Yahoo Finance

Question and Answer Session

Operator

Certainly. Everyone at this time will be conducting a question-and-answer session. (Operator Instructions)
Lauren Lieberman, Barclays.

Lauren Lieberman

Great thanks, good morning. I know there's a lot to cover today, but I was hoping we could start with organic growth. So results in North America, significantly trailed what we've seen in scanner, which was, pretty strong actually and we didn't see in scanner the kind of deceleration a lot of other companies and categories saw during the quarter.
And I know in the prepared remarks you mentioned there was no retail de stocking, so it'd be great if you could just, help articulate, what drove the GAAP in North America performance reported versus what we saw on scanner.
And then secondly just. Get to something north of 1.5% to 2% organic sales growth for the year, so better than category growth, implies a significant ramp after the first quarter results globally. So hoping you could, you just talk a little bit about why we should, expect to see that acceleration? Thanks.

Nelson Urdaneta

Sure, thanks, Lauren, and let me, I'll get started with bridging the first quarter and how we expect the balance of the year to evolve, the acceleration that we are foreseeing in volume and mix, especially as we go into the second quarter, and then I'll ask Mike if he can jump in in terms of some of the key initiatives that are being taken across the globe as we speak.
So firstly, as Mike said, in our organic sales were slightly below our expectations for the first quarter, while profitability was in line with what we expected, supported by strong productivity delivery both in costs and overheads. As a reminder, we're lapping the strongest quarter in 2024, in which we grew 5.6% organically last year.
There were four factors at play in the first quarter when we unpack organic sales growth, which helped bridge scanner data consumption to what our organic sales, came in. Firstly, as we stated, weighted average category growth was -- we had expected to be around 2% coming into the year. That's what we had seen at the end of 2024. Whereas for the first quarter, we're in the 1.5% to 2% range.
So that's the first factor. The second is this year has one less day of shipments in the first quarter as well as in the full year. Whereas scanner data is apples-to-apples in terms of days and weeks versus the prior year. And this is representing about a 100 basis point impact to organic sales in the quarter. Thirdly, we're facing lower year-on-year North America private label shipments outside of the private label diaper business exit we've been highlighting.
And this, as a whole, represents about 40 basis points to total company organic sales. And in the case of North America, which you asked, it's about 2 times that, about 80 basis points of a head. And then lastly, we had planned strategic pricing investments in price architecture across several markets and categories, including US consumer, which started happening at the very end of 2024, and US professional, where we've been maneuvering through a highly competitive environment in certain segments within professional as some -- as well as some of our emerging markets.
Now going into the full year, and our expectations in the year to go. First, consistent with our long-term algorithm, we continue to target a volume and mix based organic growth for the year. That's ahead of the categories in our markets. We have a strong slate of new product and go-to-market activations that are happening as we speak. They're being ramped up.
We started at the end of March, and that's happening through Q2 parts of Q3 and investing heavily behind it, and that's one of the pieces that should accelerate volume and mix in Q2 and on. The other bit is when we do the comparison against the prior year, Assuming shipments are in line with consumption, we should see just less than 40 basis points of a tailwind in 2025 versus 2024, and from the retail destock that we experienced last year, and that's all built into our outlook for 2025.
So as we get into the quarterly perspective, it's really going to be basically on the year to go, a comparison of quarter-over-quarter and that's the progression that we're seeing. And Q2, in particular, should be one of the easiest comps that we have because of the destock level that we saw in North America which overall would represent a tailwind of around 80 basis points for the company. And again, that's primarily in North America.
So overall, we are expecting to see volume and mix to accelerate in the balance of the quarters for the year. And now I'll turn it over to Mike for some further perspective on the initiatives.

Michael Hsu

Yeah, Lauren, I'd say, one, we have a strong pipeline to improve our consumer value propositions around the world. And that's why we felt like it was very important despite some of the external headwinds we're seeing to preserve the fundamentals of our plan and execute it. And so overall, I'm going to say a couple of things, growing faster than our categories and markets depends on how well we provide better care for our consumers. We expect to deliver healthy volume and mix-driven organic growth.
And as Nelson points out, we do believe that will accelerate in Q2. What's behind that is a slate of innovation that we've launched. I mean, I mentioned in my prepared remarks, Huggies Skin Essentials in North America. That's only recently started shipping and it's barely started shipping, and it's a great product. If you look at the reviews, it compares very favorably to the premium tier even though it's targeted against the mainstream value shopper.
And so we feel great about the innovation. We also have a broad slate of improvements that have yet to start shipping in international, including Latin America, where we have seen a little bit more softness recently. And we're going to make some significant product improvements internationally along the same lines, improved product quality. And so that's really the basis. Our whole strategy is predicated on we're going to make better products at a lower cost, and we're going to innovate to do so, and we're going to pull on the matrix to work faster to bring the best of what we have to markets around the world.

Operator

Nik Modi, RBC Capital Markets.

Nik Modi

Yeah, thank you.

Michael Hsu

Good morning Nik.

Nik Modi

Thanks. Well, good job. So I guess, Mike, the question is, just given the value-seeking pressures that we're seeing pretty broadly that I think we can all agree, will probably persist for at least the next few quarters --you talked about innovating at different tiers. But how do you manage that along with the price mix and kind of your margin cadence, right?
So just trying to get an understanding, like -- is the revision just a tariff-related thing or are you also baking in some kind of mix weight as you kind of innovate more on the -- more of the value end of the market?

Michael Hsu

Yeah, Nik, I would say the revision of the outlook is primarily headwind cost related, right? And so and I'll say strategically, I think as we're implementing our innovation strategy and our marketing strategy, I think we've accounted for some of the mix differences. But I want to say a couple of things. One is that our categories continue to exhibit very resilient demand.
I mean the category growth, as Nelson pointed out, has decelerated, but it still remains healthy. It's 1.5% to 2% versus 2%-ish at the start of the year. That reflects a little bit less pricing as we had highlighted in international. And then there is some frequency and softness across Latin America, which is under the gun economically as well.
I will say, though, in our categories, they are daily use categories and consumers remain interested in the product performance and they're interested in better performing products. I think, Nik, increasingly, affordabilities become paramount more than kind of -- it's been in my dozen years -- dozen plus years here at K-C.
And so we're very focused on that. We recognize that situation, and we understand the burden that I would say, the middle income to lower-income households are dealing with. And so we are -- our strategy is to -- we've said in the prepared remarks, cascade our innovation from premium throughout the tiers. And again, I think the Snug & Dry example that we pointed out.
I think one of the analysts sent us yesterday, the reviews, they compare very favorably to our Tier 5 product. and we're okay with that. Part of that is how we manage the mix and the margin structure. But also, I'd say we're going to prioritize winning the consumer and win in the share. And then part of management's job is to figure out how to solve the mix issues, and our teams are doing that.
So what we want to do is put the best product in front of the consumer and get them into the Huggies brand or the Kotex brand or brand, and that's our job one. And then secondarily, we'll be able to mix over time, we think.

Nik Modi

Great. Thanks, Mike.

Michael Hsu

Okay, thanks, Nik.

Operator

Dara Mohsenian, Morgan Stanley.

Dara Mohsenian

Hey, good morning.

Michael Hsu

Hey Dara.

Nelson Urdaneta

Hey Dara.

Dara Mohsenian

So just wanted to get a bit more detail on the incremental $300 million in tariffs. I get the dynamics are rapidly changing on the tariff front. It did sound like previously you felt the tariff impact will be more manageable. So really two questions. Just first, short term else why is the situation more burden than previously believed.
Can you give us some detail on where specifically the incremental $300 million is coming from? Is it pulp? Is it China? How much are other buckets, et cetera? And how much you're assuming you can offset through both price and productivity when you look at the full year guidance? And then a second, maybe a similar question just from a longer-term perspective, Mike or Nelson back at Analyst Day 13 months ago, there was a lot of time spent on how you're able to potentially price quicker, more precisely, drive mix to offset cost issues, et cetera.
Just where you stand as an organization 13 months later, should we think of this just as more of discrete external issue, the tariffs that are onetime and hard to sort of plan or manage for or has something changed in your ability to sort of use agility and flexibility to manage through the cost environment as you outlined down at Analyst Day as we move sort of past the tariff impacts we're talking about today. Thanks.

Michael Hsu

Yeah, let me start -- I'll ask Nelson to provide the details on kind of what changed. But I will say the whole underlying strategy and why we're rewiring our organization for growth is we want more agility. And so all the things you talked about, Dara, can we move asked whether it's on revenue management or on cost manage.
We're able to move faster now than we were just one year ago, right? And so that's kind of one of the key points. I would say just to comment on what changed. I would say what change is, I think, the breadth and degree of tariffs and also the countries involved, I think, has changed significantly since maybe where we were at the end of the last quarter.
And so I think that there has been a as everybody knows, it's a very volatile kind of environment, and there's been a lot of change back and forth and continues to have change. And so this is kind of represents our best view of what we see today, which I'll let Nelson talk a little bit more about.

Nelson Urdaneta

Sure, and a few things. So back in December, Dara, when Chris and I were at the at your conference, I mean, we chatted, we shared at the time that the majority of what we sell in the US is sourced and made locally here in the US, and that in terms of raw materials and finished goods, our combined exposure to three specific countries China, Mexico, and Canada was just less or around 10% of our total cost of goods.
If we factor in all of our raw materials and finished goods imports for our US business, 80% of our total costs in the US are US-based, so only 20% of our US costs are exposed to tariffs. As Mike indicated, in the last 20 days, we've had to reflect cost impacts of actions on three fronts, which also include the depth of the actions. First is the aggregate US tariffs on China of 145%.
This is driving about two-third of the $300 million gross impact that we have shared today. That's largely unfinished goods for your ask of the breakdown. The other element is US reciprocal tariffs to Mike's point about breadth and reach, and that's about 10% that have been put in place on other countries which we source from, and this is representing about 10% of the $300 million dollars impact.
And then lastly is the set of retaliatory tariffs that have been announced by other countries on the US, and this is representing around 25% of that $300 million. We're working, fast through actions to mitigate these costs, and frankly, the learnings that we had in the '21, '22, '23 cycle have come in pretty handy. And the other bit is that we're one year into our Powering Care transformation.
We recently hosted, many of you at our Beach Island facility to showcase some of that transformation and in action and what we're doing about it. And frankly, at this moment, we're much better positioned to handle through many of these headwinds. Now it takes a little bit of time. You can't solve that overnight because we're having to re-accommodate some of the elements of our supply chain, and we intend to already be able to address about one-third of the impact this year.
Now it'll take us through 2026 to pretty much be able to address the whole element in a consistent manner based on what's been enacted today. As always, we will keep our consumers at the center of any course of action that we take to make sure that we're having the right value props in place.

Michael Hsu

All right, Dara. We're going to give it to you like a fire hose because sorry, we got a lot to say on this, but I will say the big thing I want to emphasize and there may be some semantics here, but you mentioned, is it a discrete item.
And at this point, I am treating it as a discrete item, right? There's an externality that we don't think will continue to recur over time. And so what we want to do is run the play, run our plan as intended, right, give innovation in the marketing and all the productivity plans, room to breathe, and so we want to execute those.
So our global network, I really feel strongly positions us to navigate this valeting environment very, very well. And so as I mentioned, Powering Care, the strategy that I outlined, I think we continue to be very committed to that strategy. We want to differentiate our brands through superior innovation and activation. We want to deliver world-class levels of productivity. We want the organization to work faster.
And so those are all, I would say, evergreen things that would be good in any economic environment, but especially in this environment. And then the other thing I want to point out is that this change in the tariff environment, while it presents a near-term challenge that we just kind of went through, it also presents some opportunity.
And so we feel like the best approach to mitigate the headwinds to reoptimize the network, right? And so what this has done is change kind of like the cost of different nodes of our network and change some of the operating constraints. And so we just have to rerun the model and in my words, kind of reoptimize what our flows are, right?
And so that's part of what we all signed up for. I think the other thing is, over the last couple of years, we've really enhanced our ability to deliver better products at lower cost. Huggies Snug & Dry is a great example with the US, China and the rest of the world working together to deliver a superior proposition. And so we also think there is going to be more value-oriented volume to be earned, and we're confident in our ability. So we're going to maintain brand and product support that we anticipated at the start of the year.
And then we are working hard to accelerate savings so that we can drive durable solutions.

Dara Mohsenian

So can I just. Quickly follow up? Yes, no, that's very helpful and in a lot of detail. The value-conscious consumer that you've talked about in the prepared remarks and so far in Q&A. How much of that have you seen so far versus it's more of a forward expectation? It sounds like that's more expected from here.
And you obviously talked about the broader product offering, the innovation, winning with consumers. But just can you talk about the need for maybe investing in affordability and the pricing side of things, particularly given the pricing results that we saw in the quarter here in Q1. That would be helpful.

Michael Hsu

Thanks. Yeah, I mean, I think it was it's a subtext in our whole discussion, which is we've been seeing it and you probably have been seen in our categories over the past year, right? I think there's been a migration to opening price point where that typically has meant more affordable opening price package sizes that consumers could get into.
That's primarily for lower income households. I think on the higher income, they're even seeking value by, I would say, larger accounts at lower price per unit, right? And so we've seen both ends of it. And I think if you -- and this was in the prepared remarks, if you look at kind of the impacts on costs that are going to be hitting the average consumer in the US, I think budgets are going to be tight.
And so affordability for us is core to our strategy here. It's why we highlighted what we're doing on Snug & Dry, which is our mainstream value play here on diapers in the US. We have that same strategy around the world and also across our categories.
We want to offer a great product offering at the premium end, and that is going to continue to be a big growth driver for us. But we want to cascade the product innovation that we have at the premium and throughout the tiers that we offer. And then we'll let the consumer decide about which products they want.

Dara Mohsenian

Thanks. I'll get back to you.

Michael Hsu

Okay, thank you, Dara.

Nelson Urdaneta

Thanks, Dara.

Operator

Anna Lizzul, Bank of America.

Anna Lizzul

Hi, good morning, and thank you so much for the question. First, I did want to touch on costs as well. The cost environment is certainly creating more pressure, and it is a very fluid environment. We're just related to marketing, is this impacting your ability here to invest? Or are you considering different means of where and how you're reaching different consumers now, just given they are more pressured? And then related to innovation, of course, understanding that plans have been made for this year, consumers are expecting to be more value conscious.
Does this impact your longer-term strategy at all and thoughts around a more premium portfolio?

Nelson Urdaneta

Yeah, so a few things. I'll start with the cost environment and what we're facing. So I'd like to separate it into two elements, and I'll build on the discussion we just had on the $300 million linked to the tariffs. Coming into the year, we expected costs to be largely in line in terms of inflation versus what we experienced in 2024.
And that was around $200 million. That remains about the same. That has not changed. So costs, excluding the impact from tariffs have remained largely in line with what we expected at the beginning of the year. So that's one.
What we're having to address is the $300 million of incremental gross impact from the tariffs. And as Mike said, this is something that we see as more discrete. We're rapidly move in to address at least one-third this year and the balance of it going into next year. The reason why we are calling or changing our guidance for the year to about flat in operating profit and EPS has to do with the fact that we do not intend to cut investments behind our innovation and our plans.
For the first quarter of the year, we invested at around a 6% level of advertising behind our marketing initiatives and our new products and existing platforms, which was largely in line with prior year and we intend to continue doing that as the year progresses because we've got significant innovation that's been put into the marketplace, and it's going in into the market.
There are pockets of initiatives that will be taken as well in terms of investments beyond just brands and it has to do with our supply chain. We intend to maintain our investments in the business. In terms of capital expense for the year, we called at the beginning of the year around $1 billion to $1.2 billion. It largely has to do with the transformation of the supply chain as we're into the second year of Powering Care, and we are maintaining that level of investment despite the headwinds that we just talked about.
So overall, I would say there's no impact to the long-term strategy. And we remain steadfast on progressing our Powering Care strategies and ensuring that we can drive sustainable profitable growth with solutions to unmet consumer needs for years to come. But Mike --

Michael Hsu

Yeah, and at the risk of providing too much transparency, here's what I'll say, which is, look, we recognize that there's this discrete cost headwind we believe we can generally offset that over time by reflowing our network, right, by resourcing kind of where we're making product and where we're shipping it from and as you take that into account, they're mostly supply chain moves that are the solution.
So if we -- so if we believe that, Anna, then what we're trying to avoid doing is reducing quality in our product that's working or cutting marketing that's working and giving our plan a chance to breathe and perform like as we're seeing year-to-date right? And so that's really the but kind of the underlying thesis that we have, and we feel like it's the right play for us.

Anna Lizzul

That's very helpful. Thank you so much.

Operator

Javier Escalante, Evercore.

Javier Escalante

Good morning, Mike, Nelson, Chris, my question has to do, hey, how are you guys? My question has to do with the use of pricing to drive mix. And if you can split the discussion between emerging markets and North America, right? Particularly emerging markets, you see currency headwinds and you are making price investments.
I know that this is a financial reporting issue that where you are making -- you know the price investments not necessarily correlate with what you are taking pricing to do the so-called PNOC. So that one aspect, but particularly also in North America, as you look to drive mix, are you increasing promotions in the high end?
What exactly, if you can talk strategically about how you're using pricing to reconfigure the portfolio in the US and internationally, that would be very helpful.

Michael Hsu

Yeah, maybe I'll start with a headline, Javier, that kind of says, hey, we're focused on driving volume and mix growth while maintaining PNOC or pricing net of commodity discipline, right? So we're trying to be disciplined on price. And maybe there's more embedded in that than may appear the strategy is we're going to make our products better, right? And then I just kind of mentioned that our every run of the good, better, best ladder and then we'll let the consumers vote as to what the mix ends up being.
Our job is to make sure that whatever mix flows based on how the consumer votes that it's acceptable to us. right? And that's part of management's job, right? But the other part of what's implied in that statement focused on volume and mix growth while maintaining PNOC discipline. The categories have seen a significant wave of pricing over the last several years, right?
We just kind of -- or maybe two years removed from what I would call it an inflation super cycle. And so what we've been a little more focused in our current strategy is really anchored on, hey, improving the product quality, driving positive mix through premiumization by making premium products at a consumer's desire right?
And then over time, cascading that innovation throughout our value tiers. And so that's really what we're driving. There's no really significantly different strategy on a country-by-country or category-by-category basis to kind of optimize based on pulling different pricing levers.
I mean, again, we're going to our teams the directions of the teams is they have to have pricing net of commodity impact discipline. And -- but we want to drive the volume plus the mix growth. I don't know if that answers kind of what you're looking for, Javier?

Javier Escalante

Yeah, sure. But let me drill down a little bit on North America specifically, right? If you can comment on the promotional environment, as you see it or you saw in Q1 and what we should expect for the balance of the year given that you have more innovation coming in. And I suppose you want people to try that out. At the same time coincides with the tariff, right?
And so help us understand how you see the balance of the year use of pricing relative to your innovation?

Michael Hsu

Yeah, well, I think maybe it starts with the philosophy that we don't really see promotion as a sustainable driver of growth. We do see it as a useful trial vehicle for innovation, right? And so that's kind of the focus. Why do we have that attitude.
We offer daily essentials that have, as you know, low substitutions. So really, if you think about our categories, promotion overall for the category doesn't grow consumption, right? Just because I promote that tissue doesn't mean you're going to go more often, right?
And so thus far, what we're seeing is -- sorry you'll happen -- the category demand remains resilient, right? And -- but we do see promotion as an important tool to support trial. Kleenex is a great example. I think we were up over 400 basis points on share last year. We did promote Kleenex and merchandise it, and we think merchandising has been an important strategy or an important driver of that growth. In the quarter, we were up another 150 basis points-or so Kleenex.
So that's a good one. With Huggies Snug & Dry and Huggies Skin Essentials, they're great new products. We want them in consumers hands. We are going to spend some time promoting them, right? And -- but that's not a promotion-driven strategy, but it is part of the overall plan to drive trial of the products that we want consumers in the consumers hands, right?
So that's kind of what we're doing. And I would say we're operating consistently around the world on that. The big thing for us is and this is beyond North America, we want to cascade great innovation. We want to drive it in the premium tiers and we want to cascade it throughout our tiers around the world.

Nelson Urdaneta

And just to build one more point, Javier, I mean the -- you're always going to see some elements of moves across channels and price pack architectures and that's something that, again, we activated at the end of last year as part of our reaccommodation of the channel strategy. But that's more of adjusting to the realities of the marketplace and where we see the growth coming, but that's not in it for us to be promoting, as Mike said.
So it's very different. And the other bit is, remember, integrated margin management, including our productivity plans allow us to be able to flex when needed to make sure that we remain competitive, not just in the US but across the globe.

Javier Escalante

Okay, thank you guys.

Michael Hsu

Okay, thanks Javier.

Operator

Bonnie Herzog, Goldman Sachs.

Bonnie Herzog

All right. Thank you, good morning. I have a question on guidance. I guess I'm trying to bridge the gap between your new EPS guidance versus prior. So hoping you could maybe walk through the different puts and takes you're now guiding currency-neutral EPS growth of 50 bps at the midpoint versus roughly 6.5% prior. You certainly highlighted the negative impact from tariffs of $300 million. So could you walk through some of the other assumptions or puts and takes to your new EPS growth guidance?
I guess hoping you could help quantify the impact you expect from stepped-up productivity savings as well as what sounds like your expectation for greater price investments this year as you've kind of mentioned like to really improve your competitiveness and affordability.
And I guess in the context of that, how big of a risk is there that you're going to need to maybe increase investments further to improve your competitiveness, especially private label pressures intensify in an economic slowdown. Ultimately, I'm just trying to understand what's factored into your guidance, your new guidance. Thank you.

Nelson Urdaneta

Sure, by. So in a nutshell, the real big change in terms of our guidance is the new news on the cost front (technical difficulty) $300 million gross, which on a net basis is around $200 million. That's the real move, and that's what brings us to about flat on the year, give or take, on both operating profit and EPS. There are slight moves on the currency, but there are also moves elsewhere. That's not really driving it. It boil out to the $200 million net headwind that we see for the year.
That's really what's in it. And it is reflected in terms of our expectations of gross margin, and that's what we're building inherently in the outlook that we're providing today because what's going to happen and what we foresee is Q2 will be the biggest impact from a headwind related to the tariffs.
They're in full swing right now. And again, we've only reflected in this outlook, what's been enacted both domestically here in the US and outside of the US. And as such, thinking about the quarters, we would expect a headwind of around 200 basis points for Q2 versus prior year. As we progress through the year, that would be mitigated as we enact all of the different changes we're doing in terms of our supply chain and the mitigation plans are being enacted and implemented.
The other bit is, does it impact our ability to invest? No. As we stated, at the beginning, we intend to keep investing behind the innovation and the marketing plans that place and in play today, and we're not going to stop any of the investments in our supply chain. If anything, we'll have to accelerate some of them as part of the mitigation plans that are being implemented.

Michael Hsu

The other thing I'll add, Bonnie, and I think part of your question was on the stretch consumer and what do we do about that? I think one is, this is not a new trend. And so we all kind of saw where the puck was going last year. And so one of the hallmarks of the plan for this year is what we're doing, what I mentioned on Snug & Dry our mainstream value, which is we want to improve our mainstream value offering.
Our approach would be let's improve the product and give that a chance for the consumers to touch and feel that and get that in the house. Apparently, just looking at the online reviews yesterday at some retailers and the new Snug & Dry is almost five stars out of five, right? And so it's a great product. We feel great about that and that approach. It compares favorably with the Tier 5 or the premium products. But that's okay.
I think our philosophy internally would be, hey, let's make a great Tier 4 product. And the Tier 5 teams can figure out how to beat that. And that's kind of how we're approaching things I do recognize that promotion has ticked up just, I would say, a touch in personal care in North America, not significantly. We're at this point, we're still running our play. We had a plan for promotion. It's more focused on trial of the new products.
And so that's kind of the play that we're running for now. But we recognize we're going to have to continue to be agile. And I would like to -- sorry, go ahead.

Bonnie Herzog

Ahead. Oh no, please go ahead.

Nelson Urdaneta

Yeah, I would just like to add one other thing in terms of -- as you think about the margin progression and some of the elements that are in play, we're already seeing some of the $200 million in SG&A savings that we had committed to starting in 2025 through 2026 coming through in Q1.
So those savings, I mean, just to give you a perspective on overheads, SG&A alone, we were at around 13% for the quarter versus a 13.2% prior year. So those savings are giving us some leverage in terms of offsetting and maneuvering through some of the headwinds, but also delivering the fuel to be able to continue reinvesting. But I think you have something else you want to bring up.

Bonnie Herzog

No, no, that was honestly exactly what -- where I was going with this. So it sounds like you do have the flex if the environment deteriorates further, so you can remain competitive. It sounds like, yeah, exactly what you just said you have some of this fewer leverage to kind of reinvest in the business, et cetera. So that's helpful.

Nelson Urdaneta

Yeah, I mean, we have it we have it. And the whole thing is that, again, it's not immediate. And that's why we're saying that it takes a little bit of time for things to work through. But midterm, long term, we do see the solves.

Bonnie Herzog

All right, thanks so much. I'll pass it on.

Michael Hsu

Yeah. Just one note, Bonnie. I would say, and that's kind of why we made the change in the outlook we did. It's given us the opportunity to preserve the plan that we believe in and we believe is working.

Bonnie Herzog

Alright, thanks again.

Chris Jakubik

If we could take, if we could take one more question, that'd be great.

Operator

Chris Carey, Wells Fargo Securities.

Michael Hsu

Hey Chris.

Chris Carey

Hey everyone, so one kind of around COGS and then a separate question, the bigger picture. The savings program, so you're going to be a bit higher this year than your going expectations. This is going to be the second year running. It would appear that you're running ahead of the multiyear plan on gross productivity savings. So are you pulling forward future savings?
Are you now thinking that the savings program will be bigger over time than your prior expectations? So if you can just expand on that. And then if I could, just secondly, I'm struck by the conversation during this earnings call where clearly a number of analysts are trying to figure out in a way, we have more inflation and yet continued strategic pricing decisions, and I understand tariffs are discrete.
But nevertheless, it is interesting in the context of your Analyst Day when it was you're kind of making the case that you can manage through these cost environments, maybe a bit more with a bit more agility. And so is this your decision to basically take a little bit of a hit on tariff to keep the plan in place or are we perhaps talking about a retail environment where you're unable to pass through higher cost for tariffs as retailers themselves are dealing with a lot of incremental tariffs on Gen merchant and other such categories.
So I wonder if you could just comment on maybe like why you're sticking to this pricing program outside of just, well, we want to stick to the plan. I wonder if there are other things going on. So thanks for those two items.

Michael Hsu

Yes. At the risk of oversharing, I'll just try to illustrate a little bit because it's a complex -- the tariff situation creates unusual complexity because companies have different positions and different, I would say, sourcing strategies for different markets, right? And so it's not as simple as what tariffs are in so you price it all away, right? Because and in our case, why wouldn't we do that? Well, because we believe we can mitigate most of the cost by switching sourcing.
So -- and that -- and in some cases, we have competitors that don't have to switch sourcing because they're sourcing locally. And so you would price yourself to be uncompetitive and risk kind of eroding that business or taking it out, why you could have solved it by switching your sourcing collusion. The problem with the sourcing is takes longer because we don't have everything where we need exactly where we need it now, right?
And so -- because the world changed. And so that's why there's a hit to the shift. We think we will mitigate into next year or the year after is because we can mitigate over time with supply chain moves, but that may take some time to manifest. And so really -- that's kind of why you're getting the guide that you're getting.
It's not an external kind of set of factors. It's more about us wanting to preserve kind of the plan that we have that we think is the right plan and working and then also recognizing that we have a solution, but that solution is going to take a little time.

Nelson Urdaneta

And then on the savings program and the progress that we're making against our stated target of $3 billion in five years, Chris, as you rightly mentioned, I mean, we had a very good year in 2024, our first year of the program in which we delivered 5.9% of gross productivity, about $745 million of savings. And for this year, we've had a good start. We Q1 was about 5.2%. And we've stated that our aim is to be in the upper end of the range of the 5% to 6%.
So we are projecting another strong year in terms of gross productivity. The approach on integrated margin management that we started working on a couple of years ago is paying dividends. And really, it's being embedded in our culture and has given us enterprise-wide visibility and accountability to be able to drive over time, margin enhancement across all of our businesses and be in line to deliver our stated target of at least 40% gross margin by the end of the decade and at least 18% to 20% operating profit margin as we exit this decade.
It's not going to be linear, as we said, I mean we look at it more on a year-over-year basis and a sustained period of time. In terms of, are we prepared to take up the $3 billion for the five year? At this moment, we want things to kind of play out over time. We're very encouraged by the opportunities that we see ahead of us. We were very encouraged by the second year that's in front of us, but we're only in a year anniversary since we launched the Powering Care program. So excited about the future on this end and the opportunities that this will create for us.

Chris Carey

Thanks guys it's a complicated world. I appreciate the candor. Thank you.

Nelson Urdaneta

Okay. Thank you, Chris.

Chris Jakubik

All right. Well, thanks, everybody, for joining us. And for the analysts who have follow-up questions after the call here will be available. So I appreciate the time.

Operator

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.