The paragraph is an introduction to The Clorox Company's Third Quarter Fiscal Year 2025 Earnings Release Conference Call. The operator, Paul, introduces the host, Lisah Burhan, Vice President of Investor Relations. Lisah thanks the participants and mentions that the call will include forward-looking statements and non-GAAP financial measures, with detailed information available on the company's website. Linda Rendle, the Chair and CEO, is introduced and welcomes Luc Bellet to his first call as CFO. She notes that the fiscal year began with challenges, such as a tougher consumer environment, increased competition, and slower category growth. Linda will provide further comments, followed by a Q&A session.

In the paragraph, it is mentioned that in the first half of the year and the beginning of the third quarter, the company performed well. However, in the second half of the third quarter, U.S. consumer sentiment declined significantly due to macroeconomic and geopolitical uncertainties, affecting shopping behaviors and leading to lower-than-expected sales. Despite these challenges, the company maintained strong fundamentals, market shares, and achieved its 10th consecutive quarter of gross margin expansion, allowing reinvestment into the business. Looking forward, the company anticipates continued pressure on consumers and retailers but remains confident in its portfolio of trusted brands. It expects to deliver organic sales growth and strong earnings growth. Linda Rendle, addressing Dara Mohsenian from Morgan Stanley, acknowledges the category weakness and provides insight into the macroeconomic factors affecting their traditionally resilient categories, indicating that the market concerns began earlier in the year.

The paragraph discusses the company's performance and consumer behavior amidst various economic conditions. Despite a history of weathering inflation and recession, the company's categories, mainly household essentials, showed a low-single-digit decline, which aligns with expectations for fiscal year '25 given anticipated consumer strain. In Q3, results through mid-February were expected, with categories dropping from 2.5% to about 1%. However, changes in macroeconomic policies, like tariffs, led to shifting consumer behaviors. Shoppers focused more on essential items like food, adjusted their spending within stores, and redirected their finances towards larger purchases such as automobiles and iPhones, exhibiting conservative purchasing trends in some of the company's product categories.

The paragraph discusses consumer behavior and market trends in a volatile economic environment. Despite fluctuations, with categories being flat or slightly declining, consumers are not significantly shifting to private labels or avoiding certain categories. Instead, they are buying different sizes and using resources more efficiently, prioritizing essential purchases. This stability gives confidence in the resilience of these categories, with expectations for Q4 showing continued volatility, possibly leading to a low-single-digit decline. The overarching concern remains the duration of these trends.

The paragraph discusses the uncertainty in predicting future market conditions due to factors like tariffs and the volatile geopolitical environment. Despite these challenges, the company is confident in the resilience of its product categories, observing that consumer behavior has not significantly changed yet. They are monitoring potential shifts, such as private label interest and consumers trading down, but no changes have been detected. The company aims for low-single-digit category growth but remains unsure about the timing of consumer confidence returning. Linda Rendle, responding to a question from Filippo Falorni, acknowledges that their long-term growth expectations of 3% to 5% in organic sales depend on a return to typical category growth rates of around 2% to 2.5%. She does not provide specific guidance for fiscal year 2026 or beyond.

The paragraph discusses the company’s expectations for category growth and the impact of tariffs on their operations. The company anticipates suppressed category growth for Q4 due to current market conditions but remains optimistic about recovery over time. When addressing tariffs, Luc Bellet mentions that the company's exposure is limited because they manufacture near their sales locations. However, they expect an unmitigated annual tariff impact of about $100 million, with $10 million to $20 million potentially affecting Q4. The company is implementing strategies to mitigate these impacts, such as changing sourcing, considering product improvements, and adjusting pricing.

The paragraph is a discussion between Peter Grom from UBS and Luc Bellet regarding the gross margin guidance for the fourth quarter. Peter inquires about the drivers behind the projected margin and whether there have been any changes that might affect fiscal 2026. Luc responds by stating that the expected gross margin for the fourth quarter is around 44%, close to the annual average. He explains that some manufacturing expenses were shifted between Q3 and Q4, affecting the timings of the margins. Additionally, cost savings and other expenses are slightly more favorable than anticipated, which contributes to the margin outlook.

The paragraph discusses the impact of tariffs and retail destocking on the company's financial performance. A tariff impact of $10 to $20 million is expected in Q4, with a gross margin of about 44 basis points, consistent with the annual trend. Retail destocking at the end of Q3 was primarily in the household segment, but its overall impact on the entire company was minimal. Most of the destocking impact is anticipated in Q4. Linda Rendle and Luc Bellet elaborate that the destocking is not a strategic issue but rather a response by retailers to adapt to the changing environment without causing consumer out-of-stocks.

The paragraph discusses the current state of promotional activity for a company, noting that while overall promotion has normalized to pre-COVID levels, there are variations across different categories. Specifically, higher promotional activity is observed in categories like Glad due to deep discounting by competitors seeking market share. The company has responded to this competitive behavior but aims to remain rational in their promotional strategies, emphasizing that they have historically grown these categories through significant discounting and promotions. Additionally, there is a mention of balancing the introduction of premium products with weaker consumer sentiment and the need for product investment.

The paragraph discusses the company's strategy of using promotions and innovation to enhance consumer value, emphasizing a disciplined approach to pricing and strategic pricing in response to tariffs. It highlights the success of premium innovative products like Scentiva, ToiletWand, and Burt's Bees, as well as value offerings through various pack sizes. The company aims to balance innovation in premium segments with appropriate promotions and pricing strategies, ensuring broad distribution across retailers to maintain strong consumer value.

The paragraph discusses Clorox's current status and future plans concerning consumer value and an ERP transition. Clorox has seen a significant increase in household penetration and maintains a strong consumer value with its premium products. In terms of the ERP transition, Linda Rendle explains that the company is on track to execute the transition by the beginning of the next fiscal year. They are closely working with retailers to prepare and are confident due to previous successful transitions in Canada and in their financial planning tools. There's also anticipation for the organic sales lift expected in Q4 and how the effects will play out in Q1 and Q2 of the next year.

The paragraph discusses the updated outlook for demand based on refined insights from retailers regarding their inventory plans. While there's a wide range in the outlook due to real-time inventory adjustments by retailers, the company is confident in the estimates. They acknowledge the environment is volatile but have received confirmations from most retailers, who are building one and a half weeks of inventory to avoid stockouts. The variability in inventory levels can impact growth forecasts, resulting in a wide range in their projections. The speaker, Luc Bellet, emphasizes that the plan is progressing as expected despite potential fluctuations.

The paragraph discusses the anticipated reversal of financial impacts on the P&L and balance sheet by next year, primarily in the first quarter. Bonnie Herzog expresses surprise at the increased buying despite slowing demand. Linda Rendle explains the importance of ensuring no impact on shoppers during their ERP transition, highlighting the need for backup inventory. Retailers and the company are committed to maintaining excess inventory to manage volatility and ensure supply chain resilience. Linda also mentions their holistic margin management program aimed at restoring pre-COVID margins.

The paragraph discusses a company's confidence in achieving its annual EBIT margin goal of 25 to 50 basis points, aided by their ERP and technology implementations which are meant to drive growth and efficiency. Despite uncertainty and volatility in the environment, the company is committed to its margin expansion program. The conversation then shifts to questions from Robert Moskow regarding the impact of tariffs and the potential inclusion of finished goods, packaging, and exports to Canada in their estimates. Luc Bellet clarifies that the impact on costs is minimal, with packaging and raw supplies being the main components affected, while exports to Canada are small. Robert Moskow also inquires about spending shifts from electronics and automobiles affecting grocery purchases, to which Linda Rendle responds by highlighting that consumers make trade-offs with their limited financial resources, impacting spending across different sectors.

The paragraph discusses the observed changes in consumer spending habits, indicating that while consumers are reallocating their spending across different categories and industries, at-home consumer behaviors have not changed significantly. This suggests that consumers are adjusting their spending priorities within the constraints of their limited budgets, possibly due to uncertainties about future costs. Anecdotal evidence from consumer conversations supports this, as consumers try to manage their overall spending. Robert Moskow acknowledges this trend, and Kaumil Gajrawala from Jefferies questions why the consumer slowdown seems to impact household divisions more than expected, despite expectations that they would be more resilient. Gajrawala also inquires if there is excess inventory in consumer pantries, mentioning the retail aspect.

In the paragraph, Linda Rendle discusses the differences between retail sales and their company's sales, particularly in the household category. She notes that while retail sales across categories in their portfolio looked consistent, their sales were impacted by inventory adjustments, timing, and weather issues, particularly affecting the Kingsford and Litter products. Additionally, a promotional absence impacted Litter sales. Rendle mentions expectations for these issues to normalize over time, despite a temporary impact on Q4 due to inventory corrections. The Glad brand is highlighted as being more affected by competitive promotions rather than changes in consumer behavior.

The paragraph discusses a company's financial performance, focusing on the impact of various categories on their sales and projections for fiscal '25, specifically around organic sales growth and the influence of an ERP transition. It highlights the cleaning category as an area of significant growth despite an overall decline in the category. Javier Escalante questions the company's guidance for fiscal '25 given a Q4 organic sales growth projection of minus 3%, excluding ERP impacts. Luc Bellet clarifies that the organic growth for the year is projected at 4% to 5%, with higher Q4 sales anticipated. The discussion also acknowledges a 2% to 3% ERP transition impact for the full year, leading to different expectations for Q4 performance.

In the paragraph, Javier Escalante inquires about the performance and innovation of the Glad and Cat Litter businesses, given the presence of strong value competitors in those categories. Linda Rendle responds by explaining that these two businesses face different circumstances. For Glad, there has been increased competitive activity and temporary repricing from other branded players that go below private label pricing, which she believes is unsustainable long-term. Despite this, Glad's performance has remained relatively resilient compared to other categories. She notes that consumers still need to dispose of trash, implying a steady demand for Glad's products. Overall, Rendle expresses confidence in the company's position despite competitive pressures.

The paragraph discusses a company's strategy in its trash bag and cat litter businesses. It highlights the success of their premium Bahama Bliss trash bags, emphasizing ongoing innovation and marketing efforts to capture a shift in consumer purchasing patterns, such as a move towards online and club shopping channels. The company remains confident in its premium product offerings despite increased competition. In the cat litter market, the company competes in both premium and mid-tier segments, focusing on innovation to address unmet customer needs like odor control and lack of tracking.

The paragraph discusses a company's strategies in response to competitive market conditions and consumer behavior. It highlights the launch of a strong odor control product and the successful efforts to win back customers lost due to a cyberattack through innovation, advertising, and promotions. Javier Escalante from JPMorgan inquires about the company's ability to cater to both low-end and high-end consumers and its strategies across different sales channels. Linda Rendle explains the company's strong presence in high-growth channels like mass and club markets, emphasizing their preparedness and strategic placement to meet consumer demands effectively.

The paragraph discusses Clorox's market positioning, particularly in cleaning products, highlighting its strength in consumer-preferred shopping channels despite having a limited presence in drugstores. It explains how Clorox offers both premium and value cleaning products to cater to diverse consumer needs. Premium products like disinfecting wipes are popular for their convenience, especially during cold and flu seasons, while value products like diluted cleaners and bleach appeal to budget-conscious consumers. As a result, Clorox's market share in these categories has increased, indicating their successful adaptation to changing consumer behaviors.

The paragraph discusses a company's diverse product portfolio that caters to different consumer needs, balancing premium and cost-effective options. They experienced strong financial performance and share growth in several categories, such as Pine-Sol, bleach, and Kingsford, despite some challenges like weather. The company feels well-insulated against market fluctuations and competition, especially in categories with limited competitors. They emphasize innovation and pricing strategies to maintain their product lineup and competitiveness. In terms of market share, they maintained their position overall for the quarter, despite specific challenges like with Glad trash bags.

The paragraph features a discussion during a company earnings call where Kevin Grundy from BNP Paribas inquires about the company's approach to capital deployment and mergers and acquisitions (M&A) amid slowing category growth. Despite mixed performance in various product categories, the company maintained its market share overall. Linda Rendle responds by emphasizing the company and Board's focus on controlling what they can, maintaining strong earnings performance despite the uncertain and volatile environment. The conversation underscores the importance of strategic decision-making regarding M&A to enhance growth prospects in the near and long term.

The paragraph discusses a company's focus on expanding margins and delivering strong earnings performance despite the challenging environment. The company aims to achieve both margin expansion and top line growth while remaining competitive. It highlights recent divestitures that improved its financial profile and supports better growth and margin expansion. The company prioritizes maintaining a healthy core and has invested in capabilities to control outcomes. If opportunities arise, the company is prepared to act due to a strong balance sheet and cash flow. Kevin Grundy concludes his comments, and Olivia Tong from Raymond James asks about the more significant destocking in the Household and Cleaning segment and whether it suggests selective inventory reductions by retailers.

Linda Rendle discusses the inventory management challenges specifically related to the Household category, noting that destocking has been limited to this area due to the bulky nature of products like Kingsford and Litter. Retailers are using advanced technologies to manage inventory without affecting consumer availability. While more inventory adjustments are planned for Q4, the focus remains on maintaining consumer in-stock levels. The uncertainty around consumer replenishment timing is acknowledged, though it's noted that the typical purchase cycle is 90 days.

The paragraph discusses the uncertainties and challenges faced by a company due to a downturn starting in February, leading consumers to buy smaller sizes. This raises questions about whether consumers will stretch these purchases to last the entire cycle or return sooner. While it's too early to predict, this will impact fiscal year '26 guidance. In the current Q4, the latter half of the purchase cycle is being observed with expectations of softer categories and concerns about leftover inventory in households. Chris Carey from Wells Fargo raises questions about how productivity will be managed given upcoming tariffs and ERP impacts. The company is considering tariff mitigation strategies and may need to accelerate productivity programs, potentially affecting S&A expenses and other demand-building activities. Linda's target for S&A as a percentage of sales is expected to be higher than previously planned.

In the paragraph, Linda Rendle discusses the company's strategy for fiscal year '26, which involves building a stronger and more resilient business through significant investments in technology, capabilities, and a new operating model. The goal is to expand margins consistently, return gross margins to pre-pandemic levels, and achieve sustainable margin growth to fund business investments and shareholder returns. While Rendle is confident in the company's capabilities and recent results, she acknowledges that the upcoming year will be challenging due to pressures, including a $100 million impact from tariffs. The company has begun implementing new strategies, such as price pack architecture, to further drive value.

The paragraph discusses the company's confidence in managing a $100 million investment and improving productivity as they plan for fiscal year 2026 and beyond. The company is experiencing strong returns on advertising spending and is considering how to optimize this investment in the current environment. They emphasize the importance of investing in their brands while also being strategic about spending levels. They acknowledge that selling and administrative expenses (S&A) are currently high due to the implementation of an ERP system, but they expect these expenses to decrease over time with improved productivity. The conversation then shifts to addressing trade down behavior, where, despite value-seeking trends, there hasn't been traditional trade down, only shifts in channels and pack sizes.

In the paragraph, Linda Rendle discusses consumer purchasing behavior, particularly in essential product categories. She highlights that consumers are willing to pay for products that they trust to work effectively, which is a principle her company has prioritized by continuously improving product quality and building consumer trust. Even if consumers try alternative products, they often return due to the superior value and effectiveness of her company’s offerings. Rendle emphasizes the importance of product functionality, design, and overall consumer experience as key factors that keep customers loyal, suggesting that these elements are more critical than just the product's basic content.

The paragraph discusses how consumers are adapting to financial challenges by making strategic purchasing decisions, such as buying smaller sizes or switching shopping channels, due to lessons learned from COVID-19 and inflation. It highlights the uncertainty and volatility in the market, emphasizing the need for consumers to be savvy in their buying behavior. While observing these trends, the company plans to focus on controlling what they can by investing in brand development, improving products, offering value, and maintaining strong promotional and messaging strategies.

In the concluding paragraph of the call, Linda Rendle emphasizes Clorox's confidence in navigating various macroeconomic challenges due to its 112-year history of successfully handling inflationary and recessionary environments. Despite current temporary impacts on categories, the company relies on its essential categories' stability and resilience. Rendle highlights Clorox's strong execution, trusted brands, and strategic focus on delivering superior consumer value, advancing digital capabilities, and evolving its portfolio to ensure more consistent, profitable long-term growth and enhanced shareholder value.

The paragraph emphasizes the commitment to achieving both short-term and long-term goals and expresses gratitude to attendees, with a promise to provide future updates. The conference call is then concluded.

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