Q2 2024 Procter & Gamble Co Earnings Call

Good morning, and welcome to Procter <unk> Gamble's quarter end conference call. Today's event is being recorded for replay.

This discussion will include a number of forward looking statements.

If you will refer to P&g's. Most recent 10-K 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.

As required by regulation G. Procter <unk> gamble needs to make you aware that during the discussion the company will make a number of references to non-GAAP and other financial measures.

<unk> Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website Www Dot P. G investor Dot Com, a full reconciliation of non-GAAP financial measures.

Speaker Change: Now I will turn the call over to PNG as Chief Financial Officer Andre Scholten.

Andre Scholten: Good morning, everyone. Joining me on the call today are Jon Moeller Chairman of the Board, President and Chief Executive Officer, and John Chevalier Senior Vice President Investor Relations.

I'll start with an overview of results for the October to December quarter, John will add perspective on our recent results and strategic strategic focus areas and capabilities, we're close with guidance for fiscal 'twenty four and then take your questions.

Andre Scholten: October to December was another strong quarter execution of our integrated strategy drove solid sales and market share results in another quarter of strong margin progress delivering strong earnings and cash results for the quarter.

Andre Scholten: The strong results we've delivered in the first half of fiscal 'twenty four enable us to raise our outlook for core earnings per share and keep us on track to deliver within our fiscal year guidance ranges for organic sales growth cash productivity and cash returned to shareowners.

Andre Scholten: We continue to see the upper range on organic sales and core EPS as likely outcome for fiscal 'twenty three 'twenty four.

Andre Scholten: So moving to the second quarter numbers organic sales grew 4%.

Andre Scholten: Volume Rolling down to a decline of one point is continued volume acceleration in North America, and Europe focused markets was offset by softer shipments in greater China, Eastern Europe, and Middle East Africa regions due to local issues in select markets.

Andre Scholten: Pricing contributed four points to sales growth consistent with the guidance we provided.

Andre Scholten: Mix was neutral to organic sales growth.

Andre Scholten: Growth across categories continues to be broad based with eight of 10 product categories, holding or growing organic sales this quarter.

Andre Scholten: Home care hair care, and grooming GUL sales high single digits fabric care family care feminine care and oral care were up mid single digits.

Andre Scholten: <unk> was in line with prior year.

Andre Scholten: Health care was down low singles against a very tough comp and a late developing cold and flu season. This year skin and personal care was down mid singles due to S. K two in China.

Growth was also broad based across geographies with North America, Europe, Asia Pacific focus markets, and Latin America, and Europe enterprise markets, each growing organic sales.

Andre Scholten: <unk> focus markets grew 3% for the quarter and enterprise markets grew 7%.

Good morning, and welcome to Procter & Gamble's quarterly conference call. This event is being recorded for replay.

Andre Scholten: Organic sales in North America grew 5% with four points of volume growth over the last five quarters volume growth in North America has been minus three flat than 2% growth plus 3% at now plus 4% strong acceleration well ahead of the underlying market trends.

This discussion will include a number of forward-looking statements. If you refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. P&G believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website, www.pginvestor.com, a full reconciliation of non-GAAP financial measures. Now, I will turn the call over to P&G's Chief Financial Officer, Andre Schulte. Good morning, everyone.

Andre Scholten: Europe focus markets were up 7% with three points of volume growth as expected both regions saw a step down in pricing contribution to sales growth as a large portion of price increases from last year have annualized.

Andre Scholten: Fortunately volume accelerated in both regions to partially offset the pricing impact.

Andre Scholten: Latin America delivered another very strong quarter with 17% organic sales growth.

Andre Scholten: Continued strong results in these regions.

Andre Scholten: There are some targeted issues affecting other markets.

Andre Scholten: Greater China organic sales were down minus 15% versus prior year.

Andre Scholten: Underlying market growth was down mid to high single digits as consumer confidence weakened further the S. K two brand in greater China was down 34% due to soft market conditions and a temporary headwind for Japanese brands in the market. Our consumer research indicates S. K two brand sentiment is improving and we expect.

Andre Schulte: Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer, and Jon Chevalier, Senior Vice President, Investor Relations. I'll start with an overview of results for the October to December quarter. Jon will add perspective on our recent results and strategic focus areas and capabilities. We'll close with guidance for Fiscal 24 and then take your questions.

To see sequential improvement in the back half.

Andre Scholten: Underlying market trends have softened in some Europe enterprise and Asia Pacific Middle East Africa countries, such as Egypt, Saudi Arabia, and Turkey, following multiple multiple rounds of pricing to offset inflation and due to heightened tensions in the middle East.

Andre Schulte: October to December was another strong quarter. Execution of our integrated strategy drove solid sales and market share results and another quarter of strong margin progress delivering strong earnings and cash results for the quarter. The strong results we've delivered in the first half of Fiscal 24 enable us to raise our outlook for core earnings per share and keep us on track to deliver within our fiscal year guidance ranges for organic sales growth, cash productivity, and cash return to share owners. We continue to see the upper range on organic sales and core EPS as the likely outcome for fiscal 23-24. Moving to second quarter numbers, organic sales grew 4%, but volume rounded down to a decline of one point as continued volume acceleration in North America and Europe focus markets was offset by softer shipments in Greater China, Eastern Europe, and Middle East Africa regions due to local issues in select markets. Pricing contributed four points to sales growth, consistent with the guidance we provided, while mix was neutral to organic sales growth. Growth across categories continues to be broad-based, with 8 of 10 product categories holding or growing organic sales this quarter. Home Care, Hair Care, and Grooming saw sales in the high single digits.

Andre Scholten: Global aggregate value share was up 40 basis points versus prior year with 28 of our top 50 category country combinations holding or growing share.

Andre Scholten: In the U S. All outlet value share was up 20 basis points versus prior year U S volume share was up 50 basis points, reflecting strong volume growth.

Andre Scholten: Value share in European focused markets was up 90 basis points over the past three months.

Andre Scholten: In summary, North America, Europe focused markets Asia Pacific focus markets, and Latin America, which combined represent three quarters of company sales delivered over 6% organic sales growth in quarter, two with three points of volume growth and three points of price mix.

Andre Scholten: These same market grew 9% in quarter, one with around two points of volume growth and seven points of price mix continued strong organic sales growth with accelerating volume growth to mitigate the anticipated and utilization of pricing consistent with our guidance.

Andre Scholten: The balance 25% of company sales, including greater China, Eastern Europe, and Middle East Africa, where impacted by local market issues. We described quarter two organic sales for this group were down five points versus prior year. We expect most of these effects in these regions to be temporary or Annualizing SK II.

Andre Schulte: Fabric care, family care, feminine care, and oral care were up mid-single digits. Baby care was in line with the prior year. Personal health care was down low singles against a very tough competition and a late developing cold and flu season this year.

Andre Schulte: Skin and personal care was down in mid-singles due to SK2 in China. However, growth was also broad-based across geographies, with North America, Europe, Asia-Pacific focus markets, and Latin America and Europe enterprise markets each growing organic sales. Focus Markets grew 3% for the quarter, and Enterprise Markets grew 7%. Organic sales in North America grew 5% with 4 points of volume growth. Over the last five quarters, volume growth in North America has been minus 3%, flat, then 2% growth, plus 3%, and now plus 4%, strong acceleration well ahead of the underlying market. Europe-focused markets were up 7%, with three points of volume growth.

Andre Scholten: Consumption of sequentially, improving we continue to expect China market growth to improve in over time return to mid singles and we expect market pressures in the middle East and Turkey to ease over time.

Andre Scholten: Moving to the bottom line core earnings per share were $8 84 up 16% versus prior year on a currency neutral basis core EPS increased 18%.

Andre Scholten: Core operating margin increased 400 basis points or 520 basis points of gross margin expansion were partially offset by increased marketing investments wage and benefit inflation and foreign exchange impacts and SG&A currency neutral core operating margin increased 470 basis points productivity improve.

Andre Schulte: As expected, both regions saw a step down in pricing contribution to sales growth as a large portion of price increases from last year have annualized. Importantly, volume accelerated in both regions to partially offset the price increase. Latin America delivered another very strong quarter with 17% organic sales growth, continuing strong results in these regions. There are some targeted issues affecting other markets. Greater China organic sales were down minus 15% versus prior year.

Andre Scholten: Months were very strong 340 basis points help to the quarter.

Adjusted free cash flow productivity was 95%, we returned $3 $3 billion of cash to share owners, approximately $2 3 billion in dividends and $1 billion in share repurchase in summary against where continues to be a challenging and volatile operating environment.

Andre Scholten: <unk> overall progress in.

Speaker Change: In the first half of the year, keeping us on track for our fiscal year guidance ranges now I'll pass it over to John for his perspective. Thanks.

Andre Schulte: Underlying market growth was down mid to high single digits as consumer confidence weakened further. The SK-II brand in Greater China was down 34% due to soft market conditions and a temporary headwind for Japanese brands in the market. Our consumer research indicates SK-II brand sentiment is improving, and we expect to see sequential improvement in the back half. However,underlying market trends have softened in some Europe-Enterprise and Asia-Pacific and Middle East-Africa countries, such as Egypt, Saudi Arabia, and Turkey, following multiple rounds of pricing to offset inflation and due to heightened tensions in the Middle East. Global aggregate value share was up 40 basis points versus prior year, with 28 of our top 50 category country combinations holding or growing share. In the U.S., all outlet value share was up 20 basis points versus prior year. U.S. volume share was up 50 basis points, reflecting strong volume growth.

John Chevalier: Thanks, Andre and good morning, everyone.

John Chevalier: I'll start by underscoring a few points Andre made in his discussion of the topline trends.

John Chevalier: Overall continued strong top line progress 20, <unk> consecutive quarter of 4% or better organic sales growth.

John Chevalier: Volume acceleration in key markets increases in aggregate market shares.

John Chevalier: Despite several notable headwinds.

John Chevalier: Which should be temporary.

John Chevalier: Tensions in the Middle East will hopefully ease.

John Chevalier: Enterprise market volume impacts following price increases are usually temporary.

John Chevalier: While we cant talk specifics on future pricing in any market more stable foreign exchange and commodity costs will ideally reduce the need for additional large price increases.

John Chevalier: I spent six days in China, what's the team two weeks ago.

John Chevalier: I met with consumers in their homes with retail Ceos with our team and with several government officials.

Andre Schulte: Value share in European focus markets was up 90 basis points over the past three months. In summary, North America, Europe-focused markets, Asia-Pacific-focused markets, and Latin America, which combined represent three quarters of company sales, delivered over 6% of organic sales growth in quarter two, with three points of volume growth and three points of price mix. These same markets grew 9% in Q1, with around 2 points of volume growth and 7 points of price mix. Continued strong organic sales growth, with accelerating volume growth to mitigate the anticipated annualization of pricing, consistent with our guidance. The balanced 25% of company sales, including Greater China, Eastern Europe, and Middle East Africa, were impacted by the local market issues we described. Quarter 2 organic sales for this group were down 5 points versus the prior year.

John Chevalier: In my view, the long term China opportunity remains intact.

John Chevalier: The near term is likely to present some challenges.

John Chevalier: We'll see what happens with the global cough cold season, as a soft start to the season, either reverses or eventually annualize.

John Chevalier: No guarantee of immediate bounce back on any of these but reason to believe they will improve over time.

John Chevalier: In addition to continued aggregate topline progress a very strong bottom line mid.

John Chevalier: Mid teens core earnings per share growth two quarters in a row.

John Chevalier: While increasing investments in innovation brand building and market growth.

John Chevalier: Our team continues to execute our strategy with excellence, enabling strong results over each of the past five years pre covered during COVID-19 and through a historic inflationary and pricing cycle.

John Chevalier: I want to thank them, both for what they delivered and for what they are working to continue to accomplish.

Andre Schulte: We expect most of these effects in these regions to be temporary or annualizing as K2 consumption is sequentially improving. We continue to expect Chinese market growth to improve and, over time, return to mid-singles, and we expect market pressures in the Middle East and Turkey to ease over time. Moving to the bottom line, core earnings per share were $1.84, up 16% versus the prior year.

John Chevalier: Our integrated strategy is unchanged.

John Chevalier: Focused portfolio of products and daily use categories, where performance drives brand choice.

John Chevalier: The portfolio is performing delivering broad based growth across nearly all categories in most geographies for several years.

John Chevalier: The announcements we made in December to change our go to market approach in Argentina, and Nigeria will further sharpen our focus and strengthen our value creation potential.

Andre Schulte: On a currency-neutral basis, core EPS increased 18%. Co-operating margin increased 400 basis points as 520 basis points of gold's margin expansion were partially offset by increased marketing investments, wage and benefit inflation, and foreign exchange impacts in SG&A. Currency-neutral co-operating margin increased 470 basis points. Productivity improvements were a very strong 340 basis points held to the quarter. Adjusted fee cash flow productivity was 9

A good example of the dynamic nature of our strategy and our desire to aggressively allocate resources to where they create the most shareowner value.

John Chevalier: Next strategy element ongoing commitment to and investment in irresistible superiority.

John Chevalier: Through innovation across the five vectors of product package brand communication retail execution and value Holistically defined.

John Chevalier: Leveraging that superiority to grow markets and our share in that to jointly create value with retail partners. The.

John Chevalier: The plans across the businesses are broader and stronger than anytime in the recent past as each team works to increase their margin of superiority and consumer delight.

Andre Schulte: We returned $3.3 billion of cash to share owners, approximately $2.3 billion in dividends, and $1 billion in share repurchase. In summary, against what continues to be a challenging and volatile operating environment, strong overall progress in the first half of the year, keeping us on track for our fiscal year guidance ranges. Now I'll pass it over to Jon for his presentation. Thanks, Andre. And good morning, everyone.

Superior innovations that are driven by deep consumer insights.

John Chevalier: Care to consumers with more effective and efficient marketing programs.

John Chevalier: Executed in stores and online in conjunction with retailer strategies to grow categories and our brands.

John Chevalier: Price to deliver superior value across each price tier where we compete.

John Chevalier: Smooth Terra sharman ultra soft with scalloped edge preparations are great example of consumer insights driving innovation to improve the end user experience.

Jon: I'll start by underscoring a few points Andre made in his discussion of the top line trend. Overall, continued strong top-line progress. Twenty-second consecutive quarter of 4% or better organic sales growth, volume acceleration, and key markers, increases aggregate market share. This, despite several notable headwinds, which should be temporary. Tensions in the Middle East will hopefully ease.

John Chevalier: Consumer response to the new product has been overwhelmingly positive and is driving word of mouth recommendations on social media.

So thats superior propositions like the Gillette labs razor was in exfoliating bar that removes dirt and debris before the blades continue to drive growth in our global grooming category.

John Chevalier: Labs has reached shares greater than 20% in markets like Spain, and France and is building momentum in the U S and China.

Jon: Enterprise market volume impacts following price increases are usually temporary. While we can't talk specifics of future pricing in any market, more stable foreign exchange and commodity costs will ideally reduce the need for additional large price increases. I spent six days in China with the team two weeks ago.

John Chevalier: The global grooming category is on track for $1 billion of retail sales growth. This fiscal year with July driving two thirds of the increase while ahead of our global share.

Superior renovations like Dawn power wash and Don easy squeeze in the U S and ferry power spray and furry Max in Europe are disproportionately driving market growth and hand, dishwashing with value share in the U S approaching a 67% nearly 50% across Europe focused markets.

Jon: I met with consumers in their homes, with retail CEOs, with our team, and with several government officials. In my view, the long-term China opportunity remains intact. The near term is likely to present some challenges. We'll see what happens with the global cold season, as a soft start to the season either reverses or eventually annualizes.

Third strategy element productivity.

John Chevalier: Improvement in all of our operations to fund investments in innovation brand building and market growth.

John Chevalier: To mitigate cost and currency challenges and to expand margins and generate cash.

Jon: No guarantee of an immediate bounce back in any of these, but reason to believe they will improve over time. In addition to continued aggregate top line progress, a very strong bottom line. Mid-teens core earnings per share growth for two quarters in a row while increasing investments in innovation, brand building, and market growth. Our team continues to execute our strategy with excellence, enabling strong results over each of the past five years, pre-COVID, during COVID, and through a historic inflationary and pricing cycle. I want to thank them both for what they've delivered and for what they're working to continue to accomplish. Our integrative strategy is unchanged.

John Chevalier: We're reaccelerate in productivity back to pre Covid levels with an objective for gross savings in cost of goods of up to $1 5 billion before tax.

John Chevalier: Visibility to more savings opportunity is increasing enabled by platform programs with global application across categories.

John Chevalier: Supply chain three point out.

John Chevalier: We're working in a new way with retailers on the totality of the supply chain end to end versus simply trying to optimize each piece.

John Chevalier: One example, using data and machine learning algorithms to optimize truck scheduling to minimize idle time for drivers.

John Chevalier: We're also using AI tools to optimize fill rates and for dynamic routing and sourcing optimization tool.

$2 million to $300 million of savings opportunity across these areas.

Jon: The focused portfolio of products and daily use categories where performance drives the brand. The portfolio is performing, delivering broad-based growth across nearly all categories and most geographies for several years. The announcements we made in December to change our go-to-market approach in Argentina and Nigeria will further sharpen our focus and strengthen our value creation potential. A good example of the dynamic nature of our strategy and our desire to aggressively allocate resources to where they create the most shareholder value. Next strategy element is an ongoing commitment to an investment in irresistible superiority. Through innovation across the five vectors of product, package, brand communication, retail execution, and value, holistically defined

John Chevalier: We have line of sight to savings from improved marketing productivity.

John Chevalier: More efficiency and greater effectiveness, avoiding excess frequency and reducing waste while increasing reach.

John Chevalier: We are taking targeted steps to reduce overhead as we digitize more of our operations.

John Chevalier: The team has delivered strong cost savings in the first half of the year.

John Chevalier: <unk> plans to build on this momentum.

John Chevalier: Next constructive disruption of ourselves and our industry, a willingness to change adapt and create new trends technologies and capabilities that will shape, the future of our industry and extend our competitive advantage.

John Chevalier: We continue to be a constructive disruptor of brand building and housing more of the media planning and placement activity using our proprietary tools and consumer data to increase effectiveness and efficiency of our communication.

John Chevalier: We're disrupting traditional lab based innovation models to dramatically increase the speed and breadth of discovery.

Jon: Leveraging that superiority to grow markets and our share in them to jointly create value with retail partners. The plans across the businesses are broader and stronger than at any time in the recent past, as each team works to increase their margin of superiority and consumer delight. Superior innovations that are driven by deep consumer insights, communicated to consumers with more effective and efficient marketing programs, executed in stores and online in conjunction with retailer strategies to grow categories and our brand, and prices to deliver superior value across each price tier where we compete. Smooth-Tear-Sharman-Ultrasound, with scalloped edge perforations, is a great example of Consumer Insights driving innovation to improve the in-use experience. Consumer response to the new product has been overwhelmingly positive and is driving word-of-mouth recommendations on social media. Gillette's superior propositions, like the Gillette Labs Razor, with an exfoliating bar that removes dirt and debris before the blades, continue to drive growth in the global grooming category.

John Chevalier: Last but clearly not at least we have designed and continue to refine and empowered agile and accountable organization model.

John Chevalier: Also an increasingly diverse organization.

John Chevalier: Enabling us to better serve an increasingly diverse set of consumers.

John Chevalier: So strong progress across all strategic pillars.

John Chevalier: With significant opportunity ahead of us.

John Chevalier: No reason to standstill as illustrated by the four focus areas, we have outlined previously.

John Chevalier: Supply chain 3.0 is delivering productivity as we just talked we're also driving improved capacity planning greater supply agility flexibility data transparency scale and resilience all the way up and down the supply chain inclusive of our retail partners.

John Chevalier: All of this is driving higher quality increased supply assurance and higher on shelf availability of our products and of course, better cash and cost structures.

John Chevalier: These programs improved superiority with consumers and further strengthen what is already the top ranked supply chain by our retail partners and third party industry surveys.

John Chevalier: Environmental sustainability superior propositions for consumers customers and shareowners that are sustainable.

John Chevalier: Driving sales and profitability, while reducing the footprint of our operations.

John Chevalier: Enabling consumers to reduce their footprint.

Jon: Gillette Labs has reached shares of greater than 20% in markets like Spain and France and is building momentum in the US and China. The global grooming category is on track for a billion dollars of retail sales growth this fiscal year, with Gillette driving two-thirds of the increase, well ahead of our global share. Superior innovations like Don Powerwash and Don Easy Squeeze in the U.S. and Ferry Power Spray and Ferry Max in Europe are disproportionately driving market growth in hand dishwashing with value share in the U.S. approaching 67%, and nearly 50% across Europe-focused markets. The third strategy element is productivity. Improvements in all of our operations to fund investment in innovation, brand building, and market growth, to mitigate cost and currency challenges and to expand margins and generate cash. We're reaccelerating productivity back to pre-COVID levels with an objective for gross savings and cost of goods of up to $1.5 billion before tax.

And innovating to deliver cross industry solutions for some of our most pressing challenges.

A good example is the four chamber aerial platinum pods innovation that we launched in our new cardboard package.

John Chevalier: Extending our superiority advantage and product performance, while improving sustainability by enabling great Walsh results, even in cold water.

John Chevalier: Already contributing to a two degree Celsius reduction in wash temperatures in Europe.

John Chevalier: Against a five degree target.

John Chevalier: Also extending and packaging superiority with a more attractive and more sustainable cardboard box.

John Chevalier: Digital acumen, leveraging data and digitization to delight consumers streamline the supply chain increased quality drive productivity, all driving shareowner value.

Fourth the superior value equation for all employees.

John Chevalier: Lucid of all genders races, ethnicities sexual orientations ages and abilities for all roles to ensure we continue to attract retain and develop the best talent and are best positioned to serve all consumers.

John Chevalier: These four focus areas are not new and separate strategies, they simply strengthen our ability to execute the strategy.

John Chevalier: Our strategic choices on portfolio superiority productivity constructive disruption and organization reinforce and build on each other.

Jon: Visibility to more savings opportunities is increasing, enabled by platform programs with global application across categories. Like Supply Chain 3.0, we're working in a new way with retailers on the totality of the supply chain, end-to-end, versus simply trying to optimize each piece. One example is using data and machine learning algorithms to optimize truck scheduling to minimize idle time for drivers.

John Chevalier: We continue to believe that there is merit and doubling down on this integrated strategy, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity.

John Chevalier: We remain as confident as ever in our strategy and our ability to drive market growth and to deliver balanced growth and value creation to delight consumers customers.

John Chevalier: Ploys Society and shareowners.

Jon: We're also using AI tools to optimize fill rates and for dynamic routing and sourcing optimization. $200 to $300 million of savings opportunity across these areas. We have line of sight to savings from improved marketing productivity. More efficiency and greater effectiveness, avoiding excess frequency and reducing waste while increasing reach.

John Chevalier: Now back to Andre for guidance.

Andre Scholten: Thanks, Paul.

Andre Scholten: Thanks, Joe as I mentioned, we expect the environment around us to continue to be volatile and challenging.

Andre Scholten: Input cost to currencies to consumer retailer and geopolitical dynamics.

Andre Scholten: However, our strong first half results enable us to raise or maintain key guidance metrics for the year.

We're maintaining our guidance range for organic sales growth of 4% to 5% for the fiscal year. This outlook includes the normalization and underlying market growth rates that we began to see in our second quarter results as the market lapsed the last wave of cost.

Jon: We're taking targeted steps to reduce overhead as we digitize more of our operations. The team has delivered strong cost savings in the first half of the year and plans to build on this momentum. Next, constructive disruption of ourselves and our industry. A willingness to change, adapt, and create new trends, technologies, and capabilities that will shape the future of our industry and extend our competitive advantage. We continue to be a constructive disruptor of brand building, in-housing more of the media planning and placement activity, using our proprietary tools and consumer data to increase the effectiveness and efficiency of our communication. We're disrupting traditional lab-based innovation models to dramatically increase the speed and breadth of discovery.

Andre Scholten: February pricing.

Andre Scholten: For PNG, we expect the pricing contribution to topline growth to reduce by an additional one to two points in the back half of the year, we will continue to price for new innovations when warranted and to mitigate FX impacts.

Andre Scholten: On the bottom line enabled by very strong earnings growth in the first half of the year, we're raising our outlook for fiscal 'twenty for core earnings per share from a range of 6% to 9% to a range of 8% to 9% growth versus last fiscal year.

Andre Scholten: This guidance implies slower bottom line growth in the second half as.

Andre Scholten: As we highlighted last quarter, the second half of the fiscal year, we will see less pricing benefit as we annualize more prior year increases we will also see less commodity cost benefit in the second half wage and benefit inflation continues throughout the supply chain and in our direct costs and FX headwinds will increase versus the first half of the <unk>.

Jon: Last but not least, we've designed and continue to refine an empowered, agile, and accountable organization model. Also, an increasingly diverse organization, enabling us to better serve an increasingly diverse set of consumers. So, strong progress across all strategic pillars, with significant opportunity ahead of us. No reason to stand still, as illustrated by the four focus areas we've outlined previously. Supply Chain 3.0 is delivering productivity as we just talked about.

Speaker Change: Could you.

Speaker Change: As I mentioned, we continue to expect organic sales and core EPS growth towards the upper end of the renewed guidance ranges.

Speaker Change: We estimate commodities will be a tailwind of around $800 million after tax in fiscal 'twenty four based on current spot prices. This is consistent with the outlook. We provided last quarter. We continue to expect foreign exchange will be a headwind of approximately $1 billion after tax for the fiscal year.

Jon: We're also driving improved capacity planning, greater supply agility, flexibility, data transparency, scale, and resilience, all the way up and down the supply chain, inclusive of our retail partners. All of this is driving higher quality, increased supply assurance, and higher on-shelf availability of our products, and, of course, a better cash and cost structure. These programs improve superiority with consumers and further strengthen what is already the top-ranked supply chain by our retail partners and third-party industry surveys on environmental sustainability.

Speaker Change: The vast majority of this impact is driven by Argentina and is heavily skewed towards the back half of the year. This outlook is based on our forecast for continued significant devaluation of the Argentine peso, which we expect to largely offset with appropriate price increases.

Speaker Change: We now expect higher net interest expense of approximately $100 million after tax versus prior year general inflation and higher wage and benefit costs also earnings headwinds for the year.

Speaker Change: We expect adjusted free cash flow productivity of 90% we.

Speaker Change: We expect to pay more than $9 billion in dividends and to repurchase $5 billion to $6 billion in common stock.

Bind to plan to return to $14 billion to $15 billion of cash to share almost this fiscal year.

Jon: Superior propositions for consumers, customers, and shareowners that are sustainable. Driving sales and profitability while reducing the footprint of our operations, enabling consumers to reduce their footprint, and innovating to deliver cross-industry solutions for some of our most pressing challenges. A good example is the four-chamber aerial platinum pods innovation that we launched in a new cardboard package.

Speaker Change: This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant additional currency weakness commodity cost increases geopolitical disruptions all major production stoppages are not anticipated within the guidance ranges.

Finally, we will be closely watching the more volatile regions, we mentioned earlier, including the health of the China market and we'll be keeping close watch on competitive dynamics to ensure P&G brands remained superior value for consumers and retailers now ill hand, it back to John for closing thoughts.

Jon: Standing our superiority advantage in product performance while improving sustainability by enabling great wash results even in cold water, already contributing to a 2 degree Celsius reduction in wash temperatures in Europe against a 5 degree target. Also extending packaging superiority with a more attractive and more sustainable cardboard box. Digital Acumen.

John Chevalier: We continue to be very pleased with the strong results P&G people are delivering in a challenging operating and competitive environment.

John Chevalier: Continued excellent execution of an integrated market constructive strategy.

I want to thank each of them for that.

John Chevalier: While we expect volatile consumer and macro dynamics to continue.

John Chevalier: We remain confident that the best path forward is to double down on our strategy that has enabled strong results and remain committed to delivering balanced top and bottom line growth and value creation for shareowners.

John Chevalier: With that we'll be happy to take your questions.

Jon: Leveraging data and digitization to delight consumers, streamline the supply chain, increase quality, and drive productivity, all driving shareholder value. Fourth, a superior value equation for all employees. Inclusive of all genders, races, ethnicities, sexual orientations, ages, and abilities for all roles to ensure we continue to attract, retain, and develop the best talent in our best position to serve all consumers. These four focus areas are not new or separate strategies. They simply strengthen our ability to execute the strategy. Our strategic choices on portfolio, superiority, productivity, constructive disruption, and organization reinforce and build on each other. We continue to believe that there is merit in doubling down on this integrated strategy, starting with an commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. We remain as confident as ever in our strategy and our ability to drive market growth and to deliver balanced growth and value creation to delight consumers and customers. Employees, Society, and Shareowners. Now back to Andre for guidance. Thanks, y'all.

Speaker Change: Thank you have a question. Please press star followed by one on your phone.

Speaker Change: If your question has been answered or you would like to withdraw your question press.

Speaker Change: Star followed by Tim.

Speaker Change: Our first question will come from Dara <unk> of Morgan Stanley. Please go ahead.

Hey, good morning, guys. So just wanted to focus on the back half.

Speaker Change: Clearly the 4% Q2 core sales growth result.

Speaker Change: Wasn't as strong as the 7% Q1 delivery, which is very robust results. So obviously some quarterly volatility here can you just give us some perspective for the fiscal back half relative to Q2 in light of that first half volatility as you think through some of the key geographies and volume versus price mix in some of the temporary impacts.

Speaker Change: Ron mentioned.

Speaker Change: And then.

Speaker Change: Just same question on EPS, basically obviously very strong first half.

Speaker Change: <unk>.

Speaker Change: That continued in Q2.

Speaker Change: The full year guidance implies a more muted second half. So is there some conservatism baked in there help us understand that I know Andre touched on it but maybe give us a bit more detail there on the back half for bearings perspective. Thanks.

Speaker Change: Okay.

Speaker Change: Yes morning, Dara, let me start and John will add on.

John Chevalier: On the top line if you look at the first half we are right in line with what we're projecting for the year.

Andre Schulte: Thanks, Joe. As I mentioned, we expect the environment around us to continue to be volatile and challenging, from input costs to currencies to consumer, retailer, and geopolitical dynamics. However, our strong first half results enable us to raise or maintain key guidance metrics for the year. We're maintaining our guidance range for organic sales growth of 4-5% for the fiscal year. This outlook includes a normalization in underlying market growth rates that we began to see in our second quarter results as the market lags the last waves of cost recovery pricing. For P&G, we expect the pricing contribution to top-line growth to reduce by an additional 1 to 2 points in the back half of the year.

John Chevalier: An average of 5% and we obviously then expect about 5% for the back half.

John Chevalier: We see volatility as you had pointed out in some geographies that we mentioned in the in the script.

John Chevalier: The core point, though is the core geography, 75% of the sales are performing very well, we continue to see acceleration in volume growth in North America.

John Chevalier: With 4%, 4% volume growth, 5% sales growth Europe is very strong Latin America very strong we continue to see volume acceleration in most places.

John Chevalier: So that gives us confidence that that project well for the second half of the year. We also expect some of the volatility that we experienced in quarter two two <unk>.

Disappear or or at least improve in the second half.

John Chevalier: The SK II sentiment is improving based on our consumer research in China.

Andre Schulte: We will continue to price for new innovations when warranted and to mitigate FX impacts. On the bottom line, enabled by very strong earnings growth in the first half of the year, we're raising our outlook for fiscal 24 core earnings per share from a range of 6% to 9% to a range of 8% to 9% growth versus last fiscal year. This guidance implies slower bottom-line growth in the second half. As we highlighted last quarter, the second half of the fiscal year will see less pricing benefit as we annualize more prior year increases.

John Chevalier: We are continuing to drive innovation equity investment and really relying on our most loyal and passionate user base to help amplify that messaging, which is working well. So we expect the effect to improve year over year.

John Chevalier: Quarter over quarter.

John Chevalier: From a enterprise market standpoint, we also view the pricing impacts that.

John Chevalier: Impacting some of the markets like Turkey.

John Chevalier: To disappear overtime.

John Chevalier: Pricing in the market has established a competitive pricing catch us up and then the impact of the tensions in the middle East certainly hopefully.

Andre Schulte: We will also see less commodity cost benefit in the second half because wage and benefit inflation continues throughout the supply chain and in our direct costs. And FX headwinds will increase versus the first half of the fiscal year. As I mentioned, we continue to expect organic sales and core EPS growth toward the upper end of the renewed guidance range. We estimate commodities will be a tailwind of around $800 million after tax in fiscal 24, based on current spot prices. This is consistent with the outlook we provided last quarter. We continue to expect foreign exchange will be a headwind of approximately $1 billion after tax for the fiscal year.

John Chevalier: Will improve as well so very strong continued performance on the core markets, which are 75% of the sales.

John Chevalier: And we expect somewhat improving trends in stabilization in the other 25%.

John Chevalier: On the EPS side.

John Chevalier: Very strong performance in the front half, 17% in quarter, 116% in quarter, two sets us up well for the upper end of the guidance range, which is reflected in the tightening of our guidance.

John Chevalier: However, keep in mind, we see a reversal of a number of effects that have supported the half one results. We sold the majority of the commodity help flow through in the first half and this is part of the improvement in quarter. Two EPS, we see the flow through happening faster than we would've anticipated.

Some instances.

John Chevalier: So that leaves less of a contribution for the second half. We also have the majority of the foreign exchange hurt.

John Chevalier: In the second half about 75% of FX of $1 billion will hit the second half as.

Andre Schulte: The vast majority of this impact is driven by Argentina and is heavily skewed towards the back half of the year. This outlook is based on a forecast for continued significant devaluation of the Argentine peso, which we expect to largely offset with appropriate pricing. We now expect higher net interest expense of approximately $100 million after tax versus the prior year.

John Chevalier: As we indicated the majority of that is Argentina. So we will try to offset via appropriate pricing. Nevertheless, the gross impact is tilted towards the back half price mix contribution will ease we saw still significant contribution in the first half that were lower by one to two points in the back.

John Chevalier: <unk>, which also has an impact on EPS growth.

John Chevalier: And lastly, we continue to see wage inflation in our own operations as well as in our supply chain flowing through now.

Andre Schulte: General inflation and higher wage and benefit costs are also earnings headwinds for the year. We expect adjusted free cash flow productivity of 90%. We expect to pay more than $9 billion in dividends and to repurchase $5-6 billion in common stock. Add this to the plan to return $14-15 billion of cash to shareholders this fiscal year.

John Chevalier: Now that being said.

John Chevalier: If everything goes well could there be upside sure, but we believe that guidance is appropriately reflecting the potential variability here.

John Chevalier: So those are the core drivers John any perspective, I have nothing to add on andrea's bottom line perspective.

John Chevalier: I would just reiterate one thing and add one thing on the top line.

Andre Schulte: This outlook is based on current market growth rate estimates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, or major production stoppages are not anticipated within the guidance ranges. Finally, we'll be closely watching the more volatile regions we mentioned earlier, including the health of the Chinese market, and we'll keep a close eye on competitive dynamics to ensure P&G brands remain superior value for consumers and retailers. Now I'll hand it back to Jon for closing thoughts...

John Chevalier: There are two key.

John Chevalier: Questions that we've been discussing as we've gone through the first half of the year the.

John Chevalier: The first relates.

John Chevalier: Two our ability to Reaccelerate volume, which we've talked about several times in this conversation this morning.

Just want to reiterate.

John Chevalier: How encouraging that progress has been we've said it before but it's worth saying again in our largest market.

John Chevalier: North America.

John Chevalier: The past five quarters minus three zero plus two plus three plus for.

Jon: We continue to be very pleased with the strong results PNG people are delivering in a challenging, operating, and competitive environment. Continued excellent execution of an integrated, market-constructive strategy. I want to thank each of them for that.

Europe, which tends to be fairly price sensitive.

John Chevalier: Volumes plus three.

John Chevalier: That gives us.

John Chevalier: Our confidence in terms of the momentum of the business on a forward basis.

Speaker Change: The other thing I would just call out.

Jon: While we expect volatile consumer and macrodynamics to continue, we remain confident that the best path forward is to double down on the strategy that has enabled strong results and remain committed to delivering balanced top and bottom line growth and value creation for shareholders. With that, I'll be happy to take your questions. If you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, press star followed by 2.

Speaker Change: That adds to this discussion is the breadth of the topline progress that the team has been making.

Speaker Change: Eight out of 10 categories held or grew sales in the quarter that we just completed.

Speaker Change: One of our top 25 brands did the same and if you look at our top 12 brands nine of those are growing at high singles or better rates.

Speaker Change: And that's inclusive of all the challenges that we're managing.

Speaker Change: Around the world.

Speaker Change: So that that gives us confidence that the topline growth that we've been delivering should continue just as Andre said.

Jon: Our first question will come from Dara Mohsenian of Morgan's Friendly. Please go ahead. Hey, good morning, guys. So I just wanted to focus on the back half. Clearly, the 4% Q2 core sales growth result wasn't as strong as the 7% Q1 delivery, which is a very robust result. So, obviously, some quarterly volatility here. Can you just give us some perspective for the fiscal back half relative to Q2 in light of that first half volatility as you think through some of the key geographies and volume versus price mix and some of the temporary impacts Jon mentioned? And then just the same question on EPS, basically.

Speaker Change: And that that.

Speaker Change: Should provide.

The ability to continue to deliver decent levels of bottom line growth as well.

Speaker Change: The next question comes from Bryan Spillane of Bank of America.

Bryan Spillane: Please go ahead.

Bryan Spillane: Thanks, operator, good morning, everyone.

Bryan Spillane: I just want a clarification Andre to your answer to <unk> question, and then I have a question for the clarification I think when you responded regarding organic sales growth for the back half and tacking to the year.

Jon: Obviously, a very strong first half that continued in Q2. For your guidance, it implies a more muted second half. So is there some conservatism baked in there?

Bryan Spillane: 5%.

Bryan Spillane: Or is it that <unk> is tracking to 5% organic sales for the year or what are you seeing an expectation for 5% organic sales growth for the back half I wasn't quite sure. If you were talking full year or specifically about the back half.

Jon: Help us understand that. I know Andre touched on it, but maybe give us a bit more detail there on the back half from Eric's perspective. Thanks. Yeah, morning, Dara. Let me start and Jon will add.

Speaker Change: Hey, Brian No what I was talking about the fully expectation. So again, we reiterate the range of four to five but we see the possibility and strong probability that we'll be able to deliver towards the upper end of that range for the fiscal year.

Eric: On the top line, if you look at the first half, we are right in line with what we're projecting for the year, an average of 5%, and we obviously then expect about 5% for the back half. We see volatility, as you pointed out, in some geographies that we mentioned in the script. I think the core point, though, is the core geography; 75% of the sales are performing very well. We continue to see acceleration in volume growth in North America, with 4% volume growth and 5% sales growth. Europe is very strong; Latin America is also very strong.

Speaker Change: The next question comes from Lauren Lieberman of Barclays. Please go ahead.

Great. Thanks, good morning.

Lauren R. Lieberman: So with the very sizable gross margin delivery this quarter and the outlook for the full year. There is a ton of reinvestment going back in the P&L right. In this quarter you called out the specifics, but I think also.

Pretty well implied for the second half as well.

Speaker Change: So I was just curious.

Speaker Change: If you could talk a little bit of that incremental areas of reinvestment because the basis points are big and the dollars are even bigger.

Eric: We continue to see volume acceleration in most places, so that gives us confidence that it projects well for the second half of the year. We also expect some of the volatility that we experienced in quarter two to disappear or at least improve in the second half.

Speaker Change: And so we just I don't know like.

Speaker Change: It might sound ridiculous, but it gets to a point, where you start to worry externally is there.

Speaker Change: Amount of reinvestment.

Speaker Change: So John if you could talk through your perspective on that and making sure there's not.

Eric: The SK2 sentiment is improving based on our consumer research in China, and we are continuing to drive innovation, equity investment, and really relying on our most loyal and passionate user base to help amplify that messaging, which is working well. So we expect the effects to improve year over year, quarter over quarter. From an enterprise market standpoint, we also view the pricing impacts that are impacting some of the markets, like Turkey, to disappear over time as pricing in the market is established and competitive pricing catches up. And then the impact of the tensions in the Middle East will certainly, hopefully, improve as well.

Speaker Change: Money effectively being.

Speaker Change: <unk> spent less efficiently in the P&L simply because you have that much flexibility. Thanks.

Speaker Change: Are you, saying lower than that you want 30% core earnings per share growth just kidding. So that's.

That's kind of what I'm getting at.

Speaker Change: Yeah Yeah.

Speaker Change: All.

Speaker Change: Speak first of Us and I'm sure Andre has some perspective as well, but if you look at the amount of innovation, that's coming to market. Both currently and in the future.

Speaker Change: And if you look at the opportunity.

Speaker Change: To fully.

Speaker Change: Penetrate households, with that innovation.

Eric: Very strong continued performance in the core markets, which are 75 percent of the sales, and we expect somewhat improving trends and stabilization in the other 25%. On the EPS side, very strong performance in the front half, 17% in quarter one, 16% in quarter two, sets us up well for the upper end of the guidance range, which is reflected in the tightening of the guidance. However, you know, to keep in mind, we see a reversal of a number of effects that have supported the half-win results. We saw the majority of the commodity help flow through in the first half, and this is part of the improvement in Q2 EPS. We see the flow-through happening faster than we would have anticipated in some instances, so that leaves less of a contribution for the second half.

Speaker Change: In ways that delights them and improves their lives now is not the time to be pulling back on.

Speaker Change: On investments in marketing or commercialization efforts of that innovation.

Speaker Change: And that's where the majority of the incremental spend.

Speaker Change: His growth has come from and will come from.

Speaker Change: We look very carefully I don't want to ignore your question on the effectiveness of that spend and.

Speaker Change: And continue to see through the.

Speaker Change: Addition of of many tools and data sets.

Speaker Change: That that we can increase the effectiveness of that advertising increased the return rates of that advertising as you see in our bottom line.

Speaker Change: While while increasing.

Speaker Change: Reach.

Speaker Change: That's what we'll be focusing on will be very disciplined in that effort, neither andre or I or the rest of the team has and a desire to spend money that isn't.

Eric: We also have the majority of the foreign exchange hurt in the second half. About 75% of the FX hurt of the billion dollars will hit the second half. As we indicated, the majority of that is Argentina, so we will try to offset via appropriate pricing. Nevertheless, the growth impact is tilted towards the back half. Price-mix contribution will ease, but we saw a still significant contribution in the first half.

Speaker Change: Working for us.

Speaker Change: Yes, and maybe just to add we we just talked with our team actually about being very granular about the assessment of the ROI. So we don't have good investments cover for bad investments for really go down to the country level to the brand levels of the channel level. When we assess whether we are getting a payout on the investments.

Speaker Change: But the majority of the spend as John said is really focused on driving market growth. When you think about the opportunity on a fee. For example, we've created 100% of the market growth in North America on a fee and it's still the biggest opportunity. The team has in order to continue to accelerate both our own growth in a constructive way in the market given.

Eric: That will lower by one to two points in the back half, which also has an impact on EPS growth, and lastly, we continue to see wage inflation in our own operation as well as in our supply chain. Now that being said, could there be upside? Sure, but we believe that guidance is appropriately reflecting the potential variability here. So those are the core drivers.

Speaker Change: The low penetration <unk> fabric enhancers.

Speaker Change: <unk>, Another example, polo or be with launched.

Speaker Change: <unk> 10, and we're also expanding distribution of <unk> three four and five.

Speaker Change: We've let 70% of global market growth with those launches for communicating the benefit in driving penetration as a huge opportunity.

Speaker Change: Jon, any perspective? I have nothing to add to Andre's bottom line perspective. I would just reiterate one thing and add one thing on the top line. There are two questions that we've been discussing as we have gone through the first half of the year. The first relates to our ability to re-accelerate volume, which we've talked about several times in this conversation this morning. I just want to reiterate how encouraging that progress has been. We've said it before, but it's worth saying again.

Speaker Change: So be assured we look at our ROI very carefully and again market growth continues to be the main area of focus when we invest incrementally.

Speaker Change: The next question comes from Robert Stein of Evercore ISI. Please go ahead.

Speaker Change: In our largest market... North America, past 5 quarters, minus 3, 0, plus 2, plus 3, plus 4. Europe, which tends to be fairly price sensitive, volumes plus three. So that gives us confidence in terms of the momentum of the business on a forward basis. The other thing I would just call out that adds to this discussion is the breadth of the top line progress that the team has been making. 8 out of 10 categories held or grew sales in the quarter that we just completed.

Robert Ottenstein: Terrific. Thank you very much I was wondering if you could go into a little bit more detail.

Robert Ottenstein: On the state of the consumer and your two most important markets the U S and China.

How how the how consumer demand developed through the quarter and into January and when you talk about China. If you could also touch upon travel retail and maybe what SK <unk> was on a greater China basis, including travel retail as well.

Speaker Change: 21 of our top 25 brands did the same. And if you look at our top 12 brands, 9 of those are growing at high single-digit or better rates. And that's inclusive of all the challenges that we're managing around the world. So, that gives us confidence that the top-line growth that we've been delivering should continue, just as Andre said, and that should provide the ability to continue to deliver decent levels of bottom-line growth as well. The next question comes from Brian Spillane of Bank of America. Please go ahead.

Speaker Change: Thank you.

Speaker Change: I'll start morning, Robert.

Look the U S continues to be very solid continues to impress with I think.

Speaker Change: A very smooth transition from pricing annualized and overall consumption coming up in terms of volume, which is enabling us to post the volume improvement John was quoting over the past few quarters and still accelerating ahead of market with 4% volume growth and 50 basis points of market share growth.

Brian Spillane: Thanks, Operator. Good morning, everyone. I just, I want a clarification on your answer to Dara's question. And then I have a question. So clarification, I think when you responded regarding organic sales growth for the back half and tackling on the year, the 5%, is it that Proctor is tracking to 5% organic sales for the year? Or were you saying an expectation of 5% organic sales growth for the back half? I wasn't quite sure if you were talking about the whole year or specifically about the back half.

We continue to see trade up within our propositions, so as consumers come in.

Speaker Change: Maybe at a lower tier.

Speaker Change: Lower value proposition they continue to trade up in the U S, which speaks to the health.

Speaker Change: Of the proposition, but also the health of the consumer and willingness to invest.

Speaker Change: The last data point I'll give you on the U S as well.

Speaker Change: Able to grow as private label shares are slightly up we are up the same range. So some consumers will look for.

Speaker Change: For value.

Speaker Change: Private label, but an equal if not higher amount of consumers find better value than our propositions as we drive continued super OTV innovation.

Andre Schulte: Hey Brian, what I was talking about was the full-year expectation, so again we reiterate the range of 4 to 5, but we see the possibility and strong probability that we'll be able to deliver towards the upper end of that range for the fiscal year. The next question comes from Lauren Lieberman of Barclays. Please go ahead. Great, thanks.

Speaker Change: Feel very strongly about the U S will continue to invest to drive more market growth there, but the consumers resilience in the business is doing well.

Speaker Change: On China, I'll begin I'm sure John.

Incremental perspective, but.

Speaker Change: China opportunity remains intact. If you look at the underlying market size. If you look at the potential development of the Middle class. If you look at the ability to drive category.

Lauren R. Lieberman: Good morning. So with the, you know, very sizable gross margin delivery this quarter and the outlook for the full year, there's a ton of reinvestment going back into P&L, right? And this quarter, you called out, "Thank you." So I was just curious if you could talk a little bit about incremental areas of reinvestment because the basis points are big, and the dollars are even bigger. And so I just don't know, like it might sound ridiculous, but it gets to a point where you start to worry externally.

Speaker Change: Penetration in our categories all of those.

Speaker Change: Huge opportunities for us.

Speaker Change: And all of those.

Speaker Change: Point to continued investment and commitment to the Chinese market.

Speaker Change: We have a very capable organization and we continue to be very optimistic that we can create value.

Speaker Change: Honesty, when the market requires market growth to be driven by manufacturers I think that positions us very well with our retail partners in China to have a competitive advantage and execute the model that we know how to execute in many parts of the world.

Lauren R. Lieberman: Is there an excessive amount of reinvestment? So I'd love it, John, if you could talk through your perspective on that, on making sure there's not money effectively being spent less efficiently in the P&L simply because you have that much flexibility. Are you saying, Lauren, that you want 30% quarries for shared growth? Just kidding.

Speaker Change: In the short term we mentioned it in the script consumer sentiment has not fully recovered yet.

Speaker Change: And that is reflected in the results.

Speaker Change: Again, if you want to take a silver lining.

We see the attractiveness of key opinion leaders and heavy discounting in key consumption periods decreasing.

Speaker Change: And that's actually good for us and we believe that our focus on brand equity a focus on strong everyday value will be as a priority will allow us to help grow the market back to mid single digits and strengthen our position in the in the market.

Speaker Change: Well, that's kind of what I'm getting at, right? I'll speak first on this, and I'm sure Andrea has some perspective as well, but if you look at the amount of innovation that's coming to the market both currently and in the future. And if you look at the opportunity to fully penetrate households with that innovation in ways that delights them and improves their lives, now is not the time to be pulling back on investments in marketing or commercialization efforts for that innovation. And that's where the majority of the incremental spend has come from and will come from. We look very carefully, I don't want to ignore your question, at the effectiveness of that spend and continue to see, through the addition of many tools and data sets, that we can increase the effectiveness of that advertising, increase the return rates of that advertising, as you see in our bottom line, while increasing reach.

Speaker Change: Last point on SK too.

Speaker Change: No specifics the numbers were quoting obviously on the quarter minus 34% include the domestic travel retail channel.

Speaker Change: Nothing else to add there or other than we remain confident that as the sentiment improves which we see already with continued investment in FQ, two we see that business recovering over the back half.

Speaker Change: Robert is Andre suggested I'll, just provide a little bit of additional color.

On China, having spent a fair amount of my career evolved in that market.

Speaker Change: Having just spent.

Speaker Change: Almost a full week there.

Andrea: So that's what we'll be focusing on. We'll be very disciplined in that effort. Neither Andre or I or the rest of the team has any desire to spend money that isn't working for us. Yeah, and maybe just to add, we just talked with our team about being very granular about the assessment of the ROI. So we don't have good investments to cover for bad investments.

Speaker Change: Okay and digesting the.

Speaker Change: Q2 <unk>.

Speaker Change: Numbers, the P&G numbers in China.

Speaker Change: You have to think about a couple things.

Speaker Change: One is SK too.

Speaker Change: Which just just for clarity for everybody is really driven by.

Speaker Change: An anti Japanese brand sentiment, which Andre described.

Speaker Change: Our opening remarks, that's related to the release of wastewater from the Fukushima nuclear.

Andrea: So we really go down to the country level, to the brand level, to the channel level when we assess whether we are getting a payout on the investments. But the majority of the spend, as Jon said, is really focused on driving market growth. When you think about the opportunity on FE, for example, we've created 100 percent of the market growth in North America for FE, and it's still the biggest opportunity the team has in order to continue to accelerate both our own growth in a constructive way and the market, given the low penetration FE has. Aura-B, another example, Power Aura-B, we've launched Aura-B I-O 10, and we're also expanding the distribution of Aura-B I-O 3, 4, and 5.

Speaker Change: <unk> facility.

Speaker Change: And.

Speaker Change: We've had not identical but similar.

Speaker Change: Consumer sentiment dynamics in the past as it relates to this brand.

Speaker Change: And as it relates to the relationship between those two countries.

Speaker Change: And it has always resolved itself with FCA to move into higher Heights.

Speaker Change: So if you look at the decline in China on the quarter on our business.

Speaker Change: So I don't know the exact number but basically think of it as 50% of that being the dynamic I, just described and 50% of it in the market dynamics.

Speaker Change: The second thing that Andre referred to is important to understand as well.

Speaker Change: The heaviest purchase period historically in China was in November.

Andrea: We've led 70% of global market growth with those launches, so communicating the benefit and driving penetration is a huge opportunity. So, be assured, we look at ROI very carefully, and again, market growth continues to be the main area of focus when we invest incrementally. The next question comes from Robert Ottenstein of Evercore ISI. Please go ahead. Terrific. Thank you very much.

Speaker Change: I'm talking years.

Years past.

Speaker Change: And that.

Speaker Change: That was always a little bit disconcerting for us because a disproportionate amount of product moved during double 11 it filled.

Speaker Change: Consumer.

Speaker Change: <unk> it.

Speaker Change: Often it filled some retail our pantries and often our inventories and warehouses and often moved at heavily discounted prices.

Speaker Change: The amount of movement during that period this year.

Robert Ottenstein: I was wondering if you could go into a little bit more detail on the state of the consumer in your two most important markets, the U.S. and China, how consumer demand developed through the quarter and into January. And when you talk about China, could you also touch upon travel, retail, and maybe what SK-2 was on a greater China basis, including travel retail as well? Thank you. I'll start.

Speaker Change: Is much lower.

Speaker Change: And as Andre said, we view that as a good thing and it's a temporary impact.

Speaker Change: Quarterly impact to Q2 impact on the indices.

Speaker Change: It moves us into a healthier position.

Speaker Change: If you think about the medium to longer term Ondrej mentioned.

Speaker Change: The addition of <unk>.

Speaker Change: The expected addition of $200 million middle income consumers.

Speaker Change: Morning, Robert. Look, the U.S. continues to be very solid and impresses with, I think, a very smooth transition from pricing, annualizing, and overall consumption coming up in terms of volume, which is enabling us to post the volume improvements Jon was quoting over the past few quarters and still accelerate ahead of the market with 4% volume growth and 50 basis points of market share growth. We continue to see trade-up within our propositions, so as consumers come in, maybe at a lower tier and a lower value proposition, they continue to trade up in the U.S., which speaks to the health of the proposition but also the health of the consumer and willingness to invest. The last data point I'll give you on the U.S. is that we are able to grow as private labor shares are slightly up. We are in the same range.

Speaker Change: To China's population, that's very encouraging.

Speaker Change: Also I mentioned I was in homes I was in stores I was with our retail partners.

Speaker Change: They are they remain.

Speaker Change: Encouraged about the future of China.

Speaker Change: I was telling I was talking to our organization at the end of the trip our organization in China.

Speaker Change: And I told them I had never seen.

Speaker Change: As much alignment.

Speaker Change: In the markets.

Speaker Change: <unk>.

Speaker Change: Our intention and our strategy are retailers and turn attention on their strategy and the government's intention on their strategy.

Speaker Change: All focused on what's being referred to as quality market growth.

Speaker Change: As Andre suggested that's a very good thing for US we can play very effectively and help with that agenda help society.

Speaker Change: On a parallel path.

Speaker Change: And so you put all that together.

Speaker Change: I agree with Andre and I said it earlier I think the.

Speaker Change: The growth potential here remains intact.

Speaker Change: There are some.

Speaker Change: So some consumers will look for value in private labor, but an equal, if not higher, amount of consumers find better value in our propositions as we drive continued superiority via innovation. So I feel very strongly about the U.S. We'll continue to invest to drive more market growth there, but the consumer is resilient, and the business is doing well. On China, I'll begin.

Speaker Change: Specific items that exacerbate the trend that youre seeing on the quarter, but I expect this will continue to be a source of both growth and value creation for PNG, sorry for the long answer, but I think thats important.

Speaker Change: The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Thanks, and good morning.

Steve Powers: So Russell provoking another long answer.

Speaker Change: I'm sure Jon has an incremental perspective, but... the China opportunity remains intact. If you look at the underlying market size, if you look at the potential development of the middle class. If you look at the ability to drive category penetration in our categories, all of those are huge opportunities for us, and all of those point to continued investment and commitment to the Chinese market. We have a very capable organization, and we continue to be very optimistic that we can create value.

Steve Powers: I guess what struck me this morning.

Steve Powers: Yes.

Steve Powers: Our confidence in <unk>.

Steve Powers: If that's a word.

And both of your comments I was wondering I think John your strategic perspective, just struck me as particularly assertive right now, let's say that in the context on the outside.

Steve Powers: Think based on some of the market challenges, you've called out China, the middle East et cetera. This quarter.

Steve Powers: <unk> got to grow that.

Steve Powers: P&G is.

Steve Powers: It's likely to be thrown off course or or maybe getting complacent.

Speaker Change: Honestly, when the market requires market growth to be driven by manufacturers, I think that positions us very well with our retail partners in China to have a competitive advantage and execute the model that we know how to do in many parts of the world. In the short term, as we mentioned in the script, consumer sentiment is not fully recovered yet, and that is reflected in the results. Again, if you want to take a silver lining, we see the attractiveness of key opinion leaders and heavy discounting in key consumption periods decreasing. And that's actually good for us.

Steve Powers: And I guess my question is why is that.

Steve Powers: Is that wrong and what to you are the.

The key the key to keeping.

Steve Powers: The organizations eye on the ball focused grounded in.

Steve Powers: And executing on all those strategic pillars that you went through.

Speaker Change: Thanks, Steve.

Speaker Change: I want to step back first.

Speaker Change: We do face a lot of challenges in the world that we all live in.

Speaker Change: And those have impacted our business.

Speaker Change: But.

Speaker Change: Stepping back probably five years.

Speaker Change: And we believe that focusing on brand equity and strong everyday value via superiority will allow us to help grow the market back to mid-single digits and strengthen our position in the market. Last point on SK2, no specifics, the numbers we're quoting obviously on the quarter minus 34% include the domestic travel retail channel. Nothing else to add there or other than we remain confident that as sentiment improves, which we see already with continued investment in SK2, we see that business recovering over the back. Robert, as Andrea suggested, I'll just provide a little bit of additional color on China, having spent a fair amount of my career involved in that market and having just spent almost a full week there.

Speaker Change: The level of challenge has always existed.

Speaker Change: Whether it was COVID-19.

Speaker Change: Whether it was the highest consumer inflation of 40 years.

Speaker Change: Whether it was the.

Speaker Change: 50% reduction five zero and our profit over two years as a result of commodities foreign exchange and transportation costs.

Speaker Change: And this organization overcame all of that.

Speaker Change: They've overcome the challenges we faced in the last quarter and that gives me that.

Speaker Change: Huge amount of confidence that.

Speaker Change: That we have the ability the skills the strategy and the agility to continue to meet challenges.

Phase one.

Speaker Change: And and.

Speaker Change: And work through them in ways that are constructive.

Speaker Change: For consumers for customers for employees for society and for Shareowners.

Speaker Change: We talk a lot internally about the complacency in the evils associated with it so it's front and center.

Robert Ottenstein: In digesting the Q2 numbers, the P&G numbers in China, you have to think about a couple things. One is SK-2, which just for clarity for everybody is really driven by an anti-Japanese brand sentiment Andre described in his opening remarks that's related to the release of wastewater from the Fukushima nuclear facility. And we've had identical but similar consumer sentiment dynamics in the past as relates to this brand and as relates to the relationship between those two countries, and it has always resolved itself with SK-II moving to higher heights

Speaker Change: And our thought process.

Speaker Change: I have a couple of kind of <unk> that are used in communicating with the organization and one of them is that complacency kills.

Speaker Change: You don't see a complacent organization when youre looking at the breadth of growth they are delivering.

And Youre looking at the continued after a decade continued work on productivity, yielding the kind of margin progress that we saw this quarter you don't see it as they reinvest that into growing markets.

Robert Ottenstein: So if you look at the decline in China for the quarter on our business, I don't know the exact number, but basically think of it as, you know, 50% of that being the dynamic I just described and 50% of it being the market dynamic. The second thing that Andre referred to is important to understand as well. The heaviest purchase period historically in China was in November. I'm talking, you know, years past.

Speaker Change: And to growing household penetration and shares.

Speaker Change: We're not immune to it so you're right to raise it.

Speaker Change: But I feel as you said.

Speaker Change: I feel the.

Speaker Change: The organization.

Speaker Change: Just myself.

Speaker Change: Are very much on our front foot.

Speaker Change: As they move to take advantage of the opportunities that we see in front of us.

Speaker Change: Frankly never seen as many opportunities now theres a lot of work associated with capitalizing on those opportunities and there will be lots of challenges enforces that he'll be working against us in that endeavor.

Robert Ottenstein: And that was always a little bit disconcerting for us because a disproportionate amount of product moved during double 11. It filled consumer pantries. It often filled some retailer pantries and often filled our inventories and warehouses. It often moved at heavily discounted prices. The amount of movement during that period this year was much lower.

Speaker Change: But but the accomplishments of.

Speaker Change: The mid term past the most recent past the reflection of the work that the organization is doing.

Speaker Change: All the way down the income statement.

Speaker Change: And the innovation progress that I'm seeing not only in market or coming to market.

Speaker Change: But as we review the pipelines across each of the categories also give me.

Speaker Change: A good degree of confidence.

Speaker Change: And as Andrea said, we view that as a good thing, and it's a temporary impact, a quarterly impact, a Q2 impact on the industry, but it moves us into a healthier position. If you think about the medium to longer term, Andre mentioned the expected addition of 200 million middle-income consumers, China's population. That's very encouraging.

Speaker Change: The next question comes from Philip Paul <unk> of Citi. Please go ahead.

Philip Paul: Hey, good morning, everyone.

Philip Paul: I wanted to go back to China.

You've mentioned clearly that there was any impact from the cycling of the 11 11 shipments.

Philip Paul: And can you give us some sense like how how down he was China and SK II during that period and maybe some of the accident rate coming out of December.

Speaker Change: Also, I mentioned I was in homes, I was in stores, I was with our retail partners. They are, and remain, encouraged about the future of China. I was talking to our organization at the end of the trip, our organization in China, and I told them I had never seen such alignment in the market between our intentions and our strategy, our retailer's intentions and their strategy, and the government's intentions and their strategy, all focused on what's being referred to as quality market growth. As Andre suggested, that's a very good thing for us. We can play very effectively and help with that agenda, helping society on a parallel path.

Philip Paul: That gives you some confidence in the improvement in our country in the second half. Thank you.

Speaker Change: I apologize I honestly don't operate at that level of.

Speaker Change: Data.

Speaker Change: Irrigation so I don't have the answer.

Speaker Change: With any degree of specificity specificity.

Speaker Change: But I know the.

Speaker Change: The impact was there.

Speaker Change: I know, it's a good thing for us long term and I apologize, but I'm just going to leave it there.

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Chris Carey: Hi, good morning.

Chris Carey: On the U S. The U S volume growth improvement.

Chris Carey: Is very constructive.

Chris Carey: Quite a bit better than what we can see in the U S. Nielsen data for example, I know the data is far from perfect, but I Wonder if you could just help characterize.

Speaker Change: And so you put all that together, and I agree with Andrea, and I said it earlier. I think the growth potential here remains intact. There are some specific items that exacerbate the trend that you're seeing in the quarter, but I expect this will continue to be a source of both growth and value creation for P&G. Sorry for the long answer, but I think it's important. The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Whether you have any non tracked channel boost or in general will talk about some of the.

Chris Carey: The specifics of what has really driven this volume improvement over the past five quarters and I think maybe just connected to that if you could.

Chris Carey: Theres a lot of debate right now across consumer staples around.

Speaker Change: Jeff what does drive volume improvement.

Jeff: And whether that's promotional activity or increased advertising or or just a lapping of pricing and I find it interesting today.

Steve Powers: Thanks, and good morning. At the risk of provoking another long answer, I guess what struck me this morning is just the confidence and front-footedness, if that's a word, in both of your comments this morning, and I think, Jon, your strategic perspective just struck me as particularly assertive. I say that in the context that, on the outside, I think, faced with some of the market challenges you've called out—China, the Middle East, etc.—this quarter, concerns just kind of grow that the png is likely to be thrown off course or or maybe getting complacent. And I guess my question is, why is that, why is that wrong, and what are your key, the keys to keeping the organization's eye on the ball We do face a lot of challenges in the world that we all live in. And those changes have impacted our business. Stepping back, probably five years.

Jeff: This dynamic up sequential volume volume growth and I Wonder if you can just maybe talk about in general why this seems to be happening and what youre doing to drive this or whether this is just the natural evolution of markets post substantial pricing. So thanks. Thanks, so much for that.

Speaker Change: Yes, Hey, Chris let me start.

Speaker Change: On the non covered channel side, we've seen non covered outpaced cover channeled for a period of time. This is no different there is nothing specific happening there.

Speaker Change: We see a trend of some consumers going into larger.

Pack sizes those are in Colombia those are online.

And many of those effects continue but theres nothing differential between covered and non covered channels. Both are performing well non covered a little bit ahead of covered so that's why you don't see the results in the track data.

Speaker Change: What's driving the growth I would argue.

Speaker Change: It's it's all of the above that you've mentioned right I think we're seeing pricing lapping consumers seeing the pricing normalizing on the shelf, we don't see an increase in promotion depth or frequency quite frankly, we are still operating at about 85% of pre COVID-19 levels from a.

Speaker Change: Volume sold on deal perspective.

Steve Powers: The level of challenge has always existed, whether it was COVID, whether it was the highest consumer inflation in 40 years, whether it was the 50% reduction 5-0 in our profit over two years as a result of commodities, foreign exchange, and transportation costs. And this organization overcame all of that. They've overcome the challenges we faced in the last quarter, and that gives me a huge amount of confidence that we have the ability, the skills, the strategy, and the agility to continue to meet challenges head on and work through them in ways that are constructive, for consumers, for customers, for employees, for society, and for shareholders. We talk a lot internally about complacency and the evils associated with it, so it's front and center in our thought process I have a couple of kind of trite sayings that I use in communicating with the organization, and one of them is that complacency kills.

Speaker Change: Competition is in a similar range for Theres no escalation of promotion.

Speaker Change: But but what drives it is strong innovation.

Speaker Change: Innovation that is focused on growing the market.

Speaker Change: And strong communication of that innovation in a very targeted way leveraging our capability to be very detailed and very intentional on who we talked to at what point in time with what messaging in the U S is probably our most sophisticated market in that regard and it shows in the Rois and the results back too.

Speaker Change: Lauren's question earlier.

Speaker Change: Few examples.

Speaker Change: Just the <unk> business.

Speaker Change: Innovation on the core with the labs razor.

Speaker Change: <unk> provides a growth driver, but adding new jobs to be done like female facial hair removal or mail and.

Female body hair removal incremental jobs that when communicated appropriately have the benefit of the product drive incremental consumption I mentioned oribi penetration still low on the.

Electric toothbrush, and as we're converting more and more users that drives incremental growth with more innovation, but also expansion of the lower priced options of what we buy all three four and five and then the launch of oral <unk>.

Steve Powers: You don't see a complacent organization when you're looking at the breadth of growth that they're delivering, when you're looking at the continued, after a decade, continued work on productivity yielding the kind of margin progress that we saw this quarter. You don't see it as they reinvest that in growing markets and Growing Household Penetration and Shares. We're not immune to it, so you're right to raise it, but I feel, as you said, very strongly that the organization, not just myself, is very much on their front foot as they move to take advantage of the opportunities that we see in front of us. I've frankly never seen such an abundance of opportunities. Now, there's a lot of work associated with capitalizing on those opportunities, and there will be lots of challenges and forces that will be working against us in that endeavor. But the accomplishments of...

Speaker Change: Last example, I'll give you and then I'll, let John add is always Super zero just to cover a few of the categories here.

Speaker Change: Is a new zero the most successful news here in the category, 30% of those users are new to the category.

Speaker Change: So again communication strong innovation premium propositions, and bringing new cruises to the categories, what's driving that accelerated volume growth.

Speaker Change: And I'll just pile on whether I agree with everything that Andre said, so just a couple more examples to show you again the breadth.

Speaker Change: Of the innovation.

Speaker Change: Being commercialized currently.

Speaker Change: He talked about olay very exciting innovation in our hair care business as well, an example, head and shoulders bear.

Speaker Change: Which is a more efficacious anti dandruff offering.

Speaker Change: With the bare minimum number of ingredients nine to be exact.

Steve Powers: The mid-term past, the most recent past, the reflection of the work that the organization is doing all the way down the income statement and the innovation progress that I'm seeing not only in the market or coming to market, but as we review the pipelines across each of the categories, also gives me a good degree of confidence. The next question comes from Filippo Falorni of Citi. Please go ahead. Hey, good morning, everyone. Jon, I wanted to go back to China.

Speaker Change: And an eco friendly package, 45% less plastic.

Speaker Change: And it's one of the drivers of growth, particularly in North America on the head and shoulders brand, which is up 8% fiscal year to date.

Speaker Change: Another example, in a different category Swiffer power mop.

Speaker Change: Which is driving that business up 11% fiscal year to date.

Speaker Change: And is built both volume and value share.

Speaker Change: About a point and a half.

Speaker Change: <unk> level so that's.

Filippo Falorni: You've mentioned clearly that there was an impact from the cycling of the 11-11 shipment. And can you give us some sense, like how down China was in SK-2 during that period and maybe some of the axial rate coming out of December that gives you some confidence in the improvement in the country in the second half? Thank you. I apologize; I honestly don't operate at that level of data aggregation, so I don't have the answer with any degree of specificity.

Speaker Change: And back to Steve's question on complacency.

Speaker Change: This.

Speaker Change: What we need to keep doing.

Speaker Change: And Thats why we talk about.

Speaker Change: The best path forward being doubling down.

Speaker Change: On exactly these things they do drive market. They do drive volume they do drive sales and they do it profitably.

Speaker Change: The next question comes from Andrea Teixeira of Jpmorgan.

Filippo Falorni: But I know the impact was there. I know it's a good thing for us long term, and I apologize, but I'm just going to leave it there. The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Andrea Teixeira: Please go ahead.

Andrea Teixeira: Thank you good morning.

Andrea Teixeira: I wanted to go back to that 4% volume growth commentary in the last century pretending E U.

Focus markets and despite the tough comparison for the cold and flu season since that you had market share gains in laundry and some other key categories. So can you comment on how you exited the quarter.

Chris Carey: Good morning. The US volume growth improvement is very constructive. It's quite a bit better than what we can see in the US Nielsen data, for example. I know the data is far from perfect, but I wonder if you can just help characterize whether you have any non-track channel boosts or, in general, talk about some of the specifics of what has really driven this volume improvement over the past five quarters. And I think maybe just connected to that, if you could, there's a lot of debate right now across consumer staples around just what does drive volume improvement, whether that's promotional activity or increased advertising or just the lapping of pricing. And I find it interesting today that this dynamic of sequential volume growth. And I wonder if you can just maybe talk about in general why this seems to be happening, what you're doing to drive this, or whether this is just the natural evolution of markets post substantial pricing. So thanks so much for that. Yeah, hey Chris, let me start.

Speaker Change: Accordance with Susan Andy last thing in Europe, and separately have you. It seems like the secret of our distribution in the balance of this fiscal year. So any.

Speaker Change: Comment on that and a clarification on China U.

Speaker Change: And you're confident that the growth will resume to the mid single digit level unless somebody that's not a comment.

Speaker Change: But as you commented out John in terms of like the head and shoulder and I now hand carries a day category that new campaign is it comps in here. So I was wondering if you can.

Speaker Change: Elaborate a little bit more than <unk> two in particular, thank you.

Speaker Change: Let me just take China real quick and then turn it over.

Speaker Change: Andre.

Andre Scholten: On the cough cold trends et cetera.

Andre Scholten: The mid single digit number that we referred to as an expectation of longer term market growth you're correct. It.

Speaker Change: On the non-covered channel side, we've seen non-covered channels outpace covered channels for a period of time. This is not different. There's nothing specific happening there. We see a trend of some consumers going into larger pack sizes. Those are in clubs, those are online, and many of those effects continue. But there's nothing differential between covered and non-covered channels.

Andre Scholten: It is not an expectation of ours for either the market or our business in this current fiscal year.

Andre Scholten: On the broader.

Andre Scholten: Beauty question.

Andre Scholten: When you take.

Andre Scholten: S K two in the market impacts in China out of the equation and you see a business that's performing extraordinarily well.

Speaker Change: Both are performing well, non-covered a little bit ahead of covered. So that's why you don't see the results in the track data.

Andre Scholten: I mentioned head and shoulders, which is the largest shampoo brand in the world up 8% fiscal year to date.

Andre Scholten: If you look at North America, Pantene fiscal year to date up 15%.

Speaker Change: What's driving the growth? I would argue it's all of the above that you've mentioned, right? I think we're seeing pricing lapping, consumers seeing the pricing normalize on the shelf. We don't see an increase in promotion depth or frequency, quite frankly. We are still operating at about 85% of pre-COVID levels from a volume sold deal perspective, and competition is in a similar range, so there's no escalation of promotion.

Andre Scholten: Our skin and personal care business up double digits.

Andre Scholten: Same is true for the beauty business and.

Andre Scholten: And enterprise.

Andre Scholten: And then Europe.

Andre Scholten: So it's a very strong bid.

Andre Scholten: <unk> benefiting from the exact same strategies, obviously applied differently that we're executing across the balance of the company.

Andre Scholten: And that will over time as the market corrects itself.

Speaker Change: But what drives it is strong innovation, innovation that is focused on growing the market and strong communication of that innovation in a very targeted way, leveraging our capability to be very detailed and very intentional about who we talk to at what point in time with what messaging. And the U.S. is probably our most sophisticated market in that regard, and it shows in the ROIs and in the results. Back to Lauren's question earlier. A few examples, just the Gillette business. Innovation on the core with the Laps razor provides a growth driver, but adding new jobs to be done like female facial hair removal or male and female body hair removal, incremental jobs that, when communicated appropriately about the benefit of the product, drive incremental consumption. I mentioned Oral-B.

Andre Scholten: Be demonstrated in China as well.

Andre Scholten: So on the other two questions on PHC Andrea look the business is obviously.

Very very strong test per year average growth rate of 13%.

Andre Scholten: So the underlying strength of the business is very healthy.

Andre Scholten: We see an impact of the cold cough season.

Andre Scholten: <unk> is still above average, but its below a record season last year, and it's developing a little bit slower.

Andre Scholten: In the in the current in the current profile.

Andre Scholten: Which means there could be some upside coming.

Speaker Change: We as we as time goes by last year VIX was 28% in the same quarter. So you can see the high base that we mentioned in the prepared remarks, just one thing on that sorry to interrupt to Andre.

Andre Scholten: I think is relatively straightforward, but it's worth mentioning.

Speaker Change: As we were all.

Speaker Change: Coming out of.

Speaker Change: Covid.

Speaker Change: Going through our first half or not.

Speaker Change: Penetration is still low for the electric toothbrush, and as we're converting more and more users, that drives incremental growth with more innovation, but also expansion of the lower-priced options of Oral-B IO 3, 4, and 5, and then the launch of Oral-B 10. The last example I'll give you, and then I'll let Jon add, is Olay Super Serum, just to cover a few of the categories here. It's a new serum, the most successful new serum in the category. 30% of those users are new to the category. So again, communication, strong innovation, premium propositions, and bringing new crews to the category are what's driving that accelerated volume growth. And I'll just pile on with, I agree with everything that Andre said, so just a couple more examples to show you, again, the breadth of the innovation that's being commercialized currently. He talked about Olay, a very exciting innovation in our hair care business as well. An example is Head & Shoulders, by Bayer, which is a more efficacious anti-dandruff offering with the bare minimum number of ingredients, nine to be exact.

Non COVID-19 or light Covid cough cold season, it's not surprising.

Speaker Change: Having spent time in our homes for the last two to three years at the level of immunity was not high and therefore the level of incidents was very high.

Speaker Change: So thats what were.

Speaker Change: Annualized <unk> against combined with a slower start to the normal season as Andre says, we'll wait to see how that.

Speaker Change: All materializes.

Speaker Change: We have seen some increase in incidents you can probably hear a little bit of a frog in my voice. This morning, I heard one Andreas.

Speaker Change: Sure.

Speaker Change: Alright, well contributing.

Speaker Change: Hey, just last point on <unk>, if you look at the share development in every treatment area that we cover and PHC were up and share in.

Speaker Change: And every treatment area, we're up in organic sales across regions. So.

Speaker Change: Again, it's purely a seasonal element on distribution Andrea I won't give you a.

Speaker Change: And answer other than obviously driving innovation driving incremental sales for our retail partners driving category growth helps with their desire to have our brands present on their shelf.

Speaker Change: In an eco-friendly package, 45% less plastic. And it's one of the drivers of growth, particularly in North America, for the Head & Shoulders brand, which is up 8% fiscal year today. Another example in a different category is the Swiffer Power Mop, which is driving that business up 11% fiscal year to date and has built both volume and value share at about a point and a half level. So that's.

Speaker Change: The next question comes from Peter Grom of UBS. Please go ahead.

Peter K. Grom: Thanks, operator, and good morning, everyone.

Peter K. Grom: I know you maintained your commodity outlook. This morning, but just given the first half performance the outlook does not embed as much of a tailwind from here, which you alluded to Andre but can you maybe just unpack what you're seeing across your key cost buckets, where are things getting better we are things getting worse and maybe just based.

Speaker Change: And back to Steve's question on complacency, that's what we need to keep doing. And that's why we talk about the best path forward being doubling down on exactly these things. They do drive the market, they do drive volume, they do drive sales, and they do it profitably. Our next question comes from Andrea Teixeira of J.P. Morgan. Please go ahead.

Andre Scholten: On current spot rates like how should we think about the phasing would you expect deflation in both <unk> and <unk> or is there any potential for cost to become a headwind as we exit the year. Thanks.

Speaker Change: Hey, Peter.

Peter K. Grom: The commodity basket is wide complex and changing very quickly. So the best guess, we have is what we told you $800 million of tailwind for the year, which the majority of which has been flowing through the P&L in the front half.

Andrea Teixeira: Thank you. Good morning. So I wanted to go back to that 4% volume growth commentary in the U.S. and 3% in the EU focus markets. And despite the tough comparison for the cold and flu season, it seems that you had market share gains in laundry and some other key categories. So can you comment on how you fared in the quarter for the cold and flu season in the U.S. and in Europe? And separately, it seems that you secured more distribution for the balance of this fiscal year. So any comment on that?

Peter K. Grom: What I will leave you with I don't expect any headwind from commodity in the second half it continues to be a tailwind.

Peter K. Grom: The second thought I'll leave you with is the.

Peter K. Grom: The impact on the P&L given the time it takes for commodity changes to flow through our contract structures and our own variance holding policy make the time less significant.

Peter K. Grom: So even if we saw significant volatility on commodity spot prices the impact on the fiscal will decrease over time simply because of those two dynamics, but continue to expect tailwind just less than you saw in <unk>.

Andrea Teixeira: And a clarification on China: you said that you're confident that growth will resume to the mid-single-digit level. I'm assuming that's not a comment on this fiscal year. But as you commented out, Jon, in terms of like the head and shoulder, and I know haircare is a big category there and you're comping easy comps in hair. So I was wondering if you could elaborate a little bit more on FK2 in particular. Thank you.

Peter K. Grom: <unk>.

The next question comes from Jason English of Goldman Sachs. Please go ahead.

Jason English: Good morning folks. Thanks for slipping me in an elite happy new year to you all.

Jason English: A couple of questions. We've talked a few times about the North America volume strength I had in my notes that you are lapping some under shipment that should have been a couple of point benefit to this quarter, yet I don't think you've mentioned it so far so am I wrong with certain was or not and a sizeable transitory benefit this quarter.

Speaker Change: Let me just take China real quick and then turn it over to Andre, um, on the cough-cold trend, etc. The mid-single-digit number that we referred to is an expectation of longer-term market growth. You're correct. It is not an expectation of ours for either the market or our business in this current fiscal year. On the broader beauty question...

Jason English: And then it's encouraging to hear the confidence that youre expressing around sort of it sounds like an immediate improvement in SK, two words like recovery and improvement throughout the back half.

Andre Schulte: When you take SK-II and the market impact in China out of the equation, you see a business that's performing extraordinarily well. I mentioned Head & Shoulders, which is the largest shampoo brand in the world, up 8% fiscal year-to-date. If you look at North America, Pantene's fiscal year today is up 15%. Our skin and personal care business is up double digits. The same is true for the beauty business in... and Enterprise LA, and then Europe.

Jason English: The decline is sort of half related to Japan, boycotts and have really to market conditions, where you're seeing the improvement is that dissipating concerns around Japanese brands or are you actually see an improvement in market conditions. Thank you.

Jason English: So the volume we.

Speaker Change: We don't see a transitory effect on the volume side, Jason Good morning first of all.

Speaker Change: So the base Theres always some base volatility as you know in terms of inventories in terms of our ability to ship, but there is no material impact that I would call out that would have to be taken into account as you look at the U S volume results. So no nothing there.

Andre Schulte: So it's a very strong business benefiting from the exact same strategies, obviously applied differently, that we're executing across the balance of the company. And that will, over time, as the market corrects itself, be demonstrated in China as well. So on the other two questions, on PHC, Andrea, look, the business is obviously very, very strong, with a past four-year average growth rate of 13 percent. So the underlying strength of the business is very healthy. We see the impact of the cold and cough season. The season is still above average, but it's below a record season last year.

Speaker Change: The SK to improvement.

Again, I would I want to.

Speaker Change: Pace expectations, but the improvement is really in the consumer sentiment that we're seeing.

Speaker Change: Where we had very highest social media coverage in quarter, one leading to negative sentiment and negative top of mind awareness of the brand that is now dying down.

Speaker Change: Honestly, most consumers have gone back to a neutral position open to SK too and so what we're doing is really doubling down with innovation and doubling down with communication on the efficacy the quality of the product the quality of the brand and leveraging the most loyal and passionate consumer group to help us make the case for SK II.

Andre Schulte: And it's developing a little bit slower in the current profile, which means there could be some upside coming as time goes by. Last year, VIX was 28 percent in the same quarter, so you can see the high base that we mentioned in the prepared remarks. Just one thing on that, sorry to interrupt, Andre, that I think is relatively straightforward, but it's worth mentioning. As we were all coming out of... COVID, going through our first non-COVID or light COVID cough cold season. It's not surprising, having spent time in our homes for the last two to three years, that the level of immunity was not high, and therefore, the level of incidence was very high.

Speaker Change: Which we believe will help us improve run rates in the second half the market dynamics.

Speaker Change: We continue to see bumpy, even over the next quarters, improving but there will be volatility there.

Speaker Change: It's just a.

Speaker Change: Yes.

Speaker Change: An N of one Jason.

Speaker Change: Kind of irrelevant, but.

Speaker Change: I was in the home of a heavy SK to user and Beijing.

Speaker Change: And.

Speaker Change: I asked her about this dynamic and how it has affected and herb.

Speaker Change: Purchasing and she kind of laughed and it wasn't the normal.

Andre Schulte: So that's what we're annualizing against, combined with a slower start to the normal season. As Andre says, we'll wait to see how that all materializes. We have seen some increase in incidents. You can probably hear a little bit of a frog in my voice this morning, and I heard one on Andre's.

Speaker Change: Nervous laugh.

Speaker Change: And she said she followed that up with.

Speaker Change: Of Japanese consumers are.

Speaker Change: Afraid of this why should I be.

Speaker Change: And she said I am much more.

Speaker Change: Much more afraid of the temple that I will get if I don't use this.

Speaker Change: Than I am about so it's starting to normalize again.

Speaker Change: One.

Speaker Change: It was also interesting to me to see.

Andre Schulte: Right, we're contributing. Hey, just last point on PHC, if you look at the share development, in every treatment area that we cover in PHC, we're up in share. In every treatment area, we're up in organic sales across regions. So again, it's purely a seasonal element.

Speaker Change: What was happening with her personal inventory.

Speaker Change: Just looking at the liquid fill levels in the bottles, which were low.

Speaker Change: So I think there is a dynamic as well where a number of consumers just.

Waited to see how this whole thing played out and reduce their.

Speaker Change: Personal stocks in the process.

Speaker Change: But.

Andre Schulte: On distribution, Andrea, I won't give you an answer other than obviously driving innovation, driving incremental sales for our retail partners, and driving category growth helps with their desire to have our brands present on their shelves. The next question comes from Peter Grom of UBS. Please go ahead.

Speaker Change: Again, thats, probably neither here, nor there, but I thought it was worth sharing.

Speaker Change: The next question comes from Callum Elliot of Bernstein. Please go ahead.

Callum Elliot: Hi, Good morning. My question guys is about your enterprise market restructuring, which I think in the release you describe as substantial liquidation of the affected markets.

Peter K. Grom: Thanks, operator, and good morning, everyone. So I know you maintained your commodity outlook this morning, but just given the first half performance, the outlook does not, you know, invent as much of a tailwind from here, which you alluded to, Andre, but can you maybe just unpack what you're seeing across your key cost buckets? Where are things getting better? Where are things getting worse?

Callum Elliot: In places like Argentina, and Nigeria.

Callum Elliot: And I guess look recognizing that these are not huge markets for you today.

Callum Elliot: From a profit perspective still feels like a <unk>.

Callum Elliot: Extreme decision.

Peter K. Grom: And maybe just based on current spot rates, like how should we think about the phasing? Would you expect deflation in both 3Q and 4Q? Or is there any potential for cost to become a headwind as we exit the year? Thanks. Hey Peter.

And clearly a challenging macro backdrop today in those markets.

Callum Elliot: In the case of Nigeria, probably one of the highest long term potential.

Callum Elliot: Economic markets.

My question is John.

Speaker Change: I know these enterprise markets for you.

Speaker Change: Baby so to speak for a number of years, just hoping you can walk us through what I imagine must have been a difficult strategic decision.

Speaker Change: The commodity basket is wide, complex, and changing very quickly. So the best guess we have is what we told you, 800 million of tailwind for the year, the majority of which has been flown through the P&L in the front half. What I'll leave you with is that I don't expect any headwind from commodity prices in the second half; it continues to be a tailwind. The second thought I leave you with is the impact on the P&L given the time it takes for commodity changes to flow through our contract structures and our own variance holding policy makes the time lag significant. So even if we saw significant volatility in commodity spot prices, the impact on the fiscal deficit will decrease over time simply because of those two dynamics, but continue to expect tailwinds just less than you saw in half one. The next question comes from Jason English of Goldman Sachs. Please go ahead. Hey, good morning, folks. Thanks for slotting me in, and a belated Happy New Year to y'all.

Speaker Change: Yes.

Speaker Change: Decisions are not taken lightly.

Speaker Change: A couple of points one is.

Speaker Change: Where we're moving to an import model.

What will be the case in Nigeria, we maintain.

Speaker Change: An option on the future of those brands and those markets are just choosing to operate in a way that's.

Speaker Change: That frankly is viable.

Speaker Change: Get into some tough situations in some of these markets with currency controls.

Speaker Change: With pricing controls with the ability to.

Speaker Change: Uh huh.

Speaker Change: To dividend money.

Speaker Change: Out of these markets.

Speaker Change: And at some point you run into a set of conditions that just make it impossible to operate.

Speaker Change: You can't get you can't source dollars as an example in order to purchase the ingredients and raw materials, you need to manufacture your products.

Jason English: A couple questions. We've talked a few times about North America volume strength. I had in my notes that you're lapping some undershipment that should have been a couple-point benefit to this quarter, yet I don't think you've mentioned it so far. So, am I wrong?

Speaker Change: And so.

Speaker Change: We've come to a decision.

Speaker Change: When those such situations present themselves.

To be.

Speaker Change: <unk> to be value creative.

Jason English: Wasn't there a sizable transitory benefit this quarter? And then it's encouraging to hear the confidence that you're expressing around sort of what sounds like an imminent improvement in SK-2 with words like recovery and improvement throughout the back half. With the decline sort of half related to Japan boycotts and half related to market conditions, where are you seeing the improvement? Is that dissipating concerns around Japanese brands, or are you actually seeing improvement in market conditions? Thank you.

Speaker Change: And to flow resources to.

Speaker Change: Bigger.

Speaker Change: Opportunities that present more nearer term opportunity while in some cases, maintaining our optionality on the long term Andre I don't know if you want to add I think yes, I just wanted to clarify because the strategic intend to release, what John described right.

Andre Scholten: Moving in Nigeria to an important market, we will still be present, but it is a better way to serve the consumer in a better way for us to create value in Argentina, we are divesting, our fabric and home care business and again looking to find a better go to market model. The language you are quoting kellam as sustained substantial liquidation that's an accounting term.

Speaker Change: So the volume, we don't see a transitory effect on the volume side, Jason, morning first of all. So the base, there's always some base volatility, as you know, in terms of inventories, in terms of our ability to ship, but there is no material impact that I would call out that would have to be taken into account as you look at the U.S. volume results, so nothing there. The SK2 improvement, again, I want to pace expectations, but the improvement is really in the consumer sentiment that we're seeing, where we had very high social media coverage in quarter one, leading to negative sentiment and negative top-of-mind awareness of the brand. That is now dying down, and honestly, most consumers have gone back to a neutral position open to SK2, and so what we're doing is really doubling down on innovation and doubling down on communication on the efficacy, the quality of the product, the quality of the brand, and leveraging the most loyal and passionate consumer group to help us make the case for SK2, which we believe will help us improve run rates in the second half.

Andre Scholten: Accounting term is.

Andre Scholten: It is really defining the point at which we recognize the accumulated foreign exchange translation loss in those markets, which is part of that noncash restructuring that we talked about so the accounting term doesn't represent the business execution. It is a technical term that once we get to that point a substantial liquidation we will recognize.

Andre Scholten: The accumulated foreign exchange translation loss.

Speaker Change: By the way is a prior CFO would have had no hope of explaining that to you as Alec quickly is the current CFO just debt.

Speaker Change: I won't comment.

Speaker Change: Yeah.

Speaker Change: The next question comes from Olivia Tong of Raymond James. Please go ahead.

Olivia Tong: Great. Thanks.

Olivia Tong: Morning.

Olivia Tong: Clearly you've generated some impressive growth in the U S and Europe, sorry, when you bring it back to developed markets.

Olivia Tong: We've held on very nicely.

Olivia Tong: I wanted to ask you about competitive response at any cost back from retailers.

Olivia Tong: Sure.

Olivia Tong: Most income comfortable.

Olivia Tong: Given this.

Olivia Tong: Sure.

Olivia Tong: Are you seeing any any response there thanks.

Speaker Change: You want to talk competitive promotion Andre and I will talk customers happy too.

Speaker Change: Hey, Olivia so.

Speaker Change: The market dynamics, we continue to see bumpy, even over the next quarters, improving, but there will be volatility there. It's just an N of one, Jason, so it's kind of irrelevant, but I was at the home of a heavy SK-2 user in Beijing, and I asked her about this dynamic and how it was affecting her purchasing, and she kind of laughed, and it wasn't normal. Nervous Laugh, and she said, followed that up with, if Japanese consumers aren't afraid of this, why should I be? And she said, I'm much more afraid of the pimple that I will get if I don't use this than I am about it. So it's starting to normalize again. That's an N of 1.

Speaker Change: I started to mention this in the U S. Our promotion levels still below pre COVID-19 about an 85 index competitive promotion level around 90 index. So very similar we don't see a substantial increase in either depth of frequency in the U S.

Speaker Change: In Europe, we do see an increase in frequency, we do not see any increase in depth actually.

Speaker Change: Both.

Frequency and depth are still below pre COVID-19 levels, but frequency is increasing.

So.

Speaker Change: Competitive environment still.

Speaker Change: Stable and I think it's also driven by the fact that we are driving growth, we are driving market growth and that contributes to the share growth, which means we can grow but also it doesn't drive.

Speaker Change: It was also interesting to me to see what was happening with her kind of personal inventory and just look at the liquid fill levels in the bottles, which were low. So I think there's a dynamic as well where a number of consumers just kind of waited to see how this whole thing played out and reduced their personal stocks in the process. But again, that's probably neither here nor there, but I thought it was worth sharing. The next question comes from Callum Elliott of Bernstein. Please go ahead.

Speaker Change: Necessarily negative cycles in terms of pricing in the market.

Speaker Change: The whole idea just building on <unk> last point, there is to create business not take business.

Speaker Change: And that works out well for us it works out well for the categories that we compete in and it works out well for our retail partners.

Callum Elliott: Hi, good morning. My question, guys, is about your enterprise market restructuring, which I think, in the release you describe as a substantial liquidation of the affected companies in places like Argentina and Nigeria. And I guess, look, recognizing that these are not huge markets for you today. From a profit perspective, this still feels like a fairly extreme decision, and clearly a challenging macro backdrop today in those markets. In the case of Nigeria, probably one of the highest potential long-term economic markets. So, my question is, Jon...

Speaker Change: And that is really.

Speaker Change: The focus of the existing interchange with our retail partners.

Speaker Change: It was.

Speaker Change: Number one two and three supply.

Speaker Change: As we've said.

Speaker Change: Solidified our supply chains.

Speaker Change: The conversation moves very quickly to how do we work together to grow markets.

Speaker Change: That's a win win win win win proposition and a win for them a win for US a win for our consumers.

Callum Elliott: I know these enterprise markets for you all, baby, so to speak, for a number of years. Just hoping you can walk us through what I imagine must have been a difficult strategic decision. Yeah, these decisions are not taken lightly.

Speaker Change: And of course.

Speaker Change: Adding a fourth win for <unk>.

Speaker Change: Our shareowners.

Speaker Change: So that's the state of play.

Speaker Change: A couple of points. One is that where we're moving to an import model, which will be the case in Nigeria, we maintain an option on the future of those brands in those markets. We're just choosing to operate in a way that's frankly viable. You get into some tough situations in some of these markets with currency controls, with pricing controls, with the ability to... Dividend money out of these markets, and at some point, you run into a set of conditions that just make it impossible to operate. You can't get, you can't source dollars, as an example, in order to purchase the ingredients and raw materials you need to manufacture your products, and so, we've come to a decision when those situations present themselves: to be pragmatic, to be value creative, and to flow resources to bigger opportunities that present more near-term opportunities while, in some cases, maintaining our optionality over the long term. Andrea, I don't know if you want to add anything to that.

Speaker Change: Experienced that in Europe, I experienced I was in Europe, just before Christmas.

Speaker Change: As you know I was just in China that was the <unk>.

Speaker Change: Sure of the conversation there and its clearly the nature of the conversation here in the U S.

Speaker Change: The next question comes from Mark Astrachan of Stifel. Please go ahead.

Mark Stiefel Astrachan: Thanks, and good morning, everybody.

Mark Stiefel Astrachan: I wanted to go back to China for.

Speaker Change: Great I guess on this call.

The last quarter, you guys had talked about a portfolio structure examination I guess I'm curious whether there is.

Speaker Change: Any update on that or what even does that that mean and maybe specifically.

Speaker Change: Any underlying changes in consumer attitude towards beauty as a category, including what is perceived to be relevant by brand or efficacy.

Speaker Change: And also sort of related to that it just seems a bit more of a nickel category more trendy category than some of the others that you're in.

Speaker Change: Specifically talking in China as opposed to globally.

Speaker Change: So you can sort of parse out that I guess, if you want but any thoughts on maintaining a presence in a category that has more.

Andrea Teixeira: Yes, I just want to clarify because the strategic intent really is what Jon described. We are moving Nigeria to an import market. We will still be present, but it's a better way to serve the consumer and a better way for us to create value. In Argentina, we are divesting our fabric and home care business and are again looking to find a better go-to-market model. The language you're quoting, Callum, is substantial liquidation. That's an accounting term. And that accounting term is really defining the point at which we recognize the accumulated foreign exchange translation loss in those markets, which is part of that non-cash restructuring that we talked about. So the accounting term doesn't really represent business execution.

Objective sort of usage than some of your other categories on everyday usage.

Okay.

Speaker Change: I'd offer a couple of thoughts.

Speaker Change: One China is our second largest market sales and profits.

Speaker Change: Beauty represents a significantly disproportionate amount of the business.

Speaker Change: So if we werent committed to the beauty business in China, you would have to ask yourself a different question.

Speaker Change: Second when we did our significant portfolio restructuring however, many years ago that was now.

Speaker Change: And to daily use categories, where performance drives brand choice, we did the same with beauty.

Speaker Change: Exiting the most fickle.

Speaker Change: To use your semantics.

Speaker Change: <unk> of the business.

Andrea Teixeira: It is a technical term that once we get to that point of substantial liquidation, we will recognize the accumulated foreign exchange translation loss. By the way, the prior CFO would have had no hope of explaining that to you as eloquently as the current CFO just did. But I won't comment.

Speaker Change: We exited what I call fashions fashion fragrance.

Speaker Change: Fragrances and flavors.

Speaker Change: The brands that we have remaining are the categories that we play out and there is real opportunity.

Speaker Change: To drive long term loyalty with superior performance.

Speaker Change: It's true in China, that's true outside of China.

Andrea Teixeira: The next question comes from Olivia Tong of Raymond James; please go ahead. Great, thanks. Good morning.

Speaker Change: And.

Speaker Change: There will always be a.

Olivia Tong: Clearly, you've generated some impressive growth in the US and Europe. So I wanted to bring it back to the developed markets, and you've held on very nicely to price. So I want to ask you about competitive response and any pushback from retailers, or increased promotion from competition, given the share gains you've made and whether you're seeing any response there. Thank you.

Speaker Change:

Speaker Change: A higher trial rate in that category.

Then.

Speaker Change: There are many other categories.

Speaker Change: That's not a bad thing it helps demonstrate the superiority of what we do offer.

Speaker Change: And people come back to our brands. So now the question is commitment to beauty in China. The answer is yes.

Speaker Change: You want to talk competitive promotion, Andrea, and then I'll talk customers? Hey Olivia, so I started to mention this in the US, our promotion level is still below pre-COVID, about an 85 index, competitive promotion level around a 90 index, so very similar. We don't see a substantial increase in either depth or frequency in the US. In Europe, we do see an increase in frequency, but we do not see any increase in depth.

Speaker Change: Our final question will come from Edward Lewis of Redburn Atlantic. Please go ahead.

Edward Lewis: Yes, thanks very much.

Edward Lewis: We've been accustomed to strong performance in the U S for a number of years, but some notable to see the strong performance in Europe again with volume.

Rice I guess that comes at a time when spending scrutiny on pricing levels. So can you talk more about what's behind the strong results for.

Edward Lewis: For Europe at present.

Olivia Tong: Actually, both frequency and depth are still below pre-COVID levels, but frequency is increasing. So, the competitive environment is still stable. And I think it's also driven by the fact that we are driving growth. We are driving market growth. And that contributes to share growth, which means we can grow, but also it doesn't necessarily drive negative cycles in terms of pricing in the market. The whole idea, just building on Andrea's last point there, is to create business, not take business. And that works out well for us.

Edward Lewis: Alright.

Edward Lewis: Nope.

Edward Lewis: I think the execution of the strategy in Europe is really behind the strength of the results.

The team has done a fantastic job in combining the price increases that needed to be taken to recover the commodity cost increases with very strong innovation that delights the consumer at the time when they see higher pricing materialize on the shelf.

Edward Lewis: And thats really behind the.

Edward Lewis: Benign volume impact as we took the pricing and behind the acceleration of volume growth no debt pricing is established in the market.

Edward Lewis: We've done that a few examples John mentioned, Ariel mentioned earlier as well, but Ariel.

Olivia Tong: It works out well for the categories that we compete in, and it works out well for our retail partners. And that is really the focus of the existing interchange with our retail partners. It was number one, two, and three supply. As we've solidified our supply chains, the conversation moves very quickly to, "How do we work together to grow markets?" That's a win-win proposition.

Edward Lewis: Pods in a more sustainable packaging launched with the price increase that we needed to take has been building organic sales by up to 20% or higher.

Edward Lewis: So the results are really a combination of strong innovation pricing and therefore, maintaining consumers coming into the franchise and trading up not different from the U S.

Edward Lewis: We convinced ourselves for years.

Olivia Tong: A win for them, a win for us, a win for consumers, and, of course, adding a fourth wind for shareowners. So that's the state of play, and I experienced it in Europe. I was in Europe just before Christmas. If you know, I was just in China. That was the nature of the conversation there, and it's clearly the nature of the conversation here in the U.S. The next question comes from Mark Astrachan of Stiefel. Please go ahead.

Edward Lewis: What matter most in Europe was price specifically the lower the better.

Edward Lewis: And that wasn't an uninformed decision you had the highest development of.

Edward Lewis: Of heavy discounters for example, in Europe, which would indicate that prices and important part of the consumer value proposition.

Edward Lewis: But as Andre said.

Edward Lewis: In the last number of years, we've really pushed innovation as a driver of value not forgetting about Val.

Edward Lewis: Value, but delivering it through performance.

Mark Stiefel Astrachan: Thanks and good morning everybody, for a great time. I guess, on this call. In the last quarter, you guys talked about a portfolio structure examination. I guess I'm curious whether there are any updates on that? Or even what that means.

Edward Lewis: And that combined with the.

Edward Lewis: Execution capability of that market, which has just been phenomenal and I want to thank them all as long as you have given me the opportunity to do that.

Edward Lewis: Has led to just really terrific results and I believe sustainable.

Mark Stiefel Astrachan: And maybe specifically, any underlying changes in consumer attitude towards beauty as a category, including what is perceived to be relevant by brand or efficacy? And also, sort of related to that, it just seems a bit more of a fickle category, a more trendy category than some of the others that you're in. And I guess I'm specifically talking about China, as opposed to globally. So you can parse that, I guess, if you want.

Edward Lewis: Sustainable results.

Speaker Change: Great. Thank you for your time. This morning, I know, it's a little bit of a difficult quarter to unpack, there's a lot going on the net of that although as very positive strong.

Speaker Change: Really strong earnings per share growth.

Speaker Change: While increasing investments in the business, both present and future.

Mark Stiefel Astrachan: But any thoughts on maintaining a presence in a category that has a more subjective sort of usage than some of your other categories on everyday? Thanks. I'd offer a couple thoughts there. One, China is our second largest market. Sales and profits. Beauty represents a significantly disproportionate amount of the business. So if we weren't committed to the beauty business in China, you'd have to ask yourself a different question. Second, when we did our significant portfolio restructuring, however many years ago that was now, into daily use categories where performance drives brand choice, we did the same with beauty, exiting the most fickle, to use your semantics, portions of the business. We exited what I call fashion fragrances and flavors. The brands that we have remaining and the categories that we play in, there's real opportunity to drive long-term loyalty with superior performance.

Speaker Change: Maintaining.

Speaker Change: Topline momentum building volume momentum and building share.

Speaker Change: Sure.

Speaker Change: As I Express before I have a high degree of confidence in our ability to achieve a level of success going forward in that space entirely.

Speaker Change: Both the strategy and the.

Speaker Change: The ability of our organization to deliver against that.

Speaker Change: Look forward to seeing many of you.

Speaker Change: At.

Speaker Change: At Cagny in a month or so.

Speaker Change: And we will.

Speaker Change: We will advance the conversation at that point.

Speaker Change: We're around John Chevalier sitting across the table from me right now he is around all day Andres around.

Speaker Change: They'll get angry if you call me, so I'll call them.

Speaker Change: Yeah.

Speaker Change: Right.

Speaker Change: Have a great day thanks.

Speaker Change: That concludes today's conference. Thank you for your participation you may now disconnect have a great day.

Mark Stiefel Astrachan: That's true in China, that's true outside of China, and there will always be a higher trial rate in that category than in many other categories. That's not a bad thing. It helps demonstrate the superiority of what we do offer, and people come back to our brand. So if the question is commitment to beauty in China, the answer is yes.

Have a great day.

Mark Stiefel Astrachan: Our final question will come from Edward Lewis of Redburn Atlantic. Please go ahead. Yes, thanks very much. We've been accustomed to strong performance in the US for a number of years, but it's notable to see the strong performance in Europe, again, with volume and price. I guess that comes at a time when there's plenty of scrutiny over here on pricing levels. Can you talk more about what's behind the strong results for Europe at present?

Edward Lewis: I think the execution of the strategy in Europe is really behind the strength of the results. The team has done a fantastic job of combining the price increases that needed to be taken to recover the commodity cost increases with very strong innovation that delights the consumer at the time when they see higher prices materialize on the shelf. And that's really behind the benign volume impact as we took pricing and behind the acceleration of volume growth now that pricing is established in the market. We've done that, you know, a few examples.

Edward Lewis: Jon mentioned Ariel, and I'll mention Ariel as well. But Ariel pods in a more sustainable packaging launched with the price increase that we needed to take have been building organic sales by up to 20% or higher. So the results are really a combination of strong innovation, pricing, and therefore maintaining consumers coming into the franchise and trading up, not different from the U.S. We convinced ourselves for years that what mattered most in Europe was price, specifically the lower the better. And that wasn't an uninformed decision. You had the highest development of heavy discounters, for example, in Europe, which would indicate that price is an important part of the consumer value proposition.

Edward Lewis: But, as Andre said, in the last number of years, we've really pushed innovation as a driver of value, not forgetting about value, but delivering it through performance. And that, combined with the executional capability of that market, which has just been phenomenal, and I want to thank them all, as long as you've given me the opportunity to do that, has led to really terrific results, and I believe sustainable results. Great. Thank you for your time this morning. I know it's a little bit of a difficult quarter to unpack. There's a lot going on. The net of that, though, is very positive, strong, really strong earnings per share growth while increasing investments in the business, both present and future, maintaining top line momentum, building volume momentum, and building share.

Edward Lewis: As I expressed before, I have a high degree of confidence in our ability to achieve a level of success going forward, and that's based entirely on both the strategy and the ability of our organization to deliver against it. Look forward to seeing many of you at CAGNY in a month or so, and we'll advance the conversation at that point. We're around; Jon Chevalier is sitting across the table from me right now; he's around all day, Andre's around. They'll get angry if you call me, so call them.

Speaker Change: But have a great day. Thanks. That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.