高樂氏 (CLX) 2002 Q3 法說會逐字稿

Good day. Welcome to the Clorox Company fiscal year 2002 third quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press the star button, followed by zero on your touch tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Craig Sullivan, Chairman and CEO of the Clorox Company, Mr. Sullivan you may begin your conference.

Thank you very much, operator. Good morning, or good afternoon. An thanks to all of you for joining our third quarter conference call today. With me in Oakland are Gerald Johnston, our Clorox President and COO. Karen Rose, our Chief Financial Officer. Steve [Silverblatt], Vice President for Communications and Investor Relations and Doug Hughes, Director of Investor Relations. And I think most of you know all of these folks. Now, we're also broadcasting this call over the internet at, and a replay of the call will be available for 7 days at www.clorox.com. As we normally do, I just want to remind that you this call will be containing forward-looking information and actual results may differ materially from what we're projecting. Information about factors that could cause actual results to differ materially from our expectations can be found in our filings with the SEC including our 10-k filing for the fiscal year ended June 30, 2001. Now, turning to the purpose of our call today, I'm going to provide a brief overview, a brief recap, of Clorox's third quarter results and the progress we have been making against our our fiscal year priorities. I'm going to ask Gerry to provide a bit more detail on the results in each of our business units and Karen Rose will review our P&L and balance sheet and discuss our outlook for the remainder of the fiscal year, and then I'll make a couple of closing comments and we'll move to Q&A. So let me start by saying that we're quite pleased with our third quarter results. Jumping straight to the bottom line, we delivered earnings of 45 cents per share, and that excludes the gain from the sale of two businesses during the quarter and excludes an asset impairment charge of $100 million that we previously asked that we would be taking on our business in Argentina Clorox's earnings per share is 2 cents higher than the upper end of our expectations with a penny coming from stronger business results than we had anticipated. The other penny comes from a currency translation gain since we still had assets denominated in U.S. Dollars on the books of our Argentine subsidiary at the end of March. Now, I'd just like to recap the rest of our results this quarter. I'm going to do that in the context of the progress we are continuing to make against our four key priorities that we have discussed with most of you in the past. First, in terms of our priority to restore growth, volume and sales were up 5% and 7% respectively versus the year ago period. Volumes came in at the high-end of the range that we had estimated while sales came in ahead of expectations by a few points. On an apples-to-apples basis, that is, excluding the impact from several divestitures, volume and sales growth were a point higher up 6 and 8% respectively. Then if you back out the effective foreign exchange rate, sales were up another 2 points. That is up 10% versus the year ago quarter. Now, clearly, a key driver here was the excellent results we achieved behind our launch of Clorox Readymop, which began shipping in January. Gerry's going to talk a bit more about that, give you more detail on that so for now, let me just say that we're very encouraged by the strong trade in consumer response we have experienced to date for this new product. We have been working on this floor cleaner concept for about five years now and we think we have come up with a terrific product that has great appeal to consumers. You have heard me talk in the past about the importance of executing with excellence. And I think what our product supply and our marketing organization and others have accomplished, what our sales force has done to get the kind of retail distribution and support we're seeing on Clorox Readymop are just great examples of outstanding execution. I also want to point out that our top line growth this quarter is not solely a function of great results on Readymop. In the U.S., we had solid growth on Kingsford Matchlight charcoal, on Glad trash Bags and Glad wrap, on Clorox Two and Clorox disinfecting wipes, Armorall and Hidden Valley Ranch salad dressing. This more than offset volume losses on our Brita and auto care businesses, this quarter, which were especially impacted by the reorganization under way at K-mart. And while International shipments were basically flat, due to the conditions in South America and especially in Argentina, we made good progress in growing our business in Mexico and Central America and Puerto Rico. So let me take a moment to discuss two underlying factors that I think are helping restore growth. Both of these things that we have noted in previous calls but which are even more pronounced in the current quarter. First, we are seeing much stronger growth rates in the U.S. For channels and customers that are not tracked by IRI or Nielsen. These include an additional Walmart, club stores, dollar stores and home improvement centers as well as pet and specialty auto. For the past year and a half Clorox shipment growth for these untracked channels has been about 9 to 11 points higher than for the tracked channels and the current quarter, that gap has jumped to more than 15 percentage points. For the first time, shipments to non-tracked channels represent more than 50% of our total U.S. business. I know Gerry will have something to say about the implications of these trends in terms of Clorox market shares but I would just note that we were, that we are aggressively pursuing opportunities to increase our distribution and capitalize on the growing importance of various non-tracked channels. The second factor that contributed to our progress in restoring growth is a continued heavy investment we are making in advertising. Especially on our core brands. In the third quarter, media spending as a percent of sales increased 190 basis points versus the year ago period, now in absolute dollars, that's equivalent to a 36% increase. While introduction spending for Clorox Readymop was obviously a factor, I would tell that you media spending was up significantly even if you exclude Readymop. We continue to believe that our advertising is working very hard for us, both to build and sustain long term brand loyalty and franchise health and to generate efficient volume growth in the near term. We have helped fund our increase investment in advertising by redirecting spending from certain other areas that, frankly, were not working as hard for us or were less efficient; for example, coupons and other promotion activity. This reallocation also contributed to the fact, as I node earlier, total Company sales growth in the third quarter out paced volume growth by two percentage pointed. Before turning to our second priority area, I would note that while we are continuing to make good progress overall in the top line, we know we have room for improvement in a number of areas. For example, Brita and STP which have been the most severely impacted of all of our brands by the situation in K-mart. And volumes for our international segment were basically flat. Up 1% on an apples-to-apples basis due largely to the very challenging conditions we have in South America. We also continue to be highly focused on building our home care business in the face of intense competitive activity. Our second priority is all about cutting costs in order to improve bottom line results and generate funds to reinvest back in the business and I think we have made great progress in the third quarter, both on the P&L as well as in the balance sheet. Gross margin improved about 50 basis points, but those results were depressed as we said they would be by our introduction of Clorox Readymop. Gross margins actually improved by more than 150 basis points in each of 7 of 9 of our business units. Improvements were most pronounced on our Glad business where gross margins with the highest on record for the last five years. What is true on Glad is also true virtually everywhere in our organization these days, namely that we have heightened our focus on cost savings opportunities, on improving the efficiency of our manufacturing operations, and our go to market programs. This is having a very, very positive impact on building margins and profits for the Company. This is clearly evident when it comes to our balance sheet. As Karen's going to discuss in more detail, we ratcheted working capital down to less than 1% of sales, 0.6% of sales this quarter. That's more than 900 basis points better than year ago. We achieved this by continuing to reduce our investment in inventories and receivables and in payables. I would add that the significant improvements we are seeing here come from virtually every one of our businesses including laundry, home care, despite the inventory build-up on Readymop and including Latin America, where we are making very solid progress to manage the inventories and improve collections in a very, very tough environment. That said, there is more we can and need to do to cut costs. One area where we'll be dialing up our focus is to improve the return on investment in Latin America. Gerry will be talking more about that. As we announced in our press release today, we are reducing our head count in Latin America by about 150 people.

We have got a lot of terrific people in Latin America and they have been striving with great dedication to address some really extraordinary adverse conditions, in Argentina obviously, but also on a number of other countries. But there is no question that those conditions are making a lot more challenging to achieve the margin and profit improvements we had target for latin America this year. One way that we are addressing our cost structure today is to bring the size of our administrative structure -- our administrative infrastructure in line with the size of our current business. As many of you know, about 15 months ago, we had to put our overall long term strategy on hold so we can focus on some critical near term challenges. We think that was the right thing to do and that overall it's having the desired effect. The same way, we believe that over the next 12 to 24 months we need to heighten our focus on improving the profitability of our business in latin America, while protecting our leading brands in that region. And we think that making progress against those short term priorities will help to show a stronger and healthier foundation for longer term growth. Now let me turn for a minute to our two remaining priority areas which are really enablers of our focus to restore growth and cut costs. First, we continue to make good progress in our initiative which we call project Delta, upgrade processes and systems. We had a successful SAP implementation in Mexico this quarter and we are making good progress on the first phase of Delta which covers the order to cash processes and systems. I think it's pretty clear that we are already seeing progress in terms of how we're managing working capital, but we think there is room for additional improvement once Delta that is fully up and running and that Delta is the key to our being able to sustain lower levels of working capital. Finally, I think we are making progress against our priority to get the gunk out of our business and out of our way out way we conduct business. Actually, one way we have been measuring this is by looking at the number of SKU's we are taking out of our system and while this is another area where there is still room for improvement, the fiscal year results to date are impressive. We have eliminated about a third of the excuse we had this time last year and that's contributing to the balance sheet improvements we talked about earlier. Finally, I would add that we have completed the sale of our [Himolen] e-business effective the end of the third quarter. This was an institutional trash can liner business that wasn't very strategic for us and it wasn't really providing any synergy with our branded retail bags and wraps business, that is with our Glad business. Divesting it was another step we took that will help us keep a sharper focus on those things that add most value to the Company. So with that as a setup, I'm going to turn this over to Gerry now for some additional perspective on each of our major business units.

Good morning or afternoon, depending on where you are. Let me begin by reviewing our segment business results. I'm going to start with Household Products North America. It's made up of the Glad, Brita, Home Care, and laundry business. Our shipments increased 11% and our sales were up 14% in the segment. Sales grew faster than volume due time proved product mix and reduced promotions spending which was partially redirected to advertisement. Our volume growth of the segment was primarily driven by strong growth in Home Care which was up 29% and that was largely fueled by the launch of Clorox Readymop. You know, as Craig mentioned earlier, we're clearly pleased with the initial results of Clorox Readymop. For those of you not familiar with the product, Clorox Readymop is a simple self-contained mopping system that includes a cleaning solution, a swivel head for hard-to-reach spots for cleaning, and an absorbent disposable cleaning pad to pick up the dirt. Consumers have hated mopping floors for a long time. So several years ago, about 5, we set out to design a better way to mop long before any new mopping systems were in the market. We feel the Clorox Readymop design has hit the mark. Judging from the initial response we have seen, both consumers and our customers agree. This quarter Readymop achieved the fastest speed to shelf ever in Clorox history. It also has achieved the highest initial sales of any new product in the Clorox Company's history. Our market research indicates it could be a sizable new segment in the household cleaning category but with this opportunity it's clear that the competitive environment is now heating up. In fact, key competitor recently rolled back their price for a third time, this time to about parity with Clorox Readymop. We're also aware a third product that is entering this segment this summer. These events, which are not unexpected, should be a positive overall in terms of growing the new category. Importantly, though, our research says we have a consumer preferred mopping system. I might also add that our cleaner is now good to use on wood floors and that's an important area for even more growth. You know, while it's clearly too soon to predict how things will shake out, long term, we certainly like our current product, our current market position, and our ability to compete in this space for the longer term. Importantly, our sell-through to consumers has already exceeded our expectations. Now, this quarter, the Home Care base business volume reflects improved performance for a number of key brands. We have seen double-digit volume growth on Formula 409, Clorox clean-up, Clorox toilet bowl cleaners and Clorox disinfecting wipes. On the other side, we had shipment softness on SOS, Liquid Plumber and Tilex due to some intense competitive activity. So we clearly still have work to do to get several brands back on track. The improving performance we're seeing overall is due to a variety of actions we're taking, including further dialing up our media investment with new copy on several brands, airing harder hitting ads showing our products benefits and superiority, implementing product improvements and working with retailers to improve their support for our brands. Now, as we go through the morning, we are going to talk about our market shares on some of our businesses. I think it's worth mentioning here the impact of the changes in tracked data in both IRI and Nielsen. Tracked data now represents less than 50% of our total business for the quarter. Importantly, the channels being measured have been lower growth than non-tracked channels. Non-tracked channels include businesses like clubs, dollar stores, specialty outlets, like [INAUDIBLE], home improvement along with Wal-mart. Many of these outlets carry fewer brands. Some carry only one brand in the category, usually the leading brand. This tends to favor companies like Clorox with leading brand positions. As a result, we know that our absolute shares and our shared growth in non-tracked channels are higher than is reported in tracked channels. In addition, we know that category growth is higher in non-tracked channels. I want to set aside, we still care about our shares in tracked channels. Those customers being monitored. But the point is that the syndicated data -- share data that we see today with less than half our volume is just not a good indicator of brand health. We also know this data is not a good proxy for projecting category growth rates. Now, for Clorox's business, as Craig mentioned, the difference in total Company year over year volume growth between tracked and untracked channels was more than 15 points in the third quarter. There are wide swings by individual businesses, in fact, in several cases we are seeing shipments to untracked channels growing at a rate that's more than 25 points higher than the growth rate to tracked channels. So while we will continue to reference share data going forward, keep in mind that this information is becoming less representative of the whole whether it's positive or negative. Now I'm going to move on to the laundry business. Shipments increased 3% overall as we achieved 5% growth behind our combined [INAUDIBLE] liquid bleach and Clorox 2 Products. This is the fourth consecutive quarter of combined share growth in tracked channels for the two brands. Driving our progress is a significant increase in our advertising and promotion investment for the core Clorox equity. Clearly, our bleach brands have responded positively. Partially offsetting these gains were volume losses from discontinued products like dry-cleaning. Extending the Clorox equity further, in April we began shipping Cloroxygen action, a new multipurpose stain removing cleaner that can be used in laundry and household cleaning applications. Now moving on to Brita, volumes declined as we expected. It was driven by fewer merchandising events in mass channels as well as the impact of some financial difficulties at K-mart. For perspective, shipments to K-mart from our combined Brita and auto businesses, they account for about 80% of all of Clorox's direct shipments to K-mart. Plus Brita and Auto are more highly developed at K-mart than our other businesses. Now, the Brita declines, though, were partially offset by distribution gains in warehouse clubs and some other non-tracked channels. But overall, Brita volume was down 15% and we expect Q4 to be soft as well for Brita although not as much. We're expecting to see this business pick up due to product innovation we are going to be bringing out this summer on both our puture and faucet mouth business. I'm not going to be providing more detail at this time for competitive reasons. Moving on to the bags and wraps business, Glad's branded volume was up 3% and total volume up 2% versus the year ago quarter. This was our fourth straight quarter of volume improvement. Fiscal year to date volumes are up 8%. Growth was driven by strong shipments in trash bags as well as record shipments in Glad Cling Wrap behind our increased advertising and product improvement. This is partially offset by continued rationalization of our pride of label business as we focus on improving margins. There continues to be heavy competitive activity in the food bag segment. I would just note here that we are going to be take some additional actions to defend that business. This quarter, the overall Glad business grew shares again in tracked channels in three out of four segments; trash, plastic wraps, and disposal containers. We attribute this improved performance to increased media support behind all business segments. An improved price value relationship on our trash bag business, and we made some distribution gains. Glad's branded volume is going to be flattish in the fourth quarter as we face the heaviest of last year's Glad fourth quarter promotion spending. We're also going to be continuing selectively rationalizing our private label business. For the total Household Products, North America segment, pre-tax profit, excluding special charges in the year ago period and excluding the impact from the sale of Himolene, increased 6%. This reflects higher volumes and cost savings, lower coupon expenses and raw material costs, partially offset by expenses associated with launching Clorox Readymop. The next segment I'll review is specialty products that includes the remaining U.S. Businesses, namely seasonal Products, dressings and sauces, as well as the U.S. and European auto care business. On an apples-to-apples basis, that is excluding the divested fire logs and maxforce business, volume and sales for this segment were up 2% and 8% respectively. This was driven by strong shipment growth in seasonal products and dressings and sauces. Sales grew faster than volume due to reduced promotion spending and some of that was partially redirected into media. Now, starting with our seasonal business, third quarter shipments on an apples-to-apples basis again excluding fire logs and maxforce where it was tracked, it increased 7%. It was fueled by record third quarter charcoal shipments and as a reminder, charcoal is the largest of our seasonal businesses. Seasonal business also includes combat insecticides and professional products. Charcoal continues to be one of the Company's top-performing businesses. Essentially competing only with private labels. This quarter was the fourth consecutive quarter of record shipments driven in part by significantly warmer weather than the year ago period. Additionally, this brand is benefiting from a product improvement, private label price increases, and solid distribution gains. The charcoal category continues to grow solidly and our total Kingsford charcoal shares in tracked channels were a record for the quarter. Our insecticide business also improved benefiting from warmer weather and increased distribution. Now I'm going to turn to auto care. Third quarter volume dropped by 1% compared to a strong year ago base. Volume gains from record Armorall wipes shipments were more than offset by declines in the STP fuel additives business. Now, as I mentioned earlier, K-mart's financial difficulties had an especially pronounced impact on auto and this certainly contributes to the weaker results this quarter. On a positive note, we are pleased that as we lap our introduction of the Armor All wipes into the competitive industry, we have continued to post solid volume games on that product. We do expect auto appearance to slow down during the next few quarters as the anniversaries double-digit volume increases and as we face increased competition. Moving on to cat liter, volumes declined 2% as strong shipments in Fresh Step Regular Scoop and Crystals were more than offset by volume declines in Scoop Away and noncore litter brands. Continuing volume strength on Fresh Step due to product improvements, distribution gains and increased advertising along with merchandising activity. In tracked channels, Fresh Step had solid share growth in both Fresh Step regular and scoopable segments. Now, Scoop Away's volume and shares softened this quarter after six quarters of high single-digit or better volume growth. This quarter's drop is mainly attributable to a price reduction by a key competitor in some markets. We are going to be actively taking steps to address this situation. Finally, we have just launched Fresh Step Cedar. That's got cedar chips to enhance odor control. While it's still early we're pleased with the initial selling. Now I'm going to switch to dressings and sauces where the volume was up 6% for the quarter behind strong shipments of Hidden Valley and dip mixes and record shipments of K.C. Masterpiece marinades. Our strength in the Hidden Valley shipments were the result of a variety of initiatives we put in place to address the intense competitive activities including higher media spending behind a new ad campaign and increased consumer and trade promotion events for us. Marinades growth was the result of increased sales behind new flavors launched during this last year. For the total specialty product segment pre-tax profit before special charges and divestitures was up 11%. Mainly due to increased cost savings and improved manufacturing efficiencies. Lastly, I'm going to turn to our Household Products Latin America and other segments. Third quarter volume was flat and sales declined 13%. The variance between sales and volume was primarily driven by the currency devaluations in Argentina and Venezuela. Excluding the impact of currency and to a lesser degree the divestiture impact of maxforce and international, volume was up 1% and sales were down 2%. Now, more detailed, in Mexico and Central America, shipments were actually strong for bleach as well as our launch of [pull up] fragrance cleaners. However, this was offset by volume in South America primarily from countries experiencing severe political or economic turmoil; Argentina, Venezuela and Colombia. Clorox is implementing a number of initiatives to mitigate the impact of the South American crisis. This includes reducing the size of the organization to improve our cost structure but cutting discretionary p&l and capital spending, taking price increases where warranted with the goal of maintaining margins, and carefully managing our collections to limit receivables exposure. Now, even with these changes, we are still facing an increasingly challenging business environment in this area. We are not expecting the situation to improve anytime soon. For the total household product Latin American other segment, pre-tax profit declined 8% excluding the special charges we took in calendar year 2001 and excluding the Argentina asset impairment. This decline is largely due to lower operating income stemming from those economic conditions. That concludes my review of Clorox's business units. I'm going to turn it over to Karen, who will review the third quarter financial results in a bit more depth.

Thank you, Gerry. Now, before I begin the financial review, I want to spend a few minutes providing you with an update with some conversations we're having with [deloitte and touche] our outside auditors and that's related to both our consulting and their auditing roles. As many of you know, we began our project Delta implementation -- that is, our project to upgrade our business processes and systems, about 18 months ago. As part of this project, we have been using several outside consultants to assist us. The first stage, for example, we worked primarily with the Pegasus consulting firm to do our technical requirements planning and we've also employed Price Waterhouse and the customer account plan part of our work. Last fall, as we moved into the work phase that addresses business process requirements, we determined that we needed to add a firm with more CPG expertise to assume the role of main consultant. Because this project is so critically important to us, we obviously told our people to find the firm with the best team for our work. And when their recommendation came back overwhelmingly to use [deloitte and touche], we went to our audit committee and together with them decided that we would use [deloitte and touche] for the consulting and sever the audit relationship at the end of this current fiscal year, again because we see our delta project as so mission-critical for us. This does not -- did not reflect on the job that Deloitte has done for us as auditor. They have served us very well. It was merely a choice that we felt we had to make. However, following this decision, the consequences of Enron became more apparent and Deloitte announced their intention to split the consulting business from audit services. A member of their board of directors met with us and has given us assurances that this will happen later this year so given this we have determined that for now, we will stay with Deloitte as our auditors and also as our consultants and there really are three big reasons why this makes sense. One, Deloitte's done and continues to do a very good job for us and we have a lot of confidence in them as auditors. Two, we would really prefer to avoid the expense and the disruption associated with an auditor change. This isn't a trivial event. And, three, we feel right now that it may prove difficult to find a strong audit team in the current environment when there are many companies trying to make a change from Arthur Andersen. Now, if [deloitte and touche] doesn't split we are obviously going to have to reassess this. Turning to our financial progress, as Craig mentioned this was another quarter of strong financial results improved P&L quality, a stronger balance sheet and the fourth straight record quarterly cash flow. I'll begin my review highlighting three events that I am packed our earnings this quarter. And then I'll walk you through the income statement, excluding these events. For comparisons, I'll also exclude the special charges we took in calendar year 2001. The first two events relate to the divestitures of maxforce and [himolene], which yielded a combined pre-tax gain from sale of $33 million. The third event was our decision to record a non-cash impairment charge of $100 million charge for our Argentina business. This charge reflects a lower value of our investment in that country due to the impact of the devaluation and also the current economic crisis. As Gerry discussed, we are taking a number of actions in Argentina as well as in our other parts of Latin America to improve our business results. But even with these improvements, the current profitability on our Argentine business is significantly reduced. Turning to the income statement, total Company reported volumes increased 5% and net sales increased 7% to more than $1 billion, which makes this a record third quarter for us. Excluding the impact from foreign currency, net sales were up 9%, and that's 10% of divested businesses also excluded. Gross margin was 42.2%. That's an increase of 50 basis points versus the prior year. Strong results from our cost savings initiatives were the single biggest driver of this improvement. Favorable market movement as well as reduced promotion expense also positively impacted margin. Partially offsetting these gains as expected was the impact of Clorox Readymop. Sources of the cost savings were pretty wide ranging and they included projects initiated in prior periods such as plant closing that is we announced and also ongoing efforts, such as cutting the number of SKU's across the Company to reduce complexity and improve operating efficiencies. This quarter, our domestic businesses eliminated an additional 8% of our existing SKU's, bringing the year-to-date reduction to 34%. While it's sometimes difficult to quantify the exact positive benefit from this activity, aside from the inventory reductions that we see, it's clearly contributing to greater focus and efficiencies throughout the Company. So we're very pleased that the progress we made this quarter at reducing our cost structure more than offset the gross margin impact from new product introductions. Combined advertising and non-coupon sales promotion expenses increased 17%, or 80 basis points, and that was driven by 36% increase in media spending in support of our ongoing objective of directing more and more of our marketing support to longer-term franchise-building vehicles and reducing less efficient promotion spending. This quarter continues the pattern we have seen all year. That is, significantly higher media spending on our base business. Media spending, of course, also increased this quarter due to support behind Clorox Readymop. Selling and administration costs were 13.8% of sales, up about 200 basis points versus year ago. Now, the year ago period had unusually low selling in admin, primarily due to lower incentive compensation consistent with our year ago performance. This year, we also increased our bad debt expense, in particular due to Latin America. Third quarter operating margins were 16.8%, which is down from the 19% margin in the prior year, mainly due to increases in our selling and admin costs as well as our increased marketing investment. Interest expense of $7 million was down 15 million from the comparable year ago period, as we benefited from lower borrowing costs due to lower debt as well as lower interest rates. Other income and expense items netted to a $3 million expense, down from a $10 million in the year ago quarter and that was due to a translation gain in Argentina as well as lower good will expenses associate with the fasb-142 accounting change. Our tax rate for the quarter was 35.5%, up quite a bit from the 26.7% year ago rate, when we had a significant benefit due to our being able to claim a credit instead of a deduction for certain foreign income taxes. All these factors we have discussed add up to EPS of 45 cents, and that's flat versus the year ago period, and two cents ahead of what we were expecting with about a penny each coming from our better-than-expected operating performance and from a larger translation gain than expected in Argentina. Finally, we continue to make significant improvements in our working capital balances. This is an area the Company has been especially focused on for more than a year and the focus is clearly paying off. It's really a great story. I should point out here that the numbers I'm about to provide with respect to the balance sheet and to our cash flow are preliminary, but we don't expect any significant changes. This quarter working capital remained at less than 1% of sales, and that's down over 900 basis points from the 10% in the year ago period. We significantly reduced our investment in inventories, payables and receivables by about $160 million, versus the year ago quarter by making solid improvements in each of those three core working capital components. We reduced days of inventory 8 days, dropped receivable levels by 11 days, and increased payable levels by 6 days. When you define working capital to include prepaids and accruals, it actually improved by nearly $285 million. Looking at the components of working capital individually, accounts receivable balance declined $80 million, and this was the result of our terms program and also significant improvement in overdue collections. There was also favorable impact from lower sales of products with longer term such as Brita. Days sales outstanding decreased in all business units including our international business. We are really dialing up our efforts to rapidly collect cash in volatile countries. So total Company day sales outstanding decreased from 50 days a year ago to 39 days this quarter. This quarter we also saw a sizable drop in inventory balances of $39 million, primarily due to continued SKU rationalization and also improved inventory management. Excluding new products, every business unit in the Company achieved lower inventory levels versus the year ago period. Two businesses delivered significant reductions, Glad, primarily due to the huge improvement at reducing SKU'd; and charcoal, due to strong off-season sales. Lastly, we also improved our accounts payable balances this quarter as a result of better payment terms. Days payables went from 40 days a year ago to 46 days and that's a 15% improvement. So we have made enormous progress in this area during the last 15 months. And while our organization is going to continue to focus on this, we feel we have achieved the bulk of the improvement possible given our current systems and processes. Once we complete our SAP implementation, we expect to be able to deliver and sustain further working capital improvements. Let me end this review with a discussion of our cash flow results. Third quarter cash provided by operations was about $155 million, that's almost double the $81 million in the prior year period. And it was driven by our stronger operating performance. This is the fourth quarter in a row of record quarterly cash provided by operations. Our year-to-date free cash flow is about $450 million, and we now expect full year to be above $550 million as fourth quarter is usually a very big cash flow quarter for us. Our improving operating performance along with our sizable reductions in working capital have enabled us to continue to strengthen our balance sheet by reducing debt levels and increasing stock repurchases. During the last year, our debt-to-capital levels dropped from 41% to 36%. And this quarter, we accelerated our stock purchases buying back an additional 3.1 million shares, or about $135 million of stock. So fiscal year to date, we have purchased $300 million, or about 7.5 million shares. Net-net, we' extremely pleased with the improvements we're seeing in our financial performance. We have come a long way in this last year and you can be sure we are highly motivated to keep this positive momentum going. Turning now to our guidance for the remainder of this fiscal year. Let me remind you that the estimates I'll be providing for the fourth quarter and for the full fiscal year and the comparisons versus prior periods do not reflect any of the special charges we took during calendar year 2001. They don't reflect the impact from any divestitures nor acid impairment charges nor do they reflect the tax impact of the Argentine asset impairment. We expect our fourth quarter volume and sales to be up in the low to mid single-digit range before divestitures with sales continuing to trend more favorably than volume. Let me add that for the next three quarters, we will be experiencing a depressing effect from divestitures of about 2 points in our top line. We are also projecting our fourth quarter earnings to be in the range of 60 to 62 cents per share with our fourth quarter estimates now reflecting the expense associated with our Latin America work force reductions again. That's 60 to 62 cents per share before the 6-cent charge due to the Argentina set impairment tax effect that carries over to the fourth quarter. So adding that 60 to 62 cents to our actual results for the first three quarters raises our EPS estimate for the full fiscal year to $1.89 to $1.91. That's higher than our previous guidance for the year, which is a function of the fact that the third quarter earnings came in a bit better than we anticipated. Now, I suspect some of you may be wondering whether to raise your estimates for fourth quarter based on the favorability that we have seen in the third quarter. But I would causing you that fourth quarter is different. I think it's important to remember that our fourth quarter earnings estimate of 60 to 62 cents implies a significant increase compared to year ago fourth quarter earnings. That is, it's 33 to 38% higher. We believe that order of magnitude is actually realistic, especially when you bear in mind that year ago results were depressed by expenses we incurred to streamline the business. Now, I'm referring here to expenses that didn't qualify as special charges. Now, also, on the plus side, our fourth quarter volume forecast reflects a contribution we are counting on from several other planned new product introductions albeit to a much lesser degree than Clorox Readymop. These include Clorox oxygen action, 409 Orange Power and Fresh Step Cedar cat litter. In addition, we're expecting to see accelerated gross margin improvement during the fourth quarter, as our cost savings initiatives and a favor cost environment more than offset the impact from lower gross margins on Clorox Readymop starter kit. As we have said previously you can expect to see us continue to dial up our investment in advertising both behind new products like Readymop and also on our core brands. But there have been several new developments and we want to you factor these into your thinking. Most critically, I'm referring to the fact that the situation in Argentina and several other countries in South America has sharply deteriorated and conditions are clearly not favorable in the near term to say the least. And not favorable for sales and earnings growth in these areas. Also, as we noted earlier, we are taking actions to right size our organization in latin America that will involve incremental expenses we hadn't specifically included in our forecast before. While it's our intent to absorb these expenses as part of our ongoing P&L, it clearly raises bar a notch for us. In the U.S., we expect the situation at K-mart will continue to have a depressing effect on several of businesses, especially Brita and auto care. And while we're both pleased with and we remain optimistic about the performance of Clorox Readymop, we would caution as we would really with any new product at this stage of its introduction, we would caution that it is still very early in the game and not surprisingly competitive activity in the readymop category is heating up as I'm sure many of you know. Also, I would note that fourth quarter is our largest quarter. And that's due to the seasonal nature of our charcoal and auto care businesses. These two business units have an impact in fourth quarter that is much larger than their annual pro rata contribution to our sales and both of these seasonal businesses face double-digit year ago comps. I should tell you in April we moved a substantial portion of our remaining U.S. dollar deposits out of Argentina. As a result, going forward, the opportunity for our other income and expense line to be favorably impacted by translation gains will be reduced. And this is a factor that has contributed to higher-than-forecasted EPS in the last two quarters. So given all of these factors, I would caution analysts against changing their current fourth quarter estimates. The range I mentioned remains our best estimate at this time. With that I'll turn this back to you, Craig.

Thanks, Karen. Before I open this up to Q&A, let me just take a second to tell you the key thing that i think you ought to take away from our conference call today. And that simply is that our overall performance is clearly turning around and we are making very solid progress against our key priorities. The priorities that we have been talking about really over the last 12-plus months. And I think you can tell this from the comments that we have made today and, of course, and most importantly, it shows up in our numbers. Again, fiscal year to date, volumes were up 6% on an apples-to-apples base, with 8 of our 9 businesses posting year-over-year growth, gross margins are also up. We're very pleased about that. We have also made terrific improvements in terms of managing working capital and generating record cash flows. In net-net, our businesses is in much better shape today than it was this time last year when we had a similar call. Our organization in my view is today, much stronger actually and clearly more experienced and I think, we're once again showing, for example, with our introduction of Clorox Readymop the kind of executional excellence that makes all the difference in our business. This is what this Company has been about in the past and is going to continue to be about in the future. So with that let me open this up for questions.

Thank you, Mr. Sullivan. Ladies and gentlemen, if you have a question, please press the 1 key. [ pause ] One moment while we listen to the questions. [ pause ] Our first question comes from Sally [Deffloch] of J.P. Morgan.

Good afternoon. I guess a couple of things. First of all in looking at that nice 29% volume increase in home cleaning, I wonder if you could help us to understand what that number would have looked like ex the pipeline filling for readymop so we can get a better read on what that might be in future quarters.

Yeah. I think, Sally, clearly, you know, Readymop has been an important contributor this quarter. Since I was -- we were up significantly across the home care business, although we are not giving out what that number would be without home care. But I will tell you, you know, as we always have, we have a mix across the board on our brands. We have a number of brands in Home Care. You know, just mentioning some of these 409 has been strong, Clean-up has been strong, some of these businesses are growing double-digit, toilet bowl cleaner products, Pine-Sol, and we have had some offsets in some of these where we're not doing as well as we would like. Liquid-plumr, for example. But overall, you know, we are making progress in Home Care. We are particularly pleased with the great job our folks have done on Readymop.

Okay. I guess just, you know, thinking about the comparison, a year ago, I guess, home cleaning was down double-digit if I recall correctly. So I guess the base business isn't up against tough comparison but would you expect a double-digit increase in volume in home cleaning next quarter?

We're not -- I don't think you can expect us to project double digit increase next quarter, no.

All right. And just before I move onto a question about SAP, just a really quick question. Why did it take five years to develop Readymop? That's kind of just strikes me as a long time to develop a fairly simple concept.

Well -- Things are always simple... [ laughter ] You know, in hindsight. But, you know, there is an -- we could probably ought to take this call off. This question off line. But when you get into a product like this this was a totally new kind of a product and category for Clorox. We haven't really been in what I'll call the tool business before. We had to do a lot of work of understanding considering what happens in practices. We are going to be going up against old habits using a bucket and a mop because there wasn't anything like this on the market before. So, and then, you know, figuring it out how to make it and finding a manufacturer to make it and sourcing the raw materials and all those kinds of things, we did a lot of -- although we didn't do full-scale test market, we did a lot of other kinds of testing. This represented a major commitment. At the same time, of course, we were working on other things. You know, that's essentially what was involved here.

Sally, I think that from another standpoint, I think that as we go forward, I think it is going to be important from an innovation standpoint. We actually are moving faster from the concept and ideas that we have to the commercialization and as part of our overall strategy work, that's going to be a key element of our long term success is being able to move innovation faster. And I think an awful lot of companies realize this right now that you can't sit on things this long. I mean, all of you should be thinking that two years ago you didn't know anything about Readymop but there was an awful lot of work going on on it. And today, there are things going on that relate to the future and we are trying to figure out a way to move faster on those things.

Turning to project Delta, you brought on [ indiscernible ] it strikes me as you have done a lot of work already on project Delta. So I'm wondering, you know, what input he has been able to have since he joined and whether you are sensing any change in the scope, direction or timing of it for your phase 1 rollout in the fall.

Well, probably ought to tell you Mark is going to join us, he actually hasn't started yet. He will be starting I think what? Next monday?

Next monday.

Okay.

He -- I would have to say, we would love him to have had a lot of impact on the business, you be hasn't yet.

You know, I will say that I will not describe that we hired him specifically because he had SAP experience. This is a talented executive that we think is going to add a lot of value, maybe volume, too, but a lot of value to our overall organization in the supply chain area and in the entire product supply area. So that's really the first reason that we hired him. The fact that he also happens to have this experience, think is an added benefit.

Okay. And then just finally on project Delta, and I think we might have chatted about this before, I wanted to get an update in terms of anything that you are going to need to do in the business in September in advance of that October rollout for phase 1 in terms of building inventories or any other little anomalies we ought to be on the lookout for.

You know, definitely, we will work with our organization to make sure they have adequate inventory as we go live, we're also working with our sales organization to make sure that they are working with our customers to protect our business during this transition phase, if you will. And then also, we are making sure that we schedule all of our activities to take into account the go live date. So I think we are putting all those plans in place as we speak.

I guess, it sounds as if we might expect some slight uptick in your inventories and possibly trade inventories as we get closer to that date?

You know, it could be. I'm not sure how much you're going to see at this point in time.

Okay. Great. Thank you.

Our next question comes from Wendy Nicholson of Salomon Smith Barney.

Hi. My first question goes back to latin America and the head count reduction there. Can you quantify for us ballpark how much that should save you and so I'm sort of trying to get to a how much can margins improve over the next 12 months in latin America.

I think we are not quantifying the specific amount that's saving us as a line item. What I will tell you from a priority standpoint is cost savings, whether it's product cost savings, organization structure cost savings, and anything else that has to do improving both gross margin and operating margin, absolute operating profit, are a very high priority for everything we are doing down in latin America, while of course keeping our leading brands healthy.

So does that mean that of the head count reduction, you'll be reinvesting a lot of that savings back into higher spending?

I -- I don't think I would describe it like that. There's going to be -- there is always a balance that you have to figure out in terms of what you want to do. There will be some reinvestment if it -- on a particular core brand in certain countries because of the competitive environment or the opportunity. But the real priority -- so we have to keep our brands healthy. The real priority, we think we have a lot of opportunity to lower our costs and lower our cost structure in virtually every area of the Latin American operation.

I think the only thing I would add, Wendy, is that as you well know, things are moving at a very fast pace in latin America in various countries, and, you know, we think this is the right thing to do for the business in terms of getting it sized properly, the right cost structure for the size of the business. But how we spend that money is going to depend on how things are changing in those markets and they are changing pretty rapidly. So I think we need to be a little fluid about that.

Fair enough. I guess and then my last question is just kind of looking out to '03, I know this is much earlier than you normally provide any guidance for '03, but if I look at '02, kind of on an apples-to-apples basis when you add back the good will to '01, earnings are going to grow about 6% and I'm trying to get a sense for whether earnings growth can reaccelerate, you know, to maybe 8, 9, 10% in '03, with all of the cost saving initiatives that you have. It seems like 2002 has been great and you're beating the numbers, but can '03 be even better from an earnings growth standpoint?

I don't think we are giving any guidance out on '03 right now, fiscal '03 right now. We are right -- we are sort of leaning towards the end of our planning process for '03. We have worked with our business units and we are trying to get a handle on what those numbers are. So I -- I probably shouldn't say any more about that.

Fair enough. Thanks very much.

The good news is we have had a good year this year and a good quarter. We expect a good quarter next year and, we'll keep you tuned and I think we will give out guidance when we get to fourth quarter, which is August 7th, I believe, on our conference call.

Thank you.

Our next question comes from Art [Cecil] of T-row price.

Good morning to you. I had a question that was very similar to one that was asked about Mark [Rickenderfer] Basically, project Delta has been under way now for quite some time, I would suppose, longer than a year. Why is this the right time to bring in someone whose task will partly include at least working on project Delta as opposed to maintaining some continuity there?

Art, maybe Gerry can pick up on this but the bottom line is, Mark was not hired for project Delta. This is all about product supply focusing on a number of initiatives that we have in product supply. In fact, he happens -- obviously, the street has picked this up. He happens to have some experience in Delta but that's not what he was hired for.

And I think in addition to that, our Senior VP of product supply retired. And I -- I think that we had to do a search that enabled us to bring what we needed to bring to the party and part of that is some of the experience he has there. But over the long term, it's about bringing the right executive in to help us bring the kinds of things post Delta that are important for our entire product supply.

The press release announcing his hiring says specifically, Mark's considerable expertise will be a tremendous asset, particularly as it's applied to project Delta. Now, are you saying something different now?

No. Art, you know, this is karen Rose. You know, there really is no change in the Delta leadership that we have in the Company. The team that is specifically focused on Delta. Now, obviously, the Delta team interacts with the organization and Mark will be a part of that and will provide input from a business and operational perspective that will be helpful. But he isn't part of the Delta implementation organization.

In his -- is there anything specific in his hiring that he will fill or add to that might not have been there before?

I think as you think about project delta and you think about one of the big changes that's going to happen inside our Company -- and think anybody who has gone through what I call SAP implementations know this, is that you move from doing tasks to processes that cross the boundaries of functions.

Aha.

And for instance, one of the first initiatives that goes out is our order to cash which involves the sales organization, the product supply organization, the finance organization, but the process itself. And I think his experience in actually dealing with organization design issues that when they start crossing the boundaries and how the matrix organization can better work I think is a value-added thing to us as a company.

So he kind of takes everything to the next level?

We think so.

Okay. Thank you.

Our next question comes from Carol [Wilke] of Merrill Lynch.

Thanks. I have a couple of questions surrounding the Readymop. I was curious, is the mix different given the nature of that product so that that could have caused the significant change -- I mean, point spread between, you know, measured and non-measured? I mean, is that product more conducive to selling at the home stores [INAUDIBLE] seen it at home depot, et cetera. That's just a huge spread. I realize you said it's been trending at 9. I was curious of the distribution mix on that product is different from your base business.

Yeah, I think, uhm, this is Craig, carol. I think, maybe I'll take the answer in two parts. One, you know, right out of the box, we got very broad distribution on this particular concept. And we have -- you know, we're in clubs, in mass, grocery, drug. We're in home depot. So we're -- we're available broadly across both the food and special markets or non food channels. So we had immediate access to every channel right out of the box. I think I'd probably characterize it as maybe a bit more skewed to untracked. But in terms of this particular proposition -- we also talked about untracked channels, Gerry did, anyway, that our total business is obviously a bit more skewed in the last couple of years. But overall, we're available broadly across all of our customers.

Have you seen any impact on your takeaway yet from proctor's second price cut on the Wet Jet?

You know, I think it's pretty darn early. I mean, they -- you know, they took that price cut pretty recently -- the early results we have where we are on head to head with them at the same price, that is roughly $25, we're outselling them, order of magnitude about 3-1

That's great. And on a completely different topic, if I can ask one other question, on the Glad business, what have you seen so far or are you doing anything in anticipation of Rubbermaid you know finally entering the more disposable food storage type category?

Well, I mean, Rubbermaid, this is, first of all, as you well know, this has been a great category for us. We have share leadership in this category, despite pretty on going competitive activity. I guess at the end of the day we are going to defend our business against Rubbermaid like we would on any other competitor. I think at this point, their distribution is pretty limited right now.

Right. I think it's brand enough. And this is a follow-up on the food storage Bags. Is there a potential price cut on the horizon there due to the heavy competitive activity like there was in trash?

We have to respond to what's going on in the marketplace and we'll figure out the right way to respond in which there are a variety of ways of doing that I don't think at this point we are disclosing what the specific actions we are going to be taking.

Clearly, though, we are going to defend our business. I think... You know, just piggybacking on what Gerry said

That would be the same in the cat litter business as well?

Absolutely. On the Scoop Away business we are taking action.

Thank you.

Our next question comes from Amy Chasen of [Goldman Sacks] and Company.

Hi. Couple things. First of all, on the difference between the sales and the volume, this is sort of the first time that we're seeing this positive shift. Is is this going to continue or is this kind of a one-time thing that until it lapse the annualization of it, it will just -- in other words, sorry. What I'm asking is will this just be an impact for the next two or three quarters? And then once it lapsed we won't see it or will this continue to improve over time as you continue to shift money out of promotion and into advertising?

We did have a pretty major shift in this quarter from promotion advertising and that was one of the issues here. Whether that's going to continue with that delta on a long-term basis, my guess is the spread won't be as significant.

We expect, actually, Amy, it will probably continue through fourth quarter. As we get into the next fiscal year, though, and again we are putting together our plan so it's premature, but I would expect the delta won't be as great. We'll get more to a combination of volume and sales growing about evenly. We're comping against a year ago quarter when we had some significant promotion expense for example on the Glad business so that's you're seeing it.

So there were no list price increases, is that right?

I'm sorry, what?

There were no list price increases?

In this quarter... No. Not a factor. It was a promotion expense factor.

Okay. Great. Just on the cost savings side, you are doing a whole bunch of different things including, you know, SAP and just general cost reduction. Can you give us some number of, say, you know, over the next 3 to 4 years how big that savings should be or what type of margin expansion you're expecting?

Part of our strategy clearly is to dial up our cost savings across the board. I think you've seen examples of that particularly in this year in -- whether -- no matter what you look at, you are seeing a lot of it in our working capital balances and how that's working. We are not giving any numbers out at this point. I think as we get into our next year, that is fiscal '03, and as we talk about our guidance going into the out years, we'll probably be giving some more specificity around, you know, what -- how many of our P&L growth is going to come from cost savings.

And we can expect that when, in the fall?

I think it's likely in the fall, yes.

Okay. On the working capital side, I know you said that, you know, for now, we have seen the bulk of the improvement but then maybe once you implement SAP you could see further improvement. Do you have a long-term target in terms of DSO's or days to sell inventory, that you can share with us?

We'll be developing targets as a part of our strategy moving forward and that also will be part of our discussion with the investment community in the fall. So I think it's premature to give a long-term target. We are clearly pleased with what we have seen to date, and we at least want to sustain that.

And then justly, on the -- you did this portfolio review and I think at the time you said that, you know, as things came up, you would share them with us. Just as you take a step -- well, I guess, first of all, uhm, have we learned everything that we are going to learn about that? Or is there more to come? And then secondly when you take a step back and you look at what you've learned from that, have there been any, uhm, issues that were raised in terms of any of your business units, either being more or less profitable or having better or not such good return on capital trends?

I think we probably stick by the approach that we have had in the past relative to announcing any changes in our portfolio. We have said that all along. We said it a year ago. And we told you stay tuned. Since then, we have divested some businesses as you know, maxforce, [himolene[ and our logs business and I think we are going to continue that kind of posture on those kind of issues.

Does that mean that it's not -- it's not done, in other words, we could see more activity?

I think I would answer that this way. You know, we are like most companies always looking at our businesses, always looking at our brands and our portfolios. -- our portfolio. And you know, we're not wed to anything. We like the businesses we have, generally they're responding pretty well. But we want to maximize shareholder value and to the extent that we have a business that is not helping us with that we have to take a look at it.

Okay. Thank you.

Our next caller is Jim Gingrich from Sanford and [Bernstein].

I just had a couple of questions. A clarification, I thought that I thought the consumer testing you did around Readymop on the preference scores were also based on Wet Jet being priced, you know, around $50.

We did testing at all a variety of price levels.

So the implication would be is that, uhm, then, that Readymop is still customer -- or consumer preferred at equivalent price levels?

That's correct.

And karen, can you give us a sense -- you had mentioned that Readymop, you know, obviously had an impact on gross margins in the current quarter. Can you give us a sense or help dimensionalize what that was?

No, I'm sorry, we aren't providing that information. It was a negative impact and we did see, you know, good gross margin improvement across most of our businesses as we have said. It will be less of an impact in fourth quarter.

Okay. Can you -- what type of follow-up are you seeing in terms of consumers now coming back and buying the floor cleaning product, the wipes and so forth?

Basically, I think the best way to describe this, Jim, is that we are ahead of -- we were ahead of our projections. Obviously, uhm, when we went into this proposition, we are, A, ahead of our projections on -- for this point in time on the sale of the too. You may know we had this product non-allocation.

Right.

So a good news/bad news. And we are also had a projections at this point in time both on -- ahead of projections at this point on the refill. But, you know, I think we have to be careful with those numbers because it's early.

It really is.

Can you just changing subjects, then, can you give us a sense, then, as to what type of overhead savings then you realized here in the March quarter, how that's -- you know, now going to ramp up now that you are into this thing a little bit more?

You know, when we take a look at the savings that we expected from some of the special charges that we took in last calendar year and in particular the savings associated with other overhead reductions, we expected that ongoing the savings would be about $65 to $75 million. And of that, $40 to $45 million for head count reductions. And the fiscal year, we are expecting to see -- and we've begun to see already $20 to $25 million. Some of that was in cost of good sold, some of it in our selling and admin lines.

Okay. So I'm obviously just trying to get my arms around a little bit more, Karen, the, you know, what you had in SG&A in the current quarter and to what extent I'm seeing some of the overhead savings reflected in this number. Are they going to fall more heavily in june?

They will fall more heavily in the June quarter.

Can you give us a sense as to what type costs you are incurring to support the SAP implementation in these numbers as well and how that's going to trend next year?

Year to date, we have spent, let's see, I think it's about, uhm, $40 million. A large part of that, though, Jim, is hitting on the balance sheet in deferred charges because -- that's how you account for this.

Right.

There has been some impact on our selling and admin line. You know, it's probably in the range year to date of about $10 to $15 million.

How's that going to compare with what you're going to expense next year?

We'll know when we put together our full fiscal '03 plans and we'll be able to share some details on that with you in August.

Okay. And the last thing I just wanted to ask is on latin America, Craig, it sounds like, you know, some extent you're kind of battening down the hatches there and, you know, I know that historically, you know, without getting you to tell us your strategy, you had kind of seen that as an important growth leg. Am I drawing the wrong conclusion to say that that view might be changing, given your, you know, fairly pessimistic outlook for the region?

I don't think you should draw any long-term conclusions about our intent down latin America. I think where we are, and I suspect many of our peer companies are, is it's a different game today than a number of years ago as you well know, Jim. And we just think for now, like we said for the whole Company a year or so ago, 15 months ago, when we sort of took a step back and said, hey, we are going to focus on four things and we think we need do that to get us back on track, that's been working. Is he I think in the case of latin America, we need to focus on doing the kinds of things Gerry talked about, getting our base brands right, cost structure right and that kind of thing if we can do that and I think we can, then we'll take the next step, whatever that might be.

All right. Fair enough. I'm just reacting to your comments that you are kind of right sizing that organization. It was sized to be a big organization.

It was probably too big.

Okay.

I think that we are right sizing it to the size of the business as it is right now. And we have a number of projects that we are going to be pursuing in the area of cost savings that we believe we can execute and that we need to keep our brands healthy. I would not describe during this period of time, this 12 to 24 months that we have ahead of us, that this is going to be a big driver of growth while we are making sure that we have the right infrastructure right, that we have the right priorities on our brands. I think whether it provides growth later will be part of the strategy work and our ability to really stabilize that business and create the right foundation for the future.

But at least going forward, it sounds like it's more pay as you go?

I think the right -- i think that right now we would describe it as a pay as you go for the next 12, 24 months.

Thank you.

Our next question comes from Ann Gillian of Lehman Brothers.

Good morning. A follow-up on latin America. I understand right sighting -- sizing for the cost. But, I have always wondered whether or not one of the issues you're facing is having enough critical mass in terms of Products you're selling there relative to competitors so kind of looking at latin America on the sales line rather than on the cost line, could you comment?

We have done a lot of analysis and we have done a fairly extensive study of latin America. I think with maybe a couple of countries exceptions, we have critical mass to be able to be successful and we have the kinds of brand positions that allow you to be successful. There are a couple of countries that are -- and I think we have mentioned them about Brazil and Mexico, that have critical mass issues. It make it more difficult. But Mexico is making a lot of progress and Brazil still has an infrastructure problem. When you look at the balance latin America, we feel good that we have a basic size of a business that allows -- can allow to you succeed in terms of building your brand and doing and having cost savings opportunities that allow you to build your business over time.

And then just switching gears, I think one of the things that I'm struggling with now is how to think about your trend category growth because clearly we know we're at a disadvantage for information. But I'm trying to understand kind of the direction you're taking the cost savings in kind of what -- what kind of organizational growth you're now benchmarking against. And I'm hope that we don't have to wait to the fall to kind of understand where you think the growth in this business is.

I'm not sure I understood. Could you repeat the question again, just to make sure we're clear on what you're asking?

Sure. It's coming down to I'm trying to understand what you all consider now to be kind of your weighted average category growth trend, kind of how you comp against way your categories are growing. And as you are looking at your cost structure, you're obviously driving towards what you think future trend growth will be.

This feels like -- this feels more -- may be the answer is more around the whole strategy discussion. And what -- you know we are and you are looking for in terms of our best estimate for top line growth going forward over the next 3 years. And you know, we are going to be in a position to talk to you about that I think in the fall, but I'd rather beg off that one for now.

I understand. I'm not trying to front run your fall disclosures but it just seems to be jump jumping all over the place as we -- the last let's say 8 quarters. And I just don't envision the Clorox business being that seasonal or even cyclical.

Well, we are not that seasonal or cyclical. We have some businesses that are relatively seasonal like charcoal and to a lesser extent you know some other things, Armor all happens to be somewhat seasonal as does STP.

But over the year, Craig, you don't -- you see some of that variance just in the quarter like a q4. But, you know, we're going from quarters where you had down volume to very strong volume in this quarter.

Oh, I see.

You know, I --

Tough for me to answer this because you really have to go -- you really do have to go brand by brand and -- and sort of market share and volume by brand. A lot of this is impacted by particular promotion events, things that we might do on particular brands responding to competitive activity. Maybe this is something we need more specificity around. We'll give it to you but probably something we need to dig in more and talk to you off line on.

Why don't we do that. Thanks.

Our next question comes from Franklin Morton of [LEL Capitol].

Good afternoon, I wanted to talk about the Glad business. It's your last analyst meeting in New York, you indicated five to seven hundred basis points of potential gross margin improvement as you all ran the business better. We are now seeing the SKU's having been rationalized getting some volume and share gains. Where are we in that margin improvement process? Is most of it behind us, most in front of us? And is that still the right improvement or have you changed your long term thoughts on that business?

Well, when we talked to New York -- first of all, you know, we are feeling, ha, a heck of a lot better about the Glad business today than we did a year ago. And I think we said then that we -- this was a challenge and it was one of our specific priorities under our plans to restore growth. Our branded volumes are growing. They are in line with our expectations. We have been increasing media support. That's clearly been helping. We have rolled back some prices on our trash business. And one of the things that we have been very, very focused on is gross margin. And I think I mentioned that during my comments that we have seen significant gross margin improvements on Glad although we are not providing specifics, Franklin. We have the highest gross margin on Glad not only since we have owned it but I think going back to where we could track it. I think within -- in the last five years, say so the question, you know, is there more there -- and, I think there is.

Is it safe to say that half the margin improvement is gotten and half in front of us? Can you give us an order of magnitude --

I'd rather not. FRANKLIN MORTON Okay.

I'd rather not give you an order of magnitude on that one.

I think we have been on this call for an hour and I think 15 or 20 minutes. Let me take one more question and, since you folks are all in New York and I know you all go home early today, okay.

Our next question comes from very Rebecca Schumann of Allstate.

I was wonder, could you tell me what the impact of FAS-142 was?

Fas 142 had an impact of about 4 cents in the quarter, about 16 cents for the full fiscal year.

Okay. And if you exclude the impact of the bonuses and the higher debt accrual on SG&A, are you saying that would be down year-over-year?

That would -- we also had Delta, expenses in there. So I think we would be trending positively if you exclude those major impacts.

Yeah. I mean, I think the answer is yes. On an operating basis. We are making real progress on that.

Okay. Thank you very much.

Okay. Hey, thanks, everybody, for joining us today. We really appreciate your time. As I mentioned, we are feeling very good about the business and I'd ask you to stay tuned for more good results and we'll be talking to you in early August. Thanks again.

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