Kimberly Clark 2Q17 Earnings Call Notes

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Thomas J. Falk – Kimberly-Clark Corp.

Environment has become more challenging

“while I remain optimistic about our long-term future, the near-term environment has become more challenging than maybe we saw at the beginning of the year. So category growth has slowed broadly in lots of places over the last year or so, and we expect that growth will pick back up over time, but that pickup may not happen quickly. In the meantime, competitive activity has increased, including higher spending in North America over the last 12 months.”

Competitive environment in NA

“When you have weaker category growth overall and you have about the same number of people fighting over it, you can see that play out. And there is no question, there is channel shifting going on as e-commerce grows and that’s putting pressure on lots of retailers.”

2016 birthrates were down

“in Personal Care and baby and child care in particular, it’s been birthrate-related in a lot of the developed markets. So we had kind of projected 2016 was going to be a flat birthrate year. In the second quarter, we got the final fourth quarter numbers that showed it down 2% for the fourth quarter, which brought the full year down 1%. So that obviously has caused category growth to be weaker than we would’ve anticipated going into 2017. Korea’s birthrate, I think, we got the final 2016 numbers, was down 7%, which is a pretty big, big drop. So I think there is potentially lots of reasons, we don’t really understand it at a deep enough consumer insight level, I’d say. But a broad trend is that Millennials are having their children a little later, as long as they have the same number, we’re in good shape because the category growth will return.”

Infant care in US down 5%, 1% volume, 4% price

“In terms of the U.S. category growth rate, as we looked at that year-over-year, I mean, the big driver is infant and child care in terms of why we’re down. If you kind of look across the categories, adult care is still growing mid-single digits. Baby wipes is still growing low single digits. FemCare is pretty flat. Consumer tissue is pretty flat. And value of infant and child care is down 5%, it’s like 1% volume and 4% price. And so net-net, our total categories were down 1% with a good chunk of it being driven by birthrate and then competitive pricing activity in baby and child care.”

I don’t think the birthrate is going to change so quickly

“I’d expect the birthrate change isn’t going to shift quickly. So, given that we had the 2% decline in births in the U.S. in the fourth quarter, that’s going to roll over into this year. And I don’t think the Korean birthrate that we talked about is going to turn around quickly either. So I think you are going to see some of the continued drag on category, and then we’ll see where share falls out.”