Q1 2024 Procter & Gamble Co Earnings Call
Good morning, and welcome to Procter <unk> Gamble's quarter end conference call. Today's event is being recorded for replay.
This discussion will include a number of forward looking statements.
If you will refer to P&g's. Most recent 10-K 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.
As required by regulation G. Procter <unk> gamble needs to make you aware that during the discussion the company will make a number of references to non-GAAP and other financial measures.
<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 <unk>, Chief Financial Officer Andre Scholten.
Good morning, everyone. Joining me on the call today is John Chevalier Senior Vice President Investor Relations. This fiscal year, Jon Moeller, Chairman, President and CEO will join the mid year and year end colds and I'll be beating the Q1 and Q3 calls.
Execution of our integrated strategy drove strong results in the July to September quarter.
Rod based organic sales growth across categories and regions global aggregate market share growth strong productivity savings, enabling increased investment and superiority of our brands. While also delivering very strong earnings growth.
These strong first quarter results put us on track to deliver toward the higher end of our fiscal year guidance ranges for organic sales growth and core earnings per share and.
And continued strong cash productivity and cash returned to shareholders.
So moving to first quarter numbers organic sales grew 7% pricing added seven points to sales growth and mix contributed one point volume rounded down to a decline of one point with overall modest volume growth outside greater China.
Topline growth was broad based across business units with each of our 10 product categories growing organic sales.
Home care grew low teens personal health care was up double digits.
Eminent care oral care fabric care hair.
And grooming each grew.
High single digits Baby care and family care were up mid singles skin and personal care grew low singles.
Growth was also broad based across geographies with five of seven regions growing organic sales.
Focus markets grew 6% for the quarter organic sales in the U S were up 7% and Europe focused markets were up 15%.
Greater China organic sales were down 6% versus prior year underlying market growth is soft and choppy as consumer confidence remains weak.
S. K tube was down low teens in greater China due to soft market conditions, and a temporary reduction in social retail merchandising.
Enterprise markets were up 13% with Latin America up, 19% and Europe enterprise markets up 15%.
Shipment volume in the U S grew 3% again this quarter and we returned to volume growth in Europe focused markets, Mexico, Brazil, and India. Some of our largest enterprise markets continued to deliver solid volume growth.
These gains largely offset volume declines in the greater China Asia Pacific and European Enterprise region, primarily driven by underlying market contraction.
Unknown Attendee: Good morning, and welcome to Procter & Gamble's quarter-end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to PNG's most recent 10K, 10Q and 8K 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 & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-gap and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends, and has posted on its investor relations website, www.pginvestor.com, a full reconciliation of non-gap financial measures.
Global aggregate value share was up 40 basis points versus prior year with 32 of our top 50 category country combinations holding or growing share.
In the U S. All outlet value share was up 50 basis points versus prior year with seven of 10 categories holding or growing value share in the quarter.
U S volume share was up 60 basis points, reflecting 3% volume growth.
Value share in European focused markets was up 40 basis points over the past three months.
Moving to the bottom line core earnings per share were $1 83 up 17% versus prior year on a currency neutral basis core EPS increased 21%.
Core operating margin increased to 140 basis points at 460 basis points of gross margin expansion was partially offset by increased marketing investments wage and benefit inflation and foreign exchange impacts on SG&A.
Andre Schulten: Now I will turn the call over to PNG's Chief Financial Officer, Andre Schulten, Thank you. Good morning, everyone.
Andre Schulten: Joining me on the call today is John Chevalier, Senior Vice President Investor Relations. This fiscal year, John Moller, Chairman, President and CEO will join the mid-year and year end calls, and I'll be leading the Q1 and Q3 calls. These strong first quarter results put us on track to deliver toward the higher end of our fiscal year guidance ranges for organic sales growth and core earnings per share, and continued strong cash productivity and cash return to share loans.
Currency neutral cooperating margin increased 340 basis points productivity improvements worth 210 basis point help to the quarter.
Adjusted free cash flow productivity was 97%.
We returned $3 $8 billion of cash to share owners, approximately $2 3 billion in dividends and $1 5 billion in share repurchase.
In summary against will continues to be a challenging and volatile operating environment, a very good start to the fiscal year across top line bottom line and cash.
Our team continues to operate with excellence executing the integrated strategy that has enabled strong results over the past five years and that is the foundation for balanced growth and value creation.
Andre Schulten: For moving to first quarter numbers, organic sales grew 7%, pricing added 7 points to sales growth and mixed contributed 1 point, volume rounded down to a decline of 1 point with overall modest volume growth outside greater China. Topline growth was broad-based across business units with each of our 10 product categories growing organic sales. Home care grew low teens, personal health care was up double digits, feminine care, or a care, fabric care, care care and grooming, each grew high single digits.
A portfolio of daily use products, many providing cleaning health and hygiene benefits and categories. The performance plays a significant role in brand choice.
Ongoing commitment to and investment in irresistible superiority across the five vectors of product package brand communication retail execution and value across each price tier we compete.
We are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy.
Productivity improvement in all areas of our operations to fund investments and superiority offset cost and currency challenges expand margins and deliver strong cash generation.
Andre Schulten: Baby care and family care were up mid-singles, skin and personal care grew low single. Growth was also broad-based across geographies with 5 of 7 regions growing organic sales. Focus markets grew 6% for the quarter, organic sales in the US were up 7%, and Europe focus markets were up 15%. Greater China organic sales were down 6% versus prior year, underlying market growth is soft and choppy as consumer confidence remains weak. SK2 was down low teens in greater China due to soft market conditions and a temporary reduction in social retail merchandising.
An approach of constructive disruption the willingness to change adapt and create new trends and technologies that will shape, our industry for the future, especially important in the volatile environment. We're in.
Finally, an organization that is more empowered agile and accountable.
We continue to improve the execution of the integrated strategy with full focus areas supply chain three digital acumen environmental sustainability and the employee value equation. These are not new or separate strategies, they are necessary elements and continuing to build sorority reduce cost to <unk>.
Andre Schulten: Enterprise markets were up 13%, with Latin America up 19%, and Europe Enterprise markets up 15%. Shipment volume in the US grew 3% again this quarter, and we return to volume growth in Europe focus. Markets, Mexico, Brazil and India, some of our largest enterprise markets continue to deliver solid volume growth. These gains largely offset volume declines in the greater China, Asia Pacific and European enterprise regions, primarily driven by underlying market contraction. Global aggregate value share, with up 40 basis points versus prior year, with 32 of our top 50 category country combinations holding or growing share.
<unk> investment and value creation and to further strengthen our organization.
Our strategic choices on portfolio Super Ot productivity constructive disruption and organization 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 strategy.
Starting with our commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity.
Moving to guidance as I mentioned, we expect the environment around us to continue to be volatile and challenging from input costs to currencies to consumer and geopolitical dynamics.
Andre Schulten: In the US, all outlet value share was up 50 basis points versus prior year, with 7 of 10 categories holding or growing value share in the quarter. US volume share was up 60 basis points reflecting 3% volume growth. Value share in European focus markets was up 40 basis points over the past three months. Moving to the bottom line, core earnings per share were $1.83 up 17% versus prior year, on a currency neutral basis, core EPS increased 21%.
We attempt to reflect these realities in our guidance ranges.
Based on current spot prices, we estimate commodities will be a tailwind of around $800 million off the techs in fiscal 'twenty four.
This is consistent with the outlook we provided in July .
However, within this estimate there have been several moving parts, we've seen incremental relief on some commodities like pulp, which have been offset by higher costs in other commodities such as fuel.
Foreign exchange rates have moved sharply against us and we now expect a headwind of approximately $1 billion after tax an incremental $600 million impact since our initial guidance for the year.
Andre Schulten: For operating margin increased 240 basis points as 460 basis points of growth margin expansion were partially offset by increased marketing investments, wage and benefit insulation and foreign exchange impacts on SGNA. Currency neutral cooperating margin increased 340 basis points, productivity improvements were 210 basis point help to the quarter. Adjusted free cash for productivity was 97%. We returned $3.8 billion of cash to share owners, approximately $2.3 billion in dividends and $1.5 billion in share repurchase.
In addition to these impacts we are also facing higher inflation in wages and benefits and we expect higher year on year net interest expense of approximately $200 million after tax.
As we have just one quarter into the fiscal year, we are maintaining our guidance ranges for organic sales core EPS growth cash productivity and cash returned to shareowners, which with each solidly on track after a very strong first quarter.
Andre Schulten: In summary, against what it continues to be a challenging and volatile operating environment, a very good start to the fifth year across top line, bottom line and cash. Our team continues to operate with excellence, executing the integrated strategy that has enabled strong results over the past five years and that is the foundation for balance growth and value creation. A portfolio of daily use products, many provide in cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice.
Guidance for organic sales is growth of 4% to 5% for the fiscal year. The range includes a normalization and underlying market growth rates that is likely to occur through calendar year 'twenty four as the market labs, the last wave of cost recovery pricing and as market volumes return to growth.
For PNG, we expect three to four points less pricing benefit in each of the next two quarters compared to our first quarter results.
On the bottom line our outlook for fiscal 'twenty for core earnings per share is 6% to 9% growth versus last fiscal year.
Andre Schulten: On going commitment to and investment in irresistible superiority across the five vectors of product, package, brand communication, retail execution and value across each price tier we compete. We are again raising the bond on our superiority standards to reflect the dynamic nature of this strategy. For activity improvement in all areas of our operations to fund investments in superiority, 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 the volatile environment we're in.
We're holding the range despite the incremental $600 million after tax headwind from foreign exchange with.
With now a seven point EPS impact from FX. This outlook translates to 13% to 16% core EPS growth on a constant currency basis.
We continue to forecast adjusted free cash flow productivity of 90% we.
We expect to pay more than $9 billion in dividends and to repurchase $5 billion to $6 billion in common stock combined the plant returned $14 billion to $15 billion of cash to shareholders. This fiscal year.
This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant additional currency weakness commodity cost increases geopolitical disruptions or major production stoppages are not anticipated within the guidance ranges.
Andre Schulten: Finally, an organization that is more empowered, agile and accountable. We continue to improve the execution of the integrated strategy with full focus areas, supply chain 3.0, digital acumen, environmental sustainability and the employee value creation. These are not new or separate strategies, they are necessary elements in continuing to build superiority, reduce cost to enable investment and value creation and to further strengthen our organization.
As you consider the cadence of earnings for the year keep in mind that the back half of the year, we'll see less pricing benefit as we progressively annualized prior year increases we should also see less commodity benefit as we move through the year.
Labor inflation continues throughout the supply chain and in our costs FX headwinds will increase versus quarter one <unk>.
Andre Schulten: Action. Our strategic choices on portfolio, superiority, productivity, constructive disruption, and organization reinforce and build on each other when executed well. They grow markets which in turn grow 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 strategy, starting with the commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. Moving to guidance, as I mentioned, we expect the environment around us to continue to be volatile and challenging, from input costs to currencies to consumer and geopolitical dynamics.
Also with a strong start to the year, we'll be reinvesting to further strengthen our plants and to maintain strong momentum.
Finally, we will be closely watching the health of the China market and the balance of regions energy costs are rising as we head into fall and winter.
Household saving levels have reduced, especially in Europe slower economic growth higher energy costs and higher interest rates for longer have an impact on consumer confidence.
To conclude while we expect volatile consumer and macro dynamics to continue we remain confident in our strategy and the results that it delivers we are focused on driving growth in our categories and we are committed to delivering balanced top and bottom line growth and value creation for our shareholders with that we'll be happy to take your <unk>.
Andre Schulten: We attempt to reflect these realities in our guidance ranges. Based on current spot prices, we estimate commodities will be a tailwind of around $800 million after tax in fiscal 24. This is consistent with the outlook we provided in July. However, within this estimate, there have been several moving parts. We've seen incremental relief on some commodities like pulp, which have been offset by higher costs and other commodities such as fuel. Forenix change rates have moved sharply against us and we now expect the headwind of approximately $1 billion after tax, an incremental $600 million impact since our initial guidance for the year.
Yes.
If you have a question. Please press star one on your phone.
If your question has been answered or you would like to withdraw your question Press Star I'll, let Mike handle.
And our first question comes from Steve Powers of Deutsche Bank. Please go ahead.
Thanks, Good morning Andre.
I guess just picking up on your comments on organic growth over the balance of the year, maybe you could talk a little bit more about how youre thinking about the progression of price versus volume versus mix over the remainder of the year and then I'm curious as to whether your approach to balancing those various drivers differs.
Andre Schulten: In addition to these impacts, we are also facing higher inflation and wages and benefits and we expect higher year-on-year net interest expense of approximately $200 million after tax. As we are just one quarter into the fiscal year, we are maintaining our guidance ranges for organic sales, core EPS growth, cash productivity and cash return to share owners, which with each solidly on track after a very strong first quarter. Guidance for organic sales is growth of 4% to 5% for the fiscal year.
At all between your focus markets, particularly the U S.
In the enterprise markets, where you're experiencing more of the currency headwinds. Thank you.
Good morning, Steve.
We as we said in the prepared remarks, we expect the market to return to.
Andre Schulten: The range includes the normalization and underlying market growth rates that is likely to occur through calendar year 24 as the market leaps the last wave of cost recovery pricing and as market volumes return to growth. For PNG, we expect 3 to 4 points less pricing benefit in each of the next two quarters compared to our first quarter results. On the bottom line, our outlook for fiscal 24 core earnings per share is 6 to 9% growth versus last year.
A lower more sustainable growth rate more in line with historical growth in and around 4%.
That will have a stronger contribution on the volume side, we would expect that to be around 2%, 1% to 2% of pricing and maybe a point of mix impact.
That will occur over the next few quarters and as always P&G is intending to grow ahead of the market.
So really our expectation for the year is to be slightly ahead of the market in terms of volume.
Andre Schulten: We are holding the range despite the incremental $600 million after tax had went from foreign exchange. With now a 7 point EPS impact from SX, this outlook translates to 13 to 16% core EPS growth on a constant currency basis. We continue to forecast the just a fee cash productivity of 90%. We expect to pay more than $9 billion in dividends and to repurchase $5 to $6 billion in common stock, combined a plan to return $14 to $15 billion of cash to share owners the fiscal year.
And slightly ahead in terms of off price. We continue to believe that we can price with strong innovation and we have gained even more confidence.
Over the past two years that our strategy of pricing with innovation to drive superiority and create value for the consumer is working.
And so we fully expect to return to that pattern and again pricing has been a core component of our growth for 18 out of the last 19 years. So we expect that to continue spa.
Specifically.
Andre Schulten: This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, or major production stopperges are not anticipated within the guidance range. As you consider the cadence of earnings for the year, keep in mind that the back half of the year will see less pricing benefit as we progressively annualize prior year increases. We should also see less commodity benefit as we move through the year.
I think the pricing will start to lap in quarter two.
So you will see probably the price contribution dropped two by 3% to four points in quarter two.
And that was expected.
And we then sequentially expect volumes to pick up and offset part of that but.
But do we expect a lower overall market growth rate for the balance of the year.
For your second part of the question enterprise market versus focused markets I think the only differential would be foreign exchange.
Andre Schulten: Labour inflation continues throughout the supply chain and in our course. Finally, we will be closely watching the help of the China market and the balance of regions. Energy costs are rising as we head into fall and winter. Household saving levels have reduced, especially in Europe, slower economic growth, higher energy costs and higher interest rates for longer have an impact on consumer confidence.
And we'll continue to price for foreign exchange, we've done that very successfully across the world tour.
Turkey is a major example, where we've been able to price for the significant devaluation of the Turkish lira, but we are able to grow share growth sales growth profit will continue that model outside of that we'll continue to do and drive the same business model. We are driving in focused markets innovate drive superiority.
Price grow markets and thereby grow sales profit in shale.
Andre Schulten: To conclude, while we expect volatile consumer and macro dynamics to continue, we remain confident in our strategy and the results that it delivers. We are focused on driving growth in our categories and we are committed to delivering balance, pop and bottom line growth and value creation for our share on us.
Next question comes from Dara <unk>.
<unk> of Morgan Stanley . Please go ahead.
Hey, good morning, guys. So just a follow up on that can you characterize what youre seeing competitively in terms of the pricing environment, obviously there'll be different by geography and product category, but in general what types of behavior, you're seeing from your competitors.
Unknown Attendee: With that, we'll be happy to take your question. If you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, the star followed by two.
And any thoughts around retailer pushback as commodities have turned favorable year over year.
Steve Powers: Your first question comes from Steve Powers of Deutsche Bank. Please go ahead. Thanks.
And just then in terms of volume growth. It sounds like we should expect a return to volume growth.
What do you think your level of visibility around that.
Steve Powers: Good morning, Andre. I guess just picking up on your comments on organic growth of the balance of the year, maybe you could talk a little bit more about how you're thinking about the progression of price versus volume versus mix over the remainder of the year. And then I'm curious as to whether your approach to balancing those various drivers differs at all between your focus markets, particularly the US and the enterprise markets where you're experiencing more of the currency headwinds. Thank you.
How much comfort you have.
Returning to volume growth as pricing drops off thanks.
Yes.
Only there are.
When you look at the total market.
It's very consistent.
With previous periods, you still see average market growth of around 6% to 7%.
And you'll see still the pricing component being a significant driver volumes are stabilizing on a global level.
Andre Schulten: Good morning, Steve. As we said in the prepared remarks, we expect a market to return to a lower, more sustainable growth rate, more in line with historical growth and around 4%. That will have a stronger contribution on the volume side. We would expect that to be around 2%, 1% to 2% of pricing and maybe a point of mix impact. That will occur over the next few quarters and as always, PNG is intending to grow ahead of the market.
Minus appointed to flat depending on the geography, you look at the only exception being greater China.
So the price component of the price of oil over his consistent period over period.
So no differentiation there from a competitive standpoint at least not that we see it.
Promotion continues to be promotional levels and other indicators continued to be below pre COVID-19 levels.
In the U S. For example volumes sold on deal is now at about 29% overall promotion levels still index 80 versus pre COVID-19.
In Europe , we also see promotions still down and actually sequentially decreasing now it's a different dynamic by market, obviously, but in the aggregate up it looks like over the past few quarters promotion activity is actually still decreasing.
Andre Schulten: So really our expectation for the year is to be slightly ahead of the market in terms of volume and slightly ahead in terms of price. We continue to believe that we can price with strong innovation and we gain even more confidence over the past 2 years that our strategy of pricing with innovation to drive superiority and create value for the consumer is working. And so we fully expect to return to that pattern.
And that makes sense, if you look at the relatively.
A little small help to commodity costs, we see about $800 million after tax help offset by about a $1 billion of foreign exchange and recall, we're coming from two years, which combined have an impact of $7 billion of headwinds. So I think everybody is still.
Andre Schulten: And again, pricing has been a core component of our growth for 18 out of the last 19 years, so we expect that to continue. Specifically, I think the pricing will start to lap in quarter two, so you will see probably the price contribution drop by three to four points in quarter two, and that was expected, and we then sequentially expect volumes to pick up and offset part of that, but do expect a lower overall market growth rate for the balance of the year.
Recovering so the current pricing dynamic makes sense.
We have not experienced retailer pushback beyond normal discussions on how to maximize value for their shoppers and for consumers overall and again, our model of driving innovation and therefore, the priority in sales, while we price and create value for retailers and shoppers seems to be.
Resonating.
On the volume side, we feel very good about where we are in the trajectory of volume growth.
Again, excluding China, we already seeing volume growth of 20 basis points sequential improvement in.
Andre Schulten: So your second part of the question, enterprise market versus focus market, I think the only differential would be foreign exchange, and we'll continue to price for foreign exchange, we've done that very successfully across the world. Turkey is a major example where we've been able to price for the significant evaluation of the Turkish lira, but we are able to grow share, grow sales, grow profit. We'll continue that model outside of that, we'll continue to do and drive the same business model, we're driving in focus markets, innovate, drive superiority, price grow markets, and thereby grow sales profit and share.
Versus the prior quarter quarters, which we would have expected.
And again thats in the context of 7% pricing still flowing into the market.
We expect volumes will continue to grow U S. Strong as we said Europe strong Latin America, and India are strong. So we continue to see us progressing on that trajectory.
Great. Thanks.
Our next question comes from Rob.
Of Evercore ISI. Please go ahead.
Great.
To drill in on China, a little bit.
Dara Mohsenian: Next question comes from Dara, Ms. Vienna of Morgan Stanley, please go ahead. Hey, good morning guys, so just to follow up on that, can you characterize what you're seeing competitively in terms of the pricing environment? Obviously, it'll be different by geography and product category, but in general, what type of behavior are you seeing from your competitors? And any thoughts around retailer pushback as commodities have turned favorable year over year. And just then in terms of volume growth, it sounds like we should expect to return to volume growth.
Number one kind of in the short term.
How is how does the business, they're progressing any disability.
Our improvement there.
And when do you think that May turn positive and then a little bit longer term or kind of strategically we are hearing from some of the other companies we talk to.
Now that the Chinese market may not be as a profitable and attractive as perhaps they may have thought a number of years ago and that and that perhaps the nature of competition is changing in China.
Dara Mohsenian: Just what you think your level of visibility is around that and how much comfort you have in ultimately returning to volume growth as pricing drops it off. Thanks. Only Dara, when you look at the total market, it's very consistent with previous periods, you still see average market growth of around six to seven percent, and you see still the pricing component being a significant driver volumes are stabilizing at a global level, minus a point to flat, depending on the geography, you look at the only exception being greater China.
Again.
So I'd love to get your thoughts on both China, and the short term and the long term. Thank you.
Thanks, Rob good morning.
I think we said all along that we don't expect the China recovery to be.
Quick extensive or linear and I think thats playing out.
The business health in China is really all driven by market dynamics right now.
So total market volume continues to be down it has been down over the past few quarters between 7% and 9%.
Dara Mohsenian: So the price component and the price roll over is consistent period over period, so no differentiation there from a competitive standpoint, at least not that we see it. Promotion continues to be promotion levels, another indicator continued to be below pre-COVID levels in the US, for example, volume sold on deal is now at about 29% overall promotion level still index 80 versus pre-COVID. In Europe, we also see promotion still down and actually sequentially decreasing.
Value is down around 5% over the past few quarters and Thats the market I'm, describing so we're operating within a market that is still contracting post COVID-19 reopening.
That said, we do believe that China continues to be an attractive place for us to do business. We've been there for 30 years, we have a very strong organization on the ground R&D capability supply chain capability and commercial capability.
Dara Mohsenian: Now, it's a different dynamic by market, obviously, but they only aggregate up. It looks like over the past few quarters promotion activity is actually still decreasing. And that makes sense, if you look at the relatively little or small help to commodity costs, we see about 800 million after tax help offset by about a billion dollars of foreign exchange. And recall, we're coming from two years which combined have an impact of seven billion dollars of headwinds.
Chinese consumers are demanding consumer.
The Chinese retail environment is a demanding retail environment and that generally plays to our strength.
So we believe that a we can play a.
A value creating role in China, and we expect the Chinese market to return to mid single digit growth here.
Over the coming periods.
If you just look at the consumer structures middle income consumers, we have about $450 million, we estimate in China today that will grow.
Dara Mohsenian: So I think everybody is still recovering, so the current pricing dynamic makes sense. We have not experienced retailer pushback beyond normal discussions on how to maximize value for their shoppers and for consumers overall. And again, our model of driving innovation and therefore superiority and sales while we price and create value for retailers and shoppers seems to be resonating. On the volume side, we feel very good about where we are and the trajectory of volume growth.
Probably north of $700 million over the next five years. So there is a class of consumers that we believe are attractive.
For our businesses and therefore, we believe that our business in China can create significant value over the next two years and will continue to remain invested.
The next question comes from Lauren Lieberman of Barclays. Please go ahead.
Dara Mohsenian: Again, excluding China, we already see volume growth of 20 basis points, sequential improvement in versus the prior quarters, which we would have expected. And again, that in the context of 7% pricing still flowing into the market, we expect volumes will continue to grow, US strong, as we said, Europe strong, Latin America and India strong, so we continue to see us progressing on that trajectory.
Great. Thanks, good morning.
You had mentioned the return to volume growth.
European focused markets.
You can see and obviously market, Jason generally held up well, but we're starting to see.
Dara Mohsenian: Great, thanks.
Some pick up in private label share trends across Europe .
The European consumer being under pressure, so I'm just kind of curious.
Davidson.
On Europe on market share trends that youre seeing more real time first of all.
What kind of already transpired.
<unk> results might that go forward luck.
European shares.
Rob Ottenstein: The next question comes from Rob Ottenstein of Evercourt ISI. Please go ahead. Great.
And volume trends thanks.
Morning, Lauren Thank you.
Look the European let me.
Rob Ottenstein: I want to drill in on China a little bit. Number one, kind of in the short term, how has the business there progressing any visibility or improvement there, and when you think that may turn positive. And then a little bit longer term or kind of strategically, we are hearing from some of the other companies we talked to that the Chinese market may not be as possible and attractive as perhaps they may have thought a number of years ago, and that perhaps the nature of competition is changing in China. Again, so much to get your thoughts on both China and the short term and the long term. Thank you. Thanks Rob, morning.
Let me focus here on the Western European side, because I think Thats, where your question is relevant.
Look we've seen 15% organic sales growth in Europe focused markets, which is incredibly strong combination of 2% volume growth and strong price mix.
We have.
The 40 basis points of share growth across the same geographies.
Which is very encouraging the market is returning to volume growth.
And.
That generally are positive signs.
Yes private label shares in Europe are growing they continue to grow at about an 80 basis point clip.
<unk> over months.
But that.
Still enables us to grow share in the same geographies.
And I think that share growth is enabled by a strong portfolio.
Andre Schulten: I think we said all along that we don't expect the China recovery to be quick, extensive, or linear, and I think that's playing out. The business health in China is really all driven by market dynamics right now. So total market volume continues to be down. It has been down over the past few quarters between seven and nine percent. Value is down around five percent over the past few quarters, and that's the market I'm describing.
<unk> different brand tiers across different cash outlays.
The fact that we are present in all relevant channels across Europe and that allows us to effectively compete even as consumers look at the private label versus branded value equation.
The balance seems to be still in our favor.
The next question comes from Bryan Spillane Bank of America. Please go ahead. Thanks, operator, good morning Andre.
Andre Schulten: So we're operating within a market that is still contracting post COVID reopening. That said, we do believe that China continues to be an attractive place for us to do business. We've been there for 30 years. We have a very strong organization on the ground, our ND capability supply chain capability and commercial capability. The Chinese consumer is a demanding consumer. The Chinese retail environment is a demanding retail environment, and that generally plays to our strengths.
I guess I have two.
Connected questions. One is if we look at the first quarter and given your commentary about guy.
Guidance, maybe higher end of the ranges.
You've talked a lot you've talked a bit about some of the risks in the market, but just like what's been better so far this year.
As one question so just.
That and then related to that also you talked about reinvestment. So if you can just give us some sense of.
Andre Schulten: So we believe that we can play a value creating role in China, and we expect the Chinese market to return to mid-sing of digital growth here over the coming period. To just look at the consumer structures, middle income consumers, we have about 450 million we activate in China today that will grow probably north of 700 million over the next five years. So there is a class of consumers that we believe are attractive for our businesses and therefore we believe that our business in China can create significant value over the next two years and will continue to remain invested.
Right.
<unk> that reinvestment and maybe where those dollars are going.
Sure.
Good morning, Brian .
If you look at the first quarter I think we are encouraged by the combination of factors here on the consumption side.
Again volume returned to volume growth outside of China, We expect the China to be choppy as we said all along but even with China down we've been able to grow 7% and that certainly has been encouraging to us.
And the.
The depth and breadth of that growth both across value and volume outside of China is really encouraging us and giving us confidence that the model will continue to drive results that point to the upper end of our guidance ranges.
On the reinvestment side, we will continue to look for opportunities to invest when the return of that investment is attractive it won't be driven by availability of funds that will be driven by our ability to create an attractive return.
Lauren Lieberman: The next question comes from Lauren Lieberman of Barclays. Please go ahead. Great. Thanks. Good morning. You mentioned the return to volume growth in European focus markets. It's great to see an obviously marketer is generally held up well, but we started to see some pickup in the market. In private label share trends across Europe, you mentioned European consumer being under pressure.
Our first priority as you can imagine in this current environment is to invest in ideas that drive market growth.
So investing in.
Products investing in innovation that is driving new jobs to be done investing in media spending that is driving household penetration investing and communication to the consumer that drives usage in the right way to drive that delight for the consumer.
Lauren Lieberman: So just kind of curious, maybe some more broad sauce there on Europe on market share trends that you're seeing more real time versus, you know, what kind of already transpired in the report results more than go forward look on European shares and volume trends. Thanks. Yep. Morning, Lauren. Thank you.
Will be key.
Couple of examples.
<unk> and <unk> was a sleepy category, we entered a couple of years ago category is growing 7%, we were able to drive 60% of that growth was <unk> six times, our fair share those are great. Examples where we can continue to invest drive growth for the business drive growth for our retailers and create value for.
Andre Schulten: Look, let me focus here on the Western European side because I think that's where your question is relevant. Look, we've seen 15% organic sales growth in Europe focus markets, which is incredibly strong combination of 2% volume growth and strong price mix. We have 40 basis points of share growth across the same geographies, which is very encouraging. The market is returning to volume growth and that generally are positive signs. Yes, private labor shares in Europe are growing.
Shareholders.
We continue to see opportunities in media as we get sharper and sharper on our targeting across media around the world and our capabilities are scaled the ROI gets better so we'll continue to drive up.
Reach we continue to drive up frequency.
And again that is a core driver for us to drive household penetration drive trial, which will turn into loyalty and repeat.
Andre Schulten: They continue to grow at about an 80 basis point clip month over month. But that still enables us to grow share in the in the same geographies. And I think that share growth is enabled by a strong portfolio across different brand tiers across different cash outlays. The fact that we are present in all relevant channels across Europe and that allows us to effectively compete even as consumers look at, you know, the private labor versus brand that value recreation. The balance seems to be still in our favor.
And the last bucket I would give you is investing in supply rising.
Our resilience and productivity.
Our supply chain resilience, we see as a core competitive advantage for our retail partners and for ourselves.
So we will continue to ensure that our capacity to demand ratio is where we wanted to be.
And investing in productivity, we believe has a high payout and is critical for us to continue the investment in superiority, which is part of the business model. So those are the headlines but be reassured, we'll do it on a very disciplined basis.
With return on investment as the top priority.
Brian Spillane: The next question comes from Brian Spolano, Bank of America. Please go ahead. Thanks, operator. Good morning, Andre. I guess I have two connected questions. One is if we look at the first quarter or any of your commentary about, you know, guidance, you know, maybe higher end of the ranges. I know you've talked a lot. You've talked a bit about some of the risks in the market, but just like what's been better so far this year is one question.
The next question comes from Andrea Teixeira of Jpmorgan. Please go ahead.
Thank you good morning.
And your comments about volume I would like to drill down a little bit you mentioned.
China.
I believe you.
Still looking for mid single digit growth and obviously I understand.
The choppiness of the market do you had SK too down in the low teens, so I'm assuming.
Brian Spillane: So just, you know, that and then related to that also, you talked about reinvestment. So if you can just give us some sense of kind of the sizing that reinvestment and maybe where those dollars are going.
That should happen.
Expecting SK too.
<unk> improve our lap easier comps as we go through the balance of the year.
And then when you mention like doing the math when you said pricing as we the components guidance right of four to five organic total company you mentioned expect sequential.
Andre Schulten: Morning, Brian. If you look at the first quarter, I think we are encouraged by the combination of factors here on the consumption side. Again, we return to volume growth outside of China. We expect the China to be choppy as we said all along. But even with China down, we've been able to grow 7%. That certainly has been encouraging to us and the depth and breadth of that growth. Both across value and volume outside of China is really encouraging us and giving us confidence that the model will continue to drive results that point to the upper end of the guidance ranges.
<unk>, 4% decline in India.
And the benefit of pricing right. So it was a good 7% so you'd be implying to last 3% to 4%. The next two quarters.
With that being said and implies an extra quarter of some sort of improvement in volume right.
Or at least some sort of inflection. So I was trying to figure that out in the context of what you said about China and we're going to set about total company basically what <unk> shown improvement in China is that what we should be thinking.
Andre Schulten: On the reinvestment side, we will continue to look for opportunities to invest when the return of that investment is attractive. It won't be driven by availability of an attractive return. Our first priority, as you can imagine, in this current environment is to invest in ideas that drive market growth. So investing in products, investing in innovation that is driving new jobs to be done, investing in media spending that is driving household penetration, investing in communication to the consumer that drives usage in the right way to drive that as you like for the consumer will be key.
So first part morning, Andre our first part of your question.
We.
Obviously want to see SK to return to growth.
But the volume impact of SK too with relatively limited.
Because the volume to organic sales ratio obviously is.
Yeah.
Is very very high unit sales.
So China, we believe we'll return to mid single digit growth when exactly thats going to happen is really hard to predict.
I would say likely have delivered 7% organic sales growth in the first quarter with China down.
Andre Schulten: A couple of examples. Minjama in bad weather was a sleepy category. We entered a couple of years ago. Category is growing 7%. We were able to drive 60% of that growth, which is six times our fair share. Those are great examples where we can continue to invest, drive growth for the business, drive growth for our retailers, and create value for shareholders. We continue to see opportunities in media as we get sharper and sharper on our targeting across media around the world and our capabilities of scales.
I think we'll continue to.
Operate and not counting on China recovery as the COO.
Catalyst to growth for the coming quarters.
On your <unk>.
Sequential question on volume Youre right as we said the pricing contribution to organic sales growth will decrease 3% to four points over the coming quarters.
And we expect volume to progress sequentially, the exact trajectory of that progression I think is questionable.
And I won't make a prediction here, but I will tell you that the progress we're seeing from minus six to minus 3% to flat to minus one to now flat is pointing in the right direction. So we see we're on the right path.
Andre Schulten: The ROI gets better, so we'll continue to drive up reach. We continue to drive up frequency. And again, that is a core driver for us to drive household penetration, drive trial, which will turn into loyalty and repeat. The last bucket I will give you is investing in supply resilience and productivity. Our supply chain resilience we see as a core competitive advantage for our retail partners and for ourselves. So we'll continue to ensure that our capacity to demand ratio is where we want it to be.
Andre Schulten: And investing in productivity we believe has a high payout and is critical for us to continue the investment in superiority, which is part of the business model. So those are the headlines, but be reassured. We'll do it on a very disciplined basis with return on investment as the top priority.
And we will continue to invest to drive household penetration and create that volume growth in our business.
The next question comes from Olivia Tong of Raymond James. Please go ahead.
Great. Thank you good morning.
Although the changes in FX and high been able to absorb that.
In your outlook.
Can you discuss what's embedded in your outlook in terms of the consumer and the economy.
Increasing risks or concerns around trade down slower volumes and macros in general so.
If you could talk about that and then also on your ability.
Andrea Teixeira: The next question comes from Andrea to share our JP Morgan. Please go ahead. Thank you, good morning. Andrea, your comments about volume I would like to drill down a little bit. Are you mentioned China? I believe you are still looking for a mid-single digit growth and obviously understand how the top needs of the market. Do you have SK2 down in the low teams? So I'm assuming for that to happen you're expecting SK2 to gradually improve or lap easier comp as we go through the balance of the year.
Thank you and let me just switch between spending that is either sales versus the operating income line.
Potentially volatile conditions. Thank you.
Yes.
Thanks, Olivia good morning.
Look the consumer continues to be remarkably resilient as.
As we said in the U S.
The consumption levels are actually stable our volume share on our value share are growing.
And that's true in Europe and in most parts of the world.
<unk>.
Interpret that as our portfolio doing exactly the job that it's supposed to do.
And building a portfolio that is grounded in superiority and daily use categories that are non discretionary I think is serving us extremely well, we're able to add value bring value to the consumer.
Andrea Teixeira: And then when you mentioned like during the math when you said pricing as we decompose your guidance, right, the 4 to 5 organic total company, you mentioned expect sequential 3 to 4 percent decline in the benefit of pricing, right? So it was a good 7 percent. So you would be implying to a 3 to 4 percent the next two quarters. So with that being said, it implies in the next quarter some sort of improvement in volume, right, or at least some sort of inflection.
And we're doing that in every tier not just in the premium tier, but in the mid tier and in value tiers across the world, which allows us to serve the consumer even if their spending preferences might change now we haven't seen a significant change in.
And their preference yet if anything consumers that are choosing P&G products continue to trade up within our portfolio.
Andre Schulten: So we're trying to figure that out in the context of what you said about China and where you said about total company basically what it regrasses to regrasses to an improvement in China is that what we should be thinking. So, first part, Morning Andrea, first part of your question, we obviously want to see SK-2 return to growth but the volume impact of SK-2 is relatively limited because the volume to organic sales ratio obviously is very, very high unit sales.
But you can see our ability to grow in markets, even when we see private label shares expand.
And so we don't expect a significant change in that.
In that profile and we believe we are well set up to grow even if the consumer feels a bit more of a pinch here going into the fall or winter season.
The main intervention for us continues to be investing in innovation and continue to invest in media supports to communicate the strength and the value that our brands can provide.
Andre Schulten: China, we believe, will return to mid-single-digit growth, and exactly that's going to happen, it's really hard to predict. I would say, like we have delivered 7% organic sales growth in the first quarter with China down, I think we'll continue to operate and not counting on China recovery as the core catalyst to growth for the coming quarters. On your sequential question on volume, you're right, as we said, the pricing contribution to organic sales growth will decrease 3-4 points over the coming quarters, and we expect volume to progress sequentially.
We don't see a significant need to drive price promotion our focus if we promote if we look for in store support is really to drive regimen. So we view it as a strategic tool to drive either trial or habit formation R. E regimen steps added to.
The laundry regime or the hair care regime for example, because that drives incremental consumption. It drives growth for our retail partners and for us.
In many cases elevate innovation is strong enough to get in store support.
And that's really what we're after when the when the product in and of itself generates enough traffic and consumption for retail is one of the supported that's the Golden grade wealth.
Andre Schulten: The exact trajectory of that progression, I think, is questionable, and I won't make a prediction here, but I'll tell you that the progress we're seeing from minus 6 to minus 3 to minus 1 to now flat is pointing in that right direction, so we see we're on the right path, and we will continue to invest to drive household penetration and create that volume growth in our business.
The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.
Hi, Good morning, I was wondering if you could expand on two categories, which have been important for volume growth and seemingly should be important to add just first of all laundry. We've seen an improvement a reacceleration in trend can you just expand on what's driving that and the durability.
Olivia Tong: The next question comes from Olivia Tong of Raymond Jane, will you go ahead? Great, thank you, good morning. Andre, you talked about the changes in FX and how you've been able to absorb that into the 6-0-year outlook. Can you discuss what's embedded in your outlook in terms of the consumer, the economy, obviously increasing risk or concerns around trade-downs, solar volumes, and macros in general. If you could talk about that, and then also your ability, and perfectly your ability to switch between spending that is either net to sales versus operating expense in light of potentially volatile conditions.
And then second half personal health care I believe that was an important driver of volume growth in the quarter.
Can you just expand on what exactly was driving that in the quarter and if you think those trends are also sustainable go forward. So I'm just trying to get a sense of some of the volume durability that we saw in the quarter go forward specifically in the context of <unk>.
Potential.
Volatility out of China likely to persist. Thanks, so much.
Thanks, Chris Good morning.
The laundry business is very encouraging results around the world.
A very strong let me focus on the U S market.
It's the biggest market.
And you have the highest visibility too, but if you look at the trends. They are very encouraging we are now growing value and volume share in <unk>.
Olivia Tong: Thank you. Yeah, thanks Olivia. Morning. Look, the consumer continues to be remarkably resilient as we said in the US, the consumption levels are actually stable. Our volume share and our value share are growing, and that's true in Europe and in most parts of the world. And I interpret that as our portfolio doing exactly the job that it's supposed to do. And building a portfolio that is grounded in superiority in daily use categories that are non-discrationary, I think is serving us extremely well.
U S fabric care.
Value share.
Has been flat over the past three months volume shares and up one six points. So we continue to push the laundry business forward.
We have record high fabric enhancer shares.
And we have record high laundry consumption in the U S.
Most importantly, I think is the fact that we're driving 70% of the category growth in laundry and we're driving 100% of the category growth and fabric Enhancers and it's really driven by strong innovation strong superiority.
Olivia Tong: We're able to add value, bring value to the consumer. And we are doing that in every tier, not just in a premium tier, but in the mid-tier and in value tiers across the world, which allows us to serve the consumer even as their spending preferences might change. Now, we haven't seen a significant change in their preference yet. If anything, consumers that are choosing PNG products continue to trade up within our portfolio. But you can see our ability to grow in markets even when we see private labour shares extend.
And.
Doubling down on consumer relevant communication and in store support.
So I fully believe that this will only accelerate and to your question. Yes. It is sustainable because it's just in line with our business model.
THC is doing extremely well around the world.
And obviously the seasonality here plays a key role going into the season, we still see strong results, which is part of the strength in volumes that you see.
And the last part I'll leave you with is we've invested significantly and continued to invest in strengthening our supply capability.
Andre Schulten: And so we don't expect a significant change in that in that profile and we believe we are well set up to grow even if the consumer feels a bit of more of a pinch here going into the fall or winter season. The main intervention for us continues to be investing in innovation and continue to invest in media support to communicate the strength and the value that our brands can provide. We don't see a significant need to drive price promotion.
In personal health care, which will be needed to support that strong growth going forward, but feel good about both businesses and yes, I think the trajectories absolutely sustainable.
The next question comes from Philip wholesale warning of Citi. Please go ahead.
Hey, good morning Andre.
Just a question on gross margin clearly very strong performance in the quarter big inflection in terms of the <unk>.
Andre Schulten: Our focus if we promote, if we look for install support is really to drive regimen. So we view it as a strategic tool to drive either trial or habit formation i.e, regimen steps added to the laundry regime or the haircare regime, for example, because that drives incremental consumption. It drives growth for our retail partners and for us. In many cases, our innovation is strong enough to get install support. And that's really what we're after when the product in and of itself generates enough traffic and consumption for retailers want to support it. That's the golden grade wealth.
It seemed like you have pretty good visibility in the first half at least on the commodity front can you give us a sense of how you think in the second half will play out, especially as pricing contribution comes down. Thank you.
Good morning Filippo.
Yes, when we talked about the cadence of earnings. So I think it's important to understand the drivers of the gross margin expansion, we saw in quarter one.
And.
We expect some normalization of gross margin, we were certainly benefiting from a high price contribution in quarter, one and as we said that price contribution will ease over the coming quarters.
Chris Carey: The next question comes from Chris Carey of Wells Fargo Security. Please go ahead. Hi, good morning.
The biggest part of the commodity help about 33% of the $800 million after tax commodity help has materialized in quarter. One so that's a positive to gross margin relative to the balance of the year.
Chris Carey: I was wondering if you could expand on two categories which have been important for volume growth and seemingly should be important ahead just first on laundry. We've seen an improvement, a receleration and trend. Can you just expand on what's driving that and the durability. And then second and personal health care, I believe that was an important driver of volume growth of a quarter. Can you just expand on what exactly was driving that in the quarter and if you think those trends are also sustainable, go forward.
And the foreign exchange rate headwinds.
We'll accelerates.
Over the coming quarters.
On the other hand, we.
Will accelerate and continue to drive strong productivity.
We will continue to drive trade up in innovation.
And we continue to drive every other element of productivity not only gross margin, but across the P&L and the balance sheet.
Chris Carey: So I'm just trying to get a sense of some of the volume durability that we saw in the quarter go forward specifically in the context of your potential, the volatility out of China, likely to persist. Thanks so much. Yeah, thanks Chris. Good morning. The laundry business is very encouraging, results around the world are are very strong. Let me focus on the US market because that's the it's the biggest market. And you have the highest visibility too.
But I want you to takeaway that the gross margin expansion in quarter. One is very strong, but we have headwinds going into the balance of the year.
The next question comes from Peter Grom.
Please go ahead.
Thanks, operator, and good morning, Andre I hope you're doing well so I wanted to ask specifically on Latin America, 19% growth in the quarter and very strong and you may have alluded to this but are you already seeing a return to volume growth in the region and then just thinking through the performance in the quarter can you maybe just unpack what you're seeing in terms of <unk>.
Chris Carey: But if you look at the trends, they are very encouraging. We are now growing value and volume share in in US. [inaudible] PHC is doing extremely well around the world and obviously the seasonality here plays a key role. Going into the season, we see strong results, which is part of the strength and volumes that you see. And the last part I'll leave you with is we've invested significantly and continue to invest in strengthening our supply capability in personal healthcare, which will be needed to support that strong growth going forward.
Category performance versus how much of this growth is a function of share gains. Thanks.
Good morning, Peter.
Look the Latin America business is on fire and I think it is on fire because we've chosen maybe opposite to the markets to double down on superiority.
When we saw the need to price for foreign exchange and commodity.
The impact in Latin America, the team made the choice to double down on innovation and price for the innovation and to offset foreign exchange rate inflation in commodities and that clearly has played out well we are seeing growth in our categories and we are seeing share growth in Latin America.
The growth is both on the volume side and on the value side in the biggest markets in Brazil, Mexico for example.
I think the biggest headwind that.
That we have to acknowledge is Argentina.
Where it's very difficult to make progress at this point in time.
Andre Schulten: But if you're good about both businesses and yes, I think the trajectory is absolutely sustainable.
Given the level of inflation.
Some restrict constraints in terms of ability to price.
So outside of Argentina, I can only paint a very positive picture of the Latin America growth construction and again, it's grounded in the superiority of our brands.
Filippo Falorni: The next question comes from Filippo Falorni of City, please go ahead. Hey, good morning, Andre. Just a question on growth margin, clearly very strong, the performance in the quarter, big inflection in terms of the year we're on three. You seem like you have pretty good visibility in the first half, at least on the commodity front. Can you give us a sense of how you think in the second half of the layout, especially as pricing contribution comes down. Thank you.
And I feel very strong about the sustainability of that model.
The next question comes from Mark Astrachan Stifel. Please go ahead.
Thanks, and good morning, everyone.
Two sort of unrelated follow up one just on <unk>.
China and given your commentary about the middle class I mean, everybody is obviously, you're aware that theyre growing middle class in the Gulf, we consume more but any sort of changes in your view about how quickly.
Andre Schulten: Good morning, Filippo. Yeah, when we talked about the cadence of earnings, I think it's important to understand the drivers of the growth margin extension we saw in quarter one. And we expect some normalization of growth margin, we were certainly benefiting from a high price contribution in quarter one. And as we said, that price contribution will ease over the coming quarters. The biggest part of the commodity health, about 33% of the 800 million after tax commodity health has materialized in quarter one.
Andre Schulten: So that's a positive to growth margin relative to the balance of the year. And the foreign exchange rate had wins will accelerate over the coming quarters. On the other hand, we will accelerate and continue to drive strong productivity. We will continue to drive trade up and innovation. And we continue to drive every other element of productivity, not only growth margin, but across the PNL and the balance sheet. But I want you to take away that the growth margin extension in quarter one is very strong, but we have had wind going into the balance of the year.
The middle class premium.
Purchases.
Maybe.
A one off quite but any changes there in terms of how quickly you think that they can go for more premium priced products that potentially change.
Crocker thinks about its product positioning our portfolio positioning in the market and then on the gross margin versus <unk>.
Our marketing spend.
Susan tree.
Gross margin moderates, how do we think about the incremental reinvestment or marketing investment from an FDA standpoint, as we go through the year would that inversely kind of move with with gross margin or I should say.
Move with gross margin, meaning less gross margin expansion less loss reinvestment. Thank you.
Yes, good morning, Mark look I really don't have any more insights on the China recovery timing.
See the volatility in the market that will directly correlated with consumer confidence income levels, and therefore recovery timing.
I think we were hoping for faster, but we're prepared for longer would be my answer here.
On the gross margin versus marketing spending side.
Peter Grom: The next question comes from Peter Graham of UBS. Please go ahead. Thanks operator and good morning. I hope you're doing well. So I wanted to ask specifically on online America, you know, 19% growth in the quarter very strong and you may have alluded to this, but are you already seeing a return to volume growth in the region. And then just thinking through the performance in the quarter, can you maybe just unpack what you're seeing in terms of broader category performance versus how much of this growth is a function of share games. Thanks.
When I say, what ROI, driven I really mean by ROI driven.
So there is no direct correlation between the availability of funds and investment levels.
If we continue to see strong response to the marketing spend increases that we deliver in quarter one.
I think there is a strong incentive for us to continue that level of investment.
I also expect that our gross margin.
Gross margin expansion in our overall growth contribution availability will continue to enable us to drive strong innovation.
Andre Schulten: Morning Peter, look, the Latin America business is on fire. And I think it is on fire because we've chosen maybe opposite to the market to double down on super or it. University, when we saw the need to price for foreign exchange and commodity impacts in Latin America, the team made the choice to double down on innovation and price for the innovation and to offset foreign exchange rate inflation and commodities. And that clearly has played out well.
And drive strong support of those innovations that's part of the business model. That's why again it has to be a combination of driving very strong productivity to reinvest in superiority to grow markets and we have to keep that cycle spinning.
The next question comes from Edward Lewis of Redburn Atlanta. Please go ahead.
Yes, thanks very much.
Another strong quarter in the U S seeing both volume and value growth I am just looking back at 2020, when we were dealing we don't see one other COVID-19 headwinds.
Andre Schulten: We are seeing growth in our categories and we are seeing share growth in Latin America. And on the value side in the biggest markets in Brazil, Mexico, for example, I think the biggest headwind that we have to acknowledge is Argentina, where it's very difficult to make progress at this point in time, given the level of inflation, some restraint constraints in terms of ability to price. So outside of Argentina, I can only paint a very positive picture of the Latin America growth construction. And again, it's grounded in the superiority of our brands and I feel very strong about the sustainability of that model.
Talking about growing about 4% to 6% as a sustainable rate of growth in the U S.
In light of all Thats going on in the past few years and seeing where we are in the U S. With consumer are you still comfortable with that range over the longer term.
Look I won't give you guidance on a market by market basis.
The what is proving out is that the business model. We are driving in the U S is very successful if we are successful in continuing to drive market growth.
That will continue to drive sales ahead of that market growth for us.
While being sustainable because we create business instead of taking business from somebody else. If that model is successful, which I believe it will I feel very strongly about the growth prospects of the U S and again, we're doubling down in every dimension of the priority with doubling down in every dimension of market execution. So my overall.
Mark Astrachan: The next question comes from Mark Astrakhan of people, please go ahead. Thanks, and morning, everyone. Two sort of related follow-ups. One, China, given your commentary about the middle class, I think everybody is actually aware that there's just been growing middle class and that they'll ultimately consume more. But any sort of changes in your view about how quickly the middle class premiumizes purchases, you know, obviously have to maybe sort of a one off.
In the U S market capability and growth trajectory is very high.
Operator are there any more questions.
There are no further questions at this time.
Mark Astrachan: But but any changes there in terms of how quickly you think that they can go for more premium price products that potentially change how the progress thinks about its product positioning or portfolio positioning in the market. And then on the growth margin versus marketing spend sort of decision tree, if the growth margin moderate, how do we think about the incremental reinvestment or marketing investment from an SNA standpoint? I think we're going to trigger with that inversely kind of move with with growth margin, or I should take with what it would move with growth margin, meaning less growth margin, expansion less investment.
Okay. Thank you very much for joining us today again, very strong first quarter of the year.
And we'll look forward to speaking with you. If you have any questions John and I will be available all day.
So please feel free to call or E mail. Thank you very much.
That concludes today's conference. Thank you for your participation and you may now disconnect.
Great day.
Okay.
[music].
Andre Schulten: Thank you. I'm very prepared for longer would be my answer here. On the growth margin versus marketing spending side were when I say we're our wide driven, I really mean we're our wide driven. So there's no direct correlation between availability of funds and investment levels. If we continue to see strong response to the marketing spend increases that we deliver in quarter one, I think there's a strong incentive for us to continue that level of investment.
Andre Schulten: I also expect that our growth margin growth margin expansion and our overall growth contribution availability will continue to enable us to drive strong innovation and drive strong support of those interventions. That's part of the business model. That's why again, it has to be a combination of driving very strong productivity to reinvest in superiority, to grow markets, and we have to keep that spike of spinning.
Edward Lewis: The next question comes from Edward Lewis of Redburn, Atlanta. We go ahead. Yes, thanks very much. Another strong quarter in the US, seeing both volume and value growth. I'm just looking back in 2020 when we were dealing with also a lot of COVID headwinds. You were talking about growing about 4% to 6% as a sustainable rate to growth in the US. In light of all that's gone on in the past for years and seeing where we are in the US and able to consume our, is still comfortable with that range of the longer term?
Andre Schulten: Look, I won't give you guidance on a market by market basis. I think what is proving out is that the business model we're driving in the US is very successful. If we are successful in continuing to drive market growth, that will continue to drive sales ahead of that market growth for us, while being sustainable because we create business instead of taking business from somebody else. If that model is successful, which I believe it will, I feel very strongly about the growth prospects of the US. And again, we're doubling down in every dimension of superiority, we're doubling down in every dimension of market execution. So my overall confidence in the US market capability and growth trajectory is very high.
Unknown Attendee: Operator, are there any more questions? There are no further questions at this time. Okay, thank you very much for joining us today. Again, very strong first water on the year. And we'll look forward to speaking with you. If you have any questions, John and I will be available all day. So please feel free to call or email. Thank you very much.
Unknown Attendee: That concludes today's conference. Thank you for your participation and you may now disconnect.
Unknown Attendee: Have a great day.