Q2 2024 The Clorox Co Earnings Call - Q&A

Operator: www.clorox.org Good morning, ladies and gentlemen, and welcome to the Clorox Company second quarter fiscal year 2024 earnings release conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. If you would like to ask a question, you may press star one on your touchtone pad at any time.

Yes.

Speaker Change: Good day, ladies and gentlemen, and welcome to the Clorox Company second quarter fiscal year 2024 earnings release Conference call.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: At the conclusion of our prepared remarks, we will conduct a question and answer session.

Speaker Change: If you would like to ask a question you May press star one on your Touchtone pad at any time.

Operator: If anyone should require assistance during the conference, please press the star zero on your touchtone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisa Burhan, Vice President of Investor Relations for the Clorox Company. Ms. Burhan, you may begin your conference. Jen, good afternoon, and thank you for joining us.

Speaker Change: If anyone should require assistance during the conference. Please press star zero on your Touchtone pad at any time.

Speaker Change: As a reminder, this call is being recorded.

Speaker Change: I would now like to introduce your host for today's conference call Ms. Lisa <unk>, Vice President of Investor Relations for the Clorox company.

Lisa: MS. <unk> you may begin your conference.

Lisa: Thank you Jen good afternoon, and thank you for joining us on the call with me today are Linda Rundell, our chair and CEO and Kevin Jacobsen, our CFO I.

Lisah Burhan: On the call with me today are Linda Rundle, our Chair and CEO, and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website. In just a moment, Linda will share a few opening comments, and then we'll take a break.

Lisa: I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website.

Linda Rundell: And just a moment Linda will share a few opening comments and then we'll take your questions.

Operator: During this call, we may make forward-looking statements. These statements are based on management's current expectations but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect such forward-looking statements, which has been filed with the SEC. It's referred to the non-GAAP financial information section of our earnings release and the supplemental financial schedules in the investor relations section of our website for reconciliation of non-GAAP financial measures, http://clorox.clr

Linda Rundell: During this call we may make forward looking statements, including about our fiscal 2024 outlook.

These statements are based on management's current expectation that may differ from actual results or outcomes.

Linda Rundell: In addition, we may refer to certain non-GAAP financial measures.

Linda Rundell: Please refer to the forward looking statements section, which identifies various factors that could affect such forward looking statements, which has been filed with the SEC.

In addition, please refer to the non-GAAP financial information section of our earnings release, and the supplemental financial schedules and the Investor Relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures.

Shannon Coyne: Thank you for tuning in. I'm Clorox Coyne, and you're listening to CLR, The Climate Change Report. Thanks for tuning in. I hope you had a great day.

Linda Rundell: Now I'll turn it over to Linda.

Linda Rundell: Hello, everyone and thank you for joining US today, we delivered financial results above our expectations in the second quarter. Thanks to very strong progress on our recovery from the August cyber attack continued advancement of our strategies to drive topline growth and rebuild margin as well as the Swift and effective management of currency headwinds in Argentina.

Shannon Coyne: We'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

Laura Lieberman: Now, I'll turn it over to Linda. Hello, everyone, and thank you for joining us today. We delivered financial results above our expectations in the second quarter, thanks to very strong progress on the recovery from the August cyber attack. www.cloroxco.com We are rebuilding retailer inventories ahead of schedule, enabling us to return to merchandising and restore distribution. As a result, we made great strides rebuilding our marke. Importantly, throughout our out-of-stock period and recovery, we've maintained our strong brand superiority results as This speaks to the power of our advantaged portfolio, the superior value of our brands, and their role in consumers' daily lives.

Linda Rundell: We are rebuilding retailer inventories ahead of schedule, enabling us to return to merchandising and restore distribution as a result, we made great strides rebuilding market shares.

Linda Rundell: Accordingly throughout our out of stock period and recovery, we've maintained our strong brand superiority results as measured by our consumer volumetric.

Linda Rundell: This speaks to the power of our advantaged portfolio, the superior value of our brands and their role in consumers' daily lives.

Operator: While there's still more work to do, we're on the right path to return our business to the trajectory it was on before the cyber attack. Looking ahead, we expect the operating environment to remain challenging as consumers remain under pressure and their value-seeking behaviors continue. Nevertheless, we remain committed to growing the top line and rebuilding margins and expect volume to play a stronger role in our top line performance as we lap prices. We're well positioned to make further progress in rebuilding distribution and market shares, as well as drive volume and household penetration growth over time through strong demand creation plans. Given the progress we made in the second quarter, we are also updating our full-year 2024 outlook. We have a strong, diverse portfolio of trusted brands, we plan essential categories, and we're making the right investments guided by our IGNITE strategy to create long-term value for stakeholders. I'm confident that we're taking the appropriate actions to build a stronger, more resilient company that is positioned to win in the marketplace and deliver consistent, profitable growth over time. With that, Kevin and I will take your questions. Thank you, Ms. Rindle. Ladies and gentlemen, if you have a question, please press star one on your touchtone telephone.

Linda Rundell: While there's still more work to do we're on the right path to return our business to the trajectory. It was on before the cyber attack.

Linda Rundell: Looking ahead, we expect the operating environment to remain challenging as consumers remain under pressure and their value seeking behaviors continue.

Linda Rundell: Nevertheless, we remain committed to growing the topline and rebuilding margins and expect volume to play a stronger role in our topline performance as we lapped pricing.

Linda Rundell: We're well positioned to make further progress in rebuilding distribution and market shares as well as drive volume and household penetration growth overtime through strong demand creation plans.

Linda Rundell: Given the progress we made in the second quarter. We are also updating our full year 2024 outlook.

Linda Rundell: We have a strong and diverse portfolio of trusted brands, we plan essential categories, and we're making the right investments guided by our ignite strategy to create long term value for stakeholders.

Linda Rundell: I'm confident that we're taking the appropriate actions to build a stronger more resilient company that is positioned to win in the marketplace and deliver consistent profitable growth over time.

Speaker Change: With that Kevin and I will take your questions.

Yeah.

Kevin Jacobsen: Thank you Mr. Wendell ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.

Andrea F. Teixeira: And our first question today will come from Andrea Teixeira with JPMorgan. Thank you. Good afternoon, there. Linda and Kevin, I just wanted to go back.

Kevin Jacobsen: And our first question today will come from Andrea to Sheryl with J P. Morgan Chase.

Andrea: Thank you good afternoon over there.

Andrea: I mean, the and Kevin I just wanted to go back obviously, an amazing performance you caught up with.

Andrea F. Teixeira: Obviously, an amazing performance. You caught up with, I think, the second quarter fiscal. You caught up with kind of, according to my math, minus two percent, pretty much the first half against the first half of the prior year. And then what are you implying, given there are some time periods of depreciation are underlying better as you put it in prepared remarks, and you commented on this just now, but then you have a greater effects headwind. But when you go and flow through everything, and according to the new guidance, the plus two hundred basis points improvement in gross margin, it implies that your gross margin on the back end declines vis-a-vis what you have and the back end of last year.

Andrea: I think with the second quarter fiscal you caught up with a kind of them. According to my math from minus 2%.

Andrea: Pretty much first half I guess first half of the prior year and then what are you implying given theres some time periods of depreciation.

Andrea: These underlying better as you put it in prepared remarks, and you've commented and they're just now but then you have a greater FX headwind, but when you go and flow through everything and according to the new guidance.

Andrea: 200 basis points improvement in gross margin it implies that your gross margin in the back and declines vis vis what you had in the backend of last year.

Andrea F. Teixeira: And so I was just trying to reconcile because your numbers kind of imply profitability going the other way. I understand the transactional effects, but it seems a bit high. If you can kind of walk us through why that would happen, given the beat, the magnitude of the beat.

Andrea: And so I was just trying to reconcile because your your numbers kind of imply profitability going down the way I understand it translate the transactional FX, but it seems a bit high if you can kind of walk us through why would that happen.

Andrea: Given the beats the magnitude of the beat.

Kevin Jacobsen: Yeah, and maybe I can take a stab at answering some of those questions and let me know if we've missed anything. But as it relates, maybe I'll just start with Argentina. It might be a good place to start. Because you've heard from many of our peers, that's an incredibly difficult environment right now. I think if you just step back and think about our business in Argentina, we've been there for a very long time. We have very capable leaders managing very strong brands. While there are some negative impacts in Argentina flowing through our outlook we provided today, both on the top line in terms of higher FX, as well as higher inflation and FX exposure margin, what you should know is, based on the actions we've taken in Argentina, including incremental pricing, we think we have fully covered the negative impacts of Argentina within this outlook.

Speaker Change: Yeah, and maybe let me take.

Speaker Change: Take a stab at answering some of those questions and let me know if I missed anything but as it relates maybe I'll just start with Argentina might be a good place to start.

Speaker Change: You have heard from many of our peers, that's an incredibly difficult environment right now.

Speaker Change: I think if you just step back and think about our business in Argentina, we've been in there for a very long time, we have very capable leaders managing very strong brands.

Speaker Change: While there are some negative impacts in Argentina flowing through our outlook. We provided today both on the top line in terms of higher FX as well as higher inflation and FX exposure in margin. What you should know is based on the actions we've taken in Argentina, including incremental pricing. We think we fully covered the negative impacts of Argentina within this outlook.

Kevin Jacobsen: With the one exception of the remeasurement loss, and I'm happy to talk about that, but setting that remeasurement loss aside, we think we fully contain the Argentina impact. As it relates to the back half, you were asking about gross margin. And as you saw, we delivered about 41 and a half percent gross margin in the front half. And if you look at the back half based on Outlook, it suggests we'll be fairly similar, 41.5% as well. And so we're looking at fairly consistent trends. If I think about what's changing from the front half to the back half, there are a few things I'd point out in terms of increased headwinds.

Speaker Change: With the one exception of the Remeasurement loss and I'm happy to talk about that but setting that remeasurement losses side, we think we fully.

Speaker Change: Contain the Argentina impacted the P&L.

Speaker Change: As it relates to the back half you were asking about gross margin and as you saw we delivered about 41, 5% gross margin in the front half.

Speaker Change: If you look at the back half based on an outlook would suggest will be fairly similar or 41, 5% as well and so we're looking at sequentially fairly consistent trends if.

Speaker Change: If I think about what's changing from the front half to the back out there. There's a few items I'd point out in terms of increased headwinds we continue to expect higher trade spending in the back half of the year as we get to a more normalized environment.

Kevin Jacobsen: We continue to expect higher trade spending in the back half of the year as we get to a more normalized environment. We have also now lapped all our U.S. pricing. We lapped the last round of pricing in December, so you'll see less benefit from pricing in the U.S. And then we're expecting more inflation and more FX headwinds coming out of our We are offsetting that with incremental pricing. We're executing in Argentina, so you'll see international price mix benefits in the back half of the year to a greater degree than the front half of the year, as well as we're projecting improving And so collectively, that's offsetting those headwinds, and we're getting to a margin, fairly consistent front half versus back half, and that puts us in a position to improve margins by about 200 basis points. Now I think maybe the last question you talked about versus prior year, I think you have to be a little careful looking at the comp.

Speaker Change: We also now have lapped all of our U S pricing, we lap the last round of pricing in December so you'll see less benefit from pricing in the U S.

Speaker Change: And then we're expecting more inflation and more FX headwinds coming out of Argentina.

Speaker Change: We are offsetting that with incremental pricing, we're executing in Argentina, So youll see international price mix benefits in the back half of the year to a greater degree than the front half of the year as well as we're projecting improving volume trends and so collectively that's offsetting those headwinds and we're getting to a margin fairly consistent front half versus back half.

Speaker Change: And that puts us in a position to improve margins about 200 basis points on a full year basis.

Speaker Change: I think maybe the last question you talked about versus prior year I think you have to be a little careful looking at the comps. If you look at our gross margins in the back half of last year I think they were up almost 600 basis points and so were relatively flat, but on a very strong performance in the prior year.

Kevin Jacobsen: If you look at our gross margins in the back half of last year, I think they were up almost 600. And so we're relatively flat, but on a very strong performance in the priority areas. But let me stop there, Andrea.

Speaker Change: Let me stop there Andrew let me know if that answers your question.

Andrea F. Teixeira: Let me know if that, Yeah, that did. Kevin, thank you. And I think one of the kind of like a fine points on that commentary, when you say, and prepare remarks, I think Linda mentioned, you're confident to regain self-faith, and you're looking, obviously, regained service levels. It sounds to, and even in our meeting recently in New York, you kind of alluded to that guidance initially, and I think we all on this call appreciated there was a lot of moving pieces, It seems like you're embedding some potential risk at that point of not being able to recover the service levels. But now you have recovered.

Andrew: Yes that did Kevin Thank you and I think one of the kind of like a fine point on that commentary.

When you say Oh, and then in the prepared remarks, I think Linda had mentioned your call today until we gain shelf space and you are looking obviously regained.

Speaker Change: Service levels.

Speaker Change: It sounds too and even in our meeting recently in New York.

Speaker Change: You kind of alluded to it.

Speaker Change: Do you still need that guide I understand and I think we all in this call. Appreciate it that was a lot of moving pieces in your conservative it seems like you're embedding some potential risk at that point of not being able to recover the service levels.

Speaker Change: Now you did recover so I'm more in the side of like thinking of the strength of why do you achieved in six months. So I'm thinking more why not expecting that momentum to continue and know that you potentially could recover some of the shelf space losses that you had especially now coming up on the screen on this.

Laura Lieberman: So I'm more on the side of like, thinking of the strength of what you achieved in six months. So I'm thinking more, why not expect that momentum to continue now that you potentially could recover some of the shelf space losses that you had, especially now coming up on spring on spring reset. Sure, I'll take that.

Speaker Change: We set.

Speaker Change: Sure I'll take that and maybe I'll just start with your first important point, which was our expectations in Q2 and what drove the significant over delivery. If you recall you got it exactly right at the point, where we provided an outlook for Q2.

Laura Lieberman: And maybe I'll just start with your first important point, which was our expectations for Q2 and what drove the significant overdelivery. If you recall, you got it exactly right. You know, at the point where we provided an outlook for Q2, we were at a point where we had just turned back to automated order processing, and we knew there would be a transition time going from manual to automated and that that would take us a bit of time to ramp up. We were also heading into key holiday time for retailers, which is a challenging time to ensure that we get the ability to have appointments and ensure that we could deliver what we needed to in order to deliver what we ended up doing for the quarter, which was every single day shipping significantly above an average day that we would normally ship.

Speaker Change: The point, where we had just turn back to automated order processing and we knew there'd be a transition time going from manual to automated and if that would take us a bit of time to ramp up. We're also heading into key holiday time for retailers, which is a challenging time to ensure that we get are the ability to have appointments and ensure that.

Speaker Change: We could deliver what we needed to in order to deliver what we ended up doing for the quarter.

Speaker Change: Which was every single day shipping significantly above an average day that we would normally ship.

Laura Lieberman: And we, I think, were appropriately cautious given all of those potential headwinds on what we could accomplish. And again, the goal was to restore inventories by the end of, the majority by the end of Q2, knowing some of that would flow into Q3 and Q4. So what happened in Q2? We were able to get all of that ramped up, and we really lean into our operating model. We designated a general manager who was in charge of solely getting inventories rebuilt in retailers, and she had a multifunctional team around her to do that.

Speaker Change: And we I think we're appropriately cautious given all of those potential headwinds on on what we could accomplish and again the goal was to restore inventories by the end. The majority by the end of Q2, knowing some of that would flow into Q3 and Q4.

Speaker Change: So what happened in Q2, we were able to get all of that ramp up and we really leaned into our operating model. We designated a general manager who was in charge of so we getting inventories rebuilt and retailers.

Speaker Change: And she had a multifunctional team around her to do that and we were able to quickly ramp up from manual to automated and ship nearly every single day significantly above an average shipping day pre cyber event and our retailers were extraordinary. So we were able to get in we were able to get appointments and the result of that if you look at.

Laura Lieberman: And we were able to quickly ramp up from manual to automated and ship nearly every single day, significantly above an average shipping day pre-cyber event. And our retailers were extraordinary. So we were able to get in; we were able to get appointments.

Laura Lieberman: And the result of that, if you look at distribution, we were down over 30% of our TDPs, if you look at average weekly TDPs, down over 30% at the height of our out-of-stocks. Now we've gotten back to mid-single digits. Some business is slightly better than that, some slightly worse, and I can cover that. Market shares, at the height of this, were down over five points. If you look at the four or five-week ending December, we were down a point.

Speaker Change: Distribution, we were down over 30% of our TD piece. If you look at average weekly T D piece down over 30% at the height of our out of stocks, we've gotten back to mid single digits. Some business is slightly better than that some slightly worse and I can cover that market shares at the height of this we were down over five points. If you look at the.

Speaker Change: Four or five week ending December we were down a point look at the latest four or five weeks and enjoying the twenty-first standpoint seven.

Laura Lieberman: Look at the latest four or five weeks, ending January 21st, down a point seven. So all that flows in the right direction, which gives us confidence. But that speaks to the work we have remaining, and we talked about that last quarter. We spoke about the fact that a lot of this was under our control, and we were going to maximize that, and I felt good about what we did in Q2. But we are also dealing with the fact that in order to fully restore distribution, we need retailer resets, and those happen mainly in the spring, and they vary through the back half of our year.

Speaker Change: So all of that flowed in the right direction, which gives us confidence, but that speaks to what with the work we have remaining and we talked about this last quarter. We spoke about the fact that a lot of this was under our control and we were going to maximize that I felt good about what we did in Q2.

Speaker Change: We are also dealing with the fact that what our fully restore distribution, we need to have retailer resets and those happen mainly in the spring and they vary through the back half of our year.

Laura Lieberman: And we intend to finish the job then. And, in addition to that, we have to fully restore merchandising. So as we get our business up to the service levels we expect, and to be clear, our service levels are still depressed. They're significantly better, but we need to fully restore those.

Speaker Change: And we intend to finish the job then and and in addition to that we have to fully restore merchandising. So as we get our business up to the service levels, we expect and to be clear our service levels are still depressed they're significantly better.

Speaker Change: But we need to fully restore those.

Laura Lieberman: We'll return to merchandising in the back half in full as well. And with that, we feel good about our plans. We feel like we have the right investment levels. Our brands have maintained their superior value, as I said in my opening comments, so I feel good about that. But I just want to be clear, we didn't, you know, the job's not done in Q2. We made tremendous progress, but we have more work to do in the back. Thank you. I'll pass it on.

Speaker Change: We will return to merchandising in the back half and full as well and with that we feel good about our plans we feel like we have the right investment levels. Our brands have maintained their superior value as I said in my opening comments, so feel good about it but I just want to be clear. We didn't you know the job is not done in Q2 tremendous progress, but we have more work to do in the back half.

Speaker Change: Thank you I'll pass it on.

Peter K. Grom: Our next question will come from Peter Grom with UBS. Thanks, operator. Good afternoon, everyone.

Speaker Change: And our next question will come from Peter Grom with UBS.

Peter K. Grom: Thanks, operator, and good afternoon, everyone. So I wanted to ask on the organic revenue growth trajectory can you maybe just help us understand how you are thinking about volume versus price in the back half of the year. When David You mentioned, you expect volume to be a strong contributor to the performance does that assume a return to growth or just kind of philosophy drag.

Kevin Jacobsen: So I wanted to ask on the organic revenue growth trajectory: can you maybe just help us understand how you are thinking about volume versus price in the back half of the year? When you mentioned you expect volume to be a stronger contributor to your performance, does that assume a return to growth or just kind of less of a drag versus what we've seen prior to the disruption? And then just on the pricing as well, particularly as you've now lapped US pricing but are taking incremental pricing related to Argentina. Thanks. Sir, hi Peter.

Peter K. Grom: What we've seen prior to any disruption and then just on the pricing as well, particularly you've got lots of U S pricing, but are taking incremental pricing related to Argentina. Thanks.

Kevin Jacobsen: As it relates to organic sales growth and transitioning from the front half to the back half, we think about what the changes are. As it relates to volume, we expect to see improving volume trends in the back half of the year. That's a combination of both. If you look at the front half, our volume was down high single digits, and so we would certainly expect to see those improving volume trends as we go forward. And then, in addition to price mix, we've now, as I said, lapped our US pricing in December, the last of the four rounds we took. And so the US will be contributing much less, in fact, very little impact to a favorable price.

Speaker Change: Sure Hi, Peter as it relates to organic sales growth and transitioning from the front after the back everything about what the changes are as it relates to volume, we expect to see improving volume trends in the back half of the year, that's a combination of both.

Peter K. Grom: Continue to recover from a cyber event as well as now that we've lapped pricing, we'd expect to see improving volume.

Peter K. Grom: If you look at the front half our volume was down high single digits and so we would certainly expect to see if there was improving volume trends as we go forward.

Peter K. Grom: And then in addition to price mix, we have now as I said lapped our U S pricing in December the last one four rounds, we took and so U S will be contributing much less in fact, very little impact and favorable price mix.

Kevin Jacobsen: But we have now leaned into Argentina in November and December; we took double-digit price increases both months. And so you will still continue to see positive price mix in the back half of the year in spite of increased trade. So I say, overall, improving volume trends from the front half of the year. Price mix being a little lower than the front half because we've left US pricing, but still fairly strong for us. And that's how we get to an expectation that we'll be growing for the full year in the low single digits. And that would mean the back half would be a bit stronger than where we landed in the front half in terms of organic. Got it.

Peter K. Grom: But we have no lead into Argentina in November and December we took double digit price increases both months and so you will still continue to see positive price mix in the back half of the year in spite of increased trade spending so I'd say overall, improving volume trends from the front half of the year price mix being a little lower than the front half because we've let.

Peter K. Grom: U S pricing, but feel still fairly strong for us and that's how we get to an expectation that will be growing for the full year low single digits and that'd be the back half would be a bit stronger than where we landed in the front half in terms of organic sales growth.

Kevin Jacobsen: That's really helpful. And then, Kevin, on the 42% exit rate, and I may be reading too much into this, but are you simply just trying to provide some color on the second half phasing? Or are you trying to signal how we should be thinking about the gross margin recapture opportunity looking at fiscal 25? Yes, it's more about phasing in the back half. Just want to make sure we're highlighting to folks that for all that pricing in Argentina to take effect, it'll probably be the fourth quarter, but it's fully in market. So I'd expect my fourth quarter growth margin to be a bit stronger than the third quarter. But having said that, as you know, Peter, Lynn, and I remain committed to rebuilding gross margins back to the level we had before the, what I described as, the super cycle of inflation. We made good progress last year.

Speaker Change: Got it that's really helpful and then I guess just.

Speaker Change: Kevin on the 42% and I may be reading too much into this but are you simply just trying to provide some color on the second half anything or are you trying to signal how we should be thinking about the gross margin recapture opportunity looking out to fiscal 'twenty five.

Kevin Jacobsen: Yes, it's more about phasing in the back half just want to make sure we're highlighting folks for that all of that pricing in Argentina to take effect. It would probably be in the fourth quarter were towards fully in market. So I'd expect my fourth quarter gross margin to be a bit stronger than third quarter.

Kevin Jacobsen: But having said that as you know Peter Lynn and I remain committed to rebuilding gross margins back to the level, we had before though what I describe as a super cycle of inflation.

Kevin Jacobsen: Good progress last year, we intend to make more progress this year, but the work's not done and I fully expect going into 'twenty five we'll continue to expand margins.

Kevin Jacobsen: We intend to make more progress this year, but the work's not done, and I fully expect that going into 2025, we'll continue to expand margins. But importantly, we'll do that while we continue to invest to grow the top line and continue to advance our strategic initiatives. So we continue to focus on all three. But as it relates to margin, I expect to make solid progress this year, and I expect that to continue as we go into 2025. Thanks so much.

Kevin Jacobsen: <unk>, we will do that while we continue to invest to grow the top line and continue to advance our strategic initiatives. So we continue to focus on all three was it relates to margin I expect to make solid progress this year and I expect that to continue as we go into 'twenty five.

Speaker Change: Thanks, So much I'll pass it on.

Peter K. Grom: I'll pass it on, and we'll move next to Anna Lazul with Bank of America. Hi, good afternoon.

Speaker Change: Thanks Peter.

Speaker Change: And we'll move next to Ana <unk> with Bank of America.

Ana: Hi, good afternoon. Thanks, very much for the question I wanted to ask on the outlook in the prepared remarks, you mentioned expecting a modest slowdown in category growth rates in the back half of the fiscal year are there any particular categories, where you expect an outsize impact versus categories that you think are more resilient.

Anna Lazul: Thanks very much for the question. On the outlook, in the prepared remarks, you mentioned expecting a modest slowdown in category growth rates in the back half of the fiscal year. Are there any particular categories where you expect an outsized impact versus categories that you think are more resilient? Sure, you know, this assumption on a modest slowdown in categories is one consistent with what we provided as an original outlook for fiscal year 24, as we saw the consumer come under more pressure. And we originally had the assumption of a mild recession, which we are no longer assuming but still assume the consumer is going to be under more pressure given all the factors in the macroeconomy. And so that's consistent with that. And if you look at our categories, given they're all mostly household essentials categories, we would expect, you know, no big difference between those categories. We might see little nuances here and there, but on average, we expect all of them to be slightly slower.

Speaker Change: Sure you know this assumption on a modest slowdown in categories. There's one consistent with what we provided as an original outlook to fiscal year 'twenty four as we saw the consumer come under more pressure than we originally had the assumption of a mild recession a wish.

Speaker Change: Wish we are no longer assuming but still assuming that consumer is going to be under more pressure given all the factors in the macro economy.

Speaker Change: And so that's consistent with that and if you look at our categories given their all mostly household essential categories are.

Speaker Change: We would expect no large difference in those categories, we might see a little nuances here and there but on average we would expect all of them.

Laura Lieberman: And that's consistent with what we've seen in the past at times like this. But I wouldn't call out anything in particular that would be a wide variance to that assumption. Thanks for that.

Speaker Change: To be slightly slower and that's consistent with what we've seen in the past in times like this.

Speaker Change: But I wouldn't call out anything in particular that that would be a wide variance to that assumption.

Speaker Change: Thanks for that and just a follow up on the organic sales question earlier on the lifestyle segment in fiscal Q2, we saw a negative price mix can you just tell us what is driving that and should we expect to see negative price mix in the back half of the year on this thanks.

Anna Lazul: And just to follow up on the organic sales question earlier about the lifestyle segment and fiscal Q2, we saw negative price mix. Can you just tell us what is driving that, and should we expect to see negative price mix in the back half of the year on this? Thanks.

Kevin Jacobsen: Sure. As it relates to lifestyle, that was in our Burt's Bees business. We do quite a bit of holiday gift packing and merchandising in the second quarter for that business, and so you have increased promotional activity. And so that was specific. And you may see that occasionally based on merchandising plans. Great, thank you.

Speaker Change: Sure as it relates to the lifestyle that was in our burts bees business, we do quite a bit of holiday gift packaging and merchandising in the second quarter on that business and so you have increased promotional activity and so that was specific to the second quarter and you may see that occasionally based on merchandising plans as we go forward.

Speaker Change: Great. Thank you.

Dara W. Mohsenian: Our next question will come from Dara Mohsenian with Morgan Stanley. Maybe looking beyond fiscal 24, I think the salient question today is probably the earnings outlook as we look out to fiscal 25. I know obviously you won't comment on that directly, but maybe just looking at a couple of line items. First, Linda, from a top line standpoint, obviously, a lot of moving parts. Are you pretty comfortable now that longer-term retailer relationships have not been impacted by the systems issue? Do you have a line of sight to eventually regaining full distribution? You know, to Andrea's question, understanding the job's not done, but do you think you have that line of sight?

Speaker Change: And our next question will come from Dara <unk> with Morgan Stanley.

Speaker Change: Okay.

Speaker Change: Yeah.

Dara: Hey, guys.

Dara: Just.

Dara: Maybe looking beyond fiscal 'twenty four I think the Chilean question today is probably the earnings outlook as we look out to fiscal 'twenty five I know, obviously, you won't comment on that directly but maybe just looking at a couple of line items first Linda from a topline standpoint, obviously a lot of moving part.

Dara: Parts.

Are you pretty comfortable now that longer term retailer relationships have not been impacted from a systems issue do you have a line of sight to eventually regaining full distribution to andrea's question understanding the job is not done but.

Dara: Do you think you have that line of sight and also maybe just an update on the competitive environment near term are there any pricing or promotional concerns that have cropped up from competitors recently, given some of the volatility that might linger as we look out over the next year or two and how you think about that.

Dara W. Mohsenian: And also maybe just an update on the competitive environment near term. Are there any pricing or promotional concerns that have cropped up from competitors recently, given some of the volatility that might linger as we look out over the next year or two and how you think about that? Sure.

Laura Lieberman: Thanks for the question, Dara. Obviously, as you said, we won't provide any perspective on fiscal year 25. But the things that you outline are important as we think about closing out this year and, then of course, the future of our continued commitment to grow top line while rebuilding margins. And, you know, what we see from a top-line perspective are very strong brands. And I think I'd highlight again what I called out about brand superiority.

Speaker Change: Sure. Thanks for the question Dara.

Speaker Change: So obviously as you said, we won't provide any perspective on fiscal year 'twenty five but the things that you outlined are important as we think about closing out this year and then of course, the future of our continued commitment to grow top line, while rebuilding margins.

Speaker Change: And you know what we see from a topline perspective is very strong brands and I think I'd highlight again, what I called out around brand superiority, even in the out of stock issue that we experienced in cyber we maintained our brand superiority ratings, which is significantly higher than it was pre pandemic. So our brands continue to remain strong.

Laura Lieberman: Even in the out-of-stock issue that we experienced in cyber, we maintained our brand superiority ratings, which is significantly higher than they were pre-pandemic. So our brands continue to remain strong. And we feel great about the investments we have in the back half, both increasing our advertising and sales promotion levels. And we're going to spend about 11% this year.

Speaker Change: And we felt great about the investments we have in the back half both increasing our advertising and sales promotion levels and we're going to spend about 11%. This year, we continue to expect that.

Laura Lieberman: We continue to expect that. And we do expect trade promotion to increase, as Kevin highlighted earlier. And innovation plans. You know, we've also spoken about the fact that during the cyber incident, we walled those resources off. And so our innovation plans remain on track.

Speaker Change: And we do expect trade promotion to increase as Kevin highlighted earlier.

Speaker Change: And innovation plans. We've also spoken about the fact that during the cyber incident, we want those resources off and so our innovation plans remain on track and we expect innovation across every major brand at Fox.

Laura Lieberman: And we expect innovation across every major brand at Clorox, and we'll continue to invest in those plans. So I feel great about the brand health going into this. From a category perspective, as we said, we expect to see some moderation in category growth. We tend to fare well in times when consumers stretch because we offer value superiority. And, in fact, we're seeing, in many cases, people still trading into premium segments of our business. We're seeing that in wipes.

Speaker Change: And we will continue to invest in those plans.

Speaker Change: Feel great about the brand health going into this from a category perspective, as we said, we expect to see some moderation and category growth, we tend to fare well in times when the consumers stretched because we offer value superiority and in fact, we're seeing in many cases people still trading into premium segments of our business, we're seeing that in wipes, we're seeing that in pre.

Laura Lieberman: We're seeing that in premium litter. We're seeing that in our food business and across many others. So I feel really good about where we stand with the consumer, even as they are more challenged. And, you know, we're not seeing excessive trading to private label.

Speaker Change: Litter, we're seeing that in our food business and across many others.

Speaker Change: So feel really good about where we stand with the consumer even as they are are more challenged and you know were not seeing excessive trading to private label. We did see some during or at a soft period, but we're seeing that rebound as we get back on shelf.

Laura Lieberman: We did see some during our out-of-stock period, but we're seeing that rebound as we get back on the shelf. And then retailers, you know, I'll just take another moment to thank them. And I can't thank them enough. They've been tremendous partners.

Speaker Change: And then retailers you know I'll just take another moment to thank them and I can't thank them enough they've been tremendous partners and I I say with confidence our relationships are stronger coming out of this.

Laura Lieberman: And I can confidently say our relationships are stronger coming out of this unfortunate incident than they were heading in, and they were strong heading in. I'm super grateful for their partnership and what they've done.

Speaker Change: Unfortunate incident than they were heading in and they were strong heading in Super Grateful for their partnership and what they've done and where bus back focused on category growth and focused on finishing the job on distribution and I have full confidence given the plans that we have that we will restore distribution. It will just be how fast we can do it and on what timing and against some of those things are out of our control.

Laura Lieberman: And we're both back focused on category growth and focused on finishing the job on distribution. And I have full confidence, given the plans that we have, that we will restore distribution. It will just be how fast we can do it and on what schedule.

Dara W. Mohsenian: And again, some of those things are out of our control. But we have the right plans. We have the right relationships and strong brands to get it done. Okay, can you just comment on the promotional environment? And if I can slip in one more, Kevin, on the margin front, you talked about leaving the year at 42%. That's still well below peak levels of 45 to 46.

Speaker Change: But we have the right plans, we have the right relationships and strong brands to get it done.

Speaker Change: Okay and can you just comment on the promotional environment.

Speaker Change: If I can slip in one more Kevin on the margin front.

Speaker Change: You talked about leaving the year at 42%.

Kevin Jacobsen: Well below peak levels of 45 to 46, if you go back historically you mentioned in response to Peter's question that there'll be progress in fiscal 'twenty five just help us understand potentially the slope of that gross margin recovery over time, the key drivers and how you think about long term potential relative to that peak.

Kevin Jacobsen: If you go back historically, you mentioned in response to Peter's question that there'll be progress in fiscal 25. Just help us understand potentially the slope of that gross margin recovery over time, the key drivers, and how you think about long-term potential relative to that peak historical level. Thanks.

Speaker Change: Rickel level. Thanks.

Laura Lieberman: Sure, on the merchandising and competitive front, we continue to see merchandising levels below what we saw pre-pandemic, and we expect in the back half for those to continue to ramp up. But what I'd say is, you know, some of that was depressed given the fact that we were out of stock and not had as much merchandise, but we're not seeing anything in any material way where we're seeing, you know, deep discounted price merchandising where we're seeing a fundamental change. But we would expect that level to rise consistent with a more pressured consumer. And I would say there are little pockets here and there in categories.

Speaker Change: Sure on the merchandising on competitive front, we continue to see merchandising levels below what we saw.

Speaker Change: Pre pandemic and we expect in the back half for those to continue to ramp up but what I'd say is you know some of that was depressed given the fact that we were out of stock and not had as much merchandising, but we're not seeing anything in any material way, where we're seeing you know deep discount price merchandising, where we're seeing a fundamental change.

Speaker Change: <unk>, but we would expect that that level to rise consistent with a more pressured consumer and I would say there are little pockets here and there and categories were seeing some competition in litter, whether it's a bit more aggressive merchandising and price promoting going on but nothing outside of what we had assumed in our outlook.

Kevin Jacobsen: We're seeing some competition in litter, where there's a bit more aggressive merchandising and price promotion going on, but nothing outside of what we have assumed in our outlook for our categories and competition. And again, we continue to expect merchandising to increase both ours and competition's in the back half, but we don't expect that to go to levels beyond what we saw pre-pandemic, and we'll see how that And then, Dara, on gross margin, as I said, getting to about 42 as our exit in Q4, I expect we'll make more progress in fiscal year 25. And, I'm sure you can appreciate, I'll refrain from being too specific. We haven't finished our plans yet for 25.

Speaker Change: <unk> from our categories and competition and again, we continue to expect merchandising to increase both ours and competition in the back half, but we don't expect that to go to levels beyond what we saw pre pandemic and.

Speaker Change: And we'll see how that plays out.

Speaker Change: And then Dara on gross margin as I said I getting to about 42 is our exit in Q4, I expect we'll make more progress in fiscal year 'twenty five and I'm sure. You can appreciate all I'll refrain from being too specific we haven't finished our plan Jeff for 'twenty, five, but here's what I expect we will continue to drive cost savings and as you know.

Kevin Jacobsen: But here's what I expect. We will continue to drive cost savings. And as you know, we target 175 basis points of EBIT margin expansion each year. But you know, the last couple years, we've been doing north of 200.

Speaker Change: We targeted 175 basis points of EBIT margin expansion each year.

Speaker Change: The last couple of years, we've been doing north of 200, and so we'll continue to drive cost savings.

Kevin Jacobsen: So we'll continue to drive cost savings. If you assume we're going to move into a more normalized cost environment, potentially even some cost deflation, you can see how that 200 basis points can quickly start advancing our gross margin because it's not being absorbed by costs.

Speaker Change: Do you assume we're going to move into a more normalized cost environment potentially even some cost deflation you can see how that 200 basis points can quickly start advancing our gross margins. It's.

Speaker Change: It is not being absorbed by cost inflation, so that'll be what we expect going forward, we'll have to see where the cost environment is when we get there.

Kevin Jacobsen: So that'll be what we expect going forward. We'll have to see where the cost environment is when we get there. However, pricing will play a smaller role as we've now lapped U.S. pricing.

Speaker Change: <unk> will play a smaller role as we've now lapped our U.

Kevin Jacobsen: We're still doing some international pricing, but that'll play a smaller role. But as we mentioned, we can expect improving volume trends, which will certainly contribute to margin expansion as well. So as I said, we're gonna make progress. It's hard to call, you know, when we think we'll get back to that initial margin. We talk about 44%.

Speaker Change: U S pricing, we're still doing some pricing international but that'll player's smaller wall.

Speaker Change: As we mentioned, we do expect improving volume trends, which will certainly contribute to margin expansion as well. So as I said, we're gonna make progress it's hard to call. When we think we'll get back to that initial margin we talked about 44%.

Kevin Jacobsen: It's hard to call exactly when we'll get there because it's not fully in our control. Some of that's going to be driven by how the cost environment plays out. If we see deflation, it could move more quickly. And if it still continues to inflation, it may take a little bit longer.

Speaker Change: Article exactly when we'll get there because it's not fully in our control some of that can be driven on how the cost environment plays out if we see deflation it could move more quickly and if it still continues to inflate it may take a little bit longer.

Kevin Jacobsen: And then I think once we get back into a more normalized environment, typically, our cost savings are more than enough to offset a normal level of cost inflation, and we get to take a little bit off the bottom line. And that's how you get that 25 to 50 bits of even margin expansion each year on. So I think job one is to get back to that 44%. I think over time you get back to a more modest, year after year in a more normalized, Thank you. And your next question will come from Filippo Filorni with Citi. Hey, good afternoon, guys. So Linda, I wanted to go back to your comment that there's still some job to be done in terms of recovering shelf space or maybe zooming in on a few categories.

Speaker Change: And then I think once we get back into a more normalized environment typically our cost savings is more than enough to offset a normal level of cost inflation and we get to pick a little bit to the bottom line and that's how you get that 25 to 50 bps of EBIT margin expansion each year ongoing sure.

Speaker Change: I think job one is to get back to that 44%.

Speaker Change: Main committed doing that I think over time, you'll get back to a more modest improvement year after year in a more normalized cost environment.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And your next question will come from Filippo Florini with Citi.

Filippo Florini: Hey, good afternoon guys.

Filippo Florini: So Linda I wanted to go back to your comment of Theres still some job to be done in terms of recovery shelf space.

Filippo Florini: It may be moving in a few categories. If I look at the track channel data is to be categories, where your total distribution points are still below peak cyber attack levels, particularly trash bags bleach on kind of later, maybe you could give us a call or like what are your plans are to get the shelf space back.

Laura Lieberman: If I look at the track channel data, there are three big categories where your total distribution points are still below pre-cyber attack levels, particularly trash bags, bleach, and cat litter. Maybe you could give us a color like what your plans are to get the shelf space back. Sure, Filippo.

Speaker Change: Sure Filippo.

Laura Lieberman: You know, just in aggregate, so that we're completely clear, we still have fewer distribution points than we did pre-cyber, but we are close to restoring at an aggregate enterprise level. So, as I mentioned earlier, we were down well over thirty percent in average weekly distribution points at the low point of our auto stocks, and now we're mid single digits on average. But you're right to call out that, in particular, trash and cat litter were actually more on track to what we originally expected in Q2, and we were able to, in the rest of the categories, accelerate the distribution point recovery. But trash and cat litter were more on the schedule that we had expected them to be in Q2, and there were really two things driving it.

Filippo Florini: Just in aggregate so that we're completely clear we are still.

Filippo Florini: It has fewer distribution points than we did pre cyber, but we are close to restoring at an aggregate enterprise level. So.

Filippo Florini: So as I mentioned earlier, we were down well over 30% and average weekly to distribution points at the low point of our out of stocks and now we're mid single digits on average, but youre right to call out that in particular trash in cat litter.

Filippo Florini: Actually more on track to what we originally expected in Q2, and we were able to in the rest of the categories accelerate the distribution point recovery.

Filippo Florini: But trash in cat litter were more on the schedule that we had expected them to be in Q2, and there's really two things driving it. The first one cat litter is the ongoing catch up that we're playing is the calories growing so fast to catch up from a supply perspective to demand.

Laura Lieberman: The first on cat litter is the ongoing catch-up that we're playing as the category has grown so fast that it hasn't quite caught up, from a supply perspective, to demand. We continue to expect to make progress on that this year, but that's part of the reason why cat litter is slightly behind. And then trash, you know, that's a complex category, and we prioritize a certain set of items to ensure that those are on the shelf fast. And with that, we have to bring back the full distribution. Particularly, I'll call it large sizes, is one that we have not fully restored yet. We have plans to do that in these upcoming resets.

Filippo Florini: We continue to expect to make progress on that this year, but that's part of the reason why cat litter is slightly behind and then trash.

Filippo Florini: That's a complex category and we prioritized.

Filippo Florini: A certain set of items to ensure that those were on shelf fast and with that we have to bring back the full distribution, particularly I'll call. It large sizes is one that we have not fully restored yet we have plans to do that and these upcoming resets those are important items in the category and retailers realize that and we feel we have the right plans in place.

Laura Lieberman: Those are important items in the category, and retailers realize that, and we feel we have the right plans in place to get them back. But those are two categories that will look more like we had thought at the beginning of Q2. But just like the rest of the categories, we believe we have the right plans. We will make progress in Q3 and Q4. And we're not seeing anything abnormal from a consumer perspective that gives us any concern about our ability to do that. Right, that's super helpful.

Filippo Florini: To get them back, but those are two categories that will look more like we had thought at the beginning of Q2.

Filippo Florini: But just like the rest of the categories. We believe we have the right plans, we will make progress in Q3 and Q4.

Filippo Florini: And we're not seeing anything abnormal from a consumer perspective that gives us any concern about our ability to do that.

Kevin Jacobsen: And then Kevin, two quick follow-ups on the gross margin. First, on the commodity line. It was neutral this quarter. You talked about maybe a more favorable environment. Are you expecting some deflation in the second half, meaning a benefit? And then on the manufacturing and logistics front, maybe you can walk us through the drivers of that line as well? Sure, Filippo, and as it relates to, I'll start with all three and just talk about inflation.

Speaker Change: That's super helpful. And then Kevin two quick follow ups on the gross margin.

Speaker Change: First on the commodity line.

It was neutral this quarter you talked about maybe a more favorable environment are you expecting some deflation in the second half, meaning a benefit and then on the manufacturing and logistics, maybe you could walk us through the drivers of that line as well.

Sure.

Speaker Change: As it relates to maybe I'll start with all three just talk about inflation as you know we came into the year expecting about $200 million worth of cost inflation.

Kevin Jacobsen: As you know, we came into the year expecting about $200 million worth of cost inflation, some of that in commodities, but more of that in manufacturing and logistics, primarily driven by wage inflation. What I would tell you is we're seeing a little bit of improvement in commodities, a little bit better than we anticipated. And keep in mind, we forecast not based on spot rates but based on forward curves. And so I'd say we're still generally in that 200 million range, but with a little bit better news on commodities. Now, having said that, that's before we factor in Argentina or the new reality in Argentina.

Speaker Change: Some of that in commodities, but more of that in manufacturing and logistics, primarily driven by wage inflation. What I would tell you is we're seeing a little bit of improvement in commodities is a little bit better than we anticipated and keep in mind, we forecast not based on spot rates, but based on forward curves and so I'd say, we're still generally that 200 million range, but.

Speaker Change: A little bit better news, we're seeing on commodities.

Speaker Change: You said that that's before we factor in Argentina, and sort of the new reality in Argentina, but if.

Kevin Jacobsen: But if I exclude that for a moment, I'd say generally playing out as we expected, about $200 million of inflation, mostly manufacturing. You don't see it as much when you look at our web attachments in the front half of the year. We had a number of charges last year that were lapping.

Speaker Change: If I exclude that for a moment I'd say generally playing out as we expected about $200 million of inflation.

Speaker Change: Lean manufacturing logistics, you don't see it as much when you look at our web attachments in the front half of the year.

Speaker Change: We had a number of charges last year that we're lapping should add more favorability in manufacturing logistics, but that was offset by inflation front half and you get to a pretty neutral outcome as what youre seeing for the front half.

Kevin Jacobsen: We should have had more favorability in manufacturing logistics, but that was offset by inflation in the front half, and you get to a pretty neutral outcome is what you're seeing for the front. And now when you add in Argentina, you know, we're forecasting now almost 300% inflation in that economy. So we are seeing more cost inflation broadly across the supply chain, including commodities. And so I expect to have unfavorable commodity inflation in the back half of the year. A little bit of the U.S., but more so being driven from our, But what's important to note, and I mentioned this earlier, in Argentina, if you step back from all the noise and where it shows up in the P&L, we believe we have a plan to fully cover the negative impact to our P&L through the increased, Got it. Super helpful, guys. Pass it on. We'll move next to Chris Carey with Wells Fargo. Everybody.

Speaker Change: And now when you add in Argentina, we're forecasting now almost 300% inflation and that economy. So we are seeing more cost inflation broadly across the supply chain, including commodities and so I expect to have unfavorable commodity inflation in the back half of the year, a little bit of the U S, but more so being driven from Argentina, but what's important to know.

Speaker Change: And I mentioned this earlier in Argentina, if you step back from all the noise and where it shows up in the P&L. We believe we have a plan to fully cover the negative impact to our P&L through the increased pricing we're taking.

Speaker Change: Got it so if I ask you guys.

Speaker Change: Plus at all.

Speaker Change: Thank you.

Speaker Change: And we'll move next to Chris Carey with Wells Fargo.

Christopher M. Carey: Hi, everybody.

Laura Lieberman: So just a couple of questions, then, you know, kind of a broader question. Number one, are you or did you experience any negative impact from a delayed cold and flu season that we should anticipate some benefits going into the March quarter? And then to just, you know, follow up on Argentina, we've seen some companies cap the level of pricing so as not to, I guess, take all of the inflationary pricing that we just need different methodologies. Is it fair to assume that you would strive to offset all of the inflation in Argentina if it gets worse, just so we know how to kind of, you know, try to track this going forward? Thanks for watching. Yeah, Chris, I'll start with the cold and flu.

Christopher M. Carey: Just a couple of questions.

Christopher M. Carey: Kind of a broader question.

Christopher M. Carey: Number one are you.

Christopher M. Carey: Did you experience any neck.

Christopher M. Carey: <unk> impact from a delayed cold flu season, we should anticipate some benefit.

Christopher M. Carey: Going into the March quarter, and then just a follow up there on Argentina, we've seen some companies cap.

Christopher M. Carey: Capital level of pricing, so as not to.

Christopher M. Carey: I guess take all of the inflationary pricing that we just need a different methodology is it fair to assume that you would strive to offset all of the inflation in Argentina.

Christopher M. Carey: It's worth just just so we know how to.

Christopher M. Carey: Tried chocolate is going forward.

Speaker Change: Oh sure.

Yeah, Chris I'll start with the cold and flu and just so we're all level set cold and flu is actually.

Laura Lieberman: And just so we're all level set, cold and flu season is actually, this year, very similar to previous cold and flu seasons that we saw before. So definitely different than last year, and it started later than last year, but more like an average cold and flu season, which we typically see in January and February.

Speaker Change: This year very similar to previous cold and flu seasons that we saw before so definitely different than last year. So it started later than last year, but more like an average cold and flu season, which we typically see in January and February. So I would say normalized is the assumption that we have.

Laura Lieberman: So I would say normalized is the assumption that we have. So, it is too early to say what the impacts will be. We'll obviously talk about that when we talk about Q3, but we're looking at an average cold and flu season. And to your point, that means, as we lap it, the lap looks different because we experienced colds and flu earlier last year, and we'll be experiencing a more normalized. So, mostly a Q3 impact for cold and flu that's been contemplated in our outlook, and we have, like, we normally do normalize assumptions around cold and flu, and we'll see how that plays out. But to date, it looks like a very normal cold.

Speaker Change: So too early to say what the impacts will be we'll obviously talk about when we when we talk Q3.

Speaker Change: But we're looking at an average cold and flu season and to your point that means as we lap at the lap looks different because we experienced cold and flu earlier last year, and we will be experiencing a more normalized so mostly a Q3 impact for cold and flu that's been contemplated in our outlook and we have like we normally do you normalize assumption.

Speaker Change: Around cold and flu and we'll see how that plays out but to date it looks like a very normal cold and flu season.

Laura Lieberman: From an Argentinan perspective, that would certainly be our perspective, and as Kevin highlighted, you know, we intend right now with the plans that we have and what we're seeing in Argentina to fully offset the impact through pricing. We'll see what happens as we move forward. That would continue to be our posture, and the reasons and proof points we believe we can do it. Our market shares continue to be very strong. Our brands are very strong.

Speaker Change: From an Argentina perspective that would certainly be our perspective and as Kevin highlighted we intend right now with the plans that we have and what we're seeing in Argentina to fully offset the impacts through pricing.

Speaker Change: You know, we'll see what happens as we move forward that would continue to be our posture.

Speaker Change: And the reasons and proof points. We believe we can do it our market shares continue to be very strong. Our brands are very strong we'll watch that closely but based on what we're seeing today, we expect to fully offset that.

Laura Lieberman: We'll watch that closely. But based on what we're seeing today, we expect to fully offset the currency headwinds with pricing. Hey Chris, so one item I'd add as it relates to Argentina is remeasurement. It's worth noting, I think, as you're modeling. In Argentina, you have to remeasure the monetary assets every quarter.

Speaker Change: The currency headwinds with pricing.

Speaker Change: The one item I would add as it relates Argentina is on re measurement.

Speaker Change: It's worth noting that things you're modeling.

In Argentina, you have to re measure the monetary assets every quarter and more devaluation you have the larger charge you take your P&L in Q2, we took a 10 cent charged to the P&L we have in our outlook. The assumption, we're going to take about a 20 cent charge in total we took four cents in Q1. So most of the charge, we're taking which is roughly $30 million we've taken out.

Kevin Jacobsen: And the more devaluation you have, the larger charge you take on your P&L. In Q2, we took a 10 cent charge to the P&L. We have in our outlook the assumption that we're gonna take about a 20 cent charge in total. We took four cents in Q1. So most of the charge we're taking, which is roughly $30 million, we took in the front half, but we do expect there'll be some more remeasurement, impacts of the P&L in the back half of the year, but it's fairly modest given what we've already. Okay, and then just one additional clarification on some prior questioning. So, just to be clear, you're mostly caught up on inventory levels, but not entirely caught up, and so we're still seeing negative trends on a year-over-year basis from a sales standpoint in the Nielsen data, for example, and you should continue to outpace your consumption data for, you know, maybe at least another quarter. Is that a fair analysis?

Speaker Change: Front half, but we do expect there'll be some more re measurement.

Impacts to the P&L in the back half of the year, but its fairly modest given what we've already taken to date.

Speaker Change: Okay, and then just one additional clarification on some prior questioning.

Speaker Change: Just just to be clear, so you're mostly caught up on inventory levels, but not entirely caught up and so we're still seeing negative trends on a year over year basis from a sales standpoint in the Nielsen data. For example, you should continue to outpace your consumption data for maybe at least another quarter.

Speaker Change: Is that a fair analysis.

Laura Lieberman: And then you would expect some acceleration in consumption going to your fiscal Q4. Any way you could frame that for us would be helpful. What I would say is you've got it right and that you're hearing us correctly that we've restored the vast majority of inventory. We still have work to do to close all the way back to the distribution points that we were at pre-cyber. And so, as I said, we're still down about low single digits, up from down over 30 points. And then market shares, the same thing I highlighted; we have work left to do as we do two things, restore those distribution points and return to merchandising in full. And those two things will have an impact. And I'll put on share.

Speaker Change: You would expect some acceleration in consumption going into your fiscal Q4 just.

Speaker Change: Any way you could frame that for us would be helpful. Thanks.

Speaker Change: What I would say is you've got it right and that you are hearing us correctly that we've restored the vast majority of inventory.

Speaker Change: We still have work to do to close all the way back to the distribution points that we were at pre cyber.

Speaker Change: And so as I said, we're still down about low single digits up from down over 30 points.

Speaker Change: And then market shares the same thing I highlighted we have work left to do as we do two things restore those distribution points and returned to merchandising and fall in those two things will have an impact a and I'll put on share.

Laura Lieberman: And I also say the underlying thing behind this all is to we have to do that work on the fundamentals, and we will. We also have to ensure, you know, consumers bought other items during this time when we were out of stock, and so we're also doing the discipline work by brand to ensure that we get them back to the Clorox brands they know and love, through our marketing efforts, through the efforts that we're talking with shoppers, you know, at the point of decide, and all that's going on track, but that's the work that we also have to do, not only just restoring distribution and merchandising, but also ensuring that we're getting that next purchase from people who may have tried something different during our out-of-stock period. Okay, thanks so much.

Speaker Change: Let's say the underlying thing behind this all has to we have to do that work on the fundamentals and we will we.

Speaker Change: We also have to ensure consumers bought other items. During this time when we were out of stock and so we're also doing the disciplined work by brand to ensure that we get them back to the Clorox brands, They know and love.

Speaker Change: So our marketing efforts through the efforts that were were talking with shoppers at the point of decide and all that is going on track, but that's the work that we also have to do not only just restoring distribution and merchandising, but also ensuring that we're getting that next purchase from people who may have tried something different during a soft period.

Speaker Change: Okay. Thanks, so much.

Christopher M. Carey: Thanks, Chris. Our next question will come from Kaumil Gajrawala with Jeff. Hey, everybody.

Speaker Change: Thanks, Chris.

Speaker Change: And our next question will come from Camille Gosh, a ruler with Jefferies.

Camille Gosh: Hi, everybody.

Kaumil Gajrawala: This is a good segue from Chris's question on winning back some of the consumers that you lost. I guess you're holding advertising flat as a percentage of sales, but your outlook for revenues is higher. So from a dollar perspective, I suppose that's an increase. Is it an increase, or is it about what you had expected to spend internally over the course of the year?

Camille Gosh: This is a good segue from Chris's question on winning back some of the consumers that she lost you I guess youre holding advertising.

Camille Gosh: Flat as a percentage of sales mature.

Camille Gosh: The outlook for revenues or hires from a dollar perspective I suppose that some increase is there an increase or is it about where internally you had expected.

Camille Gosh: And over the course of the year.

Kaumil Gajrawala: Camille, we're expecting increased spending. So, as you know, we typically spend about 10% of sales. This year, we're targeting 11%. And in fact, in the back half, it'll be closer to 12%.

It can be we're expecting to increase spending so as you know we typically spend about 10% of sales this year, we're targeting 11%.

Camille Gosh: And in fact in the back half it'll be closer to 12%. So we're leaning in investing to continue to drive value superiority at an elevated rate so year over year, it will be higher than that.

Laura Lieberman: So we're leaning on investing to continue to drive value superiority at an elevator rate. So year over year, it will be higher based on the elevator rate of spending. That's useful. Thanks.

Camille Gosh: The elevated rate of spending we intend to spend.

Speaker Change: Got it Thats useful thanks and then.

Kaumil Gajrawala: And then maybe a little more information on something you've alluded to a few times about consumer pressure. Is it something you're already seeing or something you're planning for the back half? And maybe if you could sort of marry that comments with some of what you guys have talked about as it relates to promotion, I can say, Yeah, you know, the consumer has been fairly resilient. And we've continued to say that in the front half of the year, it was a little difficult in our categories to get a completely clean read, just to be fair, given that we were out of stock. And so there's a lot of dynamics going on.

Speaker Change: Maybe a little more information on something you alluded to a few times on consumer pressure is it something you're already seeing or something youre planning for the back half and maybe if you could sort of marry that comment with some of what are you guys just talked about as it relates to promo activity.

Yeah, you know the consumer has been fairly resilient and we've continued to say that we saw that in the front half of the year. It is a little difficult in our categories to get a completely clean read just to be fair given that we were out of stock and so theres a lot of dynamics going on but as we come back in stock, we're seeing largely what we expected from the consumer on their front half, which is a lot of resiliency.

Laura Lieberman: But as we come back in stock, we're seeing largely what we expected from the consumer in the front half, which is a lot of resilience; we continue to see value-seeking behaviors. So we're seeing trading up to large sizes, we're seeing trading into opening price points, not seeing anything different on trading into private label than we would have expected. Again, certainly more people tried private label when we were out of stock, but we're seeing that reverse as we get back on the shelves.

Speaker Change: We continue to see value seeking behaviors, so were seeing trading up to larger sizes.

Speaker Change: Seeing trading into opening price points not seeing what.

Speaker Change: What we would expect anything different on trading into private label.

Speaker Change: Then we would have expected again, certainly more people try to private label. When we were out of stock what we're seeing that reverse as we get back on shelf.

Laura Lieberman: We continue to see a squeeze from other brands. So the leading brand and private label tend to be the two that are doing well in categories that have multiple brands. So all those behaviors continued in the front half. What we expect in the back half is the consumer to continue to be under more pressure. That being said, our categories are fairly resilient because we're household essentials.

Speaker Change: We continue to see a squeeze of other brands. So the leading brand and private label tend to be the two that are doing well in categories that have multiple brands.

Speaker Change: So all of those behaviors continued in the front half.

Speaker Change: What we expect in the back half is the consumer to continue to be under more pressure that being said our categories are fairly resilient, because where household essentials. So we're expecting a moderation but.

Laura Lieberman: So we're expecting a moderation, but this is not a reversal of the trends we've seen, and we're seeing the shift from price mix being the driver of growth to volume. And that is certainly playing out. If you look at sequential volume improvement trends over this course of time, and if you kind of back up the effects of being out of stock from cyber, you're seeing consistently improving volume. At the end of December, volumes were down very low single digits, for example, from a consumption perspective, if you look at the Mooloo universe.

Speaker Change: But this is not a reversal of the trends we've seen and we're seeing the shift from price mix being the driver of growth to volume and that is certainly playing out if you look at sequential volume improvement trends over the course of time and if you kind of back out the effects of being out of stock from side, where youre seeing consistently volume improving at the end of December volumes.

Speaker Change: We're down very low single digits for example from a consumption perspective, if you look at the Mullah universe, and we would expect to see that continue in the back half. So we just see as consumer under more pressure value seeking behaviors continue a slight moderation in our categories. We had assumed all of that and in our outlook will continue to moderate but to date the consumer has been resilient.

Laura Lieberman: And we would expect to see that continue in the back half. So what we just see is a consumer under more pressure, value-seeking behaviors continue, and a slight moderation in our categories. We'd assumed all of that in our outlook would continue to moderate. But to date, the consumer has been resilient.

Laura Lieberman: And we think those things will play into the other assumptions we have, like more merchandising in the back half. And, you know, competitors focused on ensuring that they're offering great value to consumers as their wallets are stretched. But it's very, very consistent with what we had expected at the beginning of this year. We don't see any change in behavior from consumers outside of those assumptions we made six months ago. Okay, great. Thank you. Well done. And we'll move next to Steve Powers with Deutsche Bank. Hey, thanks.

Speaker Change: And we think those things will play an especially the other assumptions we have like more merchandising in the back half.

Speaker Change: And <unk>.

Speaker Change: Competitors focused on ensuring that they're offering a great value to consumers as their wallets are stretched but it's very very consistent with what we had expected at the beginning of this year, we don't see any change.

Speaker Change: And behavior from consumer outside of those assumptions, we had six months ago.

Speaker Change: Okay, great. Thank you well done.

Speaker Change: And we'll move next to Steve powers with Deutsche Bank.

Steve Powers: Hey, Thanks, and congrats from me really to you and to the whole company on a pretty remarkable.

Steve Powers: And congratulations, really, to you and to the whole company on the three remarkable recoveries these past several months. One quick follow up and then, and then a question, the follow up just on the categories that Filippo had mentioned. You talked about still having some work to do to fully, fully, you know, fully catch up and recover. Is the expectation that as you exit fiscal twenty four that you have fully recovered there? Is there more work that you expect we should expect carries over into the back half of calendar twenty four and fiscal twenty four? Hi Steve, thank you for your for your nice comments.

Steve Powers: Recoveries these past several months.

Steve Powers: One quick follow up and then and then a question the follow up just on the categories that we both had mentioned.

Steve Powers: You talked about still some work to do.

Steve Powers: Fully fully fully catch up and recover is the <unk>.

Steve Powers: Expectation.

Steve Powers: As you exit fiscal 'twenty four but you have fully recovered there or is there more work that.

Steve Powers: Do you expect we should expect carries over into into the back half of calendar 'twenty for fiscal 'twenty five.

Speaker Change: I see thank you for your for your nice comments, we really appreciate them.

Laura Lieberman: We really appreciate them. On those categories, and I would say just in general, we intend to make as much progress as we possibly can in Q3 and Q4. Will there be some lingering effects that could be outside of our control if there's a retailer reset or a change, perhaps? But we are focused on getting as much of that back in Q3 and Q4 as we can. What I wouldn't say is, you know, I wouldn't commit to any number at this point right now, except we expect to make continued progress over the course of the next six months. I think for trash and litter, litter has been a challenge for a while given that we've caught up to supply, so that is the one that we're laser focused on and has more to do with bringing a new plant up to speed than it has to do with recovering from the cyber incident itself.

Speaker Change: On those categories and I would say just in general we intend to make as much progress as we possibly can in Q3 Q4.

Speaker Change: Will there be some lingering effects that could be outside of our control if theres, a retailer reset or a change perhaps.

Speaker Change: But we are focused on getting as much of that back in Q3 and Q4 as we can but I wouldn't say is you know.

Speaker Change: I wouldn't commit to any number at this point right now except we expect to make continued progress over the course of the next six months I think for trash in litter litter. It has been a challenge for a while given that we've caught up to supply. So that is the one that we're laser focused on and it has more to do with a.

Speaker Change: Bringing on new plant up to speed then it has to do with recovering from a cyber incident itself. So that'll be one that we'll be watching closely and try to make as much progress on.

Laura Lieberman: So that'll be one that we'll be watching closely and trying to make as much progress on. But we are going to make as much progress as possible. We expect significantly more in Q3 and Q4. Okay, very good. And the question I had, you know, if we step back from the last, you know, since August, you know, we go back to before the summer, we were talking about, you know, a lot of things, but one of those, one of the topics was sort of the ongoing digital transformation of the company, the operating model change that you guys have been working on, sort of the long-term strategic arc of business transformation. Has anything, you know, Or have you been able to keep up with the pace so that we, you know, so that the progress that was anticipated at the start of the summer is still sort of broadly on track? Thanks, Steve.

Speaker Change: But we are going to make as much progress as possible and we expect significantly more in Q3 and Q4.

Speaker Change: Okay very good.

Speaker Change: The question I had.

Speaker Change: We stepped back from the west.

Speaker Change: Since August.

Speaker Change: We'd go back to before the summer we were talking about.

Speaker Change: A lot of things, but one of those one of those topics with sort of the ongoing digital transformation of the company. The operating model changes you guys have been working on.

Speaker Change: With long term strategic arc.

Speaker Change: Business transformation has anything over this.

Speaker Change: This period since August.

Speaker Change: Back on that trajectory or have you been able to keep pace.

Speaker Change: The progress that was anticipated.

Speaker Change: At the start of the summer is still sort of broadly on track.

Laura Lieberman: And, you know, just as a preview, we'll spend a lot more time on this at Cagney and have a chance to talk about our overall transformation and, in particular, the operating model and digital transformation. So I look forward to talking to you all about that then. But right now, you know, what I can say is we are absolutely, deeply committed to the strategic priorities, including those two areas of transformation for the company. They're critically important for our success.

Speaker Change: Thanks, Steve and just as a preview we'll spend a lot more time at this at Cagny and had a chance to talk about our overall transformation and in particular, the operating model and digital transformation. So I look forward to talking to you all about that then but right now.

Speaker Change: What I can say is we are absolutely deeply committed to the strategic priorities, including those two areas of transformation for the company.

Speaker Change: They're critically important for our success there are about investing in the long term health of our business and being ready to take on the challenges of the future.

Laura Lieberman: They're about investing in the long-term health of our business and being ready to take on the challenges of the future. And so the commitment is absolutely there. What I'd say is on the operating model. We were able to proceed, even through the cyber event, in executing that. We remain on track with that plan. And as you can imagine, from a technology side, during a cyber event, we've had some delays with our ERP. We'll talk to you more about the timeline of that when we finalize it, but we're still committed to the transformation and all of the elements of that. But, of course, our team was focused on getting safe and secure and ensuring that we moved from manual to automated processes as the number one priority. And we are now returning to that digital transformation, and we'll have more of an update in the future. Okay, excellent. I'll see you in a couple weeks, and we'll move next to Javier Escalante with Evercore ISI. Hi, good evening, everyone.

Speaker Change: And so the commitment is absolutely there what I'd say is on the operating model. We were able to proceed even through the cyber event and executing that and we remain on track to that plan.

Speaker Change: And as you can imagine from a technology side during a cyber event you know we've had some delays on our ERP will talk to you more about the timeline of that when we finalize it but.

Speaker Change: But we're still committed to the transformation and all of the elements of that but of course, our team was focused on getting safe and secure and ensuring that we moved from manual to automated processes.

Speaker Change: The number one priority and we are now returning to that digital transformation and we'll have more of an update in the coming months.

Speaker Change: Okay excellent well see a couple of weeks.

Speaker Change: Thanks, Steve.

Speaker Change: And we'll move next to Javier Escalante with Evercore ISI.

Javier Escalante: Hi, good.

Good evening, everyone I have I'm going to kick that his horse here, but I do have a problem with.

Javier Escalante: I have a, I'm going to kick a dead horse here, but I do have a problem with the adding up into the second half forecast, particularly for the gross margin. So if you can help us with two items specifically, one is, forex. How big can Argentina possibly be?

Javier Escalante: Adding up into the second half forecast, particularly for the gross margin.

Javier Escalante: So if you can help us with two items specifically one is.

Javier Escalante: Forex.

Javier Escalante: Pete.

Javier Escalante: Argentina can possibly be.

Javier Escalante: If you can help us understand and dimension that impact first on sales and gross margin as to basically be flat in the second half, so that's point number one. The other has to do with the job to be done and the two categories that you are investing in, or you are still about to invest in, trash bags and pit. Um. They are very competitive.

Two if you can help us understand and dimension that impact for some sales and gross margin is to us.

Javier Escalante: As to basically.

Javier Escalante: The flat in the second half so that's point number one the other has to do with the job to be done on the two categories.

Javier Escalante: I think you are investing or you are still about 10 best restaurants I'm too.

Javier Escalante: They are very competitive you have competitors that have.

Javier Escalante: You have competitors that have a value stand. So to what extent is it not an issue of distribution but an issue of retailers changing the assortment or value, and then you need to basically buy up space, features, and things like that, that is going to create a negative offset to gross margin. Thank you.

Javier Escalante: Value.

Javier Escalante: It's Dan so to what extent.

Javier Escalante: Nishu its distribution, but an issue of.

Javier Escalante: Theaters.

Javier Escalante: Changing the assortment tour.

Javier Escalante: And then you needed to basically buy up a space features and can tell you that that's going to create a negative offset to gross margin. Thank you.

Kevin Jacobsen: Hey, Javier, let me start with a question on FX and how it's impacting sales and gross margin. You know, when we entered this year, we were anticipating about two points of FX headwinds on the top line, mostly coming out of our. The Argentine economy has declined more than we anticipated, and as you may have seen in our prepared remarks, we're now anticipating about five points of FX headwinds on the That is solely a function of revising our expectations for Argentina. We now have in our outlook and expectation that the currency will devalue by about. And that's going to be the back half loaded. If you look at the front half, we had about three points of FX headwinds, and that puts you into the mid to high single digits of FX headwinds in the back half. And again, this is a function of arginine.

Speaker Change: Hey, Javier let me start with your question on FX, and how it's impacting sales and gross margin.

Javier Escalante: When we entered this year, we were anticipating about two points of FX headwinds on the top line, mostly coming out of Argentina.

Javier Escalante: The Argentina economy has declined more than we had anticipated and as you may have seen in our prepared remarks, we're now anticipating about five points of FX headwinds on the top line that is solely a function of our revising our expectations for Argentina, we now have in our outlook and expectation that the currency will devalue about 75%.

Javier Escalante: And that's going to be back half loaded if you look at the front half we had about three points of FX headwinds and that puts you into the mid to high single digit FX headwinds in the back half and again a function of Argentina and.

Kevin Jacobsen: And then that also plays through in gross margin. We expect a greater negative hit to gross margins as it relates to the FX impact. So, if you look at last year, FX was about, you know, less than 100 basis points. This year it will be well north of that, closer to 150.

Javier Escalante: And then that also plays through on gross margins.

Javier Escalante: We expect a greater and a greater negative hit to gross margins as it relates to the FX impact. So if you look at last year FX was about less than 100 basis point hit this year will be well north of that closer to 150 basis points or so and again it'll be more pronounced in the back half of the year.

Kevin Jacobsen: And again, it'll be more pronounced in the back. It's important to note, though, and I'll let Linda address the other question, that, in spite of those negative impacts, based on the actions we have already taken and will take, primarily as it relates to pricing, we believe we can offset both the top line FX impact, as well as the FX impact on growth. And as a result, you can see we're raising our sales, http://www.clorox.org, in spite of a pretty difficult environment we're dealing with. Javier on the, www.clrx.org. It's exactly what we said it was.

Speaker Change: Important to note that maybe just to finish that up and then to address the other question was as I mentioned earlier in spite of those negative impacts based on the actions we have already taken and will take primarily as it relates to pricing. We believe we can offset both the top line FX impact as well as the FX impact to gross margin and as a result, you can.

Speaker Change: We're raising our sales expectation expect to grow margins in spite of a pretty difficult environment, we're dealing with there.

Speaker Change: Javier on the.

Javier Escalante: Piece that you mentioned on those two particular categories trash and that are that we spoke about.

Javier Escalante: It's exactly what we said it is a from a supply perspective, you know those are two businesses that are a bit more challenged we feel very confident in the health of our brands there and as I spoke about from a superiority perspective.

Laura Lieberman: From a supply perspective, you know, those are two businesses that are a bit more challenged. But we feel very confident in the health of our brands there, as I spoke about from a superiority perspective. You know, consumers define value not as the lowest price but, of course, what is the overall best offering from them, which price is an element of. We feel great about the superior value of both of those brands and what they offer.

Javier Escalante: [noise] tumors to find value not as the lowest price but of course, what is the overall best offering from them, which price is an element of all we feel great about the superior value of both of those brands what they offer we continue to see our innovation do very well in both of those categories and we highlighted both of those in Cagny awesome. The innovations we have glad with clorox.

Laura Lieberman: We continue to see our innovation do very well in both of those categories, and we highlighted both of those in Cagney. Some of the innovations we have, GLAAD with Clorox, and other launches that we have in GLAAD that are similar, and, of course, our outstretched cat litter, which has done very well and has held up, even through out-of-stocks. We continue to see people trade in for premium cat litters, Again, we have the right investment level, and we're focused on providing exactly what you said, which is the right value to consumers, and retailers see that, and we play an important role in their category growth, and I have confidence that we will retain or regain distribution, get back to the proper level of merchandising in these categories, and that we'll get our shares back to where they need to be, just in these two categories. It's a little bit extended compared to some of our other categories, but I have every confidence in these two that we'll get back, just like we did with the other one. Thank you very much.

Javier Escalante: <unk>.

Javier Escalante: And other launches that we havent glad that are similar and of course, our outstretched cat litter, which has done very well and has held up even throw out of stocks. We continue to see people trade in.

Javier Escalante: Premium cat litters shall we feel confident about our plans again, we have the right investment level.

Javier Escalante: We're focused on providing exactly what you said, which is the right value to consumers and retailers see that and we play an important role in their category growth and I have confidence that we will retain our regained distribution get back to the proper level of merchandising in these categories and that will get our shares back to where they need to be just in these two categories.

Javier Escalante: It's a little bit extended versus.

Javier Escalante: Some of our other categories, but I have every confidence in these two that will get back just like we are on the other ones.

Speaker Change: Thank you very much thank.

Callum Elliott: Thanks, Javier. And we'll hear next from Callum Elliott with Bernstein. Great, thank you for the question. I just wanted to build on Steve's question and, hopefully, not to preempt your CACNIC presentation too much, but alongside the digital transformation, you guys had other long-term initiatives before the hack that were also targeting the top line. I think it feels like quite a long time ago now that you raised the long-term top line target to 3% to 5% driven by this push into international and professional services, but I'm hoping you can update us on those strategic initiatives and where we stand now that we're hopefully starting to put the hack in the review mirror. Thank you. Thank you.

Speaker Change: Thanks Javier.

Speaker Change: And we'll hear next from Callum Elliot with Bernstein research.

Speaker Change: Okay.

Callum Elliot: Great. Thank you for the question.

Callum Elliot: Just wanted to build on Steve's question, and hopefully not to preempt your cagny presentation too much but.

Callum Elliot: Alongside the digital transformation you guys had other long term initiatives before the Hawk.

Callum Elliot: Targeting the top line.

Speaker Change: I think it feels like one of them quite a long time ago now, but you raised the long time.

Speaker Change: Long term topline targets of 3% to 5% driven by this push into international and professional.

Speaker Change: But hoping you can update or update us on those strategic initiatives and where we stand right now that we're hopefully starting to put back in the rearview mirror.

Laura Lieberman: And we certainly want to get back to where we ended fiscal year 23. You know, we were very proud of the performance and what we had done and, of course, remain deeply committed to what we talked about, which is expanding top line over the long term by three to five percent and expanding even margins by 25 to 50 basis points. And we want to get back to that, exactly as you said. And our transformation is a critical component of that, ensuring that we have the right capabilities and processes and that people at Clorox are more consumer obsessed, and we're working faster and in a leaner fashion to get there. And we'll talk about that later.

Speaker Change: Thank you and we certainly want to get back to where we ended fiscal year 'twenty three and we were very proud of the performance and what we had done and of course remain deeply committed to what we talked about which is expanding top line over the long term three to five per cent and expanding EBIT margins 25 to 50 basis points and we want to get back to that.

Exactly as you said and our transformation is a critical component of that.

Speaker Change: And ensuring that we have the right capabilities and processes and that people at parks or more consumer obsessed and were working faster in a leaner fashion to get there and we'll talk about that and as we spoke about actually at Cagny I think it's two years ago. Now you know what we expected from a growth perspective continues to remain we continue to see opportunities in international.

Laura Lieberman: And as we spoke about actually at Cagney, I think it's two years ago now, you know, what we expected from a growth perspective continues to remain. We continue to see opportunities in international. We continue to expect to see growth in our professional business as that more normalizes, but we spoke about all the other things that we had seen trend wise. We saw more cat adaptations. And so, you know, the natural category cow wants for litter.

Speaker Change: We continue to expect to see returning to growth in our professional business is that more normalizes, but we spoke about all the other things that we had seen trend wise, we saw more cat adoptions and so natural category Cowens for litter. We saw people have an increased interest in disinfecting, which still remains.

Laura Lieberman: We saw people have an increased interest in disinfecting, which still remains, and we still see that as we look at the data today. People generally are taking care of their health and wellness more, so things like Brita have natural tailwinds and water consumption. Our vitamins, minerals, and supplements business, the same thing, continues to have natural tailwinds. So we'll speak about all of that at Cagney, but we remain committed to that 3 to 5% top line over the long term and to do that in a more profitable and consistent way. And we have all the right levers and are pulling all of the right transformation buckets in order to do that. And I feel we're on the right path to get back to where we were coming out of fiscal year. Thanks, Linda. We'll move next to Lauren Lieberman with Barclays Capital.

Speaker Change: And we still see that we're seeing as we look at the data today people still have a heightened need to have their spaces cleaned and disinfected people generally are taking care of their health and wellness more so things like bread I have natural tailwind.

Speaker Change: And their water consumption, our vitamins minerals and supplements business. The same thing continues to have natural tailwind. So we'll speak about all of that at Cagny, but we remain committed to that 3% to 5% top line over the long term and to do that in a more profitable and consistent way.

Speaker Change: And we have all the right levers and pulling all of the right transformation buckets in order to do that and I feel we're on the right path to get back to where we were coming out of fiscal year 'twenty three.

Speaker Change: Thanks Linda.

Linda Rundell: Thank you.

Linda Rundell: And we'll move next to Lauren Lieberman with Barclays capital.

Lauren R. Lieberman: So I was just looking back, and I remember that last quarter when you were talking about the outlook and the recovery plan and expectations, you said you expected customer inventory levels to be rebuilt by the end of fiscal 2Q. But tying to that was a conversation of mid single-digit sales growth, right? So now, retail inventories are, in fact, rebuilt. It's amazing, to say the least. But it was with, you know, sales growth that was way higher than mid single digits. So can you just tie those two things together for me? Because I think just the visibility and the forecasting, I think, is an open question. And if you go back even pre-cyber, the pattern of exceeding your own outlook was incredible, but you do have to also ask the question of, like, what happens if it goes the other way, if this is a question of visibility? Hi Lauren.

Lauren R. Lieberman: Great. Thanks, everybody.

Lauren R. Lieberman: So I was just looking back and I remember that last quarter. When you were talking about the outlook on the recovery plan and an expectation that you said you expected customer inventory levels to be rebuilt by the end of fiscal two Q.

Lauren R. Lieberman: But tying to that with the conversation of mid single digit sales growth right. So now retail inventories are in fact rebuilt it's amazing because at least.

Lauren R. Lieberman: But it was with sales.

Lauren R. Lieberman: Sales growth that was way higher than mid single digit. So can you just tie those two things together for me because I think the.

Lauren R. Lieberman: Just the visibility in the forecasting I think is.

Lauren R. Lieberman: An open question and if you go back even pre cyber.

Lauren R. Lieberman: The pattern of exceeding your own outlook was incredible.

Lauren R. Lieberman: You do have to also ask a question of like what happens if it goes the other way. If this is a question of visibility.

Speaker Change: Hi, Lauren.

Laura Lieberman: Let me try to paint a picture of what happened in Q2. So we're all on exactly the same page. You are right to say that we expected to build the vast majority of inventories by the end. But what happened is we did that faster. So what you get is less of a consumption loss impact in the quarter. So instead of doing that, call it the last two weeks of December, we did that earlier and earlier by categories. So you have less out of stocks, which significantly increased our top line. And that's really the difference that you see in the quarter.

Lauren R. Lieberman: Let me try to paint a picture for what happened in Q2. So we're all on exactly the same page.

Speaker Change: You are right to say that we expected to build the vast majority of inventories by the end of Q2.

Speaker Change: What happened is we did that faster. So what you get is less of a consumption loss impact in the quarter. So instead of doing that call. It. The last two weeks of December we did that earlier and earlier by categories. So you have less out of stocks, which significantly increased our top line and that's really the difference that you see in the quarter and of course that has positive impact.

Laura Lieberman: And of course, that has positive impacts in terms of the merchandising we can do and all of the fundamentals from a retailer perspective that we want to return to and gave us great confidence in the back half. You know, not only did we take our outlook up because we over delivered in Q2, but we see a stronger back half as a result of that. So that's really the difference: we have less loss consumption because inventories returned faster in the quarter than we had expected. Okay, okay, that's fantastic.

Speaker Change: In terms of the merchandising, we can do and all of the fundamentals from a retailer perspective that we want to return to and gave US great confidence in the back half you know not all.

Speaker Change: Do we take our outlook up because we over delivered in Q2, but we see a stronger back half as a result of that so that's really the difference is we had less lost consumption because inventories returned faster in the quarter than we had expected.

Speaker Change: Okay. Okay. That's fantastic and then just also on berths I feel like when we all saw you in December at the time, you were talking about the challenge of births in restoring.

Lauren R. Lieberman: And then, also on Burt's, I feel like when you and I all saw you in December, at the time, you were talking about the challenge of Burt's and restoring that business just because the natural complexity of the SKUs and the lineup in that business and that holiday merchandising might actually be, that might be a spot where you'd, you know, fall short. When I look at the trends in lifestyle, right, clearly Burt's had a great quarter. So there too, kind of, I'm a little confused on that one because it felt like that was a business that was going to be tough to be able to, you know, get that merchandising in and the holiday is pretty, you know, it's an important seasonal time for that brand, from my understanding.

Speaker Change: That business, just because of the natural complexity of the Skus in the lineup in that business and that holiday merchandising might actually be.

Speaker Change: Just thought we'd fall short when I look at the trends in lifestyle right clearly births had a great quarter, so there to kind of.

Speaker Change: Same story or I'm, just I'm, a little confused on that one because it felt like that was a business that was going to be tough to do.

Speaker Change: Be able to get that merchandising and in holiday is a pretty.

Speaker Change: Important seasonal time for that brand is my understanding.

Laura Lieberman: Yeah, Lauren, if you remember correctly from December, we highlighted one of the places that we were focused on, actually two places. We talked about cold and flu, if you recall, and our push to get as much of that distribution restored to ensure that we could protect against cold and flu, which we feel we did. And then second, exactly right is Burt's Bees and the importance of the holiday period. We were able to do most of that, I would say for the holiday, but we didn't get all of it out. But we got the vast majority of the holiday out, which was good. And that certainly did support a stronger performance on Burt's than we had anticipated. But that was a big challenge.

Speaker Change: Yeah, Lauren you remember correctly from December we highlighted one of the places that we were focused on actually two places we talked about cold and flu if you recall.

Speaker Change: And our push to get as much of that distribution restored to ensure that we can protect cold and flu, which we feel we did and then second exactly right is burts bees and the importance of the holiday period, we were able to do most of that I would say for holiday, we didnt get all of it out but we got the vast majority of holiday out which was good.

Speaker Change: And that certainly did support a stronger performance on births than we had anticipated.

Speaker Change: But that was that was a big challenge, but I would say you know Unfortunately, we didn't get it all out.

Lauren R. Lieberman: But I would say, unfortunately, we didn't get it all out. And that certainly, you know, has an impact. But the good news was more positive than we even expected back in December for it. Okay, okay, perfect. And then the final thing, sorry, in this vein, but I'm just trying to put the pieces back together, if you will.

Speaker Change: And that certainly has an impact but the good news it was more positive than we even expected back in December for it for it to be.

Speaker Change: Okay, Perfect and then the final thing sorry in this vein, but I'm just trying to put the pieces back together if you will.

Lauren R. Lieberman: On logistics, that was one area, Kevin, where you also talked last quarter about that logistics costs would be elevated this quarter. Because, as you mentioned, Linda, you're shipping well above normal every day, right, and you're going to end up using a lot more, you know, carriers and freight and so on beyond what you'd normally be contracted for, and that there'll be elevated costs. With that, again, like, I know there's many pieces to that gross margin bill, but logistics is one that really jumped out for us as being pretty different. So, I'm just not sure that's another area of question about kind of what played out differently there.

Speaker Change: On logistics that was one area, Kevin where you would talked also last quarter about that logistics costs would be elevated this quarter because as you mentioned Linda at your shipping well above normal everyday right and that youre going to end up using a lot more.

Speaker Change: Carriers and freight and so on beyond what you'd normally be contracted for and that there'd be elevated cost with that.

Speaker Change: Again like I know, there's many pieces of that gross margin bill, but logistics is one that really jumped out for us.

Speaker Change: As being pretty different so.

Speaker Change: And just not that's another area of question of kind of what played out differently. There was it retailer fines I think you mentioned on the prepared remarks, but that seemed like a pretty significant difference versus something that should have carried elevated costs within the quarter itself.

Kevin Jacobsen: Was it retailer fines? I think you mentioned that in the prepared remarks, but that seemed like a pretty significant difference versus something that should have carried elevated costs within the quarter itself. Yeah, Lord, you remember exactly correct when you think about the gross margin for the second quarter came in higher than we expected both because of a combination of a stronger top line, but exactly what you just highlighted. We did not incur any up charges.

Speaker Change: Yeah, Laura you remembered exactly correct when you think about the.

Speaker Change: Gross margin for the second quarter came in higher than we expected both a combination of stronger topline, but exactly what you just highlighted we did not incur the upcharge as we anticipated.

Kevin Jacobsen: We anticipated. If you remember, we were talking last quarter. We said our priority job one is to get product back on the shelf as quick as we can. And we were fully prepared to incur additional logistics and manufacturing upcharges to get that done. And that took the form of, you know, running the plants more over time, less than full truckloads, out of route shipments. We said that was all available.

Speaker Change: You remember we were talking last quarter, we said our priority job one is to get product back on shelf as quick as we can and we were fully prepared to incur additional logistics manufacturing upcharge to get that done and that would take the form of running the plants more over time.

Speaker Change: At less than full truckloads out of route shipments. We said that was all available and we expect to do some of that to get product there quickly.

Kevin Jacobsen: And we expect to do some of that to get product there quickly. A credit to our team, and as Linda mentioned, a credit to our retail partners here. As we move more quickly, getting product to retailers, we do that in a very efficient manner. We do not have to incur the upcharges.

Speaker Change: Credit to our team and as Linda mentioned in a credit to our retail partners here as we move more quickly getting back to retailers. We did that in a very efficient manner. We did not have to incur the up charges. We were mostly using our carriers were mostly being able to do that in full trucks and.

Kevin Jacobsen: We were mostly using our carriers. We were mostly able to do that in full trucks. And because we got that done even faster than we expected, it didn't bleed into the full quarter. And so it's really about us executing more effectively than we anticipated going into the quarter. But we went in expecting we would have to spend more and be prepared to do that. As we were prioritizing getting product on the shelf, it just resulted in the fact that... Yeah, I just want to make another comment on our operating model, Lauren, and there were some good questions about our transformation. And are we continuing it? And I think one of the things I'm really proud of is one that we learned a lot about in COVID that we applied to this situation. Unfortunately, we were hoping we'd never have to use it again, but we were ready to go.

Speaker Change: And because we got that done even faster than we expected it didnt bleed onto the full quarter and so it's really about us executing more effectively than we anticipated going into the quarter, but we went in expecting we would have to spend more and we prepared to do that as we are prioritizing getting product on shelf. It just resulted in the fact that we didn't have to.

Speaker Change: I'll, just maybe make another comment on our operating model, our Lauren and there were some good questions on our transformation and are we continuing it and I think one of the things I'm really proud of is one we learned a lot in COVID-19 that we applied to the situation.

Speaker Change: Unfortunately, we were hoping we'd never have to play it again, but we were ready to go and the second thing is this is an output of our operating model getting laser focused on what matters, putting a business leader in charge, who sees end to end, who was able to make the calls and tradeoffs and she and her team were able to do just that.

Laura Lieberman: The second thing is this is an output of our operating model, getting laser focused on what matters, putting a business leader in charge who sees end to end, who was able to make the calls and trade offs. And she and her team were able to do just that, be able to restore inventories and do all those things Kevin spoke about, not requiring a lot of overtime. Our decision to take our inventories up in Q1 was an important one, and we knew that we would work those down. But we made that choice early to ensure that we could do as much as we could in Q2. But I would just plug our operating model.

Speaker Change: Are you able to restore inventories and do all those things Kevin spoke about.

Speaker Change: Not requiring a lot of overtime.

Speaker Change: Our decision to take.

Speaker Change: Our inventories up in Q1 was an important one and we knew that we would work those down but we made that choice early to ensure that we could do as much as we could in Q2, but I would just plug our operating model. That's a real output of what we've been driving in that change to be bought more business unit focus more more focused on the consumer and customer and fast.

Laura Lieberman: That's a real output of what we've been driving and that change to be more business unit focused, more focused on the consumer and customer, and fast. Okay. All right. Great. Thanks. I really appreciate it.

Speaker Change: <unk>.

Speaker Change: Okay, Alright, great. Thanks, I really appreciate it.

Lauren R. Lieberman: Thanks, Lauren. And our next question comes from Olivia Tong with Raymond J.

Speaker Change: Thanks Lauren.

Speaker Change: And our next question comes from Olivia Tong with Raymond James.

Olivia Tong: Great. Thanks.

Olivia Tong: And great work on the improvement. In terms of a macro backdrop, you talked about how for the second half, you're now no longer expecting the recession that you had before, but could you just talk about what your expectations are? Is it for the current environment to stay the way the second half will be similar to what we saw in the first half, or that there is still a step down, just not as much as you had before? Hey, Olivia, on the macroeconomic and consumer front, That's exactly right. We are no longer expecting a mild recession.

Olivia Tong: Great work on the on the improvement.

And in terms of the macro backdrop, you talked about how for second half Youre now no longer expecting.

Olivia Tong: The recession that you had before but could you just talk about what your expectations are for the current environment to stay that way.

Olivia Tong: The second half to be similar to what we saw in the first half or that there is still a stepped down just not as.

Olivia Tong: Not as much as you had before.

Olivia Tong: Yeah.

Speaker Change: Hey, Olivia.

Speaker Change: On the macroeconomic and consumer front that's.

Olivia Tong: That's exactly right, we are no longer expecting a mild recession and of course, when we released our outlook six months ago. We said, that's an assumption and if it changes then we'll adjust but really what we meant by mild recession and the impact it would have for US is a more stretched consumer and we continue to see an environment that leads us to believe that consumers will be more stress.

Laura Lieberman: And, of course, when we released our outlook six months ago, we said that it was an assumption. And if it changes, then we'll adjust. But really, what we meant by a mild recession and the impact it would have for us is a more stretched consumer. And we continue to see an environment that leads us to believe that consumers will be more stressed. And if you start to look at categories around us, that certainly has been playing out. We feel the impact will be moderate on our categories, given the fact that we play in household essentials. But we are seeing consumers, you know, more use credit. We're seeing them shift their behaviors and showing things that they value and things that they don't value. Discretionary goods have been down for a while, and we see the cumulative impacts of that, you know, as they've gotten down to a place now where their savings are down to pre-pandemic levels. They no longer have that extra disposable cash, even though employment remains high.

Olivia Tong: Yes, and if you start to look at categories around us that certainly has been playing out we feel the impacts will be moderate to our categories. Given the fact that we play in household essentials, but we are seeing consumers you know more use of credit we're seeing them shift their behaviors and showing things that they value and don't.

Olivia Tong: Discretionary goods have been down for a while and we see the cumulative impacts of that as they've gotten down to a place now where they are there savings are down to pre pandemic levels. They no longer have that extra disposable cash even though employment remains high we think that all adds up to a more pressured consumer.

Laura Lieberman: We think that all adds up to a more pressured consumer. And we think the impact of that will be a moderate impact on our categories, as consumers, you know, are more conscious about how they spend their dollars. That's really the assumption.

And we think the impact of that will be a moderate impact on our categories as consumers are more conscious about how they spend their dollars that's really the assumption.

Laura Lieberman: Again, the consumer has been resilient to date. We've continued to see that. But we are seeing them in our categories, and as I mentioned earlier, they're trading up to larger sizes, they're using opening price points. They're stretching their dollar, and they might be trading into an item they feel like is more multipurpose.

Olivia Tong: Again, the consumer has been resilient to date, we've continued to see that but we are seeing them in our categories.

Olivia Tong: They are value seeking.

Olivia Tong: As I mentioned earlier, they are trading up to larger sizes, they're using opening price points.

Olivia Tong: They are stretching their dollar they might be trading into an item. They feel like it's more multi purpose and at the same time, we're seeing them given the superior value of our products. They are trading at a premium because they are not willing to trade off efficacy. They are not willing to trade off convenience. So we're seeing all of those things play out.

Laura Lieberman: And at the same time, we're seeing them given the superior value of our products, they're trading into premium because they are not willing to trade off efficacy, they are not willing to trade off convenience. So we're seeing all of those things play out. But we just think the consumer will continue to be under more pressure, not in the form of, we believe, a mild recession anymore, but just all of the other macroeconomic factors that are out. Got it. That's very helpful.

Olivia Tong: But we just think the consumer will continue to be under more pressure not in the form of we believe a mild recession anymore, but just all of the other macroeconomic factors that are out there.

Speaker Change: Got it that's very helpful.

Olivia Tong: And then, relative to your expectations going into the year, obviously putting aside the cyber attacks, do you think you'll end the year in line with your original targets on promotion and merchandising levels? Because I'm trying to understand, you know, obviously, there's a lot of puts and takes on where your expectations stand now versus in August before the cyber attack happened. But, you know, you had said in the past that perhaps we'd have to do a little bit more promotion, a little bit more merchandising, just to make sure that, you know, given what's happened. Just wondering, you know, today, what you're thinking in terms of the level of promotion merchandising relative to where you started. Yeah, that assumption. Certainly, we saw a dip in Q2, given the out of stock situation, and we had to prioritize ensuring that we got supply up before we could merchandise.

Speaker Change: And then relative to your expectations going into the year, obviously, putting aside the cyber attack.

Speaker Change: You'll end the year in line with you are starting to your targets on promotion and merchandising levels, because I'm trying to understand obviously, there's a lot of puts and takes.

Speaker Change: Oh boy.

Speaker Change: Your expectation stand now versus in August before the cyber attack happened, but you had said in the past that perhaps we would have to do a little bit more promotion a little bit more merchandising just to.

Speaker Change: To make sure that.

Speaker Change: You know given what's happened.

Speaker Change: Just wondering.

Speaker Change: What youre thinking in terms of the level of promotion merchandising relative to where you started the year.

Speaker Change: Yeah.

Speaker Change: Yeah and that assumption certainly we saw a dip in Q2, given the out of stock situation and we had to prioritize ensuring that we got supply up before we could merchandize, but now that we're returning distribution and market shares we would expect promotion to pick up and we expect for the back half the same assumption that we had the beginning of the year, which is.

Laura Lieberman: But now that we're returning distribution and market shares, we would expect promotion to pick up, and we expect for the back half, the same assumption that we had at the beginning of the year, which is higher than it had been. And returning closer to pre-pandemic levels, we don't think that merchandising will exceed pre-pandemic levels but will begin to return to that level. As people are focused on a more stressed consumer and continuing to offer the right value, and, of course, doing things like releasing innovation, ensuring we introduce consumers to new items and great innovation. So that's what our expectation continues to be. We'll see retail sales increase more than what it was last year, getting closer to pre-pandemic levels. And we expect that to happen over the course of Q3 and Q4. Thank you so much. Olivia

Speaker Change: Higher than it had been.

Speaker Change: And returning closer to pre pandemic levels, we don't think that merchandising will exceed pre pandemic levels, but begin to return to that level.

Speaker Change: As people are focused on a more stressed consumer and continuing to offer the right value and of course doing things like releasing innovation, ensuring we introduce consumers to new.

Speaker Change: Items and and Great innovation. So that's what our expectation continues to be well see merchandising increase than what it was last year are getting closer to pre pandemic levels and we expect that to happen over the course of Q3 and Q4.

Speaker Change: Got it thank you so much.

Operator: This concludes the question and answer session. Ms. Rendell, I'd now like to turn the program back to you. Thank you, everyone. As we covered today, we made strong progress in our priorities in the second quarter. While there's still more work to do to fully recover in the market from the cyber incident, we're focused on executing with excellence and delivering on our strategies to drive top line growth and rebuild margins, guided by our IGNITE strategy, we're confident we have the right plans in place to deliver long term shareholder value, And as I mentioned earlier in the call, we look forward to sharing more with you in our upcoming presentation at the CAGNY conference in February.

Speaker Change: Thanks Olivia.

Speaker Change: This concludes the question and answer session Ms rental I'd now like to turn the program back to you.

Speaker Change: Thank you everyone as we covered today, we made strong progress on our priorities in the second quarter, while there's still more work to do to fully recover on the market from the cyber incident, we're focused on executing with excellence and delivering on our strategies to drive topline growth and rebuild margin guy.

Speaker Change: Got it by a nice strategy, we're confident we have the right plans in place to deliver long term shareholder value creation and as I mentioned earlier on the call. We look forward to sharing more with you on our upcoming presentation at the Cagny Conference in February until then please stay well everyone.

Laura Lieberman: Until then, please stay well, everyone. This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye....at the Cagney conference in February. Until then, please stay well, everyone.

Speaker Change: This concludes today's conference call. Thank you for attending.

Speaker Change: Yeah.

Speaker Change: The host has ended this call goodbye shouldn't at the Cagny Conference in February until then please stay well everyone.