The thing about it is the trade down is limited at this point, but we really intend to be more valuable to our consumers at every rung of the good, better, best ladder. And so what that means is I think Anna was asking about private label or value to our quality. I mean we’re making all of our products better across the board. And that certainly, I think the growth driver for us over the long term is by making products better, premiumizing, elevating our categories. But we want to serve the value-oriented consumer as well, too. And we have big brands like Scott, Bath and Kleenex Mainline depend main line that serves those consumers well too.
Sunil Modi: Excellent, thanks Mike.
Mike Hsu: Okay, thanks Nik.
Operator: Thank you. Your next question is coming from Chris Carey from Wells Fargo. Your line is live.
Mike Hsu: Hey, Chris.
Christopher Carey: Hey, good morning. Just a couple of follow-ups. Just on China and the U.S., right. So in China, clearly good numbers but I also think one of your peers delivered quite good numbers as well. And I guess the question in a way is, are we seeing the category turn in China benefits from perhaps Chinese New Year, are you both just gaining relative market share, clearly, it’s a strong number, so I’m just trying to understand this like a bit deeper, I guess? And then secondly, on the U.S. it’s really the same question on relative outperformance to category. And I know you’ve mentioned it a bit more, and I’m more interested in the China comment, but if you can just expand there because that stood out to me as well? Thanks.
Mike Hsu: Yes. I’ll start on China. Again, if you kind of saw the Investor Day presentation with Katie’s leadership, our China team is doing a fantastic job there. And they’ve grown consistently double digits over the past five years, and it’s become our best — one of our best performing businesses in the company. I would say the — I think the driver performance — there’s a couple of factors. Certainly, a strong Chinese New Year execution. But overall, we make a great product. I believe it’s the best product in the marketplace. I think consumers are excited about the products that we offer. And then we have really, really strong digital executions that really kind of drive that relationship with consumers. And so to answer your question, I think it’s more of a share pickup.
The category itself based on the data I’m seeing was still down about 10% in the quarter, consistent with the birth rate trends and everything else we’re seeing. So it’s a share pickup. And I’ll point out we’re the market leader in China but that’s predicated, we’re only at a, I would say, a mid to high-teens shift at this point. And so we feel very good about our positions, but it’s a fragmented category. And so there’s a lot of opportunity for us to drive further share growth in the market. Importantly, I think for us, we’re also picking up on our mainstream business. And part of the strategy, when I say, hey, we want to be great at every tier or every run of the good, better, best ladder, we want to accelerate innovation at the top end and then cascade that quickly through our line.
And so we’re doing that. And I think we’re seeing that in the results in China for sure and similarly in the U.S.
Christopher Carey: And then if I could just one follow-up would be clearly, pulps are on the move. It’s a bit more on the front end of the curve than in the back half of the year 2025, but this is going to be perhaps the first moment to really kind of show the ability to work through this this cycle. Just any thoughts on the moves that you’re seeing and the types of actions that you might defer to if these moves prove durable and even accelerate between pricing, productivity, and whether you see any potential kind of margin issues on the horizon or if this feels very much manageable at this point? Thanks.
Mike Hsu: Well, I’m going to start with — Nelson could disagree with me if you want, Nelson. I would say, manageable at this point because here’s. I said, hey, new normal. I think this is what I’d characterize as a more normal year for CPG for the first time in the last three or four years for us, which is, hey, a stable input cost environment. It’s still not deflationary. At some point, one would hope that it becomes deflationary. But I’d say, hey, it’s slightly inflationary, but relatively stable. That’s different than the past three or four years for us. And so I think for us, we have very good productivity plans. And so if the cost — input costs remain stable, we can operate very, very well in a stable cost environment and let that productivity drop through.
So that’s one part. And then the other part of the normal is, I think with — there’s been a lot of volatility in demand with COVID and everything else over the past few years. I think we’re starting to see demand stabilize. And so with those two factors, I think we can operate well. We’re very cognizant and Nelson will talk about it, that we’re there are some demand signals around different pulp environmental changes, but we’re well aware of that, and we think we have that accounted for in our current call. But Nelson.
Nelson Urdaneta: Sure. So just to build on what Mike was saying, Chris. So a few things. I’ll start with — we’ve built significant capabilities over the last five years in order for us to be able to maneuver through the ups and downs. Obviously, if we have a shock like what we saw two to three years ago, that’s a different situation that we’d have to maneuver through. But as Mike said, and as we’ve said back in January, we see the situation as manageable. To reiterate, I mean, when we talked in January, we talked about $200 million to $250 million of net input costs all in. That included currency, other costs, as well as commodities, which we still see deflationary for the full year for us. Now on that range, we’re now staring at the high end of that range, which again, we see as manageable, as Mike said.
A couple of things to keep in the back of your mind as you look at the numbers, core commodities like bulk resin-based materials, energy in dollar terms, while they’re a little bit more unfavorable today versus what we were seeing back in January because we’re seeing some upticks still for the full year, they would remain a tailwind. We continue to see distribution, logistics and labor costs as inflationary for the year. And then obviously, for non-U.S. operations, currency will be a headwind in costs because they’re buying pulp and many of the inputs that they use to manufacture the products in hard currency. So on a net basis, that’s how we get there. The thing to also keep in mind is that we expect the phasing of our input cost inflation to be more muted in the first half of the year.
And this follows the trend that we saw in Q3 and Q4 of 2023 that would carry over pretty much through Q2. And we’ll see an uptick of this as we go into the back half of the year. But again, it’s all factored into our outlook. And the only difference is really we’re more at the high end than the range that we had given before.
Mike Hsu: Yes, Chris, just to calibrate you. I think, Nelson when we’re looking at a couple of hundred million of inflationary impact, just to calibrate you in 2021 and 2022, we took on $1.6 billion and $1.7 billion, respectively. So I would say that’s kind of why we feel like it’s — that’s one reason why we feel like it’s more manageable. The scale is totally different. And then the other thing is as Nelson points out, we’ve changed how we manage the business in some ways to try to become a little more predictable. And we have better tools than we had maybe five years ago and so.
Nelson Urdaneta: Totally. And just to build on Mike’s point on the tools, as a reminder, I mean, we have a very strong pipeline of productivity initiatives. We’re looking out three years and I’ve been chatting about this for the last few quarters. That pipeline remains strong. You would have seen that non-procurement-related productivity was very strong getting out of the year, and the team is very confident in our ability to continue to deliver, not just in this year, but in the following two to three years, which builds on our ability to deliver on the $3 billion commitment of overall gross productivity in the next five years or so. So that’s built into how we’re looking into cost and inflation for the next few quarters.
Christopher Carey: Thank you very much. Very helpful.
Mike Hsu: Okay, thanks Chris.
Operator: Thank you. Your next question is coming from Steve Powers from Deutsche Bank. Your line is live.
Stephen Powers: Good morning, good morning, thank you. Hey, two questions if I could. The first one builds on the conversation just having with Chris around commodities and managing it through the cycle. I guess I’m curious as to the steps you’ve taken to better maneuver through input cost cycles and essentially better protect this year. Does that include different ways of sourcing and contracting and hedging but in effect, pushes out the cost curve as we would typically know it for Kimberly-Clark. I guess what I’m thinking about is that in the past, if we saw reinflation like we have year-to-date, we’d be thinking about that kind of flowing through and impacting the latter third, about a quarter of the current fiscal year, kind of a six-month, maybe six to nine month lag. It sounds now like you’ve got better visibility. I’m wondering how much of that has just pushed out that reinflation into 2025?
Mike Hsu: Hey, maybe I’ll say a couple of things. One, Steve, is I think the analyst community and the investor committee, I think, made very clear to me when I came into this role that one of the issues they had with KMB is the earnings volatility. And so I’ve been very cognizant of that fact. And so we’ve over the past five years, kind of worked significant — worked pretty hard to kind of reduce some of the underlying volatility in our business. Nelson, with an outside perspective has really worked hard to bring some different kinds of tools into our thinking. And so we’ve been applying that over the last couple of years and we feel very good about that. Certainly, there is inherent volatility in our business certainly in pulp.
One would think at some point with the super cycle of inflation that we have on pulp, it’s still elevated and at some point, it needs to come back in our history would say it’s going to come back down further. That said, I think we’ve built the right tools. And Nelson, you may comment about what we’re doing there.
Nelson Urdaneta: Sure, thing. And just to build, I mean, the integrated margin management approach, Steve, that we’ve been working on for the last year or so really addresses part of this volatility. It is end-to-end as we chatted on March 27th, and it looks at all the elements that drive total delivery cost as well as margins. And it starts with we’ve been building muscle around revenue growth management, and that’s very important. Price backed architectures, what kind of price backs do we have for the different channels, and how do we tackle that, including promo activity, etcetera, which is very important across all the geographies we work in. Secondly, are the tools that Mike was talking about on how do we handle costs. We don’t reveal what are the contract structures that we have in place or the hedging activities, but we obviously have gotten into much more proactive risk management to be able to have visibility into costs and give us time to react.
And what do we react with? We react with productivity initiatives and elements of revenue growth management. That’s the — that’s a big difference on how we were approaching it five years ago and we’ve been building that muscle over time, and that then drives into this visibility into the productivity element, which right now we’ve split it, and we’re being very clear of this as the productivity within the four walls. That’s the $120 million that we talked about. And then we have productivity and procurement, which is embedded in our net input costs. And that clearly gives accountability across the supply chain on how to drive lower total delivery costs or at least manage through the margins. So yes, I’d say it’s muscle we’ve been building over the last five years, as Mike said.
And obviously, we’re not going to be immune to move in commodities, but the visibility we have today, the ability to react is different than what we had in the past.
Stephen Powers: Yes, okay. That’s very helpful. And this answer — the next question may be short, if you’ve already addressed it, you can tell me to just go read the transcript afterwards. I joined late. I apologize. But in the…
Mike Hsu: We would never be that rude Steve.
Stephen Powers: In the prepared remarks, you mentioned private — your plans to exit some private label businesses. I know those plans are still kind of under construction, but you did make mention of it with some impacts on 2025. If you could — if anything further you can say on that today, that would be great.
Mike Hsu: Okay. Just to be clear, Steve, that question was not asked. So it’s a great question. Just on that, yes, I did want to flag that, we are — strategically, let me just tell you we’re focusing on differentiating our brands with proprietary science-based innovation. That was kind of the big theme that we shared with you all at our Investor Day. Just to give you some context, today, our last year private label production represented about 4% of our global sales. And so what we announced today will likely cut that in half by the end of 2025. The thing I’ll say is — and it takes two parties to make a decision, so I won’t get into any specifics, but I would say RM as you think about what we say as science is our competitive advantage, the investments we’re making in our new personal care core technology that resides in our diapers and our feminine care pads and our adult care also to get to natural forest free, all that development, that’s all going to take some pretty chunky capital.
And so we are making significant technology and capacity investments and so we really want to be more choiceful as we go forward about where we spend that capital. And so that’s really kind of underlying some of that decision-making. These decisions are going to enable us to focus our tech investment on what we see as our greater strategic priorities. And I might note, our exposure to private label could decrease further over time.
Nelson Urdaneta: And just to add further color on what we would expect from a bottom line standpoint, Steve, it should be consistent with what you’re seeing in the top line. And then, obviously, we’re working through supply chain transition, repurposing, and related cost opportunities within the context of our whole network optimization initiative, which is one of our three strategies in the supply chain strategy that we unveiled at Investor Day. We will have more to say as we go into 2025 guidance period.
Stephen Powers: Okay, that is good color. Thank you. Thank you both.
Mike Hsu: Thanks. If you could take maybe one more question, that would be great.
Operator: Certainly. Your next question is coming from Javier Escalante from Evercore. Your line is live.
Mike Hsu: Javier, how are you?
Javier Escalante: Hello Mike, good morning everyone. I do have kind of like a quick clarification to Lauren’s questions first because it’s in the context of guidance versus what is incremental in terms of the restructuring and whether it’s sensitive to me from the outside is kind of like coming through earlier. So basically, the $120 million in savings that you flagged, are they part of the $3 billion that you spoke of a month ago or not, and then we can address the other piece, if you don’t mind?
