Essity Q2 2026 Earnings Call | Consumer Product Pricing Actions Keep Structural Margin Steady

Yes. Yes. Thank you. Absolutely. We do exactly that and we use it increasingly as an example in business control applications and in shared services as you mentioned for instance for payables and this is of course just the beginning. So we see great potential as we go forward. So I will lead you through some of the numbers talked about the development in general terms and I'll show you a little bit about the numbers. So, if we start with net sales, as you can see, our sales grew with about a billion SEK if you compare to the same quarter of last year and out of this 0.3% represents organic sales growth and 1.7% is related to the acquisition of the feminine business that we did in North America. And if I start with that acquisition, you can say generally speaking the net sales is according to our plans as is the volume. So roughly performing as it should in terms of sales. So if I go to the volume side, you can see that it grew with 1.4% and that continues the trend that we saw also in the first quarter of this year and we saw accelerated growth for health and medical, for personal care and also for professional hygiene as mentioned earlier. Starting with health and medical, we actually saw very good growth for both of these entities or areas. So both for incontinence and for medical and the total volume growth was about 2 and a half percent. We can't rule out a bit of a pre-buying trend in the second quarter. That happens occasionally. But nevertheless, the momentum in health and medical was very strong and particularly so for wound care that continues to do super well in terms of volumes.

Going to personal care, by now we got a bit used to the trends there. You see that if you look at the overall volume growth it was 4.3%. So very strong and as before very much in feminine and in incontinence both of them growing between six and seven percent. So very very good. Now Ulrika talked about baby and the market there, market demand is still challenging as is the competitive environment. So we grew and volume growth was good and market share development in the Nordic part of the business whilst the continental retailer brand was challenging and negative growth and overall we had a growth or negative growth of just about 3% or thereabouts in the second quarter. Consumer tissue, 2.7% volume declined and this is a bit skewed because the volume increased for our branded sales and declined for our private label. If you look at the total market it was just the opposite. So branded was actually decreasing much more than what we saw in private label. So we were a bit different and of course this is favorable from a mix perspective but overall the overall volumes were negative and then finally professional hygiene with a 3% volume growth. So really continuing to have a very very good volume development that started in Q4 of last year, Q1 and now accelerating in Q2.

So if you look at price and mix here, you can see that it's negative with 1.1%. And this is actually all price, in fact more is price. So we had a price decline of 1.3%. And this is a consequence of the price concessions that we have done in previous quarters. So if you look at sequential developments of price, it's largely flat. So this is all about the price concessions that we did primarily in consumer tissue, in baby and also in professional hygiene in previous quarters and this was with a bit of different background when it comes to consumer tissue. It was very much about adapting to the lower prices that came last year. When it comes to baby and professional hygiene, these were deliberate decisions to increase the volumes. So again related to previous quarters.

So with that I'll move on to the margin and as you can see and we've also stated that in the report, we believe the margin given the geopolitical uncertainty and situation, the margin is resilient. It declined with 30 basis points. But we saw a very good development for health and medical, a somewhat better margin also professional hygiene and a decline for personal care and consumer tissue, but for different reasons. If we look at personal care, it's largely related to the acquisition of the feminine business in the US. And as Ulrika has already mentioned, we have seen unexpectedly a bit higher cost actually both for cost and for services. And we are still a bit inflexible due to the setup with the service agreements that we have in place. And so we are working very extensively to integrate the company into our own business and that's progressing according to plan but it leaves us a bit inflexible and it will take some time to restore margins to where they should be. Now once again we're very committed and very strong believers that we will deliver the business plan as we have contemplated or calculated before. So overall the gross profit margin declined by 70 basis points as we communicated in Q1. COGS did increase actually a bit less than we had anticipated due to favorable currency movements but it did actually increase and that had a drain on the margin. We had and I already mentioned it some price declines in consumer tissue, professional hygiene and baby as I mentioned that also had a negative impact and all of this to a degree was compensated by a positive mix and volumes but overall gross profit was down with 70 basis points. Now we've communicated many times that we strive to continue to invest into growth in A&P, we did that also in this quarter as you can see and we had a very good development of our SGNA. So again we have communicated many times around our cost-saving program in SGNA that is starting to deliver now. So in the quarter we are having benefits of about 100 million and we will gradually see higher numbers here in Q3 and especially so in Q4 and we are very much convinced that we will reach our targets of 1 billion or more of savings as a run rate at the end of the year.

So let me just end this section here by giving you a little bit of guidance to what Q3 will look like in terms of cost. So we see significantly higher cost for COGS and this is no surprise perhaps but related to oil based material on the back of higher oil cost obviously and we also see higher energy cost. So overall COGS we expect that to increase. We also expect a bit higher cost also for SGNA and this is including A&P. So this is the guidance for the cost Q3 versus Q3 of 2025.

So let me go on to some really quick words on cash flow. It was 2.8 billion. So, okay, it was a reasonable quarter in terms of cash flow and a very much stronger quarter than we had of the same period of 2025. So cash surplus remains very strong. We had a reasonable performance of working capital. Q2 we always consume working capital. That's just the nature of our business. And if you look at the report, some of you may have noted that the working capital to sales increased from 10 to 11%. This is actually not due to underlying factors. Underlying it was relatively stable. It had to do with partly the Edgewell or the acquisition of the feminine business. It had to do with currency movement and a bit of timing. But in relative or underlying terms, working capital was relatively stable. And you know our ambition to over time reduce that as we go forward but overall operating cash flow quite satisfactory and this has led to a continuously strong balance sheet. So our net debt to EBITDA ratio despite the acquisition of our feminine business remains strong at 1.1 in terms of net to EBITDA and the debt level or net debt level is about the same level as we had in the first quarter. Now we have launched and we started and initiated the sale or share repurchase program, the third actually on May 12th and we have purchased during this short quarter so to speak 2.1 million shares to an amount of roughly 550 million SEK. And with those words I'll leave over to you.

No, I think you said it very well, Aaron. We do have a lag and this is of course the same this year but we always compensate with price. So we will continue with price increases as long as it takes to fully compensate as we always do.

Now what we said was that we cannot rule out that there is some pre-buying effect on the incontinence care side in health and medical but the quantity of that we cannot say, we don't know.

Yeah. Nicholas, I don't think you should interpret our lack of talking about it as it doesn't have an impact. It has a lot of impact and it does actually specifically sequentially it's a bit challenging to talk about year-on-year in this aspect and I'm sure you actually know that because what happened last year was that pulp actually came down for a couple of quarters and then it's gone back up in Q1 and Q2. So if you look at it sequentially between Q1 and Q2 the impact is very significant. It's a little bit milder due to FX impact which is favorable but all in all fair comparison the impact is very significant and of course that is driving part of the reduction of the margin but when you compare it to last year the Q2 of 2025 then the impact is not so good because first it went down and then went back up. So, of course when you look at pricing for consumer tissue when we're talking about pricing we have to deal with the sequential impact and we will have obviously also a negative sequential pulp impact also in the third quarter. So just to make it very simple, yes the pulp cost is increasing quite significantly and it does that in Q2 and it will also be there in Q3.

Yeah, maybe I can comment on the impact. Actually you can see it in the report in the latter part of the tables there but as I mentioned earlier most of the impact or actually all of the impact for personal care in terms of margin decline is related to that acquisition. So you get a good grip on the impact because it's not related to sales. But I also mentioned that in terms of sales, we're pretty much in line with our expectations and so it's actually a cost issue and you can see that with the reduction of margin from personal care. So that's roughly the impact.

Yeah, it's a good question, Tom. It has to do with basically you can say two things. The first one is that you may remember actually Tom that if you go back to Q3 of last year, we were coming off a Q2 where SGNA cost actually increased a lot. So we hit the brakes very significantly in Q3. You might remember that you saw a very big decline with everything from consultants to travel to just about everything. So you can say Q3 was very low in terms of SGNA last year. So the first answer to your question is actually comparable. Then we have the second one is actually we got a bit of a phasing in terms of IT cost. So we will have a little bit of higher IT cost in the third quarter and finally of course needless to say we got a natural inflation into the SGNA and this is of course on top of what we strive to do with A&P because we have communicated many times we want to continue to fuel growth and that's exactly what we are going to do also in the third quarter. So against all of this, of course, we estimate the savings to come in from our cost savings program, but if you sum all of this up, we'll see a bit of an increase of SGNA as I told you. So many moving parts, Tom.

Again, Linus, I think we were alluding to this earlier that of course it's super difficult for us to comment on an individual pricing wise an individual quarter not least for commercial reasons as I'm sure you will anticipate but generally speaking we have a different speed of adaptation for our different categories. So typically if you look at consumer tissue we're relatively fast. If you look at health and medical as the other extreme, it takes a bit longer. So over time, we always compensate with price for any cost increase, we always compensate with price. But of course, it takes time and depending on what kind of cost is increasing or input cost, it takes different amount of quarters to compensate. But we do everything to increase prices where we can do that.

Yeah, if I start with the latter question, our hedge rate for Q3 is roughly about 65% for both electricity and gas. So roughly about that much. If we look at the quarter versus Q2 then versus Q2 of last year the impact for energy totally was roughly about 40 million negative, so not huge actually but still a bit negative and we'll see that as I already mentioned it we will see that negative trend also continue as we go into Q3.

Yeah, I mean you've got some right, COGS savings we had a positive 160 million. We had a bit of distribution cost roughly about 100 million negative. We had I already mentioned the energy about 40 million. Raw material was actually quite flat, very negative as I already explained in terms of pulp and consumer tissue but positive actually in the other areas. So from a net perspective not a lot. And then we had finally a bit of inflation in our cost generally speaking. So we had a bit of other COGS so to speak of a bit over 100 million. So that adds up. So to be fair and I mentioned it earlier, we had expected a bigger number and most of these items I have mentioned were pretty much in line with our expectations. But we had and of course that's fully observable a bit of beneficial currency impact. So dollar versus euro etc. So this was the reason for a bit better cost performance than we had expected.

Yeah, I think you actually said translation or was it transaction? Because translation should normally not have that much of an impact. From time to time depending on what currencies move back and forth it actually does have an impact and in this particular quarter actually had a little bit of impact currency wise it's not huge but a little bit. So translation is typically not the issue, it's more transaction and you're absolutely spot on if you have a weaker SEK as an example then typically we get a bit of benefit but to be fair that's actually all of that is very small, it's not going to be material in our P&L. What actually counts much more for our P&L is the development of US dollars versus euros because a lot of the input cost that we buy is denominated in US dollars but we kind of sell our products in euros so that's the more important thing and this is what has actually had an impact during this quarter Q2.