Q1 2022 Procter & Gamble Co Earnings Call

Good morning, and welcome to Procter <unk> Gamble's quarter end conference call. Today's event is being recorded for replay.

This discussion will include a number of forward looking statements.

If you will refer to P&g's. Most recent 10-K 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.

As required by regulation G. Procter <unk> gamble needs to make you aware that during the discussion the company will make a number of references to non-GAAP and other financial measures Proctor.

Procter <unk> Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website Www Dot P. G investor Dot Com, a full reconciliation of non-GAAP financial measures.

Now I will turn the call over to PNG as Chief Financial Officer Andre Shelton.

Thank you operator, good morning, everyone. Joining me on the call today are Jon Moeller currently Vice chair and incoming President and Chief Executive Officer as of November 1st.

And John Chevalier Senior Vice President of Investor Relations.

We're going to keep our prepared remarks brief and then turn straight to your questions.

The July to September quarter provides a good start to the fiscal year, putting us on track to deliver our guidance for organic sales growth core EPS growth free cash flow productivity and cash returned to shareholders.

We experienced the full impact of rising commodity and transportation costs this quarter, but healthy topline growth and strong cost savings kept EPS growth nearly in line with prior year.

Earnings growth should improve sequentially through the balance of the fiscal year as price increases go into effect and productivity programs ramp up.

So moving to first quarter results organic sales grew 4%.

Volume contributed two points of sales growth pricing. It makes each added one point.

<unk> was broad based across business units with nine out of 10 product categories growing organic sales.

Personal healthcare up double digits fabric care grew high singles Baby care feminine care and grooming up mid singles home care oral care hair care and skin and personal care organic sales each up low single digits.

Family care declined mid singles Comping very strong growth in the base period.

Organic sales were up 4% in the U S. Despite 60% growth in the base period on a two year stacked basis U S organic sales are up 20%.

Greater China organic sales were in line with prior year due to strong growth in the base period comp and due to intra quarter softness in beauty market growth.

On a two year stack basis organic China, but what.

China organic sales were up 12% in line to slightly ahead of underlying market growth.

Focus markets grew 4% for the quarter and enterprise markets were up 5% E Commerce sales grew 16% versus prior year.

Global aggregate market share increased 50 basis points 36 of our top 50 category country combinations held or grew share for the quarter.

Our superlative strategy continued to drive strong market growth and in turn share growth for P&G.

All channel market value sales in the U S categories in which we compete grew mid single digits. This quarter in PNG value share continued to grow to over 34%.

We are up more than a point and a half versus first quarter last year. Importantly, this share growth is broad based nine of 10 product categories grew share over the past three months with the 10th improving to flat versus year ago over the past one month.

Consumers are continuing to prefer P&G brands.

On the bottom line core earnings per share were $1 61 down 1% versus the prior year on a currency neutral basis core EPS declined 3%, mainly due to gross margin pressure from higher input costs, which we highlighted in our initial outlook for the year.

Core gross margin decreased 370 basis points and currency neutral core gross margin was down 390 basis points.

Higher commodity and freight cost impact combined with a 400 basis point hit to gross margins mix was an 80 basis points headwind, primarily due to geographic impacts.

Productivity savings pricing and foreign exchange provided a partial offset to the gross margin headwinds.

Within SG&A marketing expense as a percentage of sales was in line with prior year levels for the quarter, increasing more than 5% in absolute dollars consistent with all in sales growth.

Core operating margin decreased 260 basis points currency neutral core operating margin declined 270 basis points.

Productivity improvements were 180 basis points help to the quarter.

Adjusted free cash flow productivity was 92%.

We returned nearly $5 billion of cash to share owners $2 2 billion in dividends and approximately $2 8 billion in share repurchase.

In summary in the context of a very challenging cost environment. Good results across top line bottom line and cash to start the fiscal year.

Our team continues to operate with excellence and stay focused on the near term priorities and long term strategies that enabled us to create strong momentum prior to the Covid crisis.

And to make our business even stronger since the crisis began.

We continue to step forward into these challenges and to double down our efforts to delight consumers.

As we continue to manage through this crisis, we remain focused on the three 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.

Second maximizing the availability of our products to help people and their families with a cleaning health and hygiene needs.

Third priority supporting the communities relief agencies at people, who are on the Frontlines of this global pandemic.

The strategic choices. We've made are the foundation for balanced top and bottom line growth and value creation, a portfolio of daily use products.

Many providing cleaning health and hygiene benefits in categories, where performance plays a significant role in brand choice.

And these performance driven categories. We've raised the bar on all aspects of the priority product package brand communication retail execution and value.

Superior offerings delivered with superior execution drive market growth and.

In our categories. This drives value creation for our retail partners and build market share for P&G brands.

We've made investments to strengthen the health and competitiveness of our brands and we'll continue to invest to extend our margin of advantage and quality of execution improving solutions for consumers around the world.

The strategic need for investment to continue to strengthen the superiority of our brands. The short term need to manage through this challenging cost environment and the ongoing need to drive balanced top and bottom line growth including margin expansion.

Underscore the importance of ongoing productivity.

We're driving cost savings and cash productivity in all facets of our business.

No area of cost is left untouched.

Each business is driving productivity within the P&L and balance sheet to support balanced top and bottom line growth and strong cash generation.

Success in our highly competitive industry requires agility that comes with a mindset of constructive disruption a willingness to change adapt and to create new transit technology that will shape the industry for the future.

In the current environment that agility and constructive disruption mindset, even more important.

Our organization structure yields a more empowered agile and accountable organization with little overlap or redundancy flowing to new demands seamlessly supporting each other to deliver against our priorities around the world.

These strategic choices on portfolio superiority productivity constructive disruption and organization structure and culture are not independent strategies, they reinforce and build on each other.

When executed well they grow markets, which in turn will share sales and profit.

These strategies will deliver we're delivering strong results before the crisis and have served us well during the volatile times with.

Confident they remain the right strategy framework as we move through and beyond the crisis.

Moving onto guidance, we will undoubtedly experienced more volatility as we move through this fiscal year as we saw this quarter growth results going forward will be heavily influenced by base period effect, along with the realities of current year cost pressures and continued effects of the global pandemic.

Supply chains are under pressure from tight labor markets tight transportation markets and overall capacity constraints.

Inflationary pressures are broad based and sustained foreign exchange rates at more volatility to this mix.

We have also experienced some short term disruptions and material availability in several regions around the world.

Our purchasing R&D and logistics experts have done a great job managing these challenges.

These costs and operational challenges are not unique to P&G.

And we won't be immune to the impacts. However, we think the strategy we strategies. We've chosen the investments we've made and the focus on execution excellence have positioned us well to manage through this volatile volatility over time.

Input costs have continued to rise since we gave our initial outlook for the year in late July based on current spot prices. We now estimate a $2 $1 billion after tax commodity cost headwind in fiscal 2022.

Physical costs freight costs have also continued to increase we now expect freight and transportation cost to be an incremental $200 million after tax headwind in fiscal 'twenty two.

We will offset a portion of these higher costs with price increases and with productivity savings.

As discussed last quarter and in the more recent investor conferences, we've announced price increases in the U S. On portions of all baby care feminine care adult incontinence feminine care home care and fabric care businesses in.

In the last few weeks, we've also announced to retailers in the U S that we will increase prices on segments of our grooming skin care and oral care businesses.

Degree of timing of these moves are very specific to the category brand and sometimes the product form within a brand. This is not a one size fits all approach.

We're also taking pricing in many markets outside the U S to offset commodity freight and foreign exchange impact.

As always we will look to close cover price increases with new product innovation, adding value for consumers along the way.

As we said before we believe this is a temporary bottom line rough patch to grow through <unk>.

Another reason to reduce investment in the business, we're sticking with the strategy that has been working well before and during the Covid crisis.

Our good first quarter results confirm our guidance ranges for the fiscal year across all key metrics.

We continue to expect organic sales growth in the range of 2% to 4% our solid start to the fiscal year increases our confidence in the upper half of this range.

We expect pricing to be a larger contributor to sales growth in coming quarters as more of our price increases become effective in the market.

Is this pricing reach a store shelves will be closely monitoring consumption trends.

While it's still early in the pricing cycle, we haven't seen multiple changes in consumer behavior.

On the bottom line, we're maintaining our outlook of core earnings per share growth in the range of 3% to 6% despite.

The increased cost challenges we're facing.

Foreign exchange is now expected to be neutral to after tax earnings compared to the modest tailwind we estimated at the start of the year.

Considering FX was a modest help to first quarter earnings were projecting it to be a headwind for the balance of the year.

In total our revised outlook for the impact of materials freight and foreign exchange is now a $2 $3 billion after tax headwind for fiscal 'twenty two earnings while roughly <unk> 90 per share.

A 16 percentage point headwind to core EPS growth.

This is $500 million after tax of incremental cost pressure versus our initial outlook for the year. Despite these cost challenges we are committed to maintaining strong investment in our brands. So while we are not changing our core EPS guidance range. Please take note of these dynamics as you update your outlook for the year.

We will face the most significant cost impacts in the first half of the fiscal year as pricing goes into effect.

Savings programs ramp up and as we begin to annualize the initial spike in input costs earnings growth should be sequentially stronger in the third and fourth quarters of the year.

We are targeting adjusted free cash flow productivity of 90% we.

We expect to pay over $8 billion in dividends and to repurchase 7% to $9 billion of common stock.

Combined the plan to return, 15% to $17 billion of cash to shareholders. This fiscal year.

This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant currency weakness.

A modest cost increases additional geopolitical disruptions major production stoppages or store closures are not anticipated within the guidance ranges.

To conclude our business exhibited strong momentum well before the Covid crisis.

We strengthened our position further during the crisis and we believe <unk> is well positioned to grow beyond the crisis.

We will manage through the near term cost pressures and continued market level volatility with the strategy, we've outlined many times and against the immediate priorities of ensuring employee health and safety maximizing availability of our products and helping society overcome the COVID-19 challenges that still exist in many parts of the world.

We'll continue to step forward toward our opportunities and remain fully invested in our business.

We remain committed to driving productivity improvements to fund growth investments mitigate.

To mitigate input cost challenges and to maintain balanced top and bottom line growth.

With that we'd be happy to take your questions.

Ladies and gentlemen, if you have a question. Please press star followed by one on your phone.

Question has been answered or if you'd like to withdraw your question press the star followed by <unk>.

Your first question comes from the line of Steve powers with Deutsche Bank.

Yes, Hey, guys good morning, everybody.

Maybe we can start just on organic growth this quarter.

Relative to underlying consumption trends.

Specifically, how much of the 4% you think might have been aided by any timing, whether shipment timing or any temporary surges in demand against the backdrop of Covid I guess it feels to me like maybe the U S tunnel benefited from some of those dynamics, but maybe China on the other side of that but I'd love your perspective.

Whether we should be thinking about any adverse correction against the 4%.

Second quarters. Thanks.

Yeah.

Thank you Steve.

I'll start by saying that overall consumption trends remain strong globally, particularly as you said in the U S.

Markets continue to grow within our categories of daily use health and hygiene in the range of mid singles.

So from a consumption standpoint consumer behavior continues to elevate the importance of health hygiene.

And a clean home.

More time at home certainly is also effector, we continue to see elevated consumption on bounty paper towels for example by 10%.

<unk> Bath tissue is still elevated consuming about 5% with more time at home.

So overall consumption trends remained strong and fuel.

Most of the growth, we also have been able to grow share.

As we've outlined in our prepared remarks bolt on a global basis, we're up 50 basis points over the past three months 70 basis points over the past six months. So that's certainly contributing to a stronger position.

To benefit from that growth.

In the U S. We've reached record share of 34, 4% of value share.

<unk> up more than a point.

Inventory effects I would tell you.

Certainly play a role in some geographies.

Mainly in China, we saw.

We saw some inventory build in the in the base period, which the reverse obviously happening in this period.

But in the Grand scheme of things.

They don't really impact our consumption trends in our shipment trends in the quarter.

Your next question comes from the line of Kevin Grundy with Jefferies.

Great. Thanks, good morning, everyone.

Why don't we pick up I guess on gross.

Gross margin.

Obviously really challenged in the quarter for reasons that we know around commodities freight broader supply chain issues. So maybe we could just start with your hedge position for commodities. The visibility that you have at this point.

On the guidance, which is more dire on that front.

And then just broader views as best you can share I don't know if <unk>.

Around the supply chain issues overall expectation in terms of how long. These challenges are going to remain a headwind and just how youre thinking about the cadence of gross margin restoration as you sort of try to get back to low low 50% gross margin I think that would be helpful. Thank you.

Yes.

Yes.

Thanks, Kevin So maybe let me start with our current outlook for commodities. The increases that we are seeing a broad based across commodity classes.

Our forecast is based on spot rates, we are assuming that the spot rates sustained so all of our productivity programs all of our pricing programs all of our innovation programs are based on the assumption that current spot rates as reflected in the current guidance will sustain.

We do not hedge commodities per se. So the position that youll see here is the position as it impacts our P&L.

We offset within our <unk>.

<unk> hedging position within the foreign exchange rate commodity basket in interest rates, that's the best way for us to protect against volatility in the most cost effective way to protect against volatility.

In terms of.

Supply chain dynamics certainly demand.

And supply have not balanced globally as we can see.

We continue to see pressure on transportation and warehousing.

We continue to see driver shortages diesel increases.

And as I mentioned before across our commodity classes, whether it's chemicals.

Residence packaging.

Or pulp.

These increases that we've seen it reflected in our current guidance reflects our existing market dynamics.

So the best forecast, we have is current spot and that's what we're going to continue to operate against.

We will as we.

Articulated I think before and want to reemphasize in this call as well we will recover these costs over time.

We will not.

We will not sacrifice investment in the business as we do so so strong productivity programs that are ramping up throughout the fiscal year pricing with innovation that we're bringing into the market. If we can to improve value at the same time as we take pricing all straight commodity pricing throughout the year will ease.

The margin pressure over time.

But it will take time to recover the cost and we will intentionally take our time to recover the cost to protect investment in our <unk> priority strategy, which is working well to drive our topline growth and overall balance growth model.

And your next question will come from the line of Darren <unk> with Morgan Stanley.

Hey, guys.

So just looking for a bit more detail on pricing can you help us dimensionalize what percent of the portfolio will have pricing plans.

Place.

The planned pricing you mentioned earlier in a few categories some sense for the magnitude of pricing.

And then I know youre, probably not going to where you want it won't be too specific on on the go forward, but.

Just any insight on conceptually how you think about implementing pricing to offset cost pressures is there. Some point this fiscal year. When you think you will catch up with the dollar cost pressure you are seeing year over year with dollar pricing, whether it be Q3 or Q4 is that unrealistic just given the magnitude of cost pressures.

And then the last point, just where you've taken pricing so far it sounds like you haven't seen much demand impact.

Maybe you can elaborate on that a bit.

Talk about the risks to market share momentum as you take pricing and how you guys think about that.

Yes.

Yes.

Look we're taking pricing around the globe and it's really a decision that has taken market by market category by category in many cases SKU by SKU, depending on the situation in the market.

So broad based statements are difficult. So let me try to maybe focus on the U S here as.

As an example is a good example in our biggest market.

We have now announced pricing in nine out of 10 categories. So.

So very broad based.

Many of these price increases are being implemented.

Have been implemented in September of <unk> implemented over the next.

Call It 90 days.

You've seen the price increases we've announced across baby.

Feminine care family care they are mid singles.

We would expect even though the price increases on grooming skin.

Can I have just been out and they are different by SKU about the same range mid singles is about the range that I would expect again out on the majority of our portfolio at this point.

I cannot comment on future price increases, but we will continue to evolve.

As the situation evolves in terms of cost and in terms of.

<unk> ability to take more pricing.

In terms of recovery of cost.

Expect as we said in our prepared remarks that the margin situation.

And the comp situation on core EPS will sequentially improve throughout the fiscal year.

We will annualize part of the commodity cost increase starting with Q3.

Most of the pricing will also take effect and actually flow through to the bottom line as of Q3, and our productivity programs will significantly ramp ups throughout the fiscal year.

All of that said hard to predict exactly what we're going to land, but sequential.

Progress.

It is certainly what we're striving for.

Most important point as I said before we will not.

Reduce investment in the business, we continue to drive.

Marketing spend we continue to drive investment in superiority.

To sustain our balanced growth strategy for the mid and long term.

Very early to read anything in terms of price elasticity.

I will tell you for those price increases that have gone into the market in the U S. Most of them became effective middle of September and we have not seen any material reaction from consumers in terms of volume offtake.

So that makes us feel good about our relative position in.

And obviously, we feel that we should be in a favorable position given the strength of our portfolio, we're going into this pricing round with 75% of our portfolio truly superior.

Probably 80% by the time most of these price increases hit.

And that should give us a relatively strong position with consumers.

To deliver value in their mind, even as we take pricing.

Let me just build on <unk> comments.

A couple kind of big picture thoughts.

Given the inflationary cycle that we're in.

How do you want to be positioned.

You want to have first of all being in categories that are daily use that are focused on where performance drives brand choice is a good place to be.

Consumers through the pandemic have shifted their consumption.

In those categories towards trusted performing brands and.

And you see that even in what's happening with private label market share as an example down in the U S. Over the past three 612 months down in Europe over the same periods of time, Nonetheless, a guarantee for the future.

But you start in a very good position with a strong superiority profile as Andre said.

Strong innovation program and divestment program to continue that work.

Number two you want to be.

Just one more thing to add is number one.

This is essentially part and parcel of our business model.

Well, sometimes the reaction is.

With this pricing.

As a new dynamic.

Pricing has been a positive contributor.

Our topline for 44 out of 47% over the last quarters and.

<unk> other than the last 17 years.

Again, no guarantee for the future but.

We start with what the business model that fundamentally supports pricing in a way that is value accretive to consumers.

Second you want to be in a position.

<unk>.

To minimize the need for price and through productivity.

We're in a better position on that regard than we've ever been.

This organization has done a tremendous job.

Reducing costs and we will continue to do so.

You want to be in a position where you have <unk>.

Product available at different price points to appeal to consumers for whom price as a bigger part of their personal value equation.

We're a much better position there than we were.

And the last.

In the last cycle.

So.

Again, none of that is any guarantee for the future, but all of that positions us much better than we've been historically.

Your next question comes from the line of Lauren Lieberman with Barclays.

Thanks, and good morning, I wanted to talk a little bit adding about has scale may or may not be benefiting PNG at this time versus what you see from peers.

Patterns around the world, So just thinking about access to raw materials to packaging and pipe.

I'd now like to get energy and power in some countries.

Just curious if you could talk a little bit again about availability access to key inputs in energy and how.

P&G is managing through this or will manage through this first is what you're seeing from some other companies out there. Thanks.

Yes.

Thanks Lauren.

Look we are we are certainly not immune to the.

The stress that is put on the supply chain globally.

And and we are very thankful to our supply chain teams, who have done a tremendous job in developing business continuity plans and executing against those business continuity plans over the past 18 months.

24 months as supply chain worth stressed throughout the Covid pandemic.

Yes.

The strength of our supply chain is mainly driven by the flexibility that we can create within those supply chains.

So strong supplier partnerships around the globe allow us to shift.

Sourcing if we need to from one supplier to another.

Either because of supply not being available or freight lanes not being available to get material from a to b, but also allows us to optimize cost to a degree.

And we've been doing that over the past few months and we'll continue to do so we have an ability to reformulate.

Some of our products, which were doing actively without impacting the superiority of the product or any noticeable impact to the consumer.

It gives us flexibility to adjust again to material availability or cost.

We also have.

An organization that looks around the corner.

Anticipates potential bottlenecks, and then chooses to build inventories either on materials and intermediates. All on finished products to then be able to withdraw from those inventories on a global basis. So it doesn't mean that we built inventory in the same region, where we consume but we have the ability to do that on a global basis.

So in that sense, the global footprint is an advantage to us.

As I said, we're not immune to any impact here, but if history is any indication of the future, we feel relatively well positioned because of the strength of our organization here.

Of course, if there are any major disruptions.

To supply chain, we would be exposed to just like everyone else.

In terms of energy availability will acknowledge that we've obviously been part of some of those.

Curtailments that we've seen in China for example, but <unk> not had a material effect of all supply chain again, when you think about our ability to potentially source from other regions for a period of time most of our factories are able to run formula one products for other regions, which gives us flex.

Ability on our footprint to overcome short term challenges.

One other dynamic.

That feeds into this.

Is the confidence.

Our suppliers and our business.

Both in terms of our business momentum so if they need to make investments to increase their capacity and.

And material availability.

The momentum of our business factors directly into that decision.

<unk>.

Related increments of capacity that we can offtake generate economics at the supplier level.

That make investments viable.

If we were just.

Adding to.

Demand on the margin that would be a very different equation. So we become.

A very attractive cussed.

Customer for our suppliers because of both the size and importantly, the momentum of our business.

Alright. Your next question comes from the lineup Nik Modi with RBC capital markets.

Well. Thank you good morning, everyone. So just a quick follow up on the materials question.

Got a question, which materials are you having the most issues with in terms of sort of thing. So that's just a follow up and then a broader question is again, John Congrats for getting appointed to fit your coffee Gamble and I wanted to follow up on the comments you made regarding continuing to invest.

That is a priority, but what is the cough situation gets worse, what its competitors don't act rationally on pricing it looks like they will but what if they don't like as a as a feel of popping game or what.

Laid off so are you willing to make you know is there a threshold, where you say hey look we have to.

Cut back on investments because you have to protect margin. So it can be best you know down the road you know any clarity around that would be it would be very helpful.

Okay. Thanks.

Thanks, Nick all the materials Gretchen you look I I think the the both the run up in cost is very broad based across all material classes and that's the indication of the demand to supply situation. So it's really different week by week I wouldn't point to any specific material that is structurally more exposed than in.

Other.

It it really is across the input basket and again the dynamics I was describing within our supply chain as how we're dealing with it.

And the changes really period by period.

On the overall.

Cost tradeoff versus strategy I will start and then I'm sure John has a lot to add here.

I would say that sticking.

Sticking to our strategy is core.

And the commitment is relentless.

We have over many periods tried to do it in a different way.

And that is not a good outcome.

So our ability to continue to invest in superiority drive innovation grow markets and thereby build our share and improve our retailers business is core to the business model of balanced growth.

Balanced growth across the top line.

With.

Moderate margin expansion to drive the bottom line and catch productivity is the only way forward for the industry and is the way forward for PNG.

We will continue to be on this path, even if in the short term and midterm that means margin pressure will continue to rise.

We will do everything possible within our P&L within the balance sheet to optimize for productivity and we continue to have significant opportunities of productivity that do not impact our ability to run the business model.

When you think about our marketing spend we estimate there are still significant opportunity to optimize.

In the in the.

Ability to reach consumers more broadly and more effectively at significantly lower cost as our digital reach increases.

We have significant opportunities still an hour.

Supply chain too.

To optimize leverage the digitization, we've been investing in in our supply chain over the past years better synchronized demand from suppliers all the way to retail partners.

And there are certainly still opportunities within our overhead structure, where we can optimize work processes leverage innovation leverage automation to focus employees on higher order tests.

So.

John I'm sure.

The point of view here.

[laughter].

Just a couple of business perspective.

First.

This is a time to step forward.

Not back.

Second.

Andre.

And is prepared prepared remarks.

Articulated again.

The three priorities and the integrated set of strategies.

Nowhere in there at least to my years as pulling back on investment.

The third and last piece of perspective I'd offer.

The productivity muscle that we've built.

There was just describing and the opportunities that remain there which are significant.

Will or should build margin over time.

If we look at the last 12 years are operating margin an all in basis has increased 300.

320 basis points from 20, 24% to 23.6% last year.

On a constant currency basis, as an increase of 1020 basis points.

So the game here is stay on course.

Continue to.

Drive productivity to fuel investment and superiority in daily use categories, where performance drives brand choice.

We do all of that over time is.

Andre said that is the recipe for balanced growth.

Growing the top line.

And the bottom line.

We were in an environment, where there will be volatility across quarters, that's not our concern.

We're concerned about the execution of holistic strategy and the value of that that creates over time.

Okay and your next question comes from the lineup Wendy Nicholson with city.

Hi, just following up on that John I know on the enterprise markets have been an area of focus for you over the last couple of years and my understanding is that as some of those enterprise markets go from either operating at a loss for breakeven took accounting profit all.

That could serve as an incremental margin driver. It doesn't all have to be productivity. It can be next as some of those lower margin regions.

Become more profitable can you give us an update on those that are priced markets have some strong to be.

Lots of of whatever.

Hold back from a marketing perspective, and what's the outlook and then Andres you talked so fast at the beginning I didn't get the number for the growth in the enterprise market that you could give us that again that'd be great. Thank you.

So if I reflect back on last fiscal year with.

Enterprise markets grew topline a 5% filled share grew bottom line ahead of the rest of the company at 11% we.

We executed the sorry, we exited the year with only one of those.

80, plus markets, losing money and that was Argentina, where we have a plan to address that.

Over time this fiscal year, so we're a very good position and enterprise markets.

If we look at the quarter, we just completed focus markets grew 4% enterprise markets for 5%.

Having said all of that.

A part of a responsible answer has to address the volatility that exists in these markets.

From a geopolitical standpoint.

Unfortunately from a health and coven standpoint.

So it's not a straight line in all likelihood from here to there but were much much better position.

Give.

All the credit to the teams on the ground in these markets, who are operating then and very difficult, but as you rightly indicated promising.

Environments.

Thanks for the feedback on the speed Wendy I will adjust.

Okay and your next question comes from the line of Jason English with Goldman Sachs.

Hey, good morning folks thanks for assault man and.

Congrats on a on a decent start to the year.

A couple of quick questions first can you expound more on what's happening in China, particularly on the beauty business.

So I think there are some references in it.

The press release around mix in some slowing growth and skincare I suspect is tethered to China.

And secondly, more high level uhm it'll be interesting how the earnings season plays out, but I'm guessing when when we look back in the rearview mirror.

Recorded one of the weakest price lines and the group and perhaps be the only one to not show sequential acceleration and I guess my question is why are we not seeing more is this a competitive strategy and if so how much your market share momentum would you attribute to.

You're what seems to be a an approach to dragging your feet on price and shall.

Should we be concerned that once you catch up that some of this market share momentum could stall.

Okay. There's a note in there so let me start with with China.

We continue to believe that China is a very attractive and important growth markets for us as we said Walter one was flat in terms of organic sales growth.

But on the two year Steck basis, we are up 12%, which is ahead of the market.

We would have expected some quality to quota volatility due to base period dynamics and also some continued effects of Corbett shutdowns on a regional level.

Overall, we feel well positioned with all portfolio within China and expect the market to return to mid single digit growth.

Going forward again, we take some comfort in the retail sales coming up to about 4% again.

In the past quarter on beauty specifically.

We've seen our strongest results in healthcare and.

In fiscal 21 22 in China.

With with strong strong top line growth and strong bottom line growth.

S K two sales were flat.

Flat in China for the quarter.

But again on a 13% increase last fiscal year.

We see trouble retail coming up in S. K two so that's also needs to be considered as we think about the total market of S. K two consumption. So.

Really a slowdown in the market in the first quarter, specifically as you point out on on skincare.

And and the beauty sector overall.

Phew still confident in our ability to win in the market and in the market's ability to sustain with single digit multiples.

Thank you in on the price side.

Kind of dynamics.

Yeah.

Uhm.

So on the pricing side the reason why we're not seeing the.

The pricing come through at this point in time is a couple of dynamics number one most of the pricing went into effect in September So you only have.

Less than a month beauty of pricing in the first quarter.

You also.

Annualizing the base period, where we had lower promotion.

The market if you'll recall.

We are now seeing the normalization of promotion levels back to around 30% volume sold on deal.

So that's certainly offsetting some of the pricing that you otherwise would see flow through.

I.

We certainly expect pricing to become a bigger part of the top line and the bottom line construct going forward as the pricing again materializes in the markets.

And as we said before.

We are not lagging pricing, we are driving pricing by category.

Ideally in line with innovation to ensure that we have the best possible value equation for consumers, we're executing scuba skew market by market in what is right for that market.

Particular scenario and that's driving the pricing.

And we expect pricing to be a net positive.

To the to the top line into the share position.

And next question comes from the lineup Robert Hottenstein with Evercore.

Great. Thank you very much based on some of the analysis that we've done it looks like E. Commerce in the U S continues to be very strong again, it's pretty tough cops and that you guys are up well well into double digits can you can number one confirmed.

That maybe give us a sense of what percentage of your business is ecommerce now in the U S globally, and then you know going into it a little bit more how how do you see e-commerce driving your overall categories now is it driving premiumization.

Are you continuing to gain our whole chair and E. Commerce, you know just kind of and any thoughts and and and whether youre surprised that E. Commerce has been so strong against such such difficult cops. Thank you.

Yep.

So e-commerce gross at a global level continues to be very strong were up 16% in R. E com business at a global level, that's a 66% two years stack.

Our E Com business represents at this point in time about 14% of all the total sales.

And that's really across all income channels. So it's not just pure place. It's specifically in the west is obviously pure play, but many of our omni partners. So when you think about target dot com, Walmart com et cetera.

Where you have fulfillment from store pick up at store or play a significant role in that growth trajectory.

The.

Business in the in the U S. Specifically, we see about 11% growth and I'll E Com business.

So again continued strong momentum across all of these formats.

We are well positioned in E calm for multiple reasons as we explained before we belief that a.

Focus on strong brands is driven by Corbett.

Is benefiting us specifically also an an E calm environment, where we show up in search on the first page.

And we are generally able to.

Explain our benefits also priority the more detailed E content that we would be at a shelf for example.

We have strong relationships with our partners as it comes to developing propositions and ensuring that all positions are fit for use in either Ecomm channel omni channels.

And when you think about an omni environment.

Being the leading brand.

Generally results in more shelf space more inventory on the shelf so as consumers order.

We can make sure that we are in stock that you know as we're being picked up we have product on shelves and.

And therefore can can be found it can be fulfilled in store so.

So generally E com, we believe plays to our strengths and we can support our E com business with strong marketing and brand building.

To sustain that level of growth.

Next question will come from the lineup Andrea to share it with J P. Morgan.

Hi, Good morning, I have a follow up on an anthrax comments on the anniversary of the promotional normalization.

If I understood. It correctly, you had 60 basis points headwind and garage marching and what you called product packaging vast men and also 90 basis points and fast men in marketing on that same a line.

So correct me if I'm well I. Thank you you were saying you continue transfast to keep your superiority and of course, you can I mean, and that's the time to the in N.

But perhaps how should we be thinking on your ability to flax once pricing is implemented and I I'm, assuming most of your competitors and will follow are actually had to leave before I even so.

So how we should be thinking all a key investments going forward. Thank you.

Yeah, I mean, if you've seen in this quarter, we continued to invest in line with our all in growth. So our marketing spend all AD spend is up $130 million.

And and that's what you should expect going forward. So as long as we can create a good return on investment with our incremental spend we will continue to do so.

At the same time as I mentioned before they are still significant opportunity to increase the efficiency of all marketing spend.

So as we increase digital reach as we are getting better at targeting.

We can both increase reach and quality of reach and therefore.

Offset some of that incremental investment by pure efficiency within the within the marketing spend.

In terms of promotional dynamics as I mentioned, we are the market's is coming back up to more normal levels pre.

Pre cobot period promotion of volumes were running at about 33%.

Totally went back up about 30%.

So we expect it to remain around at that level.

Okay. Next question comes from the light of Mark Astrakhan with Stifel.

Thanks, and good morning, everyone.

Wanted to ask one follow up and one other question. So just on China I thought you had mentioned in your prepared remarks that you had seen some of the weakness intraquarter I guess, implying that it's gotten better. So perhaps you could just talk about that.

That dynamic as you exited the quarter there in terms of just total business S. K. Two however, you want to think about it and then.

On the marketing investment it's interesting that you continue to have efficiencies there.

To offset increased investment I guess the question is how how sustainable is that and then are we to think that you take the efficiencies and best it all kind of back and marketing. So that you remain fully funded or even increase off of current levels.

Yeah on on the first part of the question on China Beauty.

We certainly saw some.

Decrease in market size in the earlier part of the quarter sequentially, we see that recovering.

We also expect as I mentioned before a return to mid single digit growth across categories.

So we need not much more to add there.

From a marketing.

Deficiency standpoint, I think you'll see a combination of both we we as I said I think we'll continue to drive efficiency.

As we bring more media spend into our opt.

Optimized targeting pool.

As we increase the percentage of digital media around the world as we continue to optimize our own algorithms to target messaging to consumers.

There continues to be significant opportunity.

And you'll see a combination of reinvestment.

In marketing programs and flowing those productivity effect into the P&L to offset some of the cost pressures and it will vary quarter by quarter, depending on the.

The situation.

It might seem kind of an odd dynamic but.

The more efficient and effective we can make our marketing spend b and is Andre indicated just now there's lots of opportunity to continue to do that the more attractive it comes becomes to make those investments.

So.

Maybe what.

Well.

Somewhat of an odd way efficiency breeds.

Effectiveness effectiveness breeds spending.

That all drives.

The market in the business.

Alright. Your next question comes from the lineup coming on guard for Awhile, It with credit Suisse.

Good morning.

I'd like to talk with you a little bit more about the consumer condition. Obviously the market team. Obviously your business has a lot of momentum, but it feels like to consumers in a notably kind of strong position at the moment. So curious if you agree with that if you do.

What precisely maybe you're seeing is is behind some of the strong demand and then if I could layer on top of that question.

We're just observing your numbers coming in better than expected pricing.

Pricing is still yet to become a larger contributor comps are getting easier some of the conversations. We have this morning was is around why not bring up your organic revenue guidance for the year. So if you can just add some color on that would be helpful.

Yeah Okay.

So I think the strength of consumption in all categories is really driven by the choice of categories that we operate in.

We've chosen to be not in discretionary but in daily use essential categories for the consumer again health hygiene focused and a clean home.

The consumer continues to.

Elevate the importance of these jobs coming out of Koolade as we've seen in Kuwait and I think that continues to drive the importance of these categories and our ability to win in these categories because consumers return or turn to trusted brands because they know that they can deliver on the promise and the job to be done we.

See that and I'll share results and as John mentioned, we see it in the reverse share results of private labor for example, declining both in the us and Europe overtime.

We also benefit and the consumer.

Spending shows it from more time at home, which we will belief is an ongoing phenomena more time at home means more meals at home more dishwashing at home more laundry at home and.

And again both.

Elements benefit all brands and our our categories in terms of growth.

We will continue to focus on so priority as we said before to ensure that we have the strongest solutions for all consumers at any price point at any price letter.

But really we benefit I think from overall more time at home and an elevated focus on all the categories.

On the.

On the organic price mix and guidance.

We are expecting pricing to become a bigger part of the top line construct as we said throughout the year.

We are one quarter in there is a lot of volatility in the market.

And so we belief that it's prudent to maintain the guidance range of 2% to 4% on the top line, but as we said in our prepared remarks quarter, one results give us confidence.

The upper half of that guidance range.

I would just make one additional comment.

Which.

Relates to the consumer and and their behavior in these categories.

Again daily use where performance drives brand choice.

Often providing health.

Hygiene or clean home benefit.

Let me just give you an example of what's possible.

Uhm.

One of our more recent innovations in oral care for example.

The Io power brush.

Premium priced products.

We have some street intersection of that about a year ago, we built over two points of share.

Which has come by driving the market.

The market's up 14% over that period of time, we've driven over 50% of that.

So what you see as a consumer who is responsive to performance space innovation.

We can.

Utilize that responsiveness to grow markets in a constructive way, which is Andres mentioned many times is beneficial to our retail partners.

And as constructive market dynamics standpoint, so there are many categories where.

Through performance based innovation, we can provide more delight through regimen solutions, we can provide more delight to.

The consumer generally is responsive to performance in these categories.

And <unk>.

Consumption is expandable.

Alright, and the next question will come from the line of Chris carry with Wells Fargo Securities.

Hi, good morning. Thanks, so much just to confirm an answer to the prior question in a category strategic question just.

Just around the organic sales guidance for the year, you've made some statements and strategy.

Material supply supply chain constraints, how much of that is factored into how you're thinking about the four year organic sales outlook.

And then just from a categories perspective fabric has been a good story lines were particularly strong add on an identical calm.

Just in general.

What do you think is driving the share gains that you've seen in the category. We've heard about some material constraints for some of your competitors you think Thats factor. It's just more about innovation just in general.

Perspective on what you think is driving this.

Particularly strong delivery on on the fabric her side of the business. Thanks.

Yep. Thank you.

So on organic sales guidance as we said I think the the supply chain pressures that we see today.

And our ability to deal with those pressures as we have been over the past 18 to 24 months is anticipated to continue in the organic sales guidance that we've given.

And any unforeseen major disruptions.

Obviously, we will have to reassess and see where we are.

But we feel good about our ability to deal with the ongoing supply chain.

Pressures and that's reflected in the organic sales guidance.

Look I think the story behind fabric is really bringing to life the strategy.

This is a category where performance drives brand choice.

We had daily use is essential to the consumer.

And performance is very visible.

And the category has done a phenomenal job and driving for perotti with new forums or by creating new jobs to be done that are relevant for the consumer. If you think about single unit dose for example.

Very superior proposition very.

Inside.

Very intuitive to the consumer in terms of use.

Premiumization of the category.

And trading up dollars per wash with superior cleaning properties and.

Penetration outside of the U S do is a significant growth opportunity.

In Germany, and Canada, we only at 20% wholesale penetration on seeing with unit tools.

And in Japan will only at 11%. So there continues to be significant runway with a truly superior product form.

We also and fabricated have done the team has done a phenomenal job and looking into fast growing new segments. When you think about fabric enhancers.

14% growth in the quarter.

Beat for example, right now is a 1 billion dollar brand.

And continues to grow significantly household penetration in the us on beats only 20% low penetration only about 30%. So there continues to be significant runway.

With superior innovation and superior products.

So we continue to drive that and that's what you see in the results.

Alright, and your final question comes from the line of Peter Grom with UBS.

Hey, good morning, everyone. So I would like to just get your view on kind of what you are seeing in emerging markets around the world, particularly in Latin America and have you seen any changes in terms of category growth or the health of the broader consumer in that region and I know your previous previously discussed.

Prolonged recovery.

Number of these markets is that still the right thinking answer you broke out to the balance of the year. Thanks.

Latin America.

Speak to that just.

What kind of business I'm on supporting over the last period of time here.

Overall continues to deliver very solid growth.

And that's broad based.

And the last quarter, Mexico up I think about 8%.

Argentina, sorry, Brazil up double digits.

And now.

Latin America comes with its inherent challenges.

And one of those currently is Ah.

Is the health challenge that exists in many markets.

I am sure are familiar with.

But generally consumption is strong and our business is very strong in Latin America.

Alright.

I think that concludes the call again, thank you for joining us.

And again, if you have any questions John shovel, Eli are available all day. So if you want to give us a call. Please feel free to.

And thanks again for joining of fall quarter, one call have a great day.

Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.

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