Q1 2023 Procter & Gamble Co Earnings Call
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Good morning, and welcome to Procter <unk> gamble's quarter end.
Prince 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.
Procter <unk> Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website Www Dot P. G investor Dot Com, a full reconciliation of non-GAAP financial measures.
Now I will turn the call over to P&g's, Chief Financial Officer Andre Scholten.
Okay.
Good morning, everyone. Joining me on the call today are Jon Moeller Chairman of the Board, President and Chief Executive Officer, and John Chevalier Senior Vice President Investor Relations.
We're going to keep our prepared remarks brief and then turn straight to your questions.
Execution of our integrated strategies continued to yield good results in the July to September quarter, and provides a solid start to the fiscal year.
We're growing organic sales in all 10 categories, holding global aggregate market share accelerating productivity savings and improving supply efficiency.
Together this progress enables us to maintain guidance ranges for organic sales growth core EPS growth free cash flow productivity.
And cash returned to shareholders.
Despite continued high commodity and transportation cost inflation in the upstream supply chain and in our own operations accelerating headwinds from foreign exchange geopolitical issues COVID-19 disruptions impacted consumer confidence and.
And historically high inflation impacting consumer budgets.
Moving to the first quarter numbers.
Organic sales grew 7% pricing added nine points to sales growth at mix was up one point volume declined three points, primarily due to lower shipments in Russia.
Growth was broad based across business units with each of our 10 product categories growing organic sales.
Health care grew high teens.
Feminine care was up double digits.
Fabric care and home care were up high single digits.
Baby care grooming.
And skin and personal care were each up mid single.
Family care and oral care corridor single digits.
Focus markets grew 4% for the quarter with the U S up 5%.
Greater China organic sales were down 4% versus the prior year modest sequential improvement in our markets that are affected by Covid, lockdowns and weak consumer confidence.
Longer term, we expect China to return to strong underlying growth rates.
Enterprise markets were up 16% with each of the three regions up 13% or more.
Global aggregate market share was in line with prior year with 26 of our top 50 category country combinations holding or growing share.
In the U S. All outlet value share was in line with prior year, which six of 10 categories holding or growing share.
On the bottom line core earnings per share were $1 57 down 2% versus prior year on a currency neutral basis core EPS increased 7%.
Yes.
Core margin decreased 160 basis points and currency neutral core margin was down 130 basis points.
Higher commodity materials and freight cost impact combined with a 550 basis point hit to gross margin.
Mix was 120 point headwind productivity savings and pricing provided 580 basis points above that.
Sure.
SG&A cost as a percentage of sales were lower by 90 basis points as sales leverage and productivity improvements more than offset inflation and foreign exchange impacts.
Core operating margin decreased 70 basis points currency neutral core operating margin increased 10 basis points from productivity improvements were at 230 basis point help to the bottom.
Adjusted free cash flow productivity was 86%.
We returned nearly $6 $3 billion of cash to share owners, approximately $2 3 billion in dividends and $4 billion share repurchase.
In summary, considering the backdrop of a very challenging cost and operating environment. Good results across top line bottom line and cash to start the fiscal year.
Our team continues to operate with excellence executing the integrating strategies that have enabled strong results over the past four years, which are the foundation for balanced growth and value creation.
The portfolio of daily use products, many providing cleaning health and hygiene benefits in categories, where performance plays a significant role in brand choice.
So priority across the five vectors of product packaged brand communication retail execution and value.
Productivity improvement in all areas of our operation to fund investments its ability offset cost and currency challenges expand margins and deliver strong cash generation.
An approach of constructive disruption a willingness to change adapt and create new trends and technologies that will shape, our industry for the future, especially important in this volatile environment.
Finally, an organization that is increasingly more empowered agile and accountable with little overlap or redundancy flowing to new demands seamlessly supporting each other to deliver against the priorities around the world.
Going forward there are four areas, we are driving to improve the execution of integrated strategies supply chain three point, all digital acumen, environmental sustainability and employee value equation.
These are not new or separate strategies, they unnecessary elements and continuing to build security reduce costs to enabled investment and value creation and to further strengthen our organization.
John touched on ease of each of these in our July earnings call and they will be a central part of our discussion at Investor Day in November .
Our strategic choices on portfolios for Archie productivity constructive disruption and organization are not independent strategies, they reinforce and build on each other when executed well they grow markets, which in turn growth share sales and profit.
We continue to believe that the best path forward to deliver sustainable top and bottom line growth is to double down on these integrated strategies, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners.
Now moving onto guidance, we fully expect more volatility in cost currencies and consumer dynamics as we move through the fiscal year.
However, we think the strategies we've chosen the investments we've made and the focus on execution excellence have positioned us well.
To manage through this volatility overtime.
Raw and packaging material costs inclusive of commodities and supplier inflation have remained high since we gave our initial outlook for the year in late July .
Based on current spot prices have latest contracts, we now estimate of $2 $4 billion after tax headwind in fiscal 'twenty three.
Freight costs have also remained high.
Though we have seen some easing in spot prices.
We've made a modest downward adjustment in our outlook and now expect a $200 million after tax headwind from freight and transportation cost statistical twenty-three.
Foreign exchange has continued its strong moved against us as the U S. Dollar has strengthened significantly against essentially all the major currencies around the world.
Based on current exchange rates, we forecast a $1 $3 billion after tax impact and incremental hit a $400 million versus our initial outlook for the year.
Combined headwinds from these items are now estimated at approximately $3 $9 billion after tax or $1 67, a share a 27 percentage points headwind to EPS growth for the year.
We will offset a portion of these cost headwinds with price increases and productivity savings, we will continue to invest in irresistible superiority.
Which is even more important as we compete in some markets with local or non U S. Based competitors that don't see the same foreign exchange rate impacts.
As we've said before we believe this is a rough patch to grow through not a reason to reduce investment in the business as I noted at the outset, our good first quarter results enable us to confirm our guidance ranges for the fiscal year across all key metrics.
To expect organic sales growth in the range of three to six 5%.
On the bottom line, we are maintaining our outlook of our core earnings per share growth in a range of in line to plus 4% versus prior year.
However, the steep increase in foreign exchange impact push with our current expectations towards the lower end of the range.
We continue to forecast adjusted free cash flow productivity of 90%.
We expect to pay around $9 billion in dividends and to repurchase $6 billion to $8 billion of common stock combined our plan to return 50% to $17 billion of cash to share owners this fiscal year.
The outlook is based on current market growth rate estimate commodity prices and foreign exchange rates significant additional currency weakness commodity cost increases geopolitical disruption major production stoppages for store closures are not anticipated within this guidance range.
To conclude the macroeconomic and market level consumer challenges, we're facing are not unique to PNG and we weren't immune to the impact.
We've attempted to be realistic about this impact in our guidance and transparent in our commentary.
As we said before we believe this is a rough patch to grow through not a reason to reduce investment in the long term health of the business with doubling down on the strategy that has been working well and delivering strong results will continue to step forward towards the opportunities and remain fully invested in our business.
We remain committed to driving productivity improvements to fund growth investments mitigate input cost challenges and to maintain balanced top and bottom line growth.
With that we'll be happy to take your questions.
Thank you if you would like to ask a question you may do so by pressing star one on your telephone keypad.
If youre using a speaker phone. Please remove your mute function to allow your signal to reach our equipment.
Once again that is star one if you would like to ask a question.
If you find that your question has been answered or you would like to withdraw your question.
Star followed by Chill.
And your first question comes from the line of Steve powers with Deutsche Bank.
Yes, Hey, good morning, Thanks for the question.
Andre I kind of wanted to pick up where you left off.
About your P&g's commitment to remaining fully invested.
Even in this environment I think the one of the.
Biggest questions and points of pushback that I've received.
Around P&G in recent.
<unk>.
With this idea.
But given all the headwinds that you've talked about and quantified today.
And given the accelerated push on productivity that you've emphasized coming into the year and again underscore today.
There isn't enough leftover.
To keep to keep those investments going investments that have.
Okay, and I think it's pretty critical in investors' eyes to enabling the growth that we've experienced over overreached in recent years. So maybe you could just step back and reassure invest.
Investors and give some perspective on.
How much room, there is to invest even as you.
Push for productivity and work to offset these headwinds.
Counter to the idea that.
You are going too far and curtailing investments.
As necessary for future growth.
Yes.
Steve.
Let me maybe start with productivity to reassure you on.
The ability to deliver significant productivity and then I'll turn it into the discussion on investments.
We have.
Increased our productivity.
<unk> for the year back to pre Covid levels.
So we have good visibility tool a significant step up versus what we were able to do.
During COVID-19, where we had to.
Limit our productivity efforts to some degree.
To benefit innovation and shipping cases.
With line time being available we have now.
Now for the ability to quantify those cost savings on the line.
We have build digital capabilities to increase the speed of reformulation to drive superiority at lower cost.
We have increased our ability to quantify new supply chains, if necessary in order to reduce cost with <unk>.
Proving the capability of our working teams and the plans to drive more efficient.
Operations there.
And we are constantly looking at our end to end supply chain, including logistics to drive cross sell and we feel very good about our continued efforts to drive significant cost of goods productivity.
Talk more about that as we discussed supply chain suite bundle.
But the runway is stay out of the capabilities are there and we're seeing the visibility on the fiscal year results.
On the media side, we also feel very good about our ability to drive.
<unk> investment in reach and quantity of reach and better targeting.
So being able to floor productivity dollars to the bottom line to help offset.
Some of the headwinds that we're seeing.
We now have more than 50% of our media spend in digital.
We are increasing our first party data and our digital capabilities to increase presentation of reach.
Not only in the U S or in Europe , but around the world and that is allowing us to drive significant.
Productivity, while increasing reach while increasing quality of reach and why.
More precisely targeting our consumers.
Over the past three years, we have significantly increased spend in media by more than $1 $2 billion. That's on top of the productivity. We have generated over those years and on top of sales leverage. So we're also starting I would argue from a very rich.
Support plan for all our brands.
In terms of.
Reinvestment of those.
Of those <unk>.
Savings and reinvestment capability within the P&L construct.
We are not de prioritizing invasion of innovation, we will not be prioritize innovation.
Every innovation that we've delivered in the market has created value and has continued to create value and contribute to our results and in the overall results, we see that our approach of driving superiority.
The strongest driver of our ability to.
Limit volume impact of our pricing moves enable us to continue to price and deliver value to the consumer so.
So in aggregate I think the team has full confidence that we can balance.
We see.
But it will require a careful balance and doubling down on productivity to sustain innovation and investment.
Steve This is John .
I agree with everything that Andre just one additional.
Short comment.
If we find ourselves, which we don't currently in a position where we have to choose.
Between investing in the business and delivering our bottom line target, we will invest in the business.
Yes.
Okay.
And we will take our next question from Lauren Lieberman with Barclays.
Great. Thanks, good morning, everyone.
I thought it might be timely to get sort of an update on what youre seeing in terms of consumer behavior in the U S. You did comment on all outlet market share being flat in the U S. As you know it's hard for us to see that Ziad Nielsen.
But also just the absolute sales growth that we see.
In tracked and untracked data. It does look like there's category contraction, that's going on so I guess commentary on what Youre seeing maybe we could just hit on say.
Laundry.
And whenever I think pick pick another category well.
Talk a bit about about consumer trade donlin dynamics that youre seeing in the market would be great. Thanks.
Good morning Lauren.
Yes.
Stated in your question.
Seeing global value share in value share in the U S holding which is a great signal to our strategies working of providing value to consumers via innovation as we price.
Price contribution of 9% on the quarter with volume being down three but the majority of that volume so more than two points actually driven by Russia also is a good indication that the strategy of.
Irresistible superiority works.
Even in an inflationary environment, where we need to take pricing.
The U S. Specifically as you mentioned all of our own outlet share is flat we've seen strong growth in the U S of 5%.
There is some.
Some volume reduction as you would expect.
With the price increase and inflationary pressures.
We see volume contracting by about a point or two.
And that is consumer.
Consumer behavior around entry inventory reduction.
Stretching purchasing cycle.
And maybe being a bit more careful in terms of dosing.
But overall, we're still able to grow.
Sales within the market and hold share within the market at this point.
To specifically talk to some of the categories, you mentioned and maybe.
Or behavior, there, we talked about our fabric care.
<unk> in the last earnings call.
Where we were supply constrained.
On some of the portfolio in quarter, three and quarter four of last fiscal year we.
We had reduced media spending and have reduced merchandising support stretching into quarter one of this fiscal year.
And Thats certainly has.
Resulted in some share pressure, which you would have seen in the X Aoc shares.
We feel very good about the team.
Being able to reinstate our supply to fall sufficiency. They have also reinstated media they have reinstated merch support that strength that merged support.
And we're seeing our fabric care business coming back our volume share in the most recent reading is actually up.
We see continued strong growth on single unit dose we have the majority of the market growth is at we're driving that market growth.
In terms of consumer sentiment and generally what we see.
The consumer base in fabric care for example, trending up as I mentioned into a single unit dose we.
We see some growth also in our mid tier brands as.
Consumers are looking for value within our portfolio. They are trading into game while into simply tide for example, where we see some level of share growth.
And that's the intent of our vertical portfolio and our.
Strategy to provide different value tiers to consumers.
We are also seeing consumers moving to different price points for a group of consumers is looking for value, but trading into higher transaction sizes.
To find lower cost per use of lower cost per unit.
We see other consumers who are more cash comp.
Yes.
And they are very focused on cash outlay. So again, the other part of the strategy to provide tech sizes that stretched from below $10 for some channels and consumers to above 30 or $40 for others.
Seems to be meeting consumers' needs.
So.
I believe we feel good about the position we're in.
There are some dynamics in terms of supply and base period that will be with us for a period of time.
We remain supply constrained on a few categories, where we will see share pressure.
Tampa for example, the premium tier of our.
Fem care pads business.
On some help some side of the health care business.
But overall, we don't see any negative reaction that we feel we confirmed in our strategy by what we're seeing consumers behavior.
Yes.
And next well hear from Dara <unk> with Morgan Stanley .
Hey, guys.
So a strong organic sales growth result in the quarter at 7%, especially given the COVID-19 drag in China, and Russia impact.
But you kept the full year <unk> sales guidance is that just conservatism given it's early in the year and some of the external challenges are you feeling any more confident around that full year range.
And perhaps within that answer given the pricing has been so strong you can just touch on the volume demand elasticity youre seeing with that higher pricing.
Changes at all towards quarter end or in October and how youre thinking about that front specifically thanks.
Good morning.
Yes.
The.
Guidance of 3% to 5%. This is really grounded in what we believe the market will be.
We see some softening in the market as we have come.
Communicated.
About 3% to 4% value growth is what we're expecting the market to be we want to grow slightly ahead of that.
As you say the first quarter gives us.
A good level of confidence that we have within the right range.
But we're also very early in the year. So we believe the confirming the range is is prudent.
In terms of volume elasticity.
In my earlier remarks, as I said, we feel very encouraged by the fact that we were able to realize 9% off pricing in <unk>.
Again sales growth.
And effectively only see about a point of reduction volume, which speaks to favorable elasticities speaks to our.
Our growth strategy, working and providing consumers value with innovation, even as we take pricing.
As we always do we assume that this elasticity has returned to historic levels.
All the time.
But certainly the first quarter is a good indication gives us confidence that the approach we've taken around the world in terms of combining pricing with innovation.
And productivity in order to offset the cost is the right approach.
And your next question comes from the line of Bryan Spillane with Bank of America.
Thank you operator, good morning, everyone.
I guess two questions for me just related to kind of how we should be thinking about.
Phasing in the back part of the year.
One is just in terms of price increases from here going forward are you are there more incremental price increases that.
We will flow through the balance of the year or has most of the pricing that you need.
In terms of whats in your planned spin implemented and I guess, what I'm really driving at is.
Are we going to start to see would we expect to see more of a shift.
Volume contributing more to the organic sales growth as we move through the back half of the year and less of incremental pricing.
Good morning, Brian I can't speculate or give you an answer on the future pricing, we adjust in the execution of the second pricing round for many of our brands. We took pricing on all our categories in the last fiscal year covering about 80% of sales.
Now in the second round covering about 85% of sales.
And that's what we see flowing through.
In the first quarter many of these price increases in the second rather being executed in September and October .
For the future we will continue to observe.
Our cost headwinds goal, where foreign exchange rate goes it's a very dynamic environment, we will continue to carefully balance innovation pricing and productivity.
Okay. Thank you.
And your next question comes from the line of <unk> <unk> with credit Suisse.
Hey, everybody good morning.
Can you talk a bit more maybe just give some more details on what's driving some of these cost increases, especially as we're starting to see a lot of commodity costs start to roll over.
It doesn't feel like you're discussing it kind of impacting your P&L yet. So can you just give us some more details there.
Yes, I'm going to come in.
Look the.
The commodity cost increases are.
Broad based.
And different by commodity class for example, we continue to see pulp increase.
There is some relief on.
Propylene and ethylene but in aggregate.
We are not seeing broad enough relief on the inputs side to offset some of the inflation that is also coming from our suppliers we call we don't buy.
Profit in we don't buy ethylene we buy.
Packaging materials, we buy super absorbers and materials that are.
That are secondary to that direct commodity impact and that inflation is included in our $2 $4 billion of commodity headwind.
So relatively stable on the commodity side on the freight side transportation warehousing as mentioned in the opening comments, we see some easing.
We expect about $100 million less in headwinds of $200 million off the textile from $300 million.
You see that market.
Getting more back to.
Okay.
Contract prices as well so that's been reflected and then foreign exchange rate, obviously is broadly across all currencies.
As the U S dollar strength is really around.
Every.
Currency in the world.
And Thats why we have the biggest increase.
Versus our initial guidance range of about $400 million due to the Forex.
Effects that we've described.
Your next question comes from the line of Rob Einstein with Evercore.
Great. Thank you very much first a quick follow up and then my main questions just so unclear.
In terms of.
Post Covid consumer behavior, I mean, obviously, we've got some tightening that's going on and consumers searching for value mentioned, but do you see any changes in consumer behavior in terms of those categories that increased demand due to COVID-19 in terms of our home and personal care.
Are we going to be at an elevated level there or is there can I just go back to normal and then.
The main question is can you give us a sense of how your business is progressing in China.
Sequentially through the quarter into October .
And what your plans are for 11 11. Thank you.
Good morning, Rob.
Post COVID-19 behavior, what I would point to obviously as we see market contraction versus.
The pandemic phase in terms of.
Antibacterial surface cleaning products, which is a small part of volatile portfolio.
Other than that I wouldn't point to any major.
Deviation from what we expected consumer still spend more time at home.
I think generally the focus on our categories, which are cleaning hygiene health based.
Continues to be higher which is I think playing back in.
Our investment in <unk> being meaningful to consumers in order to provide value even in an inflationary environment.
The other.
Element that is positive as some of the volatility.
Might be disappearing. So when you think about categories like bath tissue or paper towels.
Where we had very volatile base periods with suppliers being in and out of supply.
The quarter three quarter, one and quarter two of last fiscal year that is stabilizing so those are the post COVID-19 dynamics.
That obviously doesn't play for China to transition to your second part of the question.
We continue to see.
The Lockdowns in China.
Specifically with high non being locked down for the last two months to impact consumption significantly volumes in China are down.
5% to 6% on the quarter.
We have certainly hope for that to ease, but we still see significant negative impact on consumer mobility from the continued strict corporate policies.
We don't going forward, we make no assumption on that changing so it would have to absorb.
We are the market is going we feel well positioned once we see.
<unk> consumer mobility return, we feel very strongly about our ability to grow in the market.
We have a strong team on the ground waiting to get going once the.
The market fully reopens.
And as we said before we expect China to be a long term growth driver and returning to mid single digit growth here in the near future.
Yes.
Okay.
Operator, do we have the next question.
Yeah.
Okay.
Okay.
Yeah.
And next from the line of Nik Modi with RBC capital question.
Thanks, Good morning, everyone.
Hoping you could provide some macro context in terms of what the embedded in guidance I mean, there's so much going on across the world you address China to some degree, but perhaps you could just give us a little bit more context as it relates to Europe , especially as we head into the winter.
You asked maybe somebody antibody market, just kind of how you're thinking about how the macro dynamics will play out over the next day.
Russell fiscal year. Thanks.
Yes, good morning.
As you know we generally.
Orient our outlook on what we know today.
In terms of foreign exchange rate dynamics in terms of commodity costs in terms of energy costs.
So that's what is built into our reconfirmed guidance range.
When you look at the consumer side.
On the market side, obviously, we see high pressure on the European consumer with high inflation.
And certainly as the energy costs will hit the consumer over the winter period.
Depending on how much support.
From the European government has provided and Gwen.
We need to be extra careful in terms of ensuring that consumers have appropriate access to our portfolio.
Making sure that we.
Give the right value to them.
<unk> strong innovation, the right price letter and the right value to your offerings.
So we expect Europe to be.
Yeah.
Tough from a consumer environment standpoint.
But well positioned from our portfolio standpoint in order to be able to compete in that market.
The same is true for the U S. We continue to focus with our retail partners to have broad access across our portfolio for consumers. So they can make the right choices as we said before.
Price letter is increasingly important cash outlay choices are increasingly important.
And that's what we'll continue to focus on.
Enterprise markets are holding up well.
And that's.
That's a key growth driver also in the quarter, you've seen on enterprise markets grow.
Mid teens and even in a growing at 23%.
So we'll continue to drive.
The same strategy in enterprise markets of providing super Ot pricing and productivity.
The next question comes from Kevin Grundy with Jefferies.
Great. Thanks, good morning, everyone.
Okay, just a follow up on that last question, maybe you could just put some some parameters around that specifically around category growth rates I think coming into the year.
The guidance was underpinned on a 3% to 4% category growth rate.
Thank the investors were a little bit surprised by the degree of slowdown at that point, just given the strength of the business performance in recent years.
First quarter, I think was better than even the market expected certainly from a demand elasticity perspective may be just comment now again building on next question.
Is 3% to 4% so whats underpinning your outlook and maybe you can share.
For key regions U S enterprise markets et cetera, what you observe for category growth rates in the first quarter as we think about the balance of the year. So thanks for that.
Yeah, Kevin we expect.
A slowdown from the growth rate, we've seen over the past years, which was 5% to a more modest 3% to 4%.
That is still the case, we continue to believe that the majority of that growth will be price driven.
With a negative volume component as you would expect given the inflationary pressure.
We don't have more detail via.
By region.
At this point in time, and it's really not.
It's really not a constructive forecast exercise to try to frame this element to lower level of detail, so 3% to 4% still underlying all forecast we want to grow slightly ahead of that which is reflected in our guidance range.
Yes.
The next question comes from the line of Christopher Carey with Wells Fargo.
Okay.
Hi, good morning.
Just choose connective questions on focus on enterprise market.
On the U S. You noted that growth was.
5%, which is several points ahead of what we can see it in the U S. Scanner data are there any timing differences with inventory or non track performance that you would that you would highlight there.
And then just tacking on the enterprise market in general can.
Can you just expand a bit on the acceleration we've seen in these markets, what's driving that uptick in growth and maybe importantly, how you see relevant performance versus local competitors in these markets.
Namely if that growth is being driven by pricing and certainly some of the local competition has different inflation exposures versus.
P. G SIB, thanks on the U S and the overall enterprise markets.
To start with the U S.
We see.
Strong growth in non covered markets, that's explaining the overall stronger growth. So just looking at the cobot market here is maybe not reflecting the full reality that we've seen in the first quarter.
So broader growth in the U S are higher than what we've seen in just the carbon markets.
On the.
Enterprise market side same dynamic as in the.
The rest of the World, we continue to see strong contribution from pricing obviously.
And the combination of us taking pricing, but driving innovation into priority at the same time allows us to drive strong organic sales growth.
Your next.
Question comes from the line of Olivia Tong with Raymond James.
Great. Thanks, good morning.
My question is.
Twofold first just kind of if you could give a little bit more detail on what needs to happen to get China to try to get to.
To get back to mid single digit growth.
Beyond obviously cookies going away.
But my question is around competition and your ability to sustain the spending behind brands.
Given still very tough input costs and obviously the move in the U S dollar.
Kind of curious if you've seen any difference from what competition is doing.
Since at the very least international competition.
They are clearly don't have the same FX dynamics that you have thanks.
Yeah, Good morning Olivia.
China I think you've answered the question so I will leave it there.
We will.
Continue to invest I think our teams are.
Very well set up but.
But we need consumer mobility to return in order for China to return to mid single digit growth.
So I'll leave it at that.
In terms of competitive spending.
I won't speculate I think the effect is obviously local competitors as you mentioned and non U S dollar denominated.
Competitors multinational competitors have.
I don't see the same headwinds in terms of foreign exchange.
Our strategy continues to double down on our own so priority continue to double down on our own investment and as John said, our commitment to continue to drive irresistible superiority is relentless.
And that is going to be even more important in some of those market market category combinations, where we see local or non U S. Dollar based competition play.
Yeah.
We will take our next question from Bill Chappell with <unk> Securities.
Yes.
Thanks, Good morning.
Just wanted to follow up a little bit on Lauren's question, a while back on trade down and you said certainly youre seeing some trade down within your categories within your brands.
And I guess.
Two questions. One are you surprised that there isn't more at this stage, even within your brands with with inflation and with potential recession.
And then two maybe could you talk about is there any differences in terms of trade down on what Youre seeing in the U S versus say Europe Latin America.
Or is it all fairly fairly similar thanks.
Yes.
The.
Maybe the macro indication of trade down is twofold.
Our value shares in aggregate are holding as we said and private label shares which is the other indicator for trade on in the market are growing modestly both in the U S and in Europe .
When you look at the U S. We see.
Value share for private labor, increasing 30 basis points over the past three or six months in Europe , we're looking at about 20 basis points of growth.
Some of that is simply driven by a supply dynamics. So we are in the U S. For example, where we see.
Private labor growth in all categories will be in bath tissue or in paper towels.
We have private label in the base period was not supplying well.
<unk> kind of picked up that supply, although quarter, one and quarter two of last fiscal year.
Now is private label is in supply and merchandising is reinstated we see some growth.
Encouragingly when you then look at our February cab business.
<unk> share is holding.
So there is no.
Direct link of private label growth in us not being able to continue to hold our share position or even extend our share position.
Overall trade down within our portfolio is co design. That's why we have created a different value T is that's why we have created different pack sizes.
So some level of.
Consumer shifting as expected we are very encouraged by many of our consumers actually continuing to look for the upper end of our portfolio.
And I've mentioned the fabric care example.
Our biggest growth in the fabric care share is in the single unit or segment.
In the total market and we're driving that growth. So we're encouraged there. So we see trends in both directions part of the consumers continuing to look for the upper end of the portfolio.
Some consumers who are more exposed from a cash outlay of video standpoint find a solution within our.
More value focused peers.
I think some of the clearance.
Clearance explanation of all of this if there is such a thing.
And a very complex world.
Is that value was found.
At the intersection.
Price.
Performance as Andreas said and usage experience.
Not just price.
Price is an important component.
Other components are equally important.
And as Andreas said several times during the call we continue to invest heavily.
In.
Performance and in the usage experience.
And.
And are hopeful that we can maintain our value proposition for most consumers. Some some will out of necessity trade down and as Andre said, we have offerings.
To meet them, where they are as well.
But what I think.
Again.
To cut through this you have to think about the totality of the value proposition to make sense of what's happening.
Yeah.
And your next question will come from the line of Mark Astra Sham with Stifel.
Thanks, and good morning, everyone.
I guess I wanted to ask about market dynamics for lack of better terms.
Maybe start with reconciling global share being in line in terms of what you said on the call with 7% growth that you reported organically in your Threep of Brett.
4% expectations for <unk>.
Category growth rate, obviously that implies a bit of a deceleration and then.
Specifically, what's happening in segments that you talked about where there's market contractions. I think you mentioned that the press release care care oral care fabric care, specifically anything yet sort of takeaways from there and your expectations and what's driving that going forward.
Yes.
Okay.
Yes, good morning, Mark.
Look.
The outlook for the year is still 3% to 4%.
This won't be a straight line.
The best visibility we have is on the top of the year at the global level trying to break this down into quarters I'll try to break those elements geographies.
Is is not helpful. In our minds, so we go quarter by quarter.
The market growth dynamic by category.
Are not fundamentally different from what we're observing as I said, the only driver that is visible from a.
From a colgate to post Covid world.
As in the surface cleaning and hygiene space, where we see slowdown in the category growth.
But other than that the core drivers that we had predicted to help us.
Deliver market growth is our focus on health and hygiene more time at home and more focus from consumers on our categories.
Our main job here is to drive category growth.
And that's what we're really focused on drive new jobs to be done.
Drive household penetration we are there is potential drive usage locations via regimen use and that's what we're focused on in our innovation and in our communication and in market execution.
And as you think about market and market growth.
At some point the whole market has priced at some point that annualize.
And it's less of a contributor to top line growth, yes volume will hopefully be a partial offset to that.
But I think it's normal to expect.
Kind of a reversion to the mean as we get through the pricing cycle.
Thank you next we'll hear from Andrea Teixeira with J P. Morgan.
Good morning, and John on your last point.
I think just a follow up on your comments on revenue growth management I just want to confirm on the timing on this entry level products hitting the shelves I know you've done some of it and which categories are finding the need to offer value I'm, assuming tripled the volume share.
Im assuming family care baby care and laundry can and just wanted to clarify and my main question is on what Youre embedding in terms of additional pricing in Europe into the second half of fiscal 'twenty, three which I believe is usually win.
Retailers like chat new pricing negotiation. So what is embedded in your guidance for the back half of the fiscal year at this point. Thank you.
Yeah, Hey, Andrea let me take this.
The value the value tier price point.
Portfolio that we were describing has been implemented over the past years.
So this is not something that we're doing at Hopkins reaction to market dynamics. We are observing this is something that had been part of the strategy for many years. So the introduction of simply tide.
All types of be the introduction of that strengthening of loss for example for that has been there for a number of years.
Also the strategy of having different opening price points.
From under $10, two a higher transaction size assessment part of our portfolio for many years, what we're doing carefully as we said all along is when we price.
Our price execution is really tailored by SKU by category by brand by market. So that's why we pay attention to ensure that as we price we maintain the right.
Structure on shelf, b that virtual or physical shelf.
Again, I cant comment on additional pricing in the second half.
As John indicated you would from a market perspective expect that some pricing annualize this year during the next two quarters.
But the situation is still a volatile. So we will continue to look at what we're facing and employ a combination of innovation pricing and productivity.
Your next question comes from the line of Jason English with Goldman Sachs.
Hey, folks thanks for slipping me in.
I guess coming full circle to the top of the queue and an investment posture.
I know that you erase media spend by $1 2 billion for fiscal 19 to fiscal 'twenty. Two as you mentioned early on the call.
But you just start to get leverage on our last year, I think roughly 90 basis points of leverage and you mentioned more leveraged today. So question. One is how do we think about the right investment posture when it comes to advertising and media.
And then secondly, John mentioned that we're just going to see price subside as we anniversary.
Which obviously, we will in some instances, we'll probably see it subside too because of promotional intensity and it looks like promotions or building in laundry sequentially diapers sequentially and as you mentioned private labels re engaged in tissue and that may require some promotional get back. So how do you balance being competitive market matching promotional intensity where needed, but yet still getting the price realization.
I need to cover cost thank you.
Yes.
On the media investment I think we really need to shift focus.
It is difficult to describe media sufficiency in dollars.
Especially when we are actively shifting our spending from linear non targeted television into programmatic and into digital spend that has a lot more targeted at a lot more precise in terms of deliver.
Delivering reach and quality of leads that we needed.
So.
Our spending reduction might not necessarily correlate with disinvestment.
So we continue to as John said, we committed to drive superiority of our brands.
We will not step back from that and that for us means higher reach.
A higher quality of reach higher targeting capability, which we've built around the world.
And that's the measure of success for us if we deliver that the dollars are an outcome.
Not the determining factor of sufficiency of investments.
On the price and promotion side.
Jason we've seen.
Promotion levels come down during Covid as you know from above 30% pre COVID-19 to I think 16% was the role during the Covid period.
Now see in all categories promotion coming back up somewhere between 27% to 30%.
Which is to be expected for us. The most important element is to use promotions in the right way.
If we are able to drive regimen for example by co promoting co merchandising laundry detergent and fabric enhancers.
Where we have significant penetration opportunities of fabric enhancers. It grows it grows the category it drives incremental purchase and it drives repeat after trial, if we do it right savings.
Same is true in baby care, when we co promote wipes with diapers it drives.
Higher usage in a relatively more underdeveloped category, which is mikes.
So in that sense promotion can be a driver of growth market growth and profit growth and that's how we want to use it.
Just to build on a point that Andre made.
Because the question keeps being raised which is perfectly fine, but it means we're maybe not being as clear as we can.
I will just give you. The example of North America.
Hopefully give you a confidence in our.
Investment posture.
We had a discussion with the North American team.
A couple of weeks ago, Andrea was there I was there was there.
And.
They had prepared perspective.
By category.
On a dollar spend versus a year ago.
And I walked into the room and said this is unhelpful.
We need to understand is what are our reach objectives and are we sufficient.
And spending to achieve those reach objectives.
One of our objectives in terms of number of weeks on air achieving that reach and Thats, how we will measure sufficiency now.
Want to do that we want to do that as cost effectively as possible.
But that's that's the plan and we went through an assured that category by category.
We have sufficient reach and we have sufficient weeks of media and where we determine that we might not.
There was a discussion with the business leaders on what we can do to ensure that that happened. So we're spending a fair amount of time on us we're very committed to it.
It's <unk>.
I'm sure. It's frustrating because you don't have visibility to all of that you just have visibility to the dollars, which I completely understand.
As Andre also said one other dynamic as we're moving a lot of the.
The marketing activity SaaS in our house.
And so the cost for that in terms of FERC for example.
Purchasing media move.
Moving out of the <unk>.
Advertising budget.
And into the overhead budget.
So that also affects it.
Spend a period to period.
Hopefully that.
Helps.
Yeah.
And your final question comes from the line of Jonathan Feeney with consumer edge.
Okay.
Good morning, Thanks, very much two easy ones I think first I want to understand the bridge between.
Global pricing impact is cited at 470 basis points and global pricing of 9% I'm sure easy I'm missing that I just wanted to know how that math works as we go forward.
And secondly, you mentioned pantry.
Pantry inventories I Wonder is there any data you have specifically about monitoring that in a granular way on global basis or at least maybe some anecdotes about how that's worked in the past when we've seen periods of.
Rising pricing and a little bit of elasticity. Thank you.
On the pricing to gross margin reconciliation.
Suggest you go back to our IR team.
For them to give you the math offline on.
The pantry inventory, we do have some data.
We have in home consumer data specifically in the U S and many other markets that allows us to see.
They are relative to pantry inventory.
So it's a it's based on that observation in the market.
But it's not.
It's not illogical to assume that high inventories that were built during.
The corporate face for example in Bath tissue and paper.
Paper towels.
Slowly drawing down.
I would tell you that we're still seeing somewhat high.
Higher levels that we've seen pre COVID-19, but none of this is material it's more.
A element of consumer behavior that we're observing.
So it's not nothing that would stand out in terms of the construct of the market growth forecast.
Hey, just one thing as we wrap this up.
Turn it back to.
Andre.
If you step back.
From all of this.
I step back from all of this I am just incredibly pleased.
With our team and what they've accomplished 7% organic.
Sales growth.
Against the context of Russia, Ukraine, what's happened in China, where the market is down mid singles.
That is.
Truly fantastic work.
Communicating the value of our offerings improving the value of our offerings as we take necessary pricing maintaining top line momentum in the business great work.
Other piece.
Then I think.
<unk>.
Our strong future is.
As the work as Ondrej mentioned at the onset of the call thats happening that productivity.
Between commodities.
FX and <unk>.
Warehousing and transportation.
We had a 32 point negative impact on the quarter.
And this team was able to offset 30 points of that 32.
Through the combination of pricing and productivity.
So that's the big picture in my view.
I couldnt be.
<unk>.
Yes.
Only point to add is and the combination of value share holding globally and in the U S is a strong indication in our minds that the strategy of driving the pro to even in inflationary environments is the right strategy for PNG. So we'll continue to double down as we said in opening remarks.
With that I, just want to remind you quickly that we'll be hosting an investor day here in Cincinnati on the afternoon and evening of Thursday November 17th you should have received the registration email in early September .
Didn't receive it if you'd like to attend please get in touch with <unk>.
Gentlemen, our IR team.
Thank you for your time.
And have a great week.
Okay.
Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.
Yes.