Procter & Gamble Company (PG) — Q1 2018 Earnings Call Transcript

Thanks for coming this morning, actually this evening our time from P&G's offices in Guangzhou, China. China, as you know, is P&G's second largest market both in terms of sales and profit. Given its importance, I am in the market two or three times each year, and this time we just thought we would take advantage of the resources here to give you a deeper perspective on this important business and the progress we are making. China and Guangzhou are special places for me. My wife, Lisa, and I lived and worked here in the 90s. We hired and developed much of the finance talent that helps lead P&G's China business today. It's always very good to be back. I am joined this morning by Sumeet Vohra, the End-to-End Category General Manager for China Hair Care. I am also joined by Matthew Price, President of China Selling and Market Operations. Matthew reports to Taylor, our CEO. We are joined by Jasmine Xu, who works with the end-to-end categories in China on building omnichannel ecommerce capability. With Double Eleven right around the corner here in China, I am sure Jasmine will have some interesting perspectives to share. Let me turn first though to the company's results for the July-September quarter. As we said on our last earnings call, this quarter presented our most difficult top line comparison of the year. Underlying market growth was notably stronger in the base period than it is now. As you have no doubt heard from others, market growth continues to be sluggish. We estimate global category growth below 2.5% for the quarter, a modest deceleration versus the April-June period. P&G organic sales grew 1% on 1% volume growth, fully in line with our internal estimates going into the quarter. These results include about a 30 basis point impact from the earthquake in Mexico and hurricanes in Texas, the Gulf Coast, and Puerto Rico, each of which caused a halt in operations in these geographies during the quarter. They also include a 40 basis point impact from the combination of U.S. pricing investments and discontinued brands of product forms. All of these impacts will dissipate as the year progresses. Market share trends continue to improve with 13 of the top 20 countries and 14 of the top 20 brands, 65% of top 20 countries, and 70% of top 20 brands growing or holding share. Ecommerce growth continues to be very strong, up 40%, with seven out of ten categories growing share and two others holding share. Ninety percent of categories are growing or holding ecommerce share. On the bottom line, all earnings per share were $1.06, up 10% versus the prior year. Core earnings per share were $1.09, up 6%. This includes the $0.03 headwind from higher commodity costs and a penny from the natural disasters I mentioned earlier. These impacts, negative mix and increased investments more than offset triple-digit productivity savings contributing to a modest core operating profit decline of 40 basis points versus the year-ago. The core effective tax rate was 23.4%, about a half point above last year. Free cash flow productivity was 87%, and we repurchased $1.5 billion in shares and distributed $1.8 billion in dividends this quarter, totaling $4.3 billion of value returned to shareholders. Net results were in line with our going and expectations, despite some unanticipated negative impacts and slowing market growth, continuing to increase the number of brands in markets that are holding and growing share both offline and online, and continuing to deliver productivity savings with strong cash flow. As a result, we are maintaining fiscal year guidance across all elements: top line, bottom line, and cash. We expect organic sales growth of 2% to 3%, despite the continued deceleration of market growth rates. This estimate includes about a quarter of a point of headwind from portfolio cleanup in the ongoing business. It also includes the headwind from the price adjustment on the U.S. blades and razors business made late last fiscal year. Again, both of these headwinds will have their biggest impact in the first half of the year and will annualize as the year progresses. We expect fiscal 2018 all-in sales growth of around 3%. This includes a zero to half point net benefit from the combination of foreign exchange, acquisitions, and divestitures, and the impact of the India goods and services tax implementation. Our bottom line guidance is for core earnings per share growth of 5% to 7%. We expect core operating profit growth to be the primary driver of core earnings per share growth this fiscal year. We expect the combined impact of interest expense, interest income, and other non-operating income to be a net headwind on fiscal 2018 core earnings per share growth. The core effective tax rates should be around 24%, roughly in line with fiscal 2017. Share count will be an EPS benefit of about 2 percentage points due to discrete share repurchase and the carryover benefit from the beauty transaction share exchange that benefited July-September results but is now fully in the base period comparisons going forward. We plan to deliver another year of 90% or better free cash flow productivity. This includes CapEx in the range of 5% to 5.5% of sales. We'll continue our strong track record of cash return to shareholders. We expect to pay nearly $7.5 billion in dividends and repurchase $4 billion to $7 billion of our shares in fiscal 2018. At current rates and prices, FX has held about $150 million after tax versus a year ago. Following the natural disasters, we are now estimating about a $300 million profit hit from higher commodity costs. We knew we'd see higher pulp costs going into the year, and these costs have continued to increase beyond initial forecast ranges. Ethylene, propylene, kerosene, and the polyethylene and polypropylene resins have increased recently primarily as a result of the hurricanes in the Gulf. Significant strengthening of the U.S. dollar further increases commodity costs, and additional geopolitical factors are not anticipated within this guidance range. Turning now to China. We're making significant progress in this very important market. In fiscal 2016, organic sales declined 5%. Last fiscal year, we grew 1%. We're projecting mid-single-digit growth this year. And the quarter we just completed, China organic sales grew 8%. Including about 2 points of pre-shipments for Double 11 day, so far, October is trending fully in line with expectations, and we have a very good start toward our mid-single-digit objective for the fiscal year. Two years ago, again in fiscal 2016, two of seven product categories grew organic sales in China. Last fiscal year, we grew sales in five of seven categories; this quarter we grew in six of seven, and we expect organic sales growth in all seven categories over the course of the fiscal year. Of the ten sub-categories in which we compete in China, four grew share offline and seven grew share online over the last three-month period, up from two and five, respectively, over the last 12 months. A few highlights: SK-II organic sales grew more than 40% this quarter, driven by the successful digital campaign, #INeverExpire, and the additional new users in department stores and online. Olay organic sales were up mid-teens, driven by the launch of the premium Olay Self-Science Boutique in September and strong growth in ecommerce and counter businesses. Hair Care has made sequential market share progress over the past few quarters, driven by new premium innovations on Head & Shoulders, Pantene, and Rejoice. Sumeet will share more detail on these innovations in just a few minutes. Family Care organic sales grew mid-teens, driven by continued growth of premium innovations like Whisper Infinity and Radiant, our best performing thin pads. Whisper Pink, our mid-tier cotton-like top sheets innovation, and the launch of Whisper Pure Cotton, our new premium pad with a 100% natural cotton top sheet. Oral Care grew 7%. Pampers launched its new premium tier taped diaper, Pampers Ichiban, in August along with the re-launch of the premium pant style diaper. Both are produced in Japan and imported into China. Pampers Ichiban is already available in more than 10,000 baby stores and nearly 4,800 hyper and super stores. Consumer awareness continues to build; consumer comments and product ratings are very good, and consumer conversion from competitive premium tiers is strong. In August, Pampers grew share in the premium segment for the first time in many years. We're also making significant progress in the overall pant segment. This is the fastest growing form in the market, growing at a 40% clip. Pampers is now the market leader in the platform in China, up from number five just two years ago. Pampers pant sales in July-September grew 200% versus the prior year. China Pampers overall sales and share for the quarter improved significantly versus prior quarters, but we're still below year-ago levels in total due to soft shipments in mid-tier tape diapers, which account for about 75% of base period shipments, as wholesale inventories were drawn down ahead of new innovation and pack size shipments and as we work through innovation-related price increases. We expect to grow China Baby Care sales this fiscal year and return Pampers to share growth, which would mark a significant turnaround. We continue to build share in ecommerce in China. We grew ecommerce sales approximately 60% this quarter in a market growing around 50%, with seven out of ten categories and sub-categories holding or growing online market share. Accelerating growth in China is important to both the top and bottom lines of our company. After tax profit margins in China remain very strong, despite significant investments over the last few years in product and package innovations, additional sales resources, and targeted value corrections. So it's the second largest profit contributor after the U.S., with one of our highest after-tax margins; so growth here matters. I now want to turn to Matthew, Sumeet, and Jasmine to give you a deeper view into the progress we're making in China. Sumeet, our largest China business is Hair Care, which you run. Can you start by just giving us an overview of the Hair Care market in China and P&G's position in it.

Thank you, Jon. I am going to focus my remarks on mainland China. China is the biggest Hair Care market in the world with retail sales of $8 billion. P&G is the market leader in China by a distance. We're nearly three times as big as the number two player, and four of the top five hair care brands are from P&G. The Hair Care market is growing mid-single-digits. P&G's portfolio of brands, strong brand equities, our technologies, favorable cost structure, and innovation programs put us in a strong position to create value in China Hair Care.

You know, Sumeet, have been some important organizational changes in Hair Care in China. One of course is going end-to-end. Another is having sufficient resources on the ground in China. And the third is probably the priority the global category has placed on the China Hair Care business. Do you agree with that observation, and how do you see those changes making a difference?

Yeah, I agree with that observation. These organizational changes and the priority from the global category have made a big difference to our business. Category dedication is helping Hair Care expertise in our sales teams and partner more effectively with our retail partners. With sufficient resources in China, decisions are being made closer to the ground, and hence the quality of decisions and speed have improved. One example of speed: we finalized the packaging design for Rejoice Micro-Silicone Water in mid-December, and we shipped in May—that is within 18 weeks. These interventions are helping us deliver sequential improvement in Hair Care sales and market share.

So tell us about innovation in Hair Care and why it matters?

Innovation in Hair Care is key to delighting consumers, keeping our brands relevant, and growing the category. As you know, our recent premium price innovations such as Rejoice Water, Pantene Three Minute Miracle, Pantene Hair Energy Water, and Head & Shoulders Supreme are great examples of this. These are very good products, and consumers and customers are happy with them. We are also innovating and marketing in media. Our recent 'Break the Rules' program on Vera Sweeney has helped us grow very nicely. Our innovation program together with the go-to-market interventions has helped grow China Hair Care business 2% in fiscal 2017 and 5% in the quarter just concluded. Our market share trends are improving, and we grew offline retail share in the last reported period.

And very importantly, how do you feel about the future of Hair Care in China?

We have a strong portfolio of brands that take us to the most important needs in the category. We are bringing it in simple products, packages, and innovations to the market. We have now gone end-to-end and have sufficient resources on the ground. We have significantly increased speed to market and are now working to bring innovations from idea to market in less than six months. And we have an attractive market structure. These interventions set us up as a thought leader in the industry and in a very strong position in China Hair Care.

And Matthew, where do you think we are in the overall China turnaround? What are the opportunities and challenges that lie ahead of us?

Thank you, Jon. To execute the turnaround, we needed to bring more premium innovation and better cover the growing channels. All of the categories have built premium innovation in the last six months. Also, we are strengthening our coverage of key channels, including dedicated coverage of baby and cosmetic stores. Hence, I am pleased to report, we grew sales 8% this quarter, which puts us on track to deliver mid-single-digit for the fiscal year. This is in line with market growth. You asked me about key challenges. I think one is to deal with what we call here 'moving at China speed.' We believe that with the end-to-end organization decision-making, the GBUs having more decision-making on the ground, and their scaled organization will increasingly well set up to achieve this.

And as President of the Selling and Market Operations Organization here in China, what are your priorities?

My policy is to amplify the innovation and brand plans that the GBUs developed and enable them to benefit from our scale. I'd like to give you some examples. Innovation, as you know, China has very distinct channels such as ecommerce, cosmetics stores, hyper stores, baby stores, and multiple small store formats. The SMO makes sure that the plans are tailored by channel and can be executed with excellence. Media is one of the largest advertisers in China; therefore, it makes perfect sense to use our corporate scale to create winning partnerships with all media companies. Sumeet has plans that have mass market TV buys and other brands that require much more targeting and are more digital. The SMO ensures he gets the best deal, but the performance can be measured, and we provide a menu of media options. Customer Support: At the buyer level, as we've already discussed, we have category-focused processes through the end-to-end dealing with the buy direct. But customers and us want joint business plans and strategic partnerships at the corporate level that build value for both sides. The SMO leads us. Distributor management: A very large part of our business goes through distributors to small stores. Our scale enables us to have industry-leading distribution. We ensure our programs are appropriate and sequenced to enable each brand to maximize in-store presence and trial. It also enables us to have industry-leading receivables. Logistics: China is big; we have over 1,000 ship-to locations. To deliver industry-leading logistics costs and customer service, we deliver on a multi-category basis, which is what our customers want. Our logistics operation runs on a cost-to-use scale play, again run by the SMO. Government Relations: It's critical in China to maintain and build national and provincial government relations to ensure strong support for the GBUs to pursue their business. Organization: Building a winning organization for the GBUs and SMO ensures a strong talent supply, again led by the SMO. Lastly, Digital: We're building corporate digital capabilities that are critical for the GBUs to develop consumer, shopper, and business insights. So the data is managed by the SMO because this is clearly a scale play. These are just some examples of how the SMO and GBU end-to-end model work. So we're pleased to see the results coming through with 8% growth this quarter.

And just picking up on your comment on digital, maybe you can give us a few examples?

So we are developing suppliers who gather install data digitally to provide insights for ourselves, people, and track our progress, but also having digitized media tracking so we can measure reach across platforms and multiple devices. We work with key digital players such as Tencent, Bitauto, Weibo, Alibaba, Jingdong, and the omnichannels. We are building big data analytics that enable targeted and measurable marketing. We are using digital tools to increase insights and complaints. All of this leads to better consumer insights, shopper insights, and business understanding for the business units.

And Jasmine, maybe you can share with us what your role is and how it supports the category organizations?

Thank you, Jon. I lead the Chinese ecommerce business, which is the fastest growing channel with more than $1 billion in sales. Our team has two missions: grow online penetration for each category. We have a marketing and sales team dedicated for each category who report to the regional business units. At the same time, we create skilled capabilities as competitive advantages such as big data, ecommerce supply chain, and media targeting capability. These scale capabilities actually enable each of the categories to grow their brands.

And what are the biggest challenges and opportunities you see in ecommerce, and how are we addressing them?

I will summarize ecommerce challenges in two ways: one is speed of change; innovations and changes happen at a faster pace online. The second one is really trading up—45% of the China ecommerce market in our relevant categories are already in premium tiers. These challenges actually are equal opportunities for P&G. We've focused on a few things: operating our marketing model to be more digitally driven and socially focused. We work with ecommerce players to leverage big data to reach the relevant shopper where they are ready to buy. We also fully leverage the drop of order to win. More than half of our online business is premium tiers and new forms. Our fastest growing brands are our premium brands such as SK-II and power toothbrushes with Infinity. We build a strong team; the local ecommerce team has deep insights and, with the end-to-end structure, that enables faster decision making. Our skilled capability creates a competitive advantage.

Sure, everybody wants to know how we are doing with millennial consumers online?

First of all, Jon, our team is full of passionate Chinese millennials and, in fact, 80% of my team is millennials. From a shopper standpoint, the average profile of P&G online shopper is a 28-year-old female, living in one of the top cities in China. Over the last two years, our online shopper profile has become younger. To delight millennials, we're doing more authentic storytelling instead of traditional advertising. We understand millennials prefer a more personalized experience. For example, we provide consumers with power brushes that come with their names and horoscopes printed on the handle. We launch technology innovations such as virtual reality and augmented reality to invite consumers to interact with their favorite brand ambassadors.

Very importantly, are we prepared for Double 11 day?

Yes, we very much look forward to another successful Double 11. We leverage this opportunity to create trial on our latest and best innovations. We work with customers to accelerate growth. Our logistics network, supply chain, and online consulting teams are fully prepared to provide consumers with a delightful Double 11 experience, and I'm also ready to buy a lot myself.

Thank you each for your perspective. What I've experienced in the last three days working with you in China has shown me a ton of energy—a passionate organization that is moving much more quickly and effectively to delight an increasingly premium and increasingly digital consumer at his or her speed, enabled by an end-to-end category structure, working with an SMO that's building world-class platforms and capabilities. I felt in the last week the same palpable excitement I felt back in 1996 when we were just embarking on this journey, and my expectations are accordingly high. Hopefully, this brief discussion has been insightful for investors. I'm going to wrap up and then we'll head to Q&A. Our results of the first quarter were in line with our expectations and keep us fully on track for the fiscal year. We continue to make progress, growing market share in more businesses and narrowing share gaps in many others. We're showing strong progress in China, which, as I've said, is a very important market for P&G. There are sure to be speed bumps and even a few hairpin turns ahead, but our new operating approach end-to-end and freedom within a framework will enable us to be more agile as we navigate through these challenges. Productivity gains will provide fuel for investment and the ability to offset negative surprises just as we saw in the last quarter and grow margin as the year progresses. Before we begin the Q&A portion of the call, I'd like to remind you that the purpose of today's call is to provide perspective on the business. At this point, we have no further comments regarding the pending certification of the proxy contest results. And with that, we are happy to take your questions.

Great. Thanks. I actually wanted to talk a little bit about Gillette in total and the grooming business as a bit weaker than we would have expected, so I was hoping we could kind of dig in on two fronts: one is just what you are seeing in the U.S. market in terms of the result and responsiveness of the market. The price may have been impacting overall portfolio performance? And then results on guessing in emerging markets may be a little bit better because there is just price how negative mix levels that you know were geographical product? Thanks.

Great. In terms of the U.S. innovation, it's generally working. As I think you know, the first part of that is brought to market is pricing with product and communication to follow across the price tiers. In the - though the last six months, we have had the highest volume shipments we've had in 11 years. If we look at the most recent share period, past one month share was up 1.4 points in terms of volume, which is the first share growth in two and half years. So again, it's early. This is a business with a long purchase cycle, and we're still bringing the balance of the program to market, but generally that is operating as we expected it would. The pricing reduction, as you know, is averaged about 12%, so the impact on total segment organic sales is not insignificant. There was another big impact in the quarter and grooming which was the margin of Brazil. There, we are going through a pricing cycle and we're experiencing the inventory dynamics that typically come with that cycle. If you take out North America and Brazil, you get the positive growth on the balance of the segment globally. And I apologize, Lauren, I think you asked another part of the question, but maybe someone else can remind me; I forgot that, but that's essentially how the grooming business is shaping up.

Hey, good morning or good night, I guess. If I look at the divisional profit results ex-corporate expense, you were down 3.5% year-over-year in the quarter; results can bounce around quarter-to-quarter, but it's also down 3% on average in the last three quarters despite ad spend being down in that timeframe. So, you know, we've been hearing from you guys that the turnaround is progressing; why are we seeing more underlying profit progress, and is the more difficult external environment in terms of slower category growth and increased costs of doing business, is that more than offsetting any internal improvements and that change going forward?

So we're still expecting that the majority of EPS growth for the year is driven by operating and earnings growth, as I said in the prepared remarks. And we are right where we expected to be in terms of that progression. The quarter was a little bit more challenging, as I also indicated in the prepared remarks, than we would have expected going in with the run-up of commodity costs and the impact of the natural disasters. Things like very expensive freight charges and shipping charges in many of the impacted geographies. Also, as you know, the productivity savings will build as we grow through the fiscal year and will also begin annualizing the significant investment associated with the pricing reductions in July.

Thanks. Hello guys. Thanks for the questions. So, Jon, a question on industry growth that you are speaking to the 2.5%, or actually sub 2.5%, excuse me. I am just trying to reconcile that with some of the positive emerging markets commentary that we're hearing from other CPG companies, and you guys, of course, stand very good on China today and still are looking for mid-single growth. So can we get an update on where you are seeing slowing? Presumably this is U.S. and other developed markets, but maybe just comment specifically on what you are seeing from a growth rate in those regions and how that potential change would be the first question. And then number two, is there any large change in view with respect to where you think you come in on the 2% to 3% core sales for the year? Thank you for those.

Sure, Kevin. In the quarter, if we just split developed and developing markets from a market standpoint, growth was about half a point in developed markets and about 5 points in developing markets. So if you look at that sequentially, it's really an aggregate continued mid-single-digit level of growth in developing, where the slowdown has been in developed markets, and that is primarily the U.S. In terms of how that shapes our view of the range of 2% to 3%, we, as you know, are maintaining that range; obviously, the rate of market growth through the balance of the year will have an impact on where we end up within that range, but we're shooting for as much as we can get.

Thank you. Hi, Jon. Curious to hear how you view the current promotional environment in the U.S. right now? And then in looking at your activity, it does still appear to be pretty high versus historical levels, but maybe that settled off on a year-over-year basis recently. So, I guess, looking back, do you think the greater promotion you made over the last couple of years has really been successful, or do you think it ultimately, you know, just resulted in taking dollars out of the categories? And then as you think about your share figures, which have stabilized a bit after what appears to be a slight pull back on promos, do you think being more rational has contributed to some slight share improvement in the last few months?

We probably see this slightly differently; let me just step back. I kind of walk you through how I see it. As you know, we'd rather spend a dollar on innovation or equity every day of the week before we spend money on promotion. We need to be competitive on promotion, but it's not our desired priority in terms of spend. The reason is very simple: there is nothing proprietary in promotion whereas we can build proprietary advantage with those innovation and equity investments. If you look at the quarter, price, including - inclusive of promotion, had no impact on top-line growth; it was neutral. If you over, pricing has been neutral to positive for 28 consecutive quarters for 13 consecutive years. Again, backing up my statement, that's not typically the first card that we like to play. If I look at the U.S., P&G's percentage of dollars sold on promotion was essentially flat; it was at a 101 index versus a year ago. It's obviously different by category, but again, it's not indicative of a strategy that involves heavy promotion increases. What is happening and what’s very confusing is that retailers, particularly in the U.S., are choosing to make investments in price as they compete with each other. That shows up in the scanner data as a promotion, but it's not one funded by the manufacturer; in that case, it has been funded by the retailer. And with generally category-leading brands and the strategy being to drive shoppers into stores on the part of the retailer, our brands often disproportionately benefit from those kinds of investments. So, long-winded, but generally, I don't see significant changes in promotion going forward; we would rather spend money on innovation and equity building, but we do need to be and will be competitive in the promotion arena. I hope that helps and happy to talk more about it later.

Hi, good evening there. Good morning, everyone else. Could you elaborate on the bridge offsetting the commodities cost increase, particularly pulp and resin? And is it like you are expecting the product mix to get better because of the launch of the last or are you re-launching in China? And also, if I understood correctly, you mentioned that the new diaper conversion in China has been strong, but can you please expand on the diaper re-launch in China and how the initial performance has been?

Yeah, so we're generally answering one question here, so I'm going to talk about what I think is probably the most one, which is diapers, and turn that over to Matthew Price to provide some perspective.

Okay. So we launched in August. We are going to share in the premium tier, which we launched Ichiban. As Jon also mentioned, we grew pants share as well from being number five two years ago. So we - as I have to with the progress, we're also seeing that the ratings and reviews are aligning with competition, and we believe it is on track.

And from a commodity standpoint, I mentioned the increases versus our forecasts are primarily due to increases on the petrochemical complex coming out of the Gulf as a result of the hurricanes.

Yeah, thanks, and good afternoon, guys, and good evening. My question is about SK-II, which is kind of for the majority of growth in China in the quarter. I guess is that a fair characterization? And then broadly looking at SK-II's contribution to overall Beauty segment sales, assuming it was a contributing factor to the 4% mix growth. What does it imply about sort of the rest of the Beauty business in particular, considering you lost share across most categories last year? So, what do you have to do to start seeing material improvement across the whole portfolio going forward? I guess how do you think about it, and where is it going to start? Where do you find the most difficulty, and so forth and so on? Thank you.

Look, as we look at China, I wouldn't necessarily agree with the statement that SK-II drove all the growth; it certainly was very growth-focused at 40%. But as I mentioned earlier, Olay grew in the mid-teens, Feminine Care business grew in the mid-teens, Oral Care grew 7%, Hair Care, as Sumeet mentioned, grew 5%. So the breadth of growth in China extends well beyond SK-II. As I mentioned, six of seven categories grew sales in the quarter, and we expect that to be seven of seven over the course of the fiscal year. Beauty in general is doing very well. SK-II is part of that success, but it's much broader than that. Beauty on a global basis delivered its eighth consecutive quarter of organic sales growth. We're seeing good growth in the Hair Care portion of the business as well as in the Skin and Personal Care side of the business—that's actually a bright point for us at the moment.

Hi, guys. So over the past few weeks, you guys have been crisscrossing the globe meeting with investors sometimes with board members, sometimes without. Given those discussions—and there are plenty of them, which is good—and the kind of 0.3% lead you have so far and the proxy though. Can you give us a sense of some of the key messages the management team and the board have taken away from all of that? What were the messages you actually heard from your institutional investors?

I will be happy to comment on the messages that I've heard. I obviously won't speak for others who aren't in the room. It's been a great opportunity to engage with investors both at the management level and the board level, as you indicated. Clearly, what's been driven home to me is the passion that our investors have, both large and small, and that's a great asset, and their interest in the company. Their ideas relative to its success are also an incredible asset. I received very strong support for the plan that we've embarked on with a clear desire to see it sooner. So, clearly, the message to me is to be even more deliberate, more quick in making the changes that we've been talking about. And certainly, as I've been here in China this week, I see the team doing the same. I would say the third thing is a desire that is broadly expressed to increase the connection between the investor base, the management team, and the board and make sure that we are fully benefiting from the perspective that they have. So those are my three takeaways. Again, I think that it's been a very useful and beneficial experience.

Hey, guys. Thank you for squeezing me in; I really appreciate it. Congratulations on some of the momentum in China, it's very encouraging to hear. I wanted to come back to your comments on the U.S., both in terms of deceleration. I was particularly intrigued by your comments of some degree of U.S. retail price subsidization. So first, can you give us sort of your thoughts on what you think has driven the deceleration in the U.S.? Why do you think it's proved to be so persistent throughout the year? Any sort of indication you have of what's driving the underlying softness there? And then secondly, the comment that retailers may be subsidizing some of the prices, is a little bit concerning because they don't seem to have a whole lot of margin flex to sustain that. How does this sustain; you are hearing comments from various other competitors talking about eroding price environment? Why shouldn't we think that this either translates down the road to a removal of subsidization, therefore a volume impact for you, or a need for you to help fund some of that?

Thanks, Jason. In terms of market growth, the simple answer isn't very fulfilling, which is that I really—we've been unable to put our finger on why this has been. If we look at consumption, for instance, from our household panel data, there really is no change in consumption level across categories with one exception, which is grooming, which is driven by style preference. If we look at trade up or trade down within the market—which also could have an impact on the dollar growth rate—we also see very little change. Over the last three years, private label, as one measure of this, has seen its shares essentially flat in the U.S.; they are also essentially flat in Europe. There's been some uptick in the last quarter, call it 30 basis points of share; it's concentrated in two categories, though, and it's not broad-based; those two categories are tissue towel and grooming. In tissue towel, we're building share, so that isn't impacting our business. We are familiar with the private label launches in the grooming segment, but there's nothing there that really explains the broad category slowdown. I've heard theories, none of which I can really get comfortable with that attempt to explain the slowdown. One is that post-election, the Hispanic consumer has withdrawn more from the market and is both concerned about their future and sending more money home, and as a result is spending less. But as we look across the data that we can see across cities and geographies with a higher percent of Hispanic consumers, there isn't a difference in market growth in those areas versus others. The other theory that's been proposed is that consumers are spending an increasing portion of their wallet on services: healthcare, entertainment, data and mobile phone—and therefore are spending less on stables. That doesn't make sense to me either because I mean, I don't get it; I want a cell phone, so I'm not going to wash my hair; it doesn't make a lot of sense to me. So, unfortunately, as I said, my answer would be somewhat frustrating there; we're still searching. In terms of the retail dynamic, it's not across all categories; it's in a few categories. There is probably most pronounced in the baby care category because of the value of that shopper, the perceived value of that shopper to either Amazon, Walmart, Target, Costco, you name it. What we're trying to do to prevent the outcome that you describe is to help retailers with differentiated offerings for their shoppers, so there's less direct comparison in that therefore less need to compete on that basis. But this is obviously something that is a challenge and does affect the market numbers as I said earlier. But we're making good progress and avoiding the negative impacts of that as I mentioned; price continues to be neutral as a contributor to the top line.

Good morning, thanks very much. I really enjoyed the presentation on China, and I should say good evening. Good morning for everyone else. I wanted to ask you about, from the presentation first, how does your premium share of focusing in China on ecommerce compare with offline? Is that made—is that different, presumably higher because of the ecommerce capabilities you have, or more because of the kind of people who are shopping online? Is there just something to more premium shoppers likely to do that? And what learnings are there in planning, which why can't that model be exported readily to North America in other developed markets where presumably there's a lot of premium shopping going on and a ton of opportunity to grab that high-end consumer where not just Procter but other CPG companies are just getting a lot smaller share of the pie over the past decade? Thank you.

Maybe I will ask Jasmine to comment on that across categories within China, and then ask Sumeet to comment on that from what he sees from his hair care perspectives. Jasmine?

Sure, for the Chinese ecommerce business, we actually have more than 60% of the business in premium tiers, and this is driven by a few factors. The first one is we certainly amplify already premium innovations brought by the categories; and to support our innovations, we also try to adopt a new business model, which is much more digitally focused. We leverage social commerce to drive authentic storytelling among the premium users. We also use big data to make sure that we understand the shopper inside and out and target them at the moment when they are ready to buy. So end-to-end from product innovation or the way about how we drive marketing as social, with excellent online—this is one of the key drivers why our premium business portion is much bigger online compared to other places.

And from the hair care line, what I'm seeing is that the consumer is really attracted to a lot of the premium propositions in hair care, and they're also buying in bucket sizes bigger; they tend to buy more items like shampoos, conditioners, and treatments. We're saying that they're also really responsive to the innovations that we are bringing. So a combination of the hunger for the consumer to shop for multiple items and the innovation that we're bringing is really helping us build business in the e-commerce space in China.

And relative to the question on whether there is reapplication potential here, I think definitely, the answer is yes. There's a lot of what I've seen here, and previously what Matthew was talking about earlier, some of the digital capability, has clear replication potential. Our experiences with marketing and moving more to a pull versus a push model certainly have reallocation. There's a lot of exciting learning here that we will be applying globally.

Hi there, thank you so much. I'd love to just dig a little deeper into the China situation because I know a lot is riding on the Japanese input. But I think you said 75% of your business is still in non-premium, well not the super-premium diaper. A couple of things: can you just explain a little bit what the strategy is to grow the other part of the business? Can you talk about whether there has been in any comparative response, and just any detail on the growth and your strategy going forward? I was hoping to see or hear a little more detail on the success of the launch, but it sounds to me like you really don't know yet?

A couple of things there: one, I mean, we just launched in August, so relative to July, August, and September results, it was a very short period of time that product was actually in the end-market. And as I indicated earlier, it's the first time we've built share in the premium tier for a long time, so while it's still very early, it certainly is working. Matthew mentioned the ratings and reviews, which are our parity with top competitors, which is also encouraging and very important in a China context. And the mainline diaper or the mid-tier, which you rightly said was 75% of the year-ago business. That I mentioned in the prepared remarks, the decline there is largely an inventory-related dynamic going all the way through the wholesale channels related to the timing of innovation and price reform. And I think Matthew, we saw relatively flat consumption across the last part of the business during the quarter, is that right?

We've seen actually our total consumption pick up a little bit, and we just thought our latest higher share which shares to the first time in building total shares. So very early days, but it looks like consumption is picking up, and we believe from all the consumer ratings and reviews that we have a win on our hands. We also are betting big on pants, where we have made great progress from being number five to number one. We really drive the big growth in time both on high and mid-tier.

Thank you. Good evening, guys. Both my questions have been answered here, I guess, but I did want to shift back to ecommerce for a second. I think it's about 5% of your sales and growing 40%, so the math there is pretty straightforward. And I think you've also said that your offline and online shares are pretty similar, but the first question: which of your businesses are over-indexing and under-indexing in terms of online versus offline shares? And then secondly, what is the impact on margins given how quickly this channel shift is happening? Thanks.

So online versus offline share varies by category and market. So, within the same category, it can be very different by market, and within the same market, it can be very different by category. So I don't have a universal answer for you there. It's also impacted rather dramatically by the structure of the market in terms of, for example, whether people are using public transportation or private transportation, whether they can handle bulky products or not. That also has to do with the relevance of categories in different markets. But maybe to shed some light on this, let's just talk China; I think Jasmine probably the e-com market index is more focused on skin care than any other categories, is that right?

Yeah, actually, e-com is very much geared towards skin care, the beauty care as well, the high-end of personal care, including razors and power brushes as premium care brands, etc. So it is very much beauty and high-end products.

Whereas, for example, going back to my comments, if you look at the U.S. market, it tends to be overdeveloped in products that are bulky. So diapers, paper towels, liquid detergent tend to be overdeveloped, but it's very different by market. And our strategy is to be fully relevant in any channel that a consumer wants to shop and, therefore, be well-positioned to win regardless of the habits within an individual market.

Good evening, everybody. Jon, you mentioned earlier that one of the feedback points from investors that you've met with recently is the desire for you perhaps to move faster along certain elements of the change program, support for the change program, but looking to accelerate some things. Could you share your perspective on perhaps which elements of the change program, and I know there are many of them from portfolio to workforce structure to cost efficiencies, but which element of the change program, in your perspective, are most conducive or likely to be accelerated as you look forward over the next 12 to 24 months? Thank you.

That's a very good question. As you know, in our first productivity program, we were able to exceed and accelerate the cost savings significantly versus our going-in assumption. That's going to be less easy to do this time because more of the savings are coming from a very capital-intensive redesign of our supply chain. But still there's work we are working to do there; we had a leadership team discussion on that just this week on how we can accelerate some of the productivity savings, and we'll work to do that. We'll update you as we have more perspective. Also, I think there's a strong desire on the part of both the management team and the organization itself to continue advancing some of the changes that we've made in the organization structure and begin to actively hear talk this week about if you will, version 2.0 and what are the next steps in that journey. So I think there's a lot we can do when Sumeet was talking about accelerating the pace to market with innovation as a result of the new organization structure, I think that's something we also have a massive opportunity to be more deliberate about—faster time to market, but also faster globalization of great ideas and smart ideas which has historically taken us some time. So we're going—and look, there's nobody who wants the results faster and better than us, and I know the team here, so we'll be working hard on that. Listen, thank you everybody. I hope our experiment here was useful to you. If you have any feedback, I'd love to get it both positive and negative. And I know I speak for the China team when I say that we really appreciate the opportunity to engage with you. So, thank you very much.