Good morning, and welcome to the Kimberly-Clark Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the floor over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.
Good morning, everyone. This is Chris Jakubik, Head of Investor Relations at Kimberly-Clark, and thank you for joining us. I would like to remind everyone that during our comments today, we will make some forward-looking statements that are based on how we see things today.
Actual results may differ due to risks and uncertainties, and these are discussed in our earnings release and our filings with the SEC. We will also discuss some non-GAAP financial measures during these remarks. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results.
And you can find the GAAP and the reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. With that, I'll turn it over to Mike for a few opening comments.
Thank you, Chris, and thank you all for joining us today. As I mentioned in our prepared remarks, our second quarter results demonstrate the durability of the growth engine we've built through Powering 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 continued 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 2 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 Kenvue 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 Instructions] Your first question is coming from Nik Modi from RBC Capital Markets.
So just maybe you can unpack what exactly is going on in China in terms of like how this all started and then what the path forward is? And then I have one more question after that.
Yes, I'll take that one, Nik, it's Russ. Yes, I would say the main message is that we were 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 a recovery over time, but just a little more context, and I'll maybe make 3 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 labs 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 fact about our products and communicating quickly with transparency to consumers, and obviously, engaging stakeholders like retailers and government agencies. And we've got an 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. 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.
Yes. Nik, 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 I would say, 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, Nik, though, that 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 tenth consecutive quarter of that. And then in the -- 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.
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?
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.
Yes. So Nik, just to unpack a little bit the quarter where we're at, I mean, yes, the second quarter organic growth came in below our expectations. However, strong execution 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, in the back half of June, keep in mind that was only just 2 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 our outlook back in April that bit 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 2%.
As it relates to adjusted operating profit and EPS, the 2 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 overall, despite the challenging operating environment that Mike referred to, which included maneuvering through the L.A. 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 and EPS, which was again ahead of expectations.
Yes. And then, Nik, just back to the point, I would recognize that I think it is a very choppy environment generally for us globally. But I would say the category remains resilient in a choppy environment.
If you go on a trailing 12-month basis, for the past few years, our categories on average have been about 2%, 2.5%. 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, Nik, 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 it was plus 0.4%, right? 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.
Your next question is coming from Chris Carey from Wells Fargo Securities.
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 will help isolate some of those key buckets. And I have a follow-up.
Sure, Chris. So a few things. I mean in terms of the refund that we received in the quarter in North America, the U.S., 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 U.S. 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 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.
Great. And then going into 2027, 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 Kenvue, 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 have laid out as still as tangible or firm as you had done before?
Just give us a sense of maybe how a thought process may be evolving as you get a bit more information about both your legacy Kimberly-Clark business and also Kenvue as you go into next year?
Yes. 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 Kenvue acquisition, joining forces the 2 companies.
Based on what we know today, we do not believe the factors driving our lower stand-alone '26 earnings outlook, and that's for us materially changed the underlying earnings potential of either our stand-alone 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. 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.
Your next question is coming from Bonnie Herzog from Goldman Sachs.
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?
Then 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?
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, I mean, underlying consumption, we expected it 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 transcended 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 that was mainly by 2 factors. The first one, as we chatted back in April, the L.A. 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 2 factors largely explain the gap between shipments and consumption.
If you look at the first half, 3 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 L.A. 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 a 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 on this.
Bonnie, yes, 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 gained -- we've driven volume plus mix-led growth in 8 of the last 10 quarters.
The 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 of 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 that the outlook really is to grow in line with our categories, but we'll be able to achieve that considering all the elements that Nelson went through.
And it's an easier comp as well because the other bit is, remember, Q2 in North America, we had 5% volume growth in North America in the prior year. So the comps get easier as we go into the second half in North America.
Your next question is coming from Michael Lavery from Piper Sandler.
I just want to touch on innovation and you've laid out a robust pipeline this year, obviously, and you touched on some examples in the prepared remarks, which were 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 I would 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?
Yes. Okay. Thanks, Michael.
Yes, 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 we're going to be bigger and better than that. And so 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 pulls the markets and the functions together, Michael, I think we started looking further -- 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 in-year.
Yes. 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 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 3 years, and the quality of our consumer insights has gotten better and then the Powering 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'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 3-year funnel process that we've been diligently building with the teams around the world. So I don't know if you want to talk about the fiber one or...
Yes. Yes, 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. 2 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 the creation of that tissue-based product. And so I would say this is similar, right? And this is the culmination of over 2 decades of material and plant science investment and development.
I really do think this has the potential to become our next great material platform. In the -- with the heritage of CelluCotton, I think we believe we invented global -- or the nonwovens platform as well. And so this would be like that.
And I think it's going to be great on the 3 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, right?
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 for millions of acres annually, right?
And so -- and 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. So that's part 2. And then part 3, it's uniquely, it grows only in arid conditions and because of that, it's a water miser, and so it does not consume very much water.
And 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.
And Michael, on investments, just so you're on the loop, I mean we -- this has been factored into our investment profile for the last years, and we -- 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 of some of the other ones we're doing.
Yes. And maybe the -- and I'm sure you may have a follow-up question, Michael. But I mean, one of the reasons we're talking about it now is because being out there and we're breaking ground on a pilot facility.
We've already acquired thousands of acres of land to grow this on, right? And so that -- 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 to understand kind of what we're trying to do here will also help us be a little more capital efficient.
Your next question is coming from Steve Powers from Deutsche Bank.
Mike, I was hoping we could go back to North America and really the competitive and promotional environment. I just love a little bit more perspective on how you've seen those conditions evolve over the past 6 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?
Yes. Let me start and ask Russ to kind of -- Russ is all over this. But I would say, I think if you look at the facts, clearly, the promotion kind of 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 that -- I would say that comes and goes in this category, and I've been -- I think it was my 14th year here. And so we're seeing -- and I remember like 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 that, those swings, the reality is 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 the proponents of driving excessive promotion in our categories.
But maybe Russ, you can give him a little more color on that.
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 the first half of '26, 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 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 the 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 you 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.
Great. And then I guess, Russ, this is maybe 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 cost synergy target? Or are you beginning to identify incremental synergy opportunities with those original assumptions?
Yes. 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 as you probably noticed, we've got kind of 50 teams and 600 people working on this. So I would call them being 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 3 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 if Nelson has...
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 in to 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 your -- 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.
Yes. And Steve, maybe I'll just add a little topspin on the thing, which is, I think I said when I was with you over the summer, "hey, the closer we look at this thing, the better it gets." And part of it is, 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, -- so 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're selecting talent. And 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 -- hopefully, you guys are seeing that one of our calling cards is excellent execution, and so as kind of Russ helps us and the integration team leads us through the process, we're gaining confidence in that. That said, and so 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 -- especially when we look on the Kenvue side, right.
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.
Perfect. I can sense your excitement, Mike.
Your next question is coming from Lauren Lieberman from Barclays.
Just wanted 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 us. 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 the -- was promotion has now been in the -- from you guys has now been in the market so long and 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.
Lauren, I'll take that one. It's Russ. Yes, 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 sharpened value surgically.
And also, you're also 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. And so that's part of what you saw in the first half of 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.
So 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 kind of 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, I think, as part of the cycle, we're looking at innovation and brand building is 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.
Great. And Russ, just to clarify, if I can, the low single-digit pricing statement, is that a North America number or a global number?
Yes, it's primarily in North America. That number, I think, globally is going to vary a lot based on the geography. So we have taken actions around the world as well.
Okay.
So we've taken actions across many countries, as you might imagine, Lauren. So -- and the overall is following the principle of pricing net of cost 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, that's one lever.
And let me underscore -- I'm sorry, Mike, just to 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.
Yes. And maybe related to what Russ was just talking about, Lauren, the guiding thing for us is, especially in this environment, we have to have a superior value proposition. And so -- and that's kind of the company's focus.
And so even though with inflation, there are some PNOC 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 of years, we've 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.
Your next question is coming from Robert Moskow from TD Cowen.
It may be too early to ask this about 2027. But 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 these are volatile times?
There's not a lot of visibility to that. And so don't get your hopes up. So maybe you could -- I could start with there.
Yes. Well, one, 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, 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 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.
Yes. And Rob, to Mike's point, I mean, we've been around for 154 years and counting. 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 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 growth in -- 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 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 up their growth vol/mix in the last 9, 10 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.
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?
Yes. I'd say, Rob, it's always possible, but that's just not -- that 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 on our costs, and we want to be affordable. And so I think those are all the things. And I think that's the play.
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 I think we're also trying to manage our approach because we've seen the other approach, and it doesn't work.
And the other one, Rob, is no one is 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 were 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 will 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.
Rob, you may remember, I think I talked to you back when I used to work in the snack category and their 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.
Your next question is coming from Peter Grom from UBS.
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. 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?
Yes. 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 have 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 costs 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 L.A. 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 million to $170 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 of cost inflation at roughly neutral levels for the full year.
Great. And then just more of a housekeeping on kind of what's going on in China. I think it was it was a 50 basis point headwind in 2Q, the guidance assumed a 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 just 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.
Yes. So basically, the 100 basis points 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 in the back half, again, in operating profit, roughly half and half. That translates to about $0.16 of EPS and that would be evenly split Q3, Q4.
But I think, you want to add anything else for, Russ, or...
No, I think you said it well, I think we've assumed a modest improvement in the trend, but nothing -- no inflections at this stage 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. If we could take one more question and then wrap it up.
Absolutely. And our last question comes from Javier Escalante from Evercore.
I have a question for Russ and one for Mike. Hopefully, the one on Russ is not an overkill, but if you can give us an update on diapers. It feels as if that these imports -- and this is U.S. diapers, imports, the ones backed by the retailers seem to be kind of peaking.
So whether that is true. And also, there is any commentary on the overlap with the relaunch from -- by your main competitor in the U.S., any color, 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.
Javier, on the diaper question, I think you're right, you probably, Javier, have followed the category, and I have 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 around the world, and that's to continue bringing innovation and focus on strong value propositions at every tier 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 2 years in a row despite that competition, and we do have a good innovation agenda.
I think we're now #1 in social engagement in '26. We've got a lot of good actions happening 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?
Correct.
Yes, yes. Well, I think it's -- again, it's -- I hate to be a 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 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 in 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.
And 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.
Yes, Javier, I mean just a tag on. I know you got a question for me separately. But just -- I just want to emphasize, like 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 #1. And so the thing that maybe I'll just emphasize, it's -- and the playbook is right, but superior value proposition, I will tell you the anchor for our superior value proposition at K-C is differentiated product technologies. And so we feel fantastic about the innovations we've brought in personal care.
I promise you the innovation that you'll see in the next 3 years on personal care would 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 to K-C, which is we are technologists first engineers, and we invent stuff, and we're good at it.
And 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, right? What does it mean in terms of your capacity and resources to invest in international personal care and also readying the interaction of Kenvue?
Yes, 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. I think -- and maybe one of the best things, Javier, is I think, in setting up Arbex, it wasn't like we were trying to move on from a problem or a challenge.
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, just done last one, Russ again. Just on the diapers point that you made. Yes, 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 the China product performance. As we've rolled the playbook out to other markets in 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 and diapers, 390 basis points up in Indonesia as well as 70 basis points up in Brazil.
That playbook is working. So that gives us confidence that it's not just regional battle, but 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.
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.
Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day.
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