Q3 2021 Procter & Gamble Co Earnings Call
[music].
Good morning, and welcome to the Procter <unk> Gamble's quarter end conference call. Today's event is being recorded for replay.
This discussion will include a number of forward looking statements. If you will refer to P&g's. 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 <unk> gamble needs to make you aware of that during the discussion the company will make a number of references to non-GAAP and other financial measures.
Procter <unk> Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website Www Dot P. G investor Dot Com, a full reconciliation of non-GAAP financial measures.
Now I will turn the call over to P&g's, Vice Chairman and Chief operating Officer, Jon Moeller.
Good morning, everyone.
Joining me on the call today are Andre Shelton Chief Financial Officer.
And John several year senior Vice President of Investor Relations.
Let me quickly summarize another strong quarter, and then turn it over to Andre to provide additional perspective.
Organic sales were up 4% on the quarter of 10% two year stack.
Global market share was up 40 basis points.
Fiscal year to date through three quarters organic sales are up 7%.
Core earnings per share up 8% in the quarter up 14% of fiscal year to date.
Free cash flow of productivity over 100 per sides.
We're on track to deliver the top and bottom line guidance, we've raised twice the festival.
We're increasing the estimates for the third time for free cash flow of productivity and cash returned to shareowners.
With the Andrea will take us through.
One more very important highlight of 10% dividend increase, which we announced last Tuesday.
The team is the managing very successfully with the priorities I'll describe again later.
True volatility uncertainty and some extreme challenges.
Covid reopening in some markets.
Increased viral spread renewed lockdown of severe economic impact and others.
And the channel is growing at very high rates others of essentially shut.
FX and commodity volatility.
Of that specific challenges like the blockage of the Suez Canal.
Transportation demand mismatched with supply.
The market specific dynamics impacting operations in countries, like Argentina, and Myanmar and Lebanon.
In a very mild cough cold season.
That's just the very quick synopsis of strong topline bottomline and cash results in a very challenging environment.
Of the huge thanks to our team.
For more perspective Andre.
Thank you John and good morning, everyone.
Onset of the March quarter was another period of good top line Bob.
In line with market share growth, along with strong cash generation of strong cash returns to shareholders organic sales were up 4% for the quarter volume in mind with a year ago two points of price being two points of positive mix.
Organic sales growth was mixed across the region overall focus market grew 5% with strong growth in our two largest markets U S organic sales up 7% and greater China sales were up 22%.
The European focus market for the balance of 2% largely due to the impact of Lockdowns in the region, Japan was down 5%.
Enterprise market were up 1% and were also mixed within the region Latin America up 8% Asia Middle East Africa in line with year ago quarter, and European Enterprise markets were down 4%.
We delivered strong organic sales growth in most categories home care up high teens oral care hair care and skin <unk> personal care up high singles family care and grooming up mid singles fabric care up low singles.
John and care organic sales were down low single, it's mainly due to the market softness in Europe of share trends remained strong in the region and on the global basis.
<unk> was down mid singles, mainly due to market softness in Europe, and heightened competitive activity in China.
<unk> baby care, all outlet value share in the U S. The top 130 basis points over the past one month and 80 basis points over the past three months.
Total health care organic sales were down mid singles driven by a very weak cold flu season on top of difficult comparisons in the base period U S sales in the respiratory category were down more than 40% in this march quarter versus last year. Despite the weak category trends <unk> share was up for the quarter.
E Commerce sales are up at about 50%.
The year to date with no noticeable change in shopping trends in the quarter E com sales represent 40% of our global sales.
Aggregate market share growth of 40 basis points this quarter.
Turning to earnings core earnings per share of $1 26 of 8% currency neutral for EPS also up 8%.
The core margin was up 40 basis points.
Up 80 basis points, excluding currency impacts core operating margin was in line with prior year up 30 basis points ex.
Excluding currency impacts.
We generated $4 1 billion of operating cash flow with free cash flow of productivity at 106%.
We returned $5 billion in cash to shareholders 2 billion of dividends from $3 billion of share repurchase.
Last week, we announced the 10% increase in our dividend, reflecting strong results and confidence in our future. This is the 64th consecutive annual dividend increase at the 131 consecutive year in which P&G has paid a dividend.
The three quarters into the year organic sales were up 7% with global value share of growing core EPS up 14% ex <unk> ex up 16% adjusted free cash flow productivity over 100% $40 billion of cash return to shareholders, which is 120% of all in earnings back to usual.
As shared in previous discussions we've established three priorities that have 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 for help people and their families with their cleaning health and hygiene needs.
Third priority of supporting the communities for lease agencies and people who are on the front lines of this global pandemic.
These priorities are completely congruent with our strategic choices, which we remain confident in and which are the foundation for balanced top and bottom line growth and long term value creation.
We've focused our portfolio on daily use products and.
In categories, where performance played a significant role in brand choice.
And lease performance driven categories, we've raised the bar on all aspects of superiority.
Package for <unk>.
And communication retail execution and value.
Superior offerings delivered with superior execution drive market growth.
Leading category of market growth of superior offerings from mathematically builds of market share and builds business for our retail partners.
We're continuing to invest in and behind superior offerings.
We launched Don power lost just over a year ago.
At superior Formula and unique spray technology provide powerful subs the cut rates on contact.
All of our wash has become a welcome addition to consumers dish care regimen with so many more meals green coffee at home.
Our watch delivered around $150 million in year, one sales.
And was a significant contributor to Dawn's U S. All outlet market share growth of more than 400 basis points over the period.
<unk> baby dry in the U S took another step forward towards regaining superiority across of all vectors.
David Drive recently launched innovation, providing more absorbency improved comfort and better leakage protection for dry and healthy skin.
Product graphics will refreshed with improved leakage protection queues and packaging was upgraded to introduce the clan number one pediatrician recommended.
And hypo allergenic with no carbons for latex.
Innovation includes improved in store displays and online messaging to highlight the improved product packaging and the communication.
It's still very early in the launch of new products and packages just began shipping in the last month and we're now just starting to flow of commercialization.
But this initiative represents an important step and reestablishing the superiority in the mid tier on baby care.
I have an area of our.
For our expanding their 2030 brand ambition for focus on Decarbonising laundry at every step from.
From design manufacturing and distribution to consumer use and end of life.
While maintaining superior cleaning performance.
Perry Ellis New campaign every degree makes a difference of.
Of the case, lower Washington, <unk> up to 60% of laundry as carbon footprint comes from heating the water and washing machines.
During the wash temperature is the single most important thing we can all do to reduce the environmental impact of laundry.
Through this we continue to innovate to ensure superior performance in cold water.
And China Health care two examples of premium innovation launched in the fast growing conditioner and treatment segments.
Pantene clench shot masks and three minute Miracle has successfully attracted new consumers to the <unk> brand as well as expanded the regiment of current Pantene shampoo of consumers.
These innovations have contributed to over 35% market growth in these segments are in line over the past 12 months.
Greater China hair care organic sales are up mid teens fiscal year to date and were up 25% this quarter led by conditioners and treatments.
The strategic need for investment.
The continued to strengthen the long term health of the competitiveness of our brands.
The short term need to manage through this crisis.
And the ongoing need to drive balanced top and bottom line growth, including margin expansion underscores the importance of ongoing productivity.
We're driving cost savings and cash productivity in all facets of our business up and down the name of the statement and across the balance sheet.
Success in our highly competitive industry also requires agility that comes with the mindset of constructive disruption of one.
Willingness to change adapt and create new trends and technologies that will shape our industry for the future.
In the current environment that agility and constructive disruption mindset are even more important.
Our new organization structure yields of the more empowered agile and accountable organization with little overlap or redundancy for.
Moving to new demands seamlessly supporting each other to deliver against our priorities around the world.
These strategic choices on the portfolio superiority productivity constructive disruption and organization structure and culture of.
Our non independent strategies, they reinforce and build on each other.
When executed well they grow markets, which in turn growth share sales and profit.
These strategies were delivering strong results before the crisis.
Have served us well during these more recent volatile times and.
And we believe will continue to serve us well post crisis.
We are optimistic about our prices.
Price as prospects and generally like our hand.
We will undoubtedly experienced some volatility as we move through the crisis and quarterly results will not move in a straight line and are more difficult to predict.
In many countries the number of Covid cases, Unfortunately of the worst is down.
The risk of supply chain disruption remains high.
Channel closure of this will likely continue.
There continues to be social unrest and economic distress in many parts of the world that also affect the prospects for category growth.
Against this challenging backdrop, we continue to hold ourselves to an expectation of continued growth.
Offline and bottom line and expect to be highly cash generative.
With that context back to Andre to discuss guidance.
So with three strong quarters behind us and having raised guidance twice across all key metrics.
We are maintaining our outlook for organic sales growth and core EPS growth for the fiscal year.
We are increasing our outlook for adjusted free cash flow productivity and cash returns to shareholders.
Continue to expect organic sales growth in the range of 5% to 6% for the fiscal year. This outlook reflects the continued volatility for both base period and current year dynamics, including the challenging for Walter base period in the U S and in greater China and continued soft market conditions in Europe and in enterprise markets.
Our core earnings per share guidance remains in the range of 8% to 10%.
This bottom line outlook includes headwinds of approximately $150 million off the tax of foreign exchange and more than $200 million of after tax of higher freight costs from.
Policies are now forecast to be a headwind of approximately $125 million of alphatec.
This is a $400 million swing to the negative since our initial guidance for the year with much of this impact affecting our fiscal fourth quarter.
As we stand today, our internal estimates for organic sales growth are above the midpoint of the fiscal year guidance range.
On the bottom line, we're trending towards the midpoint of the core EPS range.
We are again, raising our target for adjusted free cash flow of productivity from 90% starting of the year to now over 100%.
We expect to pay over $8 billion from dividends and are further increasing our outlook for share repurchase from up to $10 billion to approximately $11 billion.
Bind of plan to return of about $19 billion of cash to share owners this fiscal year.
This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant currency weakness commodity cost increases additional geopolitical disruptions.
Major production stoppages or additional store closures are not the anticipated within the guidance range.
The commodity cost challenges, we faced this year will obviously be of larger next fiscal year.
We will offset a portion of its impact with price increases.
Our baby care and feminine care and adult incontinence businesses have announced price increases in the United States that will go into effect in mid September the.
The tightening on the amount of increases vary by brand of soft brand in the range of mid to high single digits as.
As opportunities of all we're closed couple of price increases with new product innovations, adding value for consumers.
We are analyzing raw materials and foreign exchange impact from other categories of markets and we are assessing the need for additional pricing moves back to John for closing comments.
Thanks Andre.
Of our business exhibited strong momentum as I said earlier, well before the Covid crisis.
We've strengthened our position further during the crisis and.
And we believe P&G is well positioned to serve the heightened needs of new behaviors of consumers in our retail and distributor partners post crisis.
We will manage what could be of volatile short to midterm consistent with the strategy, we've outlined many times and again this morning.
And against the immediate priorities of ensuring employee health and safety.
Maximizing availability of our products to serve cleaning health and hygiene needs and.
And helping society overcome the challenges of this crisis.
For stepping forward not back we're doubling down for serve our consumers and our communities.
We're doing this in our interest and societies interest and in the interest of our long term shareholders.
We look forward to talking with you through the quarter and look forward the having David join us on the year end call in July from and we'll provide our initial outlook for fiscal 'twenty two.
With that we'll be happy to take questions.
Thank you, Sir ladies and gentlemen, if you have a question. Please press star followed by Juan on your phone for you.
The question has been answered or if you would like to withdraw your question Press Star followed by the two.
Your first question comes from the line of Derma Finian with Morgan Stanley.
Hey, guys good morning.
So on the price of a commodity firm.
The John you've been at the corporate finance leadership roles for almost 50 years now. So can you just give us some perspective all of them this commodity price and what we're seeing in terms of magnitude versus past cycles in your view of our longevity.
And then on the pricing from the response for that.
I know youre not going to want to be precise on for repricing, but just holistically.
Given the large magnitude of this commodity increase I'd love to get a bit of a sense, even if it's nebulous on on what sort of the Angola with pricing eventually or is it the fully cover commodity increases as the for both recover because obviously of timing lag, but sort of the ultimate offsets the higher costs through pricing any perspective, there and then last in the.
I apologize for the multipart question, but you are in the fortunate position of strong market share gains heading into this pricing cycle.
Kudos, obviously, a lot of hard work to be in a position, but how might that change your willingness to the boulder on pricing for even put at risk some of those market share gains. If you do in fact the pricing. Thanks.
Thanks Dara.
John.
The first the comparison to prior cycles. This is one of the bigger increases in commodity costs that we've seen over the period of time zone.
Volume for Us, which is a fairly.
Long period of time.
That's not all bad.
When commodities move significantly.
And obviously the affect everyone.
<unk>, both manufacturer of brands and.
One label retail brands.
The industry has pushed the price.
When they move modestly.
It can be much more difficult in that regard.
We're also blessed.
To have very strong innovation and marketing coming to market.
Which provides an opportunity to price and of value accretive manner.
We define value.
Holistically.
And we will be looking.
Our overall objective is to is to cover cost increases.
It's important I want to emphasize that because I didn't say cover for restore margin, it's covering cost increases which is inherently a little bit margin dilutive, but we think that strikes the right balance.
Particularly when we can combine that pricing with innovation and increased perception of value across the portfolio.
If we do that well.
We should continue to grow markets and we've talked about the math of growing markets. We.
We do that disproportionately which is certainly our intention.
We will not lose share we will in effect.
Necessarily build share.
All of that is easy to talk about all of that of hard to execute.
And.
It's done at a very detailed level by brands by buying market.
And so it'll play out differently across the world. The last very very important point on the topic I want to make.
If we go back to large commodity.
Cost increased cycles in the past.
This company.
Not yet fully embedded productivity intuit's mindset of activity system.
And that will be a significant part of this.
Endeavour going forward.
As well and we feel good about opportunities to continue to increase productivity to help us manage the situation.
Alright. Your next question comes from the line of Wendy Nicholson with Citi.
Hi, good morning.
Wanted to ask about your approach of some of the markets we like.
The ash.
The truly extend co van.
Rins of Rand point gets worse I know in developed markets over the last nine months top line.
One of the easy for you, but you were able to offset sort of some of the supply chain disruption with E. Commerce took all of that but I'm. Just wondering how you plan to manage the enterprise like India or some of the other enterprise markets Africa.
Total debt at a lingering problem and you don't have the e-commerce option nearly as much in those markets is there a risk there.
We again, it's turned significantly negative for you or significantly more expensive to operate the tower.
Are you thinking about that and planning for that at this point. Thanks.
Thank you Wendy.
Bob.
Many of these markets do indeed represent significant challenges.
And I think it's important we talk about that a little bit sort of that supply I. Appreciate the question.
The health situation in markets like India, Brazil, Turkey.
Is worse than its ever been.
The number of new cases of the number of hospitalizations the number of deaths. Unfortunately.
It was higher in the last week and over the weekend.
Other than the case.
These markets do not have the health care infrastructure.
For the financial means to provide subsidies to the citizenry.
And as a result, when this happens.
Employment is affected consumption is affected GDP is down.
Significantly in some of these markets.
No better time to help.
And to serve consumers at the time of real need.
We need to do that in a profitable way and frankly.
Knock on wood have never been more profitable and enterprise markets under the RFS.
As we sit here.
We're seeing today.
So the operational discipline that's required is significant.
We will have to make choices.
But I fully expect to the main point of your question.
These are the markets that will continue to offer of top and bottom line growth opportunities for for.
For our company.
Your next question comes from the line of Steve powers with Deutsche Bank.
Yeah, Hey, thanks.
Can you talk a little bit more about what youre seeing in baby and family of specifically could you call out the retailer destocking of higher competitive activity I guess.
Curious if you see that continuing and if so I guess, how does that impact your decision to follow what we heard from Kimberly Clark on the amount of pricing in the U S debt, but doing so on a two and a half for three months lag in seeing the only on baby and.
In February of the comments you had non family care categories of just how should investors interpret that tactical positioning in the context of ultimately doing.
What's the optimal for category growth and I guess, the kind of Relatedly.
Was there anything that you've announced today per crude.
Other revenue growth management activities that might help drive higher net price and David and family overall as we go forward I guess specifically.
I'm thinking about potential D sheeting.
Or other kind of net price accretive activities and tissue categories that might not be a list price increase.
David Let me briefly address family and then I'm going to ask Andre the comment on baby care of since the U S. Baby care was the business that he led most recently.
So very close to what's what's happening there.
We are pricing in the three categories that you mentioned, because that's where the commodity cost increases of the most significant.
That's really of that.
It's simple.
From a family care standpoint demand continues to be strong.
We grew family care of 5% from the quarter that we just completed.
That's even despite some reduction.
And households, pantry inventory, but usage at home continues to be above.
Pre COVID-19 levels.
And.
We're managing the balance between hall of inventory stored inventory at our own production.
Very.
Carefully.
But the price increases for the near term are going to be focused as you rightly mentioned and baby family of adult incontinence for.
The largest of those of US baby all of that's one under the comment on that.
Yes, So you mentioned that the quarter three was significantly impacted due to retailer inventory builds in the early phases of the pandemic in Europe focused market in the U S.
We expect that to normalize over the next few quarters.
Most importantly, the team of really focusing on building irresistible for priority across all vectors and baby.
Every form of at every price tier.
Where we do that successfully we see the results totaling.
Put up the talk about what value share of being up one of them 30 basis points past Juan.
In Europe, where we've also invested in its ability of France, Germany, Spain and Russia.
In terms of revenue share significantly in excess of the point.
So bringing innovation at the same time as we price is the ideal scenario, which we are pushing.
In the U S.
No flow of both rates and commodity pressure from the continued to be headwinds. So we need to leverage debt. So productivity will also be continued element of the toolbox, we'll have to use to drive growth.
But if we focus on the stability drive market value.
We have the business model that works as illustrated in the rest of Europe.
Alright next question will come from Lauren Lieberman with Barclays.
Great. Thanks, good morning.
I wanted to talk a little bit about the role of that top line growth pains in in I guess profitability.
So just thinking through the streamline the organization structure, not thinking about incremental productivity, but just rather of the benefit that you see to profit already from top line growth.
What kind of hit three 4%, where do you see material operating leverage, particularly at the gross margin line, but also in SG&A.
And then related to that in two.
<unk> 2020 was the year, where there was remarkable reinvestment into the business.
And that the share gains speak to that but as you look ahead to 2002 I guess, how would you describe the status of your commercial plan are you fully funded at the current investment levels as their need for kind of keep ramping up the catch rate or is it spend level of feel about right where it is today.
Let me make just a few overarching comments Lauren and then.
Android Andre talk about the income statement from leverage on the top line growth levers that you asked about.
And the first overarching comment I want to make is we are literally just beginning.
To put together plans for 'twenty two.
I apologize, but we really don't have anything terribly intelligence of our cohesive to talk about that I do not expect however, our priority is to change or do not expect our strategy the change.
I do not expect our business model to change.
But the specifics of that are early in the development and look forward to talking.
For you about the.
Along with David.
In July.
I'll turn it over to Andre just to talk about the income statement leverage.
Yes, so to answer your question our.
The growing mid single for call it 3% to 4% on top line.
We start to see.
Some modest benefit to sales leverage.
That really starts to gain traction above 4% growth rate across the income statement.
That will be seen I think in the most recent quarters.
That's the sweet spot, where we want to be mid single growth allows for sustained margin expansion, which.
Which is our growth model that we are.
Pulling out of them.
Of course, that's all in the context of.
For example, relatively constant commodity costs and no significant impacts from currency et cetera.
Our current outlook for of market growth and again this changes on the daily weekly monthly basis.
It would be.
Between three and 4%.
Likely around the 4%.
Our objective is to grow ahead of that by the disproportionately contributing to the market growth.
That would put us in the the.
The margin.
Square that Andre outlined again prior to.
Big impacts from the other commodities for currency.
Next question comes from the line of Jason English with Goldman Sachs.
Okay.
Hey, good morning folks. Thank you Slap me, which I appreciate it.
Okay.
I wanted to make sure I understood the guidance comments.
Because you can get to.
Above the midpoint of your sales outlook for.
Only to the midpoint of our sale of the EPS outlook.
I need to take my EBIT margins GAAP closer to three of the basis points year on year end of the fourth quarter.
Is that the right way to think about it or are there other below the line ahead of us to contemplate and if we are talking about that type of margin degradation of the fourth quarter, because it give us more color on the puts and takes of this list of investment posture or is it just the commodities are hitting a lot of gross margin pressure before prices sets in any sort of context or color you can provide care to to help us dimensionalize that.
Thank you.
Thank you why don't I, let Andre start on the item called the jump of them.
Yes, I think overall I think youre reading it the right way on the top line, we see ourselves above the midpoint of the guidance range.
On the EPS side.
The main drive of public call out that will impact the balance of the fiscal year of macro factors. When you think about commodities we had.
The 1% EPS headwind in quarter three.
But now we conclude of 175 million of after tax headwinds.
For commodities in the guidance that we're largely hit in quarter four.
Foreign exchange rate continues to be of headwinds.
$150 million off the tax.
Which is up $50 million versus what we've talked in other quarter to call.
And then transportation would be the last element I would mention at about $200 million off the tax included in the current guidance.
The rate continued to the up drivers and we continue to be in short supply.
<unk> continues to be at a premium so we continue to see debt pressure mounting it also impacting quarter for.
We will also continue.
To the to the point of your question couple of other as previously.
For maintain a very healthy investment profile to continue the cold and build our margin of superiority.
And.
We will also continue obviously with our strong productivity program, which will fund by the effort and with that.
The backward.
The <unk> left us.
And next we'll go to Kevin Grundy with Jefferies.
Great. Thanks, good morning, everyone.
John I wanted to come back to the topic of of pricing and commodity because I think it's important suggestion in the interest of clarity here.
The pricing that you outlined for the U S and baby.
Adult care kind of was caused by higher kimberly's announcement, but then to an earlier question as you comment because this is one of the bigger commodity cost increases that the industry has had to cope with historically so I just wanted to come back why only these categories and why only the U S. Because.
It's certainly far beyond just Paul and then within that context, John to your credit is the team's credit Procter spent of remarkable job for you in terms of improving market share to put the company of position to take price behind the leading brand portfolio in the circumstances. So I think the question is what is what is giving you pause here in <unk>.
As a broader pricing beyond just the categories, where you're seeing the following timber lease pricing announcements. So watch list. These categories and why just the U S.
And then sorry for being a little bit for close here, but just on the commodity outlook I think to the extent that you can quantify I know you don't want to give guidance, but some further degree of quantification beyond just June beyond just your fiscal year I think would be helpful for folks. So thank you for all of that.
Thank you Kevin.
Pricing is the topics that we are limited.
And the perspective that we can actually provide.
Relative to the specific brands in country and plans that relate to the specific brands and countries.
I wouldn't.
I would suggest that we're not.
Take that reality.
And conclude net.
The sara-lee, but the only categories, we're taking pricing in the other ones that have been mentioned and the only country that we are taking pricing in the one that has been mentioned.
This will be a whole of spec effort.
With productivity in mind.
With the innovation and mines.
<unk>.
Our business model positions us on a relative basis.
Well to deal with these situations for two reasons.
One of just mentioned, which is productivity as part of the color.
The culture of part of our DNA.
We don't have the startup program.
For our program for next year and well underway.
The second.
And even more importantly is the innovation based business model.
Which positions us with opportunities to take pricing.
And of way, that's actually value accretive to consumers.
You can imagine that if you have those opportunities and the spread out across the year.
Your pricing might be announced at different timing of my take effect of different times throughout.
Throughout the year.
I would offer you Juan.
Data point of our two data points.
Pricing has been and it speaks of the business model point.
Pricing has been a.
Positive contributor to our top line.
Sorry of neutral a positive contributor, but most of the positive to our top line for 42 of over the last 46 quarters.
15 out of the last 16 years.
That doesn't guarantee anything going forward, but at the <unk>.
Points to the again the nature of our business model, which provides no guarantees, but does put us in a relatively better position with ways to help the top line and the bottom line.
As we work to manage this and continue to to.
Great value.
Relative to the question on impact of commodities for.
For next year.
As I said earlier, we are we're really early in the process of.
In the next.
The next year together.
All of that with a very volatile both commodity and FX environment and I'd, rather help you with specifics.
That are meaningful closer.
To the beginning of of the year.
All right next question will come from the line of Bob Houghton strength with Evercore ISI.
Great. Thank you very much.
With 14% of your sales now coming from E Commerce, and I think you said growing 50%.
Alright, that's pretty much all of the growth.
So in that context, and given the fact that that channel.
<unk> continues to spread and it's not just the Amazon, It's Walmart and target can you ask answer two questions Juan.
And maybe just the U S and China, how has that channel.
And the competition in that channel evolves over the last year or so and what specific things can you point to.
Of that Youre working on now that will give you a superiority in that channel on a sustainable basis. Thank you.
Yeah.
Thanks Robert.
The figures you referenced relative to channel growth are the correct figures as we see them.
The growth of significant in both the us in China.
Both markets.
Have become even more competitive.
And the E Commerce channel, but I would argue that was true in brick and mortar channels as well.
Global marketplace places, becoming more global.
And.
The strong and healthy competition across channels and at.
The markets.
The biggest opportunity for us from a superiority standpoint in the E Commerce channel, where there are several.
But.
Fundamentally.
The first second and third.
As you mentioned superiority.
That carriers of the day in this channel and categories, where performance drives brand choice as much as it does in every other channel.
Now we need to.
Taylor offerings in a way that.
Best serve the ecommerce and digital commerce.
Consumers kind of it.
Example of one of the things we're working on there is packaging.
Particularly for liquid products, ensuring those products survive the journey.
Two of consumers home on the she opens that box with delight.
Sure.
The conditions that Bob will travel through are much more strenuous and of e-commerce context.
Need to have packaging net.
That's designed.
For that in mind.
So that's just an example, but the mindset of superiority across everything.
Is the same in that channel.
As well as any other channels Andre I don't know if you have any more perspective on that question from the.
Baby care for.
<unk>.
For the only other point I would make is I think the strength of our brands of the big asset when you come to E com.
The ensures that we can be on the landing page in the search results.
The strength of of all brands also place too when you think about click and collect our availability in terms of shelf and therefore, the increase up for in other brands. When all of the stock I think is a big advantage. So all logistics capability I think can create value in conjunction with retailers in the supply chain that is driven by the E. Com. So I think there are many.
Areas of strength that we can apply to make sure of the competitive environment.
The next question comes from the line of Nik Modi with RBC capital markets.
Well, thank you and good morning, everyone.
So John I was wondering if you can just talk about out of stocks in the us from the standpoint of Covid related demand for more balance in the supply chain pension between ecommerce and brick and mortar just given the prior.
Robert soft part of question about the for the mortgage growth that we're seeing them out of the retailers are getting much more involved for a much more aggressive in that channel. So just was hoping the denton context around that.
Encouragingly.
In the stock and available on shelf.
Becoming a very common language for us and our retail partners.
It is front and center and the development of our joint business plans.
And we have opportunities there as to our retail partners.
In that landscape of opportunities is changing all the time Andre mentioned, the click and collect.
That presents a unique set of challenges and opportunities as it relates to having products available, we're well positioned in that space as he mentioned.
But this is an area that is receiving a lot of intentional focus.
Both internally and importantly in partnership with our with our retail partners.
And your next question will come from the line of Andrea Teixeira with J P. Morgan.
Good morning, and.
Welcome and Darren I wanted to go back to the price of <unk> co Macquarie and Mcdonald.
David after the Capex, a lot, but I understand you can't pre announce pricing.
For.
My father categories for the past cycles of use the innovation and packaging and the seating.
I understand that the bonus if I need to publicly announce pricing outside the U S. So what are the other reasons you have seen growth for price in exchange for kind of in the right of action and also you talked about increasing competitive activity in Asia in China. So how are you planning for the sponsor that thank you.
I think I caught most of that.
We're going to.
Refrain from commenting on specific pricing moves in any country.
Across any category Thats just of the.
The better place to be.
Again, we've talked a lot about intent on this call we've talked about mechanism of method.
On this call and I think those are of those are clear.
And the rest of we're going to have to stay tuned with the available.
It also will not make a lot of sense for us to talk about price increases in certain markets in certain categories.
Without.
Having had.
Of the discussion with our retail partners.
So I'm really I apologize, but I've said, what I can say on pricing I think it's very constructive.
In terms of both of our accounts and our ability.
The balance that in a way that makes sense for everybody.
The next question comes from the line of coming out of character of Waller with credit Suisse.
Thank you and good morning, everybody can you talk a bit about the mix effects on margins, obviously, the U S and China were quite strong last year and now.
Youre going to be Comping, a lot of that.
What are you seeing from a recovery in nims.
And then also within the kind of the context of of mix, but for more from the channel perspective, maybe an update on what youre seeing and expecting for travel retail.
I will turn it over to our CFO to help you with the mix right.
So from a growth.
Gross margin perspective of seeing we have about the negative 40 basis points from mix.
Were actually being helped by the strong growth that we see in the U S and China from the region mix perspective.
But you see negative segment of mix impacted in the quarter, mainly driven by first the growth in home care and.
And in appliances, and personal health care being down in the quarter.
I want to call out the negative.
The 40 basis points, if not necessarily of negative structurally.
Many of our premium propositions in the market come with significantly higher unit sales and unit profit, though with slightly dilutive gross margin mix impacts from.
But when you think about.
The <unk> Port for example, six.
The percent of premium on a unit sales basis, 20% higher penny profit of minus 6% on the margin perspective so.
The same is true for pampers pure when you think about the temperature radiant variance so premium amortization to some degree carries a margin impact, but we must be for other penny profit over the margin as we follow that strategy.
Next question comes from the line of Chris Terry with Wells Fargo Securities.
Yes.
Hi, Good morning, I actually just wanted to ask the question about price.
They too.
Perhaps also olay in Asia, specifically, China the.
The big numbers out of China from Us.
Other companies in the specifically take care.
And perhaps just a little bit surprise of the principal development in that business specifically on the on the easier comps. So I wonder if you could just talk to her.
You ask each of you didn't specifically handle a came in relative to your expectations in general what you're seeing from <unk>.
The agent income skincare market in general Thanks.
Because there's a lot going on within the skin care.
For.
Many of the prestige.
Beauty companies big parts of their business was severely impacted by Covid.
Think about.
Salon based treatments.
Offerings that went through the specialty beauty.
Channels, which are effectively shop as an example.
Travel retail.
And as a result they are.
<unk>.
Investing in the category that continues to offer significant growth is very profitable and is open and that is China skincare.
So one dynamic that we have happening as of.
A lot of cash.
The impairment activity, that's not inherently bad debt growth markets.
And if you look at for example.
S K too.
We grew SK true globally strong double digits.
Over 30% in the quarter that we just completed.
Within that.
Mainland China, we grew over 50%.
Part of that dynamic is something else, that's going on which is.
The movement of purchase.
From travel retail and from travel in general So for example of consumers traveling to Japan.
By prestige beauty products, which they are no longer doing.
That purchase.
At the consumption has not gone away and the purchase of shifting into the Chinese market.
Excluding significant growth.
If you work that you report business.
On the mainland China basis.
But it's very encouraging that we're delivering the growth that we are on SK II, it's been a little bit tougher for Ole.
Simply because one of the mechanisms that.
The companies are using to compete and.
And take advantage of this opportunity.
Is to reduce prices and so the gap between <unk> and some of the others kind of changes the competitive dynamic.
And quite frankly, we need to work to the premium wise our line, even more to be fully competitive.
<unk>.
With some of these brands, which were which were in the midst of zone, but overall.
The beauty grew 7% skin <unk> personal care grew 7% of hair care grew 7%, we've grown organic sales for 22 quarters of the business, we really like and asking for is important part of it is as of today.
Okay.
Next question comes from the line of Mark Astrachan with Stifel.
Yeah, Thanks, and morning, everybody wanted to ask you more broadly about.
How to think about operating margin I go forward basis, not necessarily from a guidance perspective.
How much of the E pretty strong.
EBIT margin expansion, we've seen credit for this fiscal 19.
Hang on waiting for many of court Q, something 250 basis points of more mainly led by by growth margin how much of that should we be thinking about the.
From the business.
I hear you on the beat the commodity pricing and pricing to protect.
How you were referring to of before on margins. So.
If you could maybe help us a little bit more about how much of that is immediate leverage from the stronger sales and how much of that can actually continue on a go forward basis, and maybe just sort of puts and takes of we don't necessarily see them looking at the numbers.
Yeah.
Well certainly the continuation of sales growth rate is important.
To maintain some level of margin growth rate.
Very clear about that.
From the beginning.
I also think debt.
We need to be careful when you think just about commodities in terms of its effect on the gross margin even on a net basis.
Pricing.
Because that's not the only thing going on.
So.
For example, there have been significant cost increases.
Associated with Covid in terms of being able to operate safely and successfully.
But we would expect over some period of time God willing as we go through this.
Both here and in other countries.
Could be an opportunity for.
The productivity and cost.
Sure.
So.
The <unk>.
Let's talk about the amount of time without the chart that I show our leadership team meeting our team whenever we get together.
Which simply shows the importance of the combination of sales growth of margin growth and delivering top third GSR.
And the simple fact is that if we don't grow margin and we wanted the lever top third GSR, we would need to be comfortable for.
Sustainably growing sales organic sales, 8% every year.
And thats not something that our industry has historically done that's not something we've historically done.
We remain committed.
Through our innovation programs through productivity.
Through the.
For the right amount of pricing.
We continue for.
Some level of operating margin growth.
And your final question comes from the line of Jonathan Feeney with consumer edge.
Thanks, very much guys.
Wanted to follow up maybe put a finer point in the earlier line of questions.
E Commerce, we talked about for years.
About what it would look like what we saw this level of ecommerce dramatically higher and I wanted maybe the port I know that varies widely by category and by region. You match of the use of John I know category Sports Friday pretty significantly as well. So I would ask are you of stronger.
In categories that have developed more of an e-commerce and are you more profitable in totality and your judgment in those categories and I ask that because I think that's the direction, we're going in a lot of categories and I think that affects the overall competitive look five years down the road. Thank you.
I would say that our position as regards superiority again in categories, where performance drives brand choice and our advantage.
Versus competition in that regard as well as the other vectors of superiority.
A stronger correlation with our results.
The development of any channel within the.
The category of our cross categories.
In aggregate.
Our market shares.
And e-commerce are about equal to.
Brick and mortar of there are countries, where a slower of there are countries, where it's higher than the categories, where it's one of our categories. So that's higher.
The same is true generally.
For.
Margin.
So all of that together wouldnt necessarily indicate the.
That will treforest by the development of one channel versus the other.
And of course, you also get into increasingly.
We should be talking about digital commerce.
And that is of someone mentioned earlier on the call.
Just as important for Walmart or target.
As it is for.
Amazon or Alibaba.
So.
When we think about.
The channel differences.
That historically in the past was a customer of difference.
That's no longer the.
Case, so there is a blending.
That's occurring as well.
But we are very.
The comfortable.
And in fact encouraged.
By the.
Development of the digital commerce in general across all of those forms we feel we're well positioned Andre mentioned some of the reasons earlier.
I have to talk.
AD Nauseum about how this is actually a limited assortment environment as opposed to a unlimited assortment of environment.
And as a result, how the barriers to entry can be even higher for non leading brands and some of these channels.
But we want to be available relevant super attractive wherever consumers want to shop, and if that happens to be more.
Digital commerce.
We're prepared to serve.
So I think thats.
I want to thank everybody for your time.
I really do feel we're in a good place, albeit with challenges as we've talked in this call.
Again I go to let me just quickly go through.
Sure.
Juan dynamic we talked about how the.
The biggest question the IGF.
What's the sort of going to look like post COVID-19.
And I look at just a couple of things of indicators of that I don't have the full answer.
But if we go back to two of Covid normalized non affected environment. So how are we growing pre COVID-19, we were growing the top line at about 6% we were growing the bottom line high singles for very strong momentum with the current strategy and of the.
The portfolio of leading brands and daily use categories, where performance drives brand choice.
And a very effective.
Highly competent organization executing against that strategy.
All of that is carryforward in the Covid and has built momentum.
The fiscal year to date.
We were talking earlier.
Organic sales up seven core earnings per share up 14.
And if we flash forward to a transition to the post COVID-19 normal whatever that looks like.
I would just point to two data points.
Our two largest markets. The U S is arguably beginning of the transition to a new normal.
China is arguably transitioned to a new normal for a closer to that than the.
Most other large countries.
In the U S in the last quarter.
We grew 7% on the top line.
In China in the last quarter, we grew 22% of the top line, albeit against the base that was partly lockdown affected if you look at it on a two year stack basis, we're up 12.
We are also importantly.
Globally on an aggregate basis building share.
And none of that has to brag and none of that is to guarantee of future success.
As I look at the combination.
Of data.
It's hard to believe.
That those same strategies.
Brands people.
The delivered success pre cohort of endurant covering.
Are all of a sudden not going to be delivering attractive results and ISR.
The commitment on our plans.
With that.
We will let you go again, thank you very very much for your time this morning.
Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.
Yes.
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Okay.
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