Procter & Gamble Company (PG) — Q2 2021 Earnings Call Transcript

Good morning. I’d like to start by expressing our sincere hope that you and your families remain safe and are well. Joining me on the call today are Andre Schulten, who will take on Chief Financial Officer responsibilities as of March 1st, and John Chevalier, Senior Vice President of Investor Relations. I’m going to continue to have overall responsibility for Investor Relations with John’s able leadership and let Andre into our discussions as we move forward. We’re again going to keep our prepared remarks brief this morning, given strong and straightforward results, focusing most of our time on your questions. The strong momentum we've created over the past number of years, top-line, bottom-line and cash continued in the October, December quarter, which will enable us to further increase fiscal year guidance for organic sales growth, core earnings per share growth, cash productivity and our commitment for cash return to shareholders. We’ve built strong momentum leading up to the COVID crisis. In calendar year ‘19, for example, pre-COVID, we grew organic sales 6%, core earnings per share 15%, and delivered 102% adjusted free cash flow productivity. This pre-COVID momentum gave us the confidence to continue providing guidance as many eliminated it, and to increase our dividend at the highest rate in many years in April last year, even as we struggled with new COVID realities. Building on that strong momentum, we accelerated organic top-line growth in calendar year 2020, which we just completed to nearly 8%, overcoming significant challenges, including the lockdown in China, closure of the travel retail, specialty beauty and away-from-home channels, operational challenges, safely staffing our facilities and sourcing materials necessary to maintain and in some categories significantly increase production to serve heightened consumer cleaning, health and hygiene needs. Strong momentum before COVID and during COVID reflecting the underlying strength of our brands and the appropriateness of the strategy, which is driving our business. Organic sales up 8% for the quarter, 5 points of volume growth, 1 point of pricing, 2 points of mix, broad-based growth. U.S. organic sales up 12%. Past four quarters sequentially for calendar year 2020, plus 10%, plus 19%, plus 16%, now plus 12%. Greater China up 12%. Past four quarters minus 10%, during lockdown plus 14%, plus 12%, now plus 12%. Focus markets up 10%, and enterprise markets, which are significantly impacted by the COVID pandemic up 3%. Each of our 10 product categories grew organic sales. Home Care up around 30%, Oral Care and Family Care up double digits, Fabric Care up high singles. Personal Health Care, Feminine Care, Hair Care, Skin and Personal Care and Grooming up mid singles and Baby Care up low single digits. E-commerce sales up nearly 50% for the first half. Aggregate market share growth this quarter of 20 basis points. Turning to earnings. Core earnings per share of $1.64, up 15%, currency-neutral core earnings per share up 18%. Past four quarters, currency-neutral core earnings per share up 15%, up 11%, up 22% and up 18% this past quarter. Second quarter core gross margin expansion of 150 basis points, up 200 basis points excluding currency impacts. Core operating margin grew 250 basis points, up 310 basis points excluding currency. Adjusted free cash flow productivity of 113%. Returning $5 billion of cash to shareholders, $2 billion of dividends paid and $3 billion of stock repurchase. So, halfway through the fiscal year, year-to-date organic sales up 9%, core earnings per share up 17%, ex-currency up 20%. Adjusted free cash flow productivity over 100%. $9 billion of cash return to shareholders, 110% of all-in earnings. As we’ve shared previously, we’ve established three priorities that have been guiding our actions and our choices in this crisis period. First and foremost 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 additional time that we’re all spending at home. Third priority, supporting the 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, which slow the spread of the virus. These priorities are completely congruent with our strategic choices, which we remain confident in and are the foundation for balanced top and bottom-line growth and long-term value creation. Our strategies, we focus our portfolio on daily use products in categories where performance plays a significant role and brand choice. In these performance-driven categories, we raise the bar on all aspects of superiority: products, package, brand 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 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 needs 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 statements and across the balance sheet. 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 the current environment, that agility and constructive disruption mindset are even more important. Our new organization structure yields a more empowered, agile, and accountable organization with little overlap or redundancy, seamlessly supporting each other to deliver against our priorities around the world. These strategic choices on portfolio, superiority, productivity, constructive disruption, and organizational 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. These strategies were delivering strong results before the crisis, have served us well during these more recent volatile times, and we believe will continue to serve us well post-crisis. I want to talk a little bit about post-crisis dynamics. While we will undoubtedly experience some volatility as we move to a new reality, and quarterly results will not move in a straight line, we’re optimistic about our post-crisis prospects and generally like our hand. As consumers spend more time at home due to the pandemic, we’ve seen dynamics play out differently across different categories. More time at home benefits our family, fabric, and home care businesses. It negatively impacts grooming, premium beauty, deodorants, and adult incontinence. So, COVID impacts are different, some positive and some negative across categories. Impacts are also different across regions. While North America market growth has increased, the reverse is true in our Asia, Middle East, and Africa region as an example. We’ve suffered disruptions across multiple channels, closures across beauty, away-from-home channels, and dental offices. In Japan, department stores still lack beauty consultants, which impacts our premium business. As I mentioned, our away-from-home professional business has been impacted by low hotel and restaurant occupancy. We’ve seen some supply chain benefits from higher throughput as we simplify the number of SKUs. The costs have increased to source materials, maximize safety, and importantly to transport finished goods. So, as and when we’re out of COVID, we expect some of the current tailwinds to our business will dissipate, but some very strong headwinds should also abate or disappear. And then, there are the mid to long-term impacts of the crisis, which may be accelerators of top and bottom-line growth. The relevance of our categories and consumers' lives potentially increases. We will serve what will likely become a forever altered cleaning, health and hygiene focus for consumers who use our products daily or multiple times each day. There may be a continued increased focus on home, more time at home, more meals at home with related consumption impacts. The importance of noticeably superior performance potentially increases, and there’s potential for increased preference for established reputable brands that solve newly framed problems better than alternatives; potentially less experimentation; potential for a lasting shift to e-commerce, both etailers and omni-channel. Our experience to date makes us believe we are generally well-positioned in this environment. We’re discovering lower cost ways of working with fewer resources. Today’s necessity is giving rise to the productivity inventions of tomorrow. New digital tools are being brought to the forefront, providing another productivity driver on the factory floor, in our labs, and in the office environment. We very much like our long-term prospects, though the near-term will continue to be challenging and 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. While the first rounds of vaccines have been deployed, the number of COVID cases remain high in many parts of the world, without the resources or infrastructure to effectively manage it. Despite the launch of vaccines, we'll likely be operating through fiscal '21 much as we have been for the past nine months. In the U.S. and other markets, it's unclear how long we'll be operating at high unemployment levels and how much mitigating economic stimulus will actually 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 also result in increased costs to operate. There is a risk of supply chain disruption of our operations or those of our suppliers. Channel disruptions will likely continue. Against this challenging backdrop, we're holding ourselves to an expectation of continued growth, top-line and bottom-line, and expect to be highly cash generative. With the strong first half of the base, we're further increasing our fiscal year guidance for organic sales growth, core earnings per share growth, adjusted free cash flow productivity, and cash return to shareholders. We're raising our organic sales growth guidance from a range of 2% to 4% going into the fiscal year to a range of 4% to 5% after the first quarter, now to a range of 5% to 6%. The outlook assumes a quarter-to-quarter step-down in the second half as retail inventories are fully replenished and as category consumption levels moderate. We saw a sequential deceleration in U.S. consumption in our categories in December and January. These trends are incorporated into our new higher guidance range. We're increasing core earnings per share growth guidance from a range of 3% to 7%, previously 5% to 8%, now to 8% to 10%, a 2.5 point increase at the midpoint of the range. This bottom-line outlook includes headwinds of approximately $100 million after tax of foreign exchange, $150 million from the combination of higher interest expense and lower interest income and $100 million after tax of higher freight costs. Commodities are currently forecast to be neutral to earnings on the year. We 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% going into the year to about 95% after Q1, now to a range of 95% to 100%. We continue to expect to pay approximately $8 billion in dividends and are further increasing our outlook on share repurchase from a range of $7 billion to $9 billion to up to $10 billion. Combined, a plan to return around $18 billion of cash to shareholders this fiscal year, over 125% of all-in earnings. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant currency weakness, commodity cost increases, additional geopolitical disruptions, major production stoppages or additional store closures are not anticipated within the guidance range. Wrapping up, we created strong momentum well before the COVID crisis. We've strengthened our position further during the crisis, and we believe P&G is well-positioned to serve the heightened needs and new behaviors of consumers and our retail and distributor partners post-crisis. We will manage what could be a volatile short to midterm, consistent with the strategy we've outlined many times, and against the immediate priorities of ensuring employee health and safety, maximizing availability of our products to serve cleaning, health and hygiene needs, and helping society overcome the challenges of this crisis. We're stepping forward, not back. We're doubling down to serve consumers and our communities. We're doing this in our interest, in society's interest and in the interest of our long-term shareholders. We're happy now to take your questions.

Great. Thanks. Good morning. Jon, I wanted to talk a little bit actually about your reference to cleaning, health, and hygiene, and long-term category growth. So, first was just closer, and I was curious if you had a view on household pantry inventory, knowing that in some regions there's been still shortages, limited ability to purchase, and this is particularly U.S. conversation. In other markets, you go into a retailer and there is product on shelf and that's obviously gotten better through the pandemic. So, I was curious to get a sense of how much there is in terms of consumer pantry inventory right now of cleaning, particularly surface cleaning product was one? And then, two, just thinking longer term to your reference to change, heightened consumer interest. I mean, how do you think a company like P&G can best address that? Is it occasions? Is it chemistry? Is it packaging? What are sort of the things you're thinking about as you prepare for that future and the ability to kind of capitalize on this heightened consumer interest that you've referred to going forward? Thanks.

Thank you, Lauren. We don't have perfect visibility into pantry inventories, but we know they are higher, especially in the U.S. In many regions around the world, homes aren't large enough for significant pantry inventory, nor do they often have proper pantries. However, we are seeing increased consumption in these categories due to more time spent at home, more meals prepared at home, and higher usage overall. For instance, in the U.S., cleaning and sanitizing frequency has increased by 30%, dishwashing frequency by 15%, air freshening by 20%, and in-home paper towel usage has risen by 15%. While some consumers, particularly in the U.S., have understandably built inventory for protection and reduced trips outside their homes, consumption is generally rising as well. If things improve, we might see a temporary reduction in top-line growth rates as consumers adjust their pantry needs, but this wouldn't be expected in the mid to long term. Increased consumption levels are often accompanied by the formation or reinforcement of new habits. We've been navigating this situation for a year now, not just four to eight weeks, which means that some elevated consumption levels are likely to persist even after the crisis. It's important to note that many categories have been negatively impacted by the current circumstances, but these could balance out in a more normalized environment along with market conditions and channel openings. With heightened consumer interest in health, hygiene, and cleanliness, we are focusing on how we can effectively serve these evolving needs. This includes innovation and introducing new products to meet these demands, such as Microban 24, Safeguard sanitizer, and our new IO oral health offering, which has led to a 20% year-on-year increase in power brush sales. We are refining our packaging to better communicate the health, hygiene, and cleanliness benefits of our products, as well as providing educational resources on usage occasions and home care tips. Our home care category has successfully shifted much of its advertising to this educational focus during these challenging times, and our overall brand communication reflects these opportunities. We are also developing claims backed by laboratory research that emphasizes the benefits of our products in various categories, specifically in terms of hygiene from our laundry offerings. This response is lengthy, but it addresses an important question. Overall, we believe we will emerge from this situation in a strong position. While I can't predict specific growth rates, we feel confident in our strategy, brand portfolio, and organizational execution, and we are well-positioned to maintain the momentum we've built.

Great. Thanks. Good morning, Jon. Congrats on the new role, Andre. Jon, you mentioned the valuation-related pricing a few times in the release today. And I guess, I'm curious if there is a way to quantify the impact of that relative to what, I guess, might be considered underlying price movements in the quarter. As we think about calendar '21 and the setup as we go forward with FX set at the moment to reverse and likely the lapping of some of the COVID promotional pullbacks in 2020, I guess how are you sizing up the prospects of additional net reported price realization as we go forward? Investors are clearly focused on inflationary cost pressures that are building. And I guess the real question is I'm curious as to whether you think those incremental pressures can be offset by cost-justified pricing in the year ahead, or will competition and a return to more normalized promotional patterns make that difficult? Thank you.

Thank you, Steve. You correctly noted that there are many factors affecting our top-line growth. However, when you combine everything, pricing added one point to the eight points of growth we experienced this quarter. If the current situation reverses, it could still impact our top-line growth by about one point. Promotion levels, which you mentioned, have increased from a low of around 17% of products sold on promotion to about 26%. A significant portion of this promotional return is already reflected in our numbers, compared to a pre-crisis average of approximately 33%. I cannot predict where we'll end up post-crisis in that regard, but that provides a perspective on the numbers. Additionally, some modest pricing is built into our innovation-driven, performance-focused business model. The one-point sales impact we achieved last quarter is quite typical. Over the last 45 quarters, pricing has generally had a neutral to slightly positive effect on our top-line growth, and this has been the case for 15 out of the last 16 years. If we expect the future to normalize, the outlook appears similar to what we're currently seeing. The specific factors may differ by category and market, but overall, this trend reflects both our history and likely future performance.

Jon, you talked last quarter a lot about potential for upside to the range but also downside. And your commentary so far seems to suggest a lot of continuation of the current trends in terms of usage patterns, pricing can continue to be positive. So, when you marry that with the implied second half outlook range, can you just talk through that a little bit? Because it sounds like you're expecting the same dynamic. But, is there any shift in terms of the relative upside-downside to your outlook at this point? Because you do sound pretty optimistic about the post-COVID period. Thanks.

There are two questions to address here, Olivia. The first relates to the latter half of the year, and the second concerns the post-COVID period, which we do not expect to influence our latter half results. I'll start with the second part and then focus on the back half. When I mention being well-positioned for a post-COVID environment, I'm referring to the mid to long term. This involves the strength of our brands, our strategies, and our organization, along with an anticipated increase in health, hygiene, and clean home consumption among consumers who have experienced a challenging and life-altering time. As we look at the latter half, we are not anticipating any changes in the situation. In fact, I believe we will operate similarly to how we have so far this fiscal year. I view the potential upsides and downsides in the back half as fairly balanced, similar to how we assessed them in our previous discussions. What has changed is that we have two strong quarters behind us, which reduces some risk as reflected in our guidance. However, there are many factors affecting our lives and the environment, making it hard to assume any predictions will unfold linearly. Consider essential factors like rents, student loan repayments, and employment, which were somewhat cushioned by stimulus and regulation in the U.S. during the first half. It remains uncertain how these issues will evolve in the second half. Additionally, we will encounter higher baseline periods as we move forward, and promotions may increase from around 26% to closer to 30% over time. We will need to observe how this develops. Overall, the efforts we've made to maintain momentum in our business before COVID have been beneficial throughout this pandemic, will continue to support us in the latter half, and position us well for the long term. However, there is significant volatility to navigate in the interim. To frame this, think back to our conversation at this time last year when we were attempting to predict the next six months or year. None of us had a clear understanding then, and the level of certainty seems even lower now. Yet, amid this uncertainty, there are both opportunities and risks. I apologize for the lengthy response, and I hope this has clarified things a bit.

Hey, Jon. Congrats, Andre. So, I just wanted to follow up on Steve's question. You highlighted your historical ability to take pricing. But I'd argue the commodity spike looks fairly pronounced here, both in terms of magnitude as we saw with your rates for your guidance on freight and commodities. But also, the higher prices appear more sustainable this time around with the post-COVID economic rebound. So, I just wanted to understand your mindset or sort of willingness to take pricing, either maybe shortening the lead time to take pricing or just in terms of level of magnitude relative to the past because it does seem like it's probably a little more of an atypical situation on the commodity front. And then just second, on the other side of it, what's your sense for retailer enthusiasm in the U.S. for pricing in this environment? Obviously, companies like yourselves have posted significant gross margin expansion over the last couple of years, and there is an uncertain consumer outlook. So, do you really need to see that pressure materialize in gross margins before you discuss pricing with retailers? Can you be more proactive? And again, I'm just trying to understand sort of the mindset here around the past when you've typically been able to take price increases and if anything is potentially different this time around.

The situation varies by category and market, making it difficult to generalize, and I apologize for that. However, I can say that when your strategy focuses on innovation and leading performance in categories where quality influences consumer choice, you can more easily implement small cost increases while enhancing consumer perceptions of value by delivering better performance simultaneously. We get into trouble when we look at pricing as a separate issue because that isn't how things function in reality or how consumers or our retail partners approach the situation. Discussions with retail customers cover a range of topics, with the primary question being whether we have a plan that helps grow their business in a profitable manner. It's rare that we narrow the discussion to a single factor, as that approach isn't beneficial for either party. That said, is there anything significantly different today that impacts our ability to achieve the same top-line and bottom-line results as in the past? No.

Great. Thanks. Good morning, everyone. Congrats again on a strong quarter. Andre, congrats to you as well. I'll pivot away from the topic that you’ll hear on commodities and pricing, Jon, give you a break on that. Longer term question on your online business, which continues to do exceedingly well, now north of 10% of sales. And there seemed to be a false narrative out there probably a year or two ago that the shift to this channel was unfavorable for big brands, which we just really haven't seen, at least broadly in staple. So, as online moves to closer to 20% sales, which would be likely without stretching much in the intermediate term, if you will, using reasonable assumptions, what do you think this will mean for Company sales with respect to market share, margins, and returns? And then maybe just comment broadly on risk of private label in this channel. Thanks.

Thanks, Kevin. So, as we mentioned earlier and as you referenced, we did have another strong quarter. We've had a strong year-to-date outcome within e-commerce growing 50%, now above 14% of the business globally. So, you're right, it's not far from closing in on that 20% level, particularly with those kind of growth rates. Without going through all the details, you know that I've always viewed this channel and the development of this channel as being big established and preferred brand friendly, not an adverse situation but a conducive situation for growth. We need to perform in this channel against all the vectors of superiority just as we do in the others. But, when we do that, there's no reason to expect that the outcome isn't as or more attractive than it is in some of the traditional retail channels. If you look at your question about market share and margin, on an aggregate basis today, different by category by country, but on an aggregate basis, our market share in e-commerce broadly defined, so pure-play and omni is slightly higher, not by much than our brick-and-mortar market shares. And I think that's more reflective of the demographics of the online shopper than it is anything else. Our margins are also, on aggregate, similar across the two channels. So, we were in a very nice place that we aim to be in, which is we want to be channel-agnostic, serve shoppers wherever they choose to shop and be able to do that, as you rightly point out, in a way that's neutral to accretive to share margin and return. I think we're very well-positioned, requires work every day, very volatile space. We keep our eye on the consumer and serving them with superior offerings. Again, in categories where performance drives brand choice, we should continue to do well.

Good morning, everyone. Thank you for having me and congratulations on a strong quarter and excellent execution. I want to revisit the topic of pricing and commodities. We’ve discussed the pricing outlook extensively, but not much about the commodity outlook. Jon, your guidance for the second half suggests that we can expect modest inflation, including freight, since there's only about 1.5% of COGS, which isn’t considerable. Is this due to early hedges on contracts that haven’t materialized yet, meaning that when they do, inflation will increase significantly, or is the management inflation we've been hearing about somewhat exaggerated?

Thanks, Jason. As mentioned in our prepared remarks, the overall impact from commodities on our fiscal year is neutral. Therefore, I am not overly focused on it compared to other priorities. There has been a recent rise in some exposures, but even if we compare current spot rates to a year ago and annualize that as an assessment of potential impact, it's relatively modest compared to the significant commodity spikes we've experienced in the past decade. This impact is also somewhat mitigated by foreign exchange. Additionally, within our total cost structure, we see considerable increases reflected in our current results and margin growth as we navigate the current environment. If vaccinations progress widely and we move closer to normalcy, as economies accelerate, it could ease some of the costs we are currently facing. Similar to the effects of COVID on various markets, we need to consider other factors when evaluating commodities. We will take a holistic view as we think about pricing moving forward. However, this conversation could change significantly in a quarter. For now, it’s not a major concern.

Can we discuss the enterprise markets for a moment? I understand you went over some of the challenges your business has faced in those markets over the last nine months. However, I’m not entirely clear on whether those challenges are affecting the overall category or just your market shares. Could you provide an update on your competitive position in those markets? Jon, I assume you will be focusing more on these markets in your new role, so what is your outlook? Historically, that area has represented about 20% of sales, but I imagine it will be smaller this year due to the headwinds. What is your longer-term strategy for managing that business as you concentrate more on it? Thank you.

Thank you, Wendy. Looking at our strategic goal to adopt a new approach for enterprise markets, we had two main objectives. The first was to allow our leadership and resources to concentrate on the largest and most profitable markets, which we refer to as focused markets. Our progress in this area has notably accelerated. Even if we achieved only that, it would be a significant advancement. For instance, both the U.S. and China experienced 12% growth in the quarter, with both markets seeing double-digit growth year-to-date. I don't mean to imply causation, as that would be careless, but there's nothing to suggest that our increased focus on these markets has negatively impacted us; in fact, it seems to have been beneficial. The second objective was for these markets to remain a source of top-line growth and to provide a more reliable source of bottom-line growth by moving management closer to the market, directly engaging with consumers, competitors, and customers. This strategy has also proven effective. Last fiscal year, the enterprise markets achieved growth in both top-line and bottom-line results. By the end of the year, we reduced to just two countries within 100 enterprise markets that were operating at a loss, which is a significant improvement from our historical performance. Importantly, we achieved this while either maintaining or increasing market share, meaning this was not a trade-off between top-line growth and market development. Looking ahead, in a normalized post-COVID environment, we hope to continue focusing our resources on these markets, managing the enterprise markets in a way that contributes positively to our top-line and bottom-line. We are being very selective in our strategies and where we choose to invest. We aim to support the major markets by maintaining focus while also ensuring we have financial resources to pursue future growth opportunities. I'm willing to discuss this topic further as it's quite comprehensive, but overall, we are making progress in line with our objectives.

Jon, I found your insights on consumer behavior very useful, but I would appreciate your thoughts on retailer behavior. There are reports indicating that retailers are beginning to take assortment more seriously, focusing on streamlining what products are available and how they are presented. I believe P&G is well-positioned to take advantage of this trend. Can you share what you're observing and what we might expect as the year progresses? Additionally, I would like your perspective on the U.S. market and any relevant international markets you can comment on.

Our position with retail partners is getting stronger. COVID has revealed some weaknesses in the supply chain that supports these partners. Overall, we have been a reliable source of supply, though there are some instances of growth that have exceeded our production capabilities. Nevertheless, we are quickly catching up. Consumers are increasingly leaning towards reputable brands, and our retail partners are focusing on consumer needs. Data shows that private label market shares in our categories have decreased significantly in the U.S. over the past year, and a similar trend is seen in Europe. Retailers are adapting their product offerings and inventory levels to meet these changing consumer demands. While there are both advantages and disadvantages to these decisions, we feel well-equipped to navigate this landscape. Market dynamics vary, with some markets facing greater challenges due to COVID, primarily related to supply issues. We are well-positioned to support retailers in those areas. We are still working through the demand and supply challenges, but I believe our position has improved due to our collective efforts during this time.

Thank you very much, and congratulations on another great quarter. I have two related questions. Given your new role and shifting responsibilities, can you discuss what your personal focus will be over the next 6 to 12 months, including your goals and priorities? Additionally, it seems there is a disconnect between the company's performance and stock outlook, which has not changed much in the past year despite the strong performance of you and your team. Can you provide insight into this disconnect with investors? Also, do you think it might be wise to adopt a more aggressive approach to share buybacks over time? I know you have increased them, which is commendable, but our analysis suggests the stock is trading near 20-year lows and appears very undervalued in comparison to the market. Considering the issues you've faced in M&A with Billie, perhaps long-term capital allocation should favor more buybacks. I would appreciate your thoughts on this matter.

Thank you, Rob. Our focus is on delivering earnings in a sustainable and holistic manner, while the market concentrates on price. Over the course of this fiscal year, we originally estimated our share repurchase between $6 billion and $8 billion, but we have now increased that to $10 billion. At the midpoint of the previous range, that represents nearly a 50% increase in our expectations for share repurchase this year. When combining dividends and share repurchase, we are looking at $18 billion, which is 125% of our total earnings. Historically, we have returned more than 100% of our total earnings through both dividends and share buybacks, and I expect that trend to continue. We typically reassess our capital allocation, including dividends and share repurchase, in April with our Board of Directors. We believe that excess cash does not belong to us; it belongs to you, the shareholders, and we will return it to you as we have in the past. Regarding M&A, we have been pursuing relatively small acquisitions that enhance our portfolio in targeted categories, such as Native deodorant and This Is L. We also considered Billie in the shave care market, but these smaller acquisitions don't significantly impact our capital allocation decisions. As it stands now, we are committed to our current strategy without any indications that we should change course. In terms of how I allocate my time, Andre and I are transitioning, and he will take over CFO duties on March 1st. I look forward to this change because he is a talented and energetic leader. This transition will also provide me some additional capacity to address the volatile circumstances globally. I will retain responsibilities in Investor Relations, IT for global business services, the sales function, product supply, and the management of market operations worldwide. I will also continue to oversee approximately 100 enterprise markets. I have a lot on my plate and look forward to focusing on these areas with a bit more capacity.

Thank you, Jon, and congratulations, Andre. My question is about marketing and a follow-up on promotions. Jon, you mentioned previously about $15 billion in advertising and promotion spending based on a sales base of $67 billion to $68 billion back in fiscal '17. It appears you are now spending a similar amount but on a higher top line, around $71 billion, not only due to scale but also from a digital efficiency perspective. Do you believe those efficiencies will persist in the long term? Additionally, are you noticing private label products potentially passing on the increases in pulp, resin, and transportation costs, which could result in a smaller gap between your pricing and that of private label?

A strong support for our brands as part of our model and will continue to be part of the model going forward. If you look at the quarter we just completed just in the marketing side of the equation, we increased marketing about 7% year-on-year. I think our levels of support as witnessed by both our share of progress and our top-line progress are appropriate. I would not want to dial those back by any means. But, I expect they'll pretty much move in line with sales with some efficiencies potentially available to us. And pricing versus private label, I really can't conjecture about future price developments, either on our part or their part by regulation. So, I'm going to leave that question alone for now.

I wanted to ask about margins, Jon, the risk of sounding very high level. I guess, you've seen a lot of risk margin expansion partly due to commodity cost relief. There are obviously productivity in there. SG&A expenses at the same time have remained relatively constant, as a percentage sales in recent years, partly benefiting from productivity but also sales leverage. I guess, as you kind of think about longer-term, I mean, I guess there's lots of puts and takes. But how do you think about your view of sustaining kind of both where they are today and what would be the biggest puts and takes that we should be thinking about in trying to model those going forward and thinking longer-term, not obviously quarter-to-quarter here?

As long as we can sustain a reasonable level of top-line growth, we should be able to achieve a corresponding level of margin growth. These two aspects are interconnected. I mentioned in our prepared remarks that productivity is a key component of our strategy, playing a vital role in enhancing margins. Our focus on superior and performance-driven categories can sometimes aid margin growth. I also spoke about our initiatives to boost profitability in enterprise markets, which have potential. In nearly every leadership meeting, I share a chart that underscores the importance of delivering total shareholder return through both top-line growth and margin, illustrating the challenge of succeeding without both. We will maintain this perspective, although the factors influencing these areas may vary over time. We're not anticipating significant increases in margin; rather, we expect modest growth that aligns with our ability to increase top-line revenue.

As you analyze the two segments, starting with Grooming, the trends appear to be quite strong. It seems that the volumes are beginning to increase significantly. Could you discuss how this influences your perspective on the growth and returns of this business model, which has been consistently promising? Additionally, regarding Oral Care, you've experienced double-digit growth for two consecutive quarters. It’s clear that Oral Care has benefited a lot from people staying at home. Can you elaborate on what you're observing in that area in terms of category performance and market share gains? Thank you.

Both categories are experiencing advantages from significant innovation. The Grooming segment is notably benefiting from increased at-home usage, positively impacting the appliance aspect of our business. Overall, the innovation in both the Grooming and Oral Care segments is driving our revenue growth. I mentioned the launch of Oral-B iO, which has led to a 20% increase in power brush sales year-to-date, a trend that remains strong. In Grooming, our products for sensitive skin and our new beard care line under the King C. Gillette brand are helping us enhance our offerings and better meet consumer needs in this segment, which is evident in our revenue results.

Jon, could you elaborate on the deceleration you're observing in your categories that you mentioned in December and January? The data indicated that November experienced an increase due to another COVID scare. Do you think December specifically shows a return to that increase, or does this indicate a more sustainable change in the trend moving forward? Additionally, which regions have experienced this deceleration in recent months?

That reference was mainly regarding the U.S., although there are some similar trends in Europe. In terms of factors influencing this, you are correct that there has been some impact from the stock up in November. It's also essential to note that the consumer landscape has notably changed from October through December and into January due to the level of stimulus available, lockdown situations in different regions, and the employment scenario. These factors can shift quickly, both from a policy perspective and hopefully regarding human health. Therefore, I do not view any of this as a certainty for the remainder of the year or for the future. However, it is crucial, especially after a particularly strong quarter, to provide a comprehensive explanation of the current situation. Thank you everyone for your time on what I know is a very busy day. John and his team will also be available throughout the day to address any further questions you may have. Thanks again.