Kimberly-Clark Corp
NYSE:KMB
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
114.8907
147.18
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Kimberly-Clark Corp
You don't have any saved screeners yet
Ladies and gentlemen, thank you for your patience in 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 this morning’s short remarks, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow, if you would like to ask a question.
It is now my pleasure to introduce today's first presenter, Taryn Miller.
Thank you, and good morning, everyone. Welcome to Kimberly-Clark's First Quarter Earnings Conference Call. With me today are Mike Hsu, our Chairman and CEO; Maria Henry, our CFO; and Nelson Urdaneta, our incoming CFO.
Earlier this morning, we issued our earnings news release and published prepared management remarks from Mike and Maria, that summarize our first quarter results and 2022 outlook. Both documents are available in the Investors section of our website. In just a moment, Mike will share opening comments, and then we'll take your questions.
During this call, we may make forward-looking statements. Please see the Risk Factors section of our latest Annual Report on Form 10-K and the first quarter 10-Q for further discussion of forward-looking statements.
We may also refer to adjusted results and outlook. Both exclude certain items described in this morning's news release. The release has further information about these adjustments and reconciliations to comparable GAAP financial measures.
Now, I'll turn it over to Mike.
Okay. Thank you, Taryn. Good morning, everyone. Before we get to your questions, I'd like to comment on our CFO transition and then I'll provide a perspective on our Q1 results.
First, I'd like to thank Maria Henry for seven years of outstanding leadership as CFO of Kimberly-Clark. As you saw from our news release, Maria has decided to retire effective September 1. Maria will leave quite a legacy at K-C. She played a key role in design and execution of our strategy, and our strong financial stewardship has positioned us well for the future. I'm grateful for all her contributions and very glad she'll be with us through the summer to ensure a smooth transition.
I'd also like to welcome Nelson, our incoming CFO. Nelson brings strong operational and international experience to K-C and I'm looking forward to his leadership. I'm sure you'll enjoy getting to know him as he begins his new role.
Now turning to our first quarter. I'm pleased that we started the year with double-digit organic sales growth and strong performance in all segments. Our teams are executing very well during a period of continued volatility and high inflation. Our strong fundamentals provide a solid basis for us to raise our sales outlook for the full year.
We're driving growth by building strong commercial capabilities and deploying them with local agility. We're continuing to invest in our business, grow our categories and deliver meaningful value to our consumers.
We're continuing to face a dynamic environment. We're being thoughtful with actions to offset macro headwinds, balancing price, volume and market share, while we work to improve our margins over time.
2022 marked K-C's 150th anniversary. Kimberly-Clark was founded on the core principles of quality, service and fair dealing. These principles still reflect who we are and what we stand for today.
We're led by our purpose of better care for a better world and we're driven to perform, so we can continue to make a difference in people's lives with the categories we create, the products we make and the consumers we serve. Our purpose-led, performance-driven culture fuels our team every day to drive our growth and deliver long-term shareholder value.
Now with that, we'd like to address your questions.
At this time, we will open the floor for questions. [Operator Instructions] We'll take our first question from Kevin Grundy with Jefferies.
Thanks. Good morning everyone. Maria, again, congratulations. All the best. And Nelson, we look forward to working with you. I wanted to start on the guidance. A couple more tactical questions then, Mike, why don't we start with one, sort of, more strategic. I guess, just given the uncertainty and increasing concerns around the consumer and ability to cope with the higher levels of inflation, number two -- or number one, I guess, are you seeing anything in your markets that gives you any pause about taking additional pricing? Was there any concern about that? Are you seeing any trade down that made you potentially cautious even at this point to raise your organic sales growth outlook? And then I have a couple of follow-ups for Maria. Thanks.
No. Well, Kevin, overall -- thanks for the question. Look, two big changes since our January update. I mean, one was, obviously, if you look at our results in the quarter, price realization is -- our execution is very effective right now, and the volume is trending better, I think, than we initially thought. So that's one part.
But certainly, as you saw in our release, inflation is significantly worse. And so I would say those two big changes largely offset. I do think our strong top line, Kevin, reflects the essential nature of our categories and the strength of our brands. I mean. we have been working over the last several years to really improve our brand fundamentals with strong innovation, great commercial execution.
And as I mentioned in my remarks, we're really proud of our local agility. So I would say, overall, we're cautiously optimistic. Certainly, we recognize at the price levels we're putting into the market, they will create stress on the consumer. And so our approach is we're going to be very thoughtful about balancing growth, margin and share. And we'll be very responsive and agile to the needs in the marketplace. But right now, I'd say the pricing environment has been largely constructive and I think we're on track with what we thought the pricing would do.
Got it. Thanks Mike. And just to play that back. So your -- is it the expectation that the incremental pricing will largely offset the incremental cost pressure? Are you guys at a lower point within your earnings guidance where it’s not going to entirely -- the additional input costs that you're coping with?
Yeah. Well, just as a principal, I would say, generally, I would expect our teams to offset input cost inflation with pricing over time. It may not occur within the year, but over time. And so that's our general principle. Obviously, we'll also deploy cost savings and productivity against that problem as well. But again, that's our overall principle.
We have taken further action. We announced a suite of actions at the beginning of the year. And then we've taken further actions since we talked last January. And again, I think our teams have been very responsive to what's happening in the marketplace.
Okay. I’ll pass it on and hop back in the queue. Thank you very much for the time.
Thanks Kevin.
We'll take our next question from Lauren Lieberman with Barclays.
Good morning Lauren.
Thanks. Good morning. One of the things that jumped out in the results also was mix and the degree to, which makes us continuing to contribute to top line. So I'm guessing this is tied as you've mentioned like the execution. But as you're thinking about how commercial execution may or may not evolve from here, just thinking about merchandising on the shelf, what elements of your product suite are emphasized in store versus others to deal -- to try to support volume as you move to the year? How would you be thinking about how mix may evolve as the inflationary pressures mount on the consumer? Thanks.
Yes. Thanks, Lauren. Yes, we're very encouraged with the mix performance. And again, I think it dovetails or it's an outcome of our underlying strategy, which is to elevate our categories and expand our markets.
And I think you might observe, we've been driving mix for a few years now. And the core underlying thought is, we still think there is a lot of opportunity for premiumization in our categories.
Recognize that I think the circumstances of this environment may require some slight adjustments. But the long-term opportunity, I think, Alison talked about at the CAGNY conference. China, which is the largest hypermarket in the world right now, still remains the largest market. The value per baby is less than half of what it is in developed markets like the United States.
And so, we still think premiumization is an opportunity. That's what's driving our growth. We were up high single digits in China for another quarter. We continue to grow there and continue to improve mix.
And so, that's a core idea for us. It's also what's driving our momentum in North America, double-digit growth in diapers and across personal care, all personal care categories in the US. We're continuing to drive innovation on the premium end, but also, we brought a lot of improvements to our value tiers as well in North America and around the rest of the world.
So, again, we're elevating our categories. It remains a core part of the strategy. We're not going to be niche premium though, and so we want to be able to serve all consumers. And so, we're balancing our investments and our investments in innovation across the value tiers.
Okay, great. Thank you so much. Really appreciate it, and I'll get back in the queue later.
All right. Thanks, Lauren.
We'll take our next question from Chris Carey with Wells Fargo Securities.
Good morning, Chris.
Hey, good morning. I just wanted to follow up on the question around pricing, your expectations and how things have evolved. So the 4% to 6% organic sales growth now includes volumes, which are negative, which was the call before; implies pricing, probably at least a couple of hundred basis points higher than where you were before. I'm seeing pricing in the US right now in the high single-digit range.
So can you perhaps help us understand how much pricing you're expecting and how that has changed relative to prior expectations? And maybe give us a sense of pricing expectations in the US versus internationally? Like, for example, is international pricing going to be as strong as the US?
And then, just connected to that, on Kevin's question around elasticities, I did notice in the prepared remarks some comments around pricing impacting volume in some D&E markets. I think previously, elasticities were a bit more conceptual. And I'm just wondering if now you're actually starting to see some of that volume impact play out?
Okay. Yes. Chris, maybe I'll start and then maybe Maria will provide some additional color, too. But, overall, I'll just give you a sense of -- our pricing execution overall is on track. Volumes have been solid. I would say trending a little bit better than we initially thought.
But, as I mentioned earlier, we're going to be very alert in monitoring our price gaps carefully. I would say we've implemented multiple rounds of pricing. Given what's happened in the first quarter, that is additional pricing or higher than what we originally planned is a key basis for why we're taking up our sales outlook.
Overall in the marketplace, obviously, trade discussions have been constructive. We have seen movement in other brands and in some cases, private label. But there is a little stickiness in some markets as well, particularly in Western Europe and parts of Latin America. So I think that's why we're going to monitor the situation closely and try to balance -- continue to balance our performance and growth with -- and our share performance.
But overall, we feel good about where we are on pricing, and we feel good about our portfolio and the fact that we're strong in both the value and the premium end, and we'll be able to pivot and meet the consumer where they need us to be.
Yeah. And I would just add that if you look at the outlook for input costs, which did escalate and our outlook for the year, as you know from our prepared comments and news release, we did increase the number in terms of the inflation we expect for the year. A good portion of that comes outside of the United States. And so along with the intent to cover inflation with pricing, you should expect that a lot of the incremental pricing we're putting into the market comes outside of the US.
And if I could just ask one follow-up there on the incremental inflation that you're seeing. What are the specific baskets or cost items that are moving outside of the US to cause this incremental pricing? Thanks so much.
Sure. At the midpoint of our new guidance versus where we were in January, we're up about $375 million in terms of our expectation for input cost inflation this year. That increase is across all of our baskets. But as you know, with the significant volatility in oil and energy, that is clearly one of the drivers. That's well over half of the increase that we're seeing since January and the impact particularly on the energy side, weights to Western Europe, UK. And there, we have a sizable tissue business, which is a large consumer of energy. So that is kind of how the inflation basket plays out and why it's more weighted to markets outside of the US.
Okay. Thanks so much.
Thanks Chris.
We'll take our next question from Steve Powers with Deutsche Bank.
Morning Steve.
Good morning, good morning. And congrats to Maria, and welcome to Nelson as well for me. Picking up on the $375 million and guidance. That incremental $375 million at the midpoint headwind from higher inflation just seems to be substantially higher quantitatively than the uptick in revenue that you're calling for. So just in the components of your guidance, it just -- it reads net negative. And, obviously, you've maintained the full year range. So I'm just trying to figure out if there is something else that got better in your outlook versus the start of the year, or if we're now talking about the lower end of the range as opposed to the higher end prior? Just some help there would be helpful.
Sure. There clearly is a range and coming into the year, we talked about the factors that could affect where we land in that range and commodities have -- commodity inflation expectations clearly have increased. We talked about incremental pricing there. So how all of that plays out as we go through the year we'll have to see.
In terms of our expectations on the other lines of the P& L, we held our outlook for our FORCE cost savings. Our other manufacturing costs are looking to be a bit better. We had talked about in January, the pressure we were seeing from the surge in Omicron. Fortunately, that has resolved itself fairly quickly in North America.
And it's helped us get our supply chain into a better place than what we suspected back in January. So that's a positive on that side of the house. And in the first quarter, our G&A spending, or between-the-line spending, when you net out all of the puts and takes, was a bit favorable backing out currency and other things.
And so, in this environment, it's tough, and so we're going to very closely monitor our between-the-line spend for the year and how all those factors come together, keeps us within the range of guidance that we set back in January. Exactly where we'll land, there's still a lot of volatility and moving pieces, so we'll have to see there.
And, Stephen, I would agree, $375 million is a big number. And so -- but again, I think we're pleased with the team. I would say, again, as Maria mentioned, volume has been an important component for us.
And we planned the year with an estimate around elasticities. Still remains to be seen how things flow from there. But I think given our first quarter, I would say, volumes are trending favorable to some of the things that we had originally thought, so.
Yes. Very good, very good. Is there any -- can you -- of that incremental $375 million, was any of it realized in the first quarter? Is it just the cadence of how that's to flow through? Is that, I'm assuming, more back-end loaded, but just any color there would be useful as well.
Sure. It did hit us in the first quarter. We saw a meaningful spike in commodity cost pricing, particularly in the month of March, as global events unfolded. So probably a-quarter of it hit in the first quarter, and the remainder of it will come in the rest of the year.
Okay. So it's more prorated then. Okay. Very good. And then, just one last thing, if I could? Just, is there any -- maybe -- and maybe I should know this already, but just, is there a way to quantify what the Texas storm impact was on growth in terms of the impact this year in terms of the benefit?
Well, I think, in the first quarter, it was probably worth about 2 points of organic for us. So, again -- and we're primarily lapping -- I think, it was March of last year is when it really hit us. We're still going to be cycling maybe a month or two of that in this quarter as well, just so you recognize that. But -- so, yes, but that did have an impact, so.
Okay. Thank you very much.
Thanks, Steve.
We'll take our next question from Jason English with Goldman Sachs.
Good morning Jason.
Hey good morning folks. Thanks for slot me in. Let me echo the sentiment, congrats Maria. Well earned. I think we've had the pleasure working together for now well over a decade, and you will be missed. And Nelson, welcome on board. Looking forward to getting to know you.
Dig into the business, a couple of questions, please. I guess let's first talk about D&E. We haven't seen a negative volume number in your personal care D&E business in quite some time. And I know it's only negative once, so I'm not trying to sensationalize anything, but there's obviously some sensitivity around tap those markets. So can you unpack what drove it this quarter? And then perhaps elaborate on how you're seeing concerned behavior in emerging markets change in each of your core markets as inflation pressure mounts?
Yeah. Yeah, Jason, maybe I'll start here. Overall, I think we're very pleased with our D&E growth overall. Personal care growth continue to be very strong behind what I mentioned earlier under Lauren's question, strong innovation, really strong local execution. Organic was up 11% in the quarter. High single digit on price, low single digit on mix. And then yeah, as you mentioned, a 1% volume decline overall.
I'd say it's mixed across markets, and maybe the one area that I'd point out is in Latin America for us, a little softer on volume and a little softer on share. The big driver of that is Jason, as you're well aware with our previous discussions, we're prioritizing margin recovery, but we want to be balanced and holistic about it. And so we're trying to balance margin recovery, organic growth and share. And I would say we're probably faster on pricing in a number of our key markets, including Latin America. And so that's probably had an impact on both volume and share. And our shares are still overall up and over 50% of are what we call cohorts or market category combination, so we feel good about that. It's a little less than what we have been doing in the last couple of years, which is about two-thirds, right? And so we'd like to be in that two-thirds range. But recognize that's a high bar. That said, we also recognize when we're moving quickly on price that we're going to have some ebbs and flows on market shares in local markets.
Yes, that makes sense. Thank you. Pivoting to the professional business. Volumes still really -- they haven't really recovered, right? If we look at pre-COVID for this quarter, 1Q 2022 versus where we were in 2019, I think your volumes are still down 17%, 18%, off of the pre-COVID levels. So two questions. What needs to happen? Like what are the conditions that we get you back to bright there? And we're far enough in that I think it's probably prudent for all us to say, you probably aren't getting back to right. Is there some rightsizing type initiatives you need to take in the organization to account for the now lower volume base?
Yeah. Overall, Jason, I will say we're encouraged by the professional demand improving. Organic was up 6% in the quarter. And to your point, not back to where it was, but mid-single-digit growth in North American and high single digit in the rest of the world.
Washroom demand recovering was up 30% in the quarter and now back to 90% of our pre-pandemic levels. I think we do know enough. And I agree with you, I don't think it's going to go back to where it was. I think our team is making the right plans to size the business appropriately and recognize this is the reality of where we are. And so we need to go from there. And so they've got a margin recovery plan and a cost plan and are diligently working on that. Obviously, a key component of that margin recovery plan is price, which we've executed very, very well, and we're encouraged with our start.
I will point out, we do expect better volume performance. I mean we have great capability. We have great innovation in the market this year. We have this, what we're calling an ICON, a better dispenser that our end users are very excited about, and that's driving our growth.
So our shares in the segment, especially North America, are up. The team's performing well. But you're right, I think we have to recognize that probably the business is going to be a little different size than it was pre-pandemic, and we're going to be ready for that.
Yes. Thanks and congrats on a good start to the year. I'll pass it on.
We’ll take our next question from Andrea Teixeira with JPMorgan Chase.
Andrea, good morning.
Hi. Good morning. How are you? First, congrats to Maria, and welcome, Nelson. Looking forward to working with you as well. So, first, a clarification that you removed the comments about SG&A and the FORCE savings. And given the higher cost pressures and from Maria's comments earlier, are you taking from marketing spending down since the consumer, particularly in the US, has been stronger than anticipated?
And on the pricing commentary that, I think, it was incremental to what you had in plan. Which categories are you hoping to get additional pricing from plan before and the timing of it?
And just a follow-up to Mike's commentary about China. I mean, impressive high single-digit performance there for another quarter. So how are you trending in April, given the lockdowns and what we hear about e-commerce also being impacted there? And what is your expectation for the category? Thank you.
All right. I'll go ahead and start on the cost side. As I mentioned, our outlook remains the same for the FORCE cost savings of $300 million to $350 million for the year. A little bit more color on the first quarter. We did see very strong savings in our productivity programs and our pipeline of opportunities remains quite healthy on the cost savings side. And so, we've got confidence in that FORCE cost savings range.
We do expect that the savings will ramp through the year. As you know, our savings don't come in a straight line. They can tend to be a bit bumpy as we go through the year, based on which projects and programs we're implementing and able to execute.
In the quarter, what we saw is that, the distribution cost increases were a meaningful headwind to our FORCE cost savings number. So, as I've discussed before, the $50 million of savings is a net number.
There's all of the positives from the actions that our teams are taking to drive productivity across the supply chain. But you have to clear a positive number there, and there's significant headwinds on the distribution side that are putting pressure on the net course cost savings number. But I'd wrap it up by saying that, good delivery in the quarter, pipeline of opportunities remain strong.
On the between the lines comment that I made, thank you for the question, because it's important to clarify, we are not reducing brand support. Our advertising plans for the year continue to be strong, and we intend to continue to support our brands.
Outside of advertising when you look broadly at other -- our SG&A spend, we'll continue to be very disciplined on other spending and look to balance the profit delivery, given the current conditions that we're facing, in particular, with the escalation of input cost inflation. But advertising remains very healthy.
Yeah. Andrea, maybe I'll just piggyback on that, what Maria is saying. We remain committed to delivering balanced and sustainable growth. And so our priorities are to accelerate growth and also recover the margins. But right now, I would tell you, our brands are strong, our categories are healthy, and we're going to continue to invest to build our categories, our brands and our markets. So as I mentioned earlier, we're taking a very holistic approach to balance -- to mitigate the inflationary pressure. We're going to balance price, volume and share.
I think we -- to your second part of your question, I think we've taken price and recognize that our price realization has to increase. We've done that in a number of ways, either through pack counts, list price and also promotion reductions. I would -- I don't know that I would say it's uniform across markets. We're relying on our markets to be agile and to respond to what the local situation requires. But in general, as you can observe overall, the overall pricing has gone up. In some markets, our promotions have come down and in some markets, and that's been a way to deliver price. And in some markets, it's gone a little bit up.
North America, I would say, has gone up slightly because we were suppressed on the promotion front for a couple of years. I'd say our promotional debt is still lower than it was years ago overall. But again, that's -- it's just an artifact of kind of what are you comparing against.
But overall, I think Maria's point is the main one, which is we believe in balanced and sustainable growth and growing our brands and so we're going to continue to support the brands in an appropriate way.
And then the last point, I think you asked on China. I think I'm not ready to comment on April yet. We're only ready to comment on this quarter. I would tell you that we have been affected by some of the COVID lockdowns as everyone else is, and -- but we'll update you on that on our next call.
And one last clarification. Sorry to a fine point on the pricing and increase in inorganic. So should we interpret what you're saying mostly that initially, you were more cautious on basically the elasticity, the volume decline? I remember being a very strong volume decline that was embedded in the initial guide. And now you're having the same kind of thought about pricing, but slightly better now because it's been taking -- everyone is taking additional pricing; your competitor announced another one in Family Care the day before yesterday. So it's a mix of both, but mostly because elasticities have been coming in better than anticipated? Is that the way to interpret?
Well, I'd say volume has been a little bit better overall. I think we're still working through and calibrating with -- relative to the elasticity, I would say the overall volume in the first quarter came in a little bit better than planned. I still think we're waiting to see what the full impact of elasticity is. Although, I do think the history is -- and if I go back to our last price -- set of pricing a few years ago, I think volumes did come in better than predicted in some cases and in other cases, pretty much on plan.
So we're still working through it. But again, I think that the net of it is our guidance increase is certainly that we're seeing -- we expect more pricing in the marketplace and then little bit better than we originally planned.
Perfect. Thank you so much. Thanks again.
We'll take our next question from Peter Grom with UBS.
Good morning Peter
Hey, good morning everyone. I hope you all are doing well. So I kind of wanted to follow up on that last point, just around elasticities. Can you -- just I was hoping you could just remind us what the assumptions are embedded in your guidance?
Is it based on historical elasticities? And should that not occur, which seems to kind of be the case more broadly today, would that be upside, or does it kind of assume what you're seeing in the market today holds?
Yes. I'll make a quick comment before Mike jumps in. What I would say is that, our assumptions around the elasticities have been informed by historical performance over a long period of time and particularly looking at what happened during more challenging parts of the cycle. So that was an informed, but it's not an equal to. So it's not mathematical.
We apply judgment based on what we're seeing today and where we stand today in each of the markets competitively with where the consumer is and the consumer dynamics in each of those markets. So, I'd say, we apply judgment, but it's certainly informed by what's happened historically. But, Mike, you probably have some comments.
No, I don't think I have much more to add to that.
Okay. No, that's helpful. And then, I guess, just turning to margins, and I appreciate all the color on it, and depletion and pricing in the release in the prepared remarks. But I was just kind of hoping to drill down on just the phasing, because there's just a few comments that stood out.
I think, specifically, you said in the near term, these commodity costs will offset the top line growth. And then later, you kind of mentioned improved financial delivery sequentially.
So how should we think about the phasing of gross margins through the balance of the year or kind of just the balance of the commodity pressures that you've kind of outlined? And then, based on kind of where things stand today, like when should we kind of expect a return to margin expansion?
Yes. I'll start. Let me, first, comment on phasing. You know where we came out in the first quarter. Where I would point you to is, the second half of the year, which is where we are expecting improvement.
In terms of -- my IR folks are looking at me. But in terms of the second quarter, the commodity situation that we're facing, I mentioned that commodity costs were escalating through the quarter with March prices being very high and a number of our commodities are continuing to escalate.
So I think looking to the next quarter, I think we're going to still have quite a bit of commodity pressure before phasing to normalize. So how that will all play out, we'll have to see. But I would point you to the second half of the year on margin improvement.
We intend to build momentum as we go through the year, when pricing is more in line with the inflation. And, as you know, we've had -- we took pricing in the first quarter. So that hasn't really played out yet in the P&L. But as that does, that will certainly help our margins, our FORCE cost savings build as we go through the year.
Again, maybe not in a straight line, but I would expect the second half to be stronger that the run rate that we saw in the first quarter. And so, a number of moving pieces. I don't think we're prepared to tell you when we get back to the 2019 levels on margins, but we absolutely improve -- expect improvement this year.
Yeah. Let me piggyback on that, Peter, because I think part of that is we definitely expect strong progress on price realization and you're seeing it. I'm confident we'll be able to restore our margins and eventually expand them, okay? I think the big factor that Maria says, we can't predict exactly when it's because the core assumption is what happens with inflation.
And so the reality is I expect reversion in the commodities. It's going to happen. We all know well, if you've been following this company for a long time. I think most of our long-term investors have seen it revert every time, right? But the reality is, in the near-term, inflation is well beyond any historical levels. I mean in just over -- between 2021 and 2022, if you do the math at the midpoint of our guidance, we're going to take on $2.7 billion of additional inflation, and that's a 1,400 point drag on the operating margin.
I will tell you we’ll make our progress restoring margins. We expect pricing to largely offset inflation. It may not all be in the year, but our teams are moving fast and making progress. And again, as I started commodities are going to revert. And then when they revert, that's going to accelerate our time line of recovery. But again, it's hard to say when that is because we expect it to decline a little bit or at least we predict at a level at the beginning of the year, and obviously, we took up that inflation number by $375 million at the midpoint three months later. So again, there was not a war in our plan for -- as we put together our outlook in the beginning of the year, and that's clearly affected the energy markets.
Thank you for that. And Maria, congratulations and wish you the best of luck moving forward.
Thank you.
We'll take our next question from Wendy Nicholson with Citi Group.
Hi, good morning.
Good morning Wendy.
My first question has to do with private label because you're one of the few companies who cover that does do some private label manufacturing. So can you remind us, number one, just ballpark what percentage of your volume is for private label brands?
And then second, just if there's any outlook you have, I know that you said in the past that you only do private label when it sort of to the benefit of your brands and strategic relationships. But can you give us a sense whether any of the big retailers you work with are coming to you saying, hey, we want to put more power behind private label given the pricing environment. Anything you can offer just in terms of where you're situated and whether you think private label is going to grow as a piece of your business over the next six to 12 months?
Yeah. Overall, I'd say, Wendy, private label is not core to our overall growth strategy. And so it's a relatively small part of our business. And we do it selectively, as you mentioned, whether for a strategic account or a strategic proposition. But again, our capacity is expensive to build, and so we want to focus that in general, on the brands unless there is a very good strategic rationale for.
I will say private label did grow a bit more in the quarter, and that's a change from prior quarters. And I think it was up or even in about six of our eight categories that we track, and that's a change from the recent quarters. And while we're paying attention to that, we're really focused on improving and making sure that we have the right value proposition on our products. And that's why even at the same time, Wendy, that we are making -- taking price increases, we are also working hard to improve the product quality and the features and benefits of our brands as well.
So it's less than 5% of our sales.
Less than 5%. Okay. And can you just clarify the strength that you saw in the quarter, again, even if it's small, was it in the US or in Western Europe?
I would say -- I was commenting mostly on North America. I think in North America, the eight categories we track was even or up in about six of them, so.
Okay. Fabulous. And then just one more follow-up to an earlier question about China. Your strength, high single-digit growth in diapers and fem care is obviously terrific and great to see and a departure from what we've heard from other companies who've been struggling in China, not just with the supply chain, but lots of different things. And so, my question is, is it just a market share, well and about performance for you? Do you think there's anything different in terms of how you're distributed, or are you promoting exceptionally a lot, or anything different that's enabling you to do well in China, maybe when some other companies are struggling more?
Yes. It's -- I don't think it's a distribution channel thing. And I don't think -- it's definitely not promotion because, again, we're trying to be disciplined about pricing. Here's the thing, and I will say, Wendy, it's really what Alison talked about at CAGNY, which is there is a lot of opportunity in a lot of our markets to premiumnze our category. And I know that's a little bit different because given the conditions right now with pricing and inflation, what's happening to the consumer.
But over the long term, as I mentioned earlier, the China -- the value per baby sold is less than half of what it is in the US or other developed markets. And so there still remains a significant opportunity for us to premiumize our categories. And so, mix for us has been an important driver. We've doubled our super premium mix just over the past 12 months and so, that's part of it.
And then the other part of it is share. And what we're really proud that we took share leadership in China in the diaper category, I'd say, almost two years ago and we continue to expand that. And so, we're really proud of the work of our team and we're excited about that. And recognize, there are some trends that are not favorable. I mean, as you're well aware, births are down, but we still think there's an opportunity on value.
Terrific. Thanks so much for the color.
Thanks Wendy.
We'll take our next question from Lauren Lieberman with Barclays.
Hey Lauren.
Thanks. Sorry back again. I just wanted to talk quickly about consumer tissue. It's CAGNY – in your comments, I think it was in -- comments. There was a discussion of just efforts behind the scene to execute the same playbook that you've done so successfully now in personal care in tissue, in terms of elevating the category sort of support. It may be a tough time, given just about cost inflation and managing volatility at the moment. But anything you could share on strategies in that business, I would be curious if we have the time? Thanks.
Yes. Thank you, Lauren. Yes, I think that's right. I mean, again, elevate the categories – I think we have an opportunity to elevate all of our categories and I think that will apply. I think it's -- we -- our teams have been busy working that across the globe on tissue. I think some of that's been drowned out because – especially like in North America, the high volatility over the last couple of years related to COVID. For reference, I think that category was up 28% in 2020 and then down 20% last year. And so, there's been a lot of volatility.
That said, I'd say, we still believe there's a lot of opportunity to elevate the category through better Kleen, let's say, on the tissue side. I think we have had some momentum on Kleenex and broadening out the usage. And so that's something we remain excited about and we're working hard on. I just think there's been a little more volatility in the tissue categories in North America, because I would say the extreme volatility in demand and then in other markets like Latin America, and in Western Europe, the pricing dynamic has been, I would say, a little more pressurized.
Okay. Great. Thanks so much.
Okay. Excellent.
Thank you. And Ms. Taryn Miller, I'm showing there are no more questions at this time.
Great. Thank you. So thank you for joining today on our conference call, and we look forward to talking to you soon. Thanks.
This concludes today's presentation. Thank you for your participation. You may now disconnect.