Kimberly-Clark (NASDAQ:KMB) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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Summary
Kimberly-Clark reported its 10th consecutive quarter of solid volume-plus-mix performance, maintaining global market share despite challenging consumer environments.
The company adjusted its full-year outlook due to discrete, significant one-off items impacting the quarter, but remains confident in its business fundamentals and momentum.
Strategic initiatives include a new alternative natural fiber program aimed at reducing reliance on natural forest fibers and a successful launch of the Arbex joint venture with Suzano.
North America saw a slight promotional increase, with Kimberly-Clark focusing on maintaining pricing and promotional discipline while navigating the competitive landscape.
The company expects $150 million of inflationary headwinds in the second half, with mitigating actions in place to offset these costs, and remains committed to long-term strategic investments.
Full Transcript
Chris, Investor Relations
With that, I'll turn it over to Mike for a few opening comments.
Michael Hsu, CEO
Thank you Chris and thank you all for joining us today. Hey, as I mentioned in our prepared remarks, our second quarter results demonstrate the durability of the growth engine we've built through power and care. We delivered our 10th consecutive quarter of solid volume plus mix performance, held global weighted share, posted another quarter of industry leading gross productivity and continue to invest for impact. We did this even as consumers remain pressured and category growth is moderating.
At the same time, results were impacted by a few discrete but significant one off items in the quarter that underpin our decision to adjust our full year outlook. Despite these headwinds, the fundamentals of our business remain strong and we're confident in our momentum entering the second half and into 2027. Our teams are executing with speed, agility and great care to manage the business with discipline and navigate external dynamics. We're delivering superior science backed innovation and value propositions around the world through our proven repeatable playbook that positions us to continue to win with consumers.
We're advancing the next phase of Kimberly-Clark's transformation and sharpening our focus on proprietary right to win spaces. Yesterday we unveiled a proprietary alternative natural fiber innovation program which has the potential to reshape the future of our industry. This is the culmination of more than two decades of materials and plant science expertise brought to life through powering care. We believe the program will enhance product performance for consumers, strengthen our long term growth trajectory, reduce exposure to natural forest fiber, cost volatility and advance our natural forest fiber free ambition.
We also completed the successful launch of Arbex, our strategic joint venture with Suzano. We're making strong progress on our integration planning for Chemu as well. We're excited and ready for what's next. We have a unique generational opportunity to create a new kind of health and wellness company, reimagine care for billions of people around the world and to create lasting value for shareholders. With that, we'd like to open up the line for questions.
OPERATOR (Operator)
Certainly everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press Star one Phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Your first question is coming from Nick Modi from RBC Capital Markets. Your line is live.
Nick Modi, Analyst at RBC Capital Markets
Thank you. Good morning everyone. So just maybe you can unpack. What exactly is going on in China? You know, in terms of like how this all started and then what the path forward is. And then I have one more question after that.
Russ Torres, Chief Operating Officer
Yeah, I'll take that one. Hey Nick, it's Russ. Yeah, I would say the main message is that we're very confident in our products. We make high quality products that are safe and perform well. And so we think that's going to lead the way to recovery over time. But just a little more context and I'll maybe make three points. First, there really is no scientific evidence backing the claims. We did, as we noted in the remarks, make multiple independent tests conducted by certified third party lab that confirmed that our products are safe and they were non detect tests.
Second, in terms of how we're handling it, our team is doing an excellent job navigating the situation. We're continuing to cooperate with the Chinese authorities who are managing the issue. And our strategy really is to continue to invest aggressively behind reinforcing the facts about our products and communicating quickly, quickly with transparency to consumers and obviously engaging stakeholders like retailers and government agencies. And we've gotten excellent support from all the stakeholders which we're really grateful for.
And then third, in terms of the outlook and what we expect going forward, we are not seeing any sequential deterioration in our sellout in China, but it also hasn't inflected positively yet. So we think we've been appropriate in the outlook for the balance of the year considering that uncertainty. And while we are cautiously optimistic in some areas, I think these incidents have been occurring with greater frequency and consumers are pretty smart and getting savvy about these things.
We're also realistic that it's going to take a little time to kind of work through this. So hopefully that gives you some sense.
Michael Hsu, CEO
Yeah, Nick, it's Mike. I'll just tag on one. Given kind of the social media environment, this is not the first time that's occurred to us. It probably is the largest though. But you know, I would say, you know, our purpose as a company is better care for a better world and we take our responsibility to consumers as paramount in that and we would never trade that off. And so we're very confident in the quality of our products and so we believe we'll get this back to the right place.
I would like to add Nick, though, that, you know, brand foundations globally remain strong in the face of some of the discrete impacts, including the China issue that we're working through. Just to point out, and I think I made this in my prepared remarks, we're still sustaining positive volume plus mix growth. I think our 10th consecutive quarter of that and then even in the quarter, I'd say holding overall weighted share in the quarter, although on the old cohort approach, up or even in about 70% of sales across the world.
So I think we feel good about our brand fundamentals and we're confident we'll be able to navigate this issue.
Nick Modi, Analyst at RBC Capital Markets
Great. And then, Mike, it was a really noisy quarter, a lot of stuff going on. Maybe you could just give us some perspective on how you guys performed relative to your internal expectations, just so we can kind of ground ourselves.
Michael Hsu, CEO
Yes, I'll make a comment, but maybe I'll have Nelson give you that because I think he's a little prepared for that line of thinking. But also I would agree with you, it's a choppy environment. So I'll come back to that.
Nelson Urdaneta, CFO
Yeah. So Nick, just to unpack a little bit, the quarter and where we're at, I mean, yeah, the second quarter organic growth came in below our expectations. However, strong execution and on the tariff refund that we received in the second quarter drove the better than expected and solid operating profit growth and EPS performance in the quarter. If we look at organic sales in Q2, we were about 100 basis points or so below our expectations. This was driven primarily by the disruption in our China diaper business the back half of June.
Keep in mind, that was only just two weeks. As well as the trade inventory reduction in North America, which was largely concentrated in adult care and in one particular channel. And that was not something we contemplated when we gave you our outlook back in April, that bid as well. Lastly as the softer category growth, because as you remember, we had talked about a 2.5% category growth trailing 12 months back in April. And now we're staring at about a 2% as it relates to adjusted operating profit and EPS.
The two came in ahead of expectations as I stated earlier. And this is primarily due to the tariff refund benefit and the really solid productivity we delivered in the quarter, which was 6.4%, which both more than offset the higher levels of brand investment year over year. And you know, overall, despite the challenging operating environment that Mike referred to, which included maneuvering through the LA distribution center fire, all the Middle East incremental costs that we're managing through and the China diaper disruption, we still had strong execution across all of our markets in general.
And this enabled us to deliver solid bottom line in EPS, which was again ahead of expectations.
Michael Hsu, CEO
Yeah, and then Nick, just back to your, you know, the point I would recognize, I think it is a very choppy environment generally for us globally, you know, but I would say the category remains resilient in a choppy environment. You know, if you go on a trailing twelve month basis. For the past few years, our categories on average have been about two, two and a half. And I think that reflects the essential nature of our categories that yield a little more resilient, more stable demand than other categories that I worked with in my past.
That all said, though, I would say, Nick, you know, I think you see it too. Consumers are clearly under increased pressure. I think we're seeing sentiment among, especially among lower income consumers is weakening. And we're seeing greater variability in consumption weighted growth across our categories in North America moderated sequentially from 3.7% last quarter to 1.9%. If you go further back, Q4, I think was 4. So it is choppy. But the thing I will tell you is at least some of that choppiness is potentially exacerbated by maybe promotional timing effects.
And the reality of our categories compared to some of the food categories that Nelson and Russ and I have worked in the past is we tend to be more concentrated in a smaller number of large retailers. And so I think large promotional events can swing things. And I think we've seen that from quarter to quarter. And so I would say we expect promotion kind of variation to normalize over time.
Nick Modi, Analyst at RBC Capital Markets
Great. Thank you, guys. I'll pass it on.
OPERATOR (Operator)
Thank you. Your next question is coming from Chris Carey from Wells Fargo Securities. Your line is live.
Chris Carey, Analyst at Wells Fargo Securities
Hi, good morning, everybody. Thank you. The first question is a clarification question. What was the tariff refund in the quarter and do you expect any more? I'm trying to understand the full year guidance, tariff refund versus inflation and the mitigation efforts that you're doing. And so it'll help isolate some of those key buckets. Then I have a follow up. Sure, Chris.
Nelson Urdaneta, CFO
So a few things in terms of the refund that we received in the quarter in North America, the US it was 45 million and that represents roughly about half of what we paid in North America as a whole. And keep in mind, that's not just the US because there were some retaliatory tariffs that we paid earlier last year in Canada as well. So overall, this is reflected in our second quarter results and in our updated outlook for the balance of the year. We don't have anything much more material factored in. So. So that's largely what's included in our outlook. And right now beyond that refund, we're continuing to monitor policy, environment and what's out there.
Chris Carey, Analyst at Wells Fargo Securities
Great. And then going into 2027, you know, there had been an expectation for mid single digit dilution from deal activity and then there was going to be an underlying assumption for base Kimberly Clark, just given what we're seeing in the backdrop for categories in North America and the competitive activity, given the volatility in China and also your latest expectations for Kenview, which sounds like it's closing in Q4 with good line of sight on synergies.
Do you continue to view the 2027 construct as you had laid out as still as tangible or firm as you had done before? Just give us a sense of maybe how thought process may be evolving as you get a bit more information about both your legacy Kimberly Clark business and also Kenview as you go into next year.
Nelson Urdaneta, CFO
So Chris, let me unpack your question a little bit. So first, we remain very confident in our ability to create generational value through the Kenview acquisition. Joining forces the two companies. Based on what we know today, we do not believe the factors driving our lower standalone 26 earnings outlook, and that's for us, materially change the underlying earnings potential of either our standalone businesses, of our own businesses, or the combined company going forward.
Now clearly, the exact timing and pace of the recovery in China following the diaper disruption will influence how quickly results normalize. There's also some uncertainty around commodities and the broader macro environment given the ongoing Middle East crisis and volatility. We're all managing through the potential impacts on the inflation and consumers as well as the exact timing of the further mitigating actions we may need to take. But some of those are already well underway, and that's why you see the outlook that we put forth given all those moving pieces standing here today.
It's early to provide a specific view on 27 because we still have a lot of things that need to land in the back half of the year, including the exact timing of the closing of the transaction. But as I said, we remain very confident in the underlying earnings power and growth potential of the new company. Now, as we get closer to the close of the transaction and we have further clarity on all these moving items over the next few months, we will provide an update on the overall view for 2027 and beyond.
But rest assured that we remain very confident in the logic and the generational value that we see this transaction creating.
Chris Carey, Analyst at Wells Fargo Securities
Okay, thank you very much.
Nelson Urdaneta, CFO
All right, thanks Chris.
OPERATOR (Operator)
Thank you. Your next question is coming from Bonnie Herzog from Goldman Sachs.
Bonnie Herzog, Analyst at Goldman Sachs
Thank you. Good morning everyone. I have a question on North America, which came in a bit below our expectations. First, could you unpack the drivers of this softness, including underlying consumption trends versus retailer destocking, and ultimately how your business in North America performed relative to your internal expectations? And second, it sounds like you're expecting a stronger 2H. So could you talk through the drivers of this and maybe what gives you the confidence and visibility in this expected improvement?
Nelson Urdaneta, CFO
Yeah, why don't I let me unpack the quarter and the half in terms of the puts and takes and the drivers, and then Russ will chime in on why our conviction in the acceleration of the business as we go through Q3 and Q4, and our confidence in our overall North America business and the strength of our propositions for consumers and customers. But as we chatted back in April, Bonnie, underlying consumption we expected to be ahead of shipments for the second quarter, in line with what we saw in the first quarter.
And as we think about what transpired in the quarter, a couple of things. One, shipments in North America consumer categories, in fact, lagged consumption by about 170 basis points. And to be clear, the shipments were down about 1.4% in consumer as opposed to a consumption growth which was 0.3%. And this was mainly by two factors. The first one, as we chatted back in April, the LA distribution center fire would represent a headwind of around 80 basis points to top line in the quarter for North America.
And that largely came in as expected, right around 22 million to be exact. And then, in addition, we had the retailer inventory movements which in total year-on-year impacted shipments growth by roughly 100 basis points versus last year. And of this we had about half of that was not something we anticipated when we gave you our outlook back in April. And this had to do with a particular channel and largely the adult category. Taken together, these two factors largely explain the gap between shipments and consumption.
If you look at the first half, three factors would have caused shipments to lag consumption by right around 200 basis points for the North American consumer business, and these are: one, the LA distribution fire, which was around 40 basis points of a headwind in the half; then the retailer inventory movements, which for the half represented again about 100 basis points year-on-year; and then lastly, as we chatted back in April, we had heightened activation programming across several channels, particularly club, which started early in Q1.
And for these we had made the shipments largely in the end of 2025. But to add some color on why we see the second half gaining steam, I'll transfer over to Russ.
Russ Torres, Chief Operating Officer
Thanks Nelson. Hey Bonnie. Yeah, I think overall, look, we are very confident in the health of our North America business. And while Nelson unpacked the drivers of the quarter which was below expectations, if you kind of look at the bigger picture, we've driven volume-plus mix-led growth in 8 of the last 10 quarters trailing 12-month share. We've gained share in 70% of our sales base in North America. And if you look at the share in the quarter, the majority of the weighted average share decline was driven by that club distribution loss which we talked about previously in the last couple calls.
And we do have a very strong innovation pipeline as well as brand investments coming. Our tissue business is performing extremely well. Our e-commerce business continues to perform really well. And in the second half we'll be scaling those innovations, and we've got some very good activation planning as well as some revenue growth management actions coming. So we do feel confident in the second half, you know, that the outlook really is to grow in line with our categories, that we'll be able to achieve that considering all the elements that Nelson went through.
And it's an easier comp as well. Easier comp because remember Q2 in North America we had 5% volume growth in the prior year. So the comps get easier as we go into the second half in North America.
Bonnie Herzog, Analyst at Goldman Sachs
Okay, helpful color. I'll pass it on. Thank you.
OPERATOR (Operator)
Thank you. Your next question is coming from Michael Lavery from Piper Sandler, your line is live.
Michael Lavery, Analyst at Piper Sandler
Hey Michael, good morning. I just want to touch on innovation, and you've laid out a robust pipeline and touched on some examples in the prepared remarks, which are great. Maybe just help us understand some of how it's running against expectations and timing, and I guess specifically how much wraps maybe into 2027, and maybe it's just overshadowed a bit this year by China disruptions and destocking. But then we'd also love to understand the new fiber platform — maybe how quickly that could drive new end products and what, if any, upfront costs we should keep in mind about how you launch that.
Michael Hsu, CEO
Okay, thanks Michael. Overall on innovation, I'd say we feel great about our innovation that we're launching. And I think we said at the beginning of the year that this is probably the most commercial activation of innovation that we've had in my time here at Kimberly-Clark. And I would tell you, I would say also that pipeline is good going forward. I think if you see kind of what we're doing this year, I think the stuff that we have coming in the next few years, I feel like are going to be bigger and better than that.
I'm really excited about our development and I think that reflects the discipline that we've had in our organization. And this is kind of an artifact of this kind of fast agile matrix that kind of pulls the markets and the functions together. Michael, I think we started looking much further out and one of our core metrics is future pipeline development and we're feeling like we're feeling pretty good about the trajectory. But maybe Russ, you may want to comment about some of the engine.
Russ Torres, Chief Operating Officer
Yeah, I'll just double click a little bit, Mike, on that and talk a little bit more. You may have recalled our Chief R&D Officer, Craig Stephen Slavtcheff, talking about the pipeline development. And that's one of the reasons why we're very confident, as we can see into the future the next three years, and the quality of our consumer insights has gotten better. And then the Power and Care matrix has really enabled us to scale innovations around the world much more quickly.
And so we've done that in femcare. You're seeing the impact of that in IPC, for example, where you've seen our organic growth accelerating, our share gains coming through in categories like diapers. And that really is significantly driven by innovation. And I think that's what's been powering the North America business, especially in personal care. And now you're seeing it come through in tissue. So it really is a broad-based set rather than any one particular innovation.
I think we feel very good about the portfolio we're building and have continued visibility that that's going to take shape and gain traction over time through that three-year funnel process that we've been diligently building with the teams around the world. So I don't know. Do you want to talk about the fiber one?
Michael Hsu, CEO
Yeah. Michael, hopefully you can tell we're very excited about our alternative natural fiber program. And through that we really believe we're going to positively impact the category, the planet, and the economics of the business. I think material invention has been a core of Kimberly-Clark. Two weeks ago I was up in Neenah and I was meeting with the family of the company's second CEO, a man named F. J. Sensenbrenner. And I was reminded by them that under his watch they launched a product called Cellucotton, and that was an invention at the time that ultimately became Kotex and Kleenex and then eventually bath tissue.
But, you know, the creation of that tissue-based product. And so I would say this is similar, right? And, you know, this is the culmination of over two decades of material and plant science investment and development, you know, and I really do think this has the potential to become our next great material platform with the heritage of Cellucotton. I think we believe we invented the nonwovens platform as well. And so this would be like that. And I think it's going to be great on the three dimensions that I mentioned earlier.
Number one, better for consumers. This fiber has unique properties and it pushes the frontiers of the softness versus strength kind of frontier. And so for a given amount of strength it adds superior softness, and so that will enable us to make a superior tissue. So number two, obviously we believe it's better for the planet, Michael. It's a farm crop, so that's going to replace natural forest fiber in our production mix. And so because of that it's also super land-efficient.
If you think about our requirements for pulp that's harvested from millions of acres annually, right, this product would be very dense, very land-efficient, and it's grown on a fraction of the acreage to source an equivalent amount of volume. That's part two. And then part three: it grows only in arid conditions, and because of that it's a water miser. It does not consume very much water. In fact, being a farm crop then it would take on a fraction of some of the crops that are currently produced in the region.
So we're excited about the impact on the planet that we have the potential to have. And then obviously we wouldn't be pursuing this if it didn't have good economics. And so it has the potential for us to enhance margins and then obviously, Michael, further reduce volatility. So that's an update on that.
Nelson Urdaneta, CFO
And Michael, on investments, just so you're in the loop, I mean we, you know, this has been factored into our investment profile for the last years and anything we've invested and anything we've expensed has been part of the results we've been reporting. And we've included in our outlook for the next few years, in our strategic plans, the capital requirements to continue to drive this initiative and some of the other ones we're doing.
Michael Hsu, CEO
Yeah, and maybe the... I'm sure you may have a follow-up question, Michael, but I mean, you know, one of the reasons we're talking about it now is because out there we're breaking ground on a pilot facility. You know, we've already acquired thousands of acres of land to grow this on, right? And so we prefer not to acquire more land. We prefer to turn it into a cash crop for the farming community. And so again, having the larger community understand kind of what we're trying to do here will also help us be a little more capital efficient.
That's great color there. I'll go ahead and pass it on.
OPERATOR (Operator)
Thanks. Okay, thanks, Michael. Thank you. Your next question is coming from Steve Powers from Deutsche Bank. Your line is live.
Steve Powers, Analyst at Deutsche Bank
Good morning. Thank you, Mike. I was hoping we could go back to North America and really the competitive and promotional environment. Just love a little bit more perspective on how you've seen those conditions evolve over the past six months, to what extent it's sort of exacerbated that choppiness and maybe the lower category growth that you spoke to. And most importantly, how do you think it plays out over the balance of the year?
Michael Hsu, CEO
Yeah, let me start now. Russ is all over this, but I would say, I think if you look at the facts clearly, the promotion environment is increasing slightly, right. And we're seeing that both from the other big branded competitors, but also some of the smaller brands, right. And so I would say that comes and goes in this category. And I think this is my 14th year here, and so we've seen, and I remember, periods of high promotion intensity. And then I would say the last several have been a little bit more moderated post-COVID.
And I think the reality is, despite those swings, these are kind of very stable consumption categories where consumption doesn't change because of promotion, right. And so for us, I think having a business that is a little bit more stable allows you to run it more efficiently and allows you to bring the innovation that can help expand the category over time. And so for us, that's why we're not big proponents of driving excessive promotion in our categories.
But maybe, Russ, you can give them a little more color on that.
Russ Torres, Chief Operating Officer
Yeah, absolutely, Mike. And you said it well. I think, Steve, we're focused on developing compelling value propositions at every tier every day while maintaining pricing and PNOC discipline over time. And in fact, in 25, our promo activity was below both pre-COVID levels and the category. And through 1H26, our promotional levels were down versus the prior year and the category in the majority of our categories. We did see, and this is perhaps what you're referring to, a tick up in competitive activity across multiple categories, as well as we did increase promotional support in some categories, especially diapers.
And that was specifically done for a purpose that's consistent with what Mike was outlining in terms of philosophy, to drive trial on key innovation launches. And we did also put some promotional activity into the marketplace to help us transition from that club distribution change that we had been talking about for a while. And we'd expect that to normalize for us. And we're going to remain consistently focused on delivering the compelling value propositions every day and PNOC discipline.
And so look for that promo activity for us to normalize over the balance of the year. And we're going to continue focusing on winning with innovation and brand building. And as Mike said, I think we're confident that over time the wisdom of the fact that promotion doesn't grow the category will find its way back into the market.
Steve Powers, Analyst at Deutsche Bank
Great. Thank you for that. And then I guess, Russ, this may be for you as well, but when you guys collectively talk about the Kenvue synergy planning running ahead of expectations, I guess for those of us on the outside, should we interpret that as greater confidence, maybe faster realization of the existing $1.9 billion top synergy target, or are you beginning to identify incremental synergy opportunities beyond those original assumptions?
Russ Torres, Chief Operating Officer
Yeah, I think what it reflects is greater confidence in the path to achieve that we've outlined. At this stage, it's still relatively early, but the bottom-up pipeline that we're building is based on specific initiatives in specific areas that are based on bottoms-up analytics. And now you probably noticed we've got kind of 50 teams and 600 people working on this. So I would call them execution, shovel-ready actions that we feel very confident in converting into a plan that we can confidently forecast delivery of.
And so that's exciting to us to have that visibility. It's probably a little early to see how that shakes out over three years, but we're working very quickly to fill that in and feel very confident that we're moving in the right direction at pace. I don't know.
Nelson Urdaneta, CFO
And just to add, Steve, I mean, we're not getting into unpacking what the cadence will be at this stage because obviously things are happening that you guys have seen in Kenvue. I mean, they've already announced some actions that we are in the process of factoring into our plans, which obviously, to the extent that that's delivering savings that we would have contemplated, all the better. But again, a lot of moving pieces that we're working through.
The overall confidence really goes back to what you said first: our confidence in the total number of synergies. And we'll be back when we get to the closing of the transaction to give an update on what is that cadence, what are those numbers exactly, factoring in the actions that Kenvue is taking this year, such that you can do the updates and we can have that all cleared out.
Michael Hsu, CEO
Yeah, Steve, maybe I'll just add a little top spin on the thing, which is, you know, I think I said when I was with you over the summer, hey, you know, the closer we look at this thing, the better it gets. And part of it is, you know, certainly, I think, right now we're focused and Russ is on point for helping us line up the synergy commitment, right. And so, but I would tell you, you know, we're not signing up for more than that at this point. But I would say we're feeling very good about the operationalization of that.
We did have our leadership teams, the future leadership team, together for a week last month, and then we've had these detailed assessments done of the entire management teams on both companies, kind of brought in and just to evaluate as we were selecting talent. And, you know, the thing that the lead facilitator from that organization pointed out was the extraordinary, unique kind of attribute of the combined team was a deep focus on execution. And we love that because we, you know, hopefully you guys are seeing that one of our calling cards is excellent execution.
And so as Russ helps us and the integration team leads us through the process, we're gaining confidence in that. That said, we're not signing up for more synergies. But I will tell you, part of my "the closer you look, the better it gets" is there's more growth in these categories than we originally thought when we did this deal. And I would say these categories are, you know, especially when you look on the Kenvue side, they tend to be a little bit more underdeveloped, mostly because there's a pretty significant gap between the incidence of a health issue and treatment.
And that's a little bit different for us, right. If you think about it, if you are going to the bathroom, you're probably in the bath tissue category, or if you have a baby, you're probably in the diaper category. So this gap to incidence isn't really common in our categories, but I think it's very common in the consumer health categories. And so we're really excited about that because that's something that can be expanded through the right category-building programming.
Steve Powers, Analyst at Deutsche Bank
Perfect. I can sense your excitement.
OPERATOR (Operator)
Mike, thank you very much. Thanks, Steve. Thank you. Your next question is coming from Lauren Lieberman from Barclays. Your line is live.
Lauren Lieberman, Analyst at Barclays
Thanks so much. Just want to go back again to pricing and promotional environment in the U.S. I know, Russ and Mike, you just kind of covered off on this, but just getting a little bit more specific. I think when we look at Nielsen data, which I know is not the end all be all for what's actually happening in the marketplace, but it's like some of what was promotion from you guys has now been in the market so long that it's actually showing up as lower price, not being captured as promotion.
So as we think going forward, and with your comments on PNOC—and I think what implies some price increases from here—I wanted to try to understand how much of that is less promotional activity versus real list price increases as you manage through cost inflation. Thanks.
Russ Torres, Chief Operating Officer
Hey Lauren, I'll take that one. It's Russ. Yeah, I think you're right to point that out. And our focus has been growing volume and mix, and you hit the word on the PNOC discipline. And in fact, what you're seeing on the headwinds I think have been a few temporary dynamics, and you called out a couple. We have had some temporary promotions in the marketplace but also have made some targeted revenue growth management actions to address specific consumer-driven opportunities and sharpen value surgically.
And also you're going to see a channel mix element as the consumer looks for more value, both in terms of what channels they're shopping in, online and club, and pack sizes. That has an impact on our pricing. So that's part of what you saw in the first half this year of seeing total company pricing down 50 bps. And over time, innovation and brand activation are going to continue to drive that. But we will be taking pricing actions to cover inflation in the second half of this year, and the magnitude of that, if you think about that in the overall portfolio, will be low single digits overall.
Those are in the marketplace now and you'll be seeing those come through. And that's part of the balance of the cycle of trying to balance out PNOC discipline over time using all the levers in the toolkit. And again, we've done that in some cases with innovation attached to it and in other cases targeted our revenue growth management actions based on just commodity movements that we had to hit. So the main point is, as part of the cycle, we're looking at innovation and brand building as the thing that will carry price mix over the long run.
But we will be taking action in some areas to address some of those issues in the marketplace.
Lauren Lieberman, Analyst at Barclays
And Russ, just to clarify, if I can, the low single-digit pricing statement, is that a North America number or a global number?
Russ Torres, Chief Operating Officer
Yeah, it's primarily in North America. That number, I think globally, it's going to vary a lot based on the geography. We have taken actions around the world as well.
Michael Hsu, CEO
Right, okay. We've taken actions across many countries, as you might imagine, Lauren. And the overall is following the principle of pricing net across neutral over time. But it's not just revenue growth management. Remember, we're also delivering the highest productivity we've ever delivered. We're also managing negotiations and contracts with our vendors and our suppliers. So it's the full toolkit, and not just that—it's one lever.
Russ Torres, Chief Operating Officer
And let me underscore—I'm sorry, Mike—just underscore that the innovation is the key element to that, that helps create premiumization and positive mix and also helps drive growth. That really, to me, is the core of that engine.
Michael Hsu, CEO
Yeah. And maybe related to what Russ was just talking about, Lauren, like the guiding thing for us is especially in this environment, we have to have a superior value proposition. And so that's kind of the company's focus. And so even though with inflation there are some pricing actions we have to take, we're always going to be cognizant of making sure we're offering a great value. And I think if you look at the past couple years, we paid particular attention to the value consumer or the middle income consumer.
I think they've been under more stress. And we think our approach to sharpen that offering, both in terms of product quality, primarily through product quality, I think has worked really hard for us.
Lauren Lieberman, Analyst at Barclays
Okay. All right, thanks so much.
OPERATOR (Operator)
Thank you. Your next question is coming from Robert Moskow from TD Cowen. Your line is live.
Robert Moskow, Analyst at TD Cowen
Hey, thanks for the question. It may be too early to ask this about 2027, but you know, with all of the noise this year from a lot of incidents that certainly could be considered transitory. Would you consider 2027 to have an easy comparison at this point? Or is it that, you know, these are volatile times, there's not a lot of visibility to that and so don't get your hopes up. So maybe I could start with there.
Michael Hsu, CEO
Yeah, well, I'm going to let Nelson kind of weigh in here, but Rob I think the volatility is out there. And so I think that answer can vary a little bit depending on what the facts are kind of in the day. And so we're very focused on running the business, we for the long term. But I think the thing that you point out in your question is there is a lot of volatility in the marketplace and we're trying to make sense of it.
Nelson Urdaneta, CFO
Yeah. And Rob, to Mike's point, I mean, we've been around for 154 years and counting, so we've gone through a lot of these cycles in prior lives and obviously this has gotten a little bit more the norm in the last few years. However, the underlying strength of the business, the power of our innovation pipelines, the executional prowess of our teams is second to none. And that, I think is what carries the day. I mean, where we land in 2027, it's early to tell.
As I was sharing with Chris earlier. The thing is, you know, the speed of the recovery in China is going to be one. And we factored in a significant amount for the balance of the second half, even though we're going to get back to, you know, growth versus the second quarter, because we're seeing the strength of the innovation pipeline and the executional plans that we've got in place. We're also managing through the inflationary impacts in the Middle East.
And as you heard as we were chatting with Lauren, we are taking very clear actions to address them in a thoughtful manner because we want to make sure that we're addressing our consumer needs and we meet them where they need us to be. So that's all being factored in. We'll come back towards the end of the year, beginning of next year, with what is the view for 2027? Factoring that in. But I would also like to highlight that the strength of our categories, the resiliency of our categories is there.
I mean, we continue to grow, trailing 12 months, about 2%. So that is solid. That is very solid. And we've been putting out their growth volume mix in the last nine, ten quarters consecutively. So the strength of the business is solid. We're very confident in our plans and we'll just need to keep navigating the choppy waters. We're in, as Mike referred to.
Robert Moskow, Analyst at TD Cowen
Okay, a quick follow up. Is it going to be very easy for you to tell whether competition is following you on these price increases, particularly in North America? And you say that you expect the promotional environment to normalize eventually, or at least your promotions to normalize? Is it possible that if they don't follow that you might have to promote some of this back?
Michael Hsu, CEO
Yeah, I'd say, Rob, it's always possible, but that's just not. We're going to run our play. Our play is really bringing great innovation, helping consumers understand how our innovation uniquely solves their problems in a different, better way. We're going to drive productivity and our costs and we want to be affordable. And so I think those are all the things and I think that's the play. You know, are we paying close attention to the promotion environment?
For sure. Right. And we recognize we're not going to put our head in the sand. But, you know, I think, you know, we're also trying to manage, you know, our approach because we've seen the other approach and it doesn't work.
Nelson Urdaneta, CFO
And the other one, Rob, is no one's immune in the mid long term to the inflationary environment. The key is that you got to manage the entirety of the toolkit. And that's why we've been so focused on the productivity bid. And as we've been sharing, we still have in North America a lot of room to go because we're still undertaking the $2 billion investment in the supply chain restructuring in North America that's coming on over the next few months and it'll carry through in 27 and 28. So there's a lot of firepower on that end to manage. But again, we need to see how things play out over the next few quarters.
Russ Torres, Chief Operating Officer
Rob, you may remember I think I talked to you back when I used to work in the snack category and there promotions do drive incremental consumption and by the way, so if your promotions are profitable, but then that's a viable strategy. But this is not the case in these categories. It's the opposite. Thanks, Mike. All right, thanks, Rob.
OPERATOR (Operator)
Thank you. Your next question is coming from Peter Grom from UBS. Your line is live.
Peter Grom, Analyst at UBS
Great, thank you. Good morning, guys. Hey, Peter, I was hoping to just get some perspective on the input cost environment. So you noted in the prepared remarks 150 million of inflation in the back half of the year consistent with the range you provided back in April. You know, obviously it's a volatile external environment, so maybe can you help unpack what's embedded in that assumption? And as we think about the back half, is the headwind evenly weighted or more pronounced in the third quarter?
Nelson Urdaneta, CFO
Yeah. So let me unpack a little bit what we've got for the second half and then also an update versus what we shared back in April because as you recall we we had not included the back half as part of the cost impact. So a few things. One, I do want to give a shout out to our teams. I mean they've been working very diligently to manage through the volatility that we've got, first and foremost to ensure that we have product availability so we can serve our consumers and our customers and then also to be able to manage through the higher cost such that we can deliver on our commitments.
And a few things there. As we look at what we said back in April, we said that for the second quarter we expected inflationary headwinds to be around 50 million for the quarter, primarily related to the higher oil linked input costs as well as some of the impacts from the LA distribution center. Those impacts came through pretty much as expected and are reflected in our first half results as we look into the second half. What we said back then was, and that's in April, that if oil prices were to remain at around $100 per barrel, we could potentially face gross incremental input cost headwinds in the back half of the year of around 150 to 130, $70 million. And that we have not included that nor any mitigating actions in our back half outlook currently based on where oil prices are and the actions that we've started to undertake. Our estimate for the second half is to be right around $150 million of gross input cost headwinds. And these impacts are now fully incorporated into our outlook through a combination of mitigating actions already underway and the tariff refund benefit that we got in the second quarter.
We now pretty much expect fully offset these incremental costs and maintain pricing net or cost inflation at roughly neutral levels for the full year.
Peter Grom, Analyst at UBS
Great. And then just words, what about housekeeping on kind of what's going on in China? You know, I think it was a 50 basis point headwind in 2Q. The guidance assumes 100 basis point headwind for the year. So just trying to understand how we should be thinking about the phasing in the back half. Is it more pronounced in 3Q and then you're assuming some improvement in 4Q and then Russ, I think you mentioned you haven't seen any sequential deterioration, but it hasn't yet inflected.
So just help us understand what you're kind of assuming in that 100 basis point headwind as well.
Nelson Urdaneta, CFO
Yeah, so basically the 100 basis point that you would do is we for the second half that becomes about 200 basis points and that's more or less evenly distributed in Q3 and Q4. That's kind of the way to look at it. And then from a profit standpoint, operating profit also, we expect roughly $70 million of headwind. And in the back, half again in operating profit, roughly half and half. That translates to about 16 cents of EPS. And that would be evenly split Q3, Q4.
But I'll. I think. You want anything else for Russ or.
Russ Torres, Chief Operating Officer
No, I think you said it well. I think we've assumed modest improvement in the trend, but nothing. No inflections at this stage, you know, because we do feel like it's prudent to be conservative given that sometimes these things can take a long time and we've got to see a lot more unfold before we're confident in changing an outlook on that.
Peter Grom, Analyst at UBS
Great. Thank you so much. I'll pass it on.
Chris, Investor Relations
Thanks, Peter. If we could take one more question and then wrap it up.
OPERATOR (Operator)
Absolutely. And our last question comes from Javier Escalante from Evercore. Your line is live.
Michael Hsu, CEO
Javier, how are you?
Russ Torres, Chief Operating Officer
Hey, Javier, how are you?
Javier Escalante, Analyst at Evercore ISI
I have a question for Ross and one for Mike. Hopefully the one on Ross is not an overkill, but if you can give us an update on diapers, it feels as if that these imports, and this is US Diapers imports, the ones backed by the retailers seem to be kind of like peaking. So whether that is true. And also there is any commentary on the overlap with the relaunch by your main competitor in the U.S. any color there, that would be great. And in tissue, we do see an improvement in July and there is this powerful shift to club and online.
So if you can comment, what's driving that? And I have a question for Mike. Thank you.
Russ Torres, Chief Operating Officer
Hey, Javier, how are you doing on the diaper question? I think you're right. You probably, Javier, have followed the category enough to know that there's been a long history of new players coming in and then sometimes they peak and then abate. Certainly there's a lot of those entering the marketplace right now. And that's a dynamic we're contending with. And so our focus in terms of how we deal with that is to just stay focused on executing our strategy, which I think has been very successful, successful around the world. And that's to continue bringing innovation and focus on strong value propositions at every tier of good, better, best. And I think that has been working in North America. Prior to the club distribution change we've talked about.
We've gained share two years in a row despite that competition and we do have a good innovation agenda. I think we're now number one in social engagement in 26. We've got a lot of good actions happening on, on premiumization, so we're going to stay focused on that. In terms of how the other things play out, I think the consumers will decide and we're confident that if we stay focused on our play, it's been very successful around the world and that will continue to be true in North America. On the tissue, if I understood your question correctly, I think it was really just understanding a little bit more about what's maybe driving the improvement in our business. Is that right?
Yeah. Yeah. Well, I think it's. Again, I hate to be boring and repetitive, but it's the same thing. We really took the thinking of what are our value propositions by value tier in the marketplace and really focused on sharpening the strength of our offerings and then improving our innovations. And so you've seen that in Viva, which we highlighted, I think, in the call, where that's really been working for us. That's an example where we already have a great product. We just needed to activate it and do a better job in packaging it, communicating it, and building the brand.
And that has been very successful. I think we gained 80 basis points of share in the second quarter on that. We've got great innovation on Kleenex, which has been really performing very, very well and gaining share consistently over the last several years. And we have some new innovations on format that have insights around them with respect to consumer usage occasions. And then on the dry bath side, we've done a great job, I think, sharpening our value, which is very, very important to a large swath of consumers and have done extremely well in the good tier this year to date.
So it's all those things together, Javier, with brand building, activation, and innovation. And we actually have some very good things coming as well next year and the year following on tissue that we're excited about, in addition to the fiber thing. So there's a lot of good things happening there. So I'll turn it to Mike on the second part.
Michael Hsu, CEO
Yeah, I mean, Javier, just to tag on, I know you got a question for me separately, but I just want to emphasize the environment we understand. I mean, the fact that there's more competitors entering categories in North America, I mean, it's something that we're very well aware of. And I think, you know, we've been dealing with this for the past 10 years. In China, there's 200 brands that we compete in diapers with in China, and we're very confident we have the best product in that market, which is why we became number one.
And so the thing that maybe I'll just emphasize, and the playbook is right, but superior value proposition. I will tell you the anchor for our superior value propositions at Kimberly-Clark is differentiated product technologies. And so we feel fantastic about the innovations we've brought in personal care. I promise you the innovations that you'll see in the next three years on personal care will be better than the ones we've launched over the last 10 years.
It's also why we're doing things in tissue like alternative natural fibers. It's going to, in my mind, change the category forever. And so again, that's kind of our bet, which is like, and this is kind of the calling card of Kimberly-Clark, which is we are technologists first, engineers, and we invent better stuff and we're good at it.
Javier Escalante, Analyst at Evercore ISI
Mike, thank you for that. Mike, with the completion of the Suzano deal, right. Talk about a little bit, I guess, better, or expand on what does it mean for you operating without the international tissue business? What does it mean in terms of your capacity and resources to invest in international personal care and also readying the integration of camview? Thank you.
Michael Hsu, CEO
Yeah, for sure. We're really excited about the additional focus it brings, although that notwithstanding, in a few months there'll be a broader swath of categories we'll have to focus on as well. But we feel very good about it. You know, I think, and maybe one of the best things, Javier, is I think in setting up Arbex, you know, it wasn't like we were trying to move on from a, you know, a problem or a challenge. You know, I think the whole fundamental premise of our joint venture with Suzano to create Arbex is we're going to create a world-class global competitor in the hygiene and tissue business.
And I think when you combine the scale and capabilities of what Suzano brings with our commercial capability and knowledge of tissue making, I think that's a powerful combination. And so I think there's no team within our company that was more excited than the Arbex team kind of getting started off about their future. And so we're really excited for them. Obviously we all knew that we had this other thing, this alternative natural fiber up our sleeve as well.
But again, I think part of it is we wanted to create an advantaged business on that side. And then certainly within our house, the clear focus within personal care globally, I think really helps us kind of drive the execution on that side.
Javier Escalante, Analyst at Evercore ISI
Thank you very much.
Russ Torres, Chief Operating Officer
Hey, Javier, just one last point. Russ, again, just on the diapers point that you made. Yeah, I just wanted to underscore that we have great respect for our competitors and for the things that are happening in the marketplace. But what gives us confidence as well, even beyond the United States, is just how things are unfolding around the world. And that really—and Mike just mentioned this—the China product performance as we've rolled the playbook out to other markets and other IPC, you can see the results coming through.
Notwithstanding the recent China issue we've had, we've been performing very strong in sequential improvements and double-digit gains in markets like India, Southeast Asia, Indonesia. And we're really strongly making progress kind of around the world, especially when you look at things like market share in diapers. 390 basis points up in Indonesia. Indonesia as well as 70 basis points up in Brazil, if that playbook is working. So that gives us confidence that it's not just a regional battle, but that the global playbook is translating across geographies.
And that is no different in North America. And so that's really what we're focused on activating against. And we believe in the long run that we'll be successful with that.
Javier Escalante, Analyst at Evercore ISI
Much thanks for the great color. Thank you.
Chris, Investor Relations
Thanks, Javier. Great. Well, we'll end it there for today, and for analysts who have follow-up questions, the IR team will be around to take them throughout the day. So thanks very much and have a great day.
OPERATOR (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.
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