Q3 2022 Clorox Co Earnings Call - Q&A Session
Which are available on our website.
And just a moment Linda will share a few opening comments and then we'll take your question.
During this call we may make forward looking statements, including about our fiscal year 2022 outlook and the potential impact of COVID-19 pandemic on our business.
These statements are based on management's current expectations, but may differ from actual results or outcomes.
In addition, we may refer to certain non-GAAP financial measures.
Please refer to the forward looking statements section, which identified various factors that could affect such forward looking statements and the non-GAAP financial information section, including the tables that reconcile non-GAAP financial measures to the most directly comparable GAAP measures both of which are located at the end of today's earnings release, which has also been filed with the SEC no.
Turn it over to Linda.
Hello, everyone. Thank you for joining us I hope you and your families are well hopefully you found our prepared remarks helpful.
I'm encouraged that we continue to see strong consumer demand for our brands and made progress on our near term and long term strategic plans in the third quarter amid a highly dynamic and challenging environment.
Importantly, we delivered on our commitment to drive sequential gross margin improvement.
We executed well on the factors under our control leveraging the strength of our brands to grow share sustained top line momentum and begin to rebuild margin.
We continue to drive our innovation pipeline deliberate cost savings generate operational improvements across our supply chain and take additional inflation driven pricing actions all while keeping our eye on the long term.
There's no question that it's a volatile operating environment. The rising cost inflation. We are experiencing is reflected in our updated fiscal 2022 outlook.
That considered I'm confident that our fundamentals are strong and that the actions we are taking and the progress. We have made put us on the right trajectory to drive long term profitable growth and create shareholder value.
With that Kevin and I will open the line for questions.
Thank you Mr. Mondo, ladies and gentlemen, if you have a question. Please press star one on your Touchtone phone.
Our next question comes from Dara <unk> with Morgan Stanley .
Okay.
Hey, guys.
Your prepared remarks, you mentioned the summer price increases can you just give us a bit more detail on which categories, you've announced price somewhere in the magnitude.
What percent of your portfolio will have multiple rounds of price increases and by the summer.
And then just taking a step back as we look out longer term, obviously, some sequential gross margin recovery in fiscal Q3, it sounds like you're expecting more in fiscal Q4 in the prepared remarks can you just discuss conceptually with this new cost outlook with the pricing going into place how quickly you expect to rebuild gross.
Margins over the next few years, just relative to the pronounced pressure you're expecting this year.
<unk>.
Sounds good I'll I'll start with where we are on pricing.
So as you recall, we announced a round of pricing our first round in the fall that was fairly broad across our portfolio. We have since taken a subsequent round that was effective this month in April and we're starting to see that flow through in the marketplace. And then we have an additional round of pricing scheduled for July that is all.
Also broad across our portfolio and we're actually going deeper than we had intended to go when we first announced the price increase given what we're seeing from the impact on Ukraine. So we made that decision. Shortly after we saw the impacts.
In total the vast majority of our portfolio will be priced.
And the majority of the portfolio will also have multiple rounds across all three of those time periods.
By the time, we get to July Kevin can talk a bit about what that means for gross margin and sequential improvement.
Hey, Dara on gross margin no change to our longer term expectations, what we've been talking about for last couple of quarters.
What I would say is as you folks saw in our prepared remarks, we're really pleased with the progress you've made in Q3, we sequentially improved margins a little under 300 basis points just.
I'm just going to be more challenging for us in Q4, we have rolled in the increased energy prices as a result of the war on Ukraine, and we think that it could be about a 30 million dollar headwind in Q4 as a result of that I think if it would be more modest progress sequentially in Q4.
And then we continue to build our plans to ensure that we continue that progress in fiscal year 'twenty three I'll I'll hold off as I'm sure. You can appreciate given an exact outlook right now we'll do that in August , but the plans, where we're building would keep us on track to keep building rebuilding margins in fiscal year 'twenty three.
And then I.
I would say for us beyond that nothing else has really changed with the exception that we've got increased cost headwinds and then importantly, we think we're taking the right actions to address those as Linda just mentioned we've increased the pricing that we've already announced that go into effect in July . So we think we're taking the right actions to address this next round of inflation, we're dealing with.
But as is typical theres going be a lag here will take a bit of more of a hit in Q4 and then the actions. We're taking will see start in our Q1 fiscal year 'twenty three.
Yeah.
Okay, Great and then can you talk a little bit about the price gaps versus competition and with the actions you're taking if you're seeing competitors move already and where that leaves you and perhaps the demand elasticity youre seeing from the price increases you already took from a consumer standpoint.
Sure as it relates to price gaps you know, we said it would be dynamic and it certainly is as we take pricing and then the rest of the category continues to do that so we're seeing some price gaps are in line and others, where we're a bit behind but we expect where July pricing goes into effect that the price gaps will be about what.
They were pre pandemic, we don't intend to change price gaps through this action.
But that's going to take a little while and a little noise to play out coming here as we take these next two increases. This one this month and of course the one in July .
And then you know as as we look forward into.
What we would experience coming into inflation from a consumer perspective also with pricing that's something that we're watching really closely from a category perspective, I think it's important to note.
That you know given.
Given the price gap dynamics too. We are also looking very closely at merchandising and whats happening that still continues to be lower than it was pre pandemic, but we have seen levels increase but I would say on average it's been very rational we've seen private label and other branded players move, but we continue to watch it closely and again do not expect price gaps to be any different than that.
I'll mess out.
And in July .
Great. Thanks.
Our next question comes from Andrea Teixeira with J P. Morgan.
Thank you operator, and good afternoon, everyone. So I wanted to just follow up on the price since two.
You announced I'm, assuming this additional pricing not sure as to where it was on the plan.
Form the month did that.
<unk> initiated now in April of course, July's extra and goes into fiscal 'twenty, three but I was hoping to see you didnt change at the end it didn't change guidance much for the top line. So I'm, assuming you're embedding some sort of elasticity.
Just going back to the point earlier.
My emphasis has come back to normal or you were seeing.
It's still below below trend and then just drilling down on the additional pricing you're taking what are the categories that you were I'm, assuming bags and charcoal would be.
Sorry.
And also later would be the ones that you were taking additional pricing.
Yeah.
Sure so we.
We had always planned to take an April price increase which of course isn't market. Now July we had intended to take but we are going broader and deeper in that pricing given what we're seeing as impacts from the war in Ukraine.
But we keep our keeping that timing in July and as Youre right that will impact mostly.
As we look forward into fiscal year 'twenty, three but April will start to help in.
In Q4 as it relates to the categories that we're pricing this is pretty broad pricing in April and July .
Mentioned bags bags will be part of both of those increases happened in April will happen again in July than what we're seeing in the resin market.
But we'll be pretty broad across the rest of our portfolio as well and we would expect given what we're seeing across the pricing across our competitors that that will be true for the remainder of the category competitors private label and branded.
Yeah.
We look at what we expect to see beyond that.
I think it's going to depend on what we see for energy for the remainder of the year, what we see in commodities, but we feel like we've taken the right amount of pricing based on what we are announcing in July in order to deal with the environment that we that we're seeing right now.
And any additional distribution that is embedded getting out of the quarter and into the fourth quarter that you regain given your service levels improved that you would highlight.
Yeah. So we did see an increase in total distribution points and share of Assortments and this latest quarter, which was great to see.
So total distribution points were up 10% and we grew share of assortment by a full point and.
And that is a number of things one of course, you highlight which is the fact that we're back into supply in many of our categories and service levels are improving but importantly, two this is the good work our sales and marketing teams are doing on category growth plans with our retailers and of course, the innovation that we have in market, that's performing really well and we're seeing strong distributions.
Behind all of that so in total and a very good place from a distribution perspective, and we would continue to expect to make progress in Q4 based on what we know our plans to be in the coming couple of months.
Thank you, Dan and I will pass it on.
Okay.
Our next question comes from the line of Peter Grom with UBS.
Hey, good afternoon, everyone hope you're doing well so I just wanted to ask about the company's updated organic sales outlook and it can be clearly overthinking. This but if you go back through the last few quarterly releases each provided some comment around the return to the company long term organic sales algorithm of three to five.
And maybe I missed it but I didn't see one.
You're really just could be implied in the comment around sequential improvement but.
Three point range for the full year implies a pretty wide gap for <unk>. So just how are you thinking about organic sales growth in the fourth quarter and how does that inform your view on returning to the algorithm holger. Thanks.
Hey, Peter Thanks for the question you know in regard to our outlook.
It is and we've talked about this before it is wider than what we would typically have this time of year and we think that's appropriate for the environment. We're operating in.
Having said that we feel very good about sales expectations in the fourth quarter. As we said, we expect sequential improvements from where we landed in Q3 at 2%, but I think that the items were also thoughtful about it widens our range.
Keep in mind, we were taking another round of pricing that went into the market in April .
As Linda just mentioned our expectation similar to our previous round is the elasticity will be slightly better than we've seen historically, so that's embedded in the outlook as well.
And then also keep in mind, our competition is taking quite a bit of pricing right now at the same time and while we don't know what theyre doing nor should we.
If they go before us after as the amounts. They go will create some variability in our results as well so with all that in mind, we think it's appropriate to have a bit wider range, but having said that nothing has changed since we spoke last quarter were very much on track for the top line for the full year and again expect sequential improvement from where we landed in Q3, but the range is.
Wider for the reasons I mentioned.
Okay. That's super helpful. And then maybe just one point of clarification, Linda I think you mentioned in the prepared remarks that you transitioned external manufacturing from a large groups are just a few strategic suppliers and just going back to last quarter. You know that was widely discussed is a key driver of the <unk>.
Margin pressure you were dealing with so it can meet unpack that comment is that just related to the number of suppliers suppliers. You were using or are you kind of now closer to that 80 20 mix in terms of in house versus outsourcing manufacturing. Thanks.
Sure Yeah, as we discussed we used a broad range of external partners during the height of the pandemic to ensure that we could meet consumer demand.
And we built that very intentionally so that we could ensure that we built and optimized our network. Once we got into more of an endemic phase of the pandemic and.
And as we head into that we've done just that we've been able to consolidate and narrow the external manufacturer portfolio. We have to strategic partners, we've been able to in house.
And we're working through that in Q3 and Q4, we expect the vast majority of that benefit to begin heading in fiscal year 'twenty three.
But we're well on track to doing what we talked about in terms of that supply chain optimization.
Great. Thank you best of luck.
Thank you.
Our next question comes from the line of Chris Carey with Wells Fargo.
Hi, everyone.
Hi, Joe.
Hey, how are you I just wanted to follow up on the question around manufacturing and logistics.
With me here, obviously commodities getting worse in fiscal Q4.
Would you expect in manufacturing and logistics line to get materially better.
Sequentially from here, starting in fiscal Q4 and going into next year as you have some easier comps maybe it even turns into <unk>.
Positive as you start to unwind.
Owned versus co man network that you have is that a is that a reasonable assumption going forward.
Hey, Chris you know, what I'd say as it relates to manufacturing logistics and commodities as I do expect maybe I'll start with manufacturing logistics I do expect to see some sequential improvement as we move now through the end of this year. So I'm just as last quarter.
And Theres a couple of areas I'd point to you. The first is what Linda talked about we're making good progress as we said we would on optimizing our supply chain and stepping out of these third party contract manufacturers.
Also seeing some I'd say pullback in transportation in the spot rates.
You've heard us talk about that for the last couple of quarters. We saw a significant increase in the cost of carriers in the spot market that premiums starting to come down a bit.
Just a little bit of a benefit in the third quarter and I'd like to believe we're going to see that continue to go forward. So that should certainly help as well.
And then we continue to optimize our supply chain beyond just the contract manufacturers if you recall.
As part of the work we did during the pandemic, we significantly extended our supply chain to ensure we had backup suppliers given all the disruptions we were facing.
As that supply chain starts to level out and were able to step out of some of those relationships with material suppliers that all show should reduce our costs. I mean, if you can imagine we were sourcing product from Asia. We have all had to deal with the the freight to get that product here as we can step out of some of those and get back to our core suppliers. There's more opportunity. There. So this is clearly been an opportunity for us.
We've talked going forward, how we will rebuild margins is really in three buckets.
First starting with our cost savings program. We're also going after the supply chain cost that we built up over the pandemic. There were in the process of taking out and then it's the pricing actions that we've talked about and as those three levers are going to keep pulling on that we think put us in a position sequentially keep improving margins.
And I would expect to see some of that benefit flow through this quarter and then continue next year as well.
Okay. Okay. Thanks, Thanks, so much for that perspective, and then one quick follow up just on.
Your SG&A, a little bit better versus prior expectation how much of what youre doing this fiscal year is.
Sustainable that you think can carry into next year versus things that might be a bit more point in time like lower lower variable compensation or anything else that might reverse back into the SG&A next year with the with the adjusted SG&A as a percentage of sales.
Running pretty low relative historical so thanks again.
Sure, Chris maybe two points of view on SG&A.
One issue is is unrated and structural changes.
Our Q3, our SG&A was about a point lower than we had projected.
We have a pension program and the ability for employees to deferred compensation that they invest in the stock market as you know the stock market was down in the third quarter, so that reduces our liabilities to our employees.
That reduced it by one point that has no impact on EPS, that's offset in other income and expense because the value of the portfolio went down to us by an equal and offsetting amount. So that's a bit of noise on the P&L that was about a one point reduction, but your comment on structural changes we continue to make progress in admin.
We are on track to deliver our cost savings commitment this year of 175 basis points of EBIT margin expansion.
And what Youll see is a nice amount of that coming from admin.
Typically product supply we delivered the largest source of value of about 175 basis point goal that'll be true this year as well, but I'd say, a little bit more coming out of admin and typical and that should be structural that we can carry forward.
Okay. Thank you both.
Thanks, Chris.
Our next question comes from the line of Camille cadre Waller with credit Suisse.
Hi, everybody, maybe a follow up to Chris's question more specific on AD spend it looks like that's been maybe came off a little bit or maybe it was a little bit lower than plan.
You, obviously gave us some guide on where it's expected to be can you just talk about how youre thinking about that line.
Sure we're still on track for 10% to the year, which is exactly our commitment and then I think you know how strongly feel about advertising as a strategic lever to build our brands and ensure we have superior values, though in this quarter, just timing and on track for 10% for the year.
Okay, Great and then.
I guess, the trade spend and the impact on revenue.
Like trade spend is up quite a bit has a bit of a mix effect as you're discussing.
Pricing and incremental price increases can you just give us a context on how much of that maybe it will be offset by it sounds like promo activity is increasing and such.
Yeah, maybe a couple of thoughts on Arnold talked price mix and the impact of trade spend within price mix. If you saw our results in Q3.
Two points of volume growth, we had four points of benefit from pricing and then we had four points of unfavorable mix and higher trade spending.
And we've talked about that the last couple of quarters, we had a temporary benefit during the pandemic.
As we went down to smaller sizes to increase throughput from our plants as well as there's effectively no promotional activity on several of our categories or is it a lack of product availability. We had about a four point price mix benefit for about four straight quarters. During the pandemic that was a temporary benefit that we knew would unwind it has been.
<unk> for several quarters.
Q3 was the last quarter, we've now lapped that and so that drag in Q3 should no longer curve as we move forward.
So that that four point hit.
Increased mix of drivers really just unwinding the temporary benefit we had during the pandemic and so what I expect to see a greater benefit from price mix going forward is we're getting the full benefit from pricing and no longer lapping that that temporary benefit.
Got it thats useful thank you.
Yep.
Our next question comes from the line of Jason English with Goldman Sachs.
Okay.
Hey, good afternoon folks.
Thanks for taking my question.
So.
I think you partially answered this with the pension benefit this quarter.
Your guidance historically your EBIT margins.
Step up nicely in the fourth quarter from your third quarter, but your guidance implies that youre not going to see that historical progression.
In fact, it suggests that you're going to see fairly sizable degradation in operating margins from the third to the fourth quarter.
I. Appreciate you do you have sequential improvement in gross margin, but what's what's driving what's driving the substantial dip in EBIT margins and your outlook from <unk> to <unk>.
Yeah, Jason Thanks for the question and you're right. We do expect that to be the case as you mentioned, we expect sequential improvement on the topline.
And we do think we'll make some very modest sequential improvement in gross margin in Q4.
But what is offsetting that is two items first as an AD man, you'll see a an increased spending in admin in Q4, I suspect will be somewhere in the 15% to 16% of sales.
And Thats really the timing on the investments, we're making in our digital transformation efforts, they really start to ramp up in the fourth quarter. So about 40% of the total spend you will see in Q4, and so with a rate sort of in that 15% to 16% and then Linda just mentioned on advertising, where we're not concerned about the investments by quarter, we manage the year.
And so we're still targeting 10% so you'll see an elevated level of advertising investment in Q4 relative to Q3 that keeps us on track for 10% for the year.
And were you referring to the <unk>.
So forma numbers or your GAAP numbers.
With that those are GAAP numbers.
Yes, that's a gallon lubrication.
Sure. So I'm just doing it all on pro forma you've got a massive drop in your pro forma guidance for fourth quarter.
Should I assume that has that isn't actually related to the digital transformation. Since you guys are excluding that am I correct.
That's correct Yep.
Okay.
Absolutely.
No you'll see the increased advertising will be the primary item as we step that'll be nicely over 10% I suspect that that gets us to 10% for the full year.
Got it got it.
On SG&A is incentive comp should we expect a reload of that next year.
Yes, we should.
You know, we're a pay for performance company and and were below our goals. This year. So we're paying out less than a percent and then the expectation we'd reset that to our plans in fiscal 'twenty three so it would step up to a targeted 100% payout.
Okay.
Buffalo and to try to get the quantum on that and thank you very much okay. Thanks, Jason.
Our next question comes from the line of Kevin Grundy with Jefferies.
Uh huh.
Great. Thanks, good afternoon, everyone.
So Linda my question pertains to private label and more broadly just trade down risk and how you see this playing out given the state of the consumer so.
We look at the Nielsen data and everyone has been sort of.
Very much watching that to see trade down within categories as private label gaining share.
More broadly as you know since the start of the pandemic has not been the case, we've seen a little pick up more recently, but I think it stands out because it's been in some of your categories and particularly those even historically have been more exposed to private label, so that being bleach charcoal wipes. So you mentioned that you've seen private label move on prices.
Well, maybe just comment on how you're thinking about this now competitively and how you see this playing out.
The state of the consumer and potential risk there trade down in your categories and maybe just sort of comment on some of the share gains that we've seen in private label more recently syndicated data. Thanks.
Sure Hey, Kevin.
You know what we're continuing to see is consumers choosing trusted brands and you highlighted it well we definitely saw during the pandemic our people and our categories choosing brands. They could trust given what was going on in their lives and that continues.
We have seen over the last quarter, a marginal improvement in private label share pretty minimal.
And we think that's mainly related to getting distribution back in line to pre pandemic levels.
But no meaningful share gains and still lower than pre pandemic.
If you also look at you know kind of more leading indicators. Our household penetration also did not keep pace for private label. During this time and we expect that to continue to have an impact as we move forward.
As we head into this period consumers are absolutely under a lot of stress, but we're seeing what we expect in our categories at this point.
Private label has taken pricing as we have taken pricing and competitors have we're seeing pretty rational behavior, there and from a consumer perspective, we continue to see what we expect for the elasticity is in line to slightly better across our categories, meaning of course, we're seeing volume decline, but a little less than we had anticipated we're seeing that across.
The category.
Gonna watch it really closely but we think we're very well positioned based off of the superior value of our brands and I know, Kevin We've mentioned this before about 75% of our portfolio at this time, it's deemed superior by consumers of course, that's a combination of not only price, but brand and the product experience, we deliver and we continue to be laser focused on that so continuing our investment in our brand.
<unk> continuing on innovation, ensuring we have the right price pack architecture to ensure we cover all ranges of value for the consumer, but we feel really good about where we are we're seeing no signs of abnormal stress with consumers in our categories, but we're going to watch it very closely as we head into this period.
That's great. Thank you Linda I appreciate it good luck.
Thanks, Kevin.
Our next question comes from the line of Steve powers from Deutsche Bank.
Yeah.
Hey, everybody good afternoon.
First just a follow up on the July price increase I guess the question I'm left with after the prior discussion is just is that price increase meant to fully offset the inflation you've seen build since February .
Or as we think about the broader gross margin rebuild we have to lean a bit more on productivity other levers to help help that gross margin along I just wasn't clear on the prior commentary.
Hey, Steve as it relates to pricing what I'd say is there's really requirements didn't lean and all the levers we have available. So it's leaning into our cost savings program is working to take costs out of our supply chain and is taking pricing. We believe between across all three of those activities. It puts us in a position to continue to rebuild margins, but pricing alone would not put us in.
Positioned to do that.
Okay.
Fair enough and then I guess, you touched a little bit upon it.
Just to comment commentary broadly on the supply chain, but could you just give us a bit of perspective as to where your your service levels since exiting the third quarter, where you feel like you've restored service levels to go to where you'd like them to be where there's still some more work in the portfolio to do an upfront.
Sure we've seen service levels improve which is terrific news and really my hat's off to our combined team who's working it hard because at the same time, we've had to increase the portion of our portfolio that was on allocation. During this time.
That's really due to two things one we've seen stronger demand in portions of our portfolio and then some material constraints and labor shortages across the supply chain that are impacting our ability to get.
Raw materials, but I would say our team is handling that working really closely with our retailer partners really closely with our logistics partners and so as a result service is improving.
And we expect continued improvement in Q4.
Okay.
Lastly, if I could just.
Just kind of building on the conversation, you're having with Kevin around the consumer being under stress.
Does it change at all does it influence the way that you approach R&D and new product prioritization as you think about.
Fiscal <unk> and beyond just the way you're thinking about R&D are you are you focused more than you might normally be on hitting your value price points or is it are we not at that stage.
No I think it's important for us to pull all value levers and that's going to continue to be true. So our innovation pipeline always focused on doing the base work that you would expect us to do product improvements claims work, ensuring that we're communicating to people why our products work better than competition.
And why they can trust us and why they choose us. So that good work is always going on in good times and in tougher times for the consumer and we'll continue to leverage that importantly, though consumers are continuing to look for innovative products that give them new experiences. So we will focus on the basics, but we will not take our foot off the pedal when it comes to introducing new.
Spirit is to them that help them do things better for example in the cleaning category. We just launched a premium line of Clorox Disinfecting misters.
They're off to a very strong start in the markets. There's a it's a refill model. So it also helps people reduce their waste at home and really a great experience and Thats a premium price product, but we think it helps them get the job done at a better value at home.
And we expect that to continue to do really well as we head into this area. So I would say we're always focused on you know that base work, but we will not take the foot off the gas on continuing to expand the presence of our brands have and continue to give people a new innovative solutions in our categories.
Okay. Thanks for the perspective.
Oh.
Our next question comes from the line of Lauren Lieberman with Barclays.
Great. Thanks.
Good morning.
Wanted to see if you could talk a little bit about expectations for the promotional environment.
As incremental pricing comes in we've heard some other companies start to talk about you know the inevitable building a pressure on consumer while it's an expectation that promotions could pick up in the second half of the year. So I was just curious on your perspective on that I'll I'll start there.
Sure Hi, Lauren.
And what we're seeing now is promos are definitely above year ago, but still below pre pandemic levels and as you know for our categories price promotion promotion is actually a very small portion of the volume that we sell it's less than 10% of the volume that we do on average is on price promotion.
But we're watching that carefully because youre right in times of recession that can be a lever that people, Paul and we'll pull to the degree you needed to introduce new items to consumers to ensure that we're getting them at the right pulse periods of the year.
But at this point, we don't see anything abnormal in our categories something again that we'll watch carefully, particularly as these next rounds of pricing go in and we'll use it as a lever if we need to as we always do but very strategically and how we target the consumer.
Okay, Great and then I can probably take this offline with Lisa, but I did just want to throw this out on gross margin.
<unk>.
I I feel like you know Kevin your comments on sequential improvement in <unk> being there, but being not nearly as significant as you just saw Q2 to Q3.
But I think to tied to gross margins down only 800 800 basis points for the year.
And gross margins have to be significantly better sequentially. So I don't know.
The obvious thing that jumps out if its GAAP versus non-GAAP , there something I'm not aware of them.
Yeah.
It seems stands out to you and I can tell it would lead to or is it better for that for offline.
Yeah, Laura maybe just I'll give you a perspective it please follow up at least if this doesn't answer your question.
You know when we started last quarter, our expectations was gross margins be in the high thirties as I think I described it for Q4.
With the war in Ukraine, where we're building in about $30 million of additional cost and most of that is going to hit in Q4, just the way it flows through our inventory than under our P&L. So $30 million hit in the fourth quarter is going to add about 150 to 200 basis points of additional drag on margin.
Above what we thought when we were talking last quarter.
When you do that math, you get down to I'd say modest sequential improvement versus where we landed in Q3. So we landed at about a 36%.
We're gonna absorb another $30 million in Q4, and the team is working very hard to continue to expand margins in spite of the additional $30 million, we're going to we're going to deal with but it should put you then to get to the numbers. We're talking about should put you just slightly above the Q3 level, which was just under 36%.
Okay. It was the absolute level in the quarter not the year over year change, but yeah I'm sorry.
Right, Okay, Yeah sequential improvement from where we landed in Q3.
Okay net that clarifies it okay, great. Thank you so much.
Sure. Thanks Lauren.
Our next question comes from the line of Andrea <unk> with J P. Morgan.
Thanks, so much for the follow up I had a similar.
So laurence but now on the operating income if I'm not mistaken I heard 170 basis points I'm trying to go back to the notes.
Did you give us some sort of.
Guide form the operating income margin.
No I enjoy it we were talking about our cost savings goal of 175 basis points of EBIT margin expansion each year, we're on track to deliver that this year.
Okay and Thats embedded in the in the bridge that you gave out.
And the others right correct, Okay perfect. Thank you for clarifying that.
Sure.
Yeah.
This concludes the question answer session. Mr. <unk> I'll now turn the podium back over to you.
Yeah.
Thanks, Erica Thanks, again to everyone on the call I look forward to speaking you again on our next call in August until then please stay well.
This does concludes today's conference call you may now disconnect.