Gentlemen, welcome to The Clorox Company Q2 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'd 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 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 conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference. Thank you, Jen. Good afternoon, 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, may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect such forward-looking statements, which has been filed with the SEC. 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 reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. I'll turn it over to Linda. Hello, everyone, and thank you for joining us. As I mentioned in our prepared remarks, despite persistent macroeconomic headwinds, we delivered better-than-expected Q2 results with organic sales growth in three of four segments, gross margin expansion, and double-digit earnings growth. Our performance reflects the strength and superior value of our brands, strong execution across a broad set of actions, and the benefit of some timing shifts. As a result, we've updated our full-year outlook. During the quarter, we made good progress rebuilding margin, driving top line momentum, and executing against our IGNITE strategy to strengthen our advantages and accelerate profitable growth for the long term. This includes advancing our innovation pipeline, delivering cost savings, and taking additional cost-justified pricing actions while maintaining record-high consumer value superiority. Overall, we feel good about our progress, but we're relentlessly driving additional improvements as we continue to invest in our brands, categories, and capabilities. Looking ahead, we expect the operating environment to remain volatile and challenging, and we'll continue using all the levers under our control while protecting the value proposition of our products to recover margin and drive long-term growth for our brands and categories. We are confident that our leading product portfolio in essential categories, coupled with our proactive actions, will enable us to navigate this environment and return to more consistent, profitable growth over time. With that, Kevin and I will take your questions. Thank you, Ms. Rendle. Ladies and gentlemen, if you have a question, please press star one on your touch-tone telephone. Our first question today will come from Peter Grom with UBS. Thanks, operator, and good afternoon, everyone. Maybe just to start when we think about the 2Q performance, and I know you outlined a few things in the script, but just from our perspective +4% organic versus your original guidance of down low single digits and kind of gross margin coming in 200 basis points or so above the midpoint of your outlook, it's a decent amount of upside versus what you were expecting. Can you maybe just help us understand where were the biggest surprises versus your forecast for those two items? Sure. Thanks, Peter. T he first thing that I would just start with, I'll hand it over to Kevin to walk through the quarter in a bit more detail we're doing exactly what we said we were gonna do. We are maintaining top-line momentum, which came in better than we expected, Kevin will walk you through those factors, while also doing the hard work to improve margins. From that perspective, we're feeling good about that balance. We're gonna continue to be focused on it for the year. Kevin, why don't you take them through the details of how the quarter shook out? Sure. Peter, I would say in terms of the strength of the quarter, if I think about the top line, as Linda said, really good, strong fundamentals on the business. We saw consumption up 6%. We held share in track channels in the U.S. We continue to grow shares internationally. We delivered a record cost savings for the quarter. In fact, we had to go back and look. This is the strongest quarter we've had in the last 10 years. Really great execution by our team. A nother area I'd highlight is we hit a record case fill rate since the pandemic's begun. Our team continues to make very good progress improving our supply chain operations in spite of the ongoing disruptions we're dealing with. I'd say from a business fundamentals perspective, the team has done really good work this quarter. I'd also say, and you saw in our prepared remarks, we've had some benefit from some timing shifts. O ne we'd call out is cold and flu season. We saw the season start earlier than we anticipated, and we think it's peaked in our Q2. Typically, you see cold and flu season peak in the January, February timeframe, which is our Q3. We think that's pulled forward into Q2 some of our shipments for cleaning, disinfecting products. We also had a little bit of merch timing shifts, and that's pretty typical moving between quarters. It won't have any impact on the year, but provided some benefit to the quarter. , lastly, as I said, cost savings. While it was certainly a record quarter and we're on track for the full year to have a very strong year, the team was able to pull forward some of that benefit. Collectively, the good, strong fundamentals of the business, plus a little bit of timing benefit were the primary drivers of a really strong performance in the quarter. Got it. That's helpful. Then maybe just like a bigger picture question on the gross margin front, and you've obviously made some great strides here the past, or this quarter specifically. Kevin, I would just be curious if you could comment on how we should be really thinking about gross margin progression for the next 18 months or so in the context of what we're seeing today given the 40% exit rate. I t just would seem that you could have substantial margin expansion on top of the 37% that you're guiding to for this year if we can if we should expect sequential improvement from the 40% into the first half of next year. just any thoughts on kind of the margin recovery, how we should be kind of thinking about gross margin expansion over the next 18 months or so? Thanks. Yeah, Peter, what I'd say is I'm not gonna provide an outlook for our fiscal year 2024 today. I'm gonna resist doing that because there's so much volatility right now. We wanna get a little further into this year, finish the plans. We're just starting to develop our plans for next year right now, so it's a little premature to talk about that. What I would say is we feel very good about the progress we're making. As you folks know, we believe this quarter was an inflection point for us. We returned to gross margin expansion. We've done that. You saw in our prepared remarks, we expect to build on that in Q3, looking to get to 200-300 basis points of additional expansion, then continue in Q4. As you think forward beyond fiscal year 2023, at a very high level, you should expect us to continue to prioritize what we're doing right now, which is maintaining our top-line momentum and making the investments necessary to do that. We're continuing to work to rebuild margins, and we said that'll take some time, but that work is underway. We're gonna continue to drive our strategic initiatives, our digital transformations, our streamlined operating model. Those will continue to be our priorities. We'll give you a better feel for that as we get closer to fiscal year 2024. Got it. Thanks so much. I'll pass it on. Our next question will come from Dara Mohsenian with Morgan Stanley. Hey, guys. Good afternoon. Good afternoon. Just a point of clarification on gross margins. You came in better than expected in both Q1 and Q2. Is there some offset in the back half of the year as we think about full year guidance not changing, or is it more conservatism just given the volatility out there? Secondly, you took some pricing in December. Any initial thoughts on competitive response if you're seeing any big pushbacks from retailers? Probably too early to judge consumer demand, but any thoughts on that front would be helpful also, just relative to the December increases. Thanks. Sure. Let me start on gross margin, and then Linda can comment on pricing. As it relates to gross margin, as you said, we did over-deliver our expectations for Q2. We came into the quarter targeting 100 to 200 basis point improvement. We delivered a little over 300. If you look at the drivers of that over-delivery, I'd point to two items. The first is less operating de-leveraging. Because of the very strong top-line performance, and it exceeded our expectations, volume was only down 10% for the quarter. We had anticipated it'd be down more, and we're expecting more de-leveraging. We see the benefit of that item, which tends to be discrete in the quarter. Then we did have some benefit of pulling cost savings forward. We remain on track to have a very good year. We're not changing our full year view of cost savings. The team did some nice work pulling some of those projects in early, and I'm always happy to get cost savings projects started early. That was a benefit as well that'll have a bit of an impact on the back half of the year. So I think this is a balanced forecast for gross margins, where you continue to believe we'll get to about 38% on the full year. Dara, you made this comment, and I agree. It's still an environment with lower visibility and quite a bit of volatility. So I wanna see how this fourth round of pricing plays out. It's a little early for us to read. I wanna get another quarter under our belt and see how that's playing out, and I think we'll have a better perspective on the full year. With that, let me turn it over to Linda to talk a little bit more about pricing. Yes. Kevin just mentioned we executed that fourth round of pricing in early December. As Kevin noted, it's too early to determine from a consumer perspective their reactions. I would say to date, everything looks in line with our expectations from an elasticity perspective. Again, too early. We haven't had a full purchase cycle yet, and it's still being reflected in the market. As it relates to the competition, we did say in this price increase we led for the most part on this round of pricing. While we've seen some category movement in pricing, there are other categories we have not seen competitors move in yet. We're watching that really, really closely, to see what that's gonna look like we're prepared to react if our price caps get out of line, or if we're seeing a consumer reaction not in line with our expectations given the full category hasn't moved. Too early yet, to judge that, but it is true that some categories we have not seen competition move, subsequent to our pricing. Thank you. Our next question will come from Andrea Teixeira with J.P. Morgan. Thank you. Good afternoon. I wanted to go back to the top line outlook improvement. I think that probably, as you mentioned, is a function of price elasticity or maybe the pull forward of shipments at this point. Is that the reason why you also did not raise guidance as much as you could have given the beat? Is that something that perhaps the retailers took on more shipments ahead of the price increase in December, and therefore you can see some of that pull forward, corrected in the Q3 fiscal? Is that how we should be thinking? Andrea, I would say overall, I feel very good about where we're at from a top-line perspective. As you saw, we narrowed our range, and we moved it to the top half of our range. From an organic perspective, we're now targeting flat to up 3%. If you look at our performance in through the first half of the year, organic sales growth is a little over half a percent. That success suggests much stronger performance in the back half of the year. The outlook, I think, really reflects a good start to the year, but it would project acceleration in the back half of the year in terms of organic sales growth really driven by, again, good strength in the business plus the ongoing impact of the pricing actions we're taking. I think if you look at the range right now, you can do the math, it would suggest the back half would be anywhere from flat to up 5% on an organic basis. We've got still a fairly wide range in the back half of the year, and I think that reflects exactly what Linda was just talking about. There is some uncertainty about how this 4th round of pricing will go. We think it's appropriate to maintain a bit wider range until we see exactly how both the consumers react to this round of pricing, as well as what we see from other manufacturers in terms of if they choose to follow or not. With the Q4 price increase, just to fine point, I'm sorry, the December price increase, the fourth round, can you remind us again how much would be the average pricing that you get into the beginning of the Q3 as we enter the Q3? Yes. This fourth round was a bit more moderate than we had taken in July. If you recall, July was the largest of the four price increases. This one was around mid-single-digit, and fairly broad across the portfolio, but more moderate than we had taken in the past. Again, too early to judge on what the pricing looks like and what the impacts are, but this one was definitely more moderate than what we saw in July. If you look at july the elasticities are exactly in line with our expectations across categories. So we would expect our models to continue to hold in December, but it's dynamic out there and consumers are certainly facing a lot of inflation in their broader basket, so we're watching it closely. That's helpful. The mid-single digits plus a high single, in general, like on average, you probably are running around mid-teens. That implies in the midpoint of the range, if the 0-5, you're looking at 2.5, you're probably looking at elasticities running around 12, 13. Is that the way your model now calls for the second half? Yeah, Andrea, what I would say, in terms of elasticities, our expectation is elasticities for this December round of pricing will be very similar to what we saw in July, which is consistent with our historical levels of elasticity. You might remember in the first few rounds, we were seeing lower elasticities than historical levels. Mm-hmm. Consumers were less price sensitive, but now that's really reverted back to historical level elasticity. I would say on the back half, be a little careful 'cause we do have some shifting as we talk about between quarters. I think maybe a better way to look at that, if you try to take out the noise of some volume shifting between Q2 and q3 Q2, we had 4% organic sales growth. You saw in my prepared remarks, you may have seen we're projecting 2%-3% growth, organic sales growth in Q3. Over that six-month period, we're looking at organic sales growth a little over 3%. Clearly an acceleration of where we've been based on the fundamentals of the business we're talking about. Consumers continue to be resilient. Our categories have been shown to be resilient to date, and I think that's reflected in raising our outlook. The elasticity is about 0.7, right? If my math is serves me right on average on all the categories. Yes. Andrea, we don't comment on specifically on elasticities. As you can imagine, they're quite different by category, by geography. It's something we don't comment publicly on the elasticities of the brands. Okay. Thank you. I'll pass it on. Our next question will come from Kaumil Gajrawala with Credit Suisse. Hey, everybody. Good afternoon. Evening for us. Can you talk a bit about supply and about inventory? You mentioned the fill rates were great. Maybe just a little bit more on your ability to supply through your various maybe digging into the categories a little bit. How do you feel about trade inventories as well as maybe inventories in the pantries? Sure. Thanks, Camille, for the question. On supply, I would say the supply chain, we're definitely seeing improvements from the disruptions we're dealing with over the last year or two. It continues to normalize, and that certainly help benefit our inventory levels. As, we had raised safety stocks to try to help manage the supply chain disruptions we're dealing with and create less impact to our ability to ship product to our retailers. As the supply chain is normalizing, we are able to go back and reduce these safety stock levels. As an example, in Q2, this is a fourth straight quarter that we've been able to reduce inventory levels. I think year-over-year, we pulled another four days out of inventory on hand, and that's really a reflection of an improving supply chain. You heard my earlier comment. One example of that is we've hit the highest case fill rate we've been able to deliver since the pandemic began. We've done that through some very good work by our team, but I would tell you, we are still dealing with intermittent supply chain disruptions. I'm sure you'll remember last quarter, we talked about a few disruptions on our Glad and our Burt's Bees business. That continues to occur, but it's certainly starting to normalize and we're seeing less disruptions than we did a few years ago. That's allowed us to continue to work to optimize our supply chain, and one of those elements is reducing inventory levels. Then from a retailer perspective, the only place we saw some change in retailer inventory levels was on our Brita business in Q2. We did see a little bit of a reduction in retail inventories on that business. Nothing else to speak of. I would tell you, in our outlook, we're not anticipating any additional material changes to retail inventories. T hat always goes on every quarter. You'll see some noise, but nothing that we think has any meaningful impact on our outlook, and that's what's assumed right now. Maybe, I don't know, Linda, if you wanna talk about consumer pantry levels. Yeah, i what we're seeing is very similar to what Kevin highlighted just in retail. We are not seeing significant pantry loading by consumers or changes in behavior as it relates to the pantry. What we are seeing, I think we'll highlight it in probably some discussion around what's going on with pricing with the consumer, we are seeing consumers continue to drive value-seeking behaviors given what they're facing. We're seeing some purchase cycles extend as people try to make products work longer for them. They're purchasing different sizes, that's changing the purchase cycle. That's largely in line with what we would expect from the elasticity impact. That's in line with our expectations, we're not seeing any other consumer behavior that's abnormal outside of that normal elasticity impact. Okay. Got it. I guess if supply chain's in more of a normal place, inventories are at a normal place both at retail and consumer, you now have a higher top-line outlook that's we're at in more of a normalized zone then. Is that fair to say, where some of those puts and takes over the last couple of years are behind us? I wouldn't say normalized. I mean, I think that's probably overstating it. We are still dealing with supply chain disruptions. I would just say the frequency of those disruptions has definitely gone down. I wouldn't describe it as a normal environment. We're still dealing with a number of challenges on a regular basis, but certainly at a lower frequency. W e were just talking last quarter about several of those that we're still working to resolve, mostly behind us. I would expect we'll see more disruptions going forward. I don't believe we're in a position not to expect that. That's probably the way I would better describe it than we're in a normal environment. Got it. Better than before, but not normal. Certainly better than before. That's. Got it. Well done. Thank you. Okay. Thank you. We'll hear next from Christopher Carey with Wells Fargo. Hi, everyone. Hi. Hi. I wanna follow up on the supply chain dynamic in the context of your gross margin outlook for Q3. I and I guess it's similar to the volume outlook, but I'm struggling a little bit given the delivery in Q2 with why it shouldn't be potentially a lot better, right?, unless productivity gets worse, you have pricing, which is gonna remain strong. Raw materials probably get sequentially better. You just were talking about manufacturing and logistics, which sounds like it should get better. F rom a volume standpoint, you're gonna be tracking similar to what you just did in Q2. W hy is the maybe like the other... why is the operating leverage so much worse in Q3?, maybe like, what am I missing? What gets worse sequentially? Yeah. Chris, thank you for the question. I agree. We do expect gross margin will get better in Q3. If you look at what we provided in the prepared remarks, we're looking at a gross margin of 38%-39%. I think a very nice improvement for where we landed in Q2 at just a little over 36%. You may also recall, we don't use spot rates when we develop our outlooks. We use forward curves, so our outlook has always anticipated declining commodity costs as we move through the year. That's not a change in assumption for us. The only other item I would highlight is we will likely see more volume deleveraging in Q3 versus Q2 because keep in mind now, we have the fourth round of pricing that went into effect in December. It had no meaningful impact on the Q2. You'll start to see the impact of that in the Q3 which means I would expect a bit more volume decline in Q3 than versus what we saw in Q2, as you now have one more round in pricing and the elasticities associated with that round of pricing. A little bit more volume deleveraging, but in spite of that, we're gonna continue to drive nice benefits from pricing, cost savings, and a result, I expect to continue to make very nice sequential progress. I t'll be up, we believe, up 200-300 basis points versus Q2, and that keeps us very much on track. We're getting back to about 40% by the Q4. Okay. Got it. just to confirm, that volume that you're talking about, a lot of that's in the health and wellness segment just given timing of cold and flu? No. The volume deleveraging will be based on the pricing. As Linda mentioned, the pricing is pretty broad-based across our portfolio. As we take our fourth round of pricing, there'll be an element of volume deleveraging because of the elasticities on those price increases. That'll impact the Q3. I think the other point you're making, also keep in mind, we're lapping the Omicron variant from Q3 of last year, that'll have an impact on our cleaning and disinfecting business as we've got a more difficult comp on that business. I think really a combination of both those items, you'll see that play out in our volume projections for Q3. Okay. All right. Great. Just one quick follow-up still on the gross margin front. T his was a nice sequential improvement in the manufacturing and logistics line, certainly relative to where we were, right? So have we reached the end of this headwind?, can we start thinking about manufacturing and logistics normalization and maybe even it turns to a tailwind for your gross margins at some point in the back half of next year? Certainly as we get into fiscal 2024, it does seem like some easing in this line item could be an unlock, something which you don't necessarily have control over, but we're looking at freight rates rolling over. Again, just the normalization in this line item, and it seems like a good development, so I wonder how sticky you think this is and candidly, whether this line item will ever actually become a tailwind for you, or is it just costs are higher and it's likely to remain inflationary over the medium-term horizon? Thanks so much for all that. Yeah, sure, Chris. I would say as it relates to manufacturing and logistics, our expectation is it'll continue to be a headwind this entire year. We think it's as you saw in our remarks, $400 million of supply chain inflation, about half of that is in commodities, the other half is in manufacturing logistics. We do think it moderates as we move through the year, so we think each quarter it'll be less of a hit than the previous quarter, it'll be inflationary for the entire year. That's factored into our outlook. As it relates to the medium to longer term, as I mentioned, we're gonna hold off on making any comments on fiscal year 2024. It's just a little too early for us to do that. At least this year, you should assume it'll continue to be inflationary, but moderating as we move through the quarters. Okay. Thank you. Thanks, Chris. Our next question will come from Jason English with Goldman Sachs. Hey, good afternoon, folks. Thank you for swapping in. Two quick questions. I guess logistics and manufacturing is now off the table. In cleaning, you guys mentioned that professional is still lagging, and I think you cited in there one driver is office occupancy, which seems odd. It seems like we're deep enough into COVID where office occupancy is actually going the other way. Can you unpack a bit more of the headwinds on the professional business in cleaning? Sure. Hey, Jason. T here was really two factors in professional. One, which is a more midterm issue, one that was a very short-term issue that affected professional last quarter. I'll start with that one, which was our Pine-Sol recall, and that impacted professional. We have a fairly large business in Pine-Sol in professional, and we'd expect as we bring that distribution back, that just to be a short-term impact. As you look at the medium term, though, office occupancy is still down significantly as return to office has been delayed, and we've all seen the press on how hard it's been to get people to come back into the office to the degree that we thought we would. That continues to be a headwind to the business. We're looking at other avenues to grow the business, beyond just that, looking at our portfolio broadly and innovation. We continue to have conviction that our professional business will be a growth driver for us in the future. It's good to see it start to be a bit more normalized than it was in the past, but we are still dealing with that office occupancy headwind. Okay. Okay. Kevin, I've had a lot of debate with investors recently around sort of normalized earnings, probably everyone's having that debate now. One key point of it really does rest at gross profit. I know you aspire to get back to historical gross margins in time, one way we're looking at it is around unit economics, with the notion that gross profit per unit is probably a more reasonable near-term target of what a normalized gross profit would look like. What, if any, holes do you see in that thought process? If you think gross profit per unit should be a lot higher than it was in fiscal 19, can you give us an understanding of, or better, a better explanation of kinda why and maybe where you might be able to achieve that? Thank you. Sure. Jason, I would say we aspire to do both. I mean, you start by rebuilding gross profit, then ultimately rebuild gross margin over time. For us, it'll be the same drivers we've talked about. We're gonna continue to execute the pricing actions that we've taken. As we've said, we don't have any additional plans to take further pricing this fiscal year, based on our cost forecast, but we'll continue to drive pricing. We'll continue to drive cost savings and supply chain optimization. That's the way that we think puts us in position to first recover gross profit and then ultimately keep going to recover gross margin. T Ypically, I'd say in a normal environment, the work we do on cost savings is enough to offset a normalized level of inflation and allow us to build margins over time. That allows us to continue to invest in our brands and continue to set the company up to deliver value over the long term. Obviously, we're dealing with a very unique environment right now with the unprecedented level of cost inflation, and so that's why we're leaning into pricing. I'd like to believe over time, as we get to a normalized environment, as you described, we get back to more of our consistent model where we're really driving cost savings, and that's allowing us to offset inflation and build margin over time. But we're not in that environment right now, so we're leaning more aggressively into pricing. I think ultimately it's always both. We start by rebuilding gross profit and then ultimately work to rebuild gross margin over time. Okay. Thank you. I'll pass it on. Thanks. Our next question will come from Kevin Grundy with Jefferies. Great. Good afternoon, guys. Question for both of you really on investment spending. There's I guess sort of what I'm trying to connect the dots here. You're still targeting 10% of sales for the year. You're about 9% the first half. Kevin, I think you mentioned. That implies naturally an acceleration in the back half of the year. Can you guys comment for a moment, I guess, on destinations for the spend? Number 2, why we would not expect to see a little bit more of an acceleration? If that's the case, why not more of sort of an immediate top-line payback and understanding that some of this is sort of more longer term in nature? It'd be great to get your thoughts on that. The third piece, because I think kind of coming away from the call, there's going to be, I suspect, a view that the gross margin guidance may be a little bit conservative given the strong performance in the front half of the fiscal year. What's your feeling on potential reinvestment? Understanding it's a long still, that there's still a ways to get back to where you'd like to from a gross margin perspective. How are you feeling about potential reinvestment this year? Should you exceed on your gross margin guidance? What's the likelihood that you would sort of lean in here and reinvest given some of the promising signs you've seen on the top line? Thanks for all that. Hey, Kevin. On the investment spending piece incredibly important. We're happy that we are maintaining share in an environment where we're aggressively going after rebuilding margin, and you all know that's exactly what we've targeted. We wanna keep our top line momentum while rebuilding margins at the same time, and that's how we're approaching investments. We're making the right short-term investments to do that, but we're also not taking our eye off the long term and continuing to invest in those things that are gonna make us a stronger company, like our digital transformation and like our op model. That's what we're focused on. It just happens to be the shape of spending to have less in the front half of our year versus the back half, given our plans. That's just the shape of the investment, and we still are targeting 10% from an advertising and sales promotion perspective, still continuing to invest in innovation. That's been going well for us. Overall gonna continue to focus that investment on our brands. What I will say, though, is we're watching our categories incredibly closely right now, the most important thing that we do is continue to deliver superior value to our consumers. Right now we're really happy to say among all that pricing that we took, strong double digits, we've maintained our record high superiority rating of 76%. W e were in the 50% range a few years ago, that combination gives us the confidence to continue to invest. If we see a change in that, where consumers are reacting in a different way, or if we don't see competition follow on price increases, we are ready with backup plans that we can activate very quickly to make adjustments to that. If we need to make additional investments, we will to support the value superiority of our brands. We feel we have that balance right now. That played out in Q2 behind the good balance we had in top line and bottom line. That's how we're thinking about it overall, and we'll continue to take a proactive approach of adjusting if we need to. Thanks, Linda. I appreciate the color. If I could just, one very quick follow-up, I think you kinda touched on this a little bit. Are you starting to hear from retailers at all, just given some of the moderation in commodities, that they'd like to see more on deal here, more trade promotion? Because it hasn't moved up. Looking at the scanner data on the 4 twelve-week basis, we haven't seen it move up a lot. We know that some of the categories you play in historically have been heavily promoted categories. I don't wanna assess it as a risk, but is that sort of coming up that some of this pricing you're gonna take, you're gonna have to go back on deal? I'll pass it on. Thank you. Yeah, Kevin, what you're seeing in the latest data is what we see from a Q2 perspective in that promotion is still below where it was pre-pandemic across our categories. It's higher than it was a year ago in our categories, but definitely lower than pre-pandemic. What we're hearing from retailers, which you would expect, is how do we continue to keep our categories healthy? It's not a discussion on promotion necessarily. It's a discussion on how we have the right set with the right distribution for our products, how we can lean into innovation, and drive value from a market basket perspective, from a retailer perspective. We are not hearing an abnormal amount of level of interest in promotion because they know that's not usually the right way to drive the category. We wanna use promotion very strategically in times of the year where we can ensure that consumers, like back to school, for example, or cold and flu, where we know people are looking for our products, and we can introduce them to innovation or remind them to buy. Those conversations continue to be really constructive, and we're mutually focused on ensuring the categories are healthy and doing it the right way. Thank you very much. Congrats on a good set of results. Thanks, Kevin. Our next question will come from Lauren Lieberman with Barclays Capital. Great, thanks. First thing I wanted to ask about was the performance in households because the volume growth was pretty striking. Just curious if you could tell us a little bit more about which of the businesses had volumes up and if there was any of the merchandising attached to that or kind of what was going on there 'cause, again, to see volume up with pricing as strong as it is pretty notable. Hi, Lauren. Yeah, happy to answer the question on households. As you saw, we had 9% growth in the segment. From a volume perspective, really, litter was the star of that group. We had double-digit growth in that business and we continue to see very strong category growth. As, we've talked about it before, strong pet adoption during the pandemic, that's continued to fuel that category, and then we've continued to see very strong performance in that business. We are seeing, in spite of the pricing we've taken, we are still growing volume in that business, more than offsetting the elasticity impact. Okay, great. Also just on the pricing, I can't remember which of you had mentioned, but that pricing really had very little impact on the Q2 given the timing that went into the market and some of it's still showing up on shelves. As we think about modeling forward, you spoke to seeing more volume pressure, but should we also see pricing accelerating versus what's already in the, in in the financials in the Q2? Lauren, I think you'll have two impacts. Now we're starting to lap the first round of pricing we took last year. You're starting to see some of that first round of pricing drop off as we get into the back half of our fiscal year. It's being replaced with this fourth round. It's not as clean as another round of pricing being added. I think in aggregate, this fourth round was larger than our first round. In aggregate, you'll see a little bit more benefit from pricing. You see a little larger hit in terms of the impact to volume from elasticities. Okay. All right. That's great. Yeah, and then just a final question, which we had. Just thought it was interesting the way the prepared remarks were written about rebuilding household penetration. Knowing that you don't typically expect a lot of revenue growth when you take pricing and everything is kind of going according to plan. I was curious what categories kind of warrant that extra attention specifically with regard to rebuilding household penetration, and what, if anything, you can tell us about plans to do that? Yeah, Lauren, this is a a fundamental thing we're really focused on. One of the trade-offs you do when you take the level of pricing that we're taking in the categories is you trade off some household penetration in the short term in order to do that. While we're still in 9 out of 10 households and have very strong household penetrations across our category, and in most cases are performing better than the category is in household penetration, this is one of the trade-offs that we're making. I think it's the right trade-off given the fact that we need to both maintain top-line momentum and rebuild margins. That being said household penetration is incredibly important to us and the health of our business over the long term, and we are committed to regrowing that over time. Typically what we see in price increases you see some volume loss initially as consumers adjust their behavior. You begin to rebuild that over time. Our first focus in household penetration will be rebuilding volume over the mid to long term. We will do that by continuing to invest in innovation, having strong levels of investment in our brands as we're gonna have 10% spending in ANSP this year, and continuing to make the right long-term digital investments to support brand building, et cetera. O ne note we were really proud of, we had our highest ROI marketing in this last period due to the personalization efforts that we've taken out. , we haven't talked a lot about that, but that's working, and it's allowing our money to work harder and will allow us to help us focus on growing household penetration over time. What I would just again to say it, this is a wide eye-open trade-off that we are making in household penetration, but it's something that as we rebuild volumes, we would expect to rebound over time. What's key to that is continuing to invest in our brand. Okay, great. Thank you so much. Thanks, Lauren. Our next question will come from Olivia Tong with Raymond James Financial. Great. Thank you. Wanted to ask you about Glad and Burt's, where things stand there, particularly with Glad, given the particularly strong performance in household, how much that contributed if Glad continues to be an issue? With Burt's, where do we stand with respect to some of the supply chain challenges there? Thank you. Sure. Glad was a business we were up in sales this quarter, and we actually grew share from a trash perspective. We're really pleased with the performance of Glad. Through multiple rounds of pricing, we're seeing strong performance in the market, and that's really behind our innovation program that we've spent a lot of time talking about, whether it be the addition of colors and scents, our focus on value there, our work on distribution across the retailer base is paying off, and we feel good about where that business is from a trash perspective. From a Burt's perspective we did share that we had a supply disruption that happened, and we believe we'd be able to work through it through Q3, and that continues to be the case. We made good progress on it in Q2, and we're able to support some strong holiday promotions and sales that led to growth on that business. We still have some work to do, and we intend to be through that by the end of this quarter. Right. Then just following up, and I know you mentioned a couple of times it's too early to read too much into the December pricing, but just overall, are you seeing any bifurcation as far as pack sizes or willingness to stay with branded versus private label, with high-end consumers versus low-end? I imagine that I don't think you have so far, but as the year progresses, how much of that is embedded into sort of some conservatism on the outlook? It seems like the consumer is still sticking with you, but just curious if you see anything that would give you a reason for some caution as the year progresses. Sure. A s we've said, it really is too early to judge December's price increase at this point. Maybe I'll speak, Olivia, to the broader sets of price increases and just what we're seeing on average and what we continue to expect to happen as December gets fully reflected in the marketplace. We are seeing consumers and our categories remain resilient, and you can see that just in the strong consumption that you see in MULO C right now. Consumers are reacting favorably, and I think this is really due to the fact that we're in essential categories. T hese brands play a role in consumers' everyday routines, and we're continuing to see them favor value. T hat's what we've always focused on with our brands. They're looking for superior value, not necessarily the lowest price. With our superior rating, I mentioned earlier, 76% consumers continue to feel that our brands are the best value, and they're voting for them in store. With that we are seeing value-seeking behavior, though, within our own brands. People want to stay with a Clorox company-branded product, they're trading within our portfolio, we've seen that over the last number of price increases. Some consumers are choosing to buy opening price points because perhaps that day their wallet, they have a limited amount of money they can spend in a category, or they're looking for the very, very best value on a price per use basis, they're trading up to larger sizes. Maybe they're trading within our cleaning portfolio between a dilutable and a spray cleaner in order to get the value equation right for them. The good news is we have offerings to meet their needs there, and that's what we're really focused on with retailers, ensuring we have the right distribution to meet those needs as consumers continue to look for the best value within our portfolio. I think we're gonna continue to see that happen. As it relates to private label, we're not seeing any meaningful trade down in our categories to private label. A nd again, we maintain share amid four price increases, so that is playing out. I'll tell you, we're watching it really closely. His, it looks like it is gonna continue to get tougher for the consumer in aggregate. We're looking particularly as that fourth round is implemented, and particularly in categories where we have higher private label penetration, to ensure that we have that right value. I also mentioned earlier, we haven't seen some competitors reflect an additional price increase as we did in December. We're watching our gaps really closely in those categories as well to ensure that we are continuing to offer superior value, and we will make adjustments. We are ready to, if we need to protect the value of those brands. But at the moment, category and consumer is resilient, our brands are very resilient, maintaining share. We're gonna continue to activate our plans on innovation and investment to keep them healthy. Our next question will come from Javier Escalante with Evercore ISI. Sir, your line is open. Hello, can you hear me? Sorry for that. Good afternoon, everyone. Wanted to double-click on the timing factors and the household volume growth of 3%. If you look at this current data, it shows a double-digit decline. If you can help us understand how much stronger this pet food, pet litter business was in the quarter and whether there was a channel shift there. Then I have a question more philosophically to Linda when it comes to the health and wellness business. Thank you. Javier, let me see if I answer your question on shifting. As we mentioned in Q2, we had some benefit of shifting of some merch activity. As I said, that's pretty typical that you'll see some merch events shift between quarters out of Q3 into Q2, and that was across a number of businesses. More specifically, we're seeing the benefit of an early start to cold and flu season in Q2 as it relates to our health and wellness portfolio. Maybe say a little bit more on what your question is. I'm not sure that gets at the question you're answering. No, it's a little bit more of a follow-up on Lauren's question when it comes to the jump in household and the categories that you've referred to being the shift in was health and wellness, and they were down 19%. The real jump was in household, we don't see that in retail. If you can give color there and help us understand the disconnect between what we see in retail and what you just reported. Yeah, I'll jump in on that one, Javier. You are noting a few categories that have very strong on-track channel performance. Particularly in litter, our business in club, that was due to some strong merchandising activity we had and actually some of the shift that we experienced from Q3 into Q2. That's what you're seeing, the difference between the track channels and what we're talking about from a volume and sales performance in household. Oh, very helpful, Linda. Basically curious how you go about answering this question with consumer research. You have health and wellness down 19%, it's lapping down 18% from a year ago, volumes. How you see normalization playing out? Do you see people cleaning more as they were during the pandemic, cleaning less? If they're cleaning less, how much many other quarters you feel that volumes are gonna be down in health and wellness? Thank you. T his is a category that certainly has had the biggest swings as consumers changed their behavior as we went through the height of the pandemic. We're still lapping we're still normalizing given Omicron happened last Q3 and we're in the process of lapping that right now. What I would say is if you look at this last Q2 versus pre-pandemic, our volumes are still higher. In aggregate, people are still cleaning more. And certainly we're still normalizing consumer behavior. Then we had a very abnormal cold and flu season this year. I t happened earlier, it happened in December from a peak perspective. It usually happens in January and February. There's a lot of dynamics in play here around normalization. What we see is still a business that has great opportunity to grow and be an outsized contributor to the company, given people they care about cleaning and disinfecting as part of keeping them well. We're gonna be normalizing as we get through this and consumers continue to adjust their behavior. Hopefully we'll get into a more normalized cycle where cold and flu normalizes, and we're seeing a more normalized impact from COVID, but we're not quite there yet. As we look at the volume loss that's really due to that factor around normalization, but also the pricing that we have, and it's in line with our expectations. As we look at that that just gives us conviction because it's about what we expected it to be. As we move forward, we'll continue to adjust as consumers adjust. It's the same thing. We're focusing on innovation in those categories where we can make the job easier for them. We're continuing to invest to help people to understand different ways to keep themselves well, whether that be in a professional setting or at home. We feel really good about the health and wellness business overall. It's just gonna be bumpy until we get back to a normalized environment. Thank you very much. Very helpful. Thanks, Javier. Our next question will come from Anna Lizzul with BofA Global Research. I just wanted to follow up on the cost side. You're still seeing cost inflation, but you noted in your prepared remarks that cost inflation has moderated slightly on a sequential basis, even though it's still higher year-over-year. I was wondering if you can give some more color on which inputs are moderating and how quickly those are coming down versus the ones that are still headwinds. Could you also remind us how quickly you expect some of your raw materials to come down in your P&L relative to when we see spot prices for those raw materials decline? Thank you. Sure. As it relates to the cost environment, and you said it correctly, we are seeing moderating cost increase. As I said, we anticipate it's gonna be inflationary all year long, but that year-over-year increase will moderate as we move through the year. As I look at specific commodities, we have anticipated resin would be a cost tailwind, so a lower year-over-year cost for resin. That's something we assumed at the beginning of the year, and that continues to play out, that we are seeing resin prices favorable at year-over-year. That is being offset by we're seeing increases in most of our other buys outside of resin. Soybean oil, linerboard, chemical, solvents, substrate, most of the other key buys that we are purchasing, we are seeing cost increases on a year-over-year basis, and we expect that to continue throughout the year. That's generally how it's playing out. What I would tell you when you talk about what that moderation is, I think you can see it when you look at just the first half results. If I look at Q1, commodities were a 330 basis point hit to gross margin. In Q2, they're a 240 basis point hit, that's exactly what we're describing. Still a headwind, but a lower hit each quarter. I would expect that to continue to play out, that we'll see a declining impact from commodity costs as we move through the year. Again, we're looking at $400 million worth of total inflation, resin being favorable. Most of our other buys continue to be unfavorable on a year-over-year basis. Okay, thank you. Just could you remind us how quickly you would expect the cost to come down in your P&L just relative to when we see those spot prices coming down? Yeah, I'm sorry you would ask that question as well. It really varies by commodities. In some cases, we hedge, and so in those cases, you may have nine-18 months before we'd see the impact of a changing commodity environment play through our cost structure. In other cases, we have contractual relationships with our suppliers that delays those changes. It's really hard to give you an enterprise answer how quickly that plays through. It is a commodity-by-commodity discussion based on how we've set up those relationships with our suppliers. Great. Thanks very much. Thank you. Our next question will come from Steve Powers with Deutsche Bank. Hey, thanks. Good evening. On the household penetration topic, I guess the question is, how much recovery at this point is anticipated sort of within the remainder of your outlook for fiscal 2023? Is that something you expect to see some sequential progress rebuilding in the next few months and quarters, or is that more of a fiscal 2024 and beyond objective? Yeah, Steve. On household penetration, that is definitely a more mid to long-term goal for us to get back to household penetrations. Given the fact that the December price increase is just starting to take a hold now we would expect to have to go through an entire cycle of that, and we haven't even lapsed the July price increase, which was our big one coming up here. That will be something that we're focused on now to ensure that we are investing and that we're keeping as many consumers in as we possibly can. That work will be rebuilding over 2024 and beyond. Yeah. Okay. I mean, is there an assumption that you may go backwards sort of as we get into calendar 2023 before you go forwards again, or is it more hold the line? Yeah, I think that's very possible, Steve. Based on the fact that we just took that pricing, we could see a bit more of a reduction in household penetration. Again, we think that is the right trade-off to make, to get that balance right between top line and bottom line. Yeah, it's possible as we go through, we could see some additional household penetration erosion. Okay. Okay. W e talked about promotional intensity in the category and right now it seems pretty rational, benign, constructive. I guess, is there is there at all in the base plan an element of increased promotion as you go through the next couple of quarters, or is that also more steady state as a base case? The base case is more steady state, Steve. A s we talk about promotions being a more strategic part of our portfolio than something that we just do to drive volume on a quarterly basis, that's the approach that we're taking for the back half of the year. We have good innovation plans. We wanna make sure that we hit consumers on key pulse periods to remind them about the category and the value that we drive. That's our approach. being what it is, we will look to ensure that we have the right value and that we are competitive. If there were to be a change in what we're seeing in the category today, which is slightly higher, like I said earlier, promotion than last year, but still less than in pandemic we could potentially adjust our plans, and we're ready to do that. We would expect just a more normalized promo environment. That's how we're treating it for the back half and that's what we've seen so far in Q2. Okay. Okay. The last question, on the one hand there's definitely a really good news story here in terms of the pricing momentum you've gotten, and the sort of the gap between pricing that's building relative to the cost trend and the gross margin rebuild. On the other hand, you've mentioned a couple of times tonight, just the price gaps that you're watching, whether private label or branded price gaps. A nd just the sort of consumer resiliency, post this fourth wave of pricing. I guess, can you give us a better sense of what the mile markers are for you in terms of is it just the gaps that you're seeing that you're have widened out? , is there a time period where you just don't wanna see those gaps that wide for that long? Is it value share? Is it volume share? Is it those household penetration metrics? I mean, I'm sure it's a mosaic of all those things and probably some others, but just give us a little sense of kind of the if there are more important indicators in there, that would be helpful. Just the way you're thinking about it. Yeah, you got it right on mosaic, Steve. That's exactly it, which is we're taking a combination of all of those factors as we're deciding if we need to adjust our plans or not. Really primarily what we're looking at is consumer reaction to our brands and we're looking very closely at any changes that would be outside of what we expect given the elasticities that we have in market. Then we would make corresponding plans. We're looking at competitors to see are they doing something different? Are they promoting more heavily? Or are they looking at a certain pack size that would make us adjust our plans? Those are the two primary factors we're looking at in the very short term. Of course, as we look over months and quarters, we're looking at share, and we're really happy that we maintained share this quarter, given the fourth round of pricing. That's the other thing we're watching. I s there too much of a slide in share? Is that trade-off not worth it? Et cetera. We're looking at all of it. T o start, we're looking at that gap. We're looking at consumer behavior by category to say, is it different than our expectations? Adjusting from there. Okay. Very clear. I appreciate it. Thank you very much. Thanks, Steve. This concludes the question and answer session. Ms. Rendle, I'd like to now turn the conference back to you. Thank you, everyone. We'll see you at CAGNY later this month and look forward to updating you on our progress in May. Please stay well. This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.