Kimberly-Clark Corporation (KMB) Earnings

Management highlights

**Core Business Fundamentals** - Delivered 10th consecutive quarter of positive volume plus mix growth, and maintained global weighted average market share, with share up in ~70% of global sales volume. - Achieved industry-leading gross productivity of 6.4% in Q2 2026, with ongoing $2 billion supply chain restructuring program in North America on track to deliver cost savings through 2027 and 2028. **Strategic Milestones & Innovation** - Unveiled a new proprietary alternative natural fiber innovation program, the culmination of over 20 years of R&D investment, that is expected to improve product softness/strength performance, reduce exposure to natural forest fiber cost volatility, and advance the company's natural forest fiber-free ambition. The program breaks ground on a pilot facility, with thousands of acres of growing land already secured, and all investment to date is already reflected in current results and long-term guidance. - Completed the successful launch of Arbex, the strategic joint venture with Suzano for the global tissue business. Integration planning for the ChemView (Kenview) acquisition is progressing ahead of schedule, with 50 cross-functional teams and 600 employees working on synergy and integration planning, and the transaction on track to close in Q4 2026. **Incident & Crisis Management** - A product safety controversy in China for the company's diaper business resulted in no sequential deterioration in sell-through as of Q2, but also no positive inflection yet. All independent third-party testing confirmed product safety with no detectable harmful substances, and the company is cooperating with Chinese regulators, aggressively communicating transparent messaging to consumers, and engaging retail and government stakeholders.

Guidance

- Full-year 2026 guidance was adjusted to account for the one-off impacts of the China diaper disruption, unanticipated North American retail destocking, and moderating category growth. China is expected to create a 100 basis point full-year top-line headwind and a $70 million operating profit headwind in H2 2026, split evenly between Q3 and Q4. - Gross incremental input cost inflation for H2 2026 is expected to be ~$150 million, fully incorporated into guidance, and will be fully offset by existing mitigating actions and the Q2 tariff refund, leaving full-year pricing roughly cost-neutral. - Management expects North America business performance to accelerate in H2 2026, driven by easier year-over-year comparables (Q2 2025 had 5% North American volume growth), a full pipeline of new innovation, planned brand activation and revenue growth management actions, and expected normalization of promotional activity. - Low single-digit price increases to offset inflation will roll out in H2 2026, primarily for the North America market, and are already reflected in guidance. - Management remains confident in the long-term earnings and growth potential of the combined company following the Kenview acquisition, but notes it is too early to provide specific 2027 guidance due to ongoing uncertainty around the pace of China's recovery, commodity volatility, macroeconomic impacts from the Middle East crisis, and the final timing of the Kenview closing. Updated 2027 guidance will be provided after the transaction closes and more clarity emerges in late 2026/early 2027.

Segment performance

Segment-level financial performance was not explicitly broken out by absolute revenue or revenue contribution percentage in this call. Key performance by region and business area is as follows: Organic sales for Q2 2026 came in ~100 basis points below internal expectations, driven primarily by disruption to the China diaper business, unanticipated retail inventory reduction in North America concentrated in the adult care category, and slower-than-expected overall category growth (moderated to 2% trailing 12 months from the prior 2.5% expectation). Despite top-line misses, adjusted operating profit and EPS came in ahead of expectations, boosted by a $45 million U.S. tariff refund and 6.4% gross productivity that offset higher year-over-year brand investment. In North America consumer categories, Q2 shipments declined 1.4% while consumption grew 0.3%, with a 170 basis point gap between shipments and consumption driven by the LA distribution center fire (an 80 basis point headwind) and unanticipated retail inventory drawdown (a 50 basis point incremental headwind, concentrated in adult care and one retail channel). International personal care (IPC) saw accelerating organic growth and share gains driven by innovation, with double-digit growth and 390 basis points of diaper share gains in Indonesia, 70 basis points of diaper share gains in Brazil, and strong performance in India and Southeast Asia.

Risks & headwinds

- A consumer social media-driven product safety controversy in China has created near-term demand uncertainty and revenue headwinds, with no clear timeline for a full demand recovery despite confirmed product safety. - Macroeconomic pressure has increased consumer financial stress, particularly among low- and middle-income consumers, leading to moderating category growth (down to 2% trailing 12 months from 2.5% prior) and increased demand variability quarter over quarter. - Ongoing Middle East crisis has created incremental operational costs and added volatility to global commodity and input pricing, with potential for further inflationary impacts. - The LA distribution center fire created a tangible top-line headwind in Q2 2026 and first half 2026, with residual supply chain impacts managed through the quarter. - Promotional intensity has ticked up slightly across North American categories from both large branded competitors and new small-market entrants, particularly in diapers, creating near-term pricing pressure. - Unanticipated retail inventory reduction in North America created an incremental top-line headwind in Q2 2026.

Analyst Q&A

• Q: What is the current situation and outlook for the diaper business controversy in China, and how did Q2 2026 perform against internal expectations? /

  A: There is no scientific evidence backing the negative product claims, and independent third-party testing has confirmed product safety. Sell-through has not deteriorated sequentially, but has not inflected positively, so the company took a conservative outlook for H2 2026. Q2 organic growth was ~100 basis points below expectations, driven by the China disruption, unanticipated North American retail destocking, and moderated category growth, but operating profit and EPS beat expectations due to the $45 million tariff refund and strong productivity.

• Q: Is the 2027 earnings framework for the combined company with Kenview still on track, given recent volatility? /

  A: The core underlying long-term earnings potential of both the standalone legacy business and the combined company remains unchanged. The pace of China's recovery, commodity volatility, and the timing of the Kenview close create near-term uncertainty, so management will provide a detailed 2027 outlook after the transaction closes and more clarity emerges in the coming months, and remains confident the deal will create long-term generational value.

• Q: What is the outlook for the new alternative natural fiber innovation platform, and what investment costs are expected? /

  A: This program is the culmination of 20+ years of R&D, and is expected to improve product performance, reduce cost volatility, support sustainability goals, and deliver long-term margin improvement. All investment to date has already been expensed in existing results, and future capital requirements are already included in current long-term strategic plans and guidance. The company is breaking ground on a pilot facility imminently.

• Q: How is the competitive and promotional environment evolving in North America, and what pricing actions are planned for H2 2026? /

  A: Competitive promotional activity has ticked up slightly recently, but the company's own promotional activity is still below pre-COVID levels and prior year, with recent temporary promotions tied to driving innovation trial and transitioning through club distribution changes. Promotional activity is expected to normalize in H2. Low single-digit price increases to offset inflation will roll out in H2 2026, primarily in North America, with the company focused on long-term PNOC (pricing net of cost) discipline and driving growth through innovation rather than excessive promotion.