Q4 2019 Earnings Call
At this time all participants are in a listen only mode at the conclusion of our prepared remarks, we will conduct a question and answer session. If you would like to ask a question you May press star one on your Touchtone Todd at any time, if anyone should require assistance. During the conference. Please press star zero on your touched on 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 at least the Berhad Vice President of Investor Relations for the Clorox Company Mr. Han you may begin your conference.
Thanks, Karen and welcome everyone on the call with me today are Benno Dorer, our chairman and CEO and Kevin Jacobson our CFO .
We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website. The Clorox company Dot com on today's call. We may refer to certain non-GAAP financial measures, including but not limited to free cash flow EBIT margin debt to EBITDA organic sales growth and economic profit management believes that providing insights on these measures enable investors to better understand and analyze our ongoing results of operation.
Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release. This webcast prepared remarks or supplemental information available on our website as well as well as in our SEC filings.
In particular, it may be helpful to refer to tables located at the end of todays earnings release.
Please also recognize that today's discussion contains forward looking statements.
Actual results or outcomes could differ materially from managements expectations and plans.
I would also direct you to read the forward looking disclaimers in our quarterly earnings release.
Please review our most recent 10-K filings with the FCC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from managements expectations and plans.
The company undertakes undertakes no obligation to publicly update or revise any forward looking statement.
I'll start by covering our topline commentary discussing highlights in each of our segments.
Kevin will then address our financial results as well as outlook for the fiscal year 20.
And finally, Benno will offer his perspective, and we'll close with couponing.
For the total company.
Full year sales were up 1%.
Well Q4 sales decreased 4%.
Reflecting double digit sales decline in our household segment.
I will now go through results by segment.
In our cleaning segment full year sales grew 2%, while Q4 sales grew 3%.
Reflecting growth in all three businesses.
Our professional products business grew sales strongly enough why 19.
Wrapping up the year with a double digit sales growth in Q4.
We've introduced a number of innovation platforms in this business overtime and they continue to build momentum as we keep expanding distribution in the institutional channel.
For example.
The clocks health care hydrogen peroxide line, which launch in Fythirteen and Clark's health care fusion and F. Y 17 innovation, both have strong double digit growth both double digit volume growth for the year.
In home care.
Sales grew both in Q4 and for the full year.
Q4 sales were up behind broad based volume growth, including record quarterly shipments of Clorox Disinfecting wipes.
While early we are encouraged by the improvement we're seeing in wipes.
After beginning to address some of the short term competitive headwinds we discussed in Q3.
Well continue to sharpen our consumer consumer value equation and F Y 20, with an eye on long term profitable growth for the category and for the brand.
We're looking forward to sharing with you an exciting innovation in wipes this fall at our analyst day.
Lastly, within the cleaning segment.
Our laundry business sales were up for the quarter and about flat for the full year.
We're excited to share that will be doing another round of complexion, starting in F y 20.
Which will drive category growth.
Well at the same time, reducing overall environmental footprint for Clorox liquid bleach.
While we're pleased with the results we're seeing in three of our four segments this quarter.
Result in household were disappointing.
Q4 sales were down 11% and full year sales were down 5%.
Driven mainly by declines in trouble and glad.
Turning around these businesses is a top priority for us.
We expect to see improvements in the back half of F y 20.
Now, let's go through the drivers business by business.
In charcoal.
Full year sales decline with Q4 sales down by double digits.
Due mainly to distribution losses, and lower merchandising primarily at two large customers in math in home hardware during the peak grilling periods in the quarter.
We've seen retailers investing more space in support of alternative grilling fuels like lumping pellets.
A growth area, where we will begin to play in 2020.
As a result.
We experienced lower merchandising support and lost some distribution well competitors have game.
These results are disappointing.
And we need to launch innovation that allows us to participate in these growing alternative grilling fuel segment.
And better differentiate kingsford from competitors.
We're working on a stronger 2020 season plan that will include new new King for pellets.
Product improvement across our base King King for product.
Charcoal and robust marketing support that will continue to focus on growing household penetration.
Well, we expect the front half of the fiscal to be challenge.
We believe will turn we turned this business to grow in the back half of the fiscal.
Based on the strength of the Kingsford brand and our expectation that we will significantly improve our business plans for consumers and for retailers.
In our bags and wraps business.
Sales were down for the fiscal year with a double digit decline in Q4.
Sales and share declines continued to be driven mainly by wider price gaps.
As well as distribution losses inflect portions of the portfolio, which we discussed last quarter.
In Q3, we began increasing our trade investments to narrow these price gaps and while it's early we're starting to see green shoots in select areas, where weve seen improvements in shares.
Starting this Q1, we're implementing incremental trade investments that will fully close the remaining price gap and that should lead to further improvements on the business.
In fiscal year 20, we're also planning to launch various new products in the fast growing scented trash bag segment, we're glad has commanding equity over competitors.
We expect to return to growth by the back half the fiscal year.
After we cycle through the impact of distribution losses.
Longer term, we continue to feel good about the value creation potential of this business.
Our confidence comes from our dedication and significant investment in differentiated consumer and technology led innovation.
For perspective.
We filed about 70 patents in the past five years.
Well, our closest branded competitors competitor had none.
We believe these type of investments, we will continue to drive long term profitable growth for the brand and for the category.
Turning to renew life.
Sales were down by double digits for Q4 and for the year.
As we mentioned last quarter.
We remain focused on restoring growth in this business and have confidence in the pro probiotic category.
And in our ability to differentiate our brand from competition by emphasizing our product efficacy.
A continued bright spot in household segment is our cat litter business.
Where Q4 sales were up on top of double digit growth in the year ago period, mainly due to the benefits of pricing.
For the full year sales were up by double digits.
Behind additional investment in fresh step clean policy innovation platform, which offered to new product option in the fiscal year.
Mediterranean Love understand an uncensored.
In our lifestyle segment sales for the quarter were flat.
While sales for the full year were up 17%, primarily reflecting the benefit of new Trynex acquisition.
Burts bees had a very strong quarter of sales growth behind a record quarterly shipment in lip care and face care.
And sales were up for the full year as well.
Successful innovation in these categories, including overnight lift scallops lip oil and sensitive skin care products continues to drive share growth for the brand.
The business has another strong pipeline of innovation plan for it for 20.
Including our lead recently launched live Butters, which offer a trade up from traditional lip balms with an ex b, we enjoy form flavor and texture as well as on trend botanical blend flavors that are relevant to younger consumers.
We'll have more to share with you on this in October .
As we marked the one year anniversary of our acquisition of Nutra next.
Sales were up for the quarter.
Driven by strong growth in our strategic brands, which represent about 80% of the portfolio.
We continue to be pleased with the progress we've made on this business, including the integration and have high expectations for F Y 20.
Food sales were flat for the quarter, but up for the year.
Q4 results reflect continued strength in bottled hidden valley dressing offset by lower shipments in dry hidden valley products, which had double digit growth in the year ago quarter.
Ready to eat dips are off to a good start.
With early indications that the innovation is expanding usage occasions for the brand.
Overall, the brand remains healthy and enjoyed its 18th consecutive quarter of share growth.
Wrapping up the lifestyle segment.
British sales were down for the quarter, well being up for the full year.
The Q4 sales decline was driven by timing of trade spending.
This benefited Q3 sales, which were up by high single digits, while drawing from this quarter.
Importantly, this business is healthy.
As reflected by solid and consistent volume growth in all four quarters of why 19.
Consumption has continued to grow four eight consent <unk> eight consecutive quarters and were pleased to see our track channel market share up nearly a point in the last 13 weeks.
We're also excited by the strong start for a bottle innovation.
Which would support it through increased demand spending.
Finally, turning to international.
Sales decreased 4% in Q4.
Driven by about 15 points of unfavorable foreign currency impact primarily in Argentina.
Which were partially offset by the benefits of price increases and volume growth.
Europe in China, both recorded double digit volume growth for the quarter.
Behind the strong performance of cat litter and burts bees.
Sales were down 6% for the full year.
Reflecting 15 points of headwinds from foreign currency impact.
At the same time, we're pleased to see solid sales growth in a number of markets.
With that I'll turn it over to Kevin who will discuss our Q4 and fiscal year financial performance as well as outlook for fiscal year 2000.
Thank you Lisa and thank you everyone for joining us today.
Overall results were mixed in fiscal year 2019, reflecting a strong start in the first half followed by more mixed results in the third and fourth quarters, primarily behind geologists in select categories.
At the same time.
I'm pleased with the progress we've made rebuilding gross margin, allowing us to invest more in our brands and technology transformation to support long term profitable growth.
Starting with our fourth quarter results.
Sales decreased 4%, reflecting a negative three point impact from lower volume and two points of negative impact from unfavorable foreign currencies, partially offset by the benefit of price increases net of trade spending.
It's important to note that the three point volume decline in the quarter was driven by our charcoal business and to a lesser extent our glad business.
Gross margin for the quarter came in at 45.1%.
An increase of 110 basis points compared to 44% in the year ago quarter.
Fourth quarter gross margin included 220 basis points of benefit from pricing and 150 basis points from cost savings.
Partially offset by a 150 basis points of increased trade spending 90 basis points of higher manufacturing and logistics costs.
Selling and administrative expenses as a percentage of sales were essentially flat versus a year ago quarter.
Advertising and sales promotion investment levels as a percentage of sales came in at about 10%, we're spending for us retail business coming in at about 11% for the second straight quarter.
Our effective tax rate was about 17%.
Versus about 29% in the year ago quarter, primarily driven by the benefit of U.S. tax reform.
Net of all these factors, we delivered diluted net earnings per share from continuing operations of $1.88.
Versus $1.66 in the year ago quarter, an increase of 13%.
Now I'll turn to our results for the full fiscal year.
Sales grew 1%.
Reflecting three points of net benefit from the new trucks acquisition and applecare divestiture.
Offset by negative three point impact from unfavorable foreign currencies.
Fifth gear sales also include the benefit of price increases net of trade spending.
Gross margin for the fiscal year came in at 43.9% versus 43.7% in fiscal year 2018.
An increase of 20 basis points.
Fiscal year gross margin results include the benefits of 190 basis points of pricing.
And 150 basis points of cost savings, partially offset by a 190 basis points of higher manufacturing and logistics costs and 60 basis points of unfavorable commodities.
In fiscal year 2019, we delivered more than 120 million in cost savings hitting 12 consecutive years of generating more than 100 million in annual cost savings.
Selling and administrative expenses as a percentage of sales for the full fiscal year were essentially flat versus year ago.
As ongoing investments and the new truck acquisition were offset by progress from our ongoing productivity initiatives as well as lower incentive compensation accruals consistent with our performance based compensation philosophy.
Advertising and sales promotion spending as a percentage of sales for fiscal year 2019 increased to about 10%.
Versus about 9% year ago.
With U.S. retail spending at about 11% for the fiscal year.
For the full fiscal year, our effective tax rate was about 20%.
Compared to the year ago rate of about 22%.
Primarily reflecting the benefit of U.S. tax reform.
Net of all these factors are fiscal year diluted EPS from continuing operations was $6.32 compared with $6.26 in fiscal year 2018.
An increase of 1% on top of a 17% increase in fiscal year 2018.
Turning to cash flow for the fiscal year net cash provided by continuing operations in fiscal year 2019 came in at 992 million versus 976 million in the prior year.
Our track record of generating strong cash flow and maintaining a healthy balance sheet.
Enables us to continue to invest in the long term health of our business and return excess cash to our shareholders in fiscal year 2019, we increased our dividend by 10% on top of a 14% increase year ago, which continues our long history of increasing our dividend.
In addition, as part of our ongoing commitment to return excess cash to shareholders. We returned 328 million as part of our open market share repurchase program.
At the end of the fiscal year 2019, our debt to EBITDA ratio was 2.1, which is at the low end of our target range of two to two and a half times.
Now I'll turn to our fiscal year 2020 outlook.
We expect fiscal year sales to be in the range of flat to 2%.
Reflecting 1% to 3% organic sales growth, primarily driven by innovation.
Partially offset by about one point of negative impact from foreign currency headwinds.
It's important to note that we anticipate first half sales to be at the low end of our range was our assumption for first quarter sales to be down as we work to restore growth on our glad charcoal businesses.
For the second half of the fiscal year, we anticipate sales to be the higher end of our range consistent with our expectation for these two businesses to return to growth in the back half of the fiscal year.
Turning to gross margin, we expect fiscal year gross margin to be about flat to down slightly reflecting our expectation for flat gross margin prior to additional supply chain investments, we're making to drive long term value creation.
One Great example is our first half investment to support the initial rollout of Clorox liquid bleach compaction and the spring of 2020.
Offering improved consumer experience and meaningful sustainability benefits, we look forward to the value that bleach compaction will bring to the category.
We expect fiscal year advertising and sales promotion investment levels to be at about 10% of sales.
Selling and administrative expenses are expected to come in at about 14% of sales.
Reflecting ongoing acquisition related investments as well as technology transformation investments to support long term growth and cost savings.
In addition, we anticipate more normalized levels of performance based incentive compensation.
We expect fiscal year EBIT margin to be about flat to down slightly based on our expectations for fiscal year gross margin importantly, we believe we are taking the necessary actions to expand EBIT margin in the back half of the fiscal year.
At a level more in line with our long term financial targets of 25 to 50 basis points.
Our outlook also includes the ongoing benefits of U.S. tax reform.
With the assumption that our fifth gear tax rate will be in the range of 22% to 23%.
This includes the ongoing benefits of your tax reform, partly offset by your expectation for lower excess tax benefits from stock based compensation.
Net of all these factors.
Fiscal year 2020 diluted EPS is expected to be in the range of $6.30 to $6.50.
Consistent with our anticipated fiscal year sales progression.
We expect diluted EPS to be more muted in the first half as we worked through challenges on our glad and charcoal business and stronger in the second half.
In closing I'd like to reinforce that I believe we are taking the right actions to address the short term challenges we're facing in key categories, well, making sure. We continue to invest in the long term health of our business.
Last quarter, we discussed the challenges we are facing are glad and whites businesses and while there is more work to be done I'm glad we're certainly pleased with the progress on wipes, which delivered record quarterly shipments in the quarter on top of record shipments in the year ago period.
In addition, although we expected to face some bumpiness in parts of our portfolio.
We believe the cost justified pricing was the right decision.
Pricing and strong cost savings enabled us to address the ongoing inflationary environment, we have been operating in over the last three years, while also enabling us to continue investing behind our brands and categories and supportive long term value creation.
Moving forward, we are addressing glad and charcoal ahead on all remaining focused on profitable growth.
We will continue to invest strongly in our brands, including innovation, which will help us continue to deliver superior consumer value.
We will continue to lean into our cost savings program and productivity initiatives to create fuel for growth.
Additionally, we will continue to drive our go lean strategy in international we're pleased where the business is strong operational progress in the face of ongoing currency inflation.
And finally I'd like to make sure that it's clear that after we work through the challenges we're facing on a couple of our businesses costs will be in a position to deliver results that are more along with our long term financial goals and with that I'll turn it over to Benno.
Hello, everyone and thank you Kevin.
Hey, My three key messages for you today first as we discussed fiscal year 2019 was mix, which was reflected in our back half results.
We're currently facing persistent challenges in charcoal and glad.
That impacted our topline results in the back half and full fiscal year of 2019.
We will work to significantly strengthen our charcoal business plans as well as address the pricing related issues.
And drive innovation on glad.
We anticipate these businesses will return to growth in the back half of fiscal year 2020.
At the same time I feel good about the strength in other parts of our portfolio with strong fiscal year sales growth in a number of businesses.
We delivered broad based growth across home care, our largest SP you with Clorox disinfecting wipes returning to growth in the fourth quarter.
We also delivered sales growth in our professional products business double digit sales growth in litter strong sales growth in burts bees, as well as sales increases in food and brita.
I also feel good about our innovation program.
It continues to drive consumer.
The value that is superior through differentiation in our products and brands with the introduction of consumer meaningful innovations in fiscal year 2019, including hidden valley ready to eat dips.
Bretaa filtering water bottles.
And several new burts bees lip and face care products.
We're also pleased to see continued momentum behind our Clorox gentiva.
And fresh step clean Pos platforms.
I continue to be pleased with the new Trynex acquisition, which delivered robust growth in the fourth quarter and contributed strongly to total company fiscal year sales behind an integration that remains on track.
I'm also pleased with our strong progress in our international business.
In the face of significant FX headwinds, our Goalline strategy has delivered six consecutive quarters of profit growth.
We're also still seeing strong momentum behind growth platforms in several regions.
Ecommerce continued to be an increasingly meaningful growth engine for the company.
And now represents about 8% of total company sales.
And finally, we expanded gross margin, which was the key to creating fuel for brand growth in fiscal year 2019.
My second message is that our fiscal 2020 outlook represents an appropriate plan.
Reflecting the balance of addressing the shorter term challenges on charcoal and glad as well as our plans to continue leaning into driving long term profitable growth.
I'd like to reinforce what Kevin said about pricing and that is notwithstanding the temporary bumpiness. We had anticipated we firmly believe cost justified pricing was the right decision for the long term.
Pricing helped to address the ongoing inflationary environment, we've been facing and supported continued investment in long term brand and category growth.
Then immediate priority for US certainly is getting chocolate on glass back on track.
As I mentioned based on our expectations deliver stronger business plans with charcoal.
And move past the issues post pricing on glad we anticipate these two businesses to return to growth in the second half.
That all said.
We will remain principled commitment to long term profitable growth and will continue to pursue strategic investments that will lay the groundwork for the future of the company.
As Kevin mentioned.
We're investing in the first half of the fiscal year to support the initial launch of Clorox liquid bleach compaction in the spring of 2020, which we're very excited about.
And of course, we'll be relentless in building brands that consumers love and lean into demand building investments, including increased advertising dollars at about 10% of sales.
Above all innovation remains a powerful lever for us as it's the force behind long term profitable growth.
We are pleased that 2020 will bring another robust pipeline of innovation led by the complexion of Clorox liquid bleach innovation on Clorox, wipes and new products and other businesses, including several innovations on glad pending burts bees lip and face care.
We will drive trial and awareness of these new products, while also continuing to invest behind several of the innovation platforms. We've already introduced such as go oxen Tivo.
Fresh step clean pause brita filtering water bottles, and hidden valley ready to eat dips, which all have meaningful upside potential.
Finally, the third message I'll share with you today. He said we're confident in the strategic path relaying out to continue Clorox his track record of delivering long term shareholder value.
Our new strategy is supported by a proven business model of leading brands in attractive mid size categories.
Strong operational execution based on innovation.
And an unwavering commitment to good growth.
Growth thats profitable sustainable and responsible.
We have a strong global portfolio.
With the majority of global sales.
Made up of number one and number two brands.
We're expanding this portfolio further into health and wellness with a neutral next acquisition, which is currently expected delivered double digit sales growth in fiscal year 2000.
We're confident that robust innovation program will continue to deliver superior consumer value by differentiating our products and brands.
Building on our 2020 strategy, which delivered strong shareholder return.
We're confident.
Our new strategy will continue to guide us in delivering strong cost savings generating strong cash flows leading to talk to your ROI see and maintaining a healthy balance sheet.
We remain committed to putting our strong cash flow to work by investing in the long term health of our business and rewarding our shareholders.
And finally, we will continue our focus on growing the right way.
By living our values and driving sustainability enough products and operations.
We will continue to be a mission driven business with the goal to create long term value for all of our stakeholders.
And with that operator, you may now open up the line for questions.
Thank you Mr door, ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone. Our first question comes from Steve powers with Deutsche Bank.
Hey, thanks.
So I think you've been pretty clear about the challenges that you face in waves and charcoal, but how should we think about the rest of the business in fiscal 20, because there is roughly a 300 basis point spread between the midpoint of your stated long term goal of 3% to 5% growth in this year's flat to 2% outlook.
And based on what we've heard from others, just the broader backdrop for CPG demand seems pretty favorable so I'd like to assume the rest of the portfolio.
X. glad next charcoal would be performing in line with at least the low end to mid range of that long term.
Outlook, but if you're expecting both glide and charcoal to return to growth in the back half it seems to imply the the other 80% of the portfolio might also end up below.
Even at 3% level. So can just help me with that and frame for for me.
How do you think that portfolio is is shaping up health wise versus the long term.
Hey, Steve Good morning. This is Kevin appreciate the question and.
Let me give you a perspective on how we're feeling about the portfolio broadly separating the business as we've talked about a bit more challenge gladden call.
And as you heard in our prepared remarks, our expectation as we think about fiscal year 20 is those two businesses will be a drag on our performance in the front half, while we work to get them back on track.
But if I set those aside we feel very good broadly about the balance of our portfolio. If you look at cleaning lifestyle international all performing well over fiscal 19.
And if I look at fiscal year 2008, our expectation specifically in the US is that we will be generating top line growth consistent with our long term growth algorithm as you know, it's 2% to 4% the U.S.
And our expectation is we're going to be back in that range in the back half the year as we get a colon glide back on track.
Okay, so that any any drag versus the long term algorithm X.
Glad ex charcoal is really just international and some of the macro factors that sir.
Yes, that's right and you know for international we've been targeting 5% to 7%.
We've continued to be challenged by FX headwinds that was particularly true in 19, where we had about a 15 point headwind.
I'd tell you as we look at 20, we think it's going to be a slightly better environment, but we still think it's going to be a material headwind to our international business.
On a currency neutral basis, they are certainly growing within that five to seven if not higher but being held back by FX at this point.
Okay, Great and then Kevin well I get you're talking you gave some helpful phasing information for the on the top line for the year, but can you talk us through any any phasing dynamics on the gross margin line or the advertising lines and then I'll I'll pass it on thanks.
Sure maybe on advertising I would say yeah, typically we will spend the money based on when its most advantageous for us it tends to be a bit more loaded in the back half just based on innovation cycle I'm I would expect to see something similar that although I don't expect to see any big changes, but maybe a little bit heavier in the back half.
And then on gross margin gross margin I think will be fairly consistent across the year. The investments, we're making will put a little bit of downward pressure on margin as we mentioned, we're investing in compaction that we'll be launching in the spring. We've got another project, we're not ready to talk about publicly but we'll continue to invest in it and we'll talk about that at a future date.
Okay, great. Thank you.
Thanks, Steve.
Your next question comes from Steve Strycula with you yes.
Good afternoon.
So first I, even more mechanical question then more of a strategic question for Benno server, Kevin on the repurchase activity any repurchase activity embedded and the fiscal 20 outlook.
And can you give us some kind of magnitude and where you back in the market in the fourth quarter.
Yes, Thanks, Steve I can start with our repurchase program.
If I just think broadly about fiscal year 19, we're quite pleased we returned about $1.2 billion to shareholders a 19.
That's a combination of both dividends and share repurchases.
That's up about 60% versus fiscal 18, as you've seen us lean into the dividend over the last couple increases.
That also includes on our share repurchase program, we have now execute about $425 million against my 2 billion dollar authorization, so about 20% of the authorization.
Which also included about $250 million in Q4.
As I look forward to it as we've talked before this is not an MSR. So I do not have a defined number of shares I'm going to buy we've got a internal program we manage.
What I'd tell you as I would have you believe that within the outlook. We provided there may be some level of share repurchases I'm not going provide a forecast on it.
But to the extent it materially changes one way or the other it's certainly update you.
But for now you should assume it's embedded within our EPS outlook range.
Okay, and then I just wanted to understand strategically how should we think about compaction phasing.
Through the business, particularly as it launches in the spring and then what has been the feedback and conversations with retailers as to what gives you the confidence that some of those businesses.
Can accelerate in the back half of next year.
Thank you.
There's a beach complexion, hi, Steve will start in our quarter three and typically if you recall our progress on the complexion of the last few times. It did it we've got some experience on this the last time, we did it was 2013. It takes several quarters. So we'd expect to be through all of this in several stages.
Or early fiscal year 21.
So feel good about that project.
You know clearly as we think about a colder than glass. So maybe you know focus your question on coal.
Coal.
The issue is really that.
We are out of sync with two large customers and we have to get back in sync strategically with those two large customers. We also need to better demand building plans obviously.
Results disappointing there as Lisa said, and we owe our customers and our consumers better plans with the rights innovation and as Lisa said, we will have product improvements as well as a new kingsford pellets in market for the next grilling season.
We'll have continued strong marketing support focused on household penetration and brand value and excitement and again, we need to have the right merchandising plans with all retailers consistently and we clearly didnt succeed with that in Q4. So that's the work ahead. That's work that our company has a strong track record of.
We feel like we know what the opportunity is on this business as well as on glad and we have to get back to doing what we do best.
All right. Thank you.
Your next question comes from Bonnie Herzog with Wells Fargo.
All right. Thank you I actually have a on a big picture question on your strategy into the strategy you guys just disgusting.
So what you're going to be in valley further at your October analyst day doesn't necessarily sound like a major change from your current strategy, but.
I guess just thinking about you know looking back at the subpar results to find 18, and you know a pretty weak outlook for F. Y 20, I'm wondering if you guys. Thank you might need to make more radical changes either in your strategy or possibly in the composition of your portfolio I guess I'm really trying to understand what gives you the confidence that some of the changes you're making will result in the improvements in the second half.
Yeah. Thanks, Bonnie so we don't need that we don't think that that's need it. So no major change in strategy. If we think about the issues again, they're largely contained to two businesses and again, if I think about a charcoal were mostly off with two customers.
And glad is really tied to post pricing issues, where weve clearly seen widened price gaps which were addressing.
And we also saw some distribution bumpiness probably across the portfolio with which we can also trace back to pricing and again, we have reaffirmed that pricing is really necessary and will stand by that so feeling good about the rest of the portfolio frankly as Kevin said is generally solid will cycle through the post.
Pricing Bumpiness, we think we can address the glad and Chuck will issues and then we really think we have robust plans for fiscal year 20, and beyond you know strong advertising sales promotion that still relevance we have brands that consumers love, we have a consumer value propositions and measure continued to be positive.
We have robust innovation plans, we'll lean into cost savings and.
You know, we will continue to deliver strong cash flow and then put that to work for our shareholders. We think all the fundamentals.
That have worked so well for our shareholders with our company strategically for a long period of time continue to remain in place and we're excited to update you on where we're going.
In October in New York, but you should expect us to lean into components that will make a difference to consumers to customers and to shareholders. But would you cannot expect is a departure from a strategic path. That's worked for the company for a very long time.
Okay honestly, that's really helpful and if I may I wanted to circle back to something you touched on and maybe Joel down a little bit further on.
Higher trade promo spending and.
Whether it's working in household or specifically in bad bag. So should we assume that you're going to need to pull a little bit further on that lever as you touched on the gap and where theyre at which is sort of implied in your guidance.
And then trying to think about how much further you have to pull there and whether or not that will in fact work and then as we think about charcoal and you touched on this but should we also think about the promo lever being pulled in that category to for your turnaround or is that just more dependent on kind of the merchandising in innovation.
Yeah, Chuck Ofer, so merchant right merchandising right innovation right demand plans, that's really the answer here on glad if you think about what we did in.
In Q4, we did about trade investments to narrow the price gaps.
That led to sequential improvements and we're clearly seeing green shoots a if you look at for instance, the grocery channel where there was implemented first shares have improved and now are now about flat, but I think we would say that the the lean into trade spend wasn't enough, which is why in Q1 were planning for additional trade spend that.
We'll fully close the widen gaps that we have experienced post pricing.
So that's working but perhaps the progress on this has been overshadowed by.
Distribution losses are tied to Bumpiness that we have explained and that frankly, you know has been a little worse than we had anticipated in Q4 and has worsened and overshadowed the progress through to trade investments. So feel good about the added trade investments that we're putting in place in Q1, and then to make full progress in the back half what's needed is to cycle through those distribution losses and to bring innovation back and as Lisa said earlier, we have several initiatives planned for the back half and with all those plans combined we expect expect a return to growth and we feel pretty good about the prospects of that.
All right. Thank you.
Next question comes from Andrea Teixeira with JP Morgan.
Hi, good afternoon.
Thank you so I just want to go back to.
Distribution, just a follow up and I appreciate it.
Commentary about circle execution into the customers. So I think Mike you know what's happening there.
And I get that obviously may not it. He also said that you don't expect this shelf seeing flat distribution losses that you've had to.
On the next calendar year early calendar year right. So the second half of fiscal <unk>. So just trying to understand what makes you confident that these two retailers will put you back on shelf.
And your value proposition will be more compelling in the second half of fiscal 20, then what do you have in place right now.
And are you planning to do more price rollbacks stands for I mean that probably is a struggle is probably not the case, but for glad.
And then a separate question would be on supplements on lifestyle.
I know you feel confident about alternext checks the boxes on college, and then protein trends.
But do you mentioned that you may decide in the last quarter conference call.
The second question that I suppose to you you may decide to increase investments in new life in fiscal training is that of profitability now or not yet. Thank you.
Yeah, so lot into Andrea let me try to unpack this a little bit so on glad as I, just said, we will add more trade promotion and.
The first quarter of this fiscal year to fully close the gap.
What makes me confidence on coal that we are going to be more strategically aligned with the two retailers, where clearly you know we need to do better.
You know that's up on that's up to us a feel like.
The combination of our plans with product improvements with a new line extensions and pellets.
With stronger marketing support and with very collaborative collaborative talks with both retailers that are going on right now and better plans.
We will earn their confidence spec, it's something that we have a strong track record off and it's something that we need to get back to.
Regarding your.
Question on vitamins minerals and supplements clearly feel good about neutral next as is evidenced by the progress throughout fiscal year 19, and the expected double digit growth in fiscal year 2000.
Renew life is clearly still lagging behind fiscal year 19 was a disappointing fiscal year on that business.
And Q4 was no exception.
Oh for prospective renew life represents a little over 1% of sales so perhaps in terms of materiality.
It's a less of a factor here.
But we're also working on better plants, we remain excited about the long term potential in the digestive wellness. We have a strong brand we have strong capabilities in this category. The process will take time, but feel good about the long term prospect on renew life too.
Very helpful. Thank you.
Next question comes from Olivia Tong with Bank of America.
Great. Thanks.
Wanted to talk a little bit about attractive versus the on track you talked about some of the shelf space losses that you've seen the math and the home retailer but.
It's kind of surprising to see that the spread between tracking on track Martin as dramatically as it did this quarter and in and also in a different direction than usual.
So.
Is it fair to assume that there were.
Disproportionate losses in club and online if so can you kind of give us a little bit more color into the channels.
And and then.
And then you.
Is there is there.
Stuff that came that you would that you that was up for bid and the margin profile just didnt quite meet your standards.
Yeah. Thanks, Olivia so clearly.
You know as I would.
Unpack. This if you think about Q4 volume versus year ago.
The drag really is entirely a.
Kingsford and glad and within those two businesses frankly, the majority of the drag is Kingsford and then if you then think about.
The Kingsford business as we said where are the issues were with two major customers and one of them on track it's right in the home hardware channel and that this is a big quarter for Kingsford.
And this is a big customer so the Q4 impact of that was unusual and significant and I would point you to that.
Single retailer in a very big business in a very big quarter to account for much of the issue.
And then.
Let me talk a ton about wipes, but last quarter, you sounded pretty downbeat and cautious about where you are in a disinfecting wipes lifecycle, but then this quarter you reported record quarterly shipments of wipes. So.
Can you talk a little bit about what's the what's the change there and the dynamics that kind of led to such a snap back.
And in the underlying trends of course, excluding thing.
And back to pull them for the last quarter. Thank you.
Yeah, I feel positive about the progress on wipes clearly a competitive categories still but last quarter, we talked to you about putting a trade spend in place to counter what is an elevated.
A competitive activity on the promotional side.
We returned to growth this last quarter on top of a very strong quarter in the previous fiscal year.
And we were able to make that trade spend increase begin to work.
And now for fiscal year 20, we continue to feel good about this business.
We expect this trade investment to continue to work and importantly.
At Analyst day, we'll share with you significant innovation both on the base.
As well as with a new product that we're very excited about so this is a stronghold for our company. It's a growth engine for our company and we expect that to continue.
Got it thank you very much.
Next question comes from Dara Mohsenian.
With Morgan Stanley .
Hey, guys.
So I wanted to focus on pricing per bit. It. If we go back a year ago when price increases were first being implemented in the household products industry.
I think at least from my perspective, we heard a very confident tone from you guys more so than other companies and basically the tutor and pricing power with the increasing products periodically at the consumer level.
If we fast forward to today.
The pricing pretty much gone through almost across the board at most of your competitors and you guys got a couple of categories, where you had price gap issues in terms of both bags and wipes and a better response. So I'd just be curious to get a bit of post mortem on if anything has changed from your perspective in terms of the way you manage pricing what you sort of learned from those issues and.
I guess, specifically as you look at the price gaps is sort of managing the price gaps versus peers have greater priority.
Given they appear to be willing to use that pricing lever.
Thanks.
Yeah, there so like we said in the earlier remarks, so feel good about pricing it was cost justified as necessary to protect a long term margin also to protect the strong investments that we're making in our brands are all of the mine market now.
And I would say generally in line with expectations, excluding glad and Kingsford I would say, it's just too early.
You know the key indicators consumer indicators are strong if I think about the consumer value measure and as you know that's a measure that we care about a lot that's unchanged post pricing and the majority of our brands continue to be perceived by consumers as delivering superior value and that's very positive and important to us.
The categories have improved two years ago before we started at a any pricing activity our categories were flattish for the total company now if you think about the last 52 weeks they are up north of two points.
Up versus year ago, that's a dramatic difference and is very consistent with past experience our expectations. So I would say excluding glad in line with expectations clearly the bumpiness that we had anticipated which leads generally too.
Lower merchandising and distribution losses.
Are there we're seeing them.
Were addressing them, but they are temporary.
But generally the good news is that pricing has been accepted has been accepted as part of the industry.
You know, where we perhaps somewhat disproportionately affected by a distribution losses, given that we went out with price increases as you'll recall Dara early and confidently that's quite possible, but that doesn't change our conclusion that a pricing overall.
It was necessary and good.
Okay Thats helpful.
And then.
Looking at a bunch of your peers in the U.S., we've seen top line momentum come back to a number of names with reinvestment behind the business.
Sounds like a lot of the European Helsel procure their own so choosing to do some margin resets and reinvestments.
I guess just as we think about your business have you considered a larger reinvestment back into AD spend beyond what you've guided to this year.
Why would that make sense here I get that a lot of those companies don't directly compete against you but.
There seem to be a number of players that are proceeding like higher spending is working to drive their business.
In the industry, so any thoughts there would be helpful. Thanks.
Yeah. There are we always consider how much money to spend and you know the about 10% continues to be the right number remember that's up already from previous years also the spending in absolute this year.
We'll be up and comes on the back of high ROI is as measured by our own.
Analytic insights so were confident with the 10% as the right level.
Okay. Thanks.
Next question comes from Camilo, guys got your wallet with credit Suisse.
Thanks, Good afternoon everybody.
Two questions I guess first weve spoken quite a bit about distribution can you give us some context on.
But the impact was from distribution losses on your overall top line and then when we're thinking as we're thinking about next year can you give some context on the impact of.
But generally seems to be lower commodity costs on your gross margins. Thanks.
Thank you Paul It's Kevin I'll, let me take a few questions about commodities and distribution.
On the commodity question in terms of the impact to the top line I would tell you or excuse me distribution, we don't break that out so.
I think we shared the key drivers in terms of volume and price mix, but don't don't break out the impact of distribution loss.
What I would tell you on commodities, though in terms of our expectations.
If you recall in fiscal 19, there's a pretty significant headwind, both commodities and logistics about 150 basis points.
As we look forward at 50 or 20 and are enjoying assumption to the year is.
Is a much milder commodity environment.
I expected to be down in the front half and up slightly in the back half but.
Pretty benign overall.
Having said that I do expect logistics to continue to be a headwind in fiscal year 20.
Both transportation rates I anticipate we'll still be inflationary to a lesser degree than what we experienced a 19, but still inflationary.
And then we continue to see inflation.
In.
In our logistics, particularly in warehousing.
As we can use the warehouse is being built to support fast delivery and that's putting pressure on wages.
But overall I would expect that somewhere in the 50 to 100, bip headwind, which is much less than what we experienced a 19.
Got it thank you.
Next question comes from Jason English with Goldman Sachs.
Excellent Hey, guys. Thanks for thanks for squeezing me in here and good afternoon to you.
I want to drill a little bit deeper into two other businesses, both the multipurpose sort of liquid cleaners and.
And and bleach, if we could.
First on bleach, it's the data the measure down in tracked channels has softened delay with private label picking up in.
Your business sliding in share on accelerating distribution losses.
Can you give us any context of what you're seeing across all channels and what you think maybe driving that and then still on the topic of bleach is going back to 2013, the last compaction initiative.
And were really stretching my memory here, but if I remember it does serves me correct.
It could create a lot of market share volatility for you I believe is private label is slow to follow and there was a perception of value perception with private label sitting next to a much bigger bottles.
That that really weighed on share and and was volatile for performance for a while.
Is my memory, correct, there and B.
Any reason to believe it will be different this time.
Yes in general I'm quite pleased with laundry laundry had a solid year.
Jason.
And you know we're actually most recently if you think about our bleach business, we gained share right, but typically what.
Does happen is that share gains tend to over time be a little bit of a zero sum game and you know you win some and you lose some and there's always volatility but in general shares in the category have been over a prolonged period of time about flat and the value that we've been driving on this business comes from expansion of the category and from trade up.
And you know into the future, we don't expect the change from that strategy.
Bleach complexion feeds into that you know most of all what bleach compaction has always done is trade consumers up to larger sizes and with that comes a quite significant category increase. So if you think about the benefits on a complexion.
For the company the last time in 2013, it was actually higher sales, mostly driven by category growth and then second of course, there's a margin component this well, which at the time was without a significant so you know given that there is a transition over for short two quarters and of course, we can't speak to competition following and what their specific timings are.
That always creates some volatility, but the net effect a as a result of kind of increases and margin improvements.
Has been very positive and of course its a.
Good investment also for sustainability reasons, and one that retailers are very excited about leads to better shelf holding power few out is a stock if out of stocks in the category and this is a category that's always been somewhat affected by out of stocks. So it is a very good initiative that will create a lot of value for the company, but also for retailers and certainly for the planet.
Okay. So long term generally good but historically could be turbulent maybe turbulent this time around it for short duration before it before it gets better.
Yes, so turbulent as a strong word Jason I don't know that I would call. A go all the way there certainly there will be quarter on quarter volatility, but I do not recall any turbulence on the business and would not expect that.
Okay and on on the liquid cleaners side, which is a pretty chunky site size business for you guys.
Here too that the Nielsen data is looked soft and I know it varies by cohort, which sub segment, we look into but in general there has been a fairly mouse.
Fairly sizeable share losses that we could see in the track channel and also here to fairly sizeable distribution declines.
It looks it looks problematic in the data, but you're not talking about it so.
Is is it indeed sort of problematic or is it just the lens we're looking through.
It was always temporary back and forth in home care generally feel good about home care. There's many segments that are growing and that there. There are always some that arent growing home care has a lot of different segments and you're picking one or we feel obviously feel good about our home care business, It's our largest SP you.
Had a strong fiscal year 19 at a strong quarter.
Certainly you know as a result of pricing you will see some bumpiness, there too which is temporary but as I think about home care, including multipurpose liquid cleaners, I feel good about that business and our plans forward.
Okay very good thank you.
Next question comes from Kevin Grundy with Jefferies.
Hey, good afternoon, everyone.
A couple for me one on Kingsford and then I've a follow up on on bleach. So so benno on Kingsford, you've talked about getting into pellets and love charcoal for some time and naturally would seem to make sense to extend the kingsford brand in the category.
But a few questions here with the benefit of hindsight why do you think the company did not react earlier to the trend away from traditional charcoal.
As you plan to extend the brand into these new forms what's your level of confidence in these new product forms that you will indeed have success and be able to pick up some some share.
You talked a bit about the necessity to regain retailer confidence how should we be thinking about that level of uncertainty here.
That's embedded in the outlook and then at a higher level here, how are we thinking about the growth rate for kings for longer term.
Yes so.
Thanks, Kevin first of all let me maybe start with the last question. So drilling fuels is an attractive category. It's very much on trend and if you think about the CAGR growth rates, including those alternative grilling feels like lump in pellets actually very strong strongly growing category, we're not benefiting from it but historically, we have and we have to get back to that.
I would have liked for us to be in pellets and lump I know absolutely.
But what we're focused on now is to get into these markets with.
Propositions that are truly differentiated and that make a difference to the category and adds to the category into the existing offerings and you know admitted that takes time, you know, sometimes taking time leads to better outcomes and well like I said I would like to be in their buy now wear now focused on looking forward.
And putting better plans in place for a calendar year 20.
Like I said earlier you know the problem is largely contained to two large customers if we drill into.
Say the top 10 customers, there's several customers, where we're actually doing quite well and where the plans that we put in place have been well received the not working we've got to do better with those two large customers. They are important customers for us we have a strong track record of success with them and we have to get back to that.
Okay, all right. Thanks, Oh, maybe the kingsford topic there a quick follow up maybe this is for Kevin on bleach and the benefit of compaction I don't know if you specified exactly the degree of compaction, but you guys did disclose in the past that was 500 basis points of margin improvement do you care to put a number on what the benefit will be to the clorox bleach business for this round of compaction and then I can pass it on thank you.
Great. Thanks, Kevin Yeah, I would tell you we're not disclosing the impact of bleach.
What I would tell you we feel very good about it in terms of creating long term value to the company. This is another great program for us, but in terms of the specifics on the value we won't disclose that.
Okay. Thank you guys. Good luck, thanks, Kevin will take one last question.
I have a question from Ali Dibadj with Bernstein.
Hey, guys. Thanks, I just have a couple of questions one is.
I do want to get a better sense of where the confidence is coming from on the non kingsford non glad businesses and that the issues you've seen there wont wont spread.
And look I get that we always say tracked channels is less important in tracked channels isn't that big of the business. We have all sorts of other channels, but its been even just recently a pretty good leading indicator of some of your issues, perhaps a little bit of a longer lag, but you clearly you saw that show that the issue shop, and Kingsford and attract channel data Im glad as well.
And so if you if you permit me to continue with that.
Lens the track channels actually matter.
One of the biggest indicator has been market share losses, and I'm just looking at the data.
Again, it's a couple of months now, but but cleaning broadly to spray cleaner as still losing share dressings looks like is losing share as Kelly White as you said cat litter digest the supplement.
You know I could go on and those look like they're losing market share. So so I guess I don't I'm trying to get a sense of where your confidence comes.
That you're not going to see a spread given that tracked channels remains somewhat of a leading indicator lease. It has been for the two businesses you've had issues and so far kingsford and glass.
Yeah. Thanks Ali so clearly tracked channels matter because they account for the majority of the business as does market share. So you know that upfront.
You know with exception of this quarter, which again was overshadowed by charcoal.
I think we have commented in the past that performance in non tracked channels was stronger.
We expect that to continue.
It's also fair to say that our market shares have been somewhat under pressure not as strong as they used to be a I think that is evident and while that's not something that we like I'd also say that what we expect of ourselves is to drive market share, but also categories. So I would perhaps again go to.
Much stronger category growth as a way to partially offset that and doing a time of pricing.
And the Bumpiness that we talked about distribution losses and in some cases lack of.
Sufficient merchandising.
I would put market share softness firmly in the camp of temporary.
Bumpiness post pricing.
What makes me confident is that again, if I think about the timing of trade spend on bretaa aside that the three segments outside a household outperforming at minimum is solidly with many are actually performing very strongly and then I think about our plans for fiscal year 20 based on a strong advertising sales promotion aggressive plans to defend our businesses through trade where needed in selective areas robust innovation plans solid categories, a healthy U.S. consumer an improving business and international all those things point to.
It's pretty stable and positive outlook that we expect to shine through in the back half.
That's very helpful context, and just to push a little bit on that context, as we think about the first half versus back half I don't like being so short term oriented but.
But it does seem like if everything else is going okay, and the confidence is still there and I guess, there's a little bit more credit investments and you still got to do kingsford and glad I get that but well I guess I'm still confused about why number one it's so extremely it sounds like back half loaded I am reading into glad kingsford might get worse before they get better and then I can the first half and then two is whether you're especially with the compaction that should help in the back half.
Whether there is anything else that you are seeing that might actually be under pressure.
Around the corner.
Because we are confidence would suggest maybe it should be better from a guidance perspective for 2020, then you've given us so far at least on the topline.
Yeah Ali this is Kevin maybe a couple of thoughts of thinking about front half back half you know as we've talked about the two businesses have been challenged.
I would expect to see sequential improvement improvement from glad a as we mentioned we increased trade spending in Q4, and we started to see some improvements we are increasing further.
To fully narrow that price gap back we took pricing and I expect that to drive continues improvement.
Coal I think is going to have a challenge finish to what we call season year 19, as we've talked about the work we have to do looking forward to season, you're 20, so I expect that to be challenging Q1, and then be stronger in the back half.
And then maybe just a couple of other things to think about is as we think about why we have confidence in the back half.
Keep in mind, we're lapping a very weak cold and flu season from this year.
We'll be lapping pricing in the back half the year the bulk of our pricing started early nineties, we'll be lapping most of that by the back half.
The distribution losses, as well will not only be lapping, but starting to build some of those back.
And then finally, our plans on innovation tend to be more back half loaded and so when we look at all those drivers it gives us quite a bit of confidence in our ability to accelerate the performance of the company in the back half of the year.
Okay, Okay I get the compares points generally okay. Thanks very much thanks Ali.
This concludes the question and answer session Mr. door I would now like to turn the program over to you.
Yes. Thank you all for joining us today and I look forward to seeing all of you hopefully at our analyst day in October . Thank you have a good day.
This concludes today's conference call you may now disconnect.
Yeah.