Procter & Gamble Company (PG) — Q1 2021 Earnings Call Transcript

Good morning. We’d like to start by expressing our sincere hope that you and your families remain safe and are well. A good quarter isn’t difficult to explain. So, we’re going to keep our prepared remarks brief with just a little over 10 minutes and then turn straight to your questions. The July-September quarter provided a very strong start to the fiscal year, enabling us to increase guidance for organic sales growth, raise guidance for core earnings per share growth, increase guidance for adjusted free cash flow productivity and raise our commitment for cash return to shareholders: organic sales up more than 9%, 7 points of volume growth, 1 point of positive mix and 1 point of price. We built strong momentum leading up to the crisis with 6% organic sales growth in calendar year 2019. We maintained 6% growth in the first half of calendar 2020, overcoming significant challenges, including the lockdown in China, closure of the travel retail, electro, specialty beauty, and away-from-home channels, operational challenges, safely staffing our facilities and sourcing materials necessary to maintain and in some categories significantly increased production, to serve heightened consumer cleaning, health and hygiene needs. We accelerated to 9% this quarter against a strong 7% base period comparison. Strong momentum reflects the underlying strength of our brands and the appropriateness of the strategy, which is driving our business, pre, during and at some point post-COVID. Broad-based growth: U.S. organic sales up 16%, Greater China up 12%, focused markets up 11% and enterprise markets, which are significantly impacted by the COVID pandemic, up 5%; 9 out of 10 product categories grew organic sales. Home Care up more than 30%, Oral Care up mid-teens, Family Care up double-digits, Personal Health Care, Fabric Care, Feminine Care, Hair Care, and Skin and Personal Care up high singles; Grooming up mid singles, Baby Care down low singles; aggregate market share growth of 30 basis points with 30 of our top 50 country category combinations holding our growing share; e-commerce sales up approximately 50% for the quarter. Turning to earnings, core earnings per share up 19%, currency-neutral core earnings per share up 22%. Within this, core gross margin expansion of 140 basis points, up 170 basis points ex-FX. Core operating margin up 300 basis points, up 350 basis points excluding FX. Adjusted free cash flow productivity of 95%. We returned $4 billion of value to shareholders, $2 billion of dividends paid and $2 billion of P&G stock repurchase. In summary, a very strong start to the fiscal year, strong volume, sales and market share trends, strong operating earnings, margins advancing, strong core earnings per share growth. We built strong momentum heading into the COVID crisis and have been able to maintain this through the most recent quarter, supporting a guidance increase for all key financial metrics: organic sales, core earnings per share, cash productivity, and cash return. As we outlined each of the last two quarters, we’ve established three priorities that have been guiding our actions and our choices in this crisis period. First is ensuring the health and safety of our P&G colleagues around the world. Second, maximizing the availability of products we produce to help people and their families with their cleaning, health and hygiene needs. These products are more important than ever, given the needs created by the current crisis, increased awareness of health and hygiene, and the additional time we’re all spending at home. Third, supporting communities, relief agencies and people who are on the frontlines of this global pandemic, with product donations, PPE production, financial support and using our marketing and communications expertise to encourage consumers to support public health measures as well as the spread of the virus. These priorities are completely congruent with our strategic choices which remain the right ones. These strategic choices are the foundation for balanced top and bottom line growth and long-term value creation. As you know, we focused our portfolio on daily-use products and categories where performance plays a significant role in brand choice. In these performance-driven categories, we’ve raised the bar on all aspects of superiority: product, package, consumer communication, retail execution and value. Superior offerings delivered with superior execution drive market growth. Leading category growth with superior offerings mathematically builds market share and builds business for our retail partners. We’ve made investments to strengthen the long-term health and the competitiveness of our brands. And we’ll continue to invest to extend our margin of advantage and quality of execution, improving options for consumers around the world. The strategic need for this investment, the short-term need to manage through this crisis, and the ongoing need to drive balanced top and bottom line growth, including margin expansion underscore the importance of ongoing productivity. We’re driving cost savings and cash productivity in all facets of our business, up and down the income statement and across the balance sheet. Next, success in our highly competitive industry requires agility that comes with a mindset of constructive disruption, a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. In our current environment, that agility and constructive disruption mindset are even more important. Last, our new organizational structure yields a more empowered, agile and accountable organization with little overlap or redundancy, flowing into new demands, seamlessly supporting each other to deliver against our priorities around the world. These strategic choices we’ve made, portfolio superiority, productivity, constructive disruption, and organization structure and culture are not independent strategies. They reinforce and build on each other. When executed well, they grow markets, which in turn grow share, sales and profit. We believe our strategies, the success we’ve had behind them and an increased societal focus on health, hygiene and the clean home all bode well for the future. We believe P&G is well-positioned to serve consumers’ heightened needs and their changing behaviors, and to serve the changing needs of our retail and distributor partners, all of which are critical to long-term value creation. We like our long-term prospects, though the near term will continue to be challenging, and it’s a little more difficult to predict. Our near-term outlook begins with an assumption of how underlying consumer markets will develop. This by itself is highly uncertain. The reality is that COVID cases are increasing in many parts of the world, without the resources, infrastructure, or in some cases the will to effectively manage it. We’ll likely be operating without broadly available vaccines or advanced therapeutics through fiscal ’21. This could prompt tighter containment policies and dramatically reduced mobility, which would affect employment and overall incomes, potentially leading to a deeper and longer recession across large parts of the world. In the U.S., it’s unclear how long we’ll be operating at high unemployment levels, and when and how much mitigating economic stimulus will be available. There continues to be social unrest and economic distress in many parts of the world that also affect the prospects for category growth. These same dynamics can result in an increased cost to operate, and there is an ongoing risk of supply chain disruption, our operations or those of our suppliers. Against this challenging backdrop, we’re still holding ourselves to an expectation of meaningful growth, top line and bottom line and expect to be highly cash generative. With a strong first quarter as a base, we’re increasing our fiscal year guidance. We’re raising our organic sales growth guidance from a range of 2% to 4% to a range of 4% to 5%, which includes some quarter-to-quarter ramp-down from Q1 as retail inventories are fully replenished and as promotions are partially reestablished. We expect to grow market share in aggregate for the year. We’re increasing our core earnings per share growth guidance from a range of 3% to 7% to a range of 5% to 8% versus prior year core earnings per share of $5.12. This bottom line outlook includes headwinds of approximately $325 million after tax, a foreign exchange, $150 million from the combination of higher interest expense and lower interest income and $50 million after tax of higher freight costs. These headwinds should be partially offset by $175 million after tax of commodity costs tailwinds. Fiscal 2021 will continue our long track record of significant cash generation and cash return to shareholders. We’re raising our target for adjusted free cash flow productivity from 90% to around 95%. We continue to expect to pay approximately $8 billion in dividends and are increasing our outlook for share repurchase from a range of $6 billion to $8 billion to a range of $7 billion to $9 billion. Combined, dividends and share repurchase are planned to return $15 billion to $17 billion of cash to shareholders this fiscal year. This outlook is based on current market growth rate estimates, current commodity prices and current foreign exchange rates. Significant currency weakness, commodity cost increases, additional geopolitical disruption, major production stoppages or store closures are not anticipated within these guidance ranges. Wrapping up, we continue to execute winning strategies: a portfolio in daily-use categories where performance drives brand choice, superiority in products, packages, consumer communication, retail execution and value, productivity in all areas of cost and cash, constructive disruption in all facets of the operation and improved organization focus, agility and accountability. We feel we continue to have the right priorities to deal with the immediate challenges the Company’s facing, ensuring employee health and safety, maximizing product availability, and helping society overcome the challenges of the crisis. We’re stepping forward, not back. We’re doubling down to serve consumers and our communities. We’re investing in the superiority of our brands and the capabilities of our organization, always with our eyes fixed on long-term balanced growth and value creation. With that, I’d be happy to take your questions.

Geez, first question. So, many areas ago. I guess, I wanted to jump off of probably one of the higher order questions, Jon. You mentioned you’re excited, enthused about the consumers’ increased focus on health, hygiene and home. What’s your view on the durability of those related behavioral changes that we’ve seen over the last six, eight, nine months? Do you expect it to mean revert to pre-COVID? If so, what’s the duration? And if not, why not?

We do expect that there’s some stickiness to new habits that are being formed and new awareness that’s been raised. It’s hard for us to see in our interactions with consumers, that we’re going to snap back and revert to the same attitudes and the same behaviors that we had collectively pre-COVID. Even things like the amount of pantry inventory I keep. In some ways, this is analogous to what some of us remember our grandparents, for example, having survived the Great Depression, and they continued to hold onto some more food and canned items that I could ever understand. But, it was because of what they’ve been through. Consumer habits, once they’re established in our categories are rarely reversed. Occasionally, under duress, they will be. Generally, once people start using a category and form a habit, it sticks. I’m sure there’ll be some level of reversion. But we do expect a permanent change at some level as well. Duration, your call is as good as mine. I have no ability to predict what’s going to happen here from a viral standpoint or from a medical solution standpoint.

I appreciate the perspective. In that context, as you think about your portfolio construct, does it change the way you think about where you want to play?

On the margin, it can have an impact on where we want to play. We’re happy with each of our current categories. The question is, are there additional opportunities that we want to access? For example, we launched a hand sanitizer in the U.S. under the Safeguard brand name. You’re aware of the Microban 24 surface disinfectant, which we’re working hard to increase capacity on to meet very high demands for that product. So generally, again, our portfolio is going to daily-use categories where performance drives brand choice, heavily centered on health, hygiene, and a clean home is going to serve us very well in the situation, just as it did prior. But the situation does present additional opportunities to step up and serve and help consumers with their health, hygiene, and clean home needs.

So, 7% volume growth, 1 percent price, 1 percent mix, very balanced. Kind of a two-part question. How are you thinking about market share, how much of a priority is that in this environment? And looking at e-commerce, we’ve done a lot of work on the U.S. e-commerce business and did a deep dive on that using numerator data. What came out of that was a little mixed. Certain categories doing extremely well, like Crest just killing it in e-commerce, but based on the numbers we saw, diapers, bath tissue, and paper towels appear to be losing share in e-commerce. So, I’d love to get a sense of how you’re thinking about market share and particularly market share in e-commerce, and whether you are hitting the nodes of superiority that you’re looking for with the rest of your business? Thank you.

Thanks, Robert. I want to start in a slightly different place, but I’m going to bring it right around to the core of your question. So, be patient with me. We are maniacally focused on increasing and leading market growth. When we do that, we do it with superior products, continuously increasing our margin of advantage, meeting additional needs, solving intention points across the portfolio. When we disproportionately are able to drive market growth, mathematically, we build share. That share growth is sustainable and generally much more profitable than if we were sourcing market share by taking business from other companies. We’d rather create than take, and in the process more sustainably build market share, which is very important, as well as sales and profit. In terms of e-commerce, it’s a very competitive marketplace, just like other channels we compete in. There are always ups and downs across categories. But, we find that the same general strategy that I articulated in our prepared remarks is highly relevant in e-commerce, just like it is in brick and mortar. We don’t see a lot of differentiation between our ability to succeed in an e-commerce format and an offline format when we execute our strategies and when our products in categories where performance drives brand choice are truly superior. So, that’s our focus. We look carefully at overall share progress online versus offline and margin progress online versus offline in an area, which is always dangerous. Of course, operationally, we move to lower levels of aggregation. We’re indifferent between online and offline shopping, which is exactly where we want to be. I mentioned we grew e-commerce sales 50% in the quarter that we just completed. E-commerce sales are now probably 11% to 12% of our total. They’re important. And we’re just as focused on being successful in that channel as we are in the others.

So, Jon, I just wanted to better understand the implied healthier organic sales growth guidance for the fiscal year after Q1 strength. It’s only about 3% at the endpoint of your full year range versus 9% this quarter, doesn’t seem to have really moved up the Q2 through Q4 implied forecast, despite the Q1 upside. So, I’m just trying to understand if that’s more just related to the uncertain environment here post-COVID. Are there other specific factors driving that forward sequential caution you’ve mentioned in your prepared remarks? And just on promotion, could you provide an update on whether the U.S. promotional environment is returning to more normalized levels? And how do you think of the calendar 2021 versus 2020 on that front, given it was an abnormally depressed promotional base?

No surprise to you or anyone on this call, we continue to operate in a highly uncertain environment with many more drivers of that uncertainty than we’re historically accustomed to, which helps frame guidance, if not guidance ranges. Second, we’ve got a long way to go. We’ve been through one quarter, we’ve got three more quarters to execute in this very dynamic environment. Third, market growth, which is where we start in our outlook process looks to be kind of 3% to 4% on a normalized basis, globally. So, 4% to 5%, as our new fiscal year guidance range is consistent with our desire to build market share but realistic in its approach. The quarter we just completed has two elements that will drive a higher top line result. The first is inventory replenishment to the trade during the quarter that was probably worth a point or two. You mentioned also lower levels of promotion. We still have categories where we have replenishment work to do. Some of that benefit will carry forward into subsequent quarters, but many of our categories are for now replenished. From a promotion standpoint, we’ve returned to somewhat normal levels of promotion in most categories in the U.S. except those where we still have work to catch up on replenishment, where demand exceeds our current ability to supply, and that would be our Home Care business, our tissue/towel business and parts of our Health Care business. We do expect some normalization of promotion rates in the back half of the year. As we get into 2021, exactly what the cadence is of that and exactly what level things return to is not entirely clear. We’re going to continue where we have the opportunity to prioritize spend on innovation and equity. There is nothing proprietary in promotion, but we will be competitive from a promotion standpoint. I know that answer lacks the specificity you are looking for. The best I can do with the current state of knowledge and the current state of volatility. I think, Dara, the question behind the question is, is there a possible upside to the guidance range? I think the answer is yes. But, I would also hasten to add that there’s also downside. There are a lot of moving pieces right now.

I wanted to ask about fields of play. You've mentioned new opportunities, and the release specifically highlighted the Safeguard launch. I'm also curious about the Personal Health Care business, as you've been investing in building a greater presence in that area before COVID. It seems that this new environment could provide some interesting additional opportunities in Personal Health Care. Can you discuss this business, how you might be allocating your spending differently, your focus on new areas, and what the broader international presence means for you compared to a few years ago? I think that would be really insightful.

Sure, Lauren. Personal Health Care is a very appealing sector, and you're correct that we've been investing in it. We acquired the German Merck OTC portfolio, which we are currently integrating successfully. Our revenue growth in that business, as well as in our heritage P&G Personal Health Care segment outside the United States, is impressive, with growth rates in the high singles and double digits in some cases, exceeding the targets we set when purchasing those assets. Additionally, cost synergies are coming in well, giving us confidence to seek smart ideas to expand our current portfolio and explore further value-creating opportunities. The German Merck OTC assets have added about $1 billion in international sales, enhancing our presence in many regions and giving us the capabilities to grow this business profitably. This will be a key area of focus for us moving forward. While I don't want to overstate this opportunity, we have invested significant time and resources to establish our footprint in the 10 specific categories we've chosen. Our goal is to grow and succeed while capitalizing on opportunities in each of them, including in the over-the-counter medicines market.

Jon, you've experienced significant growth in both the U.S. and China over the past six months, and you mentioned it briefly this morning. Could you elaborate on your expectations for these markets for the rest of the year, particularly regarding consumer trends and your selling patterns? Additionally, what do you believe accounts for the strong growth in these regions compared to the low to mid-single digit growth in your overall portfolio? Is this primarily due to your focused strategy, or are there deeper structural differences in these key markets compared to the rest of the world as you look ahead?

We have discussed this for some time. David initially highlighted the significance of succeeding in the U.S. and China at CAGNY several years ago. We have intentionally worked to establish strong positions in our categories within these two markets. Our organizational design is even structured to ensure that our leadership can concentrate their efforts on these priority markets, with China and the U.S. being the most emphasized. The combination of this organizational structure, prioritization, and the execution of a comprehensive strategy is driving our success in the U.S. and China. Both markets show category growth rates that are on average higher than other regions, such as Europe, Southeast Asia, the Middle East, and Africa. There are significant opportunities across our global portfolio, as shown in the recent quarter where we saw organic sales and earnings growth in every geographic segment. As we implement our global strategy holistically, we should be able to enhance growth rates in markets outside of the U.S. and China. However, we need to work diligently to sustain strong growth rates in the U.S. and China, where we face robust competition. The growth rates we recently achieved are impressive and were present before COVID, during COVID in the U.S., although less so in China. The recovery in China has been encouraging. Regarding sustainability, as I mentioned at Lauren's conference earlier this fall, we need to start by estimating market growth and aim to gain a few market share points on top of that to set realistic long-term expectations. We have a responsibility to influence market growth, and we believe we have effectively done so in the U.S., and we must continue this effort. The notable growth in the U.S. and China is influenced by those markets, our prioritization, and the effective execution of our strategy. This success has already had implications in other areas and will continue to as we progress.

Hey. Good morning, Jon. And congrats again on another great quarter. First, a housekeeping question. I apologize if I missed this. Do you have a global retail takeaway number relative to the 9% organic sales growth in the quarter? That would be helpful. So, my broader question, Jon, is on the U.S. men’s grooming category. I was hoping to get an update there. I ask, of course, in the context of some of the challenges that business has faced for a while, which has been compounded a bit by the pandemic and work-from-home trends. Now, I also think it’s notable that Dollar Shave is rolling out at Walmart just this week. It probably suggests further risk to Gillette’s market share position, spending plans that are in place? We talked about promotion early. I suspect this will likely be a category or destination for some of their higher promotion, particularly in the competitive environment and some of the demand challenges. Can you comment on your level of comfort around pricing ladders and price positions in the category, which I know has been an area of emphasis here in recent years?

I’m going to suggest you get with John Chevalier after the call. He can give you a more specific number on retail offtake during the quarter. Kind of going at it from the top of my head, I would guess it’s probably 7 or 8, but John can help you with that. In terms of Grooming, it continues to be a very attractive business. We grew the top-line on our Grooming business globally two years ago. We grew it last year, so two years in a row of growth. We grew at 6% in the quarter that we just completed. Part of that pickup in the business is a result of a more holistic serving of all consumers. We’ve talked about SkinGuard as an example designed to meet the needs of a high percentage of men who had sensitive skin, for whom shaving was painful, reducing that barrier to shave frequency and shaving. We launched now in some channels and in some parts of the world, a whole lineup of products under the brand of King C. Gillette that are designed to serve men who choose to maintain facial hair, so everything from trimmers to beard wax to conditioners, et cetera, and that has been going very, very well. The third thing I would point to is very strong innovation on our dry shave business, which has been growing very attractively as well. This will continue to be a competitive category because of its attractiveness. You should assume that that is built into our thinking and built into our plans. I want to avoid any specific reference to pricing or promotion in a specific category of business. But, we like this business. It’s growing. It’s very profitable, highly cash-generative, and it’s something we’ll be investing behind.

Congrats on your results. Jon, if you could break down your 7% volume growth in additional distribution and innovation against just a lot you have of the legacy franchises, just to get an idea of the duration of this momentum. Conversely, perhaps the only area that you may need to improve are the mid-tier diapers. Can you give us your view on this segment globally?

I really don’t know how to break volume down with any confidence along the lines that you’re requesting. So, I apologize for that. We have some great positions in diapers around the world, particularly in the pant style form, where we’re market leaders, and that is the fastest-growing segment of the diaper market on a global basis. We’re also doing very well in the premium portion of the business. As you rightly point out, we have not been superior in the middle of the market, what we call mainline. We have, as you would expect, been working hard on that and have innovation coming to market across the world, beginning this quarter and next, and carrying on through 2021, which we expect to address that situation.

Jon, I wanted to go back to e-commerce, so 11%, 12% of sales. I’m guessing that’s somewhere kind of doubled where it was pre-COVID. So, maybe touch on how much of that increase is sustainable? I mean, how much of those consumers are going to continue to purchase in that medium? What drives the adoption of those consumers to maintain that presence on a go-forward basis? And things that you’ve seen, maybe all have on our own working to see that that will continue and curious how you all are thinking about it? And sort of related to that and under any circumstances, would you pursue more DTC, things like SK-II even broadly? I think that would be helpful. Thanks.

We want to serve consumers in a superior fashion wherever they choose to shop. That’s really our focus. So, we’re not focused on one channel versus another. We prefer to be channel-agnostic and let the consumer make that choice. As long as we’re well-positioned with a superior product, a superior package that’s relevant for the channel, communication that’s relevant to the channel and have the right value, if they choose to shop in e-commerce, we’ll win. If they choose to shop in brick-and-mortar, we’ll win. If they choose a hybrid shopping experience like click and collect, if we’re appropriately positioned, we should do very well. That’s our focus regarding specific channel focus. DTC can clearly play a role. As you mentioned, in some of our businesses, it’s already a significant part of the operating model. It allows us to get closer to consumers to understand, to have an even better understanding of their needs and their habits, including their purchase habits, and that all can be complementary and important in the broader context. So, you will see us continue to increase our DTC presence, but again, not at the preference of or the de-prioritization of any other channel of trade.

I want to talk broadly about the competitive dynamics because clearly, we’re innovating, gaining share. Your plans from earlier this year to double down on investment are working. What’s your view on competition at this point? They’ve also talked about picking up the pace in their activity; have you seen it? Is it just not quite landing how they had anticipated, or is there more to come from competition that’s factored into the full year sales expectations? Where are you most concerned, because you talked about still catching up to demand in a couple of categories: Family Care, Home Care, some Health Care and newer growth in the non-COVID categories, like Beauty, Grooming, and Health Care has really started to accelerate. I would love a little more color on that. Thank you.

I’m going to start where you ended, Olivia, and then I’ll come back to competition. The strong quarters that we’ve been putting together are a reflection of our brand portfolio and our strategies, which built momentum for the business prior to COVID, have maintained momentum through COVID and allowed us to accelerate in the quarter that we just completed. These are a set of strategies in an activity system that were well suited to the pre-COVID environment, as seen in our results; are well suited to the COVID environment, as reflected in our results; and we expect will be well suited to someday a post-COVID environment. That set of strategies, and importantly the execution behind them on the part of 99,000 P&G men and women around the world is what’s driving, as you rightly point to, growth on the top line and the bottom line across each of our franchises. We talked about the challenge we still have in Baby Care and how we’re going to address that. But 9 out of 10 categories grew top line in the quarter. Each of our geographic regions grew top line in the quarter, and that’s really reflective of the execution of this integrated set of strategies that we’ve been working on for some time. We feel that is the best insulation against what is certainly a competitive marketplace across the board. I want to be careful though that we don’t react necessarily to competitive statements about spending as inherently inducing risk. Competitive spending that’s constructively structured and increases consumer awareness and participation in categories is not a bad thing. What’s more important is the how or the what. We’re early in the execution of some of those competitive agendas, and we’ll see. But, I know for sure that our best chance of continuing our momentum and doing it profitably is to continue to execute the strategy that’s been working for us so well.

Could you talk about your margins? Both growth and operating have just exploded, and that’s awesome. But, I’m wondering how much of that is structural improvement you've made to your organizational structure and all that kind of stuff, and how much of it is just the benefit of favorable operating leverage? As we think longer term, two years, three years, four years out, have you permanently reset the margin structure for the Company, or do we think those are going to trickle back when top-line growth normalizes a bit? Thanks.

Within the 300 basis points of operating margin improvement, about two-thirds is attributable to sales leverage, which still leaves a significant third, around 100 basis points, due to the net of savings and productivity and our reinvestment in superiority. So, that’s the breakdown you’ve asked for. We are very clear in our own minds that on a going basis, we need to grow the top line and we need to grow margin. Everything we’re executing is designed to do both, both now and moving forward.

Jon, I was wondering if you could just pick up on your thoughts on the economy. I ask this really because obviously there is a concern that if you do kind of hit tougher times, there will be a lot of trade down pressure, not just for Procter but for a lot of CPG companies that tend to play into more premium end of the categories. I was just wondering what you thought about this whole thesis of income bifurcating or the consumer goods bifurcating because the lower income demographic is getting much more impacted due to furloughs and job losses at the lower end of the range spectrum, yet middle-income and higher-income consumers are still doing fairly well. I was hoping you could just add some thoughts to that whole thought process.

Thanks, Nik. I’m not smart enough to know where this all lands. What I can do is look at the data that are available to date. That’s a fairly encouraging set of data. If we look at private label shares as a proxy for trade down, U.S. private label shares in the last three-month period are down 1 full point, which is an acceleration in the decline versus the prior three-month period, and the same dynamic generally holds true in Europe. There is a heightened need for products that deliver against health, hygiene and clean home concerns and a willingness to spend just a little bit more to ensure that I’m using a product that I know and trust and believe will work for me and for my family. In most of our categories, that’s the dynamic that’s playing. Supporting that direction, unlike prior crises, is a whole reconfiguration of the consumer budget. They’re not spending money generally on travel, on entertainment, at a meal at a restaurant, on apparel. They do have some flexibility. It’s more prevalent now than has been the case historically, which they can redirect and many are redirecting if they choose to do so. I want to be careful here. I’m not suggesting that there isn’t greater economic stress ahead or that it won’t have more of an impact than we’ve seen thus far. I just don’t have the ability to predict where that goes or lands. I can only reflect on what we’ve seen thus far, which is, in total, encouraging.

Jon, I know this is a challenging question to address, and we don’t have specific details. However, we are receiving numerous inquiries from investors about your thoughts or planning regarding potential changes or increases in the tax structure if there is a change in administration.

First of all, any meaningful change in the tax structure at the corporate level in all probability requires a change in the executive branch and control of the Senate, which is the first handicapping that anybody has to do to understand whether there’s likely to be change. The second point I would make is there’s a lot of conversation and rhetoric at the surface of this issue. If we go back to why did so many of us push so hard for so long on corporate tax reform, and again, I’m dealing with the corporate piece of this, and why was it eventually enacted. There were some very powerful and important motivators that I don’t think have diminished in their importance. The first was we wanted American companies to be fully competitive in non-American markets, which would give American companies every opportunity to attract capital, to grow, to create jobs, and to increase America’s standard of living. The second motivation was to prevent capital flight to make it attractive to be domiciled and headquartered in America as opposed to moving operations to other parts of the world. The third, which is closely related to the second, is that we wanted to incent capital formation onshore versus offshore. Those are very strong motivators and very important dynamics that I don’t think anyone’s going to casually walk past. I just offer that in terms of the thought, deliberation and consideration that I expect will go into any recommended change that to date collectively hasn’t been applied to this question. I’m stopping shorter than a specific answer on the numerics. It’s going to be highly dependent on the details of what if anything happens. That answer is going to be driven by a lot more reflection on the three questions I just mentioned as well as some others.

Hey. Two quick ones. One, Jon, just remind us how big dry shave is of total shave. Just I was a little surprised that it could offset the whole business, I mean, even with 30% growth. And then, on the commodity front, can you maybe talk a little bit about what’s changed and what you see on the horizon just since you gave guidance, I guess, two and a half months ago to have a little more of a headwind.

I understand the question on the breakdown of dry versus wet shave. I don’t have the data. If you call John, he can certainly get that for you. The commodity environment, in my way of thinking, hasn’t changed dramatically since we provided guidance for the year. There’s been an increase in pulp, as an example, and an increase in some of the other items we purchase. Overall, it’s a relatively, on a historical basis, benign environment at the moment. Oil and the petro complex is generally somewhat range-bound. I’ll leave it there.

I have two quick questions on mix. The first one being, if you could describe the impact of mix on the P&L, whereby it adds to sales, organic sales growth that detracts from gross margin in the quarter. The second question is the mix benefit you experienced in the quarter and the top line looks to be driven essentially by fabric and Home Care; to a lesser extent, Health Care; the balance of the division is neutral. What’s happening within those segments that’s driving favorable mix? Thank you.

Mix is a complex factor because it involves not just category mix but also geographic mix. For instance, when the U.S. market grows faster than almost any other market in terms of sales rate, revenue per case, and profitability, it significantly affects the overall picture, along with the differences in categories you mentioned. Regarding the issue of gross margin moving one way while the P&L moves another, I have discussed this extensively. I want to clarify that my focus isn't on margins. Our focus isn't on margins either, which shouldn't alarm anyone because we are definitely focused on profit and cash. Margins are interesting, but they don’t translate directly into cash. You can’t deposit margins in a bank, distribute margins to shareholders, or invest margins in innovation. What we can do is invest profit and cash into these areas. Profit and cash can be saved, shared with shareholders, and invested to enhance our competitive advantage. Many of our premium products might have a lower gross margin but generate a higher per-unit profit. A good example of this is the laundry unit dose. I would choose that higher per-unit profit consistently, even if it slightly lowers our gross margin. This dynamic explains the calculations you're observing, which is why we shouldn't become overly preoccupied with margins. Our focus should remain on profit and cash.

Just one bit of summary for those of you who are still on the line. Again, as we reflect on this quarter, the point that I think is most important to take away is the momentum of the business and the robustness of the strategy and the brand portfolio that are driving that momentum, pre-COVID, during COVID, now, post-COVID. I’m happy to talk at greater length about that with any of you as the day and the week progresses. That is the takeaway here. I really appreciate your time and your questions. Have a great day.