Clorox Co . (NYSE:CLX) has demonstrated resilience in the face of several challenges, including a post-pandemic demand normalization and a recent cyber attack. The company has reported exceeding its EBIT margin expansion targets, driven by strategic pricing, design-to-value product enhancements, and significant cost-saving measures. Clorox is looking to rebuild profitability and stimulate growth through its IGNITE strategy, which is centered around innovation, digital transformation, and a more streamlined operating model. The company's focus on personalized consumer experiences and efficient brand building has led to a notable increase in advertising payout. Despite the cyber incident, Clorox has made considerable progress in restoring distribution and household reach, and it remains committed to delivering shareholder value and accelerating financial performance.
Key Takeaways
- Clorox is focused on restoring profitability and driving growth post-COVID with its IGNITE strategy.
- The company has exceeded its EBIT margin expansion goals, thanks to cost savings and strategic pricing.
- Investments in data and technology have led to a 45% increase in advertising payout.
- Clorox is set to launch major brand innovations in fiscal year '24, including the relaunch of Clorox Scentiva.
- The company has made significant progress in recovering from a cyber attack, aiming for full recovery and continued growth.
- Clorox is committed to sustainable practices and aims to achieve net-zero emissions by 2050.
- International expansion, particularly in health and wellness categories, is a key focus area.
Company Outlook
- Clorox aims for 3-5% top-line growth, expanded EBIT margins, and strong cash flow.
- The company is open to potential acquisitions that align with its capabilities and market trends.
- There is a strategic focus on international expansion in untapped markets for cleaning products.
Bearish Highlights
- The timing for rebuilding gross margins to pre-pandemic levels is uncertain due to external cost environment factors.
Bullish Highlights
- Clorox is capitalizing on trends like increased pet ownership and is successfully expanding in international markets.
- The company's advertising strategy, accounting for 11% of sales, is being refined for greater effectiveness and efficiency.
Misses
- There are no specific financial misses mentioned in the provided transcript summary.
Q&A Highlights
- Clorox discussed their confidence in rebuilding gross margins despite external factors.
- The company's advertising effectiveness and efficiency were highlighted, with a focus on driving better returns on spend.
In summary, Clorox is navigating through a period of normalization and recovery with a clear strategy aimed at innovation, market expansion, and sustainability. The company's efforts in leveraging technology and data to enhance consumer experiences and operational efficiency are expected to contribute to its long-term growth and profitability.
InvestingPro Insights
Clorox Co. (CLX) is not only navigating through a challenging market environment but is also managing to keep its commitment to shareholder value. According to InvestingPro data, the company boasts a market capitalization of approximately $18.94 billion, reflecting its significant presence in the industry. While the P/E ratio appears elevated at 236.83, it is important to note that the adjusted P/E ratio for the last twelve months as of Q2 2024 is more moderate at 39.55, indicating that investors have high expectations for future earnings growth.
InvestingPro Tips highlight that Clorox has raised its dividend for an impressive 47 consecutive years and maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to returning value to shareholders. Moreover, net income is expected to grow this year, and seven analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook for the company's financial performance.
Revenue growth also remains a key metric, with a 3.47% increase over the last twelve months as of Q2 2024 and a more robust quarterly revenue growth of 16.03% in Q2 2024. These figures are promising signs of Clorox's ability to drive top-line growth amidst its strategic initiatives.
For investors seeking more in-depth analysis and additional InvestingPro Tips, Clorox's dedicated page on Investing.com offers a wealth of information. There are 11 more tips available, which can be accessed with a subscription. To enhance the value of this investment, users can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
In summary, Clorox's strong dividend history and the analysts' positive revisions on earnings reinforce the company's potential for sustained growth and stability, making it a noteworthy consideration for investors.
Full transcript - Clorox Co (CLX) Q1 2023:
Unidentified Analyst: Next up, I'm happy to welcome Clorox back to the CAGNY stage. It's certainly been an eventful few years for Clorox to say the least, but the company continues to prove out its resilience, durability and operational prowess as they've navigated a demand normalization in several categories following the COVID boom, not to mention a malicious cyber attack, after which they quickly recovered shelf space at key retail partners along with consumer demand after some initial disruption. They also continue to make substantial progress in rebuilding profitability back to pre-COVID margin levels, all while reinvesting in the business to support long-term goals. With these disruptions increasingly cleaned up, its core capabilities are beginning to shine through, driving strong top and bottom line growth via its IGNITE strategy. Here with us today, we have Chair and CEO, Linda Rendle; and CFO, Kevin Jacobsen. With that, I'll pass it to Linda.
Linda Rendle: Good afternoon, everyone. , thank you for that wonderful warm welcome, and thank you for bringing the humor since I will not be bringing much of that to the stage. So appreciate the start. Thank you for the introduction. You all know this presentation contains forward-looking statements. I know you take that as seriously as we do. And with that, we'll get started. So what I want to talk today about is how our IGNITE strategy continues to position us well for the future. We have strong brands with superior value in categories and consumers' everyday lives. We made strong progress in fiscal year '23, meeting and exceeding every one of our objectives, but we have a while to go before we rebuild earnings. And of course, the cyber attack that happened in August did impact that. But we remain confident in our ability to drive profitable growth and deliver value for all of our stakeholders over time. I know there is probably a lot of anxiousness to hear about where we are on a recovery from the cyber attack, and I will spend time on that at the end. But I want to spend the majority of the time talking about how we are transforming our company to be faster growing and more resilient. And that will be the entire focus of the presentation today. We've talked about many of the elements of our transformation. But what we're doing is modernizing capabilities. We are executing our digital transformation as well as streamlining our operating model. And these things will work together to make us more resilient and be able to continue to make our commitment to drive top line momentum and rebuild margins. Before we get into the strategic update, just a bit on who we are. We have a global portfolio of leading brands in household essentials and health and wellness categories. Although we compete in over 100 markets around the world, the vast majority of our business is in the U.S. And our north star is economic profit, and we use a disciplined and choiceful playbook to activate against that, leading brands that consumers love that we continue to invest in. We're very purposeful about where we play. We want to be in categories where we can take advantage of megatrends and where we can activate against our capabilities. We feel very strongly we need to integrate ESG into our business. And we do that because it maximizes value creation and helps us manage risk. And of course, we drive to operational excellence in everything that we do. And that leads to a portfolio of brands where the vast majority of them are #1 or #2 in our categories. In addition to that, we're always looking to drive superior consumer value. 60% of our portfolio is deemed superior by consumers right now, and that's up from 54% in fiscal year '19. And why we're most proud about that statistic is we took 4 significant rounds of pricing and we're able to maintain that level of superiority through those price increases. So let's get into the strategic update. First to start, our strategy in 2019 was built to deal with a lot of chaos. We saw changing consumer behaviors and different megatrends, and we knew that would impact the way that we brought our brands to life. We also saw disruptors that would change the way that we bring those brands to life. So we built a strategy that contemplated a more uncertain and volatile environment. And I think certainly, none of us anticipated just how volatile and uncertain it would be. But the strategy has served us well. And what we're doing now is activating it at its fullest degree so that we can accelerate growth. We want to accelerate growth to 3% to 5%. If you look at our 4-year CAGR, we've been well within that. Certainly, ups and downs, and we'd like to be more consistent and predictable moving forward. And we do that with 4 core choices. The first is to fuel growth, and that is the goal around expanding EBIT margin 25 to 50 basis points. Of course, job #1 is we must restore gross margins back to their pre-pandemic levels. And we have strong confidence in our ability to do that. And we'll talk about an enhanced toolbox that we are building right now in order to achieve that. Then the next choice is to develop superior experiences for consumers. We want to make sure that we have holistic, frictionless, innovation-driven experiences for consumers, and that's when we really win, and we'll spend a lot of time talking about that today. The third choice around of all portfolio, the #1 thing that we do is have a healthier core, and that's what we're focused on day in and day out. And then the fourth choice, for us to reimagine work. Because this environment is so disruptive, we must change the way that we operate as a company to be as fast as the world around us and to meet the changing needs of consumers. And that's really where I'd look to start, is in reimagine work. And this is the foundation for the transformation that we're undergoing as a company. We want to be more consumer obsessed. Consumer-obsessed leads to superior value. When we know them better than anyone, and when we give them experiences that are superior, we know we win in the marketplace. We also must be leaner and faster in order to respond to the changing environment and ensure that we're moving as fast as consumers are moving around us. And that means we have to embed these principles into how we're performing, and we're doing that through these different transformation levers. We're going to talk about each of these in turn, but in a high level, we're modernizing our capabilities, and we'll talk about where we're focusing there. We're executing our digital transformation, and we're streamlining our operating model. These 3 pieces work together to ensure that we have a company that can move as fast as we need to with modern capabilities that deliver in a changing environment. So let's start with capabilities. We're prioritizing the capabilities, as you would expect, that are the most value creating for our business. So brand building in the areas of marketing, personalization and innovation. And then given the enormous inflation that we experienced over the last 2 years, we are focused on holistic margin management and I'll spend time talking about both of those in more detail. Data and technology will be the foundation for how we do all of these capabilities, and I'll bring that to life as we talk through the different choices. But one I'll highlight here is customer partnership which we haven't spent a lot of time talking about that. A few years ago, we decided and looked ourselves in the mirror and said, we must do more to continue to lead with customers. We have to develop different capabilities, and we need to develop better relationships. So we invested in stronger talents, against these customer teams. And we've made significant progress in the feedback that we're getting from our strategic customers and our partnership with them, and that really played out during the cyberattack we experienced in August. Our retailer partners were absolutely phenomenal. I will take another opportunity to thank them right now, and they were just as invested in getting our products back on the shelf as we were. And so this investment is absolutely paying off for us. and we feel that we'll continue to do that in the future. So as I said, our digital transformation is the foundation for these new capabilities that we're building. Without it, those capabilities can't come to life. This $500 million investment has a very strong return. We had to replace an ERP. We didn't want to just upgrade an ERP, we wanted to upgrade our company, and that's exactly what we're doing and what I'll hope you'll see through the capability of what this is enabling. There's been some confusion, so I want to clear it up. This $500 million is in addition to the base IT spend we do every single year to improve our core capabilities, to improve cyber and that investment will continue and maintenance as we move into the future. But this is supplemental and really requires us to build an integrated data fabric, which we're doing right now so that we can see end to end. We can't fully do that in our company right now, which makes us less predictable, less reliable in our forecasting. We're not able to remove the waste that we need to because we don't have that end-to-end view and certainly cannot move as fast as we want to with the consumer. But we're putting these capabilities in now, and I'll show you some of the early examples of where this is working really well. One note on this is our digital transformation is continuing to progress. But given the cyberattack, we have delayed our ERP. We're finalizing the plans right now on the timing of that, and we'll communicate more in the coming quarters. And then these 2 pieces work together with our streamlined operating model. The good news is this streamlines operating model continues to be on track, even despite the cyberattack. And we expect to save $75 million to $100 million in annual savings, and that's good. But the most important part is this is about changing how we work. It's about getting closer to the consumer, it's about ensuring end-to-end integration, removing layers for faster decision-making. And then we're creating a set of centralized capabilities where we have real expertise that we can dynamically deploy into our business units, and I'll give you a few examples of how this works. And this allows us to really upgrade our capabilities at the right investment level, making it both efficient and effective. So now let me bring this to life through the actual business choices. What does it actually mean? So I covered at the beginning that we are on a journey to rebuild earnings, and that starts with ensuring that we get back to pre-pandemic gross margins. We certainly made tremendous progress on that, but we have more work to do. We're also doing that while investing in our brands and capabilities. But what was clear is our very reliable cost savings program that for years and years and years has delivered strong returns was not going to be enough for us to meet this aspiration. So what we are moving from is that consistent predictable cost savings to a more integrated holistic margin management toolbox that you can see illustrated on the right and many of these we've used before, but we've used them in narrow buckets and never before have they been fully integrated and enabled by data and technology, and we'll talk about how that works. We have also put a centralized group, as I talked about -- centralized groups that we dynamically deploy into the business units. We have one that's holistically managing margin for us, and we hired a set of experts who have done this work and are helping build capability for the company, and we deploy them into the business units to help them build plans. In the future, we would anticipate fully integrating this into how we do annual and long-range planning, which will yield even more value consistently. Let me take you through examples of each one of these and how they're giving us confidence in our ability to rebuild margins and then expand EBIT margins consistently once we get to that point. The first is cost savings. And some of these will add to cost savings. But we are making tremendous progress here. Our goal pre-IGNITE was 150 basis points of EBIT margin expansion. We raised that to 175 basis points of the EBIT margin expansion because we thought we had additional tools that we could look at like sustainability and seeing more end-to-end to do that, and the good news is we've well exceeded that 175 basis points. This is a 4-year average, and we're over 200 basis points every year. But as I said, that wouldn't be enough. And we've had to rely more on strategic pricing over the last couple of years. We took 4 very significant amounts of pricing across the vast majority of our portfolio over the last 2 years. And we used that centralized group and capability to, one, evaluate the price increases we were taking by business. And then as we were executing in the market, looking at value gaps, looking at the execution, we were able to do this very effectively and therefore, maintain the superior value of our brands. And this is a capability that is new and we're building muscle to be able to do this as we leverage pricing in the future. So an example of design to value. This is a product with Hidden Valley product improvement that we use the design-to-value principles to bring to life. And this work is going on in all of our business units right now. We know very well the consumer on Hidden Valley and what they like and what they don't like and what drives liking of our brands. We also knew we had very challenged ingredients in this amazing product if you've tried Hidden Valley. They were very challenged from a supply chain perspective, and they were quite costly. So we're able to use design to value to redesign a product that was better for the consumer, creamier. They liked significantly more than the product we had before, which they had already loved. It significantly reduced cost and nearly eliminated the supply chain challenges we were having with those raw materials. This is a good example of the integrated work that we're taking and our general managers are leading and they will have a 3-year pipeline. We've talked about 3-year cost savings pipeline, but a 3-year pipeline of all of these types of activities that add value. Another example in a different space on price pack architecture, is we have a brand, Pine-Sol. It's a cleaning dilutable. And as we applied the principles of price-back architecture, we realized we could deliver a better consumer experience through compaction. So the product is more versatile, it cleans better. We were able to have a sustainability win, less plastic, less fuel transport. We had a win for retailers because we got more efficient on the shelf. And this is just overall a better proposition for us from a cost perspective. It really is -- checks all of the boxes. And we are also doing this exact same work in all of the business units. This is shipping right now, our concentrated Pine-Sol. But this is the type of thing that we're taking in and giving our general managers the set of tools they need to effectively manage margin, not just cost savings. And these tools are coming together to deliver real results. So certainly, last year, we made very good progress on gross margin growing 360 basis points. This year, we expect to grow about 200 basis points and we'll continue to make progress in fiscal year '25. But this toolbox enabled by data and technology, enabled by an organization that can make decisions faster and see more end to end, we have very strong confidence we'll be able to return to pre-pandemic margins and grow from there. So now let's talk about innovative experiences, which of all of the strategic choices is the most important. It is how we face the consumer. It's how we develop a relationship with them. And given what we've all experienced, inflation and pricing, what's going on with a more value-oriented consumer right now and then in our case, having to recover from a cyberattack and rebuild household penetration, this is a critically important strategic choice for us. And we are seeing the way our transformation is adding value right now, and we're really excited about what we see it can do for us in the future. There are 3 capabilities that we've talked about in Innovate Experiences. The first is personalized experiences. Consumers want us to know them better, and they want us to give them personalized attention and experiences that are relevant to their lives. And we'll talk about how we do that and our transformation is enabling it. They also want what they want, when they want, how they want it. I mean does anyone order something right now and have any patience for anything that's longer than 24 hours delivery -- no, John, right? They don't. No. And that's what our consumers demand of us, and we must partner with our customers to deliver frictionless shopping for our consumers. And then, of course, innovation is the lifeblood of our brands. And we want to develop bigger sticker innovation platforms. And we also want to use data and technology in a new way to drive ideas, and we'll talk about some new tools that we've launched this year. So what are we really trying to accomplish here? Clorox has been excellent in the past at optimizing individual touch points with consumers, really good at optimizing marketing communications, optimizing our product experience, optimizing in-store experience with the retailer. But really what this is about is integrating all of that, so that the consumer has a seamless experience with us across every single touch point. And we can enable that through data and technology, the process work and the organization that we put in place. And the future for us will be continuing to enhance and have data enhanced, stronger relationships with consumers and customers. So let me bring this to life a little bit. Personalization is super simple concept. You want to have the right person at the right time with the right content. But doing this is anything but simple, but certainly worth it. We had a goal in IGNITE to get to know 100 million consumers in the U.S. We're nearly to that goal, and that has allowed us to personalize our media. So over 50% of our media is currently personalized, and we're making progress on that year after year. This has led to a 45% increase in our payout on our advertising, which already had a terrific payout to start. I think there was a lot of fear when personalization was begun to be talked about, that it was going to be much more expensive. But if you do this the right way in a data-enabled way and you do it fast and at scale, you can drive incredible effectiveness and efficiencies with personalization. This has given us confidence in fiscal year '24 to increase our advertising spending to 11% of sales from 10%, and we think that's important given the value-seeking consumer behaviors that are going on right now. And I'm going to let you under the tent a little bit of actually how we do this. As part of our digital transformation, some of the first investments we've made are in 2 technologies that allow us to personalize. The first is we have these nearly 100 million consumers. We have to do something with that data. So we built a consumer data platform, it's our data hub, and this houses in a privacy compliant way, all of our known consumers and allows us to segment our consumers so we have the right person at the right time. And then what personalization requires is a lot of content. Because you can imagine that I care about is very different than what Kevin cares about. And we need to ensure that we're matching the content with that right person at that right time. We built a content engine, which is our digital asset manager that allows us to do that. But it's not just the technology that works here, it's how we're operating. So as part of our new operating model, we have built teams with these skills to test, learn and scale. They have the consumers on our known database. They have the insights about what's important to them. They're able to create content and rapidly test it. If it doesn't work, they iterate and go back. And as soon as they get to a point where they know they can scale it because it is effective with the consumer, they scale it rapidly, and that's how we do effective personalization and get to that improved payout. So maybe an example would that help. This year's cold and flu season, we are personalizing. We're using a set of digital triggers. We're matching that with the interest that a consumer has, and then we're developing content that gets them to buy. We have a short video to bring this to life. [Presentation]
Linda Rendle: [Technical Difficulty] and this is an example of where we partner with Walmart (NYSE:WMT) to bring personalization to life in an event we did on our Clorox toilet wand business. So what we did is what you would expect, we had national media, we had social, we had PR, but then we were able to use a personalization layer in geotargeting. Where we had stores with end caps, we were able to target new households that were just forming and give them personalized content to drive them to store to purchase a starter kit, that works very effectively. And we were also able to recognize people who had already had a starter kit, but maybe would do a refill and deliver them personalized content that drove them to store to purchase that kit. And this has been phenomenally successful. Household penetration grew over 12% in this execution. We more than doubled our return, which is, again, driving against that payout, and we had phenomenal growth in both dollar and volume sales. And this is the type of thing that we're doing in collaboration as we work together with retailers and that retailer partnerships to enable better business results for both of us with both their data and technology married with ours. So that's a bit about how personalization and our journey to get to know consumers and deliver more frictionless experience works. And this works in concert with how we give them new experiences through innovation. And again, innovation has always been the lifeblood of our business, and we've done a terrific job in all of our businesses over the years, delivering on those innovations. But in our strategy, we wanted to create bigger, stickier platforms that allowed us to have bigger ideas on consumer need spaces and as a result, invest in them for many years. That's highly effective and very efficient. And we've done a good job in doing that. In fact, it's our focus for fiscal year '24, is building off of many of the platforms we already have in market. We think that's right given the value seeking consumer right now, and we can really harm our home value in many of these platforms that we have today. In addition, we just put in a new technology this year called our digital core that allows us to get to ideas faster, and we're producing better ideas as a result, and I'll talk about how that works. But first, the next 2 slides just highlight some of the platforms that we're building on this year across our businesses. And the good news for us is when the cyber attack happens, we were really worried about innovation. We know how important it is. We knew we needed to get it out. And we were able to take a set of resources and walled them off and their one job was to figure out how they were going to have innovation launch in the back half, and they did a terrific job, and I'm happy to continue to report that all of our innovations on our major brands are shipping in this back half of fiscal year '24. But I thought I'd take you through some examples of these platforms and just how they're working and how we think about them. I'm going to start with an oldie but a goodie. Many of you might remember Clorox Scentiva. We launched this a number of years ago and had a lot of passion for this space. Consumers who like experiential cleaning clean more, they care more about it. And many of them are millennials or multicultural households who are just forming right now. So they're the perfect demographic for us to target. And when we launched this 5 or 6 years ago, it did very well for us and was highly incremental. But unfortunately, during COVID, it was one of the things we had to rationalize as we were trying to ensure that we just ran the SKUs that were the biggest and most important to get as much volume out the door as we could. And we always knew we would come back to it and that's what we're doing today. But now we're applying the new principles of our transformation to how we execute this, and we expect it to be even bigger in this relaunch. We're going to have a deeper innovation pipeline. We've used consumer listening to improve our graphics, improve our claims, improve our communication. And then really importantly, the campaign that we're driving uses personalization to one, bring back the loyalists that we had to this brand and give them new experiences in Scentiva and then also target households who might be interested who hadn't tried it before to bring them in. But a good example of something that's highly effective and efficient for us in an area we know works for the consumer that we can build on for many years. And I'll just give you a couple of the assets that will be going live in 2024. [Presentation]
Linda Rendle: An example of a new space that we've created that started last year is the dipping space for Hidden Valley. And I don't know if many of you know this. Some of my peers probably talked about this today, but snacking is about 50% of meal occasions. I would say that this CAGNY conference might be slightly about that based off of what I'm seeing out there and what's on the table. But it's a consumer behavior that we want to support and a lot of consumers are, particularly younger consumers really like dipping and snacking occasions. So we partner with retailers to create a new dipping set and a series of new taste innovations and form innovations to support this. And I'm going to share with you 2 rentaholics who are in that photo frame right there, who posted a TikTok of trying our new pickle ranch. [Presentation]
Linda Rendle: We love rentaholics. This has been a very successful start to a platform for us. We're building on it this year with over $60 million in sales in the last 12 months and 4 of the top 10 SKUs in the dipping set are Hidden Valley. And then last year, we had a chance to talk about Glad, but we talked about our experiential platform, which is focused on giving people colors and sense and how we're building on that. But shortly after CAGNY last year, we launched a new platform, which is based on the #1 category driver, which is strength. And this is Glad MaxStrength. It's 25% more durable. We've reinforced the seams, which is one of the -- #1 consumer dissatisfiers where they rip. And given consumer behavior right now where they're very, very value conscious, I've spoken to some of you about the fact that people are really stuffing that bag, and I'll show you the advertising that we're doing to bring that to life. And importantly, this also uses less plastic than competitors. So a sustainability win as well. It started very strong. And in fact, one of the reasons we began growing our Glad Trash share last year was because of this innovation and we expect as we get distribution back that we'll do that again. But this is over already $200 million in sales with very strong repeat, and here's that advertisement that I spoke about. [Presentation]
Linda Rendle: So really pleased with the platforms. We're really pleased with our progress on innovation. We're getting more out of it. But this is an area we want even more out of, and I think we can do better. And one of the ways that we're going to do that is leveraging data and technology to get more ideas and do that with speed. We've built this AI-enabled digital core that we just deployed into all of our businesses this year. And what it does is it uses technology through signal sensing. So it goes out and looks at search terms, it looks at products in the marketplace all around the globe, it looks at social and it senses trends. And then we take that in the model and we look at, is it at a right tipping point? And the model generates, it's too early. You can't scale this or perhaps you've missed that tipping point and it's not worth it. And then we use GenAI to do digital prototyping that we can put in a virtual marketplace and get immediate consumer feedback. And we can use that loop to create innovation much faster. And already, just in early days, we reduced our cycle time on ideas for innovation by 50%. And we are getting consumer interest equal or better to the concepts that we put in the market and our old process. We're really excited about what this technology can do for us. We wouldn't be able to do any of this if we hadn't been investing in our digital transformation that enables all the data that we need for this AI model to work effectively. And what's really cool is we just put it in and we're actually launching our first innovation this month that we developed in this. Start to finish. It took us only 4 months to do that. The insight that we got from the trend sensing was that, of course, cleaning the toilet is the ickiest job in the household. For those of you toilet cleaners out there, you know what I'm talking about. Bath bombs are the hardest form in the bathroom. If any of you have a teenage girl. You also know what I'm talking about. This brings those 2 things together. We did this really rapidly. We're excited to get it out market, and we think this could be a future platform for us as we think about other ways that we can bring experiences to a very icky job in the household. But we're excited about what this can do for all of our businesses and the speed at which we can do it. So I hope that gives you a sense for the new capabilities that we're building to be faster and more data and technology enabled, that will allow us to get more from innovation. As I said, we are getting more from innovation now than our pre-IGNITE period, but we want to drive even more. It's an area for us to continue to improve. And then really happy to see what we're doing in our brand building space. We continue to get better effectiveness and better efficiency in that spend. And that will be important as we head into a period for the consumer where they are value seeking. We want every single message to matter. So finally, our last choice Evolve Portfolio. Job 1, 2 and 3 is ensuring we have a stronger core, and we are laser-focused on that. We're doing everything we can to drive superior consumer value, and we want to restore market shares and grow them and restore households after pricing and after the cyber attack. The same is true in international. We want to grow faster and more profitably, which we have done over the last several years, and importantly, we want to continue to reduce volatility in LatAm. We spoke about this 4 years ago, and we're doing things like reducing our dependence on Latin America. We acquired a majority ownership of a joint venture we have in the Middle East. That's a good example of how we're doing that in our portfolio. But also, we have an incredibly strong team in Argentina who is able to manage our business. They anticipated what was happening in country and had a range of scenarios. And as soon as we saw that play out, they were able to immediately activate significant pricing and fully offset the inflation this year that we anticipated experiencing. And then, of course, M&A remains a strategic lever if the right opportunity at the right price reveals itself. And I noted at the beginning, one of the ways that we create value is integrating ESG into our businesses. Our general managers are accountable for sustainability. And that really brings together innovation, all of those holistic margin management levers that we spoke about, and it allows us to maximize value creation, and you saw some innovations where I talked about there are sustainability wins, but it also helps us very importantly manage risk and there's real risk in climate change. And although in our annual report, you can see all of the results across all of the ESG levers. I'll just highlight sustainability here and the progress we've made on our commitments. We've met our 2030 science-based targets already. We have 100% renewable energy in the U.S. and Canada. And then the one might be most proud of is very difficult, which is getting to recyclable, reusable or compostable packaging on 100% of our line. We're 88% of the way there. And given the lack of infrastructure and technologies, we feel really good about where we are. Of course, all of this is progressing towards our net 0 target by 2050. And my team informed me this morning we were named for the second year in a row as Barron's most sustainable company. So we're very proud of the work that we do here and how it drives our business. Before I hand it to Kevin, I do want to spend just a moment on our cyber recovery, and you heard me mention many times throughout the presentation, areas that we've been focused on. It is difficult when any company, and unfortunately, many more companies are experiencing cybercrimes, is a challenging thing to recover from. But due to the strength of our brands, the strength of our partnerships with our suppliers and retailers and our team that was unwavering in their dedication in order to come out of this stronger, in Q2, we made tremendous progress well ahead of what expectations were. We got to 90% in stock at our key customers. We recovered 80% of households by the end of our Q2, and we recovered 86% of the total distribution points we lost during that peak time. So that means we're down 5% in distribution points than where we were last year. That's exactly what we communicated on the call, but it's an 86% recovery. Obviously, the job is not done until we fully recovered households, we fully recovered distribution, we have all of our merchandising back and we have the plans in the back half to do that and the investment to support it. And what we believe is because we're embarking on this transformation, it allowed us to move with speed, it allowed us to make decisions quickly, and I firmly believe this is a case in point that we have more confidence in our ability to be a faster, resilient, stronger company that delivers profitable growth and value to all of our stakeholders. And with that, I'll hand it over to Kevin.
Kevin Jacobsen: Good afternoon, everyone. Thank you for joining us today. Hey, folks, what I want to do is just spend a few minutes to provide you a brief financial update. I'll primarily focus on 2 areas. I'll update you on our fiscal year outlook, which we provided earlier this month. And then I want to reconnect you to our IGNITE's financial goals and our progress against those goals. But before I begin, 3 key messages I'll leave you with. First, Clorox has a very long track record of delivering value for our shareholders. Additionally, if you think about our IGNITE strategy and when we developed it, our intent is to accelerate the financial performance of this company, and I'll talk a little bit more about that in a moment. And then lastly, as we move past this incredible inflationary environment we've been dealing with for the last several years, and we continue to recover from our cyber event, we believe we're positioned nicely to accelerate our performance as we move forward. Let's start with our track record. So what you're looking at is total shareholder return over the last 20 years for Clorox relative to the broader market. And as you can see, very consistently, we delivered very nice value for our shareholders over a very long period of time. Now the way we do that is we focus on driving profitable growth in our core portfolio. And when you do that, you generate very nice cash flow. Cash, we reinvest in the business to further build out our competitive advantage, but also cash we can return to our shareholders. And if you look over the last 5 years, between our dividend and our share repurchase program, we've been able to return over $4.5 billion to shareholders. And as we move forward, you should assume we're going to continue to be disciplined in how we do this. I can tell you what I know, what Linda knows, what our entire leadership team understands very clearly, how we create the most value for shareholders is by investing to maintain a growing profitable core portfolio. And that's exactly what we continue to do. If you look at this year as an example, we're increasing advertising investment levels up to 11% of sales. We continue to invest in our supply chain. We're increasing production capacity to keep up with the elevated demand we see for our products, and we continue to invest in productivity opportunities. And while we make these critical investments, we're also continuing to support our dividend given the cash we generate. Clorox has a very long track record of increasing the dividend. We're one of the handful of companies who have been doing this for decades, and you should fully expect that to continue as we move forward. And we're able to do this while maintaining a relatively low level of debt. We target debt-to-EBITDA of 2x to 2.5x and over very long periods we've operated within that range. And I can tell you, folks, if you focus on driving profitable growth and you're disciplined with how you deploy that cash, you can generate some very nice returns on invested capital. And what I'm sharing with you is over the last 5 years, you can see Clorox operate at the very high end of our industry, and we generate returns well above our cost of capital. Now let's talk about fiscal year '24, and Linda highlighted this, but keep in mind, we ended fiscal year '23 with tremendous momentum on our portfolio. And as a result of that, we delivered very strong financial performance: mid-single-digit sales growth, we expanded gross margin 360 basis points, and then as you can see, we delivered very strong double-digit adjusted earnings per share. And we went into our fiscal year '24, this year, expecting to build on that momentum. Now the reality is we had a cyber event. But importantly, as we continue to recover from that event, we've recently raised our outlook. And as you can see, we're now targeting low single-digit top line growth, continuing a very important work to keep rebuilding gross margins, targeting another 200 basis points and then solid adjusted earnings per share in the mid- to high single digits. And if I step back and take a broader view of our performance relative to our IGNITE strategy. And keep in mind, when we launch this strategy, we want to accelerate the performance of the company and we develop goals with that intent to mind. We want to grow 3% to 5% on the top line. We want to expand EBIT margins 25 to 50 basis points per year, and then we want to continue to generate very strong cash flow, what we described as 11% to 13% of sales. And you can see, over the first 4 years of our IGNITE strategy period, from a sales perspective, we're averaging almost 4.5% growth per year, very strong top line performance. And from a cash flow perspective, we're operating at the very high end of the goal we set, close to 13%. Where we have been challenged is on gross margins. We've seen our gross margins contract over this inflationary cycle period. Now as Linda said, we are committed to rebuilding gross margins. We believe we're taking all the right actions to do that, but we have more work to do to get there. And then if you look at our sales progression, if I go back to our previous strategy period, Clorox averaged about 2% growth per year. When we developed our IGNITE strategy and our belief that we could generate more value from innovation, we raised that target to 2% to 4%. And then as a result of the pandemic and the changing consumer behaviors we see, they benefit both our cleaning and disinfecting portfolio, but also our broader household essentials portfolio, we further raised the goal of 3% to 5%. And as you saw, we're operating at the very high end of that range. And while we've made very strong progress on sales, we have more work to do on gross margins, as we said. Now we believe we're taking all the right actions to rebuild gross margin. We've taken multiple rounds of pricing in the U.S. We continue to price our international portfolio. As you saw from Linda's presentation, we're driving record cost savings over a number of years that are contributing, and we continue to optimize our supply chain. And as a result, that's driving good progress, 360 basis points last year. We're targeting another 200 basis points this year. And while we have not developed our plans next year, I fully expect more margin accretion as we develop our plans for '25. So folks, let me end this presentation where Linda started. We believe the investment case in Clorox is very attractive. We manage a portfolio of leading brands, and we're going to continue to invest in those brands to further build out our competitive advantage. We have a business model that generates very strong cash flow. And we're going to continue to be disciplined in how we deploy that capital. All right, folks, I'd like to thank you for your time today. Linda is going to join me back on stage, and we'd be happy to take your questions. Andrea?
Q - Andrea Teixeira: Andrea Teixeira, JPMorgan. So I think it was super helpful to kind of update us where you're standing now on -- relative to the cyberattack and how you recovered. So you're still 5% below the TDPs that you had before as far as I understand. How is it going to be this strategy? I know you showcased a lot of good innovation through this slide, which is incredible. And I understand that you are holding those -- the innovation as you're recovering. Is that a conversation that you're having with the retailers in the U.S. in particular? Or it is still recovering some of the TDPs that you have lost because of like on the main portfolio? Is that mostly on the main portfolio? And how is the conversation between getting that value relative to, let's say, private label that we placed some of these TDPs?
Linda Rendle: As I highlighted, our retailers have been tremendous partners and they want us back in distribution, too. And so we made great progress, recovering 86% of distribution through Q2. We'll continue to make progress. Many of our customer resets were in Q4. So I think a lot of that will happen both for innovation and core. And Andrea, it is core items that we're still rebuilding as well. I'll give you an example on our Glad business. We consolidated and had many -- fewer large sizes, which are really important to our business. So large sizes will return as we do shelf resets, but most of those happen in Q4. So it will be both. We'll be focused on building distribution. And the conversation, thankfully, with most retailers has rebounded to growth, which we appreciate, and they appreciate getting back and ensuring we have the right plans for innovation, for merchandising. I'm also doing a roadshow and going out to see many of our customers in the spring to talk to them about that and the plans that we have and how we can best partner together using our new tools and data and technology to continue to keep our categories healthy.
Christopher Carey: Chris Carey, Wells Fargo. So it was refreshing to hear a bit more of a longer-term perspective amidst all the noise over the past several years. There was a slide on Hidden Valley. Certainly, your lifestyle business is a bit different than the rest of your household and cleaning business. As we exit this period of volatility, the balance sheet should be getting an increasingly better shape. You talked about capital allocation. What's the thought process longer term for the lifestyle business versus the rest of your portfolio? And if the balance sheet got to the right place, would you be interested in perhaps deepening your role in some of these categories or maybe even the opposite and focusing on maybe more of your core clean business in household. So maybe any perspective on longer-term portfolio now that we're through this period of volatility?
Linda Rendle: Our usage of cash remain unchanged, and Kevin highlighted some of that. But yes, we'd love an opportunity to have an additional growth runway, whether that be strengthening one of the ones we have today and adding on to that or creating something new, and we've been focused a lot in the health and wellness space. We continue to be interested in that. But as we do with our Board, we take a very disciplined approach. We want to make sure that we're getting an asset we feel like we can apply our capabilities to and that are consistent with mega trends that we see in the market. And if there's the right deal for that, then we would absolutely want to activate that. But at this point, job #1, we're focused on is strengthening that core, which will give us an ability if we find something, to execute it with excellence.
Dara Mohsenian: Dara Mohsenian, Morgan Stanley. So you talked about during the COVID period really using the consumers' focus on health and wellness and cleaning as an opportunity to unlock greater distribution and expand a lot of your business internationally. Can you just give us an update today on where that stands, what you've been able to do as you think going forward from here, what are the big opportunities on that front?
Linda Rendle: That's exactly right. We spoke about just generally all around the globe. We had an opportunity in health and wellness, whether that be in our cleaning business, opportunities that we saw in other parts of our health and wellness portfolio to continue to grow in international. And what we also said was this was going to be a long term. Many countries around the world do not have the type of cleaning product development that we do here in the U.S. So for example, in our LatAm business, it's mainly dilutables. Sprays are a relatively new form in that market. But we saw many opportunities to introduce things like wipes and more convenient disinfecting solutions. We have introduced that to dozens of countries around the world. And as we expect, just like it did in the U.S., it's going to take a while to build, but we continue to be disciplined about that. We have a dedicated supply chain and international dealing with that. And I would say that we're also taking advantages of other trends that came out of COVID, like pet ownership. And litter is another business that we've been very successfully expanding in international. We're being very targeted. We want to go in a disciplined way, but we're having real success in things like litter, riding on those same trends as we are in the U.S. that really reinstilled our strengthening during COVID. What -- I think the question for us is as we continue to reduce our reliance on LatAm, we continue to have opportunities in other parts of the world. That's what we're looking right now, is how does that innovation machine work and when is the right tipping point, using that digital core that we spoke about to bring things international and do that in an effective way, and that's something our team is focused on right now.
Peter Grom: Peter Grom, UBS. So a lot of focus on gross margin today, taking all the right actions to rebuild gross margins. But there seem to be a lot more emphasis on it today, just in the presentation. And I know you're not going to give '25 guidance even though I think a lot of people in this room would like that. But has your confidence changed at all in terms of how quickly you can recapture the margin just given all the capabilities you just outlined?
Kevin Jacobsen: Yes, Peter, I appreciate that. And we get that question quite a bit. And I would say, I don't think -- our intent is not to overemphasize that. We have a number of priorities: continue to maintain top line growth, rebuild gross margins and advance our strategic priorities. So this is one important priority of many. As it relates to gross margin, as we said, we feel very good about the work we're doing, and we're confident we'll get back to those pre-pandemic levels. The biggest challenge we deal with in terms of trying to predict that timing is the areas we don't control in the broader environment. What's going to either, I think, accelerate or delay the time to recovery is what happens with the cost environment. But we're going to keep driving cost savings, we're going to keep driving net revenue management, the things we do well. And then I think as we develop our plans for fiscal year '25, depending on our view of where commodities are going, that will either accelerate or delay our time to recovery. But I think it's only a question of when we get there, not if we get there.
Olivia Cheang: Olivia Tong, Raymond James. Advertising at 11% of sales. You talked a lot about AI and some new tools and what have you. Do you think of that as something where you end up spending more? Or does that make it more efficient in terms of the advertising spend?
Linda Rendle: The goal is to make it more effective and more efficient, which we've been to do. Both of those are true. Advertising is -- there's not a set number that's right. We look at our plans and we say, what are we launching, what's going on with the consumer, what things do we have to talk to them about. And historically, it's been about 10% of sales, it's been about the right number. And we continue every year to hold our team accountable to driving efficiency against that spend, so get more and more. This year, not only we deliver a great performance in advertising, which gave us confidence [abrupt end]
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