Clorox Company (CLX) — Q1 2025 Earnings Call Transcript

Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO; and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website. In just a moment, Linda will share a few opening comments and then we’ll take your questions. During this call, we may make forward-looking statements, including about our fiscal 2025 outlook. These statements are based on management’s current expectations, but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect any such forward-looking statements, which have been filed with the SEC. In addition, please refer to the non-GAAP financial information section of our earnings release and the Supplemental Financial Schedule in the Investor Relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I’ll turn it over to Linda.

Hello, everyone. Thank you for joining us today. Our first quarter results were strong. Taking a step back, we entered fiscal 2025 in a position of operational strength, having fully restored supply, distribution and the vast majority of market share from the August 2023 cyberattack. This quarter, we drove further progress as we fully restored overall market share, grew share in most of our categories and delivered results above our expectations while continuing to make progress against our strategy for long-term value creation. Importantly, we continued to deliver on our commitment to rebuild margin, achieving our eighth consecutive quarter of gross margin expansion. Our holistic margin management capabilities continue to enhance our ability to fuel growth, and we remain on track to return to pre-pandemic gross margins this fiscal year while investing in our business. We also completed the development of our VMS business during the quarter. This follows the previous sale of our Argentina business and marks another important milestone in the evolution of our portfolio, which supports our goal to reduce volatility and drive more consistent and profitable growth over time. Looking ahead, we continue to see an uncertain macro environment where consumers remain under pressure and continue to seek value. Within this context, and in the complexity of the recent years, our portfolio of trusted brands in everyday essential categories has remained strong and resilient. So during a time when it matters most, we are focused on delivering superior value to consumers and continuing to invest in our brands and innovation to win in the market. We have strong fundamentals in place and we remain laser-focused on advancing our transformation to be a stronger and more resilient company. Through these actions, we’re making good progress in building a more consumer-obsessed, faster and leaner company that’s well-positioned to deliver consistent and profitable growth. With that, Kevin and I will take your questions.

Hey, guys. Good afternoon. So I just wanted to touch on market share. You mentioned in the release that you guys have fully restored market share. As you look out from here, do you think you can consistently expand share, maybe talk about some of the key drivers behind that? And then specifically, if you could talk about the back half of the year, what are you assuming there in terms of your market share performance and volume growth? I’m guessing maybe you’re not assuming much in the back half of the year, so some short-term clarity there and thoughts on long-term share potential from here and how you drive it?

Sure, Dara. I’ll cover that, maybe just starting with the performance in Q1. We did indeed return our overall market share to its pre-cyber levels and we saw growth in almost every one of our categories. And I think it’s important to note that that growth came before we began lapping the cyber disruption as well, so our overall market share was up in that period before we started to lap. We’re also seeing, just from a private label perspective, not really a significant change in what we saw in previous quarters where private label share has been normalized coming out of the peak when they grew share during cyber. So if you look at aggregates, they only grew share in two of our categories, and we also grew share in those same categories. And they’re actually down versus pre-cyber levels, if you look at this quarter compared to the quarter before we had the attack. So we feel great about where our share position is. Obviously, we’ve invested more in both advertising and sales promotion to ensure that we have the health of our brands covered. I would say that’s generally in line with what we thought we were going to see. So the share growth that we experienced this quarter was in line with our expectations. Moving forward, we would expect to continue to grow share, albeit probably at a smaller level than we’ve seen, given we’re in a lap period right now. So that share growth will be lumpy throughout the year, but we do expect the end of fiscal year with solid share growth and overall market share gains.

Okay. And within that, can you talk about what you’re seeing from a promotional environment perspective in the industry and maybe parse out some of the different business segments in terms of what you’re seeing there? Thanks.

Yeah. Our assumption for this year was that promo would return to pre-COVID levels, and that’s exactly what we’ve seen. I would say some categories are slightly ahead of that, some are below. Maybe the one that I think is probably the biggest variance versus pre-COVID and pre-cyber would be Litter. Litter’s promotional levels are significantly higher. And to be fair, we’re driving a lot of that as we work to get our business back with consumers, and we’ve talked about those dynamics being a little different in that category than others. We view that as temporary though, and we would say over time, we would restore that back to regular merchandising levels as we reestablish our share. But overall, we’re seeing generally in line with what we expected returning to pre-COVID levels. Again, each category a little bit different, but on average, other than Litter, I wouldn’t call it anything that is materially different one way or the other.

Great. Thank you.

Thanks, Dara.

Thanks, Operator. Good afternoon, everyone. Hope you’re doing well. I kind of wanted to follow up on Dara’s line of questioning there and just kind of ask around the phasing of the sales guidance. Yeah, obviously, once you came better, some of that’s coming out of the second quarter. I guess what I’m trying to understand is just, given what we’re seeing from many of your peers, talking about weaker category growth, a lot of them are delivering organic sales below their respective algorithms. Your guidance seems to kind of still imply solid growth in the back half of the year. So just kind of curious as to whether your expectations for organic growth in the back half of the year have evolved at all just given the current environment?

Hey, Peter. This is Kevin. Yeah. Happy to take that one as it relates to the phasing of sales. Obviously, as you folks saw, we had a good solid start to the year, 31% organic growth. I think you probably saw in our prepared remarks, we have adjusted Q2 a bit as some of that performance in Q1 was pulling forward volume we thought was going to ship in Q2. So we made some adjustment there and we’re now expecting Q2 to be down probably in the low-teens. And then if you consider that front half, what that would suggest in the back half of the year is, if you take the middle of our outlook that 4% or so for the full year, you’re growing probably 3% to 5% in the back half a year. So right in line with our long-term algorithm. I think your other question is kind of getting out what are those drivers that’s supporting that 3% to 5% growth? And you remember, Peter, we called back in August that we expected the categories to slow and that sort of flat to 1%. That continues to be our expectation. Also keep in mind though, for about 20% of our business are International or Clorox Professional businesses continue to perform quite well. We continue to expect those businesses to grow in the mid-single digits. So they’re nice contributors to our growth. We’ve also got the benefit of our divestitures. We didn’t fully see that in Q1 because we just sold our VMS business late in the quarter, but you’ll get the full structural benefit to the topline starting in Q2, and that will certainly benefit the back half as well. And then as Linda was referring to earlier, just the strength of our overall demand plans. We’ve got a good innovation program lined up for the back half, and we certainly got strong marketing support. So overall feel very good about the drivers of how we think we’ll get to that 3% to 5%. And I think why that’s important is, because I think you folks know we’re not only about us delivering 3% to 5% this year, but we’re spending quite a bit of time ensuring that we can continue to deliver 3% to 5% as we head into fiscal year 2026. So I really like the exit rate we’re focused on to make sure that we’ve got a good plan in place as we move forward.

Great. And then just maybe a quick follow up on gross margin. So just the first quarter, it came in well ahead of your guidance. Was that entirely related to the better fixed cost absorption related to the shipments or were there other drivers that kind of led to the upside in the quarter?

Yeah. It was really driven by the over delivery in the topline that just flowed through to better cost absorption, which also benefited earnings. But other than the benefit of cost absorption, everything else was pretty much in line with our expectations across the other elements of total delivered cost.

Great. Thanks so much. I’ll pass it on.

Thanks, Peter.

Hey. Good afternoon, everyone. I wanted to ask two questions on the businesses that you called out, Linda, the Glad and the Litter business. In Glad, it seems if you look at track channel data, it seems you’ve recovered a lot of your shelf space with their introduction of the large pack sizes. So maybe you could give an update there. And in Litter, it seems like there’s more opportunity to recover shelf space. Can you talk a little bit about the progress and your ability to convert consumers back to your brand after a period of shifting in calendar? Thank you.

Sure. Thanks, Filippo. Just starting with Glad, we continue to make very good, strong progress on Glad, and it was one of the businesses that we talked about that would take a little bit longer to recover. But we made great progress in Q1. We returned to share growth. We grew seven-tenths of a share point in Q1 and you saw that accelerate as we moved through the quarter. We’ve had very strong merchandising plans in place, including, I think we shared this last time, but Glad Trash was the number one consumable item on all of Amazon Prime Day. Performed very well and we’re seeing merchandising across other retailers perform very well in addition. And that is a business where we have fully restored distribution and we’re seeing that stick and hold as we come out of Q4 and into Q1. So I feel great about the trajectory on Glad. A little bit more work to do on share, but we feel like we’re heading in the right direction and have the right plans from an innovation and demand-building perspective. Litter, I’m also pleased with the progress, but we have more work to do. We’ve made some good progress on restoring our subscription business. So one of our leading retailers that uses subscriptions, we have restored over 90% of that subscription business that we lost. We’ve also returned to the number one share position at that retailer with Fresh Step. So feel good that we’re moving in the right direction in places where it’s a little bit more difficult to get consumers back, given the nature of subscriptions. We also returned to share growth in Litter. So that business also grew seven-tenths of a share point in Q1. Again, accelerated throughout the quarter. We’re seeing good merch support. Again, a bit higher than we would normally see pre-COVID, but feel it’s warranted given what we’re trying to recover and ensuring we get our consumers back, and we’d expect that to normalize over time as we get our share back. But again, Litter’s one where it’s just going to take a little bit longer. I’m pleased with the progress. But I think if I look across all the businesses, that’s the one that we just feel like is going to continue to linger on for a couple more quarters, and we feel good about innovation that we have in the back half. We’ll continue to invest strongly in advertising and sales promotion. And I would say we are on track with the plan that we have for this year and we’ll continue to make progress in Q2, Q3, and Q4.

Great. That’s very helpful. And then, Kevin, if I can ask one more on gross margin, given the outperformance in Q1, even if you account your guidance for Q2, it seems like you’re going to be well ahead of your full-year target in the first half. So can you give us a sense of what are your expectations in the back half on gross margin?

Sure, Filippo. If you look at Q2, you probably saw our prepared remarks. We’ve updated our expectations. We think gross margin will be down primarily due to the deleveraging of volume declining in the low-teens, and so I expect Q2 to be down. And the expectation in the back half of the year and important for our exit rate is I’d expect it to be sort of in that 44%, 44.5%, really what we’re projecting for the full year. I don’t expect it to be that different front half versus back half. So fairly consistent through the year and then exiting at a rate that would reflect a forward recovery of where we want to get to at the end of the year.

Great. Thank you. Super helpful.

Thank you, Operator, and good afternoon, everyone. I would like to hear more about category consumption, Linda, as there are various factors at play, and you are recovering market share. I am thinking about your comments regarding value-seeking behaviors and how you are addressing them with RGM and different countbacks. Additionally, regarding your comments, Kevin, about margin trends in the second half, should we expect a more pronounced margin in the fourth quarter, considering last fiscal year's fluctuations? How should we model the third and fourth quarters in light of this, especially since your revenues appear to be stabilizing? Lastly, has your outlook on commodities changed since last quarter as you move beyond the first quarter?

I’ll start with your question about the consumer environment. It is unfolding as we anticipated. Over the past several quarters, we indicated that consumers would be under more stress overall. This has resulted in a shift to low single-digit growth, specifically around zero percent to 1%, which is exactly what we observed in Q1, aligning with our expectations. While some categories performed slightly better or worse, we averaged it out correctly. We continue to notice consumers demonstrating value-seeking behavior; they are looking for ways to stretch their budgets, often opting for larger or smaller package sizes to minimize their out-of-pocket expenses, and actively seeking promotions. The promotional strategies we implemented have effectively returned to pre-COVID levels, yielding positive results with consumers. Retailers are currently competing for shoppers' wallets, employing various tactics that are typical across different channels. We are observing a trend toward more value-oriented channels among consumers, which is ongoing and aligns with our expectations for the remainder of the year. Historically, these cycles last between 12 to 18 months, and based on that, we anticipate a similar timeframe moving forward. Nevertheless, the overall environment remains uncertain, particularly in the U.S., in the upcoming months. However, the good news is that the consumer landscape in Q1 has matched our expectations. Additionally, I want to emphasize that we are not witnessing a shift towards private label products within our categories. This quarter, private label shares have decreased compared to pre-cyber levels in all our categories except for wipes and salad dressing, and we are even gaining share in those categories. The growth of private label brands is primarily at the expense of competitors. We feel confident that our brands remain resilient; the value we provide, together with increased advertising, sales promotions, and trade promotions, is effective, and we plan to continue executing our strategy with the goal of increasing our market share in this environment.

And then, Andrea, on your questions on gross margin, maybe I’ll start with the commodity view. And you’ll recall when we came into the start of this year back in August, our expectation was we’re operating at a fairly normalized level of cost inflation across the supply chain. We said about $75 million. And our view is that would be split fairly equally between commodities and inflation across the rest of the supply chain. We have made a fairly modest update for this outlook. I’d say in commodities now, we think it’s going to be just slightly better, still inflationary, but just a little bit less in place than we anticipated. So it won’t have much meaningful impact on our full-year expectations based on the update we’ve made. And then I’m phasing on gross margins. Our margins are actually in Q1. We delivered about 46%. I do expect our margins to be down in Q2 because of deleveraging, and we said we’d be down less than 100 basis points. So that’ll probably put gross margins somewhere around that 43% range. And then the back half, well, we don’t break it out by quarter. I continue to believe the back half will be sort of at that run rate, exit rate, somewhere around that 44%, 44.5%, kind of in line with the full-year estimate.

Perfect. Thank you very much. I’ll pass it on.

Hi. Good afternoon. Thanks so much for the question. I just wanted to ask in light of your full-year guidance and expectations on the consumer environment with the increased promotional spending, how should we think about pricing in order to drive volume growth as we move through the year? And also on advertising, you spent over 12% of sales in the U.S. retail business and is that a dynamic you expect to continue? Thanks.

Hi, Anna. As it relates to pricing in particular, in the U.S., we have very little pricing outside of net revenue management and that really is what you’ll see for the remainder of the year as well. We expect that program to continue to build, delivering value in fiscal year 2025, but building in fiscal year 2026 and beyond as we put that program in place. So this really is volume-based growth that we’re seeing as we’ve lapped those price increases. The other dynamic that we’ve talked about that is a hit-to-price mix, of course, is trade promo, and we are seeing that play out. That impacted Q1, but was offset, of course, by some other factors on segment mix. But we would expect that to continue into Q2 and with less of a dynamic happening in the back half given the fact that that increased promotion started in Q3 of last year as we fully restored distribution. So this really will be about volume-based growth through innovation, through demand spending, through ensuring that we have the right value at the shelf for the consumer, and we continue to expect that our trade promotion expectations being around pre-COVID levels are about right. When it comes to advertising and sales promotion, we say about 11%, 11.5% at the aggregate level. We typically spend more in the U.S. than we do in International, so I would expect to see that dynamic continue to play out in the quarters to come. And of course, that varies by business depending on what’s effective for each one of the business units and what we have going on in the quarter, whether that be innovation or a particular merchandising pulse period that matters for that business. But you would expect to see the U.S. run ahead of International as we move forward.

Okay. Thank you so much.

Thanks, Anna.

All right. Thank you. Hi, everyone. I had a quick follow-up question on Litter. Linda, you mentioned you’re promoting quite heavily, so I guess I’d love to hear if you believe you’re getting the appropriate lift on your promotional spend, and if not, do you have plans to modify your strategy in any way going forward? And then, I guess, how concerned are you overall that, you might be in a prisoner’s dilemma right now in this category considering the elevated promo spend by everyone?

Hi, Bonnie. Yeah. On Litter, this is a case where consumer behavior is a little bit different. We’ve talked about in the past when you have a cat using Litter for a number of consumers, that’s hard to change them. And so there’s a bit more thinking about what we need to use the levers that we have in our toolbox, including trade promotion, to ensure that we remind them of why they love Fresh Step and that we were sorry to disappoint them while we were out of stock, but it’s time to bring their cat back to the Litter they love. And so we think this is smart promotion. What we’re not doing is anything that is incredibly deep discounting or outside of what we would think is right for our brand value. And as long as we don’t do that, we’re not communicating anything to the consumer that changes the value of our products, et cetera. So I feel very good that this is strategic promotion, that it’s done in the right way. However, I would expect over time that that promotion will normalize, and we are certainly seeing competitors also promote given what we’ve had in the marketplace. But I think this just category is a little bit unique, and I don’t feel like we’re doing, again, anything outside of what we would normally do to gain share back in a category that way. I think moving forward, the great news about this category, which I think gets to your question on Prisoner’s Dilemma, I don’t feel that at all. This category has natural tailwinds that many categories don’t have. It grows faster than the average given the number of cats that are in the U.S. and in places around the world. In addition, it’s a heavily innovation-driven category. And you can say this category has been reinvented many times by us and our competitors if you look at things like lightweight or different substrates. And so I have no fear that this is turning into that. I think what will get all of us out of this is great innovation, and we certainly are planning that for the back half and well beyond that, and I’m sure we’ll see that from competitors as well.

Okay. That’s helpful. And then if I may, I just also wanted to get your perspective on any channel shifts or growth rates by channels. We’ve heard that some of your peers have seen some weakness like channels, whether it be the consumer or just lower foot traffic. So, as I think about your lapping cyber tech, are there any specific channels that have shown weaker recovery? And I guess how has the performance maybe differed between tracked and untracked channels for you? Thank you.

Sure. So on channel, we are not seeing anything specific to our recovery on cyber that’s driving a change in consumer behavior, but we certainly are seeing a change in consumer behavior that’s expected due to value seeking. So we see consumers moving to more value-oriented channels. We see consumers shopping a bit more on deal and promotion and channels where that’s really important. So a channel like that would be in grocery. And we are seeing consumers as they move to large sizes and small sizes go to channels where they can get those. So obviously for club, that business is very strong because that’s where you can get the largest size and the lowest price per use. So we would expect those dynamics to continue. They typically have in times when the consumer is more value stressed. And we tend to see more stock-up trips, some more fill-ins as consumers are managing their wallet. But there’s nothing unusual in what we’re seeing. It’s about in line with our expectations and nothing related to distribution or merchandising or any of our recovery from cyber.

Okay. Thank you. I’ll pass it on.

Hi. Thanks for the question. I just want to make sure I understand the logic for the gross margin being at 43% for 2Q. I understand the deleveraging compared to last year, but is there something seasonal about gross margin, because if you’re 45.8% in the first quarter and then you dip down to 43% in second, I’d like to know what causes that. I doubt it’s the deleveraging. And then secondly, just on EPS, I mean you’re beating consensus by like $0.50. You’re only raising by about $0.10 or so. So did you beat your internal estimates by this much or by something less than that in the first quarter?

Sure, Robert. I'm glad to address your questions regarding gross margin, particularly in relation to Q2. Our business does have a seasonal aspect. Typically, in a normalized year, Q2 tends to be our weakest gross margin quarter, primarily due to two reasons. First, we are now past the Kingsford charcoal season, which is a profitable segment for us, accounting for about 50% of our sales in Q4 and Q1, while Q2 represents its low season. Second, during this time, our Burt's business is engaged in holiday merchandising, which generally carries lower margins. Historically, this has always resulted in a lower margin quarter, which is consistent this year as well. Additionally, there's the factor of topline decline impacting our margins, as we mentioned, experiencing a double-digit drop. Regarding EPS, while we don't share our internal forecasts, the performance exceeded our expectations. When considering our outlook for the year, we must be cautious since we are only one quarter in. It’s essential not to rush our projections for the full year. This advice is particularly relevant this year as we monitor key areas like the health of the U.S. consumer and the promotional landscape. As Linda mentioned, Q1 performed as we anticipated, but that doesn’t guarantee similar outcomes moving forward. We should also note that some of the stronger Q1 results were influenced by pulling shipments from Q2, which won't affect the full year. Lastly, I believe this situation offers us financial flexibility, which is crucial given the fluctuating macroeconomic environment. Should conditions change, we have the capability to adapt. This confidence allows us to navigate the year effectively. We've made slight adjustments to our full-year expectations, and I'm optimistic that our strategy aligns well with our position at this early stage.

Got it. Thank you.

Thanks, Robert.

Great. Thanks. Good afternoon. Could you talk about your inventory positions at this point, whether at retail or if you have a view on consumer pantries, especially in Trash and Litter, given the level of trade spend in those businesses and how you think about consumption trends once the promo is sort of normalized? And then just one follow-up on gross margin. If you could just talk about how much of the overage was sort of ongoing price pack architecture work you’re doing, other revenue management, digital stuff that you’ve been working on just to kind of think about what sort of the ongoing portion, as opposed to the fixed cost leverage/recovery from cyber portion of the gross margin overage? Thank you.

Hi, Olivia. So on the inventory front, there’s really no major things to call out here. We see pretty much normalized inventory in the retail environment. We’re not seeing anything, where inventories are coming down or going up. We just see the normal things that happen at a retailer quarter end quarter beginning, but nothing material to call out. On the consumer front, I would say much of the same. We tend to watch our shipments and consumption pretty closely to see if there’s any gaps. And at this point, there’s nothing to talk about. The only thing I would call out is in, as we noted in our Professional business, we did see some shifting and cold and flu shipments into Q1 from Q2. But that’s really just about retailers and distributors getting ready for season, and that’s a pretty normal thing and we just anticipated it would be in Q2 and it happened in Q1 instead. But I wouldn’t call it anything material, nor do we have plans for that. And so if there are any adjustments by retailers, et cetera, we don’t have plans for that in our forecast.

And then Olivia, on your gross margin question, I think that the nature of the question is what portion of the strong performance in Q1 is structural. I would certainly point to our cost savings, and I think you can see in our web attachments we deliver about 240 basis points of improvement to gross margin in Q1 from cost savings. We’re on track to have another very good year this year. I think as you know, we target 175 basis points of EBIT margin expansion each year, but because of the very good work by the team over the last couple of years, we’ve delivered over 200 basis points each year, and I believe we’re on track to do that again this year. So certainly the cost savings element will continue. The other item though, we’ve talked a bit about back in August was the benefit of the two recent divestitures. They are both margin dilutive to the company. So by divesting those businesses, they will structurally improve our margins 50 basis points to 70 basis points on average and so we’re starting to see the benefit of that in Q1. Again, we didn’t get the full benefit because we sold the VMS business in the middle of the quarter, but you’ll start to see more of that playing out as we move into Q2 and beyond.

Got it. Thanks. And then just one follow-up, the 20% of the business that’s growing at the mid-single-digit rate, like PPD, what’s driving that? Because if I remember correctly, the comps are particularly demanding. So maybe that’s a piece of it, because I can’t imagine that the demand is really changing all that materially in PPD? Thank you.

We discussed that both PPD and our International business are growing at a mid-single-digit rate, and we are optimistic about their contributions going forward. We have significantly reduced the volatility in our International business and eliminated many of the foreign exchange challenges we faced after our experience in Argentina. This has led to more stability and growth potential in various regions, and we feel even more confident now that we have divested the Argentina operations. Regarding PPD, it experienced fluctuations during COVID, but has since normalized. This normalization is not primarily due to a return of employees to the office, as some might assume; instead, we see tremendous opportunities across our portfolio through innovation and entering new markets. The current industry climate is favorable, with ongoing consolidation in healthcare, allowing us to collaborate with those systems to ensure they have the appropriate cleaning and disinfecting products to safeguard their staff and patients. Therefore, we anticipate continued growth in that segment and are confident that it can achieve above-average growth in the future, as indicated by the positive trends we observed in the first quarter.

And I was just asking about ERP and what you’ve learned so far from Canada and what the timeline looks like for the U.S.

Sure. We briefly discussed last time that we implemented the ERP in Canada at the end of the last fiscal year and the beginning of this fiscal year, and it went very well. The team prepared extensively as our lead market to ensure that the execution went smoothly, which it did. We didn’t have any customers experience significant disruptions, and many of them noted they didn’t even really remember it was happening, which is exactly what you want during an ERP transition. That said, the U.S. business will be next, and it is much more complex with many more shipping points and businesses. The team is taking the lessons learned from the Canadian implementation and is currently building our implementation plan for the U.S. We expect that to begin at the end of this fiscal year. We are still working through the exact timing and how we will phase it, as it won’t all happen at once. We will provide more details about this and any potential impacts during our Q2 earnings release, but we feel very confident about what we accomplished in Canada, which gives us a lot of confidence heading into the complex U.S. implementation.

Okay. Great. And then on Litter, as you’re thinking about how to get the consumer to come back, promos is a piece of it, but I suppose marketing is also quite a large piece of it. So can we just talk about what specifically you’re doing to try to get that consumer to switch back to where they were or maybe even bring in new consumers?

Yes. Absolutely. You’re right that trade promotion is only a part of what we are doing and clearly reminding people about the benefits of the products that we have and why they’ve always loved or maybe why they should be introduced to your point for the first time to Fresh Step or Scoop Away or any of our other Litter brands is top of mind. And with that, we put new advertising in place in July for our Fresh Step business, which we think is doing pretty well and contributing to the share of results that we saw in Q1. We’re continuing to ensure that we have the right claims and ensure that we have the right price pack architecture and Litter. So we’re taking steps. We’re doing what we can in the short-term, which really is through increased advertising, better advertising messaging, using digital, which can allow us to do kind of claims real time to ensure that we’re communicating with those consumers. And obviously at the subscription level, we can have more of a one-on-one conversation with them and engage with them on reminding them that Fresh Step is the brand that they know and love and that’s worked pretty well. Moving forward as we’re thinking about innovation, we’re looking at all of the levers that you would expect us to pull. What are the next sets of innovation that we can launch that delight them? How can we ensure that we’re communicating superior value overall for our proposition and how they shop for it, the product, the package, the brand communication, and so we are taking under advisement that entire ecosystem right now to say, do we really feel great about the plans that we have in place, and we’ve done a lot to already improve those given what we faced? But I feel good about the plan that we put in place over the last couple of quarters. It’s clearly beginning to work, but more to come as we sequence through the remainder of the year.

Got it. Thank you.

Great. Thanks. You would talk about the sources of surprise in the quarter on topline and that pull-forward and timing on Professional products. But I think in the prepared remarks, you also mentioned International. So I’m curious if you could just elaborate a little bit on kind of what went better than expected on International and that sounded less like it’s timing and more like it’s better trend. So I’d love to hear more about that. Thanks.

Yeah. Overall, International just performed well, and certainly we’re seeing the impacts of removing Argentina. We’re also seeing some strength in pockets around the world, but I would say, International wasn’t wildly outside of our expectations. It was a bit better, and it’s just all things coming together as we put innovation in the market that’s working, our consumer plans are working, and we’re seeing some stability now that we’ve removed the majority of the FX headwinds that we had due to Argentina. But I would just say it’s good execution of the fundamentals. Nothing of major surprise one way or the other, just everything went a little better.

Hi everyone.

Hi, Chris.

So I have a question about pricing in the quarter and into really, I guess, the back half of the year. So if I look at the segment disclosures, pricing’s flat and Health and Wellness price mix that is down 5 and Household down 8 and Lifestyle. And yet in a prepared remarks it’s plus 1. There’s like a positive pricing dynamic and International, which I don’t think I fully understand. Given the 11% organic is driven by 11% volume growth. So I don’t know if you can maybe just help me bridge that gap and really what I’m trying to understand is if the underlying U.S. business is kind of running price mix down low single digits right now. Is that the expectation for the U.S. business going into the back half of the year? I guess, I’m trying to understand if the volume is going to be over and above that to get to this 3 to 5 or if I’m just misunderstanding something, I fully realize it kind of a tactical on Litter and you were probably quite tactical on promotional activity to recapture sales growth in Q1. But I am just, so anyway, I am trying to close the logic gap on the couple of these things. Any perspective would help?

Certainly, Chris. This is Kevin. I can definitely address that. I agree it's somewhat difficult to assess performance right now due to the cyber comparison. Let me break down what’s happening with the cyber event versus the core business. Last year in Q1, we experienced a significant favorable price mix, and what you're seeing now is mostly that reversing. This is primarily due to the cyber event. For instance, in our Lifestyle segment last year, we had around 9 points of favorable price mix. This occurred because, in Lifestyle, our Brita, Food, and Burt’s Bees businesses showed different trends; Burt’s Bees declined more sharply than the others. This category operates with less than full truckload shipments, which were more negatively impacted by the cyber event, leading to lower revenue per case. So last year, it appeared that we had a good price mix because we sold much less Burt’s compared to the other businesses, but this year that reverses, as our Burt’s business grew nearly twice as fast as Food and Beverage, returning to more normal levels. This effect is mainly attributed to the cyber event. In terms of pricing dynamics, if we look at what’s structurally independent of the cyber event, we had about 1 point of negative trade spending, aligning with our earlier discussions about moving back to a more traditional promotional setting. We anticipated an increase in trade spending as we were comparing against the impact of the cyber event. This negative trade spending was balanced out by 2 points of favorable mix, particularly in our U.S. cleaning business as Linda mentioned, where we saw beneficial changes at the SKU level. This contributed to the quarter's performance and helped us exceed expectations in Q1. So, to sum up, it's important to filter out much of the noise and focus on the fundamental factors driving the ongoing business. Let me pause here and see if this answers your question.

As we move into the latter half of the year, the current situation will start to improve. I'm still a bit puzzled, and I can discuss this further outside of this forum. You reported an 11% organic sales growth in International, primarily due to 11 points of volume. I'm curious about the 4% price mix that seems to be counterbalancing that. I know this is more of a modeling question, and I'm open to taking it offline.

Yeah.

But if there’s any context there, that would be...

Yeah. I’ll give you the quick answer and then you can follow up at least, but that’s the structural benefit of that divestiture, the Argentina business. It shows up in mix now. And after a year, that’ll just be part of the base business, but it shows up in mix when you, the first year, you don’t have that lower revenue per case business in your portfolio. And then in terms of the phasing, as we said, we expect trade to be unfavorable in the front half of the year because we’re lapping on an unusually low level promotion last year during cyber. And we were back to a normalized level promotional activity in the back half of last year. So when you get to the back half, we don’t expect to see negative trade spending. That’s really a front half issue as we’re lapping cyber.

It’s really helpful. Thanks for explaining that, Kevin. Thanks a lot.

Yeah. You bet. But if I didn’t get you all the way there, feel free to follow up with Lisah afterwards.

Hi, good afternoon, everyone. Can you remind us of the underlying category growth you are assuming, which corresponds to the 3% to 5% organic sales growth you are targeting for 2025? I also have a follow-up question.

Sure, Javier. We had said that was low-single digits. So we said zero percent to 1% and we were within that range for Q1.

And if we both used our Canada data, you would see there was a spike in October, which seemed to coincide with the hurricanes down in the Southeast. So when you mentioned that your quarter exceeded expectations and was strong, is there any chance that you effectively merchandised at that time, leading to a surge of impulse purchases due to the storm, and that your promotional lift was stronger than it otherwise would have been? Is that a possibility or not necessarily a factor?

We’re not seeing that as a factor, Javier. We have pretty good analytics given hurricanes unfortunately happen pretty often nowadays in the U.S. And so we don’t see the hurricane having any meaningful impact in the course of time. It can, if it splits a quarter, but if we don’t see that at this point, we don’t see significant pantry loading and we don’t see any impact as we think about the Q1 versus Q2 dynamic. What I would note is, I would also be very careful looking at short time periods, looking at anything in October. We have merchandising, there’s different timing shifts, there’s different laps and so we try to take a little bit of a longer view, but we still feel very comfortable that the zero percent to 1% range is right for the year. Again though, we’ll watch the consumer, we’ll watch the pricing dynamic in the U.S. to see if there’s any adjustments we need to make or if there’s any changes there. But for now we still see zero percent to 1% is the right range.

So by the high level, then Linda, you basically said that again, the business is strong above expectations. So if it is not that externality, could you tell me kind of like the one or two things that you believe pan out better than you expected?

If you look at just overall, our portfolio, Health and Wellness came in stronger and that was, we saw very strong share growth in our Home Care and Laundry business. We actually picked up significant share in our Bleach business. PPD came in very strong as you saw, and we talked about, we think there are real tailwinds to that business. So what I would talk about is, the strong demand plans that we have in place, the advertising and trade promotion is working very well. Consumers are coming back to our brands because we’re offering them superior value. It’s really good execution of the fundamentals and that’s what’s delivering the strength. And then, of course, PPD was a bit of a surprise. Some of it great. And overall, we see PPD performing better, but some of it was a shift between Q1 and Q2.

Thank you very much. Two questions, one for each of you, if I could. The first one, Linda, just perspective, as you think about the progress you’re seeing in market, just perspective on the Household penetration metric that you guys track, how that’s progressing, how you think it plays out over the balance of the year. And then perhaps related Kevin for you is the 3% to 5% growth that you referenced in a roundabout in the second half, I guess, can you talk a little bit about how you think that compares to consumption? Is it in line or do you think that you’ll be continuing to gain points of distribution or ship ahead of SAP with any materiality as you exit the year, just trying to frame that 3% to 5% relative to what your expectations are on consumption? Thank you.

Sure, Steve. Starting with Household penetration, that is something that we monitor closely, and obviously it’s a metric that we look at over the long-term to say, are the health of our businesses on track? Are we bringing new consumers in and are we retaining them? We certainly expected a trade-off when we took four rounds of pricing in Household penetration and we saw that, but it wasn’t unique to us. It was true for our categories. We had consumers change behavior as they reacted to pricing, but the good news is as we expected, we’re starting to see that trend reverse and that showing up in the volume-based growth that we’re experiencing right now. And we would expect over time as we bring consumers new innovation, as we continue to invest strongly in advertising and sales promotion, that will bring those consumers back in and Household penetration will begin to grow again, and that’s what we’re focused on. But we would expect to be at about this point. Then you throw in the noise of a cyber-disruption where we were out of stock for a period of time, and that puts some noise in the data as well. But I would say the fact that it has turned and we’ve reversed that trend is the right place to be, and we’re focused on growing it from here and doing all the things that we know how to do with a focus on if we have superior value experiences for people, that’s how we grow Household penetration. We want to grow categories and we want to grow share within those categories. So I’d say on track, but more work to do and I think that’s what we’re all focused on from a category perspective. During a time when the consumer is seeking value, we’re focusing more on things like trade promotion and other things than we would normally do. But we’re also ensuring that we’re doing the good long-term things that bring consumers into categories and retain them.

Steve mentioned that the growth rate of 3% to 5% is aligned with our algorithm, which we believe corresponds with consumption levels. We are not expecting to ship more than what consumers are using. We haven't accounted for any impacts from SAP, as you pointed out. As Linda indicated, we will reassess in February and make any necessary adjustments regarding SAP's impact. Overall, this discussion relates to the key elements we've outlined: modest category growth in the United States, strong performance in parts of our portfolio outside the U.S., including Clorox Professional and International, as well as the advantages gained from the divestiture of two businesses. These factors form our expectations and align with consumption patterns.

Good afternoon. I apologize for the interruption earlier. Thank you for addressing my question. I'll keep it brief since we've discussed a lot already. With the election next week, could you remind us what part of the business might be at risk if broader tariffs were reinstated? Specifically, I would like to know about sourcing from outside the U.S.

Sure. Kevin, I won’t go into too many specifics, but we’ve done extensive work in response to the supply chain disruptions we experienced a few years ago. Many companies, including Clorox, realized our vulnerability was greater than we thought. We have focused on near-shoring and on-shoring production to bring it closer to our consumers. Over the past several years, we have increased Wipes capacity in the U.S. and established contract manufacturers in Europe and Asia for those markets. This work has helped us reduce the risks associated with long supply chains, which benefits us. We maintain a wide network of suppliers and our team is very focused on ensuring product access and effective management. At this point, we don’t foresee any major disruptions to our business. There are many discussions ongoing, but I don’t want to speculate on potential outcomes until we see how things develop with any legislation. Right now, we’re closely monitoring the situation and preparing for any possible scenarios, but we haven’t factored this specifically into our outlook.

Totally fair. Just to box it in maybe a little bit more understanding. We’re in a realm of a lot of, I’m going to ask you an uncertain question on top of an uncertain outcome, but what portion of the company’s cost of goods are currently sourced from outside the U.S. let me ask it that way.

We don’t break that out to you. So that our Kevin, that’s not something we provided publicly. We have a broad network of suppliers all over the world, but we don’t break out how much comes from outside the U.S. versus inside the U.S.

Okay. Very good. All right. Thank you. Congrats on the quarter.

Yeah. Thanks Kevin.

Thanks, Jen. As we close today’s call, I want to stress three areas. First, we have made strong progress against our commitments. Second, our brands are strong and we continue to invest in them to deliver superior experiences for consumers. And finally, our team is taking the right steps to accelerate growth and transform for the future. We’re building a stronger company, poised to deliver more consistent profitable growth and enhance long-term shareholder value. Thank you for your time and for your questions. We look forward to updating you on our continued progress in February.