Kimberly-Clark Corporation (NYSE:KMB) Q2 2024 Earnings Call Transcript

Kimberly-Clark Corporation (NYSE:KMB) Q2 2024 Earnings Call Transcript July 23, 2024

Kimberly-Clark Corporation beats earnings expectations. Reported EPS is $1.96, expectations were $1.71.

Operator: Good morning, and welcome to Kimberly-Clark’s Second Quarter 2024 Earnings Question-and-Answer Session. I’ll now hand the conference over to Chris Jakubik, Vice President, Investor Relations. Please go ahead.

Chris Jakubik: Thank you, and hello, everyone. This is Chris Jakubik, Head of Global Investor Relations at Kimberly-Clark, and welcome to our Q&A session for our second quarter 2024 business update. During our remarks today, we will make some forward-looking statements that are based on how we see things today. Actual results may differ due to risks and uncertainties, and these are discussed in our earnings release in our filings with the SEC. We will also make some non-GAAP financial measures today or discuss some non-GAAP financial measures today. And these non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. And you can find the GAAP to non-GAAP reconciliations within our earnings release and the supplemental materials posted at investor.kimberly-clark.com. Before we begin, I’m going to hand it to our Chairman and CEO, Mike Hsu, to for a few quick opening comments.

Mike Hsu: Thank you, Chris. Before we jump into the Q&A, I would like to start by saying thank you to my colleagues at Kimberly-Clark, who are working diligently on the augmentation of our comprehensive innovation like growth strategy and delivered strong results for the first half. We’re excited about the opportunity to accelerate investments to build our powerhouse categories and brands and our pipeline of innovation. We are effectively navigating external dynamics, while driving our consumer centric culture. We’re making the company better, stronger and faster, and we are turbo charging our ability to provide better care to consumers around the globe. I’m very proud of our progress to date. It bolsters our confidence in delivering our outlook for the year, and our ability to ramp-up our investments to further leverage our core strengths and achieve our potential.

We are on an exciting path, and I’m — and are well-positioned to deliver durable growth and sustainable shareholder returns. So with that, I’d be happy to open it up to questions.

Q&A Session

Operator: Certainly. Everyone, at this time we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Lauren Lieberman from Barclays. Your line is live.

Lauren Lieberman: Great, thanks. Good morning. So first, I wanted to check in and talk a little bit, Mike, about market share trends and — because the organic sales growth this quarter was really solid. Volumes were up. You had this unexpected headwind from inventory de-stock. But I wanted to also check in a bit on market share trends, where you stand versus not just competition, but also what you’re seeing from private label of weight? Thank you.

Mike Hsu: Okay. Good morning, Lauren. Yeah. Thanks for the question. Yeah. Overall, I feel good about the progress we’re making on market share. And I do expect further improvement as we progress through the year. We were overall globally even on a weighted basis and up or even in about half of our cohorts around the world. And that’s progress versus the past couple of years where, if you recall this time last year, I think we were up or even in about 40% of our cohorts. So, I think we’ve made solid progress, but there still remains plenty of work for us to do. As you may recall, Lauren, North America was a bit soft last year. That is improving. That softness last year was primarily due to supply constraints. The first half in North America on a weighted basis was flat and then up or even in about six of eight categories, and that continued in the second quarter.

And I expect further improvement in North America as we cycle some of those constraints last year. We also had pretty solid gains on market share in certain brands across our — what we’re calling focus markets — or our other big five markets beyond North America. In China, Huggies was up 180 basis points in share, in the UK, Andrex, which is the leading brand, that was up 350 basis points, in South Korea, Huggies has been up over 800 basis points since 2019 and was up over 300 basis points in the quarter. And in Brazil, I think that that we’re working to improve the brand proposition. And so we were up about a 100 basis points in Brazil. So we’re making progress, but as I pointed out, we’re about flat on a weighted basis and so they’re that signals that there’s plenty of work for us to do.

Lauren Lieberman: Okay, great. I’m just curious, I know you mentioned a couple of market share, a bunch of market share positions outside of North America and China that have been very strong. But when do we start to see that translate into growth? Because I think one of the interesting parts of this strategy you’ve laid out in this sort of shifting the focus a bit, so that we can get more visibility into other areas of your business. But when should we start to see growth become more material in a matter more moves the needle more in markets outside of the US and China?

Mike Hsu: Yes, I mean, you know, Lauren, I’d say we have a very proven playbook that we’re really proud of and we’re implementing that more systematically behind this. You know, wiring for growth initiative that we have. We’re going to – we’re going to implement those playbooks more systematically around the world. You know, one, we got great technology that the world you all haven’t seen yet, which we’re rolling out and we’re excited about our launch that I mentioned in our in our opening comments in the script on skin essentials in the US. So we’ve got great a great technology portfolio. We got the right. We’ve been investing in the past five years to build the right commercial and supply capabilities to accelerate performance.

You’re going to see a sharper focus on what we’re calling our focus markets, right? Those are the US plus the next five markets for us and so that said, I would say, local conditions remain dynamic. And so, there’s plenty of opportunity to tighten up our brand propositions on a market specific basis for reference, I’ll just tell you. So Huggies, as I mentioned was up in share in China. Kotex was flat. And you know, again, it grew high single-digits in the quarter on Kotex. But we’d love to get more share growing in China on femcare. In Brazil, Huggies was up. Kotex is the leading brand or we call it Intimus in Brazil, the leading brand in Brazil. But, share was a little soft and down about just a little bit less than 100 basis points. So we got some work there.

South Korea, I said Huggies was up over 300 basis points, but bath tissue was down a little bit. And so we have work to do around the world. And so part of our strong start it’s going to afford us the ability to make surgical investments to get our good, better, best, where we think they need to be in the local markets.

Lauren Lieberman: Great. Thanks so much. I’ll pass it on.

Mike Hsu: Okay. Thanks, Lauren.

Operator: Thank you. Your next question is coming from Dara Mohsenian from Morgan Stanley. Your line is live.

Dara Mohsenian: Hey, good morning, guys.

Mike Hsu: Hey, Dara.

Dara Mohsenian: So a pretty sizable margin and EPS beat in Q2, but it does sound like investments are going to increase in the back half of the year. So, Nelson can you just discuss a bit the cadence of margins and EPS in the back half, how we should think about Q3, Q4, margin performance, particularly as the divestiture impact should ramp-up in the back half of the year?

Nelson Urdaneta: Sure, Dara. So let me let me start by echoing what Mike said. I mean, we’re very proud of our teams have executed in the first half of the year than we’ve gained momentum on a number of fronts. Relative to our power and great care strategy. As a reminder, I mean, as we think about margins, our main focus is on driving profit dollar growth margins for us, as we’ve stated, our milestones, and we’re moving on that progression. Growth in the first — in the second quarter on the first half, reflected solid volume mix-driven gains and on the third quarter — it’s a third quarter in a row that we drive positive volume mix. Importantly, in some of our largest, most profitable geographies like the U.S., China, and the U.K., we saw solid volume mix growth, which is something we’ve been folks focusing on.

And as Mike said, I mean, it is the key for our long-term algorithm. We delivered more than half of our profit objectives for the year in the first half and this actually gives us flexibility for the second half to further invest in strengthening our brands and our innovation pipeline, especially as we manage through some of the challenges in the macro environment and some of the increased and consumer pressure that we’re all seeing. As we think of cadence of first half second half on the top line, we would expect the second half to grow at a similar pace of what we saw in the second quarter with again volume and mix key drivers of growth, while pricing will continue to play a lesser role sequentially. At the profits, four things to keep in mind, first one, productivity delivery.

It’s been solid in the first half and ahead of our original plans, given timing of some of the projects. So, we do expect a lower absolute dollar productive delivering in the second half, but still very strong on the year. Secondly, pricing net of costs, it’s been strong and favorable in the first half due to timing of pricing actions relative to costs and you’ve got to take into account Argentina, which again, a lot of the hits that we took on the currency were in the second half of last year. So, we’re going to be lapping that as we head into the second half of it this year. For the balance of the year, we expect pricing at a cost benefits to taper off. However, it’s important to reiterate that on a full year basis, we expect to be at least pricing net of cost neutral.

The third aspect is timing of investments. In the back half of the year, we expect to step up investments behind our brands, given timing of some of innovation programs that we have. As a reminder, on the first half of the year, our spend on our brands was approximately 6% of sales. Heading into the second half, this number is going to be closer to 7%. As we take advantage of our strong first half and we strengthened the overall our investment profile setting up the time for us to continue growing sustainably in years to come. And then last, but not least, is the divestiture of our personal protective equipment. We expected to be a headwind in terms of profits of around 180 basis points in the second half of the year. We didn’t have that in the first half of the year.

Two more things that you think of EPS, equity method investment income, while it grew in the first half of the year, some of it had to do not just with the underlying performance of our equity method investments, it also had to do with the strength of the Mexican peso in the first half year on year. That’s going to revert in the second half of the year and we expect the net equity investment to be largely flat in the second half of the year. And the other item on EPS is the effective — the adjusted effective tax rate. For the full year, we’re now projecting 23% to 24% adjusted effective tax rate. And for the first half, our adjusted effective tax rate was 22.3%. So, when you combine all those factors, that gives you the cadence of how we’re looking at the first half and second half.

Dara Mohsenian: Great. That’s very detailed and helpful. And if I could slip in one more question. You talked about the price in regards to the second half outlook. Can you give us an update on the North American pricing environment in both personal care and consumer tissue? A, is there ability to drive mix to a greater extent in the back half of the year. How do you think about that? B, the promotional environment? And how we should think about pricing realization from here in North America in a more normalized environment? Thanks.

Mike Hsu : Hey, yes, thanks, Dara. Yes. And overall on the pricing environment, particularly in North America, I’d say it remains stable. And as you may recall, since COVID, in the COVID environment, or the pandemic related environment, we did see a reduction in promotional activity in our categories. I’d say, over the past two years, that has kind of return and normalized post pandemic. And I’d say, it’s remained at that level. We are seeing a touch of promotion in some categories and in some retailers. But overall, again, our strategy is to remain focused on volume and mix driven growth. And we’re maintaining what we’re calling PNOC, or pricing net of input cost discipline. And so overall, as you’re well aware, pricing to offset cost inflation is receiving for us as expected.

We really want to be more valuable at every rung of the good, better, best ladder. I think one of the things that’s great about our portfolio is that we do serve all consumers from value to up to premium, even though premium is really the big growth driver for us. And so we’re really focused on working to ensure that our value propositions all along the value spectrum are going to remain strong. And so our focus on building brands with advertising, great storytelling, pioneering innovation. But again, we also recognize in some categories, promotion is very important, and we’re going to be competitive where we need to be. But again, we’re focused on driving the category’s growth through advertising.

Dara Mohsenian: Great. Thank you.

Mike Hsu : Okay. Thanks, Dara.

Operator: Thank you. And your next question is coming from Nik Modi from RBC Capital Markets. Your line is live.

Nik Modi: Thank you. Good morning, everyone.

Mike Hsu : Good morning, Nik.

Nelson Urdaneta: Good morning, Nik.

Nik Modi: Good morning. Good morning. So two questions, just one on the organizational design changes that are going to take place in a few months’ time. Like I remember, when Procter & Gamble did a similar type of thing, not the exact structure, but they had like a transitionary kind of era or moment between kind of old structure and the new structure. And I’m just curious if that is something that is going on right now within Kimberly, which will make that transition much smoother when we get October, that’s the first question. And then I was hoping you can just kind of give us your thoughts, since the analyst day, you’ve hired two new people, one from Chief Growth Officer that has a consumer healthcare background. And then obviously a new head of R&D that just was announced, just was hoping you can give us some words on kind of how they fit into the new strategy.

Mike Hsu : Yes, great. Nik, okay, you’re all over it. I think that’s a great question. As I mentioned, I think in the prepared script, we made an interim move on effective July 1 that changed some of the reporting in our global supply chain in North America and then Brazil moving into International Personal Care on an interim basis. And so I’d say, your observation around an interim structure, we’ve done some significant shifts there already. And again, it goes back to you know, I had some experience with another corporate transition where Nelson and Chris and I worked and so having that interim model working before you officially make those moves, helps a lot. And I think the organization is making tons of progress in the new ways of working very, very excited about the progress the teams are making and very appreciative of all the hard work that they’re putting in to make this happen.

So I again, I feel I feel great thus far about our wider for growth initiative or the organizational change. And we’re making strong progress there. With regard to Patricia and Craig, I’m excited to have him onboard Allison Lewis, who is our Chief Growth Officer, and Robert Long, our Chief Innovation Officer, R&D Officer. They did great work for us and really advanced. The agenda has been both those areas very, very strongly, but I knew I intercepted them at a point in their career where they want to go on at some point and do other things. And so I think I think we have an excellent transition period between the four of these leaders on and as Patricia and Craig come aboard, I think they both bring great skills to Kimberly-Clark. Patricia has worked at companies like Kraft and Unilever and Heineken before Bayer.

And so and knows a lot about the consumer health space, a really, really focused on marketing and advertising, which is a great thing for us. And then Craig has a real great transformational leader with Unilever and some products further in his background as well as a great run at Campbell’s. And so I think they’ll bring a lot both in terms of organizational development, but also our expertise in their fields that will advance the things that we’re working on with power and care.

Nik Modi: Helpful. I’ll pass it on.

Mike Hsu: Okay. Thank you, Nik.

Operator: Thank you. Your next question is coming from Javier Escalante from Evercore. Your line is live.

Javier Escalante: Hi, good morning, everyone. I would like to see whether I can get more color on the savings, because at least I see three buckets, so basically you’re announcing something in North America. My understanding is that the supply chain. So if you can talk about the benefits of what you’re trying to do there, you are exiting two small markets. But when you look at the P&L it feels as if, the SG&A is where we get better numbers went to consensus. So if you can expand that and then I have a follow-up. Thank you.

Mike Hsu: Thank you. Maybe I’ll just start and I think Nelson will kind of give you more color on the savings. I would say on the small market exits, my overall on that would be we are taking steps to make our categories and all our markets more robust and predictable contributors to growth and return. And we like our positions in most markets. But that said, in places where we don’t really feel heavier that we have a long-term right to win, or the market conditions in that market are not conducive to winning. We’re going to be disciplined and methodical. And so we made the difficult decision to announce our plan and exits in Nigeria and Bolivia, and recognize the downside. It does in fact, our employees there. But I think there’s a wrong — the right move long-term for Kimberly-Clark.

I don’t think those will contribute to be a huge source of savings, but I think it does take some risk out of the owned by ongoing performance of the business, but nothing and comment on the other sources, Javier.

Nelson Urdaneta: Yeah. In terms of, Javier, the sources of the savings, there are two poles. I mean, first and foremost, and the lion’s share of the savings will derive from our supply chain transformation. And as a reminder, they encompass three strategies. The first one is our value stream simplification. And as I’ve explained and Tamera has explained, this has to do with product specifications and a few other items that will drive significant savings over time. Second one is optimizing our network. And it’s the footprint. It’s our four walls. And you’re seeing some actions that are being taken today. And they’ll be taken over the next few years. And then the third bucket is scalable automation, and that encompasses two areas.

One is actual automation of supply chain processes in our factories and our warehouses, and the second one is digital automation, where we’re deploying tools to optimize our procurement capabilities as well as our supply and demand capabilities. We are on the early stages of our transformation journey, especially in the supply chain, and we’re pleased with where we’re at in the first half of the year. Productivity delivery is ahead of what we had planned. We are at about $255 million a year-to-date on the supply chain productivity, and that does not include procurement. We will update annually on the procurement savings, but well on track as we seek to deliver the $3 billion over the next five years, as we said. Specifically on actions that have been taken and what’s driving this.

One, we’re seeing conversion and waste reduction. That’s a big bucket that’s helping us drive, and that, again, is within the value stream. It’s product material specification standardization. That’s starting to happen, and we’ve been working to get that going in the last year and a half or so. And then lastly, it’s transportation and warehousing cost reductions. So that’s in a nutshell what’s driving the savings on the supply chain. The other bid is on the overheads. On the overheads, we said that our target is to deliver about $200 million of savings over the next two, three years. The lion’s share of those savings is really going to kick in once the full organizational model is in place. And that goes into effect in the latter part of the year.

So we will see not a lot of savings this year on the overheads line coming from that item. What you’re seeing on the overheads, which I think you’re alluding to, is we’re seeing absolute dollars largely flat sequentially, is that the discipline that we’ve had on overall spend is still in place. I mean, we’re driving a lot of discipline in terms of spending and costs, and that’s flowing through, and you’re seeing it in the P&L at this stage.

Javier Escalante: That’s great color, okay. I do have a question because we got scanner data today and includes Costco, which is an important retailer, and Amazon. And we saw, I mean, what the data shows is volume accelerating at the end of the quarter. I mean, we have around 2%, which is two to three points better than what you reported. So your commentary when it comes to inventory reduction and uncertainty there. So in light that volumes accelerated in the last four weeks ending July 7th. Should we expect kind of like a more consistent retail sales in North America versus where you are when I report going forward? Thank you very much.

Mike Hsu: Yeah. Maybe I’ll start with that Javier. I think my adage is in the end, shipments must track with consumption. And so I tend to focus more on the consumption numbers. We feel great about the progression we’re making on volume and mix. And I think in the quarter, I think if you add volume and mix, it was up about 2 combined. And so that’s the progress we’re making. I think it’s great to cycle. We’re very glad to have cycled a lot of pricing moves that we had to take to offset inflation. But you know, we think the underlying momentum in our categories remained solid. These are essentials and daily use categories and so we’re encouraged to see that volume progression. There’s going to be some noise because of retail inventory changes in North America, you had two effects because there were some — I would say there were some — we’re comping a soft quarter last year because of supply issues.

And so probably a little more inventory going in on personal care. And then we are — on the tissue side, we saw consumption stronger than organic and so that implies we saw some inventory to come out of tissue. And so I think that’s I would say, generally typical and so that stuff is going to move around from quarter-to-quarter, but overall, we’re very encouraged with our volume trends.

Operator: Thank you. Your next question is coming from Anna Lizzul from Bank of America. Your line is live.

Anna Lizzul: Hi, good morning.

Nelson Urdaneta: Hi Anna.

Anna Lizzul: Morning. Thank you so much for the question. I was wondering if you could just elaborate more on the volume improvement that we found the quarter, just where you’re seeing gains across the categories more specifically? And also in the back half, there is an expectation on additional cost inflation, which you mentioned. Was wondering if you can touch on the balance on pricing and investing and innovation to help offset this? Thank you.

Mike Hsu: Okay. Yes, overall on I’ll start with a hey, we’re seeing resilience in demand across our categories overall globally. The underlying growth in our categories remains healthy. I just mentioned, we provide daily essentials and therefore, as you’re probably well aware, category substitution remains low and we still believe there’s a lot of room for us to expand penetration and also revenue per user across our markets. And we are mindful of the consumer environment. And as I said, we’re working to sharpen up our positioning across the good, better, best value of the spectrum. A little bit more specifically in North America, demand remains resilient, although AMC and some value sensitivity more broadly across Staples, I’m well aware of that.

Our categories in the quarter were up mid-single-digit with the categories having positive volume. And again, I think that reflects the essential nature of our categories and products. We are closely monitoring the consumer health, see insensitivity in mid to lower income households in a few of our categories. But overall, we feel like we’re very well-positioned and we have a robust offering. As I mentioned earlier, we’re proud to serve all consumer offers and have a robust offering across the value spectrum. And we’re proactively working with our customers to better serve consumers and ensure that our propositions remains strong as we go forward. And maybe just to add it to build a little bit on — address your question on expectations of volume and expectation of what to expect on inflation in the year?

We’ve seen the progression in volume in the second quarter. We expect the back half, as we stated to be volume mix driven and the impact of pricing to continue to subside in the back half. This especially has to do with the timing of pricing actions in Argentina. We already saw a step down of the contribution of Argentina from the first quarter to the second quarter and we expect that based on what we are seeing today to continue to be the case in the back half. That takes us to pricing net of costs. In principle, we’re holding the enterprise minimally to a pricing net of cost neutral standard on an annual basis. We have good visibility today for that to happen this year, absent a market dislocation shock like what we saw in 2021, 2022. As we think of the pacing, and I stated that in a prior question, pricing net of cost has been rather strong and favorable in the first half of the year, and that had to do with both timing of pricing realization, largely Argentina and then some of the timing on the cost inflation.

Overall, we still expect to be at least neutral, if not positive, on the year and pricing net of costs. And from an overall cost inflation standpoint, we’re not seeing a material change versus what we’ve discussed in the last call.

Anna Lizzul: Great. Very helpful. Thank you so much.

Mike Hsu: Okay. Thank you.

Operator: Thank you. Your next question is coming from Andrea Teixeira from JPMorgan. Your line is live.

Andrea Teixeira: Hi, good morning, everyone. So I wanted to go back to – and thank you, go back to the North American tissue discussion. Understand volumes were down 3% and then there was about 250 basis points due to retail destocking. But on the other hand, you’re probably shipping more Kleenex. So I was wondering, looking ahead, with the lap of the supply chain issue, should we expect the underlying to be still negative? And on the personal care side, if I can squeeze that in, what was the exit rate on the quarter in North America and globally?

Mike Hsu: Yes. Well, let me start with the tissue in North America. Overall, again, as I said, there was a bit of a retail inventory change. And so our organic numbers are different than kind of what the consumption was. Consumption was up three in the quarter, which is just a little bit under what the category did overall. And so again, I think the tissue categories in North America remain robust or healthy, resilient depending on what adjective you want to use. I’d say overall share, we’ve made strong progress on Kleenex. I think Kleenex was up almost 500 basis points on share in the quarter. That does reflect an improved supply condition that I said we’re cycling versus last year. On bad tissue, I think our share was a little — was a bit soft, a little bit under 1 point in share down.

And that reflects a couple of things, a hard — what we call a hard rollover a packaging change and shelving reset on Cotton And then Scott 1000 has still been somewhat supply constrained year-to-date. And so we cut back on our normal merchandising calendar. And so therefore, because of that, we are seeing a little bit more increased promotional availability for private label, and that’s kind of had a bit of an effect on Scott 1000. And I think the brand remains very, very healthy, and it’s a power brand, especially for value consumers in this environment, and we feel great about that. But overall, I think we feel great about the progress. I think the inventory change was a little bit different than what we were expecting coming into the quarter.

But I think I would hope that we’re mostly through that.

Nelson Urdaneta: Yes. And on Personal Care, your question of what we grew, Andrea, I mean, we grew mid-single digits solidly in North America, and it was volume and mix driven. So the impact, as Mike said on the trade destocking in the quarter was largely contained to tissue — Consumer Tissue in North America.

Andrea Teixeira: And the — this is super helpful, the exit rate of personal care. Do you think even with the merchandise, I’m assuming that you shifted merchandising dollars from Consumer Tissue into Personal Care, or you just on basically kind of flow through? And then now you can kind of as you regularly in the supply chain improves into Consumer Tissue, you’re going to merchandise more into the second half? Or just as an exit rate, just an idea of how Personal Care continues to do well into the remaining of the month right into June?

Mike Hsu : Yes. I mean, Andrea, I’m not sure I know how to answer that question on exit rate. It’s not how I think about it. I would say, kind of what we’re doing is, we’re very encouraged with our start to the year through the first half. I think the volume and mix are proceeding and moving in the right direction for us. We feel great about that. There’s going to be some inventory noise here and there. In personal care, I would say, it’s going to be a positive in the category, because we had some supply constraints last year that we’re cycling. As I just mentioned, there was some inventory changes on the other direction on Consumer Tissue. But overall, I feel very good about where the brands are recognize, we have more work to do.

But also I feel good that we have the opportunity to make some additional investments to make sure that our value propositions are robust. But that doesn’t mean we’re going to ride it through promotion. As you may be well aware, I said in the past, I’m not a fan of over promoting our categories. And so really we’re our focus on investment is to grow the category through advertising and bringing out the right kind of innovation to drive the categories. Just like I talked about with Skin Essentials that we just launched in North America in the second quarter.

Andrea Teixeira: Thank you very much. I’ll pass it on. Thank you both.

Mike Hsu : Okay. Thanks a lot.

Nelson Urdaneta: Thank you.

Mike Hsu : We’ll take one more question.

Operator: Certainly. The next question is coming from Bonnie Herzog from Goldman Sachs. Your line is live.

Mike Hsu : Good morning, Bonnie.

Nelson Urdaneta: Good morning, Bonnie.

Bonnie Herzog: Good morning. I just had maybe a quick follow-up question on your tissue business. As you just mentioned, promos really have started to step up there. So, I guess, I’m trying to get a sense for how much you may need to or be willing to increase promos in an effort to essentially drive volumes in the back half of the year, possibly resulting in a net negative price contribution similar to what we saw in Q2. And do you expect continued retail inventory destock impact in the back half as well?

Mike Hsu : Yes, maybe I’ll start with the last part, Bonnie. I again, I tend to focus a little bit more on the consumption and the consumption trends remain. I would say, healthy. I think there’s going to be some shifting here and there. I don’t expect ongoing retail inventory contractions, but there could be some moves here and there, we don’t control those, right? But we are — we do work with these are big categories. And so our customers do work with us very closely to plan these out over time. And so I feel good about the inventory positions that we have right now, but can’t exactly predict what will go forward on it — what will happen on a go-forward basis. On the promotional environment, I do think, hey, I recognize broadly across Staples that there is increased consumer price sensitivity.

And so making sure that we have the right value proposition is going to be important. The thing I’ll point you to is what’s fundamentally changed in these categories over the past 10 years, five years is the analytics that we have available to drive the right decision making. And so and I know of it gets a lot of play about the promotional environment. But you know, in the last five years, we’ve invested a lot in the predictive modeling tools that make — enable us to make the right choices on promotion. And so again, I tend to focus this more on profitable growth and promotion is a — trade promotion as a tool to drive the overall brand strategy. But it is not a strategy in my mind itself. And so again, I think will work to make sure that our products are affordable and competitive.

But again, we’re focused on growing the categories.

Bonnie Herzog: That’s helpful. Just maybe one final clarification. I mean, is it fair to assume, or maybe ask this way. Is it your expectation that volumes will inflect in the second half in tissue just based on everything you said, and how you expect things to play out?

Mike Hsu: Yeah. Well, I’d say, yeah. I mean, we’ve shifted our emphasis to volume and mix-driven growth. And so, yeah, over time, we’re expecting all of our businesses to drive positive volumes, and that’s kind of the model on how we want to grow. So I think that includes North America tissue.

Bonnie Herzog: Perfect. Thank you.

Mike Hsu: Okay. Thank you, Bonnie.

Nelson Urdaneta: Thank you.

Mike Hsu: All right. Well, thanks to everybody for joining us. And if anybody has any follow-up calls, we’ll be available to take them today. So thanks very much for your time.

Operator: Thank you, everyone. This concludes today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.