Q4 2021 Procter & Gamble Co Earnings Call
Any 3 year career with P&G, including more than 12 years as CFO and more recently John added responsibilities as Vice Chairman and Chief operating officer, with P&L responsibility and ownership for our enterprise markets and.
And my nearly 6 years as CEO I've had the benefit of partnering with John.
Outstanding Global leadership team to integrate a comprehensive set of strategies to guide our choices and priorities.
And I'll go back in 2012, John led the initial work to make productivity and integral part of <unk> business. Our team doubled down on this strategy when we announced our second 5 year $10 billion.
Cost savings program and 2017 today productivity is built into our operating model and as an ongoing part of our strategy and every part of our business we.
We worked together for several years to focus the company's portfolio on faster growing more profitable daily use categories, where products solve problems and performance drives concern.
Consumer brand choice the team largely completed this work with the divestiture of several fashion driven and beauty categories and 2016. This strategy continues to guide our disciplined approach to managing our category and brand portfolio.
The Cagny conference in 2016, we first discussed the test we were doing.
And who approach to our organization design, and we refined and formalize the plans and announced the new focused market and enterprise market design at our November 2018 Analyst day, our objective was to create a more engaged agile and accountable organization, which is exactly what we've done.
And April 2017, we.
We first discussed our work to set a much higher bar for measuring the success of our innovation and execution across products and packaging brand communication retail execution and value. If there were any doubts about the importance of consistently delivering irresistible superiority our results over the last few years.
Sort of put those to bed.
And finally in 2018, and we first talked about the need to lead constructive disruption and are highly dynamic and competitive industry. We continue to drive disruption and innovation brand building digitization and supply chain transformation and with our citizenship and ESG efforts over.
Years through many challenges our organization responded brilliantly as we integrated each element of the strategy building momentum that is evident in our results and the past 3 fiscal years. The team fully embraced the idea that we must be willing to change anything and everything needed to win the only things we will not change our purpose.
<unk> values and principles and our commitment to winning.
And this has been especially evident joined the continuing Covid crisis, where the organization has demonstrated tremendous agility to meet the needs of consumers, while ensuring the safety of our employees and supporting communities around the world to deal with the impacts of this crisis to.
All of it delivering results that should delight owners and do it in a way that makes us proud to be P&G years put simply our strategies are working our team is outstanding and I could not be more confident and the next generation of leadership that will take the reins of P&G later this year and.
Now, let's turn it over to Andre Shelton Chief Financial Officer.
Officer to lead us through the fiscal year, 2021, and fourth quarter and year end earnings announcement on dry.
Thank you David good morning, everyone.
Joining David and me on the call today are Jon Moeller, Vice Chairman and Chief operating Officer, and John Chevalier Senior Vice President of Investor Relations.
I'll start with an overview of company.
For fiscal 'twenty, 1 and fourth quarter, and David will add prospective on our immediate priorities and strategic focus areas will close with guidance for fiscal 'twenty, 2 and then take your questions.
Fiscal 2021 was another very strong year, our focus on superiority and strong investment and the business funded with strong.
Productivity improvements and cost savings drove market growth and in turn strong sales share earnings and cash results, leading to balance growth and value creation on.
<unk> sales for the fiscal year grew more than 6% up more than 12% on a 2 year stack.
Both was broad based across business units.
And with each of our 10 product categories growing or holding organic sales home care up high teens oral care up double digits skin and personal care up high single digits grooming fabric care feminine care hair care and personal health care organic sales each up mid single digits family care grew low.
Baby care was in line with prior year.
We delivered strong results and our 2 largest and most profitable markets annualized and strong base periods organic sales were up 8% and the U S and 12% and greater China for the fiscal year.
Focused markets grew 7% for the year enterprise markets were up 5%.
<unk> significant market growth impacts from the pandemic.
E Commerce sales were up 35% for the year at over $10 billion and sales representing 14% of company total.
Global aggregate market share increased 50 basis points 33 of our top 50 category country combinations held or grew.
Grew share for the fiscal year.
All outlet value share in the U S improved through the year growing from 33% over the past 12 months to 33, 5% for the past 6 months to 34% over the past quarter, 1 of the highest absolute value share and the last 20 years consumers.
And are increasingly choosing P&G brands.
We translated the strong top line growth into strong earnings and cash results.
Core earnings per share grew 11% for the year currency neutral core EPS was also up 11%.
Within this core gross margin expanded 20 basis points up 60 basis point.
Excluding currency impacts core operating margin grew 80 basis points on 130 points, excluding currency impacts.
Productivity improvements helped operating margin by 250 basis points.
Enabling strong reinvented, our reinvestment and marketing programs advertising was at 10, 8% of.
And increase of more than 40 basis points.
Adjusted free cash flow productivity was 107%, we increased our dividend by 10% and returned $19 billion of value to share owners, 8 billion and dividends and $11 billion and share repurchases.
Moving on to the April June quarter.
Sales organic sales grew 4% volume pricing and mix each contributed more than 1 point to topline growth.
Growth rates by market reflected the volatility and shipments and the base period.
Organic sales were down 1% and the U S. However, this is still 18% growth on a 2 year stack.
Recall that in the April June quarter last year organic sales were up 19% and the U S 13 points above tracked channel sales as we work to restock depleted trade inventories.
Organic sales in greater China were up 5% also comping a strong base period on a 2 year stacked greater China up 19%.
Focus markets were up 2% enterprise markets were up 14% and the quarter.
Strong market share trends with aggregate global value share up 70 basis points.
All per share in the U S increased 260 basis points for the quarter to 34, 1%.
On the bottom line core earnings per share.
And $1.13 down 3% versus prior year down 4% on a currency neutral basis.
Mainly due to gross margin pressure from higher input cost as we had anticipated.
Core gross margin decreased to 160 basis points currency neutral core gross margin also down 260 points.
This.
220 basis points impact from higher commodity and freight costs nearly $400 million and just this quarter. We also saw a sharp headwind from mix of 210 basis points, mainly geographic mix impacts.
Retail recall that in our fourth quarter last year, the U S and China accounted for more than 100% of organic sales.
Growth and this year's fourth quarter enterprise markets to meet the growth.
Core operating margin decreased 230 basis points currency neutral cooperating margin declined 210 basis points productivity improvements were 320 basis point help to the quarter.
Adjusted free cash flow and the quarter was 117.
<unk> and.
In summary, we exceeded each of our going and targets for the year organic sales growth core EPS growth free cash flow productivity and cash returned to shareholders on.
Our team has operated with excellent discipline, and a challenging and volatile environment and with that I'll pass it back to David.
Thanks Andre.
As I said at the outset, our team has done some outstanding work over the last 18 months to manage through the challenges of the Covid crisis, and make our business, even stronger and the process and our April earnings call last year. We said, we would step forward into the challenge of Covid not back we said, we would double down to serve consumers and that's exactly what our team has.
Done.
As we continue to manage the crisis will remain focused on the 3 priorities that have been guiding our near term actions and choices first is ensuring the health and safety of our PNG colleagues around the world.
Maximizing the availability of our products to help people and their families with their cleaning health and hygiene needs and third priority.
Alrighty supporting the communities relief agencies and people who are on the front lines of this global pandemic.
The strategic choices are outlined earlier are the foundation for balanced top and bottom line growth and long term value creation.
Our portfolio of daily use products, many providing cleaning health and hygiene benefits and categories where performance places.
Significant role and brand choice and these performance driven categories. We've raised the bar on all aspects of superiority product package brand communication retail execution and value.
Superior offerings delivered with superior execution and drive market growth and I'd like to share just a few examples.
First and our oral care business superior offerings are driving market growth across forms last summer, we launched oral b Io power brush, which offers and irresistible consumer brushed and experience the value of this superior performance is evident to the consumers even with a premium price P&C.
<unk> global value share and the brush segment.
This more than 2.5 points over the past year and the U S. Power brush category is up nearly 14 points since the innovation launched with Io contributing more than half of the category growth.
And we recently launched the next breakthrough and teeth whitening crest whitening emotions and create a micro thin layer of concentrated.
As upside droplets, enabling consumers to move beyond occasion based widening to a product that can used up to 4 times per day with no rinsing brushing needed.
This innovation is a leading contributor to our more than 20% organic sales growth of our tooth whitened business in fiscal 'twenty, 1 and is driving 2 thirds of U S whitening category growth.
<unk> and personal health care, Nigel and Dayquil Honey launched last summer offering a great tasting formula while also delivering powerful relief micro honey is the number 1 new item and the U S respiratory market and our VIX share is up 90 basis points over the past 12 months. Despite the soft market due to the very weak cough cold season.
When consumers are shopping and the category they are increasingly choosing VIX.
And for some consumers the environmental aspects of a product offering or taking on increased importance and their assessment of superiority, we're offering a superior performing products or products that are more sustainable and educating consumers on the benefits of those products with superior.
<unk> brand communication and I'll switch to fabric care here tide, and Ariel innovating to extend their superior cleaning performance advantages, while encouraging consumers to reduce their carbon footprint aerials New campaign every degree makes a difference advocates lower Washington Pratury.
Up to 60%.
And <unk> of laundries carbon footprint comes from heating the water and the washing machine lowering the Washington and protrudes. The single most important thing we can do to reduce the environmental impact of laundry to.
To achieve our goals, we continue to innovate to ensure superior fabric cleaning performance and cold water and we utilized superior communication to educate the can.
And on the benefits. This innovation has helped contribute to global fabric care is a 120 basis points of value share growth over the past 12 months.
And our European Shave care business will drive and superiority across all 5 vectors and improving sustainability along the way, we're moving to a plastic free packaging on our ratio system.
I'm simplifying our lineup improving on shelf fundamentals and improving margin for our retail partners.
This innovation contributed to mid single digit organic sales growth and our European grooming business in fiscal 'twenty, 1 with market share up 1 point.
Good business results and good for the environment. This packaging innovation will.
We'll save the equivalent of 85 million water bottles per year, when fully launched around the world.
More important and 1 example is the common theme of superior innovation and execution that drives market growth, leading category growth builds business for our retail partners and mathematically builds market share from P&G.
And investments to strengthen the long term health and competitiveness of our brands and we will continue to invest to extend our margin of advantage and quality of execution improving options for consumers around the world.
The strategic need for investment to contribute to strengthen the long term health and competitiveness of our brands the short term need to manage through.
The crisis and ongoing need to drive balance top and bottom line growth, including margin expansion underscore the importance of ongoing productivity.
We're driving cost savings and cash productivity and all facets of our business and cost of goods, we're delivering flexible formulations that can allow us to change between ingredients to.
Lower cost or create supply chain flexibility, while ensuring no impact on consumer preference for our brands.
We're optimizing plastic bottle designs to reduce the amount of plastics, we use while also lowering costs, we're improving the efficiency and effectiveness of our advertising investments, bringing some media planning work in house to achieve greater.
Efficiency, while also enabling us to place ads with greater precision based on more granular analytics to reduce waste and increase effectiveness.
No area of cost is left untouched.
We've given more authority and accountability to the business units to decide how to balance the need for more resources and some areas of the business with the.
Cost entities for savings and other areas.
They need to make the choices that are best for their business as they work to deliver balance top and bottomline growth.
And our success and our highly competitive industry also requires agility that comes with the mindset of constructive disruption a willingness to change adapt and create new trends and technologies.
<unk> shape, our industry for the future and the current environment that agility and constructive disruption mindset or even more important our organizational structure yields a more empowered agile and accountable organization with little overlap or redundancy flow and to meet new demands seamlessly supporting each other to deliver against our priorities.
Around the world.
And strategic choices on portfolio superiority productivity constructive disruption and organizational structure and culture are not independent strategies, they reinforce and build on each other.
When executed well they grow markets, which in turn gross share sales and profit the strategy.
Is that what we're delivering strong results before the crisis have served us well during the crisis and they will service well on the other end of this crisis, we're confident they remain the right strategic choices as we move through and beyond the pandemic.
We delivered strong results and fiscal 'twenty, 1 and a very challenging environment. While we are pleased.
Strategy results and the overall strength of our business the external environment continues to be volatile and difficult to predict and our eyes are wide open and many challenges we face.
We compete and product categories against highly capable multinational and local competitors raw material and transport freight costs have risen sharply.
Increased social unrest and economic distress and many parts of the world are putting pressure on local GDP growth and the pandemic continues to create risk for consumers retail partners and supply chains.
With these challenges there are also opportunities as we emerge from the pandemic.
The relevance of our categories and consumers' lives.
Likely remains elevated we.
We will serve what will likely become a forever altered cleaning health and hygiene focus for consumers, who use our products daily or multiple times each day.
And there may be a continued increased focus on home more time at home.
More meals at home with related consumption impacts the.
And the important.
And noticeably superior performance potentially gross.
There is potential for increased preference for established reputable brands that solve newly framed problems better than alternatives potentially less experimentation.
Potential for lasting shift to e-commerce, both E Tailers and omni channel are experienced.
To date makes us believe we are generally well positioned in this environment.
We're discovering lower cost ways of working with fewer resources today's necessity, giving rise to the productivity inventions of tomorrow.
New digital tools are being brought to the forefront providing another productivity driver on the factory floor and our labs.
And in our office environment.
Our business exhibited strong momentum well before the crisis, we strengthen our position further during the crisis and we believe <unk> is well positioned to serve the heightened needs and new behaviors of consumers and our retail and distributor partners post crisis.
We have the right strategies we.
We have the right portfolio, we have the right organization structure, we have a team of 100000 employees focused on executing to delight consumers win with customers and deliver balanced growth and value creation.
With that I'll hand, it back to Andre to outline our guidance for fiscal 2020 to Andre.
And as David said, we will undoubtedly experienced more volatility as we move through the crisis.
The results will be heavily influenced by topline volatility embedded and base period results.
Along with the realities of current year cost pressures and continued effects of the global pandemic.
Input costs have risen sharply.
Current spot prices on materials, such as resins and chemicals and other ingredients are up anywhere from 30% to 200% versus April 2020.
Most of the material cost increases occurred in this calendar year and will disproportionately affect the first half of fiscal 2022.
Based on current.
Prices, we estimate a $1.8 billion after tax commodity cost headwind in fiscal 'twenty 2.
Freight costs have also increased substantially due to several factors affecting the supply of drivers and the demand for drivers and trucks and diesel fuel prices are up 35% so far on the calendar.
And we currently expect freight and transportation costs to be an incremental 100 million net after tax headwind in fiscal 'twenty 2.
We will offset a portion of these higher costs with price increases, but there is a lag between the time when costs begin to rise and when pricing is implemented to provide an offset.
As discussed.
But quarter on baby care, and feminine care and adult incontinence businesses have announced increases in the U S that will go into effect in mid September earlier. This year, we executed a significant product upgrade on our Japan liquid area of detergent, coupled with a 35% price increase.
And U S fabric care, we reasoned.
Lastly, we announced a list price increase on tide simply.
<unk> and <unk> liquid detergents effective and <unk>.
September and U S homecare, and we've announced double digit price increases across all product forms of the <unk> brand. These increases are effective mid September.
We have announced price increases and many central.
Eastern European markets to offset a portion of recent currency impacts and Latin America, we've taken accumulative high single digit price increase across our business over the past 12 months.
We are analyzing input costs and foreign exchange rate impacts on other categories and markets and we.
Recently <unk> the need for additional pricing moves when opportunities. Although we were closed couple of price increases with new product innovations, adding value for consumers along the way.
We believe this is a temporary bottomline rough patch to grow through not a reason to reduce investment and the business and not a reason to redesign a strategy that.
That has been working well before and.
And during the Covid crisis.
Our guidance ranges for fiscal 'twenty to incorporate these dynamics.
We expect organic sales growth and the range of 2% to 4%. The high end of this range assumes global markets continue growing at about 3% or so.
And P&G.
Continues to grow above market levels.
The low end of this range assumes deceleration and global markets to 2% on lower with P&G growth at or above underlying markets.
This range also reflects the strong organic sales growth more than 8% that we delivered and the first half of fiscal 'twenty..1 given this base period dynamic we expect.
Sales growth to be stronger in the back half of fiscal 'twenty 2 versus the front half.
On the bottom line, we expect core earnings per share growth and the range of 3% to 6%.
This outlook includes headwinds of approximately $1.9 billion from after tax from commodity costs and freight as I mentioned.
Theyre going to clear with a modest offset overall of the $100 million after tax from foreign exchange rate benefits the.
The combined impact of materials freight and FX is approximately <unk> 70 per share headwind to EPS on a 12% point headwind to EPS growth in fiscal 'twenty 2.
Considering.
And early cost challenge is weighted heavily towards the front half of the year earnings growth is expected to be much strong growth and the back half of fiscal 'twenty 2.
We are targeting adjusted free cash flow productivity of 90% starting of the year.
We expect to pay over $8 billion and dividends and to reap <unk>.
<unk> between 7 and $9 billion of common stock.
Combined our plan to return and $15 billion to $17 billion of cash to share on us 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.
<unk> disruption major production stoppages for store closures on not anticipated within this guidance range.
And I'll back to David for closing comments.
Thanks, Andre our business exhibited strong momentum well before the Covid crisis, we strengthen our position further during the crisis and we believe P&G is well positioned to grow through.
And beyond the crisis, we will manage but it is likely to be a volatile near term consistent with the strategy. We've outlined many times and against the immediate priorities have been trying and employee health and safety maximizing availability of our products to serve cleaning health and hygiene needs and helping society overcome the COVID-19 challenges is still exist in many parts.
Carl.
We'll continue to step forward toward our opportunities not back we remain committed to our strategies and fully invested and our business. We remain committed to driving productivity improvements to fund investment and to maintain balanced top and bottom line growth over the long term.
We're doing this and our interest and societies interim.
The 1 on the interest of our long term shareowners now we'd be happy to take your questions.
Ladies and gentlemen, if you have a question. Please signal by pressing star followed by Juan on your phone and ask your.
My question has been answered or if you would like to withdraw your question press the star followed by to.
Your first question comes from the line of Lauren.
And then with Barclays.
Great. Thank you good morning, everyone.
I wanted to talk a little bit about marketing and both in terms of the efficiencies you've been realizing over the last several years and sort of thought process on the amount of spending necessary kind of going forward. So I.
Thank you.
<unk> and relevant to today's succession plans announced last night, so you've delivered $2 billion and media spending and efficiencies of our 5 years right and then marketing reinvestment. This quarter was way stronger than we had expected I think it was up 170 basis points on top of a 270 basis point and investment last year.
And also 1 how much is really left to go for on that efficiency side of the equation too as you think about incremental reinvestment theres. So much funding and the base from the past 2 years. How are you thinking about that for fiscal 'twenty..2 and then finally I've been asked a few times over email just CFO, becoming.
Coming a CEO should the marketers be worried I'd love to hear everyone's perspective. Thank you.
Okay.
Let me start with the last part first and then Andre can hit some of the marketing spending numbers, but first and know the marketers should not be worried the marketer shift feel wonderful and that we've got.
So senior leadership that is maintaining a high degree of consistency and you all know John very very well. He has supported these investments and media to the extent they grow the market and grow market share and our.
Helping drive awareness and trial of superior products and brands, that's a good thing and it's about creating value.
Do not reduced and are increasing 1 element of cost and John has been very engaged with me and the leadership team and these decisions. The other thing about our organization structure, we leave it to the sector Ceos and the enterprise leader to decide how much to invest and their businesses. This is not a decision we make at the headquarters and decision.
Value by each 1 of the business leaders and we hold them accountable to create the top and bottomline growth and cash generation for their business and I think the results for the last 3 year speak for themselves and.
And so they actually should feel very good as do I that the leadership of the company and the organization structure is working very well and.
And maybe 1 comment on the marketing spending efficiency, then and Andre can add some additional comments, we have increased meaningfully the investment and marketing, but we have also increased the rate of meaningful innovation that grows the market and 1 of the key parts is you have to help consumers understand what the product is how to use it and.
And then help drive awareness and trial and these investments have done that it's evidenced and again and the topline growth you recall very well and if you go back 4 or 5 years ago. Our average growth was about 2% we moved up to the past 4 years, we've out past 5 years, we've averaged 4% and the last 3 years and 6% and we've got the strongest share growth we've.
We've seen and many years, which tells me the combination of the superiority strategy and the brand execution by our people is really working and we will continue to invest behind both brands that are winning and invest to make sure we get the trial and Andre any comments on the specific numbers.
Look I think we've increased.
And at spending year over year in fiscal 'twenty, 1 versus 'twenty by $850 million and as David said Superior communication is a core element of all of this authority framework and we've not reached the point of diminishing return on those investments. So we'll continue to invest at around that level and percent of sales.
Our low.
Do believe that there is significant productivity improvement still within the within the media spend when you think about shift into digital media improved targeting capability.
With first party audiences or third party audiences.
On the ability to.
And to sharpen.
We also growth even on TV audiences with our with our own data. So there continues to be a significant leverage in terms of direct media spend efficiencies that we can create to improve.
Quantity of reach and quality of reach and.
And the indirect space. We are also striving to continue to improve production cost.
<unk> structures, so youll see us continue to work in that direction.
Mostly to reinvest and <unk> and <unk>.
<unk> communications.
And your next question will come from the line of Steve powers with Deutsche Bank.
Great, Thanks, and good morning and.
And congrats to you both this morning, John and David.
It feels like the businesses.
Being passed off with with great momentum so again congrats to both.
Yes. My question I think I think it's probably a question for for Andre mostly.
Andrew I think you said that China was was up 5.
That and the quarter I don't know if you if you provided a U S growth rate on a quarter, but if you have 1 that would be great and I'm thinking.
The question really is.
As you said both of those businesses have very difficult comps from a year ago quarter.
Those difficult comparisons continue and the first half.
5% of 'twenty 2 so just in terms of the makeup of growth first half second half geographically.
Is there anything to call out there do you feel like the U S.
Can stay positive and the first half.
Just anything to call out in terms of the context of growth by geography. Thank you.
Very good so U S quarter U S quarter 4 growth was -1%. If you look on a 2 year stack basis, that's 18% last year's quarter, 4 was 19% growth and.
The strong growth and last year's quarter was mainly driven about 13 points I believe by.
Restocking retailer inventories after strong consumption.
So and comparison.
Just 1 on on a <unk>.
19% base.
The U S consumption.
And I think.
We believe at this point and time will return to normal levels. Most importantly, we see our share at.
At record levels and the U S. Our brands are continuing to strive.
<unk> share across categories. Our retail partnerships are strong and we have very strong innovation program hitting in the U S. So we remain confident but I think you're rightfully cautious in terms of base period effects, especially in the first half.
On the on the China side, we expect the market to continue to grow mid singles.
And our mantra is to grow ahead of that and.
I would I would tell you the same thing I told you for the U S. We feel good about the strength of our brands in China, We feel good about our market go to market capabilities and we'll continue to invest in innovation.
<unk> and supporting those innovations in the market.
Same comment.
Considering base period is going to be prudent for China, and the entire focus markets environment.
And your next question comes from the line of Dara <unk> with Morgan Stanley.
Okay.
Hey, guys.
So just taking a step back now that we've got a full quarter and the books, where you've cycled a period, where COVID-19 was unfortunately with us.
And the leadership teams going forward.
I was just hoping you could review.
And you maybe some of the more enduring consumer changes that you see post COVID-19 again from a consumer perspective, and how you think P&G is positioned relative to those changes and then regarding the.
And the CEO change down the road any sort of tweaks and strategy.
And here or areas of just increased emphasis either and that post COVID-19 environment or with the change and leadership.
Yes.
A couple of comments about the consumer changes that we think are enduring and then certainly Andres John can jump in with some comments as well.
We do believe that the health cleaning and hygiene brands.
And we'll continue to play and increased for all their statistics that I saw while back that pre pandemic about 5% of people work from home and then post pandemic estimated 20 I don't know what the number will be but certainly there is a significant number of people that will be and home more than they were pre pandemic that bodes well for us I believe the strength of our brands and actually.
This shift towards trusted brands will likely last day, good while we've had meaningful increased household penetration on some of our brands.
Stock up and then people get exposed to the superior performance I think that will have a lingering positive impact. So you've got both more people at home and I'll take the U S, especially.
And more occasions at home you have got a shift toward trusted brands and the role that health cleaning and hygiene place.
We'll anniversary some tough comps, but the health of the brands and the share of momentum and.
To me it gives me a lot of confidence going forward the U S and Europe to I'll call. It on our biggest focused markets.
And are having some of the strongest share progress they've had and every 1 of those categories and absolute share is higher than they were pre pandemic with the exception of family care that had a supply issue for the first part and just couldnt supply because of the increased demand and theyre growing share and the fourth quarter. So we've got good momentum consumers.
<unk> continued to vote for trusted superior performing brands and.
And I think those consumer habit changes will likely last.
What I would say, maybe I think our portfolio positions us well there were many categories that did not benefit from <unk> and our portfolio when you think.
About adult incontinence, deodorants shave care.
Some of the tooth whitening that we see coming back.
Personal health care had a very low cough cold season, with everyone's waiting math and our professional business certainty that those hotels and restaurants did not do well.
And so as mobility increases those business.
Businesses pick up.
And we see that as a positive going forward, obviously geographically many of the markets, we operate and specifically the enterprise markets never did see a benefit in terms of consumption from COVID-19 as consumers and retailers were impacted by the crisis. So hopefully.
And these markets book through the pandemic that will also provide a tailwind from a geographic standpoint.
And relative to the.
Question on strategic changes as.
And as we go forward, we will always be a responsible responsive to consumers and customers whose needs.
We will continue to evolve over time.
I don't foresee that.
Leading to any major change and.
And the strategies.
Payments on executing with <unk>.
Excellent.
But again and we will continue to be very attentive to and.
And responsive.
For consumer and customer needs.
Great Great and your next question will come from the line of Wendy Nicholson with Citi.
Hi.
And my first question actually.
David.
Before you go on.
And 1 of the categories it seems to sort of be.
And I don't want to say persistently weak, but kind of lagging in terms of sustained global market share improvements is baby care.
And I know the last 12 months have been really money, you've actually had some market share recovery.
Because they were depressed last year, given supply issues, but still just sort of in totality baby care just looks to be.
Such a competitive marketplace, I think kimberly sounded more aggressive and more optimistic about their market share positions, you've obviously got lots of fragmentation and the category with more organic all natural players sort of trying to gain traction. So can you kind of give us a state.
State of the Union on Baby care in particular, where you think Procter is why do you think there it's been sort of a stubborn business for you in terms of being able to really make progress, especially on China.
And that would be great. Thank you.
Sure happy to first and it has been a challenging category for several years and this week, we're very open and several.
3 years ago, It would take time because of the technical changes, we need to make to deliver product superiority.
And we continue to make those changes, but I'm actually very encouraged by the progress they've made our focused markets grew top line and profit last year, all and profits increased global baby care and made progress.
And.
Our North America business, especially was plus 3% the highest it's been in 6 years, we're leading the category growth.
We actually have strong share growth now in North America. Most recent period, it's up a point or more or superiority metric, which is really important back several years ago was 25% which is.
Unacceptable, it's up to 60% and rising and will continue to be investing to get and delight consumers. Both North America doing better Europe returned to growth for the first time and 6 years, you're right. It's been it's been challenging both the birth rate, but returned to growth expanded the margins. We address some of the challenges we had on our enterprise.
Markets, John and his team did a great job there working to make sure we had structurally profitable businesses and adjusting the business model and supply systems where need be.
You look across those and then this shift towards fast growth segments. Our wipes business was up 10% our pants business was up 12%, we doubled our bedwetter segment growth.
The 12% behind the successful Ninja must launch.
So there is there's a number of things going well, we still have much work to do and we understand that baby care does take time, but this was the best year, we've had and 6 years and the trends are positive and we're now playing and fast growing segments and.
And that product superiority is getting.
And the better each year so.
I become more optimistic on baby care each year, I think the leader and their team are doing a really nice job recognizing that this is a mid to long term game and they're continuing to make the right investments.
Our next question will come.
Have you ever have come on to it with Evercore ISI.
Hi, good morning to everyone on our congratulations to David and John from Robert and I, well deserved and.
And my question has to do with your.
And your plan to upside.
The increases in raw material day, 1.9 billion hit a and if you could split the pricing versus savings and.
How much youre going to and.
In terms of not taking pricing.
How much is pricing and if you could help us understand.
And what is happening geographically.
And we have a good feel of the U S.
And we do not about western Europe in particular, and both 2 of your competitors co.
And I'll get on Unilever reported negative pricing and Western Europe.
And which is surprising.
And I think that anybody can go and talk about deflation and see if he can talk about.
Price and in general on what leading this deflation is the consumer cause or with Taylor is competitive dynamic. Thank you.
I'll give 1 quick comment and turn it to Andre and I mean, and we have many tools to deal with the commodity cost increase and 1.
It is very clear is that hits, everybody that hits local brands international brands equally and in many ways more severely if you don't have scaled supply systems and and the buying power that a company like P&G does where we worked collaboratively with our suppliers. So we've got.
The tools that include innovation, which I think is the strongest.
As I've seen it and years, we have certainly pricing, but we have a very active productivity program. So we've got the tools, if you get into specifics for Europe, and others and I'm going to turn it to Andre to get into but again I think we're well positioned to deal with it and we have our eyes wide open.
That is can be meaningful and especially and some of the categories that.
Things and all of the increased amounts of raw materials and they've been hit the most Andre you want to give any specific comments about Europe.
What I would say is similar to what David mentioned I think productivity is going to be a core driver of the offsets that we will continue to focus on.
On the commodity pressures that we're seeing.
<unk> Xu have herds.
And broad based and the industry and therefore, the same pressures exist and the market around the world and.
In terms of.
Pricing, we've mentioned that we've taken and announced pricing and central and eastern European markets.
We've announced pricing and de risks, which you referenced and we've also.
Also have taken pricing and cumulatively high single digits.
And Latin America over the past 12 months, we will continue to evaluate pricing.
<unk> around the world and.
And we are encouraged I think by our ability to execute pricing in the markets, where we have announced but.
<unk> is not comment on any additional pricing that we might or might not take again that is within the discretion of the sector leaders and and will come out as we as we see as we see fit.
Alright next question will be from the line of Kevin Grundy with Jefferies.
Great. Thanks, Good morning, everyone and congratulations to David and John.
Broader portfolio question, just to kind of pull back a little bit on really beyond fiscal 'twenty, 2 and it relates specifically around strategic priorities and where you see the greatest opportunities to accelerate profitable growth. So John understanding your comments that.
But I can strategies and deep working.
And can be sort of a continuation and execution against that and David you talked about what the company has done with respect to productivity and structure culture innovation and I think there is there sort of general recognition and among the investment community and look at the market share momentum and the results and as a strategy, that's clearly working but but that being said as.
And this across your geographies your categories and your cost structure I would like to get your perspective on the areas, where you see the greatest opportunity to accelerate growth and maximize profitability and John how you intend to prioritize those thank you.
Yes.
And now I'll turn it to Jon first.
There are many opportunities but it is.
Look I hear on the U S. It's our largest market.
We have we declared several years ago. The U S. It's a growth market. We don't have any markets that arent growth markets. It's our job to create the innovation that drives the growth and I think it is best illustrated by the U S. We are averaging 1% to 2% and we've moved to mid singles and certainly the last 2.
2 years, we've been and high singles and it has driven by.
And the innovation and the communication and just the superiority strategy and being brought to health.
And on executed and very good way, we have had some bolt on acquisitions that you are well aware of there have been some categories that we've been open about we added the Merck International business.
And as to our health care, and Thats done very well and you've seen the growth recently and that and.
And our health care business that remains an interesting segment.
You've seen some bolt on acquisitions and the beauty care business again that remains and interesting business as well and each of the sector leaders has the opportunity to evaluate whether they see bolt.
On acquisitions are acquisitions that would be helpful. The core though is most important driving the core and the focused markets and then continuing to have smart growth and value creations and the enterprise markets is working and I believe thats the.
Right strategy I'll turn it to John to offer any comments about how.
He is thinking about the future, but we've worked together on these and been very aligned and it starts with delivering the core and seeing market growth is a key responsibility of each category.
Kevin I really like and you've heard me talk about this before each of the categories that we've.
Decided to play and as we've.
Focus on strengthened our portfolio.
And.
Firmly believe that they all have opportunity to grow and to create value.
And youre seeing that and the results that on a described for example, theres very broad progress thats occurring.
Across those businesses.
And similarly from a geographic standpoint.
Or what people would view as mature markets have significant growth potential.
That exists within them you've seen the results and the U S. If.
If you look at cash.
Category development.
Outside of the U S on average.
20% of U S levels.
So there's significant opportunity across geographies to continue to develop these categories to grow markets.
And increased consumption.
And historically.
While we probably felt that way for the focused markets, we were a little bit.
Average earned about what kind of future the enterprise markets held for us.
But the team there has made significant progress on the last couple of years and dramatically increasing the structural profitability of those businesses. So they are investment grade and we can.
We can take advantage of the population and income growth that will occur.
Concerning <unk> and do so on a very profitable value accretive way.
And last year with 1 country and the world well over 100 countries and the enterprise market is losing any money.
So the majority are contributing positively to the company's topline and bottom.
And those margin.
So I don't want to and anyway backend and the question, but I really do believe that we have opportunities for growth and value creation and each of our categories and broadly across the global.
Geography, and then it becomes.
Executing the.
A strategy that we've all talked about a number of times and it is.
Andre mentioned, we will continue to double down on stepping forward and not back.
And the next question will be from the line of Mark Astrachan with Stifel.
Thanks, and good morning, everybody.
Wanted to ask.
About thoughts on sustainability of EBIT margin expansion that we've seen in recent years and you don't get the comments about the roughly 3 points or so if my math is right of input commodity cost headwinds for 'twenty..2 so I guess broader picture 21, it sounds like Youre, saying Thats a base you think it can obviously expand over time and and normalized world I guess, maybe.
And just talk a bit about how holistically, you're thinking about that and then.
And maybe drilling and a little bit as well.
Looking at segments and most of the where the strongest rate of expansion has come from household products, whether it's a household care.
<unk> our baby.
Et cetera, so how sustainable is that what can you do there.
And to further improve and just you know as I said broadly kind of how are you thinking about margin. Thank you.
So I think.
And as David explained and John explained, we're very pleased with the categories. We're operating in and I think they all offer.
<unk> growth opportunity, if you think about.
<unk>.
Other growing the market via innovation with the examples that David mentioned earlier, if you think about trading consumers up into premium propositions with have superior profitability and in terms of penny profit for us.
If you for example.
Fabric Enhancers household penetration.
U S is only 37% and only 52% of those households use the fabric enhancer with every load. So there's tons of runway. When you think about beat those numbers are even lower.
Those propositions and on accretive to our portfolio and accretive to our margin and will continue to focus on those.
And they provide.
A good source for future growth.
And both top and bottom line.
Productivity is another key lever that still has.
Enormous runway.
<unk>.
Balance sheet and across the P&L our supply chain.
<unk>.
<unk> continues to have significant opportunity in.
In terms of synchronization, but also every innovation that we bring basically creates a new cost S curve that we can then optimize from.
And we talked about media.
And advertising spend as a significant source of profitability.
Future profitability growth and productivity and I would add go to market.
Specifically in terms of go to market logistics, but also go to market spend as a source so.
We feel confident and our ability to deliver even with cost headwinds, which is reflected in our guidance for next year and we do believe there is enough levers and the portfolio.
And from trade up to use it to expansion.
To be able to continue to do so.
There is a.
Some of you have heard me talk about this before but there is on.
Chart, and I share with our leadership team whenever we're together.
That highlights the importance.
Of growth on both the top.
Offline and margin and delivering top third total shareholder return.
We need to do both.
And to Dependably deliver.
Top shareholder return over reasonable periods of time.
So that will continue to be the focus on the emphasis.
Having said that.
Margin is a metric.
And has many issues associated with it.
The first being I can't put margin and a bank I can't return margin to shareowners what.
Most of what Andre referred to which is.
Penny profit and overall.
Profit and profitability.
And we've got to make sure that we keep our eyes firmly.
On that.
As we as we work to grow the <unk>.
Top line.
Next question will come from the line of Andrea Teixeira with Jpmorgan.
Good morning, and congrats to all of you and particular, David and.
Thanks for your leadership and congrats to John and Chili's.
And I have a question on the beauty and follow up on beauty and follow up on baby care. What are you expecting for fiscal 2000.
So in terms of recovery and skin care, and Japan, and China for both SK, II and Olay and for Baby David Your comments.
Improvement most recently are you putting and.
A question on all for John more money behind innovation and this fall curious too.
<unk>.
And the launch, but it seems that core pampers and still lagging.
And a clarification on the $1.9 billion headwind for fiscal 'twenty..2 are you embedding that commodities and transportation costs stabilized low decline or have you conservatively assume that these cost pressures will linger at current levels given understandably a.
P. S range that you gave.
And let me start with a couple of those here on quite a few questions. There. So you're on to help me if I. If we don't answer each 1 of them first you mentioned, our beauty business and specifically <unk> 2.
And I'm very pleased to have just take SK II as an example, you would expected it to get hit very very hard.
And why because of travel retail virtually stopping and Asia and it's certainly a huge channel, but the team pivoted amazingly well and was able to actually grow the business last year. The business was up double digits up 13%. So SK II is actually healthy and continues to grow nicely.
Because the consumption.
And that did not happen and travel retail happened and the home markets and then there was the duty free area and Hainan Province.
And it really nice job, making sure that the brand was both available and had the innovation and communication to win so SK too is healthy and I expect.
And I don't know when travel retail will resume you can take your guests.
It looks like it's going to be a while but the good news is at the strong growth that we're seeing already.
And we're not dependent on that that will be it could be a help.
If a win and opens up anytime soon and more broadly the skin and personal care business had.
<unk> had a strong year last year as did the overall beauty business.
So again I feel very good about the business how strong it gross next year will be dependent again on many of the factors that that we've already mentioned.
And theres meaningful cost headwinds the innovation that both hair care skin and personal care is launched and we will be launching I feel very good about so both businesses.
<unk> had strong years on the top and Bottomline and.
And I feel good about those baby care and made a number of comments earlier, so I'm not sure what else would be helpful. Yes, we are very committed to the category the innovation coming and we will continue to come we on a multiyear innovation program.
And a part of it has hit the market and you see that improvement.
<unk> and <unk>.
Per cent superiority from 25% to 60% will continue to work to move that up significantly.
And we also recognize that for many consumers and in many markets. The premium amortization is critically important and these high growth areas and that allows us to offset some of the challenges that you are well aware of on the birth rate.
And still grow the category and grow share and create value and baby care did create value. This year is a very strong year strong improvements so.
All of these businesses to me have meaningful upside.
And especially the beauty business has very good momentum and baby care is accelerating.
And I feel good about both and.
Andrea to answer your question on the commodity exposure and trade exposure.
Forecasting it's Bob so we assume that the spot prices will sustain throughout the year. So we don't expect and easing of these commodity pressures within the guidance that we've given.
Okay next question will be from Chris Carey with Wells Fargo Securities.
Hi, good morning.
So just 2 specific questions.
I'll keep it brief.
So just on grooming.
Volume was up for the first.
While on a fiscal year pricing as well.
We turned the corner in the business you know I'm I'm on.
Also conscious you know there could be some cyclical recovery with return to office and.
Any perspective on just where you think the business at.
On this recovery curve and and.
And if that's right.
By geography or price tier and any perspective would be helpful. And then just just 1 quick follow up on on S. K 2 I noticed and you know the press release talked about and a pricing premium and nation, but not volume.
Is it safe to assume that it's been more driven by price of late and not volume.
Time and on any clarification, there would be helpful. Thanks, so much.
And it's actually very balanced volume and pricing, but let me take 1 and then we can give the specific numbers first on grooming grooming had a very strong year.
Grew mid single digits on the top and double digit on the bottom and importantly, the gross share almost every segment across whether it's mail.
So any female shaved from clients all of those making very good progress, which contributed to the strong growth and as you rightfully said.
As people return to working outside the home I think that will benefit the category and what the team has done which I think is very strong and very important go on for the future. We're no longer a wet shave business with.
Shaving and grooming business with growth in wet shave.
Dry shave, which we call appliances, we're also growing and many of the new areas like IPL and the intense pulsed light area. All of those to me gives me confidence and attendant new segments as well we have.
And where true innovation come on and <unk>, which helps people with facial hair. So it's on its own.
Broader portfolio innovation across all of those different forms and segments and it's leading to mid singles pump and.
And double digit bottom. So that's the strongest year, we've had and many many years and grooming and the reason is strong should continue.
<unk>, because it's innovation driven consumer driven.
And on SK to what David said is certainly right growth is very strong 13% as David mentioned.
For the fiscal year, but 35% from Florida for the pricing taken was mid singles so by far.
Different volume component to it as the team shifted consumption into high non which is a big part of the of the offset to travel retail reduction.
So again the growth on SK too as both volume and price mix driven.
Your next question will be from the line of Peter.
From with UBS.
Hey, good morning, everyone, and David and John I want to offer my congratulations as well. So I guess I just wanted to ask about the business momentum and growth from here and I mean the.
Quarterly performance and what we can see and the data is very impressive.
And congrats on that and I know the health of the brands and very strong, but when you think about the magnitude of growth versus your peers. I mean do you expect this level of outperformance to continue and you mentioned record share like how much more room do you have on the share side because a lot of your competitors are really implementing a similar playbook and attempting to innovate with superiority.
As well so just like any comments on on.
And the relative outperformance from here would be really helpful. Thanks.
And I won't speculate too much on the relative outperformance what I can say is the strength of just what you said the branch are strong and the measures we use which I think are really important and our superiority metrics are relative.
So best competitor and each brand and each country.
<unk> us to maintain and try to extend the advantage. We have now we have full respect for our competitors and.
You're right, we have very strong growth in both North America, and Europe, and Latin America and in those markets.
We'll see what happens next year, but at this share growth has been now sustained and North America for 3 years and in Europe for 3 years. So the focused markets are performing very well and as John mentioned, we have very strong progress and the enterprise markets, where mid singles with double digit growth and a very very difficult environment. So that gives.
To the balance where at least well positioned but the other thing is very real you have to earn it every day and so our teams understand that our competitors are refocusing and those that loss share will come back with our innovations and investments.
And it's our job to go on it but it's very clear that's what they are accountable to deliver and based.
<unk> 3 years I've got confidence that continue and just a reminder.
And excuse me.
And how you gain share how we gain share.
And very important and the answer to this question.
And David has talked many times on our discussion on this morning.
And the last and this is Andre about.
Our intent to be a disproportionate driver of market growth.
The math that falls out of that.
<unk> share growth.
But the notion that.
We're taking business from competitors and it's only a matter of time.
And on how we look at things.
Our job is to be constantly expanding this pie.
Constantly expanding the number of households that we serve and if we do that.
Well.
And Theres no reason.
That growth shouldnt be sustainable.
Yeah.
Alright, well next go to Bill Chappell with Trust and Securities.
Thanks, Good morning.
Hey.
Im not 1 who typically says congratulations on these type of calls, but I just wanted to take a step day.
David.
And it could be.
More deserved.
Looking back 6 years.
[noise] ago in terms of where the company was and especially where investor sentiment was.
It's remarkable that where we are today and and John knowing you for decade, plus and how integral <unk> bin picking on the turnaround and the U R. I think most people would agree on the call. Mr. P&G, So so well deserved and and I.
I applaud.
The board and everyone for making these changes because I think it's just.
Well done so with that moving on to the actual question.
Kind of on trade promotion as we look back.
With the pandemic trade promotion dropped off it.
Not coming back kind of to full.
Full extent as you would expect as Youre, taking pricing and what have you and then just kind of.
I wanted to understand if if you think this is kind of a permanent change if if we've kind of made a shift back to where.
Marketing and innovation really take the lead in terms of investment dollars and trade promotion and never really again, it goes back to where it was pre pandemic levels.
Levels or if you do see it starting to creep back into pre pandemic levels and any thoughts there would be appreciated. Thank you.
So I'll just offer a couple of thoughts first thank you for the kind words.
The organization deserves a ton of the credit and the.
The total leadership team, but I appreciate your comments on me and very much agree and your comments and John.
Comes from trade promotion, and certainly it's and our best interest to bring to our retail partners programs that build their business and build their margin I do believe as you said that that can best be done by innovation and market growing plants and theres walls, they play with us and making sure things like the shelf.
And Carol.
Physical shelf is arranged and a way that creates market growth and helps consumers fans of the brands that the most apt to use we worked with retail partners around the world and the ones. We've partnered with best success as they grow the market gross margin growth and we help them do it we get rewarded.
So we will continue with that certainly objective.
Our eyes are wide open and I expect from a very low base, we will see and increased and trade spending do I believe it and go all the way back to what it was before I think many retailers.
A very interesting and finding smart ways and they.
The same pressures that we do with the commodity.
Award and cost they need as well as ways to find ways to create value. So I'm hopeful that we'll see some.
And some thoughtful change and promotion strategy that has more value creating for the market.
Yes.
A few numbers David statements quarter 4 in.
And the U S. We saw trade promotions volume sold on deal back to 27%, which was in line with quarter 3 but it's still below pre pandemic levels, which was around 33%, so, but certainly getting back to a more normalized level.
Multifold.
Alright, and your final question will come from the line of Jonathan Feeney with consumer edge.
Thanks, very much and let me add my congratulations David John and no 1 better.
On the.
A quick 1 and then a little bit more involved 1 please on the quick 1 just on the point guidance you gave us on cost.
And <unk> and Forex benefits does that include hedging your current or anticipated and then second maybe a little more involved 1 is we've had a lot of discussions with consumer staples leaders in the past and really 2 weeks about the state of retailer inventory and that's largely a U S question, but it.
Headwind all over the board a lot of retailers are seeing better foot traffic certain retailers and certain channels have had unprecedented volume and thats stuck around and there is a little bit of a mentality of maybe taking on more inventory and shipping maybe not matching up with <unk>.
Measured takeaway not only in the U S, but other places and I.
It seems it cuts both ways. So I know, there's a lot to that question, but anything you could say about retailer inventories, where you think that is and you have to say.
Your big markets say your focused markets, where you stand and how that plays into your guidance for 'twenty 2 what your thoughts about that how that plays and I'd. Appreciate it. Thank you.
I'll, let Andre comments on the hedging question and just a second.
The way I think about the.
The retailers approach to their business.
And I don't really think about it through and inventory lens so much as I.
I think.
Through a desire.
To maintain dependability of supply.
And.
Those manufacturers that Ken.
Offer that assurance.
Are often being rewarded with increased.
Shelf space and increased focus on the part of our retail partners.
And as a small amount.
Yeah.
<unk> inventory build but that's not really the focus the focus is on how do we ensure supply and maintain the satisfaction of our shoppers and.
And Thats, a very fertile place for us to play.
With regard.
And to hedge and Andre.
The short answer is that $1.9 billion that we've communicated is the net impact to PNG.
Okay. Good. Thank you very much I think.
Includes the call we very much appreciate.
Shaped your engagement PNG has got strong momentum we've got a strong leadership leadership team and organization and we will continue to work aggressively to deliver strong results and value for our shareowners.
And you all for your support and your comments today.
Ladies and gentlemen that.
Concludes today's conference. Thank you for your participation you may now disconnect have a great day.
[music].