Clorox Company (CLX) — Q3 2025 Earnings Call Transcript

Thank you, Paul. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO, and Luc Bellet, our CFO. I hope everyone has had a chance to read our earnings release and prepared remarks, both of which are 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 year 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 such forward-looking statements, which has been filed with the SEC. Additionally, please refer to the non-GAAP financial information section in our earnings release and supplemental financial schedules 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.

Thank you for joining us today. I'd like to welcome Luc to his first call as CFO. Looking back to the start of the fiscal year, we expected a tougher consumer environment with increased competition and slower category growth. For the first half of the year and the first half of the third quarter, we saw just that. During the second half of the third quarter, however, U.S. consumer sentiment weakened substantially, and macroeconomic and geopolitical uncertainties drove changes in shopping behaviors, resulting in temporary category impact and lower-than-expected sales. Despite these headwinds, our fundamentals remained strong. We held overall market shares and delivered our 10th consecutive quarter of gross margin expansion, which enables us to keep reinvesting in our brands, our innovation pipeline, and the transformation of our business. As we look ahead, we anticipate consumers and retailers will remain under pressure, which is reflected in our updated outlook. That said, we are confident in our portfolio of trusted brands and the essential role they play in consumers' daily lives. Our proven resilience and execution equip us to navigate the uncertainties ahead. For this year, that means we continue to expect to deliver organic sales growth and another year of strong earnings growth while continuing to progress our long-term strategy. With that, Luke and I will take your questions.

Go ahead, Dara.

I'd love to hear your perspective on what's driving the category weakness we're seeing. Traditionally, your categories have been pretty defensive and resilient. Obviously, you mentioned the weakness in the back half of the quarter with the macro uncertainty, but the reality is the broader market concerns ramped up more in April than the weakness we've seen in household products categories beginning in February. So, just a bit of additional perspective would be helpful on the category weakness we're seeing, how long you think this sustains, and maybe difference versus what we've seen in past cycles.

Sure, I'll get us started. Thanks for the question. To provide some context, we’ve been operating for 112 years and have experienced various economic conditions, including inflation and recession, particularly in recent years with COVID. Our categories tend to be quite resilient during these times, as we focus on household essentials. Generally, we see our categories fluctuate from low single-digit positive growth at their peak to low single-digit declines at their lowest. In this recent period, we experienced an average low single-digit decline, which I’ll break down further, starting with Q3 and then looking ahead to Q4 in April. From Q3 to mid-February, our performance aligned with expectations. For fiscal year ‘25, we anticipated a tougher environment for consumers, with category growth expected to decrease from around 2% to 2.5% down to about 1%, which is what we observed in the first half of the year. However, uncertainties related to macroeconomic policies, especially regarding tariffs, began to alter this situation around mid-February. Initially, we noted shifts in consumer behavior, with individuals prioritizing food purchases more and altering their shopping baskets. As tariffs were introduced, we observed a broader shift in consumer spending beyond our product categories, including increased purchases of automobiles and electronics. This shift resulted in a conservative approach by consumers in many of our categories, which led to flat to low declines, creating volatility between mid-February and the end of the quarter. We see consumers reacting to the rapidly changing news, reflecting their need to balance their overall shopping baskets while ensuring they have their essentials at home. A key reason for our optimism is that we haven't seen consumers significantly alter their behavior regarding our categories. We're not witnessing a substantial shift towards private label alternatives, nor are we seeing a decline in participation in our categories. Instead, consumers are opting to buy smaller or larger sizes and are making an effort to use every last item they have at home while prioritizing essential purchases amidst the current environment. Looking ahead to Q4, April mirrored the latter part of Q3 with categories fluctuating from flat to down by as much as two and a half percent, remaining quite volatile. For the quarter, we expect categories could decline low single digits based on current trends, which we have factored into our outlook. A significant question is the duration of this trend, which is hard to predict due to the uncertainty surrounding tariffs and the geopolitical climate. Nonetheless, we believe our categories maintain resilience, and consumer behavior remains largely stable. While consumers are currently being cautious with their spending, we are monitoring any potential behavioral changes closely, especially concerning private label and channel shifts. We're also attentive to when consumers might feel more secure in navigating upcoming challenges, which could lead to a return to the low single-digit growth we typically expect. Although the timing of this is uncertain, we are confident in our ability to adapt until that point.

Great. Thanks.

Hey, good afternoon, everyone. I wanted to just expand on Dara's question a little bit longer term, Linda. Obviously, you have a 3% to 5% long-term algorithm on organic sales which assumes a healthier level of category growth. So assuming the categories remain relatively softer, how should we think about your underlying opportunity from an organic sales standpoint if we think about exiting fiscal ‘25 and into ‘26? Thank you.

Thanks, Filippo. Obviously, we're not setting guidance for fiscal year ‘26 or beyond now, but I'll just make some overall comments. The first would be you're absolutely right that our 3% to 5% growth algorithm is predicated on having category growth back to what we would normally expect it to be around 2%, 2.5%. And we don't have visibility to that category growth at this moment, but again, would expect based on the consumer fundamentals over time that will come back. In the meantime, we would expect our category growth to be suppressed given the fact that our categories are down. So our growth will be reflecting in that. When we talk about fiscal year ‘26, we'll talk about what we expect. Again, not setting that right now, but certainly for Q4, you're seeing muted growth, and you see that in the remainder of our outlook for Q4 given what we're seeing in the categories.

Great. That's helpful. And maybe one for Luc. In your guidance, you mentioned the impact of tariff on the gross margin on that basis, but can you give us a sense of, like, what the gross impact from tariff that you're expecting and your plan to mitigate that impact? Thank you.

Thank you, Filippo. To provide some context, our exposure to tariffs is quite limited because we manufacture close to where we sell our products. However, we do anticipate an unmitigated impact from tariffs of about $100 million on a 12-month run rate. It is important to note that we expect to see less than our fair share of this in Q4, estimating around $10 million to $20 million. This is due to our current inventory levels, and it will take some time for the tariffs to affect our profit and loss statement. While this impact is significant, we believe it is manageable and that we can offset it over time. We have already begun exploring various mitigation strategies, including changing our sourcing, adjusting our supply chains, considering product reformulations, and strategic pricing adjustments. While we do not foresee broad price increases, we are looking into more targeted, modest price increases compared to what we have implemented in recent years.

Great. Thank you so much, Luc.

Thanks, operator, and welcome, Luc. I wanted to ask a little bit on gross margin guidance, just in the context of the fourth quarter, just the year-to-date performance applies a really kind of tough exit rate. And look, I know the guidance always included that assumption, but I'm curious if the drivers have changed. And I guess what I'm trying to get at is there anything that we need to kind of take away from the implied 4Q pressure that we kind of need to take into account as we think about fiscal ‘26? I know we just touched on tariffs in your response to Filippo's question. If you aren't giving guidance on ‘26 right now, I totally get that, but is there anything else that's really changed as we think about kind of the puts and takes for gross margin in the fourth quarter?

Thanks, Peter. Yeah, I would say if you look at our gross margin for the fourth quarter, let's say, it's about 44%, so it's fairly close to the average for the full year, which is going to be about 44.5%. The other thing I mentioned is a lot of our assumptions remain consistent with our prior outlook. There's a few changes, and let me walk you through them. First, we had some timing that was favorable in Q3 and unfavorable in Q4, and this has to do with some manufacturing expenses that were shifted from one quarter to the other. So that's about 1 point that's favorable in Q3 and 1 point that's unfavorable in Q4. The second thing I would say is generally over both Q3 and Q4, our cost savings are coming a little stronger, as well as some other expenses coming slightly more favorable. So that adds up a little bit. And then, of course, there's the impact of tariffs in Q4, I just mentioned it's going to be about $10 million to $20 million. So a few put and takes, but all in all, we expect gross margin in Q4 to be about 44 basis points, very much aligned with what we're seeing for the year, and that gives you a good sense of what kind of exit gross margin coming into next year.

That's really helpful, Luc. I wanted to ask about the retail destocking that you mentioned in the prepared remarks at the end of the quarter. Can you give us some insight into how much of an impact that had? Has that continued at all, or is it factored into the fourth quarter sales guidance?

Sure, Peter. For Q3 that happened very late in the quarter, and what we're seeing from retailers, generally is not broad inventory retail destocking. This was limited to our household business and came late in the quarter based on some things that they were doing to adjust to the ever-changing environment. We do expect some impact in Q4. I'll have Luc walk through the impacts for both quarters. As we look at this and as we understand retailers' plans, I think it's just helpful perspective. We don't view this as a strategic issue. We're not seeing any consumer out-of-stocks at shelf that's putting any of our category at risk. This really is retailers doing everything possible to manage their complex supply chains given the changing environment. And I'll pass it over to Luc, to talk about just how it impacted Q3 and how we're thinking about Q4.

Yeah, certainly. So as you look in Q3, this was fairly modest. It was big when you look at the household segment, but when you look at total company, it was less than a point. And we expect most of the impact to actually come in Q4. So it's hard to just put specific numbers because there's a lot of volatility in Q4, but that's embedded in our outlook range.

Great, thanks so much. I'll pass it on.

Hi, good afternoon. Thank you so much for the question. I wanted to ask on the promotional activity that you mentioned in the prepared remarks as being largely normalized at this point, but it does appear you still have some promo activity in certain categories, like Glad maybe, where promo activity might not be as productive at this point. So I was wondering if you could talk a bit about promotional activity by category. And then secondly, on the introduction of innovation, just wondering how you're squaring the introduction of more premium products with a weaker consumer sentiment and a greater need for product investment here. Thank you.

Sure. So on promotion, we are seeing at the aggregate level, promotion normalized and about what our expectation was. And so that's going back to levels that we saw pre-COVID, and that continues to be true. But we absolutely are seeing by category nuances and differences. Some categories promotion is slightly lower than that. Some categories promotion is higher. You called out Glad, and that is one of the categories where we're seeing higher promotion. And we're seeing from competition some fairly deep discounting going on, on different sizes at some large retailers. And we've seen that behavior since our second quarter and we're seeing that persist through the third quarter and into the fourth quarter. So definitely, competition looking for share of wallet in that category. We've responded, but we're also trying to be very rational. We’ve grown these categories by doing deep discounting and promotion. We use that strategically to remind consumers to buy, to grow market baskets, to be in promotional activities with retailers at times that are important to them. So we're trying to be disciplined on this, but we're watching it really closely and ensuring that we have the right value at shelf. And that leads to your next question on innovation. And what we're seeing is consumers are absolutely willing to pay a premium for innovation that delivers them superior value and a better experience. We're seeing many of our innovations. Scentiva is a great example. That's a premium that's doing very well, as well as the recent launches in ToiletWand, it's a premium. We're seeing our premium cat litter executions doing very well in the market. Our premium Burt's Bees, Hidden Valley launches all doing well. And at the same time, we're seeing consumers that are also looking for value in different ways, whether that be pack sizes. And we offer pack sizes that address all of those needs. Whether they be low out-of-pocket opening price points or very large sizes to get the very best value per use or per ounce. And we're seeing consumers go there, and we feel good about the mix that we have across the retailers. And of course, we're broadly assorted in all the retailers where consumers shop. So we feel good about our ability to continue to innovate, innovate in premium segments. And it'll also be very important for us to continue and ensure that we have the right promotions in place, again, at the levels that we expect that are normalized. We don't see that environment changing in any meaningful way at the moment outside of the small category examples that I called out. And then continuing to ensure that we have the right price value as we do that limited strategic pricing that Luc talked about in response to tariffs. But overall, I would say our value continues to be strong with consumers. If you look at the consumer value measure that we have, we're still significantly up than we were at the beginning of the strategy period and pre-COVID. Actually, household penetration is up for us last 52 weeks. Clorox is a brand that's up significantly over two points of household penetration in the last 52 weeks. And as you know, our Clorox portfolio is very premium in the category. So feeling good about our ability to deliver on that core value equation that we have, which is more premium products and premium experiences and consumers continue to be willing to pay for them.

Okay, that's super helpful. Thanks so much.

Thanks, Anna. Our next question comes from Bonnie Herzog of Goldman Sachs.

All right, thank you. Hi, I was hoping you could provide an update on your upcoming ERP transition. And how does the current demand backdrop impact your shipments and then the inventory build-out? I guess I'm trying to understand why you're now expecting a greater lift on organic sales from the transition in Q4 than you previously thought. What visibility do you have on this? Also, curious if you expect the unwind to be evenly split in Q1 and Q2 next year, possibly a greater impact in Q1.

Sure, Bonnie. I'll start, and then I'll pass it over to Luc about the impacts and how we're thinking about playing out over the couple of quarters. Firstly from an ERP perspective, we remain on track to our execution to make the vision coming up here at the beginning of next fiscal year. We are working really closely with retailers right now on the plans, and our team feels prepared and ready to go. And as you know, we had a successful transition on our ERP in Canada last year as well as the successful transition in our financial planning tools. So feel good about coming up on this transition and anxious to get the capabilities that this will unlock for the company. As it relates to the demand, this was something we gave an outlook to last quarter but knew that this would be refined as we worked with retailers on their specific plans. And that's what you're seeing in the new outlook is that refinement as retailers have come back and given us a better idea of what they will take from an inventory perspective. Before I pass it to Luc, I'll just say one more thing, which is to the degree that the environment is volatile is just how we're thinking about this and how retailers are putting us in perspective. They have given a very clear idea of what they're going to take. But I would say we have a wide range in our outlook, and these results could vary a bit given the fact that they are adjusting their inventories real-time. This is what they want to have in stock to ensure that our categories remain in stock. They have a lot of history of doing these. But as you can imagine, this is an interesting time to be doing this given what's going on. But we feel pretty good about these estimates given retailers have worked at a very detailed level with what they need by category. With that, I'll hand it over to Luc.

Thank you, Linda. The plan is proceeding as anticipated. We are receiving final confirmations from most of our retailers now. As Linda mentioned, there may be some variability in the numbers. Overall, we expect retailers to build one and a half weeks of inventory as they prepare for the new system to avoid any potential out-of-stock issues. Looking at the range, one or two days of inventory could translate to one or two points of growth in the quarter, which explains the wide range in our outlook. Regarding the reversal, the impact on the profit and loss statement and the balance sheet will primarily reverse in the first half of next year, with most of it happening in the first quarter.

Okay. Thanks. I guess just, Linda, what you were mentioning earlier, I guess that's why I'm a little surprised given the slowing demand backdrop that we now want to buy more. And then maybe just a quick follow-up question related to this. What should we expect in terms of short- and long-term margin impact as a result of your ERP transition? I can't recall if you ever quantify that for us, but I know it's a positive. Thank you.

This is a significant transition for retailers as they want to ensure that we meet our shared objective of having no impact on their shoppers and our consumers. It's crucial for them to have backup inventory in place, similar to our own planned backup inventory, especially during uncertain times. They want to manage their base inventory without risking any disruptions caused by the current environment. The volatility we're discussing relates to how they are handling this alongside their base inventory, which has a wide range of fluctuations. Both they and we believe it's essential to maintain excess inventory throughout the supply chain to address any minor disruptions. They remain committed to this strategy, as do we. Regarding margins, we've developed a comprehensive margin management program to restore margins to pre-COVID levels, achieving this from a gross margin standpoint. Our long-term outlook remains strong, supporting our goal of achieving an annual EBIT margin increase of 25 to 50 basis points. The ERP and the technologies we're implementing not only assist in our growth but also enhance our efficiency, reinforcing our confidence in continuing our margin expansion strategy in this unpredictable and volatile environment.

All right. Thank you so much.

Thanks, Bonnie.

Hey, I actually had two questions. One was if you could provide a broader perspective on what you think will be included in the tariff impact. Will it encompass finished goods, packaging, or exports to Canada in that estimate? And then a quick follow-up.

Most of the cost impact comes from packaging and the supply of finished goods. We also mentioned inventories, with some imports from Canada, Mexico, and the U.S., which are relatively small. The amount we shared is around single digits of our total cost. We do have some exports to Canada as well, but again, it's a fairly small portion of the total product supplied in the country. That summarizes our exposure.

Okay. And then the follow-up, I think you're the first CPG company I've heard who's talked about the pull forward of spending on electronics, automobiles. I totally get it, but do you have any evidence that that impacts grocery basket, like purchases of staples? Do you think there's money that comes out of one and goes into the other?

I think it's safe to assume that consumers have one wallet at the end of the day, and they're making distributive choices on that wallet. And what we're watching carefully is that wallet and what's happening. And certainly, the evidence would point to the fact that they are spending more in certain categories being broadly across industries well beyond ours. And then correspondingly, at the same time, we're seeing what we're seeing in our categories. I think the piece that cements it for us is the fact that we're not seeing at-home consumer behaviors change yet. So that really points to the fact that they're changing the shape of their wallet and spending versus changing their behaviors and deprioritizing different categories. But at the end of the day, they have a limited amount of money, and they have to distribute that based on their choices. And I think certainly, they're reacting to an environment where they're not exactly sure what things are going to cost coming up in the future. And they're thinking about the big purchases, and they're terming in others. And anecdotally, we've talked to consumers, and they have said just that. That's exactly what they're trying to do was manage their overall wallet. Can we provide a one-to-one call relationship? No. It would be too early to do that and difficult. But certainly, all of the evidence points to the fact that consumers are adjusting their spending, and that's the reason why our categories are being impacted.

Got it. Thank you.

Hey, everybody. I guess still digging into this consumer slowdown, which obviously you guys are not alone. But when I look between divisions, I see that how much more it seemed to impact households than some of the other divisions, which to me, I would have guessed this a division that would be a little bit more resilient, particularly so many sort of at-home categories in there. So a couple of follow-ups on that, which is do you feel like maybe there's excess inventory within the consumer's pantry? Obviously, you talked about retail. And then second, what is it about those particular brands or categories that were letting them being impacted a lot more?

Yeah. Kaumil, this one, I think, requires us to get into retail sales versus our sales. And that's where you're going to see a lot of the difference in what went on with household. So if you look at retail sales, those categories generally looked like the categories did for the rest of our portfolio. And frankly, looked well beyond what would you see in scanners. So we certainly saw that in international, we saw that in professional. All of our categories impacted given what is going on. For household as it relates to why sales were down, there's a few things going on. One, we talked to the inventory that Luc called out that the adjustments happened all in household for us. And that is impacting our sales, but not necessarily consumer takeaway or retail sales because, certainly, we were in stock in those moments. We saw some timing and weather issues, Easter's later. We had weather issues impacting Kingsford, even though we grew share there. And then Litter, we had a promotion last year that we didn't lap this year, and so there was a timing issue. But what I would say generally those categories don't look any different than our other categories do. It just number of factors impacted our sales and household this quarter. And then Luc talked about the fact there'll be some impact in Q4 as that inventory correction continues to happen, but we would largely expect those things to normalize once you kind of take a step back and just don't look at the quarterly to quarterly impact, but over time. The one place that we would say is being hit harder right now is Glad given the promotional environment. That was less about consumers adjusting their behavior given what's going on in the atmosphere and more around competitive activity, but that's no different than what we've seen in Glad over time. And so we feel decent that there's not a category that is having a widely different impact than another. On the positive, what I would call out is a good example of Cleaning. And that's a place where we grew share significantly. The category was down, but not as much as some of the other categories were. And you can see the performance on our sales were very strong as well as all the other line items from a margin and EBIT perspective. So again, the impact varied across all of our categories to some degree, but the difference in what you're seeing in our sales number and retail sales would say that some of this, again, is timing and just impacts of lapping versus anything structurally different in our businesses.

Okay, got it. Thank you.

I would like to go back into your guidance for fiscal '25. Organic sales is two if you exclude the ERP transition. And since you just point that Q4 organic sales, you are guiding to minus 4 around. Is that correct? And why is it that such a loss given the easy comp from a year ago?

Thank you for the question, Javier. Let me break this down regarding Q4. Our organic growth is projected at 4% to 5%, which translates to an expected Q4 organic growth of 4% to 8%. We've previously mentioned that the impact of ERP transitions accounts for 2% to 3% for the entire year, leading to an estimated 7% to 11% for Q4 since our Q4 usually sees higher sales than other quarters. After accounting for that, we anticipate Q4 organic sales growth, excluding the ERP impact, to be around negative 3%. This aligns closely with the figure you mentioned. It's important to note that there are variations to consider, as we've discussed. If we look at that negative 3% projection, it's influenced by two factors: the assumption that the recent consumption slowdown continues into Q4 and ongoing headwinds from retailer inventory reductions that began in Q3 and are expected to carry on into Q4.

Thank you. And a follow-up to Linda. And it's kind of like digging a little bit into the household sector that was weak, and I appreciate the Kingsford piece. You also, I believe, advance a little bit of shipments in the second quarter. But the other two big businesses there are Glad and Cat Litter, and what they have in common is that you have very strong value players. So if you could talk about the traction from your innovation in these two categories, retail reception and consumer reception. And to what extent what gives you confidence that you do not have a pricing issue, a structural pricing issue beyond promotions given that you have value players with very strong business propositions in these categories? Thank you.

Sure. I'll take them in turn, Javier. Glad and Litter are two different sets of circumstances. Although as you know, good tough competition for those categories. So Glad is, as we've noted, we're seeing increased competitive activity from the other branded player in the category. Repricing starting back in Q2, which looked like temporary prices, although those have not rolled off yet. And they're focusing on those on some of the larger value sizes. And in some cases, that's putting them below private label pricing, which we view as not sustainable over the long term. We're watching it really closely. But if you look at that category, even with that, it held up pretty well. That was one that was down a little bit less than some of our other categories were. And so we see actually fairly resilient given what's going on with the consumer. They're not generating less trash to have to get rid of trash. So we're looking at that as one that will, over time, more normalize. We've seen that in Glad for many, many years. Our innovation is doing very well in that category. At CAGNY, you might recall, Javier, we spoke about our Bahama Bliss launch in our ForceFlex business, which is doing very well. We're expanding Bahama Bliss right now in different retailers. And we continue to see people willing to pay that premium for a better trash bag experience, whether that be a delightful color, great scent. And we're making sure that, of course, we have the right value equation across that more premium line as well as our more base cash bag line as well. But we view this as just higher competitive activity in Glad, given what's going on in the category and with consumers. But nothing that makes us worried that our proposition around a premium trash bag won't continue to be successful in the future. And we're going to continue to spend advertising sales innovation dollars and continue that we have the right mix across retailers, et cetera. The one thing that we are very concentrated on is this is a place where we're seeing channel shift happen quite a bit, and people are moving to club and online, et cetera. We have distribution wherever consumers shop, but that's something that we're making sure that we even sharpen that value proposition by retailer to ensure that we are capturing that channel shift now and into the future. And then for Litter, there's a number of brands in the Cat Litter category, and we play into. We play in the premium segment. And then we have a smaller business in Scoop Away that plays in more of a mid-tier proposition. And we feel good about our ability to compete here. This is a place where innovation across our competitive set, and our innovation does very well. There's a number of unmet needs in the Cat Litter category, whether that be odor control, lack of tracking around the house when cat litter gets stuck on cats' paws, clumping, et cetera. And we've launched a litter that has the strongest odor control claim on the market today that's doing very well. And we're seeing consumers react to the benefits. But this is a category that is competitive. And we talked about the fact that we were making it a bit more competitive for a while there because we were using promotion to ensure that we got consumers back after we lost them due to the cyberattack. And we've made really great progress there. We have more to go, but continue to feel good that our investment in innovation, our investment in advertising and sales promotion is heading in the right direction, but we have more progress to make, Javier, over the coming quarters.

Thank you very much.

Thanks, operator. And good afternoon, everyone. Linda, you talked about the bifurcated consumer. And understandably, you have a portfolio that accommodates low end and high end. But I was hoping to see if you can share some examples. You did share Scentiva on the high end, but perhaps give us some comfort on being able to pivot where the consumer is and meet the needs on a pricing, on a value perspective. And also in terms of the channels, you regained in this high growth, including clubs as is your pivot away, and some of the drugstore exposure that you may have that may be cooperating deceleration, if you can explain that. Thank you.

Sure. Andrea, why don't I take the second part of your question first, and then I'll get to the portfolio question. So in channels, we are broadly distributed everywhere and happen to be very strong in the channels where consumers are moving. So as we see them move into mass and club, these tend to be channels where we have placed early bets and have very strong share positions in. So feel good as consumers are moving into those channels in aggregate that we are there, that we have the right value proposition. And drugstores, just as you noted, we're not a very strong player in drug. That's a place given we don't have a big portfolio in more of the health and beauty areas that we are not overly distributed, we're fairly distributed in. And again, we tend to be stronger in the channels where consumers are choosing to shop today. So feel good about our ability to deal with that changing environment. It can have an impact on, as you saw in this quarter, mix it. Can have those types of impacts, but feel good about our ability to ensure consumers have what they need from Clorox. On the bifurcated side, this is a really interesting story. And maybe I'll tell you, in Cleaning, how this is playing out because it's an area that worked really well for us over the last few years. But particularly if you look at this quarter, it's a great example. So we have the most premium cleaning products. We have things like a disinfecting wipe, which is one of the highest prices per use, but they're very convenient, and kids love them. And we also have diluted forms that are very, very good value on a price per ounce like Pine-Sol, like, Pine-Sol dilutable cleaners. And so what we've seen is consumers who are time-starved continue to move into forms like disinfecting wipes. They're very convenient as you're dealing with things like cold and flu. So those segments continue to do well, as well as consumers who might be more stretched trading into things like dilutables and bleach. So for example, the bleach category was down, our share was up significantly. And then you saw the dilutables category, both strong, and our shared position with that strong. So that consumers are navigating their cleaning tasks at home. We have a portfolio that serves all of their needs, whether they're looking for something quick and convenient and they're willing to pay the premium like a disinfecting wipe or a ToiletWand, as well as when they're looking to get the very best cost per use, and they're turning to our Pine-Sol brand or bleach. And that's a great example where we grew share significantly this quarter. That business delivered strong financial performance this quarter. And we feel that well recovered. If you look at some of our other categories, that's less of a dynamic because it's out in private label, and we feel very good about our ability to compete. Kingsford is a great example where we grew share this quarter, even though that category had some puts and takes given weather and timing, but we grew share in the growing category. So feel very good about that. But generally, our portfolio, we are well insulated in places where consumers may trade between different occasions and value and price. And then in certain categories where we have a limited competitive set, consumers continue to look for that premium, and we're well-suited as well. The other thing I would note is in categories like Glad, we have more premium trash bags, and we have more core base trash bags. So consumers don't want all the bells and whistles. They can choose to have a trash bag with less of that at a lower cost per use. But that's something we'll continue to watch as we move forward. We use our innovation, price pack architecture, all of those tools to ensure that we have the right lineup, but feel good about what we have today.

Is it fair to say that besides the Glad trash bags, you are gaining market share in most categories?

In total, we maintained our market share for the quarter. While this was below our expectations, we are positive about the overall category performance during the quarter. There were ups and downs; for instance, we experienced a decline in share in Litter, which we anticipated since we were comparing against a previous event. However, we saw growth in Grilling, Food, and Cleaning. Overall, it was mixed, but we successfully held our market share for the quarter.

That’s helpful. Thank you.

Thank you.

Good afternoon, everyone. I want to bring the conversation together and inquire about capital deployment. There's been a lot of talk about a slowdown across various categories, which is not unique to your portfolio. Growth rates are significantly below long-term targets, and it appears this trend might continue, posing a challenge for next year. This situation might require you and the Board to consider leveraging the balance sheet to drive growth in your categories, not just in the near term but also in the long term. Additionally, the company has experienced both successes and shortfalls in terms of M&A. Considering all of this, how is the Board approaching M&A in this environment? Does the current situation change your perspective or elevate the importance of M&A opportunities? I would appreciate your thoughts on this. Thank you.

Sure. Kevin, I think the headline will be and as it has been for a number of years, we're going to control what we can. And I feel very good about our ability to control what we can. And as we look to what's important for us, we want to continue to deliver strong earnings performance in an environment that is very uncertain and very volatile. And we feel very good about our ability to do that. And that's, of course, behind the capabilities that we're in, whether it be technology, holistic margin management, innovation, give us a wide range of things to ensure we can continue to expand margin and deliver our earnings performance. Obviously, we would like that to come with more top line growth. But given what's going on in the environment. We're being sure that we can protect that earnings growth, and we want to be competitive in the marketplace. And that's what we're focused on. Let's do both of those things and do them very well. And that will be the theme and around M&A is the same. And we've done exactly that. So we made two important divestitures in the last 18 months that strengthened the financial profile of our company, both supporting better top line growth, better margin expansion and an earnings profile. And we're always looking for ways to improve over time. But job number one is ensuring that our core is healthy. And I feel very good about all of the investments we've made, the capabilities we've built to be able to control what we can. And if there are opportunities, we certainly have a strong balance sheet, good cash flow. And we would be ready if it was at the right value, and we felt confident about our ability to navigate that moving forward. But again job one, two, three is ensuring that we can control what we can and deliver strong earnings performance as we get through the period.

Okay, thank you. I’ll pass it on.

Great. Thank you. First question is, just why you think the destocking was more substantial in Household and Cleaning? And does it make you more or less concerned that there's some picking and choosing by the retailers, even within everyday use categories, and what categories to work down more than others? And then a lot of your peers caveated the recent performance with a view that consumers and retailers will eventually have to replenish, but unless where I heard that same sentiment shared by you beyond the ERP-related challenges. Obviously, one logically expects a consumer to replenish into one of these categories eventually, but do you think it takes longer for your categories? Thank you.

Yeah, on Households, as you said, Olivia, we didn't have broad destocking or inventory adjustments across our portfolio. They're fairly limited to household. And if you look at what's in that set of goods, they're pretty heavy goods that take up a lot of space. We've got Kingsford, we've got Litter. And so I think that's the mentality we're in. They're managing limited space. They're trying to think about how they deal with those goods. And again, importantly, they're really not focused on doing this at the detriment of the consumer. They're focused on ensuring consumer in-stocks at the shelf and the virtual shelf are available. They're just using more sophisticated technologies in some cases to ensure that they can manage that inventory more closely. And that's why it ended up in Household, I think, given just their heavy goods, and they're figuring out ways to ensure that they can maximize the space. Again, I think this environment is dynamic. Could it happen in other places as they're adjusting, it could. Right now, we have more inventory adjustments planned for Q4 in Household for the most part, but working with retailers every day to ensure that they have the right level, and we don't put consumers out of stock. And then to your point on replenishment, I think it's a really interesting question, and it's something we're looking very carefully at, is there a bounce back for consumers as they potentially empty their pantries, they're using what inventory they have at home. I would just say it's very difficult to tell. Our purchase cycle is 90 days. We haven't even been through a full purchase cycle when the downturn started in February. We're seeing some consumers buy smaller sizes. Does that mean they're going to stretch that to smaller size to last that entire purchase cycle? Or will we see them come back sooner? It's just really too early to tell. I think that'll be something we'll contemplate as we think about fiscal year '26 guidance. Certainly, in Q4 that we're seeing, though, is the back half of that purchase cycle. We continue to expect categories to be softer. And it is definitely a question mark, how much inventory will be left in the households for a consumer perspective? And then what will that mean? But I think it would be logical to believe at some point, consumers will go back to more normalized inventory levels. It's just a question mark of when, Olivia.

Thank you.

Hi, everyone. I want to ask about productivity. With tariffs impacting you next year and a larger influence from ERP, will that hinder your ability to grow earnings next year? We will see what you announce in a few months. Can you discuss your plans for mitigating tariffs and whether that will involve speeding up productivity programs? Will this strategy leave less room to address other challenges like ERP or to drive demand-building efforts? Also, Linda, you've had a target for S&A as a percentage of sales around 13%. This year, it seems you're aiming for about a point and a half higher than that. Does fiscal '26 motivate you to accelerate that agenda, so that regardless of next year's earnings, fiscal '27 can focus on a cleaner, more resilient base with the targets you've aimed for in previous years? Any insights on productivity and S&A would be appreciated. Thank you.

Thank you, Chris. It's helpful to take a step back and discuss the capabilities we've developed and their general application, particularly as we consider their use in fiscal year '26. Our goal has been to create a stronger, more resilient company, which involved significant investments in our technology transformation and new operational capabilities. These efforts were aimed at enhancing our margins annually. Initially, our priority was to restore our gross margins to pre-pandemic levels, which we have achieved, and we are now focused on further margin expansion to enable us to reinvest in the business and provide returns to our shareholders. We are proud of the capabilities we’ve established, which have produced impressive results in recent years. We continue to implement valuable tools, such as those related to price pack architecture, which are just beginning to yield benefits. Overall, I am confident in our long-term management capabilities, although next year presents challenges due to the tariff pressures that Luc mentioned, which we estimate will impact us by about $100 million. Fortunately, our exposure is relatively minimal, but the increasing number of tariffs affects this figure. We are optimistic about managing this $100 million impact over time. We've sought to improve productivity in recent years and will maintain that focus as we plan for fiscal year '26 and beyond with the tools we've developed. While we are not ready to commit to specific projections at this time, these are the discussions we are having. For instance, our advertising expenditures are yielding some of the best returns we've ever seen. This raises important questions about how we approach our advertising spending in this context. We plan to continue investing robustly in our brands, but we need to determine the level of investment that maximizes our returns. We will address these matters when we discuss fiscal year '26, but we are confident in our ability to manage over the medium to long term with the capabilities we have in place. We will eventually address S&A, and while we have indicated this will not happen immediately, we are currently investing more as we implement our ERP system. Once it's fully in place, we anticipate seeing a gradual decrease in S&A as we leverage tools to boost productivity during this transition.

Great. Thanks, Linda.

Thanks, Chris.

Thank you, good evening. Regarding the question of trade down, despite the value-seeking behavior we've observed in recent months, we haven't really experienced trade down in the traditional sense. Instead, we've seen changes in channels and pack sizes, but not the typical trade down. I have a couple of questions. First, why do you think that is? This observation is not unique to us; other companies have noted it too. Looking ahead, as consumers may begin to return to more normal purchasing patterns, do you foresee an increased risk that as they come back and buy in larger quantities, they might start trading down? Or is that not a concern for the future? Thank you.

Yes. In many of the markets we're operating in the U.S., consumers are focused on the reliability of the products they buy. They expect the products to perform as promised, particularly in essential categories, where they invest varying amounts depending on the product. We've built trust over time by continuously enhancing our offerings, ensuring that consumers get what they expect. Many have tried alternatives but return to us due to the noticeable difference. Essentials tend to maintain their value because companies have prioritized delivering superior products to consumers. This value encompasses not just the product inside the packaging, but also the design and user experience. We’ve dedicated substantial effort to these elements, which is why we emphasize them consistently. Consumers are adapting their purchasing behavior even as they face external financial pressures, opting for smaller sizes or different shopping channels while remaining mindful of the value they receive. Looking ahead, I anticipate these value-seeking trends will persist, with consumers remaining cautious about their purchases and home inventory. The lessons learned during COVID and inflation are influencing their current behaviors. The challenge for us is the uncertainty over how long this volatility will last, whether it will worsen, and how it may force consumers to make further trade-offs, such as opting for smaller sizes or moving towards private labels. So far, we haven't observed those trends, but we’re closely monitoring the situation due to its unpredictability. We aim to focus on what we can control: investing in our brands, ensuring compelling messaging and promotions, improving our products, and providing great value across all retail channels. We feel assured about our brands' capacity to adapt to these changes. However, the specifics of consumer responses remain uncertain, and while I can't predict the macroeconomic influences ahead, I am confident we can navigate through it, especially given our focus on essential products.

Thank you very much. Appreciate it.

Thank you.

Thank you, Paul. As we close today's call, I'd like to step back and reflect on the number of macroeconomic environments we've weathered as a company over 112 years. From inflationary to recessionary environments, we have navigated them well with strong execution and our portfolio of trusted brands. For sure, we are seeing temporary category impacts given the very dynamic environment today, but history tells us that our essential categories are stable and resilient over the long run. While it's challenging to predict just how long this period will be, we're confident in our ability to navigate this environment given our track record, coupled with our enduring strategy. We have fundamentally strengthened our value creation model, including how we create the fuel necessary to drive growth. We're focused on delivering superior value through brands consumers love. We're creating a consumer-obsessed, faster and leaner organization by reimagining how we work in advancing our digital capabilities. We have taken steps to evolve our portfolio to reduce volatility and drive more profitable long-term growth. This strategy has served us well as we transform Clorox into a stronger company poised to deliver more consistent profitable growth and enhance long-term shareholder value. Very importantly, we remain laser-focused on delivering in both the short and long term. Thank you, everyone. We look forward to updating you on our continued progress on our next call. Take care.