Essity AB (publ) (ESSITYB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this presentation of Essity's Second Quarter 2026 results. Our CEO, Ulrika Kolsrud, will start by presenting the business highlights for the quarter. We will then turn to the financial metrics, presented by our CFO, Fredrik Rystedt. After the presentations, we will open up the line for questions. [Operator Instructions] Now, I'm pleased to hand over to our CEO, Ulrika. The floor is yours.

Thank you, Sandra. And also from my side, welcome to this webcast, and good morning, everyone. We delivered positive organic sales growth in the quarter, primarily driven by continued good volume developments. The activities to strengthen our value propositions to increase marketing investments and to make selective price adjustments have paid off, and we are growing in 3 out of our 4 business units, namely in Health & Medical, in Personal Care and in Professional Hygiene. It was a tougher quarter for Consumer Tissue, where we had lower sales. Then, if we look at our profitability, we continue to have and maintain healthy margins in the quarter, even though they were slightly negatively impacted by the geopolitical environment that is coming with an increased cost inflation. When we look at now going forward, of course, we will compensate that with price increases, and we are already driving price increases, not yet visible in our P&L, while we remain focused on protecting and even growing our market shares. Looking at our cost savings. We delivered both our cost-saving program in SG&A as well as our COGS savings according to plan in the quarter. We also benefited from the volume development, the positive volume development. So in 2 out of our business units, we strengthened our profit margins in the quarter. And one of them is Health & Medical. Besides the good margin development, we also delivered a good sales development in Health & Medical. We had positive volume developments leading to good sales growth both in Medical Solutions as well as in Incontinence Products. What's especially pleasing to see, I think, is that we had a very good continued volume growth and sales growth in wound care, but also that we're picking up sales in Incontinence Products. Talking about incontinence products, I wanted to come back to a topic that we have touched on several times before, and that is the financial pressure that is facing health care systems around the world and the work that we do at Essity to encourage policymakers, health care leaders as well as procurement bodies to take a total cost of care approach. This we know from our studies in Incontinence Care Management that, that has benefits both for patients, for staff as well as for the health care financials. And in this quarter, one of the world's largest health care systems took a step in this direction. It was NHS in the U.K. that introduced a value-based procurement guidance for medical technology, asking their buyers to assess the broader value, including patient outcomes, staff outcomes, supply chain resilience, environmental impact rather than only looking at purchasing price. Of course, positive for us and beneficial for us who have holistic solutions that reduce the burden on patients, staff and the health care system. Now, this will not have an immediate impact on our P&L, but it is very positive for us and others who are working with holistic solutions and continuously invest in innovation. Talking about investing in innovation, we are innovating across our brands. And in this quarter, in Health & Medical, we launched the next-generation printed Delta-Cast in the orthopedic assortment. Now, for those of you who have ever been in a cast, it's not the most pleasant experience. But we make it a little bit more fun with colors and patterns. And that is actually making a difference, not the least for children who are injured and their well being, then they need to be put in a cast. And now, we are using a digital printing technology. And with that, we can move beyond the standard 4 colors to millions of colors, and we get the customization to a very different level, to a totally new level. And this digital printing technology that provides not only flexibility, but it's also more cost efficient for us. And I think this is really a golden example of where our innovations are providing both customer benefits and cost efficiency. We delivered new products or improved products in all our business areas in the quarter. That goes also for Personal Care. In Personal Care, we, for example, improved our TENA Discreet Ultra product, a better shape, which makes sure that the product stays in place and stays in shape during use. Also, we strengthened the offer that we have in leakproof apparel for men, so we extended the range of boxers, and we sharpened the marketing claims in this assortment. And then, we rolled out our Secure Protect technology on our feminine hygiene products in Europe and Middle East, Africa. And if you don't remember this, because we already launched it in Latin America a few quarters ago, it's about a new technology for fluid management that is addressing an unmet need in menstrual health, namely handling sudden gushes. So investing in innovation and also supporting our superior solutions and innovation with marketing, that is really paying off. And also this quarter, we strengthened our market shares in Personal Care. We had a really strong quarter for Incontinence Products, both with good volume growth and sales growth. Also, a very strong quarter for feminine hygiene when it comes to volumes and sales. Then, the margins in feminine was negatively affected by the acquisition in North America, and we are now taking measures to make sure that we move through the transition period as fast as possible so that we improve our profit margins as fast as possible. When it comes to Baby Care, we followed the same pattern roughly as previous quarters, namely that we were challenged in our retailer brand part of the business, with the lower birth rates as well as with the intense competition. But then, when it comes to our branded businesses in Baby, we're going from strength to strength. So also in this quarter, we grew sales and market share with our Libero business. Now, before leaving Personal Care, worth to highlight is also that we grew across the different regions in Personal Care. So in Latin America, in North America and in Europe. And looking then at Consumer Tissue, we had positive development of our branded business in Europe. Otherwise, it was, as I said, a tough quarter, where we had lower volumes and also lower pricing, which is a spillover effect from 2025. Now, of course, we are implementing price increases, as I said originally. We have already implemented, and we continue to do so in order to compensate for the COGS inflation while we stay focused on capturing profitable volumes. And to do that, we are supported by innovations. And also, in Consumer Tissue, we had an active launch agenda in this quarter. We upgraded our Regio Rinde Más product, which is a lot of times sold piece by piece in Mexico, so roll by roll, which is an important segment in Mexico. And this quarter then, we made this Regio product last even longer, which is exactly what the consumers are asking for in this segment. We also leveraged our skin health competence that we have in the company to upgrade our Lotus assortment, both in dry toilet tissue as well as in moist toilet tissue. So now, the Lotus comfort sensitive that is really providing gentle care for sensitive skin, which is an attractive positioning to have and something that we are very well placed to exploit. Now, last, but certainly not least, let's look at Professional Hygiene's performance because we're talking very good performance here. This is the second business area where we strengthened our margins in the quarter. We continue to have good volume growth in Professional Hygiene and sales growth. Strategic products are continuing to outperform the market, and it's also here good to see that we're growing across the regions. We've had some specific focus on North America in the past quarter since there has been some market developments and so on there and especially good to see that we continue to have a good performance also in North America. North America is, by the way, the region that is probably the most benefiting from the launch that we see in this quarter for Tork. We are upgrading our Tork Mini Jumbo Toilet product, which is basically jumbo rolls in then a very slim dispenser that takes little space. And this is a significant upgrade, and it's a very important product in the North American assortment. So what we're doing is that we make it easier with the dispenser designed to tear off the paper for the user. At the same time, as it's easier for the customer to refill, and for the maintenance, people to refill the dispenser and do that with low waste. So it's a better Tork experience for the user and for the customer. And speaking about Tork experiences, wherever there is football or soccer, whatever you want to call it, this summer, there is likely to be Tork. Stadiums across places like Mexico City, Vancouver, Philadelphia, Los Angeles, New Jersey, all use Tork to elevate the fan experience. And this is, of course, because they know that Tork understands how to provide superior hygiene solutions in high-traffic venues. Now, speaking about Tork in high-traffic venues that actually brings me to our progressive adoption of digital solutions and AI because we are using AI to support our customers in high-traffic venues with superior hygiene solutions. We are equipping our Tork Vision Cleaning with AI so that we can optimize cleaning or the customers can optimize cleaning in these high-traffic venues, a very good example of how we integrate AI into our solutions and improve the user experience. Another relevant example of AI for the quarter, I think, sits in innovation because the innovation I talked about smart protect in Feminine Care that actually hit the market 6 months earlier than what it would have done a few years ago, thanks to the AI-powered digital engineering tools that we are using in our product development. And specifically for the quarter, we also went live with an agentic AI solution in procurement that improves data quality and efficiency in that process. So these are some examples that are relevant for the quarter specifically. But as we've talked about before, of course, we adopt AI at scale in many different areas across the company and across the value chain. Some of them are in demand and supply planning, in predictive maintenance, in marketing and claims development and not the least in financial services, right, Fredrik?

Yes. Yes. Thank you, Ulrika. Absolutely, we do exactly that. And we use it increasingly as an example in business control applications and in shared services, as you mentioned, for instance, for payables. And this is, of course, just the beginning. So we see great potential as we go forward. So I will lead you through some of the numbers. Ulrika has talked about the development in general terms, and I'll show you a little bit about the numbers. So if we start with net sales, as you can see, our sales grew with -- about SEK 1 billion, if we compared to the same quarter of last year. And out of this, 0.3% represents organic sales growth and 1.7% is related to the acquisition of the feminine business that we did in North America. And if I start with that acquisition, you can say, generally speaking, the net sales is according to our plans, as is the volume. So roughly performing as we -- as it should in terms of sales. So if I go to the volume side, you can see that it grew with 1.4%, and that continued the trend that we saw also in the first quarter of this year. And we saw accelerated growth for Health & Medical, for Personal Care and also for Professional Hygiene, as Ulrika mentioned earlier. And starting with Health & Medical, we actually saw very good growth for both of these entities or areas, so both for incontinence and for medical, and the total volume growth was about 2.5%. We can't rule out a bit of a -- perhaps a bit of a pre-buying trend in the second quarter that happens occasionally. But nevertheless, the momentum in Health & Medical was very strong, and particularly so, for Wound Care continues to do super well in terms of volumes. Going to Personal Care, by now, we got a little bit used to the trends there. You see that if you look at the overall volume growth, it was 4.3%, so very strong. And as before, very much in Feminine and Incontinence, both of them growing between 6% to 7%. So very, very good. Now, Ulrika talked about Baby and the market there. The market demand is still challenging, as is the competitive environment. So we grew, and volume growth was good and market share development in the Nordic part of the business, whilst the Continental retailer branded was challenging and negative growth. And overall, we had a growth -- or negative growth of just about 3% or thereabout in the second quarter. Consumer Tissue, 2.7% of volume decline, and this is a bit, you can say, skewed because the volume increase for our branded sales and decline for our private label. If you look at the total market, it was just the opposite. So branded was actually decreasing much more than what we saw in private label. So we were a bit different. And of course, this is favorable from a mix perspective, but overall, the overall volumes were negative. And then finally, Professional Hygiene, with a 3% volume growth. So really continuing to have a very, very good volume development that started in Q4 of last year, Q1 and now accelerating in Q2. So if you look at price and mix here, you can see that it's negative with 1.1%. And this is actually all price, in fact, more is price. So we had a price decline of 1.3%. And this is a consequence of the price concessions that we have done in previous quarters. So if you look at sequential, development of price is largely flat. So this is all about the price concessions that we did primarily in Consumer Tissue, in Baby and also in Professional Hygiene in previous quarters, and this was with a bit of different background. When it comes to Consumer Tissue, it was very much about adapting to the lower pulp prices that came last year. When it comes to Baby and Professional Hygiene, these were deliberate decisions to increase the volumes. So again, related to previous quarters. So with that, I'll move on to the margin. And as you can see, and we've also stated that in the report, we believe the margin -- given the geopolitical uncertainty and the situation, the margin is resilient. It declined with 30 basis points, but we saw a very good development for Health & Medical, a somewhat better margin also for Professional Hygiene and a decline for Personal Care and Consumer Tissue, but for different reasons. If we look at -- if you look at Personal Care, it's largely related to the acquisition of the Feminine business in the U.S. And as Ulrika has already mentioned, we have seen unexpectedly a bit higher cost, actually, both for cost and for services. And we are still a bit inflexible due to the setup with the service agreements that we have in place. And so we are working very extensively to integrate the company into our own business, and that's progressing according to plan, but it leaves us a bit inflexible, and it will take some time to restore margins to where they should be. Now, once again, we are very committed and very strong believers that we will deliver the business plan as we have contemplated or calculated before. So overall, the gross profit margin declined by 70 basis points. As we communicated in Q1, COGS did increase, actually a bit less than we had anticipated due to favorable currency movements, but it did actually increase, and that had a drain on the margin. We had, and I already mentioned it, some price declines in Consumer Tissue, Professional Hygiene and Baby, as I mentioned, that also had a negative impact. And all of this, to a degree, was compensated by a positive mix and volumes, but overall, of course, gross profit was down with 70 basis points. Now, we've communicated many times that we strive to continue to invest into growth in A&P. We did that also in this quarter, as you can see, and we had a very good development of our SG&A. So again, we have communicated many times around our cost-saving program in SG&A. That is starting to deliver now. So in the quarter, we are having a benefit of about SEK 100 million, and we will gradually see higher numbers here in Q3, and especially so in Q4, and we are very much convinced that we will reach our target of SEK 1 billion or more of savings as a run rate at the end of the year. So let me just end this section here by giving you a little bit of guidance to what Q3 will look like in terms of cost. So we see significantly higher cost for COGS, and this is no surprise, perhaps, but related to oil-based material on the back of higher oil cost, obviously. And we also see higher energy costs. So overall COGS, we expect that to increase. We also expect a bit higher cost for SG&A, and this is including A&P. So this is the guidance for the cost Q3 versus Q3 of 2025. So let me go on to some really quick words on cash flow. It was SEK 2.8 billion. So okay. It was a reasonable quarter in terms of cash flow and a very much stronger quarter than we had of the same period of 2025. So cash surplus remains very strong. We had a reasonable performance of working capital. Q2, we always consume working capital. That's just the nature of our business. And if you look at the reports, some of you may have noted that the working capital to sales increased from 10% to 11%. This is actually not due to underlying factors. Underlying, it was relatively stable. It had to do with partly the Edgewell, or the acquisition of the Feminine business. It had to do with currency movements and a bit of timing. But in relative or underlying terms, working capital was relatively stable. And you know our ambition to, over time, reduce that as we go forward. But overall, operating cash flow quite satisfactory. And this has led to a continuously strong balance sheet. So our net debt-to-EBITDA ratio, despite the acquisition of our Feminine business, remains strong at 1.1 in terms of net debt to EBITDA. And the debt level or net debt level is about the same level as we had in the first quarter. Now, we have launched, and we started and initiated the sale or share repurchase program, the third actually, on May 12, and we have purchased during this short quarter, so to speak, 2.1 million shares to an amount of roughly SEK 550 million. And with those words, I'll leave over to you, Ulrika.

Thank you, Fredrik. So to summarize the quarter very quickly, I would say that we delivered volume-driven sales growth and resilient earnings. Now, going forward, of course, you heard Fredrik talk about the cost development, so needless to say, one of our top priorities is to compensate with price increases, and we've already implemented some that will -- that is not yet visible in our P&L, and we'll continue to compensate for the COGS increase as well, maintaining our focus on also driving profitable volume growth. Another one of our top priorities is, of course, to continue to execute on our various initiatives. The cost save program that Fredrik talked about as well as now maximizing the leverage of our new organization that we have in place, the integration as quickly as possible of the feminine acquisition in North America and also progressing on the strategic review of our Consumer Tissue business. Then, if we go beyond the initiatives that we have, we talked in the Capital Markets Day of the different focus areas that we have to improve our performance even further and accelerate our progress towards our targets. And we then maintain the work and activities in this area, specifically investing even further behind our very strong brands and our superior products and reducing costs further in order to free up funds to be able to do exactly that. Also, we are sharpening our innovation agenda. And we do all of this in order to accelerate our progress towards our financial targets, which remains to be that we should grow above 3% organically, on a profit margin of at least 15%. So with that, I guess we hand over to Q&A.

Yes. Thank you, Ulrika, and thank you, Fredrik. We will now open up the line for questions. [Operator Instructions] Okay, are we ready to get started?

Yes.

Yes. Perfect. So we have the first question from Aron Adamski from Goldman Sachs.

My question, I have one. Could you talk about the performance of Consumer Tissue? And what do you expect for rest of the year? In particular, could you give us a sense of the magnitude of price increases that you have announced so far? When do you expect this to start contributing to organic growth given that there is always an element of the lag? And also, in the context of Q1 performance, how do you expect the non-branded volumes to evolve for rest of the year?

Well, if I start briefly, as I mentioned already, we have already implemented some price increases, and we have agreed on some others that will be visible in our P&L in Q3, but we continue to work with price increases. And of course, it's a quite volatile situation. We don't know exactly how the costs will develop. So this will have to be a continuous work that we do over time. And when it comes to the volume development, we have -- I think we've mentioned that last quarter that we have secured some volumes in Consumer Tissue in the private label business for the second half of the year. Fredrik, maybe you want to build on that.

No, I think you said it very well. Aron, we do have a lag, and this is, of course, the same this year, but we always compensate with price. So we will continue with price increases as long as it takes to fully compensate as we always do.

Thank you for your question, Aron. Now, we will move to the next question, and that question comes from Molly Wylenzek from Jefferies. What is your one question today?

Yes. Can I ask about Professional Hygiene and any one-off benefit to the HoReCa business from the World Cup? Or do you expect that this type of volume growth -- very good volume growth, I should say, can continue?

Yes. As we talked about here also, I mean, we've seen our volume growth in Professional Hygiene for several quarters. So that is clearly an underlying performance improvement that we have and that we will maintain or foresee that we will maintain. So of course -- I mean, big events is positive for the Tork business, because people come together, they go to restaurants and to big venues and so on. But that is no different depending on what event it is. So we don't see that, that is -- that, that has any specific effect. Then, of course, we are very proud that Tork is seen as a solution that provides superior hygiene solutions in high-traffic venues, whatever the arrangement is.

Thanks for your question, Molly. I hope you got the answer you wanted. Perfect. So then, we will move to Johannes Grunselius, [ SB1 Markets ].

It's Johannes here. Yes, I have a question on if you can maybe elaborate and perhaps quantify any pre-buying effect. I think, you mentioned this in the discussions here earlier. But is it possible to say anything about the possibility -- what you think about the effects on pre-buying?

Now, what we said was that we cannot rule out that there is some pre-buying effect on the incontinence care side in Health & Medical, but the quantity of that, we cannot say. We don't know.

Thanks for your question, Johannes. We will now move to Tommy Arlasjo from Handelsbanken.

You said that you expect significantly higher COGS ahead due to oil-based materials and energy, which divisions outside of Consumer Tissue are most exposed to this? And how fast can you offset increases -- with price increases? And do you expect to lose volumes because of it?

Well, if we start with the effect and the exposure, this -- we're talking about oil-based raw materials like superabsorbents and nonwovens and so on. And there, where we have that in our products is especially in Incontinence Care as well as in Baby and some extent in Feminine as well. So that we will see coming on. And the time it takes for us to move on prices is takes -- it's different. It takes 1 to 2 quarters in consumer tissue, and then, it can take longer where the -- where we have the longest time lag for price increases. It's normally in our health care environment, which is regulated and where we have longer-term contracts. Then, when we work with this, I mean, as Fredrik said, what we do and what we have also shown in our track record is that we always compensate over time with price increases. But what we also do is to work very selectively on this, depending on the category, the market and the cost exposure and to make sure that we continue to drive volume growth while also compensating for the COGS increases. So that is our clear ambition.

Thanks for your question, Tommy. We will now move to the next caller, who is Oskar Lindstrom from Danske Bank.

I'm just curious if you have any more update on the strategic review that you could provide us with, whether it be sort of which options you are currently focusing on or the timing? When can we expect some kind of a commentary from you about the outcome of the strategic review?

Yes. The information is pretty much the same as you heard us talk about in the Capital Markets Day, when we announced this, and that is that we expect this to take some 6 to 12 months considering the complexity and that we want to make this thorough and assessing the different options that we have on the table. So that is still the case.

All right. So no update there.

Thank you for joining Oskar. Now, we will move to Diana Gomes from Bloomberg.

Most of my questions were asked actually. But if we could go back to the price increases that we should see coming through in the first quarter, could you perhaps give us a little bit more detail in which regions the prices that were announced or implemented since the last quarter would be? Because I believe in the first quarter, you mentioned Latin America and Europe.

Yes. And that's pretty much the same. So Latin America, as we talked already previous, we talked about already in Q1, and then, also some in Europe.

So just adding up to that?

Yes.

Next question comes from Niklas Ekman from DNB Carnegie. What is your one question today?

I'd like to ask a little bit on input cost and pulp in particular. The way I see it, I see pulp prices have been rising for 9, 10 months here in Europe. And yet, we don't see any significant signs of this, and you even have lower prices in consumer tissue. And when you talk about the outlook, you're highlighting oil and energy, but you're not talking about pulp. So I'm just curious if this impact is a lot smaller than we seem to think, if there's an element of inventory revaluation and if the effects are just more lagging?