Operator: Thank you. Your next question is coming from Kevin Grundy from Jefferies. Your line is live.
Kevin Grundy: Great. Thanks. Good morning, everyone. And congrats on the strong start to the year. I thought we’d pivot to your organic sales growth guidance. So you decided to maintain it at this juncture of the year. Nelson, you talked about cycling some of the pricing taken, although — so the guidance does imply a deceleration relative to the strong start to the year, call it, up 1% for the balance at the low end. The high end would imply something closer to 3% to 4% for the balance of the year. Comment maybe just on how you’re thinking about the cadence and how that breaks down between price and mix? And then Mike, it would be great to get your updated thoughts on how you view trade-down risk, which we’ve seen in some of your categories. And what’s reflected in your outlook? And then I have a follow-up.
Nelson Urdaneta: So let me start, Kevin, with the organic growth outlook and how we see it evolving in the course of the year. So obviously, we’ve seen that pricing has continued to be the big driver behind our top line growth over the last three quarters. And in this particular quarter, as we stated, our performance was better than what we had initially projected, and that had to do largely with the category dynamics. Categories were stronger than what we expected, and the impact of elasticities on volume was more muted, frankly, than what we had projected. So that helped. But despite that, pricing continued to be the big driver of top line growth. What we expect to happen as we cycle many of the pricing actions that we took, because remember, we were one — we led in many of the markets, the pricing actions dating back to Q4 2021.
So we will be — we’ll start to lap many of those as we exit Q2. So our expectation as the year progresses is that the volume impacts that we’ve seen, and we saw 7% in Q4, we saw a 5% drop in Q1, will begin to taper off because the impact of the pricing will go away. But by the same token, as all the carryover pricing is lapped, we will also expect pricing to subside. So it will turn into a more balanced algorithm in terms of top line growth as we progress through the back half of the year. And then yes, we did hold to our guidance of 2% to 4%. We highlighted that we’re aiming for the top end of the guidance in light of the performance that we had in Q1. And also, because we’re taking into account the stronger category performance that we’ve seen, given the resilience of our consumers and the innovation that’s being put into the marketplace.
So overall, we are aiming for that top end of the guidance, as I just stated. And I’ve just given you a little bit of flavor of how we see the evolution of volume and pricing as the year goes by. But Mike?
Mike Hsu: Yes. And then, Kevin, I’ll category — I’ll comment on the categories, and you mentioned the down trading risk. One, I’d say, through the first quarter, the categories remain healthy and the consumer remains resilient. The strong Q1, right, and probably stronger than we had anticipated at the start of the year, really on the back of category health. Just to give you a few numbers, in the North American consumer categories, overall, our categories were up about 9, so high single digit. Western Europe was up teens in consumption. Latin America was up double digits. And KC-Professional organic was up double digits in every market. And so again, I think the categories are performing well. As Nelson mentioned, the volume elasticity impact has been somewhat muted.
And here’s a few factors, just to give you a flavor for it. In the U.S. diaper this is category numbers, not brand numbers, category, price was up six, volume was down two. In U.S., bath tissue price was up 11 and volume was down one. And in U.S. adult care, price was up seven and volume was up four. So you can see the – I guess, the definition of any – relatively – if elasticity is below one, right? And so these – clearly, at least in the recent period, it’s kind of in that range. And I think the notion is, Kevin that overall brand elasticities are higher than category elasticities, but our categories are generally relatively inelastic. And I said this example before. But if – the price goes up on bath tissue, generally doesn’t mean you’re going to use the bathroom less, right?
And so, I think we do operate in essential categories that have less elasticity. There is some down tiering out there, but I’d say it’s not broad-based. And if I can use this word appropriately, it’s not necessarily monolithic either. We’re definitely maintaining momentum in the premium business, in the premium tiers of our business. Especially and that’s especially true in developed markets. In China our mix continue to be up high single-digit, and that’s all shifting to – internally, we call our premium tiers, Tier 6 and 7. And so that momentum is proceeding. Similarly, in the U.S., we have strong momentum on our premium side. Even in a market like Brazil, the market is actually premiumizing, if you look at the mix and volume. There’s more going into premium than there is, and – value is actually declining a little bit.
There is – definitely is down tiering and we see that in U.S. I think private label shares were up in, I think, four of the category, which was a tick up from the prior quarter. In markets like Argentina and Peru, which is a big market for us, we are seeing some additional down tiering. So we’re sensitive to it. And so for us, as I mentioned in our prepared remarks, we’re going to meet the consumers where they need us. And we’re really focused on improving our value proposition, first by hitting the price points that consumers need us to be at, and that’s through price pack changes. But also cascading, our innovation more rapidly through our portfolio, especially into the value tiers. And so, that’s kind of where we are. I’ll pause there and see if you have any follow-up.
Kevin Grundy: Yes. Mike, a quick follow-up, and I’ll try to be brief with this, because that was a lot of fantastic color from you and from Nelson. It’s just on trade promotion, right? So the narrative, it’s remarkable how quickly it can change. It was sort of drinking out of a fire hose with commodity costs and now things moderate a bit. And the narrative is now a lot more worried about trade down and what’s the potential for trade support to ramp significantly? What’s the potential for some of the competitive players, maybe who do not play nicely in the sandbox, whether this is in Europe with private label? What are your thoughts around that, that competitive intensity ramps here significantly as commodity costs moderate? And then I’ll pass it on? Thank you.
Mike Hsu: Yes. Great question you’re on it, Kevin. I mean we’re seeing that in spots and so in Latin America, we’re seeing a little ramp up promotion from both local players, and other multinationals, similarly in parts of Africa, for us and in a few categories in North America. Childcare pull-ups is one. Periodically, there’s a secondary or tertiary brands that make a distribution push and we see that from time-to-time. And so, we see a little ramp up promotion from time-to-time. Our thing is we’ve priced – I mean our margins are not whole yet from pre-pandemic levels. And so, we know what we need to get to. We’re prioritizing margin recovery, and we’re going to be disciplined about it. And we’ve priced commensurate to our expectations for both input costs and what our net productivity is going to be.
We’ve got invested a lot, a lot over the last few years in building a great revenue growth management analytic capability. And so, we’re going to continue to be really agile and disciplined in our spending. But maybe the color commentary I’ll give you and this is philosophical, or my business philosophy is, I’m not a fan of renting share through promotion. I mean we’ve seen that movie. I’ve seen that over-and-over in a lot of categories, including in food and everything else. And I’ve always got out of the renting of share business. And what I mean by that is over-promoting brands to kind of pick up shares. I’d rather earn it through the base business through advertising innovation and making the products better. And so that’s kind of what our high road – internally, we call our high road strategy, which is, hey, we want sustainable growth.
We’re going to earn our share through a better brand value proposition, and we’re going to grow category penetration over time. That doesn’t get done well through trade promotion. So it will be out there. Obviously, we’re going to want to be competitive. But I think for us, I think investing in advertising to grow the category and innovation is our preferred path.
Kevin Grundy: Okay very good. Thanks for all the time, I appreciate it. Good luck.
Mike Hsu: All right thank you.
Nelson Urdaneta: Thank you.
Operator: Thank you. Your next question is coming from Andrea Teixeira from JPMorgan. Your line is live.
Mike Hsu: Hi Andrea good morning.
Andrea Teixeira: Thank you, good morning everyone. So I just wanted to go back to what you both talked about in terms of pricing, having obviously rolling over or the comparison is getting tougher. But also, as we think about it, we stepped back in cycles, right two things. One is on utilization and consumers having to make tough choices in a number of diaper changes. I’m sure it’s not happening as we speak now, but in some countries where, definitely it’s not the only performance that drives choice, but also at the end of the day, what they can afford? So the premiumization sometimes also happens when you have to use a better diaper at night, and that’s going to be the only change. And number one, so is that something that you’re positioning now as we go into rougher times?
And then second, when you think about like what happens to private label, which is – which has – so pulp prices obviously declining a bunch. We see local competitors in China obviously not sitting on their hands? When you think about – when you think what’s going to happen to the cycle, where some of the private label contracts automatically also passes through the way down, how to think – I’m not saying it’s going to happen now, but in six months from now, is that something that you embed in your guidance for margins and so, how to think of that? And in particular, I would say, diapers is not so much of a category, but perhaps even tissue as we go through for this phase. So I was wondering how to think of those?
