Q3 2024 Procter & Gamble Co Earnings Call

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

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

Operator: 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 Schulten.

This discussion will include a number of forward looking statements.

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

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

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

Now I will turn the call over to <unk>, Chief Financial Officer Andre Scholten.

Andre Schulten: Good morning, everyone. Joining me on the call today is Jon Chevalier, Senior Vice President, Investor Relations. Execution of our integrated strategy drove solid sales and market share results and another quarter of strong earnings and cash results. The strong results we've delivered in the first three quarters 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.

Andre Schulten: Good morning, everyone. Joining me on the call today is John Chevalier Senior Vice President Investor Relations.

Andre Schulten: Execution of our integrated strategy drove solid sales and market share results in another quarter of strong earnings and cash results.

Andre Schulten: The strong results we've delivered in the first three quarters 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 cost productivity and cash returned to shareowners.

Andre Schulten: Specifically on the numbers, organic sales grew 3%, and volume was in line with the prior year, showing sequential progress. Pricing contributed three points to sales growth as we continue to annualize price increases taken last fiscal year. However, mix was neutral to organic sales growth. The growth across categories continues to be broad-based, with 8 of 10 product categories holding or growing organic sales in this quarter. Blooming Organic Sales grew double digits, home care, and hair care up high singles. Orcair grew mid-single digits. Fabric care, family care, feminine care, and personal health care were up low singles.

Andre Schulten: Specifically on the numbers organic sales grew 3% volume was in line with prior year showing sequential progress.

Andre Schulten: Pricing contributed three points to sales growth as we continue to annualize price increases taken last fiscal year.

Andre Schulten: Mix was neutral to organic sales growth and growth across categories continues to be broad based with eight of 10 product categories, holding or growing organic sales in this quarter.

Andre Schulten: Looming organic sales grew double digits.

Andre Schulten: Home care and hair care up high singles.

Andre Schulten: Oral care grew mid single digits.

Andre Schulten: Fabric care family care feminine care.

Andre Schulten: And personal health care were up low singles.

Andre Schulten: Skin and Personal Care and Baby Care Organic Sales were lower versus prior years. However, growth was also broad-based across geographies. North America, Europe, and Asia-Pacific focus markets, and Latin America and Europe enterprise markets are each growing organic sales. Global aggregate value share was up versus prior year, with 29 of our top 50 category country combinations holding or growing share. Focus markets grew organic sales 2% for the quarter, and enterprise markets grew 4%.

Andre Schulten: In personal care and baby care organic sales were lower versus prior year.

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

Global aggregate value share was up versus prior year with 29 of our top 50 category country combinations holding or growing share.

Andre Schulten: Bulk of markets grew organic sales, 2% for the quarter and enterprise markets grew 4%.

Andre Schulten: Organic sales in North America grew 3% with 3 points of volume growth. Over the last four quarters, volume growth in North America has been plus 2%, plus 3%, plus 4%, and now plus 3%. These results include over a point of impact from retail inventory reductions, primarily in personal health care. However, consumer demand for P&G brands remains very strong in the U.S., with all-outlet consumption value growth of 5%, and all-outlet value share was up 10 basis points versus prior year.

Andre Schulten: Organic sales in North America grew 3% with three points of volume growth.

Andre Schulten: Over the last four quarters volume growth in North America has been plus 2% plus three plus four and now plus three.

Andre Schulten: These results include over a point of impact from retail inventory reductions primarily in personal health care.

Andre Schulten: Consumer demand for P&G brands remains very strong in the U S with all outlet consumption value growth of 5%.

Andre Schulten: All outlet value share was up 10 basis points versus prior year.

Andre Schulten: U.S. volume share was up 40 basis points, reflecting continued strong volume growth ahead of the underlying market. The gap between consumer offtake of 5% compared to our U.S. sales growth of 3% reflects the aforementioned trade inventory reductions in the quarter.

Andre Schulten: U S volume share was up 40 basis points, reflecting continued strong volume growth ahead of the underlying market.

Andre Schulten: The gap between consumer offtake of 5% compared to our U S sales growth of 3% reflects the aforementioned trade inventory reductions in the quarter.

Andre Schulten: Yeah.

Andre Schulten: Europe's focus markets were up 7% with 4 points of volume growth. Value share in Europe's focus markets was up 100 basis points over the past 3 months. Latin America's organic sales were up 17%.

Andre Schulten: Europe focused markets were up 7% with four points of volume growth value share in Europe focused markets was up 100 basis points over the past three months.

Andre Schulten: Latin America organic sales were up 17%, Argentina is a significant contributor to this result, given the pricing taken to offset the more than 400% devaluation of the Argentine peso since the start of the year.

Andre Schulten: Argentina is a significant contributor to this result, given the pricing taken to offset the more than 400% devaluation of the Argentine peso since the start of the year. Mexico and Brazil are annualizing high base periods with organic sales growth in the 20s and 30s, and we expect we'll normalize back to pre-COVID levels in the mid to high single digits. As we noted last quarter, there are some specific issues affecting other

Andre Schulten: Mexico, and Brazil are Annualizing high base periods with organic sales growth in the Twenty's and <unk> and we expect will normalize back to pre COVID-19 levels in the mid to high single digits.

Andre Schulten: As we noted last quarter there are some specific issues affecting other markets those challenges continue to impact results in the quarter.

Andre Schulten: Those challenges continue to impact results in the court. Greater China organic sales were down 10% versus the prior year. Progress versus the December quarter, but still impacted by weak underlying market conditions and headwinds for SK-II and other Japanese brands in the market. SK-II sales in Greater China were down around 30% for the quarter.

Andre Schulten: Greater China organic sales were down 10% versus prior year progress versus the December quarter, but still impacted by weak underlying market conditions and headwinds for SK II and other Japanese brands in the market.

SK II sales in greater China were down around 30% for the quarter, we have seen some month to month improvement in overall, greater China sales trends, but we expect it will be another quarter or two until we return to growth.

Andre Schulten: We have seen some month-to-month improvement in overall Greater China sales trends, though we expect it will be another quarter or two until we return to growth. Volume trends in some of the European enterprise and Asia-Pacific and Middle East-Africa countries, such as Egypt, Saudi Arabia, Turkey, Indonesia, and Malaysia, have remained soft since the start of the heightened tensions in the Middle East. Also, shipments in Russia continue to decline by double digits given our reduced footprint and curtailed investments with consumers and retailers.

Andre Schulten: Volume trends and some of the European Enterprise and Asia Pacific Middle East Africa countries, such as Egypt, Saudi Arabia, Turkey, Indonesia, and Malaysia have remained soft since the start of the heightened tensions in the middle East also shipments in Russia continued to decline double digits.

Andre Schulten: Given our reduced footprint and curtailed investments with consumers and retailers.

Andre Schulten: Combined, the headwinds from Greater China and the Asia-Middle East-Africa markets were a 150 basis point impact on total company sales for the quarter. We expect these headwinds to moderate or annualize over the coming period. Moving to the bottom line, co-earnings per share were $1.52, up 11% versus the prior year. On a currency-neutral basis, core EPS increased 18%. War Groves's Margin increased 310 basis points, and Operating Margin increased 90 basis points. Strong productivity improvement of 320 basis points enabled continued strong investment in superior products, packaging, and consumer communication to drive market growth. The currency neutral co-operating margin increased 220 basis points. Adjusted free cash flow productivity was 87%.

Andre Schulten: Combined the headwind from greater China, and Asia Middle East Africa markets were a 150 basis point impact on total company sales for the quarter, we expect these headwinds to moderate or annualize over the coming periods.

Andre Schulten: Okay.

Andre Schulten: Moving to the bottom line core earnings per share were $1 52 up 11% versus prior year on.

Andre Schulten: On a currency neutral basis core EPS increased 18%.

Andre Schulten: While gross margin increased 310 basis points and operating margin increased 90 basis points.

Andre Schulten: Strong productivity improvement of 320 basis points enabled continued strong investment in superior products packaging and consumer communication to drive market growth.

Andre Schulten: Currency neutral core operating margin increased 220 basis points adjusted free cash flow productivity was 87%.

Andre Schulten: We return $3.3 billion of cash to share owners, approximately $2.3 billion in dividends, and $1 billion in share repurchase. Over three quarters, more than $10 billion has been returned to share owners in dividends and share repurchase. Last week, we announced a 7% increase in our dividend, again reinforcing our commitment to return cash to shareowners. This is the 68th consecutive annual dividend increase and the 134th consecutive year P&

Andre Schulten: We returned $3 3 billion of cash to share owners, approximately $2 3 billion in dividends and $1 billion share repurchase.

Andre Schulten: Over three quarters more than $10 billion returned to shareholders in dividends and repurchases.

Andre Schulten: Last week, we announced a 7% increase in our dividend.

Andre Schulten: Again, reinforcing our commitment to return cash to share owners. This is the 68th consecutive annual dividend increase and the 134th consecutive year P&G has paid a dividend.

Andre Schulten: In summary, against what continues to be a challenging and volatile operating environment, strong overall results have enabled us to increase our earnings projections for the year, to maintain our guidance ranges for organic sales and cash generation, all while sustaining strong investment and superiority to build category consumption and to restore business growth in China and in the Middle East. Our teams continue to operate with excellence, executing the integrated strategy that has enabled strong results over the past five years, and that is the foundation for balanced growth and value creation. A portfolio of daily-use products, many providing cleaning, health, and hygiene benefits in categories where performance plays a significant role in brand choice.

Andre Schulten: In summary against will continue to be a challenging and volatile operating environment strong overall results, enabling us to increase our earnings projections for the year and to maintain our guidance ranges for organic sales and cash generation.

Andre Schulten: All while sustaining strong investment in superiority to both category consumption and to restore business growth in China and in the Middle East.

Andre Schulten: Yeah.

Andre Schulten: Our teams continue to operate with excellence executing the integrated strategy that has enabled strong results over the past five years and that is the foundation for balanced growth and value creation.

Andre Schulten: A portfolio of daily use products, many providing cleaning health and hygiene benefits and categories, where performance plays a significant role in brand choice.

Andre Schulten: Ongoing commitment to and investment in irresistible superiority across the five vectors of product, package, brand communication, retail execution, and value for each price tier where we compete. We are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy. Productivity improvements in all areas of our operations to fund investments in superiority, offset cost and currency challenges, expand margins, and deliver strong cash generation. An approach of constructive disruption, a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future.

Andre Schulten: Ongoing commitment to and investment in irresistible superiority across the five vectors of product package brand communication retail execution and value for each price tier where we compete.

Andre Schulten: We are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy.

Andre Schulten: Productivity improvements in all areas of our operations to fund investments and superiority of.

Andre Schulten: Offset cost and currency challenges expand margins and deliver strong cash generation.

Andre Schulten: An approach of constructive disruption a willingness to change adapt and create new trends and technologies that will shape our industry for the future. Finally, an organization that is empowered agile and accountable.

Andre Schulten: Finally, an organization that is empowered, agile, and accountable. We continue to improve the execution of the integrated strategy with four focus areas, strong progress on supply chain 3.0, digital acumen, environmental sustainability, and a superior employee value equation. These four focus areas are not new or separate strategies. They simply strengthen our ability to execute.

Andre Schulten: We continue to improve the execution of the integrated strategy with four focus areas strong progress on supply chain, three Oh digital acumen, environmental sustainability and a superior employee value equation.

Andre Schulten: These four focus areas are not new or separate strategies, they simply strengthen our ability to execute the strategy.

Andre Schulten: Our strategic choices on portfolio, superiority, productivity, constructive disruption, and organization reinforce and build on each other. When executed well, they grow markets, which in turn grow share, sales, and profits. We continue to believe that the best path forward to deliver sustainable top and bottom line growth is to double down on this integrated strategy, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. Moving on to guidance.

Andre Schulten: Our strategic choices on portfolio superiority productivity constructive disruption and organization reinforce and build on each other when executed well they grow markets, which in turn grow share sales and profit.

Andre Schulten: We continue to believe that the best path forward to deliver sustainable top and bottom line growth is to double down on this integrated strategy, starting with our commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity.

Andre Schulten: Moving onto guidance as I mentioned, we expect the environment around us to continue to be volatile and challenging from input cost to currencies to consumer retailer and geopolitical dynamics.

Andre Schulten: 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 results year-to-date enable us to raise or maintain key guidance metrics for the year. We're maintaining our guidance range for organic sales goals of 4-5% for the fiscal year. We are squarely in the middle of this range for fiscal year to date. This outlook assumes continued normalization and underlying market growth rates that we've seen over the past few quarters. Markets will be lapping the last waves of cost recovery pricing as volumes slowly begin to recover.

Andre Schulten: However, our strong results year to date enable us to raise while maintain key guidance metrics for the year.

Andre Schulten: We're maintaining our guidance range for organic sales growth of 4% to 5% for the fiscal year with squarely in the middle of this range fiscal year to date.

Andre Schulten: This outlook assumes continued normalization and underlying market growth rates that we've seen over the past few quarters.

Andre Schulten: Markets will be lapping the last waves of cost recovery pricing and volume slowly begin to recover.

Andre Schulten: We also expect the market level changes we faced through quarter three to continue in Q4, along with some directional improvement. On the bottom line, enabled by 15% core EPS growth year-to-date, we are raising our outlook for fiscal 24, core earnings per share from a range of 8-9% to a range of 10-11%. This outlook includes continued strong investments in innovation and brand building to grow markets and extend the superiority of P&G offerings to consumers.

Andre Schulten: We also expect the market level changes, we faced through quarter three to continue in Q4.

Andre Schulten: Though with some directional improvement.

Andre Schulten: On the bottom line enabled by 15%.

Andre Schulten: Core EPS growth year to date, we are raising our outlook for fiscal 'twenty for core earnings per share from a range of 8% to 9% to a range of 10% to 11%.

Andre Schulten: This outlook includes continued strong investments in innovation and brand building to grow markets and extend the superiority of P&G offerings to consumers.

Andre Schulten: We now estimate commodities will be a tailwind of around 900 million after tax in fiscal 24, based on current spot prices. This is a modest improvement versus the outlook we provided last quarter, though nearly all of this benefit has been booked in the first three quarters of the year. We now expect foreign exchange to be a headwind of approximately $600 million after tax for the fiscal year. The exchange versus prior guidance reflects volatility in Argentinan exchange rates, including a period of currency appreciation in Q3 and a revised devaluation outlook for Q4.

Andre Schulten: We now estimate commodities will be a tailwind of around $900 million after tax in fiscal 'twenty four based on current spot prices.

Andre Schulten: This is a modest improvement versus the outlook. We provided last quarter don't really all of this benefit has been booked in the first three quarters of the year.

Andre Schulten: We now expect foreign exchange to be a headwind of approximately $600 million after tax for the fiscal year.

Andre Schulten: The change versus prior guidance reflects volatility in Argentina exchange rates, including a period of currency appreciation in quarter, three and a revised devaluation outlook for quarter. Four we also reflect a reduction in Argentina FX exposure due to the divestiture of our Argentina fabric and home care business.

Andre Schulten: We also reflect a reduction in Argentina FX exposure due to the divestiture of our Argentina fabric and home care business, which we completed in mid-March, and reduced assumptions for future volume and pricing given the current rate outlook and recent shipment. The net impact of these changes is a relatively modest help to the bottom line, which is reflected in our updated EPSL. We expect a higher net interest expense of approximately $100 million after tax versus the prior year.

Andre Schulten: We completed in mid March and reduced assumptions for future volume and pricing given the current rate outlook and recent shipment trends our.

Andre Schulten: The net impact of these changes is a relatively modest help to the bottom line, which is reflected in our updated EPS outlook.

Andre Schulten: We expect higher net interest expense of approximately $100 million after tax versus prior year.

Andre Schulten: General inflation and higher wage and benefit costs are also earnings headwinds for the year. We expect adjusted free cash flow productivity of 90%, and we expect to pay more than $9 billion in dividends and to repurchase $5-6 billion in common stock. This, combined with the plan to return $14-15 billion of cash to share owners for the year.

Andre Schulten: General inflation and higher wage and benefit costs are also earnings headwinds for the year.

Andre Schulten: We expect adjusted free cash flow productivity of 90%.

Andre Schulten: And we expect to pay more than $9 billion in dividends to repurchase $5 billion to $6 billion in common stock combined the plan to return at $14 billion to $15 billion of cash to share owners for the year.

Operator: This outlook is based on current market growth rate estimates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruption, or major production stoppages are not anticipated within these 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 be keeping a close watch on competitive dynamics to ensure P&G brands remain superior value for consumers and for retailers.

Andre Schulten: This outlook is based on current market growth rate estimates commodity prices and foreign exchange rates significant additional currency weakness commodity cost increases geopolitical disruption or major production stoppages are not anticipated within these guidance ranges.

Finally, we'll be closely watching the more volatile regions, we mentioned earlier, including the health of the China market and we'll be keeping a close watch on competitive dynamics to ensure P&G brands remain a superior value for consumers and for retailers.

Andre Schulten: The entire P&G organization remains focused on excellent execution of our integrated market constructive strategy, which has delivered strong results in a challenging operating and competitive environment.

Andre Schulten: While we expect volatile consumer and macro dynamics to continue we are confident the best path forward is to double down on this strategy. We remain fully invested to drive irresistible superiority across every part of our portfolio and stay focused on delivering balanced top and bottom line growth and value creation for our shareholders.

Operator: The entire P&G organization remains focused on the excellent execution of our integrated, market-constructive strategy, which has delivered strong results in a challenging operating and competitive environment. While we expect volatile consumer and macro dynamics to continue, we are confident the best path forward is to double down on this strategy, remain fully invested to drive irresistible superiority across every part of our portfolio, and stay focused on delivering balanced top and bottom line growth and value creation for our share owners. With that, we'll be happy to take your questions.

Speaker Change: With that we'd be happy to take your questions.

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

Speaker Change: <unk> has been answered or you would like to withdraw your question. Please press star followed by tail.

Speaker Change: Your first question today comes from the line of Lauren Lieberman with Barclays. Please go ahead.

Lauren Rae Lieberman: Great. Thanks, good morning.

Lauren Rae Lieberman: Okay, well I can talk a little bit about market growth.

Operator: Thank you. 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, please press star followed by two. Your first question today comes from the line of Lauren Lieberman with Barclays. Please go ahead.

Lauren Rae Lieberman: <unk> market share.

Thank you.

Lauren Rae Lieberman: In volatile times.

Speaker Change: Thank you.

Speaker Change: Or sort of a high level expectations for global marketing costs over the next 12 months.

Speaker Change: Digging in a little bit more specific.

Speaker Change: And when we shared our comment on share performance, particularly in North America and also in Europe, Okay great.

Lauren Rae Lieberman: Great, thanks. Good morning. Andre, I wanted to talk a little bit about market growth versus market share. So, first off, if you could just, I know you said volatile a few times, but just if you could give us a sense for sort of a high-level expectation for global market growth over the next 12 months. And then digging in a little bit more specifically, you shared, you offered comments on share performance, particularly in North America and also in Europe.

Speaker Change: I'm curious if you could talk maybe about market share trends are.

Speaker Change: Anything you can tell in China, and maybe let's talk about it.

S K: S K.

S K: Yeah.

Speaker Change: Got it.

Speaker Change: But just a sense.

Speaker Change: Is it performing versus the China market overall.

Speaker Change: Since it's been lagging for quite a while arguably things that you guys are seeing.

Lauren Rae Lieberman: But I was curious if you could talk maybe about market share trends or the jury you can tell in China, and maybe we could talk about that. Since it's been lagging for quite a while, arguably, things that you guys are seeing, addressing, doing differently, or considering doing differently to shift that trend. Thanks.

Speaker Change: Attracting giving differently, you're considering doing differently.

Speaker Change: Thanks.

Speaker Change: Very good morning Lauren.

Speaker Change: So let me start with overall consumption strength.

Speaker Change: Because it really is and continues to be strong.

Andre Schulten: Very good morning, Lauren. So let me start with overall consumption strength because it really is and continues to be strong. The consumption trends in the markets are stable, despite multiple headwinds, and P&G is growing consumer offtake in terms of value share in 29 of our top 50 category country combinations. Globally, we are growing value share by 10 basis points, and the consumption trends are really strong across markets, with few exceptions, which we'll get into.

Speaker Change: Consumption trends and the markets are stable, despite multiple headwinds and P&G is growing consumer offtake in terms of value share in 2009 of our top 50 category country combinations.

Speaker Change: Globally, we are growing value share by 10 basis points.

Speaker Change: The consumption trends are really strong across markets with few exceptions, which we'll get into U S consumption in quarter, three was 5% and P&G value share is up so our consumption actually grew ahead of that.

Andre Schulten: U.S. consumption in Q3 was 5%, and P&G's value share is up, so our consumption actually grew ahead of that, both in terms of value and in terms of volume, actually, with volume share being up 40 basis points on all outlets in the most recent period. So continued strength in terms of consumption trends in North America and continued strength in terms of P&G performance within that consumption. Europe-focused markets' consumption is in the range of 8 to 9 percent, also very strong, and we are growing by more than a share point within that market.

Speaker Change: Both in terms of value and in terms of volume actually with volume share being up 40 basis points on all outlet in the most recent period.

Speaker Change: So continued strength in consumption trends in North America, and continued strength in terms of P&G performance within that consumption.

Speaker Change: Europe focused markets consumption is in the range of 8% to 9% also very strong and we are growing by more than a share point within that market.

Speaker Change: Both volume growth very strong with four points in the quarter and three points of price mix.

Speaker Change: L a and Europe enterprise markets are growing and so the business from a consumption standpoint, which really for US is the most important metric is in a good place.

Andre Schulten: Both volume growth was very strong with four points in the quarter and three points of price mix. LA and Europe enterprise markets are growing. And so the business from a consumption standpoint, which really for us is the most important metric, is in a good place. We continue to deal with very specific headwinds in Q3 that we discussed already in Q2, but they continue. For example, there's soft market consumption in China. We'll get more into that in the second part of your question.

Speaker Change: We continue to deal with.

Speaker Change: Very specific headwinds in quarter, three that we've discussed already in quarter, two but they continue.

Speaker Change: There is a soft market consumption in China will get more into that to the second part of your question SK II continues to be a headwind in the quarter.

Speaker Change: And we see some impact from tensions in the middle East.

Speaker Change: When you sum it all up that's about a point and a half impact on the global top line.

Andre Schulten: SK2 continues to be a headwind in the quarter, and we see some impact from tensions in the Middle East. When you sum it all up, that's about a point and a half impact on the global top line. And then we have the inventory reduction in North America, which is about a point on the global top line as well. So if you put it all together, there are two conclusions.

Speaker Change: And then we have the inventory reduction in North America.

Speaker Change: Which is about a point.

Speaker Change: On the global top line as well.

And if you put it together two conclusions one the headwinds that we're calling out are temporary in nature. So first of all the inventory reduction which is the point on the top line.

We expect that to be a single event not a continued phenomena to observe it was mainly driven by personal health care because the supply situation is stabilizing after a softer season for retailers don't need to hold safety stock.

Andre Schulten: One, the headwinds that we're calling out are temporary in nature. So first of all, the inventory reduction, which is a point on the top line, we expect that to be a single event, not a continued phenomenon to observe. It was mainly driven by personal health care because the supply situation is stabilizing after a softer season, so retailers don't need to hold safety stock.

Speaker Change: And the headwinds in China on SK, II and in the Middle East will ease over time, and eventually annualize over the coming quarters.

Andre Schulten: And the headwinds in China on SK-2 and in the Middle East will ease over time and eventually annualize over the coming quarter. But that does not mean that we will ignore any of the headwinds. We are fully focused on accelerating growth in China on SK-2 and driving sustainable growth in Asia and the Middle East markets. But it explains that we can hold our organic sales growth guidance at four to five percent. We're very confident in that.

Speaker Change: That does not mean that we will ignore any of the headwinds we are fully focused on accelerating growth in China on SK, II and driving sustainable growth in Asia and Middle East markets.

Speaker Change: But it explains that.

Speaker Change: We can hold our organic sales growth guidance at 45%, we're very confident in that in fiscal year to date as we mentioned in the script, we're right at that level.

Speaker Change: Last point on that topic, we remain fully invested in the gross margin progress. The team has made is actually enabling us to continue to double down on investments to drive market growth and drive our own consumption and share within that.

Andre Schulten: And fiscal year to date, as we mentioned in the script, we're right at that level. Last point on that topic: we remain fully invested, and the growth margin progress the team has made is actually enabling us to continue to double down on investments to drive market growth and drive our own consumption and share within the company. Specifically on China, to the second part of your question, Lauren, I think it's a good way to look at China excluding SK-II, as you suggest.

Speaker Change: Specifically on China to the second part of your question Lauren.

Speaker Change: It's a good way to look at China, Excluding SK II as you suggest we're making sequential progress.

Speaker Change: The share in the most recent read is flat.

Speaker Change: And our.

Speaker Change: Shipments of our organic sales in China are improving quarter over quarter.

Speaker Change: We look at quarter two hour.

Speaker Change: Organic sales, excluding SK two in China were down 10% in.

Andre Schulten: We are making sequential progress. The share in the most recent REIT is flat, and our shipments or our organic sales in China are improving quarter over quarter. If you look at quarter 2, our organic sales, excluding SK-2 in China, were down 10%. In the most recent quarter, they were down 3%.

Speaker Change: In the most recent quarter they were down 3%.

Speaker Change: So we're making progress the market is.

Speaker Change: Is not yet recovering, but we see the trajectory going in the right direction.

Speaker Change: We have pockets of strength on baby care for example, in China has grown 11% in the current quarter, our appliance business growing 14%.

Speaker Change: We are making strong investments in our hair care business with a more streamlined portfolio and we feel good about our ability to continue to drive market growth the market constructive in China and see the upside as we've articulated before on a longer term.

Andre Schulten: So we're making progress. The market is not yet recovering, but we see the trajectory going in the right direction. We have pockets of strength. Baby care, for example, in China has grown 11% in the current quarter. Our appliance business is growing 14%. We are making strong investments in our hair care business with a more streamlined portfolio, and we feel good about our ability to continue to drive market growth, be market constructive in China, and see the upside, as we've articulated before, on the longer term of participating in the Chinese market. Will it be a straight line to recovery? No, it probably takes a few more quarters before we turn back to growth. But we see the trend line improving.

Speaker Change: Participating in the Chinese market.

Speaker Change: Will it be a straight line to recovery no. It probably takes a few more quarters before we return back to growth.

Speaker Change: But we see the trend line improving.

Thank you. The next question comes from Steve Powers with Deutsche Bank. Please go ahead.

Stephen Robert R. Powers: Hey, great and good morning.

Steve Powers: Body.

Stephen Robert R. Powers: Yes, I think you mentioned that nearly all of the commodity benefits that you expected this year.

Stephen Robert R. Powers: Essentially it fully.

Stephen Robert R. Powers: Dennis.

Stephen Robert R. Powers: The third quarter.

Stephen Robert R. Powers: We have seen year to date in the calendar year the level of corn oil.

Stephen Robert R. Powers: Okay.

Stephen Robert R. Powers: So I guess.

Stephen Robert R. Powers: Some thoughts on that in terms of how that.

Operator: Thank you. The next question comes from Steve Powers with Deutsche Bank. Please go ahead.

Stephen Robert R. Powers: That impacts your early planning for fiscal 'twenty, five and maybe sort of related to that.

Stephen Robert R. Powers: Hey, great. And good morning, everybody.

Andre Schulten: You know, Andre, I think you mentioned that nearly all of the commodity benefits that you expected this year, you've essentially fully benefited from through the third quarter. And, you know, we've seen year-to-date values in the calendar year values, obviously, in oil, residence, and hospital costs. So, I guess just some thoughts on that in terms of how that impacts your early planning for fiscal 25, and maybe sort of related to that, just your confidence and your view, visibility into the productivity pipeline. And, you know, can we expect, and do you have confidence you can run at an accelerated cadence of productivity over the next 12 to 18 months as well based on that pipeline? Thank you.

Stephen Robert R. Powers: Your confidence in your ear.

Stephen Robert R. Powers: Your view.

Stephen Robert R. Powers: Visibility into the productivity pipeline.

Stephen Robert R. Powers: And can.

Stephen Robert R. Powers: Can we can be expecting do you have confidence you can run it.

Stephen Robert R. Powers: It accelerated.

Stephen Robert R. Powers: Cadence of productivity over the next 12 to 18 months as well based on that pipeline. Thank you.

Speaker Change: Good morning, Keith.

Speaker Change: So commodity benefits as we've mentioned in the script.

Speaker Change: You correctly state have been really impacting fiscal year to date results.

Any remaining change and we see obviously the impact of oil.

Speaker Change: Running up a little bit and also other commodities like pipe for example, where the supply situation is a little bit tighter.

Andre Schulten: Yeah, so commodity benefits, as we've mentioned in the script and you correctly state, have been really impacting fiscal year-to-date results. Any remaining change, and we see obviously the impact of oil running up a little bit, and also other commodities like pulp, for example, where the supply situation is a little bit tighter, are coming up. There will be some impact on the current fiscal year, but given flow-through of contracts and various holding policies, I expect that to be limited, and we've anticipated that within our updated guidance ranges. So, there will be no impact on the current fiscal year.

We're coming up there will be some impact on the current fiscal year, but given the flow through of contracts in various holding policies I expect that to be limited and we've anticipated that within our updated guidance ranges. So no impact to the current fiscal year, obviously of spot prices hold you correctly.

Speaker Change: It will have an impact on next year.

Speaker Change: But I do feel strongly about our ability and I think we've proven it over the past two years that with the combination of <unk>.

Speaker Change: Strong innovation.

Speaker Change: Good reasonable pricing combined with innovation and strong productivity.

Operator: Obviously, if spot prices hold, as you correctly stated, it will have an impact on next year. But I do feel strongly about our ability, and I think we've proven it over the past two years, that with a combination of Strong innovation, good, reasonable prices combined with that innovation and strong productivity; whatever comes our way, we'll be able to handle it. On the productivity pipeline, I feel very good about where we are. We now have, across all businesses, a three-year, what I would call a productivity master plan, which is something that we have invested a lot of energy and time in in each business to make sure that we generate enough ideas, even those that take longer to implement, specifically as we work with our retail partners and we work with our supply chains to really fundamentally improve the efficiency of some of our combined processes.

Speaker Change: Whatever comes our way, we'll be able to we'll be able to handle.

Speaker Change: On the productivity pipeline I feel very good about where we are we have now across all businesses, a three year, what I would call a productivity master plan.

Speaker Change: It's something that we invested a lot of energy and time on in each business to make sure that we generate enough ideas, even those that take longer to implement specific we as we work with our retail partners that we work with our supply chain too.

Speaker Change: Really fundamentally improve the efficiency of some of our combined processes.

Speaker Change: We have great visibility over three years, the pipeline is sufficient to what we needed to be.

Speaker Change: So the part I feel really strongly about its productivity and its fully in our control and I think the teams are doing a great job, creating projects and creating visibility too.

Speaker Change: Very strong pipeline over the coming years.

Operator: We have great visibility over three years. The pipeline is sufficient for what we need it to be. So the part I feel really strong about is productivity. It's fully in our control, and I think the teams are doing a great job creating projects and creating visibility for a very strong pipeline over the coming years.

Speaker Change: Thank you. The next question is from Andrea Teixeira with J P. Morgan. Please go ahead. Thank.

Andrea Faria Teixeira: Thank you operator, and good morning, everyone.

Andrea Faria Teixeira: Anthony I was hoping if you can elaborate a little bit more on the flat price mix, Andy lasting physical thank you.

Andrea Faria Teixeira: Are you seeing any downside within your portfolio or is that self inflicted as you offer.

Andrea Faria Teixeira: Thank you. The next question is from Andrea Teixeira with J.P. Morgan. Please go ahead. Thank you, operator.

Andrea Faria Teixeira: <unk> on the lower price points or anything about packing that we should be aware off and also related to that I saw you mentioned in your release about the pricing related volume declines in baby care is that mostly China is there anything you can elaborate on your side also the U S.

Operator: Thank you, operator. Good morning, everyone.

Andre Schulten: Andrea, I was hoping you could elaborate a little bit more on the flat price mix in the U.S. in fiscal 3Q, or are you seeing any down trade within your portfolio, or is that self-inflicted as you offer more IGM on the lower price points, or anything about packaging that we shouldn't be aware of? And also related to that, I saw you mention in your release about the pricing-related volume declines in baby care.

Andrea Faria Teixeira: And I think to the steves commentary about commodities from question about commodity is there anything you can.

Andrea Faria Teixeira: Talk to us regarding that lag that we are going to see that coming through.

Andre Schulten: Is that mostly China? Is there anything you can elaborate on, or is that also the U.S.? And I think to Steve's commentary about commodities and question about commodities, anything you can talk to us about the lag that we're going to see that coming through into fiscal 25?

Andrea Faria Teixeira: For fiscal 'twenty five.

Andrea Faria Teixeira: Okay.

Speaker Change: Good morning Andrea.

Speaker Change: Look the flat.

Speaker Change: Price.

Speaker Change: Mixed contribution to organic sales growth in the U S. As an outcome of simply annualize the price increases that we had taken in previous periods.

Andre Schulten: Morning, Andrea. Look, the flat price... The mixed contribution to organic sales growth in the U.S. is the outcome of simply annualizing the price increases that we had taken in previous periods. That was anticipated, and it's consistent with what we're seeing in terms of the construction of market growth across the U.S. The volume component is coming up, getting closer to about 2%, and the value component is coming down. Different players have priced at different points, so that's really the differential between the market and us. There is no trade-down of notes that I, or we can observe.

That was anticipated.

Speaker Change: And it's consistent with what we're seeing in terms of the construction of the market growth across the U S. The volume component of it is coming up getting closer to about 2%.

Speaker Change: And the value component is coming down different players have priced at different points. So that's really the differential between market and us.

Speaker Change: There is no trade down of note that I that we can observe private label shares value shares actually very stable 16, 4% past one month and 16, 4% past 12 months so.

Speaker Change: So consumers are not trading down.

Andre Schulten: Private label shares, and value shares are actually very stable, 16.4% past one month and 16.4% past 12 months. So consumers are not trading down within the U.S. towards private label. And if anything, we continue to see when consumers trade into P&G, which they continue to do because both volume share up strongly in the U.S. and value share up. Once they trade into P&G propositions, they continue to trade up actually within those propositions, be it from liquid detergent to unit dose to power pots. So we continue to observe that. So there are no worries in terms of trade downs.

Speaker Change: Within.

Speaker Change: The U S towards private label and if.

Speaker Change: If anything we continue to see when consumers trade into P&G, which they continue to do because both volume share up strongly in the U S and value share up once they trade into P&G propositions. They continue to trade up actually within within those propositions be it from <unk>.

Speaker Change: Liquid detergent to unit dose to power ports. So we continue to observe that so no worries in terms of of trade down on.

Speaker Change: On baby, specifically look baby is annualized in a very strong base period and obviously.

Was heavily.

Speaker Change: Exposed to the commodity run up and therefore took pricing and.

Andre Schulten: On Baby specifically, look, Baby is annualizing a very strong base period and obviously was heavily exposed to the commodity run-up and therefore took pricing, in combination with productivity and strong innovation. The volume decline, I would say, is really differential by region. If you look at China, the business is growing very strongly. It's actually 11% growth in the quarter, and share growth of more than a point in China. And that's with birth rates contracting.

Speaker Change: In combination with productivity and strong innovation.

Speaker Change: The volume.

Speaker Change: Decline I would say is really differential by region. If you look at China the businesses.

Speaker Change: Growing very strongly it's actually 11% growth in the quarter.

Speaker Change: Share growth of more than a point in China.

Speaker Change: And that's with both rates contracting so the portfolio strength in China is remarkable.

Speaker Change: When I look at the U S. The premium tier so when you look at <unk> you look at.

Speaker Change: This includes a 360 does that.

Andre Schulten: So the portfolio strength in China is remarkable. When I look at the US, the premium tier, so when you look at swaddlers, you look at cruisers and cruisers 360, those tiers we have been innovating in very strongly over the past 12, 15 months, and they are growing, and they are growing share, and they are growing sales. Where we have an opportunity in the U.S. is on the mid-tier, on Love, for example.

Speaker Change: Those tiers, we have been innovating in very strongly over the past 12, 15 months and they are growing they're growing share and theyre growing sales.

Speaker Change: Where we have an opportunity in the U S is on the mid tier.

Speaker Change: On loss for example, we have not been able to push the full innovation pipeline out for different reasons.

Speaker Change: And Thats, what the team really is focused on to reestablish superiority.

Andre Schulten: We have not been able to push the full innovation pipeline out for different reasons. And that's what the team really is focused on, to reestablish superiority in those few businesses where we feel that we let value get a little bit out of sync with what the consumer needs. But the plans are there, so now it's a matter of execution. So I feel very good overall about the baby care business, and a strong innovation pipeline that I think will address the isolated superiority gaps that we might have.

Speaker Change: On those few businesses, where we feel that we let value.

Speaker Change: A little bit out of sync with what the consumer needs.

Speaker Change: The plans are there so now it's a matter of execution. So feel very good overall about the baby care business strong innovation pipeline and that I think will address the isolated.

Speaker Change: So priority gifts that we might have.

Speaker Change: Sure.

Speaker Change: <unk>.

Speaker Change: On commodities, it's very.

Speaker Change: Difficult to say when they would actually flow through I think it's safe to say that at least 60 to 90 days of.

Andre Schulten: Um, on commodities, it's very difficult to say when they will actually flow through. I think it's safe to say that there are at least 60 to 90 days of delay. Many of the commodities will take longer to flow through simply because of contract structures that use certain trigger points or holding periods. So I would say at least 60 to 90 days, for many of them, probably longer. The only one that tends to flow through quickly is... Fuel, diesel, obviously because it's captured in transportation.

Delay.

Speaker Change: Many of the commodities will take longer to flow through simply because of contract structures that.

Speaker Change: Certain trigger points or holding periods.

So I would say at least 60 to 90 days for many of them probably longer the only one that tends to flow through quickly is.

Speaker Change: Fuel diesel obviously, because it's captured in transportation.

Speaker Change: Thank you. The next question is from Dara <unk> with Morgan Stanley. Please go ahead.

Operator: Thank you. The next question is from Dara Mohsenian with Morgan Stanley. Please go ahead.

Dara: Hey, good morning.

Dara Warren Mohsenian: So, we've just touched on pricing. Maybe we can switch to the volume side.

Dara: Well no. We just we just touched on pricing, maybe we can switch to the volume side.

Andre Schulten: Can you just talk about your level of visibility and perhaps a bit of magnitude that you're expecting in Q4 in terms of returning to volume growth going forward? Obviously, a flat result this quarter, but there were some items that depressed volume that will get better going forward in terms of U.S. inventory, SK2 weakness, et cetera. So, just looking for some perspective going forward, particularly as pricing presumably continues to decelerate a bit. And also, maybe you can just touch on, given the heavy marketing this year, presumably, with the SG&A increases, the level of payback and ROI you think you're getting on that higher marketing in terms of volume. Thanks.

Dara: Can you just talk about your level of visibility and perhaps a bit of magnitude that you're expecting in Q4 in terms of returning to volume growth going forward.

Dara: Flat result, this quarter, but there were some items that depressed volume they get better going forward in terms of U S inventory SKU to weakness et cetera. So just looking for some perspective going forward, particularly as pricing presumably continues to decelerate a bit.

Dara: And also maybe you can just touch on given the heavy marketing this year, presumably with the SG&A increases the level of payback and Roy you think youre getting on that higher marketing in terms of volume. Thanks.

Dara: On the volume side.

Andre Schulten: On the volume side, look, I think the effects that we described that are holding us back in the current quarter, the inventory effect in the US of two points, which is a point on a global basis. I don't expect that to hold, so I expect the U.S. to continue to grow in terms of volume beyond the 3% that we're seeing in the current quarter. I expect some of the negative headwinds in China, the Middle East, and SK-2 to improve sequentially.

Dara: Look I think the effects that we described that are holding us back in the current quarter. The inventory effect in the U S of two points, which is a point on a global basis.

Dara: I don't expect that to hold so.

Dara: I expect the U S to continue to grow in terms of volume beyond the 3% that we're seeing in the current quarter.

Dara: I expect.

Dara: Some of the.

Dara: Negative headwinds in China, the middle East and SK, II, hopefully will improve sequentially.

Andre Schulten: But in aggregate, I fully expect the markets to continue to recover and shift more towards volume growth as we've seen consistently over the recent periods. And since we're growing or holding volume share in most geographies, that will also flow into our results. So sequential progress on volumes, many open questions still, but I expect the line to point upwards.

Dara: But in aggregate.

Dara: Fully expect the markets to continue to recover shifts more towards volume growth as we've seen consistently over the recent periods.

Dara: Since we're growing or holding volume share and most geographies that will also flow into our results.

Dara: Sequential progress on volumes.

Any open questions still.

Dara: But I expect the line to points upwards.

Andre Schulten: On marketing spend, you're right; we continue to invest in reach frequency with strong quality of communication across the markets. We are very diligent in pre-RY analysis and very diligent in post-event analysis to ensure that we understand whether the spending is effective. And if you look at the results, I would argue that it is.

Dara: On marketing spend you are right, we continue to invest in reach frequency with strong quality of communication across the markets.

Dara: We are very diligent in pre.

Dara: Roy analysis, and very diligent in post event analysis to ensure that we understand whether the spending is effective.

Dara: And if you look at the results I would argue it is.

Andre Schulten: Strongest combinations of great product innovation with very sharp consumer insight translated into a great copy that drives strong results. So, if you look, for example, at our skin and personal care business, Old Spice and Secret, Total Body Deoderant, Great Consumer Insight, Great Product, Great Packaging, Strong Communication, and the business is growing 11% in North America. If you look at our home care portfolio, those are categories that are expendable. Swiffer, and PowerMob, for example, getting new users to use Febreze plugins; those marketing investments grow the market, and they grow our share within the market, so expandable categories is a big investment area for us.

The.

Dara: Strongest combinations of great product innovation with a very sharp consumer insight translated into a great copy.

Dara: Drive strong results. So if you look for example at our skin and personal care business.

Dara: Old Spice and secret total body deodorant, great consumer insight great product, great packaging strong communication and the business is growing 11% in North America.

Dara: If you look at our home care portfolio. Those are categories that are expandable Swift power more for example, getting new users to use febreeze plug ins those marketing investments grow the market and grow our share within the market.

Dara: So extendable categories is a big investment area for us.

Andre Schulten: So we continue to drive high levels of discipline. We will not spend if there's no ROI. And you're right; we're watching the same numbers and asking the same questions to ensure that we remain on the right side of that line.

Dara: So we continue to drive high levels of discipline, we will not spend if theres no ROI.

Speaker Change: And you're right, we're watching the same and asking the same question to ensure that we remain on the right side of that line.

Speaker Change: Yeah.

Operator: Thank you. The next question is from Bryan Spillane with Bank of America. Please go ahead. Thanks, everyone.

Speaker Change: Thank you. The next question is from Bryan Spillane with Bank of America. Please go ahead.

Bryan Douglass Spillane: Thanks, Operator. Good morning, everyone.

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

Andre Schulten: Maybe, Andre, just to pick up on that last point, I guess if we think about year-to-date and I guess as it translates to the full year and the base, we have some headwinds that shouldn't recur, right? The weakness in corporate chemicals, the D-stock that you just mentioned, SK-II being more negative than the overall market in China for the reasons we know. So I guess as we kind of think about next year, right, and confidence and being able to be, you know, in line with long-term or, you know, organic sales targets.

Bryan Douglass Spillane: Maybe just to pick up on that on that last point.

Bryan Douglass Spillane: I guess, if we think about year to date and I guess as it translates to the full year in the base we have.

Bryan Douglass Spillane: Some headwinds that shouldn't recur right.

Bryan Douglass Spillane: Weakness in corporate chemical the destock that you just mentioned.

Bryan Douglass Spillane: SK too I guess being.

Bryan Douglass Spillane: More negative than overall market in China for the reasons, we know so I guess as we kind of think about next year right and confidence in being able to be.

Bryan Douglass Spillane: In line with long term.

Bryan Douglass Spillane: Organic sales targets.

Andre Schulten: Do the comps make it easier? Should we be thinking about the macro environment maybe not being supportive? You know, just try to put some context around, you know, the organic sales growth this quarter, which decelerated from the last quarter and just, you know, is there anything we should be thinking about as we move and start thinking about our models for next year? Thank you.

Bryan Douglass Spillane: Comps make it easier should we be thinking about the macro environment, maybe not being supportive.

Bryan Douglass Spillane: Just trying to put some context around.

Bryan Douglass Spillane: The organic sales growth this quarter, right, which decelerated from the last quarter and just.

Speaker Change: Is there anything we should be thinking about as we move we start thinking about our models for next year. Thank you.

Speaker Change: Hey, Brian.

Andre Schulten: I would point first to the market growth expectation, which we said we expected markets to be in the range of 3-4% in terms of value growth. And that will be a combination of two points of volume and one to two points of price mix. That is still our assumption.

Speaker Change: I would 0.1st to the market growth expectation, which we said we expect markets to be in the range of 3% to 4%.

Speaker Change: In terms of value growth.

Brian: And that will be a combination of two points of volume and 1% to two points of price mix that is still our assumption our role per hour growth algorithm is to be growing slightly ahead of that by driving market growth, which in turn will drive share.

Andre Schulten: Our role, per our growth algorithm, is to be growing slightly ahead of that by driving market growth, which in turn will drive share and a bigger part of us leading the market. So that would be my answer for the current fiscal year, obviously, by reiterating guidance of 4-5% and being right in the middle of that range for the fiscal year to date. That means, mathematically, we expect Q4 to be in the 4-5% range. And if you project that out, I think, with the market growth dynamic I was describing, I think that'll give you a good starting point for next fiscal year.

Brian: And a bigger part of us.

Leading the market.

Speaker Change: So that would be my answer.

Speaker Change: <unk> on the current fiscal year, obviously by reiterating guidance of 45% and being right in the middle of that range fiscal year to date that means mathematically, we expect quarter four to be in the 4% to 5% range.

Speaker Change: And if you project that out I think with the market growth dynamic I was describing I think that'll give you a good starting point for next fiscal year.

Operator: Thank you. The next question is from Bonnie Herzog with Goldman Sachs. Please go ahead. All right.

Speaker Change: Sure.

Speaker Change: Thank you. The next question is from Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Lee Herzog: All right, thank you. Good morning, everyone.

Bonnie Herzog: Alright, Thank you and good morning, everyone I just had a quick clarification on your guidance you.

Andre Schulten: I just had a quick clarification on your guidance. You maintain your FY24 organic sales growth of 4 to 5, but that implies a step-up in growth in Q4 to get to the high end of your range. So I guess I wanted to clarify if you still expect to be at the high end, or should we assume, you know, coming in at maybe the midpoint of your top line guide for the year is more realistic?

Bonnie Herzog: We will maintain your FY 'twenty for organic sales growth of four to five but that implies a step up that growth in Q4 to get to that high end of your range. So I guess I wanted to clarify if you still expect to be at the high end or should be.

Bonnie Herzog: Yes.

Bonnie Herzog: And that may be at the low point of your topline guidance for the year.

Andre Schulten: And then maybe just a quick question on your SG&A expense, which did, you know, step up quite a bit during the quarter. So just maybe hoping for a little more color on the drivers of this. Thanks.

Bonnie Herzog: And then maybe just a quick question on your SG&A expense.

Bonnie Herzog: Step up quite a bit during the quarter, maybe hoping for a little more color on the drivers of that.

Bonnie Herzog: Thanks.

Andre Schulten: Yeah, morning, Bonnie. We did not reiterate the top end of the range, but we reiterated the range, and that means five is still possible. Is it probable? I don't know.

Speaker Change: Yes, good morning Bonnie.

Speaker Change: We did not reiterate the top end of the range, but we reiterated the range.

Speaker Change: And that means five is still possible.

Speaker Change: Is it probable I don't know probably more 50 50 than it was before so the range is valid.

Andre Schulten: Probably more 50-50 than it was before. So the range is valid. I wouldn't point today at the top end of the range on the FG&A line. We continue to invest in marketing, as we discussed in previous questions, and we really saw an increase in our marketing spend of about 14 percent year over year. That's the main driver. It's offset by productivity on the SG&A line, but really, I would point to continued investment, productive investment to drive market growth and push out our innovation, and that's the main driver of the SG&A increase that you're seeing.

Speaker Change: I wouldn't point today at the top end of the range.

Speaker Change: On the SG&A line.

Speaker Change: We continue to invest in marketing as we discussed in previous question and we really saw an increase in our marketing spend of about 14% year over year. That's the main driver it's offset by productivity.

Speaker Change: On the SG&A line, but really I would point to continued investment productive.

Speaker Change: Productive investment to drive market growth and push out our innovation.

Speaker Change: And Thats the main Thats the main driver of the SG&A increase that you'll see.

Operator: Thank you. The next question comes from Olivia Tong with Raymond James. Please go ahead.

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

Olivia Tong Cheang: Great, thank you. My question is about NICS, which flattened out this quarter after about a year and a half of improvement. So, you know, clearly, you guys have been adamant that we're not seeing trade down, but as you look at this, how much of that is trade up is just, you know, harder to do now. You know, you've obviously done, you've been very successful of late with, you know, power wash and easy squeeze and pause, et cetera, et cetera. So, is that becoming harder, and, you know, could you talk about NICS expectations for perhaps the next 12 months? Thank you. Thank you.

Great. Thank you Michael spoke about next.

Olivia Tong Cheang: Latin out this quarter after about a.

Olivia Tong Cheang: Year, and a half of improvement so.

Olivia Tong Cheang: Clearly you guys have been adamant that we are not seeing trade down but.

Olivia Tong Cheang: As you look at that how much of that is a trade up basis.

Olivia Tong Cheang: Harder to do now.

Olivia Tong Cheang: You've obviously done.

Olivia Tong Cheang: Successful on.

Olivia Tong Cheang: Power, Washington, and pause et cetera, et cetera, so is that becoming harder and.

Olivia Tong Cheang: Could you talk about mix expectations over perhaps the next 12 months.

Speaker Change: Thank you.

Andre Schulten: Yep. Thanks, Olivia.

Speaker Change: Yeah. Thanks Olivia.

Andre Schulten: I don't think the fundamental dynamic in terms of consumers trading into the P&G portfolio and trading up is changing. We've not observed it over the past two years, and we've not seen it in the most recent period. There are some drivers and headwinds to consider.

Speaker Change: I don't think the fundamental dynamic.

Speaker Change: In terms of consumers trading into the P&G portfolio and trading up is changing.

Speaker Change: We've not observed it.

Speaker Change: Over the.

Speaker Change: Past two years and we've not seen it in the most recent period.

Speaker Change: There are some drivers in headwinds to mix.

Andre Schulten: The biggest headwind I would mention is SK2 being down 30%. It's our highest value per unit, or one of the highest value per unit items, and that obviously has a material impact on mix. Outside of that, we really don't see in any of the regions a significant down-trading within our portfolio. And as I mentioned, in the U.S., we continue to see trade-ups. Actually, the premium tiers on baby care are doing better. I mentioned that in the context of love.

The biggest headwind I would mentioned is SK to being down 30%, it's our highest value per one of the highest value per unit items and that obviously has a material impact on on mix.

Speaker Change: Outside of that we really don't see in any of the regions a significant down trading within our portfolio and as I mentioned in the U S. We continue to see trade up extra the premium tiers on baby care doing better I mentioned that in the context of love.

Andre Schulten: So, we continue to think that the way that we innovate, providing value with innovation, and showing the superiority of our premium items in the portfolio is resonating with consumers, and as long as we do that, and as long as that value is real and tangible for consumers, I think we can hold on to that mixed trend that we've seen consistently.

So we continue to think that the way that we innovate providing value.

Speaker Change: With innovation and showing this approach of our premium items in the portfolio is resonating with consumers and as long as we do that and as long as that value is real intangible for consumers I think we can hold onto that mixed trends that we've seen consistently.

Operator: Thank you. The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Speaker Change: Thank you. The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Christopher Michael Carey: Hi, good morning, everyone. So just what do you want?

Christopher Michael Carey: What's that.

Christopher Michael Carey: Hi, good morning, everyone. So just.

Christopher Michael Carey: Why.

Christopher Michael Carey: Chris you still there we can't hear you.

Operator: Chris, are you still there? We can't hear you.

Christopher Michael Carey: Chris Your line is open can you hear me.

Andre Schulten: Just regarding the just one quick follow-up on the organic sales range for the full year. The slight change, and I know the range is still in scope, can you just frame maybe how much of that was the inventory dynamics in the U.S., maybe a little bit less pricing in Argentina versus anything that has fundamentally developed through the quarter? And just connected to that, if you could, you mentioned the elasticity dynamics in baby and feminine care in the press release. Can you just comment on what you're seeing from a broader perspective, specifically as you may need to contemplate some incremental pricing next year with the moves we're seeing on the cost side? Thanks.

Speaker Change: Now we can.

Speaker Change: Okay.

Christopher Michael Carey: Just regarding the just one quick follow up on the.

Christopher Michael Carey: Organic sales range for the full year.

Christopher Michael Carey: The slight change in I know the range is still in scope can you just frame maybe how much of that was the inventory dynamics in the U S, maybe a little bit less pricing.

Christopher Michael Carey: In Argentina versus anything that has fundamentally.

Speaker Change: <unk> through the quarter and just connected to that if you could you mentioned the elasticity dynamics in baby.

Speaker Change: Managed care and the press release can you just comment on what Youre seeing from a broader perspective, specifically as you may need to contemplate some incremental pricing next year with the moves we're seeing on the cost side. Thanks.

Andre Schulten: Thanks, Chris. I think you gave the answer on organic sales. Lion, it's exactly that.

Speaker Change: Thanks, Chris.

Speaker Change: I think you gave the answer on the organic sales.

Speaker Change: <unk>, it's exactly that.

Andre Schulten: I think Argentina, as we said, the peso requires a little less. Pricing, that's an impact on organic sales, and the business is also smaller and responding maybe more aggressively to the pricing. So that is one building block. The other building block, I think, is the biggest one, is really the U.S. inventory reduction. So as I think about the step-up that we need to see in order to be within that 4 to 5 range, we assume that that inventory reduction is a one-timer, and that's what we expect in. Elasticity, in general, is not changing.

Speaker Change: Argentina, as we said the peso will require a little less.

Speaker Change: Pricing that has an impact on organic sales and the business is also smaller Andrew.

Speaker Change: Responding maybe more aggressively to the pricing.

Speaker Change: So that is one building block.

Speaker Change: The other building block I think is the biggest one is really the U S inventory reduction.

Speaker Change: So as I think about the step up that we need to see in order to be within that four to five range.

Speaker Change: We assume that that inventory reduction as a one timer and thats, what we what we expect in the guidance range.

Speaker Change: The elasticity in general.

Speaker Change: Is not changing I think we've done and you'll see it in the results I think the teams have done a very good job of making sure that we maintain a healthy value equation for our retail partners and our consumers with strong innovation with pricing only pricing where necessary balancing pricing.

Andre Schulten: I think we've done, and you see it in the results, I think the teams have done a very good job of making sure that we maintain a healthy value equation for our retail partners and our consumers with strong innovation, with pricing, only pricing where necessary, balancing pricing with strong productivity. So I do feel that, overall, the business is responding very favorably, even after we had to take the pricing that we took. Volume is coming up as we would have expected, both in the market and for P&G.

Speaker Change: With strong productivity. So I do feel overall the business is responding very favorably even after we have to take the pricing that we took.

Speaker Change: The volume is coming up as we would've expected both in the market and for PNG and our biggest geographies, we're growing volume share consistently so I do feel overall the elasticity is doing well baby is a very elastic category.

Andre Schulten: And our biggest geographies were growing volume share consistently. So I do feel overall that the elasticity is doing well. Baby is a very elastic category. And especially, as I mentioned, we've not been able to consistently innovate across all tiers. And that actually is a confirmation of the model. So where we've not been able to push the innovation out and hold the full level of superiority as we took pricing, the consumer is responding.

Speaker Change: And especially as especially as I mentioned, if you will.

Speaker Change: <unk> not been able to consistently innovate across all tiers.

Speaker Change: And that actually is a confirmation of the model, so where we've not been able to push the innovation out and hold the full level of the protein as we took pricing the consumers responding and we know the answer to that which has pushed the innovation that we know how to do and communicate the super Ot and I'm confident that we'll recover that.

Andre Schulten: And we know the answer to that, which is to push the innovation that we know how to do and communicate the superiority. And I'm confident that we'll recover the elasticity here. I don't see a broader issue. Actually, I see a lot of upside with the strength of the innovation pipeline going into next year.

Speaker Change: <unk> I don't see a broader issue.

Speaker Change: Actually I see a lot of upside with the strength of the innovation pipeline going into next year.

Speaker Change: Okay.

Operator: Thank you. The next question comes from Callum Elliott with Bernstein. Please go ahead.

Speaker Change: Thank you. The next question comes from Colin Elliot with Bernstein. Please go ahead.

Callum Elliott: Great, thank you very much for the question. I wanted to come back, please, to Andrea's question on trade down. I think, Andrea, you pointed to the stable private label market share as a sign that there is no trade down, and I want to push back on that a bit. I think we all know that the consumers under the most pressure at the moment are the low-income consumers, many of whom were probably already using private label products in the first place.

Great. Thank you very much for the question.

I wanted to come back please to Andres question on trade down I think Andre you had pointed to the stable private label market share is a sign that there is no trade down I want to push back on that a bit.

Speaker Change: I think we all know that the consumer is under the most pressure at the moment are low income consumers many of whom were probably already using private equity production in the first place and so my question is is it not possible that volume reductions and cutbacks amongst the low income low income cohorts sort of who were already using private I mean, a year ago.

Callum Elliott: And so my question is, is it not possible that volume reductions and cutbacks amongst the low-income cohorts who were already using private label a year ago are offsetting the trade-down impacts and sort of masking that trade-down in that flat market share number that you're talking about? And that could also explain why category growth has weakened so much. And I guess just to add to the question, I'm surprised that private label market share is the metric that you're pointing to to justify a lack of trade-down. And just wondering, do you not track consumers longitudinally over time to measure trade-down and what consumers are doing? And is private label market share really the best metric that we have to track this?

Offsetting the trade down impact.

Speaker Change: Sort of masking that that trade down.

Speaker Change: Flat market share number that youre talking about and that could also explain why category growth as we can say much.

Speaker Change: And I guess just to add to the question I'm surprised that the private label market share is the metric that youre pointing to to justify a lack of trade down and just wondering do you track consumers longitude and lay out the time to measure trade down and what consumers are doing.

Speaker Change: And as private label market share related to the best metric that we have to track this.

Andre Schulten: Fair questions, Callum. Look, I'd be worried that the phenomena you're describing would be a driver if... A, the volume in the market wasn't growing, which it is, and if we weren't able to grow volume share but only grow value share. So I don't think that's the case. We're growing volume share. The market is growing in terms of volume, and one of the hypotheses I would have for you is that a lot of our consumers are actually not switching to private labor heavily at this point in time.

Speaker Change: Great questions.

Speaker Change: On the.

Speaker Change: Look I'd be worried.

Speaker Change: That the phenomenon, you're describing would be a driver if a the volume in the market wasn't growing which it is and if we weren't able to grow volume share, but only grow value share.

Speaker Change: So I don't think Thats. The case, we're growing volume share of the market is growing in terms of volume.

Speaker Change: And one of the hypothesis I would have for you is that a lot of our consumers.

Speaker Change: I actually not switching with private label.

Speaker Change: Heavily at this point in time.

Andre Schulten: On the metrics that we use, look, private label share is the most visible metric that we can point to, and it's also visible to you. So it's one that is convenient to use and objectively verifiable. So that's why we're using it. Internally, obviously, we use a lot more detail. We track exact consumption by tier, by product form, and by retail channel. We check our share versus competitive share at that level of detail.

Speaker Change: On the metrics that we use look private label share is the most visible.

Speaker Change: Metric that we can point to and it's also visible to you. So it's one that is convenient to use and objectively verifiable. So thats why we are using it.

Speaker Change: Internally, obviously, we use a lot more detail, we track exact consumption by tier byproduct formed by retail channel.

Speaker Change: We check our share versus competitive share at that level of detail. So theres a lot more internal.

Andre Schulten: So there's a lot more internal discussion on whether we see trade-down within our portfolio, whether we see trade-down across our portfolio with competitors to lower tiers, but private label is just the most visible and robust measure that we can point to that is visible to you guys.

Speaker Change: Discussion on.

Speaker Change: Do we see trade down within our portfolio do we see trade down.

Speaker Change: Our portfolio with competitors to lower tiers.

Speaker Change: But private label is just the most visible and robust measure that we can point to that is visible to you guys.

Operator: Thank you. The next question comes from Filippo Falorni with Citi. Please go ahead.

Speaker Change: Thank you. The next question comes from Philip <unk> with Citi. Please go ahead.

Filippo Falorni: Hey, good morning. I wanted to go back to the U.S. market. The 5% consumption level was pretty strong, and we've seen tracking channel data. Are you expecting, from a reporter standpoint, to get closer to that level in Q4 as you don't have the negative impact from the inventory, or what are the puts and takes in Q4? And then just specifically on laundry in the U.S., your largest category, there were some recalls on Tide Pods recently, so maybe you could talk about any potential impact from that in Q4. And then, longer term, you announced the innovation on Tide Evo, so maybe some color on the rollout of that brand and the product and your expectations. Thank you.

Philip: Hey, good morning.

Philip: I wanted to go back to the U S market, the 5% consumption.

Philip: It was pretty strong and we've seen tracked channel data are.

Philip: Are you expecting from a reported standpoint to get closer to that level in Q4 as you don't have the negative impact from the inventory, but what are the puts and takes in Q4 and then just specifically on laundry in the U S. Our largest category.

Philip: There was some recalls in tide pods recently, so maybe you could talk about any potential impact from that in Q4.

Philip: And then longer term.

Philip: Announced their innovation on tide evolve so maybe.

Philip: Some.

Philip: Some color on the rollout of that brand in that product and your expectations. Thank you.

Andre Schulten: Yep. Hey, Filippo.

Speaker Change: Yeah, Hey, Filippo.

Andre Schulten: You're right. We hope US market growth will continue in the high fours and low fives. And I think the trend line is pointing in that direction. Unless we see any major inventory reduction, I would expect us to continue to trend in that same direction. [inaudible] driving market growth in most of our categories in the US, and that should mathematically then result in stable to increasing shares, both on the volume and value side. And that's certainly the objective the team has for all the US businesses.

Speaker Change: Youre right.

Speaker Change: We hope U S market growth continues in the.

Filippo: High fours low fives, and I think the trend line is pointing in that direction.

Filippo: And.

Filippo: Unless we see any major inventory reduction I would expect us to continue to trend in that same direction.

We are.

Filippo: Driving.

Filippo: Market growth in multiple categories in the U S.

Filippo: And that should mathematically then result in stable to increasing shares both on the volume and value side and that's certainly the objective. The team has all the U S businesses.

Andre Schulten: The laundry recall was a very limited recall on a packaging defect on one skew of tied pods. Out of an abundance of caution, the team decided to recall the product. It has no impact or a very limited impact actually on the quarter or the fiscal year. And again, that product itself is safe, so there is no issue with the product. It was a small packaging defect. But in any case, the team decided to go ahead and recall the product.

Filippo: The laundry recall it was a very limited recall on <unk>.

Filippo: Packaging defect on one SKU on tide pods Aldo.

Filippo: Out of an abundance of caution the team decided to recall the product. It has no impact or very limited impact actually on a quarter of the fiscal year and again that product itself is safe. So no issue with the product. It was a small packaging defect, but in any case the team decided to go ahead and recall.

Andre Schulten: We're very excited about the Evo innovation; the fiber spinning innovation has been one of our core developments, so seeing it in the market is exciting, but it's very early. So we run these test markets to validate product market fit, validate the commercial execution, validate everything from packaging color to packaging sizes. And it'll take us a few months before we have anything of substance, but yes, the innovation is very exciting, but it will take time before it has an impact on overall laundry growth in the U.S.

Filippo: We're very excited about the evil innovation.

Fiber spinning innovation has been.

Filippo: One of our core developments associated market is exciting.

Filippo: But it's very early.

Filippo: We run these test markets to validate product market fit validate the commercial execution.

Filippo: Validate everything from packaging color to packaging sizes.

Filippo: And it'll take us a few months before we have anything of substance, but yes. The innovation is very exciting.

But it will take time before it has an impact on overall laundry growth of the U S.

Operator: Thank you. The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead. Great, thank you.

Speaker Change: Thank you. The next question comes from Robert Aten Stein with Evercore ISI. Please go ahead.

Speaker Change: Great. Thank you very much.

Robert Edward Ottenstein: Great. Thank you very much.

Speaker Change: Two follow ups first.

Andre Schulten: Two follow-ups. First, can you talk a little bit more about Europe, a very strong market, and your results have been extremely strong? So perhaps, you know, what's driving the strength of the market, your market share gains, and is this something that you think can flow through into 2025? And then, second, kind of coming back on China. There are significant channel shifts that we're noticing, certainly in the beauty area. It's 50% to 60% online, with TikTok being half of that.

Speaker Change: Can you talk a little bit more about Europe vary.

Speaker Change: Very strong market and your results have been extremely strong so perhaps whats driving the strength of the market.

Speaker Change: Your market share gains and is this something that you think can flow through.

Speaker Change: Into.

Speaker Change: Into 2025, and then second kind of coming back on China.

Speaker Change: There's been significant channel shifts that we're noticing.

And the beauty area.

Speaker Change: It's 50% to 60% online with Tic toc being half of that so kind of a number one wondering to what extent you're adapting to that and are prepared to that.

Andre Schulten: Number one, wondering to what extent you're adapting to that and are prepared to adapt to that shift. And then second, for the non-beauty business, do you also see the online business moving to TikTok as well? And maybe talk about your share online and offline in those categories, the main categories in China.

Speaker Change: To that shift and then second.

Speaker Change: For the non beauty businesses.

Speaker Change: Do you also see the online business moving to take talk as well and maybe talk about your.

Speaker Change: Your share online and offline in those categories. The main categories in China. Thank you.

Andre Schulten: Indeed, the European results have been outstanding, aggregated between European focus markets and European enterprise markets. We now have, I think, 12 consecutive quarters of 5% or higher growth, which is outstanding. Um, I think the strength of the business, maybe I should focus on the focus markets here for a minute. The strength of the business has been consistent because of the execution of the team. Strong innovation was pushed out over an extended period of time as we were taking pricing.

Speaker Change: Thanks Robert.

Speaker Change: Indeed, Europe results have been outstanding aggregate Europe between Europe focused markets in Europe enterprise markets, we now have.

Speaker Change: I think 12 consecutive quarters of 5% or higher growth.

Speaker Change: Which is outstanding.

Speaker Change: I think the strength of the business, maybe let me focus on the focused markets here for a minute the.

Speaker Change: The strength of the business has been consistent.

Speaker Change: Because of the execution of the team.

Speaker Change: Strong innovation pushed out over an extended period of time as we were taking pricing.

Andre Schulten: Very strong productivity work in the region across every part of the P&L to limit the amount of pricing we needed to take, but brilliant execution of the pricing that was taken, respecting key price points, and respecting retailers and consumer constraints. And I think that's playing out.

Speaker Change: Very strong productivity work in the region across every part of the P&L to limit the amount of pricing we needed to take.

But brilliant execution of the pricing that was taken.

Speaker Change: Expected key price points respecting retailers and consumer constraints.

Speaker Change: And I think Thats playing out we've also invested very strongly probably more than ever in terms of marketing support of those innovations in the focus markets and.

Andre Schulten: We've also invested very strongly, probably more than ever, in terms of marketing support for those innovations in the focus markets. And we are building the same digital capability in terms of consumer targeting to become more effective and efficient with our spend in Europe that we have used in the US for an extended period of time. So all of those would be contributors to growth. But on the enterprise market side, I would caution. It's not without its headwinds.

Speaker Change: And we are building the same digital capability in terms of consumer targeting to become more effective and efficient with our spend.

Speaker Change: In Europe that we've used in the U S for an extended period of time, so all of those would be contributors to growth on.

Speaker Change: On the enterprise market side I would caution.

Speaker Change: It's not without headwinds, Russia continues to be a headwind that we called out with a reduced portfolio and very little support of the business.

Andre Schulten: Russia continues to be a headwind that we called out with a reduced portfolio and very little support of the business. We have work to do in Turkey, as Turkey recovers from the heavy inflation-based pricing and some of the Middle East outflow of tensions. So it's not without headwinds, but I think the underlying performance of the European business continues to be strong, and it's built the right way. You're correct about channel shifting in China. Obviously, Douyin is a significant driver, most heavily probably in beauty. We've been talking about this before.

Speaker Change: We have work to do in Turkey, as Turkey recovered from the heavy inflation based pricing.

Speaker Change: And some of the middle East outflow of pensions. So it is not without headwinds, but I think the underlying performance of the European business continues to be strong and its built the right way.

Speaker Change: Youre correct on the channel shifting in China, Obviously, <unk> is a significant driver.

Speaker Change: Most heavily probably in beauty.

Speaker Change: We've been talking about this before what we want to make sure we keep a healthy balance between building brand equity versus simply low funnel transactional execution via kols that only make sales via deep discounting, but don't do anything for the brand equity or for our superiority messaging.

Andre Schulten: What we want to make sure is that we keep a healthy balance between building brand equity versus simply low funnel transactional execution via KOLs that only make sales via deep discounting but don't do anything for the brand equity or for our superiority messaging. That's what we're doing. We're building brand houses on Douyin. We're making sure that we have a good balance between transactional communication and equity communication. We have innovation that is launching on Douyin first.

Speaker Change: That's what we're doing we're building brand houses onto Ian we're making sure that we have a good balance between transactional communication and equity communication. We have innovation that is launching on <unk> first a head and shoulders premium would be a good example of most recent innovations. So we're playing in the channel.

Andre Schulten: Head & Shoulders premium would be a good example of recent innovation. So we're playing in the channel, but we're playing with a sense of value creation and balance between top-line growth and profitability. The channel is relevant for other parts of the business as well, and the same principles apply. We are careful to ensure that we are balanced across top line and bottom line and we protect and grow underlying brand equity.

We're playing with a sense of value creation and balance between topline growth and profitability.

Speaker Change: The channel is relevant for other parts of the business as well and the same principles apply.

We are careful to ensure that we are balanced across.

Speaker Change: Topline and bottom line and we protect and grow.

Speaker Change: Underlying brand brand equity.

Operator: Thank you. The next question comes from Peter Grom with UBS. Please go ahead.

Speaker Change: Thank you. The next question comes from Peter Grom with UBS. Please go ahead.

Peter K. Grom: Thanks, Operator, and good morning, everyone. Hope you're doing well. Maybe I can do one quick housekeeping.

Peter K. Grom: Thanks, operator, and good morning, everyone and hope you're doing well maybe one quick housekeeping can you maybe just help us understand how much of the stronger earnings guidance was related to the improvement in FX Andre.

Operator: Can you maybe just help us understand how much of the stronger earnings guidance was related to the improvement in FX? Andre, I know the FX guidance became more favorable, but I think you also mentioned you're reducing your exposure due to divestiture in Argentina, so I just want to make sure I understand the moving pieces as it relates to the FX impact on the earnings range. And then just a quick follow-up on SK-2 in China. I think month-to-month improvement was mentioned, so just any color you can provide on the exit rate relative to the 30% decline in the quarter would be pretty helpful. Thanks.

Peter K. Grom: Next guidance became more favorable but I think you also mentioned youre, reducing your exposure due to the divestiture in Argentina. So I just want to make sure I understand the moving pieces as it relates to the FX impact on the earnings range and then just a quick follow up on <unk> in China, I think month to month improvement was mentioned so just any color you can provide on the exit rate.

Peter K. Grom: Relative to the 30% decline in the quarter I think it will be pretty helpful. Thanks.

Andre Schulten: OK. Morning, Peter.

Speaker Change: Morning, Peter.

Andre Schulten: Yeah, the foreign exchange help is an interesting one because the $400 million reduction, as we said, was all related to Argentina. And we had assumed in the previous guidance that whatever exposure is generated in Argentina will have to be offset with pricing within the fiscal year in Argentina. So as the assumption changes and the business size reduces, the net outcome to the P&L is very limited. So yes, we saw a technical reduction because of the improving peso and the lower size of the smaller business.

The foreign exchange health is an interesting one because.

Speaker Change: $400 million reduction as we said was all related to Argentina.

Peter K. Grom: And we had assumed in the previous guidance that whatever exposures generated in Argentina will have to be offset with pricing within the fiscal year in Argentina.

Peter K. Grom: So as the assumption changes in the business size reduces the net outcome to the P&L is very limited.

So yes, we saw a technical reduction because of the.

Peter K. Grom: Improving peso and the lower size of smaller size of the business. The net effect to the P&L will be very limited because of the underlying assumptions. We made from the very beginning that we would offset that.

Andre Schulten: The net effect on the P&L will be very limited because of the underlying assumption we made from the very beginning that we would offset that impact of FX gear pricing in the market. SK-2 in China is, I think, bottoming out in terms of the shipment pattern. As we said, we're about 30% down in the quarter. It's very encouraging to see some positive signs in terms of consumer sentiment as the team continues to innovate.

Peter K. Grom: Impact of FX via pricing in the market.

Peter K. Grom: S K two in China is.

Peter K. Grom: I think broadening out in terms of the shipment pattern as we said we are all 30% down in the quarter.

Peter K. Grom: It's very encouraging to see some.

Peter K. Grom: Positive signs in terms of consumer sentiment as the team continues to innovate the team drives very strong communication on the core benefit space of the SK II proposition focusing on <unk> as a core ingredient and reason to believe.

Andre Schulten: The team drives very strong communication on the core benefits base of the SK-II proposition, focusing on Pitera as a core ingredient and reason to believe. We are leveraging, and will continue to leverage, the core consumer in China, who is very loyal to the brand, to amplify that messaging, and it's starting to resonate. So we see positive signs. It will take time until that translates into shipments, though. I think retailers are sitting on a little bit of stock, and I think they will be hesitant to order until they see good signs of increased consumption.

Peter K. Grom: We are leveraging continue to leveraging the core consumer and China very loyal to the brand.

Peter K. Grom: To amplify that messaging and it's starting to resonate so we see positive signs.

Peter K. Grom: It will take time until that translates into shipments, though I think retailers are sitting on a little bit of stock.

Peter K. Grom: And I think they will be hesitant to order until they see good signs of consumption increases so I would caution.

Andre Schulten: So I would caution. I don't expect this to be a fast recovery. This will take some time. Maybe last point on SK-2, outside of China, the business is doing very well, we're growing double digits in Japan, so I think the fundamental proposition is healthy, we just have to sort through this period in China. And again, we're pointing, I think, in the right direction, but it will take some time.

Don't expect this to be a fast recovery this will take some time.

Peter K. Grom: Maybe last point on SK to outside of China. The.

The business is doing very well growing double digits in Japan. So I think the fundamental proposition is healthy we just have to sort through this.

Peter K. Grom: Period in China, and again, pointing I think in the right direction, but it will take time.

Andre Schulten: Thank you. The next question comes from Nick Modi with RBC Capital Markets. Please go ahead.

Peter K. Grom: Thank you. The next question comes from Nik Modi with RBC capital markets. Please go ahead.

Operator: Yeah, thank you. Good morning, everyone.

Sunil Harshad Modi: Yes. Thank you good morning, everyone.

Sunil Harshad Modi: Just a few kinds of housekeeping items. Andre, I just wanted to confirm that the de-stocking in the U.S. was isolated to the consumer health business. And then the other two questions I had, the Tide Evo, the technology that you've developed, would that be applicable to other brands and other cleaning solutions within the P&G portfolio? And then just the final thing is, You know, I think there's a lot of the theme I'm hearing broadly from speaking to investors around this call is, you know, the delta between, obviously, how P&G is performing and how everyone else is performing.

Sunil Harshad Modi: Just a few.

Sunil Harshad Modi: Kind of housekeeping items Andre just wanted to confirm that the destocking in the U S was isolated to the consumer health.

Sunil Harshad Modi: And then one.

Sunil Harshad Modi: Two questions I had.

The tide E mailed the technology that <unk> developed it would that be applicable to other brands.

Sunil Harshad Modi: Other cleaning solutions within the P&C portfolio.

Sunil Harshad Modi: And then just the final thing.

Sunil Harshad Modi: I think theres a lot of the theme I'm hearing broadly speaking to investors along the call it the.

The delta between obviously, how p&g's performing and how the how everyone else is performing and I think the competition that youre dealing with I think generally are struggling for volume growth.

Sunil Harshad Modi: And, you know, I think the competition that you're dealing with, I think, generally, is struggling for volume. So, as you think about guidance, you know, how much have you contemplated a step up in competitive spend? Right? I understand the fact that you guys have momentum, and you're gaining market share, and the innovation is working. But I just wanted to get an understanding of kind of how measured your guidance is in relation to potential competitive response. Thanks.

Sunil Harshad Modi: As you think about guidance.

Speaker Change: How much have you contemplated a step up in competitive spend right I understand the fact that you guys have a momentum that youre gaining share in the innovation is working but I just wanted to get an understanding of kind of how measured your guidance is in relation to potential competitive response.

Andre Schulten: Thanks for the question, Nick. De-stocking in the US was broadly personal health care related. That was the biggest effect. Again, an okay season but significantly weaker than last year and, generally, an industry-wide recovery of the supply chain. So if you're a retailer, you no longer see the need to hold safety stock. You're convinced that when the season restarts and you need product, you can order it, and you'll get it. There was some of that also in the Tempex business, in the tampon business, as we have stabilized the supply chain there, a similar dynamic.

Speaker Change: Alright.

Speaker Change: Thanks for the question Nick.

Speaker Change: Destocking in the U S was broadly personal health care related that was the biggest effect.

Speaker Change: Again.

Speaker Change: Okay season, but significantly weaker than last year and generally in industry wide recovery of the supply chain. So if you're a retailer you no longer see the need to hold safety stock Youre convinced that when seasonally starts and unique product you can order and to get it. There was some of that also in the <unk> business and the tempo business as we have stabilized the supply chain.

Speaker Change: Similar dynamic and that was a little bit of destocking in hair care, because we had.

Andre Schulten: And there was a little bit of de-stocking in haircare because we had an up-stocking in the base. But the majority of it, to keep it simple, is healthcare. Indeed, the Evo technology, so the fiber spinning technology, is a technology that can be applied in broader contexts. We've applied it to facial cleaning in beauty, and there are many other applications. This is one of our platform technologies, if you think about it. The ability to spin chemistry into a fiber and avoid water as a carrying agent has so many efficiencies and advantages in the chemistry that we can put together and, obviously, in the logistics and cost side, that yes, we would want to apply it.

Speaker Change: Up stocking in the base.

But.

Speaker Change: The majority of it to keep it simple is health care.

Speaker Change: Indeed, the Evo technology, so the fiber spinning technology is a.

Speaker Change: Technology that can be applied.

Speaker Change: In broader context.

Speaker Change: Applied to facial cleaning and beauty and there are many other applications. This is one of our platform technologies. If you think about it.

Speaker Change: The ability to spin chemistry into a fiber.

Speaker Change: Avoid water has a carrying agent.

Speaker Change: So many efficiencies and advantages in the chemistry that we can put together and obviously in the logistics and cost side that yes, we would want to apply it but step by step we got to make sure. The evils proposition works well and Thats why were in test market and we talked about this earlier.

Andre Schulten: But step by step, we've got to make sure the EVOS proposition works well, and that's why we're in the test market, and we talked about this earlier. Competitive spending, if done the right way, would be a good thing. If we see competitors innovate, if we can see competitors communicate in the market in constructive ways, drive incremental spending in marketing dollars, that's a good thing. So we hope to see that.

Competitive spending.

Speaker Change: If done the right way would be a good thing.

Speaker Change: We see competitors innovate if we can see competitive communicate.

Speaker Change: In market constructive ways drive Incrementals.

Speaker Change: Spend in marketing dollars. That's a good thing so we hope to see that.

Andre Schulten: On the promotion side, we don't really see a dynamic that would point to anyone escalating promotion. We see stable depth of promotion in Europe, and a little bit of an increase in frequency. In the US, we are operating at about 85% business sold on deal, which is an 85 index versus the pre-COVID level. Sorry, that's about 29% of business volume sold on deal. And we see competitors at similar ranges. So, and it's stable over a period of time. So again, if we see market constructive spend, great. Nobody seems to have an interest in heavy promotion at this point in time.

Speaker Change: On the promotion side, we don't really see a dynamic that would point to any one.

Speaker Change: Escalating promotion.

Speaker Change: We see stable depth of promotion in Europe, a little bit of increase in frequency in the U S. We are operating at about 85%.

Business sold on deal, which 85 index versus pre Covid level. So that's about 29% of business volume sold on deal.

Speaker Change: And we see competitors at similar ranges, so and it's stable over a period of time. So again, if we see market constructive spend great nobody seems to have an interest in.

Speaker Change: Heavy promotion at this point in time.

Operator: Thank you. The next question comes from Kamil Ghajarwala with Jefferies. Please go ahead. Everyone, good morning. I guess I'll get to that towards the end of the call, putting a lot of it together, lots of information on.

Speaker Change: Thank you the next.

Speaker Change: Question comes from cameo Cassia Waller with Jefferies. Please go ahead.

Speaker Change: Yeah.

Cassia Waller: Hey, everyone. Good morning, I guess I will get to towards the end of the call putting a lot of it together lots of information on on.

Kaumil S. Gajrawala: Thank you. The next question comes from Kamil Ghajarwala with Jefferies. Please go ahead.

Cassia Waller: On volume on organic revenue also why it should get better sequentially I think putting that in the context of what your earnings have grown year to date versus the guidance of 10% to 11, implying almost a flat for Q.

Operator: Yeah, Kamil, the main driver here is the profile of some of the tailwinds and headwinds. I don't expect a major step up in spend, quarter over quarter. I think we will sustain good investment levels, and again, as I said, we will be ROI driven, so it's up to the teams. But I don't expect a step up as the main explanation of why Q4 looks different in terms of EPS growth. The main driver is that a lot of the commodity help has been booked in the front half of the year.

Cassia Waller: I think that suggests.

Cassia Waller: Very significant step up in and reinvestment or maybe something else. So can you maybe just trying to reconcile each of those pieces.

Cassia Waller: Yes.

Cassia Waller: The main driver here is the profile of some of the <unk>.

Cassia Waller: <unk> and headwinds.

Speaker Change: I don't expect a major step up in spend quarter over quarter, I think we will sustain.

Speaker Change: Good investment levels and again as I said, we will be ROI, driven so it's up to the teams.

Speaker Change: But I don't expect a step up as the main explanation of why Q4 looks different in terms of EPS growth. The main drivers a lot of the commodity help has been booked in the front half of the year.

Operator: And if anything, there's a little commodity hurt coming in Q4. As we talked, oil potentially, as reflected in diesel rates, and maybe some of the pulp impact will hit this fiscal year. And then the foreign exchange rate, so forget about Argentina, I think we've discussed that, but the balance of the foreign exchange rate will mostly hit in the second half, and that's heavy in quarter four. And then the last element is just the base period.

Speaker Change: And if anything there is a little commodity hertz coming in Q4, as we talked oil potentially as reflected in diesel.

Speaker Change: Rates and maybe some of the pulp impact will hit this fiscal year.

Speaker Change: And then the foreign exchange rate, so forget about Argentina, I think we've discussed that but the balance of the foreign exchange rate will mostly hit in the second half and Thats heavily.

Speaker Change: In quarter four.

Speaker Change: And then the last element is just base period.

Andre Schulten: So Q4 last year was very strong because of a different profile. This profile looks a little bit different for the reasons I explained, but don't expect a material change in spend behavior. It's really more the macro drivers that impact the profile.

Speaker Change: So Q4 last year was very strong.

Speaker Change: Because of a different profile this profile looks a little bit different for the reasons I explained, but don't expect a material change in spend behavior, it's really more of a macro drivers that.

Speaker Change: The impact of the profile.

Operator: Thank you. The next question comes from Mark Astrachan with Stiefel. Please go ahead.

Speaker Change: Thank you. The next question comes from Mark Astrachan with Stifel. Please go ahead.

Mark Stiefel Astrachan: Great, thanks. Morning, everybody.

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

Andre Schulten: Um, one follow-up on SK-2. Last quarter, you talked about your research suggesting that brand sentiment was improving. I didn't hear that, so I guess that's still the case. He's still doing more work on what's going on, I guess, specific to what's happening in China and then more broadly. Reinvestment has just been considerable this year, obviously, because gross margin has expanded, or at least in part because gross margin has expanded so much and allows you to do that. As you think about the setup from here, how much do you think will come from 300 plus basis points of reinvestment back into the business that drives share volume, value, etc.? Thank you.

Mark Stiefel Astrachan: One follow up on that too.

Mark Stiefel Astrachan: Last quarter, you talked about your research, suggesting that brand sentiment was improving I didn't hear that I guess.

Mark Stiefel Astrachan: The case is still doing more work on what's going on I guess specific to what's happening in China and then.

Mark Stiefel Astrachan: More broadly.

Mark Stiefel Astrachan: Reinvestment has just been considerable this year, obviously because gross margin has expanded at least in part because gross margins have expanded so much and allows you to do that.

Mark Stiefel Astrachan: Do you think about the setup from here.

Mark Stiefel Astrachan: Commodities unknown, but probably not as big debate tailwind.

Mark Stiefel Astrachan: Net net pricing clearly not as big of a tailwind as it's been so as you go into next year and you presumably have a little less gross margin to play with how do you think about what the reinvestment levels look like and then what is the contribution.

Andre Schulten: Mark on SK-II, I think the brand sentiment has been sequentially improving. The work the team is doing on innovation, on communication, and credentialing, I think, is resonating with the consumer. And that the overall sentiment towards Japanese brands is improving.

Mark Stiefel Astrachan: Squishy question, but how much contribution do you think you've had from 300 plus basis points of reinvestment back into the business to drive share volume value et cetera. Thank you.

Mark Stiefel Astrachan: Yes.

Speaker Change: Mark on SK too I think the brand sentiment has been sequentially improving.

Speaker Change: The work the team is doing on innovation on communication and Credentialing I think is is resonating with the consumer.

Andre Schulten: We are also getting a bit more bold in the breadth of communication, the reach, and frequency that we use. So I think all of that is pointing in the right direction. As I mentioned, I think the order behavior might lag, so we might see improvement in consumption before we see improvement in shipment. So that's why I was cautioning that while we see consumer sentiment improving, that first has to translate into increased consumption, and that then has to translate into increased orders and shipment, and that will take some time. So the team is doing the right work, and I'm glad they're actually doing it in a very balanced way to ensure that we're rebuilding this brand for the long term.

Speaker Change: And thats the overall sentiment towards Japanese brands is improving we are also getting a bit more bold and the breadth of the communication the reach and frequency that we use so I think all of that is pointing in the right direction.

Speaker Change: As I mentioned I think the order behavior might lag so we might see improvement in consumption before we see improvement in shipment.

Speaker Change: So that's why I was cautioning that while we see consumer sentiment improving that first has to translate and increase consumption and that then has to translate into increased orders and shipment and that will take some time.

Speaker Change: The team is doing the right work and I'm glad they're actually doing it in a very balanced way to ensure that we rebuilding this brand for the long term.

Andre Schulten: In terms of spending, I think this will really be done business by business, geography by geography, so it's hard to give you an answer. The only thing I'd point to is that we are planning for significant productivity to continue in the marketing spend area. So that, in and of itself, would be somewhere between 400 and 500 million units of productivity in the space. That is always up for discussion. Do you reinvest, or do you just flow it through?

Speaker Change: In terms of spending I think this will really be done business by business geography by geography. So it's hard to give you a.

Speaker Change: And answer the only thing.

Speaker Change: 0.2 is we are planning on significant productivity to continue in the marketing spend area.

Speaker Change: So that in and of itself would be somewhere between four and $500 million of productivity in the space.

Speaker Change: That is always up for discussion do you reinvest or do you flow flow through.

Andre Schulten: And it will really depend on the level of innovation we are able to drive. More innovation means more spending and, hopefully, a better return. And I'll leave it at that in terms of the ROI. I think I've answered that question before. It's there in the aggregate discipline of the categories. But I wouldn't want to go into more detail. I think it's really down to the category and country combinations at which we measure it and at which those decisions are made.

Speaker Change: And it will really depend on the level of innovation, we are able to drive.

Speaker Change: More innovation means more spend.

Speaker Change: And hopefully better return.

Speaker Change: And I'll leave it at that in terms of the ROI I think I've answered the question before.

Speaker Change: It's it's there in the in the aggregate discipline of the categories.

Speaker Change: But but I wouldn't want to go into more detail and I think it's really down to the category country combinations that which we measure it and at which those decisions are made.

Operator: Thank you. Today's final question comes from Brett Cooper with Consumer Edge Research. Please go ahead.

Speaker Change: Thank you today's final question comes from Brett Cooper with consumer Edge Research. Please go ahead.

Brett Young Cooper: Thanks. Good morning.

Andre Schulten: And one follow-up to Nick's question. Over the last two quarters, some of your peers or competitors have talked about increasing their rates of growth. You touched on this a bit before, but I was hoping you could talk about the opportunity or capacity for category growth rates to rise further if more players are deploying the strategy that you execute. And how do we see that come through with respect to volume, price, or mix? And then, just finally, if there's anything that you need to do with respect to promoting innovation more or doing anything in light of what may be a more competitive environment on that front, thank you.

Brett Cooper: Thanks, and good morning, Paul next question.

Brett Cooper: Over the last few quarters, some of your peers or competitors talked about elevating the rates of growth.

Brett Cooper: And you touched on this before but I was hoping you could talk about the opportunity of your capacity for category growth rates to elevate further if more players at the funding strategy that you execute.

Brett Cooper: And how do we see that come through with respect to volume.

Brett Cooper: Price for me.

Brett Cooper: And then just finally, if there is anything that you need to do with respect to elevating innovation more do anything in light of what maybe a more competitive environment on that front. Thank you.

Andre Schulten: Yeah, thanks for the question. Look, I think if more of our competitors adopt a market constructive strategy and innovate and spend in that way, that's good for everyone. And if you look at category development globally, there's still so much opportunity to grow, even in the most developed markets, to grow category penetration in places like fabric enhancers. So that is a big opportunity in many of the markets where we play. The category development index is 30 or maybe slightly higher.

Brett Cooper: Yes.

Speaker Change: Yes. Thanks for the question look I think it's more of our competitors adopt a market constructive strategy.

Speaker Change: And innovate and spend in that way that's good for everyone and if you look at the category development globally.

Speaker Change: There is still so much opportunity to grow.

Speaker Change: Even in the most developed markets to grow category penetration in places like fabric Enhancers.

Speaker Change: So that is a big opportunity in many of the markets, where we play the category development Index is index 30.

Andre Schulten: So there's plenty of opportunity to be market constructive, so that's a good thing. We are constantly looking at our superiority and our innovation that's inherent in the strategy of irresistible superiority. So we've talked about resetting the bar. We've done that with exactly that in mind. What will it take for us to continue to be market constructive and win over consumers? for the next five years instead of just looking back at the success we had over the past five years. So that is part of the growth model and part of how the organization operates.

Speaker Change: Maybe slightly higher.

Speaker Change: So there's plenty of opportunity to be market constructive so thats a good thing.

Speaker Change: We are constantly looking at our superiority in our innovation that's inherent in the strategy of irresistible superiority.

Speaker Change: So we've talked about resetting the Bob we've done that with exactly that in mind, what would it take for us to continue to be market constructive when consumers.

Speaker Change: For the next five years instead of just looking back at the success, we had over the past five years. So that is part of the growth model and part of the organization operates.

Operator: Alright, thank you for your time today. If you have additional questions, Jon and myself will be available during the day. Thank you for your time and thank you for your interest. This concludes today's conference. Thank you for your participation.

Speaker Change: Alright, Thank you for your time today.

Speaker Change: You have additional questions John and myself will be available during the day. Thank you for your time and thank you for your interest.

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

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Speaker Change: [music].

Operator: BF-WATCH TV 2021

Speaker Change: Yeah.

Speaker Change: Okay.