Thank you for calling. Please have your conference ID ready and a coordinator will be with you momentarily. If you require assistance during your program, please press 0 and a coordinator will assist you. Thank you for holding. May have your conference ID, please? Oh, okay. And can I get the spelling of your last name? And your first? And the name of your company, please? Thank you. I'll place you on your conference. Standby. Your program is about to begin. Good day, everyone, and welcome to the Kimberly Clark New Mexico 2Q 'twenty five Earnings Conference Call. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Pablo Gonzalez, CEO. Please go ahead. You. Hello, everyone. Hope you're having a good summer. Thanks for participating on the call. We'll go straight to results, and then we'll make some comments about the quarter and our expectations going forward as well as update you on some important initiatives underway. So Javier? Thanks, Pablo. Good morning, everyone. During the quarter, our sales were MXN 14,100,000,000.0, basically flat versus last year, 1.7% higher than the first quarter and an all time quarterly record by a couple of million. Total volume was down 3.3%, and price mix was up 3.3%. Consumer products and away from home decreased two point two percent and seven point eight percent, respectively. Exports were up 24.5% with double digit increases in both converted products and hard rolled sales. Cost of goods sold increased 7.2%. Against last year, salmon resins were favorable, virgin fibers were mixed, while recycled fibers and fluff compared negatively. The FX was significantly higher, averaging 17.3% higher. Our cost reduction program once again had very good results and yielded approximately 100,000,000 pesos 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 decreased 9.7%, and margin was 38.2% for the quarter. Mix was negatively affected by an increase in lower margin hardware sales. SG and A expenses were 3.6% lower year over year, and as a percentage of sales were down 60 basis points. Operating profit decreased 13.9%, and the operating margin was 21.7%. We generated 3,600,000,000.0 pesos of EBITDA, an 11.5% decrease. As we had anticipated, even with a significant peso depreciation, we were able to maintain our EBITDA margin within our long term range at 25.4%. Cost of financing was 352,000,000 pesos in the second quarter compared to 356,000,000 pesos in the same period last year. Net interest expense was slightly higher at 300 at 373,000,000 pesos versus 319,000,000 pesos last year. During the quarter, we had a 21,000,000 peso foreign exchange gain, which compares to a 37,000,000 pesos loss last year. Net income for the quarter was 1,900,000,000.0 pesos with earnings per share of 62¢. We maintain a very strong and healthy balance sheet. Cash position as of June 30 was 11,000,000,000 pesos. We have no debt maturing for the rest of the year, and maturity for the coming year for the coming years are comfortable. Net debt to EBITDA ratio is one, and the EBITDA to net interest coverage is 10 times. Over the last twelve months, we have repurchased close to 50,000,000 shares, more than 1.5% of of the shares outstanding, which brings the total payout to shareholders to 7.5%, including the cash dividend. Thank you. As expected and mentioned in our prior call, the first quarter trend continued during the second quarter and resulted in top line basically flat versus last year, albeit a quarterly record, lower bottom line margin, but improving sequentially and EBITDA still within our target range despite significant uncertainty, consumption deceleration, raw material cost increases and very negative exchange rate. Once again, this reflects the strength and resiliency of KCM. On the top line, we compared to a very strong second quarter of last year, and we faced a challenging environment with leading indicators signaling a slowdown of the economy and private consumption. A key indicator for us is that volume growth in some of our most important categories is muted, and even in higher growth ones, it's been slower. In addition, we continue to see clients aggressively manage their inventories given the economic conditions and uncertainty, plus, and this is very important, we intentionally reduced our support during the heavy summer promotional season. This strategic decision had an important negative effect on our volumes, but it's intended to protect the value of our brands as well as reduce the negative pricing effects, and it means that both consumers and clients did not stock up on our products, which should translate into healthier volumes and prices during the second half of the year. This, together with our accelerated innovation plan, and I'll have more on that in a moment, increased investment behind our brands and execution behind the opportunities we've identified should translate in growth accelerating in the coming quarters. With respect to costs, the higher exchange rate plus the fact that the anticipated relief in pulp prices did not materialize, particularly in softwood pulp and fluff, which were at record levels, had a meaningful impact. Given soft demand from China, we are finally seeing prices come down, but slowly. Going forward, we expect dollar denominated costs on tissue raw materials, that is pulp and recycled fibers, to have a more modest impact. And we expect a mixed picture in personal care, higher fluff with lower resins and superabsorbent materials. Having said that, it's clear that the lack of certainty and many different moving parts could change the outlook. Accordingly, we've carried out selective price increases, have put in place actions to support a richer mix, and are well on our way to achieving record savings for the year. Now let me turn to innovation and provide an update on the launch of of the pet business. During 2025, we will introduce product improvements in every category in which we participate. So far, we've introduced important innovations in the diaper, wipes, and incontinence categories among others. And in the coming quarters, we'll continue to strengthen our offerings to consumers in bathroom tissue, incontinence pads, and feminine care. We'll be in a position to share more details on this in future calls. Also, continue to make progress to bring to market technologies and products that will increase consumer preference for our brands in the coming years. Finally, as we've discussed with you, in the medium term, we expect to accelerate our growth rate by achieving double digit growth rates in categories with higher growth potential like wipes, kitchen towels, facial tissue and wipers among others, as well as through adjacencies and entries into new categories. With respect to adjacencies, the recent integration of 4e Global into the KCM operation is creating opportunities to strengthen our position and capabilities in the soap and toiletries categories as well as to participate in shampoos and other liquid based product categories. As we move ahead with our plans, we expect sales to accelerate in these categories during second half of the year and particularly during 2026 and 2027 as we bring our pipeline of innovations to market. And when it comes to our entry into the pet food business, we're in the process of gaining distribution behind our brands and have started the commercial and marketing efforts to support them. We have received excellent feedback from consumers and will embark on an aggressive sampling program to get more consumers to try our superior products and start to position and grow our brands. We're in the first mile of a marathon. We are excited with the consumers' very positive reaction to our products. We'll keep you updated on our products. With that, let's turn to your questions. We'll take our first question from Alejandro Fuchs with Itau. Please go ahead. I have just one brief one on the top line. Maybe, Pablo, wanted to see if you can elaborate a little bit more into the volume pressure. I know you mentioned some macro slowdown and consumption slowdown that that we have seen across the board in Mexico, but I want to see if maybe we can also process if you think this is also maybe competition, a lot of some of, you know, your competitors doing. And and also maybe you you said that second half should be a little bit better, a little more growth. But also, you you continue to see the slowdown today and comps are a little more difficult for for Tinder in the second half. So so maybe what what would be the drivers to of growth in the second half of the year? Thank you. Thanks for the for the question, Alejandro, for participating in the call. Yes. As you know, the the Mexican private consumption and the economy as a whole has has continued to slow down, and we are certainly feeling it in our categories. As I mentioned, it's a key indicator for all that volume growth in our biggest categories is is muted. So we're seeing, for example, in diapers, bathroom tissue growth flat or slightly ahead of last year. In the higher growth categories, we are seeing them going at a higher clip, but still not at the rate they were doing so. So there's no doubt that the consumer is stretched and they're trying to make ends meet and and really trying to stretch their budget. So we we continue to see that. And the you the thing is that that's the sellout in our category, but then you have the sell in and we're seeing a big difference between the sell in and the sell out because we see our clients being very, very aggressive in the way they're managing their inventories. So that whole those two things are certainly having an important impact in volumes overall in sellout, but then even a higher impact in our case in sell in as clients work through their inventories given given all of the uncertainty. Now going forward, we currently see no big support for the domestic consumption to increase significantly in the coming quarters. The reason why we're a little bit more bullish on our end is because, one, as I mentioned, we did not participate as aggressively as we have done in the past in in the summer promotional season, and we did that to protect the pricing and the value of our brands. But what that means then going forward is that you don't have clients as inventory as they have been in past years and consumers as inventory in our product as they were in past years. And I'm mentioning clients, not just clients, because what happened in past years and still continues to do so with these promotions is that those who do the promotions, bringing a lot of product to their inventories before the they they go ahead and then put the promotion in place, and then they sell that product both to consumers but also to other clients. They do sell this product to the wholesale channel. So what would end up happening in past years is that during the third quarter, many clients were inventory and many consumers were inventory plus the price with value. So now that we didn't do that, we're expecting going forward that our inventories are a little bit healthier out there, both with clients and consumers, and we expect that to translate into volumes increasing going forward. That's one. And certainly, the other is the all of our push we have behind our innovations. We are continuing to work on a multi tier, multi channel strategy that you know very, very well, and we will be strengthening that strategy so that we strengthen our differentiation at every level. We are adjusting counts, press presentations, and the corresponding prices to make our products even more accessible to, as I said, stretched consumers. And also, we are fine tuning and strengthening our private label strategy where it makes business sense. So, again, we're we we we think we're in a healthier position plus the actions we're taking in innovation and strategy wise, we believe over the coming quarters, it won't be quick, but over the coming quarters, we should we expect our volumes to start to to pick up. Thank you, Alfonso. Thank you very much, and and have a great weekend. Thank you, Alfonso. Our next question comes from Robert Ford with Bank of America. Your line is open. Hey. Thank you so much, and and good morning, everybody. Pablo, are your exports to The US impacted by the incremental Trump Trump tariffs? Or are they shielded by the USMCA? So far, shielded by the USMCA, Moe. Fantastic. And I'm I'm just curious. How how are the the tariffs on China kind of impacting KCC sourcing out of China? And and and how are you thinking about the export opportunity into The US? Yeah. Thanks for the question, Bob. Look, there's, of course, a lot of uncertainty as to where all this will end, but there's no doubt that there's gonna be higher tariffs on on on China and many other countries. And we believe that, relatively speaking, Mexico would will be in a much better position versus all those countries to continue to to integrate further with The US. Our partner is looking at this very, very closely, and we're having a very productive conversations with them to understand where the opportunities are so that we can increase our exports of finished products to them. I think we'll see this certainly come to bear in the fourth quarter and and through next year. And it's not only with KCC, we're doing this with quite a few other players that are they believe they're going to be impacted with what's happening. And we're certainly trying to take advantage of that since we believe we're not only well positioned right now, but as I say, we're confident we'll continue to be better positioned than the rest. So we're exploring all the opportunities. As you know, it takes a little bit of time, but we do believe that many of this will bear fruit in the coming quarters and certainly into 2026. So it's a good opportunity for us, Bob. It's great to hear. And with respect to the discipline that you showed in the summer promotional campaigns, did did competition show similar discipline or, you know, was it the the classic it's almost like a game theory problem. Right? So I'm not sure. I'm just curious what you're seeing in terms of the competitive environment. I think competitors pretty much approached the summer promotional season as they've done in the past. So when the promotions did go into effect for those four or five days when they do them, we were certainly at a big disadvantage. But again, we believe that for the long run, this is the right thing to do. It hurt us during the quarter, but it positions us very, very well going forward. And we'll continue to be very, very diligent in how we approach this to protect the value of our brands and to bring the best value possible to consumers and clients. Makes sense. And one last question if I could please. And that is you touched on entering the shampoo category. I was just curious if you could do you plan to extend exclude on to the shampoo category? Are you thinking about a different branding campaign? I'm just trying to understand the addressable market, the positioning of the product and maybe the margin profile. Sure. We'll be able to share more in the coming quarters, Bob, because we're going through the whole analysis. What I can tell you right now is that we already participate in in in the shampoo category, particularly when it comes to certainly toddlers and kids. But also in adults, we have some specific brands that we sell through different clients, and and they sell pretty well. So we're just taking a look at the at the market. We're taking a look at the participants and figuring out what would be our best strategy to participate in that market so that we can do it in a way that we can grow to grow profitably. Otherwise, it's something that we have no interest in. So we've been we've made inroads so far with a couple of clients, and we're finding our way. But I don't think you'll see let me just put it this way, I don't think you'll see a a national brand and a big, big push behind a national brand brand. It's really niche and and the way we're playing with certain clients with certain brands that they're supporting very aggressively. But again, we'll be able to share more on this and some other very interesting and important initiatives for us in the coming quarters. Our next question comes from Antonio Hernandez with Activer. Just could you provide a little bit more light on how was it turning during the quarter? I mean, is it a soft start and then you can use the trunk or or or the fifth old one? And maybe you could provide more light also in terms of consumer and away from home within this perspective. Thanks. Sure. It's it's just Antonio, to make sure I got your question because you didn't come out very clear, but you're asking about during the quarter how we progressed. Right? Exactly. How you're seeing the this start of of the first quarter? Okay. I'm gonna say that it was again, given economic conditions, we didn't see, in our case, very big differences April, May, or June. Again, our competitors who were more aggressive during the particularly June promotional seasons season probably saw a difference. In our cases, we managed it differently. It was pretty consistent, and and we're seeing the same thing with with the July. So, again, we we unfortunately, at this point, we see no big catalyst for domestic consumption to to really accelerate. Hopefully, that changes in the near term, but but there haven't been any catalyst for that to to change. So it's really more about us putting a strategy that allows us to get closer to the consumer to our clients and gaining some some shares so that we can get growth in the second half of the year. Now when it comes to professional, yes, we saw an important decrease in sales in our professional business this quarter, and it was mainly driven by volume. Our price mix was slightly positive. And it really has to do with the same economic conditions that we're seeing. And and as we talk to our distributors and we talk to our end clients, particularly outside of Mexico City, both hotels, restaurants, etcetera, they're seeing a sharp, sharp slowdown versus last year. I mean, double digit slowdowns when it comes to tourism in Cancun and many other places. And it's just much, much lower than it was. And when you put that together with the distribution system we have for that business, which is through distributors And distributors, in this case, tend to have quite a bit more days of inventory than, say, in the consumer product side. So they they they just haven't have been they needed to bring down those inventories. So again, it's a combination of a slower economy and our distributors needing to bring down inventories because of the uncertainty and slower economy. And we'll see if that picks up here in the coming quarters, but everyone I talked to so far says that Mexico City particularly seems to be doing well, but outside of Mexico City, things seem to be quite a bit slower when it comes to services, and that's certainly hitting us on that business. So doing the same as we're doing in consumer products, making sure we have the right products for this moment in time, that we're working with our distributors to get those products to market and that we're talking to clients to make sure we understand their needs and we can get those products to them as quickly as we can. But certainly, it's no market at this point. Thanks. Appreciate the color. Have a nice weekend. Thank you, Antonio. You too. Our next question comes from Brian Labick with Barclays. Your line is open. Hey, this is Ryan on for Ben. Thanks for taking my question. So focusing on consumer behavior a little bit here, are you guys seeing any trade down amid the price increases you took during the quarter and lower remittances remains of the country as well? And going on that a little bit, with the value proposition for KCM, what do you think in the third quarter, fourth quarter, as you talk about potential volume increases, is going to have customers choosing your products over competitors, especially with the larger price gap now? Thanks, Brian. Thanks for the question. A very important one. Yeah. No doubt. We are in the market. We're no doubt seeing consumers trade down. And I'm I'm being very cautious in saying in the market because in our case, we have a a richer mix because we've we've supported many of our upper tier products, and they performed very, very well. So you've got a a a dichotomy market for consumers that have a little bit more to spend continue to do so. So the majority of the population is stretched, and they're certainly trending or trading down to lower priced products and lower count products. So what are we doing about it? And and we have been doing it, and we have very important plans in the second half of the year to strengthen this. Again, we're working on our multi tier strategy, making sure that we have the right prices for every tier and the right product for every tier. As you know, we we have products in the economy tier also and value and premium. And many or most of the times when people are trending trading down, they trade down from a from one of our brands in value to one of our brands in economy because we lead in value economy and premium. But we need to continue to strengthen that proposition because there's certainly more competition out there. So we we are strengthening that that proposition, and we're seeing in many instances some some very good results. The other thing we're doing, and this is not just for the economy products, but for all of our portfolios, we're we're making sure at this moment in time, we have the right counts, the right presentations, and the right prices out there to make sure our products, again, notwithstanding this year, are even more acceptable to to consumers. And we're putting in place quite a few things in the coming quarters to that respect. And finally, as I said, we're fine tuning and strengthening our private label strategy where it makes business sense. We've always said that we could we analyze this and wherever we see an opportunity that we believe makes sense, we pursue it and we continue to fine tune that strategy. And you'll probably see us be more aggressive on it in the coming quarters. So I would say those are the the the key areas behind our push for higher growth in the in the coming quarters. It won't be again, it won't be fast because the it's it's slow out there, but we we continue to believe that we're well positioned. And with the actions that I've just described, we'll be even better positioned to take advantage of or to serve our clients, our consumers, and certainly in the coming quarters and into 2026 be in a much, much better place. That's perfect. Appreciate the color. Have good one. Yeah. Thank you. Thank you. Our next question comes from Roeland Mendez with JPMorgan. Pablo, just want to to make sure I understand because you you you mentioned that second half should see better volume and even growing volume. But when I hear more of your comments and your your deeper dive into the dynamics and specific categories, etcetera, The the only lever that I can hear from your speech is the fact that you are probably with less inventory at the at the at the different channels that will allow for the sellout sorry, for the for the selling to be more more, let's say, more robust into the second half, not really that the consumer is actually willing to buy more. So in in that sense, the second half outlook on top line, is it is it really a gain not a gain share, but an inflection point? And if it is the case, what should we expect for margins? Because there, you do have some leverage, right, better effects, like you mentioned about input cost coming down. In that sense, with the combination of top line plus cost, do you feel more comfortable to end up the year in the higher range of the guidance? Thank you so much. Thanks, Bruno, and thanks thanks for the question. Let's see if I can I can provide a little bit more clarity? Let me put it this way. When when we think of top line in the short term, we've got a couple of headwinds. One is, as we've mentioned, the economic slowdown, and two, the inventory reduction we're seeing from our clients. And we're still experiencing experiencing that, but, again, we believe we're in a better position. So we'll be healthier certainly through this than many other competitors. So those two things are headwinds. Now when we think of tailwinds, as you mentioned, we certainly I think the strategy we put in place protected volumes, protected prices, very importantly, prices also. So that that should certainly certainly help. And as I was just mentioning to Ryan, very importantly, the adjustments we're making in the second half to our portfolio and strategies, which we are confident will be able to aid our volume growth. So putting that those strategies and portfolio in place doesn't happen over overnight. So July might be a little bit slower, but we're we're certain that by the end of this quarter, we'll see a very different picture. And certainly by fourth quarter. Some of these, I think, we've done already, and they're they're showing great, great progress. And we are confident that many of the other adjustments we're making will also provide us with an advantage and bring volume to our site. So might be might still be a little slower start in the third quarter, but certainly picking up throughout. And in we believe we'll be in a much better position in fourth certainly in 2026. So that's on the top line, and I hope that provides a little bit more clarity. On the bottom line, which you mentioned, also some headwinds and some tailwinds, and let me go through that very quickly. On the headwind side, a couple of raw materials still pressuring our cost, but we believe the impact will be more moderate than it's been this past quarters, which has been pretty aggressive between the increase in prices, for example, in pulp and fluff plus the exchange rate. So going forward, that pulp starting to change. As we said, recycled fibers might provide a little bit of a more moderate impact. Fluff will continue to impact, but superabsorbed materials, resins will be a positive. So we're starting to see a different picture of raw materials that have a more moderate impact, those that are still higher and some that are coming down. So that's one one headwind. The other one is that, of course, we've got some inventories in our balance sheet given the prices that that we've seen in the past couple of quarters. Our inventories are higher, not in volume, just in price because of how prices went up. So we have to go through that inventory, but we'll do that here in the coming month, month and a half and and get through that. So those are the headwinds. And then the tailwinds, very important is, as I mentioned, some raw materials have certainly turned around. The exchange rate will be in a much, much better place during the second half of the year. And our savings plan continues to bring about great savings, and we're working hard to bring even more in this year and working into 2026 and '27 already. So headwinds and tailwinds in both cases, top line and bottom line. But as we move through the second half of the year, we have we're very, very confident that the tailwinds will be much stronger than the headwinds, and our results will continue to improve. Hope that provides clarity. Perfect. So thinking about the margin guidance ending in the lower end or in the higher end or in the middle as you see it today? Where where do you feel more profitable on margin? It's it's uncertain uncertain with all of the things happening for them, but you've you've seen that we've been able even with all of the pressure, we've been able to keep our margins strong. And again, if if this tailwinds, particularly towards the end of the year and into 2026, go our way, our margins should continue to improve. Excellent. Very, very, very helpful. Gracias, Pablo. Gracias, Pablo. Next question comes from Juan Guzman with Scotiabank. Your line is open. Hi. Good morning, Pablo, Javier, Salvador and all the team there. Thanks for the questions and congrats on the results. Quick one here and as a follow-up to your previous answer. Regarding expenses, we have seen some improvements in operating leverage along the year. Also, G and A as a percentage of sales is still a bit above your scorecard levels. So my question here is how sustainable do you see these gains? And how much room do you see for further improvements over the next quarter? And aside from the positive effect of a higher top line growth in the future, what measures are you taking on this front? Thank you very much. Hello, Juan. I'll take the first one in terms of SG and A. Yes. As you noticed, this quarter and the first quarter of the year, we made significant efforts to curtail some of our expenses due to the to the situation we're we're facing. Some of these, and for the most part, we will continue to have going forward, although we will also ramp up our investments behind the brand. So I would probably say that going forward, we will pretty much be in line with what we've seen on average on the past few quarters. One opportunity and one area where we've reduced expenses, and this one will provide will continue to provide benefits going forward. But, again, it's gonna take time is distribution expenses. That's that's one on the what's happened and what we believe what will be in the near term. Longer term, going forward, I mean, we were living in a very different environment. And even though we've always been a very lean and efficient company, we're working very hard and have exciting plans to make sure we stay as lean and and efficient as as possible, and that, hopefully, in the future will be even even the current scenario we can improve upon. Because, again, it's a it's a different competitive environment. It's a different economic environment. That's the way we see it, and and we're approaching it in the sense that we need to continue to evolve with it and transform ourselves and make sure we are the most efficient and leanest company out there. And we've got plans to for that to continue to to be the case going forward. Got it. That's pretty clear. Thank you very much. Thank you. We'll take our next question from Rodotka Brall with Sixth or Bank. Please go ahead. Hi. Hi, everyone. Hi, Pablo. Javier Salvador. Thank you so much for taking my questions. My question is a follow-up regarding SG and A. We we know that all the industries are more labor intensive, but there's the discussion of gradual reduction of labor hours in discussions in Mexico. Just to understand, how do you see this impacting the company, if there is any ongoing similar to or initiative to to mitigate the disintermediacy if the law passes in the future? Thank you. Hello, Renata. The analysis that we've done so far point to two things. Number one, any impact would be not on SG and A in our case, but on cost of goods sold because this labor changes would affect union and workforce. There's some impact, but I probably say to think there. Again, this is what we've identified so far. Number one, the size of the impact is not that significant. If you recall, labor represents about 8% of our cost of goods sold. But out of that, a significant proportion is comes from profit sharing, and that would not be affected. The other part, which is directly related to salaries, would be impacted in in a proportion. But, again, it's only on 5% of our COGS. Number two, having identified these risks, we have put in place several teams, several initiatives to see where we can offset these increases, where we can add automation, improve efficiencies so that over the long term, it doesn't have a significant effect on our on our cost. Thank you so much for the call. Very helpful. Thanks, Renata. It appears we have no further questions I'll turn the program back to the speakers for any additional or closing remarks. Thank you, Raisa. Thanks for your help, and thank you, everybody, for participating in the call. Again, I hope you have a wonderful summer. We're ready to take your call if you have any any further questions. And as you know, always happy to to discuss further with any of you. Thanks again. Talk to you soon. This does conclude today's program. 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