The Clorox Company - FY 2027 First Quarter Earnings - CLOROX CO

Good day ladies and gentlemen and welcome to the Clorox Company fiscal year 2027 first quarter earnings release conference 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 1 on your touchstone pad at any time. If anyone should require assistance during the conference Please press the star zero on your touchtone 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, Ms. Lisa Burhan, Vice President of Investor Relations for the Clorox Company. Ms. Burhan you may begin your conference. Thank you, Jen. Good afternoon, everyone, and thank you for joining us. On the call with me today are Linda Rundle, our Chair and CEO, and Luke Bellet, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. 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 year 2027 outlook. These statements are based on management's current expectations, but may differ from actual results or outcomes. In addition, we refer to certain non-GAAP financial measures. Please refer to the forward-looking statements section, which identifies various factors that could affect such forward- looking statements, which have been filed with the SEC. In addition, please refer to non-GAAP financial information section of our earnings release and the supplemental financial schedules in the investor relations section of our website for reconciliation of non-GAP financial measures to the most directly comparable GAAP measures. I'll now turn it over to Linda. Thanks, Lisa, and thank you for joining us today. We entered fiscal year 27 focused on steadily improving performance and market share while navigating continued input cost pressures. We made good progress in the first quarter, delivering better than expected results through strong execution and some favorable timing benefits. Importantly, the underlying trajectory of the business continues to move in the right direction with steady progress in organic sales growth and market-share. At the same time, we continue to advance the priorities that will strengthen our performance over time. We are improving superiority and innovation across our portfolio, integrating Gojo to unlock the full potential of Clorox Purell ProCare, continuing to evolve our portfolio and advancing our transformation efforts from a period of significant investment toward one of optimization and value creation. Together, these priorities are focused on building a stronger business that delivers more consistent, profitable growth. While we are encouraged by the start to the year, we recognize that the operating environment remains challenging and uncertain. Consumers continue to seek value. Competitive activity remains elevated, and increased commodity and transportation costs are putting additional pressure on margins. We have a strong track record of managing cost pressures, and we're taking balanced actions to mitigate their impact while continuing to invest in improving our top-line trajectory. The pace of that improvement will be driven in large part by our continued progress on superiority. Our updated outlook reflects these realities, along with the actions we're taking to mitigate their impact. Our focus remains on strengthening brand superiority, improving the consistency of our performance, and creating sustainable value over time. As you saw in our announcement on Thursday, the board has appointed Fabian Garcia as Clorox's next CEO. Through the process, I've had the opportunity to get to know Fabian, and I've been impressed by both his experience and his perspective on our business. he is an accomplished global consumer products leader with a strong track record of building brands evolving portfolios developing talent and delivering discipline growth between now and january i remain fully focused on executing our strategy delivering our commitments and maintaining momentum while supporting a smooth transition and helping fabian hit the ground running with that we'll open the line for questions Thank you, Ms. Randall. Ladies and gentlemen, if you have a question, please press star 1 on your touchstone telephone. And our first question today will come from Peter Grom with UBS. Peter Gromm, UBS UBS Director of Business and Investment Services, Great. Thank you. Good afternoon, everyone. Linda, if this is your last earnings call, I just wanted to say thank you for everything and then best wishes moving forward. Thanks, Peter. It is. I appreciate that. No. Yeah. Thank you, Linda. So maybe just to start just on the commodity outlook, the commentary and the prepared remarks is very helpful, but just given how volatile the external environment is, can you unpack the underlying assumptions embedded in the updated guidance, and is there anything you can share on the phasing of that cost pressure as we think about the balance of the year? Sure. Sure, I can take that, Peter. So, as you've read in our prepared remark, we now expect input cost inflation for the fiscal year to be about $240 million, and that's about $40 million more than we expected at the beginning of the year. The increase is mainly driven by just the range of commodities as well as transportation costs. And so, for perspective, the $2 40 million is about two and a half times higher, or historical annual average rate. Now, what I would say is while oil remains an important variable, it's important to recognize that inflation we're dealing with is broader than energy alone, right? And so we're seeing on commodities, we're raising being a significant drivable. We're also seeing inflation across a wide range of commodities. Beyond commodities, We are seeing inflation in broader area of supply chain, including the higher cost increase as well as transportation and other logistic costs. Now from an oil standpoint, we're assuming that the Brent annual average price would be around $100, but again, keep in mind that the inflationary pressures are proving much more persistent and extend beyond the oil headline. From a phasing standpoint, We expect inflations would be more pronounced in the first half you know then the second half and then in the second house we'll also see many of our mitigation actions stacking up and starting you know ramping up over time so that's why you're seeing an imbalance between the frontal cost margin and the second of course market that's really helpful and then you know second you noted some of the moving pieces around 2q organic sales including a shipment comparison and some merchandising and timing dynamics that will push organic sales to be flat to minus two percent and i know it all depends on where you fall within these ranges but at first glance it seems like that would imply a return to growth in the back half of the year to kind of get the flat to up slightly maybe first am i thinking about that the right way and if so can you maybe unpack what drives the confidence that trends will improve in the black half of the year sure maybe let me actually just get a three ground in on the full year then talk about the phasing over both halves and i can briefly touch on the timing for the second quarter So, for the full year, our organic cells growth rate is expected to be 3.5 to 4.5, and that includes about 3. 5 points of benefit from lapping the ERP transition. So, essentially, our guidance is organic cells' growth excluding the impact of the ERPs is flat to plus 1% for the whole year. As you mentioned, from a phasing standpoint, we expect organic cells's growth excluding the ERPS to be down slightly in the front half and up slightly in back half. Now, the way to think about it, there's a little bit of noise, especially in the front half, between organic sales growth and consumption, and some of it is driven by the Kingston 12. Some of it's driven by some of the ERP lapse, but if you really look at the annual retail consumption, it's essentially flat in the frontal half, and then become up slightly in the back half. and as a reminder last fiscal year we started in negative low single digits and so we've been improving sequentially you know to the front half of this year and continue to improve in the you know in the back half of this year so essentially when we're not what we want you can see that the outlook assume that the business is moving in the right direction reflecting steady progress on market share and consumption so that's for the phasing now specifically to the second quarter most of it is you know is really reflecting timing and really lapping dynamic if you exclude that again you you get to what I mentioned which is us retail consumption about flat and then pro or pro and international business being outside contributors great thank you so much and we'll take our next question from an Ozil with Bank America hi good afternoon thank you so much for the question and Linda congratulations on your amazing career at Clorox we will all miss you thank you Anna I was wondering here if you could elaborate more on the mitigation efforts in light of the cost outlook just how much of the mitigating actions are coming from cost savings and then how confident are you in your ability to take that incremental pricing you mentioned in the second half of the fiscal year and also you noted your category growth on top line is within your expectations is that still around flattish as you kind of started the year here thank you hi and i'll just take your first question on on some of the mitigating actions and um and and then i can just add anything and talk about the category growth so as you know given the inflationary outlook as we talked about last quarter we leaning strongly in a holistic about margin management set of tools and the majority is still going to come of the margin recovery still going come from productivity and concept we have actually really strong cost savings plan this year first quarter we have to a good start this was one of the highest savings on record equal savings on record although we are also going to implement targeted pricing in the frontals and you know some in the back out as well as some RGM initiatives and some most of those will actually play out more in the backup than in the front half as you think about the recovery I guess I've mentioned two things the first is balance we're really going to continue to pay so actions thoughtfully and balance rebuilding the margin while maintaining and accelerating the progress for making a market share and in the second is thought would be confidence we're confident in our ability to rebuild margin over time we have a strong track record of doing so successfully in much more challenging environment and we actually feel that we have much stronger set of tools and capabilities today and as we look at our pipeline and you know the actions that are ahead of us you know we feel confident in our ability to remain margin over time now for the fiscal year as you know as i was talking to peter like it's you know it's going to take time and some of this is going to phase in the back half and so we're seeing gross margin compression on average for the full year but we'll expect you to exceed the year with much stronger gross margin on the category side anna uh we continue to see the category in line with the expectations we set for the year that was certainly true in the first quarter and if if the fundamentals of the category are playing out as we've expected so recall we said the category out flat to up one was certainly within that range this quarter and moving forward we're seeing consumers continue to behave in ways that we expect you know lots of value seeking behavior buying larger sizes smaller sizes delaying purchases etc but in line with what we expect we've seen competitive activity generally in line with what we expect. Retailer activity, again, generally in line with we expect, so no indication that our assumptions on category won't hold up for the year. And then I would just note, because we continue to expect that in the back half, that implies that we would see better share performance in the back half of the year as well. Okay, great. Thanks so much. Very helpful. Thank you. Thanks, Anna. And our next question will come from Robert Moscow with T.D. Cohen. Hey, thank you. I was hoping for a little more detail on where specifically you're seeing the market share improvement that you talked about. Like what categories are you seeing some momentum? Where are you gaining share right now? Sure, Robert. So when we talk about market share improving, we're looking at an aggregate number, but I can break that down by category as well. So if you look at home care, which is our largest business, we have continued share momentum on that business with a very strong quarter, up over a half a share point. And that is in large part due to great activation on innovation as well as our back-to-school merchandising. We saw strong share growth in Brita. That also was correlated to our back to school, back to college merchandising and broad-based strength across promotions as well as innovation. Hidden Valley grew almost two share points this quarter, and I think you all know that that category was under a lot of pressure due to the cyclospora outbreak, and category was down. We saw weeks that were down strong double digits, but Hidden Valley, given we are a condiment used on more than just salads was able to win and deliver strong execution, so very strong share growth in Hidden Valley. I'd note Burt's Bees was about flat, Glad Trash about flats, so a number of the businesses showing positive share momentum. The continued story on litter, although we have some green shoots that we're happy about as the plan has come in, we are still far from the place we want to be on share and that continued to be a drag from a company perspective and then the final on note is on Kingsford while the category continues to be under stress given whether etc we did see a very strong Labor Day for Kingsford delivered very strong high single-digit growth for that period as well as share so that's a good indicator that as we have made some adjustments on execution you know bears well for fiscal year excuse me count season year 27 for Kings Ford but that business also you know highly event dependents and share you have to win the key holidays to do that and it was a good indication that Labor Day delivered okay and a quick follow-up you said that you have good line of sight for synergies for gojo and it's moving faster than you expected at some point do you think you can raise your accretion estimate for first year on that I can take that Robert so remember first on the accretions and then maybe then I'll talk a little bit about the synergy so at the time of the acquisitions we had estimated that the address to DPS impact on your one would be about neutral and we revised this to positive right we didn't share any specific and this is really a factor of two things first to be you know the base business is actually continuing performing very well and second we're actually just progressing very nicely on integration and started accelerating some of the synergies if you remember from the cost synergy standpoint we had estimated about 50 million dollars and our initial estimate assumed that we would capture that mostly in year two and three and because the good news is we're now have like line of sight to the entire fifty million dollars which gives us great confidence that we will get at least that and you know potentially more but in addition because we've been making good progress on integrations we're able to actually start seeing some of those later in the first year which is in fiscal year 27. So, net, I think, you know, we feel really good about, you know, the progress of both the base business as well as the integrations, and that's starting showing up in our financials. Okay, thank you. And our next question will come from Andrea Teixeira with JP Morgan. Hi, good afternoon, everyone. So Linda, congratulations on your amazing career at Clorox and wish you all the best in your next chapter. I was hoping to, if you can, elaborate a little bit more on what you said about some of the categories where you were able to get regain share with basically a lot more merchandising and also potentially promotions. As you think about recovering, continuing to recover in the path of getting growth, organic sales growth in the second half can you talk about like how you're planning those those actions and then if there is anything uh in particular that you're counting on in terms of like additional phasing of innovation that would give us like confidence that this path is is is going to materialize sure thanks andrea and thanks for your comments uh so if you look at at the share results you know first I want to acknowledge that fiscal year 26 was certainly really noisy for the company we underwent our ERP transition which is never easy you know had a bit of bumpiness and part of that and so a lot of the businesses were facing not only a heightened competitive environment a weakening consumer but they were also focused on you know just operational execution and ensuring that we were able to deliver to retailers and and keep in stock etc and so a lot of what you're seeing is us getting back to executing with excellence now that that noise is well behind us delivering on our superiority plans which we invested incrementally behind this year as well as ensuring that we execute with excellence behind merchandising and I just want to make sure that I'm clear the merchandising that we have in the system is the typical merchandising we do just executed very well so back to school we always have strong promotional activity during that time the team actually made a bet on back to school that it would occur a little later this year given the consumer stress that it was under that was a good best we actually saw the timing of consumers consumption move to later in that and we were prepared for it so I would just want to make sure I note this is not us investing a lot in extra extra merchandising or price reduction outside of target of activities we've taken but just executing the things we have to do with excellence so as we move into the back half there's a few more things that will enhance what we've seen in the front half and that is most of our innovation launches in the back house and we that happens throughout q3 and q4 and we have one of our strongest innovation plans on record this year and we're hoping it will be a record year on innovation and we've had seen good retailer sell-in and many of these innovations had very very strong consumer testing behind them so we go in with a lot of confidence that that innovation will work in addition some of the innovation is building on current platforms that have been successful like Clorox pure the allergy removing platform that we have so we already know we have success in market and we can turn that success into two additional areas that that those products can deliver on for consumers. The other thing I would note is as Anna mentioned we expect the category continue to be in line with our expectations but we are seeing consumers you know continue to focus on value and at the beginning we talked about the fact that we saw consumers stocking up more or buying a smaller size but we all are also seeing them begin to shift their behavior in terms of timing like I mentioned for back to school so those are the things we're watching really closely as we execute in the back half, but we feel like we have them well-handled and well-managed. But those are the things that are kind of, you know, as we look to executing that are on our mind, ensuring we deliver our superiority plans, delivering on innovation, executing with excellence against merchandising and new distribution, and then watching the consumer really closely, as they continue to navigate a difficult environment. And Linda, this is super helpful. CAN YOU TALK ABOUT THE PRICING MAGNITUDE THAT YOU'RE INCLUDING AND I THINK LUKE HAD SOME SELECTIVE PRICINGS AND YOU SAID THAT IN THE PREPARED REMARKS AS WELL. WHAT IS NUMBER ONE, THE MAGNETUDE AND NUMB TWO, THE TIMING OF THE PRICES AND IF THREE IS LESS PRICED OR SELECTED WITH INNOVATION? THANK YOU. I'LL START AND HAND IT OVER TO LUKE IF THERE'S ANY MORE DETAIL THAT HE WANTS TO PROVIDE. particularly as it comes to gross margin, although I think he walked through the the verge of the beginning. So on pricing we've implemented already this year targeted pricing across all four of our reporting segments and we looked at those very carefully to decide where the biggest impact was from a commodity perspective. So GLAD for example is one that is heavily based off of resin pricing and so we took a price increase on glad trash that was a good magnitude high single-digit price increase that we implemented in July it took a little while for it to get passed through so you're starting to see it in the data now at the end of September and then some other targeted pricing actions against those four segments as you would expect given the environment and the fact that we're seeing additional cost pressures across the industry it's logical to assume that we will take additional pricing in the back half and And that's what we're working on right now. And of course, as Luke has said many times in the past, those actions take a while to see them show up in margin. So you see the impact from the increase in cost, and it takes a couple of quarters to start to see those mitigating actions. But we'll use the same principles that we did for the first round when evaluating these price increases, going where we're seeing the most commodity pressure, ensuring that we have superiority plans. And to your point, Andrea, timing it when we can with innovation and product improvements so that we balance what Luke mentioned at the beginning, which is our top line and superiority trajectory alongside recovery margins. I guess the only thing I would add, and maybe that's what you were referring to, Andrea, is that we, in our outlook and our gross margin and our top-line outlook, also reflect some targeted investments we're making to improve superiority in some brands. And this investment can come in the form of actually lower prices, either through trade or price-back architecture, and the leader business is one of those. Or in other case, it could be in the form of higher cost, where we're really doubling down to step up the product benefit and performance to further strengthen the proposition as part of the innovation in the back-end. That is all contemplated, and that's what you would expect us to do as part of that balancing. Thank you both for passing on. Thanks, Andrea. Our next question will come from Kevin Grundy with BNP Paribas. Kevin Grundey, BNPParibas, Great. Thanks. Good afternoon. And, Linda, of course, wish you and your family nothing but the best. It's been a pleasure working with you. A couple quick ones, please. First just to follow up on the pricing, Linda. So you commented before, and it makes sense, to the price behind innovation here in the back gap. give us a sense of how much of the portfolio will be covered with incremental pricing. And I know it's going to come on in a staggered way. So we will have to sort of reflect that in our models accordingly. But I guess I'm sort of asking this in the context that there hasn't been as much pricing yet, but it seems like we're at a level with commodity cost pressure where the industry likely will price up. So I'm just trying to get a sense if it kind of moves that way in many categories and the whole basket is moving higher for the consumer, is there potential for even incremental pricing than you may have in your outlook at the moment? So I'll stop there on that, and then I have a quick follow-up for Luke on margins. Sure, Kevin, and thank you for your comments. On the pricing front, it is certainly dynamic and volatile from a commodities perspective and what we're seeing on cost. We're trying to be as nimble as we can on the pricing fronts. So maybe what I'd first say is the vast majority of the portfolio will be covered by RGM, and that activity will be broad-based, and we have all of our teams working hard to drive efforts there, and those are the ones that we can get really sharp on to ensure we have the right price pack architecture, et cetera. And so the teams are working hard and fast at delivering those. On charcoal pricing, as I said, we took pricing across the four reportable segments at the part of the year and the back half of the year we'll continue to look at the opportunities but we're going to be targeted and if the environment changes kevin we will have to change that posture and i think you know the industry would have to change it right now we still want to keep that balanced approach and make sure that we're making the right investments while taking the right level of pricing and and right now i'm not ready to give you a percentage of the portfolio that we would take additional truckload pricing on just know that if there is additional commodity pressure beyond what we contemplate right now. That will be a tool of the industry, and certainly we look at using deeper, but really focused right now on RGM and targeted pricing. Got it. Thanks. Quick follow-up. Maybe it's not quick, Luke. You commented on the ability to rebuild margin over time. I know sometimes there tends to be just a focus on the next six to 12 months, but maybe with a longer-term orientation, what's the North Star now for margin, the margin profile at Clorox? And maybe the answer is it's not very different than it's been in recent years. And the target is 44 to 45% gross margins and maybe 18% operating margins, but maybe better, right? Just given what you're seeing now from a productivity perspective, which is good as it's being perhaps forever, really. I mean, some of the highs we're seeing in productivity, what's the longer term margin target to share with shareholders? And I'll pass it on. Thank you. Kevin, maybe before I answer your second question, one clarification on your first question, which is, if you look at margin recovery for the fiscal year, the majority is coming from cost savings and productivity. And on the part that that's coming from pricing and RGM, the maturity is still coming from RGM with a small portion for the year. So that gives you just how to think about the total margin recovery of the year? I think to answer your question, it hasn't changed, you know, which is job one is getting back to historically big margin, right, which were about 18%. And the way we want to do that is first, you know, rebuilding gross margin, because gross margin helps fuel our investment in our brand and in superiority. And so you want to do it through first rebuilding gross margin and over time, rationalizing OPEX. So job one will be getting back there. in mind gross margin you know historically with 43 and a half 44 with you know the gojo business it might be a little less initially until we actually just reach out you know achieve our cost synergies i would say i mentioned that we feel confident in our ability to rebuild margin over time and again we're in an inflationary cycle and so we're seeing the initial inflationary pressure but decide having a strong track record of you know doing so in the past if i look at our pipeline it's it's just you know it we have a stronger productivity engine you know right now as you know we always had a you know a successful cost savings program and then we've been adding new tools and capabilities like our GM and design to value and it's been working for us two out of the last three years at record level annual cost savings and this year is looking really strong as well you know the I mentioned the first quarter was one of all the highest and and you know will see where we finish the year but you know with income for them and there's a few thing going on here in addition to to those new capabilities. We're also going to start getting the contributions of ERP over the next few years, right? And we talked about ERP, over the past couple of, you know, couple of quarters, and it was all about implementation and stabilization. But now it's, you Know, we're entering a phase of, You know, value creation, and the cost complexity is really coming down, and then the benefits are going to wrap up, it will take time, we just talked about it, you You have to, in a lot of the process on the supply chain or on the functional admin, you have to just re-engineer for this process. But, you know, we have those savings in the pipeline. And then I guess maybe the last thing from a margin standpoint, and this is not part of the productivity of our savings, but it's the synergies on Gojo. 50 million is, you knows, a pretty significant number, and we do have line of sight, you notice that number, and hopefully we can drive more. So, when you consider all those, you know, we just, we probably have, like I said, I think our productivity engine is just stronger than what it's been, and we just have to navigate the current environment, which is, you know, expect it's going to continue to be volatile at this time. Okay. Very good. Thank you both. Good luck. Thank you. Our next question will come from Cuomo Gajarawala with Jefferies. Hey, everybody. Good luck. Thanks for everything along the way. I guess my first question, maybe this is the biggest question that we're going to be having conversations about, is given the share trends, if there was going to need to rebase or anything, and I suppose now that we're seeing the beginning of share trends move in the right direction, would you say that maybe we're sort of nearing escape velocity, and that's not necessarily the case, or is it something still sort of remains to be seen. Camille, we've been encouraged by the progress we've made. If you looked at what Luke talked about, we have had sequential improvement on OSG tied to improvement on consumption as well as market share. I've highlighted particularly later a business where we need to make much more progress, but it is encouraging to see on the other businesses the progress that we've behind innovation and superiority and just frankly getting back to executing without going through an ERP transition given the trajectory we're on we you know we expect to have continued improvement particularly to the back half as we have our very strong plans on innovation and security launching launching across all of our businesses and so we feel good about that we do feel like we have the right level of investments in the business and we've talked about that in a number of ways you know first would be advertising and sales promotion that we've held at an elevated level you know we used to spend about 10% we spend about 11% now you see the number of reported as 10% but that's because of the Gojo effect so if you look at US retail it's been about 12% so we feel really good about the advertising we have we know our ROI's very well on those businesses we know where we can invest incremental money and we are not afraid to move money depending on those numbers and and the businesses aren't afraid to invest more if it's warranted so feel good about the level we have there we've had more money in on trade funds and we've talked about actually trade funds being a place where we can optimize moving forward applying the new tools we have from technology so we would expect to get more bang for our buck in the future when it comes to trade spending but feel good about the overall level of investment we have there and then we talked about investing in superiority and that comes in a few forms we've invested in price cat litter and glad or two examples that we've given but we're also investing in product improvements many of which hit in the back half of the year and other ways that we can drive superiority through execution and ecom etc so you know I don't know if I if I would call it reaching exit velocity but what I would say is we do expect continued improvement. We like the momentum we're seeing, and we would expect, given the plans that we have, we'll make continued progress throughout the remainder of the year, and that the investment we have is working for us and at the right levels. Okay, great. And then maybe just a softer one, which is, you know, congratulations on finding and hiring Fabian. Is there anything you wanted to share, you Know, as you went through the process on why, you Now, he's the right person for the job? What were maybe some of the more appealing characteristics? I'm sure you had met many people. Why is Fabian the guy? Yeah, sure. As we spoke about, the board went through a very comprehensive process and felt really good about the broad-based look that they had in the market to assess who the right next CEO was and landed that Fabian was absolutely the right person for the job. And if you look at Fabian's track record of experiences of delivering and also the values that he holds those are all a great match for this role he has lots of experience and innovation and brand building in fact he ran teams that that just did that in growth in a number of companies he is a disciplined executor which is exactly what we need at the moment as we continue to deliver you know executional excellence and improve that coming out of the ERP transition some of the disruptions we've had. He shares our values. It was the first thing he said to our team on Thursday in the video. He believes in do the right thing, put people at the center, and play to win. And I think play to win is high on that list for him, which is going to be great for the company as we move forward into this next phase of growth and certainly the next set of challenges that we have in the environment. So the board and I are 100% supportive of Fabian. He and I I are in regular contact and beginning to transition and the two of us are committed to a seamless transition where the organization doesn't miss a beat which means of course I will up until January 5th be a hundred percent focused on delivering our plans and getting Fabian on day one to be ready to take the reins and I'm excited to see what he'll do for the company and I think the company is excited as well fresh perspective is also one thing and I think he has some good ideas for the and and he'll continue to talk to you about how he'll implement our strategy once he starts in January and have a chance to speak to you both at CAGNI and, of course, the February earnings call. Great. Thank you very much. Thank you. Our next question will come from Chris Carey with Wells Fargo. Hey, everybody. Thanks for the question, and congrats, Linda. Wishing you all the best. Thanks, Chris. Hey, Luke, going into fiscal Q4, I think you said something to the effect of that gross margin, you expect to exit the year much stronger. Can you contextualize that a bit? And the reason I'm asking is because the fiscal Q2 gross margin is implied to be lowest of year on we're seeing inflation inflation presumably carries into the back half of the year but that exit rate it almost felt like fiscal q4 gross margin will be the highest of the year based on that comment i don't know if that's some of the incremental pricing or productivity so i just wanted to just want to get a bit more context there sure chris um i wouldn't the main comment i was making is that gross martin in the back would be higher than the average right in the intent to come in specifically on on q4 rated to q3 as a you know as I mentioned inflation is actually going to be a little more pronounced in the front house in the back house you have to remember some of the inflation that we're experiencing now for us started showing up in our P&L in March and April so I'm lapping that but it's it's not only that it's just you know based on the projections if I look at also the the timing of our margin recovery actions will be more elevated in the back half. So that's what's creating essentially a front half that's about a point, point and a half below the average, and then expecting the back half would be higher. And that's the only thing that I was pointing to. Okay, understood. And that back half margin recovery will be more driven by productivity and rgm as opposed to the incremental pricing is that correct that's right yeah on on the relative basis that's correct they are contributing then on related basis that is correct okay all right perfect thank you and then the um the second question just just around uh you know margin is the the um yes gna outlook was was slightly change today is that is that also just um the incremental productivity that is uh that is flowing through the model i mean effectively both these questions are just trying to understand um you know kind of core drivers of of the anchoring to the full year guidance um so as to think about durability uh going into fiscal 28. so thanks so much for that and this is chris yeah maybe let me make two comments one um brought on how to think about what changed in our you know in our outlook and then just i can you know talk a little bit more about you know sgna specifically what change is mostly the inflation being higher now you know 40 million dollar higher that's that 60 basis points you know it means we're um you know we will mitigate part of that in the back house but what we're going to feel in the you know the second quarter you know we're just not going to mitigate it so that's the main driver there's a little bit on this gna there's two things that i would mention one there is a little bit of favorability as we're accelerating some of the synergies in um on the go to acquisition and that will show up in the backups now i think we adjusted the sdna from 16 to 15 so that alpha point but there's There's a little bit of rounding in those percentages, so keep in mind the benefit of the incremental synergies is probably less than that, maybe a point or so. So that's the main thing on SG&A, there's a lot of noise on SG & A between Q1 and Q2. I think we talked about it in a previous remark, but essentially we had a few discrete items, timing items on both DAX and SG& A. You know, tax was really driven by a restructuring of an international legal entity, which was completed earlier than expected. And in SG&A, there was a little bit of timing, a certain one time in project planning. But if you look at SG&O, actually tax for that matter, for the frontals, it'd be pretty close generally than the rate for the full year. SG&E might be a little higher for the frontal than the full years, just because there's some probability in the full here. And if the tax rate might be slightly lower, because Q1 was so favorable, but Q2 would be above normalized level. So that's as you think about your modeling and as you're thinking about OPEX and tax. Okay. All right. Thank you. Thankyou for all that. Much appreciated. And we'll move next to Javier Escalante with Evercore ISI. Hi. Good evening, everyone. Linda, thank you for our discussions. I learned a lot talking to you. I have a question, I guess it's for Luke. And again, is the mitigation of the commodity cost, the cost savings on the gross margin, is one of the highest, I believe, in quarterly hires in, I guess, 15 years. So if you can help us understand how much is actual changes of things that you're doing, perhaps because of Goju allows you better capacity utilization, I do not know, but what is driving this step up in cost savings, going through the gross margin line, and how sustainable that is into the into the does it carry over into the into into the balance of the year and I have a follow-up yeah yeah you are correct and I think we mentioned this in the prepaid remark the cost saving was one of the highest from a quarter standpoint but I'll go back to what I just was sharing earlier is we have a stronger activity engine you know than we used to have and last year cost savings were a little you know limited just because we had to reallocate resources quite frankly to deal with the stabilization of the ERP but if you look at the two years before that you start you know you starting a step up in our cost savings contributions relative to the past and it's a lot of what I just shared this is essentially the benefit of adding you know really data and you know and tech driven capabilities like RGM and and design to values and so we we do see this step up might not always be at the same level at the quarter but a step up is definitely something that you think I would say we haven't yet seen some of the benefits of the RP will show probably later in the year so that will feed that pipeline and that will help you know maintain a more elevated rate and that does not include some of synergies you know actually just most of the synergies will essentially always show up in the in the savings numbers they will you know uh and you you'll see this uh and a lot of them would be some of them will be in the supply chain but some of it would be in uh selling an admin as well so but so net again we you know we really feel we feel good about our productivity engines uh we we have a big year ahead of us you know to deliver and that's important given the inflation that's ahead of us and we'll stay close to what's going to happen this year from an inflation standpoint as you know as we mentioned it is continues to be volatile and that's very helpful but i imagine that in essence is that the erp is allowing you to identify savings that you couldn't see before i guess this is what i'm explaining to myself the other thing is when you look at division gross margin, household products dropped below 30%. I know that there is Keen4, there is CatLeader, some of you are already at recovery in pricing, as you said, I'm glad. How much pricing do you think you need to reinvest in CatLeeder? Because we see in this kind data price makes down for fresh step about minus five is that all or do it do we are we going to see even more uh price investment if you can help us understand how you see the household division with now with gross margins below 30 percent thank you so uh javier i'll take that in in a couple pieces you know first on glad as you note uh glad is one one of our more impacted businesses as oil and resin move in the upward trajectory, but also a business we have a long history of taking pricing on, and we just took pricing on GLAD Trash, and you're seeing it flow through in the data. And so far, the data looks in line with our expectations in terms of consumer acceptance, volume impact, dollar sales impact, et cetera. If you look at litter, we have absolutely invested back in price. in a portion of our portfolio to get our value equation right. What we would suspect over time as well as innovation hits the marketplace and we have our first round of innovation and cat letter hitting. Actually, we'll be in shipping this quarter. But for the most part will be a back half loaded innovation cycle. We would expect over time to be able to remove some of those price investments as we deliver a superior product and a better experience to consumers. But for now, we think this is absolutely the right investment. Where we've made that, we're seeing an increase in share, seeing consumption improve, et cetera. And we're not afraid to make those investments where they're warranted. And certainly on litter, it is at the moment. So over time, as that pricing takes effect, and we'll see what happens with commodities, we would expect the household margin profile to begin to get back to what it was before. But it'll take a little bit of time, As Luke said, we experience all of the cost and the investments up front, and then we work that out, but we're fully confident in our ability to do that, given the toolbox that Luke just outlined. Thank you very much. Thanks, Javier. And we'll move next to Olivia Tong with Raymond James. Great. Thanks. Good afternoon. Linda, wishing you the best of luck with everything, most importantly, your health, and we'll miss speaking with you on a regular basis. Thanks, Olivia. you. Can I ask you about, you know, one of the areas that was stronger than expected is price mix, particularly in health and wellness. And can you elaborate on that a bit? You know, was that primarily GOJO or did the ERP-related timing shifts have an impact? And how do you think about the contribution from price mix for the remainder of the year? And then secondly, what's your visibility on costs at this point? Are there hedges in place so that you have visibility on the cost inflation? Have you had those discussions in some cases with pricing that you're planning to take but haven't implemented yet with retailers and a better sense of how long it would take for that pricing to come through, given how long it did take with GLAAD earlier in the year? Thank you. Hi, Olivia. Yeah. So on your first question, yes, you know, we saw pretty strong price mix in health and wellness segment. I think it was about 7%, about 6% actually came from the Goudre acquisition, which is a favorable price mix. Still, we still about one point of favorable price mix, you now, in the base business, and that was a mix up coming from both RGM and some very targeted pricing on some smaller brands. So that's for your first questions. I would On the visibility on cost, maybe a few things. First, obviously, you know, we're avoiding in an environment, a cost environment that, you know, remains, you Know, fairly uncertain and volatile. So, you can imagine we're, you Now, planning across a range of possible scenarios and our outlook is like what we know today and what we believe is the most likely scenario. now from from the hedging standpoint I think we have a number of mechanism in place to manage cost and a community volatility we selectively use financial ages for some communities where the market you know are liquid and economic make sense before some others we manage exposure through contractual agreement purchasing strategies or even inventory so that those mechanism means that you different different cost flow through the P&L within different timing in in the case of fuel surcharges we're going to see you know pretty much right away any moves with the market and for the commodities we can you know we can see we can have contractual inventory timing and create lag of anywhere of several months anywhere from one to over six months on average on aggregate we generally tend to have good visibility two to three months out so that gives you that gives you a sense of the discipline um as far as you know pricing um you know you know i think you you know europe from linda earlier there's some you know that's already been implemented in the market some of them might come uh later in the back house it's still relatively targeted and selected but obviously as part of the scenarios that i'm just talking about you know we're contemplating potentially uh you know other pricing actions thank you that's luck Thanks, Olivia. Thank you. And this concludes the question and answer session. Ms. Rendell, I'd like to turn the program back to you. Thanks, Jen. Thank you for your time and questions today. We are focused on continuing to improve our top-line trajectory by strengthening the superiority of our brands and products, advancing consumer-led innovation, and improving execution. At the same time, we're taking balanced actions to mitigate cost pressures and protect profitability, drawing on a track record of successfully managing through periods of volatility. We're also continuing to advance the strategic work that will strengthen Clorox for the long term, integrating Gojo, evolving our portfolio, and delivering value creation from our transformation investments. We are encouraged by our progress and remain focused on building a stronger company capable of delivering more consistent profitable growth over time. Before we close, and as many of you acknowledged, I want to acknowledge that this is my final earnings call as CEO of Clorox. I really appreciate all the comments you made during the call. It's been an incredible privilege to lead this company through one of the most complex periods it's both faced both operationally and strategically and for years to have the opportunity to speak with you all about our performance, our strategy, and the opportunities ahead. Thank you for your engagement, your questions, and their perspective you shared along the way. I'm proud of the stronger foundation we built and I have tremendous confidence and our brands, our strategy, and our people. To our team around the world, thank you. Your work made our strong start to the year possible, and I am deeply grateful for everything you continue to do for Clorox and for one another. With that, I look forward to supporting Fabian through the transition, and you'll have the opportunity to hear from him and Luke on our next earnings call in February. Until then, please stay well, and wish you all the very best. And this concludes today's conference call. Thank you for attending.