Q1 2025 Procter & Gamble Co Earnings Call
Speaker Change: Good morning and welcome to Proctor and Gamble's Quarter-End Conference Call. Today's event is being recorded for replay.
Speaker Change: This discussion will include a number of forward-looking statements.
Speaker Change: If you will refer to PNG's most recent 10K, 10K and 8K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.
Speaker Change: As required by Regulation G, Proctor and Gamble needs to make you aware that during the discussion, the company will make a number of references to non-gap and other financial measures. Proctor and Gamble believes these measures provide investors with useful perspective on underlying business trends, and has posted on its investor relations website www.pginvestor.com, a full reconciliation of non-gap financial measures.
Speaker Change: Now I will turn the call over to PNG's chief financial officer, Andre Schulten.
Andre Schulten: Good morning, everyone. Joining me on the call today is Jon Chévalier, Senior Vice President Investor Relations.
Andre Schulten: Execution of our integrated strategy delivered another quarter of solid earnings and cash results. These results enable us to maintain our guidance ranges for fiscal year 25.
Andre Schulten: Organic sales grew 2% comparing against the strong base period of 7% growth. Volume contributed 1.2 organic sales growth, pricing added 1.2 and mix was roughly in line with prior year.
Andre Schulten: Ed of ten product categories, glue or help organic sales for the quarter, family care, home care and personal health care each group with single digits.
Andre Schulten: Here, here, or here, feminine, care, fabric here and grooming, through low singles.
Andre Schulten: Baby Kair and Skin and Persona Kair were down with singles.
Andre Schulten: Organic sales in focus markets grew 2% and enterprise markets were up 1%.
Speaker Change: I can't see it's in North America, I'm going 4%
Speaker Change: Driven by 4 points of volume growth, over the last 5 quarters North America has grown again exceeds 7% 5, 3, 4% and now again 4% on volume growth between 3 and 4% each of those quarters.
Speaker Change: The region delivered broad-based market share growth this quarter, with 8 of 10 categories holding a growing volume share, and 9 of 10 categories holding a growing value share.
Speaker Change: Europe focused markets organic sales were up 3%.
Speaker Change: This compares again 50% agonic sales growth in the base period and includes a two-point headwind from lower inventory versus the base period.
Speaker Change: Volume was up four points despite the base period inventory impacts. Over the last five quarters, Europe focused markets have grown organic sales and average of nearly 7% on volume growth of 3%.
Speaker Change: Latin America organics sales were up low-single digits against a strong 19% base period come. Brazil grew mid-singles and Mexico was in line with prior year. Each of these markets comparing against strong 14% growth in the base period.
Speaker Change: European Enterprise Market, Google Mit Singles driven by pricing to offset inflation and currency devaluation impacts in addition to models volume growth.
Speaker Change: Great to China, organic sales decline 15%, underlying market conditions, we can further during the quarter and we continue to face brand-specific headwinds on SK2.
Speaker Change: We will begin to analyze some of the steep market declines in SK-2 headwinds late in December. Though it will likely be a few more quarters until we return to growth in China.
Speaker Change: Market Conditions in the Asia-Pacific Middle East Africa region have remained soft with organic sales down low singles.
Speaker Change: Global aggregate value share good 10 basis points with 28 of our top 50 category country combinations holding or growing share for the quarter.
Speaker Change: On the bottom line, core earnings per share were $1.93, up 5% versus play a year on a currency neutral basis for EPS increased 4%.
Speaker Change: For Gross margin was in line with prior year and co-operating margin increased 30 basis points.
Speaker Change: Strong Productivity Improvement of 230 basis points, Crown Cynutre cooperating margin decreased 10 basis points.
Speaker Change: A just three cashable productivity was 82% consistent with our expectations.
Speaker Change: The return nearly $4.4 billion of cash to share on us this quarter, over 2.4 billion in dividends and over 1.9 billion in share repurchases.
Speaker Change: The summarized results solid top line growth across roughly 85% of the business, keeping us on track for the fiscal year. Continued volume and value share gains in North America and improving share trends in Europe focused markets.
Speaker Change: Learningson Cash Results and Line with our expectations, also on track with fiscal year guidance.
Speaker Change: Overall, good performance and what continues to be a challenging economic and geopolitical environment. We will continue to push all levers in our control to offset the headwinds that are largely not in our control.
Speaker Change: We remain committed to the integrated strategy that have enabled strong results over the past six years, and that is the foundation for balanced growth and value creation.
Speaker Change: We've made portfolio choices across markets and brands to strengthen our ability to generate US dollar-based returns.
Speaker Change: We are doubling down on superiority across all five vectors, and we are improving productivity in all areas of the operation to fuel investments in security, mitigate cost and currency headwinds and drive margin extension.
Speaker Change: We are driving constructive disruption of ourselves and our industry, a willingness to change a depth and create new trends, technologies and capabilities that will shape the future of our industry and extend our competitive advantage.
Speaker Change: We are benefiting from an organization that is empowered, agile and accountable.
Speaker Change: Our strategic choices on portfolio, superiority, productivity, constructive disruption and organization we enforce and build on each other and we remain confident in our strategy and in our ability to drive market growth and to deliver balance growth and value creation.
Speaker Change: We will elaborate on the integrated strategy and how it's driving competitive advantage and results at our investor day in November.
Speaker Change: Now moving to guidance for fiscal 2025 with one quarter complete our guidance ranges of fiscal 25 remain unchanged and we are consistent with our long term algorithm.
Speaker Change: We continue to expect the environment around us to remain volatile and challenging from input costs to currencies, to consumer competitor retailer and geopolitical dynamics.
Speaker Change: On the top line, we are maintaining our organic sales growth guidance in the range of 3 to 5%.
Speaker Change: Continue to expect the markets in which we compete to deliver local currency sales growth in the range of 3 to 4% for the year. And our objective remains to grow organic sales, modesty ahead of the underlying growth of these markets.
Speaker Change: As a reminder, when you're modeling all in sales, please remember to include the impact of the best purchase from last fiscal year. This was an 80 basis point drag in quarter one and will also impact the balance of the fiscal year.
Speaker Change: On the bottom line of a core EPS guidance range for fiscal 25 remains at plus 5 to 7% versus fiscal 24 of a core EPS base of $6.59. This guidance equates to a range of 691 to 7.05 per share.
Speaker Change: Our outlook for commodity costs and for next change, have each improved model needs since our initial guidance for the year. We are now guiding for a commodity cost headwind of approximately $200 million after tax.
Speaker Change: which equates to a headwind of eight cents per share for fiscal 25. We are forecasting for an exchange to be in line with prior year.
Speaker Change: Continue to expect low and non-operating income benefits this fiscal year and the somewhat higher tax rate versus prior year. Combined these additional 10 cents to 12 cents had wind to call EPS.
Speaker Change: We expect a jobs that we cash for productivity of 90% for the year, we have plants to pay around $10 billion in dividends and to repurchase $67 billion in common stock. Combined, returning $16-$7 billion of cash to share owners of the system year.
Speaker Change: This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates, significant additional currency weakness, commodity cost increases, geopolitical disruptions, major supply chain disruptions or store closures are not anticipated within these guidance ranges.
Speaker Change: We conclude the earnings and cash results in the quarter keep us on track with our fiscal year guidance ranges and we are doubling down on all levers to accelerate growth in the coming quarters.
Speaker Change: We continue to believe the best path forward is excellent execution of our market constructive strategy with a focus on balance, stop and bottom line growth and value creation. Starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners.
Speaker Change: Covered with a strong productivity plan, the earnings power and value creation potential of the company we believe are a strong as ever.
Speaker Change: You have a question, please press star, follow by one on your phone. If your question has been answered, or you would like to withdraw your question, press star, follow by two.
Speaker Change: Your first question will come from seed powers of Deutsche Bank. Please go ahead.
Speaker Change: Thanks and good morning Andre, how are you?
Speaker Change: I guess to start, I think, as we reflect on the quarter and really the last 12 months, I think it's fair to say you've been continually surprised to the downside on the trajectory of growth.
Speaker Change: and obviously markets like China and the Middle East have caused persistent challenges. The good news as you suggested is that we're going to start to laugh those challenges.
Speaker Change: But you know...
Speaker Change: Rates of Improvement are questionable, as you highlighted.
Speaker Change: and I think investors are somewhat...
Speaker Change: You know, fearful of...
Speaker Change: You know, the long side that the benefit of cycling the challenges you'll start to have some more deceleration in markets where we had strength to US and your focus markets probably most.
Speaker Change: Most pertinent. How do you assess those challenges? You called out the consistent outlook of market growth at 3 to 4% that's relatively bullish on the dynamics I'm referencing. So what do you say to investors who are more concerned about the acceleration from here in that underlying growth?
Speaker Change: Morning, Steve. Hope you're well. Yeah, let's maybe start with a with a year before we get into the acceleration on the quarters.
Speaker Change: If you step back, we did deliver last year on guidance or above guidance for each of the metrics that we had outlined in our guidance. Organic sales co-opiers, pre-castrocastro shareholders.
Speaker Change: and as we had telegraphed in December we saw these headwinds early on, China SK2, Nigeria, Argentina, the Middle East.
Speaker Change: And despite those headwinds, decelerating Quater 3 and Quater 4 top line performance, we said we would deliver within guidance for which we did.
Speaker Change: We also were clear that these headwinds would be with us through the front half of this fiscal year. So a smaller top line growth versus expected average for the fiscal year and the front half is not a surprise. It's actually what we expected within the guidance range.
Speaker Change: And that's, I think, the part of the guidance that was clear to us, as you rightly point out, I think the level of deceleration in the Middle East and in China, I think is still volatile.
Speaker Change: More importantly, if you look at the rest of the portfolio, if you look at US, Canada, Europe focus markets, Europe enterprise markets, Latin America.
Speaker Change: Those regions constitute 85% of our safe base.
Speaker Change: and these regions in aggregate are going 4% in quarter one on a 10% base on quarter one last year.
Speaker Change: North America says over the past five quarters were consistently up, 75-34-4. Europe is growing on a 7% average over the past five quarters, 3% of that from a volume growth standpoint.
Speaker Change: We are growing or holding volume share in all of these regions in aggregate.
Speaker Change: So I think the core of the business, 85% is as strong as we could wish for, it's growing 4% and it's been growing at that pace significantly with very high-based period cones.
Speaker Change: The last thing I leave you with on the 85% of the business that is not impacted by any external factors.
Speaker Change: We have probably the strongest innovation out there in the second half that we've seen in a long time.
Speaker Change: So, a combination of very strong structures in each of these markets.
Speaker Change: Very strong innovation in the second half and easing combs in the base give us confidence that we can see sustained growth and also some level of acceleration in the core of the business.
Speaker Change: The volatility, as you pointed out, is entirely introduced by China and by the situation in the Middle East.
Speaker Change: And the way we think about the guidance is if we analyze and when we analyze these basic facts in quarter two and quarter three.
Speaker Change: We will get to the midpoint of guidance.
Speaker Change: If we see more than annualization in some level of improvement in the situation that could get us to the top end of the guidance.
Speaker Change: When we see the situation continuing to deselerate, that would point to the lower end of the guidance. That's the very simple logic. What you find in all of this is a strong belief that the core 85%
Speaker Change: Our next question will come from Lauren Lieberman of Barclays. Please go ahead.
Lauren Lieberman: Thank you so much. So just to follow on on Steve's thought process there, Andre, your response.
Lauren Lieberman: Um...
Lauren Lieberman: We've heard more early days in earning season, but there are a number of multinational companies that are calling out worsening trends, so European consumer was particularly called out yesterday by Nestle, Latin America a bit less good, and then, of course, China, I have to assume that that down 15 was a surprise to you guys this quarter.
Speaker Change: Just what about the risk factor around your point on that 85% because it doesn't feel like it leaves a lot of room for any kind of slowing in the macro environment, which just feels a little bit contrary to what we're hearing from some other consumer companies. Thanks.
Speaker Change: Good morning, Lauren.
Speaker Change: Yeah, when we talk about our consumer, we talk about the consumer and our categories. And we've chosen these categories for a reason. They are daily use, consumers don't stop washing their hair, they don't stop doing their laundry.
Speaker Change: And they are categories where the product performance is very important to consumers because they understand that the cost of failures actually higher than maybe the premium they would pay for a product that promises to perform in line with what their expectations are.
Speaker Change: and that logic I think.
Speaker Change: leads to the consumer continuing to trade into PNG and continuing to trade up.
Speaker Change: and you see that in terms of share growth in the U.S.
Speaker Change: We consistently have grown share, both volume share and value share. We have consistently been able to trade consumers up within our portfolio and we're bringing more innovation focused on stronger performance and increasing superiority across the different categories and brands.
Speaker Change: The same holds true for Europe.
Speaker Change: When you look at the growth rate in Europe in the last quarter was actually 5% excluding the inventory effect year over year and we are seeing stabilizing to growing volume share trends in Europe again with very strong innovation in the in the back half.
Speaker Change: Latin America is stabilizing, we've articulated that we're growing the biggest two markets Brazil and Mexico on a 14% base.
Speaker Change: And we expect within our construct that the Latin American market growth will return to mid-single digits 5 to 6 percent, which is what we're seeing materialized.
Speaker Change: So every indication that we have in terms of data and in terms of the plans that the teams are executing now and into the second half give us confidence that we can continue the momentum.
Speaker Change: at the run rate level, which means with easing comms it would mean an acceleration on a year-over-year comparison.
Speaker Change: Everything can change, there's no guarantee, but with everything that we can see, we feel confident that that component of 85% of the sales is holding or strengthening as we go through the year.
Speaker Change: You are right, China and the Middle East are the least predictable components that's why they introduce the volatility in the guidance range at this point in time.
Speaker Change: Look, we are the best way to increase the probabilities that we see here improvement is to focus on the fundamentals.
Speaker Change: which we are doing. In China, we have cleared the portfolio to focus the organization on those brands. We have the strongest go of potential. We are reinventing our go-to-market model with our distributor partners to increase coverage and quality of coverage.
Speaker Change: We have strong innovation across the portfolio, which is showing science of revitalizing the categories. When you look at the head and shoulders and maintain innovation.
Speaker Change: The baby care portfolio continues to perform strongly and FK2 is making progress with the launch of the Supreme Union proposition and beginning national marketing support again. So we're pointing in the right direction, the macro context is questionable and we will have to see where this goes. The same is true for the Middle East.
Speaker Change: But that's why we have the range within the guidance. So overall, I think we're confident you're right to point out there's a level of volatility here, which we hope we have adequately communicated.
Speaker Change: Our next question, we'll come from Dara, on the city of Morgan Stanley. Please go ahead.
Dara: Thank you very much.
Speaker Change: Good morning.
Dara: So, just to follow up on this 85% of sales mix versus 15% dynamic, first maybe on the 85% obviously the U.S. is a line share of that. Can you just touch on what you think sustained category growth is here in the U.S. in a moderate pricing environment from an industry perspective?
Dara: As you look out over the next couple years here, and I guess you sound pretty confident in the market share of Moeller in the US, but maybe you can touch on that in a bit more detail. And then just on the laggard 15%.
Speaker Change: It's helpful in the detail you gave us in terms of what a sequential improvement could mean or not being going forward to corporate OSG. Just give us a little more sense of your perspective, the calm so much easier.
Speaker Change: is the base case that there should be an inflection in that 15% going forward with these your comps I understand some of the volatility you mentioned, but just trying to get a sense of how you see that developing on the 15% of the mixes you look out over the next few quarters here.
Speaker Change: Thanks.
Speaker Change: Thank you, Darra.
Speaker Change: Let me start with the US and then maybe go a little bit broader, but the opportunity we see in the US is still huge. When you look at the categories in which we operate, we see sustained market growth in the range of 3 to 4% at this point. It's decelerating as we had expected from the 5-6% range we saw in previous years.
Speaker Change: As the pricing component comes down, but it's encouraging that the volume side is actually coming up strongly and a sustaining storm growth. So we expect the three to four percent range as whether the market is going to be.
Speaker Change: But as you know, our job within that the way we view it is to continue to drive our categories and continue to drive market growth beyond that 3 to 4% so we can grow our head and we grow share.
Speaker Change: the opportunity
Speaker Change: in multiple dimensions. Number one, just looking at consumers that we don't serve yet at the full level at which we serve other consumer groups is about a $5 billion growth opportunity. And we're focusing on that by being more intentional about the benefits that these specific consumer groups are looking for. The way those benefits need to be addressed in a product solution, the way they need to be communicated to register with the consumer group and where we need to be distributed in order to reach those consumers.
Speaker Change: Innovation in that space, both across product package, across communication and across goal to market, we believe is a big driver of capturing that 5 billion dollar growth opportunity.
Speaker Change: We have many categories that across the consumer base are still showing significant penetration opportunities.
Speaker Change: We frequently talk about fabric enhancers, it's more than a billion dollar business, but household penetration is only about 30% on liquid fabric enhancers, only about 20% on beats. So there's a huge growth opportunity to drive more household penetration by again finding ways to make this proposition more appealing to more consumers.
Speaker Change: Power ORACIA, a big example of underpinitrated category, a new claim of our Power ORACIA. I owe business with 100% more plaque bacteria removal. That business is growing 8% and the global share is up 2%. So there are many examples where we see growth opportunity in the US. The same is true for Europe.
Speaker Change: and maybe for the spectres, there are some markets in Europe that drag the performance down. From, for example, had a change in terms of...
Speaker Change: Legislation on how promotions can be executed in March of last year, in March of this year, but last fiscal year. And that has significantly impacted all performance in France, along with everybody else. The France is down 11 percent normalizing that we'll give us on top of the same opportunity to help describe for the US. We'll lead to a level of acceleration that we expect.
Speaker Change: On the 15% of the business, again, our base assumption is that we simply annualise most of these effects.
Speaker Change: We see stabilization across categories. There are quarter to quarter effects in China that need to be taken into account with shifts and key consumption periods.
Speaker Change: But I think the general assumption is that we will over the next couple of quarters start to analyze both SK2 and the major China market contraction.
Speaker Change: and that will help towards the stabilization of the total. The same is true for the Middle East. Most important point I still want to make is we're not just sitting there and waiting for the business to annualise.
Speaker Change: i
Speaker Change: Our next question will come from Brian Spalain of Bank of America. Please go ahead.
Brian Spalain: Hey, thanks operator, good morning, Andre, good morning, Jon.
Brian Spalain: My question is just around the gross margins and the cost of good sold inflation. And this morning, the inflation came moderated a bit.
Brian Spalain: So, I guess.
Speaker Change: Two questions. One, was any of that moderation of inflation present in the quarter? So did it affect at all gross margins in this quarter? And then as we're thinking about it going forward, you know, it's worth thinking about our models, is there anything that would offset it actually improving gross margins a little bit more? So is whether it's segment mix or geographic mix, just how should we think about how that that improvement sort of nets out in our model? [inaudible]
Speaker Change: Yeah, Morning Brian, look, I think the...
Speaker Change: The main driver of our growth margin progress will continue to be productivity. You see 170 basis points contribution to growth margin in the current quarter. And I expect that level of productivity contribution to remain or accelerate as we get to our target of $1.5 billion of Cox growth savings throughout the year.
Speaker Change: We continue to have an effect from FK2.
Speaker Change: and SK2 has been down 35% in the quarter, so it's a significant impact when you think about the growth margin that business contributes.
Speaker Change: So, the other driver here is as we see annualization of the SK-2 effects that will help girls margin going forward.
Speaker Change: To the...
Speaker Change: To the inflation question, there is some level reflected of easing inflation. The majority of that, I think, was spread throughout the year. Again, our P&L, very insolent policy plus contracts generally make for a six to nine months delay from actual commodity inflation to its flowing through our P&L. So that will be a help. I will probably model towards the latter half of the fiscal year.
Speaker Change: Our next question will come from Chris Kerry of Wells Fargo Securities. Please go ahead.
Chris Kerry: I could morning, Andre. I wanted to have specific questions about the baby business.
Chris Kerry: and also the family care business. This is a few quarters in grow.
Chris Kerry: that baby is under pressure. He just talked about the durability of this pressure. Maybe how much of that has to do with it.
Chris Kerry: Geographic was between China and the U.S. and what really the past is.
Speaker Change: the CEO and improvement from here, even if the birth rate dynamic is not in your favor and secondly, on the family, care business, I think this is something like...
Speaker Change: I don't know 11 consecutive quarters of growth, but pricing.
Speaker Change: will become less of a tailwind. I don't think it would ever have any real pricing.
Speaker Change: in the quarter. Can you just talk about the sustainability of these growth rates in the family care business? And also if you could just maybe touch on whether you saw any benefit in this quarter from you know stock up activity with some of the poor congestion and storms and whether we should be thinking about that maybe next quarter or or just in general if that's something that we should be considering as we think about the next quarter or two going forward in that business. So thanks on baby and family care.
Speaker Change: Great, thank you Chris.
Speaker Change: Let me start with family care, maybe the business model in family care is very stable and sustainable, and the main driver here is to contribute to category growth. That's really the job of the business.
Speaker Change: and the way to do that is to drive innovation.
Speaker Change: The innovation is generally an improvement in the substrate, so an improvement of the bounty substrate or the charm and substrate, which leads to the ability to then downcount sheets of the role, increase the role diameter of the role size, so consumers are actually more product available to them, and that is a ever repeating cycle of innovation driving category growth.
Speaker Change: That cycle has been working for decades, I expect it to continue to work at the same way.
Speaker Change: The innovation capability of the technology and family care, which is unique to PNG, is by far not exhausted, so we have runway in terms of the innovation we can drive.
Speaker Change: and again the model has proven to be very sustainable over decades, through different economic context.
Speaker Change: On the stock-up situation, we saw a quick run-up with a port strike, but it didn't really have a material impact on this quarter. No, are we expecting any impact on last quarter? It was very short-lived, so therefore, again, no impact current, no impact next quarter.
Speaker Change: BabyCare has been subject to decelerating or decreasing birth rates for Apple. That is not a new dynamic, it's a dynamic that has existed within the BabyCare category for a long, long time, as long as I've been associated with it, which is a long, long time.
Speaker Change: The way to create value and growth in baby care is not volume growth. It is really to provide superior propositions for consumers and thereby trade them up into higher or the benefits basis.
Speaker Change: and create value from a market perspective, from a share perspective that way. When we do that successfully, even in the most challenging environment, we can grow.
Speaker Change: Case in point would be China. China has the fastest deceleration in birth rates, but with a very strong portfolio that is innovating across all tiers, we have been able to consistently grow sales and share in China.
Speaker Change: So when the business is innovating in line with what consumers are looking for, communicating that innovation in the right way, distributed in the right way, the model works very well.
Speaker Change: Well, we don't.
Speaker Change: and that's a little bit of a situation in North America. We've talked about this before. We have very strong innovation on the premium T.S. Bottlers and Cruises 360. We continue to see share growth. Bottlers is up, I think, 1.6 share points. Cruises 360 is up to 50 or 60, basis points.
Speaker Change: So that part of the portfolio is doing very well. We have an opportunity to innovate on the mid tier. We just launched last platinum care. It's too early to tell but I think it's encouraging to see it in market and we are working on strong innovation on the baby drive business.
Speaker Change: and that's the same opportunity that we have in Europe. So the model works, but it requires discipline around strong innovation and that's what the business is working on now that we have full access to lines because we don't have any capacity shortfalls.
Speaker Change: I fully expect the business to go back to growth here over the next few quarters.
Speaker Change: Our next question will come from Felipo, Felorny of City. Please go ahead.
Felipo Felorny: Hey, good morning, everyone. So Andre, I wanted to go back to China and your comments about
Felipo Felorny: Still being a few quarters until you return to grow. Look, you're starting to analyze some of the impacts where I get to already in the next quarter. So should we think about the pace of improvement in China in the sense of...
Felipo Felorny: The last declines, but still negative growth in the bottom of the year. And how does the recent stimulus measure in China inform your gradual improvement in the country? And then, if I can ask one more to the total company level, I think it will be helpful to give a little bit of context how you see the progression in terms of organic sales growth from
Felipo Felorny: The approximately two percent in Q1, should we expect the supply show improvement in Q2, or is it really the improvement to get to your midpoint of your guidance more excuse us of the side for out. Thank you.
Felipo Felorny: Yeah.
Felipo Felorny: Thank you, people.
Speaker Change: Predicting recovery pace in China is a futile task, I think. So we won't attempt that. That's why we have the range that we have communicated. I would expect sequential improvement simply because of the math of annualization. So we expect the any disseleration to not offset the basic fact. [inaudible]
Speaker Change: But that's where it ends. Again, as we've communicated, if China is simply annualizing, that would point to the mid-point of the guidance. If it does anything better than that, that would help us towards the upper end. If it continues to decelerate throughout the year, that would point us to the lower end of the guidance range.
Speaker Change: I won't make any prediction what the pace or the direction by quarter is.
Speaker Change: On the progressions per quarter, we don't give you quarterly forecasts for a reason, we need some level of flexibility to manage across quarters, but I think logically we have to expect some level of progression going into quarter two, but it will be the overall arching effect that I still want to call out is the headwinds are still with us in quarter one and in quarter two. Thank you.
Speaker Change: Next question will come from Robert Audinstein, a Beber Cori S.I. Please go ahead.
Robert Audinstein: Great. Well, you guys have done a fantastic job of seeing the U.S. in Europe. So I want to circle back to China on a bigger picture of Stasis.
Robert Audinstein: By my estimates, it looks like your sales are now down.
Robert Audinstein: 20 to 25 percent over three years. So three years of consecutive declines.
Robert Audinstein: So the question is, are there structural changes in the Chinese market or the Chinese consumer that need to be addressed and what you're doing to address those changes? And I think you also mentioned in terms of SK2 that you're starting to push that brand a little bit more now, so are you starting to see some green shoots with the consumer and the appreciation of that brand and the ability to get that going? Again, thank you.
Speaker Change: Morning Robert, thank you. There are many changes to the Chinese consumer that need to be taken into account and that's the work the team is doing that I was mentioning before. Where consumers buy? Again, online is a significant part of the business and even within the online spectrum, a shift into doing is a significant part of what needs to be taken into account. Where the communication model and the way to build brand equity and the way to communicate value is different than in any other digital channel.
Speaker Change: Shift in the brick and mortar business towards clubs, towards grocers and supers is another area that needs to be taken into account. So as I mentioned earlier, we are rebuilding our distributive partnerships to ensure that we can reach consumers in the right places with the right prices, with the right on-shelpersatability across all propositions.
Speaker Change: The consumer behavior in terms of benefits to go for our shifting. If you look at the mask in care space, for example, the benefit space that was very popular over the last few years was toning. Now it's going into anti-aging and multi-benefit. So we're adjusting our innovation portfolio to meet those requirements.
Speaker Change: The way media has consumed is changing, so we need to adjust the way that we innovate in our media space and our technical capability to reach consumers without duplication at the right frequency.
Speaker Change: So all of those things are changing Robert and we are, I think we're doing a good job, the team is doing a great job in adjusting to those realities.
Robert Audinstein: But as you say, as long as the market is not recovering, it will still be an uphill climb.
Robert Audinstein: But I do believe that we are very well positioned in China to continue to win and we are on a relative base as performing well, but again in line with the market. On SK2
Robert Audinstein: I would say it's too early to say green shoots, but the brown shoots are disappearing. Let me put it that way.
Robert Audinstein: We have done all the right work in terms of rebuilding the brand equity, focusing on the right campaign messaging, activating the most royal users to be advocates for the brand innovating, as I said, on the core and on the super premium.
Robert Audinstein: Upgrading our department store presence investing in beauty counselors and so the early signs are positive but again I think I want to give ourselves a little bit of time here before we declare green shoes.
Speaker Change: Our next question will come from Kevin Grande of B&P Parabot. Please go ahead.
Kevin Grande: Great, thanks for morning Andre. I wanted to pivot, so with respect to areas that you can control, I want to ask you about Mark this year performance. And if I'm not mistaken, I think the comment was earlier on the call.
Speaker Change: You're gaining your holding share in 28 of your top 50 markets, so a bit more than half. Also, I'm not mistaken, that's down from 75% in fiscal 22. I believe it comes along with terms to our biggest close to 65%.
Speaker Change: and this is also within the context you reiterated to three to four percent global category growth and the company printed two percent organic sales in the quarter understanding some of the dynamics here in the base and 15 percent of the business seeing more acute headwinds.
Speaker Change: with all of that in context. I was hoping you could comment on sort of longer term, the importance of market shares and KPI within your organization. And then too, and I think maybe more immediately, what you see is the greatest series of opportunity to elevate the company's market share performance. Thanks for that.
Speaker Change: 1.11, yeah, um, look.
Speaker Change: The market share trend, I think, is generally positive, it wasn't necessarily a surprise that the market share would.
Speaker Change: Decrees in terms of number of category country combinations that are growing or holding share.
Speaker Change: Simply because of the level of pricing that we have to take and some of the dynamics we are, for example, retail brand pricing in Europe, significantly lagged in terms of timing.
Speaker Change: So, going ahead and leading in many of those markets because we simply are the category leader generally results in short share effects that are less favorable and I think that's to a large degree the deceleration in terms of number of category countries, combinations that you see growing.
Speaker Change: I would say the way we talked to our teams about it is...
Speaker Change: What our job is to grow markets and the best way to grow markets is to increase household penetration of our categories. The earliest indication to see whether we're increasing household penetration is volume share. So it is an important measure for us. If it is a measure of creating incremental consumption.
Speaker Change: And that's what we ultimately bring it back to. So it's an early indication for us to say, okay, if we don't grow volume share, we're probably not growing household penetration. But the real measure that we're going after is panel based household penetration, which is the best measure of are we doing our job in growing markets.
Speaker Change: I think we're making progress here. The European results are, as I mentioned, both in focus markets and enterprise markets. We are holding to growing volume share now, which was very important to see that's the other private labor pricing effect was most pronounced. That's a significant portion of our top 50 category country combinations.
Speaker Change: Our next question will come from Peter Graham of EBS. Please go ahead.
Peter Graham: Thanks, operator. Good morning everyone. Andre, I wanted to ask a follow-up to see the complete post-question and...
Peter Graham: I don't want to be too specific, but when you're kind of discussing the rate of improvement or annualizing the impacts from China and the Middle East and...
Peter Graham: kind of the organic revenue range.
Speaker Change: Are you speaking to where I would put organic revenue growth for the year or are you kind of just speaking conceptually how you would see it evolving from
Speaker Change: for the balance of the year. And I guess the reason I asked is it seems that in order to hit the midpoint of the range, you would need some pretty strong performance from here after the 2% in one queue. So I just wasn't sure if you were implying that based on where things stand today, can be simply annualizing these headwinds would still be enough to hit 4% per year. Thanks. Thank you very much.
Speaker Change: Yeah, I think it would be a combination Peter of annualising the headwinds and maintaining and slightly accelerating the run rate in the 85% of the business which on an easier compound would then increase obviously the year over year quarterly growth.
Speaker Change: We're not, it's hard to say how these two pieces exactly will work together, but conceptually we know two things need to be true. One, we need to annualize and we need to annualize at the end of quarter two and quarter three.
Speaker Change: Our next question today, we'll come from Andre A to Sarah of JP Morgan. Please go ahead.
Speaker Change: Thank you for your time. Good morning to all. Andre, can you comment a little bit on what Peter was trying to get to? And I think it's valid in the sense.
Speaker Change: that your skincare performance rate was like, I believe more than 20% negative in total. And then you're analyzing, and if I'm doing the math correctly, that on itself is 700 to 800 business points, a additional isn't as in, in guide, in, in, in, in comp.
Speaker Change: So, with that to say, that needs to be slightly better, so let's say the minus 22, call it become a meetings negative on itself, helps your comp. And then on top of that, you're saying kind of stability, but in terms of stability, what gives you confidence that Europe and the US can keep that stability, or even a lot of America can keep that 85% running, all things that we know now, for the second quarter. So it implies, I mean, I want to say that it does imply, if you're keeping guidance at the midpoint, it does imply that you're going to be sequentially better in the second quarter of fiscal, if that's the way we should be thinking.
Speaker Change: I think that I want to be clear, the guidance of the range, so it's three to five on the top line. And all the scenarios you're describing can either lead to five or can lead to three. I think what we're saying is the range is still viable.
Speaker Change: Yes, if you want to get to five, you have to see a significant acceleration in or you have to see a fast annualization and some acceleration in China and the Middle East. And you have to see sequential stability on the core of the business.
Speaker Change: I think I've explained the assumptions, but the range is still viable. What gives me confidence on the 85% of the business is what I've said before that business has been delivered at these growth rates, not for one quarter, but for five quarters, in some cases for six quarters.
Speaker Change: So if you look at that, I think it gives me confidence that we have a sustained record of delivering at those growth rates.
Speaker Change: and when you look at the shared trajectory, it's pointing upwards and we have more innovation coming. So I think the fuel is there, but you're right, there are multiple scenarios where you can construct this, where you end up at a 3%, there are multiple scenarios where you can construct this, where you end up at 5%.
Speaker Change: i
Speaker Change: If you question today we'll come from Co-Mio Gajarwala of Jeffrey's please go ahead.
Speaker Change: Hi, thank you. Good morning, everyone. Can you talk a bit about price points and promo? And in particular, I guess, you know, I see that mix was negative for both beauty and grooming beauty, I guess, I would assume is SK2 but maybe just talking about, you know, where the consumer is, are you seeing trading down, how you're thinking about that in the context of promotional activity and absolute price points. And then very quickly anything on inventory, be stocking or deturing more and more of that at retail. And the other is curious if that's something that's impacting you or something that you're watching.
Speaker Change: Yep, hey, come on. I would describe the overall market situation as stable, little change was what we've talked in the previous quarters.
Speaker Change: both in Europe and in the US.
Speaker Change: We again, we focus on promotion that hopefully drives market growth and category growth in lower penetrated categories combining with high penetration categories so we can provide value to consumers but at the same time drives growth and trial.
Speaker Change: Overall competitive environment is still stable and still slightly below pre-coated levels.
Speaker Change: You write the beauty, negative mix, price mix effect is driven by SK2. And on grooming, it's really driven by a shift. We had a record appliance period year ago. Now we have more sales in the in the Gillette part of the portfolio. So that's the shift that you see in grooming. Nothing points to the consumer trading down. Nothing points to any increase price base. Competition at this point in time. And again, I'm. [inaudible]
Speaker Change: Repeating myself, but the categories were in. We have the right propositions that reassure consumers that the products work. We have the right price letters, so there's access to consumers at higher cash outlays, lower cash outlays, higher price per unit, lower price per unit.
Speaker Change: and as long as we keep innovating and driving that it was this to book for priority, I believe we will be fine. But we keep watching this very closely at this point in time, no indications that the consumer is not with us. Private labor shares are flat.
Speaker Change: and if you look at a sequential basis, private labor is a value share and he was actually down from past 12 months, 16.2 to now 15.7.
Speaker Change: So all of that indicates to me a stable consumer and stable price promotion environment.
Speaker Change: Our next question will come from Mark Astrocan of Seethel. Please go ahead.
Mark Astrocan: Yeah, thanks, Morgan, everybody. I wanted to ask specifically on SK2. It seems like the trends in the brand are a little bit worse than the overall prestige skin care category. I guess I'm curious about how you think about the brand. If you've talked before, maybe not last quarter, quarter of that about work that you had done about brand relevant.
Mark Astrocan: and Awareness, and tend to purchase and improving and clearly it's...
Mark Astrocan: Nod.
Mark Astrocan: I get something that's a week or two more in China, but at some point it does become a question of how brands and impairments and needs to read.
Mark Astrocan: Invest and reinvent the brand to broaden or be relevant. So I guess the question is, how do you think about all of what I just said and in the context of just the other performance versus the category seems to be widening and kind of what's a reasonable rate of a time frame for its return to some sort of improving trend, not even growth. I know what you said about China, but the SKC's disability within that mark too would be helpful. Thank you.
Speaker Change: Yeah, thank you Mark.
Speaker Change: to
Speaker Change: SK2 as a brand continues to be very relevant. The core benefit and the core ingredient as the reason to believe that that benefit is delivered.
Speaker Change: Plus, the efficacy shown in actual consumer experience over decades I think is still the most relevant proposition and as close to irresistible superiority that is actually ingredient driven in the category as you can find.
Speaker Change: and the consumer is playing that back. We had very strong results in SK2 outside of China and outside of Traver Retail. And I think the effects that we're seeing, which is dragging the brand down, is the unique.
Speaker Change: Combination of a Japanese brand in a Chinese context when they're conflict and therefore a negative sentiment towards Japanese brands in aggregate. That's unique to SK2 and I think that's what's driving the effect.
Speaker Change: When the business is down to that degree, there is a level of investment choice that needs to be made, which the team has done. But we've encouraged them to continue to invest at the right level, to rebuild the equity of the brand, specifically in China and in travel retail, which I think they are doing doing well. So I've got not much more to add other than to say, the brand is very relevant. The core of the brand is being stressed. With the core messaging of what Peter is and what the benefit is that the brand delivers.
Speaker Change: The edition of a super premium tier, I think it's highly relevant for those consumers. They have the spending power and they're looking for the best possible offering.
Speaker Change: and Price is a connotation to quality and efficacy in these categories. So I feel very good about the core of the brand. And obviously the Japanese Chinese situation is unique to SK2, which is what we're annualizing beginning quarter two.
Speaker Change: i
Speaker Change: Next question, we'll come from Nick Modi of our BC Capital Markets. Please go ahead.
Speaker Change: get
Speaker Change: Yeah, thank you. Good morning, everyone. Andre, just a quick housekeeping and then I brought a question. You mentioned in your prepared commentary that you're not embedding any store closures into the guide. I think that's what I heard. And just given what's going on on the drug channel, just wanted to get your perspective on how do you account it for some of the dynamics playing out in that market. So that's the housekeeping question. The broader question is just about innovation. And I think Peter is kind of a novelist in the fact that there's real despots of innovation coming out of it. The company. The company.
Speaker Change: More so than I think the broader sector. And so maybe you can just give us an update on, you know, Elaine Nelson, Tideo and kind of how that initiative is progressing in, you know, within the pipeline for the next, you know, one to three years, you know, what other type of, of course, you're not going to mention the specifics, but just like, you know, similar type of disruptive type of patients, is there anything else that you can kind of share with us regarding other types of initiatives, whether you have with Tideo and Olyn Nelson, thanks.
Speaker Change: Thank you Nick, as the guidance says, we've not assumed any major store closures in the US. Obviously, when there's selective store closures, that's part of the normal business.
Speaker Change: So I will leave it there.
Speaker Change: On this ruptured innovation, Olae Melds is doing very well, Evo Test Market is also doing really well.
Speaker Change: At Oroboff Expectations in the test market, but again it's a test market to early on.
Speaker Change: We are making progress on the industrialization of evil, so the ability to produce at scale, to be able to launch at a national level.
Speaker Change: and that is also progressing as planned. So I would say...
Speaker Change: Both based on fiber spinning technology are very promising propositions and both seem to resonate very well with consumers. And as you point out, both are highly proprietary to PNG. And the form itself has a lot of one way when you think about our product portfolio. In terms of broader disruptive technology and being able to advance our competitive mode from a innovation standpoint. We're going to spend a lot of time on that during investor day, so I won't go into the details here. But it will be a big part of the conversation in November .
Speaker Change: The next question is from Olivia Tong, of Raymond James. Please go ahead.
Olivia Tong: I want to talk about, there's clearly a big divergence of performance across categories and realize that some like beauty has higher exposure to some underproportal illness, but if we look at like fabricant home care of the example you just case, for instance, can you talk a little bit about what you're doing differently there versus your other categories because it feels like in fabricant home you're innovating more, the innovation is resonating better. Why doesn't it seem to be working in some other categories, you know, babies, for example, or beauty, excluding SK2 for the moment, because it doesn't seem like composition is any lighter in these categories, if anything it keeps you heavy. Thanks.
Speaker Change: Yep, morning Olivia.
Speaker Change: Look, there's a reason why we have a portfolio of 10 different categories. They at times perform at different levels, but operating the global portfolio will allow us to still deliver algorithm with even some ups and downs across categories. Specifically on your question on beauty, I think it's important to look at beauty excluding China and SK2. If you look at that picture, North America, you guys are growing 8%, Europe 6, Enterprise Markets 8,
Speaker Change: The growth in North American heck has 9% on a 12% base, shares up 90 basis points, global APDO is growing 11%.
Speaker Change: in North America, 9% with grown native sales, 10 times over over the past five years.
Speaker Change: So, I think the team is doing a tremendous job reading the consumer, developing propositions that match consumers needs, communicating in the right way, bringing them to market and that's what I think what's reflected, but it's hard to overcome with a significant part of your business in China, those headwins.
Speaker Change: Fabric and Homecare is doing a tremendous job in innovation. We've talked about evil, we've talked about sabric enhancers.
Speaker Change: The runway is also huge across both categories because they both represent
Speaker Change: Relatively Big Opportunity in Terms of Incremental House of Penetration.
Speaker Change: when you think about...
Speaker Change: Swiffer, for example, PowerMob is a new product to the category and is driving significant category growth is up 9%.
Speaker Change: Downey and Tide Rins.
Speaker Change: are new ads to the laundry regime as older remongers, and they are the number one driver of category growth. So when we find those opportunities that accelerate business market growth and is sustainable. And we have pockets of that in baby care when you think about an enjama, for example, which is a bad weather category, which was very underserved. When we innovated in that category, we drove category growth of 67% and took significant share.
Speaker Change: So there are opportunities in all of those categories. Will they all be at the same time? And so we see consistent growth across all, no, but all these categories are rich with opportunity to drive innovation, drive category growth and delight and more consumers.
Speaker Change: i
Speaker Change: Our next question is from Kareem, with my, of Piper Sandler, please go ahead.
Kareem: Good morning, thanks for taking the question. I'd like to hopefully get a little bit more color on what you're seeing with your retailer partners. How are inventory orders tracking? Has there been any change throughout the quarter? And how are you expecting those orders to trend over the next several quarters? And then just generally speaking, you know, how is that? What are you doing? I don't know. I don't know. I don't know. What are you doing? I don't know. I don't know. I don't know.
Kareem: How are you viewing the broader retail dynamics both in the U.S. and in your FNLOT hand and how are those different?
Kareem: Thank you.
Speaker Change: Inventory levels at retailers broadly speaking are stable. There's no major movement. The only effect worth calling out was the base period effect in Europe where some retailers increased inventory levels in quarter one of last year because we had announced a supply chain program that was coming over at that time. Other than that, I would characterize it with relative stability, nothing to report.
Speaker Change: The General Retailer Relationship with PNG is extremely constructive. I would describe it as probably the best retail relationships we've had as far as I can remember. And that's true for the US. That is true for Europe where we have built strong partnerships with our retailers, all under the common objective to grow markets.
Speaker Change: and the more retailers understand and brace and see how partnership with PNG strong innovation and ability to reach underserved consumers can help them grow their categories and our categories. That partnership is only strengthening.
Speaker Change: In the next question, we'll come from Rob Moscal of TD Securities. Please go ahead.
Rob Moscal: Thank you for the question. Andre, regarding this $300 million positive benefit in terms of your outlook for commodity costs, could you tell me how you think about that versus your original guide? Do you intend to hold it back and maybe deploy it in categories where you need to...
Speaker Change: Pete Moore, effectively because of price competition, or can you think you have more proactive plans with that money?
Speaker Change: to put it into areas of growth. Like, how are you thinking about that benefit?
Speaker Change: So we're still looking at a 200 million 80 headwind for the year. So in relative terms it's not really a healthy over year, it's still a 200 million 80 cost headwind that we need to absorb. And all of the
Speaker Change: Your final question comes from the line of Linda Bolton-Wiser of the A-Day of Please go ahead.
Linda Bolton-Wiser: Yes, hi. I just wanted to ask a little bit more about the beauty segment. I was curious about Olay in North America and what's being done there in terms of the competition, the Durham kind of base brand, the competition there. And then on China again, you know, we're all talking about us K2, but how was the hair care piece in China? Was that decline left? And how is PNT doing? And what are you doing there on the hair care side in China? Thanks. Thank you.
Speaker Change: Thank you, Linda. As I said, the beauty business overall in North America is doing very well. You point to the OLA business, and within OLA, the innovation on super theorems is incredibly successful. The most successful entry in the segment in recent years, and 65% of consumers are incremental to the categories, exactly what we want to see. Melts is very successful, resonating with consumers, and that's the new form. So us being able to, I think, communicate the benefit of the form, consumers experiencing it, and repeating now is also great to see.
Speaker Change: Now, we have an opportunity on the core business, specifically on the jar business, to rejuvenate the franchise, and that's the work that the team is doing with urgency. So, recognize the opportunity there, and it's being worked.
Speaker Change: and the hair care china side.
Speaker Change: Strong Innovation, we've divested all the doubts of soon business when we're now focusing on the three brands we have.
Speaker Change: Haddon Schultes, Pantaine and Rejoice.
Speaker Change: We have strong innovation launch in Head & Soldiers, premium innovation, we've launched innovation on content both are performing very well.
Speaker Change: was the number one haircare brand online ahead of care stars.
Speaker Change: for the first time in the last quarter.
Speaker Change: had an shoulders as growing share and the plan on rejoicing, launching later in the year.
Speaker Change: So the team is doing great work on the hair care brands, but again all of this is done in a context where the market is still down. So the most important element here is, as we've said all along, the market needs to annualize and stabilize.
Speaker Change: All right, um...
Speaker Change: Thank you. I hope you agreed with us that it's...
Speaker Change: It's a strong start to the year on the majority of the business. We continue to see the headwinds that we are telegraphed in December. But we are confident that even with those headwinds and the strength on the core of the business, we will be able to deliver within guidance range on all metrics.
Speaker Change: concludes today's conference. Thank you for your participation. You may now disconnect have a great day.
Speaker Change: i
Speaker Change: and his name is Jon Moeller, and his name is Jon Moeller.
Speaker Change: You are now rejoining the main conference.