The Clorox Company is holding a conference call to discuss their third quarter fiscal year 2024 earnings. The call is being led by Ms. Lisah Burhan, Vice President of Investor Relations, with CEO Linda Rendle and CFO Kevin Jacobsen also present. They will be discussing the company's outlook and may refer to non-GAAP financial measures. The company is recovering from a cyber-attack in August and is focused on implementing their Ignite strategy to improve their resilience.

The company's progress in the third quarter was mostly as expected, with lower sales due to slower supply recovery. However, their gross margin was higher due to their margin transformation program and a modernized environment. Despite challenges from a cyber-attack, the company has made significant progress in rebuilding their business and expects to regain lost market share and return to volume growth. They are confident in exceeding their original gross margin target and meeting or exceeding their adjusted EPS guidance for the year.

The company has made significant progress in its recovery and is on track to exit fiscal 2024 with strong fundamentals. They have been executing well against their IGNITE strategic priorities and have made investments in innovation, brand and capabilities, and digital transformation. They have also divested their Argentina business to focus on more consistent and profitable growth. The company is confident in their investments and plans to deliver against their strategic and financial objectives and enhance long-term shareholder value. The company expects to close distribution gaps in the fourth quarter, but this will not significantly impact their organic sales growth for the year. The company is still on track to meet their long-term growth goal of 3% to 5%.

In the fourth quarter, the company plans to restore the temporary distribution lost due to a cyber-attack and return to pre-pandemic levels of merchandising. This is expected to support growth, but there is still a wide range of possibilities due to the complex recovery and variable factors such as shelf resets and consumer purchase cycles. The company is not setting guidance for fiscal year '25, but the CFO will provide an outlook for the exit.

In the upcoming quarter, the company expects to see improved volume trends and increased trade spending, leading to flat to slightly decreased organic sales growth. This is due to the divestiture of the Argentina business and the absence of FX headwinds and significant pricing. The company also expects to continue expanding margins and building on the 43% gross margin achieved in Q3. They are not yet providing an outlook for next year, but anticipate further margin growth in fiscal year 2025.

During a conference call, Andrea Teixeira asked Linda Rendle about the impact of slower supply recovery on the company's third quarter results. Rendle mentioned that there were a few areas of the portfolio that experienced slower supply recovery than planned, which affected sales. However, she also mentioned that the company's organic growth was still at 2%. Teixeira asked for more details on which areas were still below in share and what gives the company confidence that the lost consumers would come back. Rendle explained that Glad and Litter were the most challenging businesses in terms of supply recovery and that the company has plans in place to restore business fundamentals in the fourth quarter. Kevin also clarified that the company is building margins into 2025 and is prepared to offset rising prices in other commodities through savings.

The company was able to fix all the issues in the third quarter and return to normal service levels for customers. They expect to regain all their distribution points in the fourth quarter and have already recovered 90% of their share loss. They are also seeing an improvement in rebuilding households, but have only had one purchase cycle to influence consumer behavior.

In the fourth quarter, the company is focused on recapturing lost consumers by increasing advertising and sales promotion spending and ensuring proper distribution and merchandising. They are confident in restoring the fundamentals and seeing the return of lost consumers. As for fiscal year ‘25, the company expects to grow top-line, expand margins, and increase earnings through top-line growth, divesting Argentina business, and margin transformation efforts. They anticipate some cost inflation but believe their actions will more than offset it. The exact amount of margin growth is still being determined.

Chris Carey of Wells Fargo asks about sales delivery in the quarter, excluding international. He notes that in the prepared remarks, increased competitive activity was mentioned as well as negative price mix in the key division. He tries to understand the reasons behind sales coming in below expectations and questions whether competitors are gaining more shelf space and market share. He also asks about the impact of trade promo spending on gross margins and whether it will need to be accelerated in the future if shelf-uplift is not as expected.

In this paragraph, Linda Rendle discusses the reasons for the sales miss in the previous quarter. She explains that it was not due to a consumer issue, but rather because of supply chain challenges that affected their ability to supply for merchandising events. However, they have fully restored their supply and are on track to recover distribution in the fourth quarter. Rendle also mentions that they have not constrained their businesses and are willing to adjust their plans as needed. She is confident that the fundamentals will be fully recovered by the end of the fourth quarter and will set them up for success in the future.

Kevin Jacobsen and Linda from the company were asked about the negative impact on gross margin in the quarter due to Manufacturing and Logistics. Kevin explained that the increase was primarily due to inflation in Argentina, but now that the business has been divested, they do not expect it to be a significant drag in the future. When asked about top-line growth for fiscal '25, Kevin and Linda declined to provide specific details as they are still developing their plan.

The speaker mentions that the divestiture of their Argentina business will result in a 1.5 point headwind next year. They will discuss other items in August and are currently focusing on holistic margin management and revenue growth management. They have delivered six consecutive quarters of gross margin expansion and will continue to use pricing and cost savings as tools. They are also implementing a digital transformation and looking for other opportunities for cost savings and revenue growth management, such as price pack architecture.

The company has plans in place to improve gross margins and return to pre-pandemic levels, but the pace of recovery and cost environment will impact this. They feel confident in their ability to achieve their goals, but the consumer remains under pressure across all income tiers. The company is increasing merchandising, promotion, and advertising spend in the second half to rebuild share loss from the cyber-attack and win over financially weaker consumers.

The company is seeing a trend of "value-seeking" behavior among consumers, who are considering factors like interest rates and the cost of housing and groceries. This behavior is particularly prevalent among lower income consumers, who the company has historically fared well with during tough economic times. The company has not seen a significant shift to private label products, attributing any increase to their temporary absence from shelves due to a cyber-attack. The company plans to return to pre-pandemic merchandising levels before addressing any potential increase in consumer financial stress.

The speaker discusses the company's promotional efforts and advertising spending, stating that it is within the normal range for the company. They also mention that they are not reacting to consumer behaviors, but rather this is part of their normal business operations. In response to a question about market share and household penetration, the speaker mentions the cyber-attack but also acknowledges market share losses due to supply chain issues. They state that their goal is to restore market share to pre-pandemic levels in categories such as pet litters and trash bags.

The speaker discusses the company's goal of growing market share and the impact of a recent cyber-attack on their market share. They acknowledge a decline in market share due to the attack but express confidence in their ability to regain and grow market share in the future. The speaker also mentions the company's performance in various businesses and their plans for future market share growth. A question is asked about the negative pricing and volume trends seen in the quarter.

Linda Rendle explains that although there was a price mix and trade component in Q3, the company was not able to fully supply on some products, leading to increased competition and a stressed consumer. However, they have since recovered and are confident in their ability to regain market share from private label brands due to their strong brands, innovation, and consumer trust. They expect to see further progress in Q4 as they restore distribution.

The speaker expresses confidence in the company's ability to recover distribution points lost in Q3 and restore their share and distribution. They attribute the loss to temporary supply and service issues, and expect to see a recovery in Q4. The weakness in the quarter does not change their full year expectation.

The speaker discusses the company's ability to fully supply distribution and notes recent conversations with top retailers focused on growth and future plans. They also mention the decision to divest Argentina to reduce volatility and variability in the international business, which is a key component of the company's long-term growth outlook.

The speaker discusses their successful acquisition of a majority ownership in a JV partnership in the Middle East and how they are focusing on stable and predictable markets for growth. They also mention their continued growth in Latin America, Asia, Europe, and the Middle East, and expect their international business to be more profitable and stable. The speaker also addresses a question about raw material costs and the impact of Argentina on gross margins.

The company is seeing a moderation in costs, particularly in commodities such as soybean oil, substrates, and chemicals. However, there are still some cost increases in petroleum-based products and resins. Wage inflation is also still present in manufacturing and warehousing. The impact of Argentina on gross margins is expected to decrease in the future, as factors such as FX and pricing will no longer be an issue. Overall, Argentina has been a margin-dilutive business for the company.

The speaker discusses the impact of exiting Argentina on the company's margins and states that overall, margins will go up as a result. They clarify that the business in Argentina was small and dilutive, representing only 2% of sales. They also mention supply chain constraints in the quarter but state that service levels have been restored.

The EPS outlook for this year is higher due to a 100 basis point gross margin expansion, which is ahead of expectations. The company plans to continue improving gross margin by recovering from inflation and implementing pricing strategies. They have already recovered 650 basis points and are confident they will fully recover the remaining 800 basis points.

The company is confident that their cost savings efforts will cover normal levels of inflation and allow for extra investment or margin expansion. They are still recovering from the inflationary cycle, but expect to fully recover gross margins over time. They plan to continue growing margins by offsetting regular inflation with margin transformation efforts. The company had originally planned to spend more money on advertising and sales promotion at the beginning of the fiscal year, but the cyber attack has caused a change in the timing and shape of their spending.

The company has spent less in the first half of the year but plans to increase spending in the second half to support their brands and innovation plans. This increase in spending, combined with the impact of a cyber event and challenges in Argentina, will result in over 11% of sales. However, the company is still spending the same amount as originally intended. The focus is on supporting their brands and adapting to changing consumer trends. The call has now ended and the company looks forward to providing updates on their progress in the future.

This summary was generated with AI and may contain some inaccuracies.