on some of the recognition you've received recently that seems to validate that externally as well?

Yes, yes. Advertising -- well, actually, I learned just before we came on that we both worked on Jell-O back in the day, not at the same time, but I think Michael understands how important advertising is to a consumer -- to a consumer business. And so really what we're trying to do, Michael, a new term for me. Brand love is what we're trying to achieve, right? And that's -- I think, for me, a newer fangle term, but what do I mean by that? It's like what we're trying to illustrate to consumers is the positive impact our categories, our products can do for consumers. The positive things our brands can do for consumers through the product features that create brand love, right, that create that connection with the brand. I think in the past, since I came into this role, maybe in the last 5 years or so, we significantly increased our advertising investment $500 million to $600 million or several hundred basis points of investment. And he wouldn't do it if it wasn't a positive ROI. And the underlying thing is why is it such a positive ROI, it's because it's -- we've also, at the same time, almost shifted entirely to digital, right? And if you think about our categories, the reason that's so important and different than Jell-O is that even though it's a big brand, they're very narrow -- they target narrow slices of consumers. So if you think about in the U.S. Huggies, we're only trying to reach 6 million people, right? And so you can imagine when you think about those numbers, then advertising on TV is a gigantic waste, right? But if you can target them on search or other digital avenues that's a much more efficient spend. And so -- and we're -- I think we've advanced that model the most is in China for us. And we've built an advanced -- there's an advanced digital ecosystem that's tied to e-commerce in that market. We have a very innovative model that we've pioneered in China, very AI driven. So for example, this year on our femcare business, Kotex in China, we'll produce over 4,000 ads this year, Michael. And obviously, we couldn't do that if we weren't using AI, right? So I think it's -- there's an advanced model, but also it's become very scientific. I started my career in direct response marketing or mail order in direct response, and it's become a little bit more like that, right, where it's almost like a CRM relationship with consumers. And that's why we feel so confident in our investment and our spending. So that's 1 big piece. You kind of mentioned the award. I had to -- before our last earnings call, I had to learn how to pronounce, Cannes. I think how -- this is -- it wasn't a big focus of mine. And for the prior 5 years, I think we had picked up maybe 5 or 6 Lion Awards at Cannes in the past. We won 11 this year, so more than doubling our 5-year cumulative total. And what's changed with us there is we wanted to get great brand love. We brought in a new Chief Growth Officer, Patricia Corsi, who kind of brought this language Cannes, brand love to us, and we've in-housed a lot of our creative talent. And doesn't mean we make all of our ads internally. In China, we make most of our ads internally, but we have brought in creative people that were chief creative officers of major agencies. And in fact, our head of creative is probably the most awarded chief creative officer in the last 10 years. And so because of that, I'd say what we're trying to do is create advertising that both expands the category, but also demonstrates how our products improve wise in a, I would say, a memorable and charming way. And the examples I'll give you is, I'll tell you a funny story, we got called down by our largest customer. "Hey, you got to come to this important meeting, we want to meet with you all," sort of stuff. And so we get down there, and they're like, "Well, we want to know what's going on in the category." And we're like, "What's your concern." They're like, "Well, it's growing like more than we thought." And they said, we took it all apart. We've analyzed this. And the only thing we can figure is it's your advertising, right? And so the other point was do more of it, right? And so that was on adult care, right? So if you've seen we have a couple of campaigns in adult care, in childcare. Internally, we say we want to crush the stigma associated with some of these categories, right? And so on Poise or Depend, right, there's a stigma associated with using the product. And what we're trying to do is normalize the condition. So we've worked with Katherine Heigl, the actress from Grey's Anatomy to kind of -- and her -- she likes to talk about with her friends, the giggle dribble, because really women start leaking in an earlier age than people think, right? It typically comes with childbirth, right? And so normalizing that condition is helping expand the category. We brought in Emmitt Smith and Deion Sanders to talk about prostate cancer and -- because that is what drives kind of leakage for men, right? And so that's grown the Depend category. And then with GoodNites switches, the bedwetting garment that we have, we brought in astronaut, Scott Kelly, right, and demonstrating how astronauts use products like Depend because they have nowhere else to go when they're in space. So I think that is doing a great job expanding the category for us. And then the other side of it is we say, "Well, let's also talk about how our products improve lives with some, I would say, charm and memorably. You could probably see -- I don't know if you have seen, we have this diaper on Huggies called the 360 blowout blocker is the innovation. And if you ever had a baby, you will know what a block is, I won't describe it here, but it can be messy. And so if I want to tell you, hey, we made an ad to market the blowout blocker, the ad could -- in your head, it could be very gross, right? And I think our team has found a way to deliver that message memorably with charm fun and not gross. So I think our marketing is getting better. We think it's a real driver of the business and what our brands deserve.

It's a tight rope to walk. So yes, a nice job. Maybe just elaborating a little bit more on innovation. Can you maybe give us a sense of how you approach it, what kind of -- how robust your pipeline might be at the moment and a little bit of what sort of investments it takes to deliver that?

So the founding principle -- the #1 founding principle of the company, Michael, if you go back, and we have this all over our walls, and we have books at this, we make the best product. That's like #1 job for people at Kimberly-Clark. And so where we really rely on our engineering, our ability to make a better product. And so right now, I think why we feel great about the first half that we delivered is it's on the backs of great performing products. And so we feel like we have product superiority. Also at a very competitive or in some markets, we would say, at lowest cost. And -- so that's a powerful lever, and that's kind of where it starts with us. And the back story is we developed an innovative core, if you think about for diapers, but this can apply to the balance of personal care. We've developed an innovative absorbent core technology that we're the leaders on and still rolling out globally. And so that's been a driver of our current success. So we first launched this in China back in 2018. In 2020, we became market leaders. We rolled it to Korea and Australia back in 2022, and those were a little higher share in those markets. So we -- so our shares have grown from, let's say, the low 40s to the 60s. In that time period on the back of the technology. And then -- so that's all good, and we're in the process. We just launched it in the U.S. at the end of the second quarter and Brazil earlier this summer. So we still have plenty of opportunity to kind of roll out what we think is an advantage, absorbing core technology around the world. The other thing I'll say though, Michael, is we've been focusing our technology bets and concentrating them based on the insights that we've kind of defined. And so we have what I would call the next-generation core, the next-generation fiber that we're working on that's in the pipeline and in the work. So we're very bullish on our technology, and we've got set to roll out.

No, that's great color, and...

Yes. So investments 2 things, right, because we -- to take into account. The first 1 is how much we're investing in R&D per se, and how much we're investing in CapEx. R&D levels are pretty healthy. We're investing about 1.9% of our net sales. And we're driving a lot of efficiency, especially as we are implementing our Powering Care transformation, our new ways of working across the globe. CapEx wise, we've been stepping up investments, especially in North America and International Personal Care. We invested around 3.6% of net sales last year. First half of this year, we're up at 4.3% of net sales. And in the next few years, we expect to be more on the 6% as we drive particularly the transformation of the supply chain in North America behind some of the platforms as well that Mike was referring to.

One more quick 1 for you. First, just from a little bit of a handholding perspective for investors about any puts and takes over the next year or so from the IFP divestiture transition. And then would love to hear from you as well on just what investors might be missing on the Kimberly-Clark story, but we'll do a little housekeeping first and then hand it off to you to...

So housekeeping, I mean, let me start with kind of the categories because I think it's important to kind of give a perspective. Categories were growing -- have been growing through the first half at around 2%. We've seen some heightened especially in the last couple of months, promotional activity, particularly in diapers and some of the private label and in-house brands. That -- again, that's driving a subdued category in diapers. Recently, we're seeing 1%. So again, we're choosing not to participate in those activities that are happening in the marketplace. And there's some level of pantry loading as a result. So we expect some of our activities to move more towards Q4. So that's kind of thinking of the short term. As it refers to the transaction itself or any impact on financials, how to think about it, EPS-wise for 2025, 3 factors. First one, it will reflect our North America and our International Personal Care business, that's our ongoing operations. Secondly, it will reflect the 100% of our international family and professional business as discontinued operations, but still, we'll own it for the full year, so it will be in EPS. And then last but not least, it will be a onetime benefit of about $0.16 in depreciation and amortization because of the halting of the depreciation and amortization of that business. For next year, EPS growth, constant currency will reflect: one, and assuming that the transaction closes around midway through the year. The ongoing business or continuing operations of North America and IPC. And then we'll have to deduct any dilution that we'll have from the transaction once it goes live as well as the fact that we'll lap the depreciation and amortization benefit, which will be around 7 months in 2025 and around 6 months for next year. We will -- we're working through the plans to offset all of the stranded costs, which I referred to earlier, and we'll come back with that once we get closer to the transaction next year.

Yes. No, that's very helpful. Mike, could you just wrap up maybe how you see what -- how to think about the stock maybe some of what investors might be missing and any other closing thoughts?

Yes. Maybe the big thing, Michael, is I would say we're a better, more capable company than we were, let's say, a decade ago. And I think Part 1 and maybe this has been missing, we structurally reduced or eliminated our earnings volatility because of what we've done with the portfolio and our partnerships with our primary supplier, so that's part one. Two, just was articularly in innovation, we have a fantastic pipeline that the world hasn't seen yet. And that gives us confidence to -- our strategy and why we're doing well this year is we're cascading our best technology from premium tiers into our value tiers. And the reason we can do that is because we know what's coming behind it, right? And so we have more that we're going to be launching. So I think we're really excited about that. Nelson mentioned it, but we are in the very early innings of becoming world-class of productivity. So we delivered 6%, about 6% last year. We're on the path to high 5s, low -- around 6 this year, that would -- we would consider world-class. And -- but we're in the early innings because of our historical, I would say, more decentralized approach to cost management. We're getting much better leveraging scale. So there's a long runway of productivity ahead for us. And then the other thing I talked about the world-class capability, but I would say that's all packaged together in what I think is a little different in our industry, which is a lean and fast operating model. We are very market centric. We're very nimble and agile and everything we're doing from a corporate perspective is we're working to help win in the local markets, and that's our job. And so I think we're very bullish on our future. We'd love to get investors bullish, too. So thank you for the time, Michael.

Thank you for being here. I appreciate your time. I appreciate all the thoughts and color, and thanks, again.

Thank you.

Okay. We're going to get started. Next up this morning, we are excited to welcome Kimberly-Clark to the stage. We're joined by a whole collection of people. We've got Mike Hsu, Chairman and CEO; Nelson Urdaneta, CFO; Russ Torres, President and COO; and Chris Jakubik, Head of Investor Relations.

Before we get into our Q&A session, Mike, I know you wanted to spend a moment discussing progress against your strategy, the timing of Russ's appointment to his new role. And Russ, it would be great, if you can spend a few minutes talking about your background, broadly what's changed during your time running North America and also the new leadership appointment in that division.

Sounds great.

Okay.

Okay. Thank you, Lauren. Good morning, everyone. Yes, I just wanted to make a few brief prepared remarks. I did want to open discussing our strategy that we laid out at our Investor Day 18 months ago. Powering Care. Powering Care is powering our results. We've taken big steps to transform our portfolio. We're exiting the private label diaper business and entered into a venture with Suzano to jointly operate our international tissue and professional business.

We're making strong progress, but we're just getting started. We're building strong momentum in each area of our strategy. We're transforming into a pure-play personal care and wellness company with $6 billion global brands and leading edge capabilities. We've developed deep knowledge of the unmet needs that matter most to our consumers in our categories. We've developed a multiyear pipeline of proprietary pioneering innovation to expand our categories.

The world is just getting to see this new to category innovation and our strength and brand propositions at every run of the good, better, best ladder. Now to optimize our margins, we're beginning to leverage our global scale to unlock a higher level of efficiency gains. We're on track for another year of gross productivity of nearly 6%, which will continue to support strong reinvestment and profitable growth.

In terms of wiring the organization for growth, the next phase of our strategy is focused on bringing our global expertise and proprietary technologies to every market as fast and effectively as possible. To accelerate our transformation, we elected Russ Torres to President and Chief Operating Officer earlier this year, and I'm delighted to have Russ here today to share his perspective on our strategy and our transformation. So Russ?

Thanks, Mike. Thanks Lauren for having us.

For those I haven't met, my name is Russ Torres, I'm the President and Chief Operating Officer of Kimberly-Clark. I've worked in the CPG industry for 25 years. And my experience is mainly centered on transformation, first at Bain & Company and then subsequent leadership roles at Mondelez back at the time it was split with Kraft Foods and then most recently at Kimberly-Clark in the North America business, leading the $11 billion business, which is about 2/3 of Kimberly-Clark's revenues.

Going back to 2021, when I took over the North America role, the mission was really to transform the business from a cash generator to an engine for growth and margin expansion. I'll talk a little bit about the things we did and the results to date. Our focus was on building an organization and culture that's capable of delivering sustainable top-tier growth. And we really focused on 3 key areas on the left-hand side of this slide.

First, meaningfully accelerating marketing and innovation. And just some points to back that up, we tripled our forward-looking innovation funnel. We've significantly upgraded our marketing capabilities and the effectiveness of our programming. And we expanded and premiumized our categories. And one example of that is diapers and facial tissue. If you look back in time, the premium segment made up about 50% of the category back in 2019, and today, it's 70% of the category.

The second big thing on the left-hand side there is productivity and revenue growth management to drive margins. We accelerated productivity significantly. We've got a lot more runway ahead, and we put strong focus on improving mix and revenue growth management. And the third big thing was really building a world-class commercial execution engine. In digital, for example, e-commerce has expanded to more than 25% of our consumer sales. We have a 125 share index versus our U.S. national share. And we really transformed the way we approached our retail partners from being transactional to strategic.

And one of the things that really enabled this progress that most people really don't appreciate is the decision we made in 2021 to move our commercial headquarters from Neenah, Wisconsin to Chicago. This enabled us to attract high-caliber talent in specialist areas like digital, social, revenue growth management and brand building.

In fact, about 70% of our commercial team members are new to K-C in the last 3 to 4 years and sourced from top-tier companies. We really are a new Kimberly-Clark. And the payoff on the right-hand side has been accelerating growth on both the top and the bottom line. In fact, since 2021, we delivered 4% net sales CAGR and transitioned to consistent volume and mix growth with sequential improvements over the last couple of years. And as of the second quarter, we're gaining or holding share in 7 of our 8 consumer categories, led by our Personal Care segment with a weighted average market share gain of 60 bps.

And from a profitability standpoint, in the past 2 years, we delivered 300 basis points of improvement in operating margin, while improving our marketing spending by 33%, increasing that by 33%. And then lastly, from a commercial execution standpoint, we have been ranked #1 in the Advantage survey across all of the players in consumer products for an unprecedented 3 years running in the U.S., and we're very proud of that because it reflects our progress.

And that said, while we're a very different business today, we're still in the very early innings of our potential, and there's a lot more to do. So because of that, we're excited to have John Carmichael, who's joining us from Nestle to head our North America business in my old role. John brings decades of proven CPG leadership experience and his decision to join our team underscores the strength of our strategy and the tremendous potential ahead. So with that, I'll turn it over to you, Lauren.

Okay. Great. Thank you so much for that. Notwithstanding these long-range comments, I wanted to start near term and talk a little bit about the consumer environment and organic sales growth. So first, just Kimberly-Clark is one of the few companies that's been putting up positive volume mix growth, while most other companies in HPC trends are kind of flattish. So just what are you seeing with your consumers that is allowing you to have that kind of performance?

Yes. Obviously, Lauren, yes, good quarter, second quarter, good year-to-date performance. We're encouraged by that performance. We still see plenty of room to elevate and expand our categories. And that's kind of the strategy that we've been operating under. #1, it's clear consumers want better performing products and are willing to trade up for them. Just to give you a couple of factoids. I think when I joined the company, our North American diaper business was 40% premium.

Today, it's well over 70% premium, right? So there's been a big shift there. China in 2019 was 6% premium, and that's gone -- grown over the last 5 years to 42%. So there's been a big shift in nearly all our markets to premiumize, and that reflects that the consumer demand for better performing products is there. So we're excited about that, and we still think there's a long runway. We'll get to innovation, but there's a lot of good stuff coming that will drive that further.

I think part 2 is that there's a long runway of category development in D&E. Our categories. We see that our categories, because of the high frequency of use and the long duration of use, it requires about $4,000 of annual income for a household to participate fully in our categories. And as you're well aware, in the markets like Indonesia has just gotten there. India is still coming. I think we believe we're still in the early stages of development across D&E markets.

And so we're excited about that. But the last thing I'll say, and this probably affected our results year-to-date, probably the most, which is -- our strategy to cascade our innovation across all of our tiers good, better, best, is really what's driving our growth this year, and we're really proud of that. I think we've been focused we could see Lauren coming from a couple of years ago that consumers and developed economies like the U.S. were going to be -- their pocket books are going to be tight.

And so we did pivot a couple of years ago to make sure that we are sharpening our offering, not just in premium, but in the value tiers as well. And so I'd say those are the big things. But maybe I think Russ would probably like to comment as well.

Yes. I would say we are seeing the consumer being under pressure and we don't really see a catalyst for that to change meaningfully in the near term around the world. But that said, to Mike's point, our strategy has really been meeting consumers where they need us at every tier and driving innovation and new benefits in the category. In terms of the numbers, our category growth rate in the second quarter was around 2% weighted average globally. So kind of in the zone.

And so we don't really see a reason to evolve our strategy. We're going to continue to invest in the second half of the year in our programming as well as driving innovation and new benefits to help meet consumers where they need us and drive premiumization.

Okay. Great. I guess at the Investor Day in March of '24, medium to long term, you talked about expectation of categories growing in the 2% to 3% range. And Russ just said, we're around 2% right now. But the algorithm is to outpace categories. Can you just expand a bit on the drivers that 2% weighted category growth that you're seeing now? Like what gets the market back to 3% at the higher end of that range?

Yes, I can comment on that, certainly, others can weigh in. But I think it is running the play, and we're seeing this around the world of driving new benefits, new occasions, innovation, premiumization and really expanding out every tier of the price spectrum. And so it really comes down to that.

Let's switch to innovation. So when you're talking -- you just mentioned good, better, past. You've talked about stepping up the pace of innovation across the 3 tiers. And you've also discussed focusing R&D and innovation efforts on problem areas that face consumers. So comfort, skin health, absorbency as examples. I just want to talk about what the output of that should be? Do we expect to see a higher frequency of new product news? Or is it the impact of innovation should be greater? Is it a fewer, bigger, better approach? Or is it more?

Both, right? And I'll click back. And I think our confidence in our innovation Lauren, is really what leads us to ahead of category growth, right? And that's kind of our mindset there. But I would say, when I say both, I guess I'm not really joking. And I think maybe what you should see is an accelerated pace of category changing innovation, Internally, Chris, I'll say, the internal language I use is you're going to see an onslaught of innovation. We don't say that externally because I don't want you to think we're crazy, right? But that's kind of how we think about it inside, right?

And what's working for us right now this year-to-date, I talked a little bit last year at Investor Day, hey, most of the industry and diapers or personal care is on this Gen 2 absorbing core. I won't get into all the details there, but we rolled out a Gen 3 core in China in 2018. That's why we've -- we've taken over market leadership in China. We're now about almost just under a 20% share, which is almost double #2, right? So I think we have a better mousetrap on the Gen 3 that's also driven our success in other markets like Korea, Australia. It's come to the U.S. this year, Brazil this year as well. So we think we have product superiority on the Gen 3 core for Personal Care.

I think -- we're able to produce that, we think, at a very, very competitive cost in some markets, the lowest cost. So that's kind of the starting point, which is a great product now, but we have stuff the world hasn't seen yet, that we teased last year at Investor Day, a Gen 4 core, a Gen 5 core I talked about our vision to be natural forest free. So we've got a lot of, I would say, category-changing innovation in the works.

Russ, you may talk Russ into sharing slightly more about that, but I'll let Russ decide it.

Sure. Yes. Just to underscore something that Mike mentioned is just a level set. Product performance is really important in our categories there everyday categories. And you might ask, why are you working on a Gen 3 core or Gen 4 core. Well, if I were to tell you what percentage of the -- of diapers actually leak any idea?

No, but probably all of them. Well...

You all know, it's in the high mid-single digits, the category. So if you think about that for a category that's been around for this long to still have kind of 1 in 20 times, mom or dad putting a diaper on a baby to have a leak occur. It's not that good. There's still tremendous room for improvement of performance in the core.

And so that's why our focus on innovation is really important. Mike mentioned a couple of things. I'll expand on those. The next-generation core he's talking about is really a much thinner proprietary technical advancement that allows us to create significantly thinner absorbent cores with the same or better absorbency, and you can imagine what that does for both base core protection as well as comfort and flexibility and the other things that are really important to people across personal care, babies and beyond.

And the other 1 that Mike mentioned on the new to world fiber is something we've been working on for a long time. And this is the history of the company. So we get excited about it. Mike under his leadership has really fostered a focus on these types of scientific breakthroughs, but new to world Fiber that not only is more sustainable at an accessible cost and will help us achieve our Forest free fiber commitment by 2030, but also delivers superior performance in the tissue segment. So these are the types of things we're working on that over the medium to long term we're going to start really impacting how we bring new benefits to the consumers in our categories.

Okay. Great. And just in terms of absolute investment levels, do you need to increase R&D spending? Or can you deliver the onslaught of innovation at the current rate of spend?

We're going to let Nelson decide.

Yes. So when we think about R&D, we need to think of investments in both what we spend in R&D and what we had spend on CapEx. In terms of R&D spend, we have a healthy level of spend at around 1.9% of our net revenue. And we've been becoming very efficient on every dollar that we deploy, as we have been driving the wiring of the R&D organization into our new operating model. If you then go into our CapEx investments, we have been stepping up our investments over the last few years, particularly our North America business and our new IPC segment, which we launched last year.

As of 2024, our investments in CapEx were around 3.6% of net sales. And in the first half of this year, that was about $4.3 million. We expect to step that up to around 6% in the next few years as we drive the transformation of the supply chain, particularly in our North America business, where we had some big announcements a few months ago.

Okay. Great. Let's switch and talk about advertising. So Mike, last year, you talked about a desire to have Kimberly get better at in your words like storytelling to increase consumer affinity for your brand. You talked about the can awards, it's the 2Q earnings call doubling the prior 5 years worth of awards. So maybe you can talk a little bit about where you think the company is on that journey type of return you're seeing on that advertising investment? And then with the recast financials after the Suzano JV, advertising is at about 7% of sales. So is that the right long-term level for the company?

Yes, we're making great progress on the advertising. And I think we are accelerating our ability to be better storytellers. And I think that was a big need for us, huge progress. What we're trying to do, Lauren, we want to create brand love by showing consumers how our products can improve their lives. And so that's really our focus. I'd say over the past 5 years, I think we -- we've increased our advertising investment by $500 million or $600 million, right, in the last few years.

But I would also say that's also come with higher ROIs because we've almost shifted to almost 100% digital, Lauren. And that digital for us is a powerful model. And maybe our most advanced model in the world is in China, where it's almost like a CRM model and it's an incredibly efficient spend for us. And the data is very, very good in helping us optimize our investing. So I'd say, we've developed advanced models in markets like China, Korea, we're bringing those to markets like Brazil and Indonesia right now.

It's also influenced and Russ can talk more about this, how we've adapted that for the U.S., right? So I think we feel good about kind of the investment and then how we're executing against it. The other part that's equally important is this notion of brand love storytelling. I mean brand love is not a phrase that people in K-C heard me walk around saying much because I'm not wired that way. But it's something that I would say Patricia Corsi, our Chief Growth Officer; and Luiz Sanches, our Chief Creative Officer, have kind of brought that language to us and also made us at the leadership level, understand how important that is.

And so I'd say what we're trying to do there is talk about the benefits of our products in a memorable way that consumers get and like, right? And I think that's kind of behind some of the wins that we've had at [ Con ] this year. And I couldn't even pronounce [ Con ] until I heard that we won some awards. So I think that's where we're going. And then the unique feature, which I mentioned on the call is we've in-house creative capability. I mean, this year, we'll make 4,000 ads for Kotex in China. Obviously, a lot of that's AI, all done in-house.

Luiz is our internal Chief Creative Officer. He's probably 1 of the most awarded advertising agency chief creative officers in the world, right? And so having that kind of knowledge in-house has kind of changed how we think inside and also dramatically improving our execution in the markets. And so maybe Russ may want to talk a little bit about that because he's been through some of it.

Yes, sure. I can give you a few examples to bring it to life of what Brand Love really means. If you think about Luiz and Patricia have helped us work on this, in the area of crushing the stigma, the Goodnights campaign with astronauts, we talked about in the second quarter call is 1 example. The other 1 is the poise giggle dribble, where the insight there was it's a stigmatized category, but a lot of people don't realize that leaks are a natural consequence of childbirth.

And so, we really highlighted that with -- in that campaign and normalized it with humor. And those have been very successful in growing the category. Another example that those of you who have kids may relate, it's the Huggies you may have seen and it started in the second quarter with the NBA Star Giannis and his real-life daughter, and he was doing basketball moves, and she's mimicking her dad. And anyone who's got -- who's got a child knows that, that's like a really touching moment as a parent and really creating that emotional connection that illustrates the product benefit of little movers being able to move with the Giannis' daughter. That really helped us a lot. I think that was part of the reason why Huggies gained 160 basis points a share in the second quarter. There's a lot of other reasons. But -- and then the last 1 I would have...

Russ, Nelson and I would naturally not start with Giannis as a spokesperson for Huggies, evidently is working.

And Kleenex is 1 more. I'll just give quickly because I think the insight there is that when you give a Kleenex to someone that's an act of care. And by highlighting that an example being we had a series of seasonal efforts on that of when mom is dropping her son off to Kindergarten for the first time. And she brought Kleenex for him that she ends up crying and then you get sort of the Kleenex. Those types of moments.

Again, that really creates a connection that makes people realize the role our brands play in people's lives. And that also led to growth. Kleenex has grown almost 8% in the last year and the advertising is a part of that. So these are examples of how it's really coming to life. And I'm excited because I think we're just getting going.

And in terms of -- just to add, in terms of investment levels, I think it's important to highlight that since 2018, we have pretty much doubled our advertising spend. And the run rate that we're projecting for our ongoing operations is right around that 7% level as you stated. We feel that our investment level is healthy, to your question. However, when we see the opportunity to invest more, we will. We did that in 2024, when we stepped up our investment in the back half and we're planning to do so in the back half of this year as we stated in our latest earnings call.

Okay. Great. Russ, I wanted to talk a little bit about you taking on the COO role. I think we're talking earlier that you've just come back from an extensive road trip to visit some of your larger, higher-growth IPC markets. And you already obviously know North America really well. So -- could you talk a bit maybe about your biggest focus areas for change in your top 3 priorities for the next year?

Yes. I'd summarize it by saying it's performed while we transform, Lauren. And so I think we're really focused on getting the wiring right around the world so we can execute today, while setting the foundation for the future. And that's what I saw in my trips. It was very exciting and energizing to see the speed with which the best of K-C is traveling around the world, both in terms of product innovation or creative ideas or storytelling and that really came to life. And so that's really our focus is trying to make that happen.

Portfolio. So between the PPE and private label exits now the IFP JV with Suzano, a lot to reshape the portfolio, really accelerating the historic sort of path of really accelerating in the last few years. How should we think about further potential changes going forward? Whether it's North America tissues come up, I think, a bit, professional comes up, any other parts of markets or portfolio that we should be thinking about as you continue to transform.

Yes. I'll say a couple of comments on portfolio, which is, 1, why we did what we did. There's 2 things about it. 1, we wanted to focus greater focus on higher growth higher-margin categories, personal care. And the second thing is, Lauren, and going to be well aware of this, we really needed to structurally reduce/eliminate our earnings volatility associated with fluctuations in fiber costs. And so I think we've accomplished both through this last transaction or a venture with Suzano, right? So now our portfolio will be 2/3 personal care and we're excited about that.

To your question, there are other adjacencies we may be interested in, in the future. We think we have great, have developed great capability that could be applicable to other categories. But Nelson will keep us disciplined and focused on delivering the right shareholder value, right? So we're going to be selective about that. I think the other part, and it was very, very important, and there was a fundamental issue for the company, when I became the CEO was our earnings volatility was far higher than our peer set.

And the whole driver almost all the driver was fluctuations in fiber costs, right? And so you could see with this transaction, the IFP team is super excited because, you know what, under this venture, they're probably not going to have very much variation in fiber cost, right? And they're partnered up. We're partnered up with someone, who provides, we think, the lowest eucalyptus costs in the world, right? And so that's part 1. I'd say that the JV also, so it structurally reduces the volatility of the IP -- IF -- International Family and Professional Business, but also as the nature of the joint venture with us, it gives us great visibility into our cost for North America as well. So we're really excited about that.

And then as we develop these other fibers that Russ has talked about, we would expect over time, our volatility related to fiber will approach 0. So we're really -- I think portfolio moves are pretty strategic issue for us, and we're making great progress.

Okay. Great. Let me North -- looking at the time. Let me ask about IPC and enterprise markets. So China and North America have been the lead markets for some time. And so there's really opportunity, I would think, in the other 4 focus markets and some of the smaller enterprise markets. When should we expect to see the strategy that you guys have been discussing really take hold in the other markets?

Are there any particular categories or countries where you're putting particular focus that are closer to that inflection point, where we can see the strategy come to life.

Yes. Yes. I will say it's happening now. So the new operating model that we rolled out that we talked about at Investor Day, it's bringing the best of K-C to all markets faster than ever before. So Russ went on this global tour. He was in Asia with Nelson for a few weeks. And so I hadn't seen him in about a month, even though our offices are next door to each other. And so we were meeting [ Anina ] with the whole leadership team 2 weeks ago. And so as we were coming in from breakfast, I said, "how was the trip?"And he said, Well, you can tell them what you said, Russ.

I said it was phenomenal. It's inspiring just because you could really see the progress that the markets are making. I'll give you an example. Australia moving heavily in the right direction. South Korea, Brazil, we gained share in the second quarter in diapers in Brazil. So you're starting to see those quality improvements, the pulling products from other markets, the creative and storytelling execution, pay off. We still have some work to do in parts of Southeast Asia and Latin America, but we are seeing, for example, our enterprise markets, our volumes are headed in the right direction, and we're hoping to get to flat to positive in the second half of this year. So you're starting to see all these actions really start to have an impact.

Okay. Great. North America. So we've been seeing than non-measured channels. And it really depends on your data provider what you're seeing. So maybe you could just talk to us about sort of the share gains in North America, what we're seeing in terms of channel mix, e-comm and club versus innovation and marketing being the drivers. I think those are the 2 kind of the spectrum.

Yes. And I know we're short on time, so I'll be relatively brief, but I would say a few things. One is we're -- when I said we're trying to meet consumers where they need us, that includes channels. And so the consumer is migrating to e-commerce and club and it's happening, it's lumpy and it's volatile, and it moves fairly swiftly, but there's a lot of growth happening there. And so if you don't have those in your models, it's really important to factor those in, as we think about that.

So you mentioned the performance and how much that's linked I'd say it's very broad-based in North America. If you look across the portfolio in the second quarter, we gained or held value share in 7 of 8 categories and 8 of 8 in volume. And that's really a combination of things. It's the execution of innovation, it's the storytelling, it's the advertising and it's executing well in the channels where consumers are going, including e-commerce and club. And so we're really trying to serve consumers on a broad-based standpoint. I would also just highlight that in the third quarter, we did see fairly significant competitive promotional activity on the part of retail private label and some of the newer brands that are entering the market that drove pantry building.

And so as we're kind of progressing, that's caused it to reflow some of our programming into the fourth quarter. and kind of balance things, but we feel good about our position in the medium to long term in respect to those channels and where the consumer is shopping.

Okay. the outperformance at Costco, I just -- 1 thing I wanted to ask you guys is the risk that Costco actually improves our private label. Because I think a big area of share gain for you guys has been at Costco and you have exclusivity. So what's the risk that they upgrade their private label?

Yes. I'm sure they're working on those types of things. And as I said before, we're really focused on providing the best value propositions we can on all tiers. And we like our chances because of all the things we're talking about in terms of the innovation funnel and those types of things.

Okay. Let's talk about productivity. So at the Investor Day, like 18 months ago, you established a $3 billion productivity target. $200 million SG&A and then aspirations for 40% gross margin and 18% to 20% operating profit margins all by the end of the decade. How do these targets change in light of the IFP business moving to discontinued ops and then eventually into the JV?

Yes. So we remain committed to our long-term algorithm in our ongoing operations. In fact, we are tracking ahead of our $3 billion 5-year gross productivity program as we speak, as well as the $200 million of SG&A savings. We've been developing very strong capabilities on the productivity front, and we expect to continue to deliver at what we expect to be world-class levels for the foreseeable future. Leveraging our integrated margin management approach, our new ways of working as well as our renewed focus on costs for the long term.

Having said that, a couple of things. We expect every single 1 of our segments, including IFP to deliver at least their fair share of the savings. When the joint venture goes live sometime next year as we expect, we expect to continue to benefit from the savings that they'll generate. And in fact, we should see some further benefits as Suzano brings to bear their operational excellence and their fiber expertise, as Mike was sharing before.

I would like to note that as we shared in our recast financials, we will be managing through about $150 million of stranded costs related to some shared services and global supply chain costs as well as some of our unallocated corporate overheads. We have plans that are being developed for us to be able to deal with those costs in the immediate years after the JV goes live sometime middle of next year. We have the conviction that we'll overcome that over time, and it's -- it will be shared with you guys over the next few months and early next year as we get closer to the closing of the JV transaction.

Okay. And if we can just wrap up with 1 more financial question, maybe it's a little housekeeping, but important. How should we think about the earnings base for the base for earnings growth into '26 and '27, given the JV the recast 8-K and the long-term algorithm kind of to levels that have 1 should be built in their models for '26 and '27?

So a couple of things. One, we are seeing the benefits of our more focused portfolio coming through in our P&L. And the benefits of us having a renewed focus on our science-based technologies and right to win spaces. We expect our ongoing business, as I said, to grow in line with our long-term algorithm for the foreseeable future.

For 2025, simplistically, 3 factors to take into account as you look at EPS. 1, it will reflect our ongoing business of IPC and North America. Secondly, it will reflect the 100% of the earnings of our IFP business because we will continue to own it this year. And then lastly, there will be a onetime benefit of about $0.16 from having hold to depreciation and amortization on our discontinued operations, which started as of June of this year. As you think about '26, '27, EPS on a constant currency basis, assuming that the transaction closes midway through next year should reflect a couple of things.

1, our IPC and North America business ongoing operations growing at our long-term algorithm. And then we will need to take into account the dilutive impact of the transaction as we go through it, as well as the lapping of the onetime benefits from the depreciation and amortization by having halted it for the discontinued operations, which will be about 7 months for 2025 and at about half a year or so, assuming that the transaction closes midway through next year.

We are working through the plans, which we will share as we get closer to the closing of the transaction and what the dilution would look like through the periods as well as the mitigation actions, and we will keep you fully abreast of that as we get there.

Okay. Great. Okay. So I think we're going to break out or no break out.

I think we're doing...

Yes. Okay. Okay. So please join me in thanking Kimberly, and we're going to move to a breakout session.

Good morning, and welcome to the Kimberly-Clark Second Quarter 2025 Earnings Question-and-Answer session. I will now hand over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Good morning. 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 hand it over to Mike for a few opening comments.

Okay. Thank you, Chris. The second quarter was one of the strongest and most active in our recent history. Our results are indicative of the excellent progress we're making in executing power in care. We accelerated momentum on the top line and delivered solid organic sales growth, fueled by our strongest line quarter in the last 5 years.

On a global basis, we gained weighted share and made significant share gains in several key categories in our largest markets.

Now regarding our top line momentum, I'd like to emphasize three points. First, we're energized by our progress in China and the early returns on how our playbook is being applied globally. Second, we believe it's important to meet consumers where they need us. Our strategy to deliver exceptional brand propositions across the value spectrum is paying off. Consumers seeking better value or trading within our portfolio, and we're delighted to retain them within our brand franchises, as you can see in the U.S. standard data. Third, our performance is driven by excellent commercial execution, superior innovation and strong investment to differentiate our brands.

We delivered another quarter of industry-leading productivity, enabling us to reinvest when and where we see opportunity to support profitable growth. Our organizational rewiring is enhancing our agility. We're bringing the best of Kimberly-Clark to the world faster with better consumer solutions and lower product costs. We also took decisive action to focus our portfolio.

We're confident our joint venture with Suzano will unlock the full potential of international family care and professional. For Kimberly-Clark, it enables laser focus on our higher growth, higher margin North America and International Personal Care businesses.

As we enter the second half of the year, we expect to continue performing while transforming. We're realizing the vision of a refreshed and refocused Kimberly-Clark. We're confident in our ability to deliver consistent top-tier growth. We have great opportunity ahead of us. We will continue to enhance our capability to provide better care for a better world and create value for our shareholders. So with that, I'd like to open up the line for questions.

[Operator Instructions] Your first question is coming from Nik Modi from RBC Capital.

Maybe you could just talk about, obviously, a very strong quarter within the context of what's been going on pretty broadly across the space. So just kind of two questions like any more specifics in terms of really what drove this level of outperformance. But more importantly, given everyone is kind of moderating their expectations for the back half of the year, and you guys obviously are suggesting otherwise, what's give us the reasons to believe on why we should feel comfortable with kind of the outlook in the back half?

Okay. Thanks, Nick. Great question. There's a lot to unpack in there. Maybe I'll start with hey, how do we see the state of the consumer. One, you could see in our approach overall that we've been talking about for a few quarters now. Our approach is to meet consumers where they need us. right? And so that's kind of our starting point. I'll talk about maybe how we're seeing it and maybe with a tilt toward North America, but I do see purchasing power under pressure, right, for consumers. And frankly, we don't really see a catalyst for that dynamic to change in the near to medium term.

So for us, that does affect kind of the categories. However, I'll say the other thing that we've talked to you about our categories is they are essential. There's not a whole lot of substitutes for our products. And so because of that, demand remains resilient and the categories continue to demonstrate durable growth, right? And that's kind of a big deal for us. And I think that sets our categories apart from maybe what you're seeing in some of the other categories.

If I just click through a couple of areas, I'd say definitely North America would exhibit durable growth. We're seeing penetration and frequency stable. Obviously, the bifurcation trends are continuing. But I think your question about, hey, why did it perform better than maybe what some expected is we took on this approach. I think you will start doing this last year, which is, hey, we want to have a great value proposition in every tier of the good, better, best ladder. And so we've been cascading some of our best kind of product features to our value tiers. And I would say, if you looked in the quarter, what's driving our demand is the innovation. So I think we feel good about that.

I'd say in international markets, we have seen some frequency declines notably in I would say, more informal economies where pay is less stable, like in Latin America, we've seen that occur. But in international in our larger developed markets, we are seeing demand continue to be fairly stable. So we feel good about our progress through the first half.

And then, therefore, I think your question about the second half, what gives us confidence I think we feel great about our pipeline. Again, I think the vast majority of the growth we've delivered in the first half has been driven by innovation. I think I said in the script, in the prepared remarks, 85% of our organic sales is driven by innovation, right? And so -- and a lot of that is just hitting in the second quarter. And so we expect to continue to perform as we go through the balance of the year because we have great innovation at the premium tiers and at the mid-tiers to serve our consumer as well. So again, we expect continued strong performance through the balance of the year.

Your next question is coming from Lauren Lieberman from Barclays.

I wanted to just talk for a second, Honan, in particular, on North America. Performance was so strong there this quarter and really was quite different than what we saw in scanner. And I had actually expected the professional business to be a drag on performance, so kind of going the other way versus scanners. So wondering if you kind of square that for us a bit? And then also, I know you just spoke to Nick about confidence for the balance of the year. But I was curious about pacing. There was a bit of noisiness in the second half last year. So just anything you can share on phasing in the back half would be great.

Yes. Maybe No, I'm going to pass it over to Nelson. But I'll just -- my overall is on pacing when you're thinking about comps, there's a lot of noise in the year ago, and there's noise this year, too. So when you think about comps, there's just a lot of choppiness going on in the numbers. So right.

And I'll seek to unpack that, Lauren. So a few things. And I'll on and on North America. In both scanner and reported results, I mean, we're seeing building momentum from a strong pipeline of activations and innovations that are winning with consumers across all the value tiers. .

In Q2, in particular, shipments in North America consumer were about 100 basis points ahead of consumption, which was at 4.5% branded consumption. This was driven by a tailwind in retailer inventory shift, which are made up of two things: One, we're lapping prior year destock that we saw in Q2. And then we had a little bit of pipeline build this year related to some of the innovation that we've been putting into the marketplace and Mike just talked about. This amounted to about 110 basis points at the enterprise and about 170 basis points for North America. This was partly offset by lower private label shipments outside of the private label diaper contract that we exited in Q1 of this year.

And what this is driving is about 60 basis points of impact to total company and to North America, about 1 point in the quarter. Now as we think about the first half, shipments actually lagged consumption. And that was about 60 basis points when we think of the enterprise. Firstly, we're facing lower year-on-year North America private label shipments outside of the private label diaper contract that we exited, and we've been highlighting over the last couple of quarters. And this was again about 60 basis points of impact to the total company organic sales in the first half. And about 1 point to North America.

Secondly, this year, there's 1 less day of shipments for the first half. whereas scanner data is apples-to-apples in terms of days, weeks versus the prior year. And this represents about 50 basis points of impact to organic sales at both enterprise and whatnot, and then in North America. And then this was partially offset by the tailwind from retailer inventory ships in North America, which was about 50 basis points on the enterprise and 80 basis points for North America.

In terms of what to expect or how to think about the balance of the year, a couple of things and building on what Mike said. We have a strong slate of new product and go-to-market activations and innovations that has been ramping up as of Q2, and we expect to have that continue into the second half. And that will not just be in North America, but across our different markets in International Personal Care. And this will be helping us drive or sustain a volume mix led growth in the balance of the year. Consistent with our long-term algorithm, I mean we're continuing to target a growth for the balance of the year, that will be volume mix led.

Currently, our categories, when we think of North America and International Personal Care are growing at a weighted average of around 2% and that's consistent with what we saw back in April. But remember, in April, when we talked about 1.5% to 2%, that included our discontinued operations. So this is solely for the North American combined.

From a quarterly perspective, year-on-year, the third quarter and the fourth quarter will be driven by the year ago comparison as much as anything else. Q3 will be the easiest of comps versus prior year. There's about 30 basis points of tailwind at the enterprise level. And 50 basis points of tailwind in North America from the hurricane impacts on our shipments at the very end of September of last year. Which were recovered in Q4 as we spoke in January.

Then as we think of the fourth quarter, last year, we also saw the benefit from panic buying due to the port strengths, which was about 40 basis points of benefit in the quarter for the enterprise and 60 basis points of benefit for North America. The combined impact of the hurricane and the panic buying will result in about a 70 basis point headwind to Q4. But overall, we're expecting to maintain a solid volume mix driven organic growth in the second half and for the full year, leading category growth. But as you can see, as Mike pointed out, there's little bit of noise and wanted to unpack that. So you can have the details.

As you get all that, Lauren. Sorry, we're throwing a lot at you. Can I just lob in the one. I'll go back to -- sorry, but Nelson is loaded prepared here. But the -- here's -- where you started, strong performance in North America, underlying driver, great innovation I think, really strong improvement in our marketing. And then I would say the customer plans are as good as the innovation. And I think we're top rated an advantage. I think we're working exceptionally well to customers. And so that's kind of what's driving it. And I don't see what data you're looking at. And I should probably try to reconcile that. But North America, as Nelson mentioned, consumption in the second quarter was up 4.5%. The range of our categories was from, I would say, low single digit, and that would be like back tissue around 4%, low single digit to up to near double digit in adult care. So I think consumption remains robust in our categories or as I said earlier to Nik, the consumption is very durable in our categories, and that's really driven by, I think excellent innovation and excellent execution.

Your next question is coming from Steve Powers from Deutsche Bank.

All right. Good morning, everybody. Thank you. So Nelson talked about volume mix led growth in the back half. So I wanted to kind of talk a little bit about the pricing environment in your pricing outlook. On the one hand, if we think about what we've heard year-to-date and through the second quarter, I think we've heard and we've seen pockets of increasing promotion competitive activity in certain areas, particularly in the U.S.

On the other hand, obviously, there are inflationary pressures building indications that we should see some kind of pricing rolling through as we move through the back half into next year. So I guess in that context, just your overall assessment of competition, your pricing outlook for the balance of the year? And any expectations or considerations you have just for customer and consumer acceptance of that incremental pricing it gets to come.

Yes. I'll start, Steve, with -- I'll say our overall kind of philosophy on this is right now, we're really focused on driving volume and mix but we have to maintain PNOC or pricing net of commodity we have to have discipline on that, right? And so our approach is that PNOC, pricing net of commodities has to be 0 or greater, right? And so that's kind of what we're trying to -- that's kind of our overall approach. And so we've continuously deployed I would say, targeted revenue management actions across the board. And so in some cases, we have taken pricing earlier this year in some categories.

And then in some categories, we have adjusted downwards, particularly in opening price point packs and also some large account sizes. But that's kind of our overall approach year-to-year.

In terms of the promotional environment, Again, philosophically, we view promotion as a tactical lever to drive trial of great innovation. I'm not a fan of using it to try to drive growth because in our categories where consumption is more fixed, it doesn't -- promotion does not expand our categories, not these. And so again, we use it, if you look at us, our promotion intensity is, I would say, below what the category average is and remains that and a little bit below what it was recover time period back in 2019.

And so that's kind of our overall approach because we feel great about the other levers that we are applying, which is great innovation, great marketing, great customer plans. So I don't know if that answers everything you're asking about.

Yes. I guess just in summation, just I guess, I'm gleaning from what you're saying is where you need it where you see opportunities, you feel good about your pricing power and not overly concerned about the competitive environment. Is that a fair summation?

Yes. Well, yes, I think -- again, I think our approach is we have to offset commodities and to be able to expand margins over time. And so that's just a discipline that we have to employ -- and we're not using pricing as a growth driver because, again, of the category dynamics of promotion.

Next question is coming from Michael Lavery from Piper Sandler.

Just wanted to unpack that outlook update a little bit. There's some constants, but obviously, also some changes with tariffs or some of the impact on the portfolio reshaping and you gave some details in the prepared remarks, but maybe just bridge the changes for us and put the bread comes together, and it feels like there's a good number of moving parts in 3 months till now -- 3 months ago until now.

Sure. Sure, Michael. There's obviously been a lot going on in the last 90 days, and we would expect more to come. So -- but a few things as I unpack and the outlook and bridge it to April. Our outlook is reflecting the momentum that we have in the business, which is grounded in sustainable actions, strong innovation and the execution plans that our teams in the field are carrying out. We're focusing on winning where it matters, and that's with consumers through our superior product offerings.

On the top line, we're well positioned right now to deliver sustainable growth ahead of the categories. And through a volume and mix-led growth. Our organic growth is now based on our business in North America and IPC, where weighted average category growth is, as I said before, around 2% compared to the 1.5% to 2% growth that we had back in April, which included ISP. So we're excluding that. That's why you see category growth weighted a little bit higher, but still at the same levels that we had back then implied.

And we plan to continue to gain share has happened this quarter, where we had around 10 basis points of share gains on a weighted basis.

As we look at operating profit, we're supporting a significant step-up in new product activations and launches across key markets. And growth productivity will continue to be a very strong driver of our ability to do that.

As of the second quarter, we delivered on the first half about 5.5% of gross productivity as a percent of total cost of goods. And for the second quarter is actually 5.8%. We are aiming to be at the top end of the 5% to 6% range in gross productivity, and that's unchanged versus what we laid out in April.

The other bit is that we are making very strong progress on the SG&A overhead savings, the $200 million that we had planned as part of Power & Care last year. And as we said back then, this would ramp up in 2025 and 2026. And we're seeing that play out in the first half, and that will continue through the second half based on our plans. So that again is unchanged versus April. As we look at adjusted operating profit growth, this will be based on the performance again of North America and IPC because now IFP is below OP and its discontinued operations.

And one of the elements is negative overhead growth this year that's built into the plan. And right now, we -- at the midpoint, we expect to deliver low single-digit growth on a constant currency basis with a range that's in the low to mid in terms of operating profit. The change in our operating profit growth rate from flat to positive to low to mid-single digit is reflecting a combination of the lower expected net tariff impact. As I laid out in the prepared remarks, right now, we expect gross tariff impact of around $170 million, which is $130 million lower than the $300 million that we had estimated back in April, and we expect to offset around third or $50 million of that $170 million.

And then on adjusted earnings per share, we've had favorability on three areas. One is the net tariff impact, which I just spoke, and that's built into the outlook. We're seeing some favorable currency as we laid out. It's about half of what we expected in April, all in. And then we're pausing depreciation and amortization on our discontinued operations of IFP. And that in and of itself represents about $0.16 of EPS for the full year. We saw $0.02 flow in the second quarter and about $0.14 would flow in the back half.

So overall, we will keep investing. We expect our advertising and brand support to step up in the back half of the year to around 7% and versus a 6.4%, 6.5% that we've seen in the first half. And that's something that, again, if we see the opportunity, we will invest more to be able to sustain the vol mix momentum that we've seen in the first half of the year.

Taking a quick follow-up on the brand spend. You also called out some of the awards at [ Con ] and just how much improved that performance is what's driving the better execution? Is it just a bit more spend? Is it better capabilities? Or is there a pivot there and how you approach it?

Yes. Great question, Michael. Glad you picked up on that. I would say it's all about better capability and, I would say, more focused from the company. I think -- I'd say the focus part is, again, historically, and this comes with our rewiring of our organization, our marketing was very decentralized, right? And we had a lot of agencies and a lot of individual markets made individual decisions, all those kind of things.

And while I still have a lot to say and control over the marketing, I think this new organization for us under Patricia Corces leadership, our new Chief Growth where she's not new anymore, but our Chief Growth Officer, is really bringing a different philosophy, right? And so -- and I think the opportunity that she pointed out is that what we really had to invest more effort is developing an emotional connection to our brands.

We've always been great at bringing technical features and differentiation to the product. We're okay. We are historically okay at demonstrating those technical features through demos. But really, what we're focusing more on is building that brand love or the emotional connection. And so maybe the operative word that I will tell you that's leading to our improved performance is in-house. We're bringing a lot of capability in-house. We still use agencies to consolidate to a few great ones. But a lot of the stuff we're doing in-house.

For example, in China, we're making a lot -- many, many, many maybe hundreds of ads a day that are AI fuel, but those are in-house generated, right? And then in-house deployed to media. And that's a different capability that is newer to us just over the past few years. And that's -- we feel like in that instance, this in-house capability brings us speed of execution plus improved creative quality.

The other part of in-house for us is Patricia has brought in some fantastic team members to lead our creative development. And these are some of the most awarded creative directors in advertising over the last decade, and they're now in-house with us working with our brand teams locally, but also working with the creative agencies directly to kind of inspire the creative that we need. And if you look at the slide deck that we presented earlier. There's this 1 with the pop poncho, which I said is kind of a tongue and sheet thing. But if you look at that ad and you just thought about that idea, it could have gone really gross or it could have been really flat or really boring or stupid. But I think the creative came out great and is doing everything we want to do because I think the creative team took exceptional care in all the details of the execution of that ad. And so that's kind of what's going on. It's a new us.

As I mentioned, I think we doubled our award total from the prior 5 years, just this year at [ Con ] and so I think we're heading in the right direction.

Your next question is coming from Bonnie Herzog from Goldman Sachs.

I had a quick question on your JV deal with Suzano. With the IFP out of the base business, how should we think about the organic sales growth and margin accretion to your long-term algo. And then you touched on this a bit, but volume in the quarter was strong and broad-based. But I guess I just wanted to verify, there wasn't any pull forward I mean you highlighted some benefits given changes in retail inventories. So maybe hoping for just a little bit more color on that and how you're thinking about that in the second half. Ultimately, should we assume volume growth in 2H?

Yes, let me just start on the volume or the -- here's the thing for us. And where I'm pleased with the performance is our consumption globally was strong. and it all starts with consumption. And actually, we tend to manage on consumption. And then we recognize there's inventory changes, but we don't overly try to manage the retail inventory changes because in the long run, shipments must equal consumption. And that's kind of what I tend to focus on. And so as I just mentioned, North America 4.5% consumption growth on our brands, kind of in the second quarter. And then again, the range, pretty good performance internationally as well on that front. And so we feel good about that.

There was a little bit of inventory built for the reasons that I think Nelson articulated, but there was also some retail inventory takeout in the first quarter, which we didn't really talk about either. So I think overall, we feel good about that.

I think with regard to IFP, maybe a couple of points. I would say we remain committed to our long-term algorithm that we presented at the Investor Day last year. I would say that this transaction should improve our ability or a liability to be able to deliver consistent top-tier growth over time, right? So our algorithm on organic was predicated on growing ahead of our categories. And the personal care categories globally are, for us, a little bit margin accretive and also more consistently growing. And so we expect our growth profile to continue to improve over time. And as a function of the innovation that we have, the marketing and the activation.

On the bottom line, again, I think we're making very, very good progress on the margins. We have great visibility to our 40% gross margin and 18% to 20% [ Operas ] aspirations by 2030 I did want to point out those are milestones not targets, right? And so we're not trying to get there. We're trying to get beyond there. We just put out an interim milestone I do think -- and Nelson, you may want to comment, the IFP transaction does create a onetime impact. So it's going to accelerate us a little bit further on the margin side. But we'll update you on what that's going to be when we get closer to the close.

Right. And just building on that, I mean, by two things as we think about IFP, and I talked about it earlier, what's happening is -- when we strip out IFP, we are seeing underlying category growth that's a tad higher than what we had before. And this buttresses our thinking around the fact that we have a North America and international personal care business that's growing faster, that has a higher gross margin. And overall, we expect to continue to grow through volume and mix in the foreseeable future. ahead of the categories. And that's really what this is. As we think about the milestone that Mike talked about, it's -- we are on pace to get to that 40% -- at least 40% gross margin and at least the 18% to 20%. And if anything, it would be faster than 2030 because of the move that we've made.

I reached the allotted time for Q&A. I will now hand the conference back to Chris Jakubik for closing remarks. Please go ahead.

Well, thanks, everybody, for joining us. We know there are multiple calls today that you need to get to. So do appreciate your attention today. If you have any follow-up questions, we'll be around to take them for the remainder of the day. Thanks again, and have a great one.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.