Kimberly-Clark's Q3 2025 Earnings Call: Contradictions Emerge on Pricing Strategy, Tariff Management, and Market Share Trends

Guidance:

• Target organic growth ahead of categories and expect to grow largely in line with categories for full-year 2025 (categories ~2%).
• Expect to close the IFP JV mid-2026; EPS from continuing operations to step up (~30% y/y) post-close while adjusted EPS attributable to total K-C will be muted as discontinued-ops income phases out.
• Target gross margin >= 40% and operating profit 18%–20% before the end of the decade.
• Expect gross-margin expansion in Q4; operating-profit margin roughly flat Q/Q due to stepped-up marketing investments.
• Tariff mitigation progressed: gross tariffs reduced (~$170M to ~$100M); ~$50M still being mitigated.

Business Commentary:

• Volume and Mix Growth Strategy:
• Kimberly-Clark reported the seventh consecutive quarter of volume plus mix-led growth.
• The company achieved a year-to-date share increase of 90 basis points in diapers, despite competitive pressure.

• The growth strategy focused on meeting consumer needs across the good, better, best spectrum, leveraging innovation and brand building.

• Promotional Activity and Consumer Response:

• Kimberly-Clark observed solid performance in North American diapers, with a share gain of 10 basis points in Q3.
• The company adjusted its promotional activity to encourage trial of new innovations like HuggFit 360 and Snug & Dry, which were well-received.

• The shift in promotional strategy was aimed at driving brand loyalty and positive mix rather than engaging in a price war.

• Operational Efficiency and Profitability:

• Kimberly-Clark delivered consistent operating margin expansion and industry-leading productivity in Q3.
• Strong productivity results were attributed to leveraging scale and a reorganized structure, supporting reinvestment for growth.

• The company is positioned to maintain profitability amidst a challenging external environment.

• Cost Management and Tariff Mitigation:

• Kimberly-Clark has successfully mitigated and reduced tariff impacts, with gross tariffs down to $100 million.
• The IFP transaction is expected to close in mid-2026, further stabilizing fiber costs and reducing volatility.
• The company's integrated margin management approach has helped manage cost variability and stabilize financial performance.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "seventh consecutive quarter of volume plus mix-led growth," noted they "delivered consistent operating margin expansion," and said "We're confident in our ability to unlock our long-term potential." CFO reiterated targets: "gross margin of at least 40% and an operating profit of at least 18% to 20%." These statements consistently emphasize momentum, margin targets and confidence in execution.

Q&A:

• Question from Javier Escalante Manzo (Evercore ISI): Update on competitive dynamics in U.S. diapers; did you resume marketing plans in Q4; how to steer the market away from a price war given flat volumes?
  Response: Promotion was shifted later in Q3 into Q4 to drive trial for innovation; company gained share (10 bps in Q3, +90 bps YTD), expects promo to normalize after trial, and sees club-channel growth creating mix effects but remains confident in innovation-led strategy.

• Question from Javier Escalante Manzo (Evercore ISI): How are consumers reacting to Chinese/private-label diapers versus your introductions; does it make driving positive mix more challenging?
  Response: Consumers respond to KC product quality in testing and market data; retailers balance assortment for value-seekers, but KC remains confident its global experience and product tech will sustain positive volume/mix.

• Question from Lauren Lieberman (Barclays): Can you discuss the shape of the P&L in 2026–2027 and the dilution from the IFP JV?
  Response: Too early for point estimates; targeting organic growth ahead of categories, aiming for gross margin >=40% and operating profit 18%–20% by decade end; closing IFP mid-2026 should boost EPS from continuing ops (~30% y/y) while total-KC EPS will be partially diluted as discontinued-ops income winds down.

• Question from Peter Grom (UBS): North America outperformance vs. tracked data — what drove the gap in Q3 and will it persist in Q4?
  Response: Differences stem from untracked large customers, club and e-commerce growth and panel coverage; Q3 shipments outpaced consumption due to lapping last year's hurricane impact (~50 bps) and timing of promotions; year-to-date shipments align with consumption.

• Question from Christopher Carey (Wells Fargo): You shifted promo into Q4 — how is that improving competitiveness and what are the margin implications; any update on commodities/tariffs?
  Response: Promo is being used to drive trial of innovations and has helped competitiveness; expect gross margin expansion in Q4 but operating margin roughly flat due to increased marketing; tariffs improved—gross tariffs down about $70M (from ~$170M to ~$100M) with ~$50M of mitigation still in progress.

• Question from Nik Modi (RBC Capital Markets): Clarify full-2025 top-line guide — Q3 over-delivery but a step back in Q4?
  Response: YTD organic sales ~1.6%; categories expected to grow ~2%; management expects to grow largely in line with categories for the full year and anticipates Q4 acceleration or at least similar levels to Q3 based on programs.

• Question from Anna Lizzul (BofA Securities): How will Kimberly compete in an evolving diaper category with ultra-premium growth and increased mid/value competition; consider M&A?
  Response: Strategy is to win across the good-better-best ladder via superior technology and cascading innovation into mid-tier to capture premiumization while maintaining strong value offerings; focus is on organic innovation (no specific M&A plans announced).

• Question from Anna Lizzul (BofA Securities): You previously said the JV would reduce fiber volatility — how is that progressing?
  Response: JV with Suzano stabilizes fiber sourcing and reduces input volatility; integrated margin management and partnering with an efficient fiber producer is expected to smooth fiber cost swings and lower earnings volatility over time.

Contradiction Point 1

Competitive Dynamics and Pricing Strategy in U.S. Diapers

It highlights differing perspectives on competitive dynamics and pricing strategies in the U.S. diapers market, which could impact market positioning and financial performance.

Can you provide an update on competitive dynamics in U.S. diapers, particularly from retailers' private-label and Chinese imports? Are there strategies to mitigate a price war? - Javier Escalante Manzo (Evercore ISI Institutional Equities, Research Division)

2025Q3: Our strategy is innovation-led, focusing on making our products better across the good, better, best spectrum to drive growth. Despite increased competitive activity, our teams navigated it effectively. - Michael Hsu(CEO)

How will pricing environment and competitive landscape evolve in the second half, given volume mix growth needs? - Steve Powers (Deutsche Bank)

2025Q2: We've got a very proactive approach on pricing, which allows us to be very opportunistic as we see things in the marketplace. - Michael Hsu(CEO)

Contradiction Point 2

Tariff Management and Impact on Financials

It involves differing statements on the management and impact of tariffs, which have a direct influence on financial performance and operational costs.

Did you see an improvement in the commodity outlook, excluding tariffs? - Christopher Carey (Wells Fargo Securities, LLC, Research Division)

2025Q3: Tariffs are improving, with gross tariffs down by $70 million. We've mitigated $50 million, expecting full mitigation by year-end. - Nelson Urdaneta(CFO)

Can you clarify the outlook adjustments due to tariff changes and portfolio reshaping? - Michael Lavery (Piper Sandler)

2025Q2: Tariffs' net impact is $170 million, offset by $50 million. Operating profit growth is expected to improve due to lower tariffs and other favorable factors. - Nelson Urdaneta(CFO)

Contradiction Point 3

North American Consumer Growth and Market Share Trends

It encompasses differing viewpoints on the performance and trends in North American consumer growth and market share, which are crucial for strategic planning and investor expectations.

North America's performance surpassed expectations. Could you discuss the difference between your data and market trends? - Peter Grom (UBS Investment Bank, Research Division)

2025Q3: Our data differs from market track trends due to the untracked nature of some large customers. Our focus is on meeting consumers in e-commerce and club channels, which are less well-tracked. - Michael Hsu(CEO)

Could you explain the increase in professional sales and your expectations for second-half growth? - Lauren Lieberman (Barclays Bank PLC, Research Division)

2025Q2: North American consumer growth is robust with innovation driving momentum. Shipments exceeded consumption due to retailer inventory shifts. - Nelson Urdaneta(CFO)

Contradiction Point 4

Impact of Tariffs on Financials

It involves different outcomes and expectations regarding the financial impact of tariffs, which are crucial for investors to understand the company's financial health and strategy.

Did you see an improvement in the commodity outlook, excluding tariffs? - Christopher Carey (Wells Fargo Securities, LLC, Research Division)

2025Q3: Tariffs are improving, with gross tariffs down by $70 million. We've mitigated $50 million, expecting full mitigation by year-end. - Nelson Urdaneta(CFO)

What is the $300 million incremental tariff impact? Which areas are affected, and can pricing/productivity offset this? - Dara Mohsenian (Morgan Stanley)

2025Q1: The $300 million gross impact includes 66% from US tariffs on China, 10% from other countries' tariffs, and 25% from retaliatory tariffs. Plans are in place to mitigate at least one-third this year, with full mitigation by 2026. - Nelson Urdaneta(CFO)

Contradiction Point 5

Innovation and Product Strategy

It reflects differing perspectives on the company's approach to innovation and product strategy, which are key to maintaining market competitiveness and consumer appeal.

What is the current state of competition in U.S. diapers, particularly from retailers' private labels and Chinese imports? Can you take steps to avoid a price war? - Javier Escalante Manzo (Evercore ISI Institutional Equities, Research Division)

2025Q3: Our strategy is innovation-led, focusing on making our products better across the good, better, best spectrum to drive growth. - Michael Hsu(CEO)

How do you address the needs of value-conscious consumers through your pricing strategy, considering the updated tariff outlook? - Nik Modi (RBC Capital Markets, Research Division)

2025Q1: The company is addressing it by cascading innovation from premium to value tiers. - Mike Hsu(CEO)