Kimberly-Clark de México, S. A. B. de C. V. (KIMBERA) Earnings Call Transcript & Summary

Hello, and welcome, everyone joining today's Kimberly-Clark Temexico Second Quarter 2026 Earnings Conference Call. [Operator Instructions] please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez.

Thank you so much. Good morning, everyone. Hope you are all doing well, and thanks for participating on our call. As usual, we provide some brief remarks, and then we'll open it up for questions. We had another strong quarter and a good first half of the year with record revenue kind of performance in our Consumer Products business, continued double-digit increases in gross profit, operating profit and EBITDA, an EBITDA margin at the top end of our range. Our strategies and actions are having the intended impact. spearheaded by strong commercial and operating execution and we continue to make progress on our KCM innovation, growth and transformation strategy. More than that, Dr. Javier takes you through our second quarter results. Javier?

Thank you. Good morning, everyone. During the quarter, our sales were MXN 14.4 billion, a 2.7% increase versus the second quarter of 2025 at an all-time high. Total volume was up 3.1% and driven by consumer products, while price/mix was flat. Net sales were led by consumer products, which grew 5.2% with a 4% volume increase and 1.2% price and mix growth while away-from-home decreased 5.1%. Exports were down 11.1%. Cost of goods sold decreased 3%. Our cost reduction program once again had very good results and yielded approximately MXN 450 million of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing and the use of alternative fibers. Product redesigns and the introduction of new raw materials in non-Google fabrics diaper geometry redesigns to improve material efficiency and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing and logistics. In addition to these actions, last year, fibers and fluff were favorable superabsorbent materials and resins compared negatively. The FX was lower, averaging around 11% less than last year. Gross profit increased 11.9% and margin was 41.6% for the quarter. SG&A expenses were 11.5% higher year-over-year, and as a percentage of sales, were up 140 basis points. Distribution expenses were higher, while we continue to invest behind our brands and work to improve our footprint and streamline logistics. Operating profit increased 12.2% and operating margin was 23.7%, up 50 basis points sequentially. We generated MXN 3.9 billion of EBITDA [ 6% ] increase year-over-year, with EBITDA margin of 27.1% above the long-term range, representing 40 basis points improvement. Cost of financing was MXN 470 million in the second quarter compared to MXN 352 million in the same period last year. Net interest expense was higher since we have more -- during the quarter, we had a MXN 15 million FX gain compared to a MXN 20 million gain last year plus MXN 2 billion, a 9% increase. Earnings per share were $0.68, a 9.7% increase. We maintained a very strong and healthy balance sheet. Our total cash position as of June was MXN 19.6 billion. Our net debt-to-EBITDA ratio was 0.9x, with EBITDA to net interest coverage of 9x. Thank you.

As mentioned, we had a strong first half of the year despite still stood economic growth and private consumption. As we move into the second half, we expect Consumer Products businesses to continue to lead the way. Home business to grow during the second half of the year. And patrolled sales will be lower due to more tissue required for consumer product sales but becoming as of a drag as the year goes on. All in all, we expect stronger revenue growth going forward. With respect to raw material costs, fundamentals support lower dollar prices versus last year. But given the current geopolitical tensions, all derivatives will be higher, both sequentially and versus last year. We expect prices will return to underlying market fundamentals by end of the year. In the meantime, we will accelerate our price realization efforts and stay focused on operational efficiencies and ensuring another good year in our cost reduction efforts. Of greater importance, we continue to make good progress on our KCM strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant and differentiated innovation together with greater engagement and improved commercial execution. Further, we continue to make inroads in private label and continue to work with our strategic partner to strengthen the North American supply chain. When it comes to new areas of growth, we continue to make progress on pet food and are actively analyzing the Candu opportunity. All in all, our KCM initiative focused on accelerating growth are going well. Important, our efforts to develop our skill sets, better utilize data work closely with our retail partners and transform our end-to-cost structure are gaining momentum. As we've mentioned before, effectively deploying and efficiently utilizing the most advanced technology solutions, the fundal support all these efforts and timings of the essence. We hope this comments quite good. With that, call for questions.

[Operator Instructions] We'll take our first question from Alejandro Fu with Itau.

Operator, questions and congratulations on the results. I have quick ones, if I may. The first one, Pablo, I wanted to see if maybe you can elaborate a little bit -- what are the main differences driving growth for the consumer segment relative to the home segment where we have seen a couple of quarters where the big difference in terms of lines. So you're going to lower why you can start it different? And I know that you said you spent growth away from home going forward? What's going to change for the second half? And maybe the last would be can you deal, if you have any update in terms of timing of the conversations, should we expect maybe more on towards the third quarter or the fourth quarter?

Thanks for the questions. And then both very important -- as you mentioned, we've got a very good quarter on the consumer side, and that's driven by strong innovation behind our brands and relatively strong markets plus in roads in certain theses that we've fine. So doing well both in core categories and accelerating our growth in our demcategory. So overall, I would say the consumer pro particularly when it comes to volume. So we're pretty happy with that performance, and we're working hard to make sure that continues. When it comes to way from home, we've been talking about on distributors being a little bit more tearful given the economic scenario. And now what we also saw happening is that they became a little bit more aggressive betting on the outcome on consumption given the World Cup experience -- what we actually saw is that those expectations did not materialize. And as a result, really competition to drive volumes and best and that negatively impacted pricing. So did see in entity [indiscernible] pricing was affected because of this competition to get more volume into the market. May continue here in at least July, but we expect that to subside as the year progresses and have inventories and the business returned to more normal levels. If there will still probably be lower growth rates because, again, the economic condition is not on our distributors to provide more products to restaurants, stores, et cetera. But we do expect it to come back to growth and to consumers away from home. If it comes to do acquisition, we are very, very actively working on it with our partner. Let's have in on that --

Question comes from Bob Ford with...

Palo Javier. Just year-on-year but up on quarter, right? And you mentioned master roles being done. How should we think about -- and how are you thinking about sales of the balance of the year? And then I was hoping, given the outlook for sort of the inputs over the are you thinking about industry pricing dynamics, particularly during the sometime season, but this position of strength with respect to your shares right now?

Thanks, Bob. Thanks for the questions. First, on the export business, yes, you're right. Our export to fish product was down versus last year. but it was up sequentially. Our export parent growth was also down versus last year, was also up sequentially. And this has to do, particularly on the export finished product side with a couple of things. One, the exchange rate differential, of course, versus last year. Two, that we were comparing to a record quarter exports finished product sales last year. Third quarter was also pretty strong and a slightly lower volume demand from our partner. So just -- it was really timing in the quarter, and there will be a little bit of that in the third quarter. But as you know, overall, we've been working with our partner position ourselves to strengthen the North American chain, and we still that's the pace that we're finding good opportunities. And so over a longer period of time and certainly for next year, we're seeing very, very good -- our expectations for a strong growth in -- certainly in that business. When it comes to parent rolls, again, it depends on how much we can do internally, and we're consuming more internally because of how strong our performance has been in consumer products. But we're also finding ways to produce more. So hopefully, we'll be able to find here a combination where we can both use more internally but also supply more externally and at least be led by drag as we move forward. When it comes to the cost side, again, hard to say where this -- how long this will last. I mean we expected this to be a very short time and with relatively lower impact, but it's dragged on for a little longer. I think that pretty much everyone expected. It didn't get as bad as also some people expect that it could get, but it has certainly had an impact. So we will see some of that impact in costs here in the third quarter. And hopefully, as we mentioned, if you go back to fundamentals, those support lower dollar prices in our raw materials. So hopefully, we get back to that by the end of the year. Having said that, having said that we will see more pressure on this quarter. We still expect to be within the range of our EBITDA margin target for the quarter, notwithstanding those price cost pressures. And again, hopefully, even improving in the fourth quarter as we move along. Now this is happening. We will continue to monitor any opportunity for price realization. It's always staffed during the promotional solar season. And this one has been particularly aggressive again, as consumption has been subdued. So some of the retailers and some of our competitors have been a little bit more aggressive. So it's really hard at this time to really reflect pricing, but we also expect that to start to die down as this July passes and certainly into August and definitely through September. So we'll continue to look for opportunities on price realization to be able to absorb some of these price increases -- cost increases. But again, even if we're not able to do that, we are expecting to be able to deliver EBITDA margins within our target range.

No, understood. And if I could just follow up, Pablo, you touched on private label in your comments. And I was curious if you're seeing a down trap within your own price tiers. And how are you thinking about participating in private label and the equilibrium with the branded side of the business.

Sure. great question, Bob. Yes, I mean, what we're seeing, not different from other economies is we're seeing what many are calling the K-shape right? So consumers who are buying premium products continue to do so. But we do see some consumers on the value segment trending down to economy segment and in many -- in some cases, trending down to private label, offerings, particularly when it comes to hard discounters and some of the more economy-driven formats, for example, ore et cetera, where there's also a big push to help consumers and provide these products at a lower cost. So certainly, that dynamic is happening. Know our strategy has always been to have this multi-tier, multi-brand offerings with superior products in any -- in every tier to all of the private label offerings out there and that will continue to be the norm and that will continue to be our strategy, and we will bring innovation behind that very aggressively in the coming quarters and certainly into next year. We've got a really, really nice pipeline that we put into place this year, and we love how it looks going forward. So that will certainly help -- so we've also said that we want to be more strategic about participating in private label. And given that it's a trend that continues and certainly something that retailers want to push out, we see an opportunity for growth there if we participate. So we're making inroads. We're working with quite a few of them and starting to supply some of their products, gaining that traction, momentum, confidence or trust with them to build that business. And what we're going to have really have a private label where we can supply it to compete with our brands for the consumers' preference and again, on the 1 hand, multi-tier and continued innovation to stay a step ahead and on the other, providing very good products for private label to be able to meet the demand of both our customers and our clients. So a dual strategy, which started to pay off, but a lot more to do there, a lot of room for improvement of growth.

Our next question comes from Antonio ernandez with Actinver.

On your results. Well, actually following up on the last answer that you provided. Can you share more light on how much is private label as a share of sales how much has it been growing within Kimberly Clark and maybe how much of a potential do you see there? And also within innovation, how much of that innovation is addressing both the trade-off or the trade down. I mean the K-shape economy.

Sure, Antonio. I mean innovation still a -- sorry, private label is still a small business for us. We expect that maybe this year, it will be around MXN 800 million, double what we did last year. But again, with expectations that it can continue to grow at a very interesting clip in the next couple of years as we gain traction behind our initiatives. So our focus there to make that happen. In terms of innovation, I mean, really, the strong performance behind consumer products, diapers, bathroom tissue, famine care incontinent. So both on our core categories and some of our diamond categories is supported by strong innovation. We've been able to, in every category, bring new products to market of course, together with a good commercial execution. So from new offerings in Cottonelle, in bathroom tissue to new offerings in pretty much every tier in our diaper business, and we will be introducing more innovations in the premium side of the business this year to improvements in the value and economy here in the wipe business and a new product line in Feminine Care, a new product line and incontinence. So I would say that it's broad based. And that is a very important way why we've been able to continue to grow at a very good clip in consumer products despite the consumer environment.

Thank you. We will move next with Reed Monahan with Barclays.

So I was wondering with the quarterly savings of I guess another quarter with savings around COP 450 million and EBITDA margins holding above the long-term part range, sort of how much of the current savings or run rate savings run rate, would you consider structural versus timing related as we look towards 2027, how sustainable are these current margin levels? And what do you expect through raw material and FX conditions as that plays out.

The way we usually -- not usually the way we account for the cost savings is we only include cost savings that are for the most part for the long term, these are things that we can add on 1 year and go forward. So they're more structural than conjunctural -- that was your question, right?

Yes. Yes. And then also sort of how you see, I guess, material costs play over the course of the year?

Yes. I mean let me just touch a little bit on what Javier said in terms of this being structural, and we mentioned in our comments a couple of the things, but maybe that's useful because, for example, we're generating savings through global fiber contracting initiatives and changing sourcing in different raw materials. So of course, that's structural. I mean we rather, I'm going to say around the world looking for sourcing the best prices in our materials, and we find that we -- it doesn't end there. We continue to look for the best sourcing possible that we've been able to source materials from different parts of the world that preferred costs. And that's 1 example of the things we continuously do. So that's really structural because it's behind our culture of just being out there and making sure we find the best opportunities. And the same can be said for product designs and and some other efficiencies. So again, always looking to structurally improve our cost structure and our efficiencies. Going forward, as we say, I mean, hard to tell if it was just by fundamentals, we should be seeing lower dollar prices in most of the raw materials because there's quite a bit more in many of the quite a bit more supply than demand in many areas of the world subdued domestic consumption but that's being interrupted because of the current geopolitical tensions. How long that lasts -- it's anyone's guess. So right now, we will see an impact. But eventually, we believe we will see those raw materials come back to fundamentals and that will support lower costs. And certainly, that together with our efficiencies and our cost efforts help us continue to deliver good margins and certainly within our target range. This was the 13th consecutive quarter within or above our range, and we certainly expect to continue as we move into the rest of the year and 2027.