Good day, everyone, and welcome to Kimberly-Clark de México's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. You may withdraw yourself from the queue by pressing the star and two. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to your Chief Executive Officer, Mr. Pablo González. Please go ahead. Thank you. Good morning, everyone. Thanks for your participation on the call, and we hope you and your families are doing well. Our third quarter results continue to show improvement as we significantly increase top line, bottom line, and margins versus prior year. We achieved bottom line and margin improvements versus the previous quarters. We're on the right track and expect to continue delivering better results in the fourth quarter and into 2023. We achieved strong net sales for the quarter with better pricing and robust exports and away-from-home performance. Price realization, higher operating efficiencies, and solid advances in our cost reduction efforts outpaced the raw material sequential cost inflation, and we were able to improve profit and margins versus the third and fourth quarter of last year, as well as versus the first and second quarters of this year. From their lows in the fourth quarter, our EBITDA margins have improved 370 basis points, notwithstanding the continuous cost pressures. Progress, no doubt, but we still have much to do. Our focus on greater price realization, achieving further efficiencies, and expanding the cost reduction program while aggressively innovating, investing behind our brands and in state-of-the-art technology and strengthening shares is steadfast. I'll share more details on each of these after Xavier provides a review of results. Thank you. Good morning. During the quarter, our sales were MXN 12.8 billion, a 12.8% increase versus the third quarter of 2021. Net sales were boosted by very strong growth in exports, a highlight in the quarter, and away from home, which grew 36.3% and 17.2% respectively. Consumer products were 8% up. We will continue monitoring prices and volumes to find the best combination going forward. Cost of goods sold increased 10.4%. Against last year, every commodity and raw material category compared negatively except for resins. Pulp, imported and domestic recycled fibers compared negatively. On the personal care side, super absorbent materials and fluff also compared negatively, while resins were down. Finally, energy compared negatively as natural gas prices grew 60%. The FX was slightly higher, averaging 1% more. Our cost reduction program once again had very good results and yielded approximately MXN 500 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing, materials improvement, and process efficiencies. Gross profit increased 18%, and margin was 33.2% for the quarter. The G&A expenses were 7% higher year over year, and as a percentage of sales were 80 basis points lower. Operating profit increased 29.7%, and the operating margin was 17.6%. We generated MXN 2.8 billion of EBITDA, a 23.3% increase. EBITDA margin was 21.5%, a 70 basis points sequential improvement and a 180 basis points improvement versus the third quarter of 2021, underscoring our focus towards margin recovery. During the quarter, we issued certificados bursátiles or cebures for MXN 10 billion through two placements. The first for MXN 7.75 billion with equal amortizations in years 10, 11, and 12. The second for MXN 2.25 billion with a term of 5 years. This allowed us to anticipate our financing needs for the maturities of 2023, 2024, and 2025 under favorable conditions and to improve our debt maturity profile. During the quarter, we also prepared, prepaid MXN 1.5 billion of a bank loan that originally matured in 2023. Cost of financing was MXN 425 million in the third quarter compared to MXN 445 million in the same period last year. Net interest expense was lower despite our incremental gross debt because we earned more on our cash investments. During the quarter, we had a MXN 2 million FX loss, which compares to to an MXN 8 million gain last year. Net income for the quarter was MXN 1.2 billion with earnings per share of MXN 0.40. We maintained a very strong and healthy balance sheet. Our total cash position at September 30 was MXN 18.1 billion. Our net debt to EBITDA ratio was 1.5 times, with an EBITDA to net interest coverage of 6 times. Thanks. Back to Pablo. Thanks, Xavier. Continued progress spearheaded by our focus and execution on different fronts, particularly our relentless focus on consumers, price realization, accelerating efficiencies, and our cost reduction program, but not as fast as we would like. Unfortunately, costs have not abated. In many areas, they continue to increase or are stable, but at historic highs. As Xavier pointed out, such is the case of both recycled fiber and energy. A few others have come down slightly, but are also at very high levels compared to last year. We are seeing some improvements in resins, but prices are very volatile. All in all, still a challenging cost environment. We expect it to improve as we get into next year, but the degree and speed remain to be seen. Notwithstanding, our actions are taking hold and are allowing us to continue to post sequential improvements. We still have much to do, and we're confident that our laser focus on the priorities I mentioned will allow us to continue to improve results sequentially and have a strong fourth quarter and 2023. Thanks again for participating in the call. Now we will take your questions. Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We'll take our first question from Luis Yance with Compass. Hi, Pablo, Xavier. Thanks for taking the questions and congrats on the sequential profitability improvement. Pretty impressive despite the cost headwinds you guys are still experiencing. So couple questions from my side. I guess the first one on the top line side. You know, a very strong top line, again, you know, growing 13%. Just wondering if you could give us a bit of color in terms of volumes. Is it kind of the same trends of the past two quarters where volumes were slightly negative? Is it actually getting closer to flat? Whether you've started to see there, you know, some trade down or perhaps a little bit of weakness in certain categories due to the overall inflation, and if you could comment on, you know, a bit slower growth in the consumer products, what's going on there. I guess on the export side, super strong. Just wondering if, you know, if that sort of strong trends should continue, going forward. Thanks. Sure. Thanks for the questions, Luis, and thanks for being in the call. Sure. On the top line, as you mentioned, number one, very strong sales from our export business, and we expect that to continue here in the fourth quarter. It's a little bit more skewed towards parent roll sales than finished product, but still very strong, and we expect, again, that to continue. Same with away from home with 17% increase, which was also pretty strong. As more people are coming back into the office environment, and many people are traveling, we again see that business recuperating very nicely. We expect also growth to continue there. Consumer products, good growth with 8%, but a little bit more challenged on the volume side, and the trends continue to be pretty much the same as in past quarters. There's a couple of reasons for that, and let me talk a little bit about them, why the volumes are down. Number one, we've got quite a few categories that had very strong sales in the past couple of years given the COVID pandemic, and we're seeing volumes decelerate significantly in many of those. Examples of that are, antiseptic gels, cleaning wipes, aerosols, even, soaps and, to some degree, kitchen towels. All of this, again, were used significantly, and their volumes increased significantly during the COVID period, and we're seeing a deceleration. We expect all of them to end up with higher base volumes than before the pandemic, but still we're having that impact. Second, there's some categories that are not growing per se, and that's because the consumer's being stretched with inflation and increases in prices on the one hand, and others that for example, we see a deceleration on bathroom tissue. That has to do with the fact that, as we just mentioned, a lot of people are coming back to the office. We see an increase in paper usage in the office versus home. We see the category in consumer products decelerating and actually being below last year a little bit. The third reason is that as we've increased our prices and competitors have followed but have lagged, we have seen a little bit of a loss in share in some of our categories. Those are the three reasons why volumes are down and the trend continues to be similar versus previous quarters. On the trade down, we haven't seen too much of it. It's been marginal. What we've experienced really is that consumers are stretching the use of the products they like versus trading down. There are certain categories where we do see a little bit of growth in private label, but that's really particularly on the napkin side. In all of the other businesses, it's pretty stable or slightly ahead of last year. Again, trade down, not a big impact so far. We'll see how that behaves going forward. That's a great color on that answer. On the price increases, what should we expect in terms of further price increases in the fourth quarter in 2023? I know it's hard to get a good sense on costs going into 2023, but what are you guys thinking from now until year-end or perhaps early next year? And whether we're, you know, are you gonna be much more selective? I mean, you mentioned some categories kind of being impacted by the recent price increases, so perhaps not a like a widespread price increase across the board, but maybe more selective. You know, if you could help us think how we should think about that would be helpful. Thanks. Sure. Look, we're really taking a close look at the balance we wanna achieve between price and volume. Again, given where we see volumes and the reasons why volumes are down, we are not very worried at this time. Look, we are monitoring that very closely. That's one side of it. The other side is that just like you mentioned, it won't be as we move forward and we look for opportunities to increase our price where costs have increased very significantly. It won't be across the board because categories have behaved certainly differently. We expect costs to behave differently going forward. Over the past 12-13 months, we've seen everything go up. As we mentioned, resins and some things are starting to come down. We expect hopefully by next year that we will start to see pulp also start to come down. Again, we don't know by how much and how quickly, so we're gonna be careful with that. Again, it's different situation depending on the category, so we're gonna be monitoring that closely and figuring out, given the cost environment, where we need to be more efficient in our price realizations and then decide how to move forward. Nothing specific that we can mention at this point on that end. Again, it's something we monitor, as you know, day in and day out, and we will be defining how we go forward here in the next couple of weeks. Great. My last question on the profitability side. You know, how do your overall costs look like so far in the fourth quarter on a sequential basis? Then this trend of gradually restoring profitability on a sequential basis, should that continue in the fourth quarter? How do we think about 2023? Is it reasonable to think that, you know, that kind of normalized margin we've talked about, the 25%-26%, is that something you're still aiming for for next year? Yeah. First, for the fourth quarter, we expect the trend that we have posted this year to continue. When you look, for example, at third quarter versus second quarter, sequentially, our pricing of 4% was a little over what we saw, the cost environment, which was slightly down 1%-1.5%. Pricing was over cost, and that's what allowed us to improve our margins. We expect that trend to continue into the fourth quarter. Now, as we see things right now, as you know, this is very volatile, but as we see things right now, we would expect our margins to continue to increase into 2023. Certainly at some point in the year get quite a bit closer to our target margins that you just mentioned. Again, we believe our actions are taking hold, and we'll see how costs move from here on. Our current scenario would be for us to continue to improve margins throughout next year and again come closer to our margin targets. Great. You know, very good detail. Thanks for your answers, and congrats again. Thank you. Appreciate it, Luis. Thank you. We'll take our next question from Antonio Hernandez with Barclays. Hi, good morning. Thanks, Luis, thanks for questions. Two quick questions. One on cost savings. What are your expectations for the next year? A quick follow-up regarding the innovation pipeline, how much can that help support profitability while you wait for it to get worse? Thanks. Thanks. Couldn't hear you all that clearly, Antonio, but it sounded like you wanted to for us to talk a little bit more about our innovation and how it can support what we see going into 2023. I'll get into that. If I miss anything of your question, please go back to us. Very strong innovation pipeline and very strong pipeline on our cost reduction program, Apollo. We're trying to accelerate the same. Again, given the very poor cost environment we faced here in the past year and a half, we've really accelerated everything. I think by first quarter next year, when we talk about the results of fourth quarter in the first quarter of next year, we'll be able to give you more detail on what innovation you can expect going into next year. We're very happy with the pipeline. We believe it will certainly support our goal of moving forward and increasing sales with volumes and prices. On the cost side, we've mentioned about our footprint rationalization on the tissue side, and that'll really be happening here between the fourth quarter and first quarter of next year for the most part. We have already started implementing it, but there's quite a bit more that will be happening. That'll be a very important improvement on the tissue side when it comes to efficiencies, costs, profitability, and certainly product innovation. Very excited with both the innovation side and our pipeline on the cost reduction program. We believe those two together with all of the actions we've mentioned will provide the needed support so that, again, we can continue to 2023 not only growing our top line, but also growing our bottom line and improving our margins. Again, at some point during the year, getting much closer to our target margins of 25%-27% of EBITDA. Okay. If I understand correctly then, basically all of these deeper strategies and pricing actions and so on are already weighed in that optimistic view for, or at least tailored view for next year. Right? Again, on pricing, we will continue to monitor the situation, and it'll be on a category by category basis. But we will do what we need to do to make sure that we can absorb the very important cost increases that we've experienced here over the past year and a half. Okay. Perfect. Thanks a lot, Pablo. Very good. Thank you. Thank you. We'll take our next question from Robert Ford of Bank of America. Hey, good morning, everybody, and thanks for taking my call. Pablo, you mentioned competitor price lags, and I was curious if there's anything in there that makes you at all uncomfortable. You know, with price increases, you know, how are channel inventories behaving? As you know that rate of change maybe decelerates somewhat in 2023 and interest rates rise, how do you expect channel inventories to evolve over the next several months? We'll see. Well, first, thanks for being on the call, Bob, and thanks for your question. The channels, what we're seeing so far is that the smaller stores and the stores that are closer to consumers, so convenience, bodega, et cetera, are the ones that are growing at the fastest clip, with consumers really placing an emphasis on what they can spend really on the different categories given how high inflation has been. They're really looking for the closest store. We haven't seen much trade down, but we do expect consumers to really go for the smaller packages. It's really their discretionary that's a question here. We have to see how that continues to evolve and how the consumer or consumption holds up in the coming year. We hope it does. For now, what we're seeing again is that the channels that are growing at a faster clip than some of the other channels. No, it's very helpful. Do you see any buildup in inventory as retailers, especially the bigger guys, anticipate price increases? No. No, we really haven't seen that. I mean, when prices have happened during this year, you always see a little bit of buildup on the wholesale channel. That's, I mean, that's what traditionally happens. We haven't seen anything that's different from trend. No, we don't see any buildup in inventories. Understood. Knowing your categories are difficult. They're voluminous, right? The export business was also very impressive. You know, how should we think about the sustainability of that going forward? Well, again, we're balancing it both between what we're doing on the parent rolls side and what, you know, we're doing on the finished product side. It's been a little bit softer on the latter here as you know, working with our partner and becoming a stronger part of their supply chain. As some of the volumes also on their side have decelerated a little bit, so that has come down a little bit. On that side of the business, we need to really wait and see what happens with volumes, not only in Mexico, but around the globe, with how consumers hold up with this inflation environment and what we expect with the economy going forward. We continue to work with them. We continue to find ways to become part of their supply chain, and we believe that going forward, it'll have its ups and downs. It won't be in a straight line, but going forward, it will certainly provide great advantages for us and for them. On the parent rolls side, we still see a strong demand. It's not diminishing, and we expect that to continue here in the next quarters. We'll see how it all holds up. It all comes down to domestic consumption, both here in the U.S. and let's see what happens with that, given the inflation that we're all experiencing. Thank you very much, and congratulations on the quarter. Thank you, Bob. Thank you. We'll take our next question from Benjamin Theurer with Barclays. Hey, Pablo, Xavier. Thank you for taking my question, and congrats on the results and the sequential improvement. I have two questions. The first one is, could you give an update in terms of vertical integration? I mean, what have been the advances this quarter? What do you expect for next quarter, for next year? Should we see something important here? My second question is regarding capital allocation. With such a strong balance sheet and profitability gradually recovering, why not step in to buybacks given the current level of stock price? Thank you. Thanks, Benjamin Theurer. First, vertical integration. I think we continue to look at every opportunity to become more efficient and bring down our costs. We just worked a little bit on that, as we mentioned on our nonwovens machine that we just started up in our Tlaxcala mill this year, which has provided great advantages, as quite a bit of the nonwoven that we were buying outside we can now produce inside at lower costs with great quality, and it allows us to improve product performance. That's a very clear example, and we will continue to look for those opportunities anywhere they are. Where it makes sense, we will certainly integrate vertically. Again, but it has to bring about efficiencies, cost reductions, and allow us to improve product going forward. Nothing additional on this end at this point, but certainly something that we continue to analyze continuously. As we find out additional opportunities, we will certainly be mentioning those over the calls. I'll pass the second question over to Xavier. Hi, Bernardo. On the capital allocation and buybacks question, as you know, if we were to do buybacks, those funds would have to come from the retained earnings account of the equity part of the balance sheet just the same as the dividends. This year, we privileged dividends over buybacks, particularly because of the net income that we had last year. As we go forward, if net income continues to increase and we are able to maintain the level or probably even increase the dividends, we will start considering buyback again. That's not gonna happen this year. Perfect. Very clear. Thank you so much, Pablo and Xavier. Thank you. Thank you. We'll take our next question from Jeronimo de Guzman of Morgan Stanley. Yes. Hello, Pablo and Xavier. Thank you for taking my question and congrats on this good results despite the challenging cost environment. I just wanted to know if you could maybe clarify how much your volumes and also price mix changed quarter-over-quarter and year-over-year. Yeah, Jim. We're really focusing on what's happening quarter-over-quarter, so sequentially. What I can tell you there is that our prices increased 4%. Our volumes were down mid-single digits, so close to 5%. And as I mentioned, costs were down 1.5%. So very pleased to see sequentially prices better than third quarter, better than second quarter, and costs coming down, and that's what allowed us to improve our margins. On the volume side, the third quarter is always a little slower than second quarter. Again, volume trends continue to be pretty much the same as in previous quarters. As I mentioned, we've already talked about the reasons why volumes are down, and we will monitor that going forward and see what actions, if any, we need to take. Okay, perfect. In terms of costs, you mentioned the year-over-year change, but how has the individual components compared on a sequential basis? Have you seen costs coming down for other items besides resins? Yeah. What we see in costs sequentially is that we continue to see a little bit of pressure on the fiber on pulp side and even on the fluff side. While resins have improved somewhat, and we expect that to continue going forward. So we're really at this point it seems that the prices in particularly pulp have reached a peak. Now they're at very, very high levels, and they really haven't started to come down still. But with capacity coming into the market and the possibility of volumes around the world, particularly in America, being a little bit softer given the inflation conditions and the economic conditions, we would expect that to start to come down at some point in the next year. Now, we have heard this before, and it hasn't happened. It's taking a little longer certainly than we all expected, but it seems again, we've reached a peak, and it should start to come down at some point. We just don't know the magnitude and the speed at which that might happen. That's again on the pulp side. Resins, as I mentioned, we're down sequentially, and it appears they'll continue to come down as we get into the fourth quarter and into next year. In terms of recycled fibers, some indices are showing decreases in the U.S. What are you seeing in Mexico, and do you think that will be a positive tailwind for the next quarter? No. Chris, what we're seeing is still very, very high comparisons sequentially and versus last year in the third quarter. Quite frankly, we expect that to continue in the fourth quarter. Our expectation is that as pulp prices weigh down a little bit, that then that'll put pressure on fiber prices to start coming down also. Not clear when that will happen. We're not expecting it in the fourth quarter, maybe at some point into next year. Perfect. All right. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star one. We'll take our next question from Sergio Matsumoto with Citigroup. Yes, good morning, Pablo and Xavier. Thanks for taking my question. I wanted to just ask further on the prior question about the pulp price cost trend. Do you see a sequentially higher pulp price, at least in the short term, or has that second spike of the pulp price already passed you? We could expect a gradually improving margin in the coming quarters. Just wanted to see the sense of whether it's going to be whether worst has already passed or is there another bump coming along the way? Thanks. Look, for 2023, we do expect pulp prices to be lower than 2022. Again, what's still not clear is by how much and when this will start to occur. It's still not clear really when that might happen. We're in the process of negotiating contracts for next year. Really waiting to see how this evolves and when we start to see the improvement. It's hard for me to tell you at this point, Sergio, whether what will happen in the first quarter, second quarter specifically. What I can tell you is that we do expect lower pulp prices for 2023 versus 2022. Understood. Thanks so much. Thank you. Thank you. It appears we have no further questions in queue. I'd like to turn it back to management for any additional or closing remarks. Well, just wanna thank you all again for participating on the call. I know it's early for what I'm about to say, but it's the last time we talk to you this year. Our very best wishes for the end of the year. Hope you have a terrific holiday season, a great end to the year, great start to the year, and we look forward to talking to you early next year with our fourth quarter results. If there's anything else that you guys need, please feel free to reach out to our IR team, and we'll be glad to talk further. Thanks again, and take care. This concludes today's program. Thank you for your participation. You may disconnect at any time.