Essity: Navigating Cost Inflation with Volume-Led Growth and Strategic Discipline
Resilient margins amid rising input costs, but the Edgewell acquisition and strategic review keep the spotlight on execution.
ESSITY-B.ST · Earnings Call · 2026-07-16
A Quarter of Volume-Led Growth, Margin Pressure
Essity delivered another quarter of sales growth driven by solid volume development, but the headline was the 30-basis-point margin decline as cost inflation started to bite. "We delivered positive organic sales growth in the quarter, primarily driven by a continued good volume development," said CEO Ulrika Kolsrud, while CFO Fredrik Rystedt described the margin as "resilient" despite the drop. The growth was broad-based across Health & Medical, Personal Care, and Professional Hygiene, with particularly strong momentum in incontinence and feminine care. Consumer Tissue remained the weak spot, hit by price concessions from prior quarters and softer volumes in private label.
"Most of the impact, or actually all of the impact for personal care in terms of margin decline is related to that acquisition." — Fredrik Rystedt, CFO
The second-quarter results highlighted a company balancing growth with adversity. The COGS increase was partly offset by favorable currency moves and cost savings, but the underlying pressure from oil-based materials, energy, and pulp is expected to intensify in Q3. Management's response is a familiar one: raise prices, albeit with a lag. "We always compensate in the longer run," as Fredrik Rystedt reiterated on the earnings call, and the company has already implemented price increases that are not yet visible in the P&L.
The Cost Inflation Dilemma and Pricing Power
The margin outlook hinges on the ability to pass on higher input costs without sacrificing volume. Essity's track record suggests resilience: "We have proven in previous situations that we have pricing power," said Ulrika Kolsrud in the Q1 call, though she acknowledged that "there are different cost elements that have a different lag effect." The current quarter saw price declines in Consumer Tissue, Baby, and Professional Hygiene—deliberate concessions to regain volume—but sequential pricing is flattening, and the company is now implementing increases in Latin America and parts of Europe.
The real test comes in the second half. Fredrik Rystedt guided to "significantly higher costs for COGS" in Q3, driven by oil-based materials and energy, with pulp also a sequential headwind. The company's hedge position (65% for electricity and gas) provides only partial cover. Yet Essity's strategic focus on Incontinence Products and value-based care solutions, exemplified by the NHS's new procurement guidance, positions it to defend margins through innovation and product superiority rather than pure price.
Strategic Moves and AI Adoption
Beyond the quarter's numbers, Essity is executing on a strategic agenda. The integration of the feminine care acquisition (Edgewell) is progressing but has caused margin drag due to higher-than-expected costs and inflexible service agreements. The strategic review of the consumer tissue business remains on track, with a decision expected within six to twelve months. Meanwhile, the company is embedding AI across operations—from an agentic AI solution in procurement to AI-powered Tork Vision Cleaning for high traffic venues like stadiums. These initiatives, while early, could drive efficiency and differentiation.
Essity also highlighted the NHS's shift to value-based procurement for medical technology, a positive for its holistic solutions. "It's very positive for us and others who are working with holistic solutions," said Ulrika Kolsrud, noting the long-term benefits for healthcare systems under financial pressure.
Overall, Essity is managing a delicate balance: defending margins against cost inflation while investing for growth. The second-quarter results show the company can grow volumes, but the margin trajectory depends on pricing power and cost-saving execution. With the strategic review still pending, and the acquisition integration ongoing, the next few quarters will be telling.