KIMBERLY CLARK CORP

Previous wording

This Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations is intended to provide investors with an understanding of our recent performance, financial condition, cash flows and future prospects. The following MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 and the Unaudited Interim Condensed Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q. Our analysis compares results for thethree months ended March 31, 2026 to the same period in 2025. As discussed in the Notes to the Unaudited Interim Condensed Consolidated Financial Statements, the results and related assets and liabilities of the IFP Business are reported as discontinued operations. As a result, unless specifically stated, all discussions included below reflect continuing operations for all periods presented. Any reference to "N.M." indicates the calculation is not meaningful. Amounts are reported in millions of dollars, except per share amounts, unless otherwise noted. The following will be discussed and analyzed:

Current wording

This Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations is intended to provide investors with an understanding of our recent performance, financial condition, cash flows and future prospects. The following MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 and the Unaudited Interim Condensed Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q. Our analysis compares results for thethree and six months ended June 30, 2026 to the same periods in 2025. As discussed in the Notes to the Unaudited Interim Condensed Consolidated Financial Statements, the results and related assets and liabilities of the IFP Business are reported as discontinued operations. As a result, unless specifically stated, all discussions included below reflect continuing operations for all periods presented. Any reference to "N.M." indicates the calculation is not meaningful. Amounts are reported in millions of dollars, except per share amounts, unless otherwise noted. The following will be discussed and analyzed:

Previous wording

Ongoing geopolitical conflicts in the Middle East have led to disruptions in global energy supplies and volatility in global energy prices, including the prices for certain raw materials that are principally derived from petroleum, which may contribute to inflationary pressures, disrupt global supply chains and adversely impact consumer spending patterns. Based on preliminary analysis reflecting the current market environment and assuming oil prices remain at $100 per barrel for the remainder of the year, we estimate incremental input costs of approximately $200 (prior to consideration of mitigation actions) during the remainder of 2026. We are continuing to evaluate the evolving macroeconomic environment and our ability to mitigate the impact on our business, consolidated results of operations and financial condition.

Current wording

Ongoing geopolitical conflicts in the Middle East have led to disruptions in global energy supplies and volatility in global energy prices, including the prices for certain raw materials that are principally derived from petroleum, which may contribute to inflationary pressures, disrupt global supply chains and adversely impact consumer spending patterns. Based on the current market environment and assuming oil prices remain at current levels for the remainder of the year, we estimate incremental input costs of approximately $150 (prior to consideration of mitigation actions) during the remainder of 2026. We are continuing to evaluate the evolving macroeconomic environment and our ability to mitigate the impact on our business, consolidated results of operations and financial condition.

Previous wording

During the three months ended March 31, 2026, we incurred $48 of acquisition-related costs in connection with the Kenvue Acquisition, which are included in Marketing, research and general expenses. See Item 1, Note 4 to the Unaudited Interim Condensed Consolidated Financial Statements for further details.

Current wording

During the three and six months ended June 30, 2026, we incurred $109 and $157, respectively, of acquisition-related costs in connection with the Kenvue Acquisition, which are included in Marketing, research and general expenses. See Item 1, Note 4 to the Unaudited Interim Condensed Consolidated Financial Statements for further details.

Previous wording

On June 5, 2025, we announced that the Company will form a joint venture with Suzano S.A. ("Suzano") and Suzano International Holding B.V., a wholly-owned subsidiary of Suzano ("Buyer"), comprised of substantially all the operations of the Company's former IFP segment (the "IFP Business"). At the time of closing, which is expected to take place in mid-2026 and will only take place following the satisfaction of consultation requirements and customary closing conditions, including obtaining required regulatory approvals, Buyer will acquire a 51% interest in the joint venture for a purchase price of approximately $1.7 billion, subject to certain closing adjustments set forth in the Equity and Asset Purchase Agreement, and we will retain a 49% equity interest (the "IFP Transaction"). As a result, the results of operations and applicable assets and liabilities of the IFP Business are reported as discontinued operations in the Company's financial statements for all periods presented. See Item 1, Notes 1 and 3 to the Unaudited Interim Condensed Consolidated Financial Statements for further details.

Current wording

On June 5, 2025, we announced that the Company will form a joint venture with Suzano S.A. ("Suzano") and Suzano International Holding B.V., a wholly-owned subsidiary of Suzano ("Buyer"), comprised of substantially all the operations of the Company's former IFP segment (the "IFP Business"). At the time of closing, Buyer will acquire a 51% interest in the joint venture for a purchase price of approximately $1.7 billion, subject to certain closing adjustments set forth in the Equity and Asset Purchase Agreement (the "Purchase Agreement"), and we will retain a 49% equity interest (the "IFP Transaction"). As a result, the results of operations and applicable assets and liabilities of the IFP Business are reported as discontinued operations in the Company's financial statements for all periods presented. On July 1, 2026, subsequent to the quarter ended June 30, 2026, all consultation requirements and customary closing conditions set forth in the Purchase Agreement were satisfied and the IFP Transaction was completed. See Item 1, Note 1, Note 3 and Note 11 to the Unaudited Interim Condensed Consolidated Financial Statements for further details.

Previous wording

The transformation is expected to impact our organization in all major geographies, and workforce reductions are expected to be in the range of 4% to 5%. Certain actions under the 2024 Transformation Initiative are being finalized for implementation, and accounting for such actions will commence when the actions are authorized for execution. The 2024 Transformation Initiative is expected to be completed by the end of 2026. Total pre-tax savings are expected to be $3.0 billion in gross productivity; inclusive of input cost and manufacturing cost savings, and $200 in selling, general and administrative expenses. Total costs are anticipated to be approximately $1.5 billion pre-tax. Cash costs are expected to be approximately 60% of that amount, primarily related to workforce reductions and other program costs. Expected non-cash charges are primarily related to incremental depreciation and asset write-offs, including losses associated with the expected exit of certain markets. For the three months ended March 31, 2026 and 2025, total 2024 Transformation Initiative charges were $51 pre-tax ($32 after-tax) and $77 pre-tax ($77 after-tax), respectively. Through March 31, 2026, cumulative pre-tax charges for the 2024 Transformation Initiative were $859 ($666 after-tax), and approximately 90% of the total expected selling, general and administrative expense savings have been realized or approved for action program to date.

Current wording

The transformation is expected to impact our organization in all major geographies, and workforce reductions are expected to be in the range of 4% to 5%. Certain actions under the 2024 Transformation Initiative are being finalized for implementation, and accounting for such actions will commence when the actions are authorized for execution. During the second quarter of 2026, our Board of Directors approved an extension of the 2024 Transformation Initiative through the end of 2028. Total pre-tax savings are expected to be $3.0 billion in gross productivity; inclusive of input cost and manufacturing cost savings, and $200 in selling, general and administrative expenses. Total pre-tax costs are anticipated to be approximately $1.5 billion, with cash costs expected to be approximately

Previous wording

Net sales of $4.2 billion for the three months ended March 31, 2026 increased 2.7% primarily driven by organic sales growth and favorable currency impacts, partially offset by divestitures and business exits. Organic sales increased 2.5% primarily from volume gains of 2.6%.

Current wording

Net sales of $8.4 billion for the six months ended June 30, 2026 increased 1.6% primarily driven by organic sales growth and favorable currency impacts, partially offset by divestitures and business exits. Organic sales increased 1.2% primarily from volume gains of 1.3%.

Previous wording

Gross profit of $1.5 billion for the three months ended March 31, 2026 increased 1.7%, while gross margin of 36.8% decreased 40 basis points. Gross margin in the current and prior year included approximately 110 basis points and 130 basis points, respectively, of charges related to the 2024 Transformation Initiative, primarily for incremental depreciation expense. Excluding these charges, adjusted gross profit was $1.6 billion, an increase of 0.9%, while adjusted gross margin was 37.9%, a decrease of 60 basis points. The decrease was primarily due to supply chain related investments and unfavorable pricing net of cost inflation, partially offset by gross productivity savings from integrated margin management of approximately $115.

Current wording

Gross profit of $3.1 billion for the six months ended June 30, 2026 increased 5.8%, while gross margin of 37.6% increased 150 basis points. Gross margin in the current and prior year included approximately 80 basis points and 160 basis points, respectively, of charges related to the 2024 Transformation Initiative, primarily for incremental depreciation expense and asset write-offs. Excluding these charges, adjusted gross margin increased 60 basis points to 38.3%. The increase was primarily due to one-time tariff refunds and gross productivity savings from integrated margin management of approximately $235, partially offset by supply chain related investments and unfavorable pricing net of cost inflation.

Previous wording

Income from Continuing Operations for the three months ended March 31, 2026 was $574 compared to $470 in the prior year. The increase was primarily related to the settlement of insurance claims from a previous acquisition, coupled with higher income from equity companies, partially offset by higher income tax expense.

Current wording

Income from Continuing Operations for the six months ended June 30, 2026 was $984 compared to $914 in the prior year, as the increase in operating profit drivers discussed above, coupled with higher income from equity companies, was partially offset by higher income tax expense.

Previous wording

Our share of net income of equity companies for the three months ended March 31, 2026 was $53 compared to $44 in the prior year. The increase was primarily driven by Kimberly-Clark de Mexico, S.A.B. de C.V., due to favorable foreign currency impacts and productivity savings, partially offset by higher inputs costs.

Current wording

Our share of net income of equity companies for the three and six months ended June 30, 2026 was $55 and $108, respectively, compared to $47 and $91 in the prior year. The increases for each period were primarily due to favorable currency impacts and pricing net of cost inflation, partially offset by higher general and administrative expenses.

Previous wording

The effective tax rate for the three months ended March 31, 2026 was 23.9% compared to 23.5% in the prior year. The adjusted effective tax rate for the three months ended March 31, 2026 was 26.2% compared to 20.7% in the prior year. The increase was driven by the lapping of discrete tax benefits related to the resolution of certain tax matters in the first quarter of 2025 and a change in the US tax law effective July 2025.

Current wording

The effective tax rate for the three and six months ended June 30, 2026 was 37.9% and 30.3%, respectively, compared to 22.6% and 23.1% in the prior year. The adjusted effective tax rate for the three and six months ended June 30, 2026 was 21.1% and 23.6%, respectively, compared to 20.9% and 20.8% in the prior year. The increase was driven by the lapping of benefits from the resolution of certain tax matters in the first half of 2025.

Previous wording

Income from Discontinued Operations, Net of Income Taxes

Current wording

Income (Loss) from Discontinued Operations, Net of Income Taxes

Previous wording

Net sales of $2.7 billion for the three months ended March 31, 2026 decreased 0.6%, as the exit of the private label diaper business in the US was partially offset by organic sales growth. Organic sales increased 1.8% primarily from volume gains of 1.9%, driven by Baby & Child Care, Family Care and Professional categories.

Current wording

Net sales of $2.7 billion for the three months ended June 30, 2026 decreased 1.2% driven by the exit of the private label diaper business in the US and a decrease in organic sales. Organic sales decreased 0.7%, primarily driven by changes in retail inventories of 1.0% and impacts from the fire at our Los Angeles distribution center of 0.8%. Net sales of $5.3 billion for the six months ended June 30, 2026 decreased 0.9%, as the exit of the private label diaper business in the US was partially offset by organic sales growth. Organic sales increased 0.5% driven by volume gains of 0.8%, primarily in Consumer Tissue and Professional categories, partially offset by lower pricing to drive sales of new product.

Previous wording

Cash provided by operations was $745 during the three months ended March 31, 2026 compared to $327 in the prior year. The increase was driven primarily by an insurance recovery associated with the settlement of claims from a previous acquisition and favorable changes in operating working capital, due in part to lower incentive payments in the current year.

Current wording

Cash provided by operations was $1.7 billion during the six months ended June 30, 2026 compared to $1.1 billion in the prior year. The increase was driven primarily by an insurance recovery associated with the settlement of claims from a previous acquisition and favorable changes in operating working capital, due in part to timing and lower incentive payments in the current year.

Previous wording

Cash used for investing was $355 during the three months ended March 31, 2026 compared to $119 in the prior year, primarily reflecting higher planned capital spending. During the three months ended March 31, 2026, our capital spending was $424 compared to $204 in the prior year. We anticipate that full year capital spending will be approximately $1.3 billion, including incremental spending from the 2024 Transformation Initiative.

Current wording

Cash used for investing was $765 during the six months ended June 30, 2026 compared to $312 in the prior year, primarily reflecting higher planned capital spending. During the six months ended June 30, 2026, our capital spending was $776 compared to $401 in the prior year. We anticipate that full year capital spending will be approximately $1.3 billion, including incremental spending from the 2024 Transformation Initiative.

Previous wording

Cash used for financing was $527 during the three months ended March 31, 2026 compared to $683 in the prior year. This decrease was primarily due to an increase in U.S. commercial paper borrowings, partially offset by higher debt repayments in the current year. During the three months ended March 31, 2026, we did not repurchase any shares of common stock.

Current wording

Cash used for financing was $222 during the six months ended June 30, 2026 compared to $1.2 billion in the prior year. This decrease was primarily due to debt proceeds of $1.3 billion related to the IFP Term Loan Facility (see Item 1, Note 3 to the Unaudited Interim Condensed Consolidated Financial Statements for details), a portion of which were used to repay our U.S. commercial paper facilities. During the six months ended June 30, 2026, we did not repurchase any shares of common stock.

Previous wording

Our short-term debt, which consists of U.S. commercial paper with original maturities up to 90 days and/or other short-term debt issued by non-U.S. subsidiaries, was $595 as of March 31, 2026 (included in Debt payable within one year on the Condensed Consolidated Balance Sheets). The average month-end balance of short-term debt for the three months ended March 31, 2026 was $711. These short-term borrowings provide supplemental funding to support our operations. The level of short-term debt generally fluctuates depending upon the amount of operating cash flows and the timing of customer receipts and payments for items such as pension contributions, dividends and income taxes.

Current wording

Our short-term debt, which consists of U.S. commercial paper with original maturities up to 90 days and/or other short-term debt issued by non-U.S. subsidiaries, was $31 as of June 30, 2026 (included in Debt payable within one year on the Condensed Consolidated Balance Sheets). The average month-end balance of short-term debt for the six months ended June 30, 2026 was $652. These short-term borrowings provide supplemental funding to support our operations. The level of short-term debt generally fluctuates depending upon the amount of operating cash flows and the timing of customer receipts and payments for items such as pension contributions, dividends and income taxes.

Previous wording

As of March 31, 2026 and December 31, 2025, total debt from continuing operations was $7.1 billion and $7.2 billion, respectively.

Current wording

As of June 30, 2026 and December 31, 2025, total debt from continuing operations was $6.5 billion and $7.2 billion, respectively.

Previous wording

Certain matters contained in this report concerning our plans and expectations regarding the pending Kenvue Acquisition (referred to below as the "pending mergers" or the "mergers") and the pending IFP Transaction, the business outlook, including raw material, energy and other input costs, the anticipated charges and savings from the 2024 Transformation Initiative, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, including the impact in Argentina and Türkiye, effective tax rate, contingencies and anticipated transactions of Kimberly-Clark, including dividends, share repurchases and pension contributions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon management's expectations and beliefs concerning future events impacting Kimberly-Clark. There can be no assurance that these future events will occur as anticipated or that our results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them.

Current wording

Certain matters contained in this report concerning our plans and expectations regarding the pending Kenvue Acquisition (referred to below as the "pending mergers" or the "mergers") and the IFP Transaction, the business outlook, including raw material, energy and other input costs, the anticipated charges and savings from the 2024 Transformation Initiative, cash flow and uses of cash, growth initiatives, innovations, marketing and other spending, net sales, anticipated currency rates and exchange risks, including the impact in Argentina and Türkiye, effective tax rate, contingencies and anticipated transactions of Kimberly-Clark, including dividends, share repurchases and pension contributions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon management's expectations and beliefs concerning future events impacting Kimberly-Clark. There can be no assurance that these future events will occur as anticipated or that our results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them.

Previous wording

The assumptions used as a basis for the forward-looking statements include many estimates that, among other things, depend on the successful completion of the mergers and the achievement of future cost savings and projected volume increases. In addition, many factors outside our control, including risks and uncertainties around the pending mergers (including the risk that the anticipated benefits and synergies of the mergers may not be realized when expected or at all, the terms and scope of the expected financing in connection with the mergers may prove to be less favorable than currently expected, that the mergers may not be completed in a timely manner or at all and the risk of litigation related to the mergers), the pending IFP Transaction (including risks related to delays or failure to complete the proposed transaction, the incurrence of significant transaction and separation costs, adverse market reactions, regulatory or legal challenges, and operational disruptions), risks that we are not able to realize the anticipated benefits of the 2024 Transformation Initiative (including risks related to disruptions to our business or operations or related to any delays in implementation), war in Ukraine (including the related responses of consumers, customers, and suppliers and sanctions issued by the U.S., the European Union, Russia or other countries), government trade or similar regulatory actions (including current and potential trade and tariff actions affecting the countries where we operate and the resulting negative impacts on our supply chain, commodity costs, and consumer spending), pandemics, epidemics, fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, supply chain disruptions, disruptions in the capital and credit markets, counterparty defaults (including customers, suppliers and financial institutions with which we do business), failure to realize the expected benefits or synergies from our acquisition and disposition activity, impairment of goodwill and intangible assets and our projections of operating results and other factors that may affect our impairment testing, changes in customer preferences, severe weather conditions, regional instabilities and hostilities (including the war in Iran), potential competitive pressures on selling prices for our products, energy costs, general economic and political conditions globally and in the markets in which we do business, as well as our ability to maintain key customer relationships, could affect the realization of these estimates.

Current wording

The assumptions used as a basis for the forward-looking statements include many estimates that, among other things, depend on the successful completion of the mergers and the achievement of future cost savings and projected volume increases. In addition, many factors outside our control, including risks and uncertainties around the pending mergers (including the risk that the anticipated benefits and synergies of the mergers may not be realized when expected or at all, the terms and scope of the expected financing in connection with the mergers may prove to be less favorable than currently expected, that the mergers may not be completed in a timely manner or at all and the risk of litigation related to the mergers), the IFP Transaction (including risks related to the incurrence of significant transaction and separation costs, adverse market reactions, regulatory or legal challenges, and operational disruptions), risks that we are not able to realize the anticipated benefits of the 2024 Transformation Initiative (including risks related to disruptions to our business or operations or related to any delays in implementation), war in Ukraine (including the related responses of consumers, customers, and suppliers and sanctions issued by the U.S., the European Union, Russia or other countries), government trade or similar regulatory actions (including current and potential trade and tariff actions affecting the countries where we operate and the resulting negative impacts on our supply chain, commodity costs, and consumer spending), pandemics, epidemics, fluctuations in foreign currency exchange rates, the prices and availability of our raw materials, supply chain disruptions, disruptions in the capital and credit markets, counterparty defaults (including customers, suppliers and financial institutions with which we do business), failure to realize the expected benefits or synergies from our acquisition and disposition activity, impairment of goodwill and intangible assets and our projections of operating results and other factors that may affect our impairment testing, changes in customer preferences, severe weather conditions, regional instabilities and hostilities (including the war in Iran), potential competitive pressures on selling prices for our products, energy costs, general economic and political conditions globally and in the markets in which we do business, as well as our ability to maintain key customer relationships, could affect the realization of these estimates.

Previous wording

The following provides the reconciliation of the non-GAAP financial measures provided in this report to the most closely related GAAP measure. These measures include: Organic Sales Growth, Adjusted Gross Profit, Adjusted

Current wording

The following provides the reconciliation of the non-GAAP financial measures provided in this report to the most closely related GAAP measure. These measures include: Organic Sales Growth, Adjusted Gross Profit, Adjusted Operating Profit, Adjusted Earnings per Share, and Adjusted Effective Tax Rate. All discussions regarding non-GAAP financial measures reflect results from our continuing operations for all periods presented.

Previous wording

The following table provides a reconciliation of Organic Sales Growth from continuing operations:

Current wording

The following tables provide a reconciliation of Organic Sales Growth from continuing operations:

Previous wording

The following table provides a reconciliation of the continuing operations Adjusted Effective Tax Rate:

Current wording

The following tables provide a reconciliation of the continuing operations Adjusted Effective Tax Rate: