Kimberly Clark 2Q16 Earnings Call Notes

Kimberly-Clark (KMB) Thomas J. Falk on Q2 2016 Results

7% volume growth in NA

“Now let’s turn to our North American consumer businesses. Our teams there delivered another strong quarter with 7% volume growth and healthy market shares. Product innovations, great marketing programs and good retail execution continues to drive results across our portfolio. Promotion activity was also a little higher than average in the second quarter. Our adult care, child care and feminine care volumes each increased by about 10% including benefits from innovations on Poise and Depend, Pull-Ups and U by Kotex. Our Huggies diaper volumes rose mid-single digits and market shares improved by about a point as we continue to make progress following last year’s Snug & Dry relaunch. Consumer Tissue volumes improved 6% with mid-to-high single-digit growth in the all categories led by Kleenex facial tissue. So overall, our brand positions are very healthy in North America.”

Expecting positive second half volume in Brazil

“Yeah, I mean, I think Brazil, if you look at it how the year has played out, it was a pretty start tough to the year with negative volume trends as we pushed pricing into the market. Second quarter the volume was positive in diapers and then a significant amount of price. We’d expect to see more volume in the back half, and so I’d say on – if you look at share positions in Brazil, we’re up a couple points in fem care and have a good momentum there, and are down about 0.5 point in diapers and would be looking to close that gap in the back half of the year.”

Expecting birth rate to pick up in China

“In China, we’re really expecting the birth rate to pick up as we’d expect to see a little bit more volume come there in the back half. Pricing has been more competitive than we’d anticipated, and we’re expecting it’s going to continue to be competitive in the back half of the year.”

China e-commerce growth is effecting promotional environment

“I mean, actually the consumers are trading up in terms of product format. So if you look at the Tier-5 super-premium type products, those segments are still growing. And so the issue is you’ve got – it’s one of the largest diaper markets in the world. It’s probably one of the fastest-growing diaper markets in the world on unit volume, and so you’ve got us and a couple of big Japanese players and P&G all competing in that same space. And I know everybody thinks the other guy started the fight, but it’s gotten more price competitive. And there’s also a channel issue whereas we’re – e-commerce is growing dramatically in that space and retailers are also trying to make sure they don’t lose their share of that young family’s market basket. And so there’s a lot of competition and promotional activity and the manufacturers like us are certainly fully participating.”

Early signs of optimism in Brazil

” Although I was on the phone with our guy who runs Brazil last week, and I think there are some early signs of optimism perhaps there that they’re things – expecting things to be a little bit better in 2017. And so we’ll see. I think the economy’s run on expectations and, hopefully, the Brazilian consumer will start to be a little bit more optimistic. And we’ll see that translate into category growth. But I would expect for 2016, it’s still going to be a challenging category story.”

I don’t think you’re going to see people try to take price in England. It’s easier to take price in some economies than others

“I’d say in markets where they have – where it’s pretty common to have big currency swings, if you looked at most – a number of Latin American markets or Eastern European markets, the retailers are quite understanding of the need for their imported products to – or products with imported raw materials to take price. I mean, that’s kind of the way the market works. And in probably more established markets, if you looked at like Australia and the U.K. and maybe even China, the currencies have been pretty stable and they’ve had a history of being pretty stable and you don’t typically get a big price-driven impact from currency.”

“For example, the sterling has weakened a bit since the Brexit announcement. I don’t think you’re going to see a lot of suppliers taking price in the U.K. because A, it wasn’t that big of a swing, and B, it’s a challenge to push price through with a U.K. retailer, if that color gives you some context for the way you think about it.”