Q4 2023 Procter & Gamble Co Earnings Call - Estimated
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.
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 PNG as Chief Financial Officer Andre Sholto.
Yeah.
Today are Jon Moeller Chairman of the Board, President and Chief Executive Officer, and John Chevalier Senior Vice President Investor Relations.
I'll start with an overview of results for fiscal year, 'twenty, three and the fourth quarter, John with his perspective on our strategic focus areas and capabilities and we'll close with guidance for fiscal 'twenty four and then take your questions.
Fiscal 'twenty three was another very strong year.
Execution of our integrated strategy continues to have broad based strong sales growth across categories and regions.
Strong earnings in the face of significant cost headwinds and continued strong return of cash to PNG shelves.
Organic sales for the fiscal year grew 7%, our second consecutive year of 7% organic sales growth.
Fifth consecutive year of 5% or better organic growth.
Starting fiscal 2019, 5%, 6%, 6% seven seven.
Growth was broad based across business units with all 10 of all product categories growing organic sales personal health care grew mid teens.
Feminine care grew double digits.
Separate care home care and hair care up high single digits.
Personal care baby care family care and grooming each grew mid singles oral care grew low single digits.
Focus markets were up 5% for the year.
And we delivered strong results in our largest and most profitable market the United States with organic sales growing 6% on top of a strong 8% growth comp in the base period.
Greater China organic sales were down low single digits versus the prior year with trends improving in the back half as the market continues to slowly recover.
Enterprise market were up 15% led by Latin America, with 24% organic sales growth.
E Commerce sales increased 7% now representing 17% of total company.
Yeah.
Our strategy focused on driving market growth is in turn driving share growth for P&G.
All channel market value sales in the U S categories in which we compete grew approximately 7% in fiscal 'twenty three.
P&G consumption grew ahead, I'll say, our shale category growth driving modest value share growth and volume share up 50 basis points for the year.
We help global aggregate market share.
Nine of our top 50 category country combinations held or grew share for the year.
Importantly, this share growth is broad based seven of 10 product categories grew share globally over the past year.
Core earnings per share were $5 97 up 2% for the year. Despite a 24 percentage point earnings growth headwind or $1 38 per share from higher material costs and foreign exchange.
On a currency neutral basis core EPS were up 11%.
Adjusted free cash flow productivity was 95%, we increased our dividend by 3% and returned over $16 billion book value to share owners 9 billion in dividends and $7 4 billion in share repurchase.
Moving to the April to June quarter.
Organic sales grew 8% leased.
We've now delivered seven consecutive quarters, with 5% or better organic sales growth.
Pricing contributed seven points to organic sales growth mix was up two points volume declined one point improving sequentially versus the March quarter as expected.
The strong company results are grounded in broad based category and geographic strength.
Each of our 10 product categories grew organic sales in the quarter.
Personal care personal health care home care feminine care and family care five of our 10 categories each grew double digits.
Baby care hair care and grooming grew high singles fabric care grew mid singles and oral care was up low single digits.
Each of our seven regions grew organic sales with focus markets up 7% and enterprise market up 13% for the quarter.
Organic sales in the U S grew six 6%.
Importantly, this includes three points of volume growth a return to positive volume in our largest market for the first time in five quarters.
Greater China organic sales grew 4%, we continue to see sequential market recovery, but as expected at a slow pace.
European focused market organic sales were up 12% despite volume pressure from wider pricing gaps.
And enterprise markets Latin America led the growth with organic sales up 22%.
Global aggregate market share increased 10 basis points 29 of our top 50 category country combinations held or grew share for the quarter.
On the bottom line core earnings per share were $1 37 up 13% versus the prior year.
On a currency neutral basis core EPS increased 22%.
Core operating margin increased 190 basis points as benefits from strong sales growth and productivity improvements more than offset higher material costs foreign exchange headwinds wage and benefits inflation and reinvestment and higher media reach and frequency.
Currency neutral operating margin increased 310 basis points.
Adjusted free cash flow productivity was 136%.
We returned approximately $2 $3 billion of cash to share owners.
In the quarter.
In summary, we met or exceeded each of olive going in target ranges for the year organic sales growth core EPS growth free cash flow productivity and cash returned to shareholders strong performance again this year in a very difficult operating environment now I'll pass it over to Joe.
Thanks Andre.
I want to talk briefly about this company.
Our strategy and our.
Our organization.
Both as a snapback reflection on what's been accomplished and as a glimpse forward into what's possible.
Three quick reflections looking back.
First pre COVID-19 during COVID-19 and since Covid.
Pre installation and signs of inflation.
Strong top line growth.
Across categories and geographies.
Core earnings per share growth each of the last five fiscal years.
Consistent cash returned to shareowners.
Our strategy has sustained us through all of this.
Second look back in the past two years nearly half of our earnings wiped out by commodities transportation and foreign exchange headwinds.
We still grew earnings per share in each of those years, while delivering 7% organic sales growth each year.
Increasing investment in innovation brand building and growing markets.
And growing market share in aggregate in the process.
As I said last quarter, if you'd told me four years ago that we would grow topline and bottomline and deliver strong cash returned to shareowners through a global pandemic with.
With employees challenge to get to the workplace and the context of a war in Europe .
A major disruption in global supply chains.
Rapid Lee escalating costs, the highest consumer inflation on 40 years and fundamental shifts in consumer behavior and channel relevance.
It would've been hard to agree.
But that's exactly what this team has done.
Over the last five years, they've added over $15 billion and incremental sales growth.
Growing our share of the global market growing core earnings per share by 40% and returned over $80 billion of cash to shareowners.
Two more granular examples testing, both strategy and execution and some of the harshest conditions.
Latin America <unk>.
Significant devaluation across all major currencies and.
Inflation in Brazil, peaking above 12%, 9% and Mexico over 70% in Argentina.
Despite this our team has delivered three consecutive years of U S dollar sales growth.
Mid teens in fiscal 'twenty, two and mid twenties this year.
Market share growth on both a value well excuse me volume and value basis.
Nearly 30% profit growth this year in dollars over 50% on a local currency basis.
One more test Turkey.
Over the past two years, the lira devalued more than 300%.
We've had to take multiple ways of significant pricing.
Still the strength of our strategy and its execution by the organization has enabled us to grow dollar sales grow volume sequentially improve market share and maintain profitability in the market.
Yeah.
As you all know past performance is no guarantee of future results and certainly no excuse to stand still quite the opposite.
There will be bumps in the road ahead.
Still navigating through plenty of challenges right now.
Each of these look backs, though gives us confidence in the effectiveness of the strategy grounded in and focused on consumers and an appreciation for the capability of our talented creative agile uncommitted organization.
Our integrated strategy, a focused portfolio of products and daily use categories, where performance drives brand choice.
<unk> already through innovation across the five vectors of product package brand communication retail execution of value Holistically defined.
Leveraging that superiority to grow markets and are sharing them to jointly create value with our retail partners.
Productivity to offset cost challenges, while funding investments in innovation and brand building that market growth.
We're re accelerated productivity back to pre COVID-19 levels with an objective for gross savings in cost of goods sold of up to one $5 billion before tax.
We have line of sight to savings from improved marketing productivity.
More efficiency and greater effectiveness, avoiding excess frequency and reducing waste.
Constructive disruption of ourselves and our industry to adapt and create new trends technologies and capabilities that often extend our competitive advantage.
And an organizational structure, that's increasingly more empowered agile and accountable.
And increasingly diverse organization.
Now with 50% female representation.
And manager roles across the world.
We're strengthening the execution of our strategy and four focus areas first with supply chain three point out we're driving improved capacity greater agility flexibility scalability transparency and resilience along with greater productivity.
We recently launched a platform of supply chain services to enable best in class service and streamline the end to end supply chain.
These initiatives have been very well received by retailers.
Our next step to drive joint value creation with retailers is to simplify our SKU portfolio to improve the shopping experience increase on shelf availability and further streamline supply for the entire ecosystem.
Higher quality more transparency increased supply assurance and higher on shelf availability of our product.
Each improved superiority with consumers.
And improves what is already the top rank supply chain by our retail partners and third party industry surveys.
All of this as a huge value creation opportunity for PNG and our retail partners.
Next our focus area environmental sustainability to create superior propositions for consumers customers and shareholders, while improving our environmental impact.
Reducing the footprint of our operations, enabling consumers to reduce their footprint and innovating to deliver cross industry solutions for some of our most pressing challenges.
Third digital acumen, leveraging data and digitization to delight consumers streamline the supply chain increased quality drive productivity, all driving shareholder value.
And fourth our superior employee value equation for all genders identities races, ethnicities sexual orientations ages and abilities for all roles to ensure we continue to attract retain and develop the best talent.
At the end of the day P&G serves people with a strong desire to improve their lives and the lives of their families.
We stand by people and support them in small, but meaningful ways every day with superior performing products superior value with.
We strive to do this in the most responsible way consistent with <unk> values and principles.
This approach with consumers at the center and an organization built to serve them has served us and our many stakeholders well.
It will guide our actions as we move forward.
We do this effectively consumers will benefit customers will grow their businesses employees will develop and thrive society will benefit and shareholders will continue to be rewarded for their investment.
Measured by a quarter or even a year, but over time.
I believe in this company.
In our organization its capabilities and in the commitment of P&G people to serve consumers.
I am excited about what lays ahead.
Of course, I have my worries and concerns and we'll continue to face challenges.
Some dark days and nights.
But the future in general holds great promise, we will continue to be guided by our purpose values and principles.
Execution of our strategy to.
To move forward to an ever brighter dawn.
P&G celebrates its 180 <unk> anniversary this year I believe we have an even stronger hand to play today than we've had historically.
With that I'll hand, it back to Andre to outline our guidance for the new year.
Thank you John .
As we've said in each guidance outlook for the past three years and as John indicated we will undoubtedly experienced more volatility in the fiscal year ahead.
And while supply chain and input costs have become more stable as we enter fiscal 'twenty for the challenges we face are multifaceted economic geopolitical and societal.
Putting pressure on consumer confidence and household budgets.
Will navigate these challenges with our dynamic integrated strategy guided by consumers with every step.
Based on current spot prices, we estimate commodities will be a tailwind of around $800 million after tax in fiscal 'twenty four.
Foreign exchange rates continued to be a headwind and based on current rates. We now expect the $400 million after tax impact.
We still face above normal levels of wage and benefit cost inflation in our cost structure and higher costs for third party services.
In addition, we expect the below the line impact from higher net interest expense to be roughly $200 million after tax earnings headwind.
With this context, our move to the key guidance metrics.
We expect global market value growth in our categories to moderate back towards the range of around 4% with the drivers of market growth normalizing as we move through the year pricing, becoming less of a driver and volume returning to modest growth.
With the strength of our brands and commitment to keep investing in the business. We continue to expect to grow above underlying market levels building aggregate market share globally.
This leads to guidance for organic sales growth in the range of 4% to 5% for fiscal 'twenty four.
On the bottom line, we expect EPS growth in the range of 6% to 9% versus fiscal year 2003, EPS of $5 90.
This guidance equates to a range of $6 25 to $6 43 per share.
634, or up seven 5% at the center of the range.
With a three point headwind from foreign exchange this outlook translates to 9% to 12% EPS growth on a constant currency basis.
We expect adjusted free cash flow productivity of 90% for the year. This includes an increase in capital spending as we add capacity in several categories.
We expect to pay more than $9 billion in dividends and to repurchase $5 billion to $6 billion in common stock combined our plan to return $14 billion to $15 billion of cash to share owners this fiscal year.
So top line bottom line and cash guidance for fiscal 'twenty, four all consistent with our long term algorithm.
This outlook is based on current market growth estimates commodity prices and foreign exchange rates.
<unk> additional currency weakness commodity cost increases geopolitical disruptions major supply chain disruptions or store closures are not anticipated within the guidance ranges.
These guidance ranges also do not assume a further reduction in commodity and material costs versus current levels, if that should occur and will generate greater flexibility to invest more in value accretive innovation and marketing opportunities.
With that I'll hand, it back to John for his closing thoughts.
We're very pleased with the strong results P&G people have delivered.
In a very challenging operating cost and competitive environments over the last five years.
Excellent execution of an integrated set of market constructive strategies delivered with a focus on balanced top and bottom line growth and value creation.
We continue to believe that the best path forward to deliver sustainable balanced growth.
Double down on our strategy, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners.
With that Andrea I'll be happy to take your questions.
If you have a question. Please press the star key followed by one on your telephone.
If your question has been answered or you would like to withdraw your question. Please press star followed by tail.
Once again with Star then one to ask a question at this time, we will pause momentarily to assemble the roster.
And our first question will come from Bryan Spillane of Bank of America. Please go ahead.
Thanks, operator, good morning, everyone.
So my question is.
Revenue revenue rebalancing is a real focus for retailers and I guess for you all as well as we kind of look into into 24. So maybe can you provide some color on how <unk> approached this and it's 24 operating plan maybe comment on I know, we're getting questions comment maybe on level of investment up or down.
The mix between spending at the top of the P&L versus the middle of the P&L and maybe if there are any segments geographies that require more intention than others, but again this is ed.
The big issue and just really wanted to get some color in terms of how you all are approached it as you went into 'twenty four.
Yes morning, Brian I'll start.
Look our strategy is to grow categories.
And that is the same strategy will execute in fiscal 'twenty, four and that means growing categories across volume and value.
I think we take great comfort in the U S results, where we already see volume growth in quarter, four 3%, which is half of the growth we saw in the quarter of 6% in terms of sales.
Driving volume and value category growth in our mind is best done via innovation and by driving superiority across the five vectors that we have defined product package communication go to market and value and.
And we see plenty of opportunity across all categories to drive household penetration.
Drive usage locations drive new jobs to be done with all of the physical and mental levers that are available to us. So we'll continue to invest in that direction.
We have plenty of innovation that is doing just that just to give you a few examples if you look at China.
Safeguard China is the number one PC brand and detox body walls, which watched which is two times the market average price.
Has almost doubled in fiscal 'twenty, three and will continue to build on that strength by driving better awareness at even more awareness on that brand.
In Europe , Ariel four chamber.
Unit dose and the eco click packaging.
Very strong results contributed to more than 20% sales growth in quarter four and again, we're just starting that provides plenty of opportunity to continue to drive market growth.
We just launched coach Kate.
Platinum plus.
No Prewash no re wash and again that is contributing to category growth and category share growth for us so plenty of opportunity to drive.
As to the balance between above the line below the line.
It's hard to grow categories in volume and value with promotion.
So we tend to focus on innovation, so priority and communication investments.
When we promote we would like to do it strategically so that means driving regimen for example, combining.
Laundry detergent and fabric enhancers, so a high penetration lower penetration category. So that we overall build business for our retail partners it for ourselves.
Generally the promo environment continues to be relatively stable.
We have no interest in changing that current dynamic.
Yes, I would just.
Offer a couple of thoughts Brian in addition to what Andreas said.
Pricing isn't going away in the absolute.
It is linked to innovation.
And we have a very strong innovation pipeline as Andre partially described.
If you look back historically.
Pricing has been a positive contributor to our top line growth for something like 48, 51% over the last quarters.
And again as we strengthen our.
Innovation program, even further that will provide opportunities to continue.
Sure.
To benefit from modest pricing.
The second thing just to be aware of.
Andre mentioned it.
When you have a strong innovation program.
Yeah.
Compels consumers to try even better performing products, which typically involves a mix benefit so youre going to have some amount of pricing going forward youre going to have some amount of mix. What you saw for instance in the last quarter.
Volume the trend is very encouraging as Andre said.
<unk> on a global aggregate basis, two quarters ago volume was minus six last quarter minus three this quarter minus one.
And as Andre said with fully turned the corner in a growing volume at very healthy levels.
In our largest market.
We also have.
We will benefit from.
Okay.
In our largest market.
We also have.
We will benefit from.
Capacity investments that we're making currently.
We have several categories in the U S. For example, where we're currently on allocation on certain forms.
And freeing up that.
That capacity.
Our fully serve demand both retailers and.
Consumers will help as well so those are just some additional points to consider as you think about.
This question.
The next question comes from Steve Powers of Deutsche Bank. Please go ahead.
Hey, Thanks, and good luck.
Andre Good morning, John .
I guess.
It seems we've resolved the debate as to when do you think you can return to on algorithm growth as you said Andre the 24 outlook implies that tightness is now which is great. I guess the question I am grappling with is if you are fortunate to see.
Upside as the year progresses, whether from further cost relief.
Productivity benefits topline strength et cetera.
How do you think how you think about using that additional flexibility I'm sure to some extent.
The answer is you'll reinvest and stay within the algorithm range and preserve longer term.
Momentum, but I guess is there a is there a point or framework you would use to.
Assess flowing through flowing through some of those benefits to upside versus the current guide. Thank you.
Good morning, Steve.
Yeah.
We're very pleased that we were able to guide back to algorithm for fiscal 'twenty four.
And as it comes to incremental investment should we see.
More momentum or more help from a commodity perspective.
The principle, we will apply is return on investment.
Simple principle.
Guided by money being available we're guided by what is the best path forward to create sustainable value.
For our shareholders.
We have plenty of opportunity to invest partially in the direction that we mentioned before.
You saw media spending for example, taking up in quarter, four partially because thats profiles with innovation at.
At retail events.
But as we.
Further develop our ability to target more effectively and efficiently in the media space, We generally see a higher return on investment on every incremental dollar that we spend so we look carefully.
A portion of that direction, because we believe that more awareness on stronger innovation and superior products will drive the market and therefore will drive our growth in a constructive way.
We also have plenty of opportunity to improve our service levels as John said, adding capacity.
And we'll invest and continue to invest in our ability to serve our retail partners even more effectively.
We have done in the past.
And then we have plenty of opportunity to invest in.
Future productivity.
Supply chain three all of our digital capabilities.
All of those follow the same principle all day.
Returning.
A reasonable I think giving us a reasonable return on investment if they do we will try to invest if they don't we let the money flow through to earnings.
Yes.
Emphasizing.
The point of.
ROI based decision making.
I don't.
We are discussing.
An opportunity in the market, whether that's advertising.
Supply building capability.
I don't think I've ever asked the question where are we versus our guidance range in terms of the bottom line. That's just not how we think about things.
We've reflected a significant amount of investment that we're very excited about.
The guidance range and we'll continue looking for opportunities to build return.
That will be the <unk>.
<unk>.
The next question comes from Dara <unk> of Morgan Stanley . Please go ahead.
Hey, good morning.
So just wanted to Tianjin a bit off Brian question more towards the payback from AD spend and P&G market share performance in the promotion and pricing side of things, which you've covered.
Obviously, another quarter of strong organic sales growth I know driving category growth is job one.
P&G share gains were a bit more modest in the quarter and the fiscal year. So just wanted to get an update on your view of market share performance, how you're positioned going forward on that front.
Particularly given the recent reinvestment into marketing and the levels of payback do you think youre getting from that thanks.
Yes.
Let me start I'm sure Jon will add.
I'll start by saying, we're very pleased with our market share performance.
Holding.
Global aggregate volume share and value share in the light of very strong pricing contribution to the P&L.
Which is a great outcome.
As John mentioned, we see sequential progress in terms of volumes in the market and an hour performance, which is critical.
Critical outcome as we enter fiscal 'twenty four.
When you look at the U S. We continue to drive value share growth of 20 basis points and volume share growth of 50 basis points in the most recent reading when.
When you look at our European chefs, our focused market shifts.
So a positive in the past one or two months.
In European focused markets.
All of those things give us great confidence that the strategy of driving superiority and providing value to consumers via innovation at the time when we price.
Is working our vertical portfolio across value tiers and across price points in the markets is working so we will continue to double down.
<unk> doubled down in that in that direction.
From a U S share perspective.
We see.
Some trading into private label.
Private label shares in aggregate actually flat in the U S at about 16%, so not really growing sequentially.
But if you compare versus previous quarter as we had mentioned before there is some volatility, especially in family care and.
Baby care, where we would expect that private label at smaller brands returned to the shelf some of those record shares.
With decrease and that's partially what we're seeing.
But structurally the business is in a very good place and we think we are well positioned to continue our journey on driving market growth and thereby extending our share premium which is which is by the way included in our guidance.
When we set the market is going to grow 4%.
Go ahead of the market.
And only one point to add to that I agree with everything Andre just said.
As you are looking to see a correlation Steve between increased marketing investment in.
In Q4 and market share.
As I know you know.
It's not instantaneous.
If you just think about purchase cycles as one of the dynamics, we have categories, where the purchase cycle is once every six months or once every year either.
And so we looked at it obviously over longer periods of time.
The next question comes from Lauren Lieberman of Barclays. Please go ahead.
Great. Thanks, good morning.
And I was hoping to hear a little bit more about the SKU simplification program because that was that was news I know you guys have spent a good amount of time talking about supply chain three point out, but I was intrigued by this.
Kind of new initiatives. So I was curious I guess first geographically are there particular markets, where it's more pertinent how far along are you in this process in terms of identifying where the opportunities are in.
Should we think about that is.
Contributing to existing productivity programs, how does this interact with kind of discussion with retailers and bringing innovation in the market is it like a one in one out but.
Just some more nuance around this this program would be interesting. Thanks.
Good morning, Lauren looks.
<unk> SKU simplification as a category opportunity if.
If you look in its category opportunity globally across the categories that we operate in.
It is.
The reality that a very small.
At the bottom 25% of Skus in the categories, we operate in.
Deliver a very small contribution to absolute retail sales.
So as we think about.
Even better serving our consumers that even better serving our retail partners.
It is a logical part of an optimization program to find a better more efficient shelf.
The.
Appealing part for US is the data that we have based on images of our customers' shelves in terms of Pos data and the algorithms. We have developed to analyze the combination of those two give us great insight.
On what the right shelf set up should be and which Skus, we should really focus on with our retail partners to maximize overall states throughput and that's the opportunity we're going after it is a program that runs across all categories.
And it's a program that runs across all regions.
It will be ongoing.
As we reset shelves and discuss future innovation with our retail partners and as part of our.
Program with our retail partners to drive efficiency and part of our own productivity efforts, because as you could imagine reducing skus in a very complex manufacturing environment frees up capacity.
It frees up cost so it's <unk>.
Multi benefited space.
But we will take our time to ensure that we do it the right way there is no standard.
Simple way to do this so it requires a lot of analysis and a lot of planning with our retail partners to deal with right.
They are very excited about this opportunity.
I meet with our retail partner.
Ceos.
<unk>.
Key managers in those accounts.
They are very anxious to work together on this.
And.
A very important emphasis point.
Is that this is sometimes looked at primarily through our bottom line cost savings efficiency lens.
That's not how we're approaching.
This will be a benefit we're really focusing on the opportunity as Andre said with a more powerful shelves to grow categories faster and therefore, it's a top line opportunity.
<unk> for us.
Retail partners and we believe that if we do this well.
What would normally be considered as some.
Shelf distribution risk through a smaller lineup.
We can actually convey that into it into a stronger overall shelf.
So it's multifaceted as Andre said.
It's early early days working.
Through this.
We'll be category by category account by account.
Efforts, but I think that holds significant opportunity.
This was you asked the question Laurent and whether this was.
Kind of incremental to the previously communicated productivity.
Numbers. This is part of that part of how we deliver that again has a topline benefit as well.
Okay.
The next question comes from Nik Modi of RBC capital markets. Please go ahead.
Thank you and good morning, everyone.
Actually had just two quick ones John .
On China can you just provide any kind of on the ground color on what's going on with the consumer.
Feel about them feeling comfortable getting out and about in a more normalized routine or is there something more economic going on and then the bigger question is just you know.
Obviously supply chain have been disruptive for the past few years.
Suspecting innovation was disrupted as a result.
Things are getting back to normal I'm, just curious like how do you how would you frame P&G innovation pipeline for fiscal 'twenty four relative to <unk>.
Normal year I mean, this is going to be kind of a bigger year than normal and then how do you think about.
Getting the space given that what I understand is most companies are going to have a pretty heavy innovation here over the next 12 months I'm just curious how you think about.
Spending needs and the ability to get everything you want onto the shelf.
China.
As Andre said in our prepared remarks continues to.
To recover.
Hey.
Significantly rapid pace, but steadily so our business in that country was up 4% in the last quarter.
And Thats, a big improvement from where it was in the first half of the year.
There are there continue to be.
Consumer confidence.
Challenges driven by many factors.
In China.
But again improving.
Month on month.
There are some fundamental.
Underlying economic challenges if you look for example at the employment rates.
Of people.
In their twenties.
It's fair.
Very low.
Right now the unemployed sorry, the unemployment rate is high the employment rate is low.
Unemployment of as much as 20%.
So there's a combination of things.
But as always I hold out great hope.
For China.
And our business in it as I said it we're beginning to recover nicely as we speak.
On the.
The supply chain.
Several things happened as we.
Rebalance.
Supply and demand.
One is and we've talked about this before we're able to focus more energy and effort refocus more energy and effort on productivity.
So that that's a significant benefit.
Benefit that's included in our.
Assumptions on the guidance.
It also makes it easier to get line time.
To innovate we have.
Very strong innovation.
Program that we're executing currently.
And obviously.
It's part of our model, we expect to do that.
Going forward.
And our track record to the point of how do you get things on shelf.
Rock record speaks for itself. So one of the innovations that Andre was talking about earlier, if you just look at <unk>.
Hand, dishwashing and.
Either states and Europe .
Don power wash and Don easy squeeze bottle.
Those two innovations together drove 17% growth in that business last year.
Up one five share points in the U S up I think the number is one one share points and in Europe , and we're just getting started with the potential there, but that kind of track record behind innovation.
It makes us a very compelling partner to our.
To our retail partners and that specific example.
As you would expect with those kind of numbers.
<unk> had a significant impact on market growth, which is also a primary importance to them they don't really.
No don't really care are benefited by our share growth.
Unless it is driven.
Driven by market growth, which they benefit from.
So I think we're good.
Good shape, when we have great ideas, when we can increase consumer and shopper delight.
We'll be fully PRASM.
Okay.
The next question comes from Robert Aten Stein of Evercore ISI. Please go ahead.
Great. Thank you very much.
John You mentioned I think in your introductory remarks that your E. Commerce business is now about 17% of total.
Which has probably doubled in three years or four years can you maybe kind of stand back and reflect on.
What that means for your business overall.
And then maybe concentrating on the U S.
How does that change your relationship with brick and mortar does as it had and in fact impact on your shelf space in brick and mortar.
It changed.
Your supply chains added complexity, it's given to you.
And how has it changed your overall discussion with retailers I know theres a lot there, but what are the key things and takeaways that we should get about whats been a pretty big transformation in terms of channels over the last three years to four years. Thank you.
Yeah.
Thanks Robert.
It's getting harder and harder to distinguish between e-commerce and <unk>.
Traditional commerce, if you will.
Even in our conversations with our retail partners most of the large brick and mortar retailers are.
Emphasizing the development of.
E Commerce.
And different forms themselves.
Have have.
Had significant.
Growth behind those efforts, so honestly I have not been in a conversation that is.
Zero sum in nature.
Or that is in any way.
Combative and nature more of the conversation is.
How can we work together to fully satisfy our shoppers many of whom prefer an e-commerce experience.
From a.
From a pure business standpoint, we aimed to be in difference.
Between <unk>.
<unk>.
We want to have.
And equally attractive margin, which we generally do at least in aggregate.
And we want a <unk>.
Sure profile and the different channels.
That allows us to be in difference and allows us to support consumers and shoppers and whatever their choices wherever they want to go.
That's always work to do but we stand today.
Very good place.
Last comment I'd make is just.
When you think about the growth of e-commerce in the year that we just completed.
He said it was 7% that's the same rate of growth for the total business. So there is not.
Chipping exercise that's going on here.
It's really working to raise all boats.
And the only thing I'd add as many of the initiatives. We talked about are designed to benefit and on the environment. So both online as well as physical store. When you think about SKU productivity absolutely critical when you try to fulfill on online business from shelf because you need the holding power. When you think about supply chain services, our ability to fulfill on behalf of all retail.
Outlets directly from our Dcs significant advantage. If you are in an online environment.
But also an opportunity for any brick and mortar retailers. So all of those programs are basically channel agnostic.
Any format within our market.
The next question comes from Andrea Teixeira of Jpmorgan. Please go ahead.
Hi, Thank you good morning.
One for John and one for.
John on the U S volume recovery.
See more of a need to defend the entry level pricing with Tom I know I don't want to foundation I. Appreciate all that you said about SAP.
Early initiatives on our not only initiatives I mean real market share gains.
But I'm just thinking of the private label and value brands as discussed do you feel comfortable with your price pack architecture as it stands now and do you think that also related to the fabric and in Fem care.
Hi.
Basically capacity increase so you are now on shelf and you can be more tactical.
Price points.
Then on the cost side for fiscal 'twenty four it seems that youre, calling a net benefit of $400 million.
And you are in that.
Matt commodity suppliers that facts and logistics I understand that you use the spot prices and to the extent numbers come in better than that we'll just see more of a need to reinvest or potentially fill through some of the savings to the bottom line. Thank you.
I'll start with the <unk>.
With the commodity correction commodity FX question, Youre right $800 billion help on commodities offset by $400 million in <unk>.
FX and $200 million of interest expense.
Sure.
Couple of points, one as we've talked before it takes time for these effects to flow through the P&L. So generally expect them to be more back half weighted versus front half weighted and.
And the same is true with any incremental help so if we see incremental help.
It can take up to six to nine months for it to flow through the P&L. So we need to keep that in mind.
But I'll give you the same answer I think we've given.
Before Andreas.
Our ROI driven.
And it's really less defined by do we get more commodity help or less commodity held within guidance range without <unk>.
Outside of guidance range there.
The discussion is is this the right investments to drive the strategy and create sustainable value and if it is we'll do everything possible to make the investment work, obviously, if commodity help thats coming thats an easier decision.
But we will be 100% ROI driven both in the short term and the long term investments.
And as it relates to.
Opening price points.
That's a very fair.
Fair question.
And something that we're.
Always evaluating as you would expect.
But there are several tools.
That we have available to us to ensure that we're providing.
Good value.
To consumers for whom price becomes a challenge.
We have pack size, ensuring that we have.
Pack sizes that are accommodated within their cash.
Cash outlay capacity.
Making sure that we have.
Offerings.
Right for the channels that consumers typically go to when they come under.
Economic pressure.
Ensuring that.
Whether it's on the package, whether it's on the shelf whether it's on advertising.
Clearly communicated.
The value that those.
Offerings provide.
Youll see us going to the utilization of those tools much more frequently.
Fully diluted and satisfy that shopper.
We will simply price.
The next question comes from Callum Elliot of Bernstein. Please go ahead.
Hi, Thanks for the question.
I wanted to Jillian little bit more into reinvestment. Please in from a different angle. So my question really is about retail media spend.
We've spent a lot of hype if I can put it that way about the potential of retail media from the retailers themselves and in particular.
Tension for CPG retail media spend to be incremental for the re tenants.
So my question is can you talk a bit about retail media spend from your perspective.
Who's responsible for it within your business as it is the brand teams will.
Customer teams.
And is there a risk to this.
Clearly, we will need to be incremental spend.
Or is it just shifting from from shopper marketing dollars.
C media channels. Thank you.
Yes, I can start and then John if you want to add.
For us any type of media spend whether it's digital.
Online OTT TV.
Print or as you say customer media is part of the total mix.
So what we're looking to do is optimize.
Our reach effectively with a target and the frequency across all of those different touch points.
And just like any other channel retailer media needs to earn its place in our marketing mix model based on the relative return that it can provide.
We are working with our retail partners to maximize that return absolutely there are plenty of opportunities and data sharing.
Binding transaction data with media data to optimize and that is a strong <unk>.
Reason why retailer based marketing spend and Ken makes sense.
But it is part of the overall marketing mix and it's managed in that way. So really it's the brand teams that are managing their overall mix.
And they are collaborating closely with the customer teams because in many cases, a well timed investment in retailer media in line with merchandising plans.
On the floor or online can provide superior with total investment.
And I like generally the concept of retailer media managed and just the way that Andre described.
Because just generally believe that the majority of brand choice is made in a retail environment.
And so if we can bring that on.
All together and offers significant opportunity I think less brand choices made sitting on a couch or even driving in a car on our way to a retail establishment.
The same is true for online.
So we are very carefully.
Evaluating.
This opportunity, but it will be done in the context that Andre described.
The next question comes from Olivia Tong of Raymond James. Please go ahead.
Great. Thank you very much.
Questions first on cost Danny.
Improved materially as the year progressed. So do you feel like that's sustainable improvement from here or to what extent does it perhaps for clay.
Now with any level after last year.
Correct.
And then second question is just realizing that.
Strong base led to a greater consumer willingness to stay with your premium brands.
Don for example, and it's obviously given your ability to grow the category, even when consumers are trading down to private label.
So perhaps can you talk about your innovation plans for fiscal 'twenty for how that comparison years. Thank you.
Good morning, Olivia on the cost savings side.
We are very confident in our previous statements that we will return to pre COVID-19 level across cost of goods media savings and general productivity on the overhead side.
And I think you saw that play out in quarter four as.
As long time becomes available as we have more time with our suppliers for example, as.
As we start to implement supply chain three point, all we're very confident in our ability to create up to $1 $5 billion of net savings.
Within the supply chain, we continue to generate significant amount of savings via our media programs.
Every business is looking at productivity opportunities to balance labor and wage cost inflation within the overhead structure.
So I think quarter four is a good indication that we are able to do just that get back to pre COVID-19 levels of productivity within those buckets that I described.
In terms of innovation.
What I would tell you is number one we never stopped innovation.
So we prioritize strong innovation throughout Covid and supply chain struggled because.
Because we knew that was the only way to create value for our retail partners and for our consumers as we had to take significant pricing. In addition to productivity to offset the commodity cost increases that we saw.
It is also important to register that our innovation is not just premium innovation, we are innovating across all of that your tears because the concept of superiority requires us to be competitive or superior at every price tier so on a brand like <unk> for example, which is a value brand on diapers in the U S.
We're competing against private label offerings, so we need to be able to be.
<unk> superior and have the right innovation to do just that.
I continue to feel very strong about on innovation capability. We gave you a list of examples there are plenty more.
And I think the biggest strength, we have is the hit rate that.
That we've been able to demonstrate is very good and as John mentioned that gives confidence to retailers to support our innovation, which is the biggest help that we can get.
In addition to just truly consumer based innovation, having the support of our retail partners to bring it on and drive category growth and that allows us to create sustainable share growth for us.
The next question comes from Peter Grom of UBS. Please go ahead.
Thanks, operator, and good morning, everyone. So I was hoping to get some color in terms of how to think about the gross margin progression. You mentioned in response to Andrea's question, the $800 million of depletion will be more back half weighted but it still seems you will have some healthy tailwind from productivity and price. So just any thoughts in terms of how.
Think about the pace of gross margin commodity cost pricing productivity evolves just just in the context of such strong momentum exiting this year. Thanks.
Yes, good morning, Peter.
I'll leave it at.
Starting just starting to recover a lot of the gross margin that was impacted by.
The commodity cost inflation.
Obviously, our objective is to continue to recover.
And get back to pre Covid levels, and then grow from there.
Our algorithm re.
<unk>.
With mid single digit top line growth mid to high single digit EPS growth requires somewhere between 20, and 60 basis points of operating margin extension and part of that would have to come from gross margin expansion because as we said we strive to continue to invest in the business across innovation.
Communication to drive superiority I won't give you detailed guidance, but we're still on the path to recovering back to pre COVID-19 levels.
The next question comes from Philip <unk> of Citi. Please go ahead.
Hey, good morning, everyone.
Just a clarification on your organic sales growth guidance, you mentioned global you expected global markets grew 4% with modest growth in volume.
Can you break down like what are your expectations for your volume assumptions for 'twenty, four and <unk> engine.
In terms of cadence.
Could we see given the strong improvement that you saw in Q4, some volume growth on a total company level, even in the first half of the year or do you think it's more about second half in terms of volume growth for PNG. Thank you.
Yes, maybe.
<unk> Bye deconstructing, the global market growth number we expect a point to a point and a half of that over our fiscal year to come from volume.
We saw global market growth numbers point to a point and a half and volume.
Same amount from mix same amount from price.
We strive to grow ahead of that.
What exactly the composition of our growth is I think it will depend.
And we will see.
So if I had to give you.
A number I don't think I could at this point in time.
Expect sequential progress on the volume line, let's put it that way.
And we will do everything possible to make that progress happened by driving market growth.
Specifically on the volume side that'll be the most constructive way to drive our growth in 2004.
The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.
Hey, good morning, So just two quick questions for me first.
With leverage where it is trending free.
Free cash flow generation strong why not buyback more stock.
Or more buybacks for the year and second.
Good.
Progress on <unk> in the quarter.
Can we just get any context on where you think the brand sits today.
The channel health.
It seems to be quite an important driver of growth and just wanted to get some context on whether we.
Can you get back to those sorts of.
Yes that sort of contribution on a more global basis, Mike Ward. So thanks, so much.
Got it.
Yes, Chris on free cash flow I will just tell you all capital allocation priorities haven't changed we're fully fund the business.
We will pay the dividend, we will do M&A, where it makes sense and then we will return cash via share repurchase.
Just keep in mind, we had two years, where operating income was severely limited because of the recovery of commodity cost increase of foreign exchange.
So that explains I think a little bit of that.
Share repurchase number being a little bit lower.
You look at the average we're still returning.
1% to $50 billion to shareholders.
Which is right in line with what we've been doing over previous years.
On SK to 20% growth in the quarter looks great on the headline.
Just keep in mind, we're building that off of a very weak base period with Shanghai Lockdowns.
So I wouldn't want you to extrapolate that straight into fiscal 'twenty four I.
I think most importantly, the team is doing a great job in putting SK too on a solid footing both from a channel perspective, making sure that the pricing across different channels travel retail domestic travel retail and domestic markets.
In a sustainable place they are investing in.
The core equity of the brand with a new campaign.
And they are building retail support in trial all of those things I believe are a good indicator of where we're headed and early science within China. For example, a very strong positive consumer reviews, and initially positive share growth. So we're headed in the right direction.
But probably not quite at the clip you select.
The next question comes from Mark Astrachan of Stifel. Please go ahead.
Yes, thanks, and good morning, everyone actually Ironically I wanted to ask about Q2, but more than a portfolio construct.
View so.
How do you think about.
Prestige beauty fitting into your portfolio I think it's been a question for <unk>.
Three years in terms of go to market and sort of synergies with the rest of.
The beauty business, you've obviously done some selective M&A not necessarily co selling that with SK <unk> in certain.
Businesses in market. So I guess, if you take a step back and look at the volatility obviously, partly COVID-19 related over the last three four years there has been volatility there.
It is improving but some signs that the go to market that existed three years ago four years ago pre COVID-19.
In terms of how you sell those products. So are the same synergies in going to market.
There are today versus where you were a few years ago are you still getting the same synergy in terms of flow through to technology to using it in a way.
And then.
Related to all of that how do you think about that current portfolio today doesn't need to be bigger does it need to be shifted a bit in categories.
Where you are so long winded question, but I'll throw it related desk you too. Thanks.
As you know we want to be present in daily use categories, where performance drives brand choice.
We love SK too in that context, and it's performed very well.
Over the years.
As you indicated the more recent volatility volatility is due to.
Channel dynamics.
And Covid dynamics.
All of which are are beginning.
To turn more favorable.
Favorable that'll take a little bit of time, but this is a brand that we like.
We've said that from a portfolio standpoint, there are two categories that.
We're most interested in from an acquisition standpoint, albeit in a very disciplined way.
And those are the same two categories, where we've been making.
Smaller acquisitions, those two categories, our personal health care.
Skin care.
The next bill.
Our final question comes from Bill Chappell of <unk> Securities. Please go ahead.
Thanks, so much for squeezing me in.
Just a question on grooming.
Yes.
One I might have missed.
What was going on in Europe . So if you can kind of clarify that and the disruption for two this seems to be kind of the best.
Category, two gauge pandemic behavior pulled back meaningfully during pandemic, obviously, we've had a reopening for the past two years so could.
Could you maybe give us.
The state of the state of that industry as we go into what looks like a normalized next 12 months or are we at a normalized yes, I don't know if were even back to where we were in 2019. Thanks.
Yes look if you if you look at the grooming business I would first tell you the.
Last two quarters have been very strong quarters.
The <unk>.
Brown business, so the more appliance side of the business.
It had been.
Annualized a very strong base period during the pandemic as more and more folks have brought some of these drops in house versus going to a.
Barber shops, or beauty salons, and obviously that had a very high base. So we're annualizing that base on.
On the core grooming side, when you think about male blades and razors female hair removal.
Albeit care I think the business has done a fantastic job in expanding the jobs to be done that we cover.
And driving honestly market growth across each of those segments and that will continue so in terms of future outlook, we feel very good about the business recovering already in the second half mainly from the Braun.
Strong base period, and I think the plan for current fiscal year or so.
<unk>.
I want to thank everybody for your time. This morning, we appreciate it we know this is a busy morning for you, we'll let you get on to other things.
I just wanted to provide one last recognition of the team here at P&G, who is working.
Hard to serve consumers customers each other society and of course, our shareholders. Thank you for your interest.
Thanks, everyone.
That concludes today's conference. Thank you for your participation you may now disconnect have a great day.
Today's conference. Thank you for your participation you may now disconnect have a great.