Q1 2021 Clorox Co Earnings Call

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Good day, ladies and gentlemen, and welcome to the Clorox Company first quarter fiscal year 2021 earnings release Conference call. At this time all participants are in a listen only mode. At the conclusion of her prepared remarks, we will conduct a question answer session. If you would like to ask a question you make press star one on your touched on.

Got any time, if anyone should require assistance during the conference. Please press star zero on your Touchtone pod at any time as a reminder, this call is being recorded I'd now like to introduce your host for today's conference call Ms., Lisa Berhad, Vice President of Investor Relations for the Clorox Company. It's her hand, you may begin your conference.

Thank you.

Welcome everyone and thank you for joining US we certainly hope you and your family continue to remain safe and healthy in what remains a challenging environment.

As usual we have a few reminders before we go into result, we're broadcasting this call over the Internet and a replay of the call will be available for seven days on our website. The Clorox company Dot Com. Today's discussion contains forward looking statements, including statements related to the expected or potential impact of COVID-19. These statements are based on management's current expectation but.

They differ from actual results or outcomes.

Additionally, we may refer to certain non-GAAP financial measures. Please refer to the forward looking statement section, which identified various factors that could affect such forward looking statements and the non-GAAP financial information section, which includes the tables that reconcile 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.

We'll be posted on a website and filed with the SEC.

Turning to todays discussion of our results I'll start by covering our usual topline commentary with highlights in each of our second.

Kevin will then address our total company results as well as our F Y 21 outlook.

Finally, Linda will offer her perspective, and we'll close with <unk>.

For the total company Q1 sales increased 27%.

Reflecting about a point a benefit from the acquisition of a majority interest in our joint venture in the Kingdom of Saudi Arabia, and about a point of headwind from unfavorable foreign exchange impact.

This quarter's 27 organic sales growth of 27% organic sales growth is supported by double digit sales growth in eight of our 10 businesses.

I'll now go through our results by segment.

And our health and wellness sector segment.

One sales were up 28%, reflecting double digit growth in all three businesses.

Our cleaning business had another quarter of double digit growth.

Hi, and continued strong demand for disinfecting products.

Well, we continue to make progress expanding supply we're still not at a point, where we can fully meet ongoing elevated demand.

Despite those constrains or Clorox brand continues to see increases in both household penetration and repeat rate.

We've been investing behind this momentum to convert new users to loyal consumers.

And we've been seeing very strong return on our investment.

On the innovation front, our bleach complexion effort is now complete.

The clock stop fabric kind of type of platform and Clorox disinfecting wet mopping clock, both continue to show strong growth.

On a related note or.

Let me think loss, along with our clocks and Clarkson Teva brand it disinfecting wipes and pints all multi surface cleaner. All recently received approval from the EPA for kill claims against the virus that causes COVID-19 on heart noncore surfaces.

Our professional products business also had double digit sales growth behind strong shipments across all of her disinfecting product line.

A key driver of growth this quarter with the <unk> what was the total Clark totaled Threesixty system, which uses and you look electrostatic technology to deliver disinfectants to large hard to reach areas.

To support sales and continued momentum in this business, we're bringing online new production capacity. This month, so that disinfectants using these devices.

In addition, we've created a dedicated out of home team that focuses on growth opportunities in new channels and spaces to further build on strategic alliances with already established with Uber technologies, United Airlines, AMC theatres and Cleveland clinic.

Lastly, within the segment.

Our vitamins minerals and supplements business grew sales by double digits this quarter.

This strong growth was driven by shipments to replenish retail inventories following the recent supply disruption and by shipments in support of our renew life brand relaunch.

Our priorities. This year are to continue to improve service levels in order to capture the strong consumption trend.

Execute the renew life brand relaunch with excellence.

And deliver a consumer meaningful innovation.

Turning to the household segment do.

Do you want sales were up 39% with growth in all three businesses.

Great grilling sales more than doubled this quarter due mainly to strong consumption behind grilling occasion and increased household penetration.

Sales growth. This quarter was also driven partly by key customer replenishment of inventory.

We've been very pleased to see the strong turnaround of this business reflected in our continued share growth.

In collaboration with the retailers and successful entry into the pellet category with our Kingsport pellets, continuing to build distribution and share.

With recent increases in grilling occasions, and new households, including millennials, we're optimistic about the prospects of this business and we'll invest behind this momentum to drive long term profitable category growth.

Glass sales were up by double digits in Q1 behind ongoing strong demand for our products as consumers continue to spend more time at home.

We're building on this momentum with a consistent stream of innovation.

Putting our new glad forceflex with Clorox trash bags, which launch in September.

This product eliminates food at bacterial odors throughout the trash bags and has already earned more than 1005 star ratings online from consumers.

Our glad forceflex trash bags with unique fragrances in colors, which launch in Q3 also continued to perform well and are among top selling new items at major retailers.

Cat litter sales grew in Q1, driven mainly by strong online shipments and innovation supported by higher advertising investment.

We are encouraged by our returned to share growth in fresh step behind the continued strong performance of fresh step clean plus innovation platform and the strong start a fresh step with gain original centered litter with the power of debris.

In our lifestyle segment.

Q1 sales increased 17% with double digit growth in two of three businesses.

Gross sales were up by double digits for the third consecutive quarter.

The growth is driven by main mainly by continued strong consumption, especially in larger size systems and long last systems and filters.

Yes growth was also driven partly by customer replenishment of inventory and effort. Our team has been very focused on.

Household penetration for Bretaa continues to grow which gives us more reason to invest further.

We will be introducing a new and improved long less plus culture that allows water to flow faster and captures more contaminants along with the new picture.

The food business also saw double digit sales growth behind ongoing strong consumption of our hidden Valley ranch products, which continues to benefit from more at home eating occasions.

This is another business, where we're seeing household penetration growth.

We will continue to invest in innovation and are encouraged to see a strong start to our new hidden Valley ranch secret sauce dressing.

Finally, burts bees sales decreased this quarter.

As the business continued to be impacted by lower store traffic, especially in parts of the store, where burts bees product are typically found.

We've seen accelerated our online strategy and strengthen our presence in the fast growing cough and cold category with the launch of a new line of rescue bond with Tumeric.

While we expect the category why challenges to persist in the short term, we have strong confidence in the burts bees brand and its long term growth prospects supported by a robust innovation platform.

Now turning to international.

He wants sales grew 18% driven by ongoing elevated demand for our products disinfecting products and essential household products across nearly every geography.

Organic sales grew 17% reflecting.

Reflecting about nine point that benefit from the Saudi JV acquisition and.

And about eight points of unfavorable foreign currency headwinds.

Our international business has very strong momentum.

We're looking to build on that through investments that accelerate our ignite strategy.

Increasing the stake in our Saudi JV is just an example of that.

Another example is the international expansion of our Clorox Disinfecting wipes, which are now being supported by a dedicated supply chain separate from that in the U.S.

This will allow us to better meet ongoing elevated demand in our existing international markets, where we currently offer like.

And to launch this consumer preferred form into new geographies.

Now I'll turn it over to Kevin will discuss Q1 performance as well as our updated outlook for F y 21.

Thank you Lisa and thank you everyone for joining us today I sincerely hope you and your families are well.

I'm pleased with our very strong start to the fiscal year, reflecting broad based strength across our portfolio.

Double digit volume sales and profit growth in each of our reporting segments.

Additionally, each reporting segment delivered gross margin expansion contributing to our eighth consecutive quarter of gross margin expansion for the company.

As you saw in our press release, we raised our fiscal year 21 outlook given the strength of our Q1 results and our expectations for higher top line growth over the balance of the fiscal year.

Turning to our first quarter results.

First quarter sales were up 27% driven by 22 points of organic volume growth and five points of favorable price mix sales.

Sales results also included one point of growth from acquiring majority control of our Saudi joint venture.

Offset by one point of FX headwinds on an organic basis sales grew 27%.

Gross margin for the quarter increased 400 basis points to 48% compared to 44% in the year ago quarter first.

First quarter gross margin included the benefit of strong volume growth as well as 170 basis points of cost savings and 150 basis points of favorable mix.

These factors were partially offset by 300 basis points of higher manufacturing and logistics costs, which were similar to last quarter included temporary COVID-19 spending.

Selling and administrative expenses as a percentage of sales came in at 12% compared to 14% in the year ago quarter, primarily from increased operating leverage efforts.

Advertising and sales promotion investment levels as a percentage of sales came in at about 9% equal to the year ago quarter, which.

We're spending for our us retail business coming in at 11% of sales.

Importantly, this represented about a 30% increase in advertising support this quarter compared to the year ago period, reflecting stronger investments to support her ambition to accelerate long term profitable growth.

Our first quarter effective tax rate was 21% compared to 22% in the year ago quarter.

Emily driven by the impact of our increased ownership of our Saudi joint venture.

Net of all these factors, we delivered diluted net earnings per share a $3.22 versus $1.59 in the year ago quarter, an increase of 103%.

Excluding the contribution from our Saudi joint venture acquisition Q1 diluted EPS grew 66%.

As you also saw in our press release Q1 net cash provided by operations was 383 million.

Versus 271 billion in the year ago quarter, an increase of 41%.

Our strong cash flow was due to profitable sales growth, partially offset by higher employee incentive compensation payments made in the first quarter, which were related to our 50 or 20 performance turn.

Turning to our fiscal year outlook.

We now anticipate just your sales to grow between 5% to 9%.

Reflecting our strong Q1 results as wells are raised expectations for the balance of the fiscal year, including double digit growth in Q2.

And as we noted last quarter, we continue to anticipate deceleration in the back half of fiscal 21, as we lap double digit growth in the same period and just your 20.

When we saw the initial spike and cover 90.

Importantly, we continue to assume or back half sales results will be significantly stronger relative to pre pandemic sales levels. We.

We also continue to anticipate about one point of contribution from our Saudi joint venture offset by one point of foreign exchange headwinds.

On an organic sales basis, our outlook assumes 5% to 9% growth.

We expect just to your gross margin to be about flat, reflecting the benefit of strong cost savings and higher sales offset by rising commodity and transportation costs.

As well as temporary costs related to covert 94.

For perspective, we expect gross margin expansion in the front half fall by a contraction over the balance of the fiscal year as.

As we left gross margin expansion of 250 basis points delivered in the back half of fiscal 2000, driven by strong operating leverage from robust shipment growth during initial phases of pandemic.

We continue to expect fiscal year, selling and administrative expenses to be about 14% of sales as we continue to invest aggressively and long term growth initiatives.

Additionally, we continue to anticipate this gear advertising spending to be about 11% of sales.

Spending closer to 10% in the front half the year and 12% in the back half in support of a robust innovation program.

We now expect our disk your tax rate to be between 21% to 22%.

None of these factors, we now expect just pure 21 diluted EPS to increase between 5% to 8%.

Or $7.70 to $7.95.

Reflecting our assumption for stronger topline performance, partially offset by rising cost environment.

As we shared last quarter or fiscal year diluted EPS outlook continues to include a contribution of 45 to 53 cents from our increased stake in our Saudi Arabia joint venture, primarily driven by a onetime noncash gain.

Excluding the impact of the Saudi acquisition, our fiscal year diluted EPS reflect strong investments behind the robust momentum were seeing broadly in our portfolio.

We're engaging new consumers supporting backup innovation plan and expanding our portfolio into new channels and markets all in support of our ambition to accelerate long term profitable growth.

In closing I'm pleased with our very strong start to 50 or 21, why in Rome bust top and bottom line performance across all reporting segments.

This provides a strong foundation for continued momentum, which we plan to drive through aggressive investments in every night strategy in support of creating long term shareholder value.

And with that I'll turn it over to Linda.

Thanks, Kevin Hello, everyone and thank you for being with US today I Hope you are well and in good spirits as we continue to navigate this pandemic.

It's great to be joining you on my first call as CEO, especially after the tremendous first quarter we delivered.

Our results show, what Clorox does best we serve people, who count on our brands, especially during a time when they need to feel safe and when their home is the center of their world.

This reinforces my first message out.

Standing results are a reflection of our team's dedication to serving consumers and communities.

I'm incredibly proud to see the broad based strength in our portfolio with double digit sales and profit growth and all reporting segments.

In the last eight months all eyes have been on Clorox disinfecting products and our brands delivered once again this quarter with double digit sales growth and our cleaning and professional products businesses.

Reflecting continued higher usage of products and home.

Businesses and health care setting.

And now we're also shining a brighter light on the terrific performance delivered by other parts of our portfolio.

With double digit sales growth and eight of 10 businesses demonstrating the important role our brands play in addressing people's everyday needs.

As particularly gratifying to see great results from our growing and glad businesses as the team has been relentless in driving progress on our business plan, including meaningful innovation.

Based on double digit top line increases and significant margin expansion in our first quarter, we delivered very strong earnings growth for our shareholders and I'm happy we were able to raise our fiscal year outlook.

These results would not be possible without the passion and commitment of our Clark's teammates around the world I'm thankful and proud of how they live by our values and take to heart our role in supporting consumers and communities.

Well I feel good about our financial performance for the quarter Theres. One thing that continues to keep me up at night.

Our ongoing focus to meet unprecedented demand for much of our portfolio.

We are certainly encouraged by the progress, we're making in a number of businesses, including having clorox bleach, mostly back on store shelves, but there's more work to be done.

I can assure you that our team has are leaving no stone unturned across all business is experiencing elevated demand.

We're continuing to focus on products that can be made faster and investing significantly in third party supply sources and an efforts to expedite our products to retailers.

Our consumers retail partners and communities are counting on us and I want people to know that maximizing supply continues to be top priority.

Next the Clark's team and I will pay 100% offense behind our strong portfolio of leading brands consumers love and support of our ambition to accelerate long term profitable growth.

I feel privileged to be CEO of the special company and I have my sights set on extending our momentum longer term.

In this uncertain environment people are turning to brands. They trust and we're proud to have trusted brands in our category.

We're seeing this play out in strong helpful penetrate penetration not just in our disinfecting products, but in many parts of our portfolio.

For perspective, the percentage of our total portfolio was stable or growing household penetration has more than doubled year over year.

And as I look beyond the pandemic and try to answer the question of whether or not we can sustain our strong results I'm encouraged by the trends we're seeing.

Particularly consumer behaviors form during the last seven months.

There are good indicators, our brands will continue to play a meaningful role in People's Daily lives.

For example people are prioritizing health and wellness drinking more water and taking vitamins and supplements.

Focusing on safety and hygiene cleaning and disinfecting in and out of their homes.

Staying home more including cooking grilling spending time with family and adopting a pet.

Spending more time on line with about 90% of people, saying they shopped online since the pandemic.

There are strong signs these behaviors will stick over the long term as people have been building. These habits for three times longer than it normally takes routines to form.

And while early we are encouraged by the strong repeat rates, we're seeing across our portfolio among core and new consumers.

This is the time for 100% offense.

And that means investing significantly behind our global portfolio, including through advertising and market leading innovation.

Increase in capital spending to expand production capacity in the near and long term.

Partnering with retailers to enhance shopping experiences and grow our category.

With the strength of our global portfolio the sustained consumer behaviors, we're seeing and our significant investments to drive growth Clorox is in a great position to keep winning with consumers.

And finally, the defining opportunity for Clorox is simple just sort of even more people around the world with the strategy that helps us make the most of who we are and where we have strategic advantage.

Our ignite strategy put people at the center of everything we do.

And fundamentally we will address consumer needs and follow them in the most meaningful ways we can.

Here's what I would highlight.

Parks of the health and wellness company at heart with the strength of our brands and capabilities and disinfecting, we're in a great position to extend our role in public health.

We'll continue to lean into the strategic alliances, we've established with leading brands to keep their customer safe.

And we'll certainly pursue more of these types of relationships with other organizations to increase our support for people outside of their home.

I'm also excited about expanding clorox disinfecting wipes and international.

Supported by a dedicated supply chain that will allow us to scale this business in our existing markets and enter new geographies.

More than ever people are on line and we believe digital behavior is here to stay.

Our ops has leaned into ecommerce and digital marketing early so that people can engage with our brands and more personal and relevant way.

As people navigate a tough economy with pressures from unemployment and less discretionary spending they'll continue to turn to brands They trust and.

And we'll continue to earn their trust and loyalty by focusing on superior value.

And what's also important to me is that we continue to be committed to growing the right way guided by our values and with SGN vetted into our business.

It's how will help our people our communities and our planet thrive now and in the future.

Operator, you May now open up the line for questions.

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Ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.

First question comes from Enginetics area with JP Morgan.

Hi, Thank you and congrats everybody for for the the results Linda I was just following up on your comments and also Kevin on kind of the momentum of the purchase volume and obviously you raised your guide for Fourq.

Organic but it does look like your E. Yeah could have some room here I was just trying to see if you can help us like gauge the level of investment or perhaps some of the mix effect that we should be seeing.

So that you kept your E gas relatively under control given the gain that you had so just to.

Just kind of parse out what is a what part of it is reinvestment in promo or just the mix effect. Thank.

Thank you.

Hi, Greg This is Kevin I can talk about or even as soon as you think about the balance of the year.

So as you mentioned, we raised our expectations for the year, 5% to 8% off a very strong start to the year. If you come out the impact of the balance of the year.

As I'm sure you've done the math, we were projecting will be down in the back half the year on our EPS year over year, that's primarily driven by the impact of the prior year. If you recall, we grew EPS about 30% in the back half of fiscal 2000, and so from the initial impact of over 19, the pantry loading very strong.

Results in the back half year, we have to lap that.

And in addition to lapping that as we spoke in the last couple of calls we are leaning in and investing behind the additional growth opportunities, we see in front of us.

And you May have heard my prepared remarks, we think that advertising investment will be back half loaded so we'd expect to be spending about 12% of sales in the back half a one supporting a very robust innovation program, we have teed up for the back half the year as well as pursuing a number of new growth initiatives, both our partnerships and some international opportunities were spent.

Hi, Ann.

You know maybe just a last comment it made Andrew and I think you know there's about as we are certainly not looking to maximize one quarter, but making sure. We're we're taking the right investments that generate long term value and so we.

We think there's a good opportunity for us to do that and we're certainly do it in the back half the year.

That's fair and if I can just ask about professional where do you think this business can become as you progress things all these investment a new partnership.

Yes, you know professional has been a strong part of our portfolio for a number of years with high single digit increases a up to this point and we continue to see a long runway for the business. Both in the businesses that are established well today into healthcare and industrial customers.

Customer setting, but also we're setting our sights on expanding the reach this business can have as consumers start to leave their home and we can create environments partnering with businesses to keep them safe. So that's what we're focused on right now is investing in the people to support that future growth investing in the innovation to.

Support that future growth and of course investing in the brands. So that people continue to turn to the most the trusted cleaning disinfecting brand with clocks.

Thank you both.

Next question comes from Wendy Nicholson with Citi.

Hi, My first question is just sort of a follow up to that totally get the difficult comparisons year over year in in in the March and June quarters, 100%, but I also heard you call out higher commodities and maybe free.

Just wanted to ask what your thoughts were on pricing, whether you plan to take price increases to offset some of the <unk> those commodity increases or whether you feel like the market is tentative and shaky enough, where it's better to potentially hold off on pricing.

[noise] Yeah, Wendy Thanks for the question no we're committed to not taking pricing during the pandemic. It to do the right thing and we want to make sure consumers have our products at the right value and so what we're focused on right now as a continued lean into our aggressive cost savings program that we've had for a number of years.

To ensure that we have the fuel to manage the investments that we have and of course to manage any bumpiness. We expect in commodities, but we do expect to cost increases through the back half as you said and were monitoring that environment closely but again, we're committed to ensuring that consumers have our brand during recessionary time at the right value not taking pricing to right.

Pandemic and leveraging our cost savings program to manage through short terms up and down up and down.

Got it and that actually leads into my second question, which is kind of thinking on sort of strategically, but also very much with an eye towards you know the dollar is that you're investing in capacity I mean, clearly there is a surge right now and the fact that you're signing so many agreements with the airlines.

Whatever I mean, clearly, there's just a huge demand for disinfecting products and whites in particular.

But there will be a day when that happens so I'm kind of curious just as you think about capital spending you know <unk> are you are you hurrying to build.

No.

Capital to support demand that is I think going to be huge for some time to calm buddies eventually going to fade just how do you think about that conceptually. So that you don't end up with a lot of capital but ends up you know.

Not being needed two years or three years down the road.

Got it Wendy I think it would be helpful to step back and just talk a little bit about what we're seeing in the macro environment and why we have strong belief that were going to see a lot of these behaviors continue well into the future.

We're seeing consumers in the U.S. and around the world cleaning it much more frequently cleaning news surfaces and of course cleaning both in and outside of the home and that is true for business customers as well, where they're having to welcome people back.

To their businesses with safe environments.

Our research with consumers, they're telling us that they expect many of these behaviors to stick, regardless of whether or not there's a vaccine or how long cobot goes on because it's a way to rest reassured their health and wellness and for them to feel safe. So we are hearing from consumers that this is here to stay and we've seen evidence of that in past pandemics as well as just bad cold and.

Flu seasons, where people have adopted new behaviors.

The other thing I would tell you. In addition to capacity supporting just that change in behavior. We also see significant growth opportunities that are brand new to our business.

Spending Hawks, disinfecting wipes and international if you step back we're in a how about 100 countries around the world with very little presence and disinfecting wipes, that's a big opportunity for us complete white space that as we build capacity, we can lean into that even further.

And the other thing that I would would talk about it in the industrial space. There's new technology is that we have and we think those cleaning behaviors will need to change on a more permanent basis to reassure people that.

Safe to enter those businesses and so that's the other thing I would just put in perspective, we can shift supply to the opportunities that are most poignant at the moment as we move forward and then of course, Wendy as you always know we're really good at balancing and spending capital in a disciplined way and we can make adjustments to our network whether that be through.

In housing or working with third party manufacturers as we move forward and we've been very balanced in how we've approached this so that we can do just that.

Great. Thanks sounds terrific.

Next question comes from Kevin Grundy with Jefferies.

Great.

Good afternoon, everyone and congrats on a really strong result.

Kind of building on on one question, a little Brad I wanted to get a good into the organic sales growth guidance. So let it strikes me, Nick a wide range, but understandably so it will cause a 9% record sales.

Coming up from what was previously flat to up low single digits in August so glued dimension for us a bit what's changed since early August business retailers carrying higher inventory levels now when somebody buys bread category.

On the strong quarter that was not anticipated in early August.

Oxford as an example, maybe just dimension for us because of the magnitude of the upward revisions is noteworthy maybe just just kind of dimensionalize for us a bit what's driving the more bullish outlook that I have a follow up for Tim on the on Tesco.

Hey, Kevin This is Kevin I can take your first question as well as it relates to sales.

And you know to your point, we've taken up our expectation for the balance of the year pretty materially I think theres a number of things, we're seeing that's giving us even more confidence for this year. The first is we continue to see growing household penetration. So we're now three quarters into the pandemic and in Q1 and continue to grow.

Additionally, we're seeing increase repeat purchase rates with both new and existing consumers and so growing household penetration.

Accelerating right repurchase rates, both giving us more confidence and.

And then as you know we've been exploring a number of additional growth opportunities, both our partnerships as well expanding or doesn't affecting portfolio outside the U.S.

And we're seeing more and more opportunity in both those spaces that will start to contribute in the back half the year.

Then maybe the you know the last time I had mentioned as well we knew we'd have a very strong year as it relates to our disinfecting portfolio. We're seeing very strong results outside of disinfecting. I mean, you clearly saw results in our household segment.

Again, we're seeing users more users coming into those categories are increasing their frequency of usage and we think that's going to continue through the balance of the fiscal year. So I'd say those are the key drivers that led to us taking up the outlook for the full year.

Got it okay. That's helpful. Other number questions. All this good just one more if I may just on with respect to balance sheet and glass flow so fast balances.

Higher than when you normally does and that business typically need from a working capital perspective.

Understanding was a lot, but the business is just sitting there with respect to additional capacity and so forth, but between the other than the normal das balancing the business is growing off a significant amount of cash from operations talk a little bit about it was just in terms of intentions with respect to Capex and.

Is there any intention to return to share buybacks as well something that the company kind of got away from a little bit in recent quarters with now as we sort of moved it depends I mean theres greater visibility.

It could be it could be something that's potentially on the table. So thanks for all that and I'll pass it on.

Sure happy to Kevin talked about cash and as you as you mentioned, Kevin we're seeing a pretty significant acceleration of the cash we're generating.

Last year, our cash provided by operations was up about 56% in Q1. It was up about 40% were sitting on just a little under $900 million of cash on the balance sheet, which to your point is more than we typically hold that really gives us quite a bit of financial flexibility. So for Linda and I job one will be to continue to look for opportunities to invest in.

Our base business.

We know that's where you can junior create very strong returns for our shareholders. So we'll do that including investing more in capacity to extent, we think that's required.

Additionally, we'll continue to look for targeted M&A, we still have an interest in pursuing strategic acquisitions.

The good news is they don't feel like we have to do it to be successful, we got plenty of cash to pursue acquisitions to the extent, we find a good opportunity and then I. Kevin you mentioned about share buybacks, we actually restart or share buybacks very modestly in the fourth quarter towards the end of the quarter and in this quarter, we returned about.

$240 million to shareholders combination of our dividend plus about $100 million in share buybacks that we assigned all tour dilution management program. So we are back in the market I do expect that to continue I expect this year, where we turn around $900 million to shareholders. Both in the form of our dividend and our share repurchase program.

But I think that the key takeaway should you should have is the company continued to generate a significant amount of cash and that gives us a lot of financial flexibility to pursue growth both.

Both organically and Inorganically.

Got it very helpful. Good luck.

Thanks, Kevin.

Next question comes from Jason English with Goldman Sachs.

Hey, good afternoon folks. Thank you so much for spot me very much appreciate it.

A couple of quick questions first.

I missed your prepared remarks, it sounds like you're still running behind demand in health and wellness effectively selling everything you can make.

In that context is the $100 million revenue you've been able to produce to sell to the last few quarters any reason to believe that would drop off as we go into the second quarter.

Hey, Jason This is Kevin we expect is still continuing our very strong Q2 as you heard we think we'll be up double digits. You know the one thing I'd point to is if you look at our Q1, we delivered 27% revenue growth about two to three points was related to rebuilding retailer inventories.

That was on Kingsford, our vitamins minerals and supplements as well as our clorox liquid bleach, we've made pretty good progress on catching up with demand on on Clorox bleach.

And so we rebuild some ah capacity in Q1, so I expect that to have some impact on Q2, but beyond that I expect to see continued very strong performance in our clean portfolio and that's my comment is a global comment not just in the U.S. globally.

Got it so so maybe not the 13 level will probably not too far off it is what I heard.

The Oh your full year guidance from a reinvestment perspective suggests that if I could look MP and I just compare it sort of a clean year in fiscal 19, you're looking to spend roughly $180 million more in MP than you did two years ago and SGN is expected to be up around $150 million than it was two years ago.

As we think as we think forward how much of those costs do you expect that scale and how many of them do you think you've got you'll have the flexibility to retract winner when and if demand begins to subside.

Yes.

Yeah. Thanks, Jason I'll start with that you know these investment levels are not a mandate in our business. There are choice and we're choosing to lean into the momentum we see in our portfolio right now behind some of what Kevin covered a household penetration.

Patrician has more than doubled the amount of our portfolio that stable or growing we have the highest ever consumer value measures. So the percentage of people that deem our products as superior.

We are seeing people enter our categories at rates, we've never seen before and where you're seeing repeat although it's early strong and so what we're trying to do by increasing our advertising and sales promotion spending by increasing our ADMET admin spending is about accelerating the long term performance of the company and that is what we are.

Aspiring to do.

And so it's a choice its not something that we have to do or that dictated by the market and we think it's a smart choice because what it allows us to do is hold onto new households.

And you know the customer acquisition is one of the toughest things we do in established categories that have high share. So we want to make sure that we're doing that we see additional places where we can grow household penetration in the U.S. and beyond in our categories and we want to ensure we are doing that and then we want to support the behavior change that we see with consumers, whether it be and health and why.

Plus the fact that they're drinking more water are taking more supplements.

In hygiene, the fact that they're cleaning more or the fact that they're cleaning new surfaces, and they're doing it and inside inside and outside of the home [noise] supporting new behaviors as people stay at home. So people have been delighted by the fact that get to Cook in there actually enjoying more time around the family nail table and are you able to use different methods of cooking like really a during the week not.

Just on the weekend or a special occasion, so we think of this investment and administrative spending and in NSP supports keeping those new consumers in bringing additional people into our franchise and hope that we can accelerate the launch of performance, but I just want to be clear, it's a choice and it's always a choice that we can revisit if.

These behaviors are not a sticky and we can optimize.

One other fact I'd give you Jason because I think it's important we went back and looked at our spending recalled we put about $70 million of incremental spending in the back half of fiscal year 20, and the return on investment was extremely strong and it gave us confidence to lean in and fiscal year 21 that this is both a good short term spends and long term spend.

Super helpful. Thank you so much.

It's Jason.

Next question comes from Olivia Tong with Bank of America.

Hi, good afternoon.

Question is around the impact of volume growth and mix of gross margin that you called out because of loan growth.

Could you talk about why it was such an outsized contributor this quarter versus last you combine this with strong what we see but only a point different versus Q4, and then on mix I understand the aggregate benefit but I suspect you saw gross margin improvement each of your segments as well. So you talk a little bit about promotion, whether that was a factor or lack thereof was talking.

Hi, Olivia Ah, Yes, I can talk about those questions. Let me start with the benefit of volume to gross margin.

It was more impactful on Q1 as you said versus Q4, we got a little over 400 basis points of benefit to margin and the four and the Q1. If you go back to Q4 is about 350 basis points of benefit and so.

As we've seen our volume continues to grow we delivered about 22% volume growth last quarter and were up stronger this quarter. So we're seeing a little bit incremental benefit and then on the mix side. The mix was really driven by business unit mix or as we shared with you in our prepared remarks, we saw very strong growth from our household.

Segment and that tends to have a higher revenue and higher margin on.

Those businesses relative to the average for the company. So we have five points of favorable price mix. It was mostly all mix and it was mostly driven by the strength of certain ones of our businesses growing at an accelerated rate.

That's helpful and then on consumption trends in your key categories, obviously lots of moving parts you see some catch up to demand in the health and wellness, but but [laughter], but then you're obviously going to get some small telecoms and household but some specific the household can you just talk about it.

I presume the acceleration there because the company here, but at least it was two points easier versus Q4, and you accelerate your growth by over 20 points. So how much of this is related to you know you got to these factors I commented more time at home or in active outdoor season versus attracting new consumers to the categories, where your brain.

And what do you think is sort of a sustainable growth rate for for the household business going.

[music].

Olivia I'll highlight two businesses, Oh, I like drilling and glad as good examples of what we've done and what their expectations are moving forward.

So really more than doubled sales as we talked about and this was due mainly to strong consumption. We did see some inventory replenishment, but that was about a third of what we saw from a sales perspective.

And what's going on are two factors are coming together really nicely. We spoke about in our Investor day in October. The fact that we were rebuilding our business plan on growing from the ground up and that was based off of business plans that were in partnership with retailers to grow categories and fundamentally reinventing our innovation program on growth.

Thanks.

And that has worked very well you combine that with new behaviors were seeing in the growing category and that's really where we got to the place where we experienced double digit sales growth and what we're seeing from consumers is that about three quarters of people even as mobility has increased in the U.S. are continuing to cook at home and expect to continue to Cook at home.

As they move forward.

We are seeing 50% of charcoal grillers grilling more during coded and the vast majority of those expect to continue to grow more regardless of whether or not covanta is around in the near future or farther ahead.

And the most exciting thing for US is we're seeing really occasions become everyday meal occasions. So before you know most of the time when people are grilling. It was for the weekend gatherings outside for holidays and now we're seeing the real being used for everyday occasion, and we expect that trend to continue so those two things coming together a revival of our business play.

Plans, having the right merchandising plans in place and you know there was very little price discounting. During this entire period of Covidien, we still saw the volumes hold steady on the sales increase that we experienced so we think that behavior is here to stay and based off of the innovation. We have planned over the coming years, we anticipate that we'll be able to meet these consumer.

Behavior change needs and continue to grow the grilling category.

Then if we look at glide. It's a similar story, we were back focusing on the fundamentals of price gaps.

Innovation, ensuring that we have the right distribution and that has paid off for US. In addition to the consumer trends, we're seeing so up digital double digits behind strong consumer demand and this is really about consumer staying home or in cooking more. So what we've heard is people are using more trash bags, because they're generating more trash Asa purchase frequency.

He is up and it up for glide in particular and about a third of households came to be using at least one full more about full bag of kitchen trash per week.

And as people have told us they continue to cook at home or in the future we expect that to continue.

The other thing I'd call out on glad is the innovation that supporting people through this time at least the highlighted in her prepared comments, we launched glad for flex with Laura Clorox and that's doing extremely well. It's early days, but we're seeing really good consumer acceptance as well as the glad bags, we launched in Q3 other expiries.

Actual with both ascent and color those continue to have very strong velocities and are supporting consumers. During this time.

And one other thing I would call out, which I think is exciting for this business as we have seen household penetration increases in and glad and we've seen higher household pending creases from low income consumers. So we're offering them the right value at the right time as they stay home and if we look to the future and we think about what these businesses can do we certainly see additional.

And for us on to grow household penetration and for us to continue to retain those consumers and that's why we're leaning in and investing in innovation and lending and investing in advertising, but what we would expect in the back half as we lap a strong comp as you know we would see though that growth rate rate come down, but if you compare.

This period versus pre Kobe fiscal year, 19, or its still experiencing very strong growth.

Thanks, Congrats on a great quarter.

Next question comes from Steve powers with Deutsche Bank.

Yes, hey, thanks.

Couple of quick follow ups, if I could that actually really want to ask about the international supply chain and wipes, but I'm just a clean up what you were just talking about Bolivia household and lifestyle. You mentioned the inventory catch up can you just confirm whether those inventories were back in balance actually the quarter or whether there are any lingering pockets dislocation you should be aware of.

Yeah for grilling, we have mainly gotten back to a point, where we are in supply and given this is the smaller quarter for kingsford coming up just given seasonality. We think we're in a good position moving forward.

We still have some work to do on glad and still have additional work to do on vitamins minerals and supplements and Brenda I'm. So we're not out of the woods, yet and what we'll say is it will be a staggered recovery across those businesses that we have remaining over the next two quarters.

Okay, Okay that helps.

And then on the international supply chain and wipes can you give us a little bit more detail as to what that looks like as we stand here today, how expensive it is or how much is in sourced versus I presume most of it outsourced. Good just some color there and then how about maybe likely to change overtime as you as you build out against the opportunities that you you you spotlight.

Yeah.

Happy to yeah. This supply chain was incredibly important for us to build it local end market. So that we could react to the opportunities. We saw quickly and we stood the supply chain up in just a matter of months and we already have product shipping into countries. Today, we do have locations around the world where where.

Supplying because again, we have business in Latin America, and Asia, and so we're thinking about that expansion with ensuring that we have a distribution availability in that market.

We also have designed this product from the ground up as well specifically for the consumer in those markets. So the needs can be a little bit different depending on the country that you're in the size of the white the way that they want the lotion to feel so again did that within a matter of months and stood at up we'll continue to be flexible just has we.

We have built this business in the U.S. over the last 20 years as we expand in international will have all of those things under consideration how much makes sense for us to have in house, how much makes sense to have with third party suppliers.

But the good news about this is we find this supply chain to be scalable and we'll lean in and and pursue this opportunity aggressively because we think our products can help somebody more people around the world.

Okay. Thanks, Linda appreciate leave it there.

Thanks.

Next question comes from Jonathan Feeney with consumer edge.

Jonathan Your line is open.

Once again, if youd like to ask a question. Please press star one we have a question from Lauren Lieberman with Barclays.

Great. Thank you.

I guess first just want to talk about untracked channels dynamics, because if you were helpful. In sharing that you know about two to three points of the sales growth. This quarter was related to restocking retail inventories.

But there's still kind of even outside of that you know a number of these businesses that really don't tie to what showing up in Nielsen. So I was curious I guess, if there's new distribution, we should be aware of for glad or for kings heard in particular, and if not and just new is it is the performance.

Offline, you know dramatically different it sorry, and on track dramatically different than the track.

[noise] shoreline happy to start on that one so I think it's safe to say that the relationship and our performance in track channels and contract is going to be less linear over time and is certainly less linear and Q1, but I think it would be helpful to back up and just set the backdrop for what we've seen in fiscal year 20, and then specific.

We get into Q1, and then our expectations on this one moving forward. So if you back off in fiscal year 20 tracked channels for us as a total company, including international and our professional products business represented about 60% of total company sales.

80% of total totally U.S. retail is in track channels.

And what happened this quarter is we had strong growth in professional products and international and that accounts for about a quarter of our sales growth, which of course is not accounted for in Nielsen as you as you highlighted.

But if you looked at track and non tracked channels those growth rates were about the same at about 20% and that makes sense because we have been on allocation for a number of our businesses that you would expect to see both of those at about the same rate.

But as you as you mentioned, Kevin called out of inventory and as we started to replenish inventory in businesses like Kingsford Bretaa up Leach and vitamins minerals and supplements that counted for about two to three points this quarter of the disconnect.

We also had a a year ago inventory effect. If you think about really because last year. We had heavy inventory. This year, we had low inventory and heavy sales and so we were replenishing that consumption and you saw a disconnect in drilling.

And then the one other thing I'd call out for you Lauren is promotional periods versus year ago, and I'd really caution everybody against using narrow time periods like a week or four weeks because those periods have changed year over year and it causes noise in the data as well as the fact that we were not merchandising anything in our cleaning and disinfecting portfolio given.

For our supply so those two factors both inventory and promotional also contributed and then going forward. We'd expect this disconnect tend to come to continue because we expect strong growth from international strong growth from professional products and then as more consumers move online I'm more of that will be untrapped.

Okay. That's that's super helpful. And then the other question I was a little bit longer term. So historically ran a key kind of mantra for Clorox was big share brands in midsized categories right and that's still in your you know investor slide deck and still kind of how you talked about your business.

The thing, though is that your previously midsize categories are becoming really big categories, where everybody wants to participate.

So I just wonder wanted to talk a little bit about how you may be factoring that change in.

Well, there's competitive dynamics overall category size attention being paid to these businesses, where you've kind of been able to operate at a very high level, but arguably with a bit less competitive intensity. Historically, then then maybe the case going forward.

Sure Lauren.

Let me try to take that in a in a couple of buckets.

And start first with just your portfolio question and you know I feel terrific about our portfolio. If you look at the broad based growth Weve had eight out of 10 businesses with double digit sales growth <unk> growing most businesses expansion and household penetration.

You know strong consumer value measure across those businesses I think our portfolio is in a terrific place to be competitive.

And then if I if I answer your question around big share brands and midsized categories. I do think Thats, what were still about and these categories. Even though there's a lot of attractiveness or are still relatively small to some of the categories and store and even with the growth rates. We've been experiencing we we can still consider them to be mid sized.

And then if I think about competition.

Maybe I would disagree a little bit lower and I think our our categories have been competitive for quite a long time, you know weve had national players. If you think about cleaning in that business and certainly internationally for a long time people have entered in our space and wipes before several times. So I think thats going to continue to be competitive and to your point, we will be more competitive.

In the near future because it's a very attractive place to play right now and what we turn back to is really what separates us and how we think we can win and that starts with having strong brands that consumers love and at their loyal to and as I highlighted at the beginning those factors around the health of the portfolio our household penetration on.

Our consumer value measure scores, how we're seeing people enter our categories give us reassurance that we have the right brands to win in that space.

And then ignite really elevates the role of innovation and I think that's going to be critical for us to win in the future in these categories People's needs are changing their behaviors are changing and we need to innovate to meet those new needs and were feeling terrific about the innovation program. We have in place now about the innovation you can expect.

See in the back half of fiscal year, 21, and then well beyond that how we're feeling great about that so for US again that moment is about investing right now and leaning into the strength of those brands, knowing it's going to be more competitive focusing relentlessly on superior consumer value.

And ensuring that people know that our brands offer them the very best when it comes to meeting their needs today as they deal with Covance and staying home more does that help answer your question Laura it.

Yes. Thank you so my plan to do.

Hey.

Once again to ask a question. Please press Star then the number one on your telephone keypad once again that star one to ask a question.

Question from Jonathan Feeney with consumer edge. Please go ahead.

[noise] hi, Thanks for fitting me in sorry about that I.

Well more than the usual.

Great quarter, just I apologize if this has been asked.

Does your 27% organic sales gain in your opinion represent nice any.

Any data you have a silly game on a weighted basis versus your categories, because I'm trying to figure out.

Where do you stand, particularly cleaning, but broadly and then as a related question. What's your current share of sales right now in E Commerce, which would probably be your fastest growing and highest contributed non measured sales. Thanks very much.

Sure you know Jonathan I think if we can't answer the question focus we have categories that don't have relevant track share data that we can quantify so professional products is a good example, and international but I think if you look at all outlets. We're in a place where our share is about flat right now and.

Most of that is due to supply constraints and we would anticipate if we were in a position to better supply across those categories to see improvement on that and I know you know that we hold all of our businesses accountable to growing share.

So that's what I would say about the first part of your question and then.

You know as I think about.

Moving forward and how we are anticipating looking at that what we're trying to see is in the very narrow buckets that we compete in whether that be online or out of home. How are we doing in that individual space because it's hard to aggregate doesn't understand what we're doing broadly so were looking country by country. We're looking at specific.

Channels in our professional business to see how we're doing and then we're looking at online.

Online specifically about two thirds of our brands are number one share online, which lines up nicely with the rest of our portfolio.

And we're doing very well well there and that has to do with the early investments. We made in E. Commerce. You know we were one of the first to stand up a fully dedicated team on ecommerce pure play customers as well as standing up integrated teams on our brick and click customers. So we're in a very good position online as consumers continue to move online we'll continue to win it.

Got there and you are the one other thing I would point out is we have been spending over 60% of our dollars online for a number of years. So we are where shoppers are today and that's helped contribute to that share expansion.

Yeah.

Okay. Thank you very much.

Once again to ask a question. Please press star one on your telephone keypad.

And this concludes the question answer session Mr. Randall I would now like to turn the program back over to you.

Thank you so much Sharon.

I feel great about our strong start to fiscal year 21, and look forward to another year of delivering value to all our stakeholders. Thank you. So much everyone and we'll speak again on our next call in February we hope you all stay well take care.

This concludes today's conference call you may now disconnect.

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