高樂氏 (CLX) 2003 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Clorox Company fiscal year 2003 first 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, and instructions will follow at that time. If anyone should require assistance during the conference, please press star followed by zero on your touchtone telephone. As a reminder, this call 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.

Thanks very much, operator. Good day, everybody, and thanks very much for joining Clorox's first quarter conference call. Also with me here in Oakland are Jerry Johnston, our President and COO; Karen Rose, our Chief Financial Officer; and Doug Hughes, who most of you know, I think, is our Director of Investor Relations.

We are broadcasting this call, as we always do, over the Internet and a replay of the call will be available for seven days at Clorox.com.

My remarks today are going to be brief since we made the press release as comprehensive as possible. So I'm not going to be drilling down into the numbers. Instead, I'd like to spend just a couple of minutes, a few minutes, providing some observations about the quarter, and then following that, Jerry is going to give a business overview, and then Karen will come on to discuss some of the key financial drivers and our results and update our outlook, and then, finally, we'll open this up, as we always do, for Q&A.

Before we begin, I need to remind you that the information we're providing during this call contains 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, 2002.

Now, as you saw in the press release, by all accounts we had a great quarter. The Clorox organization was really firing on all cylinders, and we had greater momentum than we expected. At 65 cents per share on a GAAP basis, we nearly doubled earnings over the prior year. Now, we wish we had been better able to anticipate this accelerated momentum, but we're extremely pleased that fiscal year 2003 is off to such a strong start. We're very, very delighted about that, as you can imagine.

As we've demonstrated, among the key things to our achieving consistent strong performance are levering our strengths and building on the things that have been working very well for us. Clearly, one of the things that worked for us so well in fiscal '02 was setting a few key priorities that kept the organization very focused. We're continuing that same level of focus, and we've established four key priorities for the current fiscal year.

We introduced our 2003 priorities to the Clorox organization in July, and you may have read about them in my letter to shareholders in the company's annual report that went out earlier this month. So as we report our Q1 results, it probably won't surprise you to hear that we attribute our strong performance to our continuing focus. First, focusing on our priority to drive growth led to significant top-line results. Overall volume increased 3 percent, or 5 percent when you exclude divestitures, and our sales jumped 6 percent, or 8 percent including divestitures. Importantly, these top-line results came pretty much across the board from both our core brands and our pipeline of new products.

Second, our priority to cut costs everywhere continues to bring lots of good news to the business, driving operating profit growth of 51 percent and gross margin growth of 490 basis points with eight of nine business units recording gross margin increases. Again, this quarter I must also recognize the fantastic improvements the Clorox organization continues to make in managing the balance sheet. Improvements in inventories and receivables and payables resulted in negative working capital for the third quarter.

Third, our top priority -- to get more customer focus -- also shows up in our top-line results. This quarter, for example, our sales team partnered with Anheuser-Busch to successfully execute a game day tailgating program with Kroger stores, which featured big displays of Hidden Valley and Kansas City Masterpiece food products. This was a big promotional idea, and it created significant scale for the customer and delivered incremental volume for Clorox with our overall Q1 business at Kroger, indexing at a 115 versus the prior year, and our food business indexing at a 123.

Finally, we're seeing results behind our fourth priority -- out-execute the competition. In Quarter 1, for example, great execution by the Kingsford team extended the charcoal season with co-marketing promotional events resulting in market share gains for the 17th quarter in a row and record quarterly shipments.

Now, as I said, Karen will talk about our outlook a bit later, but clearly we're feeling really good about our business, not only for this quarter, but also for the remainder of the year.

Now, before I turn this call over to Jerry, I want to comment briefly on a subject that some of you have asked about, and that is the company's plans for my succession. Just recently our board initiated the process of finding my replacement. They've engaged an executive search firm to help them with this. The search firm, in combination with a small team of outside directors, will be leading the process. Our plan is to look both internally as well as on the outside.

Now, as I think most of you know, we have a strong, serious and experienced candidate within Clorox with Jerry Johnston, our President and COO, who you will hear from in a minute. Also, we expect that we're going to see some solid candidates from the outside. Given the importance of this decision for the company, to our shareholders, and to all of our employees, the board feels that the approach they are taking represents the very best practice for succession.

The agreement that I have with the board is through calendar year 2003. So we are moving ahead on this in a very careful and a very orderly way and providing adequate time for a very smooth transition. Although I will personally be involved in the process, and I'll provide counsel to the board as appropriate, the final decision here will rest with the Clorox board of directors alone.

So with that, I'm going to turn this over to Jerry for a business overview.

Thanks, Craig. Before I give my operations review, let me make a brief comment on the succession process. From my personal perspective, I may have hoped for a different process. However, I do understand the board's important responsibility here, and I respect the process that they have decided on. So I do intend to actively and positively participate in the process the board has planned. But maybe more importantly, I'm going to be working hard during this period to ensure our organization is not distracted and continues to deliver the great focus and execution against our strategic priorities. We have an awful lot of positive momentum going on right now, and we intend to keep it that way. Now let me start my operations report.

As Craig mentioned, our first quarter results exceeded our expectations and Street consensus estimates. I'm going to be discussing the key factors driving these strong results and then provide some context about how better focused management and execution is translating into volume growth and improved overall performance. I am also going to review our decision to explore the divestiture of our business in Brazil.

Let me start by putting our first quarter results into perspective. This quarter we exceeded consensus estimates by 11 cents. About 90 percent of this favorability, prior to impairment charges, was driven by higher than expected sales and gross margins. I'm going to review the key drivers behind our record shipments and in a few minutes Karen will discuss the remaining items contributing to these results.

Total company sales increased 6 percent. On an apples-to-apples basis they actually increased 8 percent; that is, excluding our Himolene and MaxForce divestitures. Strong sales growth in our domestic businesses drove total company results. In fact, for our North America segments combined, sales grew 9 percent versus the prior year and 11 percent excluding divestitures.

While our specialty and international segment results were on track versus the plan, our household segment, more specifically, our Home Care and Brita businesses clearly over-delivered with shipment growth significantly higher than our expectations. There were three main reasons for these record-setting results. First, the impact of our new product launches; second, our improving core brand performance; and, third, our improving execution and retail customer focus that has enabled us to take advantage of some one-time opportunities.

In the area of new products, sales in our Home Care Division continued to benefit higher than expected from strong Clorox ReadyMop results with shipments of both starter kits and refills exceeding expectations. While the competitive environment continues to heat up, late this quarter we benefited from the much slower than expected rollout of a third competitive product offering. We continue to hold the number one convenience mop market share position, and our U.S. household penetration has now increased to over 6 percent, about five times that of the number two player. Home Care also delivered stronger than expected sales behind other new products including continued strong growth on Clorox disinfecting wipes, which just recently introduced a twin pack, plus our Formula 409 and Pine Sol Orange line extensions.

Our Brita business also delivered stronger than expected introductory shipments from new products this quarter. We began shipping a new pitcher design with an electronic indicator that informs the consumer when to change the filter. We also began shipping our faucet-mount product in a see-through package that more clearly conveys the product's benefits. As a result in the new product pipeline, Brita recorded its highest level of pitcher shipments in nearly four years and achieved all-time record faucet systems and filters shipment.

Our heightened focus on retail customer responsiveness also provided us with incremental shipments this past quarter. In fact, in our Home Care business, we did have a few unexpected late quarter merchandising events that we were able to leverage at a major retailer when another manufacturer failed to meet their commitment at the last minute. Within about a week, we successfully executed and shipped these events.

The Brita businesses also benefited from our improving execution. We've been working with a major retailer to expand our pitcher distribution. This sale went better than expected, and we were asked to begin shipping the product late at the end of the quarter. Again, we quickly responded and successfully shipped the order on that timing.

The final area I want to review is our improving core brand performance. This quarter we saw a large number of our core brands with increasing volume strength -- things like Clorox Clean Up, Pine Sol, Liquid Plumber. I attribute this trend to better and more focused business plans, improving tools and processes, increased advertising, and just better execution.

Over the last 18 months, we've been working with each business to improve their focus on those key activities that have the greatest impact on results. I am really pleased with the progress we're making, and this progress is translating into strengthening core brand market shares and increased shipments. In all of our businesses, the way we win with the consumer is by providing products that deliver good value and make their lives a little easier or better. To help our businesses improve their product benefit communication, our marketing experts have put tools in place that measure and enable us to improve the effectiveness and efficiency of our marketing spending. The net result of that is getting more growth for the investment dollars we're spending.

Here are some examples with the tools. In the area of advertising, we have developed in-house experts that train our marketing organization to create more effective, more persuasive messages. We then use marketing models to determine the right levels of advertising support behind each of our campaigns. We also do post-audits to ensure we are achieving the expected results and to make adjustments to our plans, if needed. While brand marketing has always been a strength of ours, these new tools are increasingly helping us be more efficient and effective.

By now I hope all of you have seen or heard our "Mama's got the magic of Clorox" campaign. This equity-building campaign covers a wide variety of Clorox products, including liquid bleach, color-safe bleach, disinfecting wipes, toilet bowl cleaner, Clorox Clean Up and Clorox ReadyMop. This campaign significantly improves the visibility of Clorox equity and creates a strong connection between emotional and functional cleaning benefits provided by the brand. Campaigns that make this connection amplify the power provided by advertising.

Now, not only are we working on improving our advertising effectiveness, we are also continuing to increase our share of voice by growing the investment significantly faster than sales. This quarter our media investment grew by 30 percent, and that was partially offset by cuts in consumer promotion. But all of these changes are translating into healthier brand equities and solid volume growth.

Additionally, we're branching out into more leading-edge mediums to improve the breadth and penetration of our communications. For example, our Clorox ReadyMop and Clorox Oxygen Action products are now advertised through demo-mercials. These are longer-length commercials that allow for a fuller story of product usage and benefits. The company has also significantly expanded its Hispanic advertising, targeting, and we're now a major advertiser on Spanish language television. In addition, our folks in Brita now use the Internet to educate consumers about health trends, informing them of new products as well as reminding them to replace their filters.

We've also developed tools for measuring the efficiency and effectiveness of both consumer and trade promotion. These tools have enabled us to develop higher value trade promotion plans without necessarily spending more money. We've actually started implementing these in the past several months. Our first quarter's results clearly benefited from all of these improvements, and our domestic shares and track channels reached their highest point in the last year.

I want to spend a couple of minute on the subject of category growth. For the last five quarters we've reported solid shipment increases on our domestic business, with all quarters reporting mid-single-digit-plus type of shipment growth rates. Clearly, there has been a disconnect between the growth and consumption rates seen in tract categories and our shipments. This quarter, as we've seen in the last five quarters, our rate of shipment growth from non-tract channels significantly exceeded that of tract channels. To better understand this issue, our market intelligence group has developed a methodology to measure our all-channel growth for the last year. This group has used a similar data source to that used by some of our peers to approximate this growth.

For this analysis, we used IRI store-scan data to measure tract channel growth and IRI household panel data to measure the non-tract channel. While we recognize panel data is not as good as store-tracking data, we do think it provides a good indicator of consumption trends, particularly over longer periods of time. Our analysis shows that our all-outlet, 52-week dollar growth rates for the domestic categories we compete in grew at a 5 to 7 percent rate. So during the last year the dollar growth of our categories was in line with our volume shipments. It also confirms that our brand's dollar sales, in total, grew slightly ahead of category growth rates, about 1 to 2 points. So we had some dollar market share improvement over the year.

Finally, the study also confirmed that the categories experiencing the most significant innovation, like mopping systems and cleaning wipes, disposable containers, litter, marinades, have driven the overall growth rates for our company. We're working with our industry trade group as well as suppliers to make improvements to the quality and reliability of data from non-tract channels in the future.

Now an update on our Latin America business -- let me begin with our decision to explore the sale of our Brazilian operations. Due to this decision this quarter, we are recognizing a $19 million pretax impairment charge for Brazil. Our decision to put this Brazil business up for sale was a very difficult one. For some time we've communicated to shareholders that our Brazil business lacked critical mass to be successful long term. For perspective, last year our Brazilian business had sales of about $40 million in a country that has almost 170 million people in a large geography. During the last few years, we've launched a number of new products in Brazil, including bleaches and fragrance cleaners. Although executed well, these actions simply weren't enough to significantly improve our economies of scale. Given those results, we realized we had two clear choices. We could either pursue a large acquisition that would provide critical mass, or we could sell the business.

As many of you know, last year we tried to pursue a joint venture with Bombril, a large local consumer products company, but they were unable to meet the transaction obligations. We also looked at other local candidates, but either the businesses weren't the right fit or the economics weren't attractive in light of Brazilian market conditions.

So after unsuccessfully pursuing that first option, we recently made the difficult decision to pursue a sale of the business. To be clear, we remain committed to our other Latin America country businesses, but we simply have to focus our resources on where we can win, where we have strong equities, and where we have critical mass.

Regarding the rest of Latin America, we're continuing to execute the turnaround plans we articulated in last quarter's call. Now our businesses continue to be negatively impacted by the political and economic problems occurring in Argentina, Colombia, and Venezuela, but we are making progress. We've rationalized low margin, non-core brands in our portfolio. In fact, significant progress in eliminating SKUs in Venezuela, Mexico, and Argentina experienced a double-digit SKU reduction. We've also made excellent progress on our cost-savings initiatives. The overall plan is beginning to work. We are making choices that have our sales declining in order to improve our margins. Our gross margins have improved in every country except Argentina, with an overall Latin America gross margin improvement of over 600 basis points.

But at the same time, we have another Latin America priority. I discussed this last quarter, and it was our plan to continue to grow our 17 strategic brands in nine countries. These brands account for about half of our sales and a higher percentage of our profit. As a reminder, these are the brands with the best market position, the strongest growth potential, and the best margins over time. I would like you to know that we will also protect and defend these core brands from competitors, even at the expense of margins during these current periods of economic turmoil. On these brands, our gross margins have improved on 14 of the 17 brands -- good, solid progress. We are also increasing our advertising levels on these brands over the next year.

So in spite of lower sales in Latin America over the next 12 to 18 months, we believe we are building a solid and profitable foundation for growth.

That concludes my business update, and I'd like to turn it over to Karen, who will review key areas of our first quarter results and the outlook.

Thank you, Jerry. Before I begin my review, I want to alert the audience that this quarter we have posted supplemental financial information on our investor relations Website. This information should be helpful in understanding the details of our business unit growth as well as financial information. Now I'll turn to our financial progress.

As Jerry discussed, our strong quarter was driven by continued improvement in core business results, new product launches, and also the results of our customer focus activities. Jerry reviewed the major changes versus our plans contributing to our strong shipment performance. Now I want to spend a few minutes reviewing the drivers of our favorable sales-versus-volume growth and also our strong gross margin performance. My focus is going to be on year-over-year changes. Then I'll provide some balance sheet and cash flow highlights, and finally I'll shift gears to provide our updated financial guidance for the balance of the fiscal year.

Our positive sales-to-volume gap was mostly driven by favorable product mix and more efficient trade and consumer promotion spending, and that was partially offset by currency devaluation. This quarter we also made a one-time adjustment related to a change in our ReadyMop high-value coupon reduction rates that accounted for the remaining favorability. As a reminder, when we launched ReadyMop in January, we offered $5-off coupons as part of the marketing plan. In calculating this expense, Clorox relied on an outside vendor to provide us with coupon reduction rate estimates. Now this is a much higher coupon value than we typically issue, so we didn't have any internal benchmarks to compare it with. This quarter our outside vendor informed us that these redemption estimates were too high, so we reversed this accrual, and that improved both our sales and gross profit by just under $10 million.

First quarter gross margins expanded by almost 500 basis points, and that was reaching levels we haven't seen since before the first brand's acquisition. This was our fourth consecutive quarter of gross margin expansion with very strong improvement in every business unit, but one. We estimate about two-thirds of our overall improvement was related to items that are unique for the quarter; namely, positive portfolio mix, the ReadyMop coupon reversal; lower commodity costs; and favorable manufacturing costs stemming from higher volumes. We also show favorableness due to a delay in our normal maintenance program at our charcoal facilities. We'll now be shutting them down for this work in the second quarter instead.

For the remaining one-third of this gross margin improvement, or about 150 basis points, is due to the significant progress our people have made during the last year against our cut-costs-everywhere initiatives. This quarter we saw benefits delivered from every part of the organization. There were benefits from large cost-savings projects like the closing of the litter and charcoal plants we announced last year as well as smaller projects. In another area, our procurement group used reverse options to lower surfactant and colorant costs. In September our litter business began shipping an improved Scoop Away product with superior odor control and improved scent and better cropping, but not only does this formula provide a clear consumer win versus the main competition, it also delivered cost savings versus our old formula. Likewise, our SKU reduction efforts have also delivered cost savings, from reduced outside warehousing expenses to also enabling longer, more efficient manufacturing runs.

Finally, we're also seeing savings coming from our process improvement initiatives. For example, as part of our SAP order-to-cash implementation coming up, we have been clearing outstanding customer deductions. From this process, we identified a number of areas that were costing us money, and we initiated ongoing process fixes. One improvement we have already implemented is changing the way we transport Glad products within our outside warehouses, for example. We found that in some cases the fork trucks were damaging this product before it was ever shipped to our customers, contributing to unsalables expense.

So as I hope you can see from all of these examples, cut-costs-everywhere is now a mindset at Clorox.

Moving on to cash flow, I should point out here that the numbers I am about to provide are preliminary, although we don't expect any significant changes, just potential reclassifications that sometimes occur. We continue to deliver strong results this quarter with cash provided by operations coming in at about $210 million. Working capital at the end of the quarter was negative at minus 1.2 percent of sales. At September 30, inventories were at about $249 million, that's down from 300 million one year ago. Receivables were at $370 million. That's down 80 million from a year ago. Payables were at $278 million. Now, that's down 22 million. That's the wrong direction, but the accrued expense balance was at 450 million, and that's up $30 million. We'll put these items on our Website for you and, of course, the entire balance sheet will be published with our 10-Q.

Capital spending in the quarter was $40 million, about one-half for property plants and equipment and the other half for Project Delta. While our cash provided by operations was down about 3 percent from the year ago record quarter, the prior year benefited from about a 900-basis-point working capital improvement. Cash provided by operations as a percentage of sales this quarter hit 20 percent. Now, I should caution you that we do have some seasonality in our numbers, and our first quarter is usually one of the higher cash flow quarters.

Now, before I review our updated guidance, I want to provide you with a brief update on Project Delta, our systems and process improvement project. We are on track to implement the customer planning and order-to-cash processes, our first phase of this project in the second quarter here. We are wrapping up several months of comprehensive systems testing, both standalone and with a number of major customers to thoroughly test all of our system interfaces. Our organization is beginning to move into high gear to get fully trained on our new processes and systems. Key managers across the organization have also anticipated the impact on their business units, and they've put in place plans in partnership with our customers to ensure a smooth transition. Finally, we've put in place a problem resolution SWAT team and support structure to quickly resolve any unexpected issues that arise when the new systems go live.

I'll now share our revised guidance for the year and the second quarter. This guidance takes into account both our unusually strong first quarter results as well as the downside risks we see in the out period, as I'll explain in a moment. For the full year, we now expect GAAP EPS to be in the range of 218 to 223. About 4 cents of the favorableness we saw in the first quarter was a shift in timing from later quarters. We expect our top line to be up low singles, both as reported and before divestitures. Again, this improvement from earlier guidance primarily reflects the strength we saw in the first quarter.

We continue to expect our international business to be down, driven by the significant volume contraction in Latin America from continued economic softness, as well as our own rationalization of our low-margin products. For the year, total company sales should be equal to or slightly better than volume, again, given the favorability we experienced in Q1 as well as the improvements we are seeing from trade promotion efficiencies. The favorableness in Q1 will likely be offset somewhat in later quarters when we promote new products with a trade.

We expect our cost savings initiatives to improve our margins in every quarter, though we are expecting this to be modestly offset by rising raw material costs for the rest of the year. We also plan to increase advertising and non-coupon promotion expenses as we continue to invest more behind our brands. We plan for selling and admin costs to decline modestly as a percent of sales for the year. We are projecting operating margins in the range of 20 to 21 percent of sales, and that depends on the cost savings progress as well as product mix. That's up versus last year's 18.5 percent. Our tax rate is increasing to be between 35.5 and 36 percent of sales due to higher U.S. income.

Now, before I move on to discussing our upcoming quarter guidance, I want to provide some additional perspective around potential risks we face this year, risks that we have considered as part of our updated guidance for the year and, in particular, for second and third quarter. I know you're wondering why we aren't raising our full year more, given the strength of the first quarter.

As many of you know, during the '90s we made a number of acquisitions to greatly expand our Latin America bleach and cleaner presence. With the recent goodwill and other intangible asset accounting changes, that is, SFAS 142, the company is now required to test all of our businesses, both U.S. and international, for impairment each year. Last year we implemented these new accounting rules and took several impairment charges. Since then, we've seen continue economic and political turmoil in some countries, resulting in currency declines and other business softness. Additionally, some markets are experiencing increased competitive activity in response to this changing environment.

We have taken a number of steps to strengthen our foundation and improve our financial position on Latin America. These actions include our previously announced organization restructure to align our resources with our current growth expectation, aggressive rationalization of low-margin SKUs, increased emphasis on improving our cost structure, and then also paring back on discretionary costs. Because of the inherent uncertainty in determining future political, economic, and competitive conditions in Latin American markets, it's unclear to us whether future impairment charges will occur. In the next two quarters we will be testing all of our operations for potential impairment including the Colombia, Argentina, and Venezuela businesses. We will update you on our findings as they occur. I might add that these charges are non-cash in nature.

The other potential area of risk to our business relates to Project Delta. As I mentioned a moment ago, we feel confident about our ability to successfully execute the first phase of our SAP systems implementation, but there is short-term risk that potential disruptions caused by the implementation will impact our business results. We are going to take whatever actions are necessary to meet our customer commitments and to maintain our excellent customer service track record. An implementation disruption could impact shipment demand, in particular, timing of shipment demand, and it could also cause a significant increase in manufacturing and logistics costs. I repeat, we are going to make sure that we do whatever it takes for our customers.

We don't expect any of these issues that I've just discussed to be behind us until the end of the third quarter, but they are taken into account in our overall outlook for the year.

Now, moving on to our second quarter guidance, we expect GAAP earnings to be in the range of 43 to 45 cents. On a reported basis, volume and sales are expected to be up low singles, assuming no shipment impact from Project Delta. We expect divestitures to reduce overall growth by two points during the quarter. We expect our international segment will continue to lower overall company growth due primarily to Latin America softness. Now, as I mentioned, the implementation of Delta may disrupt the normal timing of shipments between second and third quarter.

Because of Delta and our evolving customer plans to manage through the implementation, we have reduced visibility of the timing of our shipment demand during the next two quarters. For perspective, some customers have discussed adding up to a week of extra inventory to ensure that they don't run out of key products, while other customers are planning to build just a few additional days of inventory. Our shipments will fluctuate, depending on how much additional product is ordered and how quickly this additional inventory is flushed through their stores, once our first phase of SAP implementation is fully operational. For perspective, one additional day of vendor inventory is equal to 1 point of volume growth. We expect all vendor inventory levels to return to normal by the end of the third quarter, but this does mean that timing of shipments between second and third quarter may not follow a normal pattern. So given this reduced top-line visibility, I want to caution you that we may see third quarter business pushed into second quarter. We will be working with our customers to firm up our plans.

Let me reiterate that our second quarter forecast shows top-line growth to be up low singles before any shift of business from third quarter. Now, despite the potential shift in reported top line between second and third quarters, we are expecting to show continued solid operating margin improvement in both quarters.

Finally, as a reminder, beginning in second quarter and for the rest of the year, our earnings announcements will be delayed by approximately one week as we work with both our Legacy and new systems to close the books.

Now let me turn this back to Craig for some closing comments.

Thanks, Karen. Before I open this up to your questions, I just want to recap -- take about a minute to recap what I think you ought to take away from today's call.

First, and I think most important is that we had a great quarter. We're delighted that first quarter volume sales and profit came in so strong, and I've simply got to hand it to our people -- they're doing a terrific job and things are clearly headed in the right direction for Clorox. Also, we have a lot of confidence that the focus areas we've chosen are the right ones for the business. At least based on the first quarter, we're doing very well against these.

Second, our categories are healthy, and they're growing, and our brands, in total, as Jerry pointed out, are growing slightly ahead of the overall category growth rate. Innovation is obviously playing a big part in driving overall growth rates for the company.

Then, third, and this is the final point I'd like you to take away -- we've got lots of work cut out for us over the coming months as we go live with the first phase of Project Delta. One of the side effects, if you will, is that during the transition period, we'll have somewhat less visibility into our business. We're confident the organization has put solid plans in place to what we say around here to "ace" Delta, but we also know we're likely to experience some bumps in the road during the implementation. So that's where we are -- great quarter -- and now I'd like to open it up for questions.

Thank you Mr. Sullivan. Ladies and gentlemen if you have a question, please press the 1 followed by the 4 on your touchtone telephone. One moment for our first question. Our first question comes from Carol [Wilkey].

Thank you. Carol Wilkey from Merrill Lynch. I was curious, through this whole discussion there wasn't any mention of the Glad business and the management change that was announced today. So I was just hoping you could discuss, you know, what's going on in that business, what new strategy you think may be put in place, what you see, your hope to have done differently with that business and with the new management there.

Jerry and I are fighting among each other who should answer the question. I don't really care. Maybe I can kick it off. We just put -- we made some changes here. Don't read anything into that. What we've done, frankly, I think part of this has to do with something we've talked about in the past, which is our new growth officer. We took someone named George [Roath], who some of you have met -- a very strong individual out of our marketing group, who was heading up -- who was vice president of marketing for the entire company, and we decided to take him and put him over in an area where he could focus his full time on growth, and he's got a team of folks that he is working with on that and, by the way, I might mention that he is going to be in New York with us in a couple of weeks when we have our meeting on November 14.

We then replaced George with a very experienced marketing person that was over in our Home Care and Laundry business, David [Matz], and we took Glen [Savage], who was running our Glad business. Glen originally came out of the Home Cleaning business, did a great job there, was really very instrumental in driving that business during the '90s in Home Care and has done a terrific job in the last three years really helping improve the Glad business. We've talked about that in the past, and then Beth Springer was the natural person to replace Glen because she's been involved in the Glad business since its inception. She's a very experienced marketer. She came out of the Household Products business, most of her experience was in Household Products, and then she worked as Director of Marketing, Vice President of Marketing for Glad under Glen, so it was just a natural fit, moving up to run that business. So at the end of the day, we've got a stronger team overall. Jerry, can you --

Let me -- quick on the Glad piece -- I think there's two points -- one is we feel good about where we are with regard to Glad's financial performance over the last quarter, but as most of you know, we're going to be giving a presentation in New York at mid-month, and we're going to be talking about our portfolio and some of the plans that we have, and I believe I would -- Carol, if it's okay -- I'd rather talk about exactly what we're doing with Glad and what the future looks like as a part of that meeting rather than go over those details today.

Can you at least tell us -- I mean, that's great -- but can you tell us how it did in the quarter?

Yeah, the volume was down a little bit. Some of that was caused by the Himolene apples-and-apples problem. The branded business was up slightly. We had a little bit of losses in private label, which has been the case for some time now, plus the Himolene. But our profitability in the business was strong, and we made great progress in things like cost cutting and SKU reduction.

Yeah, I think the only other thing is that we were lapping pretty strong comps. If you go back to the first quarter a year ago, as I recall, that was up -- it was either high single, low double-digit -- I think it was up about 10 percent.

Glad was actually one of the single highest gross margin improvement businesses in our portfolio. Let me just also say that on our Website, we've got supplemental volume growth information. So all the details that we would normally give on the call, we've put up there, just so that we could spend more time on more meaningful discussion.

Can I just ask one other quick thing -- the whole Home Cleaning business, the Household Products in North America was so strong. It just seems like you're being very conservative for the second quarter, given the momentum that you're seeing from your new products. I mean, pre- any sort of shift, you know, from the Project Delta? I mean, are you expecting that business to be somewhat different this quarter or is it just continuing or you're trying to be on the conservative side? Because that was a pretty impressive quarter for that whole business, and I know you don't lap the ReadyMop until third quarter.

Well, there is increased activity in the convenience mopping business, and that will have some impact in terms of the absolutes. I think we are trying to be appropriately conservative in light of the issues that we've got facing Delta and the changes that are going on there, and the normal kinds of things that we find in categories, which have competitive things, or we're lapping certain kinds of activity that happened in the year ago period, and it may be conservative, but I would describe it as appropriately conservative.

Thanks very much.

Thank you. Our next question comes from Amy [Chasen] from Goldman Sachs.

Hi. First of all, can you tell us the discontinued operations line for Brazil -- what you expect that to be on an annual basis?

We'll have to get that for you a little bit later, Amy. We're still working on that, because this decision came late in our close process, and so we'll be pulling together the full-year numbers, and we'll make sure that we have that posted for you.

Okay, but the 218 to 223 guidance -- that's equivalent to the 65 cents, right?

Yes.

Okay, so you must have --

This is GAAP numbers, so it is after everything.

Right, okay, so --

It includes discontinued operations, it includes in the impairment charges, it includes, for example, the write-off that we had this quarter.

Right, okay, so it just seems like you must have some idea of what that line item is going to be, right, for Brazil?

What we've included in that is what we knew to be Brazil's original forecast, and that's why we've got that. But Brazil is really very tiny in the total scheme of things. You know, what I would just get back to is reminding you of the guidance, you know, 20 to 21 percent operating margin.

Okay. And when do you expect to sell Brazil? Have you started the process? Or it's very, very early days?

We're actually, as you do with some sales like this, this process has actually been going on for a while, and we elected not -- for reasons in the marketplace -- elected not to get this public, but we are far enough down this path to believe that within some reasonable period of time, we would come to a conclusion and hopefully be able to close on a transaction.

Okay, I'm sorry, getting back to the 218 to 223 guidance for a quick second, it sounds like what you're doing is essentially taking about 3 cents out of the back half of the year, which is an offset of the overage that you saw this quarter because it was -- it seems like you think it might have been timing issues, and I can't help but think that you're just being overly conservative, just given -- and I understand all the Delta implementation and all that kind of stuff, but, you know, your underlying business trends on every single line item of the P&L seems so strong. I'm just surprised that you would feel the need to take that 3 cents out.

Actually, the 3 cents, you know, there are specific things that I can point to on the timing issues. For example, we did have a delayed spend in some of our Delta training expense money that's coming. We also, as I mentioned in the formal discussion or formal remarks, we have our shutdown of our Kingsford facilities that was clearly delayed. We also, because we had slightly higher volumes in the first quarter, you know, our manufacturing expense line is more favorable, and we'll be seeing that turn around a little bit in the out period. So there are some specifics there that we can point to that, for sure, you know, are actual timing issues.

Okay, the volume momentum that we saw this quarter -- was there anything kind of one-time in that, where we shouldn't kind of expect this 5 percent operational volume growth to continue?

I think we had some -- I hate to use the word "one-time" because you'd like to have them a second time, but I think we had, particularly late in the quarter, some pretty heavy promotion events that a couple of customers came in for, for a variety of reasons. And I don't know if those are going to repeat themselves, but that certainly helped our volume.

So, I mean, for the full year is it fair to say volume up at least 3 or 4 percent?

I think what we're saying is we expect low single digits.

Right.

Although we have to realize in the middle of that we have the Latin America piece. I think that our North America business is pretty solid if you look over the whole year.

And when you look at our numbers, I mean, these are our very best estimates for where we are right now. We've had a good, strong and very solid first quarter. Obviously, we're feeling good about that. Our volume is great, but we do have to provide some caution here. There are lots of things going on in our business. This Delta thing, not to beat it to death, but I think you well know, Amy, with your experience with other companies -- we're feeling good about Delta, by the way, I don't want to leave you on a bad note, but there are risks here, and there are risks, as Jerry pointed out, and as Karen pointed out, in the Latin America business. So we think the guidance we're giving you is about right.

We're also going to be lapping Clark's ReadyMop, which was, you know, a real homerun for us, and although we've got some new products activity lined up for ourselves, you know, at this point, we aren't projecting that it would be as big as that one single product.

Okay, just a last question on working capital -- I think I probably asked you last quarter whether we can expect that to continue, and you said no, because of Project Delta, and yet again this quarter we continue to see phenomenal results. Can you just talk about that? I mean, have you changed your tune on that?

Well, for the year, we're still thinking it will be about flattish. So between negative 1 and plus 1 percent of sales, let's call it. It was negative 1 now, but we are beginning to build inventory right now just to be able to make sure that we meet customer demand. Likewise, once we do, in fact go live, the systems that we're implementing in the first phase are all of our customer-facing systems, and what we expect we might see, again, is some up tick in receivables as we manage through this and finally get stabilized. So for the next couple of quarters, I would expect to see an increase in working capital and then, as I mentioned earlier, once we get more into a normal routine here, after third quarter, we would start to see some improvement again.

I'm sorry, why do you expect receivables to pick up? I understand the inventory piece -- I don't understand the receivables piece.

It's just simply a matter of our collection activities, you know, as we are working with both Legacy systems and the new systems -- moving from the old system to the new system, staying on top of our collection activities, and our deduction management activities. So those are the types of things that we're just being cautious about.

Okay, thanks very much.

Thank you. Our next question comes from Wendy Nicholson from Salomon Smith Barney.

Hi, my first question has to do with the Latin American business. With the exiting of Brazil, and it certainly sounds like you're making good progress down there on improving the profitability of the region -- how quickly does the international business kind of catch up and be less of a drag on the overall company's margins?

Well, I think, actually, as it declines, because it has lower margins. It has less of an impact because it has lower margins, but I do think we've got to still look at the next 12 month, probably, as a minimum that it's going to be -- it's going to have improving profitability, but it's going to be a drag because of lower volume in sales, and I think that's a minimum of 12 months.

Do you think after that we catch up 200 basis points a year? I mean, it's seen international business be a drag. I know for a long time it's been part of the margin expansion strategy to get the international business to be less of a drag, and it seems like you're making good progress, but it's still a big drag down. Is it a three year catch-up period when it's more in line with the Household business and the U.S. Specialty business?

From an operating margin standpoint, Wendy, or --

-- pretax.

Okay, yeah, I --

-- pretax is what you report, right?

Yeah, I think that's a reasonable way to think about that -- is that it may take that long to get to what I'd call U.S. kind of margins, but that's the kind of progress we are looking at and I think intending to make, and I think we can make steady progress there.

Let me just piggyback on what Jerry said. I think we need to be careful when we classify everything in our international business. What we're really talking about here, we have some issues -- we talked about Brazil today as other companies have issues is in Latin America, and we're doing lots of good things down there to try to get our business right, but we've made a lot of progress in Asia and the rest of the world where we are. So our real challenge is Latin America.

Okay, and then the other question I had -- your guidance for the potential disruption in the business going to Project Delta, the first quarter didn't see any pull through or accelerated sales from Delta, did it?

No.

No.

No.

You wouldn't expect it to.

Okay, because we're not at that stage yet in the implementation?

No.

Okay, and then in terms of the Project Delta, it sounds like there is just an enormous amount going on at the company right now. I mean, lots of moving pieces and all for the betterment of the company, but it strikes me as maybe the worst possible time to be contemplating an outside search for a new CEO, possibly. You know, Craig, can you comment on that? I mean, do you feel like your plans to leave are causing an extra level of, I don't know, execution risk within the company at this point?

Absolutely not. Everyone was actually cheering in front of the building this morning.

Yeah, I'm sure.

I don't think so. I mean, we're doing this -- I think we really are taking this in a very orderly way. Unless they throw me out of here, I am still the CEO, and I intend to be around for a while. I think if you talk to our board members, they would like me to be around because they want to do this appropriately and orderly and not rush it. As I mentioned, best practice, we're looking inside and outside the company. We have no date here with a gun to our head. I'm going to be here as long as the board wants me to be here, but certainly through the end of calendar 2003. We've got a great team here; we've got solid plans in place; we're focused. I don't see this as a disruption at all.

Will you stay on as Chairman of the Board after your title as CEO ends?

I think that's a decision the board will have to make. You know, I think it will depend on a bunch of different circumstances. If the board wants me to stay on for a period of time as Chairman, that's something we need to discuss.

Okay, fair enough. Thanks.

Thank you. Our next question comes from Jim [Gingrich] from Sanford Bernstein.

Craig, I'm sorry if you already answered this -- did you say when you thought this search would be resolved or a decision would be made one way or the other?

I did not say, and the only thing I can tell you -- I did say that I had -- I think I did say that I had an agreement with the board through the end of calendar 2003. We have begun the search. We have engaged a search firm, and you know how these things go, Jim. It will take some period of time. I can't tell you exactly how long, but certainly before the end of calendar 2003.

Okay.

I guess as it will be somewhere in the first half of calendar 2003 that that decision will be made, but we're not rushed on this. We've got lots of time.

I just hadn't been contacted yet, Craig.

Well, you know, Jim, what I'm hoping is we could do a player swap, and I could become an analyst, and you could come here, and I could start making some real money.

Okay, but how does this lead you, then, in terms of making decisions on the portfolio? Are you inclined, then, to be reticent to make major decisions in that regard, given the window on your transition?

You know what? Two things I would say -- one, we're going to discuss -- don't read anything into this, Jim. We're going to talk in some detail about our portfolio at our meeting, what, in two weeks, two and a half weeks or whenever it is, so stay tuned for that. I assume you're coming. But I am not approaching my job or this company any differently today than I would have a year ago or five years ago. As far as I'm concerned, I'm the CEO of the company, and I'm going to act in the best interests of our shareholders, and the board is very involved in what we're doing, and we're about to continue this business for a long time. So my approach to this is no different today than it would have been a year or two ago.

Well, along those same lines, then, I understand the decision regarding Brazil, but strategically, you know, at this point, why even fool around with Latin America, given the types of results and return on investment that you're getting out of the U.S. business, why not continue to focus efforts there? In some sense, I guess I understand the need to get the Latin American business stabilized, but it's unclear to me, given the results you get in the States, why that should not be the key focus strategically for the company here.

I think I would describe that the key focus for the company is making sure that we drive growth in the U.S. On the other hand, we have some niche businesses in Latin America, either country businesses or brand businesses, and in Asia Pacific, in Australia, and a number of other countries in Asia, that are very good businesses, and I think that our ability to continuously improve each of those businesses without distracting us from what I think is our primary activity, which is making sure we have one heck of a good, solid, growing U.S. business, is completely doable. It is not distracting at all to anybody in what we're doing right now, and we feel that there still could be a foundation for growth in Latin America if we manage it in the right way.

Is it fair, Jerry, to say that philosophically you're going to be looking at running this thing more for profit and margin than as a growth engine?

Well, certainly, in the near term. I think we are -- you have to have sound fundamentals and a cost structure that works and healthy brands, and we will only be focusing on those things during the near term. I think that a separate decision on would you want to invest for growth in those is a ways down the road until we've got the Latin America country businesses similar to what we have in Asia now. We have some very, very good businesses that we took some tough action on about two or three years ago -- we'll talk about that in mid-November a little bit -- but those actions are now producing some very solid results for us, and I think that same situation can exist here in Latin America.

Okay, thanks.

Thank you. Our next question comes from Bill Steele of Bank of America. Please proceed.

Thanks. Craig, on the 18th of September you guys indicated comfortable with 52 to 55 cents in earnings, and what happened in the last two weeks to cause earnings to be up over 30 percent higher?

Well, you know, I think it wasn't one thing. We sort of talked about a lot of this stuff during the call. I think it was a confluence of things coming together. You know, there's no question that we did better than we expected. In my view, I'm not going to apologize for it -- I think it was very good news, and I really do think that, as I said, it's a confluence of things coming together -- lots of things are working for us. One of these we mentioned, you know, we did get better incremental merchandising -- significantly better incremental merchandising at the end of the quarter that we didn't know about at the time through a couple of big customers.

Some of the competitive issues, frankly, that we had built into our forecast did not materialize late in the quarter. Our mix was more favorable than we expected. Some of the new products that we introduced, particularly some of our big new products that we introduced last year, mainly ReadyMop as well as wipes continue to do extremely well, better than we thought. We got better pipeline on Brita. Our costs came in more favorable. One of the things we talked a lot about last year, and we've been really focusing our organization on currently and particularly in '02 was our SKU reduction, and it's hard to track what that gives you. But, you know, lots of goodness comes out of it.

I think Karen mentioned this 3 cents swing on the coupon issue. You know, the brand investment -- we talked a lot last year about the fact that we were going to be investing in our brands through brand-building kinds of activity against the consumer. And, you know, that's helping our core businesses. We've done a great job and now the bottom line, Bill, is this stuff is all paying off. Lots is going on and, at times, it's difficult to predict how fast these initiatives translate.

Okay, and one other question -- Karen mentioned a delay in the Delta expenses from Q1. In terms of earnings per share, what would that have accounted for?

That was just one contributing factor here, but it was maybe up to 1 cent.

Okay, thank you.

Thank you. Our next question comes from Catherine Lewis from Morgan Stanley.

Hi. Just for clarity, I just wanted to understand the non-recurring retail opportunity in the quarter. Is there any way to quantify it? I mean, is it something relatively insignificant like 3 cents a share? You know, it would be helpful to get a feeling for how it impacted the earnings in the quarter.

You know, that's probably helped us by a couple of cents, I'd say -- two to three.

Okay, and then, in terms of the gross margin trend, the improvement was pretty tremendous. When you think about drivers, going forward, I know you mentioned higher material costs, or modestly higher material costs -- what do you think could continue to help show productivity gains in that line, going forward?

There are a number of activities that are being undertaken across the organization -- cost-savings initiatives. I mean, for example, the way we are managing our warehouse operations, logistics expenses, the procurement examples I gave you in the remarks a few minutes ago are just a couple of examples of a number of procurement initiatives that are taking place. As well, we are really driving at promotion spending effectiveness and efficiency. Our sales force has guidelines across every single business as to what are the best types of promotion plans that are most effective in driving volume, and we're really, we think, gaining quite a bit of momentum from those activities. So the unsalables area, for example, that I mentioned. I just mentioned one thing that is what's happening in the Glad warehouse operation, but we've got activities across every single business that are improving unsalables, as an example, and we're seeing big benefits from that.

So if I were taking a look at the -- let's call it the "sustainable" piece that came out of the first quarter, about a third of the gross margin improvement, you know, 150 basis points. Now, some of that is going to be offset by increasing commodity expenses. We are really at the bottom right now of all of our major commodities, and we're getting indications that we should, in fact, see up ticks as we go through the fiscal year. Suppliers are taking capacity offline, and that definitely moves commodity prices up, but this stuff that we're putting into place is structural and sustainable.

Okay, and just -- you mentioned the material costs -- when you budget for material costs this year, how much of an increase are you looking for?

Over the full year, it's a fairly modest increase. You know, maybe 4 to 5 percent. It was favorable in first quarter, but it will be going up as we go through the year and then averaging for the year in the 4 to 5 percent range.

Okay, great, thanks.

Thank you. Our next question comes from Fran [Coley] from Seneca. Fran Coley from Seneca, please proceed.

Our next question comes from Ann Gillian. Our next question is from Ann Gillia] from Lehman Brothers. Please proceed.

Hi, Craig?

Yes?

Oh, great. I'm just wondering if you can comment on whether that 5 to 7 that you're benchmarking for the last 52 weeks in dollar sales surprised you or whether you think that's what trends should be for your categories?

Well, I'm going to let Jerry take that.

Actually, I don't think it did surprise us, when you think about the implications of the convenience mopping category -- I'm just talking about the categories right now. There's enough innovation in a number of places. One of the problems that we have with all the data, and I know a lot of the analysts don't cover all of our categories. We probably have a fourth of our business that's not covered by you all, but is covered by us. There's actually some good trends in a number of businesses like the auto category or charcoal. In some cases, people don't cover that. So when we're looking at it, we really care about all those kinds of numbers, and there's been very positive trends in that way. Food, charcoal, and auto have all been big contributors. I think that we're not surprised by -- as we've looked at non-track channels and what's going on and how the impact of leading brands in those kinds of channels is impacted, and I think a lot of other companies have mentioned that to everybody, and then the role of innovation. When you add that in, in categories like, even, marinades, but also ReadyMop and other things like that -- a combination of those things. So we're not surprised as we look back over that year as to whether the category was growing about that rate.

Jerry, is there a way to think about what the contribution from the new products, the role of innovation was to that 5 to 7?

Yeah, I think that we would probably say it's a couple of points down from that without the innovation.

Okay, terrific. And then I'm just wondering if we could talk a little bit more about the promotional side. I'm just trying to reconcile the fact that the comparisons a year ago were fairly easy because you were still -- I think you were still in sort of a stepped-up promotion phase through the end of September last year. So I just want to kind of understand where that could have helped on the pricing line. And then if you could give us a little more color around the savings that you've been able to achieve as you've readjusted the way you're promoting. Then lastly, it just sounds like, at the end of the quarter, you had some one-time items from people coming in, and it sounds like taking advantage of some of your promotions, but that's sort of more heavy promotions in this quarter is consistent with other staples companies. So I'm just wondering whether or not you are factoring in more heavy promotions as we get into the quarter, ex -- sorry -- further in the year -- ex new products.

I think on that last point, I don't think that we didn't spend any unusual kinds of money to generate that promotion support at the end. It was very typical of the kinds of rates that we spend on our normal promotion activity. I think we have continued to make big progress on the efficiency with which we're spending -- our trade promotion spending. Because we're not having to cut the rates, we're just getting more for it in terms of effectiveness and efficiency because of some tools that we continue to work with.

We did have some big benefits from mix in the quarter, and I'm talking about category mix more than size mix kinds of things. So as we got the benefit of this volume, they tended to be our higher-margin businesses.

Were they lower promotion businesses?

I'm sorry?

I'm sorry --

They probably have similar kind of promotion rates on that line, but there are higher margins so that may not get at your question there. We did have the coupon reversal sitting inside of there, though, and that's a factor as you're looking at all of that.

Okay, and you haven't commented on the easy comparison -- am I right to think about that as a factor, too?

No, Ann, this is Karen. You know, when I take a look at our trade spending across all of last year, first quarter wasn't a particularly easy quarter to compare against.

Okay, pricing was down three in that period? Price mix was down three?

You know, last year, you're right, but I believe that -- let me get back to you, but if I take a look just at the one line that we're talking about here, the difference between volume and sales of 3 last year, you know, was not because we had an easy comparison or a high level, if you will, of trade spending.

Okay, I'll look forward to that. And one last logistics question -- you commented that you'll wait a week or you'll be delayed a week as you go through the systems transitions. Will that also mean that your quarterly update will be delayed a week?

No, the quarterly update will be at about the same time. So think of that in the December 12 to 15th range, but our earnings release will be probably the first or second week of February.

Great, thanks.

Thank you. Our next question comes from Connie [Munitti] from Prudential Securities.

Good afternoon. I have a couple of questions -- back to September 18th when you gave your update, didn't you have orders on the books for some of these shipments that were going to come so late in the quarter?

No, we didn't.

So the turnaround time you guys had was really --

-- that's why, as we said, and I think Jerry said, you know, it was a surprise to us, too -- a positive surprise, by the way.

Has any of this resulted in more permanent shelf space, or do you think it was kind of a one-time thing?

We think of it as a one-time thing. I think Craig said earlier, next year we're going to have to worry about it as a comp, but right now those were good things for our brands. It would not affect the shelving or the out-of-stock situation or anything else, but it's a good merchandising event, for the time being, that was incremental to us.

And what categories were they in?

I don't think we're giving the details on that, are we? We're not giving the details on that. Other than it did come out of the Home Care area. I think we were going to give in that area, and Brita also, because of new distribution, which would help shelf space, Brita did come in also at the end there. But those are the two big categories that were impacted.

How much of Brita's sales were pipeline sell and how much are you seeing as what you would consider a normalized run rate for the new pitcher?

We'll probably have to get back to you on specifics on that one, Connie, about how much. There was a little bit of pipeline because we have a new product going out.

I don't think we have the breakdown. Can we come back to you on that, we'll give it to you.

Sure. And then just one final thing on the management change at Glad -- would it be a safe assumption that it was maybe time for a change, given some share slippage at some big accounts?

Time for a change? No. It had nothing to do with it.

No?

Huh-uh. Glen Savage is -- if he's listening, I worry that I'll say good things about him, and he'll want a salary increase. I think you met him, Connie, and some of these other folks have -- he's a very experienced, very competent guy. He did a great job on Glad. We made a lot of progress in that business under Glen's leadership, and had to do -- I don't want to go back and reiterate what I said earlier, but it had to do with making other moves and putting the right experience on our business, and one of the things that we're pretty enthusiastic about here is this whole growth officer concept. We're going to talk about that in New York, and I think we can put some more color around that, assuming you'll be at the meeting, and I think you'll understand what we're doing there. So it was about a bunch of different things, but the good news is we've got the folks in place now, with the kinds of experience we need in our businesses, and it's a very easy transition to put Beth into Glad, because she's been there for three years.

Okay, if I could just ask one last question then -- could you address the share losses that the Gladware product line has had over at Wal-Mart, and what you might be able to do to reverse that?

I think that's sort of what I call the standard stuff. The biggest issue there from just a share standpoint is the Rubbermaid Take-Alongs, and the aggressive pricing action that they have there, and that's an implication for the whole category, and so a lot of new items that affect shelf space and everything else, and in terms of what are we going to do about it, I think we'd prefer to sort of handle that as the normal things that we always have to deal with in defending our brand and being proactive and trying to build our business in an appropriate way.

Okay, thank you.

Thank you. Our next question comes from Alex [Parison] from [Dresner] RCN.

Just trying to circle back, Karen, in particular, to the comments you were making about the gross margins, and I'm tying it into this list of what we're calling one-time issues, maybe not, whatever, and really sort of zeroing in on -- I think you said that the gross margin underlying trend, excluding some of these one-time elements, is something on the order of 150-plus, maybe 200 basis points. Is that correct?

I said that it would be the underlying improvement that we're seeing from our cost savings initiatives would be -- we could look at that as improving this about 150 basis points, you know, recognizing that commodities will also have an impact as we go through the year.

Okay, and I guess circling back to -- you mentioned, I think, this was the ReadyMop business in particular had kind of a one-time benefit from the lack of a competitive presence, and I imagine that translates into full pricing and all the benefits that come with that in a one-time step-up in shipments and shelf space. Does that translate, as well, meaningfully, into your positive price mix and thus your positive gross margins?

You know, we still have competition on Clorox ReadyMop, and so we were still doing the normal types of promotion activities that you would normally have, because there was one other major competitor out there and has been out there all along. What we were talking about was a third entry into the category that we were expecting to come out earlier in first quarter and didn't really get ramped up until the very end of the quarter. So it did help our sales volume mix to a certain extent, but it isn't as though we were on a one-time basis here getting some benefit from reduced spending.

I think the biggest thing there is just to say we were, in our forecasting, we were expecting some additional moderation of our consumption and some negative impact from a shelving standpoint that would impact our shipments, and that simply didn't happen on the timing that we had expected to happen on.

Okay, I don't mean to take anything away from your results. I guess I'm just trying to get a bead on the positive pricing mix results that you guys have, and you highlighted that it's somewhat regional in nature and maybe somewhat product in nature, and this seems to run against the trend in many of your competitors that have seen lower raw materials and cost saves translate into lower pricing mix as they focus on higher gross profits, you got the benefit of higher price mix and the lower cost and huge gross profit lift, and so I'm trying to zero in on how much was that pricing just mix one time and the underlying trend of that tradeoff between those two factors.

You know, if I were to pick -- you know, we have gross margin that was up 490. As I say, about two-thirds of that, we were attributing to things that we would call unique in the quarter -- a very favorable product mix was part of that. You know, the lower manufacturing costs stemming from significantly higher volumes; and then also the timing of charcoal maintenance; the one-time coupon adjustment; and then we have the favorable raw material prices. I'm calling that as unique to the quarter in this fiscal year. The one-third or the 150 basis points that I'm saying are more structural and more lasting and that are due to cost savings initiatives, do include more efficient trade promotion spending activities, as we mentioned, you know, some of the things that we're doing with our sales organization -- it does include the savings from the reduced product complexity; the lower SKUs; the closing of less efficient manufacturing facilities; the transportation savings we have from some of our new logistics plans; our procurement activities. So those are what I'm saying are the lasting structural types of things.

Okay, and that improved efficiency on trade promotions translates into the sales line, is that correct?

Yes, it does.

Okay.

But it obviously helps our gross margin.

Okay, thanks very much for going through that.

I think, given the time, we've been on this call now for almost an hour and a half, an hour and 20, 25 minutes. So I think what we'll do is take one more question.

Thank you. Our last question comes from Art [Cecil] from [Cho] Price. Please proceed, sir.

That's too much pressure. Can you let somebody follow me?

You're up to it, Art, I know that.

I don't think so. Craig, is this -- I'm a little behind, I guess, but is this the first time that we've been given your specific plans for retiring?

I think it's the first time you've been given the specific plans, although back in about, I think, November of last year, in our 10-Q, I believe, we had reference to an agreement -- a new agreement that I had with the board that took me -- the agreement was really, Art, through 2003 calendar, which I mentioned on the call.

But this is the first time that you've really said, "This is it."

Well, if you want to put it that way, yes. I mean, this has been something, as I'm sure you understand, that the board has worked -- given the fact that I had a new agreement with the board through 2003 -- carefully against and has been planned for a while.

Now, on the earnings guidance of 218 to 223, that's versus, on a GAAP basis, $1.37, but the $1.37 includes one-time things, and 55 cents, so we get to $1.92, so the question is -- what is your assumption for those sorts of things again in '03? Are you assuming nothing versus last year's 55 cents?

What we are looking at is, and I think, Art, you could probably make some assumptions. As I went through each line of the P&L and got us to a 20 to 21 percent operating margin, if you factor that into your model and then also take into account the 218 to 223 bottom-line guidance, you can make some assumptions about what we might be thinking about here.

Wouldn't it be easier just to tell us what your assumption is?

It's something that, you know, as I mentioned, we've got these downside risks in Latin America that, you know, are -- right now it's uncertain to us exactly what we will, in fact, have to reflect, if we have to reflect anything. And so we're just trying to be cautious in providing something in our guidance for the downside risk.

But it's possible the 218 to 223 will be after reducing it for some one-time situations?

The 218 to 223 is GAAP, which means that it will reflect everything that comes through the P&L.

Right, which could include taking gains on transactions.

It could, but, you know --

-- unlikely. You all have done a really fabulous job of updating as the quarter goes along, pre-announcing that earnings, for example, might be a little bit higher than we told you a month or two ago, and I guess I'm still a little bit confused as to how it is that September 18th, the update didn't take any of this into account, and I guess I'm wondering -- is it possible that this end-of-quarter stuff, including the decision, I guess, to show Brazil as discontinued rather than as part of the operations, and some of the other stuff that you've gone through -- could this have all added 10 cents a share to these numbers? As much as that? You talked about 3 cents from the coupon redemption thing; a cent from the Delta expenses; you talked about the non-recurring retail opportunities, 2 to 3 cents; and we had the pushback of maintenance, I guess, on the charcoal business. I'm just wondering if all these little things could have added up to 10 cents a share and the reason you didn't raise the guidance at September 18th the way you normally would have is because you just didn't realize how good all these one-time things were going to be.

Well, that's definitely the case here. These merchandising events did come to us after that call that we made. The coupon information came in late in the call, and we just didn't have that information at the time.

And then one final thing, and I realize -- I don't want to carry you into your second hour, but the 6 cents that you show as discontinued in the quarter that allows the 65 cents to turn into 71 -- is that not all Brazil?

Yes, it is all Brazil.

It is Brazil.

Okay, and that is Brazil's operations as opposed to part of write-offs?

No, it includes a write-down in our assets as well as the results of their operations.

I see. So on a pure operating basis, Brazil might have been unchanged from a year ago or how much --

-- it's about flat versus a year ago, yeah.

Okay, so it really was small.

Right.

Well, thank you very much, I appreciate it, and it certainly was a very nice quarter.

Thanks, Art, and thanks, everybody. I think we're going to close this off. We've been on for an hour and a half and very much appreciate everybody dialing in today. You can tell we're feeling great about the business and stay tuned for Quarter 2 and for our meeting in New York. Thanks very much.

Ladies and gentlemen, this concludes today's conference. You may all disconnect, thank you.