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Edited Transcript of CLX earnings conference call or presentation 4-Feb-19 6:30pm GMT

Q2 2019 Clorox Co Earnings Call

Oakland Feb 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Clorox Co earnings conference call or presentation Monday, February 4, 2019 at 6:30:00pm 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

* Jason M. English

Goldman Sachs Group Inc., Research Division - VP

* Jonathan Patrick Feeney

Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner

* Joseph Nicholas Altobello

Raymond James & Associates, Inc., Research Division - MD & Senior Analyst

* Kevin Michael Grundy

Jefferies LLC, Research Division - Senior VP & Equity Analyst

* Lauren Rae Lieberman

Barclays Bank PLC, Research Division - MD & Senior Research 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 Second Quarter Fiscal Year 2019 Earnings Release Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce our 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 will refer to certain non-GAAP financial measures, including, but not limited to, free cash flow, EBIT margin, debt to EBITDA and economic profit. Management believes that providing insights on these measures enable investors to better understand and analyze our ongoing results of operations. 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 outcome could differ materially from management's expectations and plans. I'd also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to the tax legislation. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligations to publicly update or revise any forward-looking statements.

I'll start by covering our Q2 top line performance, discussing highlights in each one of our segments. Kevin will then address our financial results and outlook. Finally, we'll turn over to Benno to offer his perspective and then close with Q&A.

For the total company, Q2 sales grew 4%, reflecting about 3 points of unfavorable foreign currency impact due mainly to the devaluation of the Argentine peso and about 4 points of benefit from the Nutranext acquisition.

I'll now go through our results by segment. In our Cleaning segment, Q2 sales grew 6%, behind strong results in all 3 business units. Cleaning segment sales growth was once again led by Home Care, benefiting from strong innovation across the portfolio, including the new products on the Clorox Scentiva platform.

We recently launched Clorox Scentiva disinfecting wet mopping cloths, marking the entry of the Scentiva platform into this category. That will be the first branded mopping cloth to provide disinfecting benefits, along with the Clorox cleaning efficacy and Scentiva's sensorial experience consumers have come to love.

Home Care is also a business where we've taken pricing across a substantial part of the portfolio. Pricing actions are progressing according to plan, with market shares growing in key categories where we had increased prices last quarter. We continue to support this business with meaningful investments in advertising and sales promotion, with strong ROIs that have doubled since 2016, driven by the scale and quality of our digital marketing.

Our Laundry business also grew sales strongly in the quarter, with higher shipments of Clorox Liquid Bleach. Just as in Home Care, implementation of price increases is going well. While competition has not followed our pricing action as anticipated, total Liquid Bleach share was up nearly 1 point in the last 13 weeks in tracked channels. This is only possible because we invest strongly in our brands, and the benefit of our recent price increase will allow us to continue doing so and drive long-term category health.

Lastly, within the Cleaning segment, our Professional Products business grew sales, supported by broad-based double-digit volume growth. We continue to bring Clorox' strength and innovation and brand-building into this space and recently relaunched our offerings as Clorox Pro, a new megabrand, encompassing both the business' industry-leading health care products and commercial cleaning products, positioning it for continued momentum and to drive scale.

Turning to the Household segment. Q2 sales decreased 4%, reflecting declines in Glad, Charcoal and RenewLife, partially offset by gains in Cat Litter. Charcoal sales decreased in the second quarter, primarily due to a shift in the timing of shipments from Q2 to Q3, in support of an early season customer program, as well as continued lower consumption. As a reminder, Q2 is a relatively small quarter for this business, representing less than 10% of annual shipments.

Our focus now is on implementing the aggressive plans we introduced in the last quarter for the 2019 grilling season. Those plans, which are well underway, includes stepping up our brand-building programs to reenergize existing consumers as well as bring new consumers into the category. We're also making significant packaging upgrades that include new sizes and stronger claims.

On the innovation front, we'll be launching 100% hardwood briquettes to address some consumers' preferences for just different grilling methods. And we'll be focused on partnering with our retailers to aggressively merchandise Kingsford, including extending the grilling season, which has worked so well in driving the category growth for so many years.

In conjunction with these plans, we began rolling out a cost-justified price increase in December. We remain confident that these steps will help raise the overall value for the category, allowing us to reinvest in brand-building, including innovation, that will maintain the superior value of the Kingsford brand.

In Glad Bags and Wraps, sales declined mainly as a result of lower shipments of food storage products as well as lower shipments of trash bags due to an increased price gap compared to our competitors who did not follow our recent price increase. As you know, we're deeply committed to delivering superior consumer value. Our back half plans include promotional activities aimed at defending our share position. Longer term, we're confident that we can drive profitable growth in this business as we have a successful track record of trading consumers up to our premium patent- and trademark-protected innovations, which remain our strongest competitive advantage. Our latest initiatives include leveraging our intellectual property such as LeakGuard and ForceFlex Plus, to support stronger claims and developing more effective advertising.

In RenewLife, sales were down, driven mainly by an overall category decline. That said, we continue to make progress in this business as we saw share growth in Q2 with the largest national retailer in the natural channel for the first time in 2 years and in e-commerce, the fastest-growing channel, where we had double-digit volume growth in Q2. We're also encouraged by early results of our initiative to add scale by co-merchandising Nutranext with RenewLife brands, which has already begun to yield a significant lift in sales during merchandising events. With our plans to continue leaning into e-commerce and innovation as well as relaunch packaging featuring stronger claims, we'll keep driving this business and rebuilding momentum.

A continued bright spot within Household segment, our Cat Litter business had another strong quarter of double-digit sales growth, supported by Fresh Step Clean Paws innovation, strong e-commerce growth and the benefit of price increases, which are now also reflected in all major competitive products. With additional Clean Paws innovation being introduced in the back half of the fiscal year, including unscented and a Mediterranean lavender scent, we're confident about the growth trajectory of this business.

In our Lifestyle segment, we grew sales in every single business. Segment sales grew 25% in Q2, mainly reflecting the Nutranext acquisition, which added about 21 points of benefit. Integration is going well, with our flagship brands recently gaining national distribution at several major retailers, reflecting the difference that our customer capabilities are starting to make. We're also turning on the innovation machine, fueling growth with this business with a steady stream of new products in the back half.

The Burt's Bees business saw strong sales growth with another quarter of double-digit shipments in lip care behind strong consumption as well as innovation such as Burt's Bees conditioning lip scrub and Burt's Bees overnight lip mask and continued strength in face care. This is in line with our strategy to drive profitable growth through a focus on our core segments. We told you last quarter, we're taking a cost-justified price increase in the portion of the Burt's Bees portfolio effective this month. Selling is generally on track with our expectation, with new pricing expected to be in effect at major retailers starting today.

Food sales grew strongly in Q2, mainly behind shipments of Hidden Valley Ranch dry dressings despite price increases implemented last quarter. We're continuing to build on the Hidden Valley Ranch equity, which grew share for a 16th consecutive quarter. One of the ways we're doing that is through innovation that is on trend, capitalizing on consumer interest in Hidden Valley for uses other than salad dressing. In fact, over 2/3 of bottle occasions are for these alternative uses, as dipping sauce, topping or spread. Now based on this insight, we'll be introducing a ready-to-eat dip in the back half, supported by strong brand-building investments. With this product, we're looking to play in a new segment with stronger tailwinds compared to the dressing category.

Finally within the Lifestyle segment, Brita had its third consecutive quarter of solid sales growth, with the Stream pitcher and filter innovation continuing to perform well and our market shares starting to improve. We're optimistic about building on that success in the back half of the fiscal year. We've recently introduced our new Brita premium filtering water bottles, which are now available in e-commerce channels. While it's early, we're excited to see that they're already generating great reviews.

Finally, turning to our International segment. Sales decreased 8% as the benefit of price increases was more than offset by about 16 points of unfavorable foreign currency impact. Strong Go Lean Strategy executions, including pricing and cost savings initiatives, provided a significant offset to the considerable FX headwinds. In particular, our Burt's Bees international business had a strong quarter, with double-digit volume growth and strong performance generally across the board.

Now I'll turn it over to Kevin who will discuss our second quarter financial performance and outlook for FY '19.

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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. We're pleased to deliver another quarter of strong sales growth and a return to gross margin expansion. Importantly, we remain on track to deliver our fiscal year 2019 outlook. I'll address that in a moment.

Turning to our financial results for the second quarter. Sales grew 4%, which included 4 points of benefit from the Nutranext acquisition, partially offset by 3 points of negative impact from foreign currencies.

Gross margin for the quarter came in at 43.7%, an increase of 70 basis points compared to 43% in the year-ago quarter. Second quarter gross margin included the benefits of 220 basis points from pricing and 140 basis points from cost savings, partially offset by 190 basis points of higher manufacturing and logistics costs and 120 basis points of unfavorable commodity costs. I'd like to note that a little more than half of the expansion in our second quarter gross margin was driven by a shift in spending in our supply chain, which we expect to reverse out in the second half of the fiscal year.

Selling and administrative expenses as a percentage of sales came in at 14.3% versus 13.9% in the year-ago quarter, reflecting Nutranext integration expenses.

Advertising and sales promotion investment levels as a percentage of sales came in at about 10%, with spending for U.S. retail business at a healthy 11%.

Our second quarter effective tax rate came in at about 19% versus about minus 3% in the year-ago quarter when we benefited from a significant onetime reduction in our tax rate as a result of U.S. tax reform.

Net of all these factors, in our second quarter, we delivered diluted net earnings per share from continuing operations of $1.40 versus $1.77 in the year-ago quarter, a 21% decrease due to lapping a onetime $0.40 benefit from U.S. tax reform in the year-ago quarter.

Turning to year-to-date cash flow. As we noted in our press release, net cash provided by continuing operations increased 39% to $449 million, primarily from lower tax payments as a result of U.S. tax reform.

Turning to our full fiscal year. We are pleased to confirm our sales and earnings outlook. Our fiscal year's sales outlook continues to be in the range of 2% to 4%, now reflecting about 3 points of negative impact from unfavorable currencies. As I mentioned last quarter, we anticipated more pronounced currency headwinds, primarily from the devaluation of the Argentine peso. Our sales outlook also now includes about 3 points of net benefit from the Nutranext acquisition, which is running slightly ahead of plan, and the AppleCare divestiture. And as we mentioned in our press release, our fiscal year sales outlook continues to assume about 3 points of incremental sales from our innovation program. We have a robust pipeline of new products in the second half of the fiscal year, which we plan to support with strong demand-building investments to drive awareness and trial.

Turning to fiscal year gross margin. We continue to expect fiscal year gross margin to be about flat as the benefits of pricing and cost savings are expected to be offset by increased cost and currency pressures. We remain on track to deliver gross margin expansion in the second half of the fiscal year, although at a more muted rate, given the shift in supply chain spending to the back half.

Other assumptions that are unchanged in our fiscal year 2019 outlook include: fiscal year advertising and sales promotion spending at about 10% of sales; selling and administrative expenses at about 14% of sales; and EBIT margin to be down, reflecting our expectations for flat gross margin as well as our plans to complete the Nutranext integration and invest strongly in advertising to support our strong back half innovation plans; and finally, free cash flow at about 11% to 13% of sales.

As we mentioned in our press release, our assumptions for our fiscal year tax rate did change and is now expected to be in the range of 22% to 23%.

Net of all these factors, we continue to expect fiscal year diluted EPS to be in the range of $6.20 to $6.40, reflecting our estimate of $0.08 to $0.12 of EPS dilution from the Nutranext acquisition, in addition to $0.05 to $0.07 of negative impact from tariffs, which are affecting a couple of our business units.

In closing, we are very pleased with our second quarter performance and our overall first half results. Strong execution of our strategic plans, from pricing to agile initiatives, is helping us address continued costs and foreign exchange pressures. With our pricing actions largely behind us, consistent with our 2020 Strategy, we can now shift our focus to investing in demand creation, including our strong innovation programs, to sustain our core business and deliver long-term shareholder value.

And with that, I will turn it over to Benno.

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

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Thanks, Kevin, and thanks, everyone, for being on the call. Let me share my 3 key messages for you today.

First I'm pleased with our first half results, with the second quarter delivering strong sales growth and a return to gross margin expansion. Our sales increase of 4% is especially strong considering we absorbed about 3 points of unfavorable foreign currencies, primarily from the devaluation of the Argentine peso in the last fiscal year. Clorox continues to sustain top line momentum, demonstrating our ongoing ability to win with consumers. We are differentiating our products and brands through innovation, investing strongly in ROI-based marketing communications and leveraging our strength in e-commerce, which we continue to expect to grow strongly and be about 8% of company sales this fiscal year.

The Nutranext acquisition also contributed strongly to total company sales and continues to be accretive to the company's gross margin. Integration remains on track, and we're pleased about expanded national distribution at several major retailers.

I'm also very pleased that we expanded gross margin in the second quarter as rebuilding our margins is an ongoing priority in our focus on good growth, growth that is profitable, sustainable and responsible.

My second point is that Clorox continues to execute strongly against our strategic priorities. As you know, Clorox leaned into pricing early to address increased cost pressures. As Kevin noted, we have now completed most of our pricing actions, which have been executed with excellence. And with our pricing actions mostly behind us, we can focus on growing our categories and brands for the long term. We will invest strongly in marketing communications to maximize innovation platforms and drive awareness and trial of new products across our portfolio in the second half of the fiscal year.

Importantly, last quarter, I said we would leave no stone unturned in our focus to rebuild margin, and we did deliver. Clorox people stepped up to drive margin-accretive innovation, execute our pricing plans and lean into our agile initiatives for cost savings.

Finally, my last point is that we remain confident in having the right strategy to drive long-term shareholder value. Our 2020 Strategy has been the bedrock of our focus on long-term profitable growth. Clorox has continued to deliver strong growth and shareholder returns in an environment where growth is hard to come by because of our relentless emphasis on strategic clarity, supported by agile decision-making and strong execution. And while we are still closing out the current strategy, we also have our sights set on the future.

As we finalize the successor to our 2020 Strategy, I can tell you, we will continue to lean into critical areas. First, serving our consumers and delivering superior value will continue to underpin everything we do. Innovation continues to be our lifeblood and sets us apart. We'll continue to lean more deeply into our proven innovation capabilities to win in the marketplace, particularly in a dynamic omnichannel retail environment. Second, transforming how we work to be an even more agile, decisive organization that executes with excellence and leverages technology to drive competitive advantage will be critical to supporting a culture focused on growth. And finally, as a mission-driven business, we'll continue to focus on good growth, creating long-term value for all our stakeholders by living our values and ensuring corporate responsibility is embedded in our business.

We look forward to introducing our updated strategy to you in early October. Thank you. 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 guess just to start, it's obviously a strong quarter and there's the lower tax rate in the full year guide. And I get that there's worsening FX, but you've also got strong pricing and incremental contributions from Nutranext. So I guess just within the outlook, what's the negative offset in the back half that's not allowing a full year guidance raise, at least at the low end? And I guess, within that, is it the increased promotion that you called out today in Household care that's sort of disallowing that potential upside from flowing through?

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

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Steve, this is Kevin. What I would say is, as you mentioned, tax rate is a little bit better. I wouldn't read too much into that. I view that more as a minor tuneup. At the end of the last quarter, I anticipated we'd be slightly above 23%. I think we'll now be below 23%. So I've tightened up that range. And then I'll say that, as we mentioned in our prepared remarks, we do think the FX environment is a little bit worse, particularly in Argentina. And so I think, within our range, those are both fairly offsetting, and it allows us to maintain our outlook for the year.

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

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Okay. And I guess just given the -- I mean, I think the topic that's on a lot of folks' minds, just given that oil prices as a benchmark, for example, are sort of back to where they were in the fall of '17, when the inflation headwinds that are justifying current price increases had started. Is there a concern that what you're seeing in Household care, specifically in Bags and Wraps with competitors not following, but we're seeing a little bit in Charcoal and other places as well, is that a bellwether for other categories that you may have to promote back some of this -- the recent price increases going forward more broadly? Is that -- how does that factor into your thinking?

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

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Sure, Steve. As it relates to commodities and specifically oil, I would say, for us, because we primarily source resin from the U.S., it's much more driven by supply and demand and driven by nat gas than oil. And so I would say as we talk maybe broadly about pricing, as both Benno and I mentioned in our prepared remarks, we feel very good in aggregate about our ability to execute pricing and how it's playing out in the marketplace. The one exception that I would say is on our Bags and Wraps business. And what I'd tell you is when we start our planning back in May, June, we had a certain expectation for the resin market. Sitting here today, I would tell you, while resin is still going to be inflationary, we are seeing softening up in international demand, and my expectation now is we will not see the same level of resin increase that we anticipate when we took the pricing. And so specific to the Glad business, I think we will do -- we will spend some money back to defend share in the near term on the Glad business specifically. But what I'd tell you is that's something we know how to do. We've done it quite often, specifically on Glad. We use trade spending to manage resin prices. I would say, broadly, everything else in commodities is playing out as we expected. And then I would say that's true for pricing as well, with the exception of Glad, I think we will do some work there. Important to note though, because we will spend a little bit more money back on Glad, we're also seeing slightly less commodity headwinds that will fund that. So we're no worse off as it relates to margin and profit, but it's something we'll do in the back half of the year.

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

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Okay. I'll pass it on. I just wanted maybe one quick cleanup. Just the inventory level exiting December was -- is more elevated than we've seen in a while, just measured in days. How much of that is you building inventory ahead of new product launches in the second half, given the strong innovation pipeline, versus maybe being left with excess inventory in some of those Household categories that didn't see as much sell-through in December? Just trying to get underneath that inventory spike for lack of a better word.

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

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Sure. So if you look at our attachment, you can see our inventory levels, they were 53 days at the end of Q2. They're 59 days now. We're up a little bit. I would say the bulk of that is Nutranext. Keep in mind, Q2 last year, Nutranext not part of our portfolio. So that's the bulk of the increase in inventory. And then because we have such a strong innovation pipeline in the back half of this year, we did prebuild in preparation for launching an innovation, so that explains the bulk of the rest of it.

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Operator [8]

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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 [9]

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I just had a couple questions on your Charcoal business. First, could you guys quantify the amount of the shift you saw in Charcoal maybe from Q2 that you're expecting to move into Q3? And then did the change in timing of the shipments impact your gross margin in Q2? Or do you guys expect it to maybe impact gross margins in Q3?

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

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Bonnie, what I'd say is the bulk of the movement in Charcoal was based on just the timing of the shipment. Keep in mind, shipping between December and January, that moves all the time. We're shipping in preparation for early-season merchandising. So we anticipate it going in December. It actually is going to go in January. But for the year, that creates no impact to the results. And then I'm sorry, the second question was beyond timing of shipments?

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Bonnie Lee Herzog, Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst [11]

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It's just trying to get a sense of how much of an impact that could be on gross margins, just some of those timing in your shipments for that business.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [12]

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Yes. It won't have much impact on margin. Charcoal is pretty close to the company average. I wouldn't expect to see much change in margin as it shifts between quarters.

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Bonnie Lee Herzog, Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst [13]

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And then could you guys talk a little bit further about some of the innovation that you're putting into the marketplace, just in terms of what we're seeing with the slowdown in trends and how you expect some of this innovation to resonate better than maybe some of your existing product?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [14]

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Yes, Bonnie, this is Benno. Keeping in mind that what you're seeing in tracked channels less and less reflects what we're seeing on the total business, right? So I would take what you categorized as a slowdown with a grain of salt. But we're very excited about a very strong innovation plan in the back half across all or most of our portfolio, with notable innovations across the major brands. Lisah has mentioned a few of them. Scentiva as a platform and Home Care, our largest SKU, continues to do extremely well. And we're launching a very differentiated product in the wet mopping cloth category. That's a big category, and we will launch the first available product that combines the Clorox cleaning performance that people love with disinfecting, which is not available in this category today, but also the sensorial experience that Scentiva delivers. And that's an innovation into a new space for our oldest brand that we're excited about. We're excited about Glad, where we're expanding the latest technology platform, which is backed up by about 40 patents across the portfolio. And that, of course, is very timely on Glad. We're launching 100% hardwood briquettes on Charcoal. We're starting to launch innovation across Nutranext brands. And we'll continue to expand the Clean Paws platform on Litter. And then last but not least, super excited about food, where we're launching into ready-to-eat dips. That's a category that's almost $2 billion in size and about the same size as salad dressings. So we're essentially doubling the access of the Hidden Valley brand, which continues to do extremely well, 16 quarters of share growth. And about 3/4 of all the uses that we see on Hidden Valley today are outside salad dressings. People use it on pizza, use it on chicken wings or with healthy snacks and veggies. And the ready-to-eat dips are a great premium product that's going to make that easy and that we're very excited about, both in terms of customer reaction as well as early consumption in markets. So we have long said that in the back half, we will return to investing strongly behind innovations. And that's why it was very important for us also to do pricing early because as Kevin noted, in particular, it's now largely behind us. And we have an organization that will now focus on growing brands and growing categories for retailers and doing that behind a really strong set of innovations and aggressive spending. So I feel good about where we are, and that's a big part of why we're sitting here today and able to confirm our outlook, both in terms of sales and earnings.

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Bonnie Lee Herzog, Wells Fargo Securities, LLC, Research Division - MD and Senior Beverage & Tobacco Analyst [15]

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That was really helpful. And then just one clarification on timing. It seems like what you discussed, a lot of it would be back half-weighted. But I get the sense that, Q3, there will be a fair amount of stepped up advertising and certainly promo support, just in terms of trying to drive trials. So maybe a little bit more of a drag on Q3 than what you're expecting in Q4, maybe first question. And then, second, I think you mentioned this, but a huge opportunity for you guys could be with this innovation is also for you to primitize or try to drive trade-up within some of your different categories.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [16]

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Yes, maybe the last one first, Bonnie. Trade-up's been a hallmark of our company, and we believe that consumers continue to be willing to reward us and pay for innovation that they see as value. And the bulk of this innovation is in the premium segment. The bulk of this innovation also is margin-accretive to us as a company, which is part of why we feel bullish about gross margin in the back half. So we continue to do a nice job to stay value-focused, but capture value at the premium and through innovation. So that observation is certainly true. And then in terms of quarterly spend, I wouldn't necessarily conclude that. The reality is that because of retailer shelf set timings and also because of our increasing focus to drive these innovation platforms with an eye on the long term and not just in 1 quarter, you'll see a strong spend for us across the back half, across both quarters. And I'm not in a position right now to predict whether one quarter is stronger than the other, but you'll see healthy spend for Q3 and Q4.

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Operator [17]

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Your next question comes from Jason English of Goldman Sachs.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [18]

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A couple of questions. First, I'm trying to get a better understanding of the price contribution this quarter versus the last quarter. We can clearly do some math on backing out volume to try to get to organic price/mix. On that math, it suggests that price/mix was about 200 basis points in the first quarter and again, in the second. But clearly, the flow-through to gross margin stepped up materially in the second quarter. Is it fair to assume that the reason for that is, is that absolute price grew substantially from 1Q to 2Q and if there was a healthy mix benefit in the first quarter that faded in the second? So is that thought process reasonable? And second, if so, what drove the spike in mix benefit in the first quarter that faded in the second?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [19]

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Jason, this is Kevin, and we'll see if I can answer your questions. As it relates to price/mix, here's what I'd tell you. We actually don't spend a lot of time talking about price/mix because I think that really only represents about half of the impact when you take pricing. And so when you take pricing, there's really 2 implications. One, you generate more revenue per case, but with elasticities in the near term as consumers adjust to the pricing, you expect to see some volume pullback. Our history has been, and what we expect for this round of pricing is, when you look at both those issues together, there's very little impact to the top line from pricing. One essentially offsets the other in the year you take pricing. And I'd tell you, for us, that's pretty much how it's playing out through the first 6 months and frankly, how I expect it to play out for the balance of the year. But as you know, that's not why we're taking pricing. We're taking it because we're trying to address the cost and currency headwinds that we have to face and allow us to continue investing in the brands. And so that's really the primary reason we're taking it. As it relates to the impact you're seeing, what I would say is if you looked at Q1, we got about 90 bps of gross margin accretion from pricing. And then this quarter, we got about 220. The reason why that improved is, if you recall in Q1, really only Cat Litter was the only brand that had pricing in place for the entire quarter. We started taking additional pricing in August and September across the bulk of the portfolio, and that's really why you see the greater impact to margin in Q2. And then what I'd expect going forward, keep in mind, we've taken a price increase on Charcoal and a portion of Burt's Bees that are not in these results. So I'd expect some continued strength in the back half of the year from pricing as it relates to gross margin as you fully reflect the benefits of those 2 additional pricing actions.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [20]

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Okay. So mix contribution to sales didn't change between the first and second quarter?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [21]

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No, Jason. What I'd tell you is that as it relates to pricing, pricing is generating very little benefit to revenue, and we're really getting the benefits. If you look, as an example, in Q2, 4 points from Nutranext and 4 points -- or 3 points of revenue growth from our base business, primarily focused on innovation. That's really what's driving the top line, it's not pricing, and that would be elasticities.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [22]

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Okay. Okay. I'll try another question then. On the U.S. business in aggregate, organic sales decelerated from the first quarter despite a substantially easier comparison. I know you walked through a few puts and takes at the individual segment level. But high level, can you give us sort of the key drivers of what drove the deceleration, particularly on a 2-year stack basis?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [23]

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Yes, I don't see that same data, Jason. Our base business grew about 3%, both Q1 and Q2. So I'm not sure what you're looking at, but that's not the perspective we have on the performance of the business.

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Jason M. English, Goldman Sachs Group Inc., Research Division - VP [24]

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Okay. It's just -- it's from your quarter results, but I'll follow up with Lisah offline.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [25]

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Okay. Thank you, Jason.

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Operator [26]

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Your next question comes from Steve Strycula of UBS.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [27]

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Benno, curious for the RenewLife and Charcoal business, it sounds like you have some initiatives underway for the back half of the year. Do you think that those businesses can grow, particularly Charcoal, as you push there some pricing, get the shipment benefit and then you lap easy weather? That would be my first question, and then I have a follow-up.

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

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Yes, okay, so first, so -- first of all, today, no major news versus the November update that we gave because our improvements really focused on the 2019 calendar year grilling season. So Q2, clearly somewhat soft, Kevin explained, it's primarily due to a shift in timing as related to an early-season customer program, keeping in mind that Q2 is really small, with less than 10% of fiscal year shipments. I would say that we would expect the rest of this fiscal year to be better clearly than Q2, albeit it's probably not all the way to where we want it to be. Pricing will help. A significant packaging upgrade will help. The 100% hardwoods briquettes launch in the back half will help. Better retailer merchandising will help. And then there's the weather component, which I find hard to predict. But last year, clearly, wasn't a great year. But I would say that, that, plus pricing, should enable us to do better for the rest of the fiscal year. And then my hope would be that as we think about the total 2019 calendar year relative to 2018, that we should see a market improvement on that business as a result of all of this activity that I was just describing.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [29]

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Okay. That's very helpful. And then a follow-up question for Kevin to Steve Powers' question on the inventories. On a year-over-year basis, they were up $85 million. And the RenewLife business, my understanding is that it's about a $200 million business. So I'm just trying to understand, that it seems like a big contribution in the year-over-year build of inventory. Is there anything else from an inventory shipment perspective that we should think about of finished goods that are ready to come into market the third or fourth quarter for -- to support an innovation?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [30]

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Yes, Steve, I'd say a few things. One, it is primarily Nutranext, as I mentioned. And as you can imagine, it's a fairly new business that we've owned in less than a year. There are some real opportunities for us to rationalize inventories. So we see that as an opportunity going forward. And then also, we do have some innovation coming on Nutranext. So there is some prebuild as well as we're preparing to launch some new products in that business.

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Operator [31]

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Your next question comes from Andrea Teixeira of JPMorgan.

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Andrea Faria Teixeira, JP Morgan Chase & Co, Research Division - MD [32]

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So do you expect the Household sales [to remain] flat positively into Q3? I'm saying that because you called out some shelf space losses. So I'm wondering if you can reverse within this fiscal year with innovation and your displays. Or that's something that you're still going to be looking to use promotional dollars to reignite?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [33]

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I mean, without providing a specific outlook for quarters and segments, which, as you know, Andrea, we would not want to do, Kingsford, we certainly would hope that the quarter relative to a year ago is going to be better and what we talked about for Glad. And those are really the 2 big businesses that impacted Q2 sales negatively in Household. And frankly, in an environment where now we're talking those 2 businesses, but I would note that the rest of the businesses, of course, did very, very well. But on Glad, we're starting to spend back some of the pricing goodness in promotions. And we should see that, at minimum, stabilize and ideally start to improve the trends that we're seeing again. Not unusual to see these trends in a year where you take pricing, in particular when resin costs now go the other way and we're not seeing competition follow. So that's noise in the market that we've seen before, and that's noise that we've also managed before. But I would expect Q3 to see improvements on both businesses, yes.

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Operator [34]

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Next question comes from Kevin Grundy of Jefferies.

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Kevin Michael Grundy, Jefferies LLC, Research Division - Senior VP & Equity Analyst [35]

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Kevin, I'd like to come back to the gross margin commentary. So last quarter, the comment was you didn't expect to see improvement until the back half of the year. And your comment was helpful. Some of this was timing of supply chain spending, which I think the comment was it drove half of it. But gross margins were still up in the quarter, so a little bit better seemingly than what you had planned. So if you can drill down a little bit on that, what was driving some of that? Is this just lower commodities? And then with respect to how this informs the view for the year, it seems like maybe pricing trade spending a bit worse, given the dynamic in Glad, commodity is a bit better and then perhaps no change to manufacturing and logistics. Is that the right way to think about it? I'm just trying to gauge the level of conservatism in the outlook because it seems like the quarter certainly came in better than planned, but yet you maintained the outlook.

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [36]

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Yes. Thanks, Kevin. I would not say it's conservative. I think this is a balanced view of where we see the year landing. What I would say, and you heard in my prepared remarks, a little more than half of our gross margin expansion in Q2 was timing. We had some investments planned for some very long-lead cost-savings projects that are probably 12 to 18 months out in the future, and it's not atypical to see some of that spending shift between quarters. And so that money will get spent in the back half of the year. And because of that, I just think the shape of our gross margin expansion will be a bit more consistent, Q2 through Q4, as that -- some of that money shifts to the back half of the year. But for the most part, I'd tell you, the items that we're monitoring within margin are playing out about as we expected, transportation, manufacturing, cost savings, et cetera. There's probably going to be a little bit more FX headwinds, as we mentioned, as we talked about the pressure on the top line from FX being closer to 3 points than 2. That will have a little bit of a margin impact. I also mentioned that I think the commodity environment will be a little bit more favorable than we anticipated, still a headwind, but I do expect resin to lighten up a little bit in the back half. And so those are some of the items we're watching. But I guess, bigger picture, I'd say the items that we can control, cost savings, pricing, admin, productivity, I would say all going very well and on track, but I do want to be balanced here. There's a lot of volatile items that are outside of our control, FX, commodities and currencies. So I think it's a prudent and balanced outlook at this point.

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Kevin Michael Grundy, Jefferies LLC, Research Division - Senior VP & Equity Analyst [37]

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Okay. All right. That's fair. And then one follow-up just with respect to capital deployment. Share repurchases in the commentary there and the impact on guidance received a lot of attention last quarter. Any update there? And then in terms of what's included in your guidance. And then Benno, maybe you could tie in M&A. And you've been pretty clear about areas of interest, personal care, food enhancers, and health and wellness in the past. What are you seeing in terms of pipeline at this point? And are you prepared to transact should the right deal come along?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [38]

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Sure. Thanks, Kevin. And I'll start with your question around cash returned to shareholders. And maybe the perspective that would be most helpful, I'll talk about our activities fiscal year to date. So halfway through the year, we've now returned about $500 million to shareholders, and that's been split almost equally between dividends and share repurchases. That's up about 75% versus the first 6 months of last year. And it's really driven by both a combination of -- as you may recall, we took a 14% increase in the dividend last May. That's certainly helping. And then we initiated our open-market share repurchase program starting in May. Specific to Q2, I repurchased about $38 million worth of shares in the second quarter and assigned that all to the dilution management program. And so as it relates to the open-market share repurchase program, no new activity in the second quarter. I'm still at about 9% of my total authorization. And I would tell you, plans for the balance of the year hasn't changed from when we talked last quarter, and those are certainly included in the outlook.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [39]

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Yes, and then, Kevin, your question on M&A. Obviously, we continue to generate a lot of cash. This was a very strong quarter in terms of cash flow, up 39%. And our business priorities overall continue to be the same. We continue to build our business from the core out. So maintaining and driving a strong core business continues to be our most important job. The second priority also continues to be the -- keep driving shareholder return with our vitamins, minerals and supplements business. We got some work to do on RenewLife, but we certainly like the green shoots that Lisah was describing earlier. We also like that we're now able to drive scale, in particular with retailers around Nutranext, which is showing some very significant initial lifts as we think about merchandising events. And Nutranext obviously is doing really well, so we're pleased with that. But we continue to look at a lot of things M&A-wise with our board. We continue to pursue the same priorities. And should the right opportunity come along, and that means good business at the right price, we're absolutely willing to pull the trigger. But in the meantime, I think we're seeing that we could do quite well for our shareholders with the businesses that we have.

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Operator [40]

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Your next question comes from Ali Dibadj with Bernstein.

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Ali Dibadj, Sanford C. Bernstein & Co., LLC., Research Division - SVP and Senior Analyst [41]

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So I guess I'm a little confused about a few things that I'm hearing. I would just love maybe to point through them for some clarifications. So one is I still have a tough time pinpointing why H2 is getting worse. I get the FX, I get Argentina, but it does seem like there's something that you're going to have to be investing in more. And I don't know if it's supply chain investments. Maybe that's just the answer, maybe the magnitude of that. But it just feels like there's something else that's going on for the H2 that you're seeing. Perhaps, you want to have some flex to invest in. I don't really understand 20% roughly, 17%, 18%, inventory growth coming from a business that's about 1% of your sale. I don't really get when you said earlier, Kevin, I think it was, that the top line isn't really being helped by pricing to Jason's question, which means your elasticity is kind of a negative 1 and you're doing it for gross margin. I'm not sure how your retailers would feel about that. And then we still have the Laundry business, 9% of sales, and the Glad business, 14% of sales. So about 1/4 of your business not seeing the pricing come through like you thought. So I guess I'm trying to -- I'm sorry for the long list, but I'm just trying to figure out what's going on. I'm just having trouble. Can you help on any of that?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [42]

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Yes, it's a long list. Let me take a shot at a few and see if we can answer some of your questions. So as it relates to inventory, as you see in our attachments, it's up about, I think, $84 million quarter-over-quarter. And as I said, a good portion of that is the Nutranext acquisition. And if you've been around small businesses, when you acquire them, there's lots of opportunities to drive improvements. And I would say this is just one opportunity to significantly rationalize that business, and that includes SKU rationalization, which will certainly lead to improved inventory levels. So I view that as certainly an opportunity for us, and that was the bulk of the change in inventory. So that's a business we acquired. It gives me plenty of opportunity to go after improvements, and I think we can drive that over time. Another question you had was on the top line. Look, what I'd tell you, and I'll step back and talk in aggregate versus any one business. When we take pricing, and as you know, Ali, we've taken a lot of pricing over the years, I don't expect much impact to the top line when you net out price/mix and volume, at least in the near term. That's usually the first 6 to 12 months. It has very little impact to the top line. But why we do that is because we have to recover the cost and currency headwinds because we want to keep investing in our businesses to help grow categories. And so I think the retailers appreciate strong innovation that helps them grow their categories. That's the partnership we can offer. But to do that, we have to cover the cost environment, and that's really why we're executing pricing. We are not executing pricing to drive the top line.

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

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Yes, maybe 2 additions, Ali, so helpful to be able to clarify these. This is from inventories. As I think it's clear to everybody that most of our orders and most of our inventories are managed electronically with our retailers. So they just -- this all flows through, right? So there's nothing strange going on, I want to be very clear here, on the inventories other than the things that Kevin expected. And as a company, we pride ourselves in being efficient. And obviously, economic profit matters to us a great deal as everybody knows. So we manage inventories tightly and we certainly expect to do that -- to continue to do that on our entire business, including Nutranext. And then perhaps, just to close the loop on pricing, I want to be sure that we all understand that Glad, our pricing was executed exactly in line with our expectations, so we see a full pass-through. But due to a change in the resin environment, we're now not seeing competition to follow, so we're temporarily spending back on promotions. And I also want to confirm that on Laundry, pricing, in fact, has gone through in line with expectations. And while competition has not followed, which we didn't expect in this one, I think we've also noted the top line growth in Laundry and the strong performance also in terms of market share from Clorox Liquid Bleach. So I would want to make sure that we all understand that the Laundry price increase, along with all the other price increases, are executed very well and are going in line with plan.

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Ali Dibadj, Sanford C. Bernstein & Co., LLC., Research Division - SVP and Senior Analyst [44]

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Okay. Okay. And then just on that point, in particular, around portfolio in general, so if I -- and maybe this is not how you guys are thinking about it. But how I think about your portfolio there is kind of the core legacy business, Laundry, Bags and Wraps. You guys were saying, look, competition not following is not a big issue. We're planning for that. To be fair, that worries me a little bit, but I get it. Then you have the International business, which is clearly doing better, but still pretty volatile here even if you don't include the FX issues. And then some of the recent acquisitions, particularly RenewLife, I was surprised to hear already declining. I understand you had some plans behind that, but that makes me a little concerned about a new acquisition declining. And then Burt's and others, Lifestyle doing really, really well. How do you feel -- it feels like kind of half of the business is doing well, half of the business is not doing well. How do you characterize the portfolio right now? And Benno, for you, kind of the level of this much is right on plan and doing well, this much isn't doing that well, I got to work on this and this. How would you kind of characterize the portfolio in those terms?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [45]

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Yes. So first of all, if you know of a company that does well 100% of time with 100% of their businesses, I would love to know who that is. So again, set context, I would say that, as we've noted, if you think about this quarter, we have very strong performance on all businesses in Cleaning. We have very strong performance on all businesses in Lifestyle. Household, Litter continues to do very well. And then you have one business that's done super well for us in its first year. And we've had some executional issues that are duly noted, but we're getting behind those and they're green shoots and that's RenewLife. And we've talked about Glad and Kingsford. Clearly, Kingsford is one where we've got a good handle on the issue, and we're fixing that. And on Glad, we're seeing temporary issues related to pricing that we've been before -- we've seen before. And then International, so at the end of the day, we're dealing with an FX issue that everybody is dealing, and that's mostly Argentina. We're growing 8% in U.S. dollars across the International business. We're growing profit in U.S. dollars in a very difficult environment. So I would look at the International business actually as doing really well, if you exclude the Argentine peso. So you called it 50%, 50%. That's not how we're looking at it. We like our portfolio and we like all our portfolio. We have expectations of every business unit to add to shareholder value. And if you look at it over the long run, that's exactly what's happened. And while no -- while it's not the case that 100% of the business is doing well, I also say that, that gives us an opportunity to do better. I like it if there's businesses that we can fix and there are some of them that we can fix because that gives us upside. But then again, it's hard to feel bashful about how the company is doing when we're sitting at 4% sales growth and gross margin expansion and we're doing exactly what we said we were going to do. So I feel good about the portfolio, and we have a firm handle on the few issues that exist. But the vast majority of the portfolio has done exceptionally well in Q2, and we expect continued strong performance, in particular behind all the innovation that we're focused on, launching now in the back half.

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Operator [46]

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Your next question comes from Olivia Tong of Bank of America Merrill Lynch.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [47]

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I wanted to follow up on advertising spend. I think you had always planned for advertising to pick up in the second half because of the innovation tick-up. But now that we're 1 quarter closer, first, is that still the plan? Because you've been flattish as a percentage of sales through the first half and driving 3 points of organic sales growth, getting price. Do you think increased advertising can drive an acceleration in sales off of the current pace? Or are there other place -- or could there be other places to allocate funds that you think may generate even greater returns?

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Kevin B. Jacobsen, The Clorox Company - Executive VP & CFO [48]

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Olivia, this is Kevin. What I would say is you're right, we've always planned for a heavier back half as it relates to advertising investments. We've got a pretty exciting innovation pipeline that we all have a lot of confidence in, and so we're going to support that, driving awareness and trial. But I think it's really in the context of the outlook we provided. We think we've got the right investment level to support the innovation to deliver the outlook we've been talking about today.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [49]

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Got it. And then if I could follow up just in terms of the pricing, particularly on Charcoal and Bags and Wraps, where competition didn't follow. Obviously, the commodities have turned now. But what else do you think allows them not to price? And do you think that puts them in a pretty tough position because I just think like is it just, say, they are okay with lower margins than you? And if you have any insight into what allows them not to follow through and with -- and follow your pricing.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [50]

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Yes, Olivia, a quick clarification on Kingsford. Kingsford pricing is still underway, right? So you had remarked that competition's not following, so that's not the case. We're executing Kingsford now, and that will be in place this spring. So we are really talking Glad, where we're seeing our price increase executed with excellence, but we're not seeing competition follow. And that's because we were out early. And resin, as we all know, is very volatile. And resin has -- resin cost has softened since we came out with a price increase. So I want to be clear, it's still a cost-justified price increase, but the resin cost increase is less severe than we had anticipated. And because we were out first, we were out there with pricing and everybody else then didn't follow because they probably saw that resin is softening. That's happened before, and that's what we're addressing with promotional spend. We like our strategy to continue to be focused in this category on trading consumers up because consumers will not use more trash bags in the future. That's very unlikely. And what we've been on for a period of 15 years now is to effectively trade up consumers with innovation. So we like the mix of taking pricing on one end and rewarding consumers with a great innovation, backed by strong investments on the other end, which is why you saw that even in the quarter where Glad grew margins nicely and group profits nicely, but where sales were down, the core focus, which is our indoor-differentiated OdorShield business, actually grew volume and sales quite nicely. So that trade-up strategy is still working. And I mentioned earlier, we have innovation coming out. It's backed up by solid patents that we're driving now. It is much easier to take pricing and also sustain pricing, certainly in the long term, if you have innovation and if you support your brands. And we are the only player in our category and trash that does that, and that may be explaining the difference in stance that our competitors take as far as pricing is concerned, even though it'd be hard for me to speculate. But we think that this combination of innovation backed by pricing continues to be the right strategy for our company, even though temporarily, we will now spend back on promotions.

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Operator [51]

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Next question comes from Jonathan Feeney of Consumer Edge.

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Jonathan Patrick Feeney, Consumer Edge Research, LLC - Senior Analyst of Food & HPC, Director of research and Managing Partner [52]

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I wanted to ask about Burt's Bees Natural Personal Care products overall. Where would you say you are in terms of total distribution or versus where you'd like to be for the last 12 months of innovations, first off? Within that, what have been the strongest channels for those innovations for the growth you're seeing? Is it more succeeding side by side in beauty displays? Or is it other places as maybe the heritage of Burt's Bees has been a little bit? And I noticed that you laid out in your deck the pipeline of innovations, I didn't see any Burt's Bees in the second half of '19. Are there plans for more Natural Personal Care products for Burt's Bees that you didn't mention in there for '19, or for that matter, beyond that?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [53]

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Yes, thanks, Jonathan. So a strong quarter for Burt's Bees, volume up, sales up high single digits, so I feel good about that. The single most important driver continues to be lip care. Just the core lip business grew double digits, and that grew behind innovation and base. Face care also up high single digits. Cosmetic up high single digits behind innovation and also a strong holiday business. Burt's Bees is a great business that's used for gifting by consumers. And we're always driving that with special gift packs, and we did that well in the last quarter. So I would say, in terms of where we are on the business, we certainly continue to have opportunity to drive distribution around new products. We also have opportunity to drive the core business into white spaces. And we have a dedicated team driving that, whether that's convenience stores or other stores where we can drive what we call lip ubiquity, getting lip balm in the vicinity of where the consumer might be interested in buying that everywhere she goes. So going forward, we feel good about this business, and we do have innovation. The fact that we haven't mentioned it may be more of a factor of having so much innovation across the portfolio, and we have certainly called out Burt's Bees in the past quite a bit. But we have innovation mostly focused on lip, but also in skin care and face care, where we have a variety of masks coming out. Mask is a hot category, and we have a detoxifying sheet mask as well as a clay mask coming out. We have a new facial mist come out. And importantly, we will do TV on face care for the first time this back half because we can now make the claim that our natural skin care products perform as well as the synthetic creams out there, and that's a claim that we haven't been able to do before. That's a claim that we can make based on independent dermatological testing and that we're excited about, because it resonates with consumers in a big way. So that, along with pricing, which is effective today, will make for a really strong back half on Burt's Bees. And International, we have noted as well that the business is up double digits, and we feel good about the progress that we're making in International and particularly in Asia. So staying the course on Burt's Bees, and this continues to be a business with a lot of potential here domestically as well as internationally. And of course, we like the business, in particular, because its margin profile is accretive to the company, and it's the poster child of what we mean when we say we're interested in good growth that's profitable and responsible and sustainable.

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Operator [54]

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Next question comes from Joe Altobello of Raymond James.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [55]

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So first on Nutranext and the upside you saw this quarter, it sounds like a lot of that was distribution gains. Was there any greater same-store sales as well?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [56]

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Yes, it's hard to break it down right now, so I would call -- obviously, we feel good about Nutranext, Joe, and integration continues to be on track. We are seeing slightly improved trends, but some of it also is rounding, right? So we're rounding up now because the trends are slightly stronger, whereas previously, we had to round down. I would call it on track for the fiscal year and perhaps, slightly ahead versus where we were in our November call. And that is driven by really robust performance of several of the strategic brands of -- in Nutranext. But we are seeing, as we've noted and you have certainly picked up, distribution wins with key retailers in food/drug/mass, also International. And now in the back half, we're beginning to innovate on this business on various brands. So we feel good about where this business is and think that we are in many really great emerging categories here, where our company capabilities can make a difference and where consumers feel like the products are making a difference in their lives, and we stay focused on driving that. So I would call it on track to perhaps slightly ahead, but it's too early to call this a discontinuity in trend just yet.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [57]

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Okay. Great. And then secondly on Charcoal, I think it's clear you guys are excited about Charcoal. But I'm curious how retailers are thinking about the upcoming grilling season and your merchandising program. Are they as excited about your plans to increase alpha penetration? And so could we see a trade load, which seems like what you're expecting in Q3? Or are they [relative] there to last year? Or is it something in between?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [58]

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Again, we manage inventories pretty tightly, so clearly, retailers have an interest in a strong charcoal business. Why is that? First of all, it's a significant and meaningful business in itself, but also, the baskets that the charcoal product is in for the shopper is usually a basket that is north of $100 because consumers buy a lot of other things with charcoal that retailers are excited about. Whether that's meats or whether that's drinks or potato chips, you name it, barbecue is a pretty nice shopping occasion. So retailers have interest, and we're meeting with a lot of retailers to discuss the 2019 season. Now we're getting a lot of support for our plans, so I expect, weather permitting, 2009 ( sic ) [2019] to be a robust grilling season for Kingsford.

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Operator [59]

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Your last question comes from Lauren Lieberman of Barclays.

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Lauren Rae Lieberman, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [60]

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I was hoping you could just talk a little bit about Litter because with the numbers you discussed, clearly, the business is doing really, really well. It's quite different in tracked channels. So I was curious if you could just share with us, one, what you're seeing in terms of competitive pricing activity, if you've sort of been -- I think you're a leader there as well. So if you've been followed, how rational the category is as a total category look. And then also where some of the stronger performance is. Is it in club? Is it e-commerce? I was just curious kind of the channels that are driving the performance.

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Benno O. Dorer, The Clorox Company - Chairman & CEO [61]

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Lauren, thank you. So obviously, another good quarter by Litter, and pricing certainly executed with excellence. That was the first business that went out with pricing last summer. We have started to see a competition follow. Not all competition, but again, I don't think we're done playing this out just yet. This usually takes 6 to 12 months, so we'll have to see what happens. But in general, we're pleased to see competition follow in that. Everybody else is seeing the same cost increases. 2 key drivers behind the performance continues to be innovation. Clean Paws continues to do very well for us. And it's really broad-based, I would say, and clearly, nontracked channels are doing better than tracked channels. But within that, it is broad-based. It's a business that starts really well. And e-comm, also, it's one of our faster-growing e-commerce businesses. But really, across the board, just signaling the strength of the brand and the strong support that we have by retailers behind Fresh Step, in particular.

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Lauren Rae Lieberman, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [62]

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Okay. Is there a major margin differential for e-commerce versus brick and mortar for Litter as the shipping cost would be probably onerous?

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Benno O. Dorer, The Clorox Company - Chairman & CEO [63]

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No. It's about the same, Lauren, as is too, for the rest of our portfolio as well. There's no significant margin difference, again, emphasizing our focus on good growth and profitable growth. So growing e-commerce is a terrific opportunity. Also, because Litter is one of the product categories that is really conducive to being purchased on autopilots because you use it the same way every single day, so this is one where, over time, we think that there's an opportunity to build a really efficient business once you hopefully are able to lock more and more consumers into automatic repurchases and reordering. That can be particularly effective down the road.

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Operator [64]

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

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Benno O. Dorer, The Clorox Company - Chairman & CEO [65]

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Yes. Thank you all for joining us today, and I look forward to speaking to you in May when we share our third quarter results. Have a good day, all.

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Operator [66]

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