金百利克拉克 (KMB) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for your patience in holding.

We now have your speakers in conference.

(Operator Instructions)

I would now like to turn today's conference over to Mr. Paul Alexander.

Sir, you may begin.

Thank you and good morning, everyone.

Welcome to Kimberly-Clark's second-quarter earnings conference call.

Here with me in Dallas today are Tom Falk, Chairman and CEO, Maria Henry, CFO and Mike Azbell, VP and Controller.

Here is the agenda for our call.

Maria will begin with a review of our second-quarter results.

After that, Tom will provide his perspectives on our results and outlook for the full year.

We'll finish with Q&A.

As usual, we have a presentation of today's materials in the investor section of our website.

As a reminder, we will be making forward-looking statements today.

Please see the risk factors section of our latest annual report on form 10-K for further discussion of forward-looking statements.

We will also be referring to adjusted results and outlook.

Both exclude certain items described in this morning's news release.

The release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

And now, I'll turn over to Maria.

Thanks, Paul.

Good morning, everyone.

I'm happy to be in my first earnings call as part of the Kimberly-Clark team.

I've had the opportunity to meet some of you and I'm looking forward to meeting many more of you is I begin traveling to meet with investors this quarter.

Let me go ahead and turn to our results for the second quarter, starting with some headlines.

First, we achieve organic sales growth of 4%, in line with our full-year target of 3% to 5%.

Second, we delivered excellent cost savings and margin improvement and solid growth in adjusted earnings per share.

And third, we continue to improve our capital efficiency and return cash to shareholders.

Now let's cover the details of our results.

Second-quarter sales were $4.6 billion, that's down 6%, driven by a 10 point drag from currency rates.

Organic sales rose 4%, highlighted by a 10% increase in our developing and emerging markets.

On profitability, adjusted gross margin was 35.8% in the second quarter, up 140 basis points year-over-year.

Adjusted operating margin was 17%.

That's up 130 basis points.

Operating margins were up in each major geographic region, North America, developed markets and developing and emerging markets.

Our teams continue to deliver significant cost savings in order to improve profitability and fund the investments we're making behind our brands.

Second-quarter FORCE savings were $105 million, equaling our previous all-time high.

For the full year, we now expect that FORCE savings will be at least $350 million.

That's up from our previous expectation of at least $300 million.

In addition, our organizational restructuring is on track and generated $20 million of savings in the quarter.

Commodities were a $40 million benefit in the quarter, mostly from oil-based materials.

We now expect that deflation for the full year of be between $100 million and $200 million.

On the other hand, we continue to experience significant currency headwinds.

The total earnings drag from currency was approximately $0.30 per share in the second quarter.

For the full year, we expected that currency will negatively impacts earnings by more than 20%.

On the bottom line, second-quarter adjusted earnings per share were $1.41.

That's up 6% year-on-year and includes an approximate three point benefit from a lower share count.

Now turning to cash flow and capital efficiency, cash provided by operations in the second quarter was healthy at $772 million.

Compared to the year-ago quarter, that was down $70 million, driven by the spin off of the healthcare business.

Our second-quarter working capital cash conversion cycle improved seven days compared to the 2014 full-year average.

We now expect our full-year improvement to be six to seven days and that's ahead of our original three- to four-day improvement target.

This is mostly driven by additional progress on payables.

In terms of adjusted return on invested capital, halfway through the year we are up 220 basis points, including benefits from the spin off.

We expect full-year improvement on ROIC to be at least 250 basis points.

On capital allocation, second-quarter dividend payments and share repurchases totaled more than $400 million.

The full-year total should be at least $2 billion, or about 5% of our current market capitalization.

Now let's take a look at the segments.

In personal care, organic sales rose 5%.

Performance was led by developing and emerging markets, where organic sales were up 13%.

Overall personal care operating margins were 20.5%.

The 190 basis point improvement year-on-year was enabled by three things, organic sales growth, cost savings and lower input costs.

Moving on to consumer tissue, organic sales were up 1%, including volume growth of 5% in North America.

Consumer tissue operating margins of 17.3% were up 260 basis points.

Results in this segment benefited from strong cost savings and lower between-the-line spending.

In our third segment, K-C Professional, (technical difficulty) delivered organic sales growth of 5%.

Within that, organic sales were up 8% in developing and emerging markets and up 2% in North America.

The segment top line also benefited from sales of non-wovens to Halyard Health in condition with a limited term supply agreement.

Overall, K-C Professional margins were 17.6%, off 20 basis points year-over-year.

I'm encouraged that K-C Professionals margins remain healthy and above the corporate average.

To summarize, we had a good quarter, as we achieved mid-single-digit growth in organic sales and adjusted earnings per share.

We delivered strong cost savings and margin improvement and we continue to improve our balance sheet efficiency and allocate capital in shareholder friendly ways.

Within that, I'll now turn it over to Tom.

Thanks, Maria, and good morning, everyone.

I'll share my perspectives on our second-quarter results and then I'll address our full-year outlook.

Overall, we delivered another quarter of good financial results and we are executing our global business plan strategies very well.

As Maria just mentioned, our business in developing and emerging markets had another strong quarter and that was led by our personal care business.

Organic sales in diapers rose low teens in these markets and we continue to benefit from innovation, from expansion of diaper pants, from the category development in many areas and from higher net selling prices in some places.

In terms of our key growth markets, organic sales in diapers increased 30% in China, where we continue to drive strong growth even though competitive activity has picked up somewhat recently.

Huggies diapers are now sold in about 110 cities in China and that's up from 105 cities at the end of last year.

Our organic sales in diapers also rose by 30% in Eastern Europe.

The growth this quarter was driven by price increases to offset some of the currency declines that have happened in that market.

In Brazil, our team continues to execute well in a challenging economic environment.

Total personal care organic sales were up about 10% in Brazil and that included 5% growth in diapers.

We're also doing well in our other personal care businesses in developing and emerging markets.

Organic sales in fem care were up double digits in the second quarter and that included excellent performance in Latin America, led by Brazil.

Organic sales also increased strong double-digit in baby wipes and in adult care.

Our K-C Professional business had high single-digit organic sales growth in developing and emerging markets in the quarter.

So overall, we delivered excellent results again in the developing and emerging markets and we expect our momentum to continue there going forward.

Turning to our developed markets business outside North America, organic sales in the quarter were down slightly.

We had solid growth in South Korea, but market conditions were relatively soft in Western and Central Europe.

Nonetheless, I'm encouraged that operating margins were up year-on-year in the developed markets overall.

Moving to our North American consumer business, sales volumes were up nicely on a number of brands.

That included Huggies baby wipes, GoodNites youth pants, Cottonelle bathroom tissue and Viva paper towels.

On Huggies diapers, while still early days, the second-quarter relaunch of mainline Huggies Snug & Dry diapers is off to a pretty good start.

In terms of upcoming innovations in North America, we have product upgrades coming on both the Huggies premium diapers and Pull-Ups training pants.

In adult care, we're launching Poise Impressa, which is a unique innovation that helps prevent light bladder leakage.

In K-C Professional North America, volumes increased mid-single digits in our higher-margin, faster growing Wiper and safety products businesses.

In washroom products, volumes were up low-signal digits as market conditions continued to improve modestly.

Since Maria has already discussed our profitability balance sheet and capital allocation, I will just add that I'm pleased with our performance in all of these areas.

All in all, I'm encouraged by our results in the second quarter and in the first half of the year.

Now let's move on to the outlook for the full year.

Our teams continue to focus on delivering their plans for the year and investing further as appropriate for future growth.

On the top line, we continue to target organic sales growth of 3% to 5%.

With organic sales up 4% halfway through the year, we're in good shape relative to this target.

On the bottom line, we've raised the low end of our previous guidance by $0.05 a share.

Our new guidance range for adjusted earnings per share is $5.65 to $5.80 a share.

This change reflects our strong performance in the first half of the year and our progress on FORCE cost savings that Maria highlighted.

We also stepped up investments in our brands and our targeted growth initiatives from what we originally planned, as we continue to be optimistic about the growth opportunities that we have in front of us.

In terms of external factors, our current expectation is that the net impact of changes in currencies, commodities and selling prices will be similar to our original plan that we communicated to you in January.

The commodity outlook has improved somewhat, but we expect the price realization will be a little less positive than what we expected earlier in the year.

As we said in April, we expect more currency headwinds than we had and our original plan for the year.

We continue to focus on delivering on our annual commitments.

That said, as you look at the back half of the year, I'll point out that last year's earnings profile was unusually skewed to the third quarter.

Third quarter last year had more than normal amount of other income, had a strong quarter in Venezuela and had lower than expected G&A spending.

So in summary, we delivered very good results in the first half of the year.

We continue to focus on the fundamentals that drive long-term performance and we remain optimistic about our prospects to generate attractive shareholder returns.

That wraps up our prepared remarks and now I will begin to take your questions.

(Operator Instructions)

Wendy Nicholson, Citi Research.

Hi.

I have two buckets of questions, if that is okay.

The first one is just diaper numbers that you break out.

The 5% in Brazil, can you clarify how much of that is a slowdown just in the macro?

Is it slowdown in consumer off take?

Is it inventory destocking?

And is that number sort of in your mind in terms of what is going to persist over the next couple of quarters?

And then totally separately, Maria, as you come into the Company, fresh perspective, new look, the FORCE savings that Kimberly has been generating are just phenomenal.

I guess, as you look at the cost structure sort of with a fresh set of eyes, is this rate of cost cutting something that you think is sustainable for the next few years or are we coming sort of to the end of that part of the story?

Thank you.

Sure.

I'll take the first one, Wendy, then I'll let Maria answer the second question.

In terms of Brazil, overall we're pretty happy with our performance in that market on the consumer side.

We didn't talk much about our KCP business, but on the B-to-B side, that economy has slowed down.

There is no question about it and we're seeing that in our KCP sales in the -- to industrial-type customers.

At this point, we'd say that the category is a little slower.

On the other hand, we had a great quarter in fem care, so we've been able to bring innovation.

We've seen that continue to drive the business.

We're going to continue to invest in innovation in diapers and we think we can do a little better then we did this quarter overall, but it's a more challenging market from an economic perspective, that's for sure.

Maybe I'll turn it over to Maria and she can comment on cost saves and her perspective on that.

Hi, Wendy.

Thanks for the question.

On the FORCE savings, first let me say that I'm really proud of the Kimberly-Clark organization on a global basis for delivering just an outstanding quarter and FORCE savings of over $100 million in the second quarter.

If you look at the rate for the (technical difficulty) of at least $350 million, that's a really strong savings rate, and I believe that we can continue to do this.

If I think about the percentage of annual savings that we're able to deliver off of our cost of goods sold base, we are in a good place in terms of what we're delivering, and with the addition of Sandra MacQuillan to our team, who is our new Head of Global Supply Chain.

I think Sandra will be able to work with the teams around the globe to unlock some additional savings as we go.

I feel really good about the rate of savings that we're delivering and I'm very confident that we'll be able to continue to deliver strong productivity in our supply chain area.

Bill Schmitz, Deutsche Bank.

Hi, guys.

Good morning.

Hey, Bill.

A couple of questions.

Can we drill a little bit deeper in the emerging markets?

Starting with Brazil, I think if you look at some of the share data it looks like Hypermarcas, which is the value brand, is gaining share.

Do you think that's the change in sort of consumer preference or is it macro or is it permanent?

I think SCA also exited the market, so is that an opportunity?

And then on China, can you just talk about, I think you said 110 cities now, what the sort of end-state opportunity is?

How many cities aren't you in and then what channels and price tiers may be?

And then lastly on Russia.

I just wanted to check on the health of the distributors and how they are getting dollar-denominated product in and if there's anything you can do to sort of help them out, given the macro.

And then I have a follow-up, if I can.

Okay.

Sure.

I'll try to remember all of those.

Brazil, I would say Hypermarcas is up a little bit.

Now, that business is for sale, as you probably know, I think.

I think there is some stuff that they are doing to kind of push those sales in the short-term.

I wouldn't say that we've seen a lot of trading down yet in this market.

The consumer shock hasn't been as big as you've seen in other economies over time and so you are not seeing a huge trade down at this point.

We're still driving premiumization across our lineup in Brazil.

You saw that in the fem care numbers.

As we launch better-performing products, the consumer's willing to trade up on that front.

Again, I'd say -- and the news of SCA leaving and some consolidation there, there are probably more competitors in Brazil today than your normal market at this stage.

It is not unusual to see a little bit of consolidation happening and typically, that is good for the big global players.

In China, we are at 110 and I'd say truly, every city you add is a little smaller than the last.

On the other hand, these cities still have 1 million people in them, so they're pretty good sized and there's still quite a bit of opportunity.

I would say at least 200 cities.

In terms of channels, we're actually developing e-commerce quite well and we're also spending a lot of time on the premium baby stores and those are both rapidly growing channels.

Today, probably a third of our diaper sales in China are done through e-commerce.

And the baby stores are a real super premium channel, where all the high-end products are typically sold.

You don't see much in the value segment in that space.

I don't expect were going to go deep into the low tiers in China.

We've quite a bit of growth ahead of us in the mid to premium tiers and expect us to stay in that space.

On Russia, I was in Russia earlier this year.

Actually, I met with one of our KCP distributors.

At that point, they seemed to be managing through the crisis pretty well.

Probably were a little more optimistic than even I was going in, in terms of how things were going to play out.

I think the oil prices have stayed down on a little longer, it's probably going to put a little bit more pressure that economy, so it's something that we're continuing to watch.

We do manufacture now in Russia, so that does help us a bit, to have some of our cost base in local currency and doesn't require us to import as much.

But that's a challenging market for sure and we'll keep an eye on it going forward.

Great.

Thanks.

Can I ask one follow-up on fem care in North America?

The category itself is pretty soft.

I think the share is a little soft as well.

Is any of that due to you're now having a focused competitor in Edgewell?

Obviously, they have some pretty ambitious growth targets, so are you seeing a lot more aggressive competitive activity from them?

I'd say there was a little bit more competitive noise in fem care in the last quarter.

That accounts for some of the share decline.

We're also looking to see are we executing as well as we could and do we have enough news and innovation and commercial activities.

But I'd say that was a soft spot for us in the consumer business in the second quarter.

Ali Dibadj, Sanford.

Good morning, Ali.

Hey, how are you?

So couple of questions.

One is I want to dig into personal care just a little bit more in terms of where your growth is coming from.

Clearly it's the emerging and developing world.

That growth rate, again, continues to slow.

It's still good, but it continues to slow.

So I'm trying to get a sense of where you think that kind of growth rate gets to on a steady state.

You say the momentum is continuing, but is that momentum a slowing momentum?

So that's one part of personal care business.

And then the other part I want to get a little bit more into the details of the Snug and Dry relaunch in the US.

It still looks like the North America business for you on personal care isn't really showing great results from the Snug and Dry launch.

Is it just too early?

Because on the other hand in the Nielsen data, it looks like you might be seeing some improvement.

So want to really understand what we should expect from Snug and Dry in particular and how you think that may change your personal care results in the US going forward.

Those two pieces first, please.

Okay.

Personal care growth rate, we've said high-single, low-double-digit growth in developing and emerging markets for us going forward and personal care is going to be the centerpiece of that.

While there's some -- a little bit of growth slow down in some places there's also new markets that we're considering to open up like Nigeria and Kenya and places like that where there's pretty high birth rates.

So we do feel like there is a pretty long way to go to continue to penetrate these categories.

And GDP per capita is still improving, even though the overall economic growth rate is slowing in some of these markets and so consumers have more purchasing power in their pocket to buy our products going forward.

We also see categories like adult care, baby wipes, that are still very underpenetrated.

That as we bring those into those markets, there's a big opportunity to build those out over time.

So we've got some GDP per capita levers to drive it.

We've got some new category expansion to drive it as well as still some region remaining geographic expansion to drive it and those factors, I think, will provide a lot of growth for us for the future.

On the Snug and Dry relaunch, if you looked at kind of the bid-ask spread, I think you look at the Nielsen data, it probably would say we're up 1% in the quarter.

That's probably pretty consistent as we would look at our consumption and our shelf off-take would be pretty similar to that as we look at it across the parts of the category that are not covered by Nielsen.

Our sales were down about 1%.

Our share was up about 0.5 a point sequentially.

The difference between our sales and the retail consumption is probably inventory change in channels, which obvious, that isn't going to be sustained.

We'd say we're broadly on track with our expectation on that relaunch and pretty good execution across retail.

Consumers like the product.

The early reads on all the social media activity is very high, four- and five-star ratings.

That's kind of what we're looking for and I expect to continue to drive that in the back half.

We've also got some news coming on the super premium end of our Huggies lineup, which will help that.

We've haven't seen much cannibalization of the little bit of share growth that we've had, which is great.

So far I think the team would say we're pretty much on track.

Okay.

And then follow-up just on a former response in terms of personal care in the emerging markets.

I guess just to be very specific, do you expect the growth rate to continue to slow, given kind of a lot of large numbers, et cetera, as it has done?

So maybe answer that and I'll come back with another one.

I think it was, what, 11% in the first quarter and 10% this quarter.

So I'd say that's a modest slowdown, but I would expect that we're going to be in that high-single-digit, low-double-digit range for a while and it may vary a little bit depending on the quarter and what's going on.

Thank you.

My last one is just around the CapEx uptick that we saw, and I apologize if I didn't see it.

Can you give us a sense of where that's from, what we should expect going forward?

Probably -- maybe, Maria, you can add some color to this but were probably a little bit ahead of our typical run rate.

It tends to be more back-end loaded but I think we're still expecting to be in the range.

Maria, I don't know if you've got any other color you want to add to that.

I think that's right.

I would expect, given where we and the projects that have on tap for the second half, that we will come out at the high end of our CapEx range for the year.

More of it's outside the US than inside, as you'd expect.

Gail Glazerman, UBS.

Hi.

Good morning.

Hi, Gail.

Can you talk a little bit -- in a little bit of detail about what's going on the US bath tissue market?

You guys obviously had great volume, probably due to promos.

How do you see the overall trend in the promo activity there?

That's probably -- competitive activity has probably picked up just a little bit.

We're continuing to do well with Cottonelle and seeing that take off, had a another solid quarter behind Cottonelle.

Scott tissue is also continuing to do well in the market.

So probably maybe the competitive frequency has picked up just a bit and you are seeing that a little bit in the pricing numbers.

Some of our price numbers as well affected some of the proportional timing, so I wouldn't necessarily say that the uptick this quarter was up fully reflective of what's happened in the markets.

Some of it had more to do with timing of promotions than the overall market activity.

Okay.

There have been some reports that birth rates are starting to pick up.

I'm just wondering if you could talk about are you starting to see them?

What are you thinking as you look out over the next year or two?

We've seen that as well.

It's a small positive upward momentum, which, as we been talking about for a while, the things that have been more predictive of that are male unemployment, household formation and consumer confidence and we're seeing slow, steady progress in those and the US economy and that's driving the birth rate up a bit, which is good.

All right.

In terms of your deflation outlook for the year, can you just talk a little bit about where you expect to see the incremental deflation over the second half?

What is a little bit better than you might have expected three months ago?

Pretty much all of our deflation is oil-related materials.

So if you look at pulp and secondary fiber, those are pretty close to our original estimates for the year, so you're not seeing those move around much.

Eucalyptus is a little stronger but northern softwood is a little weaker, and so the -- but net-net, it is about where we thought it was going to be.

It is more polymer super absorbent, things like adhesives, packaging materials, anything that is made out of petroleum molecule.

Obviously, with oil being a little lower for a little longer than maybe we thought in our original guidance, more of that is kind of flowing through and our cost -- lower material cost than we would've expected at the beginning of the year.

Most of that winds up in personal care, from a segment standpoint, so consumer tissue and KCP don't get too much of that.

(Operator Instructions)

Nik Modi, RBC.

Yes, thanks for the question.

Just two real quick ones for me.

Tom, maybe if you could just remind us on how you're thinking about acquisitions in terms of criteria.

If you were to do an acquisition, just really kind of building scale in existing categories or would you look at white space?

And then the second question is on e-commerce.

It's obviously becoming a very important trend for your some of your categories, so I just wanted to get an update on that side of the business.

Thanks.

Absolutely.

On the M&A front, we have not been big acquirers and so where we have done things has been more tuck in.

And I think we've got some a great organic growth opportunities in our businesses around the world that we really want to make sure we're fully funding those and that we're resourcing those in the right way.

That's, I think, the most valuable form of growth for our shareholders and we want to make sure we are pursuing that.

And so there may be tuck ins and individual markets that we'd consider from time to time, but we want to make sure we deliver on our organic growth framework.

On the e-com front, we basically, we want to make sure that our products are available wherever mom wants to shop.

If she's shopping at her nearby traditional retail outlet, that's great.

We want to make sure we're there with the right offer and the right product forum.

If she wants to shop online, absolutely.

We want to make sure she can find Huggies and that our lineup is easy to navigate and it would make it easier to find what she needs there.

We've tried to make sure that we're building capability around the world where e-commerce is developing and where mom wants to shop so that we have the skill sets to make sure that our product is represented in a digital space at the same level of professionalism that it is represented in a physical store.

That's something that we've learned.

Were probably in the front foot of that in China.

We were probably a little bit late to the game in the US, but were catching up quick.

And then we're kind of monitoring and investing ahead of the curve in individual markets around the world where we see e-commerce start to play out.

Tom, is there any way can give us just rough -- how big the current e-commerce business is and how fast is growing, just so we have sense of reference?

The statistics are probably difficult because if you sell to a off-line retailer who has an online presence, it's hard to tell exactly what flow through each part of their business.

But it varies quite a bit by market, so in the US, it's probably less than 5% of our sales.

In China in our diaper business, is probably a third of our sales.

In Korea, from a category standpoint in the diaper space, it's approaching 60% of the category.

So overall it's probably still in the 5% or less of our sales just because some of our categories, like tissue and KCP, are not as well developed from an e-com standpoint yet.

Excellent.

Thanks so much.

Thank you.

Caroline Levy, CLSA.

Good morning.

Good morning, Caroline.

I just wanted to ask a couple of things on the US, the adult diaper business and the fem care business.

Can you talk about the competitive environment and what the outlook is for innovation there?

Is P&G growing the adult category or are you seeing some share loss there?

I think in adult care, Procter re-launched last year with their Always Discreet product and category growth rates did pick up.

We lost a little less than our fair share of market share.

Probably done a little bit better on the Depend side.

They picked a little bit more share with Always Discreet against Poise.

But private label and SCA's TENA brand lost probably disproportionately more share then we did.

If you look at the second quarter, both Depend and Poise, our share was up about a point sequentially, but we were still down year over year from where the launch had occurred.

Quite a bit of innovation happening.

We've launched quite a bit of new products over the last year or so and with more coming under both Depend and Poise.

The most recent launch news is a totally new product called Poise Impressa, which we had in test market in Kansas City.

This is a product that actually helps prevent bladder leakage.

It is a new space and were going to be investing behind that in the latter part of the year.

On fem care, again, we talked about that a little bit earlier.

Probably a little bit more competitive promotion activity in the quarter.

I think we're down about a point year on year and pretty flat sequentially on share.

Some of it is the category is more competitive.

Some of it is we've got to make sure were doing all the right things to execute in that space.

We're making sure we've got the right offer and the right messaging to drive that category.

Thanks, and then just a follow-up on China.

Can you help us scale how important to that business is to you now?

Because it's been growing so fast for so long, it wasn't necessarily disproportionately large within the whole business.

Brazil was generally your biggest market.

Can you help us just understand the key drivers of EM?

Brazil is still the biggest at about [$1 billion] and China is gaining fast.

It is what, Paul?

Probably 3%-ish of sales?

Something like that?

Yes.

China was 3% in the full year last year and is going to be a bigger percentage this year.

Thanks so much.

Thanks.

(Operator Instructions)

Chris Ferrara, Wells Fargo.

Good morning, guys.

Morning, Chris.

I wanted to dig a little bit more into, I guess, the specifics around US volume.

It sounds like you guys -- in the press release, you called out volume being down slightly in adult, child and diapers, and I guess specifically diapers.

The gap there with Nielsen is really wide.

Nielsen is showing something like mid-single-digits volume increases during those months.

Then you have Unilever this morning talking about destocking in the US.

So I'm wondering, can you reconcile that a little bit?

I know it's Nielsen, but the volume piece specifically, I guess.

As we would look at the -- Ali asked this question a little bit earlier.

As we would look at the US diaper category in the quarter, we'd say looking at everything that we can see that from a consumption standpoint, shelf off-take was probably plus [1%] and our volume was minus [1%] on diapers, and so there was a little bit of inventory change.

Some of it also has to do with that we shift some of the promotional activity in March for some of the Snug & Dry relaunch that, that wound up selling through in the second quarter.

I would say we're about on track with our expectations from that standpoint.

Our stuff typically is pretty high-Q, pretty high velocity, so there is usually not a very large inventory swing so we wouldn't typically see a big destocking effect.

Okay.

Great.

Can we talk about the incremental brand (technical difficulty)?

I guess that's above and beyond you'd expected.

I think you sort of framed it around continued optimism around growth opportunities.

So I guess, can you talk about how much of that incremental brand investment you expect to be in the form of pricing, right, which kind of came off a little this quarter versus advertising behind initiatives?

I think the way I would think about it is, we're a little bit ahead of our plan so far this year and we want to make sure we deliver the plan, but we also, if we have the opportunity to invest more in innovation or in some of our key markets where we've got good growth opportunities in a strategic way, we're going to look for opportunities to do that in the back half.

Maybe more than we have in past years, which is a great opportunity for our teams to be, rather than thinking about where do I cut programming to make the year, we are looking at, are we fully funded here?

Are there things that we can do to increase our investment?

Where we've had good innovation, where we've got good market momentum, those would be the kinds of places that we'd be asking those questions.

It be much more on the strategic front, but I'd say advertising is part of it.

Digital couponing is another part.

Some of that stuff might wind up as a reduction of sales if it's a digital coupon, but it's going to be more strategic rather than any kind of price cutting.

And just to be clear, you guys would consider this more offensive than defensive relative to competition?

Yes.

I think in general, yes, you want to make sure if you have competitive threats in markets, though, that you are fully defending.

So let's say that -- we mentioned the China diaper (technical difficulty) right with the right offer and the -- with against (technical difficulty) those markets.

So I think there's an element where you playing the offense and you also want to make sure you're fully competitive.

Olivia Tong, Bank of America.

First question, just wanted to dig a little bit deeper to the earnings outlook, because you raised your expectations on commodities in FORCE by, let's call it, about $100 million cumulatively and clearly that's partially offset by the slight uptick in currency pressure, but it doesn't seem to be flowing fully through to your earnings outlook.

So is it a function of some of the incremental brand investment that you just referred to?

Or is it other things?

Maybe can you talk through some of the puts and takes that offset some of the positives on the expense line to start?

That's the right way to think about it, is that we took the guidance up, the bottom end of the range up $0.05 and that's a part of it.

We had a little bit better commodities than we expected, a little bit worse currency then we expected and then we took FORCE cost savings were tracking ahead of plan.

We're investing some of that strategically in key products and markets in the back half of the year.

So you've got the right elements and the mix of that is what translates into the guidance.

Got it.

Thank you.

And just two follow-up questions, first on North American diapers.

Is Huggies Snug & Dry now fully rolled out?

And as you think about sort of rebuilding share at the low end, how concerned are you about the competitive environment at the entry-level price points, given where commodities are right now?

How do you think about the price volume mix?

How does that -- how do you think that looks like -- looks going forward?

And then just overall on the promotional environment, which you referenced a couple of times already, but how is the competitive environment looking right now overall?

We talked a little bit about North America consumer tissue, but just curious on your thoughts on the overall basis as well.

Thanks so much.

Sure.

On diapers, and I think the near-term commodity weakness isn't resulting in any significant price movement.

If you kind of look at it over the last couple of years, we've had a pretty good amount of commodity increases that there was no price recovery for, so if you looked at the net-net it, we're still -- even with the deflation we're going to have this year is less than the inflation we had last year that we didn't get any pricing for.

I would say in the range that we're in, I don't think it's going to move price significantly.

I also think the consumer is in the stronger position than they were a year ago and we want to make sure that we're -- that we've got the right offer and that we've got a very good performing product at a competitive price in the marketplace, which is sort of in the heritage of Huggies for many years and we're really making sure that we stay true to that.

In terms of the competitive environment, if you look all over the world, there 's plenty of people that get up every morning wanting to take your business, and so we think about the Japanese competitors, Unicharm and Kao are quite aggressive.

Local Chinese competitors like Hengan are aggressive.

We've got local competitors in Latin America with CMPC and then SCA is popping up in lots of places.

And obviously P&G is a formidable global competitor as well.

We know we've got to be moving pretty fast every day to bring right innovation, to execute well in the market, to continue to deliver on our business plans and our teams are up for that challenge.

(Operator Instructions)

Lauren Lieberman, Park Place (sic -- "Barclays").

Thanks.

Good morning.

I didn't know you were with Park Place.

That's great.

(Laughter)

And my last name is Cleaverman now.

(Laughter) Regardless, can you talk a little again -- sorry to beat a dead horse, but just on fem care.

At least in the Nielsen data it looks like private label has actually been gaining some ground.

When you're talking about making sure that you have the right offerings and revisiting marketing and so on, is that primarily what you're seeing day to day as well, that private label is really the one making some in roads?

Private label shares are up a little bit.

I'm looking at the shared data, but it's -- I don't know if you got it, Paul.

They're up 1 point.

Up about a point.

I'd say it's been more the competitive price points from some of the smaller players in the market that has been making some noise.

As you know, we, last year, consolidated everything under the U by Kotex name and that execution went pretty well.

We still think that we can do even better in terms of how we merchandise that in store and make sure that we have got the right product and the offer.

Our super premium, our U by Kotex line, was a little slower growth this quarter, so that's one that we are really focusing on to make sure that we got the right innovation messaging there.

Again, some of it's the category and some of is we'd probably say we could do better on the innovation and execution front.

Okay.

And is as you're thinking about the reinvestment dollars back half of the year and even further beyond, how much of that mix is skewing online, social, et cetera.

Particularly think about things like where to reach people entering the fem care category, what you'll be doing with Impressa going forward and what's your kind of learning trajectory and how to do online best?

That's a great question.

That's something that we're spending a lot of time on.

We've got lots of digital marketing work going on all over the world and are trying to make sure we're investing in that capability in each individual market.

And then where find something that works to share best practices at a faster pace.

So I think that's something that every CPG out there is doing and particularly in the target market of fem care for late teen girls.

They are very connected on their social experience and we want to make sure that we're relevant there.

So for example, in China, with our relaunch of our Kotex brand there, it's been nearly 100% digital marketing and almost no network TV in that space, just because of the importance of that channel to that consumer.

So it's -- we've had some real successes and we've also learned some things along the way of what not to do.

But we've got a lot of good work going on in that space.

When did Kotex relaunch in China?

We launched that, it was what?

Early last year or late 2013.

Late 2013, I think, was the first shipments, but it really kind started to hit its stride in 2014.

Okay.

Then in -- you mentioned personal care in -- I mean, excuse me, fem care in Brazil a couple of times today.

Was there also a relaunch for Kotex in Brazil?

Our brand there is Intimus by Kotex, which is a brand that we acquired.

We're upgrading that with some of the global innovation that we've done in other markets along the lines of the U by Kotex things that we've done in the US and seeing a very good response.

We picked up brand leadership in Brazil in fem care for the first time in a long time and we have good momentum going in that market.

Okay, great.

And last detail, is it branding on end products in terms of the U by Kotex carryover from the US, or is it just sort of more the product itself?

It's more the product itself and actually, it is more of a global innovation.

A lot of the stuff the US guys are launching and was invented in Korea or China or elsewhere.

That global team is probably doing the best job of any that we have of driving an idea consistently around the world.

That, five years ago, probably would've been our most disparate product form everywhere and today we're all on roughly on the same product chassis.

We're trying to take that learning and do it in other areas.

Some of the things that were doing in diaper pants and baby wipes are tapping into that, where our local teams still have local optimization but we're able to drive a more consistent message around the world.

Okay.

Thanks so much.

Thanks, Lauren.

(Operator Instructions)

All right, since we have no more questions on the line, we thank you for your interest today and we will close with a comment from Tom.

Once again, a good quarter of top- and bottom-line results and good execution by the team.

We really appreciate your interest and support in Kimberly-Clark.

Thanks very much.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

You may now disconnect your lines.

Have a wonderful evening.