Kimberly-Clark Corporation (NYSE:KMB) Bernstein's 40th Annual Strategic Decisions Conference Call May 30, 2024 9:00 AM ET

Company Participants

Nelson Urdaneta - Chief Financial Officer

Conference Call Participants

Callum Elliott - Bernstein

Callum Elliott

Okay, great. I can see the timer has started, so we're going to kick it off. Thank you, everyone, for joining us.

For those of you who may not know me, my name is Callum Elliott. I'm Bernstein's U.S. HPC and soft drinks analyst. I'm delighted to welcome Nelson Urdaneta, the CFO of Kimberly-Clark. And also joining us on stage is Chris Jakubik, who is the Head of Investor Relations.

I'm going to pass it over to Nelson to start with a short introductory presentation and then we'll head on with the sort of customary fireside chat. Nelson?

Nelson Urdaneta

Great. Thank you, Callum, and thank you for having us here today. I'm pleased to be here with you today.

In March, we hosted an Investor Day to provide a deep dive into our business. For the first time since navigating what was an extraordinary four-year period for all of us. I'd like to use the first few minutes of our time today to review how we see the next chapter of growth unfolding for Kimberly-Clark. Who Kimberly-Clark is today? How we will lead? Where we will grow?

For more than 150 years, Kimberly-Clark has been powered by care. This is embodied by our company's founding principles. We make the best product. We take care of our customers, we take care of our people, and we take care of our shareholders. Now it's time for us to build on this remarkable legacy and usher in the next chapter of the Kimberly-Clark story, one that is stronger and faster.

We have important strengths to build on, powerhouse brands and categories. Science is our competitive advantage and scalable capabilities led by top talent. We will harness these strengths to drive a higher level of performance by accelerating pioneering innovation through category-shaping technologies that we believe will enable us to further elevate and expand our categories. Optimizing our margin structure as we better leverage an evolving external supply ecosystem and accelerate deployment of best practices across the enterprise. And finally, by wiring our organization for growth, reorganizing our operating structure to enable greater connectivity that can fast-track the best of Kimberly-Clark into our markets. As we execute this plan, we're confident our earnings growth, combined with our strong dividend yield, will enable us to deliver consistent double-digit total returns for our shareholders. I'll briefly unpack each of these elements.

First, we're a $20 billion global enterprise, serving more than 175 countries in five huge daily needs spaces: baby and child care, feminine care, adult care, family care and professional. We have an addressable market of approximately $240 billion across these categories. Within these categories, we have 12 powerhouse brands that have #1 or strong #2 positions that drive more than 80% of our net sales. Six of our brands generate $1 billion or more in annual retail sales.

Our categories have three exceptional traits that provide significant opportunity for building differentiated consumer preference and durable brand equity. First, our consumer base is made of highly targetable users. Yes, we are in daily use categories, but our consumers have well-defined entry points. When you need us, we will know. This enables very targeted marketing, requiring less need for mass media and makes our consumer relationships native to first-party connections in social media.

Second, our brands drive enormous lifetime value. High frequency and high retention, make our brands long-lasting annuities. Many of our products are used multiple times per day over many days, months and even years. There is little category substitution. We're not competing for share of stomach like sweet versus salty snacks. Therefore, our investment in recruitment is very efficient compared with the always-on recruitment required in many other CPG and personal care categories.

Third, our products provide invaluable solutions to our consumers. From greater absorbency to more comfort to better skin health, our science-based innovation solves big problems for our consumers. Our solutions make their daily lives better. Our pathway to elevating these huge categories and continuously redefining good/better/best is limited only by our imagination and engineering know-how.

We deliver meaningful innovative features and benefits that drive performance-based differentiation. Our ability to drive brand loyalty and enhance our value propositions across our good/better/best tiers goes beyond conventional flavor or scent-based line extensions.

Our categories also have many tailwinds. The world's population is projected to expand by 1 billion people by 2030, and we have renewable recruitment targets at discrete entry points: 130 million births annually where we address the need for diapering; 65 million young women entering puberty, requiring period care; 45 million women entering menopause when leaks begin; and 57 million new homes purchases, an adoption moment for family care products. We see this translating into solid, if not, accelerating organic growth across categories.

Unlocking growth at point of market entry starts with understanding the consumer's journey and the most critical on-ramp moments. We work hard to recruit new moms in these critical moments. We connect with her when she is planning for her newest family member and shopping before baby arrives to ensure Huggies is in the nursery or when the baby might have sleep challenges and need some more absorbent overnight solution. Winning these recruitment moments is crucial as we support mom and dad of the diapering journey.

This is very unique in CPG. For example, we recruit at newborn with Little Snugglers. Then, when the baby starts to be more active, they transition to Little Movers. When sleeping challenges arise, we provide OverNites. And when they become big kids, they're ready to move into Pull-Ups. Helping families navigate this journey with care yields 87% more value per baby household. As the chart shows, an average U.S. diaper household is worth about $300. But when we actively recruit and retain, that value increases to nearly $600. This applies to all of our categories, as our consumers navigate the journey of life from first period to child birth to menopause, all the changing needs throughout her lifetime. With different needs and evolving challenges, we're able to deliver unique benefits every step of the way. We're partners for life.

Science is a huge focus, and a big competitive advantage for us. We're proud of our strong legacy of innovation. We have a diverse global R&D team that is continuously seeking better solutions to unmet consumer needs. We invest systematically in material invention, product engineering and manufacturing process development. And we develop and engineer proprietary manufacturing assets in both our personal care and tissue operations. We've established four platforms that guide our innovation, each centered on an unmet consumer need state: skin health and wellness, garment-like comfort, leak-free confidence and sustainability. We established our skin health and wellness platform last year. The fact is every single one of our products are used in direct contact with consumers' skin. Rashes and red marks are simply not acceptable to our team and there's a great deal of innovation and differentiation we can bring to this space.

Final area I will highlight is sustainability. For Kimberly-Clark, sustainability is not an afterthought or a nice-to-do. It's essential to our purpose of providing better care for a better world. We continually apply science to improve the health of our business and to support the sustainability of the world's natural resources. We've done this with a focus on responsible sourcing, supply chain efficiency and product and materials innovation that reduces our plastic and forest footprints, our water consumption and our climate-related emissions. We've made significant progress on all fronts, and we're ready to take the next leap forward.

We recently set a new ambition to be natural forest-free across our product portfolio. By 2030, we will be more than halfway to this goal. And we will continue to work to responsibly accelerate our progress towards a 100% natural forest-free supply chain. We believe we have the science and engineering know-how to deliver a step change in the sustainability of our offerings while creating an exceptional product experience at a price consumers can afford.

To generate greater growth and returns on our innovation, we've also built a suite of scalable commercial capabilities and created strong momentum. In the past five years, we have shifted toward a digital-first brand paradigm, focused on building lifetime relationships with our consumers. We've established a superior in-market execution by deploying world-class talent, process and tools. We've installed a disciplined analytical approach to revenue growth management to optimize trade decisions in real time. And we have strengthened our financial position across our cost structure, our cash flow and our balance sheet, including better risk management principle to mitigate input cost volatility. Importantly, we've done this with a team that brings deep expertise and diverse experience across markets, categories and cultures. Two-thirds of them are new to the company or new to their position in the past three years. So, we have all the building blocks in place and the necessary scale to drive consistent growth.

We will leverage our scale to launches into our next chapter of growth by powering care. To harness our strengths, we will sharpen our strategic focus, to accelerate pioneering innovation, to capture the significant growth available in our categories by solving big unmet consumer needs, optimize our margin structure to deliver superior consumer propositions at every rung of the good/better/best matter, and wire our organization for growth to make our enterprise stronger and faster. As I mentioned, there remains a huge opportunity to elevate and expand our categories and markets. We'll capture this growth by accelerating our pipeline of pioneering innovation with an onslaught of category-shaping new products.

Elevating and personalizing our storytelling and design, driving genius [Technical Difficulty] let me bring this to life in diapers. The diaper category has been around a long time, but there are still a surprising number of unsolved problems to tackle. Starting in the lower left, the core category benefit is, of course, leak protection. The average urine leak rate in the category is about 5% to 6%, meaning that roughly one in 20 diapers have some type of leak. But solving these issues at low cost and high scale is a bit harder than it sounds. For example, you might not know that newborn stomach is going to expand 50% after feeding, which creates stresses on the diaper material, red marks in baby skins and leaks. We have already designed compelling solutions to these problems, and we'll have more coming soon.

Beyond protection, we are advancing further into three big unmet need areas. In sleep, we pioneered overnight diapers. And in comfort, we have a very soft and gentle diaper call Little Smuggler. But there is much more opportunity in areas like fit and breathability. We see room to run and have some promising technology in this space.

And then, there's skin health. If you're a parent, you know that when your baby's sensitive skin is suffering from irritation or rashes, it upsets the entire household. One cause of skin damage is prolonged contact with mess. Unfortunately, the average baby sits in mess for 40 minutes before a change. We have pioneered a patented technology that protects the baby's skin 5 times more effectively than current products. Two weeks ago, we announced the launch of our skin essentials line across diapers, wipes and training pants in the U.S. utilizing this technology.

China is another great example where we've focused on delighting consumers across the value spectrum, and our elevation strategy is driving growth in a tough environment. In the first quarter of this year, we saw a double-digit increase in net sales and a 200 basis point share increase, driven by gains in both premium and mainstream diaper segments. Our premium-range products, Huggies PP mask and Huggies Little Penguin, further advance the premiumization ladder by introducing a new level of innovative skin care and comfort, redefining the consumer experience for a new generation of moms. At the same time, our mainstream products, Huggies Cloud Touch and Huggies Little Peach, are converting share from local brands by delivering superior quality at a strong value. This is how we drive performance-based trade-off in our categories.

Our second area of strategic focus is to optimize our margin structure by modernizing our supply chain. We have a long track record of delivering strong cost savings, reliably year after year. However, we can do more. The base of our opportunity resides in our historically decentralized approach. We have more complexity than a company of our size and scale should. At the same time, [indiscernible] ecosystems in our categories continue to evolve, and we can enhance our performance by tapping into these opportunities more aggressively. We see an opportunity to generate more than $3 billion in gross productivity and approximately $500 million in working capital savings in the next several years through value stream simplification, network optimization and digital automation. We're off to a strong start, and we'll have more to report on specific actions and drivers as our initiatives ramp up in the coming months.

Wiring our organization for growth is our third area of focus and the key to unlocking our full potential. [Technical Difficulty] execution. At the same time, this approach lacks sufficient connectivity to enable us to fully leverage our global scale and deploy our innovation and initiatives at maximum speed. Our next chapter will be written by a high-performing network organization that strikes the right balance of local agility while leveraging the benefits of global scale. We are reorganizing into three focused business segments.

Through wire for growth, we'll also streamline hierarchies and reporting structures and improved process to enhance connectivity for better execution. As we do this, we expect to enhance our competitive advantage to drive greater returns on investments; by improving speed to market on a global basis for future products and commercial initiatives; reducing product costs while delivering superiority by leveraging our global technical capability; enhancing the strategic nature of our customer relationships around the world; increasing our ability to realize our brand's full potential; and generating approximately $200 million in SG&A savings in the next few years, to invest back in the business and support meaningful margin leverage as we drive volume and mix-led organic sales growth.

As we hit our stride, our strategy and operating model will enable us to drive a durable long-term growth algorithm comprised of organic net sales growth that leads margin growth, mid- to high-single digit operating profit growth on a constant currency basis, mid- to high-single digit EPS growth on a constant currency basis, and a $2 billion or more free cash flow per year. As a result, we're confident in our ability to continue growing our dividend and repurchase shares. In combination with strong organic and earnings growth, we aspire to deliver consistent double-digit total returns to shareholders in the coming years.

Thank you. And now, I'll be happy to take your questions.

Question-and-Answer Session

Q - Callum Elliott

All right. Thank you very much, Nelson. Let me get settled. So, I want to kick off where you ended your presentation around some of the re-segmentation of the business that has recently taken place. And I guess, maybe I'll start broadly with just, what prompted that? You touched upon the need for agility, but what prompted this move away from category segmentation and towards this geographic segmentation?

Nelson Urdaneta

Yeah, Callum, so a few things. We obviously have categories and we have geographies, and we will always have to deal with both in a balanced manner. The situation that we're addressing is driving our Elevate strategy stronger in the near future. And it has worked. It has proven that it's worked over the last five years. And our objective is to drive focus and scale.

As you think about it, we're reorganizing into three external reported segments. Starts with North America, a fairly large business, very huge profit pool with strong presence in different categories across consumer and professional, and we expect to be able to drive growth and profit enhancement over the next years.

Secondly is the opportunity in international personal care. We're segmenting into two entities within international personal care. The first one is the five focus markets, the big markets. They're comprised of China, Australia-New Zealand, South Korea, Indonesia and Brazil. These markets have or characterized by strong market share positions already. We have a strong base of consumers. We have categories that are developing and growing over time, and we're going to drive sustainable growth and apply the winning playbooks that we've had in geographies like China and South Korea into those markets. What you've seen in China over the last five years is something that we aim to replicate in markets like Indonesia and Brazil. And what we've done in South Korea is also something that we can replicate beyond those five focus markets.

The rest of the personal -- international personal care market is comprised of what we're calling enterprise markets. There, we have to tackle more of a lean structure in those markets. Those are markets in which we need to gain scale and we need to have a simplified approach of tackling growth and tackling platforms. We have proven playbooks already in enterprise markets that can be reapplied and we're going to have a team of leaders in those markets that will nurture and seed our future market -- our future focused markets in personal care.

And then last but not least, it's international family care and professional. It is a business where we see significant synergies between the two businesses coming together outside of North America. There is plenty of opportunity for us, not just to drive growth, but to drive reduction in earnings volatility. So, the teams are going to be very focused in leveraging that scale of the remits that each of them have.

Callum Elliott

So, I want to come back to tissue and professional, but before we do, I guess, you mentioned at the start of your answer that the Elevate strategy has been working over the past five years. And I guess I just want to push you a bit further on this. If it's been working, what's the need to change the strategy that's been working?

Nelson Urdaneta

So, I would say it's not a change. It's basically an evolution. We embarked in our Elevate strategy five years ago. And we were all dealing with the global pandemic and the global crisis situation. And it was great that we had that strategy in place, because it allowed us to grow over the last four years at a 4% CAGR at that time, largely driven by the fact that we were focusing on premiumizing our categories. We derived tremendous learnings over those years around the power of scale and the power of focus. And as we thought about the next transformation of the company, that's where this all came together. And that's why the focus and the change on the model that we're applying.

Callum Elliott

Okay. So maybe I can come at this from a slightly different angle. If I look at the North American segment, it's about 50% of your revenues, but 75% of profits. What is it that drives the [indiscernible] with tremendous profit pool. What is it that drives the profitability of that business to be so much higher than those international markets?

Nelson Urdaneta

Yeah. So, a few things in North America. Clearly, a very developed market. And over time, we've gained significant scale. And that's part of the equation when you mix it. We have great presence and synergies across personal care, and also in professional. We've been leveraging that over time. And what has also happened is over the years, we've been premiumizing significantly, not just on the consumer side of the house, but also on the professional side of the house. If you think about it, our percent of premium in our consumer portfolio in North America is about two-thirds of our revenue. If you go back at time to around 2012, that was less than 50%. So, we've been making significant strides in premiumizing the portfolio and ensuring that we bring to bear our brands with the benefits that we're offering.

Now the other bit is, as we think about North America, there are opportunities, and that's why we're bringing this focus in North America. In North America, while we've been pushing the premiumization over the years in the Elevation strategy, the reality is that when we compare some of our higher-tier products, Tier 6 and even Tier 7, with markets that have done a remarkable job [indiscernible] like South Korea and China, there are opportunities to go further in North America. And if you think about the cost structure, and we talked about it at our Investor Day, North America is not the lowest cost market for us, believe it or not. And there are opportunities for us to drive some of those learnings that we've had outside of North America into our North America business, further enhancing the ability for us to generate fuel to reinvest back in the business.

The other bit about North America I'd say is that North America has a lot to offer to the rest of the world. Because North America, apart from execution and what the learnings has had in premiumizing, there are a lot of platforms and technologies that as we bring our wired organization together, will travel much faster across the globe, especially in our five focused markets in personal care and pockets of our international family and professional.

Callum Elliott

Okay. Maybe I can come at it from a slightly different angle. Is there -- if I think about your international business, is the difference in margins there the scale? Or is there some kind of structural impediment to getting, say, like an international tissue business to a North American tissue margin?

Nelson Urdaneta

Yeah. So that's a great point. And a few things to highlight. The scale is obviously one, and focus is the second one. I mean part of the reason why we're changing the structure is because we want to bring scale to the international family and professionals. Right now, what you have is a series of small businesses tackling markets in a different manner. And what we're going to do is we're going to bring them together and actually merge the international family care and professional, which share a lot of synergies in the supply chain and in the premiumization structure to be able to drive that.

Now, one thing on the international family and professional that, especially in tissue, that has to be clear is that, obviously, the penetration of private label is bigger. And that inherently drives a lower margin for the profit pool in that consumer tissue business and makes it more vulnerable [Technical Difficulty] even a bigger problem as you're handling or managing through it. So the opportunity there in lies twofold. One, when you bring it together, you begin to have scale. So that's one aspect.

But then the second one is that when you unveil or unpeel the – when you peel the businesses, and I'll give you an example, in the U.K., Andrex and Kleenex, very strong market positions, very strong innovation in international consumer tissue. We've been gaining share significantly over the last few years, as you know, because we track the data. And what's been happening there? We've been applying the Elevate strategy over the last five years in the market. We've been doing investments in revenue growth management capabilities, price-back architecture, size of roles, de-sheet, re-sheet, and also state-of-the-art market in connection with consumers.

That playbook in the U.K., we also have in other consumer tissue business. If you look at South Korea, we have a very meaningful scalable business in tissue, with significant innovation across all rungs of the ladder, good/better/best. Other markets in Thailand, in Hong Kong, in Taiwan, we also have successful tissue businesses -- profitable tissue businesses and the fact is that as we bring all these together with the rest of the world, that will drive synergies. So, we expect that to happen. We're putting in place -- we're going to have the team led by experts who've been running -- Ehab has been our leader for professional, as you know. He's taken over our IFP segment. He successfully navigated the recovery of the professional business, and he's going to take those learnings and the team that he's been working on and who's going to be transitioning into IFP, to take our IFP business not just to drive growth, but really to drive margin expansion and stability as it may be managed [indiscernible] in our volatility.

Callum Elliott

You touched upon in your answer some of the supply chain integration between family care and professional, which brings me quite neatly onto my next question, which is, can you explain for us why professional sits with tissue internationally? Historically, the margins of that business have been quite attractive and despite the pandemic and office time pressures, which are ongoing in many markets, as you've highlighted, the rebound has been quite nice in that professional business. So, why have them sit together?

Nelson Urdaneta

Yeah. So, a few things. We've done -- and just to make it clear, we brought together professional business, both in the consumer side of North America, as you know, and we're doing the same on the international stuff. Fact of the matter is that there are significant synergies between the two businesses. And I alluded to the supply chain, but to give you a backdrop here. If you think of tissue, facial, bathroom, towels, those same platforms apply in consumer and apply in professional. So, we're running the base sheets and some of the products and technologies, roughly 80% shared platforms and technologies, but separate supply chains. When you bring those two together, both in North America and in international and family and professional, there are going to be synergies in the supply chain that will drive productivity over time and will also allow us to have more visibility into costs and apply some of the risk management tools that we've been deploying to manage through the volatility we've seen over the last few years.

The other bit is the execution. Our professional team has done an excellent job in a very competitive market and having offerings in the whole rung from the good/better/best. You've heard us talk about our ICON platform for bathroom solutions. That is the premium offering. But we have a better and we have a good platform. So, the same thing and the same playbook in Elevate that we're applying in personal care and we're applying in professional, we're going to -- we're applying in consumer tissue in some markets. So, there's a lot of learnings that can be applied and synergized.

And then the other bit is the leader who -- the leadership team that we're putting in place for IFP, they've been operating in these markets. They know the tissue business and the professional business very well. And a lot of that know-how will be brought there, driving speed and execution and synergies as fast as we can to drive that reduction in the volatility that we've seen in the past because of how we've been organized.

Callum Elliott

So, you can probably sense where I've been going with this line of questioning. I guess if I can wrap it up this particular subject area, is there anything we should read from this sort of re-segmentation into your big picture strategic vision for the business going forward? I guess, we've seen at the emphasis from international tissue from some of your competitors historically. And so, just wondering if this could be potentially a precursor to a similar kind of thing.

Nelson Urdaneta

I would say that the changes we're implementing are really around two-fold. It's one, we believe in the businesses we're in. We believe in the categories and the markets we're in. But this is really about focus and it's about scale. We're going to drive focus in our personal care market, we're going to drive focus in our international tissue and professional business, and we're going to drive focus on enterprise markets. We need to have those playbooks to have our future pockets of growth.

But then the other bit, which I was talking on the international family and professional question you had, is having the right people in the right jobs. Before, we've had generalists running the businesses. And you're trying to tackle multiple categories, multiple businesses at the same time with different needs. What we're doing now is having players with the right support globally handling the different markets and segments that we're going to have going forward.

Callum Elliott

Okay. I want to come back to something that you mentioned earlier, so you were talking about trying to leverage the South Korea and that's an area where it's sort of been a huge success story for your business. There obviously have been a number of markets internationally that have been more challenged. Whether that's birth rates, et cetera, sort of some of these externalities. What makes you confident that this playbook from a South Korean market or a Chinese market where you've seen great success can be replicated across markets, whether the dynamics of some of those drivers are very, very different?

Nelson Urdaneta

Yeah. So, I'd take it back, Callum, to the nature of our categories. And as I was explaining in my opening remarks, our categories are essential. They're daily need. They're used multiple times a day. And there is no opportunity for categories to fail. Our products have to perform. And those needs will apply in a developed market, in an emerging market, regardless of the situation. It boils down to what are the offerings that you have in the rung ladder, good/better/best, and how are you adapting your pricing structures and your offerings to the needs of the consumer in those markets. Those needs are a universal.

And the fact of the matter is, as I explained, the value of our categories globally right now is around $240 billion. We see tremendous runway for growth for those categories. There are significant unmet needs everywhere in our categories, in developed markets, in emerging markets. If you think about markets where today, there have been more challenges, we could talk about emerging markets, part of it has to do with where in the S curve in the development of the category are we.

We've seen examples as China, which, back in 2010, crossed the $4,000 GDP per capita level. At that point, the category really started growing. It has tripled. While in the last five years, we've seen birthrates decline by half. But the value of the category has grown from that level. What has happened is there were a lot of unmet needs in the category, all across, and we've been addressing them very successfully. We can apply that not just in China, South Korea, the U.S., we could do that elsewhere in the globe and that's what we're bringing to there.

The key is that now we're organized because we're going to drive that focus by having teams with clear remits of what to do. Those playbooks will be applied. If you think of international personal care, the five focus markets. Why the focus? They're big, they have scale, and we have very strong market share position that allow us to take the playbook that we had in China and South Korea and even in the U.S. to the next level in places like Brazil, Indonesia, and even Australia-New Zealand. So that's going to be there.

In enterprise market, we need to see those markets. You think of India as a market. It's a market where there's plenty of runway to develop the category. It's a hugely underdeveloped category. GDP right now stands at $2,000 in India overall. But there's 26 million births annually in India. That's out of the 130 million global. We all have been following closely the Indian economy, how it's developing and the opportunities that lie ahead. Those are markets that we were going to have within our enterprise markets that we're going to develop. And we expect to see them to be the next focus markets throughout the world, and that you can replicate elsewhere. If you do it in your international family and professional, no different. What we've been doing in bathroom tissue in the U.K., in Thailand, in Taiwan, South Korea, we can easily do in other markets where we have bathroom tissue. Same for facial. So, those needs are universal and that's why we're so excited about the prospects of growth of our category for years to come.

Callum Elliott

How soon can India be the next China? You said -- you mentioned the magic $4,000 of GDP per capita number for the Chinese market. That's where we saw the acceleration. And India are at $2,000? Is it just a case of waiting for India to get the floor for that magic acceleration? Or is there something you can do to drive that...

Nelson Urdaneta

So, a couple of things. One, we are in India. We've been in India for many, many years. We have a team in place who is executing a strategy. With our reorganization and having India within our enterprise market, it's going to have more focus. We're going to be part of a team whose remit is to really drive the next pockets of growth. So, we're going to do our part to develop categories in which we compete.

When India crosses that magical $2,000 on average? It's anyone's guess. The $4,000, I'm sorry. The $2,000 is the level they're at. The reality is there will be different segments of need states that we need to address. We are doing that as we speak. We're bringing to bear our offerings in the whole spectrum, good/better/best. And we will be actively working in India to drive that market forward.

Callum Elliott

Got it. So, the clock is running away from me, and we need to pivot away from growth and towards some of the cost savings and restructuring programs. So, you mentioned earlier during your presentation, the Investor Day, a whole host of new information that you shared with us. And one of the big areas of focus was the $3 billion restructuring program. And during the Q&A at the Investor Day, you alluded to a 4% to 5% headcount reduction as being sort of one of the big levers for that cost saving and cost out. Can you give us a bit more color about this big bucket to where this $3 billion is going to come from?

Nelson Urdaneta

Sure thing. So indeed, we announced a restructuring program at Investor Day. The cost of the program is $1.5 billion, as we stated. It's around 50% cash, 50% non-cash. It has two components. First is the reorganization into our new segments. That reorganization into the new segments, which we expect that to happen, we'll go live with model in October and we expect to drive savings of around $200 million in SG&A over the next few years. That's one of the components of your restructuring.

The second component of restructuring is the $3 billion of productivity that we expect to deliver over the next five years, that will be derived from transforming our supply chain. Tamera at the presentation on our Investor Day unveiled what our supply chain transformation looks like. As I spoke today, we have an enormous opportunity to take advantage of our global position, because historically, we've been operating really locally. We have not had a global view of our supply chain. And as we've been doing a lot of benchmarks globally and looking at the opportunities that lie ahead, including markets like North America, which I just talked about, we've unveiled a huge opportunity on the productivity front.

This is going to be driven through three strategies in the supply chain. The first one is value stream. Value stream is really around focusing on total delivered cost. We shared with you benchmarks of product costs across different geographies and different categories with the gap between the high and the low on similar products, and it's very telling. It's very telling of the opportunity that we have to drive synergies, specs and elements on the products that will drive lower costs while ensuring that we continue to have superior offerings for our consumers.

The second one is network optimization. That's within our four-walls, all within our factories and our distribution centers. There are plenty of opportunities for us to drive optimization within the four-walls. That's the second element of the overall supply chain transformation strategy.

And the last one is automation, digital automation. I've been talking for the last few quarters about the opportunity that we've been seeing in productivity, and we're scratching the surface in automation. We've been deploying tools around procurement to be able to drive standard procurement policies and terms across the globe as opposed to everyone is doing what they knew how to do best when we were seating and setting up the markets. Secondly, we're deploying tools and supply and demand planning, that will drive significant optimization, not just on inventories, but also on specs. And then thirdly [Technical Difficulty] presentation of bots and a few things that frankly will drive a lot of good business.

We see tremendous opportunity ahead. This will also drive about $500 million of net working capital improvement that we're projecting over the next few years, which will provide fuel for us to reinvest business and continue to ensure that we have strong returns for our shareholders.

Callum Elliott

So that all sounds almost straightforward, as they say. Given how straightforward it sounds, why do you think that some of these initiatives haven't been enacted at Kimberly-Clark until now?

Nelson Urdaneta

So, a few things. One, it's how we've been operating and how we grew over time. We were much a decentralized organization, extremely decentralized for a company of our size, given our revenue today. It was a requirement as we were growing into the CPG company we're today. And now is the opportunity and the time for us to leverage our global scale, what we call bringing our global might to the local fight, because we've got very strong executional capabilities on the ground.

Secondly, over the last five years, we've been very successfully executing our Elevate strategy. What Mike launched five years ago on Elevate was extremely meaningful. We've shared with you how we've been able to premiumize and drive significant value in the rung of good/better/best over the last five years that have delivered significant gains across the business and have allowed us to navigate through a very difficult period over the last five years. Without that strategy in place, that would have been very difficult.

And in those five years, we built significant muscle on several fronts. One, revenue growth management capabilities. I don't want to underestimate what this has done. Our ability today to be much more efficient and looking at promotional activity [Technical Difficulty] we learned a lot. We put together a lot of playbooks and we're ready to take that to the next level today.

The other bit is, how we're handling risk management. Never let a crisis to go to waste, and we didn't do that. We've learned a lot over the last four, five years, as we navigated through COVID, as we navigated through the supply chain disruptions that we faced. We developed capabilities that we still need to enhance around strategic partnerships with suppliers rather than transactional relationship with suppliers. We've been enhancing our ability to drive more visibility into costs. Why? Because we've enhanced our tool kit of risk management around hedging strategies where we can hedge, talk about currency, energy, et cetera. And where we can't hedge, setting up contract structures through these strategic relationships that allow us to have visibility into what's going to happen with costs.

Last but not the least, we're deploying right now integrated margin management. Integrated margin management, which we talked about is the holistic approach, end to end, not just on total delivered costs, but on margins. But why? Because the timing is right. We've learned a lot. And on top of that, we've got the right team in place. I mean, Mike has assembled a set of leaders over the last three years, four years that have deep expertise on each of their lanes, be it in supply chain, in growth, in marketing, and in execution. And on top of that, our team, I mean, that's the most valuable thing of KC, they've learned a lot and grown a lot over the last five years, but that's why this is the moment for us to move forward.

Callum Elliott

Okay. And as part of some of these restructuring initiatives and cost out initiatives, you announced a new 40% gross margin target. I guess my first question here is, can you clarify for us, is that an organic target? So, if we were to see further divestitures of international tissue businesses at lower margins, could we end up exceeding the 40%?

Nelson Urdaneta

So, a few things, Callum. I think to have clarity is our plans are really volume and mix driven. And obviously, revenue growth management will play its role because it's part of the healthy growth algorithm, but it is volume mix that is organic. What we've laid out is organic. That's what we're going to drive. We will continue to look at our portfolio. Obviously, I mean, we've taken decisions when needed. Last year, we took the decision to exit, Brazil tissue and professional. We've done -- we've been choiceful about some of our private label contracts. We've been talking about it even recently. Just a few weeks back, we announced the divestiture of our personal protective equipment. So, we will continue to do tweaks on the portfolio, but the plans that we laid out are organic.

Callum Elliott

Okay. And the algorithm -- the growth algorithm that you set out to get double-digit TSR, it sounds like a lot of that will need to come from the margin expansion and driven by gross margins. I guess my question here is if that 40% target is out for 2030, so the next sort of six years or so, does that mean that we get six years of elevated EPS growth whilst delivering this margin expansion and then the algorithm slows down again? Or can we envisage that this is now a perpetual double-digit TSR business?

Nelson Urdaneta

So, maybe let me unpack what the algorithm is all about, because I think that's the key. We expect to deliver within the ranges that we made out for you all on a constant basis. And that's the aim. And again, if we unpack that, on top-line, we said we plan to lead category growth. We plan to lead. We are #1, #2 in at least 80% from what we operate, and we need to make sure that we're driving that growth, right? Secondly -- and again, on top line, that translates to about 3% plus given our current assumptions on the category to be -- our categories to revert back to pre-pandemic levels of 2% to 3%.

If you think of our earnings growth and what's going to happen over the next few years, we said mid- to high-single digit. We expect to be within that range over the next years. And where we land within that range will depend on kind of multiple set of factors. One, timing of some of the initiatives we take. Obviously, with the productivity program that we have, and as it ramps up, it should put us in a position that we will be at the higher-end in some of the years because we're delivering strong productivity, but it is a volume/mix led growth overall.

And in terms of TSR, our expectation is that if you combine our dividend yield with what our EPS expectation is, we should be at that double digit as we move forward.

Callum Elliott

Okay. I can see that the clock has less than 30 seconds left. So, rather than sort of make you rush through a final answer, I think that would be a great place to end, sort of wrapping up the story. And thank you very much, Nelson and Chris for joining us. Thank you, everybody in the room for coming along as well. Thank you.

Nelson Urdaneta

Thank you so much.