Kimberly-Clark Corporation (KMB) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for your patience and holding. We now have your presenters in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. [Operator Instructions] It is now my pleasure to introduce our first presenter, Mr. Paul Alexander. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Kimberly-Clark’s First Quarter Earnings Conference Call. Today, you will hear from Mike Hsu, our Chairman and Chief Executive Officer; and Maria Henry, our CFO. We have a presentation of today's materials in the Investors section of our website. As a reminder, we will be making forward-looking statements today. Please see the Risk Factors section of our latest quarterly report on Form 10-Q and our annual report on Form 10-K for further discussion of forward-looking statements. Lastly, we'll be referring to adjusted results, which exclude certain items described in this morning's news release. That release has further information about these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Mike.

Thank you, Paul. Good morning, everyone. We joined you today during an unprecedented time, and we hope all our stakeholders are staying healthy and safe. The COVID-19 crisis is severely affecting individuals and society at large, and it's forcing companies like ours to adapt to overcome near-term operating challenges and uncertainty. Kimberly-Clark’s vision is to provide the world with essentials for a better life and we know our consumers are counting on us now more than ever to fulfill that vision. We take this responsibility seriously and our teams are working around the clock to ensure our essential products get to our consumers who depend on us. The K-C Foundation and our brands have launched programs to support COVID-19 relief efforts. And thus far, we provided donations of more than $8 million to organizations, including UNICEF, the Red Cross, and the United Way. We are also donating millions and millions of our products to other organizations in need. Since the outbreak of COVID-19, we have taken decisive action to manage our business effectively through this crisis. We have three key operating priorities. Priority number one, protect the health and safety of our employees and our consumers. Throughout our 148-year history, this has never been more important than right now. We have taken aggressive action to protect our employees around the world, no matter where they work. That includes implementing extensive sanitization, quarantine, and social distance protocols in our manufacturing facilities, work-from-home policies, and of course, travel restrictions. We are also recognizing our manufacturing employees with well-deserved bonuses in appreciation of their efforts. Priority number two, proactively manage our global supply chain to ensure supply of our essential products to our consumers. Our supply chain teams are meeting multiple times each day to effectively navigate the dynamic environment. They are doing a great job in keeping our global supply chain largely operational, in many cases, delivering record output. We are running our assets flat out and greatly simplifying our assortment to improve product availability. We are working with raw material suppliers and distribution partners to ensure continuity and maximize deliveries. In some cases, we are incurring additional costs to keep the supply chain rolling. We have experienced some disruption, including temporary manufacturing slowdowns and shutdowns, but none have had material impact to date. The supply chain environment is dynamic and we expect ongoing challenges in the near-term. However, we are encouraged with our team's ability thus far to manage effectively in the current environment. Priority number three, prudently manage the business through near-term volatility, while continuing to strengthen the long-term health of Kimberly-Clark. We will continue to operate with a balanced perspective on both the top and bottom line as we assess both risk and opportunity. We will continue to invest in our products, our brands, and our commercial capabilities to maintain the near-term health of our business and position us for long-term success. That said, some investment in brand support, including promotion activity will be deferred temporarily because it isn't effective or appropriate in the current environment. We will also manage our discretionary overhead even more tightly. And as Maria will describe, we have taken additional steps to further strengthen our balance sheet and enhance our financial flexibility. While the environment continues to evolve rapidly, our teams are managing our priorities and our business well. I am extremely proud of our entire K-C team. I want to express sincere thanks for how they are fulfilling our vision. Maria will take you through the results of the quarter, but as you can see from the release, we are performing well, have a strong balance sheet, and are delivering solid cash flow. In a few minutes, I'll discuss the outlook and then open the call for your questions, but for now, I'll turn it over to Maria.

Thanks Mike, and good morning, everyone. First, let me echo my comments and say that I hope everyone is staying healthy and safe during this global health crisis. I'd also like to thank our 40,000 employees for their incredible actions during this time period. I've never been more proud to work at this great company. How we are managing through this crisis is, of course, the most important thing right now, but I do want to spend a few minutes reviewing our results. Overall, first quarter results reflect both significant volume increases from consumer stock up as well as excellent execution by our teams. We generated strong cash flow and further strengthened our balance sheet. In addition, we continue to invest more in our business and our market share positions are in good shape. Let me cover some of the details of our results. First quarter net sales were $5 billion. That's up 8% year-on-year. Organic sales increased 11%, while currencies were a two point drag. Volumes were up 8%, including significant shipments to support consumer stock up related to the COVID-19 outbreak. That stock up occurred in all major geographies and benefited all three business segments, in particular consumer tissue. In addition, we were off to an excellent start to the year prior to the outbreak with good performance in several areas. That included premium-tier Huggies Diapers and adult care in North America, personal care in Asia broadly, including China and also in Eastern Europe. Net selling prices in the quarter were up 1% driven by increases taken last year. Overall, the pricing and promotion environment remained broadly constructive in the first quarter. Product mix improved 1%, reflecting our strategies to elevate our categories and drive trade up. Let me pause here and touch briefly on our market share positions. In North American consumer products, our first quarter market shares were up or even in five of eight categories year-on-year, and up or even in six of eight categories sequentially. In key D&E markets, in personal care, market shares were up or even year-on-year in Eastern Europe and China, and in most categories in Brazil. Shares were down in some other countries in Latin America, including Peru, although our position there was stable sequentially. Overall, our market shares are broadly healthy, which is a good place to be in this environment. Turning back to the financials. First quarter adjusted gross margin was 37.2%, up 370 basis points year-on-year. Adjusted gross profit increased 20%. We had a strong quarter on cost savings with total savings of $125 million from our FORCE and restructuring programs. Commodities were a benefit of $115 million, somewhat better than we expected. Other manufacturing costs were higher year-on-year. Foreign currencies were somewhat worse than we expected and reduced operating profit at a high single-digit rate. Between the line spending was up a 100 basis points as a percent of net sales, including a nice step up in advertising spending. Adjusted operating margin was 19.9%, up 250 basis points and adjusted operating profit grew 24%. The bottom line also benefited from a slightly lower tax rate, higher equity income and a lower share count. All-in-all, first quarter adjusted earnings per share were $2.13, up 28%. Now let's turn to cash flow restructuring in the balance sheet. Cash provided by operations was strong at $704 million compared to a soft quarter last year of $317 million. The year-on-year increase was driven by higher earnings and improved working capital. Capital spending was $352 million in the quarter, including significant activity related to our restructuring. Looking ahead, some of our near-term capital projects and restructuring activities will be temporarily delayed or reprioritized because of the complexities of managing in the current environment. We now expect that charges for a restructuring program will continue into 2021 rather than wrapping up at the end of this year. We also expect the charges for the total program will be towards the high end of our previous estimate. We expect that total restructuring savings will be consistent with our previous estimate, although it is possible that we won't hit our full target until sometime in 2022. On capital allocation, first quarter dividends and share repurchases totaled approximately $575 million. We are prudently managing and further strengthening our already strong balance sheet and liquidity position in this environment, and our liquidity overall remains robust. It is also our intention to maintain our A credit rating through this temporary period of uncertainty. We executed two long-term debt transactions in the quarter. The first was a $500 million 30-year bond offering that essentially pre-funded the $500 million of notes that will come due in August. In late March, we executed a second transaction. This one, a $750 million 10-year bond offering. That transaction enhanced our overall liquidity and flexibility and reduced our near-term need for commercial paper. We also continue to maintain two revolving credit facilities totaling $2.75 billion that we've never drawn upon. We are also temporarily suspending our share repurchase program for at least the remainder of the second quarter to provide additional flexibility. We will continue to monitor the uncertainty in the environment and we will give you another update on share repurchases in July. Longer-term, there has been no change in our capital allocation strategies. I will finish with some perspectives on the currency and commodity markets. We originally expected that currencies would reduce our net sales by one point this year. Using first quarter actuals and forward rates at the end of March, the headwind would be approximately 4% and rates remained volatile on a daily basis. For your benefit on a historical basis, the currency impact on our operating profit taking into account both translation and transaction effects has typically been two to three times the impact on our sales. In addition, our equity affiliate K-C to Mexico is facing many of the same uncertainties that we are, including a much weaker Mexican peso. Improving net realized revenue remains one of our strategies to offset currency headwinds, however, in this environment, much of a new incremental price realization will occur – much incremental price realization will occur in the near-term is more uncertain than normal. On the commodity front, forward-looking trends look favorable, although markets remain volatile and as usual cost changes could impact the promotion environment. Raw material markets that can be influenced by oil, including resin have started to move down some recently, although much less than the decline in oil, and where oil goes from here is certainly unclear. On pulp, recent industry forecast for North America eucalyptus market prices are in the lower half of the range we use to set our full-year plan in January, which was $900 to $975 per metric ton. So all-in-all, I am encouraged by our execution in the quarter, and our balance sheet, our business fundamentals, and our financial health are all strong. I'll now hand it back to Mike.

Okay. Thank you, Maria. Now I'll provide some forward-looking perspective. We are focused on ensuring business continuity and we are developing robust contingency plans to address a wide range of scenarios. I feel good about where we stand right now, but we are navigating a very dynamic environment. Due to the lack of visibility and uncertainty about the potential impact of that pandemic, including its potential effects on the global economy, our markets, and our supply chain were temporarily suspending our forward-looking guidance. Now, as the situation progresses and we get more visibility into the impact of the pandemic, we will resume guidance. Today, our teams have done an excellent job navigating through the volatility, however, the inherent unpredictability of the pandemic creates uncertainty and that makes it difficult for us to assess future outcomes with any precision. In addition, the volatility in currency, commodities and supply chain, there are effects on demand and I'll share some perspective on that right now. Our essential categories have historically performed well in times of economic turbulence. In consumer, our underlying momentum is solid and we are making strong progress on our strategic growth initiatives. We will continue to support our brands with innovation and marketing. Near-term innovation launches, include upgrades in Huggies in China, North America, and Brazil, Kotex in Eastern Europe, and Poise and Depend in North America. Consumption in the first quarter ran ahead of shipments and as a result, we expect retailers will rebuild inventory and that will see additional volume in the second quarter, and we are seeing that play out thus far in April. We expect most, but not all of the demand increase from consumer stock up will reverse out later in the year. However, with more people at home and also paying closer attention to personal hygiene, it's likely that consumer tissue consumption will be higher during shelter in place periods. We are also closely monitoring pandemic and economic conditions in leading markets, including Latin America and evaluating how that could impact the health of our consumers and our categories. Now shifting to K-C Professional, demand was solid in the first quarter and boosted by stock up activity that occurred in March. Given the economic shock that's occurred and with much of the population staying at home, KCP is likely to face volume decline starting in the second quarter, that will persist until economic conditions returned to more “normal levels”. We are seeing early signs of that softness thus far in April. Impacted end-markets are likely to include, obviously, offices, travel and lodging, high-track accounts, including retail and manufacturing. Now I'd like to conclude with a few important messages. First, we are very confident in the strength, the resilience and the overall health of our company. We are navigating near-term uncertainty well and appreciate the commitment of our K-C strong team. We are managing prudently in the near-term and strongly believe in our ability to create long-term shareholder value. And that concludes our prepared remarks and we'd be happy to take your questions.

Thank you. Ladies and gentlemen, at this time the floor is open for your questions. [Operator Instructions] Our first question comes from Lauren Lieberman with Barclays.

Hey, Lauren.

Thanks. Good morning. Hi. So two different things. One was first on K-C Professional. Just hoping, definitely a lot of people are looking to understand better sort of the mix of that business. Kind of how much exposure is roughly, let's call it, hospitality versus offices versus manufacturing, number one. Number two, kind of what your market shares are in K-C Professional versus in the consumer market? And then three, also thinking about the exposure there to more the cleaning product side of things, the wipers business, some of the safety businesses that you have in there. If you could talk a little bit about that, I think it'd be very helpful too. Thanks.

Yes. Thanks, Lauren. I'll point out, Paul, Maria and I were all in remote locations or separate locations. So this maybe a little clunky, and we may need to do logistics over the phone. But Lauren, regarding your question, overall we do expect some near-term volume decline in K-C Professional. However, I will say there's a long-term opportunity to serve a very important need as creating healthier workplaces and focus on hygiene becomes more important going forward. However, in the short-term, I would say the majority of our business is the washroom business. That's the largest part of our business. Overall, more than half of our business. And we expect that to be hit particularly hard by what I just mentioned, offices, which are – our early data shows that office use is down about 80%, where we can see that data through our Onvation products. Travel and lodging, significantly down. I think hotel occupancy is the latest data we saw, we're at 21% of capacity. And amazingly, ceded restaurant traffic was down a 100% globally in the latest week, so we could see. So there will be an impact there, but I will say we will see a commensurate or increases in our wipers business, our safety business, which does provide some PPE, and we're ready to make that pivot, and actually believe that we can do a better job helping employers create healthier workplaces.

And then right now in that wipers and safety business, I think on the QCP website, sort of talks about, we're doing our best to keep up with demand. So can you just tell us a little bit about, I think just the educational for people, what those PPE products are? If you are currently running full out on those businesses, what growth looks like there? Because again, I’m just trying to fit together that order of magnitude of K-C Professional being down in the second quarter makes perfect sense, but how much, right? And we can all – if you give us the tools, we can try to come up with estimates on our own of what that looks like.

Yes. I may ask Paul to jump in, but I will say, maybe the bigger part of the business that we feel like we can expand right now is on the wiper side. And that's a great business for us and strong performing. And we're seeing that commensurate increase starting to come through now. On the safety side, it is a relatively small business for us. We don't produce any of the PPE masks or gloves directly. We have those co-packed. And so we are in a tight supply situation as everybody else in the world has. And so we expect that to grow over time. But in the near-term, we're in a tight supply situation. Paul, anything to add there?

Yes. Thanks, Mike. So Lauren and for everyone on the call just to level set on KCP's rough product exposure, about 65% is tissue-based products, about 20% is wipers. And then about 10% is – are these safety and scientific products that Mike mentioned. The safety and scientific products are primarily apparel and gloves with a little bit of eyewear as well. Masks are an insignificant part of the business.

Okay, great. And then switching gears to being a bit more strategic and longer term. The mix – personal care mix, I think, was up three for D&E market, which was really sort of a notable number. And I was just hoping if you could talk a little bit about where that's coming from? Referring back to the goal to elevate the categories to bring innovation. So it just seems like there was sort of a step change in that happening in the D&E markets on personal care. So anything that you can offer there would be great.

Yes. Thank you, Lauren. And first of all, I'll say we remain committed to our K-C 2022 strategy. And that strategy is working very well. As Maria said, we felt like we got off to a very good start at the beginning of the quarter and then we saw the pronounced stock up effect that started occurring toward the end of March. So we’re very excited about our innovation and commercial programming. I think there's a lot of opportunity for us to continue to elevate our categories and also expand our markets or expand the categories in our markets as well. Maybe some of the big pockets, China, notably, I think the really –the team there is doing an excellent job navigating both COVID-19 and delivering strong growth at the same time. We were out and the country was down or the – our business and our manufacturing was down for about three weeks. January, February, they were the first ones obviously to feel the effects, but we've been fully online since. Organic was up low-double digits in the quarter for China overall, with strong double-digit growth in femcare and mid single-digit growth in diapers. And the important thing about diapers is, and I'm very encouraged by the trend is I do believe the category is reverting back to competing on product performance. And we feel like we're well positioned. We saw strong share growth in the premium tiers and strong volume growth in the premium tiers. Still down a bit in value, but we're managing through that. Similarly, D&E in Central and Eastern Europe was up high teens. Brazil was up, I think, low-double digits as well. So we're seeing very good performance across our D&E markets. Notably, Lauren, I also would tell you, there was much less stock up behavior in the D&E market. So the China team would say there was none in our categories. I do think in Brazil, we saw a little bit in consumer tissue.

That's great. Thanks so much.

Thanks, Lauren.

Okay. Thanks, Lauren.

Thank you. Our next question comes from Dara Mohsenian with Morgan Stanley.

Good morning, Dara.

Hey guys. Good morning. Hope you're all well.

Hi, Dara.

So Mike, can you just run us through a little more the decision to pull full-year guidance and suspend the share repurchases at least in Q2. I was just looking for a bit more clarity there. Is it more just that the external environment still unknown at this point that it doesn't make sense to have guidance? Or is there something specific internally as you look at the balance of the year that's causing concern versus the prior guidance? Obviously, we understand the consumer pantry deload, which you mentioned. So not all of that Q1 upside sort of flows through, but just trying to understand given you seem to have a pretty defensive portfolio on the EPS outlook side, what drove that decision? And then also with repurchases, you obviously seem to be in a pretty strong liquidity position. So just try to understand the motivation behind that.

Yes. Dara, it's a great question. It's definitely the former. I think, obviously, to date, our performance has been strong. We feel very good about that. We feel confident in our ability to manage in the current environment. However, I think there are a lot of unknowns and it's – as I said in my remarks, it really has to do with what the future path of the virus takes and what the commensurate impact is going to be. But maybe I'll let – I'll let Maria comment on maybe both the outlook and also what we're doing with share repurchase and all that. And then maybe I'll come back with some additional perspective at the end.

Sure. On the guidance, our business is performing well and we're confident in our strategy and our plans that the volatility and uncertainty in this environment is meaningful. And nobody really knows at this point what will happen with the COVID-19 infection rate. I'm sure as you have, we been reading all kinds of epidemiological studies and looking at models and talking to outside folks to try to get some perspective on it. But the numbers range anywhere from 1% to 4% infection rates north of 50%. And it's just nobody really knows what this has in store for us and what the impacts will be. And as we think about that and model various scenarios for our business, an increased infection rate could potentially affect our supply chain, including worker availability, availability of supply, the depth and the length of the recession caused by the virus is unknown at this point. The length and significant impacts of social distancing. We don't know how long that will last post peak and that obviously affects the outlook for our professional business. And then currency and commodities have been very volatile. So with all of that, there's a wide range of scenarios that are potential here, and given that and the lack of certainty around any of those scenarios means we can't confidently provide you with an expected range for 2020 at this point. But we'll continue to monitor the environment when it stabilizes, we'll be in a better position to provide forward-looking guidance consistent with our past practices. Those same factors that led us to pull the guidance for the year weighed in on suspending buybacks. It's for all the same reasons. As you said, we are in a very strong liquidity position. I mentioned some of the stats in my prepared remarks. The suspension of the buybacks is really in line with the fact that overall we're prudently managing the business given the heightened level of uncertainty right now. We'll continue to monitor that quarter-by-quarter, we'll have more to say to you in July when hopefully we have more visibility both for the outlook for the year, what that could mean for our P&L and our cash flows. So I'd sum it up by saying, we are prudently managing overall the company in this period of uncertainty and that affects both our view on guidance and our view on the temporary suspension at least through the second quarter on our buyback program.

Yes. I'll follow-on, which is I think we are definitely encouraged by our start, even this tough environment notwithstanding. I think we're managing through this uncertainty effectively. As Maria mentioned, in our jobs, I don't think we ever felt like we would be arguing over epidemiological models and we are. And we're working through actually through 11 of them and they all have different assumptions. And now while that makes it difficult for us to call the business for this purpose, I will tell you from an operating perspective, we are using those models to predict outcomes to drive scenario planning and contingency plans for all of our operations around the world. And so we've got a great team, global team managing the COVID-19 crisis for us. And very thorough in terms of how we're thinking about it and very proactive about how we're applying learnings to how we take care of our employees and our consumers and keep operations rolling.

Great. That's helpful. And then if I can ask one other question. Just the promotional environment, you mentioned a pull back in promotion. It's obviously – there's a lot of traffic at stores and consumers aren't exactly price shopping as much right now. But as you look forward to the back half of the year when theoretically the social distancing restrictions and curious for your thoughts on the promotional environment. On the one hand, some of this consumer behavior probably lingers. On the other hand, assuming there's a consumer pantry deload, the volume situation is going to be tougher from a manufacturer standpoint. So just curious for your perspective on if this lower level of promotion is sticky or not? Or if there could be some ramp up as we look to the back half of the year? And then also in emerging markets with the FX pressure that you mentioned, would you anticipate pricing some of that away as you look out or is the consumer environment likely to limit the ability to take pricing in emerging markets? Thanks.

Yes. Dara, I think philosophically, I think we – again, I think I mentioned on the call last time, we prefer taking the high road, which is build markets and brands through innovation and advertising and grow the category overall. I'm not a huge fan of overpromoting categories. That said, we are seeing a reduction in promotions, mostly because demand is running ahead of supply. And so it doesn't make sense to be promoting when the shelves are not full at this point. So we are seeing some pair back. I would expect us to be in that kind of environment for the – into the second quarter. I think there will be a recessionary impact. Obviously, I think it will be pretty significant and maybe among the largest that we've seen in recent history. While consumers I think become more interested in value in those times, I'm not necessarily certain that that drives us to aggressively promoted environment. I wasn't here at the time, but I was managing a business that competed in the food categories. And the strategy was not promotion, it was more about explaining to consumers about the value of the products and the value of the brands. And at that business, we saw our best years during the recession. So I think we're well positioned for the recession. We're not a premium niche player, even though premiumization is our core strategy. We're not a niche player in premium. We cover most tiers and we're happy we do that and we want to serve consumers and meet consumers where their needs are and we're going to do that.

Great. That's helpful. And any color on emerging markets? Any more detail there on the strategies in emerging markets from a pricing perspective?

Yes. I think in some cases we will price and we have priced already to recover some or offset some of the FX issues. Although in some markets like, notably in Latin America, we are seeing more price controls put into place in the short-term given what's been going on with the pandemic. But in general, we will be taking price in some markets and we have already done that.

Okay. Thanks guys.

Thank you.

Thank you. Our next question comes from Nik Modi with RBC Capital Markets.

Yes. Thanks. Good morning, everyone.

Good morning, Nik.

Mike, I’m just curious how the current situation has made you maybe possibly rethink feature engines of growth for Kimberly-Clark. And I'll ask this against the backdrop of Jeff Melucci taking over the responsibility to lead the business development team given his background in M&A. So any thoughts? I mean, obviously there are a lot of different categories that are showing their colors right now in terms of accelerated growth. Some of that would fit probably well with your portfolio over time. You have a good balance sheet. Asset prices are likely to get cheaper. So any context around that would be helpful.

Yes. Nik, we're committed to our K-C 2022 strategy. We love our categories. I think there's a lot of potential there, both in terms of how we elevate and premiumize our existing markets and also how we develop our markets and expand the categories in our markets over time. So for those reasons, we remain very excited about the strategy and I think it's working. I think maybe with the current situation with the pandemic, if it does create more opportunity or other opportunities for us to think about how we accelerate that, we're going to look at those. I can't tell you there's anything active on that radar right now, but Jeff is very experienced. As Maria always says, every quarter we're always actively looking at M&A. Certainly, I think our focus would be within our existing categories, and if it had a either a technology or a product, a brand that fit in very well or a geography or brought us into a geography or strengthen the position in the geography, that we would be very excited about it at the right value. And obviously, we're very disciplined. But we'll continue to look for those opportunities, and Jeff is very experienced. Maria, anything to add there?

Yes. No. Well said.

And then maybe Maria, this one is for you or Mike if you want – do you want to address it? I know you're not giving guidance, obviously it makes sense, but how should we think about pantry deloading? Because clearly, I mean, we saw what was going on in March. People loading up on a lot of your products. I know people are staying home more, but it's hard for me to imagine they're using it at the rate at which they’re buying it. So how should we think about that? I'm just kind of thinking about how we can think about the – consumers actually coming back and buying under normal purchasing cycle maybe two months from now or three months from now. So how do you guys think about that?

Yes. I'll start maybe and Maria. There will be a de-stock, right. So there was consumer pantry stocking. It definitely went into homes and not at retail. And I think there's maybe two effects, which is one, and I mentioned this in my remarks, we still will – with consumption running so far ahead of shipments, we will be looking to rebuild inventory or our customers will be looking to rebuild inventory in their systems. I also think in general, consumers will want to carry a bit more inventory on their own, so that's a second effect. So while there will be, I think, significant de-stocking, I think it will be lumpy. And the other reason why it will be lumpy is I don't think the stocking occurred evenly across our consumers. Meaning, it would be very easy to predict if every household bought 30% more. But I think what's happened is it's a fraction of households that have it. And so we will continue, I think, some households will be looking to build up their inventory or get their hands on more product, while others will be de-stocking. And for that reason, it's going to be a little more challenging in the call, and we're still working and sifting through the data there.

Great. Thanks very much.

Thank you. Our next question comes from Olivia Tong with Bank of America.

Great. Thanks. Good morning. So a couple of questions around navigating these huge swings in demand. You mentioned you obviously didn't see much stock up yet in emerging markets, and there's just frankly covering not a lot of room to do that. So what are you planning for? Are you trying to run more capacity right now? Are they getting more in store? Like what changes have happened as the virus shifts there? And then secondly, just overarchingly what changes are you making along the supply chain to drive production right now, while also not overextending yourself? And then the reverse for professional, what are you doing to keep those facilities productive and how much repurposing can you do there? Thank you.

Yes. Olivia, I'll tell you our supply chain is executing very well and they've had a very disciplined approach to managing through the COVID-19. We've had a few sporadic outages that I mentioned, but really the focus right now is on increasing and driving our utilization on our throughput. And in general, I think, I mentioned in my remarks that in a lot of cases, we're achieving record output. What we've really done is significantly pared back the number of SKUs we are producing. We're just producing the large volume SKUs and that's given us more theoretical capacity and we're getting more output out than we ever have in a lot of locations. And so right now that is the focus and I will say, it's working and I think, you'll see us catch up to demand in the second quarter and made progress during the second quarter. Sorry, I missed probably the other part was around KCP.

Correct.

Yes. As we finished the first quarter with the demand that we saw in KCP, KCP was also running flat out as well. I think, at some point given kind of the relative shift, lower demand in professional as we mentioned and also increased demand on the consumer side, there will be an opportunity for us to shift some capacity to consumer and we're looking into that and working through that now.

Thanks. That's helpful. And then just on profit and margins as we go forward, two areas, just savings realization and advertising. Advertising business savings from FORCE actually accelerate pretty dramatically. And I assume a lot of that was related to obviously the sales surge and the leverage there. So as you think about the go-forward, how have your expectations of savings changed? Does it come in from here as sales normalized? Or are there incremental actions that you're taking because it sounds like they're pushing some of those projects out. So just your view on savings opportunity going forward. And then on advertising, you mentioned you raised advertising in Q1. I assume that's pre- COVID, and that comes off of a big increase in Q4 as well. So just if you could update us on your view on advertising against this backdrop?

Yes. Maybe I'll make the comment on the advertising and maybe ask Maria to talk a little bit more about the savings. But one, the headline, Olivia is we're going to continue to invest in our brands and our capability to grow the business. But we're going to just defer. What I would say is the, maybe the clearly demand generating marketing in the second quarter or parts of the second quarter until we have a better handle on and catch up a little bit to fulfilling the existing demand that's out there. So we feel really good about the quality of the innovation, the quality of our marketing, we're excited about the plans that we have this year. But as I mentioned, it doesn't make sense to over promote a category where there's not the full stock available on the shelf. And so for that reason, we're going to focus on ROI because it doesn't drive a big return. We will pair it back, but it's tough to watch right now. It's a temporary shift, and we want to continue to invest in the brands. Maria?

Great. And on the cost savings side on FORCE, I'll start there. We had a good quarter with FORCE. It was in line with our expectations and we drove savings across all levers of that program. One of the noticeable things in the first quarter delivery is on our negotiated material price savings. Those are back in line with what they were historically is. Remember in 2019, those were lower than normal for reasons we've talked about extensively throughout last year. So good savings quarter on FORCE at $100 million that also compares to a light first quarter of FORCE savings in the first quarter of last year. As you recall, as we were working through some cost issues in our supply chain in North America. When I look forward, we should have a good full-year outcome with our FORCE savings. Although where we actually end up on that lever is less of a priority right now than it would be in normal times given all of the complexities that our supply chain is working through. Clearly the focus of the teams in our supply chain is producing product and getting that out to market to fulfill consumer demand and customer orders. And so how all of that plays out for FORCE for the year? We will have to see. In terms of the restructuring program, we did continue to make good progress on the restructuring program overall. We do expect delays on the implementation of some of the activity there, which is related directly to the impacts of the COVID-19 situation. If you think about that, there are travel restrictions as we all know, so we really can't get the people that we need to get to the places that we need to get them. As you can imagine, we've got very experienced engineering teams both in-house and with third parties that we work with. And right now those people cannot travel, and therefore, we're experiencing project delays. And the other factor there is, as I mentioned a minute ago, our supply chain teams are absolutely flat out, trying to meet the surge in demand for our products. And so all of that’s leading to delays on the restructuring. We are working hard to have those delays go away, but when they'll go away and when we can get back into full swing on those projects in our supply chain is currently unknown. So how the restructuring savings will play out for 2020, I can't tell you at this point, but that's where we are.

Thank you.

Thanks, Olivia.

Thank you. Our next question comes from Andrea Teixeira with JPMorgan.

Thank you. And hope all is well. So follow-up on the consumption against the shipments. Internationally, you mentioned some of the stock up in Western Europe and Brazil tissue, but not much elsewhere. So are you likely just catching up with consumption and stock up from most places? And have you seen growth in diapers, for example, in South Korea in April, because I'm assuming there's not much of a stockpiling there because they were early to get the impact. And because they're very developed in ecommerce, perhaps, you know, that was fulfilled as they were going through the social distancing. And on ecommerce, how much did you grow this quarter globally, and how much it represents for you at this point? And just a couple of clarifications, Maria, do you expect gross margin to continue to expand as we find the first quarter, in particular, ex-commodities are coming in even better than anticipated and the mix will likely shift from tissue to diaper. So I'm assuming that's going to be a bit of a benefits for your margin. And some of the other – sorry, the three parts of the question that as you pivot some of the KCP production of paper into consumer tissue, which is obviously a great competitive advantage at this point. How much is your production capacity in tissue likely increasing with this initiative and also the simplification of SKUs? Thank you.

Yes. Maybe I'll start – I’ll take through. I think the consumption effect, yes – largely the stock up effect Andrea was largely a D&E – sorry, a developed market phenomenon. So North America, Western Europe, Australia, New Zealand and Korea to some extent. In Korea that you're probed on. Yes, I would say less so in personal care, although I think there was some small effect. We definitely saw – we are excited to see improved diaper performance from our business and share growth in our diaper business. So even though I think the category trends remain down in Korea on infant and childcare, our diaper business put up very solid growth. And then we did see – earlier, it occurred more in February some stock up behavior in consumer tissue in Korea as well. But in general, yes, significant stock up impact across Western Europe, including the UK and North America, a little bit in Brazil and in Korea, New Zealand – Australia, New Zealand. With regard to ecommerce, I'll ask Paul if he has an all-up number. I don't have the all-up number. I will tell you, ecommerce, shipments and demand dramatically accelerated in the quarter. And if you've been reading the news, the consumer behavior has shifted to some degree pretty aggressively because of people not wanting to go out to stores. And so we're feeling that in our business. And I don't know, Paul, if you have – I don't have the overall number.

Yes. So a couple things for you, Andrea. Globally, ecommerce would be a low double-digit percentage of our sales. It was up very strong double-digits in the three biggest markets. So that would be, China, South Korea and the U.S. All of those markets accelerated compared to where they were last year. We actually don't have a global total just yet given that we're still early in the year, but I can confidently say in total it accelerated meaningfully.

And I'll go ahead and comment on gross margin. Our gross margins were at 370 basis points year-on-year, and they were up 120 basis points sequentially in the first quarter. And the drivers around gross margin included the volume upside, the continued price realization that we talked about, our cost savings and the commodity deflation that we had in the quarter. That was offset to some extent by currencies. And if I look forward, commodities are trending better than we expected coming into the year and we provided the updated outlook on eucalyptus in the prepared comments. But currencies are trending worse also as we discussed. And on the price point, our net realized revenue or pricing lever is a key lever for us to help offset the negative impacts of currency in a typical environment. However, our ability to get priced in the near-term is more uncertain than the normal. And that uncertainty is around the economic health of the consumer. If you think about Latin America in particular, that's a clear risk. In this environment, there are potential societal and political uneasiness around taking price and increasing our price on some of our products during these times. And finally, a lot of currency challenges came from developed markets internationally, and in general, it's more difficult for us to raise prices in those countries. So how the effects of those three major factors that affect our gross margin will play out for the year, we'll have to see.

That is super helpful. Just on the follow-up on the capacity from KCP. Is that something that will increase your tissue capacity by 20%? Or should we expect that to be material for besides your SKU rationalization, your throughput increase? How should we thinking of issue going forward?

Yes. Maybe I'll ask Paul to jump in. I think we're still working through that. I mean, we definitely have the opportunity to shift some capacity. I don't know that I can pencil a number next to it. But Paul, I don't know if you thought about.

Yes. I mean, I would just add. It's not as simple as making decision and then go do it. There's a lot that will be involved if we do this, including different tissue technologies between the two business segments. So I think that for right now the message is, we're taking a look at it, and we'll – if there's an opportunity, we're certainly going to go after it. It had no impact on the first quarter though.

Thank you. I'll pass it on.

Okay. Thank you, Andrea.

Thank you. Our next question comes from Jason English with Goldman Sachs.

Excellent. Thank you for spotting me in, and good morning, everyone. A couple of quick questions. First, Michael, you mentioned some of the headwinds that you expect to KCP to face going forward. I guess my question is why was it doing so well in the first quarter? You mentioned it was running flat out. What was driving the strength and do we have inventory issues to be cognizant about the business right now?

Yes. On that one, we did see a stock up effect on anything about tissue. And we're not exactly sure at this point, I think a lot of it went through to end user, and a lot of it went to distributors as well. But there was some pull through toward as we got toward the late in the quarter, particularly on washroom products. So strong demand, again, we obviously expect that to diminish as we move into the second quarter.

Okay. And then I totally get the idea of some of this demand spike being stock up and likely to reverse, particularly on personal care where it's easy to understand the usage occasions don't really grow. I'm not as convinced on the consumer tissue side yet though. Can you give me a sense of how many usage occasions typically happen in-home versus out-of-home if you know that statistic?

Well, I don't have that off the top of my head, but I definitely – where your line of thinking, I agree with which is, look, consumers are going to be home more, and so there's many more occasions for them to interact with our brands then they traditionally would have. The other thing is, it's kind of – the KCP to consumers shift is an apples and oranges shift in the sense of KCP, the big horse products tend to be towels. And on the consumer side, the big horse tends to be bath tissue. And so there is a shift effect. Obviously, I think we have a good position in bath tissue on the consumer side that we like, and we're going to be ready to meet the consumers where they need us here.

No. Totally, I get it's apples and oranges for you, but not for the industry. And it's hard to imagine that we aren't seeing actual at home consumer tissue consumption up at least 14%. I mean, arguably you could make arguments that should be up 50%, and that would be real demand, not just stock piling. And a different, but somewhat related question. You mentioned you're trying to divert some capacity of KCP towards consumer. I imagine some of your other competitors who are much more deeply tethered to the washroom side and the industrial side are working even harder and faster to do just that. Are you seeing any evidence of that shift and what risk is there that we get a bit of a glove coming? So a lot of in ground supply coming to the consumer side, I don't know, two, three, six months out, however long it takes to refit some of that stuff.

Again, I haven't seen any evidence of that thus far. I think certainly in the short-term given the supply situation in the market, maybe there has been a little more flexibility and some people looking to sell different products in the marketplace for consumer use. But in general, I think what Paul was talking about, which is our shifting capacity is to make Scott 1,000 or Scott products or Cottonelle products the right way when we make that shift and we're going to – and it'll have every bit the same quality that our consumers would expect. And so that's kind of the thought we're doing. I haven't seen any evidence of that shift as far from other suppliers, but certainly something we're going to keep watching.

Okay. Very good. Thank you. I'll pass it on.

Thank you, Jason.

Thank you. Our next question comes from Steve Powers with the Deutsche Bank.

Hope you're doing well. Thanks. Hey Mike, on the K-C strategy 2020, I guess my question here is around just how you're prioritizing investments that encompass that strategy. Are there capabilities that you think you can still make progress on in this environment or maybe take on more urgency versus others that need to be deferred or just seem a little bit less critical today versus even a few months ago. Can you just give some color there?

Yes. I think the capabilities are all critical for moving forward and they're foundational for consumer products good company. I mean, I'll just kind of walk you through and we're kind of using them all right now, right. Innovation, a big one. Marketing with a special emphasis on digital, the sales execution or in-market execution and revenue management. And so if you click through all those, I think they all have important effects for us this year. Innovation, we're seeing strong traction in China, Central and Eastern Europe, North America on our product launches. And so we want to continue those. Obviously, digital is kind of how we are competing, and it's really the lion's share of our media investment. And so we got to get better at that and continuously. I think if you think about this environment though a lot it does come down to in market execution and we're still seeing very strong execution locally, and that matters more when we're in a tight supply situation, the coordination there. And then lastly, the revenue management, I think that will be – I think that’s an important capability and especially given what we might anticipate some recessionary impacts and what that might do to create pressure in the promotion or pricing environment and we are very glad we had that capability to help us manage through that in an effective way.

Yes. I just add on there that, we came out of the gate strong as you would have expected in the first quarter and as we discussed our K-C 2022 strategies with you back in January. We executed that right out of the gate and you saw that come through in the numbers on between the lines spending with the advertising being up meaningfully in the quarter and also investment around the capability areas that Mike just described. We've already talked about how we see the advertising spend and trade spend in this environment. And then on the capability building activities, as you can imagine, again, with things like travel restrictions in place, some of the spend on those programs will take a pause here in the near-term, especially in the second quarter, just as people can't get to where they need to be in terms of some of the work that we’re planning to do there. So strong out of the gate in the first quarter completely in line with what we talked about in our growth strategy around K-C 2022, a bit of a pause given the restrictions here in the near-term. But as soon as we can turn those activities back on full speed, we remain fully committed to them and we certainly will do that.

Okay. That's great. And I guess second question, if I could, and you've talked a little bit about it, I just want to really hone in on it and be clear about how you're thinking about the expected trajectory of net price and mix realization through this cycle versus what we've all experienced in the past. Because it sounds like – because of input cost deflation and recessionary pressures, it sounds like you're saying we might see more trade down or net price givebacks promotion in developed markets. Just once you get through the surge demand, and while pricing will undoubtedly be sought after in D&E markets to offset FX, it sounds like you're preparing us to that we might see less than we might've expected based on past precedent. I don't want to put words in your mouth. I just want to run that back by you, and is that what I should have heard because I just want to take the…

Yes. I think I probably am in a different place there. One, I would tell you that the pricing environment right now still remains broadly constructive. And in the current environment, we have dialed back significantly our promotion activity just given the demand environment. I think, in general, my preference is to drive category growth through innovation and advertising and to grow the overall categories. But we will stay close to what's happening in the marketplace and we're going to continue to be competitive. But it's not where I want to go. But I do think we have the capability to be very effective in a recessionary context. And I think we're well positioned in both cases with the right brands that offer value to the consumers. And when I say that, Steve, it's not necessarily price or promotion driven. And a lot of it I think will be communication or marketing relating to the value that our brands provide to consumers.

Okay. So in this moment, you're not leaning one way or the other, you're just leaving all options on the table being ready for it and we'll see what happens. That's the message.

Yes. And if I were to lead, again, I prefer in the high road, and I'd rather grow through innovation and brands.

Okay. That's clear. Thanks so much.

Okay. Thank you.

Thank you. Our next question comes from Wendy Nicholson with Citigroup.

Hi. My first question has to do with the competitive environment and thinking strategically for the company. I would imagine that not only some of the competitors who supply private label to retailers, but also on the professional side are less well capitalized than you and Procter or GP, for example. So I'm wondering as you think about that, again, this goes back I think to sort of a strategic question. This could be a good opportunity to either expand your professional business, sign new contracts on the private label side. How do you think about that as opportunities maybe for outsized growth to sort of take advantage of some of your weaker competitors, if you will?

Yes. Well, I think – Wendy, I think maybe the general theme is certainly there's been some significant change in the overall environment and also the competitive environment. And so what we really want to do is pivot to where the opportunity is for us to fill better needs are. And certainly when you talk about K-C Professional, I think I mentioned the opportunity for us to provide healthier workplaces I think is a very big opportunity and for us to compete more effectively. I think we are starting to have very good conversations there. I think we're starting to see success, much more faster success in our towel business despite a lot of locations being closed for now, but in our towel business, and because they're healthier or safer than jet air dryers. And so we are making those types of moves, and we'll work through the other areas. We also feel like obviously we're stronger. We have a stronger balance sheet, better capitalized. And so there are some customers who recognize the value of doing that. And so we want to leverage that opportunity as well.

And do you think that, I mean as you think about what you've seen in the past from an economic perspective, if we are heading into a longer depressed economic environment, is private label something, I think, correct me if I'm wrong, but it's kind of 5% of your volumes at this point. Is that something that you would actually be interested in increasing? Or you kind of want to keep it more focused on the branded side?

Yes. I think we're certainly more focused on the branded side and thus far it's been a relatively small piece of our business. And certainly, Wendy, right now, with – given all what we got with our capacity limitations in the near-term, we're really focused on filling all the brand demand that we got right now.

Got it. And then last question just on feminine hygiene in the U.S. Your market shares are so much better across so many different categories, but feminine hygiene is one area at least in Nielsen data, so I recognize that might not tell the whole story. But that's the one area both on the pad and the tampon side, where you continue to lose a little bit of share. Do you think that is pricing? Is it branding? Is it innovation? What's the – and again, it may not be – if we had all outlet data or whatever, that might not be an accurate reflection, but what's going on in that business?

Yes. Wendy, in femcare in North America was up about high-single digits on volume, but we’re down about a point on share. So I think you're right on what you're pushing on. We have a great global brand positioning with our She Can global brand idea, and I think that's been working for us globally. I think we do have our team that is working to improve that execution in North America and also bring the right innovations to the market. And so we love the brand positioning, but we got to do a better job of executing that North America and the teams all over it.

Got it. Thanks so much.

Thank you.

Thank you. Our next question comes from Kevin Grundy with Jefferies.

Thanks. Good morning, everyone. And I hope you and your families are staying safe and healthy. Two unrelated questions. First one, Mike on the diaper business and the impact on birth rates from the recession in the U.S. So when we look back, we saw birth rates had begun to improve heading into the global financial crisis, and then we saw birth rates dip into the recession and they continued their decline. So I was curious if part of your planning process here, what your updated thoughts would be on the potential implications on birth rates from the recession and how that may inform your view for the category looking out not just over the next 12 months, but maybe over the next three to five years. And then unrelated on ecommerce, I would say, there's little debate that the adoption shift there has only accelerated given the nature of this recession. So I think it'd be helpful to get updated views on the company's market share positions in your biggest categories versus traditional retail, your margins in ecommerce versus traditional retail, and then maybe some comments on your positioning relative to private label? And that'll do it for me. Thank you for all that.

Yes. With regard to diapers, I think we did see some improvement in the birth rate in North America over the past year or so. Now just recognize Kevin, we lag a year. So I think it had been down for the previous few years, down about, I don't know, 2-ish percent. And I think maybe the most recent year, our expectation was it – for it to be down about a point. And the category, I think through the back half of last year and through the first couple months of this year, really was rebounding quite well, and I would say up almost mid-single digits or technically mid-single digits. So I think it was a nice rebound in the category. Obviously, the stock up effect really kind of affected that and got it up to double-digits in the latest quarter for the full quarter. But we are very excited about our diaper business globally. And in particular in North America, we've got great products, we've got a significant product improvement coming and Huggies Snug & Dry. And we've got great products across premium and strong momentum in our premium business. And so, again, I think, I think Jason's point, and I wouldn't expect the pandemic to grow category consumption and diapers. So there's pronounced stock up effect. But I do think, we are seeing an improvement or expect to see some improvements in the birth rate. On ecommerce, right now, given the supply situation, I think, again, as Paul mentioned, very, very strong double-digit growth that we had in the quarter. The focus right now is getting the supply out there and we are allocating products to customers and making sure that we get the right products out to our customers. And so really, maybe the focus in the near-term is about getting supply ramped up and out there and increasing our capacity. So – and then I forgot the third question.

It was all ecommerce related, Mike. It was not so much what's going on now because I realize there's a pantry load going on. So the sort of sell-through looks phenomenal. Selling it, of course, is very good as well. It's really, it's your market share positioning online relative to the traditional retail and your margins for online relative to traditional retail and even private label relative to traditional retail.

Yes. Well, I'll break that down to our three principal markets. So obviously, our biggest ecommerce markets are in the U.S., China and Korea. In China, well over 50% of our businesses in ecommerce, and we have a very strong ecommerce position there. Similarly in Korea, almost 90% of the diaper business is on ecommerce. And obviously we’re far and away the market share leader in Korea. And then in the U.S., I would say, across our categories overall, we're about fair share, although, however, we're probably a little ahead on consumer tissue and a little bit lighter on diapers, but we've been making progress there. In fact, I think we had a multiple share point increase last year on our online diaper shares. So we're making progress. With regard to margins, generally the way we price out particularly in North America, we price our customers, they're all on a similar program. So margins at the highest level tend to be about the same. There are going to be some differences because we do reflect advertising investment back to the customer because they are a customer. And so there will be some differences and it may appear that the margins maybe slightly lower, but that really reflects what we're doing, let's say, with Amazon media or Walmart media or those kinds of things.

Thank you very much. Yes, that's fine. Mike, thank you very much.

Thanks Kevin.

Thank you. Our next question comes from Steve Strycula with UBS.

Hi, good morning. So want to go back to the BRIC countries and really focus in on the volume piece rather than the price mix piece. Particularly, I wanted to understand from a COVID situation more of just from a recessionary situation. So if we could piece those two pieces apart, would love to understand first. What are you seeing in the BRIC countries in terms of consumers’ ability to access your products because of some of those markets, maybe the retail stores aren't open, and how do you think about near-term demand being able to secure that? And then on the recessionary piece, do you think that volumetrically, some of these countries like in Latin America, China, and even India, that the business cannot just grow through a recessionary period based on what we know from 2008, 2009? And then I have a follow-up.

Yes. With regard to BRIC, maybe I'll have to talk through the different pieces just because we don't want them together. But I think the – with regard to China, I would say the business for us has been largely back online both figuratively and literally. And since we tend to have a big portion of our business sold online, I think sales have, I would say, resumed, if not normal levels, closer to normal levels. And we feel very good about that. And I think our team feels very bullish about how that market is performing and where the consumer is headed there. Brazil is still early to tell because I think the impact of – we've been experiencing the recessionary impact in Brazil for a while now. And then the pandemic is a more recent phenomenon there. There's a little bit of a lag of it affecting it there, but it's starting to have an impact. And that's why we did see some of the stock up behavior. I do think we are seeing continued strong demand in tissue. It's a little tough to see what was the stock up effect versus what was the normal pull through effect, but it was definitely elevated. And then on the personal care side, we did see demand soften a little bit. And again, we’ve been seeing that occur in the category over the last several quarters just based on the economic impacts. Let's see. BRIC – India, right now, we're strong double-digit growth and continue to have strong double-digit growth. But the more recent emphasis with COVID-19 now is making sure that we can maintain operational supply, and that's been a big focus. We were down for a period of time, while we were getting the right permits to operate as an essential business and we're back online now fully, but as you know or may read that, I think the COVID, we’re very concerned about the repercussions in the marketplace and the effect it's going to have on consumers. And so we're staying close to that. That said, we experienced strong double-digit growth in the quarter there. And then Russia or Central and Eastern Europe for us overall continues to perform very strongly. It was up high teens overall. Strong share growth in diapers and femcare in Russia last quarter, multiple share points in both. It turns out, I was in Ukraine and Uzbekistan and Russia right before we went on work from home. The markets are performing great. Ukraine, we've achieved share leadership. I think we're about a 40 share at this point, nearly a 60 share in Kazakhstan, and we feel very good about the marks. I don't know that I have a clear view on maybe the pandemic effect yet because I think that's still working its way through, but we're watching that very closely.

Thanks Mike. That was really helpful. And I have one quick follow-up and I'll pass it along. On the innovation slate for this year, how does the pandemic really impact that to certain products that may have been slotted or earmarked for March and April? Did those make it onto retail shelves? Or did maybe pieces of innovation slate get put into the back-to-school reset? Just help us understand what are you really excited about in the pipeline? Thank you.

Yes. I mean, as I mentioned, we've got a lot of innovation coming on diapers this year with both in North America and Snug & Dry. Our premium products are fantastic. China, we're launching – we feel like we already have the best diaper in the marketplace and we're launching a significant upgrade to that this month that the team is very excited about. We've got a significant innovation coming in Latin America – well, especially Brazil on diapers. So that's diapers, I'll come back to it. Femcare, we have pad improvements and great marketing plans around the world and also in our adult care business. So we have a lot of good innovation that I mentioned earlier. I think in terms of the phasing in general, especially in personal care, it is going as per plan with a couple exceptions, which is, in Latin America because what Maria mentioned, we've delayed, we don't have the ability to get engineers internationally into locations to install new equipment. And so some of the innovation that we had slated for launching that we’re going to launch in Brazil. We were also launching in other markets. We're delaying that just for executional reasons until we have access to the mills, and we don't – because we're prioritizing safety of our employees, we don't want people who are not traditionally going into the mill, going into the mill and creating a different – a germ environment, right. So it's not just for travel restrictions, but it's for safety restrictions also. And so we're consciously making some of those trade-offs. And so yes, net-net, we will delay some innovations, but it's more for executional reasons.

Understood. Thank you.

Thank you.

Thank you. Our next question comes from Lauren Lieberman with Barclays.

I'm all set. It was covered. Thank you so much.

Thanks, Lauren.

Thanks, Lauren.

Thank you. At this time, we have no other questions in the queue.

All right. Well, we appreciate everyone's time and questions today, and we'll wrap up with a comment from Mike.

Thank you all for joining our call. We're really encouraged by our solid start to the year and our ability to manage through these challenging conditions. And while they're challenging, we're obviously realistic about our near-term challenge, but we remain very optimistic in our long-term potential. So thank you for joining us today.

Thank you very much.

Thank you. Ladies and gentlemen, that concludes today's presentation. You may disconnect your phone lines and thank you for joining us this morning.