Procter & Gamble Company (PG) — Q1 2023 Earnings Call Transcript

Good morning, everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. We're going to keep our prepared remarks brief and then turn straight to your questions. Execution of our integrated strategies continued to yield good results in the July to September quarter and provides a solid start to the fiscal year. We're growing organic sales in all 10 categories, holding global aggregate market share, accelerating productivity savings, and improving supply sufficiency. Together, this progress enables us to maintain guidance ranges for organic sales growth, core EPS growth, free cash flow productivity, and cash return to shareholders. Despite continued high commodity and transportation costs, inflation in the upstream supply chain and in our own operations, accelerating headwinds from foreign exchange, geopolitical issues, COVID disruptions impacting consumer confidence, and historically high inflation impacting consumer budgets. Moving to the first quarter numbers. Organic sales grew 7%, pricing added 9 points to sales growth, and mix was up 1 point. Volume declined 3 points, primarily due to lower shipments in Russia. Growth was broad-based across business units with each of our 10 product categories growing organic sales. Personal Health Care grew high teens. Feminine Care was up double digits. Fabric Care and Home Care were up high single digits. Baby Care, Grooming, Hair Care, and Skin and Personal Care were each up mid-singles. Family Care and Oral Care grew low single digits. Focus markets grew 4% for the quarter, with the US up 5%. Greater China organic sales were down 4% versus the prior year, modest sequential improvement in the market still affected by COVID lockdowns and weak consumer confidence. Longer term, we expect China to return to strong underlying growth rates. Enterprise markets were up 16% with each of the three regions, up 13% or more. Global aggregate market share was in line with the prior year, with 26 of our top 50 category country combinations holding or growing share. In the US, all outlet value share was in line with the prior year with 6 of 10 categories holding or growing shares. On the bottom line, core earnings per share were $1.57, down 2% versus the prior year. On a currency-neutral basis, core EPS increased 7%. Core margin decreased 160 basis points, and currency-neutral core margin was down 130 basis points. Higher commodity materials and freight cost impacts combined with a 550 basis point hit to gross margins. Mix was a 120-point headwind, productivity savings and pricing provided 580 basis points of offset. SG&A costs as a percentage of sales were lower by 90 basis points as sales leverage and productivity improvements more than offset inflation and foreign exchange impacts. Core operating margin decreased 70 basis points, currency-neutral core operating margin increased 10 basis points, productivity improvements were a 230-basis point help to the quarter. Adjusted free cash flow productivity was 86%, we returned nearly $6.3 billion of cash to shareholders, approximately $2.3 billion in dividends and $4 billion share repurchase. In summary, considering the backdrop of a very challenging cost and operating environment, results across top line, bottom line, and cash to start the fiscal year. Our team continues to operate with excellence, executing the integrating strategies that have enabled strong results over the past four years, which are the foundation for balanced growth and value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. The priority across the five vectors of product, package, brand communication, retail execution, and value. Productivity improvement in all areas of our operations to fund investments is a priority offset cost and currency challenges, expand margins, and deliver strong cash generation. An approach of constructive disruption, a willingness to change, adapt and create new trends and technologies that will shape our industry for the future, especially important in this volatile environment. Finally, an organization that is increasingly more empowered, agile, and accountable with little overlap or redundancy flowing to new demands, seamlessly supporting each other to deliver against our priorities around the world. Going forward, there are four areas we are driving to improve the execution of integrated strategies: Supply Chain 3.0, digital acumen, environmental sustainability, and employee value equation. These are not new or separate strategies. They are necessary elements in continuing to build the priority, reduce cost to enable investment and value creation, and to further strengthen our organization. Jon touched on each of these in our July earnings call and they will be a central part of our discussion at Investor Day in November. Our strategic choices on portfolios, priority, productivity, constructive disruption, and organization 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 continue to believe that the best path forward to deliver sustainable top and bottom-line growth is to double down on these integrated strategies, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners. Now moving on to guidance, we fully expect more volatility in costs, currencies, and consumer dynamics as we move through the fiscal year. However, we think the strategies we've chosen, the investments we've made, and the focus on executional excellence has positioned us well to manage through this volatility over time. Raw and packaging material costs inclusive of commodities and supplier inflation have remained high since we gave our initial outlook for the year in late July. Based on current spot prices at latest contracts, we now estimate a $2.4 billion after-tax headwind in fiscal 2023. Freight costs have also remained high. Though we have seen some easing in spot prices, we've made a modest downward adjustment in our outlook and now expect a $200 million after-tax headwind on freight and transportation costs in fiscal 2023. Foreign exchange has continued its strong move against us as the US dollar has strengthened significantly against essentially all major currencies around the world. Based on current exchange rates, we forecast a $1.3 billion after-tax impact, an incremental hit of $400 million versus our initial outlook for the year. Combined, headwinds from these items are now estimated at approximately $3.9 billion after tax or $1.57 a share, a 27 percentage point headwind to EPS growth for the year. We will offset a portion of these cost headwinds with price increases and productivity savings. We will continue to invest in irresistible superiority, which is even more important as we compete in some markets with local or non-US based competitors that don't see the same foreign exchange rate impact. As we've said before, we believe this is a rough patch to grow through, not a reason to reduce investment in the business. As I noted at the outset, our good first quarter results enable us to confirm our guidance ranges for the fiscal year across all key metrics. We continue to expect organic sales growth in the range of 3% to 5%. On the bottom line, we are maintaining our outlook of core earnings per share growth in a range of in line plus 4% versus the prior year. However, the steep increase in foreign exchange impact pushes our current expectations towards the lower end of the range. We continue to forecast adjusted free cash flow productivity of 90%. We expect to pay around $9 billion in dividends and to repurchase $6 billion to $8 billion in common stock, combined a plan to return $15 billion to $17 billion of cash to shareholders this fiscal year. The outlook is based on current market growth rate estimates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruption, major production stoppages, or store closures are not anticipated within this guidance range. To conclude, the macroeconomic and market level consumer challenges we're facing are not unique to P&G, and we won't be immune to the impact. We've attempted to be realistic about these impacts in our guidance and transparent in our commentary. As we've said before, we believe this is a rough patch to grow through, not a reason to reduce investment in the long-term health of the business. We're doubling down on the strategy that has been working well and delivering strong results. We'll continue to step forward towards the opportunities that we may fully invest in our business. We remain committed to driving productivity improvements to fund growth investments, mitigate input cost challenges, and to maintain balanced top and bottom line growth. With that, we'll be happy to take your questions.

Yes, hi good morning. Thanks for the question. Andre, I kind of wanted to pick up where you left off about your P&G's commitment to remaining fully invested even in this environment. I think one of the biggest questions and points of pushback that I've received around P&G in recent months is just this idea that, given all the headwinds that you've talked about and quantified today, and given the accelerated push on productivity that you've emphasized coming into the year and again underscored today, there isn't enough leftover to keep those investments going. Investments that have been, I think, pretty critical in investors' eyes to enabling the growth that we've experienced over recent years. So maybe you could just step back and reassure investors and give some perspective on how much room there is to invest even as you push for productivity and work to offset these headwinds and counter the idea that you're going too far in curtailing investments that are necessary for future growth.

Yes. Good morning, Steve. Let me maybe start with productivity to reassure you on the ability to deliver significant productivity, and then I'll turn it into the discussion on investments. We have increased our productivity numbers for the year back to pre-COVID levels. So we have good visibility to a significant step up versus what we were able to do during COVID, where we had to limit our productivity efforts to some degree to benefit innovation and shipping cases. With line time being available, we have now full ability to qualify those cost savings on the line. We have built digital capabilities to increase the speed of reformulation to drive superiority at lower cost. We have increased our ability to qualify new supply chains, if necessary, in order to reduce cost. We're improving the capability of our working teams and the plans to drive more efficient operations there. And we are constantly looking at our end-to-end supply chain, including logistics to drive costs out. We feel very good about our continued efforts to drive cost of goods productivity. We'll talk more about that as we discuss Supply Chain 3.0. But the runway is there. The capabilities are there, and we're seeing the visibility on the fiscal year results. On the media side, we also feel very good about our ability to drive continued investment in reach and quality of reach and better targeting while being able to flow productivity dollars to the bottom line to help offset some of the headwinds that we're seeing. We now have more than 50% of our media spend in digital. We are increasing our first-party data and our digital capabilities to increase precision of reach, not only in the US or in Europe, but around the world. And that is allowing us to drive significant productivity while increasing reach, while increasing quality of reach, and while more precisely targeting our consumers. Over the past three years, we have significantly increased spend in media by more than $1.2 billion. That's on top of the productivity we have generated over those years and on top of sales leverage. So we're also starting, I would argue, from a very rich support plan for our brands. In terms of the reinvestment of those savings and reinvestment within the P&L construct, we are not deprioritizing innovation. We will not deprioritize innovation. Every innovation that we've delivered in the market has created value and has continued to create value and contribute to our results. In the overall results, we see that our approach of driving superiority is actually the strongest driver of our ability to limit volume impact. All pricing moves enable us to continue to price and deliver value to the consumer. So in aggregate, I think the team has full confidence that we can balance what we see, but it will require careful balance and doubling down on productivity to sustain innovation and investment in our group.

Hey, Steve, this is Jon. I agree with everything that Andre said; just one additional short comment. If we find ourselves, which we don't currently, in a position where we have to choose between investing in the business and delivering a bottom line target, we will invest in the business.

Great. Thanks. Good morning, everyone. I thought it might be timely to get sort of an update on what you're seeing in terms of consumer behavior in the US. You did comment on all outlet market share being flat in the US. As you know, it's hard for us to see that via Nielsen, but also just the absolute sales growth that we see in tracked and untracked data does look like there's category contraction going on. So I guess commentary on what you're seeing, maybe we could just hit on, say, laundry and whatever pick another category to talk a bit about consumer trade down and dynamics that you're seeing in the market would be great? Thanks.

Good morning, Lauren. Yes, as you stated in your question, we're seeing global value share and value share in the US holding, which is a great signal that our strategies are working in providing value to consumers via innovation, as we price contribution of 9% in the quarter, with volume being down 3%, but the majority of that volume, so more than two points, actually driven by Russia. Also is a good indication that the strategy of irresistible superiority works even in an inflationary environment where we need to take pricing. The US specifically, as you mentioned, our all outlet share is flat. We've seen strong growth in the US of 5%. There is some volume reduction, as you would expect, with the price increase and inflationary pressures; we see volume contracting by about a point or two and that is consumer behavior around entry inventory reduction, stretching purchasing cycles, and maybe being a bit more careful in terms of dosing. But overall, we're still able to grow sales within the market and hold share within the market at this point. To specifically talk about some of the categories you mentioned and consumer behavior there. We talked about our fabric care situation in the last earnings call, where we were supply constrained on some of the portfolio in quarter three and quarter four of last fiscal year. We had reduced media spending and have reduced merchandising support stretching into quarter one of this fiscal year. And that certainly has resulted in some share pressure, which you would have seen in the xAOC shares. We feel very good about the team being able to reinstate supply to full efficiency. They have also reinstated media. They have reinstated merchandising support and strengthened merchandising support, and we're seeing our Fabric Care business coming back. Our volume share in the most recent read is actually up. We see continued strong growth on single unit dose, where the majority of the market growth is, and we're driving that market growth. In terms of consumer sentiment, in general, we see part of the consumer base in Fabric Care, for example, trending up, as I mentioned into single unit dose. We see some growth also in our mid-tier brands as consumers are looking for value within our portfolio. They're trading into game or into Simply Tide, for example, where we see some level of share growth. And that's the intent of our vertical portfolio and our strategy to provide different value tiers to consumers. We are also seeing consumers moving to different price points. So a group of consumers is looking for value by trading into higher transaction sizes to find lower cost per use, while lower cost per unit, and we see other consumers who are more cash conscious, and they are very focused on cash outlay. So again, the other part of the strategy to provide pack sizes that stretch from below $10 for some channels and consumers to above $30 or $40 for others seems to be meeting consumers' needs. So broadly, we feel good about the position we're in. There are some dynamics in terms of supply and base period that will be with us for a period of time. We remain supply constrained on a few categories, where we will see share pressure, tampons, for example, the premium tier of our Fem Care pets business and on some sides of the health care business. But overall, we don't see any negative reaction, and we feel reconfirmed in our strategy by what we see in consumer behavior.

Hey, guys. So a strong organic sales growth result in the quarter at 7%, especially given the COVID drag in China and Russia's impact, but you kept the full year sales guidance. Is that just conservatism given it’s early in the year and some of the external challenges? Are you feeling any more confident around that full year range? And perhaps within that answer, given the pricing has been so strong, you can just touch on the volume demand elasticity you're seeing with that higher pricing, any changes at all towards quarter end or in October and how you're thinking about that front specifically? Thanks.

Good morning, Dara. The guidance of 3% to 5% is really grounded in what we believe the market will be. We see some softening in the market, as we have communicated, about 3% to 4% value growth is what we're expecting the market to be. We want to grow slightly ahead of that. As you say, the first quarter gives us a good level of confidence that we're within the right range, but we're also very early in the year. So, we believe confirming the range is prudent. In terms of volume elasticity in my earlier remarks, as I said, we feel very encouraged by the fact that we were able to realize 9% of pricing in organic sales growth and effectively only see about a point of reduction in volume, which speaks to favorable elasticities; speaks to our strategy working and providing consumers value with innovation even as we take pricing. As we always do, we assume that these elasticities return to historical levels over time. But certainly, the first quarter is a good indication. It gives us confidence that the approach we've taken around the world in terms of combining pricing with innovation and productivity in order to offset the cost is the right approach.

Thank you, operator. Good morning, everyone. I have two questions regarding how we should think about the latter part of the year. First, in terms of future price increases, are there additional incremental price increases expected for the rest of the year, or has most of the necessary pricing already been implemented? I'm trying to understand if we can expect to see a shift toward volume contributing more to organic sales growth in the second half of the year, rather than relying on incremental pricing.

Good morning, Bryan. I can't speculate or give you an answer on future pricing. We adjust in the execution of the second pricing round for many of our brands. We took pricing on all our categories in the last fiscal year, covering about 80% of sales. We're now in the second round covering about 85% of sales, and that's what we see flowing through in the first quarter. Many of these price increases in the second round are being executed in September and October. For the future, we will continue to observe where our cost headwinds go, where foreign exchange rate goes. It's a very dynamic environment. We will continue to carefully balance innovation, pricing, and productivity.

Hey everybody. Good morning. Can you talk a bit more, maybe just give us some more details on what's driving some of these cost increases, especially as we're starting to see a lot of commodity costs start to roll over, it doesn't feel like you're discussing it kind of impacting your P&L yet. So can you just give us some more details there?

Yeah. Good morning, Kaumil. Look, the commodity cost increases are broad-based and different by commodity class. For example, we continue to see pulp increase. There is some relief on propylene and ethylene. But, in aggregate, we are not seeing broad enough relief on the input side to offset some of the inflation that is also coming from our suppliers. We don't buy propylene. We don't buy ethylene. We buy packaging materials. We buy super absorbers and materials that are secondary to that direct commodity impact. And that inflation is included in our $2.4 billion commodity headwind. So relatively stable on the commodity side. On the freight side, transportation and warehousing, as mentioned in the opening comments, we see some easing and we expect about $100 million less in headwinds, so $200 million after tax, down from $300 million. You see that market getting more back to contract prices as well. So that's been reflected. And then foreign exchange rate, obviously, is broadly across all currencies as the US dollar strengthens really around every currency in the world. And that's where we have a bigger increase versus our initial guidance range about $400 million due to the forex effects that we've described.

Hey, thank you very much. First, a quick follow-up and then my main question. Just so I'm clear, in terms of post-COVID consumer behavior, I mean, obviously, we've got some tightening that's going on and consumers searching for value you mentioned. But do you see any changes in consumer behavior in terms of those categories that increased demand due to COVID in terms of Home and Personal Care? Are we going to be at an elevated level there, or is it kind of just go back to normal? And then my main question is, can you give us a sense of how your business is progressing in China kind of sequentially through the quarter into October and what your plans are for 11/11? Thank you.

Good morning, Rob. Following COVID, we are observing a market contraction in antibacterial surface cleaning products, which represent a small portion of our overall portfolio. Aside from that, I don’t see any significant changes from our expectations. Consumers are still spending more time at home, and the emphasis on our categories of cleaning, hygiene, and health remains strong. This focus supports our investments in delivering superior value to consumers during inflationary times. On a positive note, some market volatility appears to be settling down. For example, categories like bath tissue and paper towels, which experienced erratic supply issues in the previous quarters, are now stabilizing. However, this does not apply to China, where ongoing lockdowns, particularly in Hainan for the past two months, are greatly affecting consumption. Volumes in China have declined by 5% to 6% this quarter. We had hoped for some easing, but the ongoing COVID policies continue to negatively impact consumer mobility. We are not making any assumptions about a change in this situation moving forward and will monitor market trends closely. We feel we are well-positioned, and once consumer mobility increases, we are confident in our ability to grow in that market. Our team on the ground is ready to act once the market fully reopens. As mentioned earlier, we anticipate that China will be a long-term growth driver, returning to mid-single-digit growth in the near future.

Thanks. Good morning, everyone. Andre, I was hoping you could provide some macro context in terms of what's being embedded in the guidance. I mean there's so much going on across the world. You address China to some degree. But perhaps you could just give us a little bit more context as it relates to Europe, especially as we head into the winter; US, maybe some of the developing markets? Just kind of how you're thinking about how the macro dynamics will play out over the rest of the fiscal year? Thank you.

Yes. Morning Nik. As you know, we generally orient our outlook on what we know today in terms of foreign exchange rate dynamics, in terms of commodity costs, and in terms of energy costs. So that's what is built into our reconfirmed guidance range. When you look at the consumer side and the market side, obviously, we see high pressure on the European consumer, with high inflation and certainly, as the energy costs will hit the consumer over the winter period, depending on how much support from the European governments provided and when we need to be extra careful in terms of ensuring that consumers have appropriate access to our portfolio, making sure that we give the right value to them via superiority, strong innovation, and the right price, as well as the right value tier offerings. So we expect Europe to be tough from a consumer environment standpoint but well-positioned from our portfolio standpoint in order to be able to compete in that market. The same is true for the US. We continue to focus with our retail partners to have broad access across our portfolio for consumers so they can make the right choices. As we said before, price ladder is increasingly important, cash outlay choices are increasingly important, and that's what we'll continue to focus on. Enterprise markets are holding up well, and that's a key growth driver also in the quarter. You've seen all enterprise markets grow mid-teens and even LA growing at 23%. So we'll continue to drive the same strategy in enterprise markets of providing superiority, pricing, and productivity.

Great. Thanks. Good morning, everyone. Andre, just a follow-up on that last question. Maybe you could just put some parameters around that, specifically around category growth rates. I think coming into the year, the guidance was underpinned on a 3% to 4% category growth rate. I think investors were a little bit surprised by the degree of slowdown at that point, just given the strength of the business performance in recent years. First quarter, I think, was better than the market expected, certainly from a demand elasticity perspective. Maybe just comment now, again, building on Nik's question, is 3% to 4% still what's underpinning your outlook and maybe you can share for key regions, US enterprise markets, etc., what you observed for category growth rates in the first quarter as we think about the balance of the year. So, thanks for that.

Yes. Kevin, we expect a slowdown from the growth rate we've seen over the past years, which was 5% to a more modest 3% to 4%. That is still the case. We continue to believe that the majority of that growth will be price-driven with a negative volume component, as you would expect given the inflationary pressure. We don't have more detail by region at this point in time, and it's really not a constructive forecast exercise to try to bring this down into a lower level of detail. So 3% to 4% is still underpinning our forecast. We want to grow slightly ahead of that, which is reflected in our guidance range.

Hi, good morning. So, just two connected questions on focus and enterprise markets. First, just on the US, you noted that growth was 5%, which is several points ahead of what we can see in the US standard data. Are there any timing differences with inventory or non-track performance that you would highlight there? And then just tacked on the enterprise market in general. Can you just expand a bit on the acceleration we've seen in these markets? What's driving that uptick in growth? And maybe importantly, how you see relevant performance versus local competitors in these markets, namely if that growth is being driven by pricing and certainly, some of the local competition has different inflation exposures versus that of P&G? So, thanks on the US and the overall enterprise markets.

Yes. To start with the US, we see strong growth in non-covered markets. That's explaining the overall stronger growth. So, just looking at the covered market here is maybe not reflecting the full reality that we've seen in the first quarter. So, broader growth in the US is higher than what we've seen in just the covered markets. On the enterprise market side, same dynamic as in the rest of the world, we continue to see strong contribution from pricing, obviously, and the combination of us taking pricing but driving innovation and priority at the same time allows us to drive strong organic sales growth.

Thank you. Good morning. My question has two parts. First, could you provide more details on what needs to occur for China to return to mid-single-digit growth, apart from the obvious recovery from COVID? My broader question concerns competition and your ability to continue investing behind the brands despite ongoing high input costs and fluctuations in the US dollar. I'm interested to know if you've noticed any changes in what your competitors are doing, especially since international competitors may not face the same foreign exchange challenges. Thank you.

Yes, good morning Olivia. I believe you've addressed the question regarding China, so I will keep it brief. We will keep investing, as our teams are well-prepared, but we need to see a return in consumability for China to achieve mid-single-digit growth again. That's all I'll say for now. Regarding competitive spending, I won’t make any predictions. However, it’s clear that local competitors and those not using US dollar denominations, as well as multinational competitors, do not seem to face the same foreign exchange challenges. Our strategy remains focused on our own priorities and investments. As Jon mentioned, we are committed to pursuing Irresistible Superiority relentlessly, which will be increasingly vital in categories where we encounter local or non-US dollar-based competition.

Thanks. Good morning. I wanted to follow up on Lauren's earlier question about trade down. You mentioned that you are observing some trade down within your categories and brands. I have two questions. First, are you surprised that there isn't more trade down at this point, given the inflation and potential recession? Second, could you discuss any differences in trade down trends in the U.S. compared to Europe or Latin America, or is it relatively consistent across those regions? Thanks.

Yes. Hi, Bill. Look, maybe the macro indication of trade down is two-fold. Our value shares in aggregate are holding, as we said, and private label shares, which is the other indicator of a trade down in the market, are growing modestly, both in the US and in Europe. When you look at the US, we see value share for private label increasing 30 basis points over the past three and six months. In Europe, we're looking at about 20 basis points of growth. Some of that is simply driven by supply dynamics. So where in the US, for example, we see private label growth in our categories would be in bath tissue or in paper towels, where private label in the base period was not supplying well and we kind of picked up that supply over quarter one and quarter two of last fiscal year. Now, as private label is in supply and merchandising is reinstated, we see some growth. Encouragingly, when you then look at our Family Care business, sequential share is holding. So there is no direct link of private label growth and us not being able to continue to hold our share position or even expand our share position. Overall, trade down within our portfolio is the design. That's why we have created different value tiers; that’s why we have created different pack sizes. So some level of consumer shifting is expected. We are very encouraged by many of our consumers actually continuing to look for the upper end of our portfolio. And I mentioned the Fabric Care example. Our biggest growth in the Fabric Care share is in the single unit dose segment in the total market, and we're driving that growth. So we're encouraged there. So we see trends in both directions. Part of the consumers continue to look for the upper end of the portfolio. Some consumers, who are more exposed from a cash outlay or value standpoint, find a solution within our more value-focused tiers.

I believe the simplest way to explain this complex situation is that value is determined by the combination of price, product performance, and usage experience. Price is important, but the other factors are just as crucial. We continue to invest significantly in enhancing performance and usage experience, and we aim to maintain a strong value proposition for most consumers. Some will need to switch to more affordable options, and we have products available to accommodate them. Ultimately, it’s important to consider the overall value proposition to understand the current landscape.

Thanks and good morning everyone. I guess I want to ask about market dynamics for lack of better terms. Maybe start with reconciling global share being in line in terms of what you said on the call with the 7% growth that you reported organically in your 3% to 4% expectations for category growth, right? Obviously, that implies a bit of a deceleration. And then specifically, what's happening in segments that you talked about where there's market contractions. I think you mentioned in the press release, Hair Care, Oral Care, Fabric Care, specifically anything sort of takeaways from there and your expectations and what's driving that going forward?

Yes. Morning Mark. Look, the outlook for the year is still 3% to 4%. This won't be a straight line. The best visibility we have is on the total year at the global level, trying to break this down into quarters or trying to break this down as geographies is not helpful in our mind. So, we go quarter-by-quarter. The market growth dynamic by category are not fundamentally different from what we're observing. As I said, the only driver that is visible from a COVID to post-COVID world is in the surface cleaning and hygiene space, where we see a slowdown in the category growth. But other than that, the core drivers that we had predicted to help us deliver market growth is a focus on health and hygiene, more time at home, and more focus from consumers on our categories. Our main job here is to drive category growth, and that's what we're really focused on; drive new jobs to be done, drive household penetration where there is potential, drive usage of patients via regimen use, and that's what we're focused on in our innovation and in our communication and in the market execution.

And as you think about market and market growth, at some point, the whole market has priced. At some point, that annualizes, and it's less of a contributor to topline growth. Yes, volume will hopefully be a partial offset to that. But I think it's normal to expect kind of a reversion to the mean as we get through the pricing cycle.

Good morning and Jon, on your last point, I think just a follow-up on your comments on revenue growth management. I just want to confirm on the timing of this entry-level products hitting the shelves. I know you've done some of it, and which categories you're finding the need to offer Vermont the volume share. I'm assuming Family Care, Baby Care, and Laundry Care; I just wanted clarify. And my main question is on what you're embedding in terms of additional pricing in Europe into the second half of fiscal 2023, which I believe is usually when the retailers accept new pricing negotiations. So, what is embedded in your guidance for the back end of the year or the fiscal year at this point. Thank you.

Yes. Hey, Andrea, let me take this. The value tier and price point portfolio that we were describing has been implemented over the past years. So this is not something that we're doing ad hoc in reaction to market dynamics we are observing. This is something that has been part of the strategy for many years. So the introduction of Simply Tide or Tide Simply, the introduction of strengthening of brands, for example. So that has been there for a number of years. Also the strategy of having different opening price points from under $10 to a higher transaction size has been part of our portfolio for many years. What we're doing carefully as we said all along, is when we price, our price execution is really tailored by SKU by category by brand by market. So that's why we pay attention to ensure that as we price we maintain the right structure on shelf, be that virtual or physical shelf. Again, I can't comment on additional pricing in the second half. As Jon indicated, you would from a market perspective expect that some pricing annualizes here during the next two quarters, but the situation is still volatile. So we will continue to look at what we're facing and employ a combination of innovation, pricing, and productivity.

Hey, folks. Thanks for slotting me in. I guess, coming full circle to the top of the queue and on investment posture. I know that you raised media spend by $1.2 billion from fiscal 2019 to fiscal 2022, as you mentioned earlier on the call. But you did start to get leverage on it last year, I think roughly 90 basis points of leverage, and you mentioned more leverage today. So question one is how do we think about the right investment posture when it comes to advertising and media? And then secondly, Jon mentioned that we're going to see price subside as we anniversary, which obviously we will. In some instances, we'll probably see it subside too because of promotional intensity. And it looks like promotions are building in laundry sequentially, diapers sequentially. And as you mentioned, private labels reengaged in tissue, and that may require some promotional get back. So how do you balance being competitive in market, matching promotional intensity where needed, but yet still getting the price realization you need to cover cost? Thank you.

Yes. On the media investment, I think we really need to shift focus. It is difficult to describe media sufficiency in dollars, especially when we are actively shifting our spending from linear non-targeted TV into programmatic and into digital spend that is a lot more targeted and a lot more precise in terms of delivering reach and quality of reach where we need it. So spending reduction might not necessarily correlate with this investment. So we continue to, as Jon said, we committed to drive superiority of our brands. We will not step back from that, and that for us means higher reach, higher quality of reach, higher targeting capability, which we've built around the world, and that's the measure of success for us. If we deliver that, the dollars are an outcome, not the determining factor of efficiency of investment. On the price and promotion side, Jason, we've seen promotion levels come down during COVID, as you know, from above 30% pre-COVID to, I think, 16% was the low during the COVID period. We now see in our categories, promotion coming back up somewhere between 27% to 30%, which is to be expected. For us, the most important element is to use promotions in the right way. If we are able to drive regimen, for example, by co-promoting, co-merchandising, laundry detergent and fabric enhancers where we have significant penetration opportunities in fabric enhancers, it grows the category, it drives incremental purchase, and it drives repeat of the trial if we do it right. Same is true in Baby Care. When we co-promote wipes with diapers, it drives higher usage in a relatively more underdeveloped category, which is wipes. So, in that sense, promotion can be a driver of growth, market growth, and profit growth, and that's how we want to use it.

To clarify a point made by Andre, which keeps coming up, it's essential that we communicate more clearly. I want to provide an example from North America to reassure you about our investment strategy. Recently, we had a meeting with the North American team, including Andre, Charles, and myself, where they presented data about dollar spending compared to last year. I realized this wasn't useful; what we truly need to assess are our reach objectives and whether we're allocating enough funds to meet those goals, as well as how many weeks we plan to maintain our presence to achieve that reach. That's our measure of adequacy. We aim to accomplish this in the most cost-effective way. We thoroughly reviewed each category to ensure we had adequate reach and sufficient weeks of media, and in cases where we found shortfalls, we discussed with business leaders how to address those gaps. We're dedicating considerable time to this effort and are highly committed to it. I understand this may be frustrating since the visibility you have is limited to the dollar amounts, which I get. Additionally, as Andre mentioned, we're bringing many of our marketing activities in-house. Consequently, costs associated with media purchases are shifting from the advertising budget to the overhead budget, impacting expenditures from one period to the next. I hope this clarifies the situation.

Good morning. Thanks very much. Two easy ones, I think. First, I want to understand the bridge between the global pricing impact as cited at 470 basis points and global pricing of 9%. I'm sure it's easy I'm missing that. I just want to understand how that math works as we go forward. And secondly, you mentioned pantry inventories. I wonder, is there any data you have specifically about monitoring that in a granular way on a global basis or at least maybe some anecdotes about how that's worked in the past when we've seen periods of rising pricing and a little bit of elasticity? Thank you.

On the pricing to gross margin reconciliation, I suggest you go back to our IR team for them to give you the math off-line. On the pantry inventory, we do have some data. We have in-home consumer data, specifically in the US and many other markets that allows us to see their relative pantry inventory. So, it's based on that observation in the market. But it's not illogical to assume that high inventories that were built during the COVID phase, for example, in bath tissue and paper towels, slowly drawing down. I would tell you that we're still seeing somewhat higher levels than we've seen pre-COVID, but none of this is material. It's more an element of consumer behavior we're observing. So, it's nothing that would stand out in terms of the construct of the market growth or forecast.

As we conclude, I just want to say how pleased I am with our team and their accomplishments. We achieved 7% organic sales growth despite challenges from Russia, Ukraine, and the downturn in China, which is truly impressive. Our team has effectively communicated and enhanced the value of our offerings while managing pricing to maintain business momentum. Additionally, as Andre noted earlier, the focus on productivity is crucial for our future. Despite a 32-point negative impact from commodities, foreign exchange, and logistics this quarter, our team successfully offset 30 points of that through a combination of pricing and productivity. That's the overall picture, and I couldn't be happier.

Yes. Only point to add is and the combination of value shareholding globally and in the US is a strong indication in our mind that the strategy of driving superiority even in inflationary environments is the right strategy for P&G. So, we'll continue to double down, as we said in our opening remarks.