Good day, ladies and gentlemen, and Welcome to The Clorox Company Second Quarter Fiscal Year 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. If you would like to ask a question, you may press star one on your touchtone keypad at any time. If anyone should require assistance during the conference, please press star zero on your touchtone keypad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference. Thanks, Michelle. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our CEO, and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website. In addition, we've posted a transcript of the prerecorded remarks. In just a moment, Linda will share a few opening comments, and then we'll take your questions. During this call, we may make forward-looking statements about our fiscal year 2022 outlook and the potential impact of COVID-19 pandemic on our business. These statements are based on management's current expectations, but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the Forward-Looking Statements section, which identifies various factors that could affect such forward-looking statements, and the Non-GAAP Financial Information section, including the tables that reconcile non-GAAP financial measures to the most directly comparable GAAP measures, both of which are located at the end of today's earnings release, which has also been filed with the SEC. Now, I'll turn it over to Linda. Hello, everyone. Thank you for joining us. I hope you and your families are well. Hopefully, you found our prepared remarks helpful. We faced significant cost headwinds in a volatile operating environment in Q2. Despite these challenging conditions, we executed well on those factors under our control. This includes taking strategic pricing actions and driving cost savings while restoring supply, serving our customers, and advancing our consumer-centric innovation pipeline. Demand remains robust across our portfolio, and our brand superiority results are better than during the height of the pandemic. We have a portfolio of strong, trusted brands exposed to demand-driven tailwinds, and we will continue to invest in them, which we expect will fuel long-term growth for our business. While we anticipate this highly dynamic and challenging environment to persist over the near term and have adjusted our fiscal 2022 outlook as a result, we are confident that we're taking the appropriate actions to navigate this period, deliver profitable growth over time, and build a stronger, more resilient company. With that, Kevin and I will open the line for questions. Thank you, Ms. Rendle. Ladies and gentlemen, if you have a question, please press star one on your touchtone telephone. Our first question comes from the line of Dara Mohsenian with Morgan Stanley. Please go ahead. Hey, guys. A couple of questions on gross margins. Just given the magnitude of declines now expected this year, can you discuss conceptually how long you think it takes to try to recover these cost pressures from a pricing standpoint? Originally, it sounds like you were hoping to make a lot of progress next year, at least based on the exit rate in Q4, you know, but you've run the arithmetic now, and it would require a mid-teens corporate price increase, even if you assume no demand elasticity just to recover this year's gross margin compression. Clearly not realistic to take that much pricing in one year. Just any thoughts on how long it might take to try to recover the gross margin pressure? Is it a multiyear endeavor? How do you think about pricing offset relative to potential impact on share? Second, just any thoughts around if there's an ability maybe to more aggressively consider your SG&A structure and more aggressively consider ways to lower your fixed cost base just in light of what now appears to be a structurally different cost level in terms of commodities and other cost factors? Thanks. Yeah. Hi, Dara. This is Kevin. Appreciate the question. Let me start with expectations for gross margin, and I'm sure as you can appreciate, I won't provide a specific outlook beyond this year. I can give you some perspective in terms of what we're seeing. If you look at the work we're doing, we believe we're taking the right actions, primarily through our pricing efforts and our cost savings program, that we continue to be in a position that we can recover costs and rebuild margins over time. I do think that's gonna take some time, given the level of inflation we're dealing with. I think you're hearing from us and all of our peers, this is a unique environment with an extreme level of cost inflation. We do think we've got the right plans in place to be able to rebuild margins. Now for us, that we continue to believe that's gonna start this year. We think by the fourth quarter, we're in a position where we start that process of rebuilding margins and then fully expect that to continue next year. If I look at our history, this is, you know, the fourth inflationary cycle we've gone through in the last 10 years. If you look at the 3x previous we've done this, we've been able to fully price and drive our cost savings program to offset the cost inflation, rebuild margins. It historically has taken us about 12-18 months to do that. I would tell you, though, in this case, because of the extreme level of inflation we're dealing with, I expect it to take longer. We'll have to see exactly how that plays out. You know, what will also influence the timing to a certain extent is how the inflationary market plays out. That could either extend the timeline or accelerate if we get any tailwinds or further headwinds on cost inflation. I do think it's gonna take several years for us to rebuild margins. What's important for us, Dara, is while we are committed to rebuilding margins, at the same time, we wanna make sure we continue to invest in the business to maintain the top line momentum. We have very good momentum on the top line. As you know, we're expecting 3%-5% going forward, and we wanna continue to invest to maintain that momentum. We think the way we maximize the value of this company is we invest to maintain that momentum, and then at the appropriate pace, we rebuild margins, which we're committed to doing. In regard to fixed costs and choices we can make, you know, one thing I'd tell you, and we've talked about this a little bit in the past, as you know, we have significantly extended our supply chain through this pandemic, both to increase supply availability, as well as to be able to increase our ability to meet this elevated demand. That is an opportunity for us. As demand continues to moderate, we're gonna be able to go after those fixed costs in our supply chain and take those out, and that's another reason it gives us confidence that we're gonna be able to rebuild margins. Great. Any opportunities from an SG&A standpoint you're looking at, given the higher commodity levels here in terms of leverage you can perhaps pull on to have greater cost savings and offset some of this gross margin pressure as you look out? Yeah. We're gonna continue to drive our admin productivity program. We've been doing that for years and we'll continue to rely on that to help offset the cost inflation. We're on track to have another very good year from a cost savings perspective, and you'll see both benefits to cost of goods, but we also drive admin productivity, and you'll see us continue to do that going forward. That'll certainly be a key component of our work as we go. Okay. Thanks, guys. Thanks, Dara. Your next question comes from the line of Andrea Teixeira with J.P. Morgan. Please go ahead. Thank you. Good afternoon, and I hope all of you are well. Are there some take or pay third party contracts that you will anniversary and potentially unwind over this calendar year? Or there is more to like a consideration in calendar 2023? I think, Kevin, you alluded to that supply chain consideration just now in response to Dara's question. Or is that something that you still wanna keep that cushion of supply even now with more capacity and demand has normalized? On the amount of inflation, just as a follow-up, that you're calling now, we are hearing a lot of the peers saying that because it's broad-based and it's mostly logistics and transportation, that could represent even more than half of the pressure, while the other commodities, resins and have peaked and have improved. Is that something that you're seeing more secular now, and therefore, it might take those 12-18 months that you called out? Is that the way we should be thinking? Yeah. Andrea, thanks for the question. You know, as it relates to take-or-pay agreements, and you know this, we've talked about this in the past, because of the tremendous increase in demand for our products, we quickly started expanding our supplier base, including the use of third-party manufacturers, so we could get more product out to meet demand. That came at a higher cost, but we thought that was a smart choice to make because we did not wanna over-invest in our capacity, and then as demand moderated, we'd end up over-capacitated and underutilizing our facilities. We made that decision. We have increased the number of third-party manufacturers we work with. As demand moderates, as we expect it would, we are going to start stepping out of those agreements. I would expect that to start this fiscal year. In the back half of the year, we'll start stepping out of some of these agreements. The pace as we go will really be driven by consumer demand. As we watch demand play out, we will pull back on the capacity we've built up over time to match that demand moderation. Everything we're looking at suggests we'll start this year. I think how you'll see that play out in our performance is you'll start to see our inventory levels come down. Because we've increased the number of manufacturing nodes we have in the network, that just means we're holding higher inventory levels as we add inventory at all these different facilities. I think by the end of the year, you'll start to see our inventory levels come down. I would think in fiscal year 2023, you'll start seeing the real benefit of bringing that production back in-house, utilizing our facilities rather than these third-party manufacturers. On inflation, you know, very similar to what you've heard from our peers, we are seeing inflation broadly across all the inputs within the supply chain. We're calling out commodities and transportation because by far that's the biggest amount of inflation we're dealing with. For us, commodities is still about two-thirds of the inflation, about one-third transportation, and resin obviously is the biggest component of the commodity inflation. On transportation for us, you know, I think your question was, is it structural or not? Where we're seeing it, we're seeing it really in two areas. One, we're clearly seeing higher rates broadly across the transportation market. The other challenge we're seeing is our use of spot carriers. As we see elevated demand for trucks and driver shortage is continuing, it's forcing us to move to the spot market at a greater pace than we've done historically. We're seeing the premiums of spot market continue to increase. They're running 50%-75% higher than primary carriers. I think over time, if you assume demand for goods moderates over time, you're gonna see us be able to move away from those spot carriers back to our primary carriers, and that should significantly reduce our transportation costs. While there'll be inflation in the market, it is a significant upcharge for us using these spot carriers, and that ability to move back will be a nice savings for us over time, and I would expect to see that as demand settles out. Very helpful. Thank you. Sure. Your next question comes from the line of Chris Carey with Wells Fargo Securities. Please go ahead. Hi, hi, good afternoon or good evening. I guess I'm trying to understand, you know, just a little bit better. You know, I hear you on the outlook for gross margins for the full year. I guess I'm just trying to understand, you know, maybe like the moving pieces for the back half. I guess if I look at this quarter, you know, productivity, you know, still coming in a bit light. Pricing is going to be building. You know, raw materials probably were materially worse than what you thought this quarter. Manufacturing and logistics definitely worse than operating deleverage, probably worse, you know, sequentially worse too. I guess, you know, to really get comfortable with the, you know, how negative gross margins are gonna be in the back half, I suppose you have to assume that productivity remains fairly muted. You know that raw materials obviously remain negative as you just said, but you know that you're also dealing with some pretty significant operating deleverage. Maybe that's a nod to the fixed cost base. I'm not sure. I guess, you know, is that the way to think about that bridge kinda fair? You know, sorry for the long question, but just you know, as far as mix goes, obviously mix normalizing is a big part of the story this year as pricing is building and you're gonna be pricing on 85% of the portfolio now. How does that factor in here? I guess what I'm getting at is just you know, I hear you on the gross margin pressure, but you know, you have to assume certain things you know, stay pretty bad. I just wanna you know, make sure I'm thinking about that correctly. Sure. Thanks, Chris, for the question. Let me talk a little bit about how we see gross margin progressing through the year. We expected last quarter, and we continue to expect now that Q2 is gonna be our most challenging quarter in terms of margin pressure. You saw that with our margins down about 33%. We continue to expect sequential improvement as we move throughout the balance of the year, and we continue to expect by Q4, we enter a position where we start to rebuild margins, and then we expect that to continue into fiscal year 2023. Now to your question about what are the drivers in the back half of the year that will drive that sequential improvement, I'd point to a few. The first is pricing. Pricing will continue to build in terms of the value it generates for us as we move through the year. In Q1, it was fairly limited. It was about 50 basis points of benefit to margin. This last quarter is about 100 basis points. I think by Q3, it's starting to approach 200. It's probably still a little bit south of 200. By the fourth quarter, I think the benefit will be well over 200 basis points to gross margin. You're gonna see that building value from the pricing actions we have taken or the additional ones we announced today that we'll take over the back half of the year. In addition, when you think about our cost savings program, we're on track to have another very good year. You will see that phasing in a little bit more back half weighted. In the front half of the year, we generate about 80 bps-90 bps of benefit. You should see that north of 100 bps in the back half of the year, and that's just the timing of the projects, how they happen to play out this year. The other item I'd point to is, as you look at the cost inflation we're dealing with, Q2 was the most challenging quarter from a year-over-year perspective. As we get to the back half of the year, while we're still operating in an inflationary environment, the year-over-year change is much smaller because we really started to see the run-up in commodities at the beginning of calendar year 2021 with the ice storm in Texas. On a sequential basis in Q3 and Q4, those increases in both commodities, transportation, and manufacturing, there'll be a lower hit to margin as we move through the quarters. Finally, Chris, to your last comment, which is spot on as it relates to mix. You know, we've talked about this for the last few quarters. We had a temporary benefit during the pandemic when we significantly reduced the number of products we offered to increase supply. As we are reintroducing our full line of products, including multi-packs, that does have a mix hit. There'll be about four quarters of that unwinding that temporary benefit, which will go through Q3, the current quarter in. By the fourth quarter, we've lapped that, and we should not see a mix drag to margins as well. We'll get that benefit. Then the last one is, as you mentioned, deleveraging. You know, with volumes down in the front half of this year, there was some deleveraging that impacted margins. In the back half of the year, we expect volumes to be flat, if not up. We should not expect that drag either. Those are the elements of how we move through the year and why we expect to see margins building as we move through Q4. Hey, thanks, Kevin. If I could just squeeze, you know, one more in. You know, you talked about like $500 million of commodity and transportation expense versus the, you know, prior $350 million. You know, with the incremental pricing, you know, you're gonna get some offset, but the earnings is coming down more. Just what's. Is it just everything else, you know, in there and, you know, just the deleveraging and, you know, on cost and just, you know, all these other things that are harder to track beyond those two items that you called out? I'm just trying to, I guess, you know, quantitatively complete the bridge. Thanks so much for that. Yeah. I'd say on the $350 million-$500 million, maybe just a couple thoughts. As we've talked, that's the increase we're seeing in commodities and transportation. While that's not the entire inflation we're dealing with, that's the bulk of it. That's the areas where we're seeing the biggest year-over-year increase. As I said, we're seeing inflation broadly across the portfolio. As it relates to pricing, as we've moved from planning to price 70% of our portfolio to now pricing 85%. Keep in mind it's not just pricing 85%, we're also going back and taking multiple rounds of pricing for several of those brands within that 85%. There tends to be a lag to that. We're gonna incur that extra cost this year. $500 million we're projecting. The pricing benefit will be modest as those pricing actions go in effect in the back half, and that's really setting ourselves up to get more benefit as we move into fiscal year 2023. Okay, thanks very much. Sure. Thanks, Chris. Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. Please go ahead. Hi, thank you. A couple of questions, I guess. Shifting to sales, rather than margin. Looks like it's coming in a little bit better than expected. Can you maybe unpack that a bit? Is it a little bit that, you know, more pricing is coming through than you had planned? Maybe the elasticity is lower than you thought? Or is it just that demand isn't really moderating at the rate that you might have expected? Hi, Kaumil. Happy to get started on that one. We did see a strong quarter from a top line perspective, and really that continues to be the strength of our brands with our consumers. We're seeing this broad-based across our categories where they continue to turn to our cleaning and disinfecting brands, our household essentials. If you look across our two-year stacks across all of our segments, we're in the strong double digits from a Q2 perspective. What we're seeing, and if you look at share, we're up in the majority of our business units. Our consumer value measure, which measures the amount of our portfolio that consumers deem superior, is at an all-time high of 75%. All of those investments we've made in advertising and sales promotion, innovation, executing against distribution as we got supply back in place are paying off, and demand remains robust. As we move forward, we're continuing to see long-term tailwinds that will continue from a portfolio perspective, which gives us confidence in getting to that 3%-5% growth goal that we've spoken about in returning to that in the fourth quarter. I would note, you know, some of the businesses in our household essentials were up even after a strong Q2 a year ago. If you look at our Brita business, food business, Glad, all up, off of a strong quarter a year ago. Again, it's behind the fundamentals, innovation and the fact that consumers continue to turn to trusted brands. Okay, great. To clarify maybe a comment, Kevin, you know, it takes 12 to 18 months to offset cost inflation in this instance because it's so much more profound. It's likely to take several years. Is that several years to get back to kind of your run rate of the mid-40s% on gross margins, or were you maybe suggesting something else? Yeah, Kaumil, I'll be a little cautious about providing an outlook beyond this year. As Linda and I have said in the past, we are committed to rebuilding margins and getting back to that sort of mid-40s% range we were before the pandemic began. As I said, I do think it's gonna take longer than what we historically have been able to do in terms of timing to recover margins at 12-18 months, just because of the sheer magnitude of the inflation we're dealing with. It's you know 3x-5 x any previous inflationary cycle. I would expect that timeline to be extended. Again, keep in mind, there's a number of items we don't control that will impact the timing of how quickly we recover margins. We're gonna just have to see how that plays out. You know, I think we're gonna be in a better position to estimate that. I, you know, I'd like to get a few more quarters under our belt and see how the inflationary environment plays out. I think as we prepare for fiscal year 2023, we'll be in a better position to provide a perspective on the timing of that. Great. Thank you. Thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Please go ahead. Great. Thanks. Hi, everybody. I wanted to just talk a little bit about working through inventory, 'cause last quarter, I think we had talked about, you know, the cash flow was weak and the inventory and finished goods in particular was up, and that's kind of how we came to this, you know, all of us, the realization around the external supply and, you know, estimating what was gonna happen in terms of consumer demand. Inventories grew again, you know, and sequentially. You know, you talked about volumes, you're hoping you get, you know, get to up volumes by the end of the year. I just want to talk about how you're thinking about working through inventory, if there's particular categories where the overcapacity is more or less severe, 'cause to Linda's point, there are businesses that are, you know, they're growing year-over-year in volume. You know, and the degree to which some of these external supply contracts, you know, it's easy to exit versus being contracted for certain amounts of supply for a given amount of time. Thanks. Yeah. Lauren, thanks for the question. Let me talk a little bit about inventory and where we're at, and then where I see that going over the next several quarters. We ended the second quarter with about 65 days of inventory on hand across our enterprise. Typically, before the pandemic, we were carrying about 55 days, and so we have built inventories. We built inventories for two primary reasons. First, we have taken up inventory levels broadly across our portfolio to try to help us manage through the ongoing supply chain disruptions. This helps ensure if we have disruptions in our ability to secure transportation or we have suppliers go down for any number of reasons that they're going down, we have inventory in the system where we can continue to ship and meet demand. We think it's smart in the near term to invest some additional working capital to have higher inventories across the network. We do think at some point as the supply disruptions start to work themselves out, we're gonna be able to take that down. The other area that we built up inventory as it relates to extending our supply chain through additional third-party manufacturers. As I just mentioned, as you add more nodes to our network, we are holding inventory in many of those locations, and so we have a number of additional locations throughout the world where we are storing and accounting for inventory. How I think this will play out, as I just mentioned, we will start stepping out of some of these supply agreements the back half of this year as demand is moderating, and we set these up that we could step out of these when we felt it was the right time to do that. We will start stepping out of those this year. As I said, I expect by the end of this year, you'll start to see inventory levels come down as we start consolidating our manufacturing base. Y ou know, as it relates to taking inventory levels down that we have right now to manage the supply disruptions, much of that's gonna be driven based on when we feel comfortable that we can count on supply chain and that we can count on trucks arriving when we need them, materials being available when we need it. We're gonna have to see how that plays out. I expect to start making progress this year, and then I expect over time in 2023, we continue to make progress. Okay. That's great. Thanks. If I can sneak in one more. Linda, you commented on market—I know it's Linda, it was in your remarks, I apologize, about market share improvement where, you know, where your on-shelf availability has improved. That's certainly true in categories year-over-year, but there are certainly also categories where shares, at least as far as we can see in Nielsen, are down versus where you were, you know, in 2018, 2019. I'm just curious to be more constructive, and you kinda look further out, you know, what's the bogey? You know, how do you think about, where you wanna be in terms of share? What's the right gauge of kind of success in reclaiming share positions? Because certainly year-over-year progress is important, but if you kinda look back a little bit further, you know, shares are still soft in certain categories on a multi-year basis. Thanks. Hi, Lauren. Yeah, thank you. I'll build on that. Overall, I would say from a market share perspective, we're feeling good about where we are, returning to pre-pandemic share levels in aggregate and then growing in the majority of our businesses and continuing to make progress. Even if you look at the last 4-5 weeks, stronger share growth than we even experienced in the first half of the year. That being said, we absolutely need to continue to make progress, and our goal is to grow share, and I've been super clear about that, and we continue to be focused on that. We wanna win. We wanna win in our categories. That doesn't mean we'll always win in every category at all times. You know, there will be ups and downs as there's competitive spending, innovation launches and timing. In aggregate, we're focused on growing market share in our categories, winning with our brands. Although we've made great progress, I'd point to Glad as a great example, growing Glad trash share, after you know, a long time of being flat to slightly down. Our innovation is working, pricing is working, et cetera. We're gonna continue to make progress against the portfolio, and we intend to grow market share. Great. Thanks so much. Thanks, Lauren. Our next question comes from the line of Kevin Grundy with Jefferies. Please go ahead. Hey, good evening, everyone. Two questions for me. Kevin, I'm sorry, I'm gonna beat a dead horse here, but I'm gonna come back to gross margin, but attack it a little bit differently. I guess like others on the call, I'm kinda wrestling a little bit with some of the commentary around the recovery, you know, as clear as your crystal ball may be today. But a little bit more structural, and I guess where I'm coming from with this, you know, when we chatted in November, you sounded pretty good about an 18-24-month recovery. What has changed dramatically over the past three months to make you a lot more cautious on the cadence of that recovery? I guess as I'm kinda looking at the quarter, and I think this was an earlier comment, I mean, the commodity piece certainly dire, but maybe not drastically more dire than we had modeled. The manufacturing logistics certainly worse. You know, just taking those pieces together, what has changed in your mind? What has changed internally for the company that makes you significantly more cautious on the pace of the recovery, the ability to price and offset it with productivity? Yeah. Thanks, Kevin. You know, a couple thoughts. On the ability to price, I feel very confident in our ability to price. We've executed pricing on 50% of our portfolio quite successfully through the second quarter. We still have some work to do over the balance of the year to get to that 85%, but many of those conversations with retailers have already occurred. I feel very good about the work of the team and our ability to take the necessary pricing. Kevin, as I mentioned earlier, I feel very good about the work we're doing on cost savings. We'll have another good year. You know, what we are seeing, though, just broadly, inflation's getting more difficult. Sitting here today, we now think there's $500 million worth of cost inflation. You know, three months ago, we thought that was $350 million. I think seeing that level of inflation that we're continuing to deal with, that just means we've got more work to do on pricing, cost savings, and we'll have to see how long that takes. I think it's prudent to think about the time to do that, and I expect it to be longer than what we've done historically. I just think it's driven by an increasing inflationary environment we're dealing with and knowing that's gonna take some time to work through. I think, Kevin, as I said earlier, what I think is most important is make sure we continue to stay balanced. We have top-line momentum. We're gonna continue to invest to maintain that momentum, and then we're gonna rebuild margins at the appropriate pace that allows us to do both. We're gonna continue to be very focused on doing both and doing both well, and we think that's how we're gonna maximize the value of the company. I think looking out a couple of years and expecting recovery over that period of time seems reasonable. Obviously, I think over the next few quarters, we'll get more visibility and be able to update you as we learn more. Okay. Thanks, Kevin. Just a quick follow-up for Linda. Can you just comment on expectations or potential risk around trade down in your categories given this level of pricing and the handful of categories where you have higher private label exposure? Then I'll pass it on. Thank you. Sure, Kevin. You know, generally, if you look at our categories, we don't really have very high private label exposure. It's concentrated in a few categories. In those categories, we have a very strong share position and have for many years. I just turn to the facts on the strength of our brands. I spoke about earlier the fact that our superiority rating by consumers is at the highest it's ever been. 75% of our portfolio deemed superior by consumers. If you look at the trends on private label through the pandemic, private label continues to not make progress on share. Consumers are turning to trusted brands. During this entire time, we've been investing in those brands through advertising and sales promotion and a really terrific innovation program that's we're continuing to see the benefits of all of the innovations we've launched are off to a strong start. We launched new innovations this quarter with more coming in the back half. When I think about where we are, our brands are in a better position than they were pre-pandemic and really than even at the height of the pandemic. We feel confident in our ability to take pricing. We are watching very closely the impacts that inflation will have on consumers. I think there's a lot of unknowns in that. If you look back, you know, at how we've performed during times of economic stress for consumers, given the fact that we're in household essentials categories, we tend to fare pretty well. Our categories fare well. And we would expect that to continue. The other thing I would note is that we're seeing pricing generally in line with what we've taken in the category, so private label is moving as well, and we expect our price gaps to be about what they were pre-pandemic, and pre-pricing, and that will also help us, as we move forward. I feel, you know, as confident as I can, given the strength of our brands and our ability to execute these price increases. Again, we're gonna watch consumers carefully as we go through this period, but we think we're in a good position to pass through these price increases and continue our momentum on top line. Very good. Thank you both. Good luck. Thank you. Thanks, Kevin. Our next question comes from the line of Jason English with Goldman Sachs. Please go ahead. Hey, good afternoon, folks. Thanks for letting me in. A couple of quick questions. The gross margin contribution from price, a little north of 200 bps in the fourth quarter, is that gonna reflect, like, sort of full price? Are you gonna have all the price increases in the fourth quarter, or are there more to come as we get out to fiscal 2023? Hi, Jason. On pricing, I won't comment on pricing in fiscal year 2023. Let me just talk about our plans this year. As we've said, we've implemented 50%. We've got some more work to do. Some of that will go into effect this quarter, Q3, but we have some additional pricing actions that go in place in Q4. As I said, north of 200 bps in the fourth quarter would not be the full value because you won't have the full Q4 impact from some of those pricing actions, which would suggest as we get into fiscal year 2023, you would see that continue to build. Got it. You know, we're gonna remain open, so we're gonna continue to evaluate the cost environment. You know, we stand prepared to take more pricing if necessary, if that's what's required to recover margin. I'd say it's too early to make that call. We wanna see, you know, how we think inflation is gonna play out as we get through this fiscal year. Based on that, we'll make decisions on 2023 pricing. That's something we'll certainly consider. Understood. Linda, pre-COVID, there were a number of your business lines that were suffering from some market share losses, whether it be from some branded competitors or private label. It's obviously encouraging to see the recovery and the growth that you're now experiencing. It's coming on a much more subdued rate of price than what you see in most of the other categories. In other words, it's coming on price gaps going down. Your value proposition is improving, your market share is getting better. You mentioned trash bags. It's a great example where you can see it. How much of your market share improvement do you think is coming from that? Is part of what's happened here a bit of a permanent rebase in your pricing architecture and therefore a permanent rebase in your margin structure? Jason, I think what's true in the data and what will be true over the coming months as pricing settles out in the categories is there's definitely gonna be variability in terms of price gaps, et cetera. What we have not seen is a material change in our price gaps in aggregate in the categories. There's some pluses and minuses, depending on pricing, implementation, timing, but that really isn't what we're seeing driving the strength in our brands. The majority is attributed to good execution, so we're seeing distribution increases, return to merch, although lower than pre-COVID levels, as well as our strong innovation plans taking hold. As we look at the drivers, we're seeing the majority of that share driven by factors that are within our control versus price gaps, et cetera. Again, this is gonna play out over the next few months, but we do not expect price gaps to be a driver of our performance moving forward. We expect for them to be about what they were pre-COVID. That's not what our intent is. Our intent is to win through innovation. Our intent is to win through brand building, and continued spending on advertising and sales promotion, and investing in our categories. Got it. Thanks. I'll pass it on. Thanks, Jason. Our next question is from the line of Peter Grom of UBS. Please go ahead. Hey, good afternoon, everyone. I guess my bigger question is just, do you feel like you've embedded enough flex in this guidance that gives you comfort or should give investors comfort that this is really it in terms of negative revisions? I guess, you know, just, you know, following up on the commentary on phasing improved margin in the back half of the year, I know you mentioned Q4 up and sequential improvement in Q3, but can you maybe help us directionally in terms of how much improvement in Q3? Because, you know, down 1,200 basis points is quite a bit. You know, Kevin, I think you know, previously as we exited the year, you know, was a return to the low 40s in terms of gross margin. Just like any thought around the rate of improvement that we should be expecting now as we exit the year. Thanks. Yeah. Thanks, Peter. Let me talk about your question was on the plan. You know, overall, I think we have a balanced outlook for this year. I feel very good about the areas we directly control, whether that's our pricing actions or cost savings efforts or the work we're doing in innovation. I also recognize we are operating in an environment that is much more volatile, and so not knowing exactly how inflation will play out, consumer demand, I think the outlook we provide is appropriate. You'll also see that our outlook ranges are a bit wider than we might normally provide this time of year. We also think that's appropriate given the level of volatility in some of those areas we don't directly control. Overall, I feel like we provide a good balanced outlook for the year that allows for some variability across a number of different drivers. As it relates to phasing, I would expect, as I said, progression through the year starting in Q3. You know, right now we're looking at Q3 margins probably in the mid-30s%, building on where we land in Q2. Previously we had anticipated we'd be in the low 40s%. I expect with the increased level of inflation, we likely finish the year in the high 30s%, and then we would look to build on that as we move into fiscal year 2023. Got it. Thank you so much. I'll pass it on. Sure. Thanks, Peter. Our next question is from the line of Linda Bolton Weiser with D.A. Davidson. Please go ahead. Hi. Thank you. I actually have a question that's not on gross margin. I was just wondering, in your Brita business, have you experienced any issues with the EPA labeling? Your competitor, Helen of Troy, had to halt shipments so they could redo some labeling, as per EPA regulation changes. Are you experiencing that, or do you expect to experience that in your Brita business? Thanks. Hi, Linda. No, we do not have that issue. Maybe I'll just take an opportunity to point to what's going on in Brita right now, 'cause I think it's a really great story. Brita's been a terrific success over this pandemic as people have turned to filtered water to meet their needs, and I think it's twofold. One, people are spending more time worried about their health and wellness, and drinking more water is important. Second, they're thinking about their impact on the planet through sustainability. Brita has been a business that has very, very strong double-digit growth. We've grown share five points in the last quarter, and if you look at our household penetration, it's the highest it's been in eight years. I feel really good about the future of this business. Our innovation pipeline is strong, and it's one that we plan to continue to accelerate moving forward. We don't have any of those issues holding us back from an EPA perspective. Great. Thank you very much. This concludes the question and answer session. Ms. Rendle, I will now like to turn the program back to you. Great. Thank you. Thanks, everyone. We look forward to speaking to you again on our next call in May. Until then, please stay well. This does conclude today's conference call. You may now disconnect.