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Edited Transcript of CLX earnings conference call or presentation 1-Aug-19 5:30pm GMT

Q4 2019 Clorox Co Earnings Call

Oakland Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Clorox Co earnings conference call or presentation Thursday, August 1, 2019 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benno O. Dorer

The Clorox Company - Chairman & CEO

* Kevin B. Jacobsen

The Clorox Company - Executive VP & CFO

* Lisah Burhan

The Clorox Company - VP of IR

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Conference Call Participants

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* Ali Dibadj

Sanford C. Bernstein & Co., LLC., Research Division - SVP and Senior Analyst

* Andrea Faria Teixeira

JP Morgan Chase & Co, Research Division - MD

* Bonnie Lee Herzog

Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst

* Dara Warren Mohsenian

Morgan Stanley, Research Division - MD

* Jason M. English

Goldman Sachs Group Inc., Research Division - VP

* Kaumil S. Gajrawala

Crédit Suisse AG, Research Division - MD & Research Analyst

* Kevin Michael Grundy

Jefferies LLC, Research Division - Senior VP & Equity Analyst

* Olivia Tong

BofA Merrill Lynch, Research Division - Director

* Stephen Robert R. Powers

Deutsche Bank AG, Research Division - Research Analyst

* Steven A. Strycula

UBS Investment Bank, Research Division - Director and Equity Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter and Fiscal Year 2019 Earnings Release Conference Call. (Operator Instructions) As a reminder, this call this being recorded. I would now like to introduce your host for today's conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

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Lisah Burhan, The Clorox Company - VP of IR [2]

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Thanks, Sharon, and welcome, everyone. On the call with me today are Benno Dorer, our Chairman and CEO; and Kevin Jacobsen, our CFO. We're broadcasting this call over the Internet, and a replay of the call will be available for 7 days at our website, thecloroxcompany.com.

On today's call, we may refer to certain non-GAAP financial measures, including but not limited to free cash flow, EBIT margin, debt-to-EBITDA, organic sales growth and economic profit. Management believes that providing insights on these measures enable investors to better understand and analyze our ongoing results of operations. A reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available on our website as well as in our SEC filings. In particular, it may be helpful to refer to tables located at the end of today's earnings release. Please also recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release. Please review our most recent 10-K filings with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements.

I'll start by covering our top line commentary, discussing highlights in each of our segments. Kevin will then address our financial results as well as outlook for the fiscal year '20. And finally, Benno will offer his perspective. And we'll close with Q&A. For the total company, full year sales were up 1%, while Q4 sales decreased 4%, reflecting double-digit sales decline in our Household segment.

I'll now go through results by segment. In our Cleaning segment, full year sales grew 2%, while Q4 sales grew 3%, reflecting growth in all 3 businesses.

Our Professional Products business grew sales strongly in FY '19, wrapping up the year with a double-digit sales growth in Q4. We've introduced a number of innovation platforms in this business over time, and they continue to build momentum as we keep expanding distribution in the institutional channel. For example, the Clorox Healthcare hydrogen peroxide line, which launched in FY '13; and Clorox Healthcare Fuzion, an FY '17 innovation, both have strong double-digit growth -- double-digit volume growth for the year.

In Home Care, sales grew both in Q4 and for the full year. Q4 sales were up behind broad-based volume growth, including record quarterly shipments of Clorox Disinfecting Wipes. While early, we're encouraged by the improvement we're seeing in wipes after beginning to address some of the short-term competitive headwinds we discussed in Q3.

We'll continue to sharpen our consumer value equation in FY '20 with an eye on long-term profitable growth for the category and for the brand. We're looking forward to sharing with you an exciting innovation in wipes this fall at our Analyst Day.

Lastly, within the Cleaning segment. Our Laundry business sales were up for the quarter and about flat for the full year. We're excited to share that we'll be doing another round of compaction starting in FY '20, which will drive category growth while at the same time reducing overall environmental footprint for Clorox Liquid Bleach.

While we're pleased with the results we're seeing in 3 of our 4 segments this quarter, results in Household were disappointing. Q4 sales were down 11%, and full year sales were down 5% driven mainly by declines in Charcoal and Glad. Turning around these businesses is as a top priority for us, and we expect to see improvements in the back half of FY '20.

Now let's go through the drivers business by business. In Charcoal, full year sales declined with Q4 sales down by double digits due mainly to distribution losses and lower merchandising primarily at 2 large customers in mass and home hardware during the peak grilling periods in the quarter. We've seen retailers investing more space in support of alternative grilling fuels like lump and pellets, a growth area where we will begin to play in 2020. As a result, we experienced lower merchandising support and loss some distribution, while competitors have gained. These results are disappointing, and we need to launch innovation that allows us to participate in these growing alternative grilling fuel segments and better differentiate Kingsford from competitors. We're working on a stronger 2020 season plan that will include new Kingsford pellets, product improvement across our base Kingsford product, Charcoal and robust marketing support that will continue to focus on growing household penetration. While we expect the front half of the fiscal to be challenged, we believe we'll turn -- we returned the business to growth in the back half of the fiscal based on the strength of the Kingsford brand and our expectation that we will significantly improve our business plans for consumers and for retailers.

In our Bags and Wraps business, sales were down for the fiscal year with a double-digit decline in Q4. Sales and share declines continued to be driven mainly by wider price gaps as well as distribution losses in select portions of the portfolio, which we've discussed last quarter.

In Q3, we began increasing our trade investments to narrow these price gaps. And while it's early, we're starting to see green shoots in select areas where we've seen improvements and shares.

Starting this Q1, we're implementing incremental trade investments that will fully close the remaining price gap, and that should lead to further improvements on the business.

In fiscal year '20, we're also planning to launch various new products in the fast-growing scented trash bag segment where Glad has commending equity over competitors. We expect to return to growth by the back half of fiscal year after we cycled through the impact of distribution losses. Longer term, we continue to feel good about the value creation potential of this business. Our confidence comes from our dedication and significant investment in differentiated consumer and technology-led innovation. For perspective, we filed about 70 patents in the past 5 years, while our closest branded competitors -- competitor had none. We believe these type of investments will continue to drive long-term profitable growth for the brand and for the category.

Turning to RenewLife. Sales were down by double digits for Q4 and for the year. As we mentioned last quarter, we remain focused on restoring growth in this business and have confidence in the probiotic category and in our ability to differentiate our brand from competition by emphasizing our product efficacy. A continued bright spot in Household segment is our Cat Litter business, where Q4 sales were up on top of double-digit growth in the year ago period mainly due to the benefits of pricing. For the full year, sales were up by double digits behind additional investment and Fresh Step Clean Paws innovation platform, which offered 2 new product option in the fiscal year, Mediterranean Lavender scent and unscented.

In our Lifestyle segment, sales for the quarter were flat, while sales for the full year were up 17% primarily reflecting the benefit of Nutranext acquisition. Burt's Bees had a very strong quarter of sales growth behind a record quarterly shipment in lip care and face care, and sales were up for the full year as well. Successful innovation in these categories, including overnight lips cloves, lip oil and sensitive skin care product, continues to drive share growth for the brand. The business has another strong pipeline of innovation plan for FY '20, including our recently launched lip butters, which offer a trade-up from traditional of lip balms with an experiential form, flavor and texture as well as on-trend botanical blend flavors that are relevant to younger consumers. We'll have more to share with you on this in October.

As we mark the 1-year anniversary of our acquisition of Nutranext, sales were up for the quarter driven by strong growth in our strategic brands, which represents about 80% of the portfolio. We continue to be pleased with the progress we've made on this business, including the integration and of high expectation for FY '20.

Food sales were flat for the quarter but up for the year. Q4 results reflect continued strength in bottled Hidden Valley dressing, offset by lower shipments in Dry Hidden Valley products, which had double-digit growth in the year ago quarter. Ready-to-eat dips are off to a good start with early indications that the innovation is expanding usage occasions for the brand. Overall, the brand remains healthy and enjoyed its 18th consecutive quarter of share growth.

Wrapping up the Lifestyle segment. Brita sales were down for the quarter while being up for the full year. The Q4 sales decline was driven by timing of trade spending. This benefited Q3 sales, which were up by high single digits while drawing from this quarter. Importantly, this business is healthy as reflected by a solid and consistent volume growth in all 4 quarters of FY '19.

Consumption has continued to grow for 8 consecutive quarters, and we're pleased to see our tracked channel market share up nearly 1 point in the last 13 weeks. We're also excited by the strong start of our bottle innovation, which was supported to increase demand spending.

Finally, turning to International. Sales decreased 4% in Q4 driven by about 15 points of unfavorable foreign currency impact primarily in Argentina, which were partially offset by the benefits of price increases and volume growth. Europe and China both recorded double-digit volume growth for the quarter behind the strong performance of Cat Litter and Burt's Bees. Sales were down 6% for the full year, reflecting 15 points of headwinds from foreign currency impact. At the same time, we're pleased to see solid sales growth in a number of markets.

With that, I'll turn it over to Kevin who will discuss our Q4 and fiscal year financial performance as well as outlook for fiscal year '20.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [3]

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Thank you, Lisah, and thank you, everyone, for joining us today. Overall results were mixed in fiscal year 2019, reflecting a strong start in the first half, followed by more mixed results in the third and fourth quarters primarily behind challenges in select categories. At the same time, I'm pleased with the progress we've made rebuilding gross margin, allowing us to invest more in our brands and technology transformation to support long-term profitable growth.

Starting with our fourth quarter results. Sales decreased 4%, reflecting a negative 3-point impact from lower volume and 2 points of negative impact from unfavorable foreign currencies, partially offset by the benefit of price increases net of trade spending. It's important to note that the 3-point volume decline in the quarter was driven by our Charcoal business and to a lesser extent, our Glad business.

Gross margin for the quarter came in at 45.1%, an increase of 110 basis points compared to 44% in the year ago quarter. Fourth quarter gross margin included 220 basis points of benefit from pricing and 150 basis points from cost savings, partially offset by 150 basis points of increased trade spending and 90 basis points of higher manufacturing and logistics costs.

Selling and administrative expenses as a percentage of sales were essentially flat versus the year ago quarter. Advertising and sales promotion investment levels as a percentage of sales came in at about 10% with spending for our U.S. retail business coming in at about 11% for the second straight quarter. Our effective tax rate was about 17% versus about 29% in the year ago quarter primarily driven by the benefit of U.S. tax reform. Net of all these factors, we delivered diluted net earnings per share from continuing operations of $1.88 versus $1.66 in the year ago quarter, an increase of 13%.

Now I'll turn to our results for the full fiscal year. Sales grew 1%, reflecting 3 points of net benefit from the Nutranext acquisition and Aplicare divestiture, offset by a negative 3-point impact from unfavorable foreign currencies. Fiscal year sales also include the benefit of price increases net of trade spending.

Gross margin for the fiscal year came in at 43.9% versus 43.7% in fiscal year 2018, an increase of 20 basis points. Fiscal year gross margin results include the benefits of 190 basis points of pricing and 150 basis points of cost savings, partially offset by 190 basis points of higher manufacturing and logistics costs and 60 basis points of unfavorable commodities. In fiscal year 2019, we delivered more than $120 million in cost savings, hitting 12 consecutive years of generating more than $100 million in annual cost savings.

Selling and administrative expenses as a percentage of sales for the full fiscal year were essentially flat versus year ago, as ongoing investments and the Nutranext acquisition were offset by progress from our ongoing productivity initiatives as well as lower incentive compensation accruals consistent with our performance-based compensation philosophy.

Advertising and sales promotion spending as a percentage of sales for fiscal year 2019 increased to about 10% versus about 9% year ago, with U.S. Retail spending at about 11% for the fiscal year. For the full fiscal year, our effective tax rate was about 20% compared to the year ago rate of about 22% primarily reflecting the benefit of U.S. tax reform. Net of all these factors, our fiscal year diluted EPS from continuing operations was $6.32 compared with $6.26 in fiscal year 2018, an increase of 1% on top of a 17% increase in fiscal year 2018.

Turning to cash flow for the fiscal year. Net cash provided by continuing operations in fiscal year 2019 came in at $992 million versus $976 million in the prior year. Our track record of generating strong cash flow and maintaining a healthy balance sheet enables us to continue to invest in the long-term health of our business and return excess cash to our shareholders.

In fiscal year 2019, we increased our dividend by 10% on top of a 14% increase year ago, which continues our long history of increasing our dividend. In addition, as part of our ongoing commitment to return excess cash to shareholders, we returned $328 million as part of our open-market share repurchase program. At the end of the fiscal year 2019, our debt-to-EBITDA ratio was 2.1, which is at the low end of our target range of 2 to 2.5x.

Now I'll turn to our fiscal year 2020 outlook. We expect fiscal year sales to be in the range of flat to 2%, reflecting 1% to 3% organic sales growth primarily driven by innovation, partially offset by about 1 point of negative impact from foreign currency headwinds. It's important to note that we anticipate first half sales to be at the low end of our range with our assumption for first quarter sales to be down as we work to restore growth on our Glad and Charcoal businesses. For the second half of the fiscal year, we anticipate sales to be at the higher end of our range, consistent with our expectation for these 2 businesses to return to growth in the back half of the fiscal year.

Turning to gross margin. We expect fiscal year gross margin to be about flat to down slightly, reflecting our expectation for flat gross margin prior to additional supply chain investments we are making to drive long-term value creation. One great example is our first half investment to support the initial rollout of Clorox Liquid Bleach Compaction in the spring of 2020, offering improved consumer experience and meaningful sustainability benefits. We look forward to the value the Bleach Compaction will bring to the category.

We expect fiscal year advertising and sales promotion investment levels to be at about 10% of sales. Selling and administrative expenses are expected to come in at about 14% of sales, reflecting ongoing acquisition-related investments as well as technology transformation investments to support long-term growth and cost savings.

In addition, we anticipate more normalized levels of performance-based incentive compensation. We expect fiscal year EBIT margin to be about flat to down slightly based on our expectations for fiscal year gross margin. Importantly, we believe we are taking the necessary actions to expand EBIT margin in the back half of the fiscal year at a level more in line with our long-term financial targets of 25 to 50 basis points.

Our outlook also includes the ongoing benefits of U.S. tax reform with the assumption that our fiscal year tax rate will be in the range of 22% to 23%. This includes the ongoing benefits of U.S. tax reform, partially offset by our expectation for lower excess tax benefits from stock-based compensation.

Net of all of these factors, fiscal year 2020 diluted EPS is expected to be in a range of $6.30 to $6.50. Consistent with our anticipated fiscal year sales progression, we expect diluted EPS to be more muted in the first half as we work through challenges on our Glad and Charcoal business and stronger in the second half.

In closing, I'd like to reinforce that I believe we are taking the right actions to address the short-term challenges we're facing in key categories while making sure we continue to invest in the long-term health of our business. Last quarter, we discussed the challenges we are facing on our Glad and wipes businesses. And while there's more work to be done on Glad, we're certainly pleased with the progress with wipes, which delivered record quarterly shipments in the quarter, on top of record shipments in the year ago period. In addition, although we expected to face some bumpiness in parts of our portfolio, we believe the cost-justified pricing was the right decision. Pricing and strong cost savings enabled us to address the ongoing inflationary environment we have been operating in over the last 3 years while also enabling us to continue investing behind our brands and categories in support of long-term value creation.

Moving forward, we're addressing Glad and Charcoal head-on while remaining focused on profitable growth. We will continue to invest strongly in our brands, including innovation, which will help us continue to deliver superior consumer value. We will continue to lean into our cost-savings program and productivity initiatives to create fuel for growth. Additionally, we will continue to drive our Go Lean strategy in International. We're pleased with the business' strong operational progress in the face of ongoing currency inflation.

And finally, I'd like to make sure that it's clear that after we work through the challenges we're facing in a couple of our businesses, Clorox will be in a position to deliver results that are more [in line] with our long-term financial goals.

And with that, I'll turn it over to Benno.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [4]

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Hello, everyone, and thank you, Kevin. Here are my 3 key messages for you today: First, as we discussed, fiscal year 2019 was mixed, which was reflected in our back half results. We're currently facing persistent challenges in Charcoal and Glad that impacted our top line results in the back half and full fiscal year of 2019. We will work to significantly strengthen our Charcoal business plans as well as address the pricing-related issues and drive innovation on Glad. We anticipate these businesses will return to growth in the back half of fiscal year 2020.

At the same time, I feel good about the strength in other parts of our portfolio with strong fiscal year sales growth in a number of businesses. We delivered broad-based growth across Home Care, our largest SBU, with Clorox disinfecting wipes returning to growth in the fourth quarter. We also delivered sales growth in our Professional Products business, double-digit sales growth in Litter, strong sales growth in Burt's Bees as well as sales increases in Food and Brita.

I also feel good about our innovation program. It continues to drive consumer value that is superior through differentiation in our products and brands, with the introduction of consumer meaningful innovations in fiscal year 2019, including Hidden Valley Ready-to-Eat Dips, Brita filtering water bottles and several new Burt's Bees lip and face care products. We're also pleased to see continued momentum behind our Clorox Scentiva and Fresh Step Clean Paws platforms. I continue to be pleased with the Nutranext acquisition, which delivered robust growth in the fourth quarter and contributed strongly to total company fiscal year sales behind an integration that remains on track.

I'm also pleased with our strong progress in our International business. In the face of significant FX headwinds, our Go Lean strategy has delivered 6 consecutive quarters of profit growth. We're also seeing strong momentum behind growth platforms in several regions. E-commerce continued to be an increasingly meaningful growth engine for the company and now represents about 8% of total company sales. And finally, we expand the gross margin, which was the key to creating fuel for brand growth in fiscal year 2019.

My second message is that our fiscal year 2020 outlook represents an appropriate plan, reflecting the balance of addressing the shorter-term challenges on Charcoal and Glad as well as our plans to continue leaning into driving long-term profitable growth.

I'd like to reinforce what Kevin said about pricing, and that is notwithstanding the temporary bumpiness we had anticipated, we firmly believe cost-justified pricing was the right decision for the long term. Pricing helped address the ongoing inflationary environment we've been facing and supported continued investment in long-term brands and category growth.

An immediate priority for us certainly is getting Charcoal and Glad back on track. As I mentioned, based on our expectations to deliver stronger business plans for Charcoal and move past the issues post pricing on Glad, we anticipate these 2 businesses to return to growth in the second half. That all said, we will remain principled in our commitment to long-term profitable growth and will continue to pursue strategic investments that will lay the groundwork for the future of the company. As Kevin mentioned, we're investing in the first half of the fiscal year to support the initial launch of Clorox Liquid Bleach Compaction in the spring of 2020, which we're very excited about. And of course, we'll be relentless in building brands that consumers love and lean into demand-building investments, including increased advertising dollars at about 10% of sales. Above all, innovation remains a powerful lever for us as it's the force behind long-term profitable growth. We're pleased that 2020 will bring another robust pipeline of innovation led by the compaction of Clorox Liquid Bleach, innovation on Clorox Wipes and new products and other businesses, including several innovations on Glad and in Burt's Bees lip and face care.

We will drive trial and awareness on these new products while also continuing to invest behind several of the innovation platforms we've already introduced such as Clorox Scentiva, Fresh Step Clean Paws, Brita filtering water bottles and Hidden Valley Ready-to-Eat Dips, which all have meaningful upside potential.

Finally, the third message I'll share with you today is that we're confident in the strategic path we are laying out to continue Clorox' track record of delivering long-term shareholder value. Our new strategy is supported by a proven business model of leading brands in attractive midsize categories, strong operational execution based on innovation and an unwavering commitment to good growth, growth that's profitable, sustainable and responsible. We have a strong global portfolio with the majority of global sales made up of #1 and #2 brands. We're expanding this portfolio further into health and wellness with the Nutranext acquisition, which is currently expected to deliver double-digit sales growth in fiscal year '20. We're confident that robust innovation program will continue to deliver superior consumer value by differentiating our products and brands.

Building on our 2020 strategy, which delivered strong shareholder return, we're confident our new strategy will continue to guide us in delivering strong cost savings, generating strong cash flows leading to top-tier ROIC and maintaining a healthy balance sheet. We remain committed to putting our strong cash flow to work by investing in the long-term health of our business and rewarding our shareholders. And finally, we'll continue our focus on growing the right way, by living our values and driving sustainability in our products and operations. We'll continue to be a mission-driven business with the goal to create long-term value for all of our stakeholders.

And with that, operator, you may now open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Steve Powers with Deutsche Bank.

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Stephen Robert R. Powers, Deutsche Bank AG, Research Division - Research Analyst [2]

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So I think you've been pretty clear about the challenges that you face in wipes and Charcoal. But how should we think about the rest of the business in fiscal '20 because there is roughly a 300 basis point spread between the midpoint of your stated long-term goal of 3% to 5% growth and this year is flat to 2% outlook? And based on what we've heard from others, just a broader backdrop for CPG demand seems pretty favorable. So I'd like to assume the rest of the portfolio, ex Glad and ex Charcoal, would be performing in line with at least the low end to midrange of that long-term outlook. But if you're expecting both Glad and Charcoal to return to growth in the back half, it seems to imply the other 80% of the portfolio might also end up below even at 3% levels. So could you just help me with that and frame for me how you think that portfolio is shaping up health-wise versus the long term?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [3]

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Steve, this is Kevin, and I appreciate the question. And let me give you a perspective on how we're feeling about the portfolio, broadly separating the businesses, as we've talk about, that have been more challenge, Glad and coal. As you heard in our prepared remarks, our expectations, when we think about fiscal year '20, is those 2 businesses will be a drag on our performance in the front half or we work to get them back on track. But if I set those aside, we feel very good broadly about the balance of our portfolio. If you look at Cleaning, Lifestyle and International, all performing well over fiscal year '19. And when I look at fiscal year '20, our expectation, specifically in the U.S., is that we'll be generating top line growth consistent with our long-term growth algorithm. As you know, it's 2% to 4% in the U.S. And our expectation is we're going to be back in that range in the back half of the year as we get coal and Glad back on track.

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Stephen Robert R. Powers, Deutsche Bank AG, Research Division - Research Analyst [4]

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Okay. So did -- any drag versus the long-term algorithm, ex Glad, ex Charcoal, is really just International and some of the macro factors. Is that fair?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [5]

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Yes. That's right. And for International, we've been targeting 5% to 7%. We've continued to be challenged by FX headwinds. That was particularly true in '19 where we had about a 15-point headwind. I'd tell you, as we look at '20, we think it's going to be a slightly better environment, but we still think it's going to be a material headwind to our International business. On a currency neutral basis, they are certainly growing within that 5% to 7%, if not higher, but being held back by FX at this point.

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Stephen Robert R. Powers, Deutsche Bank AG, Research Division - Research Analyst [6]

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Okay. Great. And then Kevin, why don't I get you talking? You gave some helpful phasing information for the -- on the top line for the year. But could you talk to us through any phasing dynamics on the gross margin line or the advertising lines? And then I'll pass it on.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [7]

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Sure. Maybe on advertising, I would say, typically, we will spend the money based on when it's most advantageous for us. It tends to be a bit more loaded in the back half just based on the innovation cycle. I would expect to see something similar to that, although I don't expect to see any big changes but maybe a little bit heavier on the back half.

And then on gross margin, gross margin, I think, will be fairly consistent across the year. The investments we're making will put a little bit of downward pressure on margin. As we mentioned, we're investing in compaction. They will be launching in the spring. We've got another project we're not ready to talk about publicly but will continue to invest in it, and we'll talk about that at a future date.

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Operator [8]

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Your next question comes from Steve Strycula with UBS.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [9]

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So first, a more mechanical question and then more of a strategic question for Benno. So for Kevin, on the repurchase activity, is any repurchase activity be embedded in the fiscal '20 outlook? And can you give us some kind of magnitude? And were you back in the market in the fourth quarter?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [10]

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Yes. Thanks, Steve. I can start with our repurchase program. If I just think broadly about fiscal year '19, we're quite pleased. We returned about $1.2 billion to shareholders in '19. That's a combination of both dividend and share repurchases. That's up about 60% versus fiscal year '18, as you've seen us lean into the dividend over the last couple of increases. That also includes, on our share repurchase program, we have now executed about $425 million against my $2 billion authorization, so about 20% of the authorization, which also included about $250 million in Q4. As I look forward, as we've talked before, this is not an ASR, so I do not have a defined number of shares I'm going to buy. We've got an internal program we manage. What I'd tell you is I would have you believe that within the outlook we provide, there may be some level of share repurchases. I'm not going to provide a forecast on it. But to extent it materially changes one way or the another, I'd certainly update you. But for now, you should assume it's embedded within our EPS outlook range.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [11]

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Okay. And then Benno, just wanted to understand strategically how should we think about compaction phasing through the business, particularly as it launches in the spring? And then what has been the feedback in your conversations with retailers as to -- that gives you confidence that some of those businesses can accelerate in the back half of next year?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [12]

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Yes. So Bleach Compaction, Steve, will start in quarter 3. And typically, if you recall our progress on compaction over the last few times we did it, we've got some experience on this, the last time we did it was 2013, it takes several quarters, so we'd expect to be through all of this in several stages early fiscal year '21. So feel good about that project. Clearly, as we think about our coal and Glad -- so maybe focus your question on coal. Coal, the issue is really that we're out of sync with 2 large customers. And we have to get back in sync strategically with those 2 large customers. We also need better demand-building plans. Obviously, results are disappointing there, as Lisah said. And we owe our customers and consumers better plans with the right innovation. And as Lisah said, we will have product improvements as well as new Kingsford pellets in market for the next grilling season. We'll have continued strong marketing support focused on household penetration and brand value and excitement. And again, we need to have the right merchandising plans with all retailers consistently. And we clearly didn't succeed with that in Q4. So that's the work ahead. That's work that our company has a strong track record of. We feel like we know what the opportunity is on this business as well as on Glad. And we have to get back to doing what we do best.

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Operator [13]

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Your next question comes from Bonnie Herzog with Wells Fargo.

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Bonnie Lee Herzog, Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst [14]

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I actually have a big-picture question on your strategy. The strategy you guys just discussed and know what you're going to be unveiling further at your October Analyst Day doesn't necessarily sound like a major change from your current strategy. But I guess you have been thinking about and looking back at just subpar results in FY '19 and a pretty weak outlook for FY '20, I'm wondering if you guys think you might need to make more radical changes, either in your strategy or possibly in the composition of your portfolio. I guess I'm really trying to understand what gives you the confidence that some of the changes you're making will result in the improvements in the second half.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [15]

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Yes. Thanks, Bonnie. So we don't need that -- we don't think that that's needed, so no major change in strategy. If we think about the issues, again, they're largely contained to 2 businesses. And again, if I think about Charcoal, we're mostly off with 2 customers. And Glad is really tied to post-pricing issues where we've clearly seen widened price gaps, which we're addressing. And we also saw some distribution bumping as probably across the portfolio, which we can also trace back to pricing. And again, we have reaffirmed that pricing is really necessary, and we'll stand by that. So feeling good about the rest of the portfolio. Frankly, as Kevin said, it's generally solid. We'll cycle through in the post pricing bumpiness. We think we can address the Glad and Charcoal issues. And then we really think we have robust plans for fiscal year '20 and beyond. Strong advertising sales promotion, that's still relevant. We have brands that consumers love. We have our consumer value propositions, and measure continued to be positive. We have robust innovation plans. We're leaning to cost savings. And we will continue to deliver strong cash flow and then put that to work for our shareholders. We think all of the fundamentals that have worked so well for our shareholders with our company strategically for a long period of time continue to remain in place. And we're excited to update you on where we're going in October in New York. But you should expect us to lean into components that will make a difference to consumers, to customers and to shareholders. But what you cannot expect is the departure from a strategic path that's worked for the company for a very long time.

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Bonnie Lee Herzog, Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst [16]

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Okay. Honestly, that's really helpful. And if I may, I wanted to circle back to something you touched on and maybe drill down a little bit further on the higher trade promo spending and whether it's working in Household or specifically in bags. And should we assume that you're going to need to pull a little bit further on that lever as you touched on the gap from they're at, which is further implied in your guidance? And then trying to think about how much do you have to pull there and whether or not that will impact work. And then as we think about Charcoal, and you touched on this, but should we also think about the promo lever being pulled in that category too for your turnaround? Or is that just more dependent on some of the merchandising in innovation you mentioned?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [17]

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Yes. Charcoal first. So right merchandising, right innovation, right demand plans, that's really the answer here. On Glad, if you think about what we did in Q4, we did up our trade investments to narrow the price gaps. That led to sequential improvements, and we're clearly seeing green shoots. If you look at, for instance, the grocery channel where that was implemented first, shares have improved and now -- are now about flat. But I think we would say that the lien interest trade spend wasn't enough, which is why in Q1, we're planning for additional trade spend that will fully close the widened gaps that we experienced post pricing. So that's working. But perhaps, the progress on this has been overshadowed by distribution losses tied to bumpiness that we have explained. And then frankly, it has been a little worse than we had anticipated in Q4 and has worsened and overshadowed the progress through the trade investments. So feel good about the added trade investments that we're putting in place in Q1. And then to make full progress in the back half, what's needed is to cycle through those distribution losses and to bring innovation back. And as Lisah said earlier, we have several initiatives planned for the back half. And with all those plans combined, we expect a return to growth, and we feel pretty good about the prospects of that.

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Operator [18]

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Next question comes from Andrea Teixeira with JPMorgan.

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Andrea Faria Teixeira, JP Morgan Chase & Co, Research Division - MD [19]

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So I just want to go back to distribution, just a follow-up. And I appreciate, Benno, your commentary about Charcoal execution in 2 other customers. So I think like you know what's happening there. And I get that obviously you may not -- you also said that you don't expect the shelf to flag the distribution losses that you've had until the next calendar year, early calendar year, right? So the second half of fiscal. So I'm just trying to understand, what makes you confident that these 2 retailers will put you back on shelf and your value proposition will be more compelling in the second half of fiscal '20 than what you have in place right now? And are you planning to or price rollbacks then for -- I mean probably -- Charcoal is probably not the case, but for Glad? And then a separate question would be on supplements on Lifestyle. I know you feel confident about Nutranext that it checks the boxes on collagen and protein trends. But you mentioned that you may decide in the last quarter conference call to a different question that I post to you that you may decide to increase investments in RenewLife in fiscal '20. Is that a possibility now or not yet?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [20]

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Yes. So a lot in there, Andrea. Let me try to unpack this a little bit. So on Glad, as I just said, we will add more trade promotion in the first quarter of this fiscal year to fully close the gap. What makes me confident on coal that we are going to be more strategically aligned with the 2 retailers were clearly -- we need to do better. That's up on -- that's up to us. I feel like the combination of our plans, with product improvements, with new line extensions and pellets, with stronger marketing support and very collaborates -- collaborative talks, with both retailers that are going on right now and better plans, we will earn their confidence back. It's something that we have a strong track record of, and it's something that we need to get back to.

Regarding your question on vitamins, minerals and supplements, clearly feel good about Nutranext as is evidenced by the progress throughout fiscal year '19 and the expected double-digit growth in fiscal year '20. RenewLife is clearly still lagging behind. Fiscal year '19 was a disappointing fiscal year on that business, and Q4 was no exception. For perspective, RenewLife represents a little over 1% of sales. So perhaps, in terms of materiality, it's less of a factor here. But we're also working on better plans. We remain excited about the long-term potential in digestive wellness. We have a strong brand. We have strong capabilities in this category. The process will take time but feel good about the long-term prospect on RenewLife, too.

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Operator [21]

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Next question comes from Olivia Tong with Bank of America.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [22]

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I wanted to talk a little bit about tracked versus the untracked. You talked about some of the shelf space losses that you've seen in the mass and the home retailer. But it's kind of surprising to see that the spread between tracked and untracked widened as dramatically as it did this quarter and also in a different direction than usual. So is it fair to assume that there were disproportionate losses in club and online? If so can you kind of give us a little bit more color into the channels? And then I mean you -- is there like stuff that came that you would -- that was up for bid and the margin profile just didn't quite meet your standards.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [23]

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Yes. Thanks, Olivia. So clearly, as I would unpack this, if you think about Q4 volume versus year ago, the drag really is entirely at Kingsford and Glad. And within those 2 businesses, frankly, the majority of the drag is Kingsford. And then if you then think about the Kingsford business, as we said, we're -- the issues were with 2 major customers. And one of them is untracked right in the home hardware channel, and that -- this is a big quarter for Kingsford, and this is a big customer. So the Q4 impact of that was unusual and significant. And I would point you to that single retailer in a very big business in a very big quarter to account for much of the issue.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [24]

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And then haven't talked a ton about wipes. But last quarter, you sounded pretty down deep and cautious about where you are in the Disinfecting Wipes life cycle. But then this quarter, you reported record quarterly shipments of the wipes. So can you talk a little bit about what's the change there and the dynamics that kind of led to such a snapback in the underlying trends, of course, excluding the impact of cold and flu last quarter?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [25]

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Yes. So positive about the progress on wipes, clearly a competitive category still. But last quarter, we talked to you about putting trade spend in place to counter what is an elevated competitive activity on the promotional side. We returned to growth this last quarter on top of a very strong quarter in the previous fiscal year. And we were able to make the trade spend increase begin to work. And now for fiscal year '20, we continue to feel good about this business. We expect this trade investment to continue to work. And importantly, at the Analyst Day, we'll share with you significant innovation, both on the base as well as with the new product that we're very excited about. So this is a stronghold for our company. It's a growth engine for our company, and we expect that to continue.

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Operator [26]

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Next question comes from Dara Mohsenian with Morgan Stanley.

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Dara Warren Mohsenian, Morgan Stanley, Research Division - MD [27]

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So I wanted to focus on pricing for a minute. If we go back a year ago when price increases were first being implemented in the household products industry, I think at least from my perspective, we heard a very confident tone from you guys more so than other companies, and basically, that you've earned pricing power with the increase in new product superiority at the consumer level. If we fast forward to today, pricing has pretty much gone through almost across the board at most of your competitors, and you guys had a couple of categories where you've had price gap issues in terms of both bags and wipes and a better response. So I'd just be curious to get a bit of postmortem on, if anything, has changed from your perspective in terms of the way you manage pricing, what you sort of learned from those issues? And I guess specifically, as you look at the price gaps, is sort of managing the price gaps versus peers a greater priority given they appeared to be willing to use that pricing lever?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [28]

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Yes, Dara. So like we said in our earlier remarks, we feel good about pricing. It was cost justified is necessary to protect long-term margin also to protect the strong investments that we're making in our brands. All of them are in market now and I would say generally in line with expectations, excluding Glad and Kingsford, I would say. It's just too early. The key indicators, consumer indicators are strong. If I think about the consumer value measure, and as you know, that's a measure that we care about a lot, that's unchanged post pricing, and the majority of our brands continue to be perceived by consumers as delivering superior value, and that's very positive and important to us. The categories have improved. Two years ago, before we started any pricing activity, our categories were flattish for the total company. Now if you think about the last 52 weeks, they're up north of 2 points, up versus year ago. That's a dramatic difference and is very consistent with past experience and expectations. So I would say, excluding Glad, in line with expectations. Clearly, the bumpiness that we had anticipated, which leads generally to lower merchandising and distribution losses, are there. We're seeing them. We're addressing them. But they're temporary. But generally, the good news is that pricing has been accepted, has been accepted as part of the industry, where we perhaps somewhat disproportionately affected by distribution losses given that we went out with price increases, as you recall, Dara, early and confidently. That's quite possible, but that doesn't change our conclusion that pricing overall was necessary and good.

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Dara Warren Mohsenian, Morgan Stanley, Research Division - MD [29]

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Okay. That's helpful. And then looking at a bunch of your peers in the U.S., we've seen top line momentum come back to a number of names with reinvestment behind the business. It sounds like a lot of the European household products peers are also choosing to do some margin resets and reinvestments. I guess just as we think about your business, have you considered a larger reinvestment back into ad spend on what you've guided to this year? Why wouldn't that make sense here? I get that a lot of those companies don't directly compete against you. But there seem to be a number of players that are perceiving like higher spending is working to drive their business in the industry. So any thoughts there would be helpful.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [30]

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Yes, Dara. We always consider how much money to spend, and the -- about 10% continues to be the right number. Remember, that's up already from previous years. Also the spending in absolute this year will be up and comes on the back of higher ROIs as measured by our own analytic insights. So we're confident with the 10% as the right level.

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Operator [31]

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Next question comes from Kaumil Gajrawala with Crédit Suisse.

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Kaumil S. Gajrawala, Crédit Suisse AG, Research Division - MD & Research Analyst [32]

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2 questions. I guess first, we've spoken quite a bit about distribution. Can you give us some context on what the impact was from distribution losses on your overall top line? And then when we're thinking -- as we're thinking about next year, can you give some context on the impact of what generally seems to be lower commodity cost on your gross margins?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [33]

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Thanks, Kaumil. It's Kevin. I'll -- let me take the 2 questions about commodities and distribution. On the commodity question in terms of the impact of the top line, I would tell you -- or excuse me, distribution, we don't break that out. So I think we share the key drivers in terms of volume and price mix but don't break out the impact to distribution loss.

What I would tell you on commodities in terms of our expectations, if you recall, in fiscal year '19, there's a pretty significant headwind, both commodities and logistics, about 150 basis points. As we look forward in fiscal year '20, and our ingoing assumption to the year is a much milder commodity environment, I expect it to be down in the front half and up slightly in the back half but pretty benign overall. Having said that, I do expect logistics to continue to be a headwind in fiscal year '20. Both transportation rates I anticipate will still be inflationary, to a lesser degree than what we experienced in '19, but still inflationary. And then we continue to see inflation in logistics, particularly in warehousing as we can use the warehouses being built to support fast delivery, and that's putting pressure on wages. But overall, I would expect that somewhere in the 50 to 100 bp headwind, which is much less that we experienced in '19.

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Operator [34]

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Next question comes from Jason English with Goldman Sachs.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [35]

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I want to drill a little bit deeper into 2 other businesses, both the multipurpose liquid cleaners and bleach, if we could. First, on bleach, it's -- the data, the measured data and tracked channels has softened of late with the private label picking up and your business spotting and share on axillary and distribution losses. Can you give us any context of what you're seeing across all channels and what you think may be driving that? And then still on the topic of bleach, going back to 2013, the last compaction initiative -- and I'm really stretching my memory here. But if my memory does serve me correct, it created a lot of market share volatility for you, I believe, as private label was slow to follow and there was a perception, a value perception. It would probably be able to sit next to you at much bigger bottles that really weighed on share and was volatile for performance for a while. A, is my memory correct there? And b, any reason it would be different this time?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [36]

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Just in general, I'm quite pleased with Laundry. Laundry had a solid year, Jason. And actually, most recently, if you think about our bleach business, we gained share, right? But typically, what does happen is that share gains tend to over time, be a little bit of a zero-sum game. And you win some, and you lose some. And there's always volatility. But in general, shares in the category have been over -- for long period of time, about flat. And the value that we've been driving on this business comes from expansion of the category and from trade-up. And in the future, we don't expect to change from that strategy. Bleach Compaction feeds into that. Most of all, what Bleach Compaction has always done is trade consumers up to larger sizes, and with that comes a quite significant category increase. So if you think about the benefit on -- of compaction for the company, the last time in 2013, it was actually higher sales, mostly driven by category growth. And then second, of course, there's a margin component as well, which at the time was rather significant. So given that there is a transition over, for sure, 2 quarters and of course, we can't speak to competition following and what their specific timings are, that always creates some volatility. But the net effect, as a result of category increases and margin improvements, has been very positive. And of course, it's a good investment also for sustainability reasons and one that retailers are very excited about, leads to better shelf holding power, fewer out-of-stocks in the category, and this is a category that's always been somewhat affected by out-of-stocks. So it is a very good initiative that will create a lot of value for the company but also for retailers and certainly, for the planet.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [37]

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Okay. So long term, generally good. But historically, could be turbulent, maybe turbulent this time around for a short duration before it gets better.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [38]

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Yes. So turbulent is a strong word, Jason. I don't know that I would go all the way there. Certainly, there will be quarter-on-quarter volatility. But I do not recall any turbulence on the business and would not expect that.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [39]

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Okay. And on the liquid cleaners side, which is a pretty chunky-sized business for you, guys. Year 2, the [Nielsen diets] looked soft, and I know it varies by cohort or which subsegment we look into it. But in general, there's been a fair amount of -- fairly sizable share losses that we can see on the tracked channel and also here too fairly sizable distribution declines. It looks problematic in the data, but you're not talking about it. So is it, indeed, sort of problematic? Or is it just the lens we're looking through?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [40]

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It's always temporary back and forth. In Home Care, generally, we feel good about Home Care. There's many segments that are growing, and there's always some that aren't growing. Home Care has a lot of different segments, and you're picking 1. We feel -- obviously, it feels good about our Home Care business. It's our largest SBU, had a strong fiscal year '19, had a strong quarter. Certainly, as a result of pricing, you'll see some bumpiness there too which is temporary. But as I think about Home Care, including multipurpose liquid cleaners, I feel good about that business and our plans forward.

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Operator [41]

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Next question comes from Kevin Grundy with Jefferies.

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Kevin Michael Grundy, Jefferies LLC, Research Division - Senior VP & Equity Analyst [42]

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A couple for me. One on Kingsford, and then I have a follow-up on bleach. So Benno, on Kingsford, you talked about getting into pellets and lump charcoal for some time. And naturally, it would seem to make sense to extend the Kingsford brand in the category. But a few questions here. With the benefit of hindsight, what do you think the company did not react earlier to the trend away from traditional Charcoal? As you plan to extend the brand into these new forms, what's your level of confidence in these new product forms that you'll, indeed, have success and be able to pick up some share? You talked, Benno, about the necessity to regain retailer confidence. How should we be thinking about that level of uncertainty here that's embedded in the outlook? And then at a higher level here, how are you thinking about the growth rate for Kingsford longer term?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [43]

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Yes. So thanks, Kevin. First of all, let me maybe start with the last question. So grilling fuels is an attractive category. It's very much on trend. And if you think about the category growth rates, including those alternative grilling fuels like lump and pellets, actually, very strong, strongly growing category, we're not benefiting from it. But historically, we have, and we have to get back to that. Would I have liked for us to be in pellets and lump by now? Absolutely. But what we're focused on now is to get into these markets with propositions that are truly differentiated and that make a difference to the category and adds to the category and to the existing offerings. And admittedly, that takes time, and sometimes, taking time leads to better outcomes. And while, like I said, I would like to be in there by now, we're now focused on looking forward and putting better plans in place for calendar year '20. Like I said earlier, the problem is largely contained to 2 large customers. If we drill into, say, the top 10 customers, there are several customers where we're actually doing quite well and where the plans that we've put in place have been well received and are working, we got to do better with those 2 large customers. They're important customers for us. We have a strong track record of success with them, and we have to get back to that.

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Kevin Michael Grundy, Jefferies LLC, Research Division - Senior VP & Equity Analyst [44]

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Okay. All right. I'll leave the Kingsford topic there. A quick follow-up, maybe this is for Kevin, on bleach and the benefit of compaction. I don't know if you specified exactly the degree of compaction. But you guys did disclose in the past that was 500 basis points of margin improvement. Do you care to put a number on what the benefit will be to the Clorox Bleach business for this round of compaction? And then I could pass it on.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [45]

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Thanks, Kevin. Yes, I would tell you, we're not disclosing the impact of bleach. What I would tell you, we feel very good about it in terms of creating long-term value to the company. This is another great program for us. But in terms of the specifics of the value, we won't disclose that.

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Operator [46]

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We have a question from Ali Dibadj with Bernstein.

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Ali Dibadj, Sanford C. Bernstein & Co., LLC., Research Division - SVP and Senior Analyst [47]

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I guess I have a couple questions. One is, I do want to get a better sense of where the confidence is coming from on the non-Kingsford, non-Glad businesses, and that the issue you've seen there won't spread. And look, I get that we always say tracked channels is less important. Tracked channels isn't that big as a business. We have also some other channels. But it's been even just recently a pretty good leading indicator of some of your issues, perhaps a little bit of a longer lag. But clearly, you saw -- the issue show up in Kingsford, in a tracked channel data, in Glad as well. And so if you permit me to continue with that lens, that tracked channels actually matter, one of the biggest indicator has been market share losses, and I'm just looking at the data. Again, it's a couple of months now, but Cleaning, broadly, so spray cleaners, still losing share; dressings looks like it's losing share as clear as white as you said; Cat Litter; digestive supplement, I could go on, and those look like they're losing market share. So I guess I don't -- I'm trying to get a sense of where your confidence comes that you're not going to see a spread given that tracked channels remain somewhat of a leading indicator, at least it has been for the 2 businesses you had issues in so far, Kingsford and Glad.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [48]

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Yes. Thanks, Ali. So clearly, tracked channels matter because they account for the majority of the business, as thus market share. So you know that upfront. With the exception of this quarter, which, again, was overshadowed by Charcoal, I think, we have commented in the past that performance in nontracked channels was stronger. We expect that to continue. It's also fair to say that our market shares have been somewhat under pressure and not as strong as they used to be. I think that is evident. And while that's not something that we like, I'd also say that what we expect about sales is to drive market share but also categories. So we'd perhaps again go to a much stronger category growth as a way to partially offset that. And doing a time-off pricing and the bumpiness that we talked about, distribution losses and, in some cases, lack of sufficient merchandising, I would put market share softness firmly in the camp of temporary bumpiness post pricing. What makes me confident is that, again, if I think about the timing of trade spend on Brita aside that the 3 segments outside Household are performing at minimum solidly with many actually performing very strongly. And then I think about our plans for fiscal year '20, based on strong advertising sales promotion, aggressive plans to defend our businesses through trade were needed in selective areas, robust innovation plans, solid categories, a healthy U.S. consumer, an improving business in International, all those things point to pretty stable and positive outlook that we expect to shine through in the back half.

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Ali Dibadj, Sanford C. Bernstein & Co., LLC., Research Division - SVP and Senior Analyst [49]

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That's very helpful context. And just to push a little bit on that context. As we think about the first half versus back half, I don't like being so short term-oriented. But it does seem like if everything else is going okay and the confidence is still there, and I get there's a little bit more Brita investments and you still got to do Kingsford and Glad, I get that. But I guess I'm still confused about why, number one, it's so -- extremely, it sounds like back half loaded, i.e., I'm reading into Glad, Kingsford might get worse before they get better in the next -- in the first half. And then two is whether your -- especially with the compaction, that should help in the back half, whether there's anything else that you're seeing that might actually be under pressure around the corner because with the confidence, it would suggest that maybe it should be better from a guidance perspective for 2020 than you've given us so far at least on the top line.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [50]

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Yes, Ali. This is Kevin. Maybe a couple of thoughts to think about front half, back half. As we've talked about, the 2 businesses have been challenged. I would expect to see a sequential improvement from Glad. As we mentioned, we increased trade spending in Q4, and we start to see some improvements. We are increasing further to fully narrow that price gap back when it took pricing, and I expect that to drive continuous improvement. Coal I think is going to have a challenged finish to what we call season year '19 as we've talked about the work we have to do looking forward to season year '20. So I expect that to be challenged in Q1 and then be stronger in the back half.

And then maybe just a couple other things to think about is as we think about why we have confidence in the back half. Keep in mind, we're lapping a very weak cold and flu season from this year. We'll be lapping pricing at the back half of the year. The bulk of our pricing started early in '19, so we'll be lapping most of that by the back half. The distribution losses as well will now won't be lapping. We're starting to build some of those back. And then finally, our plans on innovation tend to be more back half-loaded. And so when we look at all those drivers, it gives us quite a bit of confidence on our ability to accelerate the performance of the company in the back half of the year.

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Operator [51]

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This concludes the question-and-answer session. Mr. Dorer, I would now like to turn the program over to you.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [52]

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Yes. Thank you all for joining us today, and I look forward to seeing all of you, hopefully, at our Analyst Day in October. Thank you. Have a good day.

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Operator [53]

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This concludes today's conference call. You may now disconnect.