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Question and Answer Session

Operator

(Operator Instructions) Dara Mohsenian, Morgan Stanley.

Dara Mohsenian

So just hoping to spend some time on the top line, maybe we can split it into the long term versus the short term. Maybe, Mike, you can just take a step back now that we're at year-end, give us a review of where you think you stand on the organizational front with the rewiring plans you announced at Analyst Day both in terms of reorganizing the way you approach the business, but also some of the tangible benefits from that you talked about greater, more impactful innovation, more effective marketing, et cetera? So are you pleased with where you stand today? Maybe give us an update?
And as you think about 2025, is it more of a step function in yielding some of those benefits from all those changes? Or do you see those benefits building more over time?

Michael Hsu

Okay. All right. Thanks for the question. There's a lot in that. I'll try to get to all of it, and Nelson may and Chris may keep me honest here. Overall, Dara, I'd say I feel very good about our setup for and also for the long term. Maybe the one external piece, I'd say, is our categories continue to exhibit very durable growth. The underlying demand is healthy our categories continue to expand in dollars and units or value and units. And that's because I think we've talked about this before, Dara, we see really three durable drivers of growth over the long term.
Number one is penetration, which remains an opportunity. I'd say the good news is birth rate declines are leveling off. And in some markets, notably, Korea, we saw a positive birth rate in the third quarter, which continued in the fourth and that was the first time in 8 years. And in China was positive in birth rate as well. So I'd say, one, on penetration, birth rate declines kind of inflecting a bit at least early signs. Aging population for our adult care categories remains a big tailwind, especially in developed markets like South Korea and China, US. And then there remains in much of the developing world and expanding middle class that remains a big driver for us.
Second big thing, frequency remains strong. There was some pockets of softness. Notably, I'd say, in pockets of Latin America and Southeast Asia, but frequency remains robust for us. And then maybe one of our bigger opportunities remains trade up. Consumers remain very interested in better-performing products. And so we're seeing the premium end of our categories continue to grow.
So with all that said, I'd say in the short term, we're seeing, and I think it was in our prepared remarks, 2% category growth this year, which is on the lower end of what we said. But I'd still say fairly robust, durable for our categories. The big thing is our categories are daily essentials. And so they don't move around that much from day to day and year-to-year. So I'd say maybe that would be on the shorter term.
And then over the long term, I think we're positioned well to deliver consistent volume and mix growth over the long term. I think we believe our growth profile will continue to improve over time. And that's, as I just mentioned, a function of demographics and income and all the investment we're doing to make our categories and our products and brands better.
I think what we said last March at Investor Day, we expected weighted average category growth to revert to a historical range of 2% to 3%. And last year through the first half, we were a little ahead of that. And then after lapping some price moves from the prior year, I'd say we've seen some lower frequency in some markets and a little bit of a slowdown in North America professional consumption. But overall, I think the categories have globally performed pretty well.
So for this -- for the -- going forward for this year, I don't really expect a whole lot of new pricing that will -- that drive that up. And I think, as I mentioned, the category we have at around 2% this year and expect longer term 2% to 3% volume mix driven, I think, is a reasonable aspiration for us or for what the category is going to do, and then we want to grow faster than that. So I'll pause there. I know there's a lot to your question. I just gave you a lot, which other things did I miss?

Dara Mohsenian

That was very comprehensive. I think you got it all. But maybe I'll just follow up on 2025 specifically, it didn't sound like you expect a lot of pricing. Maybe just take me through your decision process on pricing, particularly given some FX pressure and how you think about the balance between price and volume as you look out to 2025? And just level of visibility you can do a 2-plus or better than category growth, presuming it stays in that 2% range. Just given if we strip out hyperinflation, you've been a bit below that the last few quarters. Some of that's probably inventory, but just how you think about the level of visibility also specifically --

Michael Hsu

I'll ask Nelson to give our thoughts on that.

Nelson Urdaneta

Yes, Dara. So let me give you unpack a little bit the top line expectations for '25 and also walk through the pricing trajectory that we've seen in '24 because it builds into what we're expecting for '25. So a few things. As Mike said, 2025 overall, we expect pricing to be pretty much muted on an enterprise level aggregate, so largely flat. We're coming off a year as we put in our prepared remarks and as you would have seen in the earnings release, where the full year pricing realization was more around 200 basis points for the enterprise. Of which hyperinflationary and Argentina specifically contributed on the year about 300 basis points. Across 2024, that number came down every quarter. So from a 450 basis point contribution in Q1, that came down to 160 basis point contribution in Q4. That coincides with inflation.
They bring off in Argentina as the macroeconomic situation has been stabilizing, driven by the government actions that were taking about a year ago. In fact, as we go into this year, whereas Argentina contributed on the full year, about 300 basis points to tough time growth and pricing in 2024. We only expect around 30 basis points tops in or less in 2025. So in essence, pricing is not going to be a driver of growth in 2025. It's really going to be a volume and mix-led growth. It builds on the transition that occurred in 2024. 2024 was a year in which volume and mix contributed 1.2 points of growth, volume being 0.8 points or 80 bps. And as we had -- and in Q4, that actually accelerated to 1.5% of growth. So it will be a volume mix-led growth accompanied by continued gain in market share. For 2024, our weighted average market share was a -- gain was 10 basis points. And we expect that to be at least that or higher as we head into 2025.

Operator

Robert Moskow, TD Cowen.

Robert Moskow

The productivity savings are really outstanding at 0.9% and it sounds like you're guiding to that again in 2025. And I wanted to know, in 2024, did any of that productivity savings help you on pulp costs because it would appear that pulp costs are going higher in '25? Do you have productivity baked in, in your procurement estimates for that and any other commodities? And then secondly, you're confident in your PNOC outlook for '25. Maybe you can give a little more color on that and how it compares to how you did in '24?

Nelson Urdaneta

Yes. So a few things, Robert. Yes, we're very pleased with the first year of delivering towards our $3 billion 5-year target of productivity, a solid start. We stood up our global supply chain organization on July 1, 2024. And last year, constituted the first year of our transformation of the global supply chain. We did deliver historical high productivity. And the lion's share of the productivity was on what we call our integrated margin management productivity, which is what we're doing in our manufacturing facilities, largely network optimization, automation as well as value stream.
In terms of as it relates to pulp and in any productivity-related savings, that's really not the case. I mean, we've been managing the commodity basket in a much more proactive manner, not a reactive manner. As we've been explaining over the last couple of years, we've been engaging in strategic relationships with our suppliers that have allowed us to manage through the volatility that we would have seen in prior years.
So on that end, as we go into 2025, our expectation is to be in the 5% range of productivity, a tat lower than 5.9%, but solidly within what we consider to be best-in-class levels for 2025. We have a significantly improved cost visibility in the next couple of years or so, and that's part of our integrated margin management approach and the strategies on risk management that we've deployed. We are confident in our ability to continue to drive in the mid, long term pricing net of cost that it's at least neutral. We've seen that play out. In fact, it was favorable in 2024. And as we go into 2025, we will continue to hone in our skills for our teams to manage towards a pricing net of cost at least neutral strategy.

Michael Hsu

Yes. Maybe, Rob, I'll just add. From my view, I'd say our Powering Care strategy is powering what we want to be on algorithm performance. And I think we feel very good about how our plans line up for this year based on what we're seeing in the current environment.
And I think one of the most important thing is we know we're lapping some discrete factors like this big private label exit and the PPE exit and some of the other things. But we do have very strong visibility into productivity, and we feel great about that. And that's been the key driver for us to fuel our investment in the business and fuel our bottom line growth.
And then commensurately, in last year and this year in this plan, we will continue to invest in pioneering innovation, strong commercial activation to drive volume and mix. And then on top of that, we're expecting to see some SG&A leverage through our wire for growth initiative this year. So again, we're feeling very good about overall the productivity and our visibility into it.

Operator

Steve Powers, Deutsche Bank.

Steve Powers

Just to put a -- I really want to ask about SG&A, but just to put a little fine point on what Rob was asking about. So it sounds like the -- on PNOC specifically, just given that it's going to be a volume-driven year on the top line, and I'm assuming there's some cost inflation, it seems like you're going to have to overcome some net negative PNOC on the year. But tell me if that's the wrong read from what you said there?

Nelson Urdaneta

Yes. Probably that's not -- probably not what we meant to convey, but maybe -- yes. So maybe just to unpack on costs because I think it's important to give kind of our view on cost for the year. So we -- in December, we shared that for 2025, we expect the costs to remain relatively muted and manageable. And our expectation for 2025 is that costs will be still elevated. And on an aggregate basis, including currency, we expect to be at around a $200 million level, which is largely in line with what we saw in 2024. So it is within the levels that we would consider manageable and what we've got.
In terms of pricing net of cost, your specific questions, we still expect our teams to manage pricing that are cost neutral. At times, we will make strategic decisions around price pack architectures or competitive elements where we'll make some tactical investments. But it is our expectations that teams will drive, over time, lower total delivered costs. That's one of the key premises of Powering Care and why we've resegmented the company the way we did it so that we can drive the lowest possible cost in each of our products globally, while we drive the best performing products in each of our categories. That's just to clarify on the PNOC, Steve.

Michael Hsu

Yes. And then maybe, Steve, to start, I'll just pile on. Just to give you some context of how we're thinking about it. I mean -- and I think we've kind of moved through this period of what we internally call it inflation super cycle, right, where the company took on record inflation over a couple of years. I think we've moved past that. And so starting last year, and definitely, this year, we're very, very focused on volume plus mix driven growth. And then while maintaining PNOC discipline. So that's kind of the thing, which is, hey, we definitely see that pricing to offset inflation or the inflation super cycle has kind of receded as we all expected.
But we think going forward, and this is what Nelson is trying to communicate, which is maintaining that discipline in PNOC going forward is going to remain important. Right now, again, as I just said earlier, we feel like we have good visibility on our costs, but we definitely believe that pricing net of commodity and cost is positive -- or in the -- over the long term. And then -- so I think we have good visibility on costs and then we have a very good commercial toolkit. We've invested a lot in the analytical tools to support our revenue growth management capability, and so we feel confident in that. But really the near-term focus is on driving volume and mix through the pioneering innovation and great commercial activation.

Nelson Urdaneta

And just to add there, Steve, keep in mind the productivity plan that we're running right now. So we expect productivity to also be a contributor and an offset as an integrated part of integrated margin management for this year, at least in the 5% range, which will be another strong year of productivity in 2025.

Steve Powers

Yes. And actually, that segues into my main question because it feels like this year, a lot of the overall productivity savings that will enable underlying profit growth to hit that high single-digit run rate on a constant currency basis. It seems like a lot of that is going to come from SG&A. So could you give us a bit more detail on the sources and timing of that productivity, your line of sight to achieving it cleanly and your confidence to be able to kind of get there without having to walk back some of the value-added investments that you made in 2024?

Michael Hsu

Yes. Okay, Steve. Maybe I'll start with an overall perspective on marketing and then ask Nelson to comment specifically on the SG&A program. But I'd say, overall, we're very comfortable with our current investment level in marketing. We're comfortable investing more to support faster, more profitable growth also, right? And to give you a little more perspective, our advertising spend has more than doubled since 2018, and we feel like we've gotten very strong returns on those investments. We closed last year 2024 at what I would say is a healthy 6.5%.
And Patricia Corsi, our new Chief Growth Officer, she's really, really here focused on helping us become world-class brand storytellers. And so under her direction, we're doing a lot of things to improve our creative. One of -- an important one is we're consolidating our agency partners both behind creative and the media side, and that's going to both improve the content that we have and also the efficiency and spending. So with that set up, I'd say we're expecting to spend at a similar level in 2025, and we feel good about that. And as we drive additional productivity, we're going to continue to look for opportunities to spend more.

Nelson Urdaneta

Yes. And as it relates to the overhead savings in particular. When we were at our Investor Day on March 27, we said that our plan was to deliver as we went through our Powering Care program around $200 million of SG&A savings. And they'd kick in once we were fully operational under our new segment structure. And that happened in Q4 of 2024. So we went live with the three new segments on October 1, and our organizational changes are pretty much in place as we speak. So we expect those SG&A savings, to your point, to begin to kick in a material manner in 2025, and that's built into our outlook. So we said it will take us around 2 years for that to materialize. So this would be the first of the 2 years where we would begin to see those savings flowing through.
And of course, we will make investments as we create space on the P&L, but we expect that to be part of the rationale of why we expect operating margins in 2025 to grow at a faster pace than gross margins.

Operator

Lauren Lieberman, Barclays.

Lauren Lieberman

So I wanted to just talk a little bit about sources of growth. So a lot of talk so far on the call about pricing, but one thing that stood out to me this quarter was the volume growth. And China numbers on Personal Care specifically cited in the release, you also had good volume growth in North America and in Personal Care, in particular.
But I was curious sort of when we can expect to start to see volume growth coming through from other markets because we're very US and China weighted at the moment? Share gains have continued versus Proctor seemingly in those categories just based on what they've had to say about those businesses. And so I was just curious if you could talk a little bit about broadening out sources of volume growth in terms of other geographies? And just any kind of signs of changes in competitive dynamics that you may or may not be seeing?

Michael Hsu

Okay. Yes. Thanks for pointing that out, and I'll try to answer it. I would say goes back to maybe a Board meeting we had probably about 5 years ago, where our discussion internally in the Board meeting was, hey, if there are markets we have to win, it is the US and it's China. And those are our largest markets and are the biggest categories in the world. And so I'd say the good news is I think we've put our strategic focus there, and it's working, right? And so we're really proud of that progress that the organization is making.
I'd say, though, maybe I'll point out, Lauren, I do think it's a little bit broader than what you're seeing in the US and China. Maybe I'll just give you some facts. On the share front, we're making progress. And I am pleased with our progress but not satisfied. Our focus continues to be building superior propositions at every run of the good, better, best ladder. And I think that's a unique kind of positioning for us that I think we're really happy to be in that space.
As you may have seen, our 2024 weighted share was up about 10 basis points and up and even in about half of our cohorts, but we had very strong improvement in North America with the trend improving as the year went on, especially in diapers, adult and facial tissue. In North America, Personal Care was up 80 basis points in weighted share. Consumer overall was up about 10%. And so -- and importantly, in North America, we were up in 7 out of 8 -- up or even in 7 of 8 categories.
And then in our focus markets, we felt like there were some pretty solid gains beyond just China. Of course, leading off with China, Huggies was up 200 basis points in the quarter. But in the UK, for our third consecutive year, Andrex, which is the big bath tissue brand in the UK, was up another 100 basis points. Kleenex in the UK was up almost 400 basis points in share. In the US, Kleenex was up almost 400 basis points as well.
And then we had share growth in Australia and Indonesia Feminine Care. And then -- and importantly, in diapers in South Korea, which is a big business for us, we were up almost 400 basis points as well. So I think we're seeing pockets of growth.
The thing that maybe you're pointing to, Lauren, is and it does kind of -- it's why we're doing the reorganization that we're doing. I mean the whole point of our new operating model is we want to move faster to implement our global growth playbook. And we think this rewiring is going to better leverage our scale, brings the best of KC faster and better than any of the individual markets can do on their own.
We -- as I mentioned in our Investor Day, we have great technology in our portfolio that most of the world hasn't seen yet. And so that's kind of why we're doing this reorganization. And from my chair, and I can see what all the teams are doing around the world. I'm seeing the benefits of these focus segments, and I'm seeing like us move kind of great ideas faster into different markets. It's also why we're seeing the productivity spike up because we're bringing kind of the big supply chain ideas faster around different parts of the organization.

Operator

Bonnie Herzog, Goldman Sachs.

Bonnie Herzog

I was hoping to get some color on phasing this year. There are several moving parts, including the impact from potential retailer destocking, FX, your private label exit, et cetera. So (technical difficulty) --

Christopher Jakubik

Bonnie, I think we just lost you.

Michael Hsu

I don't know if we just left. Holly, are we still on?

Operator

Yes, Bonnie, your line is live.

Michael Hsu

Maybe, Nelson, do you want to answer phasing and then we can follow up and she gets back.

Nelson Urdaneta

Okay. So let me unpack 2024 and the phasing that we saw because clearly, in 2024, we did see a series of onetime factors that led to sales not necessarily tracking what you would have seen on the consumer offtake, which by the way, for the year in North America was higher than our sell-in. And it also had an impact on the phasing of earnings across the year. I do think that it is -- we need to recognize what our teams did across the year to manage through all these factors still managed to deliver a solid full year that was ahead of our algorithm that we had set out back at the beginning of the year.
The -- by far, the most notable item that we faced last year was the retail inventory reductions largely in the US. And as a reminder, the impact from changes in inventory on organic growth in any given period is really a change on change. And it's a function of shipments versus consumption in the prior year versus what's transcended this year.
In 2024, between the restocking that we saw in 2023, and as a reminder, in Q3 of 2023 is when our supply chain largely normalized in the US and got back to full supply. And the trade destock that we saw throughout 2024 as our service levels came up to the necessary levels where we needed to be operated that led to a total enterprise impact on the year of around 60 basis points to full year sales. And it was largely concentrated in the first three quarters of the year, but it caused some hiccups at least on the reported organic growth that you would have seen, not on the consumption.
If we think about 2025, we did the phasing, you were asking, Bonnie, a few things to keep in mind. The -- assuming that shipments are in line with our consumption for the year, we should see less than a 40 basis point tailwind in 2025 versus 2024. In light of the changes in the trade stocks that we lap, so that would be built in into our outlook.
And the important thing to highlight is that our growth is going to be volume and mix-driven all across the year. So that's one of the bits to keep in mind as you look at the phasing. We are planning to build on share momentum, which we saw in 2024. And again, as a reminder, that was a 10 basis point share gain movement gain that we saw in 2024, and we expect that to be at least at that level, if not to accelerate in our outlook.
In terms of overall P&L, we expect that revenue, sales to be largely evenly distributed first half, second half. And our view on profits is more or less the same as well. We expect that to be more evenly distributed in 2025 than what you would have seen in 2024.

Bonnie Herzog

All right. I don't know if you can hear me, but thank you.

Michael Hsu

Yes, we got you back. Thank you, Bonnie.

Nelson Urdaneta

Not sure if you want to ask anything else?

Bonnie Herzog

No, I think that covers it. I appreciate it.

Operator

Anna Lizzul, Bank of America.

Anna Lizzul

In the prepared remarks, you mentioned that in International Personal Care, you're going to continue to be choiceful about the markets where you invest. You had exited markets like Nigeria. Just as you look at the business now, are there any other markets or regions where this might also be the case? And then separately, in Professional, this picked up nicely in Q4. Just wondering if you can talk more about the momentum that you're seeing there? And any other color on volume expectations here for 2025?

Michael Hsu

Yes. I'd say overall, we did have a number of business exits, some were business lines like the private label contract that we talked about, some where the PPE business that we talked about, some -- we had a couple of markets, Nigeria was one of them. Bolivia, another. And so I'd say, overall, we feel very good about our portfolio. We feel good about all the categories we're in, but we are taking steps to make sure that all of our categories can continue to be robust and predictable contributors to growth in our returns.
So that said, where we don't see a right to win, I think you'll see with our Brazilian tissue business, we did make a different kind of choice to optimize our participation. We'll continue to be very disciplined about that. Overall, though, we're going to be very disciplined and methodical about how we approach that.
And then with regard to Professional, yes, we feel very good about the overall position that we're in on professional globally. And I think I did mention there was a little bit of softness in the washroom business in North America. I think our team has put the right plans in place for this year, and we expect that to continue to improve. And then internationally, I think we've -- we feel like we're making the right steps, growing the volume, growing the share and driving that business in the right direction.

Operator

Peter Grom, UBS.

Peter Grom

So I guess I was just -- I was hoping to get some more color on just kind of something you outlined in the prepared remarks, just the lower frequency of product used in due to consumer pressures in Latin America and parts of Asia. Can you just unpack that a bit? I mean is that like a broad-based comment? Is that something you're seeing across all CPG category? Or is that a dynamic that's more specific to the categories where you compete?

Michael Hsu

Well, I'm not looking at the categories in which we don't compete that closely anymore. So I'll confine my remarks to kind of what I'm seeing within our walls. But I would say, it's an ongoing kind of, I would say, dynamic in our categories globally. And it happens more in countries that have what we would characterize as informal economies where people, let's say, in a market like Peru, people are paid on -- I think it's something like 80% of the population is paid on a daily basis, right? And so when you have that -- so what happens -- and this happened during COVID, and we're seeing it now, when economic conditions toughen and some people are working less, right, or earning less, the spending moves in that direction because there's no other choice.
And so what we -- what happens -- and the reason why it's probably a little bit more unique to our categories is because, let's say, on average, people use 4 to 5 diapers a day. If they don't have the money, they still want to be in the category, so they don't just exit the category, but they'll -- instead of using 5, they'll go to 3, something along those lines.
And so we see that when in informal economies where economic conditions toughened a little bit, and notably, that's been in pockets of Latin America and pockets of Southeast Asia more recently we see that type of behavior. And it happens year-to-year, but I kind of mentioned it because it's happening now and our teams are working through it.

Peter Grom

No, that's really helpful. And then just maybe a follow-up just on Bonnie's question on the phasing. Totally hear you just 50-50 just in terms of profitability earnings. But in terms of growth, it's a pretty different trajectory first half versus second half. So maybe just walk through that a little bit?
And I guess maybe what's the degree of confidence? Or maybe said another way, what's the cushion you've embedded in the back of outlook should some of these external variables like inflation or demand move against you?

Nelson Urdaneta

Yes, Peter. So let me provide a little bit more color. So a few things. For -- as I said and we've put in our prepared remarks, we expect the year to be around 50-50 first half, second half. In terms of growth year-on-year, I mean, it's really against the base. And we will be lapping a stronger base especially particularly in Q1, which is our strongest quarter of the year last year. So that's something that, again, as you think about it, that's -- that will be having an impact on what you see as the growth. So that will play a factor into it.
In terms of the pricing, as I stated before, pricing has been subsided -- subsiding over the course of last year. And this year is really going to be all about volume and mix. Pricing as a whole is largely expected to be flat. That's what we've projected as of late with only max at this moment, modeled 30 basis points of contribution from hyperinflationary economies to the enterprise. So that's what would play out in terms of what we're projecting at this stage.

Michael Hsu

Maybe we'll take one more question. .

Operator

Korinne Wolfmeyer, Piper Sandler.

Korinne Wolfmeyer

I was wondering if you can maybe walk us through in a little bit more detail the nuances around the gross margin expectations for 2025 and how should we be thinking about the expansion over the course of the year? And what are the different dynamics to be thinking about in '25 versus 2024? And then as we -- as that flow down to the operating margin line, how should we think about the cadence of marketing and ad spend over the course of the year?

Nelson Urdaneta

Sure. So a few things. On gross margin, over the last 2 years, we were very pleased with the job our teams have done in expanding margins. As a reminder, gross margin expanded in 2023 by roughly 300, 310 basis points and last year, 200 basis points. On operating profit margin in each of the last 2 years, we expanded the margin by around 150 basis points. Obviously, at a lower pace than gross margin because we accelerated investments, particularly behind the brands.
And between 2023, 2024, we stepped up investments by around $250 million in advertising and support of our brands, which is what's supporting our innovation that's helped us turn into a volume mix growth led year-end 2024 and what we expect for the year. Going into 2025, we still project gross margins to expand, albeit at a slower pace than what we saw in 2023 and 2024, driven by, one, we still expect to drive productivity. As we said, we -- it's the second year of our program, and it will be in the 5% range. a bit lower than what we had in 2024, but still solid delivery of productivity. The contribution from pricing is largely going to be muted as we stated. So that's playing into it. but still, we expect gross margin to expand.
And then we -- and we will be also making investments in our supply chain. 2025 will mark an acceleration in the transformation of the supply chain with step-up projects on network optimization, and in automation in particular. So we'll be reinvesting a significant amount of the productivity into our operations and hence, why we expect the gross margins to still expand but not at the pace of what we saw in the prior 2 years.
Then as we go into operating margin, it's really about the leverage that we'll have because the SG&A savings, the $200 million that we've planned for as part of our Powering Care program, will start to kick in, in a meaningful manner in 2025 and 2026 as our new organizational structure is already in place as we exited the year. So that's why at this stage, we expect operating profit margins to grow ahead of gross margins, which we still expect them to expand, but at a slower pace.

Michael Hsu

All right. Well, thanks, everybody, for joining us. If you have any follow-up questions, we'll be available all day to take them. So thanks again, and have a great day.

Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.