Kimberly-Clark Corporation (KMB) Earnings Call Transcript & Summary

Hi, everyone. Thanks, everyone, for joining us today for Bernstein's this time Virtual Strategic Decisions Conference. We hope you are safe and healthy. I'm Ali Dibadj, and it's with great pleasure that I welcome, once again, Mike Hsu, of Kimberly-Clark, to our fireside chat today. By way of logistics, Mike and I will try to emulate our fireside discussions. I don't have a fireside in my background, but we'll try to do our best there, and have a conversation about Kimberly-Clark, the effects in the short term, and certainly, the continued changes that Mike is bringing to bear at Kimberly-Clark for the medium and long-term as well. As an audience, we'd love you to be involved as well. There's pigeon hole. We can post some of your questions, and we'll be referring to that every once in a while throughout the discussion, so please be involved. At the end of the discussion, we'll have a short survey that you investors can take from Procensus, and that will give you an opportunity to react to what you heard today, and giving us feedback today, also the management team feedback. So without too much more, let me hand it over to Mike. Thank you again for coming, Mike. And he has a few prepared remarks, then we'll get into the Q&A.

Yes. Thank you, Ali, and I want to thank you for the opportunity to discuss our company with you here today. And I hope everyone -- you and everyone are continuous to be healthy and safe. I would like to spend a few minutes highlighting our priorities in the current environment, our first quarter results and our medium-term strategies. First, I'll say the standard reminders apply today about forward-looking statements we make in any reference to non-GAAP financial measures, and I'll refer you to our latest 10-K in our website for more information. We have really 3 key operating priorities in this current environment, and we're managing very well. Priority #1 is to protect the health and safety of our employees and our consumers. And throughout our 148-year history, this has never been more important than right now. Priority #2 is to proactively manage our global supply chain to ensure supply of our products, our essential products, to our consumers, and we've remained largely operational, had not had any material disruptions to date. Priority #3 is to prudently manage the business through the near-term volatility, while continuing to strengthen long-term health of Kimberly-Clark. Our liquidity remains very strong. We're managing discretionary spending even more tightly, and we're continuing to invest in our business to maintain the health of our brands and best position us for long-term success. Our first quarter results were strong. Sales were up 8%. Organic sales increased 11%, and adjusted earnings per share were up 28%. And these results reflect significant volume increases from consumer stock-up and excellent execution by our teams. The cash provided by our operations was more than double last year's. Importantly, we're continuing to invest in our business, and our market share positions are broadly healthy. We introduced K-C Strategy 2022 last January, and the plan will enable us to deliver balanced and sustainable growth. And there's really 3 strategies. One, accelerate the growth of our portfolio of iconic brands; two, leverage cost and financial discipline to fund growth and improve margins; and third, allocate capital in value-creating ways. And this plan is working, and we remain committed to it even in the current environment. And I'll just highlight growth. To accelerate growth, we're sharpening our focus on the consumer. We're driving really 2 consumer-centric growth pillars: elevate the core and accelerate growth in D&E markets. And to execute these, we're really deploying a more disciplined approach to building commercial capability in the 4 areas that are listed here on the slide. And so we're applying greater focus, driving more enterprise scale and improving execution, that's similar to our approach for years on how we've managed our FORCE cost-savings programs. We're also significantly increasing our overall investment levels. And we're encouraged with our progress and very optimistic about our ability to create long-term shareholder value. So I want to turn it back to you, Ali. But before I lose the chance, I did want to offer sincere congratulations on your new role. I will tell you, I followed you a bunch even before I got to Kimberly-Clark, view as an expert in this industry, and I really do feel in your tenure you had a strong positive impact on our industry. So thank you.

Mike, that's kind of you to say. Thank you so much, and it's been a pleasure to work with everyone on the phone and certainly with you over the past few years and your predecessors as well. So very impressive job at Kimberly-Clark. And with your permission, let's get into some of the Q&A.

Great.

So look, I think we definitely don't want to lose sight of the medium and long-term changes you're bringing to bear, and I definitely want to get there. I know one of the questions that's clearly on investors' minds is just your reaction to COVID. There are some certainly positive things, given the inventory stock-up at home, but also probably some supply chain stresses. Could you tell us about that? And how you coped with the current crisis?

Yes. I'll recognize that we're in a perhaps a fairly unique position in the industry where -- because of the COVID situation, our demand has actually increased. I will tell you, the organization, the company, is fully mobilized against COVID. And obviously, as I mentioned, protecting the safety of our employees and our consumers has been far-and-away #1 priority. But also our employees have really, especially our hourly employees, have really seen it as an important time for us to fulfill our purpose. And never has had they felt like there's been a more important time to be in the business we're in and to serve our consumers now. And so they're really, really motivated by that. There's, obviously, a historic demand surge. The categories in North America, I'm sure you're well aware, the categories we work in, in North America were up 30% in the first quarter. So that's a historic surge. And so our focus really is on helping our customers replenish their inventories, meeting demand. And we have been, as I said earlier, largely operational. We have had some limited downs. But I'll tell you, we have a very robust methodology in place to track the virus and predict -- we're using well-established models to predict the path of the virus, and then we're making operating decisions based on that. We've invested a lot to keep our employees safe and therefore, to keep our mills operational throughout this time period. And to a large extent, while we've had some limited downs, we've been very fast coming back up.

So from a consumer perspective, what we saw for some period of time was this significant level of out of stocks. You guys coped fairly clearly with that. How did you cope with that specifically? Different brand selection? Different location of production? How did you manage that?

Well, the big thing is, I will say, we're still working to rebuild inventory. So Ali, I think the math is, and I'll just take North America, but this is largely a phenomenon. I would say the stock-up phenomenon occurred across developed markets, not so much in developing, but definitely developed. But I've mentioned the categories we're up 30%. As you know, our organic -- or our sales were up 11% in North America. So there is a pretty significant gap between what was consumed and what was shipped on our end. And so that difference came out of retail inventories. And so really, really, it's important for us to help our customers get back into a better inventory position. And in partnership with our customers, probably the biggest thing we've done is, obviously, we're running flat-out and every facility that we have is running 24/7 flat-out. Like other companies, we haven't significantly pared back our SKU count, and that we've done that in partnership with our customers, who have been very supportive along that journey. And that has increased our theoretical capacity because we have fewer changeovers and fewer complexity in the plants. And so that's been a really good thing. That's probably been the biggest driver of getting back in position. But I will say it's probably going to take us most of Q2 and a lot of Q3 to get that -- the retail inventories back in comfortable position.

And that's, again, that's not because of any downtimes or anything on your end from a production perspective or even your feedstock perspective, it's really just because that safety stock at the retailer had to come down?

Yes. I mean I was reading a report, there was a next third-party report, which I think any of you can see, but I think their estimate was for the tissue industry in North America, the industry runs at 92% capacity utilization. And so that only really gives you theoretically 8% wiggle room, unless you do something different. So it's going to take you a while to catch up. We did make some big moves to kind of go beyond that 8%, or whatever the theoretical number is for us. But it is going to take a little while for us to get back.

And you mentioned the differences between developed markets versus the developing, emerging markets. Can you talk a little bit more about D&E right now? What are you seeing? You guys have a very substantial and successful business, for example, in China, just to give us some tea leaves on what we might see in North America?

Yes. Well, I think, D&E, it's definitely a lot of variety in terms of the impact. And maybe if I just click through, Asia, largely, we've seen has come out on the other side. Obviously, we started -- we initially were impacted in the middle of January. I think we had our facilities down across China. Every plant or mill operation, and our office is down for 3 weeks around that lunar new year. Now I think we're generally back online fully, and we have been back fully online after those 3 weeks. And we feel very good about our China business. And as I mentioned on the earnings call, we're seeing strong double-digit growth in feminine care, strong growth in diapers, particularly on the premium side, and share improvement. And so largely, I think the market has returned, I wouldn't say normal yet, but in our categories, demand has become more normalized. Similarly, if you click across Asia, ASEAN and Korea, Australia, New Zealand, I think they feel like those markets are more on the back side of the virus and returning to more normal operations. Central and Eastern Europe, again, strong start at the beginning of the year. We are seeing the infection rate increase a little bit right now in Russia. However, I think demand has continued to be strong generally, and part of that is we've got some diversity across Central and Eastern Europe, and have experienced strong growth in Ukraine and the CIS states or CIS countries across CEE. So again, good there. I think the one that we're watching closely is Latin America. And it's because I think they were a little bit later on the infection rate, and the economic effects are perhaps a little bit more of a wildcard because I think it is having a pretty big impact on consumers. Governments are not -- do not support maybe the consumers in the same way that maybe that we're seeing in the U.S. or in Western Europe with subsidies and whatnot. So we could see a little bit more impact on the demand side, but that's still to be determined. And we haven't -- I would probably say, we haven't seen that much yet, but we're keeping a close eye on it.

Okay. So disaggregating your customer base slightly differently, what types of patterns are you seeing arise out of the current situation? We were talking to somebody today who is saying, look, all of my sales are online. I'm doing really well in parts of the world where online is a big piece of it, Korea, for you guys, for example, China, U.S., to a certain extent. I'm seeing people trade down in some categories, right? What are some discernible patterns you're seeing of consumer behavior right now?

Well, maybe one of the reasons why our business in Asia continues to be robust is we are very strong and highly developed online. And so China, well over 50% of our diaper business is sold online, in Korea it's 90% online. And so those have all grown. And so we're on trend there, and we're well positioned there. And so our business is performing very well in those markets. In the U.S., I think a little different, and I think you can see the data yourself, which is, overall, we feel really good about our relationships across our customer bases. It's definitely the case that we're seeing that our big box customers have continued to perform very well, and I think you could see that in their reported numbers over the last couple of weeks. And that performance has accelerated. I would also say it does feel like the e-commerce mix has accelerated dramatically as well. And I think that's -- both those things are good. And if you look across maybe some of the other channels, grocery, I think, probably a little more variable, but I would say that our leading players or leading partners have been performing well as well and also developing their e-commerce or their -- at least their customer pickup business, and we're really focused on supporting our customers. The big thing I would say is they've been very supportive of us, and we don't feel great about our service levels right now because of the demand effects that we talk about, but we're working really diligently to get them back in better position.

Okay. Okay. What of those consumer behaviors or others do you think are actually going to be permanent?

Well, lots of discussion internally about this and lots of discussion externally about this. I would say, to me, I really believe, one, the emphasis on personal hygiene and internally, we've been calling it personal protection, is really, really going to be elevated. And I think if it's not -- it probably should be permanent. If it's not permanent, it should be with us for a few years, at least. And I think that's an important need. And if we go back to our purpose as a company, it's to provide the essentials for a better life. We feel motivated to help serve our consumers there. And I think there's a lot of opportunity for us to both market our products more effectively to serve there, but also to innovate to really, really support consumers in these different needs and how they're evolving over time. So that's one. Second, I think as we're observing consumer tissue, I do think we're going to see elevated desire for more stock, both at home and perhaps at retail, in the near term. I kind of kid around, but I say I'm in a job that where I do have access to bath tissue when I want it. And even whenever I see bath tissue on the shelf, I feel compelled to buy it. I'm not saying I'll buy it all the time, but I want to. And...

That explains the 11%, Mike?

Yes. So I think it would be a logical assumption that these people just don't want to be caught short. And we're seeing that across our businesses, both in professional and consumer. And we are seeing -- as we mentioned on the call, we anticipate and are seeing some declines on the professional side of the business, but not as much as we would have thought in the first quarter. And part of that behavior, as we looked into it, was more on the professional end user stocking to make sure that when people go back to work, they're not going to be caught short. And so I do think higher inventory levels, both customers and individuals or consumers, we're likely to see. And then definitely, I think definitely, with the recessionary impact, depending on which markets we're talking about, there is likely to be perhaps a frequency effect, if we're talking personal care, or perhaps a trade down effect in other categories when people are pressured on purse strings.

So let's disaggregate that a little bit. I think there's this desire or hope among investors, particularly for companies like yours, that are weathered this pretty darn well, knock on wood, to take advantage of opportunities, right, to take advantage of things. Among those lists of focus areas and things that are probably going to change, what are areas that you might be taking advantage of? So for example, is there a big CapEx opportunity in building more warehousing, right, to be able to have your own excess inventory? Should you be spending more in marketing and really shift 100% online, right, because sports doesn't exist right now? What are some of those things that you think that you can take action to take this opportunity and grab the bull by the horns so to speak?

Yes. I think number one is as we focus on what I talked about personal protection and hygiene, I think there is a big pivot opportunity for us to, as I mentioned, innovate to serve consumers kind of in a new need space, right, or an evolving need space. And certainly, right now, I might observe, there's -- there are plenty of disinfecting wipes for surfaces. I don't think there's a great disinfecting wipe for skin and body yet. And so that would just be one area, right? And I think there's lots of explosion of hand sanitizers. But I think the needs of hand sanitizing will evolve, and we're going to be want to be more a little more sophisticated about what that might look like. I think the needs of how tissue and wipes serve that, I think, could have evolved dramatically. So I think that's one big area for us to explore. And I think that's going to create an interesting demand and a service opportunity for the world and obviously, for consumers and end users, in particular. So that's one. Second. Definitely, I think from a recessionary impact, I think we're well positioned. While our categories certainly are not recession proof, demand tends to stay fairly solid because there's not a lot of discretionary use. However, I think as we talked about, there are some frequency effects and trade down effects. We are very well positioned because we're not a niche premium player. And so we tend to play at all tiers, or at least in our words, we tend to call it, value and premium, and we like our businesses on both sides. And because of that, we're able to flex. I will say, we've been running a recessionary playbook for a couple of years now in Argentina and Brazil, and I think that's been effective. And we've been very happy that we've had the positions that we've had, which is a strong value business and also a strong premium business that enables us to flex both ways. And so our goal is we want to lead our categories the right way. And so we need to be -- meet the consumers where they need us. And so we'll be able to flex in that way. And then the other opportunity, I think, is online. And I think, certainly, we're well positioned online. We've made a lot of effort to improve our positions over time. Our 3 most highly developed markets are, as I mentioned earlier, Korea, China and North America. We're very excited about our performance in recent years in that space, particularly in North America, as I think we got to a later start, but I would say we're at fair share now. We've made a lot of progress over the years. And I think with the situation we're seeing very strong growth in the e-commerce space, where we've developed a lot of capability, and we're excited to invest to build that market as well.

Okay. Now you did mention major CapEx investments from a supply chain perspective, is that on a mission? On purpose? Or is that something you want to talk about?

Yes. I -- at this point, I don't know that we have to do different CapEx investments. I will tell you, and there had been questions about our ability to flex between professional and consumer, we do have that ability. Some of that capability was already invested in as part of our global restructuring. And so that was probably the one area that got a little discussion, but we've already made some of those investments. I think the other side that we haven't talked about is we do have a global network as well. And so we're working to support demand, and North America is probably the most acute demand shortfall or supply shortfall that we have. But the important thing is we do have a global network to be able to support that and -- including K-C de Mexico, which are great partners with us. And so I don't know that necessarily we'll need to pull that much more in capital on that perspective, but we wouldn't reject it if it needed it.

Okay. Okay. So you mentioned K-C Professional in the chameleon-like nature of some of your supply chain and trying to kind of pivot back and forth between the 2, consumer and K-C Professional. How do you think about the future of the K-C Professional business?

Well, I definitely think there's a lot of opportunity for us to do a better job serving our customers and end users in this new world. And we talked about, what do you think are some permanent changes? But in the words of our leader on professionally, he's only is like, "Hey, Mike, we just come from an environment where our customers want solutions for hygiene and sanitation, and to drive health and wellness. They wanted it in the past, it's now become mission-critical, right?" And so we think there is a lot more opportunity for us to provide our customers with better solutions. And we've been innovating in that space. I think some of the markets that or opportunities that we've thought about had been historically a little smaller. I think they become much larger now. And I think the teams are really motivated to pursue. And if you think about our business, certainly, and just to break it down for you a little bit, Ali, the washroom business, how do you make a washroom safer or healthier? The first thing you can do is get out of jet air dryers. And because those are clinically proven to be significant germ spreaders. And so we've gotten a lot of inquiries, and our teams are having a lot of discussions with end users about those conversions. If you think -- we're also have a significant wipers business. Historically, that's been a little more focused on industrial. So think about like wiping grease off a tool or a jet engine or something along those lines. But actually, if you think about the sanitation requirements, wipers are a fantastic solution, and we have a presaturated wiper business that is fairly small today. But we're innovating in terms of what the formulations might be that could really help consumers and end users. So there's a lot of opportunity for us on the professional side. And I think -- again, I think the team sees it as an important part of their purpose that they can help consumers -- or their end users and customers there.

Okay. Okay. So a lot of what you've talked about so far, sounds like innovation, doing things new, doing things differently from a product side, from a go-to-market side of things. Can you talk about what you think that means to your organic sales growth going forward? And what I mean by that is, maybe take a step back, what do you think the kind of medium to long-term growth trajectory is? And has that changed, given what you've seen just over the past few months, particularly between price/mix and volume, given these new potential opportunities here?

Yes. Well, I think -- maybe I'll say -- I'll start off and Paul, you can correct me if I'm wrong here. We're not planning on updating our medium-term targets as we put them out last January.

Right.

But I will say the caveat is, I would always -- and I think our team is always looking ways -- for more ways to accelerate growth. And I think definitely the market conditions have changed a little bit. Certainly, I think what we're experiencing this year is definitely more temporary in nature, but I do think there will be some lasting impacts that could have some positive effect. There are other puts and takes though. As we also -- you may have seen, the birth rate has at a historic low in the U.S. So I mean there's an offset there. That said, I will say, in the near term, I would stay within our targeted on the organic side, 1% to 3%. Hopefully, I still think we ought to be in the upper end of that, right, or the upper half of that range. But we're excited about the opportunity to create more innovation and better commercial programs to pivot, to serve consumers and customers better in this different environment. Hey, Paul?

Nothing else to add.

We haven't talked a lot about competition. It certainly sounds like you guys have weathered the storm again, over and over again, thanks to the strength you, Mike and Paul and your team. What have you seen from a competitive perspective? Is private label, just because of the ability to have some availability, gaining some share, are you seeing on the flip side, the fragmented brands feel a little bit more pain because they don't have as much of a global supply chain to kind of fill holes? What are you seeing competitively right now from a market share perspective?

Well, I don't have all the facts to line this up. But I will say when there's economic uncertainty and just general uncertainty, historically, I think in these categories and also in some of the other categories, Ali, that I worked with on the food side, consumers tend to flock back to big brands for security and stability and knowing what they're getting for their money. And I think we're seeing a little bit of that phenomenon right now. And we can see it in our share and our performance in some of our brands. So I definitely think big brands tend to have more attraction to consumers kind of in these environments. Today, from a competitive pricing perspective, I would say the market continues to be broadly constructive. I think certainly in developed markets, aided by supply shortages, and so you're not going to -- I wouldn't expect to see aggressive promotions when there's not as much inventory on the shelf. That said, I would also say we're still -- we haven't fully recovered kind of the cost increases that occurred over the last 3 years. And so that's another factor there. So I think pricing in the marketplace has largely been constructive. The thing that I'm encouraged about is, and what I like seeing globally is, I feel like the terms of competition have shifted back to innovation and product features. And for an innovator and a marketer, I tend to like those terms because I think it helps us serve consumers better. It helps grow the categories. And it's something that I think we can do very, very well.

And on that front, we talked about taking advantage of opportunities. Do you see any interesting M&A opportunities on a global basis, even in North America that are coming to a more reasonable valuations given what's happened and you think have an opportunity to be part of the Kimberly-Clark family?

Yes. So as Maria always tells folks, we are always proactively looking at M&A opportunity. I think historically, the limiter, Ali, you pointed out, which is, historically, I think the limiter has been valuation. And as you know, we're a very disciplined company with capital. And so we won't get ahead of our skis as it relates to valuation. I think with the COVID situation, that has changed some valuations, that has changed some circumstances and it makes some things perhaps a little bit more interesting. And so that would be something we would evaluate. I think in terms of the guidelines, if you think about our strategies, and I talked about those in the prepared remarks, elevate the core is certainly one. So an acquisition that would help us bring a technology or a brand or a digital capability that would help us premiumize or elevate our categories, I think we continue to be interested in. If it helps us increase our weight in a good way in a growing -- developing and emerging market, I think we'd be excited about that. So we're going to continue to pursue in those 2 big areas that support our strategies, but we'll be disciplined about the valuation.

And as part of the kind of second part of the strategy versus to grow outside the core area, is there any chance that you can use your manufacturing capabilities to make things like PPE or other better-suited products for this particular environment? And I guess, I don't know what your agreement is with the old Halyard, I know they went through a name change. But can you do any of that stuff? Is that anywhere on the radar screen at this point?

Yes. It is something we're looking at. And I don't think we have any concrete plans yet. But I will point out, Ali, and we don't produce our own PPE today. We do market some PPE through K-C Professional. But it's generally third party contract. I will point out, and I did not know this before this because we never talk masks, but we're the largest nonwovens supplier in the world, we generally supply ourselves. But we do produce a large amount of material that is the key ingredient for N95 masks. We don't produce any N95 -- or very little N95 mask material now. But that said, though, that could be an opportunity for us down the road, either as a supplier or as a marketplace that may be interesting. But that said, I would take that as very preliminary look because that market is flooded, and there are a ton of suppliers in that space. And so I wouldn't commit to that. But I would say, we will explore those kind of opportunities if it opens...

Okay. Shouldn't be a headline, and I get it. That makes sense, but everybody looking at it. One thing that has been in the headlines recently is pressure on retailers. So your kind of first quarter customer really feeling some pain, some of them. It's been less in the consumables, day-to-day products, but there's certainly been some pressure. How do you quantify the impact that the retail struggles, particularly the smaller retailers could have on your business?

Yes. I would say at this point, we haven't worked through that issue yet, because, generally, our -- at least our largest customers are our key customers, have really been actually accelerating their performance. And really, the conversations are more about how do I -- how can we get more product faster? And so we -- that really hasn't been the key part of the discussion. There has been a lot of discussion, as you might imagine, on the e-commerce side, and how do we fulfill that more efficiently and effectively and support the growth there on a long-term basis more effectively.

Okay. Okay. Look one of the things that you all have been very focused on, and we've seen very good progress on is sustainability, ESG metrics, responsibly running your businesses. I tend to believe that this crisis will create even more focus on that among consumers and perhaps even investors and others. Can you talk about your plans now, and if they've shifted at all, given the current situation?

No, no shift, but I would probably say amplify. And really, the 2 big areas that we're focused on -- there's actually 3 in our company, but the ones publicly, I would say, are certainly making a bigger consumer impact. And our products -- we're here to serve our consumers through our products. But we also want to make a social impact, and so we're going to be amplifying our goals there. And so obviously, we do a lot of work, charitably or philanthropically, but also through our brands like our She Can Initiative where we're supporting women's development or women's growth. Our No Baby Unhugged initiative, where we support child development and moms in developing and emerging markets. So there's a lot of those kind of programs. I will probably say we're going to raise our aspirations for the impact we make on consumers or the social impact we make. And then we will probably also raise the -- our aspirations for our environmental impact or in our language, we would say the impact on the planet or to reduce or improve our impact on the planet. We've made a ton of progress over the last 15 years, reducing significantly greenhouse gas emissions. We have very, very little, if any, waste going to landfill anymore. And the thing for us is we view that pillar as being a win-win. In general, where we put in a cogen equipment, we get electricity savings or power savings. In a lot of cases, we put energy back into the grid for the municipality at a much more efficient rate. And so for us, I think sustainability is core to our business. Obviously, we feel like we're only one step removed from being a natural resources company because of all the fiber we use. And so we want to be good stewards of the environment, and we're proud to do that. The third area for us that is less public is how we maintain development of our employees, safety in all those areas. And so it's really -- the framework for us is consumers, our people and the planet.

When we did work on your company and compared it to other companies that we cover, we're very impressed. Almost you guys are unsung heroes, frankly, in terms of how you've improved over the past several years, really more than many others. So...

Yes. I think that's what everybody tells us, Ali, which is like, I think we're good at doing. We're not good at talking about it.

I think that's right. Now the one thing you guys are good at talking about and doing which has historically related to sustainability and lower waste and all this has been cost savings, right? So you guys have been very, very good at planning for that and -- both on the restructuring side, the $500 million, $550 million, but then the FORCE targets, the 1.5 between '18 and 2020. Can you give us an update on that? And if anything has been delayed because of the current crisis or even further accelerated because of it.

Yes. So I think both our FORCE program, I think, proceeding very well, and we're off to a very good start this year in our Q1 results. A lot of that driven by negotiated material pricing impacts. But also, as we talked -- we streamlined our SKU count. We're seeing the productivity improve, as I already mentioned before, including output. I think -- so overall, I think we feel good about that. We have delayed some of our global restructuring by choice. And really, that's driven by COVID for 2 reasons. As I mentioned, we're prioritizing safety of our employees and consumers, and those are not words. It's actually deeds. And so in some cases, we have actually reduced output by spreading out our lines. So we reduced the density or get proper social distancing, where we have more labor-intensive production. But we're very, very aggressive about taking plants down when we have an infection. Well, generally, if there's one infection, we'll take a plant down and we'll sanitize and make sure everybody is kind of in the right place. And so because of that, we have delayed a number of restructuring projects because they're required, either employee travel or introducing people that are not of in the mill, into the mill and that we didn't want that to occur. And so for example, in March, we had a lot of projects slated and some equipment coming in from Italy, it was all engineers coming from Italy who either couldn't travel or if they could, we didn't want them to come into the plant. And so we chose to delay those. And the other side of that, so safety is one big reason why we delayed. And then the other big reason why we've delayed some projects is because we're trying to maximize our firepower or maximize our output. So taking facilities or assets off-line, to either install new equipment or consolidate in this environment wasn't the right choice. And so we're extending our restructuring a little bit.

Okay. Okay. Now you mentioned SKU count a couple of times, both at the outset and now as well in terms of reacting to the environment. Is there any possibility that, that SKU count reduction sticks?

Well, the hash tag that we're using internally is #nevergoingback. So I don't know that Paul would agree that's realistic. I mean certainly, we were able to make a dramatic reduction in partnership with our big customers who are supporting us on it because it really does increase our throughput. That said, not all the SKUs that we were producing were bad SKUs. So I think we'll find an in-between answers, but I definitely think there's opportunity for us to dramatically reduce complexity in our system. And honestly, with -- my lens would be these categories tend to be a little more complex than some of the others I've worked in the past. And so I definitely think that's an opportunity. We're going to push even as we come out of this crisis.

Complex from a SKU perspective?

Yes, from a SKU count perspective.

Okay. Okay. Okay. Now one of the things that there's been a debate in the marketplace on right now is how much media spend is the right spend? And you guys have been in this, I'd argue, decade-long journey of figuring out what the right marketing spend is and figuring out how to invest appropriately with the biggest ROI. What do you think the current and most importantly, kind of medium-term environment suggest to you in terms of the percentage of media spend, mix of media, anything that you're learning from that?

Yes. Well, definitely, with the context, Ali, I think you and I have talked about this. I have a high road philosophy, meaning our job is to grow brands through innovation and marketing. And to do that, I think you should have great commercial programs that you support with advertising. And I would like to see our advertising levels increase. And I think we've done that over the past couple of years. In 2019, last year, I think we were up about 60 bps in A. Our plan was to be up by more than that, I think, or a significant number this year. We have to adjust that a little bit, and we have dialed back advertising this quarter because it didn't make sense to promote when -- or to advertise that aggressively when the shelves aren't that full. I will say we will probably, in either case, still looking for an increase overall for this year. It may shift what we -- how we communicate. And the messaging that we have may be slightly different. And you've seen that. I think we shifted what we were doing on Cottonelle, and it's more of a social message around Share A Square. And the intent to that is to build equity, and we like how that's performing. And so you'll see more of that from us likely on other brands, or at least as we continue to drive kind of the equity of the brands. But overall, our intent is, longer-term, to increase our advertising, our marketing support for our brands. We feel great about it because we feel very good about the progress we're making on the quality of our innovation and the quality of our products, and the quality of our commercial programs or our messaging.

So you mentioned dialing down. Another thing that you've dialed down has been repurchasing of stock. Can you talk about the philosophy there? And when do you think that might dissipate?

Yes. Well, we'd characterized it as we suspended it for the second quarter. Again, and similar to how we handled suspension of guidance, I think it was all related to the uncertainty around COVID. And so we feel good about our liquidity, as I mentioned in our prepared remarks. I think we feel good about our performance thus far through the COVID situation. And so I think as we increase our confidence throughout the year, if we continue to perform well, I think it will be just that, a temporary suspension.

And same with guidance then?

Yes. Guidance. Yes. Paul, would you add anything to that?

No, it's exactly right. Both suspensions are intended to be temporary. And as the visibility improves, you should expect us to revert back to our former practices. When that happens, we're still assessing it.

Okay. Okay. Okay. Wanted to get a little bit into the organizational changes, Mike, that you've been making and a lot of it about both transparency, structure, view towards growth and disaggregate that a little bit because it looks like it's been COVID tailwind aside, it has been working. So I did want to get a sense from you about kind of the benefit of centralization of some functions versus localness, right? So some things you are quite centralized, on some things you're actually quite local. How do you think that balance is at Kimberly-Clark right now? Is it at the right spot? What changes do you anticipate making?

Well, Ali, I'm at heart a decentralist, and just -- I will say I know you worked in a different firm. I spent a lot of time decentralizing what your firm centralized. So at my firm...

I think it was called a matrix, anyway.

Yes. Actually, I should say more accurately. I really am a matrix guy. I'm a big believer in the matrix. And -- but our heritage has been decentralized. And I think there's been a lot of good with that. And I will -- I really believe we've got great local agility through our decentralized approach. However, I am more accurately said, a matrix guy. And what I really want to do is I don't want to -- I'm not going to reverse decentralization, right? I want the local agility. I want it to work smarter, and I want it to work faster. And you say, well, how do you do that? Well, maybe an analogy I'll give you and may not be a great one. But if I would say, if we were in the car racing business, and let's say, we're in the business of racing a NASCAR circuit, an F1 circuit and a rally circuit, I wouldn't say, "Hey, you all go invent something called a car, right, and go figure that out." You might have like 3 fundamental designs of the kind of cars that run best in those environments. And then we give all the regions or the local markets, a tuning shop, right? And they can tune it up the way they want it. And so that to me is kind of a bit of an analogy, which is I want to make the organization or our agile approach work smarter by leveraging the matrix more effectively on a network basis to bring the best of the world to it. And in that context, there will be very little be done centrally for us. And the very little is done centrally today, and I don't expect it to do a lot centrally. What we do want to do is leverage the best of our network. And for example, our Korean team is one of the best in the world at diapers, as is North America. They're probably great at different things. And so what we're doing differently now is working much more on a much more integrated and coordinated basis. We divide up the tasks and then reassemble. And to me -- that to me is a much more productive approach. And I think it's one that our organization is responding well to.

Okay. Okay. If you went too far the decentralization path that office behind you might have to get a little bit smaller. Look, one of tools that you are using to become more agile and really, really spear ahead of this is these monthly meetings, monthly transparency, going through change in profit, change in sales. Can you talk about that process in a little bit more detail? And how it's benefited your organization?

Yes. Interesting. And I think some companies operate this way and others do not. I think -- well, we had regular cadence and reviews with businesses. I would say those reviews historically were a little more presentation oriented. And I'm really not afraid of that. I tend to be more of a spreadsheet guy. And the benefit of that is I prefer standardized data, and I prefer a regular cadence. And I'd rather see the detail because in a presentation format, it's hard -- not everything comes up in that discussion. And so what we're finding is -- and our CFO's organization has done a lot to bring benefit here, it's all automated. There's not really any human intervention. I think maybe the local CFO or the region CFO has to write a few bullet points, but the data is kind of automatically generated by the system. And it gives you tremendous visibility. And there's one question, I think maybe last year on one of the earnings call, Ali, I think somebody asked, well, how long did it take you to get visibility to the Peru situation? We're having a little softness in Peru. It's improving but -- and I do know how to answer it because I think the answer -- I think I ended up saying was like immediate because I saw it that month. I mean maybe at most, it was a 2- or 3-week lag, but I see the data every month. And it's pretty obvious that you have an issue to work on when there is a red 21 in the box.

So right. Right. Now part of the culture change as well you've done is pushing towards this new kind of growth-centric mindset. How do you do that?

Well, the -- I guess my view would be -- my job is most -- there's a lot of things in my job. Obviously, this is one of the great aspects of the job, this meeting today. But the -- I'm just kidding. But really, the important thing is people, right? And it's -- I had an old boss, one of my first bosses, who ran the division of one of the other companies I worked at, he always come to my office every couple of days and just say, "Mike, it's people, people, people." And I was kind of wondered what he said. And then the second thing he say is, "Mike, you can change your people or you can change your people." And I always wondered what that meant. But in either case, he was right. And I've always lived by that because for me, the biggest thing, Ali, and it's about the organization, starting with the leaders, it's getting the right kind of leaders with the right mindset and skill set and roles. And then creating an environment that we can work together to solve big problems, and we're doing that. And I think I'm really excited about our team. As you probably can note through some of the external announcements, it's continuing to evolve. We're continuing to bring in some new people. And I think they're really adding to the mix. And so we're really excited about that.

Okay. I'm going to try to squeeze in a couple more questions both from the audience and from what we had. One of them is kind of a constant refrain, which may be less relevant now, given what your stock has done. But the question is around, would you ever think of splitting the company up? Would you ever think of selling Kimberly-Clark to somebody?

Yes. Well, I think the selling question is, our focus is -- and we're confident that we have a great plan that will lead to long-term shareholder value creation. And so we're excited to implement that plan. The sales question is, to me, it's not necessarily up to us. As management, our job is to create the best plan. The Board can decide or our shareholders can decide, but it's not our intent. The -- and then on split side, again, I think we've talked about this numerous times. There are synergies that make the company more effective to run on both sides. We like those. That said, those synergies are not necessarily insurmountable, right, if you wanted to go the other way. But for me right now, I would say that the juice would not be worth the squeeze. And we like our portfolio. Certainly, we think there's a lot more opportunity for us to improve the businesses on both sides, and we're seeing that. Tissue was in a tough place. Was it 2 years ago, Paul? And -- but I think it's changed dramatically in the last couple of years. Now that said, is there a little more volatility on that side of the business than we would prefer, perhaps. But we also think there's opportunity for us to mitigate or ameliorate some of that volatility over time.

Okay. Okay. And one question is, it goes a little bit back to the start of our conversation. But as you look through the pandemic, are there any shifts in investments you're planning to make or shifts in strategy? So are you going to cut more costs? You mentioned perhaps more investments in e-commerce. But are there really big seismic changes that you plan to make here post pandemic?

I would say the only real area is, I think it creates opportunity for us to innovate and create different products that meet, I think, consumer needs that are going to be big or bigger, certainly bigger than they are today. And that's something that we don't want to -- I don't want to miss that opportunity. And so while we're still formulating when that's going to be, Alison Lewis, our Chief Growth Officer, we're calling her internally our Chief Pivot Officer, is kind of leading the charge on that. And we're excited about that. On the other hand, Ali, I would say through this pandemic, and obviously, with the benefit of some of the volume impact that we've had, we felt like it's important to invest in some of our capability or in some of our people at this time. And we really appreciate the work all of our hourly or mill employees are doing. And so we have made some investments to support them in this difficult time.

Well, Alison has been a great addition to your team. We're a big fan of hers. And your folks all around the world have done such a tremendous job dealing with this onslaught of different angles of pressure from the pandemic to really [ bring ] supply chains, you should feel be very, very proud. And I think many folks on the phone are thankful for what you guys have done for the past little while. So we've run out of time. I don't know if there's any last words, Mike, from your end, but I really want to thank you or Paul. I really want to thank you guys for doing this with us in this new format. You guys have, obviously, dealt with a lot of pressure, and we appreciate that, and thank you for the audience listening as well for investors.

No, Ali, congratulations, and thank you for the opportunity.

Thanks, guys.

Thanks very much, Ali.

Thank you. Take care. Bye, everybody.