Q3 2021 Clorox Co Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to the Clorox Company third quarter fiscal year 2021 earnings release Conference call.

At this time all participants are in a listen only mode.

At the conclusion of the prepared remarks, we will conduct a question and answer session.

I'd like to ask any question you May press Star one.

On your net anytime if.

Anyone should require operator assistance, please press star zero.

As a reminder of this call is being recorded.

I would now like to introduce your host for today's call Ms. Lisa Perrin, Vice President of Investor Relations for the Clorox Company MS. Brown you may begin your conference.

Thanks Christie welcome everyone and thank you for joining us.

Hope you and your families are continuing to stay safe and well I'll start by providing some context for this quarter to give you an understanding of the dynamic environment, we're seeing as we begin to emerge from this pandemic.

Then I'll have my usual top line commentary with highlights from each of our segments.

Kevin will then address our total company results as well as our FY 'twenty one outlook.

Finally, Linda will off of her perspective, and we'll close with Q&A.

A few reminders before we go into the results. We're broadcasting this call over the Internet and a replay of the call will be available for seven days at 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.

These statements are based on management's current expectation, but may differ from actual results for outcome.

In addition, we may refer to certain non-GAAP financial measures.

Please refer to the forward looking statements section, which didn't identify the various factors that could affect such forward looking statements and the non-GAAP financial information section, which include the tables that reconcile non-GAAP financial measures to the most directly comparable GAAP measures both of which are located at the end of today's earnings release, which has also been posted on our website.

And filed with the SEC.

The help cut through some of the complexities of this quarter I'd like to share of what we see of three important key takeaways for.

We're on track for another strong year.

Our FY 'twenty, one outlook continues to project double digit sales growth.

On the two year stack basis, we're also positioned to deliver about 19% sales growth.

Second.

We continue to see opportunity to accelerate our long term financial performance for.

For example, many consumer behavior instead of change during the pandemic are expected to stick, including enhanced hygiene practices.

We're leaning into these changes through new growth runways to help clorox develop into a global disinfecting brand.

And third the pandemic has only reinforced the relevance of our ignite strategy priorities, which center around people and innovation leveraging technology as a critical enabler.

Now turning to our third quarter results.

Our strategy has enabled us to deliver flat sales in Q3 on top of 15% growth.

In the year ago quarter.

Q3 sales reflected about one point of net benefit from July 2020 acquisition.

That gave us a majority share in our joint venture in Saudi Arabia.

On an organic basis sales.

Sales were down one per cent.

In our health and wellness segment.

Sales were down 8%.

Reflecting declines in cleaning N P. P D.

Sales in our in cleaning business declined this quarter from lower shipments in a number of for cleaning and disinfecting products.

The lower shipments are result of demand normalization of bleach and painful relative to the year ago period, when consumers turn to these product given the persistent out of stocks in wipes and sprays at the onset of the pandemic.

Segment results also reflect ongoing supply constraints in our wipes and sprays.

Nonetheless, two year stack growth remains very strong.

Reflecting a much higher level of consumer demand and household penetration of that pre pandemic, even as we begin to see a return to normal in the U S with a growing percentage of the population vaccinated.

As we continue to increase the play in our wipes and sprays.

Lots of availability and assortment of the will improve which in turn should lead to improvements in shares.

We're also excited to be bringing back some of the innovation we've had a pause during the pandemic.

Including Clorox Compostable wipes.

And Clorox and Tivo disinfecting sprays and wipes.

Sales in our professional products business were down by double digits this quarter due.

Due to lower shipments of cleaning and disinfecting products as many businesses remain closed during the third quarter relative to the year ago period.

Similar to the trends and cleaning.

Demand for our consumer preferred disinfectants like wipes and sprays remain elevated.

And consumption continues to be limited by our ability to supply.

And as expected consumption of bleach and the other cleaning and disinfecting products has normalized.

With continuing category of tailwind.

Progress in our out of home partnerships and a strong innovation pipeline.

P P D fundamentals remain healthy.

Importantly, we feel good about the prospects of this business.

Lastly, within the segment.

And our vitamins minerals and supplements business were up in the third quarter, driven by higher shipments of our strategic brands and lower trade spending.

Notably we were lapping a double digit decrease from the year ago period, driven by a disruption in our supply chain related to COVID-19.

As noted in today's press release, we recorded a 267 million net noncash impairment charge related to this business, which Kevin will address in more detail shortly.

Despite the setback.

We're moving forward focused on implementing a refreshed portfolio of strategy and incorporating what we've learned since acquiring these brands.

There continue to be strong tailwind in the Vms space.

And we have clarity on the path of this business, becoming a more meaningful contributor in the long term.

Again, just some brief context before I get into the results in our other businesses.

Similar to cleaning.

Inventory levels in the year ago period impacted Q3 results, especially in Britta, where we remain supply constrained.

With continued elevated demand and supply challenges.

Several of our businesses in the segments have gone back on the allocation.

In the household and lifestyle consumers continuing to stay at home as well as business closures impact of our businesses differently.

Benefiting from and challenging others.

Nonetheless, our two year stacked growth across our segments remain very strong and well above our long term sales growth targets.

Turning to the household segment.

Quarterly sales were up 6% with growth recorded in all three businesses for a fourth consecutive quarter.

Grilling sales were up by double digits in what was a record setting quarter of shipments for the business.

Through strategic collaborations with our retail partners, we've been able to continue to grow household penetration and share.

In the past year, we've introduced kingsford products kingsport products to more than 1 million new households.

And they've invested in their backyard, including buying of new truck all in pellet grills, which will create a lasting tailwind for this business.

Our pricing strategy has also led to a less promotional environment, which will reduce pantry loading going forward.

And we can prove our product lineup and distribution, making it easier for consumers to find our kingsport pellet innovation and new flavors of our kingsford product lineup at <unk>.

Even more locations nationwide.

All of these goodness is helping us build a healthy momentum for this business, which is especially important as we head into peak the peak of the grilling season and tough comparable periods.

The cat litter sales increased this quarter, despite lapping consumer stockpiling in the year ago period the.

The driving forces behind it is the strong performance had been its success in the E Commerce channel and innovation.

Fresh step with game continues to do well and build distribution with more innovation planned for Q4.

Additionally, the record number of pet adoptions that has occurred during the past year will resonate for years to come as Cat parents continued purchase necessities like litter long after the pandemic has ended.

Glass sales increase in Q3, mainly behind lower trade promotion.

As a reminder, while we began to see elevated demand at the tail end of the year ago quarter.

Heavy consumption didn't occur until the late late in FY 'twenty, So Q4 will be of more challenging comparisons than Q3.

In recent months, we've also seen a significant resin price inflation.

To manage those rising costs.

We have announced a pricing action on this brand effective in July.

As we've mentioned well managed inflation of an inflationary pressures holistically using all the tools in our toolbox.

This approach will allow us to continue interest introducing innovation that resonates with consumers.

Which has driven profitable growth for the category for a long time for.

For example over the past decade.

We started using higher quality resin that has allowed us to reduce overall used by 20 per cent, resulting in a stronger back with a reduced environmental footprint, all while improving our cost structure over time.

Our latest innovation of glass for flex with Clorox trash bags has been performing well since its fall of 2020 launch.

And lifestyle segment Q3 sales were flat.

The food business had a double digit sales increase for a fourth straight quarter behind continued consumption growth of our hidden valley ranch bottle dressings and drives the seasonings.

This growth was on top of high single digit growth in the year ago period.

The ongoing trend of at home meals has driven household penetration to another record high.

Our optimism for this business is further fueled by the success of our latest innovation hidden Valley's secret sauces, and hidden Valley plant base Ranch dressing, which has both have both been performing well.

Where do the sales in Q3 were down by double digits as the category consumption decelerated from it's COVID-19 related buying spikes in the year ago period.

Despite these results consumption level has remained much higher than pre pandemic, partly fueled by strong filter replacement.

As with wipes and sprays, our supply chain has not caught up with demand and britta, particularly for filters and.

And impacting our shares and sales.

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On a positive note, we're continuing to make progress in addressing the supply issues, which has already helped us begin to recover share.

First of the sales also decreased by double digits.

Due to the changes in shopping and usage behavior that have occurred during the pandemic.

The business was also lapping the effect of pantry loading in the year ago period.

Mask wearing and decreased mobility have created headwinds in both the lip care and face care segment.

Still the brand has not only maintained but fortified its position as the number one level.

As we prepare this business for improving consumer mobility and consumers returning to cosmetics and colors will be launching towelette innovation in value sizes, and the new watermelon sick.

These bright spots combined with the continued growth in online channel contributes to our confidence in the long term growth prospects of this business.

Lastly, international has its own unique dynamics that sets us apart from our other segments.

Unlike the U S. Most international markets, where we operate don't yet have high vaccination rates.

As a result day.

<unk> for cleaning and disinfecting products, we mean elevated the.

The two year stacked growth rate for business. This business is about 22%.

In our international segment.

Q3 sales grew 9%.

And these results, which reflect the combined impact of about seven points of benefit from the Saudi JV acquisition.

And about two points from foreign currency headwinds are on top of 11% growth in the year ago period.

Excluding the impact of Saudi acquisition.

Half of all sales growth was driven by the introduction of a new line of Clorox Disinfecting wipes, mainly flat pack innovations sourced from our dedicated international supply chain and launch in more than 30 countries. That's the.

This fiscal year.

With the strong innovation like this and differentiation of our brands in their respective categories. We feel good about the growth runway of this business.

Now I'll turn it over to Kevin who will discuss our Q3 performance as well as our updated outlook for FY 'twenty one.

Thank you Lisa and thank you everyone for joining US today, we hope you and your families are well.

Before I review, our third quarter results, let me first address the noncash impairment charge, we reported today the better.

Ill vitamins minerals and supplements business represents about four percentage of total company sales comprising several small brands we acquired in two separate transactions.

Performance all of this business has not delivered on our expectations. The impairment was the result of our updated valuation, which assumes lower sales and profit projections versus our initial expectations at the time of the acquisition.

Primarily driven by the increased level of competitive activity and the need for more investments to scale the small brands.

As a result of our updated valuation we recorded a pretax noncash impairment charge of $329.

The lower the carrying value of goodwill trademarks and other assets of the vitamin mineral and supplement business unit.

Net of any deferred tax benefit of $62 million associated with this impairment, we recorded $267 million charge, the net income or $2 11 per share.

This represents about 27% of its initial purchase price.

Going forward, we are implementing a refreshed portfolio strategy. We continue to believe in the attractiveness of the Vms space driven by strong consumer tailwind and the strategic fit given our focus on health and wellness importantly.

Importantly, we fully expect that our Vms business will be a meaningful contributor for our company results overtime.

To ensure clarity around the underlying operating performance of our overall business my comments from the third quarter results will exclude the impact of this non cash impairment.

In addition, my comments will exclude the impact of the onetime noncash gain related to our Saudi joint venture acquisition.

It's important to note that while the Saudi joint venture is expected to contribute 45 to 50 cents to our reported EPS.

It includes a 60 non cash gain they were excluding from our adjusted EPS outlook.

Moving forward in our fiscal year adjusted EPS of 21 outlook. We are continuing to include 10 to 15 cent charge, primarily from an ongoing intangible amortization related to the acquisition.

Before I review, our third quarter results I'll comment briefly on our fiscal year outlook.

As you saw on our press release, we've confirmed our fiscal year sales outlook.

And provided an adjusted EPS outlook, which excludes the non cash impact from the Vms impairment in the third quarter as well as a onetime non cash gain of the Saudi joint venture acquisition in the first quarter.

For perspective, excluding these items helped provide clarity around our underlying operational performance, which is unchanged from our previous outlook.

Importantly, I'm pleased we're on track to deliver another strong year for of shareholders targeting a two year stack without 19% sales growth.

Well above our historical financial performance.

Now turning to our third quarter results third quarter sales were flat in comparison of 15% growth in the year ago quarter. When we saw the initial spike from COVID-19.

Our sales results reflect a five point decline in organic volume.

The fed by four points of favorable price mix and one point benefit from our Saudi joint venture acquisition.

On an organic basis third quarter sales declined 1%.

Our sales results came in largely as expected.

Although there is certainly variability across our portfolio, which reflects the very dynamic environment, we continue to navigate it.

Accordingly, we grew sales in six out of our 10 businesses.

Gross margin for the quarter decreased 320 basis points to 43, 5%.

Compared to $46 seven per cent for the year ago quarter.

Gross margin results reflect the pronounced inflationary environment, resulting in 360 basis points of higher manufacturing and logistics costs, including temporary COVID-19 spending.

As well as of 170 basis points of higher commodity costs, primarily related to the rising cost of resin.

Partially impacted by the extreme weather events, we experienced in the southern U S earlier this quarter.

Gross margin also reflects the 100 basis points of negative impact from lower volume in the quarter.

These factors were partially offset by a 140 basis points of favorable trade promotion and of 110 basis points of cost savings.

Selling administrative expenses as a percentage of sales came in at 13, 3%.

Compared to 15, 1% in the year ago quarter.

The lower incentive compensation expenses for.

Primarily related to the noncash impairment on the VNS business.

Advertising and sales promotion of investment levels as a percentage of sales came in at 11%.

Reflecting continued strong investments across our portfolio.

With the U S spending at about 12 percentage of sales to the.

The board of robust innovation program in the back half of the fiscal year.

Our third quarter effective tax rate was negative one 4%.

Driven by the impairment charge, we took on the Vms business.

Excluding the impairment charge, our third quarter tax rate was 23 per cent compared to 19% in the year ago quarter, as we lap excess tax benefits on stock based compensation.

Net of all of these factors adjusted earnings per share for the third quarter came out of the dollars 62.

The dollar of 89 in the year ago quarter, the decline of 14%.

As you also saw in our press release year to date net cash provided by operations was $893 million.

Versus $806 million in the year ago period, an increase of 11% our strong cash flow was due to profitable sales growth, partially offset by higher tax payments and higher employee incentive compensation payments.

Turning to our updated fiscal year outlook.

We continue to anticipate fiscal year sales to grow between 10% to 13%.

Reflecting the strength of our first half results and our ongoing assumptions for moderating demand over the balance of the fiscal year as we moved beyond the peak of the pandemic in the U S and lap exceptional prior year comparisons.

Our assumptions for one point of contribution from our Saudi joint venture offset by one point of foreign exchange headwinds remain the same.

An organic sales basis, our outlook continues to assume 10% to 13% growth.

We now expect fiscal year gross margin to be down due to a more pronounced headwinds from elevated commodity and transportation costs.

We now expect fiscal year, selling and administrative expenses to come in below 14% of sales.

Reflecting lower incentive compensation costs, primarily due to our third quarter non cash impairment on our Vms business.

Additionally, we continue to anticipate 50 of advertising spending to be about 11% of sales.

Reflecting the ongoing assumption to spend about 12% in the back half to support the innovation program.

For perspective, this fiscal year, we're planning to spend about $125 million more versus year ago to ensure we're leaning into engaging consumers to build lifetime loyalty to our brands.

We continue to expect our fifth gear of tax rate on a reported and adjusted basis to be between 21 and 22%.

Net of these factors, we anticipate fiscal year adjusted EPS to be between $7 45 and.

And $7 65.

Our 1% to 4% growth, reflecting the continued assumption I mentioned last quarter, including strong top line performance, partially offset by the increasingly elevated cost environment.

In closing.

Like to note that as we transition from the peak of the pandemic in the U S. We're navigating a highly dynamic operating environment with the following factors that can influence our results in the near to medium term.

The first category dynamics and consumption trends as more people get vaccinated and become increasingly mobile in the U S. Although we recognize different markets are in various stages of the pandemic.

We're keeping the eye on short term changes in these trends as they can cause variability in our top line.

That said longer term, we believe our portfolio will continue to play a meaningful role in addressing consumer megatrends that of accelerated over the last 12 months.

Which will contribute to higher demand for our products relative to demand levels prior to the pandemic second.

The second more pronounced cost headwinds, which will plan to navigate with all the tools in our toolkit, including opportunities for pricing in key areas of our portfolio.

And third increased production capacity to support ongoing elevated demand. This remains a key priority for us as our teams continue to look for every opportunity to expand our production capacity, while recognizing the ongoing volatility this creates an extended supply chain.

And finally, our reinforced the we're on track to deliver another strong year for our shareholders, while keeping our sights set on the long term.

As you saw in February.

We raised our long term annual sales target of 3% to 5%.

Based on the early success of our ignite strategy and our continued plans to lean in even further with strong investments behind our brands people technology production capacity and of course, our new growth opportunities, where we believe we of our right to win.

These efforts are all in service of our broader ambition to accelerate profitable growth.

Long term value for our shareholders 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 all well.

A year ago around this time when the pandemic spiked in the U S. We knew we were facing unchartered territory.

As I look back at how we've managed our business to support our consumers retail partners and communities over the last 12 months. What makes me proud is that we stay true to three things.

We embraced our role as the health and wellness company, which helped us prioritize our actions, including ensuring the safety of our people and emphasizing our support for health care workers.

We put people at the center, taking care of our teammates around the world and staying the course and doing everything we could to sort of public health and consumer needs.

We were led by our values with our commitment to do the right thing guiding our strategic choices and actions.

Out of all of this our purpose became clearer we champion people to be well and thrive every single day.

With this in mind, here's what's important for you to take away from today's call.

First our business is well positioned for the future I'm grateful our consumers have rewarded our team's dedication to serving people and communities around the world.

Our business is significantly larger than it was before the pandemic.

People have turned to our trusted brands for support during an incredibly tough year and Clorox has the most trusted brands in many categories.

We see this play out in strong household penetration across our portfolio with our brands and 90% of U S household.

We continue to see strong repeat rates across our brands among core and new users versus last year.

And as Lisa mentioned, we continue to focus on retaining this larger base of loyal consumers.

And of course of this is showing up in our results, including flat sales in comparison to a very strong base in the year ago quarter.

For perspective, it's worth noting that we delivered a two year stack of 15% total company sales growth in the third quarter.

And as Kevin mentioned, we're on track to hit of two year stack of about 19% sales growth for the fiscal year.

My second message is that we have strategic plans in place to address near term priorities as we continue to navigate in a very dynamic environment.

First theres more work to be down on improving supply, especially after weather related disruptions in the third quarter and higher than anticipated demand in certain parts of our portfolio.

We're pulling every lever available to us to improve supply, including working with third party supply sources as we continue to run flat out I am encouraged by our progress, but our overall supply chain remains a top priority focus for us.

Next we fully acknowledge that market shares for our key brands are not where we want them to be that said share declines are primarily driven by recent supply challenges.

And as we continue to improve supply capacity, we expect to recover market share.

We feel good about seeing continued strong consumption of demand across our portfolio relative to pre pandemic levels.

And as Kevin discussed, we're facing stronger cost pressures from critical input cost and of tightening transportation market.

One of the for key choices and our ignite strategy is to generate fuel to support growth and mitigate and inflation.

We're taking a holistic approach to address these cost pressures by leveraging a number of tools to support our margin, including margin accretive innovation net revenue management pricing through trade reduction and less price increases and as always our relentless focus on cost savings.

My last message is this.

With conviction in our purpose and guided by a strategy that makes the most of our strength. We continue to have our sight set on our ambition to accelerate long term profitable growth.

In the past year, we've learned that by putting people at the center. Our ignite strategy has helped us to do what we do best serve people, who kind of on our brands.

And we continue to have an opportunity to serve even more people around the world.

And as we think about our future our strategy is proving to be particularly relevant as it leverages significant consumer megatrends that had accelerated because of the pandemic.

The latest research still tells us the consumer routines and behaviors formed during the pandemic are expected to persist, including prioritizing health and hygiene drinking more water, taking vitamins and supplements and spending more time on line.

What's more of the rule of thumb has changed.

With many companies pursuing hybrid models for their workforce, we expect more cleaning more meal occasions, and more trash to be generated at home.

Our portfolio continues to be in a unique position to play a meaningful role in People's lives and we have every intention of accelerating new growth opportunities to support these trends.

Moving forward, we're leaning into our ignite strategy with innovation remains core to our key areas of strength.

That means innovating in our products, especially larger stickier innovation platforms to deliver superior consumer value and multi year growth for our business.

Innovating in consumer and shopper engagement per.

<unk> experiences for consumers so that we get to know 100 million people by the year of 2025 and partnering with our retailers on category vision and leadership to support healthy unprofitable categories.

The turnaround of our Kingsford business is a great example of how our focus on innovation is contributing significantly to strong category and brand growth.

Innovating, how we work across the organization through technology that makes us smarter work faster and in the case of our supply chain enables us to respond more quickly to future demand spikes.

And finally innovating through an ESG lens, because we believe in the strategic link between our societal impact and long term value creation.

Here are some highlights in the last quarter.

We're 21 per cent of the way toward our goal to reduce the Virgin plastic in fiber packaging by 50% by 2030.

We've achieved 76% of our 100% goal for recyclable reusable or compostable packaging by 2025.

We're introducing a companywide learning and development program focused on sustainability, because ESG integration in our business not only means embedding. It in every brand, but also rallying every person behind our efforts.

And with ESG embedded into our operations our brands are not only contributing to our corporate ESG goals, but they're also pursuing meaningful goals that matter to their consumers.

As an example by 2030 Britta has the goal to provide clean water access to half a million people in the U S facing poor quality tap water. This speaks to the heart of British brand purpose.

Before I open it up for questions I'd like to Echo the important takeaways Lisa mentioned at the beginning of the call for.

First we're on track for another strong year.

We will seize the opportunity before us to accelerate long term profitable growth.

Third our ignite strategy has proven its relevance in the face of the pandemic by putting people at the center, emphasizing innovation and leveraging technology to lay the groundwork for the future.

Operator, you May now open the line for questions.

Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchtone phone.

And your first question comes from Durham of Finian of Morgan Stanley.

Yeah.

Hey, guys.

Yeah.

Two things for me.

First one just can you clarify the the 3% to 5% long term top line growth range from down the Cagny can you just clarify specifically what time period is that over is that of post fiscal 'twenty to range does include fiscal 'twenty. One 'twenty two just trying to understand the.

And then the second.

There are a lot of sort of puts and takes as we think about the next few quarters here from a top line standpoint.

In theory.

More difficult comparisons COVID-19 cases are dropping off vaccine counts are going up the those are some headwinds, but you mentioned some of the supply chain challenges that youre working on.

And you've talked about the greater opportunity in professional and international longer term.

Which drove that higher long term top line growth guidance down of Cagny. So I was just hoping you could give us a bit of context as you look out here over the next few quarters in terms of some of those headwinds versus tailwind of the biz.

Of this potentially decelerated with the comparisons you're facing or.

Do some of those positive areas more than offset of as you think about the business over the next few quarters here I know you're not going to give a specific number but just trying to think how you guys think through that particularly with some of those longer term positive top line tailwind as you think of you all does that play out of the near term or how long does that take the play out. Thanks.

Sure Dan Let me start with your first question. Our as you mentioned, we raised our long term sales goal of three to five per cent back in February in terms of the timing that's part of our ignite strategy, which runs through 2025 and.

And our allied I see that playing out as.

As we talked back in February and real estate point of view.

We expect expect our sales to be roughly flat in the backend.

However in Q3.

And as we get into fiscal year 'twenty two our expectation is we're going to be by the back half of the year back to our long term range sales outlook of 3% to 5%. So as you know we've got some tough comps here for the next three quarters, but as we get through those comps by January return for this new elevated level and that's really as we work through the next phase of the spend.

<unk> as we see higher vaccination rates more in mobility, we fully expect that we'll see a slowdown in demand for products that as expected when we get the sort of that new normalized level. We think we're back of this three of five range going forward.

Great. That's helpful and then any context around some of those headwinds and tail winds.

I'm.

Particularly supply chain challenges.

Any progress on that front, how much impact could that have some of the top line perspective as you think over the next few quarters here.

Sure I'll take that one I'll start maybe with the big picture on what we're seeing as is definitely tailwind for us and we mentioned some of this in the script, but with a little bit more color.

We're definitely seeing a consumer behavior trends sticky as we look over the the mid to long term.

We're seeing hygiene continue to be that cornerstone of health for folks and even as people are getting vaccinated.

And mobility of starting to increase we're seeing people embrace those new cleaning behaviors as as new routines and theyre, both doing that inside and out of the home and the business case, we're still seeing the need for higher disinfection is a welcome people back but the issue has been depending on the market you're in and certainly we're seeing that in the U S. Mobility has not really increased the point where businesses.

Or fully at capacity, yet or even open in many cases, so we're seeing that both as a long term headwind, but as of short term impact definitely the Q3, and we're looking to the future quarters to see how mobility one proof.

I think the other things that we continue to see around are people taking care of their health and wellness are persisting. We have of new installed base for example, with bread out with a lot of people who purchased pictures over the last period and we're seeing them continue with filter sales in.

In the request to be healthier and can take on good habits.

The digital continues to persist and we think that will be of tailwind for our business as we've invested as you well know more in digital marketing than the average in our industry leaning into that trend already and then of course, our strong position in E. Comm that we've built over many years and we continue to see that accelerate and that's up to a 14% of our business year to date.

And then the the role of home continues to be of tailwind and that was above our expectations and quarter three for sure, but we're seeing people persist even as people have more of a mobility people are eating more at home and the what hasn't really changed at all as people who were working from home during the pandemic are continuing to.

Work from home, so we see that in our impacts whether that'd be on our kingsford business on our hidden Valley ranch business or our trash business, there's definitely positivity to that stay at home trend. So I think all of those are going to be tailwind as we look to the coming months and in the long term from a headwind perspective supply chain has continued to be of challenge and you know what.

We have done is gone after a tremendous amount of sales you are much bigger company than we were pre pandemic and that means that we have increased the complexity in our supply chain we.

We have a lot more nodes, we have a lot more third parties, helping us and then what didn't help this quarter of course, where the weather disruptions that we experienced that caused quite a few force majeure is on our products and although we were managed able to manage through it and deliver our overall a commitment from our quarter three perspective, it's something we're watching really closely.

To see any volatility will have but the supply chain being more of expanded continues to be something that we're watching continues to be something that could.

It could be of help or hinder as we look forward.

Great that's helpful and if I can just sneak one more in.

On the pricing front, obviously, you mentioned the glut of increases potentially opportunities in other areas can you talk a little bit about if you have pricing plans in place across the rest of the portfolio is it still being decided because of just a matter of when you communicated how do you think about pricing in.

The rest of the portfolio beyond glad thanks.

Yeah.

Absolutely so yeah as Kevin highlighted at least the highlighted in their scripts are absolutely seeing the inflationary pressure as I think the entire ecosystem is now across our industry and from a retailer perspective, as well and you know what we have our sights set on is how do we get to that long term EBIT margin goal, we have of 25 to 50 basis points.

From an accretion perspective, and the way we approach it is very holistic.

We're looking across our robust full box to address us things like margin accretive innovation and we have a terrific innovation program that started at the beginning of this year and its continuing as we launch incremental innovations in Q4.

Net revenue management.

Pricing and that will include both list price increases in trade reductions and then of course, our relentless focus on cost savings.

We're employing that entire toolbox right now across all of our businesses.

And you know where we're coming from a place of strengthening our brands are strong right. Now we have never had a higher consumer value measure household penetration of strong we're seeing strong repeat so we're feeling confident in that.

And we're evaluating our ability to take price across all businesses, but I'll tell you we will be very surgical and targeted in this we're going category by category because we're of course, we're weighing the broader environment.

And we want to be measured in that but.

The message I want you to hear is we're looking at it very broadly across our portfolio and what we're really focused on is executing by category with excellence.

Thank you.

Yeah.

Thank you. Your next question is from Chris Carey of Wells Fargo Securities.

Yes.

Hi, everyone.

So I just wanted to follow up on that line of commentary around pricing and then and then I have a second question. So just on the pricing front.

Maybe just help us understand your pricing of glad last time that happened it was.

Cause volatility on shelves now you have competitors that are moving ahead of you can you just talk to confidence that that won't happen again this time and then.

Related to the pricing you did mention that lower promotions I think are going to be of part of how you are.

Getting some sort of net pricing I think that's what you said.

Promos are already at a pretty low level.

The pace your promotional levels going.

Low peers and the.

Then I have a second question, but the general framework there is.

Just the glad pricing risk.

And just did I hear that right that you think promo can actually be of sorts of pricing.

Basically implying that maybe youre not looking at the list prices in the rest of the portfolio just yet until we get well into fiscal 'twenty, two what I would model. Thanks.

Thanks, Chris I'll start.

So we have confidence in our brands and the strength right now and that is absolutely inclusive of glad and you know all of the investment that we put in in terms of incremental advertising, what we put in from an innovation perspective, and how consumers have turned to our brands. During this time continue to give us confidence in our ability to take pricing.

I think what we're also seeing this time versus what we saw last time is a broader inflationary environment that really is pretty systemic throughout the industry and what everyone is experiencing so as you mentioned, we've seen competitors move in categories like glad I think glad in particular I'll just highlight it.

We have already come out with that price increase that's effective in July but given the volatility in the increases we're seeing in the resin market. We are looking at would be take even additional pricing and glad based on what we've seen so I'm you know again, we we wanna be let the cost pressures guide us where we're doing this for the mid to long term.

But we're seeing extraordinary circumstances and resin right now that are helping us to go faster on glad.

What you should take away on the other brands is it's not that we are not looking at list price increases we look at that first of all we do that annually as a company to understand our position, but right at this moment, we're looking at that but what I want you to hear is the way that we do that across the brands needs to be holistic. So some will include list price increases others will not and.

You'll hear a supply of every business is cost savings you'll hear us think about how we kind of margin accretive innovation across every business, but less price increases will be very targeted at on but again evaluating across our entire portfolio.

And I think you know from an on shelf and a retailer perspective.

You know, we're working on category growth plans with them and where we're lapping a very strong period of growth and as you think about the lower promotion question.

What we're trying to do is get to a more normalized state of promotion and it's still although accelerated versus the where it was in Q2 of its still well below pre pandemic levels and as we lap that growth, there's little incentive to put a bunch of deep discounting out in the system and we're working on growth plans. So that's how we're thinking about the lower promotions in the context of the environments that we all.

Have a strong growths to lap them and of course, we want to make sure that consumers are that we continue to lean into them and invest behind the tailwind and and that could mean of lower promotional alignment, but were watching that closely and again it will depend on the category.

But the overall sentiment would be you know keeping it as rational as we can and using promotion for what it's intended for it to drive trial.

And to get consumers that keep whole periods.

Thank you for that and maybe just to close the loop I mean the law.

Last time, there was a commodity cycle pricing accounted for several hundred basis points of gross margin can you just comment on whether that is the sort of a realistic the framework to think about go forward and then the second question is just I.

I think if there was one area, which surprised certainly relative to our model. This quarter was the decline in professional and certainly on the sequential basis like I appreciate the cyclicality of the business, but there's also this underlying we've heard about all of these partnerships that you're signing.

And I guess also international came in a little bit light just relative to what we've seen from you of a lot of other staples companies this quarter.

And so maybe I think underlying the question is just you know the confidence that these two businesses.

The contributors to your.

Three of 5%.

Longer term growth outlook, just maybe any puts and takes that you saw this quarter, which gives me confidence that for those businesses can be bigger growth drivers.

Going forward. Thanks, so much for all of us.

Sure Hey, Chris maybe I'll start and I'll turn it over to Linda as well on your first question is in regard to the impact of pricing.

I'd tell you it's too early for us to start providing perspective, we're right in the middle right now of building our plans for fiscal year 'twenty, two and as Linda said, we're gonna be looking at a number of different levers in terms of how we're going to work to offset the transportation of commodity cost increases we're seeing pricing.

Pricing will certainly be one of those levers, but we'll be looking at the number of others as well. So we'll update you on that one as we get further along with our with our plans in August.

In regard to international just a perspective of international as you mentioned the volume was down.

I think it's worth noting we feel very good about the progress, we're making on our cleaning and disinfecting work and as Lisa mentioned in her prepared remarks, we continue to expand the number of countries, we're introducing wipes into and you've added 30 countries now.

Specific low in the third quarter one of the challenges we had was in Canada, where we saw growth pretty broadly across our portfolio in Canada, if you're tracking that region. You may know they are now in the third locked down and in the Canadian market for a little different in the U S and their lockdowns for items that are deemed non accenture.

If you go into a retail outlet in many cases those aisles are blocked off where you can shop for them and so as an example in third quarter, we grew our cleaning and disinfecting business in Canada, but we saw pretty significant declines in other parts of our business.

A bit of business was down over 30% are burts bees business was also down by a similar amount because consumers are not able to shop. Those aisles now right now of the Lockdown they've announced goes through may 20th So that'll have some knock on effect as we move into our fourth quarter, but we expect as we get out of that locked down those businesses will rebound.

But by and large feel very good about the progress of our cleaning and disinfecting portfolio internationally.

And then Linda will talk a little bit of our professional business.

Yeah, I think you know professionals the unique part of our portfolio because it really is tied very heavily to mobility and if you think about this it has to really do with the comparison period.

So last quarter three businesses hadn't shut down by the in that point, even though we saw consumer takeaway in the retail side for the most part businesses were open. So we had a very strong comparison period to lap them and in contrast to that this quarter. Most businesses continued to remain closed and you have to recall too.

We have a very.

Established business when it comes to professional this is not just about the new opportunities, but we've been cleaning these businesses for years and years.

It was about seven per cent of the company before that's growing.

Strongly mid to maybe mid single to high single digits, and so that really had an impact and I think if you look broader across the professional space not just ours, they're seeing the the same trends broadly in that industry.

If you take a step back the trends continue the partners that we've had as we brought on in the new out of home space continue to to see the benefits of.

Offering our guests a clean and disinfected space branded by Clorox, and we continue to expand those partnerships and bring new new ones on the two year stack on this business is up 17%. So very strong growth on top of strong growth for many years.

And we continue to have conviction in the long term. The reality is consumers need that reassurance that spaces are clean we know businesses want to provide that to them. So they can get back to growing again, and we have a terrific new suite of innovation that we're excited about what's coming in in quarter, four including expanding our electrostatic.

The sprayer business with both new forms of <unk> Chemistries, So feel really good about the long term of this business Theres a lot of noise in the short term as most of the professional spaces out there having countered but no change to our outlook for the future.

Okay well. Thanks. Thank you both for all of the I appreciate it.

Thank you. Your next question is from Nik Modi of RBC capital markets.

Yeah, Hi, everyone.

Linda I was hoping you can address something on the disinfecting wipes just two vectors you never think about on category growth. So look at numerator is vaccinated shopper data suggest that vaccinate of consumers buy rate.

The mitral is dropping faster than on vaccines or the consumer side of just hoping you could provide the complex from thoughts around that and then secondly on the market share. Given this has been of supply related issue I mean, what's the case that you can make the retailers to get back the space at a point, where you feel like the supply problem no longer exists I mean isn't going to be marketing.

The brand loyalty.

Or basket size of basketball is the place so any thoughts around that would be helpful.

Sure Nick.

Just starting with disinfecting.

We continue to see really strong behavior changes from consumers, but we did it and anticipate to experience as people became vaccinated behaviors changing and we did see that curve move up slightly so as people get vaccinated. It just happened a little earlier and frankly vaccines happens.

The earlier than we had anticipated so that's normal we expected that as we go for it but the key takeaway is versus pre pandemic levels cleaning behaviors are still significantly elevated and we continue to expect them to be.

Into the future and we're hearing that from consumers, we're seeing that in their buying habits.

And continue to feel confident about our ability to for these growth areas and cleaning and disinfecting to get us to our 3% to 5% growth Oliver <unk> growth rate for moving forward.

I think as it particularly comes to market share you know just to be really clear we are not happy whether it be supply related et cetera, we want to grow share and that is our goal and and we want to do that over the mid to long term.

This really does have.

It was primarily driven to some of it with supply, particularly in cleaning and disinfecting not only did we have the weather related issues, but as we talked about the more that we expand our supply chain. The more nodes that it has you know the more risk of introduces and and that really impacted our ability to.

The lap of very very strong period that of course included.

You know the.

The depletion of all of the inventory across the system last quarter three.

As we look forward to supply, though our optimistic we've made good progress and we anticipate substantial improvement in the next for months and we plan to be in stock on most businesses in cleaning, including wife's by the end of Q1 and what consumers are already experiencing is better than what they have experienced for the months of premium to that theyre going to the shelf and they're finding something.

From Clorox, which is good to see and then we anticipate being fully in stock across our cleaning business by the end of Q2. So that includes some things like sprays and some of the other items debt are still supply constrained.

When it comes to you know market share moving forward supply is going to help but the other thing is innovation and we have a terrific suite of innovation in quarter for that retailers are really excited about them and that includes reintroducing things that we had to put on pause centinela AR that was the large growth part for them for us prior to the pandemic.

We are starting to ship that again compostable wipes are also back in market again.

And we know they they had a strong start prior to the pandemic and we'd expect them to continue and then we're also going to be expanding our disinfecting floor mopping cloth business that we had started right at the beginning of the pandemic and we expect broad distribution on that in addition, we're launching brand new to the space of innovations, including paper towel wipes.

Our brand new clocks non bleach all purpose cleaner and then building off of our electrostatic business, that's already out of over $100 million in sales in launching new forms of new Chemistries, you know kind of brand new to the market. So I'll go rates with the suite of innovation that we're working with retailers on and that's what we're focused on innovation.

John and growing the category and that's that's resonated really well.

That's very helpful and if I can just just one real quick one on vitamins you talked about you know we have plans in place can you be specific in terms of what exactly you're trying to do the kind of turnaround the for things of that of that business because it seems like the overarching kind of backdrop of that industry is going to look much better than it would've been pre pandemic just given everyone's focused on.

So health and health care, so any of any specifics around the strategy would be helpful.

Yeah, Nick why don't I give a little bit of background too I think that'd be helpful. Then to talk about what we're planning to do just as of as a backdrop as Kevin mentioned in his remarks, we bought a bunch of small brands through two acquisitions of three to five years ago. These were very small brands very strong and the then fast growing natural channel.

We expected them to grow consistent with what we're seeing in that broader category of high single digits to low double digit growth and of course getting shorter times of synergies.

The underperformance is related to what we bought so channel headwinds have been a big component of that natural went to plus from plus 8% at the time, we bought at two of headwinds at negative, 5% and that's only accelerated given the pandemic and what we're seeing in retail consolidation.

We're also very heavily weighted in probiotics and that category has been fragmented it's slowed down given the massive amount of people who've been launching probiotics in other forums in food et cetera.

And then certainly higher competition of people have entered that attractive space.

And then just.

Given the the size of the brands that we bought we realize it's going to take a longer time and more investment to get there. So.

So what do we do looking for the future. It starts with the fact that we have really good conviction in the strength of the category and the tailwind that we see from a consumer perspective. Those remain very strong people are continuing to do things to take care of their health and wellness and vitamins and supplements are absolutely part of that.

So with that.

You know I'll give you of what I can talk about in the strategy at a high level and we'll welcome talking about more detail coming up in the future, but what we're really focused on is first you know, making sure that we had the right category knowledge and we feel great about that we have a better understanding of how the category works and how we need to operate with the small brands in it we've hired new industry talent that has a lot of it.

Experience in the space and they've helped us to get clear on that and we've refreshed the refreshed our strategy and particularly around our portfolio and how we how we win with those brands moving forward.

And so with that and I know, Nick you'd probably want more details of that but we'll have more to share later, we fully expect to be able to get to the company accretive sales and profit over the long term, but we've built in a slow ramp up period as we think about that because it's going to take some time to.

To do what we plan to do on these brands and get to the place where they're delivering that type of accretive growth for us of the company.

Thank you Linda.

Thanks Vic.

Thank you. Your next question is from Andreas the share of J P. Morgan.

On the Olympic glad I'm back pricing comment.

And should we see this flow through I'm, assuming that's the fiscal 'twenty two of conservation of at this point.

I'm curious because I didn't know where the mark about six months of your large competitor a.

The pricing from what I understand is that the strength is now to recover some of that share.

And any other categories that Ah I appreciate that you the one.

Come across as being opportunistic and I know knowing from the benefit that you had from your shrunk bands and everything took all my closet, taking price in the middle of of pandemic.

But now the weird hopefully coming through a high box the nation grades. So when do you think is the time to actually take.

Some of the other categories, but also impacted by transportation cost pressures and commodities.

Because of these are to be taking pricing and and one also before I you can answer, but just to before the as far as I understood. Like you you you think the commentary about having the supply chain normalizes and having the cleaning products by fully on the shelf by the end.

Of the calendar second quarter.

The wood, we expect also that international and professional of the professional business will be normalize, though that's the only the the cleaning and you still have the work to do to recover share and capacity all of these other thank you.

Thanks, I'll take those in turn of and we'll start with the glad pricing question that you had so we announced that price increase to the trade in March and it will be effective in July and as I said.

Previously we are though looking at given the continued inflation that we're seeing with resin Ah would we want of taken additional action on glad and that we're still contemplating and we don't have news to share on timing on that but the the round that we just announced will be effective in July and then you know it will pass through and we'll see retailers.

Change prices on shelf as they do that.

As it relates to your broader comment on pricing.

Really is category specific and it has to do with the timing I'm. You know these businesses have different seasonal aspects to them. They have different promotional plans. They have different innovation plans and so I don't have any more of a share on on timing on any of those categories, but I just want you to take away that we are looking at it across every category.

We but we will be doing this category by category and it really has to do with those dynamics that we're experiencing and of course, the broader plan and I also want you to take away, but what we are absolutely doing on every category right now its cost savings and we're going backwards. We're pleased to be on track to deliver our cost savings target for the year.

And we're looking at what what other places could be plus that up across all of our businesses and then of course innovation is the same but as we have more news on pricing, what we'll share it but at this point, it's glad and news that we are we're looking at would there be additional action, we'd want to take on glad given what we're seeing in resin.

And then of some of your of your question on supply chain professional has some shared supply chain as of as does the small portion of international with our U S retail cleaning business, but the.

I also have components that are completely separate but they are largely expected to recover on the same timing that we have from retail although international I would say at this point, particularly with wipes given we have of dedicated supply chain. We're not at a point that we're constrained in the end the vast majority of our international businesses because of that dedicated supply chain.

And then any anticipation of like the accelerating the roofing to the other countries I think of image I think the leads the nation.

So the countries already is that any ramp up or additional places or you'd say like no I bought the wipes, which is all of these at the low hanging fruit now I'm going to offer them.

Sprays or other things that may actually accelerate international growth.

Yes.

As we spoke about at Cagny against our goal to accelerate long term profitable growth and get to that 3% to 5% sales range, we anticipate stronger growth from international.

And that really is behind building, a global clorox cleaning brands, which we had to start too, but we think we can help serve more consumers around the world and the idea would be of course wipes is an important part of that portfolio, but really looking broadly across the set of cleaning products that we have strengthening our innovation across the clorox brand.

And that can include things like spray as like you mentioned.

We would be able to do that so that's exactly what we're looking at as we enter markets. What's the right product lineup and where can we leverage innovation to expand our presence in those markets behind the Clorox brand.

That's really useful thank you that's it all.

Thank you. Your next question is from Camilo Gosh for Waller of credit Suisse.

Hi, good afternoon everybody.

Good morning for you guys I suppose.

The question on the elasticity, obviously, there's a lot of inflation in pricing is coming through across the board.

I know Theres a.

Quite a strong views on the consumer research suggests an intent for pretty structural changes of abuse of.

In the home and at the home to a degree of you worried about the risk of of breaking that trend or do you feel like you have to be careful.

About maybe there's an opportunity that can be lost of too much pricing was taken from a cost perspective. It makes perfect sense to take pricing to cover it but what are you thinking about from a elasticity perspective now that may change things.

Okay.

I'll start you know when we we look at the strength of our brands. We always focus on consumer value is the measure we look at to determine the strength of our brands and our ability to take pricing because of course consumer value is composed of the strength of the brand that we have it's comprised of the product and how people experience that versus compare.

Additive products and of course pricing is a function of that as well.

We're looking at that triangle that that forms to say what is the right mix by category by sub segment to deliver that right value for consumers and we're always trying to optimize that so we take that into account as we think about it.

You know given the fact that we have higher consumer value than we've ever had since we began measuring it yeah that implies a the strength of our brands that they they have ability to take price and as we strengthen our innovation program as we've leaned in to spend 11 per cent behind our brands this year.

And keep them strong you know that was one of the questions. We've got a lot of is why would you invest during a time when people want your brands already and it was about building that brand strength in equity over the long term. So that we have the ability to introduce them to new products as they demand it and of course take pricing as we need to so we're taking that into account I would say.

You know regardless of pricing of these consumer behaviors are here to stay consumers have absolutely shown a willingness to pay during this time to keep themselves safe and well through all of their behaviors, whether that be cleaning up.

Drinking more water et cetera, and also as they start to eat at home, we've seen lots of trends around consumers you know having meal experiences they've invested in grills and they've invested in that long term behavior. So we feel really good about our ability to do both which is continue to take advantage of the the trend.

That we're seeing but also price where it's appropriate to recover margin.

Okay, great. Thank you.

Thank you. Your next question is from Steve powers with Deutsche Bank.

Hey, guys. Thanks.

A couple of questions from me the first one is just.

As we think about the health of wellness segment factoring in.

What you guys are seeing as or visiting of the new normal level of consumption coming out of the pandemic.

You know as well as your improved ability to supply I guess I'm just trying to gauge what you think the.

The other kind of the average absolute run rate of sales in that segment is likely to be of the new base.

<unk>, obviously been running 800 million plus for the last several quarters and then this quarter.

Came down below 700, and I'm trying to sense of do you think the U S.

This is the new normal level of consumption does the bounce back of meet somewhere in the middle.

For your thinking about that as we go forward.

Sure I think.

You know if if you look.

If you and maybe I am able to take a step back and talk about what we're seeing overall and what we've seen in the past because I think we're operating from a really strong base I'm not sure. How clear of this was you know in the past if you take a step back and look at our retail cleaning business.

Pre pandemic that was the place of strength for us we weren't growing mid single digits in both topline and bottom line in the retail cleaning business.

For a number of years. So if you look at the five year CAGR of pre pandemic that was mid single digits. So we are starting from a place of strength and and we see that continuing as we move to the to the future and we think building off of that so if that gives you an idea of what we're thinking about it will be above the company average is what we're anticipating.

Given the fact that it's a place where consumer tailwind for working where we think innovation is going to play a really big role as consumer needs have changed and then again that investment and we've long been investing in the Clorox brand, but we've increased that during this pandemic and and we think it's going to become pretty solid from a behavior perspective, as we move forward as the combine all of the things.

Okay. Okay.

I can work with that I guess.

Switching gears the gross margin.

I guess, the two things here the.

The the depth of what I think your guidance implies for the fourth quarter of something like a 600 basis points 600 plus basis point.

Contraction in the fourth quarter, if my math is correct and correct me if it's not.

I guess, what I'm what I.

You know coming you know that's question number one I guess of this but the second part of just trying to gauge your sense of urgency of building that back obviously, you're taking pricing.

I'm glad I'm looking at pricing elsewhere or is it clear.

But are you do you would you be satisfied with kind of a more elongated glide path of margin recovery or is this something that you're you're eager to claw back.

You know, we think about the first half of 'twenty two I'm just trying to you know.

Hey.

Size, the the level of contraction of them and then be gauge or sense of urgency in getting the book.

Yes. Thanks for the question two things on on Q4, and you know, we don't provide quarterly guidance, but what I can share with you as we said for the for year, we expect our gross margin to be down for me that's likely about 100 bps on the full year basis and as we mentioned back in February of my expectation it would be down two of luxury.

I agree as.

As we've highlighted what's really changed for US is while transportation continues to be a challenging market for us. It's really residents had the biggest impact really driven by the ice storm you saw back in February.

We talked back in February during our previous earnings call I had anticipated about 150 bps headwind.

From commodities in the back half of the year I think that's gonna be closer to 200 bps now in the back half.

You saw in Q3 of our or attachments, we provided about 170 bps in Q3, I think it'll be higher in Q4, and I think it will probably peak in the front half of fiscal year 'twenty, two and then it will start to see some softening.

And so I think that's how it is going to play out this year in the near term.

And then your longer term question of margin recovery, you know Linda just mentioned and we are committed to growing EBIT margins of 25 to 50 bps over the long term.

And so we're going to continue to aggressively work towards that goal and as part of that as you know the actions. We're talking about now as it relates to recover these cost increases pricing being one element of that but we're going to be leaning in the cost savings of many other areas as well, we'll work to recover margin.

And then maybe last commentary that it might be helpful. If I if I provide a broader perspective, if you think about our financial performance, where we were before the pandemic of the end of fiscal year, 19, and where we'll likely in this year on a two year stacked basis, that's about 100 bps increase in gross margin.

So we're certainly be challenged this quarter and next quarter, if I take a long term view, we would improve the margins of the company about 100 bps over the last few years and then as I said earlier. Our goal is by the time you get to the back half of fiscal year 'twenty. Two we are delivering three to five per cent sales growth. We're expanding margins, we're delivering earnings growth. So hopefully that gives you.

Some perspective on our desire to quickly move through this challenging environment and make sure. We're taking the necessary actions to put us on track for our long term sales and profit goals in the back half of 'twenty two.

No. It does I appreciate it if I could squeeze in.

Just to build on the other I don't think you specified exactly across the globe portfolio, how impactful this announced price increases is there any quantification you can offer.

On the options that you have planned for July that'd be helpful and then.

You did something different for clorox and moving to an adjusted.

EPS.

Quantification for fiscal 'twenty one.

It sounds like there's a there's a three to for some <unk>.

The amortization.

The charge, but it didnt GAAP, but it is not in your adjusted number I guess is the is the intention beyond the fiscal 'twenty one to move from an adjusted.

Or should we should we think about you know kind of as we think about sizing up for your fiscal 'twenty guidance.

Moving back to GAAP and layering back in about 15 cents for the year. Thank you yeah. Thanks, Steve on the debt.

Two questions on glad what I'd tell you you know the low to mid single digits pricing action.

The effect in July and as Linda said, we'll evaluate if additional actions are necessary.

And then on a adjusted EPS as you said, we introduced it for the first time this quarter and see the intent as we really thought this would help us as we provide both on a reported GAAP basis, but we also thought of just the way to help our investors as we've had two large noncash charges now we have the gain in Q1 from a Saudi acquisition and we have the VNS.

From it and so we think giving that additional perspective is helpful.

And particularly as you go into fiscal year 'twenty to continue to use adjusted allows you to have a better understanding of our operational performance. As you are able to look past. These this one time gain of one time charge. We have this year. So you should expect us to use that going forward.

Okay. Thank you so much.

Thanks, Steve.

Thank you. Your next question is from Lauren Lieberman of Barclays.

Okay.

At first of adjusted because.

Being a GAAP reporter arguably has been a point of pride for the company right and something that you could also argue contributed to the stock valuation overtime.

And I know, that's the very very high bar to hold yourself too.

But I'm really I mean, I guess I get the the impairment charge is the big one off but if I remember back in last year's fourth quarter. When you introduced the guidance and including the G. The gain.

Again, you specifically talked about it as of being offset by tax and FX in the full year earnings growth.

And now you're asking us to switch to adjusted just when we would be looking at fiscal 'twenty two growth rates. So I E.

[laughter].

I'm struggling with what's really being comfortable with that ask particularly.

Particularly if you believe theres so much going on with the business, that's really positive and constructive that we shouldn't need to be kind of playing these games. So I, Kevin I'd really just love for the perspective on that decision.

Yeah, Lauren I wouldn't agree with the playing games that characterization wasting thats helpful. Additional perspective, so to be clear and we'll continue to provide.

The reported GAAP basis.

The estimate and what we provide an adjusted estimate as well and again, we think both numbers are helpful and insightful for our investors we have a very large gain in Q1 in the in a large charge in Q2, we want to make sure of investors can understand of our operational performance to your point Lauren.

There's a lot going on operationally, we want to make sure. We can help investors understand that as clearly as possible.

Setting those two items aside we think is another.

Site tour business it will be helpful. So that's why we introduced it and why we will continue to use it going forward in 'twenty two so as we look at our 22 performance you can evaluate debt versus our 'twenty. One performance. Excluding these two items and really understand I think more and more clearly on an operational basis of our performance year over year.

Okay. Thanks for that.

That is very helpful perspective, and I appreciate that.

And then I did just wanted if all of one more question on market shares and I know that Nielsen is far from perfect, particularly with the strong shares in club and and the quick gains you've made any commerce overtime. The Nielsen does measure something and when we look at Nielsen It looks like your share.

In in spray cleaners and in wipes.

It's not this down this year, but is down if I looked back pre pandemic debt your shares were down pretty considerably, particularly in this in the spray cleaning category. So.

So I just would like some for their perspective their you know on whether or not there's been some channel prioritization dynamics, whether or not in hindsight.

Since that maybe you could have invested more and being more proactive in cleaning historically because it feels to me like again, just looking at the Nielsen of knowing it's imprecise, there's a bit of a hole to dig out of on share that's not really related to during the pandemic.

The supply constraints.

Okay.

<unk> out over the coming months and years as we get to a more normalized state.

The first big picture, if we step back and look at our retail cleaning business, it's actually been a great area of strength for US I mentioned, a little earlier that we had strong growth. So if you look at the five year CAGR pre pandemic, we grew that business mid single digits, both top and bottom line and that corresponded to an overall share increase and homecare.

Of two points from fiscal year 13 through through 19, so that was something that we've been investing and we had been a really trying to expand the clorox brand weight of strong focus on innovation, we have launched in Chiba during that time, we had done improvements on a broad range of our portfolio. So it's been it's of.

A nice area of strength for us I think as you dive into the individual segments. Lauren you do get to what you said, which is there are ups and downs in sprays of an incredibly complex fragmented category. So while we were winning and a lot of the the particular segments that we are strong and it could be true that in other ones we weren't.

And we are of very strong spray business to your point outside of tracked channel, which is about 50% of our business. So in aggregate. So we you know I feel like we we walked into this pandemic in a strong way from of Clorox perspective, there's always work to be Dan in individual segments as you highlighted but.

Overall, we were winning and homecare.

And as we look to the future of I think of lot of those elements are going to continue to resonate, but we're going to ramp them up one of the strength of that Clorox brands. It's why we've invested so much this year behind that and increase the spending you know we're on track to spend across the company another $125 million and our advertising and sales promotion this year.

Why we've ramped up the innovation and I mentioned that the innovations are worth repeating of reintroducing. Some cheever compostable wipes are back on shelf disinfecting floor of mop costs, which is a brand new incremental category for us to compete in them, having new offerings and clorox sprays that arent bleach and that's the first for us.

As well as paper towel wipes, and then broadly expanding against our new electrostatic business that we've really created from nothing a number of years ago with some partnership so I feel terrific about what we have in place to continue to meet consumer needs I am not happy with where we are share wise, none of us are but we feel.

Confident in our ability to get back into that share growth as supply continues again, which is the majority of the issue, but we're laser focused on that consumer value metric innovation and investing behind the Clorox brand.

Okay, Linda Thanks, I really appreciate that.

Thanks Lauren.

Thank you. Your next question is from Kevin Grundy of Jefferies.

Kevin.

But so for your outlook now specifically advertising marketing still 11% of sales, including the 12% in the back half of the year I think of as you guys are well aware both of those are historical highs as far as I have going back. This is decades from on a full year basis on the six month basis was there any thought at all about pulling back as.

The costs move higher I suspect the answer is not a lot given a lot of the discussion around market share, but maybe you can comment on that and then just confidence on the ROI behind the spend given a lot of the volatility of exist around consumption et cetera, the context for your understanding supply chain constraints.

Been a problem and one that you are trying to address but I'm sure of the hope would be in principle the market share would be in a better place with advertising and marketing your historical levels, that's probably not going out of much of a limb and then maybe just sort of tying this up.

Longer term is 11% the right number we don't have to go back very far and it was 9% of sales is it possible. This comes in it comes back to 9% for it's not sort of permanently in the P&L. So maybe some comments, there, which I suspect you're not making that debt that sort of decision in a vacuum it's gonna be where its market share and whether you're satisfied with it but.

Not to belabor this kind of feel like we've spoken a lot of it but anything you feel that there would be incremental would be helpful. Thank you.

Sure Kevin.

11 per cent for this year was something we had a lot of passionate conviction on given the fact that we're seeing so many people enter our brands and we wanted to create that loyal consumer base moving forward and we wanted to give them the right product information that they needed during such a trying time for everybody, but also give them new solutions as people had enough of different challenges to solve and innovate.

<unk>, an advertising play a really important role of not so for this year. We are on track to spend of 11% as you highlighted and we have a strong spend coming up here in Q4 and that is behind the new innovations that we've launched and I think you'll recall probably from previous conversations that our goal is to double the amount of advertising we spent on it.

<unk> this year.

To welcome people into those those new product experiences and create loyalty and trial.

As we look for and let me comment on ROI before I say, we move forward you know that's something that we're tracking real time and getting information and insights on and what I can say is you know the ROI continues to be very strong and that's why we continue to spend and we're seeing it translate into results from a consumer metric perspective, so continue to have.

Have incredibly high household penetration, we have household penetration gains across a number of our categories.

We're seeing loyalty strengthens the retention rates growing repeat rates, scoring on both core users of new users.

We're seeing consumers buying larger quantities more often so all of the things that we would attribute to to long term consumer metrics that show the health of the brand the advertising drives we're seeing that not only just the strong ROI, but those metrics increased.

That are important to us to talk about loyalty.

As we move forward, we don't have a prescribed number you know whether it would be kind of 11%, but what I can say is we're committed to investing in our brands and we'll continue to optimize what that right level of spending is depending on exactly like you highlighted market share depending on the innovation programs, we have but what you should hear from US is we will continue to invest in our brands and.

Well you know as we update and give you a perspective for 'twenty, two and beyond we'll communicate what that exact number looks like but you hear our.

Continued commitment to advertising is a strong lever to help help us get two or 3% to 5% over the long term.

Very good thanks, good luck.

Thank you.

And your final question comes from Jason English Goldman Sachs.

And it appears just line disconnected.

The.

Jason one more time he is not there at all operator, no no kind of disconnected.

Okay. That's the final question.

Yes, very good alright. Thanks again, everyone. We look forward to speaking you again on our next call in August until then please stay well.

Thank you. This does conclude today's conference call you may now disconnect.