Kimberly-Clark's Q3 2025 Earnings Call: Contradictions Emerge on Pricing Strategy, IFP Divestiture Impact, and Private Label Exit & Tariff Challenges

Date of Call: None provided

Financials Results

• Revenue: Organic net sales up 2.5% in Q3; year-to-date organic net sales up 1.6%
• EPS: Adjusted EPS down ~1% in Q3 vs prior year; full-year EPS expected to grow low- to mid-single-digits on a constant currency basis (includes ~$0.16 benefit from discontinued operations)
• Gross Margin: Generated gross productivity of 6.5% of adjusted COGS in Q3 (strongest quarter); expect full-year gross productivity toward upper end of 5%–6% range
• Operating Margin: Year-to-date adjusted operating profit margin 17%, broadly in line with prior year; Q3 adjusted operating profit dollars flat vs prior year

Guidance:

• Expect 2025 net sales to grow broadly in line with market where we compete; country/category mix currently growing ~2%.
• Full-year net sales headwind of ~290 bps from PPE divestiture and U.S. private-label diaper exit (~230 bps in H2).
• Anticipate ~100 bps net sales headwind from currency translation for the full year.
• Adjusted operating profit expected to grow low single-digits on a constant currency basis; reported growth bears ~70 bps translation headwind.
• Project incremental tariff costs ~$100M, mitigate ~$50M (net ~$50M); total COGS inflation ~ $250M for NA+IPC.
• Target gross productivity toward upper end of 5%–6% and to capture a portion of $200M overhead savings.
• Adjusted EPS expected to grow low- to mid-single-digits on constant currency (includes ~$0.16 EPS benefit from discontinued ops).

Business Commentary:

• Volume Plus Mix Growth and Market Share:
• Kimberly-Clark reported solid volume plus mix growth over the last seven quarters, including a 2.1% increase in North America in Q3.

• This growth was achieved through pioneering innovation, breakthrough advertising, and superior activation, enabling the company to hold global weighted market share despite competitive promotional activity.

• Supply Chain Productivity and Cost Savings:

• The company delivered 6.5% of adjusted cost of goods sold in productivity in Q3, with an expectation of industry-leading gross productivity in the 5% to 6% range for the full year.

• These results were driven by value stream simplification, network optimization, and scalable automation, as well as strategic sourcing efforts that mitigated inflation and delivered cost savings.

• Innovation and Brand Strengthening:

• Kimberly-Clark has been focused on enhancing innovation across four consumer benefit platforms, leading to innovations like Huggies Little Movers in North America and Huggies Cushion Protection in Brazil.

• These innovations, paired with creative storytelling and brand partnerships, are driving demand and share gains in key markets, particularly in diapers and pants.

• Financial Performance and Outlook:

• Adjusted operating profit dollars were flat in Q3, with the year to date adjusted operating profit margin at 17% in line with the prior year.

• Despite challenges, Kimberly-Clark is positioned to deliver low single-digit adjusted operating profit growth for the full year, maintaining discipline in its innovation-led growth model and mitigating tariff-related costs.

• International Personal Care Expansion:

• The International Personal Care segment reported volume plus mix growth of 3.6% in Q3, driven by gains in markets like China, South Korea, and Brazil.
• This growth is attributed to a focus on leading category growth through innovation and scaling global best practices while maintaining competitive pricing strategies.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly emphasized transformation momentum, innovation-led volume+mix growth, and record Q3 productivity (6.5% of adjusted COGS). CFO: YTD adjusted operating margin 17% ‘broadly in line’ with prior year and on pace for ~$2.0B free cash flow—statements framing progress despite headwinds (tariffs, divestitures, promotion).

Contradiction Point 1

Pricing Strategy and Consumer Behavior

It reflects differing perspectives on the company's approach to pricing and how it aligns with consumer behavior, which can affect revenue and competitive positioning.

How is the company positioned to achieve its 2025 financial plan? - Nelson Urdaneta(Executive Vice President of Investor Relations)

2025Q3: Our focus is on driving volume and mix while maintaining discipline on pricing net of commodity. We have targeted revenue management actions, adjusting pricing as needed, but prioritize value over growth through promotional activities. - Michael Hsu(CEO)

Can you outline the pricing environment and outlook for the second half? - Stephen Robert Powers(Deutsche Bank)

2025Q2: Our focus is on driving volume and mix while maintaining discipline on pricing net of commodity. We have targeted revenue management actions, adjusting pricing as needed, but prioritize value over growth through promotional activities. - Michael Hsu(CEO)

Contradiction Point 2

IFP Impact on Financial Outlook

This contradiction involves the company's communication regarding the impact of the IFP divestiture on financial outlook, which is crucial for investor expectations and strategic planning.

Can you provide more details on the Huggies Little Movers campaign? - Russ Torres(President and Chief Operating Officer)

2025Q3: Our outlook for net sales and operating profit growth now reflects the results of the remaining two segments, North America and International Personal Care, as well as our overhead structure excluding IFP. - Nelson Erdineta(CFO)

Update the outlook considering tariffs and portfolio changes? - Michael Lavery(Piper Sandler)

2025Q2: We expect sustainable growth ahead of categories through volume and mix. The adjusted operating profit growth is now low to mid-single digits, reflecting reduced tariff impacts and continued productivity improvements and SG&A savings. - Nelson Urdaneta(Executive Vice President of Investor Relations)

Contradiction Point 3

Private Label Diaper Business Exit and Tariff Impact

It involves the impact of the private label diaper business exit and tariffs on financial results, which are important for investor understanding.

Can you discuss the impact of the private label diaper business exit? - Chris Jakubik (Head of Investor Relations)

2025Q3: The private label diaper business exit in The U.S. has been impacting our results. For the first nine months of the year, we have absorbed a roughly two forty basis point headwind to operating profit growth. Year to date net tariff impact has been an additional two fifty basis point headwind to operating profit growth. - Nelson Erdineta(CFO)

Can you explain the $300M tariff impact and how you plan to offset it? How does this affect your cost management? - Dara Mohsenian (Morgan Stanley)

2025Q1: The $300 million impact is due to increased tariffs on China, reciprocal tariffs, and retaliatory tariffs. We are mitigating costs through supply chain reconfiguration, expecting to address a third of the impact this year and the rest next year. - Mike Hsu, Nelson Urdaneta

Contradiction Point 4

Price and Pricing Strategy

It relates to the company's pricing strategy and how it is managing pricing in the face of external headwinds and tariff impacts, which is critical for competitive positioning.

What are the key highlights from Q3 2025 business update? - Chris Jakubik (Head of Investor Relations)

2025Q3: In the third quarter, we continue to perform while transforming Kimberly Clark into an industry leading personal care company. - Mike Shu(Chairman and CEO)

How is pricing driving mix in North America and emerging markets, especially with currency headwinds? - Javier Escalante (Evercore ISI)

2025Q1: Our focus is on driving volume and mix while maintaining pricing net of commodity discipline. - Mike Hsu, Nelson Urdaneta

Contradiction Point 5

Volume and Mix Growth

It involves discrepancies in the company's projected volume and mix growth, which are key drivers of revenue and market share.

Can you update on cost savings efforts? - Mike Shu(CEO)

2025Q3: We expect a second year of industry leading gross productivity at the high end of our 5% to 6% range. - Nelson Erdineta(CFO)

Can you discuss short- and long-term top-line performance considering organizational changes affecting innovation and marketing? Also, discuss your 2025 pricing strategy? - Dara Mohsenian(Morgan Stanley)

2024Q4: Volume and mix contributed 1.2 points in 2024, with Q4 accelerating to 1.5%. - Nelson Urdaneta(CFO)