Q2 2020 Earnings Call

Good morning, welcome to Procter and Gamble's quoted and corporate school you would like to remind you that today's discussion will include a number of forward looking statements.

I will refer to PNG. His most recent country. Since you became reports you will see a description of factors that could cause the companys actual results could differ materially from these projections.

Also as required by regulation G block and guess what needs to make you aware that during the discussion the company will make a number of references to non gap and other financial measures. Balkan 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 now I will turn the call over Japan, Genies, Vice Chairman, Chief operating Officer, and Chief Financial Officer, John Bullock.

Good morning.

This was another relatively straightforward quarter.

And as David Taylor will be with us to provide additional deficit cagney and just a few weeks.

Got to keep prepared remarks, this morning Breeze, turning fairly quickly to your questions.

This is another very solid quarter topline and bottom line in cash.

Given by our portfolio superiority productivity constructed disruption and organization strategies.

Organic sales up 5% three points volume growth two points price mix.

To your stock to average growth of 4% to 5% fiscal year to date organic sales growth of 6%.

What are your 2019 organic growth of 6%.

This growth continues to be broad based.

Nine or 10 global categories grew organic sales scana personal care up double digits personal health care at home care grew high singles fabric care feminine care hair care, all care and grooming grew mid single digits family care grew low singles.

Chris markets and enterprise markets each grew mid singles.

We continue to perform very well in our two largest markets you was up 4% and trying to up 13% for the quarter.

Aggregate market share continuing to grow.

These results required us to overcome several challenges.

What we're seeing real signs of progress with grooming organic sales up 4%. This quarter, we're still working to sustainably improve results in this business and a baby care.

Sales results in Japan, our third largest market.

Great and nearly a half point drag on total company organic sales growth.

Due to timing of D.A.T. changes that went into effect on October onest.

The timing as we highlighted last quarter led to higher shipments last quarter and lower shipments in the quarter. We just completed.

We face market level challenges and an increasing number of markets.

India, UK, Australia, Turkey, Iraq, Nigeria, Kenya, Lebanon, Argentina, Chile, Mexico, and the Hong Kong markets.

Through all of this we grew organic sales, 5% on a quarter and 6% over the first half.

Moving to the bottom line core earnings per share up 14% versus the prior year.

Foreign exchange was a one point earnings growth headwind, so on a constant currency basis core earnings per share increased 15%.

Fiscal year to date core earnings per share are up 18% up 19% on a constant currency basis.

Gross margin up 200 basis points in the second quarter core operating margin up 190 basis points continued strong cash generation operating cash flow a $4.4 billion, a free cash flow productivity of 100%.

$1.9 billion of dividends paid $3.5 billion up PNG stock repurchased $5.4 billion or cash returned to shareholders.

No had another strong quarter solid volume sales and market share trends across both categories and geographies strong operating earnings margins advancing strong core earnings per share growth and continued high levels of cash generated and returns to shareholders.

We continue to face the challenges of a very volatile macro and geopolitical landscape.

And up competitive response to our gross but all in we're continuing to make progress behind a set of integrated and mutually reinforcing strategies.

The strategic choices, we've made to focus and strengthen our portfolio and daily use categories, where performance drives branch choice.

Well established an extended the superiority of our brands.

To make productivity as integral to our culture as innovation.

The lead constructive disruption across the value chain.

And to improve organization focus agility and accountability.

Reinforce and build on each other.

They position us well within our industry to deal with near term macro and competitive challenges.

They are the foundation for stronger balance growth and value creation over the short mid and long term.

Moving to guidance, where again, increasing our fiscal your outlook for organic sales growth.

For core earnings per share growth and for free cash flow productivity as well as cash return.

We started the year with organic sales growth guidance of 3% to 4%.

We increased the range to 3% to 5% last quarter and are now increasing in the range to 4% to 5%.

This 4% to 5% range compares with underlying market growth of 3% to 4% implying continued market share growth.

On the bottom line, our core earnings per share growth guidance started the year at arrange afford a 9%.

We raised the range to 5% to 10% last quarter and we're now increasing the range again to 8% to 11% for the year.

We're increasing our outlook our outlook for adjusted free cash flow productivity from 90% go and ended the year to 95% last quarter and now it's a 100%.

We'll extend our long track record of significant cash generation and cash return.

Expecting to pay over $7.5 billion and dividends and now increase in our outlook for share repurchase.

From a range of $6 billion to $8 billion to arrange of seven $8 billion in fiscal 2020.

While we delivered strong first half results. Please keep in mind that comps get more difficult as we move through the year, both topline and Bottomline.

Pricing annual license as we move through the back half of the year affecting both top and Bottomline trends.

Well coffee earnings gains from the Boston land sale and oral care brand divestitures in Q4.

Competitors are responding to our outperformance, which will require continued innovation and equity building investments on our part.

And the market level challenges I mentioned earlier will be top and bottom line headlines headwinds for the balance of the year.

Our 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 included within the do it improved guidance ranges.

We look forward to see many of you at the current conference and just a few weeks as I mentioned, David Taylor will join US and will provide further perspective on forward looking strategies and plans, we look forward to engaging with you and to benefiting from your thoughts on reactions.

That im happy to take questions.

Ladies and gentlemen, if you have a question. Please press star followed by one on your phone.

Your question has been answered or you would like to withdraw your question. Please press star followed by too.

Your first question comes from the line of Dara Mohsenian with Morgan Stanley .

Hey, John .

I wanted to focus on organic sales growth, obviously, the 5% results still very healthy this quarter, but it is below 7% in each of the prior two quarters themselves like some of that Japan timing based on the prepared remarks, I'm, assuming perhaps in the U.S. inventory reduction just the retailers approach fiscal year and so just wanted to get your read on an underlying base.

Just looking at retail sales growth.

Ship until they actually inventory changes anything change in terms of the underlying momentum as you look at that fiscal Q2 results first since the last couple of quarters and then within that answer perhaps you can just touched briefly on that.

I live environment have you seen incremental promotion with the recent commodity pull back and also give us an update on China performance in the quarter in any impact so far from the virus that we're seeing over there. Thanks.

I could complete the whole caldera [laughter].

No.

[laughter]. The first part of your question, we're very pleased with the topline growth and a quarter that we've just completed.

As you all know we delivered 7% as you mentioned.

In the prior quarter, our guidance was the three to four three to five for the full fiscal year, implying something below that beyond the first quarter. We delivered at the high end of that range as I mentioned in my prepared remarks that growth was broad based both across categories and regions.

And we built market share.

A couple that underlying consumption standpoint, you've seen the offtake numbers or.

At least through December which continued to be very strong.

And we really haven't seen anything that would.

Caused us to change that outlook kind of the first part of the current quarter.

So all the fundamentals are there are superiority levels continue to increase we're investing behind that while building margins were building market share.

Increasingly the growth is broader as you look at both categories.

And geographies.

We did have some headwinds in the quarter from.

Two items you mentioned really three you mentioned, one which is Japan, the that had a half point impact.

Which.

Benefited the prior quarter.

The other dynamic has been a series and I mentioned this also my prepared remarks.

Geopolitical.

Economics societal and other impacts in individual markets I mean think about what's happening because in the last well since we last.

The other either.

Situation.

And the Hong Kong market has continued to be difficult, which had a real impact.

The quarter and had an impact on on the travel retail business.

Some of the market level events in South America, whether that's Argentina, or chalet where stores were.

Firms.

I can place.

Some of the events that you're very familiar with in our headline items in the middle East.

Impacted our business as well and those those items will impact us going forward for the balance of the year.

We're very pleased that we were able to overcome all of that.

And still deliver very strong numbers that are those share build household penetration and allow us to deliver significant bottom line.

Yes.

From a competitive environment standpoint, which was the second part of your question.

Promotion levels for a percentage of sales in our category sold on promotion.

Are actually down the index at a 98 for the last quarter. That's all I have visibility too I don't have visibility to the future and where individual competitors are up versus year ago, they're up typically a point.

So.

Sorry, simply we can get Angeles later with others. If you want in more detail Oh, we're not seeing.

Competitive activity, that's indicative of a downward price by rose by any means that can change tomorrow, but what we have in front of US today continues to look very healthy.

China, we [laughter].

Our very optimistic.

About our prospects in China, it's a difficult market it moves at a very fast pace, both from a consumer and trade channel standpoint.

But we continue to increase the rate of growth in that market, you'll recall four years ago, we were at minus one.

Following there were a plus seven.

Excuse me plus or minus five plus one plus seven last year at plus 10 and fiscal year to date, a plus 13.

So that continues to be very attractive market within that some really strong growth rates in some categories I'm talking the high 20%.

And and categories like skincare feminine care.

Over 20%.

Fabric care double digits.

So generally very strong market I have no idea what the.

Developments are gonna be relative to.

The new virus, we're obviously monitoring that closely as it relates both to the health of our.

Employees and broader community.

And we'll have to see what impact that has if any on the business going forward, but it's one of those things that I do think is important to mention because it can have brought.

Impacts well beyond China.

It could also affect consumer confidence and large parts of the market it can affect travel which doesn't affect our business.

And so it's one of the.

Many pieces of volatility that's just important we keep in front of us as we think about the prospects for the future, which I view is generally extremely positive, but not without risking without challenge.

Yeah.

And your next question will come from the mind that Steve Strycula with you'd be yes.

Hi, good morning.

John I'll stick to one topic here and just to clarify what are your responses did slow down you're seeing in travel retail is actually specific to Hong Kong or is a little bit broader based in China that would be the quick.

Clarification in a broader question would be can you talk to just foreseeing across the global beauty spectrum in your portfolio right now how is China performing with SK two versus a late and then what does the opportunity to extend SK choose to broader markets I'm looking forward. Thank you.

Another three Carter.

I'll try to get to each of the pieces efficiently.

Travel retail concentrated in.

Hong Kong.

Beauty broadly continues to do.

Extremely well this is our 17th consecutive quarter of growth with Q2 up.

8%.

That growth is broad based hair care grew 6% in the quarter, our skin and personal business grew.

10% is actually a relatively slow quarter for us there too.

Given both the V.A.T. dynamic in Japan, where SK too as a big business.

And the and the Hong Kong.

Dynamics.

Skincare broadly in China as I mentioned is doing an extraordinarily well away was up a strong strong double digits.

And but the balance of the business as well, our safeguard business, which is part of our beauty segment.

Grew double digits against strong double digits over 20%.

So the growth in beauty, both on a global basis and within the China market because is broad based.

Thank you asked another question, but I don't.

Oh basket to expansion yeah.

There are so first of all there are significant opportunities and the markets that were in as evidenced by the current growth rates.

Our also right time and in the right way expansion opportunities available.

So are there other questions were not.

Your next question will come from the lineup Andre had to share it with JP Morgan.

Hi, Good morning, everyone. Thank you I just want to double click on what do you just said John on Dan on the China, I'm going to try not Holly devolved allows for the quarter and makes you're baking any more level once everything is not well into the on the backend to be a given what's happened recently.

So I think what do you also discuss he's hair care coming back so he's that indicating aside from what could be expected to consideration nominees renovation fratzke too. Thank you.

Let me first talk about a hair care I'm, assuming the questions in the China context.

We we grew hair care in the mid to high single digits in China, which is the fastest growth rate on a period of time.

And so yes that can offer some offsets if you will to other businesses that may that may soften competitive activity or are there are other things.

On the other hand, the hair care business is a highly highly competitive business as are many of our categories. So the dynamics can change there are quite rapidly.

Our job is to continue to steadily increase our margins superiority and if we do that over time, if not quarter to quarter, we'll continue to have a strong business.

In terms of the conservatism on the in the back half of the year.

Well answer this question, both relative to China, which obviously, we don't provide specific guidance for the balance of the company.

One thing to keep in mind with China is the timing of a Chinese new year.

Which as you know from all the press on China recently is happening is beginning as we speak.

And that is earlier and the calendar year than it typically occurs and so it's likely there was some selim and the Ellen de period that wouldn't have been there and the prior year period, but on a global PNG basis that doesn't move the needle significantly.

Something just to be aware of as it relates to the China specific situation.

I talked in my prepared remarks about.

Some of the the headwinds that exist that increased during the quarter will impact us in the back half of the year or could impact us in the back half of the or.

We talked about the market level dynamics. So if you take a market I may not be that large but take the market like Chile.

That impact happened at the very end of the quarter and will exist through the balance of the year.

The same with for example, the situation and love it on the same for the situation in Iraq.

The India market the growth rates have slowed still growing and we're doing very well and building share.

But the challenges there have increased and will likely remain for the balance of the year. So that's one reason.

One thing that needs to be netted against the strong progress that we hope to continue to make.

The other is.

Realization of price increases. So for example in February we annualize, both just care price increase from year ago at a family care price increase from your though.

I don't want to talk about how we're going to handle pricing going forward, that's kind of off limits.

But irregardless those annualization impact as well as some of the price increases we've taken for devaluation over the last year will annualize and third.

As the competitive environment and I don't know, what that's going to hold.

Described what it's held so far.

But most of our calendars, but most of our competitors or calendar year based they start their new fiscal years as we speak and many of them I've talked understandably about increasing investments for growth that can be a very healthy thing I can grow categories or we can all benefit from that but certain.

Limitations of that obviously, our or less healthy.

Now against all of that backdrop, we continue to make progress on the things that we control and we're making very strong progress our margins superiority is increasing across the board that's dynamic is not static.

So we have a moves forward and moves back with a net move is is a forward move.

We're in a position because of our productivity programs to invest to support communication about superiority.

And that's that's really driving some outside outsized growth and and many of our categories and over time and it will take some time I expect.

Well, we'll deliver higher growth rates on businesses like baby care. So overall, we're very optimistic about.

Where we stand today and what the future holds at least in the near term.

But it would be a responsible not to acknowledge the challenges that exist.

And your next question will come from the line as Lauren Lieberman with Barclays.

Great. Thanks, good morning.

I'm going ask one question and I just wanted to talk a little bit about grooming and particularly shaving and you'd mentioned there were still some devaluation given pricing and I. Just was curious if you could talk about performance to that business just specific he developed market.

How things are trending the impact of July 10th It is you've made some portfolio moves right. There's been have already been apart you just acquired daily. So you didn't need to give us a little bit, Italy, Atlanta, how your chipping away and making progress or not so much and shave care would be great.

Thanks, Laura.

And within that one question.

Three which is very well done the.

On.

Our grooming business strengthening in the quarter overall, we were up.

4%.

And that's the a third consecutive quarter of growth importantly, we grew global market share 0.3 points, which is a very encouraging.

Shaving within that was up versus year ago, not as much as the funny that are not as much as the dry shape business, but the wet shave business did grow and we've seen a pretty strong response to our investments both in products and then communication incur.

Fortunately, we've added 18 billion new users to our brands over the last 12 months.

Skin guard is contributing to category growth is doing well and continues to expand.

In the U.S. for example.

Razor value share and skin guard is now 9%, which is a third largest for a PNG sub brand and we're building. Unlike most of our competitors are shaved business online.

We're we're pretty excited about the Billy acquisition, that's something that obviously needs to pass regulatory clearance and we need to remain separate from that business until that happens, but there's there's a real unique set of skills experiences and knowledge between.

Billy and PNG that we think has the potential to create some real magic.

Clearly a they've created a very effectively a.

Fresh new brand that extends across several categories.

And they've done it and we can benefit.

From their experience on this digital fashion with one to one mass marketing, which is something we're continuing to increase our focus and keep focused on and capabilities related to.

We have innovation.

Capability across the majority of their categories.

We have best in class manufacturing across the majority is our categories and we haven't go to market presence, both online and bricks and mortar.

Certainly and an omni channel that can accelerate the growth in that business. So we're very excited about the potential.

And are working through the clearance process.

And your next question will come from the mine up Ali Dibadj with Bernstein.

Yes, I think.

Hi in more detail your view about about the future on pricing for kind of the future solid net.

From the recent pricing <unk> globally given.

There is starting to be sure points on competitive mearns of more investments coming.

You know like most recently at city in Europe yesterday, we're really talking about pricing.

And commodity clearly continue fall I guess, you're not doing anything yet.

But in that context, two questions. One is what kind of lead time.

No did you get in terms of price competition.

So can you feel comfortable paying.

All clear for a quarter I thought there for two quarters or is it just like literally that may change Tomorrow, and then the second thing and you know part of our cost the job with pattern recognition, but historically, we have seen net pricing you think we treat bennett problem on everything.

Down in categories, especially baby family with these types of commodity decline.

Do you think it's time to get friends and if so kind of why other the technical question on timing, there's more about how do you see the go forward I'm getting the pattern we've seen it.

Thank you.

Thanks Holly.

Obviously just related to a city.

First they're talking about a market.

We're not competing.

I know that.

You know that.

It's a very different market as much more of a commodity market than our primary market from a tissue tower standpoint, which is what I believe they were talking about which is North America.

In general, we see commodity prices as a supportive of the current prices in the market. So while there are down some.

You know versus kind of historical levels, and where we were before the price increases a woman into effect. We feel the current prices are justified that does not speak to an indication of future activity I I won't go there.

And our outlook for those commodities continues to be a relatively flat to slight increases, particularly in the and the pull space. So I don't see the kind a sea change environment.

That would necessitate a activity.

Having said that each competitor will do what they choose to do and we need to be responsive to that which gets to your second question.

And candidly, we do not have advance notice of the implementation of price increases.

And so we are decreases sorry, either one.

And.

So we react as we see those in the marketplace.

And that reaction time.

Typically is anywhere from a quarter to six months. So if we think.

Along reasonable periods of time, Oh, I don't expect us to be.

Crippling dynamic or anything resembling that going forward it may cause a quarter of two of or benefit or or or hurt, but not a big thing to worry about.

And your next question will come from the line of Wendy Nicholson with Citi.

Hi.

Yes, I'm not telling your appeared to have had less margin expansion your margin trends have been terrific and and a lot of actions have been driven by the productivity initiatives. I know you get your kind of coming are you in your felt for maybe I'm. Your five year program and I'm just wondering.

Well, what's your outlook not for the next quarter, but starting for the next two to three years. There. Another 10 billion dollar restructuring program coming or how do you keep there's productivity benefits occurring why do you kind of getting into that program. Thanks.

Thanks, Wendy I mentioned as one of our strategic choices the desire to.

To make productivity as integral to our nature as innovation.

And to be leaders and productivity just as we are innovation.

And I think we've made a lot of progress on that journey as you rightly pointed out which is reflected in our.

Margins are certainly this quarter.

My hope is that as we move forward. This is simply an integral part of our operating strategy.

And it needs to be because we will need to continue to invest in both holding a advancing our margin of superiority. Some of the continuous disruption. We're talking about will also require some investment that's and.

Human resources.

Capital et cetera.

I feel very good about each of the business units.

Understanding.

ER and commitment.

To continue delivering productivity so that brings us to another part of the question which is.

Our their degrees of freedom that enable that to occur.

Well what is one thing delivery as another.

And I don't think we've ever been at a place where there are more degrees of freedom.

Or more opportunities to improve productivity.

The tools that we have available to us now across the digital spectrum.

And that's everywhere from marketing to the manufacturing floor. So the office environment.

I have never offered more opportunity a than they do today.

And.

You know we have.

As an opportunity still in terms of.

How we think about.

Our new organization structure and are there opportunities within that as we learn more about it.

Become even more efficient and effective and I certainly believe they are there are.

I just attended along with David a review of our product supply.

Innovation program last week and there.

Big opportunities relative to robotics, well relative to.

A tighter sequencing of the entire supply chain from order signal all the way back to.

Delivery, where the middle of the still depressed supply transformation across markets and geographies.

So I continue to believe.

That productivity will be inherent part of our operating strategy and we have the tools and opportunities to continue to deliver that.

And your next question will come from them I never Olivia Tong with Bank of America.

Great. Thanks, good morning.

Little bit about.

Continues to move up.

He thinks.

And at this point I think there's a fair bit of investment already in the base. So we got already always with trying to continue to increase or.

Can you speak than you expected.

Anything that he can defend <unk>.

Yeah.

We haven't seen much of a change in person councils on promotions, just wondering where the advertising dollar.

Thank you.

A couple of things are Olivia.

We've been very clear I think that while we need to be competitive from a trade spending standpoint and need to offer.

Tract of margins to our retail partners.

Where we have a degree of flexibility, we would prefer to spend that incremental dollar advertising or innovation everyday that week.

The reason is very simple, there's nothing proprietary and pricing we can build proprietary advantage.

With both advertising and innovation.

So again on the margin, where we have the opportunity to make those shifts we're doing it and we're doing it and away that.

It is attractive to our retail partners as well because it drives business in grows categories.

The second piece.

We've talked a lot about and Pritchard, our chief marketing officer has talked a lot about externally is the opportunity.

To move what were historically, a significant amount of non working dollars into working advertising.

And Ah that's been about a million dollars shift and it continues.

And third piece of this is when you have innovation.

Thats noticeably superior.

If you you need to and want to and should be communicating that superiority and those performance benefits and the value that comes with them to consumers and the good news is we have a lot of very strong innovation in the marketplace that has a lot of legs left in terms of either.

I was just launched or something like a pause or fees, which have been on the market for a number of years, but have significant household penetration opportunities and our pure delight hers from consumption standpoint.

We want to be supporting those I mentioned, both as relates to a competitive activity, but also in general, but we will continue to invest in both equity and innovation as we move forward.

Your next question will come from the line of Kevin Grundy with Jefferies.

Thanks, Good morning, John Congratulations on another strong quarter, we come back to China, which was a particularly strong in a quarter or against a notably difficult comparison can you delineate a bit [noise].

The company's progress in that market between categories Strange and superior Procter market share performance and maybe how that's changed you talk about skincare, obviously very strong of 20% Fem care I think was up double digits, maybe just talk a little bit how about how much of this is category pursue strategic execution by Procter and certain key.

Categories, and then your expectations here for the balance of the year decks.

Thanks, Kevin.

It's it's honestly hard to separate those because if we do our job right from an execution standpoint, and innovation standpoint regret we grow markets. So we don't view market growth is something that is separate from our efforts is in many cases, obviously not 100%, but it's caused by our efforts.

I realize that's not that helpful to use but it's an important point because we because we backup from Matt.

And I look at a category growth in China. It continues to be strong in our categories.

The one area, that's under a little bit of pressure from a category go stand point as baby care and that relates to.

The birth rates.

Which have gone from about 15 million babies, you're down to 10, which is significant impact on the other hand within that category. There are significant premiumization opportunities and the premium part of our business is growing.

20, or 30%, depending on whether that's premium taped diapers or.

Pat style diapers, but in general in China. The answer on category growth is remains very strong.

The answer on if you will.

PNG specific efforts if you if you pretend for a second that they're not impacting category growth.

That also is abundant and real I mean, we've gone it's not to the inflection and category growth rate that has changed the results on skin care. If it's our share progress within the category, albeit on a very growth full category. So we've gone from declines.

Any other clients on that business to perennial gains and strong double digit gains.

Are the improvements in our hair care topline.

Still not what we'd like it to be but definitely improved from where we've been.

Is a result of much stronger brand, even innovation efforts as well as.

Go to market strengthening so it's hard for me to fuse those apart the simple answer is both and that's a good thing.

Your next question will come from the mine of Jason English with Goldman Sachs.

Hey, good morning, folks and happy Bleed in New York.

To a two questions for me.

First on U.S. growth, you've mentioned, 4%, obviously solid in context of the U.S., but it does it do you sell from last quarter and it becomes despite an easier comp is is there anything worth calling out any new wants to take note of there on that growth and then secondly on the baby time and family care segment.

Growth food was was it a little weaker than we expected this quarter, it's kind of weakness we've seen in a while.

I know, it's just been one business, it's been a little harder if you kind of get going like everything else.

Can you walk us through what the game plan is and what our expectations should be for that business as we think about the next 12 months. Thank you.

To start where you started.

You EPS growth of 4% is indeed, a very strong and ER.

It's building market share, we've built marketshare and the U.S. over the past three and 636 and 12 months periods nine of our 10 categories grew in the U.S. and the last quarter. The one that didnt was either at a 98.5 or 99.5 index.

The difference between the quarters.

Reflects a number of things part of it as trade inventory, which was reduced so we went through the second quarter as initiative timing that impacts this pretty significantly as well I would expect going forward, we're going to continue to see some chop, we look at it on a quarter to quarter basis, but across a slightly.

A longer period of time, we remain very very happy with the way the business is progressing and if we look at underlying consumption going back to a discussion earlier in this call.

Continues to be as you've seen and at least the scanner data.

Very very strong.

From a Oh baby care standpoint, if you look at the first half of the year Baby care was flat to up slightly which has a better positioned than we've done in.

And it ranges from if we look at our two largest markets China and the U.S. those are.

Relatively again on a relative basis healthy China. The first half we grew at 5%.

That's the fastest growth, where we've had from on a semester basis about six years.

We regain market share leadership.

Two years ago and have continued to hold that.

As I mentioned.

In the last answer we're growing our premium business, our pant business, a very very strongly.

The U.S. were about a flat versus year ago.

Which again is an improvement on a relative basis and what should take both of those businesses as well as the brought her baby care business to a stronger position is innovation, which build superiority we have across parts of the portfolio not.

Been offering a superior product has largely been and some of those cases at parity products.

Strong innovation plans in place not only in terms of Incrementality, but we've really increase the pace of innovation on the about that's coming to market a lot of which has driven the China results that I talked about.

But you know innovation, whether it's a baby care or beauty care is not an overnight endeavor.

And we'll continue to hopefully.

Improves sequentially as we go forward.

And your next question will come from the line of Mark gastric cancer with Stifel.

Thanks, and good morning, everybody.

I guess, maybe just a quick question for you John .

The the enterprise versus.

Lets do business seems to have slowed a little bit you guys don't really talk about university I'm kind of anymore, but maybe talk a bit about what is driven to slow down you touched on jewelry, Hong Kong et cetera, how much is that in terms of.

Country specific issues versus lapping the pricing in kind of how should we be thinking about that dynamic how to go forward basis.

We're pretty pleased with the growth rates in the enterprise markets. Currently you mentioned a mid single digits really at the border of mid single digits in high single digits.

I'll leave you interpret that.

And that's despite these pretty significant impacts if you think about to the largest markets on the enterprise environment, Our India and Mexico.

And I talked about the slowing growth rates in in India.

Largely as a result of some of the monetary policies, which has created a bit of a liquidity squeeze which is drying up inventory through the system.

But we continue to grow well in India and are building share.

Mexico's technically from an economic growth standpoint in the recession.

We continue to grow reasonably well there mid single digits and are growing share there as well.

So broadly we continue to be pretty pleased with our progress and just briefly even though it wasn't part of your question on the bottom line.

We're creating more value in these markets currently them than we ever have.

So our Bottomline progress was strong.

Double digits.

Well ahead of the company average.

We need to be focused on value creation in these markets that includes growth.

Where we can generate a meaningful returns.

And and that's what we're focused on doing and there's tons of opportunity.

Your next question will come from the line of Robert on the Stein with Evercore ISI.

Great. Thank you John I'd like to kind of focus on on E Commerce.

I think you know in the past you'd said that it's about 8% of sales is that moved up maybe closer to 10 and a globally. How fast is a growing a lot on a global base. Since then specifically.

How fast in China, how fast in the U.S. and are you gaining share.

Any commerce in China, and the U.S. Thank you.

It continues to be.

A significant opportunity for growth.

That's currently growing at about 30%.

And then the big E Commerce markets.

Growth differs across categories, it's pretty much at that level across markets.

It is now about 10% of our total business than what I just for clarity when I mentioned ecommerce I'm talking obviously, the totality of ecommerce, which which includes omni channel.

And our market share in general has been increasing.

Course, or some volatility to that but particularly in the China context, and again it differs by category.

We've been making significant progress in that space I see us as very well positioned to exceed to succeed in that space, though that's something that requires a internal effort.

Flexibility and Ah the construction constructed disruption of ourselves which were.

Committed to to ensure.

That we offer a competitive irrelevant.

Offering wherever consumers want to shop, whether that's e-commerce , whether that's large format that small format.

And Ah generally were progressing well in each of those.

Your next question will come from the line of Nik Modi with RBC.

Yeah. Good morning, Thanks, Kevin I'm, John maybe you can talk a little bit about the Marco tea business I mean health care was a pretty nice contributor to the topline. So just wanted to understand what's driving that isn't that's kind of whats the strategy there any context would be helpful. Thanks.

As you probably recall Merck offers a very complimentary portfolio to our legacy.

Personal health care PNG business has a strong presence in the developing world.

Complimentary categories across geographies.

And there were a.

Significant we felt a cost synergies in addition to Robert revenue synergies by bringing the best of both companies together and driving growth.

It's early days, we're still in the middle of integrating we just closed.

18 months ago.

But we're very pleased.

With the results. So far this is the first quarter in which Merck is recorded as part of our organic sales growth rates. It contributed positively to that.

That's a real asset to our overall personal health care business and it's playing out that way that revenue synergies are on track the cost synergies are on track.

It was some.

Real exciting examples of.

The possibility of driving both of those ahead of.

What our initial plans had that the organization as a strong organization.

And they're doing a great job, so so far really really good.

Your next question will come from the line as Bill Chappell with Suntrust Robinson Humphrey.

Hi, Thanks, good morning.

John just circling back to the daily acquisition I, just a little surprised that I guess PNG thinks that's.

I can pass what the FTC and just with your market share and also with kinda FTC cracking down on a lot of that you could be some small acquisitions. It strikes me so kind of any thoughts there on you know why you you're moving forward without it especially on the West. Additional then it's that's part of a plan.

Do you think there's up more opportunities to do tuck ins or to where you have 40 could you share of other market.

In general just starting from the strategic.

Level.

We want to ensure that we are a super serving consumers and all relevant segments of the categories that we've chosen to plan.

Sometimes that's easier.

More straightforward from an organic standpoint.

So if you think about the natural segment for example, something like Pampers pure.

On the other hand.

Getting a quick presence in some of these are high growth segments.

Or with different groups of consumers.

Sometimes easier to do.

Position, so if I just.

A good example is business L.

Feminine care, which is now the number one natural products from a marketshare standpoint.

Obviously very early but so far has proven to be a very strong idea to expand in a very relevant consumer segment very quickly.

That's the motivation here I'm, obviously, not going to speak to a regulatory.

Dynamics or or.

Anything related to that.

But we're excited about this and.

Hopeful we have the opportunity to.

Really worked to grow this combined set of categories grow the market.

Great value.

And your next question will come from the lineup Kobo Badger <unk> with credit Suisse.

Hi, Good morning, John can you talk a little bit about how you in the board thinking about.

Valuation in the context of of share buybacks. Your results are obviously, the best it they've been probably in a decade, but so as a pops appropriately so as the value of your Oh your shares. So if you just talk a little bit about valuation buyback context.

Sure obviously over the last decade.

Buybacks have created.

Extraordinary value.

But that's been on the back which is implicit in your question.

On overtime, a significant increase and the stock price.

If I look at it today first of all we don't try to forecast where the market's going to go we don't pretend that we know that.

And so in general we feel very strong about our prospects as a company.

There's no reason a presence not to feel reasonably good about the market itself.

And so we're kind of if you will dollar cost averaging.

Overtime.

The other thing that's important though is to think about the context of our dividend yield relative to a financing rates that are available.

Because of that.

At some level, what's you're dealing with is can I retire a dividend rate with an incremental financing costs, that's lower than that rate and with negative interest rates in many parts of the world. A this is a very attractive time to be if you will financing share repurchase.

We're gonna stay within our credit limits as we do that that's another constraints, if you will or another rail.

And ER and we'll continually look at this obviously capital allocation as a broad topic inclusive of share repurchase is something.

That is reviewed regularly with the board and we value their input to that but the current plan obviously.

Reflects that as we sit here today I don't have a reason to suggest a change in that plan.

And your final question will come from the line of Jonathan Feeney with consumer edge.

Hey, John Thank you.

Are you concerned at all with your business has become much more macro sensitive in the past five to 10 years. Some segments of outsized growth would seem to indicate that but any historical context or consumer data you have that was a farmer to spell that out appreciate.

I think John we're actually less sensitive.

I'm going to the macro environment, that's been a very deliberate choice. We've made let me explain that.

We were in as we went into the last recession as an example, a lot of or a number of a relatively to highly discretionary product categories.

Things like a salon hair color.

Hi, and premium fragrance.

Just two examples and our.

Intentional and strategic part of our portfolio focus was to be instead and daily use categories.

That are.

That are used in good times in bad times, because they're just important to get through the day, sometimes multiple use is important to get through the day. So if you look at a total portfolio through that lens, we're more macro resilient I would argue today than we were some years ago.

The second reason I say that is the efforts that we've made and we'll continue to make and the investment we've put behind it.

On product superiority.

A product product package the whole a set of drivers that inherently.

Increases consumer value.

So the value of each purchase is higher than it would have done.

Even inclusive of small price increases.

And that to puts us in a better position relative to things like trade down that can happen as a result of macro dynamics and more difficult economic times.

Not immune but in a better position today. The third thing I would argue is.

To the extent that we've been successful.

And.

Creating a culture, where productivity as is as integral to our opinion because innovation.

We have more financial flexibility.

And therefore more degrees of freedom for how we manage the difficulties that of the macroeconomic situation can present.

So for those three reasons.

John I think we're going to a much better place today.

We will be impacted if there are negative developments in any part of the world.

It does create challenge it's the right question to continue to ask.

And I'm, not talking and absolutes, but on a relative basis, we're much well much more macro resilient than I think we were historically.

Great well, thanks, everybody again just a.

Quick summary.

We really view this quarter as another step in our journey for work.

Strong topline progress building market share strong operating earnings growth building margin strong core earnings per share generating cash returning that cash to shareholders.

All behind an integrated strategy that is working and we will continue to execute.

We look forward to seen many of you as I said earlier at Cagney and I look forward to our conversations thanks.

Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.

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