The operator welcomes participants to the Clorox Company's Fourth Quarter Fiscal Year 2024 Earnings Release Conference Call. The call will include a question-and-answer session and is being recorded. The host, Lisah Burhan, introduces the CEO, Linda Rendle, and the CFO, Kevin Jacobsen. Forward-looking statements and non-GAAP financial measures may be discussed during the call. Linda Rendle thanks everyone for joining.

The company's fourth quarter fiscal year 2024 results showed progress in their strategy to strengthen their competitive advantage and accelerate growth, despite recovering from a cyber-attack earlier in the year. They were able to restore supply and distribution and regain lost market share, resulting in flat organic sales for the year. The company also achieved margin expansion and double-digit EPS growth. Looking ahead to fiscal year 2025, they anticipate temporary pressure on consumers and increased competition, but are confident in their strong brand portfolio and investment plans to drive financial performance. They expect a return to volume-driven sales growth, pre-pandemic gross margins, and free cash flow in line with long-term goals. During the Q&A session, they were asked about the visibility of their top-line outlook, with a focus on the first and second half of the year.

Linda Rendle, the CEO of a consumer goods company, is addressing concerns about the company's top-line outlook in the back half of the year. She explains that the consumer environment is as expected, with consumers being focused on value and trading up and down in terms of size. However, the company's categories have remained resilient due to their superiority and rebuilt distribution. Rendle expects this trend to continue in the back half of the year, with low-single-digit growth in the categories. The company's focus is on executing their spending plans to navigate the challenging consumer environment.

The company has strong investments in ANFP and innovation to support category and share growth. They are focused on delivering value to consumers and rebuilding momentum in certain categories. The gross margin for the quarter was higher than expected due to a favorable business unit mix, commodity deflation, and cost savings. There was also favorable performance in the supply chain.

The company is expecting to add another 100 basis points and fully rebuild gross margin in fiscal year 2025. Key drivers for margin expansion include cost savings, portfolio work, and a modest level of cost inflation. The company is also anticipating increased trade spending in the front half of the year and aims to achieve 25-50 bps of EBIT margin expansion each year going forward. A question from an analyst focused on the top-line is expected to follow.

The speaker is discussing the household sector and the factors that contributed to a miss in Q4. They mention that the grilling business, which is heavily weather dependent, was impacted by poor weather during Memorial Day and July 4th. The Kingsford business was affected by this, but it is not a structural issue. The speaker also mentions that distribution recovery for Glad and Litter happened later than expected, but they have fully recovered.

In this paragraph, the speaker discusses the challenges faced by the company when they were out of stock and the impact it had on their large size business. They also mention their plans for future growth and provide some data points to show their progress. They then move on to talk about their household category, specifically their Litter product, and mention that they have recovered supply and customer service levels, but recognize that it may take more time for this category to fully rebound. They also mention the difficulty in switching Litter brands for some consumers.

In paragraph 8, the speaker discusses the challenges they have faced in regaining consumers for their fresh step litter product. They mention increased competition and the need to focus on delivering for consumers in a stressed market. They express confidence in their ability to recover, but acknowledge that it will take some time. The speaker also mentions that their Glad business is on the right track and that they are investing in their value brands. They highlight the importance of improving their performance in the litter category in order to participate in the growth of the market. In response to a question about category health, the speaker mentions that consumers are still seeking value and that they are focused on delivering for consumers in all categories.

The speaker, Linda Rendle, is discussing the resilience of their company's categories in the current market. They have seen some softness due to consumer stress, but their categories are still performing well. They have experienced growth due to pricing, but are also seeing pressure from consumers looking for value. Rendle mentions that they are monitoring the situation closely, but are not panicking. She also notes that certain categories, such as Cal Litter, have seen higher growth opportunities. Overall, their categories are performing well, but with some fluctuations in growth.

The speaker discusses the resilience of their company's brands and the stability of their market share, despite some changes in consumer behavior during the COVID-19 pandemic. They also mention the return to pre-COVID promotional levels and their focus on innovation and superior value. The speaker expects a temporary slowdown in growth, but anticipates a rebound in the future. They also touch on the importance of revenue growth management for their company's overall strategy.

The company has recently built a new capability to take advantage of price pack architecture, which they believe will be a top-line and margin contributor in the long term. They are expecting Q1 organic sales growth of 20-25%, which is lower than expected due to the uncertainty and volatility in the market. This growth will be driven by recovering from cyber attacks and strong demand, but partially offset by increased trade spending.

The company expects to see strong top-line growth in the first half of the year, but this will be offset by increased trade spending. In the second half of the year, the company expects to see a return to a more normal level of spending. The company expects mid-single-digit volume growth in the back half of the year and a slight impact on price mix. In terms of gross margin, the company expects a decline in the first quarter compared to the fourth quarter due to a mix of factors such as increased trade spending and cost savings timing.

In response to a question about the company's performance in the second half of the year, the speaker expresses confidence in delivering strong cost savings and organic sales growth. They also mention plans for innovation in the Litter category and doubling down on successful platforms. They expect the growth to come from both volume and share and do not anticipate significant increases in trade spend or promos.

The company has plans to invest in new innovations in the litter category in the second half of fiscal year '25, and is also focused on ensuring their advertising messaging is effective. They have accounted for increased trade promotion dollars in their outlook and are monitoring the market to ensure their assumptions about advertising and sales promotion as a percent of sales are accurate. They will adjust their plans if necessary based on competition and market trends.

The speaker is discussing the company's EBIT margin, which is currently below historical levels but has been steadily improving. They expect to reach historical levels by the end of the year and continue to drive margin transformation efforts and increase sales to maintain this level. The company has also completed a program to streamline operations and plans to decrease administrative spending to contribute to the improvement of EBIT margin. The speaker is confident in the company's progress and believes they will fully rebuild EBIT margin.

During a conference call, Dara Mohsenian from Morgan Stanley asks about the 3% to 5% organic sales outlook for fiscal year 2025. Kevin Jacobsen, the operator, responds that the growth will come from volume, with a modest offset from negative price mix due to increased trade spending. He also mentions that there will be some pricing internationally, but it will not significantly impact the top line. Dara then asks Linda Rendle about the long-term organic sales growth outlook, given recent divestitures. Linda confirms that the outlook remains the same and that the company is committed to evolving its portfolio to ensure consistent and profitable growth.

The company's reported sales will be impacted this year due to certain factors, but the focus will be on growth opportunities in areas like Litter, international markets, and PPD. Advertising spending was higher this quarter due to various factors, but will return to normal levels in the next fiscal year. The company plans to continue building momentum in the future.

The speaker is discussing the company's promotional activity and gross margins. They mention that there will be a year-over-year increase in trade spending in the front half of fiscal year '25 due to a previous cyber event, but it will level off in the back half of the year. They also mention that there was no consideration to reinvest more of the gross margin improvement in advertising and marketing, despite some share loss in certain products.

The speaker discusses the company's advertising and marketing strategies and how they have contributed to a slight decrease in market share. They believe that their current spending level strikes the right balance and plan to increase market share in the future. The speaker also mentions a recent cyber event that affected distribution and resulted in a temporary decrease in market share, but they expect it to rebound as they restore distribution and see household penetration increase.

The company's cash flow for the year is expected to be down, but they are confident in their strategy to improve margins and profitability. They are willing to increase spending if necessary, but believe they have a good balance currently. The company aims for a free cash flow of 11-13% and has averaged 10% in the last two years.

In fiscal years '23 and '24, the company expects a 10% free cash flow as a percent of sales, but in fiscal year '25, they are targeting 12% as they continue to rebuild margin and profitability. The company has restarted their share repurchase program after suspending it for three years, as they have now rebuilt their balance sheet and have excess cash. Returning cash to shareholders is the company's lowest priority, with their main focus being on investing in the base business and maintaining a low debt to EBITDA ratio. They plan to return around $250 million to $300 million to shareholders, primarily to catch up on dilution from not being in the market for several years.

The speaker is discussing the company's outlook and potential for margin improvement. They credit their team's focus on productivity and cost savings, as well as pricing in international markets and a benign commodity environment, for the 360 basis points of gross margin expansion. They also mention the impact of the cyber disruption and the divestiture of Argentina.

Linda Rendle, CEO of Clorox, discusses the company's recent cost savings and margin transformation program, which has led to sustained increases in cost savings. She also mentions the company's increased confidence in returning to pre-pandemic gross margins and the flexibility to invest more if needed.

The company is aware that taking pricing can result in a temporary decrease in household penetration, as consumers may leave the category or change their purchasing behavior. However, they are focused on offering superior value and have seen improvements in household penetration in recent quarters. They are also continuously evaluating their pricing strategy and making adjustments as needed to ensure they are providing the right price points and value to consumers. This may include using price pack architecture to offer additional value to those who may have left the category.

The company is focused on innovation and claims for their products in order to drive growth. They have had operational disruptions in the past but are now focused on returning to growth. An example of successful innovation is the relaunch of Clorox Scentiva. The company is also investing in advertising and promotions to capture consumers and remind them of the trust and promises of their brands.

The team is focused on returning household penetration to pre-pandemic levels and growing from there to increase market share in fiscal year 2025. The volume growth goal of 3-5% is achievable due to the lap of the cyber attack and regaining lost share, as well as expected modest share growth in the back half of the year. The company has plans in place to improve share in the majority of their major categories.

Lauren Lieberman asks about the gross margin components, specifically the impact of mix and commodities. Kevin Jacobsen clarifies that mix has been a big contributor this quarter, primarily in the manufacturing line, but this is not expected to continue in fiscal year 2025. He also mentions that commodities are expected to have a modest impact of $35-40 million in inflation this year. In regards to the digital transformation, Linda Rendle mentions that Canada is relatively finished and they expect to see benefits flow through by the end of the year, but did not provide specific numbers or expectations for the cadence of these benefits.

The company is pleased with the first wave of its ERP and global finance rollout and is confident in its ability to learn from it for the upcoming U.S. transition. The cyber event delayed the ERP portion, but the company is still on track to finish the program in fiscal year '26. Additional capabilities will come online next year. The company has seen some value from its overall digital transformation, with early results in marketing efficiencies and a strong return on investment expected in '26 and beyond. The company's 3% to 5% top-line goal for next year may be impacted by net distribution gains contributing to shipments, but consumption may run below this range.

The speaker is discussing the expected variability across different segments in relation to a goal of 3% to 5% growth. They mention factors such as rebuilding from previous stock shortages and the impact of lapping previous year's numbers. They also note that certain categories, such as international and professional, may see higher growth due to their exposure. The speaker also mentions that the different segments have their own unique factors that may affect their performance.

The company's health and wellness segment has been performing well and they expect to see continued growth opportunities. Their professional business is back on track, and they may have an easier comparison in the household segment due to distribution issues in the previous quarter. The exit of two businesses will result in structural improvements in the company's top-line growth and gross margins, supporting their goal of consistent and profitable growth. This is expected to lead to a structural improvement of 50-70 basis points in gross margins. Exiting these businesses aligns with the company's strategy of achieving more consistent and profitable growth.

In the paragraph, Steve Powers responds to a question from Javier Escalante about Clorox's household business. Linda Rendle explains that the negative pricing and volume in the household category were due to weather and supply issues, as well as a heavy promotional environment. However, she notes that the pricing is holding up well in the marketplace and they expect a more rational environment moving forward.

The speaker believes that customers will continue to choose their company due to successful sales on Prime Day and competitive pricing. They have accounted for price promotions in their outlook and are not concerned about their pricing being out of line. They feel good about their performance in the grilling category despite a bad season and are not afraid to make adjustments to pricing if needed. In terms of marketing spending, the speaker mentions a weak brand that goes through different channels and competes with companies that spend more on marketing.

Linda Rendle discusses the competitiveness of Burt's Bees within the company's portfolio. She mentions that Burt's has been a successful acquisition and has contributed to strong sales growth. They compete in the natural personal care segment and are not in direct competition with larger beauty brands. Despite some supply issues and the cyber-attack, Rendle is confident in Burt's future and sees it as a growth opportunity for the company. They are focused on restoring distribution and rationalizing in certain categories. Overall, Rendle is optimistic about Burt's potential for continued success.

Ms. Rendle concludes the question-and-answer session by revisiting the company's long-term strategy and transformation journey. She emphasizes the goal of accelerating profitable growth and creating long-term shareholder value. Despite facing challenges such as COVID-19 and inflation, the company remains committed to its strategy and is confident in its ability to restore margins and generate strong free cash flow while investing in its brands.

The company acknowledges that their progress may not be linear, but they remain confident in their transformation plan. They are committed to becoming a stronger company and increasing shareholder value. The call has ended and they look forward to providing updates next quarter.

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