Good day, ladies and gentlemen, and welcome to The Clorox Company's fourth quarter and fiscal year 2022 earnings release conference call. At this time, all participants will be 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 pad at any time. If anyone should require assistance during the conference, please press the star zero on your touchtone pad 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, Paul. 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 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, including about our fiscal 2023 outlook. 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 any such forward-looking statements, which has been filed with the SEC. In addition, please refer to the non-GAAP financial information section in our earnings release and the supplemental financial schedules in the investor relations section of our website for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda. Hello, everyone, and thank you for joining us. Our fiscal 2022 results reflect a very challenging operating environment, including record-high input cost inflation and ongoing pandemic-driven volatility. We navigated this by taking a broad set of actions within our control to rebuild margin while continuing to invest in innovation and our portfolio of trusted brands to position Clorox for long-term success. This allowed us to deliver results in line with our outlook, including another quarter of sequential gross margin improvement. While we look forward to a return to a more normalized environment, we are not there yet. We expect the environment to remain difficult in fiscal 2023 as we lap COVID impacts on our business, demand continues to normalize, particularly on our cleaning and disinfecting portfolio, and factors like input cost inflation and supply chain disruptions persist. We'll keep addressing these challenges head on through actions that include revenue management, further pricing, ongoing cost management and supply chain optimization, our digital transformation, and the streamlined operating model we announced today. At the same time, we're committed to maintaining our category leadership and delivering superior consumer value. I'm confident that our IGNITE strategy continues to position us well for the future. We remain committed to delivering on our 3%-5% sales growth target over the long- term and are on the right path to drive consistent, profitable growth over time and create shareholder value. 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 Peter Grom of UBS. Your line is open. Hey, good afternoon, everyone. I guess I just kinda wanted to start with a pretty broad question on the initial guidance, just kinda given where it all landed versus expectations. I would be curious, like Linda or Kevin, would you characterize this outlook as conservative? Is it prudent? Just trying to understand the comfort in the range at this point, just given what we've seen over the past year. Hi, Peter. Thanks for the question. Yeah. Let me talk about our guidance and maybe a few thoughts. The first is we view this guidance as balanced, but certainly based on what we see today. As you saw in our outlook, we provided a wider range, both on the top and bottom line. I think, Peter, what that really indicates is we believe we continue to operate in an environment of heightened volatility. I'll be the first to admit, I don't think we've done a particularly good job of estimating the cost environment. As we look forward, we're projecting about $400 million worth of cost inflation in supply chain. We think that's a balanced approach to take at this point, but I'll acknowledge there's a lot of variability there. We're gonna watch that very closely and obviously update folks as we progress through the year. We think to start the year, this is the right outlook, and again, the wider ranges speak to the heightened volatility we're dealing with. Thanks. Maybe just following up on just the organic sales outlook. You know, just trying to understand the confidence around the continued strength across the rest of the portfolio. You highlighted in the release and the prepared remarks that organic sales growth, you know, excluding cleaning was, I think, up mid-single digit. Is that kind of the expectation moving forward? If so, what kind of gives you confidence that you won't see the moderation in some of these other categories looking ahead? Yeah, Peter, we feel very good about our portfolio overall. As you saw in our prepared remarks, if we set aside the health and wellness sector, and if you start with Q4, you know, for the rest of our portfolio, our household essentials, our international business, we had about 5% organic growth. Feel very good about the strength of that portfolio. When you think about health and wellness, I would say pricing is playing out very much as we expected. Elasticities continue to be below historical levels, but we've got a couple additional dynamics going on in that segment. As we mentioned, we had inventory reductions at our retailers. We saw in April and May, and that had a bit of a drag in the quarter. As well as we continue to see demand moderation in cleaning and disinfecting behaviors with consumers, and we think that's gonna continue. If you look at what we saw in Q4 as we project forward to fiscal year 2023, we continue to expect it to play out somewhat similar, as we look forward. We feel very good about household essentials and international. I think our pricing will continue to perform well. Now, I think it's worth noting, we have assumed in our most recent price increase we took in July, we've assumed elasticities revert back to what we saw historically, which means more negative than we've seen over the previous two price increases. We just think that's a prudent assumption to make given the pressure consumers have been under, and we expect they'll continue to be under going forward. Overall, I'd expect on the bulk of our portfolio, you'll see favorable price mix in the high single-digit range and volume down likely low single digits, similar to what we saw in Q4. Then I think in the health and wellness segment, again, feel very good about our pricing actions. I feel very good about the health of that business. If you look at our home care portfolio, we continue to grow share. We grew share last year. If you look particularly at our wipes business, I think we've grown share for the last six quarters. The business itself is very healthy. We have to recognize we expect to continue to see some moderation in consumer behavior, and that'll play out in the category. We expect the category to be down, but our business is quite healthy within this category. Thanks so much. I'll pass it on. Thanks, Peter. Our next question comes from Andrea Teixeira from JP Morgan. Thank you. Good afternoon. I wanna go back to the assumptions of the -3% to +3% organic growth. I know, I appreciate that you had to provide a wide range. You just discussed now that the pricing that is embedded, and I'm assuming that is a fixed part, price mix would be about high single. It implies that you'd think at the bottom of the range that you have, you know, a -6-ish, if you will, like 5%-6% in volumes. Then conversely, you know, a more healthy environment on the top range. Just to kind of pause here and think, what are you embedding there? It's still mostly on the health and wellness, the cleaning division that you expect that to be down, or you're also embedding declines in the other components. I have a follow-up on the cost side. The $400 million that you were expecting, is that based on spot, or you're also using the curve as you normally do? Hi, Andrea, thank you for the question. In regard to our sales outlook on organic sales growth of -3% to +3%, that assumes very similar to what Peter and I were talking about, good solid performance on our household essentials and international portfolio that I expect positive sales growth there. I do expect our health and wellness segment to be down for the year, and that's primarily driven by the demand moderation we expect, particularly in cleaning and disinfecting. Folks, you have to remember, if you think about the lap we have this year, last year in both Q1 and to a lesser extent Q3, we had both the Delta and Omicron variants spreading in the U.S., and we had very strong performance in the prior year. We have to lap that in addition to some moderating consumer behaviors. As a result of that, we think the health and wellness segment will be down in sales for the year. That's really driven by the category, much less so based on the strength of our business. Just Andrea, as an example, if you think about Q1 last year, very strong performance for our cleaning and disinfecting business. In fact, our wipes business on a unit basis, that business was up over 50% in Q1 of last year, so we have to lap that. You may have seen in my prepared remarks as a result of that, we think our cleaning and disinfecting business will be down double digits in Q1, and why we think overall sales for the company will be down high single digits. It's really driven by the lapped Q1 in the previous year, and then we expect to see stronger performance as we move forward. Mm-hmm. And then- On that help front. Sorry, go ahead. I was gonna say on the $400 million worth of input costs we're projecting this year, we base that on what we expect, not just on spot rates, but looking forward where we expect commodities to migrate over the course of the year. As we think about how that will phase into our results, we expect cost inflation to be the highest at the beginning of the year and then moderate as we move through the year. That's super helpful. Just a follow-up on that, like what is your visibility? As you said, like we use forward curves, but you have some visibility into the first half, correct? We do, yes. The only thing that's really more forward is more the second half. Yeah. I mean, I'd be careful that we have visibility to forward curves for many of our commodities. Keep in mind, the level of volatility that we continue to see while there's many outside resources that project commodity inflation and forward curves, I have found in this environment they are difficult to use as certainty. We've seen quite a bit of variability on the services we use, and I think that's true for most folks. We have visibility to what we believe how commodities will play out over the course of the year, but I'm a bit cautious with suggesting that we have certainty in the first six months. Yeah, that's fair. Thank you. I'll pass it on. Our next question comes from Chris Carey of Wells Fargo and Company. Your line is open. Hey, everyone. Hi, Chris. Can I just confirm the commentary around sales that you expect the health and wellness business sales to be down for the year, but the rest of the businesses to be up. I just wanted to confirm these prior lines of questioning. Then, you know, just from a gross margin perspective, you know, you've given some good detail around the makings of the bridge for fiscal 2023. Kevin, I wonder if you could perhaps provide a bit more context on the contributing factors between, you know, pricing, volume deleverage. You noted $400 million of cost inflation. Is that all commodities or are there other non-commodity cost buckets within that? Any, you know, promotional activity, transportation, logistics? You see what I'm getting at. I wonder if you could just maybe contextualize some of these key buckets and where you see, you know, the most risk or not. Hi, Chris. Yeah, happy to provide some additional insights into where we see the cost inflation occurring and our plans to grow margin. On your sales question, though you are correct, our expectations, the health and wellness segment will decline this year, offset by growth over the rest of our portfolio. Again, as I mentioned, feel very good about the overall health of our business, but recognize as both lapping the strong performance we had last year, plus the moderating demand by consumers in cleaning and disinfecting, that'll have a negative impact on the category for the year. In regard to the cost inflation, the $400 million I mentioned is cost inflation across the entire supply chain. That includes commodities, transportation, wage inflation. We are expecting broad-based inflation across the entire supply chain. In regards to what we're doing to offset that is, as you folks know, and we've talked quite a bit about this, our commitment remains that we intend to get back to a pre-pandemic level of gross margin. We lost about 800 basis points last year, and our goal is to build that back over time. As we've said, I think very clearly, we don't expect to do that in one year, but we expect to make progress this year, and then we'll continue to work at that. We are pulling every lever available to us. Chris, you think about the areas that we're pursuing that will drive that benefit this year. For us, the biggest lever we're pulling is pricing. We have executed now three pricing actions. Two went into effect last year. The third price increase just went into effect last month. That'll have the biggest benefit we expect on our cost structure this year in the 500-600 basis point range. We expect to get a benefit this year. A little higher in the front half as that pricing builds, and as we start to lap some of the actions we took last year, it'll start to dissipate a bit. We're also driving our cost savings program, and we expect to have a very strong year this year. You know, it's been more difficult over the past two years given the work we've been doing to try to keep up with demand. As demand is moderating and we've been working on our supply chain, we have more opportunity to drive cost savings within our supply chain. I expect to have a very strong year this year in that 150- to 175-basis point range. Those will be the two biggest drivers of helping us rebuild margins. That's gonna be offset by ongoing cost inflation, both in commodities, manufacturing, logistics. You may have seen it, Chris, in our prepared remarks, but the other item I'd point out is, while we expect to improve gross margins, we're targeting about 200 basis points this year. I think you'll see that build as we move through the year. We're gonna be most challenged in Q1, given the decline in the top line, and that has an operating deleveraging impact on margins. We expect our gross margins to be about 35% in the first quarter, but then I'd expect to build as we move through the year with the expectation we're gonna be approaching about 40 basis points by the time we get to the end of the year. For perspective, you know, we've lost about 8 margin points last year. Our run rate as we get through the year, we think we'll put about half of that back on as we move into fiscal year 2024. We remain committed to continue to pursue margin expansion beyond this year. Thank you very much for that, Kevin. This should be a quick one, but the health and wellness declines you're expecting, can you just offer a quick comment on the professional business? Clearly, you know, quite challenged this year. Are you expecting that to continue or as we've, you know, normalized, you know, the sales base, do you expect that business to get back to growth next year? Thanks for all that. Sure, Chris. On our professional products division, I'd say overall, we expect modest growth. I think that'll build as we move through the year as we get past some of the comps, and we get back to sort of a new level of performance. Particularly as you think about occupancies and professional environments starting to pick up, we think over time, we'll get back to growing that business and likely in the back half of this year, and then growing overall for the year. Okay. Thank you very much. Sure. Thanks, Chris. Our next question comes from Kaumil Gajrawala of Credit Suisse. Your line is open. Hi. Thank you, everybody. Can you talk a bit more about the streamlining program and maybe more specifically, you know, what you'll be doing differently, how we should be thinking about what impact it may or may not have in the short run on top line and, when we think about you raising your long-term algorithm to 3%-5% on the top line, in the context of what we're now seeing, is there something we should be just thinking about in terms of your ability to achieve that over the long run? Sure. Hi, Kaumil. I'll start with the streamlining. You know, this is our next step in one of our strategic choices connected to our IGNITE strategy, which is to Reimagine Work. Back when we released our strategy in 2019, we articulated that we wanted to be a faster and simpler company, and this is the next evolution in that. You know, we're already a pretty efficient company, but we think we can be even more efficient. These changes will help us meet that algorithm, that sales growth target of 3%-5% and growing profitably over time as we return margins back to their pre-pandemic state. What we're really trying to do through this model is get closer to the customer and closer to the consumer so that we can anticipate their needs better, move more quickly, and have the entire organization focused on the business unit priorities, and having end-to-end visibility. We expect to implement this beginning in fiscal year 2023, coming up here, at the end of Q1. We expect to save $75 million-$100 million over the two years that we'll implement this. That will be an annual savings once we have it fully implemented. We, you know, over time, the combination of this with our digital transformation will really set us up for that goal of having an organization that moves much faster, much more simple, and will support getting, you know, we're targeting about 13%, as a percent of sales from an SG&A perspective with those two initiatives combined over time. Got it. This is separate. And the second- Your typical productivity savings. I'm sorry about that. That's all right. You know, in your gross margin bridge, you often give the benefit of savings. This is separate and additional, correct? That's right, Kaumil. This is incremental to that. Okay, great. Sorry. You were saying? Do you wanna move to the question on long-term on 3%-5%? Yes, please. I'll do that. You know, on the 3%-5%, we still remain committed to that, and we see a line of sight to that, but it's not going to be linear to get there. Kevin did a good job articulating what some of the factors are that we're dealing with in the short- term, and it really has to do with demand normalization and lapping COVID impacts. You know, back a year ago, you know, we thought that COVID was, you know, the worst of it was behind us before we entered fiscal year 2022. We thought inflation was transitory, and that has turned out to be a much longer headwind that we're facing. If you look at what we experienced from COVID last year, as Kevin said, we had two of the biggest COVID waves, both Delta and Omicron, impacting our business. We have to lap that, and get to a more normalized state. We expect that to happen over the course of fiscal year 2023. We have some other businesses that are doing some normalization. Kingsford's a good example. You know, it's one of our fastest-growing businesses, and that's normalizing. Really, health and wellness is the biggest portion of that, and as Kevin articulated, we expect the broad portfolio to be growing, and we expect health and wellness to be down next year as a result of this normalization. As we look at what we delivered, for example, in Q4, our businesses from organic sales growth perspective, ex the health and wellness segment grew 5%, so well within our algorithm. If you take a step back and look at the last three years, our businesses in aggregate averaged 5% CAGR over that period of time from a growth. We are in a period of normalization. That's the biggest factor. We remain confident in our ability to deliver those 3%-5% and are really happy with the strength of our brands right now. You know, 75% of our portfolio deemed superior by consumers. Pricing is going as planned, and we anticipate that it will continue to go as planned, in the early insights that we have as we've implemented our third round in July. What we're just watching really closely is the consumer and watching this environment for them. We will make adjustments to our plans as needed, but we're heading into the period with strong brands, rebuilding margins so that we can continue to invest. You know, we're just gonna be as nimble as we can to react to a really volatile and changing environment. Okay, great. Thank you. Our next question comes from Jason English of Goldman Sachs. Your line is open. Hey, folks. Thanks for letting me in. Hey, Jason. Kevin. Hey there. Kevin, the $400 million in incremental cost pressure, I think you said is not just commodities, but it's supply chain as well. A, can you confirm that? B, you know, I think many of us, myself included, were expecting to see a very big offset come as you insourced a lot of the product. Does that $400 million include that offset, or is that offset captured somewhere else? Hi, Jason. Yeah, thanks for the question. The $400 million does include supply chain inflation broadly across the entire supply chain, not just commodities. That will be, we're looking at increased transportation costs, increased wage costs. We have built in the savings as we've exited these contract manufacturing agreements. We've now stepped out of all the agreements that we intend to step out of. It is contributing to our plan to grow gross margins this year. Really, our pricing actions, our cost savings, plus stepping out of these arrangements are all contributing to offsetting the cost inflation we're dealing with. Beyond the cost inflation, though, the other item impacting manufacturing logistics is volume de-leveraging. As we're taking quite a bit of pricing, volume will be down for the year. That does have some negative impact on manufacturing logistics, but it's being offset to a certain degree by the exiting of those co-pack agreements. That is all included in our bridge. Understood. That's helpful. Gosh, I have a lot of questions, but I'm afraid I'm gonna have to burn one on a simple modeling math question 'cause I've loaded up my model here, and I'm still having a hard time getting down to your EPS that you've guided to, despite seemingly getting, like, the gross margin, the other spend levels right. Interest expense is the last variable. Like, what are you assuming on interest expense? Do you have a sharp uptick coming with maybe with the higher rates? We don't, Jason. We just recently refinanced debt maturities coming due over the next several years. This last quarter, we called $1.1 billion in debt, refinanced that at a slightly lower interest rate, a modest savings in terms of interest expense. You know, the other thing I might point to on a reported basis, if you look at other income and expense, typically, we have about $30 million-$40 million worth of charges related to intangible amortization. Related to the operating model redesign we talked about today, we baked in about $35 million worth of restructuring charges. That will show up in other income and expense as well. It's about $0.20 is our estimate, so that may be something else you'll look at in your model. Understood. Thank you. I'll pass it on. Thanks, Jason. As a reminder, if you do have a question, please press star one on your touchtone keypad. We have a question from Dara Mohsenian of Morgan Stanley. Your line is open. Hey, good afternoon, guys. Good afternoon. Can you talk a little bit about pricing from here? Obviously, you've implemented some pricing this summer that hasn't been realized through the P&L yet, so that's to come. But as you look going forward, are there plans for any incremental pricing just given the gross margin compression over a three-year period, even with the rebound expected in this upcoming fiscal year? How do you think about that line item going forward in terms of price increases versus maybe mix, pack size changes, et cetera? Sure. You know, just a reminder for everyone, we just implemented our third significant round of pricing in July, and that is flowing through now to your point, and is on track to our expectations. That was our largest price increase of the three that we have taken over the last 12 months, and it's on track. We do anticipate taking additional pricing as part of our plan, and that will come in different forms, whether that be truckload increases or price pack architecture, which will start to begin in more earnest in fiscal year 2023, as we've discussed before. What we're watching right now is the reaction to July. It's too early to tell. That is just hitting the market now, and we'd wanna get through a purchase cycle with the consumer to see how they're reacting. As Kevin highlighted, you know, we had seen our historical price elasticities not play out over this last year. They were slightly better than that historical elasticity that we had experienced, but we're expecting that to return in fiscal year 2023. Elasticity is slightly worse and better in line with what we saw pre-COVID, given the level of pricing and given what's going on with the consumer. We'd anticipate they will continue to be on track. Our categories remain healthy, but we're gonna watch that very closely, and we will adjust any plans that we have as needed to address that. You know, largely, we expect to continue to use pricing as a lever to grow gross margin, not only through July but through the course of the year. Okay, thanks. Just a detailed question. The streamlined operating model, how much savings do you have embedded in guidance in fiscal 2023? Is that savings more likely to play out in fiscal 2024, or is there a decent chunk of it in fiscal 2023? Hi, Dara. As you may have seen, we are projecting $75 million-$100 million of savings over the next 18-24 months. We're expecting about $25 million worth of savings this year as we begin the program, and then that'll continue into fiscal year 2024. In terms of as you're sort of modeling it, as you're modeling both the one-time restructuring charge, typically, those charges come first. I'd expect more restructuring charges in the front half of the year, and then the savings start to occur in the back half of the year and then continue into next year. Thanks. Thanks. Yep. Thanks, Dara. We have a question from Kevin Grundy of Jefferies. Your line is open. Great. Thanks. Good afternoon, everyone. I wanted to pick up on trade down risk. Linda, I think you mentioned a handful of times about how the consumer is behaving, and we see that, right? Increasingly, I think across the categories, as we look at the syndicated data. For Clorox, you know, we're seeing private label pick up share across all of your key categories, trash bags, bleach, wipes, salad dressing, charcoal, et cetera. I think a notable nuance with this has also been the price gaps have narrowed given some of the timing in terms of when you have moved versus private label as well. We've seen some of the share loss, or share gains for private label while price gaps have narrowed, for Clorox versus private label, which is a bit perverse. I think, Kevin, you also made the comment, you know, that you expect, you know, with some of this pricing, that the price gaps will return to more normal levels. So that is to suggest that the price gaps will widen, which then, you know, in theory, for a more price-conscious consumer could perpetuate, you know, some of the share issues that you've seen in your portfolio. So that's all sort of a big wind up, Linda, I guess, for how worried, I guess, how did you contemplate what you're seeing with the consumer and some of these dynamics as you pulled together the outlook? Maybe just comment, updated thoughts on trade down risk, where you are with price gaps, where you think you're gonna land, et cetera. Thank you. Sure, Kevin. Thanks for the question. Maybe we start with your private label share question and talk a little bit about what we're seeing there, and we can get into, you know, the broader piece around what does that mean and what are we seeing more broadly in trade down. As we've spoken about before, the dynamics, as you look at any time period in scanner data right now, it's difficult to parse out because you have many factors, depending on the category. Normalization, the timing of pricing, which you already hit on, which is exactly right, supply normalization, et cetera. I would caution that looking at any small portion of time to get to a conclusion one way or the other, you know, have to get into a bit of the nuances. As it relates to private label in our categories, a good portion of that is the timing gap in pricing. We've seen private label go a little faster in some of our categories. You call that out, and it's true in trash and bleach in particular. In wipes, it is more about normalization. Wipes in that time period for Q4, private label grew five share points. We grew six, so it's not coming from us. If you look at charcoal, another example where there's a different nuance, we grew share in all outlets, as consumers moved to some channels and bought some larger sizes, even though we were down slightly in MULO. I think, again, just speaks to the dynamic nature of what we're experiencing right now. You're right, as we return our price gaps to more normalized levels, which we continue to expect, and as we implement our July price increase that is in market now, and again, as a reminder, is our largest price increase, we do expect to be back to more normalized price gaps. You'll start to see that flow through in share. Right now we have very strong volume shares, for example, and we expect that to translate to dollar share, as that flows through. Then, you know, your larger question on trade down. You know, we are not seeing any significant trade down as it relates to trading into private label. Given the dynamics I just covered, I think that's clear that there's some other things going on there. We are seeing some trade down within our own portfolio, for example, and we would have anticipated and expected this, and we're working this as part of our sales plan. For example, we're seeing consumers move to some opening price points. They still want the branded player, but they don't have a lot of out-of-pocket, and so they are buying a smaller size. We're also seeing consumers trade up to larger sizes to get the very best price per ounce. We're working with retailers to ensure our assortment is right to capture that. We've seen that in other times of inflation and recession, and so we've been proactive about addressing that with our retailer partners to ensure that we have the right distribution. Of course, as you know, we are widely distributed across all channels, so we're ready as consumers move and ensure that they have their right level of value. So at this moment, what I would say is, you know, we are seeing some change in consumer behavior. It's largely what we would anticipate. We are not seeing a big change into private label at this moment. Again, we're focusing on the things that we can control here, ensuring our innovation program continues to activate in the market. We continue to spend on our brands. We'll spend 10% of sales on advertising and sales promotion next year, and we're proactively working with our retailers on, you know, tailored shopper plans to ensure that we're offering the right value for the moment, depending on where the consumer is. It's something again, we'll watch very closely, and we'll adjust our plans as needed if it starts to go in a different direction. Okay. Very good. Thanks, Linda. Thanks, Kevin. Our next question comes from Lauren Lieberman from Barclays Investment Bank. Great. Thanks so much. Your line is open. Thank you. I had two sets of questions. The first thing is just on the SG&A, and as you're talking about targeting, you know, a lower ratio over time and this, you know, kind of restructuring program that you're initiating. I just, you know, it strikes me that if anything, it has felt like perhaps Clorox has been more on the side of underinvested, not overinvested. The company's been, you know, made a hallmark of, you know, kind of running lean, Go Lean was a program, you know, and that's been an approach. If anything, and maybe I'm off base in this, it's felt like part of the problem has been being too lean, that hasn't afforded you the visibility you've needed, the flexibility you've needed, and yet part of this plan going forward is to get more lean on SG&A. I would just be curious on reactions to that, and then I have a question on cash flow. Thanks. Sure. Hi, Lauren. You know, as we think about just our investment and how this fits into the overall picture that we're trying to drive with IGNITE, we were really clear in IGNITE that we needed to be simpler and faster. That was a key choice that we made under the headline of Reimagine Work. We also said we needed to invest strongly in our business. We took that another step further when we announced the technology transformation that we're undergoing, and the $500 million investment we're making in that program, over the next several years. In addition, we continue to invest strongly in our brands. We've invested in innovation, and innovation is a larger contributor than it was in the prior strategy period. I feel like we are making all of the right investments to ensure that we have strong brands with our consumers, and that is playing out in our consumer value measure. We expect to play out over the mid to long- term in share. You know, certainly this quarter wasn't the share performance we wanna deliver, but we feel like we're headed in the right direction. When it comes to this piece and what we wanna do with the operating model, we wanna make sure that we are always operating as efficiently as we can and putting the dollars where they matter in our business to ensure that we can grow our brands. We believe very strongly that we can be more simple and fast, and that will help support that 3%-5% growth rate that we have and restoring margins. We wanna cut down on decision time. We wanna ensure that the technology we put in place through our digital transformation is supported by a structure that enables it and uses it as fast as we possibly can to ensure that we're closer to the customer and closer to the consumer. I think when you step back and take a balanced view, we are making investments in the right spots where we think they have the highest ROI, and we're ensuring that we take all of the necessary actions to reduce costs where we think that ROI is lower and we can operate more efficiently. I just wanna be really clear, I think, on your point on Go Lean. Go Lean was not a company initiative. That was an international initiative, and that was very effective for international to ensure that we reestablish the cost base of international to get to the appropriate level to grow off of. You can look at our international performance was very strong this year, and that was supported by getting that right structure underneath the business in order for it to grow. Again, I, you know, as I step back, Lauren, I think we have investments in the right place, and we are doing everything that we can to restore margins in places where we have a lower return on that investment. Okay. Great. Thank you. That's excellent color. My next question was just on cash flow. So, I was curious if there's any, you know, Kevin, cash flow metrics you could articulate that you're targeting for 2023. And just in terms of inventory, right? 'Cause inventory days are still quite high. And I'm just curious, as you think through, obviously, a lot of this is gonna be tied to cleaning, a lot of this is tied to exiting those external supply contracts. But how should we be thinking about inventory days and, you know, what's the right level, right? You're still in the kind of low 60s and, you know, that's significantly higher than where you were pre-COVID. So just how that flows into the gross margin recovery story in, you know, 2023 or beyond. Thanks. Yeah. Thanks, Lauren, for the question. You know, maybe I'll start with inventory, then I'll get back to cash flow and our expectations this year. As it relates to inventory, I feel good about the progress we are making. If you look at the fourth quarter, we were able to reduce inventory sequentially about $50 million from where we landed in Q3. Now, part of that was what we talked about earlier. As we exited these third-party manufacturing agreements, and in many cases, we maintained raw materials or finished goods at these facilities. We're able to consolidate those manufacturing nodes and reduce our overall inventory levels. We made good progress there. I expect this year we'll continue to make progress on inventory. Now, that assumes that we see more normalization in supply chain. Lauren, as you know, we've talked in the past, we've had to hold higher inventory levels to prepare for the ongoing disruptions we're dealing with. Our expectations is supply chain will still be challenged, but certainly not to the degree we've experienced over the last 12-18 months. As a result, we're gonna be able to pull down our inventory levels broadly across the enterprise. I'd expect us to continue to make progress. I like the progress I saw in Q4. I expect that to continue in fiscal year 2023, which should contribute to reducing our overall working capital. Then I think more broadly about cash. You know, Lauren, I think this year, very similar last year, I think in terms of cash provided by operations, we'll be in that $700 million-$900 million range. Before our margins were under pressure, we were generating about $1 billion, and so I do expect it to be lower than our historical levels because of the reduced profitability we're expecting this year. As it relates to CapEx, as you know, we target 3%-4% per year. Now, we've been a little above that in previous years as we've been making some investments to increase our production capacity. For the most part, we're through those investments. We have one last plant we're working on, where, as you may know, we're preparing to open up a second litter facility, which we'll bring online this year. So we've got a little bit more capital spending there. But I expect we'll be in that 3%-4% this year and probably about the midpoint of that range. What that means is, if you think about our free cash flow goal, we target 11%-13%. I expect this year we'll be below that goal, probably high single digits, as we've got some reduced profitability. Over time, I expect that to build that back as we improve profitability. Okay. Great. Thanks so much for all the detail. Sure. Thanks, Lauren. We have a question from Olivia Tong of Raymond James. Your line is open. Great. Thanks. Good afternoon, Linda and Kevin. You had mentioned earlier that price elasticities have continued to come in better than you expected, but your outlook assumes that that doesn't continue, that they go back to historical levels. To the extent that you do have some favorability there versus expectations, how do you think about, you know, what to do with that? Does it flow through to the P&L, or are there projects that you wanna do to drive some return, you know, free up some funds to return to spending? And then just on the gross margin overall, 200 basis points expected for next year, so a quarter of the way back. Sound like you're expecting another quarter in fiscal 2024. Is that the way that we should be thinking about the mechanics to get back to where you were before? Just sort of like ratably, you know, fourth to fourth? Thanks. Sure. I'll start with your question on price elasticity. If we were to experience better than what we expect, which again is more normalized price elasticities to historical pre-COVID, then that would be something that we would first look to flow through. Of course, that's because we've made all the investments that we feel we need to make at this time in the year. We're investing in advertising. We have the right promotional spending from what we can see. Of course, if there was anything that were to change that we needed to address, then we would consider that. We would leverage that away to flow through. I just wanna make sure I'm really clear on that. We'll of course have to see, given the environment is so volatile, if there was anything else to come up, we would consider it, but that would be the first thing we would look to do. Olivia, on your question on gross margin and the pace of the margin recovery. You know, as you mentioned, our expectation is we're gonna improve gross margin about 200 basis points. I think important though is we expect that to build as we move through the year. As I said earlier, our expectation is we're gonna be close to a 40% gross margin when we end the year. On a run rate basis, I expect to make fairly good progress this year and be in a position where we've recovered a good portion of that margin decline. I expect that obviously to continue into 2024 with the actions we'll take. Now, part of the timing of our pace of margin recovery will be dictated by inflation. You know, I would tell you, we are not waiting for cost inflation as our path to margin recovery. We're pulling every lever available to us between pricing, cost savings, the operating model changes we talked about today, and we'll continue to do that going forward. Obviously, what the direction inflation goes could either accelerate or decelerate that margin recovery. In this environment, it's hard to look beyond this year with a strong perspective on where costs will be next year. That's something we'll probably have to see how it plays out a bit this year to make that call. I think we're making solid progress this year on our commitment to rebuild margins. We're pulling every lever available to us. I think, you know, it's a bit difficult to pick the exact time period we'll build it back. I think some of that will be influenced by the external cost environment. You know, as we move through the year, we'll certainly update you as we're thinking about the pace of that change. Got it. Thanks. My follow-up is on your thoughts around your trajectory on market share. Perhaps could you talk a little bit about what private label capacity looks like, and specifically in the health and wellness businesses? Obviously a lot of pretty aggressive pricing and consequently a fair degree of volume degradation associated with that. You know, to the extent that consumers can first and foremost stomach this much in terms of pricing, just kinda curious how private label capacity and their ability to step in looks, you know, as you consider these pricing maneuvers that you're taking. Thanks. You know, Olivia, I can't speak to capacity outside of our own network, but I would just say I don't think there's a capacity limiter in our categories. You know, that's not, as we've spoken about, in terms of what capacity exists there, it's just timing and money. And we create differentiation, of course, on the unique products and et cetera that we offer. But what I would really return to is what we're seeing in terms of the performance of the health and wellness segment and our cleaning business in particular. Pricing is going as planned, and we are seeing lower than historical elasticities to this moment. Again, we are expecting that to be in a more normalized elasticity as we move into fiscal year 2023. But what we are seeing in private label is more about pricing timing than anything else. If you look at volumes, their volume shares are actually down, and we are growing volume share in that last quarter, and we expect that to translate to dollar sales as pricing flows through beginning last month into this month and the remainder of the quarter. You know, the shares were not what we want them to be at this moment. I mean, I always wanna talk about the fact that share is something that we hold ourselves to and we knew quarter to quarter that's gonna vary, but we think we're making the right progress. The evidence of that would be our Q4 absolute share is higher than our Q3 share was. We made progress on the absolute share number, although it was down slightly versus year ago. We made sequential improvement from Q3 to Q4. Again, I highlighted a few of those areas that were due to pricing timing, and then some other factors where, you know, we grew very strongly, for example, in wipes, and private label did as well. You know, we were up six points, they were up five points from a share perspective. I don't see any health issue at this point in our home care categories or our cleaning categories. Elasticities again are playing out as we define, and I think, you know, really as we look to this, we will expect demand normalization to be the biggest contributing factor, and that elasticities will largely play out as we expect. Again, we'll watch that very closely, but this is more about demand normalization than it is about, you know, any trade down to private label at this point. Got it. Thank you. Yeah. We have a question from Steve Powers of Deutsche Bank. Your line is open. Hey, great. Thank you, and good afternoon. Just, I guess, picking up on that thread of demand normalization, Linda, I guess I'm curious as to how you actually go about or have gone about defining what renormalized demand looks like in categories like wipes or cleaning and disinfecting more broadly and maybe how that compares to pre-pandemic levels. And as you talk about that, maybe you could, if possible, elaborate a bit more on the expected pacing to get there embedded in the outlook. I get the base year comparisons are gonna create a lot of year-over-year volatility, but is the normalization process that you're envisioning something that happens all the way through 2023? Does it happen faster, such that the headwinds are skewed heavily to the first half and the back half is more normal? Just how should we think about that? Yeah, Steve. You know, on demand normalization, we certainly are lapping impacts from COVID, but we're seeing changes in more normal behavior coming from consumers. We're trying to understand when are we at a new normal? It's more about laps versus we're at that new normalization state. We saw, as Kevin and I said a couple of times, you know, we're lapping Delta right now, where wipes were up from a unit basis 50% in our last Q1, and we did see a bump in Q3 as well. Both of those will be laps that we'll have to get through. We're talking through fiscal year 2023, we would expect that normalization. We are still seeing consumer behaviors, if you look at buy rates, et cetera, enhanced, and we're still seeing people's care about cleaning and disinfecting elevated, but definitely lower than it was at the height of the pandemic, but higher than it was pre-COVID. What we're trying to gauge is when does that new consumption pattern align to that desire from consumers who have a heightened state of awareness of cleaning and disinfecting and get into a more normalized routine. The other thing we're gonna see how this plays out is cold and flu. You know, consumers have not experienced a normal cold and flu season since COVID started, so how will that reinforce consumer behaviors? We'll experience that at the end of Q2 and through Q3. We'll be watching that very closely. Of course, we're in a COVID wave right now, and we're watching that dynamic as we lap last year's Delta wave. I would say we are watching this throughout the year, and we'll give indicators of when we start to see that more normalized demand. We're looking something between where we were pre-COVID, which we continue to be above that. You know, what it looks like in a more normalized state when people are more aware and have a heightened concern, but yet are getting into a new set of habits and routines. We'll keep you updated as we see that and when we anticipate being in a more normalized state. As you can imagine, given what's going on with COVID, et cetera, it is difficult to pinpoint exactly when that will occur. Yeah. Okay. That's all fair. Just one other question, if I could. Going back to the new operating model, I guess I was just curious for a little history on when the initiatives that you're rolling out here in 2023 and into 2024, when those began to be contemplated. You know, just like a little bit of history on how these decisions were made and you know, has this been planned for a while? Is this something that you know, is more of a recent initiative? Just a little color there would be helpful. Thank you. Sure, Steve. You know, this really relates back to the strategic choice we made in IGNITE to Reimagine Work. We wanted to be simpler and faster, and we always contemplated ways, as you would expect, you know, you expect us to operate efficiently and be removing costs wherever we can, that we're always looking at the choices across the ecosystem to say, are we getting the best return on our investment? Are there ways to do things more effectively and efficiently? We did that as we unveiled our digital transformation program, which we really needed to accelerate given the increase in digital behavior behind the pandemic, so we moved that up. As we evaluated the environment that we see now, we want to accelerate the progress we wanted to make on Reimagined Work by making a more structural change. I would say it's at this moment that we think it's the right time to do that. You know, we've gotten to a bit more of a steady state when it comes to supply chain, still very challenged, and we're still having force majeure, et cetera, et cetera, but it's more manageable, and we think this is the right time to take it on, but it's really a continuation of that vision we laid out in 2019 to be faster and simpler. Okay. Thank you very much. Thanks, Steve. This concludes the question and answer session. Ms. Rendle, I would now like to turn the program back to you. Thanks again, everyone, for joining us. I look forward to speaking to you again on our next call in November. Until then, please stay well. This concludes today's conference call. Thank you for attending.