The paragraph introduces The Clorox Company's Second Quarter Fiscal Year 2025 Earnings Release Conference Call, hosted by Lisah Burhan, Vice President of Investor Relations. Participants are in listen-only mode until a Q&A session following prepared remarks. Linda Rendle, Chair and CEO, will give opening comments. The call may include forward-looking statements and non-GAAP financial measures, with details available in the earnings release and Form 10-K. Linda acknowledges a recent CFO transition, thanking Kevin Jacobsen for his nearly 30 years of service and his role in the company's IGNITE strategy.

The paragraph discusses the transition of the CFO role at Clorox. The current leadership expresses gratitude to the retiring CFO, Kevin Jacobsen, and welcomes Luc Bellet as the new CFO, starting April 1st. During a Q&A session, Dara Mohsenian from Morgan Stanley asks about Clorox's ability to continue driving gross margin expansion beyond fiscal 2025. Kevin Jacobsen responds, emphasizing their strong confidence in fully rebuilding gross margins to 44% and further expanding EBIT margins by 25 to 50 basis points annually.

The paragraph discusses the company's efforts to improve productivity and transform margins through initiatives such as an ERP conversion and a focus on design to value and net revenue management. These strategies aim to expand margins and create opportunities for reinvestment. Additionally, the conversation touches on the company's assumption of full control over the Glad business, which aligns with the end of a partnership agreement. This development might influence the company's strategy around mergers and acquisitions, with potential opportunities to fill gaps in their portfolio.

The paragraph discusses a company's current position and future plans as it undergoes a transformation, emphasizes confidence in its ability to drive innovation, and highlights the significance of retaining important intellectual property developed with Procter over the years. It mentions the end of a contract with Procter as the reason for full control of a business and reassures investors about their M&A strategy, which remains focused on deals beneficial to shareholders. The company regularly reviews its portfolio to ensure proper use of cash. Finally, Peter Grom of UBS asks for clarification on the company's organic sales outlook, particularly about the variability in their forecast and expectations for fiscal 2026, to which Kevin Jacobsen responds by noting differences in outlooks between Q3 and Q4.

In the paragraph, the speaker discusses expectations for Q3 and Q4 sales and earnings. They anticipate a mid-single-digit decline in reported sales in Q3 due to divestitures and FX headwinds but project low single-digit organic sales growth due to forward distribution of Kingsford products. In Q4, organic sales growth is expected to be between mid- and high single-digits, driven by base business growth and a temporary ERP transition, which will increase sales this year but reverse next year. Peter Grom acknowledges this and mentions that the earnings guidance raise seems to be driven by the ERP benefit, along with a reduced tax rate outlook.

In the paragraph, Kevin Jacobsen discusses various factors affecting the company's financial outlook. He notes benefits from a tax rate advantage and reduced supply chain inflation expectations. However, these are offset by added FX headwinds and increased trade spending due to competitive activity in the Bags and Wraps category. Despite these "puts and takes," the company remains on track for the year, adjusting its lower-end financial outlook upwards. Meanwhile, Filippo Falorni from Citi inquires about the Q2 organic sales performance, which Kevin explains was better than anticipated due to a combination of factors, not solely due to the Kingsford shipment, as consumer pressure was less than expected, keeping sales decline lower than predicted.

The paragraph discusses the company's progress in share growth, particularly highlighting strong demand creation strategies and early shipping of Kingsford products as contributors to success, albeit not the primary driver, which was the overall business strength. Filippo Falorni questions Linda Rendle about increased promotional activities in the Litter and Glad categories, potentially necessitating more spending. Linda acknowledges that the rise in promotional activities aligns with expectations for Litter but not for Glad, where competition is more intense than anticipated. Despite this, they managed to grow their market share for Glad trash in Q2, even amidst deeper discounts and increased spending by competitors.

In the paragraph, the company discusses their strategy for the Bags and Wrap category, emphasizing that long-term growth should not rely on deep discounting, but rather on encouraging consumers to trade up. They are prepared to handle short-term competitive pressures and have accounted for these in their outlook. The company mentions increased competitive promotions in the trash category but feels equipped to manage it. During the discussion, Anna Lizzul from Bank of America asks about consumer behavior and sales dynamics across different retailers and channels, as well as the use of promotions to regain market share in the Litter and Glad categories. Linda Rendle responds by noting that the company is returning to a pre-COVID promotional environment for both Glad and Litter.

The paragraph discusses the competitive nature of the trash bag market and outlines Glad's strategy to succeed in it. Glad uses a combination of factors, including value messaging and innovation, to attract consumers. The company emphasizes the benefits of its products, such as stronger bags, better scents, and odor control. While promotions are important, innovation and value perception are the main drivers for Glad's success. An example of successful innovation is the Bahama Bliss product. Overall, the consumer environment is stable, with consumers seeking better value and being willing to trade up for innovative products, even at a higher price per use.

The paragraph discusses a company's strategy to meet consumer needs by offering products in both larger and smaller sizes to accommodate different purchasing capacities and pay cycles. Private label shares have decreased, especially in categories such as trash, bleach, and Kingsford products, despite the company's stock issues due to a cyber incident. The company feels confident in its brand's competitiveness and notes that it has invested more in advertising and sales promotion. This investment has led to increased market share in seven out of eight categories, higher household penetration, and stronger consumer value metrics. Anna Lizzul thanks Linda Rendle for her insights, and the next question from Kaumil Gajrawala seeks more details about a 1% to 2% impact from turning on an ERP system, expressing a need for practical understanding of this effect.

In the paragraph, Linda Rendle and Luc Bellet discuss the company's ongoing ERP (Enterprise Resource Planning) transition as part of their digital transformation strategy. They explain that the ERP transition aims to enhance growth and productivity by improving data management. After a successful ERP implementation in Canada, the company is preparing to launch the system for its US business operations, including order management and fulfillment, in July. This transition will be gradual, spanning six months and involving close collaboration with US retail partners. The company is also planning to ship products ahead of consumption in the fourth quarter to ensure a smooth transition.

The paragraph discusses a strategy to build up retail and company inventory levels to ensure product availability during an ERP system transition. This accumulation will occur in Q4 and is expected to reverse in the first half of the fiscal year. This approach might cause some timing and noise issues in the financial outlook. The speaker clarifies to Bonnie Herzog from Goldman Sachs that this inventory buildup is a precautionary measure typical when manufacturers undergo system transitions, ensuring product continuity during the changeover.

The paragraph discusses a company's transition to a new ERP system, emphasizing that this process is standard and should not disrupt consumers. The company has learned from similar transitions by peers and aims for minimal consumer impact. In response to a question about tariffs, Kevin Jacobsen explains that the company has been assessing the situation for months but has not included potential tariff impacts in their outlook. He notes that their supply chains are relatively short because they manufacture products close to where they are consumed, which may mitigate some potential tariff impacts.

The paragraph discusses the benefits of onshoring and nearshoring production to minimize supply chain risks and reduce tariff exposure. The company has already taken steps to minimize tariffs and is working to further reduce them in a dynamic environment. Although it acknowledges uncertainty about the exact impact of changing conditions, the company feels well-prepared to manage through the current year. The paragraph then shifts to a conversation led by Chris Carey from Wells Fargo, who asks about the company's sales outlook. He points out that the organic sales growth forecast for fiscal Q3 is low-single digits, which is at the lower end of their long-term top-line targets, and notes that consumption data appears flat while non-track channels are growing faster. He asks for a clearer view of the low-single-digit growth in light of inventory shifts and market noise.

In this paragraph, Linda Rendle addresses multiple topics brought up by Chris, primarily concerning the company's strategy and market trends. She acknowledges the challenges of recapturing distribution points and discusses whether current operations align with longer-term goals, noting a need to adjust for macroeconomic difficulties expected in fiscal 2026, possibly related to ERP impacts. Rendle also touches on the differences in market performance between their cleaning and household businesses, highlighting weaker consumption data in cleaning and stronger performance in household products, possibly aided by promotional activities for the Glad brand. Throughout, she mentions the complexities and "noise" affecting quarterly results, including recovery from a cyber incident and shipping irregularities, emphasizing that these factors don't drastically change their overarching assumptions.

The company is experiencing lower category growth rates than usual, currently around 0% to 1% compared to the typical 2% to 2.5%. Despite this, they are confident in achieving a long-term growth rate of 3% to 5%. They plan to accomplish this by regaining category growth, increasing market share, utilizing NRM and pricing strategies, and advancing digital transformation. Their professional and international businesses are also expected to surpass the company average growth rates. The main uncertainty lies in when the macro-environment will stabilize, but the company is focusing on innovation, investment, and category growth strategies to navigate the current volatile conditions.

The paragraph discusses the success of a company's cleaning category, highlighting strong performance and share growth, even surpassing pre-COVID levels despite taking price increases due to inflation. Innovation, such as with the Scentiva line, is resonating with consumers, contributing to growth. Internationally, the cleaning category is driving strong organic growth and forms a significant part of the company’s international business. Chris Carey acknowledges the information shared, and the conversation shifts to Olivia Tong from Raymond James Financial, who asks about promotional strategies and flexibility related to the company's product, Litter, and similar issues as what occurred with Glad.

The paragraph discusses the impact of the cold and flu season on the cleaning and disinfecting business, noting that it has been an average season so far with some fluctuations. The business anticipates a typical cold and flu season for the entire year, with plans for increased advertising in the latter half of the year to support product innovation, particularly focusing on a new heavy-duty cat litter product. Overall, the company's strategies and expectations remain aligned with their initial outlook.

The paragraph features a discussion between Olivia Tong, Linda Rendle, and Andrea Teixeira. Linda talks about the company's financial flexibility and ability to invest in promotions, innovation, and reacting to competitive pressures, with a specific mention of the progress made in the trash category and adjustments with the Glad brand. Andrea then asks Linda to elaborate on the company's distribution gains, market share, and the role of their ERP solution in facilitating innovation and market momentum. Linda acknowledges Andrea's question, implying a positive reception.

The paragraph discusses the company's recovery in distribution following a cyber-attack, noting that by the end of the year, distribution levels had not only been restored but also surpassed previous levels. This recovery has been consistent through Q2, although it varied by business. The company focuses on maintaining and growing distribution through innovation and consumer engagement. Andrea Teixeira asks if the timing of distribution was affected by ERP solutions, but Linda Rendle assures there is no impact on timing. Robert Moskow then seeks more information about growth in the professional and international sectors.

Linda Rendle discusses the company's international growth strategy, emphasizing their focus on stable, profitable markets and minimizing exposure to foreign exchange volatility in Latin America. They've leveraged their strong global presence in the cleaning sector and expanded into new markets with asset-light strategies, notably in the cat litter business across Europe and Asia. The company is successfully using innovation and brand building internationally, continuing to implement pricing strategies despite global challenges. Overall, their efforts are supported by a stabilized geographic portfolio and effective utilization of regional and category opportunities.

The paragraph discusses the growth and strategy of a business in the Professional sector, focusing on its cleaning services. The business experienced significant changes during COVID-19, with initial growth due to increased demand for safety products, followed by challenges as office occupancy decreased. However, it has since expanded into new verticals, such as government and healthcare, and is gaining market share, particularly in healthcare and janitorial services. There is some indication that office occupancy is slowly returning, but the company is not relying on this as a growth driver. The paragraph concludes with a follow-up question about raw material sourcing, with a response indicating that a small percentage, in the single digits, comes from Mexico and Canada.

The paragraph features a discussion about the company's current and future category growth expectations. Kevin Grundy from BNP Paribas questions how the company can return to a 3% to 5% growth rate from the current flat to 1% growth, considering a weary consumer base and a constrained pricing environment. Linda Rendle responds by explaining that category growth is currently depressed, with volume growth being countered by promotions as anticipated. The company has shifted back to pre-COVID promotional levels, which is seen as a positive adjustment. She indicates that returning to average growth rates requires navigating the competitive landscape as consumers look for more value.

The paragraph discusses consumer behavior during different economic cycles, noting that when consumers feel financially stretched, they focus on saving money by extending product use and avoiding premium purchases. However, as economic confidence returns, there's a tendency for consumers to spend more on premium products. The speaker is confident that, once the current economic cycle passes, consumers will resume trading up to higher-quality products. The company is preparing for this shift by ensuring strong advertising, innovation, and distribution across various retail channels. They aim to continuously offer consumers opportunities to upgrade, anticipating a return to category growth rates, depending on macroeconomic conditions.

In the paragraph, Luc Bellet discusses the continuity expected as he transitions into his new role, following Kevin Grundy. He highlights the consistency in financial discipline and capital allocation, noting their achievements in rebuilding margins to pre-pandemic levels and operational strength. Luc emphasizes focusing on growth, innovation, and transformation, particularly mentioning a new ERP implementation aimed at modernizing operations to enhance competitive advantage. The emphasis is on a smooth transition while building on existing strategies like the IGNITE strategy.

In the paragraph, during a discussion between Linda Bolton Weiser and Linda Rendle, the topic of consumer health and the factors influencing consumer spending is addressed. Linda Rendle explains that while measures like the Michigan consumer sentiment index are considered, there isn't a single, consistent marker that predicts consumer behavior, especially for everyday essentials. Instead, they look at a combination of factors, such as employment stability, understanding of inflation, and overall consumer confidence. Historical events like COVID have shown that various factors can affect consumer engagement in certain categories, and the company observes these aggregate factors to gauge consumer behavior. Despite these uncertainties, they are currently seeing positive trends in category growth.

The paragraph discusses a company's ongoing investment in digital transformation. Kevin Jacobsen explains that the company is in the fourth year of a five-year plan to invest $560 million to $580 million, with about $0.70 per share being spent in the current fiscal year. By the end of the year, they expect to have spent over $500 million, with the final year of spending in 2026 being less than this year as the program winds down. Thereafter, there will be no further charges. Linda Bolton Weiser asks if digital capabilities and ERP spending are the same, suggesting an ongoing interest in understanding the nature of their SG&A spending.

Linda Rendle explains that their company's SAP system upgrade is a comprehensive digital transformation, addressing a need for modernization last tackled over 20 years ago. The substantial cost is due to a full greenfield implementation of S/4HANA, incorporating global finance, innovation, AI investments, and accurate data management. This overhaul aims to enhance company growth and productivity, with a strong return on investment expected for shareholders. The upgrade's expenses are justified by the need for modern capabilities, despite not being able to compare directly to peer transformations.

The paragraph discusses the company's digital transformation program, aimed at reducing administrative costs as a percentage of sales from 14-16% to 13%. While this requires initial investment, including new technology and higher personnel costs, it is expected to enhance productivity and open up further investment opportunities. The company's approach includes implementing a streamlined operating model and maintaining a focus on delivering strong returns. They have a clear business case and designated owners for each area of technological upgrade, replacing a 20-year-old system to achieve this goal.

The paragraph discusses the transition to a new system infrastructure and its financial implications for a business. The company currently maintains two systems, incurring costs for both the legacy and new systems. After the conversion, the legacy system will be shut down, reducing costs and increasing productivity. Kevin Jacobsen clarifies that the costs for the new system are included in the current numbers and are accounted for in adjusted earnings, while one-time transition investments are excluded. Steve Powers from Deutsche Bank inquires about the company's cash flow, noting an expectation of 12% free cash flow relative to sales, while the current rate is closer to 9%. He asks about satisfaction with cash generation and the potential cash impact of the ERP shift at the year's end.

In this discussion, Kevin Jacobsen addresses a question about cash flow and its relationship with earnings, particularly considering the impact of an ERP (Enterprise Resource Planning) transition. He explains that their base target is an 11% to 13% cash flow range, with current operations likely hitting the high end before accounting for the ERP impact. The ERP transition requires additional cash investments to manage retailer inventories and safety stock, along with prepaid supplier expenses, which will reduce accounts payable balances in Q4 by $50 million to $100 million. This results in cash flow for the year likely reaching the lower end of the range (around 11%) due to timing issues, though operationally it remains closer to 13%. This cash shift is expected to reverse in early 2026.

The paragraph discusses the financial implications of buying back the 20% stake in the Glad joint venture that P&G owns. Kevin Jacobsen confirms that the estimated fair value of P&G's interest is around $530 million. The plan is to repurchase P&G's stake either through cash or borrowing, which will stop the payment of 20% of cash flows to P&G. This will lead to increased gross margins and earnings, as these payments currently recorded under cost of goods sold (COGS) will cease. Steve Powers confirms this understanding, and Jacobsen affirms that it will enhance both Glad's and the company's overall profitability. The conversation then moves to Lauren Lieberman from Barclays for further questions.

In the paragraph, Kevin Jacobsen addresses questions from Lauren Lieberman regarding the company's sales, volume, and gross margins. Jacobsen explains that household volumes were down about 11% in the quarter due to lapping retailer restocking from the previous period, which is consistent across other business units. Regarding gross margins for the fourth quarter, he clarifies that while they are expected to be strong and above the 44% goal, they will likely be lower than the previous year due to a unique, favorable mix that inflated the past year's gross margin by almost 400 basis points to approximately 47%.

The paragraph discusses the impacts of an upcoming ERP implementation on logistics costs and product shipping. Kevin Jacobsen explains that while there will be increased logistics costs due to building safety stock, these will be offset by the benefits of increased product shipping, resulting in no significant net impact. This pattern will reverse in the first half of the following year. Linda Rendle reflects on the company's performance amidst various disruptions, including a pandemic, inflation, and a cyber-attack, highlighting efforts to transform the company through a new operating model and business divestitures. Despite challenges, the company has achieved strong sales growth, improved gross margins, and earnings growth, and looks forward to further progress with the US ERP implementation next fiscal year.

The company is focused on becoming stronger by achieving consistent, profitable growth and increasing long-term shareholder value. They plan to share more information at the upcoming CAGNY Conference. The current conference call has ended.

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