Q1 2020 Earnings Call
Good morning, welcome to Procter and Gamble's quarter in corporate school PNG would like to remind you that today's discussion will include a number of forward looking statements.
If you will refer to PNG. His most recent 10-K 10-Q, an 8-K reports you will see a discussion of factors that could cause the companys actual results to differ materially from these projections.
Also as required by regulation G Procter and gamble needs to make you aware that during the discussion the company will make a number of references to non gap and other financial measures Procter and Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website.
Www Dot P.G. investor Dot Com, a full reconciliation of non-GAAP financial measures no I will turn the call over that period, Genies, Vice Chairman, Chief operating Officer, and Chief Financial Officer, John Moore.
Good morning, I know, you're very busy this morning, so I'm going to make that's very brief about 10 minutes and then turn straight to your questions.
So another strong quarter topline bottomline and cash driven by our portfolio superiority productivity construction disruption and organization strategies organic sales up 7%.
Four points of volume growth three points of price mix.
To your stock growth strengthening to an average of 5.5%.
Over the last five quarters to your average growth has accelerated or.
When I have 334, now five and a half.
Growth continues to be broad based each global category grew organic sales.
On a personal care up mid teens personal health care grew double digits fabric care home care feminine care family care, an oral care each grew high singles hair care grew mid singles.
Each geographic region grew organic sales, 4% or more.
Focus markets and enterprise markets each up high singles, our two largest markets the U.S. up six China up 13.
And another large market was up double digits due impart to the timing benefit the VIP changes that went into effect on October onest.
Ecommerce sales grew over 30%.
All channel consumption remained ahead of underlying markets driving an aggregate market share growth.
Moving to the Bottomline core earnings per share with the dollar 37 up 22% versus the prior year.
Foreign exchange with a 50 million dollar after tax headwind about two cents per share.
A constant currency basis core earnings per share was up 24%.
Very strong underlying earnings progress core gross margin of 190 basis points core operating margin up 260 basis points.
Continued strong cash flow with adjusted free cash flow productivity of 91%.
1.9 billion of dividends dollars of dividends paid $3 billion PNG stock repurchased.
In summary, a very strong quarter solid volume sales and market share trends across categories and geographies.
<unk> operating earnings margins advancing strong core earnings per share growth and continued high levels of cash returned to shareholders.
We continue to face challenges from a very volatile macro and geopolitical landscape.
And from competitive response to our faster growth, but we're making progress behind the integrated and mutually reinforcing strategies.
We focused and strengthen our portfolio and daily use categories, where performance drives branch wise.
Categories, where we occupy a number one or number two position, which have historically grown faster than the balance of the company and are more profitable.
If you're in categories, where performance drives brand choice you better performance, we made a deliberate choice to invest in the superiority of our products and packages retail execution marketing and value and all priced here's where we compete strengthening the short and long term health and competitiveness of our brands.
We're extending our margin of advantage and increasing the quality of execution.
Additional investment will be needed to sustain this progress the need for this investment the need to offset macro cost headwinds and the need to drive balanced top and bottomline growth, including margin expansion underscore the continued importance of productivity.
Cost out cash in.
Driving cost savings and efficiency improvements in all facets of our business in our second five year $10 billion productivity program.
Acting strong free cash flow productivity from working capital in Capex efficiency.
Superiority and productivity are critical.
But insufficient to keep US ahead in a world with a rapidly changing retail environment.
Luckily evolving consumer needs media transformation revolutionary changes in technology.
We must and are leading the constructive disruption of our industry across all areas of the value chain.
We're disrupting the way, we innovate by accelerating the speed and quality of our learning through lean innovation.
We're monetizing innovation across industries to accelerate investments in R&D and broaden societal impact.
We're disrupting in retail execution.
We're reinventing brand building from wasteful mass marketing to mass one to one brand building and fueled by data and technology.
We continue to disrupt our supply chain with transformation across the globe.
Finally, we're making organization structure and culture changes to better position us to win.
We're taking steps to simplify the organization focusing effort clarifying responsibility, increasing accountability and structuring compensation and incentive programs to better align with these objectives.
On July 1st we officially moved to a new organization structure designed to the matrix the company and provide even greater clarity on responsibilities and reporting lines to focus and strengthened leadership accountability.
We're operating at six industry based sector business units or SP use.
Yes views have profit loss responsibility for the largest market.
The focus markets, which represent about 80% of sales and 90% of the company's profit.
The SBQ Ceos are focused on winning and driving value creation opportunities and these important markets.
We continue to invest in enterprise markets, which have very attractive market growth rates.
Our organizational structure, there is being optimized to accelerate growth top and bottom line in the dynamic macro environments that those markets present.
The benefit of this design as the creation of a more focused agile.
How organizations.
Operating at a lower cost focused on winning through superiority fueled by productivity movie in at the speed of the market.
I hope it continues to be evident that we've been successfully disrupting PNG.
The choices, we've made to focus and strengthen our portfolio and daily use categories, where performance dries brand choice.
To establish an extended superiority of our brands.
Hey, productivity as integral to our culture as innovation.
The lead constructive disruption across the value chain and to improve organization focus agility and accountability are not independence strategies.
Reinforce and build on each other.
They position us well within our industry to deal with near term macro and competitive challenges.
There are the foundation for stronger balanced growth and value creation over the short mid and long term.
Moving now to guidance, we're raising our outlook on each key metric organic sales growth core earnings per share growth and free cash flow productivity.
We're increasing our outlook for organic sales growth from a range of 3% to 4% to a range of 3% to 5%.
The markets in which we compete are growing at a 3% to 3.5% pace.
The midpoint of the higher organic sales range implies continued market share growth.
On the bottom line, we're raising our core earnings per share growth guidance from a range afford or 9% to a range of 5% to 10%.
It reflects very strong first quarter results and our expectation of solid margin expansion for the year.
We're raising our outlook for free cash flow productivity from 90% to 95% for the fiscal year.
The year, we'll continue along strike track record of significant cash generation and cash returned to shareholders. We expect to pay over seven and a half billion dollars and dividends and repurchased $6 billion to $8 billion of PNG shares in fiscal 2020.
While our first quarter results enable us to raise fiscal year targets. Please keep in mind that the comps get more difficult as we move through the year.
Both on the topline and the bottom line.
Quarter year ago topline.
For four or five seven as we progress through last fiscal year bottom line 356 17.
Japan VIP related timing impacts benefited Q1 company sales results, but 30 to 40 basis points, but will cause a headwind in Q2.
Pricing annualizes as we move through the year affecting both top and Bottomline trends.
We'll comp the earnings gains from the Boston land sale and the oral care brand divestitures in Q4.
Competitors will likely respond to our outperformance, which underscores the need for continued investment in superiority.
Brexit uncertainty and volatility in foreign exchange, Argentina, and Turkey for example will be impacting balance of your results.
Our revised guidance is based on current market growth rates commodity prices and foreign exchange rates.
Significant currency weakness commodity cost increases or additional geopolitical disruptions are not anticipated within the new and improved guidance ranges.
With that I'm happy to take your questions.
Thank you, Sir ladies and gentlemen, if you have a question. Please press star followed by one on your phone. If your question has been answered already if you'd like to withdraw your question Press star followed by the too.
Your first question comes from the line of Lauren Lieberman with Barclays.
Great. Thanks, good morning.
I thought after a little bit about the build for 'em for profitability and particular known Ariad been really focused on is operating leverage and you're showing this you know really as you put it new improved top line growth performance.
This quarter much of the upside was driven by in fact positive operating leverage and yet productivity. Despite you calling out the importance of it ongoing in your script was quite quite low relative to historical quarterly performance. So can you talk a little bit I guess about the outlook for productivity this year and how we should think about.
Operating leverage.
'cause it accelerated sequentially, even with kind of a comparable revenue performance sequentially. So just had a kind of worked through the math on operating leverage on the stronger top line. Thanks.
A stronger topline definitely provides greater operating leverage as you rightly point out.
We had about 50 points of a 50 basis points of leverage within the gross margin improvement of 190 basis points.
And we had an additional 180 basis points of sales leverage between gross and operating so 230 basis points overall against a a margin improvement.
Operating level of 260 basis points.
And Oh, <unk> I think thats.
Generally if we grow.
The rule of thumb as if we grow.
4%, we should have.
50 to 75 basis points of of leverage.
That that increases pretty significantly as we move up the curve.
On 4% and you saw that.
On the in the quarter, we just completed.
Productivity continues to be a significant focus area.
Some of our US our savings are back loaded as we go through this year.
But again they'll be comping, a significantly higher earnings numbers in the in the base periods.
There are still very large opportunities in front of us efficiencies in media efficiencies in organization design.
A significant savings as we bring on fully the product supply transformation.
And the big opportunities top and bottom line, a permit increasing digitization of our of our efforts all around.
Your next question comes from the line of Jason English with Goldman Sachs.
Hey, good morning, folks and congratulations on strong start to the air.
[noise] cheese lots of questions. Some of the table <unk>, let me start with growth Yeah. I guess my one question, we threw out there in terms of market growth. John you mentioned in your script that you expect price contribution to wane as the year progresses, and you comp last year's price gains, which I think is intuitively under.
Sustainable for all of Us, but your pegging your full year guidance to a market growth rate of three to three at a high percentage, which presumably that market growth is going to experienced the same phenomenon.
Of waning price growth.
So my question is is it reasonable to assume that market growth also slows with price moderation or are you seeing in do you expect to see a pickup in terms of volume mix contribution both for your from an aggregate like we saw this quarter and the market overall.
Thanks, Jason.
We do expect we've seen and the underlying market growth rates. There has been a price component as you rightly pointed out.
[noise] that should annualize itself as you rightly point out, but there's also been an increase in the volume component of above market growth. So we're seeing an increase on the margin.
In market growth in units and that should continue as we progress forward in terms of our own a topline algorithm price was one point of the seven in the quarter.
So if you assume that completely annualizes, yeah, that's a that's up a point impact.
Your next question comes line of Steve powers with Deutsche Bank.
Yes, Hey, thanks, Good morning, John I was hoping you could take a step back and talk a little bit more broadly about what you're seeing with regard to consumer demand and competition in three markets, if I could China, Russia and Brazil. This is there is there anything you're seeing now that concerns you in terms of competitive activity or are weighing demand in any of those made any ricky.
Categories in those markets. Thanks.
Well that was Russia, Brazil, China.
Generally Steve across the board, we're seeing continued consumer strength.
And generally across the board, we're seeing a the levels of healthy competition that you would generally expect.
If I take the markets in question, China, we were up 13% in the quarter.
Market growth rates continue to be a strong.
It's a very competitive environment I'm always has been likely will be for the foreseeable future just given the opportunity and the size of price.
And that's both the local competition and multinational competition.
But we haven't seen any.
Significant uptick and the levels of competition. It's always on all was strong in a market like China.
The consumer in China continues to to respond to premium innovation that performs and categories, where performance rice Bran choice and we see that time and time again on both sides of the ledger.
In terms of or the other markets. So you mentioned, a consumer demand and and Brazil.
Continues to be strong and respond to a strong innovation, but it's I would describe it as a more volatile and more fickle then for example, China.
Our growth rates in Brazil, very pretty dramatically by quarter.
But generally I continue to be strong.
In the quarter, we just completed we grew 2% in Brazil, but prior to that we were we were growing at significantly higher rates I don't view that 2% as a slowdown in consumer.
As much as I do just the inherent variability in volatility of that business.
And Russia continues to perform as well we grew the business, 5% in the quarter in Russia from a competitive standpoint again those markets are very strong.
Competition.
Nothing specific to note.
Your next question comes the line of Ali Dibadj with Bernstein.
Hi, guys. So I had a couple of questions that I could one is just onto the broader question here is on the sustainability of such strong results.
And I guess.
You're guiding to out the little bit a slowdown lapping top numbers et cetera, I was hoping you could give some more color little bit about two pieces in particular and you touched on in a moment ago, but it's more around pricing on the pricing as commodities, perhaps are rolling over here and you have less of a.
Cost justified reason to take the tightening up and secondly in terms of the volumes you mentioned certainly growth and the carry from units protected but your unit growth is outside and I just wonder how much of that is from what we're actually seeing on shelf, which had more healthy growth. So how do you kind of same store sale, the same square foot sales versus versus growth from a shelf space.
That's a sustainability question and it's up question to that is.
You, obviously like everybody else has some really good carries more of them are really good right now really good businesses and some that are doing so well heartsick room anything you could argue some piece of baby care et cetera.
Got whether you're seeing different retailer reactions or interactions with you.
Given your has that have not types category I understand that.
Fewer category than perhaps most that are firing on all cylinders very thing the retailers pull different levers when things aren't growing either way they'd like to be thanks very much.
First as it relates to sustainability of the results.
Comp issues aside and the comp issues or are the comp dynamic is obviously real and prevalent and increasingly prevalent as we progress through the fiscal year.
We've really.
Tried to ensure two things are an inherent part of how we think about the business and operate the business and both lend themselves to sustainability of results over the long term.
The first is balance across the top and bottom line.
I think you saw in a quarter that we just reported as a very balanced quarter in terms of strong growth on both.
And ER to the extent that we can continue.
To deliver both which were committed to do the overall value creation result.
Becomes much more sustainable.
We've witnessed periods of time in our company and certainly within the industry and adjacent industries, where the focus is disproportionately shifted for example to the bottom line.
That is not a sustainable strategy.
In our view and we've seen a instances certainly in our own experience, where a focus has shifted disproportionately to the topline. What's also is not a sustainable strategy and our view.
So the balancing of the top and bottom line.
Does lead to an expectation of more sustainable value creation delivery.
The second piece.
Is probably even more important.
And that is how we're thinking about sources of growth.
And we're really trying as part of.
Our superiority strategy to source of growth through creation of business in the marketplace by driving market growth.
That is a much more sustainable and generally more profitable way to drive our business.
We're creating business not taking business from others and when you are the the the driver of market growth you will mathematically build share. So those two concepts are not in Congress there incomplete congrats.
The question is how do you most sustainably and profitably bills share.
And we're now contributing to market growth at weights above our market shares, which is exactly where we want to be.
That's important to the dynamics that I. Just described it's also much more meaningful and relevant to our retail partners. They frankly could care less about PNG market share gains what they care about is the overall market basket and the margins that they earn on that basket.
So both of those focuses from a business model standpoint.
Should conceptually increase the sustainability of our results.
We'll have to demonstrate that in the marketplace, but certainly over the last five quarters. If you look at the top line for four or 577.
Doesn't guarantee anything in the future, but it's a then sustainable progress at least for a period of time.
Relative to pricing.
We.
I want to be careful on commenting on future pricing activities, what I would say is that to date.
We feel good about the pricing in that we've taken both as it relates to commodities and as relates to foreign exchange and some of the developing markets.
But that's something we look at a category country basis every morning, when will that we wake up.
And we'll adjust as we need to.
Relative to the source of volume growth.
I mentioned, you know a significant portion of our growth is coming through creation of new business.
There is as well, but you're right to point out increase in distribution as you would expect a.
Given.
The demonstrated ability to grow markets for our retail partners.
Are those two things are not.
Separable and we've talked previously about.
The retail view of PNG, which has improved significantly oh, earning top consumer.
Products manufacturer at Walmart really across the board and increasing you saw the advantage monitor.
Survey, where we're number one in our industry across all metrics that are measure and number one by a significant margin.
We need to keep improving that that's not any guarantees for success tomorrow, but it is one of the reasons, coupled with demonstrated ability to grow markets and many categories.
We are increasing the level of the distribution and I don't see that as us as us as as you know step function.
Curve I think it has room to continue to grow.
Obviously to the extent that we demonstrate the same dynamics across more categories. That's another.
Driver of future growth.
Alright, and your next question comes on line of Dara Mohsenian with Morgan Stanley .
Good morning, guys.
So sticking to the subject of topline growth sustainability I was hoping you give us an update on what you saw in fiscal Q1 in terms of a competitive response.
Both on the pricing front as well as in terms of marketing spend from your key competitors given your market share gains and give us a sense of what you're assuming and guidance in the balance of the year from a competitive environments standpoint, if the environment. He itself as you cycle. Some of these price increases and theoretically competitors look to regained some share momentum.
Thanks to our you've certainly heard and not surprisingly.
Competition talking about reinvesting in their businesses.
I think that's driven by two things one is the.
The turnover of the generation of leadership and many of our competitive set.
And two is the result situation that we've been talking about together here. This morning.
We have not seen anything destructive.
You know a mass aggregate scale in the marketplace from a competitive standpoint.
We operate them very competitive industries, so that doesn't change.
But there hasn't been a step function increase for example in the level of volume that's being sold on promotion.
There has been increased initiative activity innovation.
Driven.
That's generally constructive.
For a market growth so we see we support that.
And what we'll see I do expect generally competition to increase as we continue going through the fiscal year and remember.
The time that exists between when you state and intent and when you can actually execute in the market is not short it's relatively long just given a shelf set dynamics at retail.
Execution dynamics associated with for example, innovation, so I I I wouldn't say that weve seen everything that we're going to see.
We're in a better positioned to deal with that than we've been in a long time given.
Increasing percentage of our sales that are superior from a product package communication go to market standpoint, we still have work to do.
Which is why we're going to continue to invest and fun that through productivity and that's our best defense.
And your next question comes in light of Mark Astra, Ken with Stifel.
Yeah, Thanks, and good morning, everybody.
Just wanted to.
Do you could be deeper in some categories specifics there. So curious your thoughts about.
What you're seeing in Cana real time, and paper goods and competitive dynamics in laundry it seems like.
He said kind of the strongest volume growth on very strong comparisons there pricing, maybe dipped a little bit sequentially.
Underlying im just curious if that's a competitive response, if that's proactive Ah theres something in the market that's kind of changed I'm, just sort any color there would be helpful. In those categories. Thank you.
Laundry at a very strong quarter.
Up 8%.
Driven by.
Momentum really across the globe.
We continue to advance the premium segment.
The laundry and fabric enhancers.
Global value share was up about a half a point.
Our growth on those premiums segments, which include single unit dose and scent beads.
It was high teens.
And and that's that's really ecommerce sales.
Up almost 50%.
So really what we're seeing there is innovation driven superiority driven market growth.
Accretive growth, which to the point of the early <unk> earlier question I expect would be sustainable at some level.
And that's what I think about when I think about the the laundry and fabric enhancers category not a specific competitive dynamic.
We continue to grow.
The paper businesses that very high levels in aggregate.
And Ah that that segment because of its are those segments because of their capital intensity.
Our a little bit more responsive from a competitive dynamic standpoint to a variety of factors.
But again.
I would characterize the landscape as innovation driven superiority driven market accretive growth think about let's take a one of those businesses feminine care.
As an example.
Feminine care in the quarter, we grew a 7%.
And that's that's composed of both strong growth on our base feminine protection business and a high teens level growth on our adult incontinence business.
And we.
Had an objective as we entered that that category.
To source our growth through increased market growth, we essentially doubled the rate of market growth for the adult incontinence category across the geographies, where we've entered.
So again that that is the predominance or the character of the landscape and the growth drivers as I see it.
Next well go to Wendy Nicholson with Citi.
Hi, good morning.
My question has to deal with the U.S. market in the U.S. consumer and it's less about pricing I'm done it is.
Maybe the next of your businesses and brands you know if the U.S. consumer is going to slow number one.
You think you see that coming early enough to react and to make sure but the fact that so many of your brands are relatively premium pricing our categories don't see share. So I guess the question is on brand like loves our goal.
Are you are you thinking about doing more innovation there more promotion. They are more feature displays or is it a pack size issue in other words, you know if the economy slows how do you make sure that people don't feel penneast and trade down from 70 or more premium priced brands. Thanks.
In terms of predicting any kind of consumer acceleration, our consumer a slow down a we really we aren't in that in that business.
There are many things that can affect consumer confidence that our things we wouldn't even have the ability to anticipate today.
Certain geopolitical events certain political developments within the country et cetera.
So your guess is as good as ours in terms of what market growth.
Does going forward, we've seen no signs of weakness.
We've seen continued sequential improvement on the margin.
But that can change pretty quickly as we've all witnessed during our lifetimes.
We are better positioned today for several reasons to deal with a downturn than we were.
For example in 2007 2008.
Number one.
We are largely out of I'm highly discretionary categories.
This was part and parcel of our thinking as we move to daily use categories.
Categories that consumers are.
Much less likely to go without on a on a daily basis generally we don't see consumers or stopping.
Laundry or you know, a shampooing or conditioning or feminine protection during a recession to your point they they may trade down and I'll come to that in the second.
But from a category standpoint.
In a portfolio composition standpoint were much better positioned than we were previously that's number one.
Number two as we've been talking about throughout this call we're much better position from <unk> and it's a brand advantage standpoint, the products performing at noticeable levels.
Superiority in terms of meeting very important consumer needs and desires.
And that is that as a.
Major contributor to the overall value equation that consumers use as they assess their brand choice.
Your two portfolio matters. So we've moved not only into dailies categories, but into categories, where performance drives brand choice.
And we're continuing to invest to build that advantage, which has no guarantee.
But does increase the resilience of the portfolio to headwinds from a consumer standpoint.
Third.
Weve worked to improve the pricing ladders, the availability of product at different price points different pack sizes.
That also is not a guarantee but you put all of that together.
Again, no guarantees, but we're in a we're in a much better place.
We will use tools.
Like a value messaging like pack sizes.
Like performance messaging or two to ensure that if there is a downturn.
Whereas best position for consumers, who are in a patch.
Next we'll go to Steve Strycula with yes.
Hi, good morning, and congratulations on good quarter.
So have a question on the supply chain and click and collect in the rise of online would that how that impacts your business I'm, specifically wanted to understand as we see in the stores require more more inventory first stuff going out decided the door. How do we think about that impacting your categories are you, reducing your skew count at all.
How does that impact as it did which to supply in stock throughout the supply chain because we've noticed over let's call. It. The last few years. Most CPG companies have been reporting the national retailers are bringing down these waste to supply would you say that we're kind of like near a bottom, especially in a portfolio like.
Proctor, where you're seeing the sales productivity lift much higher should we expect.
You to operate a little bit differently than it appears that thank you.
We want to be skew efficient and have the right assortment at the shelf.
Both in terms of serving the consumer and in terms of or the right turnover for our retail partners.
Nothing has really changed in that context.
Relative to the trade inventory situation I think we mentioned on the last call.
A slight increase in inventories are across the retail channel not consistently but in aggregate.
To support the things that you're describing as well as a commitment.
From a delivery standpoint to have product available for consumers on on shorter and shorter notice which requires higher inventories.
In the quarter that we just <unk> that we saw that dynamic.
In the fourth quarter last year.
Those inventory levels have generally remained.
But we haven't seen any any significant change.
Your next question comes from the line of Olivia Tong with Bank of America.
Great. Thanks, I'm, just trying to follow up on your your company or I'm, just thinking about driving growth are creating businesses new categories and you've obviously showing your ability.
Across your portfolio with that so can you talk a little bit about what's changed in terms have R&D team. Your market research process is your marketing pricey. Yeah. You know the change in your reporting structure, that's driven that change are there more people and external partnerships, how does the reporting structure potentially change.
How does that push structure change helped aid that if you could just dive into that a little bit more it'd be great. Thank you.
That's a big question Olivia I'll do my best.
First every category.
Needs to be working to create additional sources of market growth within there.
Within the definitions of their existing category.
And.
And adjacent season.
Relative to their existing category and that's going to be the predominant source of our growth and whether that's a fabric enhancer bead execution, whether that's a laundry single unit dose execution, both of which have significantly.
Inflected market growth rates Justice two examples.
Some of the initiatives and our our beauty business or are doing the same.
Efforts and the power oral care as a way to grow markets really across the world.
So that that is a continuation of what we've been trying to do.
And then we've added to that.
What we call PG ventures, which is a.
Innovation efforts outside of existing categories.
And we've brought a products to market like a zibo, which is a natural insecticide.
We're working across five or six pretty exciting opportunities that have come out of PG ventures.
Reports to Mary Lynne Ferguson. So it doesn't report doesn't report into each and every category, but she coordinates those efforts for us along with our outside venture partners.
From an overall standpoint, whether its internal innovation to drive superiority to drive market growth or.
Innovation MPG ventures, we're operating at a much more through the lens of lean innovation.
Which simplistically, we could spend today on that but simplistically is designed to deliver faster better learning more shots on goal to increase the chance of breaking through and really have some having something meaningful.
To bring to market.
Your next question comes the line of Kevin Grundy with Jefferies.
Thanks, Good morning, and congratulations on the strong result.
John I want to come back to the U.S. and maybe drill down a little bit on some of the channel dynamics. So.
Obviously, another really strong result, organic sales growth up 6% in the U.S., but probably like three X roughly the market growth rate, which I would estimate is probably closer to two.
And looking at the scanner data, that's probably about 300 basis points higher so it looks like that gap is widening.
In understanding obviously online is growing is growing quite rapidly I think it was up mid Twentys say I missed it this quarter I apologize for that maybe you can provide a set number but the questions would be number one any timing benefit that will potentially reverse out in the upcoming quarter and then maybe spend a little bit of time on discussing some of the channel dynamics between tracked versus non tracked that'd be a they'd be helpful.
<unk>.
Thanks, Kevin.
The tracked.
Number as you know it was effectively 3% in the U.S. for the quarter and as you cited the overall number was about 6%.
That delta is almost entirely.
Due to a faster growth rates in non tracked channels.
I mentioned.
Global growth from a ecommerce standpoint at 30%.
So customers are like Amazon are growing at higher rates than some others.
But also a for example, the club channel is growing at rates at or above the rate of market growth. There are not significant one timers within the quarter in the U.S., but.
The one significant onetime or that isn't our aggregate results.
Is the selling ahead of the V.A.T. increase which went into effect on October Onest in Japan.
That had about a 30 or 40 basis points.
Impact on our numbers.
Next we'll go to on track to share with JP Morgan.
Hi, good morning, and just how clean to congrats so I was hoping John if you can comment a bit more on China, a where you grew searching for sand you accelerated from south in the last quarter.
But do you face tough comps I had so do you think is the growth is it still driven by ASCII, two and allay or is it more broad base now into hair and other categories. So are you worried about your comp is getting tougher starting this quarter or or and related to that you comment on price.
I mean babies to being deflationary awesome. When do you think you can't cycle that process is an effect with more female diapers. Both thank you.
So always concerned about comps getting tougher always work into run harder.
That's a part of the world that we live in.
Generally it it is not just for example, SK two and a light which are growing at a fantastic rates in China, but our growth profile across the categories as has broadened significantly.
I mentioned baby care, we were up a high single digits and baby care in the quarter.
A very strong response to the innovation that weve brought to market.
We're growing.
Generally across the board the one exception, which has improved significantly is.
His hair care and hair care, a we had very modest growth, but that's an improvement versus where we've been in the last couple of quarters. So everything's on the rise in China.
I feel we feel good about our prospects there for perspective, if you look at China X.
Well lay and SK too.
We grew 9% in the quarter. So there's a much more to the story.
Then just those two businesses, though so we're very happy with the story on those two businesses.
All right. Your next question comes on line of Bill Chappell with Suntrust.
Hi, This is actually grin on for Bill Thanks for taking the question.
Just had a quick one on Latin America and in particular, Mexico.
We've heard some from some other companies that the consumer has slowed maybe a little bit. There was wondering if you were seeing the same thing or any other changes in that market in particular, thank you.
We had been seeing something similar but frankly consumption and the month of September was very strong.
And we ended up with topline growth rates at very attractive level in Mexico for the last quarter at 10%.
Hans get tougher.
Maybe you could help us understand what else will be driven by you know is it better and stronger innovation.
So can you give us some examples you know maybe of what's been working and then you know give us a sense if the level of innovation in your pipeline this year versus last year and then finally, you know maybe help us understand why some of your innovation seem to better resonating with that consumer ultimately driving what I seem to be share gain.
Thanks.
One things one thing that gives us confidence about continued success and beauty or the sustainability of the results. We've been delivering is the breadth of those results in it.
I think.
As I reflect on several of the conversations that we've had together.
There's a bit of a misunderstanding that it's all driven by SK too.
And that just isn't the case, so we grew a hair our hair care business mid single digits.
In the last quarter, we grew that business at 6% in the U.S.
All aspects of our skin and personal care business are growing our personal care business, which is deodorants and body.
Washes and those kind of products grew at 10% in the quarter, I'm, obviously skin care and SK true at even higher rates than that.
If I look just at SK. Two is one is the fastest growing part of the portfolio, our new user attraction.
Continues to be our focus and as long as we keep that door open.
He showed continued to grow and that's that's been happening, but again breadth of success across across beauty.
All right. Your next question comes the line of Nik Modi with RBC.
Well. Thanks, good morning, everyone [noise], John I was hoping you can talk about how the big dialogue has been over the last few years big brands with small brands and I was wondering you need to just kind of give us your perspective on this whole next stage same day delivery battle between Amazon and Walmart him and other retailers kind of getting into the play now.
And how that impacts big brands with small brands in the sense of supply chain integrity and things like that so maybe you can just give us some thoughts around that dynamic.
I'm not sure I know Nick exactly what the impact is going to be on those two subsets of businesses small brands versus large brands directly as a result of.
What you just described what I.
I felt for a long time, what we have felt for a long time and have been talking about for a long time.
Is the relevance the continued relevance of large brands as well as the relevance of small brands in certain instances.
Across our eco system, our large brands historically have grown about four points faster than our small brands and then when you look at the absolute growth that comes from that it's significantly higher.
But you know large every large brand started off as a small brad.
And so we can't ignore that dynamic either as you know we've been a buying and building some smaller brands to serve some rapidly growing consumer segments, particularly in the natural space, but not not confined to that.
I generally think we generally thing that the eco system as we move forward.
At minimum does not disadvantage big brands and I can make pretty strong arguments for why it should advantage big brands. When you think about ecommerce is the fastest growing channel.
And many well certainly in our two largest markets in the U.S. in China.
And the dynamic of big brands versus small brands in that environment disproportionately favors.
A big brands not at the exclusion of small brands by any means but certainly doesn't disadvantaged big Brown said I'm happy to talk.
Hours about that.
But I'll spare the group that diatribe right here.
But generally we feel that both large brands and small brands will have relevance moving forward there is nothing structurally.
Or society from a society standpoint that disadvantages big brands.
Particularly and this is important.
When you focus your portfolio loan categories, where performance drives branch wise.
Very few consumers that stuff sitting in front of a physical or virtual shelf and asks how large a brand is.
There are wondering how well it will do the job they're buying it to do and will that meet their needs and solve their problems.
Next question comes from the line of Caroline Levy with Macquarie.
Good morning, and thank you very much I'm, John I Wonder if you could dive in a little deeper into grooming I'm talking about what Youve found is working which region. It's working in and how you think about the future I mean.
Is there the opportunity to return to growth in this business for you and what's the time.
Yeah.
Definitely opportunities to return to growth in fact, we've been growing albeit modestly.
Each of the last two quarters, we grew on a global basis.
If you think about.
There are number of reasons to be a positive going forward. One is the growth potential that exists in developing markets and the mix potential that exists in those markets as people move up.
Potentially from a double edge or disposables.
This into systems use.
Strong opportunity to further penetrate though the double edge and disposable businesses, particularly.
And some of the developing markets where for example, a lot of the.
Shaves are executed in the context of a have a barbara.
So significant opportunities for growth we're also seeing.
Very.
Strong response to our newest innovation, which is designed to address one of the major barriers to shave.
And that's a skin irritation.
And for many men. This is a significant issue this isn't a minor issue and it literally prevents them from shave in a more frequently.
So skin guard is designed to address that need and and increase as a result, the frequency of shave and the number of people, who who do shape.
And we've doubled the rate of a razor growth with that entry and Europe . If you look at consumer ratings on that product in the U.S., they're very strong I think there 4.54 0.6.
And the retailer reaction in terms of space allocation has been very favorable.
There are also significant opportunities to address the needs of men, who choose not to shave.
And that's where we're we're also spending a lot of incremental effort to make sure that we're meeting his needs and if we do that in a superior away for both shavers and non shavers.
This category will grow and it with and it's extraordinarily a profitable.
Your next question comes from the line of Robert Ottenstein with Evercore ISI.
Great. Thank you very much hi, John earlier on I think you mentioned that in aggregate you had seen some pickup in demand I think maybe from roughly 3% to 3% to 3.5%.
Could you, perhaps be a give us a little bit more detail in terms of which countries you see a somewhat better demand. Then then over let's say the last 12 months and which categories. Thank you.
[noise] or the U.S. is front and center.
And that's generally across categories.
With grooming being exception.
Your next question comes the line of Jon Andersen with William Blair.
Hey, Thanks, just a quick one personal health care was up double digits in the quarter. You did mention that there was some benefit from precepts by retailers, how the cough cold season, how much of a benefit was that moves that just kind of a comp issue relative to last year that planning.
For a stronger season. This year and then if you could talk briefly about the integration of the Merck business. Thank you.
[noise] acquisition of the integration of the the Merck business is going very well and the quick. Thank you to all those who are involved in that effort.
We continue to grow that business at very attractive rates and continue to grow our heritage PNG.
Ill health care business at very attractive rates as you said or the total grew double digits in the quarter.
If anything if my knowledge is correct. It may not be but if anything we saw slower buying ahead of the season.
This year as <unk> as compared to for example, last year, but but I'm certainly not a significant impact.
Either way.
And your final question comes from a line of Edward Lewis with Atlantic Equities.
Yes, thanks very much.
Drill down into Europe , because I guess, you will commence stones, we suggest tool.
Geographic regions, the graying of occurring sensible I guess your it's included with Athens, and I guess things that happened in that Grace of light. So just wondering on <unk>, it's a tough operating environment, you've got lots of or regions too.
Uh huh.
Execute again.
And you've rolled out the M a you'll run.
Because once you are tea and end to end SB you strategy a bit later, but it does seem as though the market share trends and the underlying growth rate seems to be improving over here as well.
Our Europe is definitely included in the characterization of all regions growing at 4% or more.
Our big focus markets and in Europe grew at 4% during the quarter.
The more developing parts of Europe grew at 5% during the quarter.
Really a broad growth across countries within Europe .
Germany for example, up 6%, Russia up 5%.
The combination of France, and the UK up 2% to 3%. So we're seeing certainly growth ahead of the market in Europe , we've built share our share position very nicely over the past 12 six three in one month period. So we're very happy with our.
Well performance there.
I want to thank everybody I know this is a busy morning with a number of companies reporting. So thank you for your time.
John Katy and I are available the balance of the day.
Answer any questions that you have to the best of our ability. Thanks a lot.
Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.