2023-06-06 13:04:04 ET
Kimberly-Clark Corporation (KMB)
Deutsche Bank Global Consumer Conference Transcript
June 6, 2023, 9:45 AM ET
Executives
Michael Hsu - Chairman and CEO
Nelson Urdaneta - Chief Financial Officer
Analysts
Steve Powers - Deutsche Bank
Presentation
Steve Powers
Okay. Welcome back from break. I’m Steve Powers. I’m the U.S. consumer packaged goods analyst here at Deutsche Bank. I’m thrilled to welcome Kimberly-Clark to our conference. This is the first showing of Kimberly-Clark at the Deutsche Bank Global Consumer Conference. So again, I’m very pleased to have both Michael Hsu, Chairman and Chief Executive Officer; and Nelson Urdaneta, Chief Financial Officer here to be with us to answer our questions.
Michael and Nelson are going to spend the first 20 minutes or so running through a presentation to level set us all on the company’s recent results, as well as their progress against their long-term strategy, and then, again, we’ll open it up for Q&A.
With that, I’m going to hand over to Mike and take it away.
Michael Hsu
Okay. Thank you, Steve. Great to be with you. Thanks for having us.
Steve Powers
Okay.
Michael Hsu
Okay. Good afternoon, everyone. It’s great to be here. I’m really excited to share with you the Kimberly-Clark story today for the first time for us, Steve here in Paris. Before we get started, I’m obligated, please be reminded about the risks inherent in our forward-looking statements and any references we might make to non-GAAP financial measures. I’ll refer you to our latest 10-K, our first quarter earnings release and our website for further information.
For those of you less familiar with Kimberly-Clark, we’re a global leader in personal care and hygiene with a comprehensive offering that spans baby and child care, feminine care, adult care and consumer and professional tissue. About one in four people in over 170 countries around the world use our products every day.
We are guided by our purpose of Better Care for a Better World. We connect our impact on the world to long-term value creation for shareholders and we will fulfill our purpose by innovating to create better solutions for our consumers; building an efficient supply chain, while being good stewards of the planet; developing human capital with an agile purpose-driven culture that fosters inclusion, equity and diversity; and providing care to our communities through our brands and teams.
We recently published our 20th Annual Sustainability Report where we highlight our ambitions to make lives better for all stakeholders. And our ambition is to reduce our plastic and natural forest footprint by half; to reduce our Scope 1 and Scope 2 emissions by half; and in water-stressed communities can serve water use by half.
In addition, we want to advance the well-being of 1 billion people by improving access to essential products and clean water and championing the progress of women and girls in the communities that we serve.
And with that, I’d like to share a quick video on how we’re bringing this life with our Kotex brand. So, Nick [ph], if you wouldn’t mind running the video.
[Video Presentation]
Great. Thank you, Nick. Okay. Throughout our 150-year history, inventing and applying technology to solve big unmet needs has been core to the K-C ethos. We are category creators, whose engineering expertise launched some of the most widely used household brands and categories today.
Our proprietary cellucotton was first used by surgeons in the first world war and later paved the way for Kotex sanitary napkins and Kleenex tissues. We’re pioneers in baby and child care and invented the training pant category in the 1980s, still led by Pull-Ups today.
We hold the number one or number two market positions in over 80% of our global category market cohorts. With increased investment in innovation and advertising, we’ve increased our share leadership in an additional 5% of key markets since 2019. And we have a broad geographic reach with leading positions across markets and categories and you can see a sample of that right here.
Personal Care is our largest category and accounts for over half our sales. Geographically, total revenue is about evenly split between North America and International markets, although North America accounts for the greater share of our profit. Personal Care is $100 billion market with strong demographic tailwinds. Population growth in emerging markets, demand for mobility and an aging society and an expanding middle class.
Consumer tissue accounts for about a third of our total sales and operates in a $90 billion market. The category is characterized by high penetration, it’s an essential product and it’s also high frequency, it’s an important daily use category.
K-C Professional serves a $40 billion institutional market. We help our customers and end users perform by offering high-performance cleaning systems and protective equipment.
We lead large categories with universal consumer needs. Our categories have high household penetration and enable consumers to live their best lives. And yet, users remain somewhat dissatisfied with existing offerings in the category.
We believe there is still plenty of opportunity for us to innovate to solve big unmet needs. We can deliver superior protection with increased comfort. We can move beyond protection and on to improving health. And we can be more sustainable and more natural with EcoWise materials.
Our elevate and expand strategy focuses on identifying and creating solutions to these unmet needs. Our strategy is to elevate our categories and expand our markets. Elevate means we’re moving beyond foundational benefits like absorbency and protection.
We’re improving our offering with premium solutions that address important unmet needs like health and wellness, natural and environmentally sustainable solutions, and solving occasions and regimens.
As category leader, our role is also to systematically expand our markets by fostering adoption of our categories and development of our categories and accelerating channel development by applying our commercial development programs globally.
We lead broadly with an offering that delivers excellent proposition spanning value to premium. In the U.S. baby and child care category, we offer a superior proposition and value with Huggies Snug and Dry. However, we’re elevating the category with terrific premium offerings, including Little Snugglers, Little Movers, Special Delivery and Pull-Ups New Leaf.
In developed markets, we’re also tailoring our offering to better address occasion-specific needs and you can see that clearly with our leading lineup of Huggies Little Swimmers, Good Nights and Huggies Overnights.
Outside North America, we’ve built excellent positions through strong localization, focused market development and premiumization. In China, we’ve doubled our super premium mix over the past few years and that has catapulted us to share leadership in the baby and child care category overall.
At the same time, we continue to offer a strong portfolio of value offerings across developing and emerging markets, which continues to be key to our leadership in markets as diverse as Southeast Asia, Latin America and Africa.
Our purpose of Better Care for a Better World means we want our brands and our company to make a positive contribution to society. Our brands work with expert partners to improve hygiene and improve access to water and healthcare.
As a founding sponsor of Toilets Change Lives, we have provided close to 11 million people in 14 countries better access to sanitation. In Latin America, Huggies’ Más Abrazos program has provided access to free natal and maternity care to nearly 5 million parents.
We challenge period stigmas associated with ministration with educational programming that you just saw by working with organizations like Plan International in Latin America and Share the Dignity in Australia.
Now over the past five years, we’ve invested to strengthen our commercial capability and this has been key to improving our execution globally. We focused investment in four commercial capabilities; enhance and scale our innovation and product technologies; pivot towards a digital-first brand paradigm, we’re focused on building ongoing relationships with our consumers; enable superior in-market execution by leveraging world-class process and tools; and enhanced net revenue realization through a disciplined analytical approach.
Now since our founding, innovation and technology have been core to our company ethos, our focus and investment in innovation is creating a better pipeline that we and our customers are really excited about. Since 2020, new product launches have doubled the impact of innovation on our overall Personal Care organic growth. We’re also launching innovation faster with about 90% of our top projects scaled globally.
We are product obsessed and we believe we can solve big consumer problems by inventing advantaged technology. For example, here in baby child care, we’re pushing the envelope on what good looks like. We’re inventing better materials that provide the fastest dryness protection. We’re inventing better cores that provide a more comfortable garment like fit with superior breathability and thermal comfort.
We can do more. Ultimately, we want to improve health and skin health. We’re excited about our latest diaper that enhanced protection from diaper rash caused by solid waste and contact with the skin.
We’re also investing in digital-first brand platforms that will transform relationships with our consumers and our customers. We’re stepping up brand investment and that will amplify our value proposition and engage our consumers and I’m excited to share an update here on our latest campaign of We Got You, Baby, which celebrates why Huggies is the best fitting diapers today. So, Nick, if you can run that video.
[Video Presentation]
Well, I see a couple of grinds out there. We’re making big strides in improving our end-market execution as well. In North America, our new Chicago commercial center has enabled us to build and develop talent, particularly in marketing, sales and analytics. Our enhanced capabilities are driving better and faster decisions in critical execution areas, including promotional spending, price pack design and portfolio mix.
I’m really proud that Kimberly-Clark North America was recently recognized as the best retail partner among U.S. CPGs. And this recognition really does reflect valued strategic alignment, category insight and overall partnering and execution skills.
Okay. With that, now I’d like to spend a few minutes on our recent financial performance. Back in April, we were pleased to report a solid start to the year with a healthy topline and strong progress on margin recovery.
First quarter net sales were $5.2 billion, up 2% versus a year ago and up 5% on an organic basis. Our teams continue to execute well in the first quarter, implementing our revenue growth management initiatives, delivering strong price and mix benefits with better-than-expected elasticity impact on volumes. Organic growth was strong and broad-based as we continue to see healthy consumption across our categories and across our markets.
We also made strong progress on margin recovery. Now we’ve faced unprecedented cost headwinds. Our latest estimate is over a three-year period, a cumulative impact of $3.7 billion from 2021 to our outlook for the end of this year.
Globally, our teams moved fast and decisively to implement the revenue management initiatives that I mentioned earlier. Although costs have remained elevated, these pricing initiatives enable strong sequential gross margin improvement over the last four quarters, which you can see on this slide.
We’re confident in our ability to restore margins to pre-pandemic levels and then eventually expand our margins from there. Nevertheless, we recognize that we have worked to close the 200-basis-point gap to pre-pandemic margin levels. So we’ll remain laser-focused on driving productivity and maintaining cost discipline as we continue to invest in our business.
Now with regard to our 2023 outlook, we’re confident in our ability to drive sustainable growth and continued margin recovery. So as we discussed back in our first quarter earnings conference in April, we expect organic growth of 2% to 4% behind continued strong commercial execution and with a stabilizing cost environment, we expect low double-digit operating profit growth and EPS growth of 6% to 10%. We’re off to a good start and look forward to sharing more at our Q2 earnings conference in July.
Finally, we will continue to be disciplined on capital allocation. Healthy cash generation has enabled us to increase our dividend for 51 consecutive years and returned $22 billion in dividends and share repurchases in the last decade.
Continued strong cash flow generation will allow us to invest for the long-term and create a long runway of growth and we remain focused on driving balanced and sustainable growth to generate strong returns for our shareholders.
So, in closing, we serve essential categories and demand for our brands remains healthy. We’ve got a long runway of growth ahead. We’re confident in our ability to restore and eventually enhance our margins and we’re committed to delivering balanced and sustainable growth, which we believe will create long-term value for our shareholders.
So thank you all very much, and maybe, Steve, I’ll turn it back to you.
Question-and-Answer Session
Q - Steve Powers
That was great. Thanks a lot. I think a lot of the points of emphasis that you just ran through, to me, are rooted in the strategy that you put in place when you first came in as CEO…
Michael Hsu
Yeah.
Steve Powers
… at the time was called K-C Strategy 2022 and it’s evolved since. But when you think about -- when you think back to that, the unveiling of that strategy, in terms of the capabilities the organization has been able to put in place, where do you think you’re most ahead or your most -- you see the most progress against those strategies.
Michael Hsu
Yeah.
Steve Powers
And conversely if there are areas where you’re you get more opportunity. Anything you can offer about how you think about that too?
Michael Hsu
Yeah. Great question. Thank you. Yeah. I came into this role back in 2019, and I would say, versus where we were, I would say, we’re really pleased with our progress. But we look at ourselves and we all say to ourselves, Nelson, always says to me all the time. We can be so much more and I think we still have so much more potential.
I think, certainly, without a doubt, one of the key areas where I think we’ve made big improvements and big investments is in our commercial capability and I highlight in the four areas, right, it’s innovation, our end-market execution, digital brands and revenue growth management. Those are four big areas where we’ve made investment.
I do think we’ve seen strong improvement in our execution globally. Our market shares have improved over the last five years. I think our organic growth rates have improved significantly over the past five years.
So that’s all good. I think what masked a little bit is that we took on $3.7 billion of inflation over three years, which Nelson accounts for almost 100% of one year’s operating profit that we had to offset.
So that’s a big hurdle to overcome, which I think the team has done a phenomenal job adapting to that. But we’ve had to spend a little time focusing on cost recovery. So that’s kind of happened in the mix.
But that said, I couldn’t be more pleased with the progress we’ve made. But the areas that we want to focus on next are the same areas, which I would say, I said a couple of times, innovation and technology is core to our ethos as a company. I mean this company founded the paper industry broadly in the U.S., 100, more than 150 years ago and so core to our essence is we’re really good at inventing materials and I don’t know, we invented the nonwovens category for our diaper business.
And so I think that’s been core to us and so we think there’s so much more we can do with invention. And so what we’re doing, Steve, is really, when we talk about the elevate strategy and that’s probably the core of what the strategy -- what it’s about, both in developed markets and also international markets for us.
But, we look at it and say, hey, we really want to raise the bar and be self-critical and say, hey, we want to raise the bar on ourselves in service of the consumer? And what do we mean by that? We mean, well, we’re going to be super picky as a consumer about what our products do and we think we can do so much more.
So it’s not good enough just to be very protective or absorb urine, right? We want to be comfortable and that’s something that maybe, I don’t think 10 years ago, people were talking about comfort.
But internally, we say, hey, I know your baby can’t talk, but if they could, they would say it’s pretty hot in here and it’s not that comfortable. And so you’ve seen all the innovation that’s happened in the apparel industry and we think there’s still more potential for us to innovate on comfort, on health, on skin health and sustainability.
Steve Powers
And what is that the continued progress cost? What’s the cost of growth in terms of building out those capabilities? And then how do you -- what’s the return profile on it? Can you self-fund those initiatives and get a return in real enough time to progress it forward or is there a cost to building out these capabilities that you further have to overcome?
Michael Hsu
Yeah. Great question. And there’s definitely a cost. I would say, there’s a couple of components of it. Part of it is, yeah, part -- a big chunk of it is we’ve got is self-funded. I mean -- and I said we want to recover our margins back to pre-COVID levels, which were also about 35%.
Steve Powers
Yeah.
Michael Hsu
Yeah. So we’re on that path. We want to deliver that. And then once we get there, we want to expand them from where they were, because even when I came into the role…
Steve Powers
Right.
Michael Hsu
… at 35, we are still behind big chunks of the industry.
Steve Powers
Yeah.
Michael Hsu
So we knew we had to improve there and we still plan to, which is why elevate was the strategy, which means, hey, we’re going to premiumize and earn better margins and so that’s part of it. The margin enhancement is still there. And so, yeah, we have to fund a chunk of it ourselves.
I would say the other thing for us is, I think, we’ve made a lot of strides in investment, both in terms of product innovation and advertising perhaps most noticeably and some of the capabilities we’ve built. I wouldn’t say we need to continue to increase that investment toward infinity, right?
Steve Powers
Right.
Michael Hsu
The -- I would say, we’re at a good level now. I would like it to be a little higher over time, but we’ll worry about that and figure that out. But the big thing is and the interesting thing about CPG and what makes CPG so challenging, and some investors always ask me, like, why is CPG seems to make one of the more difficult industries that we cover and it’s because it’s not just about the analytics, right?
It’s not all about -- you can’t run a brand like you’re running a linear program and trying to optimize. I mean, I believe -- I’ve tried, because I went to an operations Richards School and so I’ve tried to run a brand through a linear program. It doesn’t really work.
And the reason it doesn’t work is because there are the ROIs that come with everything you do, but the core essence of what drives ROI is the idea. And so in having a great idea requires great analysis and insight, it requires you to translate that insight into a product idea, then you need the technology to convert that to a product and then you need to figure out how to best communicate it.
And so that all requires a lot of nuance and capability and skill. And so -- and I think that’s what overall, we’re getting better at, right? And so there’s part of us, which is, hey, we’re being responsible general managers that we got to be able to figure out the economics. Internally, we have a saying all ores in the water rowing in the same direction to help fund stuff and figure stuff out, but also there’s the creative genius part of it that says, hey, we’ve got to get great ideas.
Steve Powers
Yeah. So there’s a tension when I talk to investors about Kimberly-Clark and the stock itself. On the one hand, there is all these capabilities you’ve built. There’s the momentum you’ve shown. There’s the first quarter results that you’ve put in place. Pricing has gone in, productivity is running well and you’ve got this margin to recoup, which you see them on track, so -- to go after. On the other side, people are very much concerned that the consumer is going to weaken. That pressure is going to build on pricing. And those -- Kimberly-Clark had enough pricing power to get pricing in place when times were relatively good and inflation was a tailwind. But now pressures -- as costs come down, there’s more pressure on pricing and can Kimberly-Clark hold that pricing. It’s not just the Kimberly-Clark’s debate, but it is centered, because there’s so much margin to recover in your P&L. How do you think about the path forward and the risks to pricing as we go, and particularly, in the U.S., where I think this debate is most front in the center?
Michael Hsu
Yeah. Maybe I’ll start and Nelson…
Nelson Urdaneta
Yeah.
Michael Hsu
… maybe you might want to comment as well. I would say, yeah, the -- that concern about the near -- I would say, it’s a near-term concern, right? And we’re looking at the same economic forecast.
So we chose our words kind of carefully at the first quarter where we said, hey, our categories remain healthy. I mean in North America, I think, high-single, low double-digit for every category that we’re in and when you recognize a lot of that was price, but volume as you’re probably well aware, Steve, has held up pretty well, right?
And a lot of that is because these are essential categories, right? So, that all said, we’re looking at the same reports and there are the bears out there that say, hey, we’re headed toward a recession in the fourth quarter. It feels like with every economic before…
Steve Powers
Yeah.
Michael Hsu
… that keeps getting pushed out a little further. Even if that happens, I would say, a couple of things. One is it’s why we’ve invested in revenue management capability and analytics to be able to pivot quickly. I think we moved really fast in 2021.
One of the reasons, Steve, why I think you pointed out that our shares have lagged in the last, I would say, 12 months or so is because we probably moved two quarters to three quarters ahead of most of our competition when we priced last year or back in 2021. So I think that’s one, and I say that there’s probably a near-term, but we should be able to adapt and adjust in the short-term.
But long-term, I think, is where I’d ask investors to think about, which is the thing about our categories is, there’s still a long, long runway of development. I’ve worked in other categories, and Nelson and I both working food, where because the spend levels are much lower, let’s say, in a condiment category, people would say may spend $10, $20 a year, in a diaper category, you’re going to spend like $1,000 a year.
Because of the delta in spend levels, it takes much higher incomes for markets, particularly in the developing and emerging world to be able to afford our categories and still that’s all still coming online, and that’s all ahead of us, right? And that’s why we’ve made the investments we’re making certainly in China, which has gone from a $4,000 income to $13,000 over 10 years. But Indonesia, India, Nigeria and all those other markets, they’re still coming.
And so in addition to that, even though a market like China is, in our estimation, the largest diaper market in the world today. Alison always points out on a value per baby basis or on an absolute spending per capita basis, it’s less than half of what the U.S. is. So we still think there’s long-term growth, and yeah, will there be some choppiness in the near-term, potentially, but we should be agile enough to navigate.
Steve Powers
Yeah.
Nelson Urdaneta
And I would just add, Steve, one -- a couple of things. One, remember, we meet consumers where they need us. We’re not just premium. I mean we’re across the whole spectrum, and Mike’s talked about that the whole throughout this journey.
Steve Powers
Yeah.
Nelson Urdaneta
And that’s a critical element as you think about what’s going to happen and we understand the bifurcation of consumers and how that happens. But then the other bit is also the notion behind innovation.
We’ve been innovating continuously to make sure that our products are of a superior nature and we continuously solve those needs. So if you combine those two, that’s really what strengthens the overall offering in the portfolio as you think about what we’re potentially heading into.
Steve Powers
So on that notion of revenue growth management and flexing both the premiumization that you’ve been emphasizing over time, but also catering to the value-oriented consumer. How do you do that? And are there examples where you’ve been able to flex on the fly over the past couple of years and pivot more value, a bit more premium as the consumer shifted in a positive way?
Michael Hsu
Yeah. That is a thing, and I think, Nelson mentioned it. I would say, we’ve done student body left and right and back several times. And so, in Latin America, Latin America, the economic situation started deteriorating around with COVID or even pre-COVID. And so at that point in time, maybe three years or four years ago, we are premiumizing our business in Brazil, right?
And so -- and I think we shifted from a premium -- our premium component of our business, a small minority of our business to the vast majority in the course of two years, right, three years. And so we’re on that momentum track.
COVID hit and the team made the adjustment the other way and just said, hey, this is what the consumer can afford. We started emphasizing our value tiers. And that led us to continue our share leadership and we’ve made that pivot. In the latest quarter, even with all the economic news, it’s the premium tiers that are growing again.
Steve Powers
Yeah.
Michael Hsu
So it goes back and forth. But really, we always say internally is we’re not a niche premium player. Niche premium is like the long-term growth strategy, elevate, like, over the long-term, that’s how we want to grow. But we want to lead our categories which, as Nelson said, we want to serve everyone and serve everyone well.
So how does that play out and what we talk to our customers about now is that means, hey, we’re going to be very careful about opening price points and what the consumer can afford. And in some markets like, let’s say, in Peru, it’s a daily earner basis, a daily cash basis, hey, the packs got to be smaller and more affordable. In other markets like Brazil, that means, hey, we want to cascade our premiumization -- premium innovation into the value tiers on a faster basis.
Steve Powers
And if these pressures manifest in the U.S., for example and things change over the next three months, six months, nine months, how well positioned do you think you are to be nimble in the more developed market?
Michael Hsu
Well, because, again, I think, again, we’re not a pure premium player in the U.S. We have Snug and Dry, which is a big sub-brand for Huggies. It is the value brand -- one of the value brands in the category and so we feel great about that.
In Consumer Tissue, we’ve got the Scott brand, which stands -- symbolizes value in the U.S. And so we feel like we’ve got very good positions. Kleenex, we have Ultra and then we have the mainline.
And so, in general, we usually cover kind of the full ground. We’re usually not in the lowest tier of quality, but we definitely have -- in general, we like to have a value tier and then build up the premium tiers.
Steve Powers
Okay. Nelson, you talked about pricing and revenue growth management, just maybe level set us on the cost environment you see today?
Nelson Urdaneta
Yeah.
Steve Powers
And juxtaposed against that, the line of sight you have to productivity as a further offset to the cost?
Nelson Urdaneta
Totally, yeah. So as a reminder, in terms of the guidance that we provided back in April, a couple of things. We said that, like, we expect right now for this year to have incremental cost and currency of around $0.5 billion at the midpoint of the guidance, made up of $100 million to $200 million in commodities and then currency would be $300 million to $400 million. In addition to that, it’s another $200 million linked to other costs, primarily inflation. So net-net is around $700 million that we were looking at, at this point.
When we pivot that into what do we have in the productivity pipeline and cost savings initiatives. Good start to the year. We delivered slightly over $100 million of productivity in ECS in Q1 and for the year we’ve reiterated our target of around $300 million, which is what we delivered last year.
Our pipeline of productivity is strong. I mean we’ve been consistently delivering strong productivity over the years. Dating back to 2012, I could guide you through the ranges, everything, and standing here today, we still have a very strong productivity pipeline.
That includes, as examples. One, we’re going to be focused on automation and we’ve got projects going on in the manufacturing and distribution. On the digital transformation front, we’re making investments. We’re continuing to make that, because we’re going to see it not just in manufacturing and distribution, but also on revenue growth management. That has allowed us to realize a lot of the pricing that we’ve seen.
We also have strong negotiations with our partners in procurement. I mean so we’re sitting down with our vendors to drive optimization of costs and improvements in materials. We continue to work very hard on some of our proprietary technologies. As Mike said, I mean, nonwovens is one of those critical things that we actually manufacture a good chunk of those in-house.
And we not only work on and to improve costs. but to be able to drive some of this consumer innovation that allows us to drive balanced and sustainable growth. And then last but not least is really efficiency around our spend in marketing and sales, Steve, driving high ROIs, but optimizing spend.
Steve Powers
Okay. A few minutes left. I’m going to bounce around a little bit. But you mentioned Alison Lewis, Chief Growth Officer. A lot of what we’ve talked about in terms of revenue growth management and the innovation emphasis and the digital capabilities you’ve built sort of in my view of the world of Kimberly-Clark, she has become the epicenter of a lot of that stuff. How is her organization, how does she and her organization interface with the divisions and the different geographies to both develop capabilities around the world, but also lift and shift where someone’s got a really great, the Brazil. How do you learn -- take the learnings from Brazil and…
Michael Hsu
Yeah.
Steve Powers
… pivoted over to China and vice versa?
Michael Hsu
Yeah. So I’m glad you brought up Alison, a huge impact on the company. We’re so fortunate to have her. Those of you who don’t know where she’s our Chief Growth Officer and joined us about four years ago and I think that’s been core to a lot of our commercial transformation.
What has he done? She’s -- I would say, she’s really identified great talent in our organization and nurtured it. She’s brought in some external perspective and bringing in new people with different perspectives into the company.
With that, I would say, it’s given us, I would say, world-class perspective on commercial capability, the things that we talked about, revenue management, innovation, marketing and all of that.
So I’d say that’s one piece. But the -- I would say, what’s special about her and her team, and by the way, Robert Long, our Head of our Innovation, our R&D also newer to the company is, they’re super collegial. And so I’d say that’s one part of it, which is they know how to drive collaboration.
I would say what’s changed for us is also -- and you may know our history, Steve, it’s like, we’re historically a super decentralized company. And that’s, I would say, one of the great advantages of Kimberly-Clark, which is we know how -- we have market leaders who know how to run their markets and they localize really well and they run really fast.
But we were not that great about scaling across the organization. And so what Alison and Robert and now Zach in digital for us are doing is getting the markets to work across and find the best ideas and which is why, I think, I mentioned in my remarks, our top innovation projects today are scaled across 90% of the globe and that’s a very different position than where we were five years ago.
Steve Powers
Yeah. Okay. about 5 minutes left, I want to hit on free cash flow generation and capital allocation. And really -- the question really is how does the company’s thinking on cash generation and capital allocation change, if at all, in the current environment, right? We’ve got -- how to think about target rates of free cash flow conversion and after organic investment, how do you prioritize the deployment of that capital? Has it changed at all versus deleveraging versus cash return to shareholders…
Nelson Urdaneta
Okay.
Steve Powers
… versus entertaining M&A?
Nelson Urdaneta
Sure. So I’d start with a very strong track record of delivering cash flow over the years, Steve, even in downward cycles of the economy. I mean, the company has been very focused on it and glad to report that our teams in the field are completely focused in ensuring that we continue to make improvements over the years on cash flow.
As it relates to priorities for cash flow deployment, it remains unchanged versus what we said first in the past. First and foremost, it’s about investing in the business. That is absolutely key. Our objective is being very disciplined on an ROI perspective, but it’s to ensure a balance of sustainable growth for the future.
Secondly, it’s about the dividend. As Mike pointed out, this marks the 51st year in which we’ve increased our dividend and we remain fairly committed to ensuring that our shareholders are getting a good return in terms of cash.
Thirdly is around analyzing and assessing M&A to make improvements in the portfolio. We make a couple of acquisitions in the last two years, but it’s something where we will look at in terms to optimize the portfolio.
And then last but not least, is around share buybacks. As you pointed out, we’ve been a little muted in buybacks over the last two years and even this year. We guided to $100 million to $150 million of buybacks. And as you look back, we did two acquisitions, which took leverage a little bit higher than our target.
And what we’ve done is we prioritized deleverage. We’ve been delevering and delevering fast, and the objective is to get our target, which is to be at or around below 2 times EBITDA, which is in line with our rating of A and we’re very committed to that.
I will reiterate the fact that over the past 10 years, we’ve returned $22 billion of cash to our shareholders last year $1.7 billion. And those are kind of the priorities, but they remain fairly unchanged and very disciplined right now in ensuring we get our leverage down to that level in the short-term.
Michael Hsu
Yeah.
Steve Powers
And on M&A, like you’ve been fairly open over the past couple of years’ sort of with your thought process that you have actively entertained the idea at least of divesting parts of your business, if it didn’t fit and also at the same time, adding even if it meant bringing yourself a little bit outside of your comfort zone, your core. Any updated thoughts on that in terms of other places that you see in the portfolio and you don’t have stick with. Are there places in the portfolio you can maybe divest without sacrificing operating scale at the same time? Are there -- how far outside the core would you entertain an acquisition?
Michael Hsu
Yeah. Probably nothing significant to update, Steve, other than -- we love our categories overall. In terms of exits or trimming stuff from the portfolio, like, you saw what we did in Brazil Tissue last year was actually just closed last week or this week. Hey, we’ll make that decision if there’s something structural in a market that drives us to believe that the returns will be lower over the long term, right? And so we won’t hesitate to make those kind of decisions. And that was something specific to the Brazil Tissue category. So what I was telling to the organization is the businesses have to perform, right? And so it’s -- we’re not necessarily permanently in any business if it doesn’t perform. So that’s part one.
And then in the end, I think nothing specific to say other than I am really pleased with the progress we’re making on our ability to drive commercial execution. That takes skill. Some investors have asked, hey, would you ever apply that domain expertise or that skill to other categories? Sure, I think, we would be interested. But as Nelson points out, he would make me very disciplined before we decided which one because we’re a very disciplined financial company.
Steve Powers
Great. Just about out of time. So I’ll give you the final word, but going back to what we’re talking about as investors are, at least in the moment, sort of grappling with this idea that things are going to get tougher. The consumer is going to get more scrutinizing, pricing is going to be under pressure, competition is going to increase. What thoughts would you leave us all with in terms of maintaining perspective on all that?
Michael Hsu
Well, I’d say, we have a very seasoned and experienced leadership team, as I mentioned, with our advantage, work very well with customers, our customers are very supportive of our strategies to grow these categories long-term. And so, I think, personally, I lived through four of these cycles and so we know how to work through them. And while there may be some choppiness in the near-term, I think, we’ll be able to navigate the storm.
Steve Powers
Great. Nelson, Mike, thanks so much. Appreciate it. Thank you all for joining us.
Nelson Urdaneta
Thank you.
Steve Powers
Thanks to Kimberly-Clark.
Michael Hsu
Okay. Thank you, Steve.
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Kimberly-Clark Corporation (KMB) Management Presents at Deutsche Bank Global Consumer Conference (Transcript)