Clorox Company (CLX) — Q4 2019 Earnings Call Transcript

Thanks, Sharon, and welcome, everyone. On the call with me today are Benno Dorer, our Chairman and CEO; and Kevin Jacobsen, 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 thecloroxcompany.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 enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks, or supplemental information available on our website as well as in our SEC filings. In particular, it may be helpful to refer to tables located at the end of today's earnings release. Please also recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's 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 SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. 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 2020, and finally, Benno will offer his perspective, and we'll close with Q&A. For the total company, full year sales were up 1%, while Q4 sales decreased 4%, reflecting double-digit sales decline in our Household segment. I'll 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 in FY 2019 wrapping up the year with a double-digit sales growth in Q4. We've introduced a number of innovation platforms in this business over time and they continue to build momentum as we keep expanding distribution in the institutional channel. For example, the Clorox Healthcare hydrogen peroxide line, which launched in FY 2013; and Clorox Healthcare Fuzion, an FY 2017 innovation both have strong 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're encouraged by the improvement we're seeing in wipes after beginning to address some of the short-term competitive headwinds we discussed in Q3. We'll continue to sharpen our consumer value equation in FY 2020 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 we'll be doing another round of compaction starting in FY 2020 which will drive category growth, while 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, results in Household were disappointing. Q4 sales were down 11% and full year sales were down 5%, driven mainly by declines in Charcoal and Glad. Turning around these businesses is a top priority for us and we expect to see improvements in the back half of FY 2020. Now, let's go through the drivers business-by-business. In Charcoal, full year sales declined with Q4 sales down by double-digits due mainly to distribution losses and lower merchandising primarily at two large customers in mass and home hardware during the peak grilling periods in the quarter. We've seen retailers investing more space in support of alternative grilling fuels like lump and pellets, a growth area where we will begin to play in 2020. As a result, we experienced lower merchandising support and lost some distribution while competitors have gained. These results are disappointing and we need to launch innovation that allows us to participate in these growing alternative grilling fuel segments and better differentiate Kingsford from competitors. We're working on a stronger 2020 season plan that will include new Kingsford pellets, product improvement across our base Kingsford product, Charcoal, and robust marketing support that will continue to focus on growing household penetration. While we expect the front half of the fiscal to be challenged, we believe we'll return the business to growth 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 in select portions of the portfolio, which we've 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 we've seen improvements and 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 2020, we're also planning to launch various new products in the fast-growing scented trash bag segment, where Glad has commanding equity over competitors. We expect to return to growth by the back half of fiscal year after we cycled 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, while our closest branded competitor had none. We believe these types of investments will continue to drive long-term profitable growth for the brand and for the category. Turning to RenewLife. 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 probiotic category and in our ability to differentiate our brand from competition by emphasizing our product efficacy. A continued bright spot in the 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 the Fresh Step Clean Paws innovation platform, which offered two new product options in the fiscal year, Mediterranean Lavender scent and unscented. In our Lifestyle segment, sales for the quarter were flat, while sales for the full year were up 17%, primarily reflecting the benefit of the Nutranext acquisition. Burt's Bees had a very strong quarter of sales growth behind record quarterly shipments in lip care and face care and sales were up for the full year as well. Successful innovation in these categories including overnight lip clovers, lip oil, and sensitive skin care products continues to drive share growth for the brand. The business has another strong pipeline of innovation planned for FY 2020, including our recently launched lip butters, which offer a trade-up from traditional lip balms with an experiential 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 mark the one-year anniversary of our acquisition of Nutranext, sales were up for the quarter driven by strong growth in our strategic brands, which represents about 80% of the portfolio. We continue to be pleased with the progress we've made on this business, including the integration and high expectations for FY 2020. 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, Brita sales were down for the quarter while 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 FY 2019. Consumption has continued to grow for eight consecutive quarters, and we're pleased to see our tracked channel market share up nearly one point in the last 13 weeks. We're also excited by the strong start of our bottle innovation, which was supported to increase 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 and China both recorded double-digit volume growth for the quarter behind the strong performance of Cat Litter and Burt's 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 2020.

Thank you, Lisah, 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 challenges 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 150 basis points of increased trade spending and 90 basis points of higher manufacturing and logistics costs. Selling and administrative expenses as a percentage of sales were essentially flat versus the year-ago quarter. Advertising and sales promotion investment levels as a percentage of sales came in at about 10% with spending for our U.S. 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 Nutranext acquisition and Aplicare divestiture offset by a negative three-point impact from unfavorable foreign currencies. Fiscal year 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 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 the year-ago as ongoing investments in the Nutranext 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, our 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 2.5 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 with our assumption for first quarter sales to be down as we work to restore growth on our Glad and Charcoal businesses. For the second half of the fiscal year, we anticipate sales to be at 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. 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 are 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 in the spring of 2020, offering improved consumer experience and meaningful sustainability benefits. We look forward to the value the 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 fiscal year tax rate will be in the range of 22% to 23%. This includes the ongoing benefits of U.S. tax reform, partially offset by our expectation for lower excess tax benefits from stock-based compensation. Net of all of these factors, fiscal year 2020 diluted EPS is expected to be in a 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 work 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, while making sure we continue to invest in the long-term health of our business. Last quarter, we discussed the challenges we are facing on our Glad and Wipes businesses. And while there's more work to be done on Glad, we're certainly pleased with the progress with Wipes. We 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 in support of long-term value creation. Moving forward, we're addressing Glad and Charcoal head-on while 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 with the business's 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 in a couple of our businesses, Clorox will be in a position to deliver results that are more in line with our long-term financial goals. And with that, I'll turn it over to Benno.

Hello, everyone, and thank you, Kevin. Here are my three key messages for you today: first, as we discussed fiscal year 2019 was mixed, which was reflected in our back half results. We're currently facing persistent challenges in Charcoal and Glad, that impacted our top line 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 SBU 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 Burt's Bees as well as sales increases in Food and Brita. I also feel good about our innovation program. It continues to drive consumer 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, Brita Filtering Water Bottles and several new Burt's Bees lip and face care products. We're also pleased to see continued momentum behind our Clorox Scentiva and Fresh Step Clean Paws platforms. I continue to be pleased with the Nutranext 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 Go Lean strategy has delivered six consecutive quarters of profit growth. We're also seeing strong momentum behind growth platforms in several regions. E-commerce 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 year 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 address the ongoing inflationary environment we've been facing and supported continued investment in long-term brands and category growth. An immediate priority for us certainly is getting Charcoal and Glad back on track. As I mentioned, based on our expectations to deliver stronger business plans for 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 in our 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're pleased that 2020 will bring another robust pipeline of innovation, led by the compaction of Clorox Liquid Bleach, innovation on Clorox Wipes and new products in other businesses, including several innovations on Glad and in Burt's Bees Lip and Face Care. We will drive trial and awareness for these new products while also continuing to invest behind several of the innovation platforms we've already introduced, such as Clorox Scentiva, Fresh Step Clean Paws, 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 is that we're confident in the strategic path we are laying out to continue Clorox' track record of delivering long-term shareholder value. Our new strategy is supported by a proven business model of leading brands in attractive midsize categories, strong operational execution based on innovation, and an unwavering commitment to good growth, growth that's 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 our Nutranext acquisition, which is currently expected to deliver double-digit sales growth in fiscal year 2020. We're confident that a 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 top-tier ROIC 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'll continue our focus on growing the right way, by living our values and driving sustainability in our products and operations. We'll continue to be a mission-driven business with the goal of creating long-term value for all of our stakeholders. And with that, operator, you may now open up the line for questions.

Hey, thanks. So, I think you've been pretty clear about the challenges that you face in wipes and Charcoal. But how should we think about the rest of the business in fiscal 2020, because there is roughly a 300 basis point spread between the midpoint of your stated long-term goal of 3% to 5% growth and this year's flat to 2% outlook? And based on what we've heard from others, just a broader backdrop for CPG demand seems pretty favorable. So, I'd like to assume the rest of the portfolio, excluding Glad and 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 Glad and Charcoal to return to growth in the back half, it seems to imply the other 80% of the portfolio might also end up below even 3% levels. So could you just help me with that and frame for me how you think that portfolio is shaping up health-wise versus the long term?

Hey, Steve. Good morning. This is Kevin and I appreciate the question. And let me give you a perspective on how we're feeling about the portfolio broadly, separating the businesses, as we've talked about, that have been more challenged, Glad and Charcoal. As you heard in our prepared remarks, our expectations when we think about fiscal year 2020 is, those two businesses will be a drag on our performance in the front half or 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 and International, all performing well over fiscal year 2019. And when I look at fiscal year 2020, our expectation, specifically in the U.S., is that we'll be generating top-line growth consistent with our long-term growth algorithm. As you know, it's 2% to 4% in the U.S. And our expectation is we're going to be back in that range in the back half of the year as we get Charcoal and Glad back on track.

So, excluding Glad and Charcoal, the only factors affecting our long-term growth algorithm are really International and some macro factors. Is that correct?

Yes. That's right. And for International, we've been targeting 5% to 7%. We've continued to be challenged by FX headwinds. That was particularly true in 2019 where we had about a 15-point headwind. I'd tell you as we look at 2020 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 5% to 7% if not higher, but being held back by FX at this point.

Okay. Great. Kevin, could you provide some insights on the gross margin or advertising lines, considering the top-line phasing information you shared for the year? I'll pass it on to you now. Thanks.

Sure. Maybe on advertising, I would say, typically we will spend the money based on when it's most advantageous for us. It tends to be a bit more loaded in the back half just based on the innovation cycle. I would expect to see something similar to that although I don't expect to see any big changes but maybe a little bit heavier on the back half. And then on gross margin, I think it 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. They will be launching in the spring. We've got another project we're not ready to talk about publicly, but will continue to invest in it and we'll talk about that at a future date.

Okay. Great. Thank you.

Good afternoon. So first, a more mechanical question and then more of a strategic question for Benno. So for Kevin on the repurchase activity, is any repurchase activity be embedded in the fiscal 2020 outlook? And can you give us some kind of magnitude? And were you back in the market in the fourth quarter?

Thank you, Steve. I'll begin with our repurchase program. Looking at fiscal year 2019, we were quite pleased to return approximately $1.2 billion to our shareholders. This amount includes both dividends and share repurchases, representing a 60% increase compared to fiscal year 2018 as we have focused on increasing dividends. Additionally, regarding our share repurchase program, we have executed around $425 million of the $2 billion authorized, which is about 20% of the total, including roughly $250 million in the fourth quarter. Looking ahead, as we've mentioned before, this is not an ASR, so I don’t have a specific number of shares I plan to buy. We manage an internal program for this. I can say that there may be some share repurchases included in our outlook, but I won’t provide a forecast. If there are significant changes, I will update you. For now, you should consider it part of our EPS outlook range.

Okay. Benno, I would like to understand strategically how we should consider compaction phasing through the business, especially with its launch in the spring. Also, what feedback have you received from retailers that gives you confidence that some of those businesses can accelerate in the latter half of next year?

Yes. Bleach compaction will begin in the third quarter. If you recall our past experiences with compaction, particularly from 2013, it's a process that typically spans several quarters. We anticipate completing this in stages by early fiscal year 2021. I'm optimistic about this project. Regarding coal, the core issue lies in our misalignment with two major customers, and we need to reestablish strategic alignment with them. Additionally, we require stronger demand-building plans. Our recent results are disappointing, and we owe our customers and consumers improved plans that include the right innovations. We will introduce product enhancements and new Kingsford pellets in time for the next grilling season. We'll maintain strong marketing support aimed at increasing household penetration and enhancing brand value and excitement. Moreover, we need to implement effective merchandising strategies with all retailers, which we did not achieve in Q4. This is the work ahead of us, and our company has a solid history of managing these challenges. We understand the opportunities in this business as well as with Glad, and we must return to our core competencies.

All right. Thank you.

All right. Thank you. I actually have a big-picture question on your strategy. The strategy you guys just discussed and know what you're going to be unveiling further at your October Analyst Day doesn't necessarily sound like a major change from your current strategy. But I guess you have been thinking about and looking back at just subpar results in FY 2019 and a pretty weak outlook for FY 2020, I'm wondering if you guys think 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.

Yes. Thanks, Bonnie. So, we don't think that that's needed, 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 Charcoal, we're mostly off with two customers. And Glad is really tied to post-pricing issues where we've clearly seen widened price gaps which we're addressing and we also saw some distribution bumpiness probably across the portfolio which we can also trace back to pricing. And again we have reaffirmed that pricing is really necessary and we'll stand by that. So, feeling good about the rest of the portfolio. Frankly, as Kevin said, it's generally solid. We'll cycle through in the post-pricing bumpiness. We think we can address the Glad and Charcoal issues. And then we really think we have robust plans for fiscal year 2020 and beyond. Strong advertising sales promotion that's still relevant. We have brands that consumers love. We have our consumer value propositions and measure continued to be positive. We have robust innovation plans. We're leaning to cost savings. And we will continue to deliver strong cash flow and then put that to work for our shareholders. We think all of 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 what you cannot expect is the 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 drill down a little bit further on the higher trade promo spending and whether it's working in Household or specifically in bags. And should we assume that you're going to need to pull a little bit further on that lever as you touched on the gap from they're at which is further implied in your guidance? And then trying to think about how much do you have to pull there and whether or not that will impact 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 too for your turnaround, or is that just more dependent on some of the merchandising in innovation you mentioned?

Yes, starting with Charcoal, the key is effective merchandising, innovation, and demand planning. Regarding Glad, in Q4 we increased our trade investments to reduce price gaps, leading to sequential improvements and positive signs. In the grocery channel, where we first applied these changes, our shares have improved and are now about flat. However, we believe our trade spend was insufficient, which is why we're planning additional spending in Q1 to fully address the gaps that emerged after our pricing changes. While this approach is showing progress, it has been somewhat overshadowed by distribution losses caused by variability that we discussed earlier. Unfortunately, these losses have been worse than we expected in Q4, impacting the positive results from our trade investments. Nevertheless, we are optimistic about the increased investments we are making in Q1. To achieve full progress in the latter half, we need to overcome those distribution losses and reintroduce innovation. As Lisah mentioned earlier, we have several initiatives planned for the second half. With all these plans in motion, we anticipate a return to growth and are confident about our prospects.

All right. Thank you.

Good morning, thank you. I want to revisit the topic of distribution as a follow-up. I appreciate Benno's comments regarding the Charcoal execution with two other customers. I understand the situation, and I know that you mentioned you don’t anticipate the distribution losses to be reflected until early next calendar year. I’m trying to grasp why you believe these two retailers will bring you back on their shelves, and how your value proposition will be stronger in the second half of fiscal 2020 compared to now. Are you considering any price rollbacks, specifically for Glad? Additionally, regarding supplements in Lifestyle, I recognize your confidence in Nutranext meeting the collagen and protein trends. However, you mentioned in the last quarter's conference call that you might consider increasing investments in RenewLife for fiscal 2020. Is that still a possibility? Thank you.

Yes, there’s a lot to unpack, Andrea. Regarding Glad, we plan to increase trade promotion in the first quarter of this fiscal year to close the gap. I am confident that we will become more strategically aligned with the two retailers where we need to improve. I believe that our plans, which include product improvements, new line extensions, and enhanced marketing support, along with productive discussions with both retailers, will help us regain their confidence. We have a strong history of success in this area and need to return to that level. As for your question about vitamins, minerals, and supplements, I feel optimistic about Nutranext, as demonstrated by the progress made in fiscal 2019 and the anticipated double-digit growth in fiscal 2020. However, RenewLife has not performed as well; fiscal 2019 was disappointing for that brand, particularly in Q4. RenewLife accounts for just over 1% of sales, so while it's not a major factor overall, we are still developing better plans. We remain enthusiastic about the long-term potential in digestive wellness, as we have a strong brand and capabilities in this category. The process will take time, but I feel good about the long-term outlook for RenewLife as well.

Very helpful. Thank you, Benno.

Thank you. I wanted to discuss the difference between tracked and untracked sales. You've mentioned some loss of shelf space in mass and home retail, but I'm surprised to see the gap between tracked and untracked sales widened so significantly this quarter and in an unusual direction. Can we assume that there were larger losses in club and online channels? If that's the case, could you provide more details on those channels? Additionally, were there any opportunities that came up for bidding but did not meet your margin expectations?

Thank you, Olivia. To break this down, the decline in Q4 volume compared to last year is primarily due to Kingsford and Glad, with Kingsford being responsible for most of the decrease. The Kingsford business faced challenges primarily with two significant customers, one of which is untracked in the home hardware channel. This is an important quarter for Kingsford and for this major customer. Thus, the impact on Q4 was both unusual and substantial. I would highlight that particular retailer, which plays a significant role during this crucial quarter, as a key factor in the overall issue.

And then haven't talked a ton about wipes. But last quarter you sounded pretty down deep and cautious about where you are in the Disinfecting Wipes lifecycle. But then this quarter you reported record quarterly shipments of the wipes. So can you talk a little bit about what's the change there and the dynamics that kind of led to such a snapback in the underlying trends of course excluding the impact of cold and flu last quarter? Thank you.

Yeah. So positive about the progress on wipes, clearly a competitive category still. But last quarter we talked to you about putting trade spend in place to counter what is elevated 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 the trade spend increase begin to work. And now for fiscal year 2020, we continue to feel good about this business. We expect this trade investment to continue to work. And importantly, at the Analyst Day, we'll share with you significant innovation both on the base as well as with the 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.

Hey, guys. So I wanted to focus on pricing for a minute. 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 that you've earned pricing power with the increase in new product superiority at the consumer level. If we fast forward to today, pricing has pretty much gone through almost across the board at most of your competitors and you guys had a couple of categories where you've 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 postmortem 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 a greater priority given they appeared to be willing to use that pricing lever? Thanks.

Yes, Dara. As we mentioned earlier, we are pleased with our pricing strategy. It was necessary to maintain long-term margins and support the significant investments we are making in our brands, all of which are currently in the market. Generally, results are in line with our expectations, although it is still early for Glad and Kingsford. Consumer indicators are strong. The consumer value measure, which is important to us, has remained unchanged after the pricing adjustments, and most of our brands continue to be viewed by consumers as providing superior value, which is encouraging. The categories have improved significantly. Two years ago, before we began pricing changes, our categories were relatively stagnant for the company as a whole. In the last 52 weeks, they have increased by over 2 points compared to the previous year, marking a substantial improvement that aligns with our past experiences and expectations. Excluding Glad, results are consistent with our expectations, and we are seeing the anticipated fluctuations that typically lead to lower merchandising and distribution losses. We are addressing these temporary challenges. Overall, the positive news is that our pricing has been embraced as part of the industry, even though we may have experienced distribution losses more than others due to our early and confident price increases. Nevertheless, we stand by our conclusion that the overall pricing strategy was necessary and effective.

Okay. That's 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. It sounds like a lot of the European household products peers are also 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 on what you've guided to this year? Why wouldn't 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 perceiving like higher spending is working to drive their business in the industry. So any thoughts there would be helpful? Thanks.

Yes, Dara. We always evaluate our spending, and approximately 10% remains the appropriate figure. Keep in mind, this is an increase from previous years. Additionally, our spending in absolute terms will rise this year, supported by higher returns on investment as indicated by our own analytics. Thus, we are confident that 10% is the right level.

Hey, good afternoon everyone. A couple for me. One on Kingsford and then I have a follow-up on bleach. So Benno, on Kingsford, you talked about getting into pellets and lump charcoal for some time. And naturally it would seem to make sense to extend the Kingsford brand in the category. But a few questions here. With the benefit of hindsight, what 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'll indeed have success and be able to pick up some share? You talked Benno 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 you thinking about the growth rate for Kingsford longer term?

Yes. So, thanks Kevin. First of all, let me maybe start with the last question. So, grilling fuels is an attractive category. It's very much on trend. And if you think about the category growth rates including those alternative grilling fuels like lump and 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. Would I have liked for us to be in pellets and lump by now? 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 and to the existing offerings. And admittedly that takes time and sometimes taking time leads to better outcomes. And while like I said I would like to be in there by now we're now focused on looking forward and putting better plans in place for calendar year 2020. Like I said earlier, the problem is largely contained to two large customers. If we drill into say, the top 10 customers, there are several customers where we're actually doing quite well. And we have plans that we put in place have been well-received and are working. We 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, Benno. I'll leave 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.

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 of the value, we won't disclose that.

We'll take one last question.

Hi, everyone. Thank you. I have a couple of questions. Firstly, I want to understand the source of your confidence regarding the non-Kingsford and non-Glad businesses and how you're sure the issues you've experienced won't extend further. I realize that tracked channels are often seen as less significant, but they have recently served as a key leading indicator of some of your problems. While it may lag a bit, it's clear that issues have shown up in Kingsford within the tracked channel data, as well as in Glad. So, continuing from that perspective, the tracked channels are actually important. One major indicator has been market share losses. I've been looking at the data, and it's been a couple of months. Broadly speaking, segments like spray cleaners and dressing seem to be losing market share, and you've mentioned categories like cat litter and digestive supplements that also appear to be losing ground. I'm trying to gauge where your confidence comes from in believing there's not going to be a wider spread of issues, especially since tracked channels have served as a leading indicator for Kingsford and Glad.

Yeah, thanks, Ali. So clearly tracked channels matter, because they account for the majority of the business, as it does market share, so that up front. With the exception of this quarter, which again was overshadowed by Charcoal, I think we have commented in the past that performance in non-tracked channels were stronger. We expect that to continue. It's also fair to say that our market share has been somewhat under pressure and not as strong as they used to be. I think that is evident. And while that's not something that we like, I'd also say that what we expect about sales is to drive market share but also categories. So, we'd perhaps again go to a much stronger category growth as a way to partially offset that. And doing a time of pricing and the bumpiness that we talked about, distributional losses and then 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 Brita aside that the three segments outside household are performing at minimum solidly with many actually performing very strongly. And then I think about our plans for fiscal year 2020 based on 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 in International, all those things point to a pretty stable and positive outlook that we expect to shine through in the back half.

That's very helpful context. To delve a bit deeper, when we compare the first half to the second half, I hesitate to focus too much on short-term trends. However, it seems that if everything else is progressing well and confidence remains strong, I understand there are additional investments in Brita and the need to manage Kingsford and Glad. Still, I'm somewhat puzzled about why the forecast appears heavily weighted towards the second half. It sounds like Kingsford and Glad may face challenges before they improve in the first half. Additionally, considering the compaction that should benefit the second half, are there any other factors you foresee that might be under pressure soon? Given the current confidence levels, it seems like guidance for 2020 could potentially be more optimistic than what has been communicated thus far, particularly regarding the top line.

Yeah Ali. This is Kevin. Maybe a couple of thoughts to think about front-half, back-half. As we've talked about the two businesses have been challenged. I would expect to see a sequential improvement from Glad. As we mentioned, we increased trade spending in Q4 and we start to see some improvements. We are increasing further to fully narrow that price gap back when it took pricing and I expect that to drive continuous improvement. Charcoal I think is going to have a challenged finish to what we call season year 2019 as we've talked about the work we have to do looking forward to season year 2020. So I expect that to be challenged in Q1 and then be stronger in the back half. And then maybe just a couple 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 at the back half of the year. The bulk of our pricing started early in 2019 so we'll be lapping most of that by the back half. The distribution losses as well will now won't be lapping. We're 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 on our ability to accelerate the performance of the company in the back half of the year.

Okay, okay. I get the compares point certainly. Okay. Thanks very much.

Thanks, Ali.

Yeah. 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.