Q1 2021 Procter & Gamble Co Earnings Call
[music].
Good morning, and welcome to Procter and Gamble's quarter in conference call. Today's event is being recorded for replay.
Discussion will include a number of forward looking statements. If you will refer to PNG. His most recent 10-K 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.
As required by regulation G Procter and gamble needs to make you aware that during the discussion the company will make a number of references to non-GAAP and other financial measures.
Procter and Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website, Www Dot PG investor Dot Com, a full reconciliation of non-GAAP financial measures now.
Now I will turn the call over to PNG as Vice Chairman, Chief operating Officer, and Chief Financial Officer, John Lowber.
Good morning.
We'd like to start by expressing our sincere hope that you and your families remain safe and well.
A good quarter isn't difficult to explain it so we're going to keep our prepared remarks brief but just a little over 10 minutes and then turn straight to your questions.
Oh I September quarter provides a very strong start to the fiscal year.
Enabling us to increase guidance for organic sales growth.
Raised guidance for core earnings per share growth.
Increased guidance for adjusted free cash flow productivity.
Add raise our commitment for cash return to shareholders.
Organic sales up more than 9%.
Seven points of volume growth, one point, a positive mix of one point of price.
We have built strong momentum leading up to the crisis with 6% organic sales growth in calendar year 2019.
We maintained 6% growth in the first half of calendar 2020.
Overcoming significant challenges, including the locked out in China.
Well with her of the travel retail electro <unk> specialty beauty and away from home channels.
Operational challenges safely staff in our facilities and sourcing materials necessary to maintain and in several categories significantly increased production Mr.
Mr heightened consumer cleaning health and hygiene needs.
And we accelerated to 9% this quarter against a strong 7% base period comparison.
Strong momentum, reflecting the underlying strength of our brands and the appropriateness of the strategy, which is driving our business pre during and at some point post cobot.
Broad based growth U.S. organic sales up 16%.
Later, China up 12% both.
Focus markets up 11.
And enterprise markets, where there are significantly impacted by the cobot pandemic up five.
Nine of 10 product categories grew organic sales home court homecare up more than 30% oral.
Oral care up mid teens family.
Family care up double digits personal health care fabric care feminine care hair care and skin and personal care up high singles growing up mid singles Baby care down low singles.
Aggregate market share growth of 30 basis points to 30 of our top 50 country category combinations holding or growing share.
Ecommerce sales up approximately 50% for the quarter.
Turning to earnings core earnings per share up 19% currency neutral core earnings per share up 22%.
Within this core gross margin expansion of 140 basis points up.
Up 170 basis points ex FX.
Core operating margin up 300 basis points up 350 basis points excluding FX.
Adjusted free cash flow productivity of 95%.
We returned $4 billion of value to share owners.
$2 billion of dividends paid and $2 billion of PNG stock repurchase.
In summary, a very strong start to the fiscal year strong volume sales and market share trends strong operating earnings margins advancing strong core earnings per share growth.
We built strong momentum heading into the current crisis and have been able to maintain this through the most recent quarter supporting.
Supporting the guidance increase for all key financial metrics organic sales core earnings per share cash productivity and cash return.
As we outlined each of the last two quarters. We've established three priorities that had been guiding our actions and our choices in this crisis period.
First is ensuring the health and safety of our PNG colleagues around the world.
Second maximizing the availability of products, we produce to help people and their families with their cleaning health and hygiene needs.
These products are more important than ever given the needs created by the current crisis, Inc.
Increased awareness of health and hygiene and the additional time, we're all spend being at home.
Third supporting communities relief agencies and people who are on the front lines of this global Pandemics Pandemics with.
With product donations TV production financial support and using our marketing and communications expertise to encourage consumers to support public health measures to slow the spread of the virus.
These priorities are completely kind of grew up with our strategic choices, which remain the right ones.
These strategic choices are the foundation for balanced top and bottom line growth and long term value creation.
As you know Weve focused our portfolio on daily use products and categories, where performance plays a significant role in brand choice.
In these performance driven categories. We've raised the bar on all aspects of superiority product package consumer communication retail execution and value.
Superior offerings delivered with superior execution drive market growth.
Leading category growth with superior offerings mathematically builds market share and build business for our retail partners.
Weve made investments to strengthen the long term health and the competitiveness of our brands.
And we'll continue to invest to extend our margin of advantage and quality of execution improving options for consumers around the world.
The strategic need for this investment.
The short term need to manage through this crisis.
And the ongoing need to drive balanced top and bottom line growth, including margin expansion underscore the importance of ongoing productivity.
We're driving cost savings and cash productivity in all facets of our business up.
Up and down the income statement, then across the balance sheet.
Next success and are highly competitive industry requires agility that comes with the mindset of constructive disruption.
A willingness to change adapt and create new trends and technologies that will shape our industry for the future.
In our current environment that agility, and constructive disruption mindset or even more important.
Last our new organization structure yields a more empowered agile and accountable organization with little overlap or redundancy flowing into new demands seamlessly supporting each other to deliver against our priorities around the world.
These strategic choices, we've made portfolio superiority productivity constructive disruption and organization structure and culture are not independent strategies.
They reinforce and build on each other.
When executed well they grow markets, which in turn grow share sales and profit.
We believe our strategy is the success, we've had behind them and then increase societal focus on health hygiene and a clean home all bode well for the future.
We believe PNG is well positioned to serve consumers heightened needs and their changing behaviors and to serve the changing needs of our retail and distributor partners all of which are critical to long term value creation.
We like our long term prospects. So the near term will continue to be challenging and it's a little more difficult to predict.
Our near term outlook begins with an assumption of how underlying consumer markets will develop.
This by itself is highly uncertain.
The reality is that covert cases are increasing in many parts of the world without the resources infrastructure or in some cases, the will to effectively manage it.
We're likely will likely be operating without a broadly available vaccine or advanced therapeutic through fiscal 21.
That's good profit tighter containment policies and dramatically reduce mobility, which.
Which would affect employment and overall incomes potentially leading to a deeper and longer recession across large parts of the world.
In the U.S. its unclear how long will be operating at high unemployment levels, and when and how much mitigating economic stimulus will be available.
There continues to be social unrest and economic distress in many parts of the world that also affect the prospects for category growth.
These same dynamics can result in an increased cost to operate and there is an ongoing risk of supply chain disruption.
Our operations or those of our suppliers.
Against this challenging backdrop, we're still holding ourselves to an expectation of meaningful growth.
Topline and bottom line and expect to be highly cash generative.
With a strong first quarter as a base, we're increasing our fiscal year guidance.
We are raising our organic sales growth guidance from a range of 2% to 4% to arrive.
To a range of 4% to 5%.
Which includes some quarter to quarter ramp down from Q1 as retail inventories are fully replenished and as promotions are partially reestablished.
We expect to grow market share in aggregate for the year.
We're increasing our core earnings per share growth guidance from a range of 3% to 7% to a range of 5% to 8%.
Versus prior year core earnings per share of $5.12.
This bottom line outlook includes headwinds of approximately $325 million after tax foreign exchange.
$150 million from the combination of higher interest expense and lower interest income.
And $50 million of after tax of higher freight costs.
He's had one should be partially offset by $175 million after tax of commodity cost tailwinds.
Let's call. It 2021, we'll continue our long track record of significant cash generation and cash return to shareowners.
We're raising our target for adjusted free cash flow productivity from 90% to around 95%.
We continue to expect to pay approximately $8 billion and dividends.
We are increasing our outlook for share repurchase.
From a range of $6 billion to $8 billion to a range of $7 billion to $9 billion.
Combined dividends and share repurchase plan to return $15 billion to $17 billion of cash to shareowners This fiscal year.
This outlook is based on current market growth rate estimates.
Current commodity prices and current foreign exchange rates.
Significant currency weakness commodity cost increases I just.
Additional geopolitical disruption major production stoppages or store closures are not anticipated within these guidance ranges.
Wrapping up we continue to execute winning strategies a portfolio in daily use categories, where performance drives brand choice the pure.
The pure yardi and products packages consumer communication retail execution on value.
Productivity in all areas of cost and cash concern.
Constructive disruption in all facets of the operation and in.
And improved organization focus agility and accountability.
We feel we continue to have the right priorities to deal with the immediate challenges the company is facing and she.
Ensuring employee health and safety maximizing product availability and helping society overcome the challenges of the crisis.
We're stepping forward now.
Got back we're doubling down to serve consumers and our communities were.
We're investing in the superiority of our brands and the capabilities of our organization.
Always with our eyes fixed on long term balanced gross growth and value creation.
With that I'd be happy to take your questions.
Ladies and gentlemen, if you have a question. Please press star followed by one on your phone.
If your question has been answered or if youd like to withdraw your question. Please press star followed by the two.
Take our first question comes from the line of Jason English with Goldman Sachs.
Hey, good morning folks thanks for calling in on.
[laughter] Gees first question. So many years ago, I guess I wanted to jump off a partner with a higher order questions. John you mentioned.
You mentioned your you excited views about the consumer has increased focused on health hygiene and home.
What's your view on the durability of those because those related behavioral changes that we've seen over the last six to nine months do you expect to do mean revert to pre corporate levels. If so whats the duration and if not why not.
We do expect that this.
Stickiness to new habits that are being formed and.
And new awareness that's been raised.
It's it's hard for us to see in our interactions with consumers.
That we're going to snap back and revert to the same attitudes in the sand behaviors.
We had collectively a prequel them.
You know even things like the amount of inventory pantry inventory I keep in itself. It's just as analogous to some of US remember our grandparents for example, having survived the great depression and they continue to hold onto them more.
Food and canned items that I like that that could never understand but it was because of what they've been through.
And see.
Consumer habits. Once they are established in our categories or are rarely reversed on occasion under duress they will be a.
But generally once people start using a category once.
Once they form a habit or just it stays.
I'm sure there'll be some level of.
Level of reversion.
But we do expect a permanent change at some level as well duration. Your calls as good as mine I have no ability to predict what's going to happen here from a viral standpoint or from a medical.
Medical solutions standpoint.
Okay I appreciate the perspective in that context, if you think about your portfolio construct does it change the way you think about where you want to play.
On the margin it can have an impact on where we want to play. We're we're happy with each of our current categories. The question is are there additional opportunities that we want to be able to access both.
So for example, we launched a hand sanitizer in the U.S. under the Safe Guard brand name.
You are aware of the micro band 24 surface disinfected, which we're working hard to increase capacity on so we can me very high demands for that product.
So.
Generally again, our portfolio is gonna daily use.
Daily use categories performance drives brand choice heavily centered on health hygiene and a clean home is going to serve us very well in this situation just as it did prior but the situation does present additional opportunities to step up and serve in to help consumers with their health hygiene and.
Pheno needs.
Thanks, a lot I'll pass it on and congrats again on your continued success.
Thanks.
Right. Your next question comes from the line of crop Hottenstein with Evercore.
Great. Thank you very much and congratulations on a terrific quarter, so 7% volume growth <unk> percent price the percent mix.
Very balanced.
Kind of a two part question how are you thinking about market share you know how much of a priority is that in this environment.
And then looking at E. Commerce, we've we've done a lot of work on the U.S. ecommerce business and did a deep dive on that using yacht enumerate or data I and you know what came out of that.
Well it was a little mix certain character category is doing extremely well like crest, just just killing it and E commerce, but you know based on the numbers and data we saw diapers bath tissue paper towels.
Appear to be losing share in E. Commerce, So love to kind of get a sense of how you're thinking about market share and then particularly market share in E commerce.
And were rather in terms of ecommerce whether you are hitting kind of the notes the superiority or that you're looking for the rest of your business. Thank you.
Thanks Robert.
I want to start in a slightly different place, but I'm gonna bring it right around or to the core of your question so be patient with me.
We are when.
When I actually focused.
On increasing and Lee.
And leading market growth.
And when we do that we do that with a superior products continuously increasing our margin of advantage meeting additional needs solved and tension points across the portfolio.
When we disproportionately are able to drive market growth.
Mathematically we build share.
And that share growth is much more sustainable achieved that way.
There's much generally much more profitable than.
Then if we were sourcing market share by taking business from other companies.
So we'd rather create.
Then take.
And then the process more sustainably build market share, which is very important.
As well as Ah Ah sales and profit.
Profit.
In terms of.
E Commerce.
You know, it's a it's a very competitive marketplace just like other channels that we compete in so there are always ups and downs across categories, but we find.
At the same general strategy that I articulated in our prepared remarks and that I just described.
Parts of it and then just provide.
Just provided.
It's highly relevant and ecommerce just like it is and and brick and mortar.
And we don't see a lot of there's some but we don't see a ton of differentiation between our ability to succeed and ecommerce format.
And a offline format.
When we execute our strategies and when our products are in categories with performance drives brand choice are truly superior.
So that's our focus a week.
We look carefully at overall share progress online versus offline.
And margin progress online versus offline.
And in aggregate, which is always dangerous of course operationally, we moved to lower levels of aggregation.
We're indifferent between online and offline shopping which is exactly where we want to be.
I mentioned, we grew ecommerce sales are up 50% in the quarter that we just completed.
Ecommerce sales are now probably a 11% to 12% of our total so they're they're important and.
And we're just as focused on a success being successful in that channel as we are the others.
Your next question comes from the line of Dara Mohsenian with Morgan Stanley.
Hey, good morning.
So Ah John just wanted to better understand the implied bell to your organic sales growth guidance for the fiscal year. After Q1's true, but certainly not prepared.
It's only about 3% up there at the midpoint of your full year range versus 9% because corridor doesn't seem to really moved up the Q2 through Q4 implied forecast just like the Q1 upside. So just trying to understand is that more just related to uncertain environment here post co. Good are there other specific factors.
Driving that forward sequential cost here and you had mentioned a couple in your prepared remarks, so a bit more detail would be helpful. There and just on promotion that did come up in your prepared remarks is the U.S. promotional environment. It was that returning to more of a normalized level or how do you think about calendar 2021 versus 2000.
Plenty on that front, just given it was an abnormally depressed promotional base. Thanks.
No surprise to you or anyone on this call. We continue to operate in a highly uncertain environment with many more drivers of that uncertainty then.
And were historically accustomed to.
And that's certainly a helps frame.
Tightens up no guidance ranges.
Second we've got a long way to go so work through one quarter Weve got three more quarters.
To execute on in this.
Oh very dynamic environment.
Third.
Market growth, which.
Which is where we start and our and our outlook process.
Looks to be.
Kind of 2% to 4%.
On a normalized basis that's global.
So four to five as our new fiscal year guidance range is consistent with our desire to build a market share, but I think.
Realistic and in its approach.
Also the quarter, we just completed.
Has two elements and you mentioned one of them but.
Will drive a higher top line result, the first is there's been a there there was.
Inventory replenishment to the trade during the quarter.
That was probably worth a point or two.
And you mentioned as well as lower levels of promotion.
We still have categories, where we have replenishment work to do so some of that benefit will carry forward.
Into subsequent quarters, but many of our categories are now replenished.
And from a promotion standpoint, we've returned to somewhat normal levels of promotion in most categories in the U.S.
Except those where we still have work to catch up on replenishment, where demand exceeds our ability our current ability to supply and that.
And that would be our home care business, our tissue towel business and.
Parts of our health care business.
But we do expect some normalization.
Of promotion rights in the back half of the year, so as we get into the 2021.
Exactly what the cadence is of that and exactly what level things returned to us is not entirely clear.
We're going to continue where we have the opportunity to prioritize spend on innovation and equity, there's nothing proprietary and promotion.
But we will be compare.
Competitive from a promotion standpoint.
I know that answer lacks the specificity you're looking for.
The best I can do a with the current state of knowledge on the chorus a state of volatility.
I think you know there is that the question behind the question is is there a possible upside to the guidance range I think the answer is yes.
But I would also hasten to add that there is also downside.
There's just.
A lot of moving pieces right now.
All right. Your next question comes from the line of Lauren Lieberman with Barclays.
Thanks, Good morning.
I wanted to ask a little bit about fields of play you know and as he mentioned kind of new opportunities out there and in the release also had specifically you mentioned and I mentioned this Dave <unk> <unk>.
I was curious I will say that the personal health care I think that 'cause that's another area, where just like home care in investing.
I'm sort of building up a greener pipeline pre co pack and it would seem that this new environment would also have an absolute no interesting incremental opportunity than personal health care.
So could you talk a little bit about that business kind of weird you know if you are.
Sending differently focusing on new areas, you know what the more international footprint to that business opened up for you versus where you were several years ago that Steve.
That's really helpful. Thanks.
Sure Lauren.
That is a personal health care is a very attractive.
Attractive field the play to use your description.
It's.
It's one that that you're right we've been investing behind.
We purchased the German Merck Otcs portfolio, which were still in the middle of integrating but but very successfully.
Our topline growth.
Growth on that business and our heritage PNG personal health care business outside the United States or to your.
To your question of international.
It is.
It is growing at that growth rates are very attractive growth rates are high singles double digits in some cases.
Ahead of the plan when we purchased those assets and the good news is cost synergies are also coming in nicely.
So that does give us confidence to continue looking for smart ideas to expand the current portfolio.
And to look for additional opportunities or to create.
To create value with.
And and we'll be doing that.
The German <unk>, the German Marco Tcss gave us about a billion dollar sales or international business again, combined with things like Oh VIX. The heritage PNG portfolio. So we now have a meaningful presence in.
And in many parts of the world that that puts us at them and we've secured capabilities.
Put us in a position to drive this business and and do it profitably.
That will be one of our focus areas going forward. So I don't want to overemphasize that opportunity we have as you know.
A lot of time and a lot of effort.
To land in the 10 categories that Weve landed in and our intention is to grow and to win and to seize opportunities and to do it profitably and each of them.
But clearly we see a lot of those same opportunities and oh over the counter medicines business.
Your next question comes from the line of Steve powers with Deutsche Bank.
Mr Powers. Your line is open.
Sorry about that I was I wasn't good.
Okay. So thank you and John you have got a couple of tremendous growth quarters in the U.S. as well as China over the past six months.
And you've hinted at it a little bit this way already but I was just hoping you could talk a little bit more explicitly around your expectations for those markets over the remainder of the year both in terms of consumer take away as.
As well as your own selling patterns, if they're likely to differ and I guess I don't know if you can do it as a separate <unk> a separate question, but I guess I'm curious as to what you attribute that outstanding growth to in those markets versus what I think equates to more like low to mid single digit growth across the rest of the portfolio and I'm I'm.
And I'm I'm wondering if if it's just a focus of ours is a function of your particular focus or if there are underlying differences that are more struck.
That are more structural in those most focus of your focus markets.
Versus the rest of world as we think about the go forward. Thank you.
Thanks, Steve.
We've talked for some time or.
Data began talking about this at cagney several years ago.
The importance of when.
Of winning in the U.S. and China.
And we've been very intentional and establishing some superior positions across our categories in those two markets.
You know, even our organization design.
Is structured to allow.
Are the leadership of our company to focus their time and effort on the focus markets.
As you say, China, and U.S. being the most focus of the focus markets and that's.
And that's the combination of that organization choice.
That prioritization choice.
And the execution of the holistic strategy or what are making the difference in the U.S. and in China.
The U.S. in China.
From a category growth standpoint, do have category growth rates.
That are higher on average than some other parts of the world I take.
I take Europe as an example.
Currently Southeast Asia, Middle East and Africa as an example.
But I don't think that that is a I mean, there's there's significant opportunity across the geographic portfolio witness in the quarter. We just completed we grew organic sales and we grew earnings in every geographic segment.
So you know as we are fully and Holistically.
Execute the strategy on a global basis.
It should be an opportunity to improve growth rates.
The non U.S. and non China business.
And we're going to have to work really hard to maintain strong growth rates.
In the U.S. and China, where we have very strong enable a competition.
The growth.
The growth rate that we do we've delivered most recently are are very strong very attractive they were pre co but.
They were so.
Certainly in the U.S. during cold, but not so much in China.
And the rebound in China has been encouraging to us.
Encouraging to see.
But you know I think from a sustainable standpoint, and we talked about this at that Laurence conference.
In the fall.
Earlier in the fall you need to really start with what you expect market growth to be.
And assume we can build a couple of share points are.
Ah or a little bit of share on top of that.
Terms.
Really ground yourself and whats reasonable to deliver over longer periods of time now as I said earlier in this conversation, we have responsibility to impact that market growth and.
And we believe we've done that certainly in the U.S. and we need to continue doing that.
Well very long winded a question.
But the disproportionate growth in the U.S. and China is partly a function of those markets. It's partly a function of priority, it's partly a function of the execution of the strategy.
And I think it has.
It's already had application.
Elsewhere, and we'll continue to even more so as we move forward.
Your next question comes from the line of Kevin Grundy with Jefferies.
Hey, good morning, and congrats again on another great quarter first a housekeeping question I apologize if I missed this you have a global retail take away number relative to the mountains of organic sales growth in the quarter that would be helpful. Well My broader question John So on the U.S. men's grooming category I was hoping to get.
Update there and I ask because the times that some of the challenges and the demand challenges and that business is based for a while which would be compounded a bit by by the pandemic in work from home trends and now I also think it's notable that the dollar shave is rolling out that at Walmart just this week you'd probably see gets hurt the rest is shifting needs.
Hello, cemeteries momentum, but can you comment a bit on the potential risks to less market share position spending plans that are in place. We talked about promotion early I suspect this will likely be a category or destination for some of that higher promotions, particularly in the competitive environment in some of the demand challenges and maybe just comment on your level of comfort around.
Pricing ladders and price because this is a new category, which I know it's been an area of emphasis here in recent years. So thanks a lot John.
Thanks, Kevin.
I'm going to suggest you get with John Chablis or after the call I can give you a more specific number on.
Retail offtake during the quarter.
Going at it kind of from the top of my head I would guess, it's it's probably seven or eight but John can help you with that.
In terms of Ah Ah grooming grooming.
Grooming continues to be a very attractive business.
We grew the top line on our drilling business globally. Two years ago. We grew at last year. So two years in a row of growth and we grew.
And we grew at 6% in the quarter that we just completed.
Part of that part.
Part of the pickup in the business.
As a result of a more holistic.
More holistically surveying.
All consumers.
Well, we've talked about skin guard as an example, a that was designed to meet the needs of a.
A high percentage of men, who add sensitive skin.
For whom shattering was painful.
And and and reduce that barrier to shave frequency and.
And shaving a general.
Oh, we launched that we'd watch now in some channels and in some parts of the world a whole lineup of products under the brand of King see Gillette.
That are designed to serve men, who choose to maintain facial hair.
So everything from trimmers to a beard wax to conditioners et cetera.
And that has been going very very well.
And the third thing I would point to is very strong innovation.
On our dry shave business.
Which group has been growing.
Very attractively as well.
This will continue to be a competitive category because of the attractiveness of the category.
You should assume that that is built into our thinking and and built into our plans.
I want to avoid any specific reference to pricing or promotion and a specific category business, but.
We are we like this business is growing.
It's very profitable highly cash generative and that's something we'll be investing behind.
Your next question comes from the line of Entre into shirt with JP Morgan.
Hi, Good morning, Congrats on your results on John If you could break down your 7% volume growth in additional distribution and you know Jason I guess I'm just fell off so you have the legacy from sizes just to get an idea of to do ace enough. This momentum and Conversely, perhaps <unk>. The only area that you may need to me too right.
The need to your diet <unk>. So can you give us your view on this segment globally thinking.
I really don't know how to break volume down with any confidence along the lines that you're a request and so I apologize for that.
We have some great positions in diapers around the world, particularly in the past style form where we're market leaders and that is the fastest growing segment of the diaper market on a global basis well.
We're also doing very well done and the premium a portion of the business as you rightly point out.
We have not been superior in the middle of the markets, what we called main line.
And we have as you would expect and working hard on that and have innovation coming to market across the world beginning this quarter and next thing that's carrying on through.
2021, which we expect to address that situation.
Next question comes from the line of Mark Astra, Ken with Stifel.
Thanks, Good morning, everyone.
Just wanted to go back to E Commerce still 11, 12% of sales.
I'm guessing that's when we're kinda double where it was pre pre cove. It maybe touch on how much of that increase is.
Sustainable any income how much of those consumers are going to continue to purchase and that median.
What drives the adoption of those consumers to to maintain that that presents a go forward basis would be that you've seen maybe all that on our own working kind of see that that will continue I'm curious how you you all are thinking about it.
And sort of related to that in under any circumstances would you pursue more DTC teams like S.K.T. broadly.
Anything there would be helpful. Thanks.
We want to serve consumers in a superior fashion, where ever they choose to shop.
And that's really our focus so we're not focused on one channel versus another we would prefer to be a channel agnostic and let the consumer make that choice and as long as we're.
Very well positioned.
With a superior product to superior package, that's relevant for the channel.
Communication, that's relevant to the channel and have the right value.
If they choose to shop and ecommerce will win.
And as to shop in brick and mortar.
If they choose a hybrid shopper shopping experience like click and collect if we're if were appropriately positioned we should we should do very well.
So that's our focus vis-a-vis any specific channel focus.
Within that DTC clearly can play a role.
As he mentioned in some of our businesses, it's already a significant part of the operating model.
It's Italy.
It allows us to get that.
Closer to consumers.
Oh I understand they haven't even.
I haven't even better understanding of their needs and their habits, including their purchase habits and.
And that all can be.
Very complimentary and important.
And in the broader context of so.
So you will see us continue to increase our DTC presence, but again not at the preference.
Of or the de prioritization of any other channel of trade.
And your next question comes the line of Olivia Tong with Bank of America.
Hi, Thanks, good morning, congrats on the quarter and I'm talking about the competitive dynamics, because clearly is emanating don't share the pain.
My name is she had a double down on investments quantum so what's your view on competition on this point because im also talked about some activity have you seen it and perhaps just not quite mundane how they hadn't taken away. So more to come from competition that I can answer that one yet I see all six locations and then anything much concern because it's.
But that's not that's not good morning, a couple of kind of course family care home care, Some health care and you talk about them onto inventories that beauty going on topical subjects on it. So good luck. Thank you.
I'm going to start where you ended Olivia and then I'll come back to competition.
The strong cores that we've been putting together.
Are a reflection of our brand portfolio and our strategies, which built momentum for the business prior to covert have maintained well manage through coveted.
And allowed us to accelerate in the quarter that we just completed.
These are a set of strategies and an activity system.
That.
We are well suited to the pre governor environment as you saw reflected in our results are very well suited to the covert environment as you see reflected on our results.
We expect we'll be very well suited.
Sunday post Ur cobot environment.
And that said.
Of strategies and importantly, the execution behind them.
On the part of 99000, PNG men and women around the world is.
Here's what's driving as you rightly point too.
ER growth on the topline and the bottomline across each of our franchises, we talked about the challenge we still have a baby care I want to address that but nine out.
Nine out of 10 categories grew a topline in the quarter.
Each of our geographic regions grew top line in the quarter.
And that's really reflective of a the execution of this integrated set of strategies that we've been working on for some time we.
We feel that is the best insulation against what it's certainly a competitive marketplace across the board.
I want to be careful, though that we don't react necessarily too competitive statements about spending.
As inherently inducing risk.
Competitive spending that's constructively structure.
And that grows increases consumer awareness and participation in categories is.
It is not a bad thing.
So what's more important is is the how are the so what.
And.
You know we're we're early in the execution of some of those competitive agendas.
And we'll see but I know for sure that.
At our best chance of continuing our momentum and doing it profitably is to continue to execute the strategy that's been working for us so well.
Well next go to Wendy Nicholson with Citi.
Hi, good morning <unk>.
About your margin itself gross and operating has just exploded and that's awesome, but I'm wondering how much of that is structural improvements you've made to you our organizational structure and all that kind of stuff and how much of it is just the benefit of favorable operating leverage sound.
Thank you no longer term two years three years four years out on have you permanently reset the margin structure for the company or do we think that was going to trickle back when when topline growth normalizes the that thanks.
But within a 300 basis points of operating margin improvement.
About two thirds is attributable to sales leverage.
Which still leaves a healthy third.
Around 100 basis points, that's due to the net.
Of savings and productivity and our reinvestment in superiority.
So.
That's that's the breakdown that you've asked for.
We are very clear in our own minds Ah that on a going basis, we need to grow the top line.
And we need to grow larger.
Ah so everything we're executing is designed to do both.
Both now and moving forward.
All right. Your next question comes from the line of Nik Modi with RBC capital markets.
Yeah. Good morning, everyone I'm just one I was wondering if you could just football on your thoughts on the economy and half its really because I think it is concerned I think it would be kind of hit them. A couple of times I do want to trade on price you're not just a profit but for a lot of CPG companies that tend to play into more premium and mechanical.
Hi, I was just wondering what you thought about the whole piece in farm incomes back.
Incomes back attaining where the consumer good spot became because the low income demographic is getting much of an impact for you.
Isn't any job loss is that more kind of low end to the beach second yet you know middle income and high income consumers are still doing probably wrong. So I was just hoping you could add some thought to that whole whole bought profit.
Thanks, Nick.
I'm not smart enough to know where this all lands.
What I can do or is look at the data that are available today.
And that's a that's a fairly encouraging set of data.
If we look at a private label shares as a proxy for trade down.
U.S. private label shares in the last three month period or down the full point.
Which is acceleration in the decline versus the prior three month period and the same dynamic generally.
Holds true in Europe.
There's just a heightened need for products that deliver against.
Health hygiene and clean home concerns.
And a willingness to spend just a little bit more to ensure that I'm using it.
I'm using a product that I know and trust and believe will work for us.
For me and for my family.
So in most of our categories. That's the dynamic that's playing.
Supporting that direction.
And.
Unlike a prior.
Prior crises are very different from prior crises as a whole reconfiguration of the can.
The consumer budget.
They're not spending money generally on travel.
On entertainment.
At a meal at a restaurant.
On apparel.
So they do have some flexibility.
That that.
What's more prevalent now than it has done the case, historically, which they can redirect.
And many are redirecting if they choose to do so.
Now I want to be careful here I'm, not suggesting that there isn't greater economic stress ahead of us or that it wont have more of an impact than what we've seen thus far.
Just don't have the ability to pay.
To predict where that goes or or lands I can only really reflect on what we've seen thus far which is.
ER and total are encouraging.
Your next question comes the line from LCOS and WLO with credit Suisse.
Hi, Thank you. Good morning, everybody is John I know, it's again, it's a hard question to answer and we don't have a specific details, but we're getting a lot of questions from investors on how you might be thinking longer scenario planning around and so on and is it really increases in the tax structure. If there's a change in administration.
First of all any meaningful change in the tax structure at the corporate level.
In all probability requires a change in the executive branch and then control of the Senate.
So that's the first handicapping that anybody has to do in order to understand whether there's likely to be change.
The second.
Point I would make is there's there's a lot of.
Conversation and and rhetoric.
At the surface of this issue.
But if we go back to you know why did so many of us push so hard for so long on corporate tax reform.
Again, I'm I'm dealing with the corporate piece of this.
And why was it or eventually enacted.
There were some very powerful and important motivators that I don't think have diminished and their importance.
The first was a we wanted American companies to be fully competitive.
And.
Non American markets.
Which would give American companies every opportunity to attract capital.
The grow to create jobs to increase America standard of living.
The second motivation was to prevent capital flight.
To make it attractive ER to be domiciled in headquartered here in America as opposed to moving operations to other parts of the world.
And the third which is closely related to the second is we wanted to a sense.
Capital formation.
Onshore versus offshore.
Those are very strong motivators and very important dynamics that I don't think anyone's going to casually walk past.
So I I just offer that in terms of.
The amount.
The amount of thought deliberation and consideration that I.
That I expect will go in to any recommended change.
That's a date collectively hasn't been applied most recently to this to this question.
Well I'm I'm I'm stopping short of any specific answer on the Numerexs, that's going to be highly dependent on.
The details of what of what if anything happens yeah.
And ER that answer is going to be driven by I think a lot more reflection on the three questions that I, just mentioned as well as some others.
Your next question comes from the line of Bill Chappell with Truest Securities.
Thanks, Good morning.
Hi, two quick ones, one John just remind us what how big dry she visits total see just a little surprised that it could offset the whole business I mean, <unk>, 30% growth and then on the commodity front can you maybe talk a little bit about what's changed and what you see on the horizon or just since you gave guidance.
Or I guess, two and a half months ago or to have a little more of a headwind. Thanks.
I understand the question on the breakdown of dry versus wet shave I don't have the data.
But if you call John he can certainly get that for you.
The commodity environments or in my way of thinking hasn't changed.
Dramatic.
Dramatically.
Since we provided guidance for the year, there's been it.
An increase and pulp as an example, an increase in some of the other items, we purchase but you know overall it's a.
It's a relatively.
On a historical basis benign environment at the moment.
Oil on the Petro complex is generally somewhat range bound.
I'll leave it there.
Well take our next question from Jon Andersen with William Blair.
Thanks, Good morning.
I have two quick questions on mix.
First one being okay.
Described the impact of mix on the P and L.
Whereby adds the sales organic sales growth.
Detracts from gross margin.
In the quarter.
And the second question is.
The mix benefit you experienced in the quarter on the top line.
Looks to be driven you know essentially buy fabric and home care.
And to a lesser extent health care.
It's the balance of the divisions neutral.
What's happening within those segments.
It's driving a favorable mix. Thank you.
[laughter] mixes a very complicated animal.
Because there's not just category, Mexico Theres geographic mix.
And so for example, when the U.S. grows faster than almost any other market both.
Both with its.
Sales right.
Or revenue per case yeah.
And its profitability that has a significant impact as to the category differences that's you're right.
That you referenced.
To get to the conundrum of gross margin going one way is as it relates to mix and P. I'll go in another way I've talked about this.
Quite a bit and it's a reason that I really don't.
I'm not focused on margins were not.
We're not focused on margins.
I don't want that to scare anybody because I didnt say, we weren't focused on on profit and cash.
But margins are an interesting animal say I can't put margins in a bank.
I can't return margins to shareowners.
I can't really invest margins and innovation.
What I can do what we can do is and best profit and cash in each of those things. We can put that in the bank. We can redistribute that to shareholders. If we can invest it yeah.
Yeah, and increasing our margin a superiority.
We have many.
Many although our premium offerings.
Carry a lower gross margin.
But a higher penny profit.
Laundry unit dose as an example of that dynamic.
I'll take that higher profit Penny profit every day of the week.
Even though it may degrade our gross margin.
To some degree.
But but that's the dynamic that delta between a margin and penny profit that's driving the math.
The math that you're that you're seeing and that's why we can't get hung up.
And and margins per se, but we should be very hung up.
On profit and cash.
And ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect.
Great. Thanks.
Just one I'm a bit of summary for those of you who are still on the line. It began as we reflect on this quarter is the point that I think is most important to take away.
Is the momentum of the business and the robustness of the strategy and the brand portfolio that are driving that momentum pre cobot during club now post called it.
And I'm happy to talk at greater length about that with any of you as today.
Week progresses.
But that is the takeaway here.
And I really appreciate your time and your questions have a great day.
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