Title

Presentation

Kimberly-Clark Corporation beats earnings expectations. Reported EPS is $1.93, expectations were $1.9.

Operator: Good morning and welcome to the Kimberly-Clark First Quarter 2025 Earnings Call Question-and-Answer Session. I will now hand it over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Christopher Jakubik: 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. 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.

Mike Hsu: Okay. Thank you, Chris. In the first quarter, we continue to make solid progress across the three pillars of our Powering Care strategy, building on the strong foundation we established in 2024. While our top line was somewhat softer than our expectation, the first quarter overall was consistent with our full year plan. Our results demonstrate that our cascade of innovation across the good-better-best value spectrum is winning with consumers. We held global weighted share while navigating our dynamic environment. Volume plus mix was solid, demonstrating that demand in our categories remains resilient. We made strong progress optimizing our margins and continued to deliver world class gross productivity enabled by our integrated margin management approach.

Our freshly wired enterprise matrix organization is playing a key role scaling initiatives in 2025, and this is enabling us to bring the best of Kimberly-Clark to all markets faster and better than before. In addition, we’re on track to generate approximately $200 million of SG&A savings in the next few years. We remain confident in our ability to execute the plan we outlined for this year even as we navigate a rapidly evolving external environment. In fact, Powering Care gives us a running start. In this evolving environment, we see three keys to winning. We will deliver stronger differentiation at every rung of the good-better-best ladder. We will deliver industry leading productivity to generate funds to reinvest in the business, drive profitable growth and address external headwinds.

And we will continue to enable a faster, more agile organization. We’re continuing to perform while transforming. We’re scaling our transformation and reshaping our portfolio for stronger, more profitable growth over the long-term. As we move forward, we will stay true to our purpose and values to deliver better care for a better world. And we remain confident in our ability to unlock our long-term potential for our consumers, our company and our shareholders. And with that, I’d like to open up the line for questions.

Operator: Certainly. Everyone at this time will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Lauren Lieberman from Barclays. Your line is live.

Lauren Lieberman: Great. Thanks. Good morning. I know there’s a lot to cover today, but I was hoping we could start with organic growth. So results in North America significantly trailed what we’ve seen in scanner, which was pretty strong actually. And we didn’t see in scanner the kind of deceleration a lot of other companies and categories saw during the quarter. And I know in the prepared remarks you mentioned there was no retail destocking. So it’d be great if you could just help articulate, kind of what drove the gap in North America performance reported versus what we saw on scanner. And then secondly, just to get to something north of 1.5% to 2% organic sales growth for the year, so better than category growth implies a significant ramp after the first quarter results globally. So helping you could just talk a little bit about why we should expect to see that acceleration? Thanks.

Nelson Urdaneta: Sure. Thanks, Lauren. And let me I’ll get started with bridging the first quarter and how we expect the balance of the year to evolve, the acceleration that we are foreseeing in volume and mix, especially as we go into the second quarter. And then I’ll ask Mike if he can jump in, in terms of some of the key initiatives that are being taken across the globe as we speak. So firstly, as Mike said, our organic sales were slightly below our expectations for the first quarter, while profitability was in line with what we expected, supported by strong productivity delivery both in costs and overheads. As a reminder, we’re lapping the strongest quarter in 2024 in which we grew 5.6% organically last year. There were four factors at play in the first quarter when we unpack organic sales growth, which helped bridge scanner data consumption to what our organic sales came in.

Firstly, as we stated, weighted average category growth was we had expected to be around 2% coming into the year. That’s what we had seen at the end of 2024, whereas for the first quarter, we’re in the 1.5% to 2% range. So that’s the first factor. The second is this year has one less day of shipments in the first quarter as well as in the full year, whereas scanner data is apples-to-apples in terms of days and weeks versus the prior year. And this is representing about a 100 basis point impact to organic sales in the quarter. Thirdly, we’re facing lower year-on-year North America private label shipments outside of the private label diaper business exit we’ve been highlighting, and this as a whole represents about 40 basis points to total company organic sales.

And in the case of North America, which you asked, it’s about two times that, about 80 basis points of a headwind. And then lastly, we had planned strategic pricing investments in price pack architecture across several markets and categories, including US consumer, which started happening at the very end of 2024, US professional, where we’ve been maneuvering through a highly competitive environment in certain segments within professional as well as some of our emerging markets. Now going into the full year and our expectations in the year to go, first, consistent with our long-term algorithm, we continue to target a volume and mix based organic growth for the year that’s ahead of the categories in our markets. We have a strong slate of new product and go-to market activations that are happening as we speak.

They’re being ramped up. We started at the March, and that’s happening through Q2 and parts of Q3 and investing heavily behind it, and that’s one of the pieces that should accelerate volume and mix in Q2 and on. The other bit is when we do the comparison against the prior year, assuming shipments are in line with consumption, we should see just less than 40 basis points of a tailwind in 2025 versus 2024 from the retail destocks that we experienced last year and that’s all built into our outlook for 2025. So as we get into the quarterly perspective, it’s really going to be basically on the year to go a comparison of quarter-over-quarter, and that’s the progression that we’re seeing. And Q2 in particular should be one of the easiest comps that we have because of the destock level that we saw in North America, which overall would represent a tailwind of around 80 basis points for the company.

And again, that’s primarily in North America. So overall, we are expecting to see volume and mix to accelerate in the balance of the quarters for the year. And I’ll turn it over to Mike for some further perspective on the initiatives.

Mike Hsu: Yes. Lauren, I’d say one, we have a strong pipeline to improve our consumer value propositions around the world. And that’s why we felt like it was very important despite some of the external headwinds we’re seeing to preserve the fundamentals of our plan and execute it. And so, overall, I’m going to say a couple of things. Growing faster than our categories and markets depends on how well we provide better care for our consumers. We expect to deliver healthy volume and mix driven organic growth. And as Nelson points out, we do believe that will accelerate in Q2. What’s behind that is a slate of innovation that we’ve launched. I mentioned in my prepared remarks, Huggies Snug & Dry North America, that’s only recently started shipping and it’s barely started shipping and it’s a great product.

If you look at the reviews, it compares very favorably to the premium tier even though it’s targeted against the mainstream value shopper. And so we feel great about the innovation. We also have a broad slate of improvements that have yet to start shipping in international, including Latin America, where we have seen a little bit more softness recently. And we’re going to make some significant product improvements internationally along the same lines, improved product quality. And so that’s really the basis. Our whole strategy is predicated on we’re going to make better products at a lower cost and we’re going to innovate to do so and we’re going to pull on the matrix to work faster to bring the best of what we have to markets around the world.

Operator: Thank you. Your next question is coming from Nik Modi from RBC Capital Markets. Your line is live.

Nik Modi: Yes, thank you. Good morning.

Mike Hsu: Insightful show yesterday. Hi, Nik.

Nik Modi: Thanks. Good job. So I guess, Mike, the question is just given the value seeking pressures that we’re seeing pretty broadly that I think we can all agree will probably persist for at least the next few quarters. You talked about innovating at different tiers and but how do you manage that along with the price mix and kind of your margin cadence, right? So just trying to get an understanding like is the revision just a tariff related thing or are you also baking in some kind of mix weight as you kind of innovate more on the more of the value end of the market?

Mike Hsu: Yes, Nik, I would say the revision of the outlook is primarily headwind cost related, right. And so and I’ll say strategically, I think as we’re implementing our innovation strategy and our marketing strategy, I think we’ve accounted for some of the mix differences. But I want to say a couple of things. One is that our categories continue to exhibit very resilient demand. I mean, the category growth, as Nelson pointed out, has decelerated, but it still remains healthy. It’s 1.5% to 2% versus two-ish at the start of the year. That reflects a little bit less pricing as we had highlighted in international. And then there is some frequency and softness across Latin America, which is under the gun economically as well. I will say though, in our categories, they are daily use categories and consumers remain interested in the product performance and they’re interested in better performing products.

I think, Nik, increasingly, affordability has become paramount more than kind of it’s been in my dozen years, dozen plus years here at KC. And so we’re very focused on that. We recognize that situation and we understand the burden that I would say the middle income to lower income households are dealing with. And so, we are our strategy is to, we’ve said in the prepared remarks, cascade our innovation from premium throughout the tiers. And again, I think the Snug & Dry example that we pointed out, I think one of the analysts sent us yesterday the reviews, they compare very favorably to our tier five product, and we’re okay with that. Part of that is how we manage the mix and the margin structure. But also, I’d say, we’re going to prioritize winning the consumer and winning the share.

And then part of management’s job is to figure out how to solve the mix issues, and our teams are doing that. So what we want to do is put the best product in front of the consumer and get them into the Huggies brand or the Kotex brand or the Depend brand, and that’s our job one. And then, secondarily, we’ll be able to manage the mix over time, we think.

Nik Modi: Great. Thanks, Mike.

Mike Hsu: Okay. Thanks, Nik.

Operator: Thank you. Your next question is coming from Dara Mohsenian from Morgan Stanley. Your line is live.

Dara Mohsenian: Hey, good morning.

Mike Hsu: Hey, Dara.

Nelson Urdaneta: Hey, Dara.

Dara Mohsenian: So just wanted to get a bit more detail on the incremental $300 million in tariffs, I get the dynamics are rapidly changing on the tariff front. It did sound like previously you felt the tariff impact will be more manageable. So really two questions. Just first, short-term, Nelson, why is the situation more burdensome than previously believed? Can you give us some detail on where specifically the incremental $300 million is coming from? Is it pulp? Is it China? How much are other buckets, etcetera? And how much you’re assuming you can offset through both price and productivity when you look at the full year guidance? And then the second, maybe a similar question just from a longer term perspective. Mike or Nelson back in Analyst Day 13 months ago, there was a lot of time spent on how you’re able to potentially price quicker, more precisely, drive mix to offset cost issues, et cetera.

Just where you stand as an organization 13 months later, should we think of this just as more of a discrete external issue, the tariffs that are one time and hard to sort of plan or manage for or has something changed in your ability to sort of use agility and flexibility to manage through the cost environment as you outlined down at Analyst Day as we move sort of past the tariff impacts we’re talking about today? Thanks.

Mike Hsu: Yes. Let me start I’ll ask Nelson to provide the details on kind of what changed. But I will say the whole underlying strategy and why we’re rewiring our organization for growth is we want more agility. And so all the things you talked about, Dara, with, hey, can we move fast, whether it’s on revenue management or on cost management, we’re able to move faster now than we were just one year ago, right? And so that’s kind of one of the key points. I would say just to comment on what changed, I would say what changed is I think the breadth and degree of tariffs and also the countries involved I think has changed significantly since maybe where we were at the end of the last quarter. And so I think that there has been, as everybody knows, it’s a very volatile kind of environment and there’s been a lot of change back and forth and continues to have change.

And so this is kind of represents our best view of what we see today, which I’ll let Nelson talk a little bit more about.

Nelson Urdaneta: Sure. And a few things. So back in December, Dara, when we, when Chris and I were at your conference, I mean, we chatted, we shared at the time that the majority of what we sell in the US is sourced and made locally here in the US. And that in terms of raw materials and finished goods, our combined exposure to three specific countries, China, Mexico and Canada, was just less or around 10% of our total cost of goods. If we factor in all of our raw materials and finished goods imports for our US business, 80% of our total costs in the US are US based, so only 20% of our US costs are exposed to tariffs. As Mike indicated, in the last 20 days, we’ve had to reflect cost impacts of actions on three fronts, which also include the depth of the actions.

First is the aggregate US tariffs on China of 145%. This is driving about two-thirds of the $300 million gross impact that we have shared today. That’s largely on finished goods per your ask of the breakdown. The other element is US reciprocal tariffs to Mike’s point about breadth and reach, and that’s about 10% that have been put in place on other countries, which we source from, and this is representing about 10% of the $300 million impact. And then lastly is the set of retaliatory tariffs that have been announced by other countries on the US and this is representing around 25% of that $300 million. We’re working fast through actions to mitigate these costs, and frankly, the learnings that we had in the ’21, ’22, ’23 cycle have come in pretty handy.

And the other bit is that we’re one year into our Powering Care transformation. We recently hosted many of you at our Beech Island facility to showcase some of that transformation in action and what we’re doing about it. And frankly, at this moment, we’re much better positioned to handle through many of these headwinds. Now it takes a little bit of time. You can’t solve that overnight because we’re having to reaccommodate some of the elements of our supply chain, and we intend to already be able to address about a third of the impact this year. Now it’ll take us through 2026 to pretty much be able to address the whole element in a consistent manner based on what’s been enacted today. As always, we will keep our consumers at the center of any course of action that we take to make sure that we’re having the right value props in place.

Mike Hsu: All right, Dara. We’re going to give it to you like a fire hose because, sorry, we got a lot to say on this, but I will say the big thing I want to emphasize is and there may be some semantics here, but you mentioned is it a discrete item. And at this point, I am treating it as a discrete item, right? There’s an externality that we don’t think will continue to recur over time. And so what we want to do is run the play, run our plan as intended, right, and give the innovation and the marketing and all the productivity plans room to breathe and so we want to execute those. So our global network, I really feel strongly positions us to navigate this volatility in the environment very, very well. And so as I mentioned, Powering Care, the strategy that I outlined, I think we continue to be very committed to that strategy.

We want to differentiate our brands through superior innovation and activation. We want to deliver world class levels of productivity. We want the organization to work faster. And so those are all, I would say, evergreen things that would be good in any economic environment, but especially in this environment. And then the other thing I want to point out is that this change in the tariff environment, while it presents a near-term challenge that we just kind of went through, it also presents some opportunity. And so we feel like the best approach to mitigate the headwinds is to re-optimize the network, right. And so, what this has done is change kind of like the cost of different nodes of our network and change some of the operating constraints.

And so, we just have to rerun the model and in my words kind of re-optimize what our flows are, right. And so that’s part of what we all signed up for. I think the other thing is over the last couple of years, we’ve really enhanced our ability to deliver better products at lower cost. Huggies Snug & Dry is a great example with the US, China and the rest of the world working together to deliver a superior proposition. And so we also think that there is going to be more value oriented volume to be earned, and we’re confident in our ability. So, we’re going to maintain brand and product support that we anticipate at the start of the year and then we are working hard to accelerate savings so that we can drive durable solutions.

Dara Mohsenian: Can I just quickly follow-up? Yes, that’s very helpful, and a lot of detail. The value conscious consumer that you’ve talked about in the prepared remarks and so far in Q&A, how much of that have you seen so far versus it’s more of a forward expectation? It sounds like that’s more expected from here. And you obviously talked about the broader product offering, the innovation winning with consumers. But just can you talk about the need for maybe investing in affordability and the pricing side of things, particularly given the pricing result that we saw in the quarter here in Q1? That’d be helpful. Thanks.

Mike Hsu: Yes, I mean, I think it was it’s a subtext in our whole discussion, which is we’ve been seeing it, Dara, and you probably have been seeing it in our categories over the past year, right? I think there’s been a migration to opening price point where that typically has meant more affordable opening price package sizes that consumers could get into. That’s primarily for lower income households. I think on the higher income households, they’re even seeking value by, I would say, larger counts at lower price per unit, right? And so we’ve seen both ends of it. And I think if you, and this was in the prepared remarks, but if you look at kind of the impacts on costs that are going to be hitting the average consumer in the US, I think budgets are going to be tight.

And so affordability for us is core to our strategy here. It’s why we highlighted what we’re doing on Snug & Dry, which is our mainstream value play here on diapers in the US. We have that same strategy around the world and also across our categories. We want to be we want to offer a great product offering at the premium end, and that is going to continue to be a big growth driver for us. But we want to cascade the product innovation that we have at the premium end throughout the tiers that we offer. And then we’ll let the consumer decide about which products they want.

Dara Mohsenian: Thanks. I’ll get back in queue.

Mike Hsu: Okay. Thank you, Dara.

Nelson Urdaneta: Thanks, Dara.

Operator: Thank you. Your next question is coming from Anna Lizzul from Bank of America. Your line is live.

Anna Lizzul: Hi. Good morning and thank you so much for the question. First, I did want to touch on costs as well. The cost environment is certainly creating more pressure, and it is a very fluid environment or just related to marketing, is this impacting your ability here to invest or are you considering different means of where and how you’re reaching different consumers now, just given they are more pressured? And then related to innovation, of course, understanding that plans have been made for this year, consumers are expecting to be more value conscious. Does this impact your longer-term strategy at all and thoughts around a more premium portfolio?

Nelson Urdaneta: Yes. So a few things. I’ll start with the cost environment and what we’re facing. So I’d like to separate it into two elements, and I’ll build on the discussion we just had on the $300 million linked to the tariffs. Coming into the year, we expected costs to be largely in line in terms of inflation versus what we experienced in 2024. And that was around $200 million. That remains about the same. That has not changed. So costs, excluding the impact from tariffs have remained largely in line with what we expected at the beginning of the year. So that’s one. What we’re having to address is the $300 million of incremental gross impact from the tariffs. And as Mike said, this is something that we see as more discrete.

We’re rapidly move in to address at least a third this year and the balance of it going into next year. The reason why we are calling or changing our guidance for the year to about flat in operating profit and EPS has to do with the fact that we do not intend to cut investments behind our innovation and our plans. For the first quarter of the year, we invested at around a 6% level of advertising behind our marketing initiatives and our new products and existing platforms, which was largely in line with prior year and we intend to continue doing that as the year progresses because we’ve got significant innovation that’s been put into the marketplace and it’s going in into the market. There are pockets of initiatives that will be taken as well in terms of investments beyond just brands and it has to do with our supply chain.

We intend to maintain our investments in the business. In terms of capital expense for the year, we called at the beginning of the year around $1 billion to $1.2 billion. It largely has to do with the transformation of the supply chain as we’re into the second year of Powering Care and we are maintaining that level of investment despite the headwinds that we just talked about. So overall, I would say, there’s no impact to the long-term strategy. And we remain steadfast on progressing our Powering Care strategies and ensuring that we can drive sustainable profitable growth with solutions to unmet consumer needs for years to come. But Mike?

Mike Hsu: Anna at the risk of providing too much transparency, here’s what I’ll say, which is, look, we recognize that there’s this discrete cost headwind. We believe we can generally offset that over time by reflowing our network, right, by resourcing kind of where we’re making product and where we’re shipping it from, and as you take that into account, they’re mostly supply chain moves that are the solution. So believe that, Anna, then what we’re trying to avoid doing is reducing quality in our product that’s working or cutting marketing that’s working and giving our plan a chance to breathe and perform like as we’re seeing year-to-date, right? And so that’s really the kind of the underlying thesis that we have, and we feel like it’s the right play for us.

Anna Lizzul: That’s very helpful. Thank you so much.

Operator: Thank you. Your next question is coming from Javier Escalante from Evercore. Your line is live.

Javier Escalante: Good morning, Mike, Nelson, Chris.

Mike Hsu: Hi, Javier.

Nelson Urdaneta: Hi, Javier.

Javier Escalante: Hey, how are you guys? My question has to do with the use of pricing to drive mix. And if you can split the discussion between emerging markets and North America, right? Particularly emerging markets, you see currency headwinds, and you are making price investments. I know that this is a financial reporting issue that where you are making the price investments not necessarily correlate with what you are taking pricing to do the so-called PNOC. So that one aspect, but particularly also in North America, as you look to drive mix, are you increasing promotions in the high end? What exactly, if you can talk strategically about how you’re using pricing to reconfigure the portfolio in the US and internationally, that would be very helpful.

Mike Hsu: Yes. Maybe the — I’ll start with a headline, Javier, that kind of says, hey, we’re focused on driving volume and mix growth while maintaining PNOC or pricing net of commodity discipline, right? So we’re trying to be disciplined on price. And maybe there’s more embedded in that than may appear. The strategy is we’re going to make our products better, right? And then I just kind of mentioned to Dara, every rung of the good-better-best ladder and then we’ll let the consumers vote as to what the mix ends up being. Our job is to make sure that whatever mix flows based on how the consumer votes that it’s acceptable to us, right? And that’s part of management’s job, right? But the other part of what’s implied in that statement focused on volume and mix growth while maintaining PNOC discipline.

The categories have seen a significant wave of pricing over the last several years, right? We just kind of or maybe two years removed from what I would call it an inflation super cycle. And so what we’ve been a little more focused in our current strategy is really anchored on, hey, improving the product quality, driving positive mix through premiumization by making premium products at a consumer’s desire, right? And then over time, cascading that innovation throughout our value tiers. And so that’s really what we’re driving. There’s no really significantly different strategy on a country-by-country or category-by-category basis to kind of optimize based on pulling different pricing levers. I mean, again, we’re going to — our teams, the directions of the teams is they have to have pricing net of commodity impact discipline.

And but we want to drive the volume plus the mix growth. I don’t know if that answers kind of what you’re looking for, Javier?

Javier Escalante: Yes, sure. But let me drill down a little bit on North America specifically, right? If you can comment on the promotional environment, as you see it or you saw it in Q1 and what we should expect for the balance of the year given that you have more innovation coming in. And I suppose you want people to try that out. At the same time coincides with the tariff, right? And so help us understand how you see the balance of the year use of pricing relative to your innovation?

Mike Hsu: Yes. Well, I think maybe it starts with the philosophy that we don’t really see promotion as a sustainable driver of growth. We do see it as a useful trial vehicle for innovation, right? And so that’s kind of the focus. Why do we have that attitude. We offer daily essentials that have, as you know, low substitutions. So really, if you think about our categories, promotion overall for the category doesn’t grow consumption, right? Just because I promote that tissue doesn’t mean you’re going to go more often, right? And so thus far, what we’re seeing is, sorry, what happened there, the category demand remains resilient, right? And but we do see promotion as an important tool to support trial. Kleenex is a great example.

I think we were up over 400 basis points on share last year. We did promote, Kleenex and merchandise it, and we think merchandising has been an important strategy or an important driver of that growth. In the quarter, we were up another 150 or so basis points on Kleenex. So that’s a good one. With Huggies Snug & Dry and Huggies Skin Essentials, they’re great new products. We want them in consumers’ hands. We are going to spend some time promoting them, right? And but that’s not a promotion-driven strategy, but it is part of the overall plan to drive trial of the products that we want consumers in the consumers’ hands, right? So that’s kind of what we’re doing. And I would say we’re operating consistently around the world on that. The big thing for us is and this is beyond North America, we want to cascade great innovation.

We want to drive it in the premium tiers and we want to cascade it throughout our tiers around the world.

Nelson Urdaneta: And just to build one more point, Javier, I mean the — you’re always going to see some elements of moves across channels and price pack architectures and that’s something that, again, we activated at the end of last year as part of our reaccommodation of the channel strategy. But that’s more of adjusting to the realities of the marketplace and where we see the growth coming, but that’s not in it for us to be promoting, as Mike said. So it’s very different. And the other bit is, remember, integrated margin management, including our productivity plans allow us to be able to flex when needed to make sure that we remain competitive, not just in the US but across the globe.

Javier Escalante: Okay. Thank you, guys.

Mike Hsu: Okay. Thanks, Javier.

Operator: Thank you. Your next question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.

Bonnie Herzog: All right. Thank you. Good morning.

Mike Hsu: Good morning.

Nelson Urdaneta: Good morning.

Bonnie Herzog: I had a question on guidance. I guess I’m trying to bridge the gap between your new EPS guidance versus prior. So hoping you could maybe walk through the different puts and takes you’re now guiding currency neutral EPS growth of 50 bps at the midpoint versus roughly 6.5% prior. You certainly highlighted the negative impact from tariffs of $300 million. So could you walk through some of the other assumptions or puts and takes to your new EPS growth guidance? I guess hoping you could help quantify the impact you expect from stepped-up productivity savings as well as what sounds like your expectation for greater price investments this year as you’ve kind of mentioned like to really improve your competitiveness and affordability.

And I guess in the context of that, how big of a risk is there that you’re going to need to maybe increase investments further to improve your competitiveness, especially private label pressures intensify in an economic slowdown. Ultimately, I’m just trying to understand what’s factored into your guidance, your new guidance. Thank you.

Nelson Urdaneta: Sure, Bonnie. So in a nutshell, the real big change in terms of our guidance is the new news on the cost front and $300 million gross, which on a net basis is around $200 million. That’s the real move, and that’s what brings us to about flat on the year, give or take, on both operating profit and EPS. There are slight moves on the currency, but there are also moves elsewhere. That’s not really driving it. It boil down to the $200 million net headwind that we see for the year. That’s really what’s in it. And it is reflected in terms of our expectations of gross margin and that’s what we’re building inherently in the outlook that we’re providing today because what’s going to happen and what we foresee is Q2 will be the biggest impact from a headwind related to the tariffs.

They’re in full swing right now. And again we’ve only reflected in this outlook, what’s then enacted both domestically here in the US and outside of the US. And as such, thinking about the quarters, we would expect a headwind of around 200 basis points for Q2 versus prior year. As we progress through the year, that would be mitigated as we enact all of the different changes we’re doing in terms of our supply chain and the mitigation plans are being enacted and implemented. The other bit is, does it impact our ability to invest? No. As we stated, at the beginning, we intend to keep investing behind the innovation and the marketing plans that are in place and in play today, and we’re not going to stop any of the investments in our supply chain.

If anything, we’ll have to accelerate some of them as part of the mitigation plans that are being implemented.

Mike Hsu: The other thing I’ll add, Bonnie, and I think part of your question was on the stretched consumer and what do we do about that? I think one is, this is not a new trend. And so we all kind of saw where the puck was going last year. And so one of the hallmarks of the plan for this year is what we’re doing, what I mentioned on Snug & Dry or our mainstream value, which is we want to improve our mainstream value offering. Our approach would be let’s improve the product and give that a chance for the consumers to touch and feel that and get that in the house. Apparently, I was just looking at the online reviews yesterday at some retailers and the new Snug & Dry is almost five stars out of five, right? And so it’s a great product.

We feel great about that and that approach. It compares favorably with the tier five or the premium products. But that’s okay. I think our philosophy internally would be, hey, let’s make a great tier four product. And the tier five teams can figure out how to beat that. And that’s kind of how we’re approaching things. I do recognize that promotion has ticked up just, I would say, a touch in personal care in North America, not significantly. We’re, at this point, we’re still running our play. We had a plan for promotion. It’s more focused on trial of the new products. And so that’s kind of the play that we’re running for now. But we recognize we’re going to have to continue to be agile.

Nelson Urdaneta: And, Bonnie, I would like to add. Sorry, go ahead.

Bonnie Herzog: Oh, no, no, please, go ahead.

Nelson Urdaneta: Yes, I would just like to add one other thing in terms of as you think about the margin progression and some of the elements that are in play, we’re already seeing some of the $200 million in SG&A savings that we had committed to starting in 2025 through 2026 coming through in Q1. So those savings, I mean, just to give you a perspective on overheads, SG&A alone, we were at around 13% for the quarter versus a 13.2% prior year. So those savings are giving us some leverage in terms of offsetting and maneuvering through some of the headwinds, but also delivering the fuel to be able to continue reinvesting. But I think you have something else you want to bring up.

Bonnie Herzog: No, no, that was honestly exactly what — where I was going with this. So it sounds like you do have the flex if the environment deteriorates further, so you can remain competitive. It sounds like, yes, exactly what you just said you have some of this fewer leverage to kind of reinvest in the business, et cetera. So that’s helpful.

Nelson Urdaneta: Yes, I mean, we have it and the whole thing is that, again, it’s not immediate. And that’s why we’re saying that it takes a little bit of time for things to work through. But mid-term, long-term, we do see the solves.

Bonnie Herzog: All right. Thanks so much. I’ll pass it on.

Mike Hsu: Yes, just one note, Bonnie. I would say and that’s kind of why we made the change in the outlook we did. It’s given us the opportunity to preserve the plan that we believe in and that we believe is working.

Bonnie Herzog: All right. Thanks again.

Mike Hsu: Great. If we could take one more question, that’d be great.

Operator: Certainly. Your last question is coming from Chris Carey from Wells Fargo Securities. Your line is live.

Mike Hsu: Hey, Chris.

Nelson Urdaneta: Hey, Chris.

Christopher Carey: Hey, everyone. So one kind of around COGS and then a separate question, the bigger picture. The savings program, so you’re going to be a bit higher this year than your going expectations. This is going to be the second year running. It would appear that you’re running ahead of the multiyear plan on gross productivity savings. So are you pulling forward future savings? Are you now thinking that the savings program will be bigger over time than your prior expectations. So if you can just expand on that. And then if I could, just secondly, I’m struck by the conversation during this earnings call where clearly a number of analysts are trying to figure out in a way, we have more inflation and yet continued strategic pricing decisions and I understand tariffs are discrete.

But nevertheless, it is interesting in the context of your Analyst Day when it was you’re kind of making the case that you can manage through these cost environments, maybe a bit more, with a bit more agility. And so is this your decision to basically take a little bit of a hit on tariff to keep the plan in place or are we perhaps talking about a retail environment where you’re unable to pass through higher cost for tariffs as retailers themselves are dealing with a lot of incremental tariffs on gen merchant and other such categories. So I wonder if you could just comment on maybe like why you’re sticking to this pricing program outside of just, well, we want to stick to the plan. I wonder if there are other things going on. So thanks for those two items.

Mike Hsu: Yes. At the risk of oversharing, I’ll just try to illustrate a little bit, Chris, it’s a complex, the tariff situation creates unusual complexity because companies have different positions and different, I would say, sourcing strategies for different markets, right? And so it’s not as simple as what tariffs are in so you price it all away, right. Because and in our case, why wouldn’t we do that? Well, because we believe we can mitigate most of the cost by switching sourcing. So and that, and in some cases, we have competitors that don’t have to switch sourcing because they’re sourcing locally. And so you would price yourself to be uncompetitive and risk kind of eroding that business or taking it out, why you could have solved it by switching your sourcing solution.

The problem with the sourcing is, it takes longer because we don’t have everything where we need exactly where we need it now, right? And so because the world changed. And so that’s why there’s a hit to this year, which we think we will mitigate into next year or the year after is because we can mitigate over time with supply chain moves, but that they take some time to manifest. And so really that’s kind of why you’re getting the guide that you’re getting. It’s not an external kind of set of factors. It’s more about us wanting to preserve kind of the plan that we have that we think is the right plan and working and then also recognizing that we have a solution, but that solution is going to take a little time.

Nelson Urdaneta: And then on the savings program and the progress that we’re making against our stated target of $3 billion in five years, Chris, as you rightly mentioned, I mean, we had a very good year in 2024, our first year of the program, in which we delivered 5.9% of gross productivity, about $745 million of savings. And for this year, we’ve had a good start. Q1 was about 5.2%. And we’ve stated that our aim is to be in the upper end of the range of the 5% to 6%. So we are projecting another strong year in terms of gross productivity. The approach on integrated margin management that we started working on a couple of years ago is paying dividends. And really it’s being embedded in our culture and has given us enterprise-wide visibility and accountability to be able to drive over time, margin enhancement across all of our businesses and be in line to deliver our stated target of at least 40% gross margin by the end of the decade and at least 18% to 20% operating profit margin as we exit this decade.

It’s not going to be linear as we said. I mean we look at it more on a year-over-year basis and a sustained period of time. In terms of, are we prepared to take up the $3 billion for the five year? At this moment, we want things to kind of play out over time. We’re very encouraged by the opportunities that we see ahead of us. We were very encouraged by the second year that’s in front of us, but we’re only in a year anniversary since we launched the Powering Care program. So excited about the future on this end and the opportunities that this will create for us.

Christopher Carey: Thanks, guys. It’s a complicated world. I appreciate the candor. Thank you.

Mike Hsu: Okay. Thank you, Chris.

Christopher Jakubik: All right. Well, thanks, everybody, for joining us. And for the analysts who have follow-up questions after the call here we’ll be available. So I appreciate the time.

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