Hey, ladies and gentlemen, and welcome to The Clorox Company first quarter and fiscal year 2023 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 touch-tone pad at any time. If anyone should require assistance during the conference, please press the star zero on your touch-tone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference. Thank you, Ross. 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 2023 fiscal year 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 such forward-looking statements, which has been filed with the SEC. In addition, please refer to the non-GAAP Financial Information section of 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. While the challenging and volatile global operating environment we discussed last quarter persists, we delivered better-than-expected Q1 results, reflecting the strength of our brands, ongoing consumer loyalty, and solid execution. During the quarter, we maintained our unrelenting focus on rebuilding margin by taking additional inflation-driven pricing, delivering cost savings, optimizing our supply chain, and implementing our new operating model. At the same time, we continued to invest in our brands to deliver consumer-inspired innovation with superior value as well as advance our digital transformation to drive top-line momentum and position the company for long-term success. Looking ahead, it's still early in the fiscal year, and we continue to contend with a number of macro headwinds, which we are proactively addressing and will remain agile as the environment evolves. Given these factors, we are reiterating our full-year outlook. Nevertheless, guided by our IGNITE strategy, we remain committed to delivering on our 3%-5% sales growth target over the long term. The fundamentals of our business are strong. We play in essential categories, and our business is well-positioned to benefit from lasting consumer demand tailwinds. I'm confident we're on the right track to generate consistent and profitable growth over time and build a stronger, more resilient company. With that, Kevin and I will take your questions. As a reminder, if you would like to ask a question, please press star one on your phone now. Our first question comes from Peter Grom from UBS. Please go ahead, Peter. Hey, good afternoon, good afternoon, everyone. Hope you're doing well. I wanted to ask a big-picture question on kind of the guidance for the year. You mentioned that currency is a $0.17 hit to adjusted EPS, and I know there are varying degrees of views on the level of conservatism embedded in this guidance. Just when we think about the ability to maintain the earnings range despite an FX drag that's about half the size of the entire range, is there something that's coming in better to offset that, whether it be underlying growth, commodity costs, et cetera? Or is kind of the right way to think about the updated currency impact that you now expect to kind of be at the lower end of that earnings range? Thanks. Hey, Peter, thanks for the question on guidance. Let me provide a perspective. What I'd tell you at a high level, I feel our guidance is very balanced in terms of where we expect to land the year. If I think about some of the puts and takes where we're at is, as you saw in our prepared remarks, we had a good, solid start to the year that exceeded our expectations, what we shared with you about a quarter ago, and so we feel very good about the start of the year. At the same time, we are dealing with some additional headwinds, FX being one. But as Linda also mentioned, we've got a couple supply disruptions on a couple of our businesses that we're working through. I'd say good start to the year. We've got a couple issues we're dealing with, but by and large, feel like we remain on track. I think what's also important, Peter, as we think about, you mentioned inflation, I would say inflation is generally playing out as we expected. You know, we said at the beginning of the year it was about $400 million worth of cost inflation in the supply chain. We still expect about that same amount. Although I would tell you, when we started the year, we were a little below $400 million. We're a little above right now, so it's gotten a little bit worse. You know, as we've been doing through the entire pandemic, we're making the appropriate adjustments to our plans. We've done that, and as a result, we feel good that we're on track for our outlook. Thanks for that. I guess there's one follow-up on the kind of the organic sales outlook. I know previously a lot of the weakness was expected to occur in health and wellness, and you were expecting to see continued momentum across the rest of the business. You know, in the first quarter, obviously, health and wellness came in better than you were anticipating, and it seems like, at least from our perspective, that the other segments saw a bit, you know, weaker performance. Just like, any thoughts, you know, or updated thoughts on how to think about the building blocks for the organic sales outlook from a segment perspective? Thanks. Yeah, Peter, you're right. As you think about Q1 versus our expectations, our health and wellness segment came in better, behind the strength of cleaning and disinfecting. That business outperformed our expectations based on very successful back-to-school merchandising program, primarily. As you said, if you look at the rest of our portfolio, we had anticipated stronger organic growth that came in a little bit below our expectations, really driven by the supply disruptions in our Burt's Bees and our Glad business unit. If those two businesses had delivered against our expectations, we would have delivered about 3% organic growth on the rest of our portfolio, ex health and wellness. Clearly, these are some new issues that we've been dealing with this for the last three years. Supply chain disruptions are nothing new. We're dealing with it in these two businesses. We expect to get those worked out this quarter, and by the back half of the year, I'd expect those businesses are back to shipping, back to our expectations. You know, I think it'll drag a little bit in the second quarter as a result of that, and then I expect stronger performance in the back half of the year as we get those resolved. Got it. Thanks so much. I'll pass it on. Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead. Thank you. Good afternoon, everyone. My question would be on, kind of like how you see shipments against consumption. Obviously, health and wellness was coming in better than anticipated. How should we be thinking of retailers taking in inventory potentially ahead of the, you know, the price increases or anything on that sense in the other ones? How conversely on your point, Kevin, about not being able to fulfill some of the other parts of the business, and would have been a better outcome of 3%. Like, how should we be thinking about consumption against, you know, inventory? As you try to fulfill, is that something that you may have missed, in terms of, you know, the sets and the seasonal impacts of that going forward, especially for charcoal and litter as we move into the quarters? Hi, Andrea. Thanks for the question. Generally, we saw in Q1 minimal impact from any type of inventory effect, going either way. We did have a couple of businesses that we saw retailers make some inventory adjustments on, actually, on the other side. We call that vitamins, minerals, and supplements is one of them, charcoal as another. We look at that as very normal inventory changes, no impact to the consumer or impact to consumption, but retailers continue to optimize their inventory levels. We did not see a mismatch between consumption and shipments going the other way, where we see inventories rising at retail. We continue to see that's gonna be dynamic. Retailers are making adjustments, adjusting to, you know, the new volumes they're seeing in the categories, so we're watching that as we move forward. Again, would not be any type of strategic impact. It would simply be shifts in timing versus any other type of concern that we would have. At this point, we think we're at about the right inventory levels across all of our businesses, and again, minimal impact in Q1, and do not anticipate a sizable impact moving forward in our outlook. Thank you, Linda. Just if I can follow up on the margin, Kevin, you mentioned there was an impact on volume deleverage this quarter. As you move forward, you're still expecting the 200 basis points improvement in gross margin as we navigate through this $400 million that you called out being a little bit higher than initial, and in effect. Is there anything that you can comment perhaps, you know, more pricing that you can use as offsets? I understand, of course, you're gonna start to lap and have a better, you know, in the first quarter was a very good start from that perspective. Just trying to see the cadence and what to expect going forward. Sure, Andrea, you're correct. We still expect to deliver about 38% gross margin for the full year. That'd be up about 200 basis points versus year ago. As we've said, this continues to be a very dynamic environment. As conditions change, we continue to adjust our plans as appropriate to maintain our plans for the full year. I'll just give you one example. You know, as we've seen the FX environment become more difficult as we talked about, and we're seeing higher inflation in a number of countries where we operate, we've gone back and adjusted our pricing plans in our international markets. That's an example where we're going back and making appropriate plan changes to address the changing macro environment. Through those changes, we're able to keep our plans on track for the year. Thank you very much. I'll pass it on. Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead, Dara. Hi, guys. Obviously very strong price mix in the quarter at 13%. You did take pricing later than some competitors and more aggressively at this point in time, at least. Can you just talk about the consumer reaction that you're seeing so far, the retailer reaction, and also just what you're seeing from competitors in terms of price gaps? Just give us a sense of also what's left to come going forward on the pricing front in terms of increases from here. Thanks. Sure. Happy to, Dara. Pricing is on track, and as you noted, we've taken multiple rounds of pricing with a third round in market effective in July. We are seeing elasticities largely in line with our expectations. That has been early in the year, slightly favorable to what they were pre-COVID, but we're starting to see them drift towards our pre-COVID elasticities as we had anticipated. Our categories remain healthy and resilient, and our price gaps have returned to pre-pandemic levels for most brands. Given the pressures that Kevin spoke about in terms of cost, we are taking an additional round of pricing in December, which will be our fourth major round of pricing. We don't anticipate that round to be as deep or broad as the July pricing, which was the largest of the four that we will take, to date. We anticipate that we'll be leading in many of the categories that we're taking pricing in December. As Kevin said, we're gonna continue to be nimble and adjust. At this point, consumer resilience, elasticity is in line with expectations, and price gaps where we would expect them to be. Great. Thanks. It sounded like market share is coming in better than expected, perhaps on the cleaning side, with the merchandising around back-to-school, et cetera. Can you just talk about what you're seeing from a market share standpoint, on that side of the business and what you're expecting going forward? Sure. You know, maybe I'll just broaden the comment on share overall. You know, we're making progress on share, but we have more work to do. Supply disruptions have been part of that going on in our household essentials business. We were happy to continue to see the momentum in cleaning as you note. We've grown share consistently now, quarter after quarter, and that continued with the strong performance that we had in back-to-school, as you noted. We grew all outlet share in our four largest businesses. That's home care, Glad food and charcoal, which was great to see. As I've said many times, I expect to grow share in aggregate, and we're not quite there yet. We'll continue to see progress as pricing flows through in December, and as our distribution plans continue to take hold. We feel good about the progress, but the work's not done yet on share. Thanks. Our next question comes from Chris Carey from Wells Fargo. Please go ahead, Chris. Hi, everyone. Hi, Chris. Can I just maybe ask, maybe more of a conceptual question about gross margins? You know, Kevin, I think you noted that your commodity or that the cost basket of $400 million was trending slightly below $400 million before, and now it's trending above $400 million. I wonder if you could just maybe offer some additional context on the complexion of that cost basket, perhaps between, you know, commodity and non-commodity. And you know, maybe layering on to that, just a concept of, you know, certainly, there's a view which I think you've talked about yourselves, that, you know, the gross margins of this business should continue to improve at a progressive rate over the next few years. I just wonder what you think about the durability of some of these cost increases that you've seen, specifically on the non-commodity side, which continue to linger, and how much pricing you think you might need to take, or cost savings that you would need to execute in order to, you know, achieve your longer term objectives on the margin line? Sure. Thanks, Chris, for the question. Let me start with the overall basket of cost increase we're looking at. As you mentioned, you know, we started the year expecting about $400 million, a little below. We've updated that with this most recent outlook, and we're rolling up to a little bit over $400 million, but generally still in that area. What hasn't really changed for us is commodity inflation overall. It represents about half that total inflation. While we've seen a little bit of change by item we purchased, the general level of inflation in the commodities is pretty consistent with what we thought about a quarter ago, so no real change there. We've seen a little bit of improvement on resin prices, and then there's a few other areas in chemicals and ag products that have gone a little bit the other way. Give and take, but by and large, our commodity inflation expectation is consistent with what we thought earlier this year. Where we are seeing a little bit higher prices is primarily in logistics, and I'm sure you folks are seeing what's going on with the price of diesel. That's coming in higher than we anticipated. We revised up a bit our expectation on logistics cost inflation. We're still operating in generally that $400 million range, but a little bit higher cost we're expecting in logistics for the balance of the year. In terms of, you know, how I expect the gross margins to phase going forward, you know, I think this is an important inflection point for us. As you know, margins declined for about five straight quarters, given the tremendous cost inflation we were dealing with last year. As you recall, about $800 million worth of cost inflation in supply chain. We stabilized margins in Q4. They were essentially flat year-over-year. As you saw this most recent quarter, gross margin down about 100 basis points, primarily for the charge we took on the Pine-Sol recall. Excluding that charge, they were generally flat year-over-year again, and we expect to start growing this quarter. If you saw in my prepared remarks, we expect 100-200 basis points of margin expansion. I think this is an important inflection point. We're getting back now to starting to rebuild margin that we've been working on for a while. I expect that to continue as we move through the balance of this year. As we said, we expect to grow margin about 200 basis points for full year, but I expect that to build starting from Q2 as we move forward. And then your longer term question, you know, Linda and I, and the entire leadership team remain committed to rebuilding margins to pre-pandemic levels. And we said that's gonna take a while. It's difficult to predict exactly when we'll be able to achieve that because a lot of that is outside of our control. I feel very good about the things we control. The pricing we're executing, the cost savings program, and our supply chain optimization work is all very much on track. The reality is the cost environment continues to be very dynamic. At some point, I expect costs to roll over. These are cyclical commodities. It's difficult to know when that will occur, and that will likely either accelerate or delay the time of our margin recovery based on outside events. On the cost buckets outside of commodities, when you look at logistics and manufacturing, there are some of those costs that I think will stick. When you look at labor, I expect those costs will continue going forward. There's other elements, diesel, things of that nature, I do expect also to see come down at some point. We'll have to see exactly how that plays out. What I feel good about is we're starting to make progress on our commitment to start rebuilding margins. That starts for us this quarter, and I'd expect that to continue as we move through the year. Thanks, Kevin, for entertaining all that. Just one quick follow-up would be, and this will be for Linda or Kevin, but professional business was flat, I believe, in the quarter, which seems like finally seeing some stabilization. I wonder if you could just add some context of what you're seeing in the business and how it factors into your plans for this year. Thanks so much. Yes, it was about flat, and we take that as a good sign as well. You know, we are seeing continued headwinds on that business as it relates to return to office, and some of the things that affect our janitorial business. We are seeing, you know, some return to office, which is good from a sales perspective, as well as hospitals getting into a more normalized routine where they're using our products to clean in between procedures, et cetera. Now from here, we're focused on ensuring that we have the right sales plans, that we're working with businesses and janitorial services to ensure that they have the right protocols and hospitals as well. We expect again, over the long term, that business to be an outsized contributor to the company. Certainly, I would say at this point, we're happy to see it flat again and hope to return to growing here over the coming quarters. Okay. Thanks so much. Thanks, Chris. Thanks, Chris. Our next question comes from Javier Escalante from Evercore. Please go ahead, Javier. Well, Javier. Hi. Is your phone muted? Hi. Yes. Sorry. I was on mute myself. Good evening, everyone. I have two questions. One on business planning for Kevin, and then if I have a follow-up to Linda more strategically on the business planning. If we look at retail sales in the scan data, we see volumes weakening, so it's high teens. In that context, if you tell us what is your second quarter assumption between volumes and pricing, and how you distinguish what is normalization of demand versus elasticities, given that you are taking more pricing in the December quarter. Then I have a follow-up. Sure. Javier, on Q2, I'm not gonna give a full detailed outlook for Q2. We've tried to provide some color to be helpful for modeling purposes. We do expect top line to be down low single digits on a reported basis, and we continue to expect about 2 points of FX headwinds, so you should assume organic sales growth is about 2 points better than our reported sales, which we're expecting to be down in that low single-digit range. I expect Q2 to generally look somewhat similar to Q1. I expect ongoing normalization in our cleaning and disinfecting portfolio. Now, not to the same extent that you saw in Q1 when we're lapping the Delta variant, but we do expect some ongoing normalization in that portfolio. As we mentioned, we've got a few supply chain disruptions we're working through. I think that will impact Q2, similar to what we saw in Q1, and we expect to get those resolved as we move into the back half of the year. Overall, I think as you look at volume price mix, I would not expect to be that different than what we saw in the first quarter. So, down double digits, the volume for second quarter? Yeah, I'd expect so, 'cause that's primarily playing out based on elasticities. Maybe a broader point that's helpful to comment on, as you think about the elasticities in our portfolio, generally, our expectation when we take pricing based on the normal elasticities is you don't generate much incremental revenue from that pricing. We're taking pricing to address the cost inflation. It's not necessarily a source of revenue growth. I would expect if elasticities play out as we expect, I would see volume declines similar to what we saw in Q1, maybe a little bit better because of less demand normalization in cleaning and disinfecting, but still have volume declines generally offsetting the price mix by starting to generate very nice savings to gross margin. I think you saw in Q1, we generated over 500 basis points of margin expansion through pricing. I'd expect to build on that in Q2 because we'll get the full impact of the July price increase, plus a modest impact of the December, pricing we're taking as well. That's great, Kevin. More strategically to Linda. I'm kind of refamiliarizing myself with Clorox, and I'm a little bit surprised about how significant the investment in ERP is. Most of your businesses are U.S.-centric. Many of your categories, the main competitor is private label. So, essentially there is more of a cost issue, low -cost base kind of situation. Your cost base is getting higher. So why do you need that investment in digitalization? These are no beauty companies. This is charcoal, bleach, trash bags. Help us understand the rationale of that investment. Thank you. Javier, our digital transformation is much larger than just implementing a new ERP, which we need to. Our ERP is well over 20 years old, and that's the foundation of how we run our business. But what we're trying to do is modernize our digital infrastructure to. You know, maximize our ability to grow and maximize our efficiency. The technology we're investing in is not just foundational, but it allows us to move faster on innovation, leverage the data, the enormous amount of data that we have across our ecosystem to get to insights and be able to grow our categories, to be able to generate savings by knowing exactly where the costs are in our supply chain and being able to remove the ones that are not value-added. This digital transformation supports that 3%-5% growth we're talking about, and we expect that value to begin to happen at the end of the strategy period and beyond that to set us up for the next period. Of course, from an ERP perspective, we do have businesses in over 100 countries, so we'd be rolling out this ERP across the world to ensure that we can run our business. This is much bigger than just putting in the base technology. This is really about digitizing for the future. Okay. Our next question comes from Anna Lizzul from Bank of America. Please go ahead, Anna. Hi, good afternoon, and thanks so much for the question. I wanted to follow up on pricing. You mentioned you're taking more pricing in December, so it seems then you're, you feel comfortable that retailers and consumers can absorb this additional pricing. If you can comment on recent trends, are you seeing any bifurcation in consumer appetite for Clorox products with higher-end consumers more stable versus lower-end consumers trading down or out of the brand? I would say our consumer and our categories remain very resilient through the three rounds of pricing that we've taken, and the pricing elasticity has played out just as we expected. To be clear, that is slightly favorable than it was. Those elasticities were pre-COVID, but we're starting to see them drift to more normalized elasticities as we expected. We are not seeing any material signs of trade-down from our brands to private label or to other brands. We're watching that closely, and we'll adapt our plans if we need to, if that changes. But what we are seeing is consumers broadly seeking value -type of behaviors, and that's happening within our portfolio. We talked a little bit about this last quarter, and this is expected. We're seeing consumers shop more heavily in value channels, for example, they're moving to club, and dollar, and mass. We're seeing them look for different ways to explore value through sizing, so maybe buying an opening price point if they just have a low out-of-pocket availability from a cash standpoint, or they're trying to get the very best value per ounce or use, and they're going with larger sizes. We've seen things like trip frequency increase, where people are spending a little bit less on each trip, but they are coming more frequently. This is very typical value-seeking behavior from consumers at this point. What I'd say is actually our low-income consumer and our brands is holding up even more strongly than general population, and we've seen stronger household penetration from low-income consumers, which is consistent with what we believe is that in this time, the highest value with low-income consumer becomes even more important, and our brands are superior value. That 's of course measured with the fact that the largest portion of our portfolio is deemed superior by consumers than it ever has before, since we've been, again, measuring it. We're in a very good spot. We expect the December price increase to go largely as the last three have gone, but we're monitoring it really closely. We'll expect the environment to continue to be bumpy, and we'll expect consumers to continue to have more stress put on them. Given the categories we compete on, household essentials, you know, everyday products that they need, we feel very well-positioned to be able to take another round of pricing. Great. Thank you. That's very helpful. Just as a follow-up, given that you've exited certain private label contracts, how do you feel about your inventory levels going forward? Anna, I think you're talking about our contract manufacturing agreements. Is that right? Right. Yeah, you're exactly right. As you may recall, we increased the use of contract manufacturers during the pandemic to help meet the increased demand for our products. We knew that was temporary to normalize. We have stepped out of those agreements. We did that at the end of last year. What we've said is we've been holding higher safety stock inventory levels to help build more resiliency into our supply chain to manage through the ongoing disruptions we're experiencing. As those disruptions start to level out, our expectation is we're gonna be able to bring inventory levels down as we have more reliability in our supply chain. I would say the supply chain is getting better from where we were a year ago, but by no means are we back to a pre-pandemic level of normalcy in the supply chain. What we're seeing on inventory right now is we're starting to do just what we said, which is we're starting to bring inventory levels down. If you look at where we landed Q1 on a year-over-year basis, we've been able to reduce inventory levels by about $30 million. You probably saw that in our cash provided by operations is up. Part of that is our ability to reduce inventory levels. That also helps on the cost side as we have less product to move around, less warehousing fees, and we're not storing that product. We've started to reduce inventory levels. I expect that to continue this quarter. We're gonna really continue to watch the supply chain. As we have more confidence in our ability to respond to consumer demand and we expect less disruption, we should be able to work that down even further. We're starting to make good progress there. Okay. Thanks very much for the color. Sure. Our next question comes from Jason English from Goldman Sachs. Please go ahead, Jason. Hey, good afternoon or good evening, folks. Thanks for talking me in. Hi, Jason. A couple of questions also on gross margin. First, you indicated you expect GMs to be up 100-200 BPS this quarter. Let's just take the high end of the range. That would imply around 35%, which would be 100 basis points below what you actually did this quarter. Historically, there's not a lot of seasonality, and you're talking about pushing through more price. Why would gross margins go down sequentially? What's the incremental headwind that you expect to be weighing on results in the second quarter? Yeah. Jason, thanks for the call. I would say in terms of driving gross margin accretion, and to your point, 100-200 basis points of what we're projecting. You know, we continue to project pretty strong performance on cost savings. I expect pricing to build from Q1 to Q2, as I mentioned earlier. In terms of headwinds, we continue to face a very difficult cost environment. We had over 300 basis points of headwinds in Q1. I expect another challenging quarter in Q2 from cost inflation. We're seeing the same thing in logistics and manufacturing. As we mentioned, we've got a couple supply chain disruptions that we're dealing with in the second quarter, and that's also gonna be a partial drag on margin as well as we work through those, which we expect to get resolved by the third quarter. And then probably the last item I'd highlight is volume deleveraging. We do expect volumes to be down in Q2, and as you know, there's some manufacturing deleveraging associated with that. When I look across all those drivers, the good news is we expect to be at an inflection point where we start rebuilding margins this quarter, and I expect that to continue. But within the puts and takes, we expect about 100-200 basis points this quarter. Okay. The recall expense goes away too. You have more price, less recall expense, and gross margins goes lower. I'm missing something here in this, Kevin, from the Q1 to Q2. Yeah. There is. It, it- Yeah. The only other item I would highlight is there is seasonality to our business. Q2 tends to be our lower quarter because it's the lowest quarter for our Kingsford business, which is a nice profitable business. Typically, Q2 is a lower quarter for us in a normalized environment, and we'd expect that this quarter as well. Okay. The manufacturing and logistics, I hear you loud and clear on logistics. You can't refute that, right? We all see diesel prices. I think many of us were expecting at least the manufacturing component to flip to a tailwind as you exited some of those co-man and you repatriated volume. At least my expectation was that would be a powerful mitigator to some logistics. Maybe you can unpack that for us. Are we just overestimating the tailwinds of unwinding some of the incremental cost, or is it that logistics have really stepped up that much higher that they're materially outpacing those benefits? Yeah. Jason, I would say I think you're overestimating the value of unwinding those co-pack agreements. That was a nice benefit, but it was less than 100 basis points benefit to logistics and manufacturing as we stepped out of those agreements. It nicely helps contribute to rebuilding margins, but by no means was it a significant driver to the margin challenges we've been dealing with over the last six quarters or so. That's helpful. Thank you so much. I'll pass it on. Sure. Thanks, Jason. Our next question comes from Kaumil Gajrawala from Credit Suisse. Please go ahead, Kaumil. Hi, guys. Kevin, can you talk a bit about the operating deleverage with, you know, given how much volumes are declining? Certainly understand the justification for taking pricing, but we're seeing some big declines in volume. Can you maybe balance the, you know, trying to capture inflation on the cost side versus how much of a drag it might be on the manufacturing deleverage side? Sure, Kaumil. You know, it's interesting when you think about the manufacturer deleveraging. Typically, you expect to have a bigger impact for the volume decline we talked about being down 15%. What you're seeing, though, here that mitigates that is, as you know, we stepped out of those contract manufacturing agreements, so we brought that volume back into our plants. Our plant production volume is not down to the degree you're seeing our shipment cases down. We're essentially just turning off those co-packers. It minimizes the volume deleveraging we're seeing in our facilities, and I expect that going forward. Okay. Great. You mentioned in your I can't remember if it was a press release or your prepared remarks on distribution gains. Are those gains over the course of this year, and how does the distribution maybe compare to 2019? Sure. We've been able to grow total distribution points for eight consecutive quarters now. Our team is doing the work on both restoring the base. You know, if you remember, we rationalized assortment at the beginning of the pandemic to be able to produce as much product as we possibly could. Part of that is restoring back to some of the distribution that we thoughtfully removed on our own in order to run efficiently. Most importantly, we're gaining distribution on the innovation programs that we have in place and have been able to continue that trend, moving in the right direction. We're really happy about where we are from a distribution perspective and continuing to invest in innovation so that we can continue that trend moving forward. Okay. Great. Thank you. Thanks. Our next question comes from Lauren Lieberman from Barclays. Please go ahead, Lauren. Great. Thanks. First question was just the level of pricing at a total company level, 12%, you know, I was just sitting here opening up all my models, and I don't think we have any other U.S.-facing companies or companies who report geographically in HPC who've you know put up that kind of pricing. I guess, Linda, first off, as you put through another round of pricing in December, you know, why is it that you're so confident that you won't see some share wobbles? You commented on the elasticity and not being trade down. Is it just that consumers are using or consuming less at this point, and that's the elasticity you're seeing? Because you're, you know, you're suggesting it's not about share loss, but elasticity, you know, exists, albeit in line with your forecast. Yeah, Lauren, on you know pricing, I think it's very difficult to compare across companies, because everybody has different portfolios and to your good point, have different global portfolios. What I would say and I think this is important, if we look category by category for us, our pricing is in line with the categories that we compete in around the world. As I mentioned earlier, our price gaps are about what they were pre-pandemic, which would, of course, imply that pricing has been about equal across the competitive set that we have in our specific categories and countries. We would expect, although we'll lead in many of these price increases, that would continue. That our price gaps would largely be in line. That is something that we are looking at with eyes wide open on our plan, that we might have to make adjustments if that is not the case, coming out of the fourth round of pricing in December. Largely, we believe that will be the case, that our price gaps will continue, while noisy in the short term as people adjust, will continue to be what they were pre-pandemic. Our elasticities are holding exactly what they thought they would. They've been slightly favorable to pre-pandemic. We're starting to see them drift towards historical levels, which is what we expected. We're seeing consumer behavior in line with our expectations. What, you know, elasticity really is in these categories, is consumers adjust their behavior. They are not trading, in our case, in our categories, to private label, but they are maybe making a trash bag last a little bit longer by making sure it's full all the way. They're delaying their purchase cycles a little bit and trying to stretch what product they have. That's typically what we see in our categories. People don't just exit them in full, but they try to find ways to get a bigger bang for their buck. That's consistent with the behavior we're seeing. We don't expect that to change for the fourth round of pricing. To your very good point, we are going to watch it very carefully, and we're ready to make adjustments to our plan if we need to ensure our price gaps are in line and our business continues to remain healthy with consumers. Okay. Thank you for that. I guess, you know, recognizing how strong the aggregate sales versus without a doubt, I guess, and elasticity in line with expectations, as you said several times. At what point does the rate of volume decline be something that is more than you wanna see? You know that you know, because it's a bit striking, right? We've had lots of companies that we've seen take a lot of pricing, but no one's had the volume decline of this magnitude is striking. At what point does that become problematic that if you weren't in the position of having the benefit of bringing production back in-house, that's supporting the margin and, you know, obfuscating any kind of degree of volume deleverage, that it would be a bigger problem. As we look forward, I think that's just an important question to think about your sensitivity to volume declines or lack thereof. Yeah. You know, we're focused really on three big buckets, Lauren. We're focused on ensuring we maintain top-line momentum, which is, of course, in part sustained by selling a certain amount of volume at a certain price. We are laser-focused on rebuilding margins over time, and as Kevin and I have reiterated, we're committed to growing margins over the long term and returning them back to pre-pandemic levels. Most importantly, the foundation of all of that is having healthy brands. You can bet we are looking incredibly closely at all of the consumer metrics to see and ensure that we remain in a good spot. Here's what we see to date, but we'll be watching this moving forward. You know, we have the highest consumer value rating on our record since we've measured it, with 75% of our portfolio deemed superior by consumers and increasing superiority in countries around the world as we've measured it. We're making progress on share, you know, growing share in our largest four businesses. International looks really strong. I don't think, you know, from a category perspective, we're not underperforming, and we're seeing similar types of activities from our peers, given our price gaps have remained the same. Innovation is working in these categories and people are continuing to look for that for a source of value. The consumer fundamentals continue to remain strong. We expect volume loss as part of pricing, and we expect over time we'll start to build some of that volume back as behavior normalizes. Really, we're keeping an eye on that trifecta and managing that very carefully. Of course, that third bucket is all what it hinges on. Lauren, we're looking at it all the time to ensure we continue to offer that value to consumers. To date, we do. We'll make adjustments if we don't. If it does get to the point where those metrics start to erode in a place where we don't feel the long-term ability for us to grow and grow margins is there, then we'll make adjustments. For now, I feel very comfortable with the three rounds of pricing and the fourth we have planned for December based on what we're seeing from the consumer. Okay, great. Thanks so much. Thanks, Lauren. Our next question comes from Stephen Powers from Deutsche Bank. Please go ahead, Stephen. Well, thank you very much. So staying on the topic of pricing and maybe just to clean up from in my own mind some of this, the earlier discussion, I guess I'm just curious on the sort of cost justification, the impetus for the price increase, the fourth round in December, just given that it sounded like the overall cost inflation outlook for the year was round about the same, especially on commodities. The first quarter gross margin, if you take out the recall impact, came in a couple hundred basis points above your original outlook. Is there something I'm missing in there, or was the price increase contemplated in the original outlook for the year? Just if you could help me there, that'd be great. Sure, Steve. Let me try to provide a little bit more perspective on pricing and what we're trying to accomplish with our pricing. As you know from some of our previous discussions, we're not pricing just looking at the cost environment right now, but this is pricing to recover the cost inflation we've dealt with over several years. If you look at the last two years plus what we're projecting this year, it's about $1.5 billion of cost inflation to our supply chain. All else being equal, that's over 20 gross margin points we have lost through cost inflation over that period of time. That's what we're working to build back. Now, pricing is a very important element to that. We don't expect to recover it all through pricing. That's why we're also driving our cost savings program. We're working to optimize our supply chain. This fourth round of pricing was always contemplated in our outlook, and it is part of the actions we're taking to rebuild the margins because of the cost inflation, not only this year, but the cost inflation we've been dealing with over the last 36 months. We think this is a necessary action, again, along with all the other actions we're taking that put us in a position to start rebuilding margins this year, and I'd expect that to continue as we move into fiscal year 2024. Is there, I mean, outside of the FX-driven pricing in overseas markets, is there additional pricing contemplated in the current year outlook that we should also be contemplating? I'm just trying to get a sense for at what point we're incremental to your plan. Yeah. Yeah, Steve. We always had the December price increase planned, but we are taking some additional brands more than we had originally planned and contemplated in the outlook. At this point, you know, we're gonna continue to take pricing over the course of this long-range plan till we get to the place where we've rebuilt margins, and that'll be a combination of cost savings and pricing and supply chain optimization and, of course, hopefully, seeing some of these commodities roll over in the out years. At this point, we don't have any additional pricing to speak about here, but we'll keep you updated as we take additional rounds. If you recall, we talked about price pack architecture playing a bigger role moving forward, and those actions, you know, we have been working on for the last 12-18 months, and we're gonna start to see those have a bigger impact in the back half of this fiscal year and in fiscal year 2024. Okay. Nope. That makes good sense. I appreciate it. Thank you very much. Thanks, Steve. Thanks, Stephen. Our next question comes from Kevin Grundy from Jefferies. Please go ahead, Kevin. Great. Thanks. Good afternoon, everyone. Linda, I wanted to come back to market share and potential trade down risk. I guess just first try to reconcile a bit some of the differences that we're seeing in the scan data versus your comments. The Nielsen data would suggest you're losing share in, you know, more than half of your portfolio. I also kinda took note about your comments about you're not seeing any material signs of trade down from your brands or to private label, and that seems a bit inconsistent with what we're seeing in the Nielsen data as well, where private label is picking up share in bags and bleach and wipes and dressing, et cetera. My first question is just that, maybe just some overarching views on what you might be seeing the differences in track versus non-track channels. Sure. Yeah, my comments on market share against growing outlet share in the four largest businesses obviously contemplates beyond what you can see in Nielsen, but what you see in Nielsen is consistent with what we see in track channels. What I've said is, you know, there's a bunch of factors going on here. You have pricing, you have demand normalization, and then you have things like assortment normalization that are still going on as that the impacts from the pandemic are getting flushed out. What we can say with confidence is there is no material trade down due to pricing that we are seeing in private label in our categories. In fact, what we're really seeing is some of the third-tier brands being squeezed, where we're growing share and private label is growing share in categories. We don't see a trading between our portfolio, given the pricing that we're taking. You are seeing things like assortment normalization continue, and those can have an impact in individual categories. All of the data that we see looking at both tracked and non-tracked channels, we don't have any material trade down to private label. Okay. I guess it would not be terribly surprising if that were to be the case. I guess, particularly in your categories, right? Where, you know, we're not seeing as much in personal care, you don't see it as much in beverages, and we're not really seeing it in alcohol. Is it your expectation that you do not see it in your current planning as you're thinking about category growth rates, elasticities, and share that's not currently embedded in your outlook? That's correct, Kevin. We do not have a material trade down to private label included in our outlook. Okay. That is consistent with how we've performed. You know, if you look at 2008, private label did not make any material share progress in our categories, and we're anticipating much the same in this environment. Okay. Very good. I'll leave it there. Thank you very much, Linda. I appreciate it. Thanks, Kevin. This concludes the question-and-answer session. Ms. Rendle, I would like to now turn the call back to you. Thanks again, everyone. I look forward to speaking with you again on our next call in February. Until then, please stay well. This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.