Q1 2025 The Clorox Co Earnings Call - Q&A
and fiscal year earnings release conference call. At this time, all participants are in a list no limit. At the conclusion of our prepare remarks, we will conduct a question and answer session. If you would like to ask a question, you may press star 1 on your touchstone pad at any time.
If anyone should require assistance during the conference, please press star zero on your touch-to-dom pad at any time. As a reminder, this call is being recorded.
I would now like to introduce your host for today's conference call, Miss Lisa Burhan, Vice President of Investor Relations for the Claw Rocks Company. Miss Burhan, you may begin your conference.
Thank you Jen. Good afternoon and thank you for joining us. On the call with me today, our Linda Rendle, our chair and CEO and Kevin Jacobson, RCFO.
I hope everyone has had a chance to review our earnings release and prepared remarks.
will publish our available on our website. In just a moment, Linda will share a few opening comments and then we'll take your questions.
During this call, we may make forward-looking statements, including about our fiscal 2025 outlook. These statements are based on management's current expectations that may differ from actual results, rock comes.
In addition, we may refer to certain non-gap financial measures.
Please refer to the Fort Looking Statement section, which identifies various factors that could affect any such Fort Looking Statements, which has been filed with the SEC.
In addition, please be free to the non-gap financial information section of our earnings release and the supplemental financial schedule in the industrial relations section of our website for reconciliation of non-gap financial measures to the most directly comparable gap measures.
Now I'll turn it over to Linda.
Linda: Hello everyone. Thank you for joining us today. Our first quarter results were strong.
Taking a step back, we entered fiscal 2025 in a position of operational strength, having fully restored supply, distribution, and the vast majority of market share from the August 2023 cyber attack.
This quarter, we drove further progress as we fully restored overall market share, grew share in most of our categories, and delivered results above our expectations, while continuing to make progress against our strategy for long-term value creation.
Importantly, we continue to deliver on our commitment to rebuild margins, achieving our eighth consecutive quarter of gross margin expansion.
We also completed the development of our VMS business during the quarter. This follows the previous sale of our Argentina business and marks another important milestone in the evolution of our portfolio, which supports our goal to reduce volatility and drive more consistent and profitable growth over time.
Looking ahead, we continue to see an uncertain macroenvironment where consumers remain under pressure and continue to seek value.
Within this context, and in the complexity of the recent years, our portfolio of trusted brands in everyday essential categories has remained strong and resilient.
So during a time when it matters most, we are focused on delivering superior value to consumers and continuing to invest in our brands and innovation to win in the market.
We have strong fundamentals in place and we remain laser focused on advancing our transformation to be a stronger and more resilient company.
Through these actions, we're making good progress in building a more consumer-obsessed, faster and leaner company that's well-positioned to deliver consistent and profitable growth. With that, Kevin and I will take your questions.
And our first question will come from Dara Mosinian. Please go ahead.
Hey guys, can I come in?
So I just wanted to touch on market share. You mentioned in the release that you guys have fully restored.
market share. As you look out from here, do you think you can consistently expand share, maybe talk about some of the key drivers behind that?
And then specifically, if you could talk about the back half of the year, what are you assuming there in terms of your market share performance and volume growth? I'm guessing maybe you're not assuming much in the back half of the year, so some short-term clarity there and thoughts on long-term share potential from here and how you drive it.
Sure, Dara. I'll cover that, maybe just starting with the performance in Q1. We did indeed return our overall market share to its pre-cyber levels.
and we saw growth in almost every one of our categories. And I think it's important to note that that growth came before we began lapping the cyber disruption as well. So our overall market share was up in that period before we started the lap.
We're also seeing, you know, just from a private label perspective,
you know, not really a significant change in what we saw in previous quarters where private label share has been normalized coming out of the peak when they grew share during cyber. So if you look in aggregates, they only grew share in two of our categories, and we also grew share in those same categories.
and they're actually down versus pre-cyber levels, if you look at this quarter, you know, compared to the quarter before we had the attack.
So we feel great about where our shared position is. Obviously, we've invested more in both advertising and sales promotion and
Trade Promotion to ensure that we have the health of our brands covered. I would say that's generally in line with what we thought we were going to see. So the share growth that we experienced this quarter was in line with our expectations.
Moving forward, we would expect to continue to grow share, albeit probably at a smaller level than we've seen given we're in a lap period right now, so that share growth will be lumpy throughout the year, but we do expect to end the fiscal year with solid share growth and overall market share gains.
Thank you.
Okay, and within that, can you talk about what you're seeing from a promotional environment perspective in the industry and maybe parse out some of the different business segments in terms of what you're seeing there?
Thanks.
Speaker Change: Yeah, our assumption for this year was that promo would return to pre-COVID levels.
and that's exactly what we've seen. I would say some categories are slightly ahead of that, some are below. Maybe the one that I think is probably the biggest variance versus...
pre-COVID and pre-cyber would be litter.
Litters promotional levels are significantly higher and to be fair we're driving a lot of that as we work to get our business back with consumers and we've talked about those dynamics.
Coverage
But on average, you know, other than litter, I wouldn't call it anything that is materially different one way or the other.
Speaker Change: Great, thank you. Thanks, Dara.
And our next question will come from Peter Grom with UBS.
Thanks, operator. Good afternoon, everyone. Hope you're doing well. I kind of wanted to follow up on Darren's line of questioning there.
and just kind of ask around the phasing of the sales guidance. You know, obviously, once you came better, some of that's coming out of the second quarter. I guess what I'm trying to understand is just, you know, given...
Your guidance seems to kind of still imply solid growth in the back half of the year. So just kind of curious as to whether your expectations for organic growth in the back half of the year have evolved at all, just given the current environment.
Hey Peter, this is Kevin. Yeah, happy to take that one. As it relates to the phasing of sales and, you know, obviously as you folks saw, we had a good solid start to the year, 31% organic growth.
I think you probably saw in our prepared remarks, we have adjusted Q2 a bit as some of that performance in Q1 was pulling forward volume we thought was going to ship in Q2, so we made some adjustment there. And we're now expecting Q2 to be down probably in the low teens.
Speaker Change: And then if you consider that front half, what that would suggest in the back half of the year is, you know, if you take the middle of our outlook that, you know, 4% or so for the full year, you're growing probably 3% to 5% in the back half of the year, so right in line with our long-term algorithm.
Speaker Change: I think your other question is kind of getting at what are those drivers that that's supporting that three to five percent growth and
You remember, Peter, we called back in August that we expected the categories to slow and that sort of flat to 1%. That continues to be our expectation.
Also, keep in mind, though, for about 20% of our business, our international or clorox professional businesses continue to perform quite well. We continue to expect those businesses to grow in the mid-single digits, so they're nice contributors to our growth.
We've also got the benefit of our divestitures.
We didn't fully see that in Q1 because we just sold our VMS business late in the quarter, but
You'll get the full structural benefit to the top line, starting in Q2, and that will certainly benefit the back half as well.
Speaker Change: And then as Linda was referring to earlier, just the strength of our overall demand plans. We've got a good innovation program lined up for the back half, and we certainly got strong marketing support. So overall feel very good about the drivers of how we think we'll get to that three to 5%.
And I think why that's important is because I think you folks know we're not only about us delivering 3 to 5 percent this year, but we're spending quite a bit of time ensuring that we can continue to deliver 3 to 5 percent as we head into fiscal year 26. So I really like the exit rate we're focused on to make sure that we've got a good plan in place as we move forward.
Great. And then just maybe a quick follow-up on gross margin. So just the first quarter, it came in well ahead of your guidance. Was that entirely related to the better, you know, fixed-cost absorption related to the shipments or were there other drivers that kind of led to the upside in the quarter?
Yeah, it was really driven by the overdelivery in the top line that just flowed through into better cost absorption, which also benefited earnings. But other than the benefit of cost absorption, everything else was pretty much in line with our expectations across the other elements of total delivered cost.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Great. Thanks so much. I'll pass it on.
Thanks, Peter.
Speaker Change: And we'll move next to Filippo Filorni with Citi.
Filippo Filorni: Hey, good afternoon everyone. I wanted to ask two questions on the businesses that you called out, Linda, the GLAAD and the leader business.
In GLAD, it seems if you look at track channel data, it seems you've recovered a lot of your shelf space with their introduction of the large pack sizes. So maybe you could give an update there. And in LIDAR, it seems like there's more opportunity to recover shelf space. Can you talk a little bit about the progress?
and your ability to convert consumers back to your brand after a period of shifting in calendar. Thank you.
Sure. Thanks, Filippo.
He's starting with GLAAD. We continue to make very good, strong progress on GLAAD, and it was one of the businesses that we talked about that would take a little bit longer to recover, but we made great progress in Q1. We returned to share growth. We grew 7 tenths of a share point in Q1, and you saw that accelerate as we moved through the quarter.
Filippo Filorni: We've had very strong merchandising plans in place, including, I think we shared this last time, but Glad Trash was the number one consumable item on all of Amazon Prime Day.
Filippo Filorni: and we're seeing merchandising across other retailers perform very well.
Filippo Filorni: In addition, and that is a business where we have fully restored distribution And we're seeing that stick and hold as we come out of Q4 and into Q1 So I feel great about the trajectory on GLAD, a little bit more work to do on SHARE But we feel like we're heading in the right direction and have the right plans from an innovation and demand building perspective
Filippo Filorni: I'm also pleased with the progress, but we have more work to do. We've made some good progress on restoring our subscription business. So one of our leading retailers that uses subscriptions, we have restored over 90% of that subscription business that we lost.
We've also returned to the number one share position at that retailer with Freshed Up. So feel good that we're moving in the right direction in places where it's a little bit more difficult to get consumers back, given the nature of subscriptions.
We also returned to share growth and litter, so that business also grew seven-tenths of a share point in Q1, again, accelerated throughout the quarter.
We're seeing good merch support, again, a bit higher than we would normally see pre-COVID.
But feel it's warranted given, you know, what we're trying to recover and ensuring we get our consumers back and we'd expect that to normalize over time.
as we get our share back. But again, Litter's one where it's just going to take a little bit longer. I'm pleased with the progress, but I think if I look across all the businesses, that's the one that we just feel like is going to, you know, continue to linger on for a couple more quarters.
We feel good about innovation that we have in the back half, we'll continue to invest strongly in advertising and sales promotion, and I would say we are on track with the plan that we have for this year, and we'll continue to make progress in Q2, Q3, and Q4.
Speaker Change: Great, that's very helpful, Lina. And then, Kevin, if I can ask one more on gross margin. Given the outperformance in Q1, even if you account your guidance for Q2, it seems like you're going to be well ahead of your four-year target in the first half. So can you give us a sense of what are your expectations in the back half on gross margin?
Sure, Clay Bowen. You know, if you look at Q2, you probably saw our prepared remarks. We've updated our expectations. We think gross margin will be down.
primarily due to the deleveraging of volume declining in the low teens and so
I would expect Q2 to be down, and an expectation in the back half of the year and important for our exit rate is...
Speaker Change: I'd expect it to be sort of in that 44, 44 and a half percent, really what we're projecting for the full year.
I don't expect it to be that different front half versus back half.
Speaker Change: So, fairly consistent through the year, and then exiting at a rate that would reflect a forward recovery of where we wanted to get to at the end of the year.
Your next question will come from
Thank you Farida and good afternoon everyone. I was hoping to see if you can talk about a little bit more on category consumption, Linda, because obviously there are puts and takes and you're taking any recovery market share but just thinking of
The comments that we heard from you in a long time for value-seeking behaviors and how you're responding to it with RGM and different count packs and all of that. And then as a...
As a follow-up to your comments, Kevin, on the cadence of margins in the second half, so should we think about, like, because it was lumpy last year, last fiscal year, with, like, a more pronounced margin in the fourth quarter, so thinking about how to...
Speaker Change: Lisa Rendle, Lisah Burhan
and in commodities, your commodities outlook if it has changed from what it was last quarter as you initially guided and now as you exit the first quarter.
Speaker Change: All right, Andrea, I'll start with your category and consumer questions.
The consumer environment is largely playing out as we had expected. We've been talking about for the last several quarters that we expected the consumer to be under more stress broadly.
and impact on our categories was that we would move to low single-digit growth to low low single-digit growth which is about 0 to 1 percent.
and that's exactly what we saw in Q1, right in line with our expectations. Some categories a bit higher than that, some a bit lower, but we got the average just about right.
What we continue to see from the consumer is that value seeking behavior. They're looking for ways to maximize their budget They're buying larger sizes. They're buying smaller sizes to get a low out-of-pocket They are looking for promotion. So the promotions that we put in place returning to those pre-COVID levels have worked well
Speaker Change: different channels and different retailers. We're seeing a shift of moving to more value-oriented channels for consumers that continues.
Speaker Change: But I would say all of that is exactly in line with our expectations in aggregate. We expect that to continue for, you know, probably the balance of the year. These cycles usually run 12 to 18 months. That's our best guess at this point.
of what the timing will look like if we look at history. But I think it's safe to say that there's an uncertain environment out there, particularly in the U.S. over the coming months. We'll see how that all plays out.
But the good news is that for Q1, the consumer environment is exactly what we expected. And I think I'll just reiterate the point I made earlier on private label shares. What we're not seeing is trading down to private label in our categories.
Speaker Change: Private label shares are down versus pre-cyber levels this quarter in every one of our categories except two and that's wipes and salad dressing and even for those we're going to share in those categories So it's coming, private label growth is coming at expense of competitors
We're feeling very good, you know, our brands are resilient, the superior value we offer, the increase in advertising and sales promotion and trade promo are working, and we feel, you know, that we've got the environment at this point right on and we're going to continue to execute our plan and intend to grow share in that environment.
And then, Andrea, on your questions on gross margin, maybe I'll start with a commodity view. And you'll recall when we came into the start of this year back in August, our expectation was we're operating at a fairly normalized level of cost inflation across the supply chain. We said about $75 million.
and our view is that it would be split fairly equally between commodities and inflation across the rest of the supply chain.
We have made a fairly modest update for this outlook. I'd say in commodities now, we think it's going to be just slightly better, still inflationary, but just a little bit less in place than we anticipated. So won't have much meaningful impact on our full year expectations based on the update we've made.
And then I'm phasing on gross margins, you know, our margins are actually in Q1, we delivered about 46%.
Speaker Change: I do expect our margins to be down in Q2 because of deleveraging and we said we'd be down less than 100 basis points, so
Speaker Change: That'll probably put gross margins somewhere around that 43% range. And then the back half, well we don't break it out by quarter. I continue to believe the back half will be sort of at that run rate, exit rate, somewhere around that 44, 44.5%, kind of in line with the four-year estimate.
Perfect, thank you very much. I'll pass it on.
Speaker Change: Thank you.
We will move next to Anna Lazul with Bank of America.
Anna Lazul: Hi, good afternoon. Thanks so much for the question.
Anna Lazul: I just wanted to ask, in light of your full year guidance and expectations on the consumer environment with the increased promotional spending, how should we think about pricing in order to drive volume growth as we move through the year? And also on advertising, you spent over 12% of sales in the U.S. retail business, and is that a dynamic you expect to continue? Thanks.
Speaker Change: Hi, Adam.
Yeah, as it relates to pricing in particular, you know, in the U.S., we have very little pricing outside of net revenue management, and that really is what you'll see for the remainder of the year as well.
We expect that program to continue to build, delivering value in FY25, but building in FY26 and beyond as we put that program in place. So this really is volume-based growth that we're seeing as we've lapped those price increases.
The other dynamic that we've talked about that is a hit-to-price mix, of course, is trade promo, and we are seeing that play out.
Lisa Rendle, Lisah Burhan
So this really will be about volume-based growth through innovation, through demand spending, through ensuring that we have the right value at the shelf for the consumer. And we continue to expect that our trade promotion expectations around being around pre-COVID levels are about right.
When it comes to advertising and self-promotion, you would say about 11, 11 and a half at the aggregate level. We typically spend more in the U.S. than we do in international, so I would expect to see that dynamic continue to play out in the quarters to come.
and of course that varies by business depending on what's effective for each one of the business units and what we have going on in the quarter, whether that be innovation or a particular merchandising pulse period that matters for that business, but you would expect to see the U.S. run ahead of international as we move forward.
Speaker Change: Okay, thank you so much.
Speaker Change: Thank you very much.
and will move next to Bonnie Herzog with Goldman Sachs. [inaudible]
Bonnie Herzog: All right. Thank you. Hi, everyone. I had a quick follow-up question on litter. Linda, you mentioned you're promoting quite heavily, so I guess I'd love to hear
If you believe you're getting the appropriate lift on your promotional spend, and if not, do you have plans to modify your strategy in any way going forward? And then I guess, how concerned are you overall that, you know, you might be in a prisoner's dilemma right now in this category, considering the elevated promo spend by everyone?
Speaker Change: Hi, Bonnie. Yeah, on litter, you know, this is a case where consumer behavior is a little bit different. You know, we've talked about in the past.
When you have a cat using litter for a number of consumers, that's hard to change them. And so there's a bit more thinking about what we need to use the levers that we have in our toolbox including trade promotion.
to ensure that we remind them of why they love Fresh Step and, you know, that we were sorry to disappoint them while we were out of stock, but it's time to bring their cat back to the litter they love.
As long as we don't do that, we're not communicating anything to the consumer that changes the value of our products, etc. So I feel very good that this is strategic promotion.
that it's done in the right way. However, I would expect over time that that promotion will normalize. And we are certainly seeing competitors also promote given what we've had in the marketplace.
Speaker Change: But I think this just category is a little bit unique and I don't feel like we're doing again Anything outside of what we would normally do to gain share back in a category that way
I think moving forward, the great news about this category, which I think gets to your question on Prisoner's Dilemma, I don't feel that at all.
This category has natural tailwinds that many categories don't have. It grows faster than the average given the number of cats that are in the U.S. and places around the world. In addition, it's a heavily innovation-driven category.
and you can say this category has been reinvented many times by us and our competitors if you look at things like lightweight or different substrates.
And so I have no fear that this is turning into that. I think what will get all of us out of this is great innovation. And we certainly are planning that for the back half and well beyond that. And I'm sure we'll see that from competitors as well.
Okay, that's helpful. And then, if I may, I just also wanted to get your perspective on any channel shifts or, you know, growth rates by channels. You know, we've heard that some of your peers have have seen some weakness like channels, whether it be, you know,
Speaker Change: Lisa Rendle, Lisah Burhan
Speaker Change: Sure.
Speaker Change: So on Channel, we are not seeing anything specific to our recovery on cyber that's driving a change in consumer behavior, but we certainly are seeing a change in consumer behavior that's expected due to value-seeking.
So, we see consumers moving to more value-oriented channels.
and the lowest price per use.
So, we would expect those dynamics to continue. They typically have in times when the consumer is more value stressed.
and we tend to see more stock-up trips, some more fill-ins as consumers are managing their wallets. But there's nothing unusual in what we're seeing. It's about in line with our expectations and nothing related to distribution or merchandising or any of our recovery from cyber.
Okay, thank you. I'll pass it on.
And our next question will come from Robert Moskow with TV Cohen.
Robert Moskow: Hi, thanks for the question. I just want to make sure I understand...
The logic for the gross margin being, you know, at 43% for 2Q.
I understand the deleveraging compared to last year, but is there something seasonal about gross margin because if you're 45.8
in first quarter and then you dip down to 43 in second, I'd like to know what causes that. I doubt it's the deleveraging.
And then secondly, just on EPS, I mean, you're beating consensus by like $0.50, you're only raising by about $0.10 or so. So did you beat your internal estimates by this much or by something less than that?
Thank you for your time. Thank you.
in first quarter? Yeah, Robert, happy to take those questions. And gross margin, particularly around Q2, we do have a seasonal element to our business. Typically in normalized years, Q2 would be our lowest gross margin quarter of the year.
and it's really driven by two primary factors.
The first is we're now out of the Kingsford charcoal season, so Kingsford's a nice profitable business that we do about 50% of the business in Q4 and Q1.
and Q2, then it's a low season for Kingsford, as well as it tends to be the period of time in our Burt's business where we're doing quite a bit of holiday merchandising, which comes at a bit lower margin. So historically, that's always been a lower margin quarter for us, and this reflects that as well.
Plus the added impact of the deleveraging with the top line declining as we said double digits
And then on EPS, while we don't disclose our internal forecast, this came in stronger than our internal forecast.
Robert Moskow: You know, there's a couple things we were thinking about as we set the outlook for the year. And certainly the first one is, and I think you're going to appreciate this, we're only one quarter into the year, and so we want to be thoughtful and not get ahead of ourselves for the full year.
Robert Moskow: And having said that, you know, that's, I think, always good counsel, but particularly this year, as we've talked about a couple of areas we're watching pretty closely, which is the health of the U.S. consumer, as well as the promotional environment. Now, as Linda just said, Q1 played out very much like we expected, but that doesn't mean that that's going to continue, so that's something we're going to watch very closely.
Robert Moskow: And then we had some timing elements, so some of that over-delivery in Q1 as we mentioned was based on pulling some shipments forward from Q2, so that won't have a full year impact.
And then maybe just the last perspective I'll give you is, you know what I like is, I think it gives us some financial flexibility, and I think that's important.
Robert Moskow: You know this is still a volatile macroeconomic environment and if the environment changes and it's different than what we think
We've got some financial flexibility to address that. So I think that just builds our confidence and being able to deliver the year. That's really how we approach the full year. And as you know, we modestly took up the full year, but I think we've got the right plan for where we sit this early in the year.
Speaker Change: Got it. Thank you.
Thanks, Robert.
Thank you.
Speaker Change: And we'll move now to Olivia Tong with Raymond James.
Olivia Tong: Thank you.
Could you talk about your inventory positions at this point, whether at retail or if you have a view on consumer pantries, especially in trash and litter, given the level of trade spend in those businesses and how you think about
Olivia Tong: Consumption Trends once the...
once the promo is sort of normalized, and then
Just one follow-up on gross margin, if you could just talk about, you know...
How much of the overage was sort of ongoing price pack architecture work you're doing, other revenue management, digital stuff that you've been working on, just to kind of think about what's sort of the ongoing portion as opposed to the fixed cost leverage slash, you know, recovery from cyber portion of the gross margin overage. Thank you.
Speaker Change: Hi, Olivia.
On the inventory front, there's really no major things to call out here. We see pretty much normalized inventory in the retail environment.
We're not seeing anything, you know, where inventories are coming down or going up. We just see the normal things that happen at a retailer quarter end, quarter beginning.
but nothing material to call out.
On the consumer front, I would say much of the same. You know, we tend to watch our shipments and consumption pretty closely to see if there's any gaps. And at this point, there's nothing to talk about. You know, the only thing I would call out is, and as we noted in our professional business, we did see some shifting in cold and flu.
shipments into Q1 from Q2. But that's really just about retailers and distributors getting ready for season and that's a pretty normal thing and we just anticipated it would be in Q2 and it happened in Q1 instead. But I wouldn't call out anything material nor do we have plans for that and so if there are any adjustments by retailers, etc., you know, we don't have plans for that in our forecast.
And then Olivia, on your gross margin question, I think that the nature of the question is.
What portion of the strong performance in Q1 is structural? I would certainly point to our cost savings.
And I think you can see in our web attachments, we deliver about 240 basis points of improvement to gross margin in Q1 from cost savings.
Speaker Change: We're on track to have another very good year this year.
My thing is, you know, we target 175 basis points at EBIT margin expansion each year, but because of the very good work by the team over the last couple of years, we've delivered over 200 basis points each year, and I believe we're on track to do that again this year. So certainly the cost savings element will continue.
The other item that we talked a bit about back in August was the benefit of the two recent divestitures. They are both margin dilutive to the company.
Speaker Change: So by divesting those businesses, they will structurally improve our margins, 50 to 70 basis points on average. And so we're starting to see the benefit of adding Q1. Again, we didn't get the full benefit because we sold the BMS business in the middle of the quarter but you'll start to see more of that playing out as we move into Q2 and beyond.
Speaker Change: Thank you.
Speaker Change: Got it, thanks. And then, just one follow-up, you know, the 20% of the business that's growing at the mid-single digit rate, like PPD, what's driving that? Because if I remember correctly, the comps are particularly demanding, so maybe that's a piece of it, because I can't imagine that the demand is really changing all that materially in PPD. Thank you.
Sure, so we talked about both PPD and our international business growing at that mid-single-digit rate, and we feel strongly that they'll be bad-managed contributors moving forward.
Speaker Change: International I think we've spoken a lot about as we've reduced the volatility of that business, removed a lot of the FX headwinds that we had experienced coming out of Argentina. We see more stability and an ability to grow in different parts of the world and that continues and we feel even stronger about that now that we have divested the Argentina business.
From a PPD perspective, you know, we got to a place that was up and down during COVID. We've seen that normalize.
This is not a result of a lot of people coming back to the office, as one might expect, but what we've talked about in the past, which is we have so much opportunity across our portfolio.
Speaker Change: with innovation.
Speaker Change: Lisa Rendle, Lisah Burhan
Speaker Change: So we see continued upside in that business, and we feel confident in its ability to deliver above average, above company average growth moving forward, and certainly we're seeing evidence of that in Q1.
Speaker Change: And we'll take our next question from Kevin Grundy with B&B Paribas.
Speaker Change: Thank you.
Speaker Change: Mr. Grundy, could you check to see if your mute button is engaged, please?
Speaker Change: Thank you.
Speaker Change: Thank you.
It's been a big piece of conversation sort of in the past but not as much today and maybe just the learning so far on the, you know, turning on Canada and perhaps, you know, what the timeline is for the U.S.
Hey Como, do you mind repeating your question? The first part was cut off.
No problem. I was asking about ERP and what you've learned so far from Canada and what the timeline looks like for the U.S.
Speaker Change: Sure.
We spoke about, just briefly, last time that we implemented the ERP in Canada at the end and beginning of this, end of last fiscal year, beginning of this fiscal year, and it went very well.
The team had done a lot of preparation as our lead market to ensure that that execution
Speaker Change: went as smoothly as possible, and it did.
We didn't have any customers experience any significant disruptions, and in fact, many of them noted they didn't even really remember that it was going on, which is actually exactly what you want from your retailers when you're doing an ERP transition.
Speaker Change: That being said, the U.S. business will come next and that is much more complex with a lot more ship points, a lot more businesses, so the team is taking the learnings that we had from that Canadian implementation.
and building our implementation plan for the U.S. right now. We would expect that that would begin at the end of this fiscal year. We're still working through what the exact timing will look like and how we will phase that because it won't all happen at once.
Speaker Change: And we'll be able to report at our Q2 earnings release a little bit more detail on how we expect that to play out and any potential impacts, but feel very good about what we did in Canada, giving us a lot of confidence heading into a very complex U.S. implementation.
Okay, great. And then on Litter, would...
When you're, as you're thinking about, you know, how to get the consumer to come back.
Speaker Change: You know, promos is a piece of it, but I suppose marketing is also, you know, quite a large piece of it. So, can you maybe just talk about what specifically you're doing to, you know, try to get that consumer to, you know, switch back to where they were, or maybe even, you know, bringing in new consumers?
Thank you.
Speaker Change: Yes, absolutely. You're right that trade promotion is only a part of what we are doing and clearly...
Reminding people about the benefits of the products that we have And why they've always loved or maybe why they should be introduced to your point for the first time to Fresh Step or Scoop Away Or any of our other litter brands is top of mind and with that we put new advertising in place in July
for our FreshJet business, which we think is doing pretty well and contributing to the share.
Speaker Change: Lisa Rendle, Lisah Burhan
We're taking steps. We're doing what we can in the short term, which really is through increased advertising, better advertising messaging, using digital, which can allow us to do claims real-time to ensure that we're communicating with those consumers. And obviously, at the subscription level, we can have more of a one-on-one conversation with them.
Speaker Change: and engage with them on reminding them that Fresh Up is the brand that they know and love. And that's worked pretty well.
Moving forward, as we're thinking about innovation, you know, we're looking at all of the levers that you would expect us to pull. What are the next sets of innovation that we can launch that delight them? How can we ensure that we're communicating superior value overall for our proposition and how they shop for it, the product, the package?
Speaker Change: Lisa Rendle, Lisah Burhan
It's clearly beginning to work, but more to come as we sequence through the remainder of the year.
Speaker Change: Thank you.
We will move next to Lauren Lieberman with Barclays.
Lauren Lieberman: Great, thanks. You had talked about the sources of surprise in the quarter on top line and that pull forward and timing on professional products but I think in the prepared remarks you also mentioned international. So I was curious if you could just elaborate a little bit on kind of what went better than expected on international and that sounded less like it's timing and more like it's a better trend. So I'd love to hear more about that. Thanks.
Yeah, you know, overall, international just performed well. And, you know, certainly we're seeing the impacts of removing Argentina.
We're also seeing some strength in pockets around the world.
But I would say, you know, international wasn't wildly outside of our expectations. It was a bit better, and it's just all things coming together as we put innovation in the market that's working, our consumer plans are working.
Speaker Change: Okay, great. Thank you.
And we'll move next to Chris Carey with Wells Fargo.
Hi everyone.
Hey Chris.
So, I have a question about pricing in the quarter and into really, I guess, the back half of the year.
So, if I look at the segment disclosures,
You know, pricing's flat in health and wellness, price mix that is down five in household, down eight in lifestyle.
and yet in the prepared remarks it's plus one.
Lauren Lieberman: I don't think I fully understand given the 11% organic is driven by 11% volume growth. So I don't I don't know if you can maybe just help me bridge that gap. And really what I'm trying to understand is if the underlying U.S. business is
Lauren Lieberman: kind of running price mix down low single digits right now. Is that the expectation for the U.S. business going into the back half of the year? I guess I'm trying to understand if the volume is, you know, going to be over and above that to get to this.
three to five, or if I'm just misunderstanding something. I fully realize it's kind of being tactical on litter, and you were probably quite tactical on promotional activity to recapture sales growth in Q1. But I'm just, so anyway, I'm trying to close the logic app on a couple of these things. So any perspective would help.
Yeah, Chris, this is Kevin. I can certainly answer that one. And I agree, it's a bit challenging to read the performance right now given the cyber lapse. So maybe I can separate what's happening because of cyber versus underlying business.
If you look last year in Q1, we had very significant favorable price mix.
and what you're seeing is most of that just reversing out. That's strictly noise of the lap and cyber. And I'll just give you a little flavor for why that happened. I'll give you an example. If you looked at our lifestyle segment last year, you'd see about nine points of favorable price mix.
The reason that occurred is, when you think about the business and lifestyle, our Brita, our food, and our Burt's Bees business
and we generate less revenue per case in that business. And so you got what appeared to be a nice price mix last year because you just sold a lot less birds than the other businesses.
That now reverses out this year.
You know, our first business group, almost twice the rate of food and bread is just getting back to a normalized level. That's really all noise of lapping.
Lauren Lieberman: the cyber event.
Lauren Lieberman: What I'd tell you is structural within price mix, if you think of that plus one, what is structural and unrelated to LAP is
We had about one point of negative trade spending, very much in line with what we've been talking about. We're returning to a more normalized promotional environment. We expected trade spending to be up, particularly because we're lapping the cyber event. So there's one point of negative trade spending, and that was more than offset by two points of favorable mix.
And that mix was a little bit what Linda was talking about, particularly in our U.S. cleaning business. We saw some favorable mix at the SKU level.
and so that was a benefit to the quarter we did not anticipate that helped with the over delivering Q1 and that was really that that's how you get to that one point overall a price mix so you really have to take away a lot of the noise of the lap and just get down to kind of the fundamental elements that are part of the ongoing business but let me stop there and see if that answers your question
Yeah, that's as we get through that last dynamic into the back half of the year, this will start to go away. I'm still confused. And look, I can take this offline, maybe this isn't the forum, but you know, you had 11% organic sales growth in international driven by 11 points of volume.
So what's the 4% price mix that's offsetting that and again, you know I realize this is kind of a modeling question and I can take it offline. But if there's any contact there, that would yeah I'll give you that. I'll give you the quick answer and then you can follow up with Lisa but that's the structural benefit of that infrastructure of the Argentina business
It shows up in mixed now, and after a year, that'll just be part of the base business. But it shows up in mixed when you, the first year, you don't have that lower revenue per case business in your portfolio.
And in terms of the phasing, as we said, we expect trade to be unfavorable in the front half of the year because we're lapping an unusually low-level promotion last year during cyber.
and we were back to a normalized level of promotional activity in the back half of last year. So when you get to the back half, we don't expect to see negative trade spending. That's really a front half issue as we're lapping cyber.
It's really helpful. Thanks for indicating all that, Kevin. Thanks a lot. Yeah, you bet. But if I didn't get you all the way there, feel free to follow up with Lisah afterwards.
Lauren Lieberman: Thank you. Bye.
Speaker Change: And your next question will come from Javier Escalante with Evercore ISI.
Hi, good afternoon everyone. I have a question when it comes, if you can remind us.
organic cell growth that you are targeting for 2025 and I have a follow-up.
Sure, Javier. We had said that it was low, low single digits, so we said zero to one percent and we were within that range for Q1.
We both used some Canada data and you see that there was a spike, at least it seems as if in October, and it coincided with the hurricanes down in the southeast.
So, when you mentioned that your quarter was above expectations and it was strong.
Is there any possibility that basically at the time that you merchandise very strongly and at the time you have the surge of, you know...
Impulse purchases because of the storm and somehow you are your the promotional lift was stronger than otherwise would have been? Is that a possibility or not not not necessarily a factor?
We're not seeing that as a factor Javier, you know, we have pretty good analytics given hurricanes unfortunately happen pretty often nowadays
in the U.S., and so we don't see the hurricane having any meaningful impact in the course of time. You know, it can if it splits a quarter, but we don't see that at this point. We don't see significant pantry loading, and we don't see any impact.
as we think about the Q1 versus Q2 dynamic. You know, what I would note is I would also be very careful looking at short time periods, you know, looking at anything in October.
We have merchandising. There's different timing shifts. There's different laps. And so we try to take a little bit of a longer view. But we still feel very comfortable that the zero to one percent range is right for the year. Again, though, we'll watch the consumer, we'll watch the pricing dynamic.
In the US to to see if there's any adjustments we need to make or if there's any changes there But for now, we still see zero to one is the right range
So at a high level then, Linda, you basically said that...
Again, the business is strong, above expectations.
So if it is not that externality, could you tell me kind of like the one or two things that you believe pan out better than you expected?
Speaker Change: If you look at just overall our portfolio, health and wellness came in stronger. We saw very strong share growth in our home care and laundry business. We actually picked up significant share in our bleach business. PPD came in very strong, as you saw. And we talked about, we think there's real tailwinds to that business.
So, what I would talk about is the strong demand plans that we have in place, the advertising and trade promotion is working very well.
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PPD was a bit of a surprise. Some of it great and overall, you know, we see PPD performing better, but some of it was a shift between Q1 and Q2.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Bye.
And our next question comes from Steve Powers with Deutsche Bank.
Thank you very much.
you know, in market, just perspective on...
The Household Penetration Metric that you guys track, how that's progressing, how you think it plays out over the balance of the year. And then perhaps related, Kevin, for you is the 3-5% growth that you referenced in a roundabout in the second half. I guess, can you talk a little bit about how you think that compares to...
Thank you.
Sure, Steve. Starting with hospital penetration, that is something that we monitor closely and obviously it's a metric that we look at over the long term to say
are the health of our businesses on track? Are we bringing new consumers in and are we retaining them?
We certainly expected a trade-off when we took four rounds of pricing in household penetration and we saw that but it wasn't unique to us It was true for our categories
We had consumers change behavior as they reacted to pricing, but the good news is, as we expected, we're starting to see that trend reverse, and that's showing up in the volume-based growth that we're experiencing right now. And we would expect over time, as we bring consumers new innovation, as we continue to invest strongly in advertising and sales promotion, that we'll bring those consumers back in and healthful penetration will begin to grow again, and that's what we're focused on.
But we would expect to be at about this point. Then you throw in the noise of a cyber disruption where we were out of stock for a period of time and that puts some noise in the data as well. But I would say the fact that it is turned and we've reversed that trend is is the right place to be and and we're focused on growing it from here. And doing all the things that we know how to do with a focus on if we have superior value experiences for people, that's how we grow household penetration.
We want to grow categories and we want to grow share within those categories. So I'd say on track, but more work to do, and I think that's what we're all focused on from a category perspective.
and Tim Brichton.
Tim Brichton: Thank you.
And then Steve on the back half, that three to five are kind of growing in line with their algorithm. We don't, we believe that's in line with consumption. We're not assuming we're shipping above consumption. We have not built in any impacts for SAP. I think you mentioned that. So that's, as Linda said, we'll come back in.
February make any adjustments we think are appropriate as it relates to the impact of SAP. So this really just relates to, you know, all the building blocks we talked about, you know, modest category growth in the U.S.
Great. Very clear. Thank you both.
Speaker Change: Thanks, Steve.
Speaker Change: And our next question comes from Kevin Grundy with BNP Paribas.
Hey, good afternoon. Sorry before my line dropped off. At any rate, thank you for taking the question. I will be quick because we've covered a ton of ground.
Speaker Change: Thank you.
Speaker Change: There's an election next week and just in the way of housekeeping
Kevin, can you just remind us what portion of the business, this is sort of a broader question, would potentially be at risk if there were sort of broader tariffs that came back into play? So maybe just a question around sourcing outside of the U.S. would be helpful.
Yeah, Kevin, what I can tell you, and I won't go into too many specifics here, but we've done quite a bit of work. You obviously remember all the supply chain disruptions we had a number of years ago.
As a result of that, and I think we, not just Clorox, but many companies realize we were more vulnerable than we anticipated. We've been doing quite a bit of work to, I'd say, near shore and onshore production to move it much closer to our consumer. And so, over the last number of years,
You may know we've expanded wipes capacity in the U.S. We've stood up contract manufacturers in Europe and Asia for businesses in those markets And so we've done quite a bit of work to reduce our risk of these long supply chains. I think that certainly benefits us
and as you know we have a broad network of suppliers and so I won't go into too many specifics but certainly something we're aware of something our team has been very focused on to make sure that we've got access to product and we can manage effectively and so we don't see this is happening any major disruptions on a business at this point and
I think we all have to wait and see exactly how this plays out. There's a lot of discussions going on, but I don't want to get ahead of ourselves and start speculating on what may play out. I want to see how this…
actually turns in any types of legislation.
Speaker Change: and so right now that's something we're looking at and we're very focused on making sure we're prepared for any eventualities. But beyond that, it's nothing that we've baked in specifically into this outlook.
Totally fair, just to box it in maybe a little bit more, understanding we're in a realm of a lot of, I'm gonna ask you an uncertain question on top of an uncertain outcome, but what portion of the company's cost of goods are currently sourced from outside the US? Let me ask it that way.
We don't break that out to you, Kevin. That's not something we provide publicly. We have a broad network of suppliers all over the world, but we don't break out how much comes from outside the U.S. versus inside the U.S.
Okay, very good. All right, thank you. Congrats on the quarter. Yeah, thanks Kevin.
This concludes the question and answer session. Ms. Rendle, I will now turn the conference back to you.
Ms. Rendle: Thanks Jen. As we close today's call, I want to stress three areas. First, we have made strong progress against our commitments.
Ms. Rendle: Second, our brands are strong and we continue to invest in them to deliver superior experiences for consumers.
Speaker Change: And finally, our team is taking the right steps to accelerate growth and transform for the future. We're building a stronger company, poised to deliver more consistent, profitable growth and enhance long-term shareholder value.
Speaker Change: Thank you for your time and for your questions. We look forward to updating you on our continued progress in February.
And this concludes today's conference call. Thank you for attending.