Procter & Gamble Company (PG) — Q4 2019 Earnings Call Transcript

Good morning. David Taylor, Chairman of the Board, President and Chief Executive Officer, and John Chevalier, Vice President, Investor Relations, join me this morning. I'm going to provide an overview of Company results. Dave is going to update us on four strategic focus areas: superiority, productivity, constructive disruption, and organization and culture. I'll close with guidance for fiscal 2020, and will, of course, take your questions. For the fiscal year we just completed, organic sales were up 5%. Core earnings per share were up 7%, currency-neutral core earnings per share were up 15%, adjusted free cash flow productivity was 105%. We returned $12.5 billion of cash to shareholders. Each of these metrics is in line or ahead of objectives set going into the year. GAAP earnings per share are lower, reflecting a one-time non-cash accounting charge to adjust the goodwill and intangibles carrying values of the Gillette shaving business. Grooming continues to be a very attractive business, with organic sales up year-over-year. April-June sales were up 4%, marking a truly global business with strong market positions and a highly profitable, cash-generative operation. The initial carrying values for Gillette were established nearly 14 years ago in 2005. We significantly over-delivered acquisition cost synergy commitments, but as outlined in each of our quarterly filings for the past three years, this global business has faced significant increases in currency impacts over the last decade. Lower shaving frequency has reduced the size of the developed blades and razors market. More recently, and to a much lesser extent, new competitors have entered at prices below the category average. These factors caused us to reduce the accounting and carrying value for this business on our balance sheet. All core metrics – organic sales growth, core earnings per share growth, currency-neutral core earnings per share growth, adjusted free cash flow productivity, and cash return to shareholders – are in line or ahead of objectives set going into the year. Overall, we achieved this progress in the face of strong headwinds. Foreign exchange, commodities, transportation costs, and tariffs created a $1.4 billion fiscal year after-tax headwind, representing a 13-point negative impact on core earnings per share. Within this, currency had a substantial negative impact of more than $900 million after-tax, largely due to large markets with significantly weaker currencies such as the British pound, the Mexican peso, the Chinese yuan, the Russian ruble, the Brazilian real, the Turkish lira, and the Argentine peso. Commodity cost increases amounted to $400 million after-tax. Notable increases included pulp up 14%, resin up 7%, propylene up 10%, and kerosene up 16%. Trucking costs rose significantly in the U.S. and in many additional markets, with annualized tariff impacts approaching $100 million. However, we overcame these challenges with innovation-driven volume growth, pricing, and productivity, yielding strong results for the year. We are happy with a strong year, as demonstrated by a very strong April-June quarter, where organic sales were up more than 7%. The four quarters of the fiscal year reported growths of 4%, 4%, 5%, and 7% on the top-line with volume, pricing, and mix contributing. Growth was broad-based across all 10 global categories, each registering organic sales growth. Skin & Personal Care and Personal Healthcare were each up in the mid-teens, Fabric Care and Home Care each recorded double-digit growth, Oral Care and Feminine Care were up in high singles, and Family Care and Grooming each saw mid-single-digit increases. All six geographic regions also expanded organic sales. India, the Middle East, and Africa saw mid-teens growth; Greater China showed double-digit growth; North America, Latin America, and Asia Pacific increased in high singles, while Europe experienced mid-single-digit growth. Organic sales growth in our two largest markets continued strong, with the U.S. achieving over 7% growth across 10 out of 10 categories. We continued to make progress in China, improving from a 5% sales decline in fiscal '16 to 1% growth in fiscal '17, 7% organic sales growth last year, and fiscal '19 growth up 10%, including 12% growth in the April-June quarter. Global e-commerce organic sales grew 25%, now more than $5 billion in annual sales, representing about 8% of the Company total. We are witnessing strong and improving market share trends, with aggregate global value share increasing compared to the previous year, with 33 of our top 50 category-country combinations holding or growing value share in fiscal 2019, up from 26% in fiscal 2018, 23% in fiscal '17, and 17% in fiscal '16. The sequential increments were 17%, 23%, 26%, and now 33% with 8 of 10 global categories holding or growing share. On the bottom line, core earnings per share reached $1.10, a 17% increase from the prior year, and up 26% on a currency-neutral basis. Fourth-quarter margins improved both sequentially and year-over-year, with core gross margin up 120 basis points. Strong top-line leverage and productivity improvements more than offset foreign exchange, commodity cost, and mix headwinds. On a currency-neutral basis, core gross margin increased by 160 basis points. Core operating margin rose by 130 basis points on a currency-neutral basis, up 210 basis points including 340 basis points from productivity-driven cost savings. Cash flow remains strong, with adjusted free cash flow productivity at 122% for the quarter and 105% for the year. Our Board increased the dividend by 4% in April, marking the 63rd consecutive annual increase, and the 129th consecutive year in which P&G has paid a dividend. P&G is one of only 10 U.S. companies to pay dividends for more than 120 consecutive years, with only three U.S. companies having increased dividends for more consecutive years than Procter & Gamble. Over the past decade, our annual dividend has risen from $1.64 per share to $2.90 per share, an increase of almost 80%, returning nearly $67 billion to shareholders. Over the last ten years, we have returned more than 100% of net earnings to shareholders as dividends and share repurchases. In summary, we delivered or over-delivered on each of our going-in targets, with the exception of GAAP earnings per share. We achieved this while offsetting a foreign exchange, commodities, transportation, and tariff tsunami. We built momentum on sales, share, and margin as the year progressed. We delivered very strong constant currency core earnings per share growth and continued our best-in-class track record of cash return to shareholders. We still face challenges and continue to operate in a difficult competitive and macro environment. Our work is not over, but we are making progress behind our integrated and mutually reinforcing strategies. David will discuss next. David?

Thanks Jon. One of the most encouraging points about the strong results we've delivered is the breadth of the progress we've made across the categories and countries. The breadth of growth gives me confidence that the strategies and focus areas that are guiding our choices and investments are the right ones. It also gives me confidence that we're building the capabilities to sustain growth at or above market levels. The mutually reinforcing strategic choices we've made are critical to that progress. We focused on and strengthened our portfolio in daily-use categories, where performance drives brand choice. In categories where we occupy a number one or number two position, historically growing faster than the balance of the Company and are more profitable. The benefits of the portfolio choices are clearly paying off within these ten categories where performance drives brand choice. We are intentionally investing in and advancing the superiority of products, packages, brand communication, retail execution, and value advantage, growing the markets where we compete and strengthening the long-term health and competitiveness of our brands. We’ve raised minimum standards of competitive advantage across each of the superiority drivers and are investing to meet or exceed these new standards. Superior offerings drive market growth, and this is critical because increasing consumption creates additional usage occasions, bringing more spending into a category which grows the market. This creates top-line growth that is typically more sustainable than merely taking business from a competitor; it cultivates a positive spiral of growth. We've spoken a lot about the role of product and packaging superiority in growing markets for P&G share, but communication, go-to-market strategies, and value must also succeed. We prioritize understanding our consumers' needs, wants, and aspirations, developing advertising that engages and resonates with them. Effective advertising is key to driving growth for both categories and brands and must achieve the highest standards for creative brilliance, sparking conversation, influencing attitudes, altering behavior, and sometimes even defining popular culture. This year at the Effie Awards, which recognizes the most effective marketing communication, P&G was honored as the most effective marketer, and Tide won the Grand Effie Award. Our advertising earned 16 lions at the Cannes Lions International Festival of Creativity, including three golds, six silvers, and seven bronzes. During the Effie event, we announced a series of innovative creative partnerships that blend advertising with other creative avenues such as filmmaking, music, comedy, journalism, and technology. Superior in-store and online execution also grows categories and strengthens our brands, alongside the right trade coverage with category mastery reflected through appropriate product forms, sizes, prices, and effective in-store or online merchandising to cater to business drivers across each channel and store, every day. Previously, Jon has taken you through some of the recognition we've received from our top customers and third-party retailer assessments of our capabilities. While we appreciate these recognitions, what truly matters is retailers' improved perception of P&G as a partner in joint value creation; driving superiority to grow categories earns stronger distribution, shelf space, and promotional features. The fifth component of superior execution is a winning value equation for both consumers and customers. For consumers, this means a product that effectively meets their important needs with noticeable superiority, enhanced by packaging for better usability and compelling communication that’s presented clearly and affordably. For customers, this requires margin generation and category growth, along with overall profit. We will continue to focus on making strides in superiority, extending our margin of advantage, and enhancing the quality of execution, which will necessitate ongoing investment. The necessity of this investment, coupled with the ongoing macro cost headwinds previously mentioned and the drive for balanced top and bottom-line growth, inclusive of margin expansion, underscores our productivity goals. We are pursuing costs savings and efficiency improvements across all facets of the business. Currently, we are past the midpoint of our second five-year $10 billion productivity program. Thanks to our productivity efforts, P&G has maintained its standing as a highly profitable company. Our before-tax operating margins are among the industry's highest, trailing only Reckitt and Colgate, whose margins reflect their concentration in healthcare. We enjoy significant below-the-line advantages as we operate with one of the lowest interest expense percentages and low tax rates, positioning us near the top of the industry in terms of after-tax margin, maintaining high profitability while aggressively driving further savings. These results stem from a sustained, intense focus on enhancing productivity across all cost sectors, and we will keep our focus, as it remains crucial to our success. Superiority and productivity are vital, but they are insufficient for us to remain ahead in a quickly evolving retail environment with rapidly changing consumer needs and significant media transformation. We must lead constructive disruption across all areas of the value chain. By innovating swiftly, we are disrupting our traditional innovation processes, improving speed and quality through LEAN innovation, which is delivering significant benefits in time and costs. Learning cycles now range from months to days. We're monetizing innovation to accelerate investments in R&D and broaden societal impact. We're also revolutionizing retail execution; for instance, SK-II is using AI-enabled technologies to enhance the consumer shopping experience through personalized recommendations based on skin scans, product browsing in augmented virtual spaces, and seamless shopping experiences. Moreover, we’re reinventing brand building by shifting from costly mass marketing to personalized, data-driven brand interactions. We're moving from broad demographic targets to specific, intelligent audience targets for efficient marketing. Our supply chain is undergoing transformation; in Europe, for example, we’ve optimized our distribution and manufacturing by reducing to fewer scaled, multi-category operations strategically located. Manufacturing sites have been consolidated by 30%, and distribution centers have been reduced by 35%. We are simplifying the organization, focusing efforts, clarifying responsibilities, increasing accountability, and restructuring compensation aligned with these objectives. We have a remarkably talented organization of over 90,000 fully committed individuals who have consistently delivered progress; they deserve credit. In the past, we imposed competing management structures, lack of clear accountability, and multi-decision-making environments that limited our agility. On July 1, we implemented a new organizational structure to de-matrix the company, providing enhanced clarity on responsibilities and reporting lines to strengthen leadership accountability. We now operate under six industry-based sector business units with profit and loss responsibilities for the largest, most significant markets, which represent about 80% of sales and 90% of profit. The SBUs’ CEOs are concentrated on driving value-creation opportunities in these vital markets. We optimize remaining markets, termed enterprise markets, to accelerate growth in dynamic macro environments. This design creates a more focused, agile, and accountable organization operating efficiently with a focus on superiority—fueled by productivity—operating at market speed. North America piloted the end-to-end SBU approach three years ago, followed by China, showing evidence of success through both sales and share progress in these markets. We are determined to win everywhere we engage in both focus and enterprise markets, and we aspire to win rightfully. Taking a stand for good and for growth, we’ve integrated citizenship into our operations to have a broader positive impact on the people we serve, the communities in which we live, and the world at large. This synergy helps us grow and build our business. I hope this illustrates our commitment to disrupting P&G itself. The decisions we’ve made to focus and strengthen our portfolio in daily-use categories where performance governs brand choice, to establish and extend superiority in our brands, lead constructive disruption throughout the value chain, centralize productivity into our culture alongside innovation, and enhance our organizational focus, agility, and accountability show a cohesive strategy. These are not separate strategies but rather reinforce and build on each other, preparing us well to navigate the macro headwinds, trade challenges, and anticipated competition, establishing a solid foundation for stronger, balanced growth and value creation in the short, medium, and long-term. I’ll turn it back to Jon to cover our outlook for fiscal 2020.

We provided details of our outlook in the press release published this morning, so I'm going to focus on the primary guidance metrics in this call. We expect organic sales growth in the range of 3% to 4%, where operating markets are currently growing at rates somewhat above 3% on a value basis. Our guidance range brackets current market growth with a bias toward continued share growth, while still anticipating a strong competitive response. The range also implies acceleration of two-year average growth rates moving from a 3% two-year average growth for fiscal years ’18 and ’19 to more than 4% average organic sales growth across fiscal years ’19 and ’20 in a market growing somewhat above 3%. On the bottom line, we expect core earnings per share growth of 4% to 9%, aiming to return to our target mid-to-high single-digit range. Neither top-line nor bottom-line guidance ranges are guaranteed; both represent meaningful sequential progress. We anticipate innovation-driven market sales and share growth, significant gross margin expansion, as well as increased investments in product impact, superiority, media, and other demand-creation marketing programs. Fiscal 2020 will continue the long tradition of significant cash generation and returns to shareholders: our most critical and lasting measure of success. We’re targeting another year of 90% free cash flow productivity. We expect to pay over $7.5 billion in dividends and repurchase $6 to $8 billion of shares in fiscal 2020. Our guidance depends on current market growth rates, commodity prices, and foreign exchange rates. We do not anticipate significant currency weakness, commodity cost increases, or other geopolitical disruptions implicating this guidance range. Now, let me hand it back to David for closing comments.

We delivered our fourth strong quarter in a row, continue to build top-line momentum, and improve our bottom-line results. Market share has increased for eight consecutive quarters. Our focus on extending our margin of competitive superiority, driving productivity savings to fund investments for growth, and enhancing our industry-leading margins, while also simplifying our organizational structure and heightening accountability to constructively disrupt our industry, are embodying significant improvement in our results. However, we know our work is not yet complete. To further strengthen our results, we will keep accelerating the pace of change. The macro environment and strong competition are sure to present new challenges in the year ahead. Nonetheless, we are better positioned to manage these challenges than we've been in many years. With that, Jon and I are happy to take your questions.

You guys have just finished what is arguably your best year in about a decade. So can you just talk through the order of priority and the changes you've made that have led to this, including the improved innovation and the portfolio changes you made a few years ago? How do the organizational changes now in place help with maintaining that sustainability? Thanks.

The strategy truly is working and we continue to reinforce it. I refer again to the combination of starting with our consumers and making sure we delight them through superior products, packaging, communications, go-to-market capabilities, and value is indeed making a difference. We see this sustainability over three years in more and more category-country combinations. The organization is adapting as needed, with clear priorities, a straightforward strategy focusing on superiority. That’s something everyone understands and internalizes. The recent employee survey indicates that confidence in our strategy has increased significantly across markets and Global Business Units, reflecting alignment among our 90,000-plus people. This suggests a collective belief in a plan that is working, which explains the sequential progress we’ve seen quarter-to-quarter and year-to-year. It’s very encouraging.

To add on what David mentioned, the main thing that gives me confidence in the sustainability of results comes from our ability to deliver growth by expanding markets, as evidenced by significant growth in the laundry market behind PODS, along with significant acceleration in the rate of growth for fabric enhancers through innovations such as beads. We've also seen remarkable growth in the adult incontinence market, demonstrating that sustainable growth often comes from creating or expanding market opportunities rather than just competing in existing ones. Additionally, balance remains critical to sustaining growth – it’s not simply about growing market share but also about maintaining overall profitability. Our leadership team is committed to this sustainable growth trajectory.

I was hoping I could get some tangible examples, as a lot of the brand reinvestment work and portfolio work we've heard about has been very U.S.-focused, making it a bit difficult to assess the overall P&G world from here. If you could talk a little about tangible work in other focused markets, it would help. For instance, we read recently about the relaunch of oriental therapy skincare in China. If you could run through some other portfolio work that might not be visible to those of us in the U.S. Thanks.

There are many examples across different categories. If I look at Europe, we've experienced an acceleration of growth in our dish business, notably with the Platinum product rolled out in many countries. It represents a superior proposition leading to meaningful share growth. In China, we’ve seen significant growth in Fem Care and laundry products like beads and PODS, with numerous initiatives catering to each country's needs. But each of the 10 categories now has a solid innovation plan targeted at growing the market while delighting consumers and competing effectively. This broad-based support exists across all focus markets.

First, just a clarification. The Q4 top-line result was very strong, and I'm wondering if you included any timing benefits from retailer inventory shifts that might affect fiscal Q1. Then you clearly articulated the internal momentum behind your growth; I'd love to hear more about that from an external standpoint with regard to the competitive environment moving forward, particularly concerning pricing and marketing reinvestment since many competitors have announced margin resets recently. I'm hoping you could elaborate on what gives you confidence in sustaining market share gains under those conditions.

On the first part, yes, we did see minor inventory builds with a couple of customers primarily in the U.S. who increased service commitments to deliver products quicker to their customers. However, excluding that small impact, organic sales growth in the fourth quarter remained well over 7%.

As for competition, our focus remains on the consumers and on innovation that drives market growth. We recognize the need to maintain superiority whenever innovations appear in the marketplace. By cultivating meaningful productivity, we create investment opportunities necessary to stay competitive, although we can't specify where or how much just yet. We’ve observed various innovations from our competitors and have been able to respond effectively by focusing on our own innovations that help grow the category. As for environmental conditions, competitive moves naturally occur, but our focus lies on our strategy and growth opportunities.

There is a valid concern that the competitive environment is heating up, but the recent volume movement has been constructive. Promotion indexing in the last quarter measured at 94 compared to the previous year suggests a constructive environment where companies are striving to innovate for market growth.

I'll try to combine a couple of questions together. Your guidance suggests commodities, currencies, etc., will be roughly neutral. How do you think about category growth, particularly regarding pricing trajectories as those dynamics change? For part two, if those factors remain neutral and you execute your productivity ramp, it appears you should have around 260 basis points of margin tailwind from productivity. Your midpoint guidance suggests around 80 basis points, implying over $1 billion in reinvestment. Is that math roughly accurate and, if so, where do you foresee those reinvestments going?

Regarding category growth rates, Jon previously mentioned they have been relatively strong. As long as we do our job, there’s reason to believe the categories should stay healthy. The U.S. is constructive at around 3%, while Europe may see a slight decline in growth next year for various reasons. We still see healthy growth in India and the Middle East, as well as in China. Overall, I believe our strategy enables us to address consumer needs effectively, which will lead to continuous category growth.

On your income statement question, your observations about margin directionality are reasonable in this case. Assuming our current macro assumptions are correct, we should be able to grow margin and simultaneously reinvest in our strategies to build and maintain superiority. However, be mindful of significant one-time gains in previous periods when considering the comparisons.

I would like to focus on the benefits resulting from your Lean Innovation initiative, if possible. Can you provide examples demonstrating the continued progress made in this area? Additionally, is there evidence suggesting this approach not only increases speed-to-market but also enhances consumer acceptance of the products that result from it?

Certainly, the advantages of lean innovation are meaningful in multiple respects. For instance, Pampers Pure reached the market significantly faster due to a small dedicated team that concentrated on addressing specific problems, delivering a product that has performed well in the market. Additionally, we have seen the advantages of testing multiple hypotheses in a streamlined environment; smaller teams can validate significant consumer ideas quickly. We have now introduced initiatives that allow for rapid learning experiments, maximizing our project learning capabilities with small teams and minimal investments, all of which is promising for our continued innovation.

I’d like to squeeze in two questions if I may. Regarding in-store execution, could you provide some metrics on the improvements made? For my second question, as you think about the next three to five years, how adept is Procter at capturing individual consumer data to better target our outreach, for example, addressing specific individuals rather than general segments?

In terms of in-store execution, it’s a broad topic extending beyond just the store environment itself. One critical aspect is maintaining stock on shelves, essential for consumer access. We've made significant advancements, driven largely by our joint plans with retail partners and transformations in our supply chain that have increased product service levels, enabling us to enhance the shopping experience. Furthermore, we're striving for consistent in-store experiences that align with our key business drivers for measured performance.

As for data capture for individual consumers, we are excited about the developments concerning smart audiences. We have expanded our proprietary database, having over a billion consumer IDs globally. This allows us to incorporate these insights for targeted marketing efforts, enabling us to run tailored programs worldwide. The data we collect is refined through respectful consent and used to inform tactics, enabling our broader marketing efforts as we will be able to progressively engage in more precise performance marketing efforts over the years.

I would like to ask about your Baby Care business initially and get your outlook for this business. What are the key drivers contributing to that improvement? Are additional price adjustments still necessary for the mid and value tiers? Are there any premium innovations coming into the U.S. to counter the new innovations from competitors? Thanks.

The overall global Baby Care business features a robust innovation plan; our senior leadership has dedicated considerable attention to this sector. I cannot announce specifics about upcoming product launches, but we will elevate innovations in both premium and mid-tier segments rapidly. Exceeding last year, global organic sales showed growth this quarter and we’ve seen positive growth in China, notably the first positive sales and share growth in five years driven by premium products.

Regarding pricing, we can't divulge specifics on future pricing strategies, however, premiumizing the portfolio does tend to create pricing opportunities that we would expect to capitalize on.

I’d like to ask at a high level—there’s been a marked acceleration in end markets here in terms of total category growth alongside your improving market shares. Does this parallel pre-recession levels when a trading-up behavior was common, especially across various categories? Could you please provide context around that? For a follow-up, could you break down the impacts of commodity, transportation, and FX costs a bit more? Will all three remain relatively muted or experience level-out, where one may go down?

The prevailing growth rates appear relatively stable, in healthy territory in most segments. Our sustained performance gives us confidence moving forward. Additionally, pricing product innovations hinge on meaningful advantages, which recognize a healthy trading-up consumer willingness where there are strong value propositions.

To answer your question, our currency outlook for the upcoming year appears relatively minor in magnitude, although there are areas like Turkey, Argentina, and the UK where risks from significant declines exist. In terms of commodities, while they present a slight challenge today, overall there is an element of volatility influencing the environment. Transportation costs are where we derived possible positives, and we hope to maintain equilibrium within that context moving forward.

Can you share a sense of your growth breakdown, including the contributions from same-store sales versus shelf space gain, as well as the impact of broader distribution? Additionally, concerning the marginal improvement of gross margins, can you elaborate on whether this reflects a shift in profitability across your ecosystem? Are retailers benefitting from this, or is it decentralized in nature? Going forward, is this elevated level of investment essential for maintaining 3.5% category growth?

We see sustained improvements, with increased market shares attributable to robust innovation and deeper market insights, allowing for future growth. As for the elevated investments, those are indeed necessary to ensure both retail and consumer needs are met in a highly competitive environment; this will help to create the strong foundation we require for long-term viability.

I would add that while growth is tracked carefully across shelf space and broader distribution considerations, the actual dynamics may vary depending on timing and market developments. We're focused on optimizing these elements as part of the overall strategy.

David, could you comment on Grooming like you did on Baby Care? We've seen nice growth in that division as well, what do you think has driven this and how sustainable is it? Additionally, what about initiatives like Gillette's online offerings? How do you plan to sustain that growth journey in key markets?

Grooming remains an attractive business with positive drivers behind it. Innovative products like Skin Guard continue to gain market share, and we've implemented numerous strategies across the board including lower price tiers, disposables, and expanded digital communication tailored toward millennials and Gen Z. We have also gained traction in markets through strategic collaborations such as those across the full ladder system. Meaningful growth is anticipated as we maintain focus on trial and effectiveness—aligned with how consumers relate to the brand.

The online initiatives are continuing to mature across multiple markets as well. Even though direct-to-consumer is presently in its infancy, we’re witnessing significant growth in that realm and we are increasingly ensuring the user experience is engaging and valuable. We continue to address consumer needs both online and offline effectively.

I'm curious about the competitive response you are witnessing in the marketplace. Given that it doesn’t feel like there is a current environment for significant price decreases beyond ordinary competition, do you think this illustrates a different response from competitors? Are you expecting any major strategic shifts there?

We have witnessed various competitive actions, characterized primarily by increased innovation across the spectrum. Overall, the outlook remains constructive, and we appreciate these in direct alignment with our long-term strategies. Companies appear to be more prudent in their actions and the result is a collaborative environment for growth.

Could you elaborate a bit more on media spending? Specifically, I'd like to know how you’re approaching increased focus on traditional media and the allocation of resources to media spend with retailers. How are you planning to navigate this going forward?

We are placing a stronger emphasis on improved media delivery strategies, and our goal is to achieve greater efficiency in distribution. Previously, we found ourselves overspending with too-high frequencies, and we’re in the midst of a reassessment that aims to channel resources in a more effective manner. Additionally, we're zealous on opportunities that exist in our media supply chain and across agency partnerships to enhance our compensation structure.

I have two inquiries. First, is the impairment charge annual and does it signal any operational issues? Second, regarding Edgewell’s acquisition of Harry's, how are you viewing potential industry consolidation and the implications for your strategies? What adjustments are embedded in your market outlook?

We assess goodwill and intangible assets each year. What we've been conveying is the cushion in other words, the assessed value versus the carrying value on the balance sheet, has diminished based on declining market performance and currency impacts on the business. This process is triggered annually and reflects external conditions rather than operational shortcomings.

As for the Edgewell acquisition of Harry's, the implications will take time to unfold. It's still early as the deal is not yet closed. Edgewell must focus on profitability to justify their acquisition measures, which may present broader competitive dynamics. We are committed to differentiation strategies across our product lines. Overall, we’ve established Gillette and Venus campaigns that resonate well with our consumer base, ensuring we maintain an advantage.

As you reflect on the decade behind you, it has posed significant challenges for major brands, and I’m curious about when you might foresee a shift back towards larger brands enjoying a competitive advantage over smaller entrants. I wonder if this quarter can serve as a turning point in realizing that shift in part, given performance in the U.S. and China. Would you expect these trends to branch out to other countries too? Additionally, how has your organizational framework shifted to inhibit the rise of disruptors like Harry's?

While we respect the landscape's competitiveness, we are committed to continuously improving and differentiating our strategies, so we can maintain strong positions in our categories across countries. The share gains we have achieved and the resilience of our brands embody the strategy's effectiveness. It has allowed us to counteract the impacts from smaller disruptors, while simultaneously ensuring we remain steady in our growth trajectories as each of our brands aligns effectively with consumer needs.

As David mentioned, our brands are redefined to appeal to larger markets while strategically meeting consumer demands. Past experience illustrates the value of our portfolio's resilience. We have strong teams in place, and the current design allows us to react quicker, adjusting strategy and execution to take calculated risks while capitalizing on newer opportunities.

We’ve seen impressive cost savings over the past eight years. Looking beyond two years, how strong do you believe your cost and productivity opportunities will be moving forward compared to past years, both in absolute and relative terms?

While I cannot specifically project out years ahead, I can confirm that we view our productivity programs as critical for our ongoing success. We've made noticeable efforts towards cost reductions while concurrently promoting innovation. The tools available today, particularly in digital spaces, present us with increasing opportunities for improvement. The importance of productivity remains unwavering as a foundational element to sustain growth.

Indeed, productivity is crucial, and we actively seek improvements across all facets of our operations. Our initiatives strive for efficiency in both cost structures and synergies from innovation, which should compound over time providing increasing value and competitive strength. Thank you for your engagement and discussion about P&G. Our strategic decisions are beginning to yield sustainable, balanced growth and value creation. We remain aware of the work ahead but are optimistic about our trajectory. We will continue to foster superiority, invest in productivity, and harness the commitment of more than 90,000 team members who have been key to implementing and enhancing our strategies worldwide. Thank you.