Kimberly Clark 2Q17 Earnings Call Notes

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.”

Colgate 2Q17 Earnings Call Notes

Ian Cook – Chairman, President & CEO

Another challenging quarter

“Suffice it to say as we said in the press release, this indeed was another challenging quarter and as I think we all know, the industry continues to face global market volatility and we have seen a further slowdown in consumer demand in several key markets, most especially the U.S. Southeast Asia and South Pacific.”

Foreign exchange headwind has lessened

“We’re also encouraged that our foreign exchange headwind have lessened over the past several quarters and raw material costs are increasing at a more modest rate. We believe consumer usage of our products have remained broadly stable in the vast majority of market, which would be the basic category takeaway should normalize going forward.”

Natural segment is growing faster than average

“t’s suffice to say that the Natural segment is growing faster than the average growth of the category, which is what makes it attractive. We of course have participated in this segment for quite a while, particularly in markets where it’s important Asia or even go back to now more than decade ago acquisition of Tom’s of Maine here in the United States, which continues to grow very, very nicely.”

Consumers tend to buy more premium online

“What we observe on eCommerce thus far is that the consumer is actually — tends to buy more premium and even if they’re not buying the premium brands, they tend to buy in multiples. So, in fact the eCommerce behavior is favorable to us from a consumption point of view and if you look at the Hill’s business, 15% of the Hill’s business in the U.S. on eCommerce is subscription. So that means once they buy it one time, they’re signing up to regular delivery of that diet over time, which is we believe a good business model for our brand.”

Procter and Gamble at Deutsche Bank Conference Notes

Jon Moeller – Vice Chairman and Chief Financial Officer

Digitizing/automating manufacturing operations

“We are digitizing our manufacturing operations and automating with robotics. We see opportunity for an additional $1 billion of savings from transportation, warehousing and other costs of goods sold. These savings will come from work to improve warehouse productivity by as much as 25%, digitized algorithmic planning that reduces inventory and optimizes vehicle fuel rates and by rebidding regional transportation alliance based on our optimized manufacturing site and mixing standard locations.”

We want to be positioned wherever consumer want to shop

“We want to be positioned, as I said earlier to win wherever consumers want to shop. We don’t want to make that call for them, and we feel we’re in a fairly good place today. Two things we look at assure we remain on that place. One is where the market share online versus offline, in aggregate, a difference like category market as you would expect. But in aggregate, we’re about equal. In some of the markets online shares are a little bit ahead of offline share, I guess, more a function of the demographic of the shopper online than anything else, but we’re in a good place there.”

Colgate Palmolive 4Q16 Earnings Call Notes

Colgate-Palmolive’s (CL) CEO Ian Cook on Q4 2016 Results

We remain committed to emerging markets

” we remain I must say overall very committed to the emerging markets. We see a strong consumer base there. We have strong brand loyalty there and we continue to see good opportunity for growth there.”

Slowdown in France

“Well clearly, France category is turning negative was not a pleasant or expected event. I think there is public information out there that says that some retailers in France have suffered from the same problem which is to say consumer purchasing weakness in France. So, you’re certainly seeing deflation in France and indeed in some categories, volume reduction. So, the focus has to be to right that with your customer partners on two things…So, the sharpness of the slowdown was a surprise.”

Upping advertising spend meaningfully

“I think for 2017 we have stepped up our advertising quite meaningfully from 2016 and we believe in uncertain time with clearly slowing category growth with the innovation pipeline we have it is to our advantage in 2017 to invest that advertising deliver that growth and keep consumers with our brands. So we think it’s a good level Olivia I mean we have planned due diligently and we are very satisfied with the advertising level we have as I said it includes a sharp uptake in sampling as well. And these are all into the programs that we have on the ground behind brands and the new products that we have. So we think the plan holistically is an appropriate plan for 2017.”

John Faucher

Premiumization paying dividends in the US

“In the U.S., we finished the year with market share is either upper flat majority of our categories, our innovation continues to perform well. We have a strong pipeline plan as we head into 2017. Our premiumization strategy continues to pay dividend. The Colgate Optic White franchise finished 2016 with 6.4% market share year-to-date up 80 basis points year-over-year. We expect further momentum in 2017 behind this month launch Colgate Optic White variant. We are also seeing year-over-year improvement in market share as for our sense for sensitivity business helped by our latest launch of Colgate Sensitive Smart White toothpaste.”

Unilever 4Q16 Earnings Call Notes

Unilever’s (UL) CEO Paul Polman on Q4 2016 Results

Demonetization has affected underbanked areas

“We really have looked at the demonetization and what our business in India is, is an enormously well distributed business, both in rural India and in urban India. We have that as an enormous strength. And the main effects of demonetization have been in the regions where you don’t have a banking sector that is well developed, like central India, so better developed in the south and the west but underdeveloped in the central India. And secondly, in the distributor trade, wholesalers and small trade where there’s really been a cash crunch, lots of daily cash transactions.”

Brazil negative volumes deepening recession

“Yes, Martin, these are two good questions. Let me go to LatAm very, very quickly. Brazil, negative volumes in a deepening recession, volumes are down for the year. I don’t think that will change in the near future. We have strong price growth there to recover the devaluation-related cost increases. ”

Graeme Pitkethly

Brazil down trading accelerated in second half of 2016

“In Brazil, rising unemployment and reduced consumer confidence meant that the contraction of consumer spending power and down-trading accelerated through the second half of the year. In fact, in the fourth quarter, market volumes declined by almost 10%.”

Have had to increase pricing in emerging markets which can have significant impact in emerging markets

“These sharp cost increases require pricing, and sometimes a temporary decline in volumes, as consumers and retailers adjust. In emerging markets, the key points we watch are the affordability of our products for consumers and the actions of local competitors. In some cases, as was the case in skin cleansing in India, the impact of the transition to the new consumer price levels can be significant.”

Kimberly Clark 4Q16 Earnings Call Notes

Thomas J. Falk

Expect another year of significant volume growth in China

“Looking ahead in the China market, we expect another year of significant volume growth. Category demand should remain strong and we have lots of innovation coming on Huggies including a new super premium diaper pants that we recently launched on Singles Day in November. Based on market trends in the last 2016 were cautiously optimistic that pricing in China will be less negative than 2017”

We’re not counting on a lot of price in 2017

“I think I would say, we’re going to have some carry-over price drag in places like China. We still probably will get some additional positive price in markets like Brazil and Argentina, but we’re not counting on a lot of price. In some of these markets the consumer has been pushed pretty hard and we just don’t see of a big opportunity to take price. And even in markets like the U.K. where you’ve had though the Brexit phenomena, we will try to take some small positive price increases, but we’re not counting on a lot of that to drive our year in 2017. So I think while the currency hit isn’t as big as it’s been in the past, the commodities we’re assuming that oil is up double digits and secondary fiber is up double digits. But some others like eucalyptus pulp is going to be pretty flat, but we’d just say the net of that is we’re not counting on a lot of price in 2017.”

Growth rates in a lot of our categories have slowed

” growth rates in a lot of our categories have slowed. We said we were expecting category growth rates of roughly 2%. We would have said several years ago three to four was probably more what we were trending. So growth rates have come down, there’s still lots of competition including local competitors who are aggressively pursuing business and we’re trying to make sure we’ve got the right innovation, we got the right price point, we’re executing well in market and that probably makes it a little tougher in this environment to get price increases, in a market like Brazil, where the category is going backwards 3% to 4% in volume and you’re taking list price up, you can generate some short-term category value increases, you don’t want it to be a race to zero either.”

E-commerce is driving more of an EDLP environment

“I think the point I would make there is that e-commerce is making pricing more transparent everywhere. So there’s more – you know if retailers just to comp each other’s promoted prices and now e-commerce you can go comp three websites quick and easy and there’s apps that’ll do it for you and so I think that’s probably driving more of an EDLP type environment recognizing, there’s still room for some promotion. I don’t know Mike if you’ve got a view of that of what you see in North America.”

Global consumer is a bit of a mixed bag

” So the global consumer I would say probably a bit of a mixed bag if you’re in a economy that had oil as a large part your economy, but you’re feeling still some pressure. So now you saw negative GDP in Russia. Nigeria, certainly under pressure, very slow or negative GDP per capita growth there. Some of the challenges in Brazil have been there as well. So if you’re a oil consuming nation you’ve got a big windfall in 2016 and so a pretty good GDP per capita growth generally or improving. So I would say if you look at a market like China, the underlying category demand growth, the birth rate those are all really positive signals. Despite a little bit of a little bit of a slowdown in their overall GDP growth, you still saw a really good growth in GDP per capita and more consumers coming in reach of our products and entering the category and starting families et cetera. And you’d see some similar things. Vietnam is a very a good market for us as well”

There are gains to be had in automating back office, but we’ve still got a long way to go to get there

“if you could think about the perfect order or the perfect payables transaction or the quantity, the price, the delivery terms, everything lined up perfectly with the purchase order or it could sale right through your system and get paid without any human involvement, that would be the gold standard. I’d say too often some of those things don’t work out and you need human beings to fix and adjust and correct all those minor errors that happen. And if you think about a customer transaction, if we could take the customer’s order, get the price exactly right, the quantity shipped on the date they wanted it with the correct terms. So it applies right through our system and their system without any additional intervention that’s a big opportunity and it takes friction out of everyone’s transaction costs. But we still got a long way to go to get to that.”

Procter and Gamble FY 2Q17 Earnings Call Notes

The Procter & Gamble’s (PG) Management on Q2 2017 Results

Jon Moeller – Chief Financial Officer

Continue to deal with macro disruption

“We continue to deal with an unprecedented amount of geopolitical disruption and uncertainty, which is affecting market growth, currency and commodities. We are not immune from these macro dynamics. We are aggressively driving cost savings to mitigate these impacts, but we’re protecting investments in the business to accelerate organic sales growth in a sustainable long-term market constructive and value accretive way”

Problems around the world

“Economic crises in Egypt and Nigeria are dramatically impacting category size; market contractions in Russia, Argentina, and Turkey pose real challenges and we’ve had to manage the market impacts of politically-related currency devaluation in places like the UK and Mexico. Our organic topline for the first half of the year has been affected by the portfolio work we’re doing in the ten ongoing categories and by loss sales to our Venezuelan subsidiaries.”

E-commerce sales are $3 billion

“P& G eCommerce sales are now $3 billion. I was with David and the team last week in China. While we have more work to do, our eCommerce business there will reach 20% of sales and will exceed $1 billion this year. With an aggregate eCommerce share larger than the next three largest competitors in our categories combined. In Korea, eCommerce is now 40% of our business. We’re building a full toolkit of capabilities we can put to work where relevant. For diapers, subscription can provide convenience and increase loyalty. For SK-II super premium skin care, direct-to-consumer counseling either in-store or online can help inform the benefits of regimen usage.”

Why we don’t hedge remaining FX exposures

“We’re sometimes asked why we don’t simply hedge away the remaining FX exposures. It’s a good question and something we look at internally and with a different set of outside eyes every year as we prepare our financial plan. The three reasons we typically don’t end up choosing to hedge the majority of the exposure. Up to two-thirds of our foreign exchange losses and a significant amount of our forward exposure is in currencies that are either non-deliverable or are very difficult to hedge. The Argentinian Peso, the Egyptian Pound, the Russian Ruble, Nigerian Naira are some examples. Second, hedging is neither free nor necessarily cheap. Currency volatility increases this cost. The last shortfall as having as the answer is it solves nothing longer term. It does nothing to help us restore the fundamental margin structure of a business.”

We produce 85% of our products in the US domestically

“there are few facts that might be helpful. P&G produces 85% of the products themselves in the U.S. domestically, and we export about 10%. So a net import balance of only about 5% of U.S. sales. The majority of the small amount of imported product is produced in Canada. We estimate that over 90% of the materials we use to manufacture products in the U.S. are sourced domestically.”

There’s no reason that cost of acquisition should be higher today than 5 years ago

“There are actually more options available to us to attract customers to our brand and more tools than there probably were five years ago, so done right. There’s no reason that the cost of acquisition of a customer should be hire today than it was five years ago. Having said that, there’s a lot more complexity in the shopping environment, in the media environment and done wrong, you can’t increase pretty significantly and efficiencies in the cost of customer acquisition. I really can’t give you a more specific answer than that Joe, but I don’t see customer acquisition cost has been significantly increased or inflated as we go forward. We can reach consumers and shoppers today and much richer, more direct ways than we ever could.”

China continues to be a great opportunity

“I want to step back in China first and then I’ll get to your specific questions. I think it’s very important that we understand that China continues to be a very attractive opportunity. This is a market that is among the highest growth rates across the world on a sustained basis and that really hasn’t changed. It’s a market that as we’ve talked before, premiumizing significantly customers are trading up to better performing products across categories. As we move out of the one trial policy, there’s certainly only upside that exist there, as the economy transitions from more of a manufacturing based company to – economy to a degree of a more consumption-based economy. That’s significant upside and we have a market position there and capabilities that, that allows us to take advantage and participate in all of those upsides. So China continues to be – as you know it’s our second largest market both in terms of sales and profits. So it’s also a big focus area for us.”