Q4 2020 Clorox Co Earnings Call
Good day, ladies and gentlemen, and welcome to the Clerks company fourth quarter fiscal year 2020 earnings release Conference call. At this time, all participants are any listen only mode. I think at the conclusion of my prepared remarks, we will conduct a question and answer session. If you like you asking question you May press star one on your touched.
Pad at any time.
Anyone should require assistance during the conference. Please press the star zero on your touched on pad at any time.
As a reminder, this call is being recorded I.
I would now like to introduce your host for today's call Ms., Lisa Byrnes, Vice President of Investor Relations for the Clorox Company. This spring you may begin your conference.
It's really very welcome everyone and thank you for joining US today, we hope you and your family are safe and well on the coal with me today, our bed odour, our chair and CEO.
One Jacobson, our CFO and Linda Rendell, our president and CEO.
Before we go through our Q4 and four years old elected turned over to Bento to say few words about the leadership changes announced today I don't think.
Thank you Lisa Hello, everyone.
You have like I've seen this morning's announcement about my decision to step down from my role as CEO.
With a current president Linda Rendell being named my successor effective September 14th.
I will continue to serve as executive chair of the board.
It has been my great privilege to carry forward the legacy of generation, So strong clorox theaters in my pursuit good growth.
Gross debt as profitable sustainable and responsible.
The ideal good growth was create it's based on a very strong beliefs. The companies can deliver great results the right way.
And that's sort of thing employees communities and the plan it as a whole is as important that's serving shareholders.
That's how we generate profit matters.
I am proud that as a company we have always been strategy led and committed to our values both of which have guided to successfully in making the right choices on behalf of our shareholders and all of our stakeholders.
After 15 terrific years at the company I am, particularly grateful for my teams of 8800 strong.
Especially for the current executive team.
I have great confidence in them.
I also want to thank the board of directors for their support of a guy who ventured out of a small town in the German black for US 35 years ago to pursue a dream that led me to places and allowed me to do things I could not have possibly imagine.
My Thanks also go out to everyone in the investment community around the world for your support how poor perspective, then of course, you'll kind or which I look forward to momentarily.
I appreciate all of you end up, particularly appreciate the wonderful friendships that up and able to make along the way.
On September 14, I could not be more pleased to handle with a race to Linda and I look forward to supporting her and her team.
I've worked with end up with 13 over 17 years that the company.
She is an exceptional leader within outstanding track record the right leader for this great company and I cannot wait for all of you to be able to see what she can do.
Linda is joining us today and will participate in Q1 day and also say a few words to what the end difficult.
Thank you, it's been an honor and privilege.
And with that I'll turn it back over to Lisa.
Thanks, I know I've really enjoyed working with you since I started across on the glad this has more than 15 years ago.
And I look forward to working closely with Linda as well.
I see reminders before we go into Brazil, We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website. The clocks company Dotcom. Today's discussion contains forward looking statements, including statements related to the expected or potential impact of called at Nike.
These statements are based on managements.
Current expectation, but may differ from actual results or outcomes.
In addition, we may refer to certain non-GAAP financial measures.
Please refer to the forward looking statements section, which identified various factors that could affect such forward looking statements and the non-GAAP financial information section, including the table that reconciled non-GAAP financial measures to the most directly comparable GAAP measures both of which are located at the end of todays earnings release, which has also been posted on our website.
Files with the FTC.
Turning to today's discussion of our results I'll start by covering our top my commentary as usual with highlights in each of our segment.
Kevin will then address our financial results as well as outlooks for the fiscal year 2021.
Finally that it will offer his perspective, and we will close this una.
For the total company Q4 sales increased 22%, reflecting double digit growth in all four reportable segment.
Full year sales were up 8%.
Oh no go through our results by segment.
You may have seen in our press release, we've made some changes to our reportable segment with a newly formed hold and while the second replacing our cleaning segment and be right realignment of several business units.
In our health and killed health and wellness segment.
Q4 sales were up 33% for the quarter.
And full year sales grew 14%.
Cleaning, which merchant home care in laundry is our largest business unit and the company representing about 30% of total company sales in F. Why 20.
The business had another quarter of double digit sales growth.
And continued elevated demand across the portfolio.
Well, we've been able to add significant capacity.
Man still far exceeds supply leading to continued out of stocks for many products.
This coupled with our focus on assortment simplification to increase output and our prioritization of health care facilities, it's impacting our market share and distribution point, especially in truck channel.
We expect to improve our share of Assorting the overtime as we expand production.
On a full year basis.
Cleaning sales also grew by double digits behind a very strong back half performance.
Our data continues to show that the majority of sales increase we've seen since March has been from new users.
Leading to an unprecedented growth in household penetration for the Clorox Brett.
We're excited to continue to drive our categories and maintain momentum by increasing our investments in brand building and innovation.
However, our most urgent priority remains to continue aggressively expanding our production capacity to meet consumer demand, which we anticipate will remain elevated for sometime.
These investments support our nice strategy to strengthen our core and continue to leverage the health and wellness megatrend at a time when our brands are more relevant than ever.
Our professional products business, making up about 7% of total company sales in F. Why 20 also had double digit sales growth in Q4.
Supported by strong shipments across all of our disinfecting platform.
Full year sales also grew by double digits fueled by an exceptional performance in the back half.
As a reminder, the main source of revenue for professional product comes from providing commercial cleaning and disinfecting solution to both the health care and janitorial channel.
Our broad range of solutions eclipse platforms, such as the <unk> clock totaled 60 system, which uses and electrostatic technology to deliver disinfectants to large order beach area.
As well as clorox genocidal bleach or hydrogen peroxide disinfecting cleaners, yeah, Clorox disinfecting wipes.
We believe our brands has broader reach beyond the channels. We're in today and that this business will continue to have significant growth opportunities.
We are proud that our products can help support public health and we're excited about the recent strategic partnerships with established with where technology.
United Airlines.
AMC theaters and Cleveland clinic.
Lastly, within the health and wellness segment.
Our vitamins minerals and supplements business combined with new life and your tonnage representing about 4% of the total company sales enough why 20.
Sales in our BNS business decreased by double digits this quarter.
There were two main drivers for the decline.
First our neutral next brands continued to experience a supply disruption related to cobot 19 in a third party fulfillment center.
Prevented us from meeting what has been healthy demand.
We're currently transitioning to a new provider and expect the situation to be fully resolved in the fall.
Second we knew life based on gold going category and competitive challenges.
Looking forward our full brand relaunch remains on track for F. Why 21, and we're continuing to work on partnering with retailers to reinvigorate the category.
Full year sales for the Vms business also declined double digit due to someone else drivers I think Q4.
Turning to the whole segment.
Q4 sales were up 17%.
Reflecting growth across all three businesses.
And full year sales grew 1%.
Glass sales were up by double digits in Q4 behind strong demands for our products as can chip consumers continue to stay at home.
We're also pleased to see share growth in our glad trash bags segment.
Driven mainly by strong innovation.
We launched a new experiential glad for flex trash bags, featuring unique fragrances and colors in Q3 and early reception has been positive.
For the full year lots sales grew slightly reflecting sequential improvement throughout the year ending with a very strong Q4.
We're focused on building on this momentum and investing further behind our differentiated platform with more innovation plan for F. Why 21.
Realec sales grew by double digits in Q4 fueled by strong consumption well due to increased willing occasion, among existing users as well as new users entering the category.
We're also pleased to see share and household penetration growth this quarter supported by our new King for strategy.
Well I wish it with our retail partners have been strong and growth this quarter was broad based.
Our Q4 performance with especially notable because it was deliberate without aggressive holiday price discounting during the peak grilling season.
The Kingsford pellet innovation continues to build distribution and share and we're excited to lean in for there to invest in long term profitable category growth.
For the full year, we saw solid sales growth as our efforts to turn around the business sort of split bear fruit and consumption increased strongly in the back half.
Cat litter sales grew in Q4, driven by innovation and strong online shipments, partially offset by lower consumption in traditional channel following consumer pantry loading that we saw last quarter.
For the full year litter sales grew behind strong back half performing.
Partially offset by a more challenging fun outperforming.
We left the initial type like shipments.
Fresh step clean Paul.
[noise] clean Pos continue to perform very well with strong growth in its third year after launch and we'll keep investing in this innovation platform in F. Why 21.
We're also encouraged by the strong start a fresh step gain original scented litter with the Powerbuoy, which just launch in June.
In our lifestyle segment.
Sales grew 16%.
And full year sales grew 10%.
[noise], where sales were up by double digits in Q4 behind continued elevated consumption of our water filtration systems and filters.
This unprecedented level of demand started in Q3 and continued in Q4, resulting in out of stocks that impacted our share this quarter.
Full year sales also grew by double digits, reflecting healthy momentum in the first half and hike in consumption in the back out.
We're encouraged by the fact that the majority of recent sales have come from new helpful. Just like what we see what we've been seeing and many of our other categories.
Our priorities going forward will be to increase supply.
Convert these new users to loyal consumers.
And continue to support our brand with a focus message around Britain value proposition during this recession.
The food business saw double digit sales growth in Q4, maybe behind very strong consumption of hidden valley ranch bottle dressing benefiting from more at home eating occasions.
The brand who share for the 22nd consecutive quarter and increased household penetration.
Full year sales increased behind solid growth in the first half and elevate it consumption in the back half.
We'll continue to invest to drive brand awareness and trial behind our innovation and capitalize on this momentum as consumers are eating at home over an extended period of time, especially during the recession.
Burts bees sales were down by double digits. This quarter as overall category consumption was negatively impacted by ongoing store closures and stay at home measures.
Regardless of the declining to for this business has solid sales growth for the full year.
Reflecting strong growth behind innovation and enhance leadership in the fall.
And let care.
First fees grew share for the 22nd consecutive quarter and widen its market leadership status as a number one or rolled up on any less.
Well, we expect the category like challenges to persist in the short term.
Your preferences for natural products and more specifically Burke. Please remain unchanged and we're confident in the brands long term growth trajectory.
Or f., what 21 plan includes a robust innovation lineup, including a new Squeezy lip color line that launch in July and C. D personal care products launching in the fall.
Lastly, turning to international.
Q4 sales grew 12%, mainly driven by continued elevated demand for cleaning and disinfecting products as well as essential household products.
Sales were also impacted by unfair unfavorable foreign currency headwind of about 4%.
Partially offset by the benefits of pricing that was implemented before the onset of the pandemic.
For the full year sales were up 5%, reflecting about 10 points unfavorable foreign currency exchange rate.
Additionally, it's worth noting that profit for international was down this quarter due to costs associated with the product we call the pool.
Like other businesses, where there have been increases in household penetration during this period.
We'll be focused on converting those new household into loyal consumers.
We're also continuing to explore international opportunities and today announcing the acquisition of a majority stake in our long standing joint venture in the Kingdom of Saudi Arabia.
And it's low 50 year history. This this is that offer consumers in the Gulf region, a range of cleaning and disinfecting products.
During that time, there's show not only steady growth, but also strong profitability.
Consistent with our ignite strategy goal. This acquisition will help drive long term profitable growth in our international segment.
Now I'll turn it over to Kevin who will discuss our Q4 and for your financial performance for Aflac 20, as well as our outlook for F. Why 21.
Thank you Lisa and thank you everyone for joining US today, we hope you and your families are well.
I'm proud of are very strong performance in Q4, and our overall results for fiscal <unk> as we continue to navigate the global pandemic. Our team has been unwavering in our efforts to maximise apply a disinfectants and other or central products, either by healthcare workers consumers and our communities.
Fourth quarter over 19 continued to have a significant impact on our results. In addition to double digit sales growth in all four of our reportable segments, we delivered our seventh consecutive quarter gross margin expansion and another quarter of strong cash flow.
All of which contributed to strong fiscal were 20 performance.
As you saw in a press release, we're providing a financial outlook today.
Because despite the increase challenge of anticipating how the full year will play out.
We believe that in this period of heightened uncertainty it's important to provide investors with as much transparency in perspective as possible.
That said, we anticipate a higher level durability and what do you might normally expect as a result will be heavily influenced by the depth and the duration of the ongoing health crisis.
I'll comment more on your outlook shortly.
Turning to our fourth quarter results fourth quarter sales were up 22%.
Driven by 21 point the volume growth.
Three points a favorable price mix.
Actually offset by two points of FX headwinds.
Gross margin for the quarter increased 170 basis points to 46.8%.
Fair to 45.1% for the year ago corridor.
Fourth quarter gross margin included the benefits of higher volume.
As well as 170 basis points from cost savings.
120 basis points for favorable mix.
These factors were partially offset by higher manufacturing and logistics costs, which included temporary spending related to increasing our production capacity and expediting transportation of our product.
Fourth quarter gross margin also reflected ongoing cost favorability in commodities more than offset by the impact from foreign currency headwinds.
Selling and administrative expenses as a percentage of sales came in at 14.1 per cent compared.
Compared to 13.3% your go quarter.
This higher rate, primarily reflects increased year over year incentive compensation consistent with our pay for performance philosophy.
[noise] advertising and sales promotion investment levels as a percentage of sales came in at about 11%.
About half a point higher than a year ago corridor.
We're spending for U.S. retail business coming in at about 12% of sales for the second consecutive quarter.
For additional perspective.
We invested 70 million more in the back half of fiscal Rtwenty compared to the same period and just your 90.
Reflecting aggressive investments consistent with our ambition to accelerate long term profitable growth.
Our fourth quarter effective tax rate was about 22%.
Talking about 17% in your go quarter.
Due to lapping tax benefits and your go period.
Net of all these factors, we delivered diluted net earnings per share of $2.41 versus the dollar 88 in the year ago quarter, an increase of 28%.
Commenting briefly on our fiscal results I'm pleased with the progress you've made in our core business prior to the impact of covert 90.
Plus or team's dedication to responding to unprecedented demand, resulting in very strong results for fiscal 2000.
We delivered sales growth of 8%.
And on organic basis grew sales, 10% gross margin expansion of <unk> hundred 70 basis points versus fiscal 19.
Work by strong volume growth and another year of robust cost savings.
These factors.
Able to close out the overall fiscal year delivering diluted EPS at $7.36.
Increase of 16%.
As you saw in our press release fear 20, net cash provided by operations was 1.5 billion.
Versus 992 million in 50, or 90, an increase of 56%.
Our accelerating cash flow and strong balance sheet give us the flexibility to continue investing behind long term growth opportunities.
Now I'll provide more perspective on our outlook, starting with our key assumptions for 50 or 21.
First we expect the impact of Copel 19 to be with us for the bulk of fiscal or 21.
Resulting in our expectation for ongoing elevated global demand for cleaning and disinfecting products, particularly through the first half of our fiscal year.
Next we expect the U.S. in many parts of the world to face an ongoing recession, there were reduced consumers' disposable spending and increase the importance of providing superior consumer value.
And we plan to aggressively invest behind the momentum were seeing in our global portfolio.
Including increasing production capacity to address ongoing elevated demand for products.
Our outlook also assumes minimal disruption threats Dennis supply chain over the course of the fiscal year.
And finally, we are assuming about a 40% devaluation of the Argentine peso, which has materially less than the potential devaluation, if the currency moves to the country's parallel right.
For fiscal year sales outlook.
We expect just your sales to be flat to up low single digits.
Reflecting our expectation for continued elevated demand through the first half of the fiscal year.
Any deceleration in the back half as we lap the initial spike in demand from covered 90.
As you saw in our press release, we've acquired a majority stake in our Saudi Arabia joint venture.
Which we anticipate what contribute about one point of growth to our fiscal year 21 sales.
Expect this to be offset by about one point to foreign exchange headwinds primarily in Argentina.
On an organic sales basis or outlook assumes flat to low single digit growth.
For additional perspective on our Fisk your sales expectations, we anticipate strong growth in the front half for the fiscal year, including double digit increases in Q1.
Although decelerating from the 19% sales growth we delivered in the back half of fiscal year 20.
In the back half a 15 or 21.
What we expect strong performance relative to our pre pandemic sales levels.
Expect sales to decline as we lap initial impact from covert 19 in a year ago period.
We expect just you're selling and administrative expenses to come in at about 14% of sales as we continue to invest aggressively and long term growth initiatives.
[noise]. Additionally, we are increasing investments in our branch to address this unprecedented demand for products from existing and new because [noise].
With plans to increase advertising spending to about 11% of sales to build loyalty with many new consumer dinner categories for the first time.
In addition to continue to deliver superior consumer value, which is more critical than ever as we navigate the global recession.
As I mentioned, we will continue you invest in expanding our production capacity.
To address our expectation for ongoing elevate demand for our products export new longer term growth opportunities.
In the near term.
We'll continue to expand or use a third party manufacturers to increase our production capacity.
Well this comes at a higher cost. We believe is an important action to take well our internal expansion efforts come on line.
We expect or 50 your tax rate to be in the range of 22% to 23% closer to our long term tax rate assumption.
None of these factors respect 15, or 21 deluded EPS to be down mid single digits, two up mid single digits.
Our fiscal year deluded EPS outlook includes an estimated contribution a 45 to 53 cents from our increase stake and our Saudi Arabia joint venture.
Primarily driven by a onetime noncash gain associated with a fair market value adjustment to our previously held stake in the joint venture.
This onetime gain is projected to be recognized in Q1 and on a full year basis.
Offset by our expectations for high tax rate and foreign currency headwinds for the company.
Before I turn it over to Benno I'd like to reiterate how proud I am not the clorox team for delivering strong performance in fiscal year 20, and the role we're planning to help fight this global pandemic.
Our disinfecting products continue to support public health and other central products continued to make a difference and the day to day lives the people as they spend more time at home.
Consumer interest in our categories has never been higher.
<unk> robust just your sales results provide a strong foundation for ongoing momentum.
We certainly trying to build on that by aggressively investing in our ignite strategy to drive long term shareholder value.
And finally I also want to say how much I've enjoyed working better over the years.
Also looking forward to courses next chapter with Linda will be a strong CEO for the company and with that I'll turn it over to Battle Thanksgiving.
Hi, My three key messages for Q4 hundred 50, or 20 result.
First.
Continue to be proud about People's leadership, and commitment to serving public health and supporting our consumers in communities doing this global health crisis. The dedication has led to outstanding Q4 results contributing to very strong performance at fiscal year 20.
I'm pleased to be delivered fiscal year 2020 sales growth of 8% reflecting growth in all reportable segments and organic sales were up since our highest organic sales growth on record.
We also delivered totally company gross margin expansion expansion, reflecting gross margin increases in all four segments for the fiscal year supported by the strength of up volume results and robust cost savings.
And even with significant advertising investments, we were able to expand 50, <unk> EBIT margin by 110 basis points.
And we delivered at 60% increase in diluted earnings per share for fiscal year 20.
Well that financials for the quarter on full year were very strong. This one area of ongoing focus for us.
Keeping up with continued elevated to Matt.
We take very seriously the important role we play in this pandemic.
And customers are counting on all our product.
[noise] frankly, we thought we would be in a better position by now but demand in Q4 exceeded our expectations.
We're certainly not at all happy with our service levels for our retail customers on many products as demand for products exceeded our own expectations in the face of this persistent pandemic.
We have a high sense of urgency on this with all hands on deck.
We're accessing third party supply sources and focusing on manufacturing on those products that can be supplied more quickly.
And we are ahead of plan on this.
Since Q3, we were able to bring on more than 10, new suppliers to help us maximize our output not just for disinfecting products, but for other parts of our portfolio too.
For disinfecting products, we're continuing to run our plans 24 seven.
And we'll be bringing more disinfecting capacity online in the mid term.
With all the levers we're pulling to expand output I am confident in our ability to do better for our customers and consumers.
Before I go onto my next message I'd like to see again, how much I value the commitment of clorox people and their contributions to our Q4 and fiscal year results.
Our team of 8800 strong continues to step up every day to contribute to our efforts of supporting our consumers customers and communities.
My second message is this the fundamentals about business our strong given the progress on our core business, which contributed to overall fiscal year 20 results and gives us momentum for fiscal got 21.
I feel good about the fundamentals of our business and the continued progress on our core.
In fiscal year 20 incremental sales from insulation exceeded the company's historical leverage.
As you've heard from Lisa we introduced a number of exciting products in fiscal year 20, and continue to do you see growth from big innovation platforms.
Our relentless focus on delivering superior consumer values through market, leading innovation continues to differentiate our products and brands.
And I'm proud that in fiscal year 20, the percentage of a U.S. portfolio seen by consumers as delivering superior value has risen to an all time high positioning our brands well in this recession.
In Q4, we also had more than 90% of a U.S. portfolio at growing or stable household penetration the strongest results we've achieved to date.
I'm also pleased that total company marketshare untracked channels group.
And our market shares in the fast E Commerce pest going ecommerce channel continue to grow as well supported by increase in digital advertising.
After fiscal year 20, Oh sales in the E. Commerce channel now represents about 12% of total company sales compared to 8% in fiscal 2090.
And well ahead of our plant.
[noise] results like these demonstrate we made the right choice to lean into advertising investments in fiscal year, 20, including spending about $70 million more in the back half of fiscal year compared to the same period at fiscal year 90.
Importantly, our progress against business fundamentals is setting us up well for fiscal year, 21, and I feel confident about our ability to continue driving long term momentum.
And this leads me to my last message, we remain committed to building on this momentum for global portfolio through strong investments to further strengthen our competitive position grow our categories and deliver long term shareholder value guided by a ignite strategy.
Clearly these are extraordinary times, so it's hard to anticipate what will happen even in the near term future.
We continue to believe covert 19 will have lasting impacts on global consumer behavior and trends, including how consumers engage in all categories and without brands, leading to meaningful long term growth potential for our company.
And as people continue to navigate what looks to be a significant recession.
We anticipate that pressures related to unemployment and discretionary spending bill spotlight they need to focus on value.
We also anticipate they will keep turning to trusted brands to help them and their families stay safe as well as to support the health and wellness and day to day needs.
As Kevin noted officially a 21 earnings outlook reflects the significant bond volatility and uncertainty and also deliberate and aggressive investments behind a global portfolio and longer term growth initiatives.
During these uncertain times, we plan to play offense to grow sales in fiscal year 21 off of an elevated 50 or 20 base.
And we plan to continue investing in long term value creation.
With a focus on a ambition to accelerate sales growth beyond the fiscal year.
Here's what you can expect in fiscal year 21.
We will plan to increased advertising to about 11% of sales.
We really investing innovating experiences behind brand purpose frictionless shopping and sticky product innovation, including a strong innovation pipeline in fiscal year 21.
We will increase capital spending to expand production capacity, so that together with our customers. We can better meet consumer demand, particularly for disinfecting products, but also so that we can begin to fully take advantage of the opportunity to support public health out of home as you've likely seen we start.
Collaborating with leading brands like we're technologies, United Airlines, and AMC theatres to support the efforts to keep their customer safe.
And we recently announced a partnership with Cleveland clinic, which brings together our respective capabilities and expertise to support public health as we all continue to face Cobot 90.
As the people centered company everything we do through a ignite strategy continues to be in service of delivering superior value because no and longer term. We know it's the key to keep winning with consumers.
And of course will continue to focus on growing our business the right way committed to our values with U.S.G. integrated in our business. So that we're also creating value for all of our sexual stakeholders.
We're proud at last week's Axios Harris poll 100.
Nobody off about 35000 Americans rank the Clorox company number one for corporate reputation in the U.S. based on seven dimensions Trust vision growth products culture ethics and citizenship.
Now in the future Clorox, we remain focused on good growth growth, that's profitable responsible and sustainable and with that let me turn it over to Linda.
Thanks, Benno and Hello to everyone on the call today first let me start off by saying just how excited I am to be Cox's next CEO.
After 17 years, what the company what makes me most proud about taking the range from Benno is that clocks is truly a special company. We have iconic brands people love and a wonderful values, let team that takes to hurt our role and making People's lives better.
Second I'm optimistic about the company's future and look forward to working with the executive team to accelerate growth.
This is a pivotal time for the company and there's no better time to be CEO at Cox.
What's become even clearer during this pandemic is that where a health and wellness company at heart.
Whether through our disinfecting products that support public health, our vitamins minerals and supplements that enhance wellness.
Our other essential products that people count on for their families in homes.
I firmly believe that our global portfolio of trusted brands isn't a strong position to address the shifting consumer mindsets and behaviors related to health and wellbeing.
What's also clear is that we have a big opportunity to build on our momentum from fiscal year 20 for long term value creation.
Investing behind this momentum to support our ambition to accelerate profitable growth in fiscal year 21 and beyond.
And finally before we begin today I want to take the opportunity to thanks, I know for his just terrific leadership as CEO.
Under Banjos guidance clocks more than doubled total shareholder return.
Putting innovation front and center, recognizing its critical role and differentiating our products and brands to deliver superior consumer value.
By investing in digital consumer engagement as a means to interact with people on their terms and through more personal experiences.
And by taking U.S.G. to the next level challenging each of us to demonstrate its value to our business and society.
And I talked earlier about our commitment to good growth.
Growth, that's profitable responsible and sustainable.
Well he didn't say is that he was the one who introduced that.
It captures most simply what we're all about profitable growth a cheap the right way for our consumers our shareholders and society.
I've been very fortunate to work closely with benno over the years, he's been a great mentor and I look forward to continuing to partner with him to drive the business when I step into my role as CEO.
Operator, you May now open it up for questions.
Thank you ladies and gentlemen, if you have your question. Please press star one on your Touchstones telephone.
Our first question comes from and Hillary are you still there.
Yes.
Yes, I'm here can you hear me see a list on the acuity.
Yes, I'm here can you hear me.
[noise], Yes, I'm here can you hear me operator.
Can you hear me.
[noise] think there may be a technical problems. So give us a couple of second styles that are waiting in line.
Questions I apologize.
Okay.
Yes, I'm here can you hear me.
Lisa can you hear me just in case. This is not going to get resolved quickly. You can also send me a question. This is the so again all of you have my email and my Texas, while we can also handle it that way.
Operator are you still online.
Yes, I am Lisa can you hear me.
[noise]. Please I can you hear me.
Yes, we can hear you know somehow the volume got turned down but anyway, let's go straight to question.
My apologies your first question does come from the line Andrea.
The share out of JP Morgan.
Oh, Thank you and me my congratulations on your promotion in dental. Thank you for the Great leadership. All these years Infinity Katie significant time from your began games. So we've already batsmen coming over the years.
So it's making sure that law activity that you like you have more time to dedicate specific topics way forward. So once the too.
You can talk about a bit with things like remains when you are these on being done with the same new production partners on board and also the partnerships with the Cleveland clinic in the business processes like Huber, United and in future years. So it is hoping it seemed sizes opportunity I understand it's now about 7% of yours.
Sales, but I remember being like just about 6% in the prior fiscal year. So you can.
Give us enough kind of an idea how you can continue to outpace his role Chinese we would be the bottleneck in capacity and how we could be thinking on the beach to be against the beaches see going forward, though keep me. Thank you again.
That's the goal.
Thanks, Andrea I'll get to started here.
So as Ben mentioned earlier were very serious about the role that we play in public health and as we look at our cleaning and disinfecting portfolio, we see opportunity broadly in the U.S. and international across several spaces and I'll outline in a high level what those are.
The first is continuing to delight people with products and the retail space.
We know that we're not able to meet the demands and that is priority number one is getting much supply as we possibly can into the retail space.
To ensure that consumers have products they need during this time the same is true and our traditional professional business, which you highlighted is about 7% of sales in fiscal year 20, and has been a high single digit grower for us over a number of years, so working on supply and both of those.
But the opportunity that you highlighted is one that we're aggressively pursuing and that is the merger of those two areas.
As people re enter public life, they're looking to be reassured that the spaces, they enter our clean and disinfect it.
And what they would be reassured by as a trusted brands like the brand Clorox.
To ensure that that space is clean they they have that reassurance and their minds and we're helping businesses do is welcome people back whether that would be their employees or their gas and by using and partnering with clorox is protocols and brands. They can offer their guest that reassurance that a space the safe.
That's how we're thinking about that broader what we're calling out of home opportunity, we staffed a dedicated team to.
To go after these partnerships and have resulted in things like you highlighted with United Airlines, Cleveland Clinic, AMC theaters and over technologies.
Well be really important for us moving forward, though is getting supply. So these are an initial stages of agreements and what we're looking for is increased supply before we continue to expand that the test markets that we have today, but we're seeing very good consumer and business response and the initial Dave.
And if you think about a b to C and b to B and total I think the thing for us to consider as those lines will continue to blur as we move forward and that's what we are really well suited to do with all of our technologies and capabilities.
No that's great and can you also like the capacity grows I think you exit the last quarter was growing like 20% I see the bottleneck your capacity, how you're tracking now as you exit the quarter.
Yes, our plan is on pace to increase supply versus what we committed and Q4, but what kind of highlighted as the key that demand that we're seeing is significantly higher than we had expected in Q4, and we expect that demand to remain elevated as we head into fiscal year 21.
On our increase that we were able to deliver on supply did support strongly about double digit growth in our cleaning businesses, but to be clear, we're not satisfied with our service levels right now and we have the absolute highest urgency to improve.
Some of the thing is where we're pleased to see though and give us confidence as we move into the fiscal year 21 is that our state our supply chain remains very stable. So we have had very few co bid related disruptions.
We were able to bring on more than 10, new suppliers. The majority of those in disinfecting to help us to support the increase in demand.
We had anticipated that some businesses would begin to recover a quicker and we have seen not in the catch up case of bleached where in stock levels at retail are looking much stronger than they had been despite the fact that we've been prioritizing health care.
And he has a key message for take away as we're aggressively investing to expand capacity, we're working across the entire supply chain all the way back into raw material up through manufacturing packaging and conversion and we expect sequential improvement in fiscal year 21 in meeting the increase in demand.
That's great. Thank you again and best of luck I'll pass it on.
Our next question comes from the line of Wendy Nicholson at Citi.
Hi, congratulations to both of you and Ben or we will Miss.
On my question had to do with advertising I'm, a little bit surprised you're increasing yet on or you're targeting right now on sort of 100 basis point increase for fiscal 21 number one because I assume as your revenues to those partners grow that's actually revenue that you don't need to spend advertised.
And behind and I know, that's kind of a rounding error probably in the Grand scheme of things, but still but the big increase on it would be the highest level of AD spending that we seen in a long time on for you and it's coming at a time, where you're having a hard time meeting demand. So I would buy clorox wipes, whether I saw an ad or not so.
Can you talk a little bit more about the decision to increase AD spending by that magnitude, maybe which businesses you're targeting it too and whether this is a new you know level going forward that we should expect or if there's something specific in 2021 that said I'm driving that increase thanks.
Yes. Thank you Wendy you know what do you should take away is that this is an aggressive investment that.
Is into the momentum that we have on the business. It has also signals confidence in our strategy.
Of course as always our company, it's done with an eye on the long term for us.
Advertising sales promotion is not a quarterly expense, it's a long term investment in the health of our brands and while 10% continues to be the level long term that we're comfortable with we see a particular opportunity at this time to invest in this pivotal opportunity that we have for our company to accelerate growth.
It will go into demand building across all businesses, both in the core as well as an innovation I mentioned earlier, we have.
Very strong innovation program, a in spite of or the supply challenges right now or that we have great confidence in and we have so much opportunity.
Ahead. So we feel like this is the right thing to do it is an investment into long term health of the business and if you look at the fundamental.
Business drivers of our business as I mentioned them in Q4 with rising market shares.
Household penetration and growing or stable in north of 90% of our U.S. portfolio with market shares growing international with further opportunity to build out our international business to serve more consumers in the face of the pandemic.
With consumer value perception being at its all time high with well north of 50% of our portfolio being seen a superior all those things are particularly strong indicators of future business momentum so against all of that and in particular also with the looming.
A recession, which we think is going to be significant and is perhaps underestimate it or or somewhat overlooked at this time, a in particularly here in the U.S.. We think this is simply the right thing to do and it's certainly part of our recession playbook that we successfully applied once before about 11 years ago.
So we have great confidence in this choice as part of a long term growth strategy for a company.
Yes.
And specifically just first half first and second half the so to those comments specifically if the economic environment really deteriorate on you know is there a scenario where you say Wow. These marketing dollars would be better spent in pros price rollbacks or promotional spending on you know how much of the.
AD spending itself are you expecting first half versus second half or kind of no different.
Yeah, typically we don't provide quarterly outlook, but it can certainly very by quarter, depending on for instance, the timing of innovation launches. So you should expect that variation.
Based on what we know today, even though you can never say never right in this business, but I cannot see us touch advertising sales promotion because like I said, it's not a technical expense, it's an investment in long term growth. So we will remain committed.
To spending the dollars ER and frankly, if if ER the recession gets worse, but even more of a reason for us to spend in advertising sales promotion.
Particular at this time when people are looking at trusted brands to meet their needs and as you know we have many of those trusted brands that people rely on in particular doing a recession.
Got it. Thank you so much and again best of luck.
Our next question comes from Nik Modi RBC capital markets.
Yeah. Good afternoon, everyone Benno kudos to you for a remarkable Korea, Linda congrats on the appointment.
Question I had was on capacity and I guess costs like most CPG company doesn't really tough spot in terms of how do you make a decision on long term capacity decisions.
When the category growth profile, you know two years out and it's very uncertain. So I guess I'm just asking like how you guys a cool off with all of your analytics or thinking about longer term category growth and how that's feeding into your decisions on on capacity I'm not just talking about disinfecting because that obviously, that's going to remain elevated for a long time, but.
Also talking about charcoal and hidden Valley Ranch and you know because clearly at home food consumption is also elevated at the moment and May continue in the future. Thanks.
Hi, Nick Thanks for the question. So you're right you know we're at a time, where it is not a precise science right now to predict what the future is going to hold given what we're facing but we are putting our analytics hard at work to understand what we think that future will look like and if you take cleaning and disinfecting for example, we do.
Strongly believes the the category will remain elevated for the mid to long term future and we're building capacity to address that but how we're taking the approach on this one is to make sure that we build the right mid to long term that allows us to have flexibility and whether we in house or we use.
Packers for that production. So right now as we've said we've added 10, new suppliers I to help us with this incremental production and overtime. If it's appropriate we can insourced that production, which helps us balance quality and cost and also gets us to the right ratio from an efficiency perspective, so feel really confident about our ability to do that.
And then we're making choices on that allow us to pivot depending on where that's all shakes out.
And and Linda if I could just follow up on that how how long do you think it'll take four o'clock the catch up with your expected level of demand over the next you know over fiscal 2001, who's going to take three quarters to get to where you want to be or is it two quarters any perspective around that.
Yeah for.
A good portion of our businesses Kingsford bread I glad on Nutra next for example, we feel like will be normalize, but they ended a calendar, where we have a really good supply and demand.
A match from a cleaning and disinfecting perspective, we do expect this to continue to be.
On a ramp up overnight.
Entire fiscal year, and we'll see sequential improvement throughout the fiscal year, but given the fact that cold and flu sits in the middle of the year and that we expect a pandemic to be with us for the entirety of the year. It will take the full year to get up to the the supply levels that we need to be at.
Great that was very helpful and good luck to the both of you.
Thanks, Nick.
Our next question comes from Kevin Grundy of Jefferies.
Hey, Thanks, and Benno inland I'd like to extend my congratulations to both of you as well. My question is pulls together a couple of elements from Wendy and Nick's question, but tying it into the longer term outlook for the company. So so beyond fiscal 21 and really looking beyond the current.
Outlook is for 2% to 4% a core sales growth, but when you look at that target the low to mid point, certainly seems to be inadequate given a lot of the dynamics that we've spoken about you know increased structural demand in some of these categories, particularly around cleanliness in health and wellness, you're clearly investing a lot of capacity is when they arise when.
Excuse me rightly pointed out the advertising marketing. We're tracking is correct. We haven't seen you sort of levels as a percent of sales since fiscal 2003, when the company. So there's an awful lot of investment both opex and capex going into the business. So it certainly seems and certainly worth reflecting the stock right now there's nothing nothing in into 2% to 3% kind of range. So with all of that being said.
Good.
When will the company be prepared to provide an update to investors or to the extent you can comment today.
What are you thinking is part of your planning around around capacity around other investments in India. So any commentary there would be helpful. Thank you.
Hey, Kevin, it's Kevin and I can take that question.
And you're right, but look we have a and outlook right now is part of at night, which is 2% to 4% growth.
But what I think you're hearing from myself, Linda and Benno today. It is clear our aspirations to accelerate the profitable growth with this company and we are leaning in.
We have millions of new consumers coming into our categories, we have new growth opportunities, particularly out of home and we're leaning into these opportunities with the intent to accelerate to perform so the company.
It is too early for us to raise our long term goals remember these goals go out over five years. So it's.
I would say it's in the early innings other work, we're doing but that's certainly as our intention and at some point, we'll come back to the Investor community and update you on expectations, but I'd say, a little too early for that right now, but trust what you're hearing from us as our intent to accelerate performance and we're leaning in to do that.
Okay Fair enough, Thanks, Tim I'll pass it on.
Thanks.
Our next question comes from Olivia Tong of Bank of America.
Great. Thank you good afternoon, and congrats on that when Dan I know, it's been a pleasure all the best you guys and and I'm wondering I can never as we'll Miss you.
Wanted to talk little bit about the performance of your categories in recession, because obviously, you really need to quite a bit of spending.
And if you could provide a bit more specialty specificity on your expectations by segment.
Because you're looking for obviously, a pretty rapid deceleration against the current backdrop and talk about you customers without losing the old the potential to further expand professional partnerships, which seems obviously pretty meaningful in this environment.
And you see more amenable to potential international expansion to with the Saudi JV and obviously, there's going to nation. So.
You know on top of that still catching up to demand. So if you could you talk through you know how.
Drastic maybe the last recession watching some of your categories or what you had to do in terms of promotion or advertising to help us understand.
Yeah look a little bit better that would be helpful. Thank you.
Oh, Oh started then Kevin could build on that so you're typically what we see in a recession a if you take the last recession, you see about a point to to growth in all categories lower than what you'd see in an average year.
And then if you double click.
There's a number of categories in a normal recession that again right now you have the pandemic of course as an additional impact but do you have a number of a categories that actually see stronger.
Sales doing a recession.
And intuitively doesn't make sense to see businesses like Kingsford ER as people grill more at home grid, a as people use less bottled water and move to filter border for its a much superior value value hidden valley football at home eating occasions that was kind of.
At least have historically performed.
Very well and we we'd expect to continue that so there will be puts and takes and again the difficulty Oh of course for for this outlook is sitting the volatility created by recession, but also a the pandemic as an outlook and of course, Oh fiscal year 21 back half that we'll lap some pretty formidable numbers.
But you know what's been part of the recipe last time and 2008 nine.
I was to really focus on investing into the consumer play offence as we call it which is our intention now or the playbook include innovation and we have a strong innovation portfolio in fiscal year 21.
And the playbook.
Includes to emphasize consumer value and of course, we're going into a this recession with a lot of momentum are being seen as a superior in value on so many of our brands at this point. So we have a strong a recession a playbook a portfolio typically has.
In recession resilient and importantly, we have a very experienced team were.
Nine out of 10 or be you general managers have been with the business at the time over the last recession and a very experienced.
Senior management team, knowing how to handle this so we feel like we have an established a.
A playbook and we will certainly continue to invest in the long term health of the business and the elevated advertising sales promotion spend is certainly part of that Kevin any additional thoughts from you Hey, Olivia maybe just a couple other thoughts as it relates to the recession and how we manage through the last recession.
About 11 years ago. So it's been on said you know our belief is quite seen as our categories tend to be fairly resilient.
If you look at our business performance in the last recession I believe eight of our 10 business units grew sales over that period, and so not only of the categories Ben resilient, but our brands have also been resilient during that period of time.
And what I'd also have you note is you know you always have to think about what drove the recession Bakken Oh, eight or nine that was a financial crisis. This is a healthcare crisis. So it's very different we have.
Much more engaged consumers in our categories than we did back in a way to know nine.
In addition to that if you look at our CVM, where an all time high was about 59% of our portfolio identified as a superior relative to competition and we got the highest household penetration either stable or growing that we've had in the history as a company. So.
You know you never look forward to recession, but I can tell you we're having been through three at Clorox. This is the strongest our portfolio has banned going into recession.
And then the only other I might offer is what may be different about this recession as.
The government is obviously step down and this is the most support we've ever seen for consumers. During this recession right now in terms of unemployment benefits will have to see how that plays out but if you assume the government is going to new to actively support consumers through this process that will certainly help us as well and so we'll see how that plays out but.
Feel pretty good about the overall health of our portfolio heading into this recession.
Yeah.
Thanks, that's helpful HM.
And then Linda you're obviously, taking over arguably when a lot of growth priorities today versus history. So.
If you could talk more about how you're prioritizing them to one another I'm sure. Obviously, the first sort of business is increasing the capacity for cleaning and disinfecting, but theres.
E Commerce stepping up support for professional obviously driving the rest of the business as well. So how are you thinking about allocating those investment dollars since you're planning for next year, and then with that JV acquisition. It does that in any way signal how open you Archer M&A in support of somebody initiatives. Thanks.
[noise]. Thanks, Yeah, you hit it on the had the absolute number one priority is executing with excellence this year and increasing supply to meet the demands I will be focused on.
On delivering the plan that we put in place, which we have passion and conviction around the business fundamentals are strong across categories.
But we must do better on supply to meet demand.
Second you know ignite for US is the right strategy.
I was lead architect of that got to lead our team and creating that and what it has done for us over these last many months. It's helped US lead through you know really troubling and volatile times.
And what that strategy can muster commits us to its putting people at the center of everything we do know when consumers and the people we serve and community is better than anyone.
Innovating great experiences for them with our products and that's what we're going to continue to lean into and we have a team of 8800 people and an executive team, that's passionate and own that strategy and want to accelerate it and that gets me to my third point, where it will place investment is in those ignite areas that we have passion and conviction around.
We're gonna lean into our global portfolio and given the strength of it across the board.
We will do what we always do as well if all the money in where we think the best long term value creation opportunities exist cleaning is certainly one of those areas and we talked a lot about the opportunities we have there around the globe.
And then last what I'd leave you with is we're committed to how we work. This pandemic has allowed us to reimagine, where quicker than we had ever imagined moving our people to work from home keeping are essential workers healthy and our manufacturing running at full speed, but now it reimagine work will turn Chu.
Is playing offense, 100% of the time that will be our focus will use technology to do that to make quick decisions and pivot to put investment where we'll get the highest long term return.
We feel really confident about those choices and Weve you know, we've managed a number of categories and brands for years, and we always feel like we are able to put the investment where its best suited and we'll do that again this year.
And then Nadya is a continued focus actually on the core excuse me, Saudi Arabia [laughter]. It's a continued focus on the core yeah. We've been in that business for 50 years I'm in a joint venture with a family owned business.
It is core to our cleaning business, where we serve many countries in the Gulf region.
And we have tremendous confidence in the ability for that business to continue strong growth in the future.
If you know its is core to health and wellness, we know that consumer has high demand for those products today.
We saw double digit growth and our Saudi <unk> business in fiscal year twice and its margin accretive to the company. So to US This isn't a right turn but this is just a focused on what we talked about in international which is accelerating profitable growth and leaning into areas that are stable and that we can and shore.
You know have long term growth runway for us.
Thanks, very much all the best.
Our next question is from Jonathan Feeney consumer edge [noise].
Thanks, very much for the question and let me add my congratulations to both up that Alexander.
Thank you.
I wanted to.
Right.
A follow up on last call you gave us some value is very helpful.
Quite down Oh household penetration versus repeat I guess two questions on their phone.
[laughter] give us anymore update about how much of your growth this quarter and cleaning, particularly bad household.
I told you got.
They do.
No I don't care about I don't know.
Your mom figured there for you how soon do users.
All their data you could give off about repeat I'm, not particularly among new users.
Your people buy more wives.
All these people calling back to the store first second third got what Rick. Thank you.
Yeah. Thanks, Jonathan you know double digit growth in Q4, and all four segments.
Certainly seeing elevate a consumer demand across the majority of our categories.
You consumer fundamentals as we've noted and as you picked up on a very strong and certainly fueled by the incremental $70 million that we put in advertising says promotion in the back half of last fiscal year, but Oh I would say in the vast majority of categories. The the if you double.
Click on the consumer behavior, leading to such strong growth. It's very very strong you know what we're seeing is more usage occasions. In many categories are caused by the pandemic of course, but also by people staying at home and we're seeing household penetration increases in most of our categories and that's really.
In the major growth driver here and then we're also seeing which is very encouraging a higher purchase frequency in several categories, indicating that it's more people using our products more than they ever have we see very very little.
Stock up or the exception, maybe as a bird species or where you know store closings and lower food traffic in beauty care, but also less usage in some categories like facial towelettes and color cosmetics, which makes sense as people stay home has led to a.
Pressure on sales and later, where we're seeing a category or why trough from initial pantry loading, but more broadly. This is all fundamentally healthy growth with higher household penetration and a higher purchase frequencies I want to maybe point out a case for it as an example.
Beyond or cleaning and disinfecting, where it's quite obvious I think that we're seeing particularly strong household penetration increases but also strong.
Increases in usage frequency.
Kingsford for the first time into wireless growing household penetration again.
And all the fundamental underlying indicators in the category very healthy.
We are seeing.
People buy more grills.
And of course that Oh.
Grill purchase increase leads to more consumption of consumables like chuckle, a we are seeing millennials come into the category a big reason why we've been able to grow household penetration is that millennials now come back into the category. So we're seeing incredibly strong growth.
Even with a complete apps and.
Got it I don't know that's you.
We need a phone on mute a thank you.
But we're seeing new people come in we are seeing millennials entered the category and we're seeing them use the product often so a lot of ER positive underlying metrics behind our Q4 sales growth and we expect this to continue for sure Im its huh.
Our next question comes from Lauren Lieberman of Barclays.
Thanks, Good morning, and congratulations to both of you also.
I wanted to talk a little bit about international I know that the Saudi Arabia Joint ventures, something that you know rocks is being very proud on some for many years and.
But you mentioned you know Linda I think you mentioned the word global there's been a rational two times in the and the company I think has.
The last several years has been more about the go lean get tight control costs and really focus out so kind of a REIT models for where you were playing.
But to what degree does.
I guess the current landscape both in terms of consumer need and in terms of you know the strength the clorox brand and the sort of flexibility you presumably have on profitability.
Does that enhance your international growth aspiration immediately and if you were looking at night and setting the strategy today versus 12 months ago.
Do you think international would play a bigger role and you know and if not why not thanks.
Thanks Farhan.
So we absolutely have the opportunity to meet more consumer demands on any U.S. and international.
And we're moving quickly with supply chain investments to support expansion in both.
You know what I'd want you to take away is we don't see a fundamental change and the composition between the percent of our business in the U.S. The international we see the ability to grow both strongly but if you think about the international opportunity specifically there are three things that we're focused on.
The first is we just need to increase supply to meet the demand that we have in the markets were already in in the products that we already have in those locations and we're focused on that just like we are in the U.S.
The second as we absolutely have a opportunity to expand our product forms in countries. We compete in today. So for example, there many places around the world, where white have low penetration or we don't play and we see that as being an offering and the consumers might be ready for in different areas of the world.
Another third we are evaluating expansion into new geographies and we certainly see very high interest from consumers in different parts of the world for the Clorox brand in particular.
And whether its interest we will look and see if there's a long term disciplined approach we can take to entering that market, where we see strong return on investments so that will be very consistent with how we've approached international to date.
On and that's that's what I would leave you with his definite opportunity in international no change in terms of how we think about the roll it will play in our overall portfolio.
And we'll be aggressive in pursuing opportunities when we have competence in them.
Oh, Thanks, and then if I may also question on competition, we think.
When you went through you know very clearly reasons why market share performance at least in fact channels.
Yes, let it isn't it you know we got the best gauge it kind of what's what's really going and your business I'm curious still how youre thinking about an increase in competitive dynamics more players more brand.
With you know, we really reasonable that strong brand equities looking to play in some of your spaces.
Historically I feel like part of the hallmark acquire often been sort of big hit you would probably take care of brands in kind of mid sized categories.
However, we're going to gain insights anymore, possibly like they were talking today. So you know what do you do in the dynamics of categories change the competitive landscape changes what you know how are you thinking about that.
<unk>.
Ticket or I mean look out competitors are categories.
I have always been very competitive they are competitive and they will be competitive if there's no question.
And Ah you know, we also kind of assume I think that a reasonably.
Assume that's in the disinfecting space in particular, you know, it's a an attractive space or looking at the growth and the profitability and the ability to make a difference to oh, so many consumers.
<unk> around the world, we can expect that that will be more competitive, but you know for us.
That's our daily bread and has been our daily bread for very long time, and how do we go about that we build leading brands and as we've commented a few times those brands generally on a great shape, we invest behind them, we invest with an eye on the long term, we keep the value sharp and we've also.
Commented that that's ER and the best shape its ever been and we innovate innovate innovate. So you know we're not waiting for competition to come in and we're certainly used to competition to try and come in and disinfecting and you know without sounding arrogance a lot of times the competition came and went and.
You know, we will defend our home turf and importantly, as Linda said earlier, we will play off into 100% overtime. So we can assume that this business is going to continue to be very competitive, but we're ready for it and we certainly as you noted are taking the stance and have the financial flexibility to it.
Invest in our business in order to ensure success with an aspiration of accelerating long term growth for the company.
Thanks, Jonathan Congratulations again.
[noise]. Our next question from Steve powers after only two bank.
Thank you and sincere congratulations for mutual Benno and Linda obviously, big Congratulations you're way too.
I guess I was hoping you could talk more about the biggest drivers underlying what I see is a fairly wide bottomline range for fiscal 21 relative to an arguably more narrow topline range and I guess I'm, specifically interested in how you're thinking about as a group about gross margins.
I missed the demand volatility and supply constraints.
Necessary pressures that you've alluded to as well as though some of the competitive dynamics that more and just called out. So is there when I talk about gross margin.
As a driver of.
21 guides.
Hi, Steve This is Kevin and I can talk about both or EPS range and gross margin.
You know I'd say to your point, our EPS range, we're providing this year is wider than what we typically provide our normal year end.
And I'd say that that wider range is really driven by two areas that we expect to see increased variability in or out in our result, the first is the top line.
I think that's probably pretty obvious the ongoing impact of covert 19, the impact of the recession, how that will play out on our portfolio will clearly be difficult to predict over the course of the full year.
I think we've got decent visibility as we look out over the very near term as we get into the back half the year <unk> lapping that 20% and organic growth from last year more difficult for us to determine exactly where that a play out and so there won't be some level of variability from the topline I.
I would say in addition to the topline variability when you look at our supply chain, where I expect to see increased variability from previous years.
Specifically in manufacturing and logistics in terms of the impact we're seeing from covert 19 and.
And maybe to Dimensionalize that.
In our fourth quarter, we had about a $30 million above charges, we incurred and our supply chain relate to covert 19.
And now as I look forward to 21.
We expect those to be temporary charges, and we expect them to diminish over time, but a lot of that will be driven by how the pandemic plays out which is clearly outside of our control and so it's difficult to call exactly where our gross margin will land.
And any to think about it.
10 million dollar change in profitability is worth about one point of EPS growth for this company.
And so it's not inconceivable that we could see 20 or 30 million dollar variability and the supply chain as it relates to the impact of covered over the course of the year.
That would generate two to three point change in our EPS performance for the year.
So I think when you look at that variability in the top line you look at the variability on the cobot caused hitting our supply chain. That's the reason why we have a writer EPS range to start the year.
I'm now as it relates to gross margin actually the gross margin be very much in line with work led Onep, yes.
If we end up with negative vps for the years, because we had larger covert cost and supply chain than we anticipated unlikely declining gross margin.
And Conversely, we generate EPS growth this year it will be driven by covert caused doing better than we anticipated and growing margins for the year and so that's how we're seeing right now. It's obviously very early in the year you know as we get smarter, we'll certainly update you as we learn more in terms of how we think its don't land, but I think to start the year. This feels like a prudent place to start with a range.
We said.
Yeah. That's that's fair. Thank you for that I guess kind of what have you talk to you is there way you can put some numbers around your expectations for cash generation next year.
Also the uses of that cash I'm, particularly interested in Capex just given the.
Manufacturing ramp that you called out.
Yeah, so as it relates to cash in and maybe specifically capex.
We never can access a cash we're generating as a company, but I think you saw in my prepared remarks, it's up about 50%, 56% I for the full fiscal year, Although tell you in the back half year, we had double the rate of cash we are generating or less six months. It. This year 20. So the company isn't very good financial position in terms of access to cash to law.
So as to invest in the business.
And again, what you're hearing from those three of US today is we're doing just that we're taking that cash and we're putting into the business with our intent to accelerate our performance over the long term.
As it relates specific to Capex. We are also investing in capacity expansion is the primary focus for us.
Typically as a company our capital spending is somewhere between three and 4% of sales revenue each year I'd say to look back over the last few years, we've been closer to low into that range a little over 3%.
We started investing in the fourth quarter, we invested about a $100 million of additional capital in the fourth quarter and that put us just below 4% last year as a percent of sales.
As I look forward to 21, as we continue to invest in capacity expansion, particularly disinfecting.
Steve I think we'll end up you know somewhere between four and 4.5% as they present, the sales injure or capital spending and that puts us. If you do the math that gets us to about $300 million in capex spending for the year and I think it's probably a pretty good assumption for now to work with.
Okay makes sense, congratulations again, Lisa I mean, sorry.
And then thank you.
Thanks, Steve.
Our next question, Jason English of Goldman Sachs.
Hey, good afternoon folks and I'll echo that less sentiment congratulations lend us and I know I wish you, well I'm going to miss or quarterly banta.
[laughter] onto onto my questions.
The guidance for a sequential deceleration, albeit still strong levels.
It's a little bit surprising context of what im here for you guys say that you're you're you're demand is massively outstripping your supply in your shipping pretty much you're selling everything you can.
Selling everything you could in the fourth quarter translated into 23% organic sales growth.
And nearly $2 billion of revenue why couldn't you match that then the first quarter. If demand is so robust in so meaningfully outstripping supply.
Yeah, Jason It's Kevin I think your question specifically related to Q1, and while we don't typically provide quarterly guidance. We thought was helpful. Fried some perspective front half back half and what we said is we do expect double digit top line growth in Q1 to your point.
We continue to see very strong demand for our products. It is outstripping our ability to supply.
In the near term, we expect that to continue and because of that we do expect a a very strong first quarter.
Okay.
I'll try I will try offline on that one later.
On the components of your gross price was obviously meaningful contributor this quarter and I imagine promotions I suspect a lot of that's trade spend with the promotional programs pulled out of market you and supply demand imbalance.
How did what does the cadence of that look like basing your expectations as we progressed through the year should we expect similar price contribution in the first quarter in waning over the quarter or could have moderate even faster.
Yeah, Jason there's there clearly as you noted there hasn't been a lot of price promotion in all categories for sure.
You know, it's part of what's encouraging for instance on Kingsford that we were able to grow double digits without what is usually a pretty healthy.
A price promotion during peak.
Events or the holidays like fourth of July and Memorial day. So that's all encouraging but you know if you think about our trade spend our trade spend the vast majority of our trade spend is performance driven meeting, it's tied to Oh customer performance and.
The customer performance is there so they are.
There aren't a lot of savings and trade spend because were honoring the commitments and because for many of our customers. The trade spend is rolled into everyday low pricing.
And that's a you know going to continue so as you think about trade spend a there's not going to be a windfall over the next.
Fiscal year, it's been a little lower in Q4 as he will have noted and that could continue.
But it's also going to vary by quarter and a trade spend a is not going to be a big source of savings going forward.
Okay. Thank you very much I'll pass it on.
[noise] Oh My final question comes from Linda Bolton Weiser of D.A. Davidson.
Hi, Thanks for taking my question you made some comments about the general charcoal category and the growth there and what's driving it but I was wondering if you could be more specific about your own share recovery that at least in the track channels. It does look like your share is improving and was the hickory pellet lunch.
Important in share growth or is that just two small at this point and when can we expect the next innovation in charcoal. Thanks.
Yeah. Thanks for the non welcome back that's a nice a wait and that you know I would characterize a kingsford as a good story in that.
We had implemented much improved plans, which led to.
Really strong retailer support and that came just in time as consumers were looking to grow more in the face of pandemic. So a really nice turnaround story with the second quarter consecutive quarter of growth.
After certainly a weaker period than Q4 a up.
Double digits or see.
Share was up strongly or it's one of our strongest.
A growing the business as chair wise and if you look at the underlying factors. It is a strong retailer support as mentioned, it's a household penetration returning to growth.
On the brand, it's a a growing category even without a the aggressive peak holiday discounts.
Heavy grill sales so all of it really encouraging so the the vast majority of the sales and share growth is just on the core and the good news is theres so much opportunity lifts given the performance in previous years, we really just scratching the surface of.
We can do to recovered lost share growth, but also benefit from a category that clearly is on trend pellets itself is off to a strong start and also continues to build and will also keep building into fiscal year 21 season.
But really has not been a a strong factor in the Grand scheme of things as we think about the sales growth. So really solid momentum on kingsford as we enter fiscal year to anyone with so much opportunity ahead.
[noise], Thank you and good luck.
Thanks Linda.
Thanks spend on thanks, everybody. Thank you everyone again for joining us today I hope that all of you and your families will stay healthy and also hope that up Passbook Cross again at some point after we get through this pandemic and in the meantime, please stay well and Linda Kevin and Lisa will speak.
Back to about clocks as Q1 fiscal 21 results on November 20, no on November 2nd.
Thank you all.
Thank you. This concludes today's conference call you may now disconnect.