高樂氏 (CLX) 2005 Q3 法說會逐字稿

Good afternoon. My name is Bonnie and I will be your conference facilitator today. At this time, I would like to welcome everyone to The Clorox Company third-quarter fiscal year 2005 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). I would now like to introduce your host for today's conference call, Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin.

Welcome, everyone, and thank you for joining Clorox's third-quarter conference call. On the call today with me are Gerry Johnston, Clorox's Chairman and Chief Executive Officer, and Dan Heinrich, our Chief Financial Officer.

We're broadcasting this call over the Internet and a replay of the call will be available for seven days at TheCloroxCompany.com. For additional information about the Company's results, including definitions of financial terms used in this earnings release and on today's conference call with the investment community, please visit the financial information results area within the Investor section of TheCloroxCompany.com.

On today's call, Gerry will start by providing some observations about the quarter. Then Dan will discuss the key financial drivers and results and provide our financial outlook. And finally, Gerry will wrap it up and then we'll open it up for your questions.

Before we begin, I need to remind you that the material we're providing during this call contains forward-looking information. Our actual results may differ materially from what we are 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 filings for the fiscal year ended June 30, 2004. With that, I'll turn it over to Gerry, who will briefly recap our third-quarter results.

Thanks, Steve, and welcome, everyone. As you saw in the press release, we had a solid third quarter. Dan will go into the details in a few minutes, but first I'm going to do a brief overview of EPS and top line, how we're thinking about margins, and a brief look at our business unit health.

For the quarter, we delivered $0.76 in earnings per diluted share or $0.75 from continuing operations. Excluding the $0.09 combined Q3 impact from the IRS settlement for an earnings repatriation that we reported in April, we delivered $0.66 per share on a continuing operations basis versus our prior outlook of $0.65 to $0.71. Included in these results is a net $0.02 negative impact from some items that were not in our original outlook. Dan is going to discuss those items when he comes on. Now overall, I believe it was a good quarter, especially when you consider the continuing commodities pressure that we're facing.

Looking at the top line, third-quarter volume and sales each grew 3% versus the prior year, resulting in fiscal year-to-date volume and sales growth of 5%. For the quarter, all businesses across the portfolio grew sales with the exception of Brita and charcoal. The Brita business was down versus prior year, primarily due to the timing of a club event and a very strong comp base period the prior year. Our charcoal business results reflect the impact of poor weather throughout the quarter. Nonetheless, on charcoal, our most important consumption periods are still in May and June.

Now there's going to be some top-line variances from quarter to quarter, as you can just see in the past two quarters in our businesses. But as you've heard me say before, we're focused on the full year. Now looking forward, we anticipate a strong Q4 and should end fiscal year '05 with sales growth of 4 to 6%, above our original fiscal year and long-term target.

Now let me talk about margins. Gross margins came in down 260 basis points versus year-ago, which is about what we had expected. As we've indicated over the last six months, commodity costs will have a significant effect on margins for Q3 and the next several quarters. Obviously, our results would have been substantially ahead of expectations if we had not faced this unusual commodity environment. Nonetheless, we are continuing to pursue the actions that mitigate this impact over time. For example, results from our cut costs and enhanced margin strategy -- that's what we call CCEM, are at or slightly ahead of our fiscal year expectations. Year-to-date, CCEM has delivered 230 basis points of benefit to gross margin on top of 235 basis points of gross margin improvement over the last fiscal year.

We're also continuing with more aggressive pricing activity. In February, we too the 12 to 13% average pricing on Glad trash bags and containers. In addition, effective in mid-July, we're taking a 9% average price increase on Clorox liquid bleach, an average 5% increase on liquid Clorox 2 Bleach for Colors, and an average 5% increase on Clorox Clean-Up cleaners. Our price increase on Clorox liquid bleach is coinciding with the introduction of an improved whitening formula. We feel good about the combination of this pricing action with the improved product.

In spite of this pricing, as we look forward, gross margins will still be challenging in the first half of fiscal year '06. In the second half of '06, we should be some improvement in margins. But Dan is going to provide more details on that in his remarks.

Now looking at our portfolio, I feel very good about the overall health of the business right now. Let me give you some examples. First, in Q3, Glad enjoyed the highest shares since we've owned the business. Glad trash continues as the clear market leader. We hold the number one position in containers. And overall, we're the number one branded player in the entire bags, wraps, and containers category. As I mentioned in February, we took a price increase on several Glad products. Although it's still early, we now believe the business will keep its strong position in spite of that pricing action.

Second, the health and wellness platform in our laundry and homecare business continues to resonate with consumers. Several retail partners are also embracing it. So far, the biggest impact has been Clorox disinfecting wipes, which achieved strong double-digit volume growth in Q3 on top of similarly strong double-digit volume growth in the year-ago period.

Third, our international business had Q3 volume growth of 9% and double-digits in sales. This is international's fourth consecutive quarter of growth at 6% or greater. Latin America has been particularly strong with both solid core brand growth and continued successful expansion of new products. We anticipate international to continue its growth momentum.

Fourth, I feel good about the food, litter, and charcoal business units. We recently completed our high-flier strategy work for these businesses. As a reminder, high-flier is our strategic planning process for developing breakthrough opportunities and growth ideas for our brands. The consumer-driven ideas for these businesses coming out of high-flier have identified some exciting new growth opportunities. You're going to see more information on the impact of those initiatives as we go through the next fiscal year.

And then finally, our innovation strategy around game changers and core growth. They continue to deliver. For example, both Clorox ToiletWand and Glad ForceFlex are exceeding our internal targets and winning with consumers and customers.

Now with that, I'm going to turn it over to Dan and he'll provide details regarding our Q3 financial results, our fourth-quarter outlook, and our preliminary outlook for the next fiscal year.

Thank you, Gerry. I'm going to start today by discussing our third-quarter results. Then I'll provide our fourth-quarter outlook followed by our initial outlook for FY '06.

As Gerry indicated, we feel we had a solid quarter, especially when you consider the continuing commodities cost pressures we're facing. On a GAAP basis, third-quarter earnings per diluted share came in at $0.76.

Before I discuss our EPS results in detail, I want to first provide some perspective on our P&L. With respect to the top line, third-quarter sales came in at 3% in comparison to the year-ago quarter, driven by all-time record shipments of Clorox disinfecting wipes, increased shipments of Glad trash bags behind our ForceFlex launch, continued momentum behind Clorox ToiletWand disposable toilet-cleaning systems, and increased shipments across Latin America. Our top-line results were also affected by comparison to the year-ago quarter, which included a major club store event that will occur in Q4 this year. The timing of the club store event had an impact on our Brita business this quarter.

As Gerry noted, gross margin came in down 260 basis points versus the prior year. This anticipated decline was driven by continuing raw material cost pressures. As Gerry noted, we're taking pricing where possible to offset some of these impacts. For perspective, about 320 basis points of decline came from commodity cost increases, 60 basis points from logistics, in large part due to diesel fuel cost increases, and 90 basis points from other areas, including costs associated with our previously announced closing of a Glad plant and P&G's increased investment in the Glad joint venture. These negative impacts to gross margin in the quarter were partially offset by about 210 basis points coming from our cut costs and enhanced margin strategy.

As Gerry noted, over the last seven quarters, we've been averaging over 200 basis points of CCEM margin improvements. We continue to have confidence in our ability to generate gross margin improvement once commodity cost pressures subside.

Selling and administrative expenses came in lower than a year ago. The largest factor contributing to this is reduced accruals for incentive compensation as we recognize the impact commodity cost increases have had on our targeted operating income. In addition, we recorded a $6 million accrual this quarter for anticipated vesting of performance units. As disclosed in our June 30, 2004 Form 10-K, we have performance units that are due to vest in September. And given our total shareholder return performance versus our peer group, we're reflecting an accrual this quarter. The impact from performance units accruals was essentially offset in the year-ago quarter by a $6 million contribution to the Clorox Foundation.

Operating margin was up 30 basis points due to the reduced selling and administrative expenses, which were largely offset by the commodity cost impact on gross margin. Interest expense was $19 million higher than year-ago, primarily due to the incremental debt incurred to finance the Henkel transaction. Versus the year-ago quarter, other income expense was unfavorable by $29 million, in part due to restructuring costs largely related to the Glad plant closure we announced a year ago and losses from low income housing investments. As a reminder, for more than a decade, Clorox has invested in low-income housing partnerships and we've been realizing tax benefits associated with these investments.

Our effective tax rate on continuing operations for the quarter came in at 15%, which was significantly lower than anticipated. The main factors lowering our tax rate are the release of excess tax contingency accruals subsequent to reaching an agreement with the IRS, the tax effective foreign earnings repatriation, and several other tax credits, the largest of which was related to the application of the American Jobs Creation Act that yielded some additional foreign tax credits.

With that context then, let me now discuss our EPS results in more detail. As you may have seen, we issued a press release on April 20 announcing we reached a settlement agreement with the IRS and that we plan to repatriate foreign earnings in accordance with the American Jobs Creation Act. The combined tax effect of these two actions resulted in an earnings benefit of $14 million or $0.09 per diluted share in the third quarter.

As I noted at the beginning of my discussion, fully diluted third-quarter earnings per share came in at $0.76. This included a penny per diluted share from discontinued operations, which reflects modest profit related to our interim services agreements with Henkel, as we continue to produce some products following the share exchange.

Earnings from continuing operations were $0.75 per diluted share for the quarter, which includes the $0.09 combined impact of the IRS settlement and foreign earnings repatriation. We had about a $0.02 earnings per share reduction from several items that had not been previously anticipated in our outlook, including reductions from low-income housing losses and performance unit accruals, which were partially offset by the positive impact from the tax credits I just discussed.

Turning to cash flow, we generated cash provided by operations of $58 million in the third quarter compared with $203 million in the year-ago quarter. The decline was primarily driven by the Q3 tax payments to the IRS. Net-net, we feel we had solid results for the quarter. And combining Q3 with strong first-half performance, we're pleased with our year-to-date results as we move into the fiscal fourth quarter.

Now I'll move to our outlook. First I'll discuss our Q4 outlook and then provide our initial outlook for fiscal year 2006. On the top line, we now anticipate Q4 sales growth of 4 to 6% versus the year-ago period, which is higher than previously projected. We anticipate gross margins to be down in the range of 200 to 250 basis points as commodity cost pressures more than offset cost savings and pricing actions in the near term. All other lines in the P&L are projected to come in at about last year's level on a percent-of-sales basis. Operating margin is expected to decline, consistent with our gross margin outlook. We anticipate our fourth-quarter tax rate to be near the year-ago rate of 35%.

On the bottom line, our outlook for earnings per diluted share from continuing operations and fully diluted earnings per share remains unchanged at a range of $0.91 to $0.97. For the full fiscal year, sales growth is now anticipated to be in the range of 4 to 6%, which is slightly above our long-term target of 3 to 5%. We anticipate that gross margin will come in down in the range of 75 to 100 basis points. Operating margin is anticipated to come in flat to down 50 basis points for the full year.

We now anticipate full-year earnings per diluted share from continuing operations in the range of $2.80 to $2.86, and fully diluted earnings per share in the range of $6.02 to $6.08, which includes the positive impact from the Henkel transaction we completed earlier in the year. Our fiscal year 2005 EPS outlook assumes about 180 million weighted average shares outstanding on a full-year basis.

Let's now turn to our preliminary FY 2006 outlook. We provided highlights of our outlook in this morning's press release. Although we're still in the midst of putting all of our plans in place, I'd like to provide some perspective. At this preliminary stage, we anticipate full-year sales growth within our stated targets of 3 to 5% and earnings per diluted share of $3.00 to $3.11. These EPS range estimates include the impact of expensing stock options, which is effective with our new fiscal year.

We anticipate the impact of options expensing to be about $0.11 to $0.13 per diluted share. There are a number of factors that you should consider in looking at our preliminary outlook for fiscal year 2006 EPS. We will benefit from continued accretion from the Henkel transaction, which will particularly benefit the first and second quarters due to lower share base, partially offset by higher interest costs. EPS and gross margins will be slightly diluted due to P&G's increased investment in the Glad joint venture.

Several items that impacted us this year should not affect us in fiscal 2006. We will not have further restructuring charges related to closing the Glad plant in Cartersville, Georgia. While 2005 benefited from the release of excess tax contingency accruals, we expect no further significant impact from the recent IRS settlement.

Finally, fiscal 2006 will not have any income or gain from our former Henkel Iberica investment, nor will we have operating profits from the exchange businesses. However, for the first two quarters, we will be comparing against base periods that contain income and gains on our Henkel Iberica investment reported within continuing operations.

From a new product standpoint, we'll lack the launch of Glad ForceFlex trash bags in Q1 but we will continue investing to support the Clorox BathWand cleaning tool that we launched in April. The BathWand tool is on track at this point, but with only a month behind us, it's really still too early for us to have a good read on market results.

To help offset commodity cost pressures, we expect to benefit from the February Glad trash and container price increases and the July Clorox-branded products price increases that Gerry discussed. As a result of these actions, we anticipate sales growth to come in higher than volume growth, although pricing will likely have a moderating effect on volume growth for these brands.

Commodities costs are anticipated to increase due to an improving economy, increased energy and feedstock costs, and tight supply capacity. At the same time, we're looking for strong cost savings and the benefit of price increases to help offset commodity cost pressures. Consistent with our 2008 targets, we're projecting another solid year of cost savings in the range of 85 to $95 million, driven by plans for further efficiencies from our lean manufacturing initiatives and from our prior SAP implementation, which we call Delta Value Capture.

All said, our outlook projects gross margin to increase for the full year in the range of 25 to 75 basis points with a year-over-year decline in the first half followed by a year-over-year increase in the second half. Operating margin for the full year is expected to decline due to the expensing of stock options, which negatively impact selling and administrative expenses. At this early point, we anticipate that our tax rate will be about 35%.

Our initial projections for the first quarter of fiscal 2006 are for sales growth of 3 to 5% and earnings per diluted share in the range of $0.65 to $0.72. Although final plans for FY '06 are not yet complete, we feel positive about the coming year and our outlook for the business. We project further cost savings opportunities and solid top-line growth coming from core businesses and new products. We'll provide additional details when we speak to you again in August. Now let me turn it back over to Gerry for wrap-up and Q&A.

Thanks, Dan. And with that, let me take a moment to recap the key points from today's call. As you look at our results, it's clear the most material item affecting us is commodities. Absent the unusual commodity environment, we have performed substantially better. But nonetheless, they are impacting our results in the near term, including our incentive pay. We're working hard to overcome these pressures through cost savings, pricing actions, and other margin-improving activities. Beyond that, our brands are healthy and we have strong fundamentals going into the fourth quarter.

On a fiscal year-to-date basis, we've seen generally positive marketplace trends across the business, with share gains in both tracked and untracked channels. For the full year, we've now taken our projected sales growth range above our original fiscal year and long-term targets.

But fiscal 2005 is clearly a transition year for Clorox. We successfully completed the Henkel transaction and recapitalized the Company. There have also been some less routine items in our business, such as the IRS settlement and the foreign earnings repatriation charge, and of course, commodities. Importantly, I feel good about how we've managed through this transition, difficult as it may be. We've done this while continuing to focus on building our brands and executing our strategies.

Looking ahead to fiscal 2006, we anticipate a good year with improvements to both the P&L and balance sheet over the full year. Looking farther out, based on the plans we have for the next three years, I feel good about our ability to deliver our projected long-term goals. So with that, I'm going to open it up for questions.

(OPERATOR INSTRUCTIONS). Amy Chasen, Goldman Sachs & Co.

How are you? Two things. First of all, just on the sales growth, obviously weaker this quarter but you're raising your guidance for the fourth quarter. Other than the club channel promotion, what else gives you confidence that you're going to be better than you thought in light of the fact that this quarter was weaker?

Yes, let me -- maybe I'll run through it real quick, in terms of the picture of the businesses. Even with the move of that club event over on Brita into the fourth quarter, Brita Canada is probably going to be flattish as you look at the fourth quarter because of the very high comps we had in Q4 of last year. The auto-care business is also likely to be flattish as we look at Q4.

Now all of our litter, food, charcoal businesses are going to be about on track with what you would expect the range that we've just given guidance for the entire Company, those are likely to be in those ranges. And those do not anticipate making up any of the shortfalls that might have happened in Q3 because of the weather situation, particularly on charcoal and to a lesser degree on food and the auto-care business.

Glad is likely to be higher than what you've seen lately. It's tending to continue to perform pretty well, so I think our expectations are maybe a little above the Company averages there. LHD, the biggest business we have, is looking at a rate that's probably on the higher end of our Company target for the quarter because we've got BathWand in there, which is larger than the ToiletWand introduction was a year ago. And right now, the sell-in on that has gone well and our expectations will be that we'll deliver that for the quarter. Plus we have some awfully strong business on the wipes and the Clorox franchise growth. And we're not lapping Bleach Pen anymore that we also did in the Q3. And we'll get some of the benefit from the price increase on Glad, too.

And then finally, our international business, we expect to be in the double digits. So when I look at the 4 to 6%, I feel pretty comfortable that that's a reasonable number in light of the specific business unit plans and things that are in place.

So just to be clear, you said Brita and auto, flat, and food, litter, and charcoal, up within the range? And then Glad and the household businesses above the range?

I want to be careful there. Maybe at the high end of the range rather than exceeding the range. So that's just a rough kind of number right now. Lots of things happen in these businesses as you know. I don't want to get too specific there, but pretty strong performance is the way to think about it.

And to be clear, Amy, on the Glad business, the volume might be slightly softer because of consumption losses related to the price increase. But the price increase will give us significant sales benefit in the quarter.

Okay. Shifting gears --

Amy, one other thing and this is just my point of view on the quarter. If I look at Q3, we came in within our guidance, but frankly, on the sales and volume front, it didn't meet what I would have expected to come in in the quarter, but it came only in one place, and that's our seasonal businesses that are affected by weather. But I don't look at any one quarter and say this is now a trend. We did have some effected businesses, the auto, the salad dressing and the dressing categories was down substantially and the charcoal category was down substantially because of weather. And if we would have been average weather, my belief is that the numbers for Q3 would have come in about as I expected to do, which would have improved our overall performance.

Okay. Just shifting gears to the pricing, two things. Number one, you announced three price increases today. Are there still other areas where you see opportunity for pricing? And also, when did you start to talk to the trade about the bleach price increase? And do you have any idea what private label is thinking and whether they are going to be following?

Well, we're continuing to look at pricing all the time and part of that view is also continuing to watch the commodities environment to understand what the likely longer-term trends are going to be. And so I think that that's an activity that we'll continue to look at. But as you know, we just can't target any one specific business until we get closer to the time in which it's been executed.

Our customers on bleach have seen this increase for some time now. It's fully baked in the plans as we get out into the mid July period. Incidentally, we did it mid July so that it wouldn't mess up our fiscal year end before or after results there. And what was the third question?

About private label.

On private label, yes, private label isn't just one entity because they deal literally by customer. We've certainly seen some price increases with selected customers, but I think that that's still to be determined how it all plays out over time with all of the customers. And my guess is we're not going to see the real impact on the shelf in terms of the absolute price and the differential for maybe six months.

So, but some of your customers have seen price increases from their private-label suppliers?

That's our understanding.

Okay. And the same magnitude -- the 9%?

Probably in that range.

Okay, thanks.

Kathleen Reed, Stanford Financial.

Thanks. Another question on the volumes and sales in the quarter, when you gave your mid-quarter update back in March and I think you stated that volumes were strong across a lot of categories and higher than you had been expecting, did something change between then and the end of the quarter that made volumes come in at the low end of your 3 to 5% range?

Yes, I think it was those three businesses that I just mentioned. The charcoal category, the salad dressing and barbecue sauce categories, and the auto, all affected by weather. The salad dressing is largely impacted by weather via the lettuce prices, for instance, which are substantially higher in the quarter. And the consumption on those categories are substantially down and we watched that very carefully and it's hard to read even as you get through the quarter, because seasonal businesses start up pretty fast when good weather comes and it's hard to read that until you get through it.

Okay. And on the sales line, what was the negative mix effect in the quarter? And was that offset? Did you have any positive currency?

Yes, we had a little bit of category mix problem because the shortfalls in those categories I just mentioned were somewhat offset by stronger -- slightly stronger than anticipated Glad business sales. And so that traded off a little bit in terms of mix there.

We had a little bit of FX favorability, but it wasn't very material.

Okay. Second, the gross margin guidance you gave for this fiscal year, does that include the Glad restructuring charges included in the cost of goods line, or does that exclude them?

I'm sorry, Kathy, can you confirm which time period you were asking about?

For fiscal '05, for the full year, you gave a gross margin expectation, and I just wanted to know, did that include it or exclude it?

Yes, the Glad restructuring has been included in our outlook for gross margins for fiscal '05. If you recall, there's two components to that charge. There's a little over $30 million, which is down on the restructuring line and then there's about $10 million of the charge that goes through our cost of goods sold line, and that has been included in our outlook.

But in this quarter, the 5 million was broken out separately. Did you have any Glad restructuring in your gross margin line?

Yes, we did. We had about $5 million -- a little over $5 million in total Glad restructuring charges in the quarter, part of which is in our cost of goods sold line and part of which is down in other income.

And the quarter also included the full impact of the Procter & Gamble purchasing of their extra 10% in the quarter.

Okay. And then just lastly, can you just break out in a little more detail your other expense line of 18 million? What are the pieces included in there? Because I think you said that in your SG&A line, you had your performance accrual line at 6 million of performance accrual. So what was in your 18 million of other expense?

Let me talk to the $0.02 reduction in earnings per share that we talked about. When you think about the $0.02 reduction, there's really a couple of components there. One of which is the performance unit accrual, which is actually in selling and administrative expenses. So that was about $6 million. We also had the adjustment for low-income housing investments sitting in other income, which is about $13 million on a gross basis. And then we had the miscellaneous tax credits that I referenced, the largest of which was the additional foreign tax credits that we're going to be able to realize as a result of the American Jobs Creation Act. So those items generally combine on a net tax basis to reduce EPS by about $0.02 on the quarter.

Okay. Thanks very much.

John Faucher, J.P. Morgan.

Yes, I wanted to follow up a little bit in terms of extrapolating some of the gross margin trends out. If we go back over the last six to nine months, your gross margin guidance has changed substantially. And I guess as I look at your full-year 2005 gross margin guidance, you said it came in in line with your expectations. And I guess, can you talk about sort of the comfort level going out given the volatility that we've seen in your gross margin expectations over the last six months. When we met in September, you didn't seem all that concerned, and now we're obviously hitting what I thought was a pretty disappointing gross margin number, but one you say is within the line of your expectation.

I'll turn this over to Dan to go through the details of that, but the expectations were as of -- the expectations for this quarter that were closer in. That would not be what I would say if I were going back to September or even October, November, that our expectations have in fact changed since that period of time. The first signal of that was in December when we gave you our guidance that the gross margin was going to substantially change in the back half of the year. Maybe I'll have Dan sort of run through the details on that.

John, I think if you were to look at the last couple of quarters in terms of the movement in gross margin, we were obviously up in the first quarter. We did have commodities cost pressure in the first quarter, but we also had a very strong cost savings quarter. And on a net-net basis, we were up. In the second quarter, we did start to see the ramp-up in our commodities costs. That was worth about a 220 basis point decline in the second quarter. And while we still continue to have very strong cost savings in the quarter, in the third quarter, while cost savings --

Dan, if I can, that was about 260 basis points on the cost saves for the second quarter? Is that right?

About right. In that range. And then in the third quarter, while cost savings continued to be strong at 220 basis points, we have seen a pretty substantial ramp-up in the commodities. So up around 320 basis points for the quarter. So as Gerry mentioned, our outlook -- we have been adopting our outlook as we've seen the increase in commodities, but the expectation we reference is really for the third quarter in terms of our outlook for the quarter on margin.

No, I understand that. And I guess the question is as we look at this number specifically -- and I understand your full-year '05 number will come in -- you're saying that as you went into the quarter, the number that we're seeing now is relatively in line with what you were expecting heading into the quarter?

Yes. Yes, that's correct.

Okay. Thank you.

Lauren Lieberman, CSFB.

Thanks. Good afternoon, guys. Two follow-ups on things we've already gone through. One of them is on restructuring. Dan, I think you said it was $5 million in total and that it was split between the restructuring line and then cost of goods. But in the P&L, it says restructuring was $5 million on the line item. So was what was in COGS less than $1 million and it's just rounding?

No, about a little over half of what you see on the restructuring line was related to Glad. There were some other restructuring actions in the quarter. There were some restructuring charges that we took for a Panama plant closure. And there was a couple of other more minor restructuring charges that we took. So there are some other restructuring that happened in the quarter that are sitting on that line combined with the Glad charge.

Okay. And then the other piece, when you went through the details of the $0.02, and you mentioned tax credits, shouldn't the tax credits have been part of the $14 million net benefit that we learned about whatever it was, two or three weeks ago?

There's really two impacts from the American Jobs Creation Act. The first, which is the one we've talked about a lot, is the repatriation of foreign earnings. And that tax charge of about roughly $0.06 or so in the quarter is part of the $14 million. The second piece is in other sections of the American Jobs Creation Act, there are other tax law changes. And as we evaluated those tax law changes, we determined that we will be able to realize additional foreign tax credits that are unrelated to the repatriation of earnings. So the credit that we're reflecting there is really changes in tax law that we'll be able to benefit from.

Okay. So do we -- is there something we should know about the tax rate then in '06, that's related to this?

On a preliminary basis, we're anticipating a tax rate around 35%. This was more of a catch-up, if you will. And we'll come out with more guidance on tax rate. But right now we are thinking it will be generally in the 35% rate for next year.

Okay. And then losses on low-income housing, I know you've been realizing benefits from this program, but are the losses -- I don't know enough details about the program, but is that something we should be watching out for and worried about going forward?

The short answer is no. Let me just take a minute and talk about low-income housing. These are investments that we've been in for over a decade and we've been benefiting. The primary financial benefit is the tax credits that we've gotten from these partnerships. And were in about 55 of these. The lifecycle of the tax credits on these partnerships will start to run out over the next two to three years. And as we were analyzing the various investments in the partnerships, we determined that there were some additional losses that we needed to recognize on some of the partnerships. And individually on each individual partnership, they were clearly not material and they've basically accumulated over the last 10 years or so of our investment. So we reflected that accumulated adjustment in the quarter and you shouldn't look to this to be a significant item going forward.

Okay. And then I guess just going back to revenues, I wanted to know if you could give us an update on trial and repeat rate for some of your newer products like Press 'n Seal, the Bleach Pen, I guess is that something we should be mindful of going forward on how these new products continue to perform? And then also when I look at the laundry division results, as I look at -- I know Nielsen data is worth something on some days and nothing on other days. But it looks like you took some market share this quarter in bleach; private-label prices were already up. So if you're taking share, why would growth have been so limited? Does it have to do with comps versus Bleach Pen and maybe not having such good repeat rate there?

Yes, it's probably not related as much to repeat. Bleach Pen is a little bit more volatile on the repeat, first of all, than you look at traditional products. It's a highly discretionary kind of an approach, and so it will be affected by various kinds of activities that customers are engaged in, etc. But the biggest impact at least on the laundry piece of the business was lapping the Bleach Pen volume from a year ago.

As you look at the bigger initiatives, we feel very good about what the kind of repeat and particularly the trend of improved repurchase on Press 'n Seal. Because that continues to improve as we're going along and is currently in fact at the target that we have set originally, although that had to improve over time. The trial, we still believe, is below potential and we continue to support that business because we think there is still good potential behind it and that will be supported, including our launch of Press 'n Seal freezer wrap this past quarter. So we hope to see continued benefit from that technology expanded in a variety of ways. And so we feel good about the trends on Press 'n Seal and in particularly the repeat. We still want to increase trial there.

On ForceFlex, both of them are above objective. Both our trial and our repeat levels are above objectives on ForceFlex. We feel very optimistic about the legs that this particular initiative will have over time. And the ability to continue to expand it.

ToiletWand is actually what I would describe as a very good success story. If you really think about this category and all the people that came into this, literally at one time, and that we are now essentially one of the two players left in this category and we've solidified over the past 13 weeks now our number one position on ToiletWand. And we have repeat on refills on track, but they're substantially better than competition on the repeat. So we feel good about, in particularly, these last several game changes above the overall health of those businesses.

Okay, that's great. Just I just wanted to clarify. When you said that Press 'n Seal is currently on the original target, was that total sales or was that repeat?

Repeat.

Okay, great. Thank you.

Bill Schmitz of Deutsche bank.

Good morning. When can we expect the operating margins to get back to the 20.5% levels we saw in fiscal '03?

That's a bit of a tougher question in the midst of the commodity environment we are. That -- commodities is still the driver not only of the gross margin but ultimately of the operating margins. We're doing a lot of things to try to improve our SG&A line on the admin portion of that and we've got a lot of activities that are engaged in that. We expect to spend at about the same levels on the advertising and R&D lines, so the real driver of operating margins are going to be affected by gross margins. Particularly as you look at this next two or three quarters, it's going to be a reflection of those things. I think, as we look out, we see both gross and operating margins improving as we get into the second half or really into calendar year '06. We haven't laid out -- because it's dependent on the commodity situation at that time, we haven't laid out when does (sic) that get us to the 20 or 20.5 or 21 number. I will tell you, though, that everybody here is -- including whatever actions we need to take on cost savings, pricing, any other kinds of margin enhancements, nobody has walked away from saying that we want to increase our operating margins to the 22, 23 level by fiscal year '08.

Okay.

Bill, maybe just one other thought on that -- as both Dan and Gerry noted earlier in their comments, we have been generating, and have been doing so for the last two fiscal years, productivity improvement or cost savings improvements of over 200 basis points per quarter and for the year. If you remember back to what we shared with you at our September analyst meeting, that's generally in line with what our plan is over the four years and we remain pretty confident in that. So, I think, to a great degree, the answer to your question, assuming we can continue to deliver those cost savings benefits, is at what point do the commodities markets eventually subside with these rapid run-up of costs? When that occurs, I think you'll begin to see -- or we would expect to see some of that more accelerated margin improvement than clearly we've been able to demonstrate over the last year or two.

Great. Then just in terms of some of the seasonal businesses, a lot of other companies that have similar seasonal challenges in March saw that there was a pick-up in April. Are you seeing the same trends?

I would not describe it as a real change. It is up versus year ago, but based on our look -- I mean, ultimately, in terms of shipments, but ultimately you want to look at consumption. I think it's a little early to get a read on that right now. I want to wait until we get a little farther into the month to give sort of a picture of what's really happened throughout all of April. Our shipments are up a little bit, though, versus the previous year.

Thanks very much.

Connie Maneaty of Prudential.

Hi. Back to this low income housing, these partnerships, when the -- how much have they lowered your tax rate by in general?

If you look over the last couple of three years, generally the tax credits we've realized from low income housing has generated a benefit of about 1 to 2% on the tax rate.

So if these things expire in a couple of years, should the tax rate go up by that much or is there something else in the works that will keep the 35% tax rate?

Yes, we're still evaluating our effective tax rate as we look out into '07 and '08, but there are other things that we will benefit from. In the American Jobs Creation Act, we have the benefit of the domestic manufacturing tax credit that will start to phase in and we will need to factor that in. That will ultimately build to about a 9% tax credit associated with the defined domestic manufacturing activity. So, there are other things that we will have to factor in, so while low income housing may phase out, we believe there will be other favorable tax rate impacts that will phase in over time.

Can you just explain what the domestic manufacturing tax credit of 9% really means? Is that a 9 point drop in your tax rate?

The 9% credit it will be associated with -- and again, you know the IRS tax law. It would probably take an hour to describe it, but in any event, the IRS will define profitability generated by domestic manufacturing operations and companies will be able to benefit from a tax credit against those activities.

Is this more significant than the low income housing?

It could potentially over time. It depends on your mix of domestic manufacturing versus international manufacturing.

Okay, so it could be a bigger thing since you are primarily a domestic manufacturer?

It could be an advantage for us over time.

Okay. Secondly, on the gross margin going forward, should we expect 220 basis points down for the first half of fiscal '06? Is that a good planning range?

Connie, just to confirm, we said down 200 to 250 basis points in Q4. It's still early on '06, but with our primary guidance of a 25 to 75 basis point improvement for '06, I would think of that as really sequential improvement through the year, starting from a base in Q4 of down 200 to 250. So I think it's too early to predict with a lot of precision exactly how much we might be down in the first half or up in the second half, but I would expect it to be a gradual trend.

So that the pressure you saw in the third quarter, the one you just reported, is probably the worst you'll see in a rolling four-quarter timeframe?

I think, generally, that's true because one of the factors that will come into play here is that we will begin to anniversary against higher base periods on the commodity cost front. We're still anticipating that commodity costs are going to increase into fiscal '06, but they're going to be comparing, as time goes on, against even higher base periods this last year.

I guess, as I look through fiscal '06, to get to a midpoint 50% expansion, it almost requires a 46% gross margin in the second half of the year. I don't know any company that is thinking raw material costs are going to go down dramatically, so are there a lot of onetime items in the gross margin that go away that will help boost your margin in the second half?

Go back to two things, Connie. One is, again, even though we are also anticipating higher commodity cost in the second half of the year and really for all of fiscal '06, when we get to the latter part of the year, we will be comparing against the higher base periods that we're experiencing right now, so that will help the second half versus the first half. The other thing to keep in mind, as we've noted a couple of times, is that we are generating cost savings, generated margin improvement at the rate of 200 basis points or better. We feel pretty good about our expectations for '06 on the cost savings front as well. So we should get that benefit throughout the year and again, when you get to the second half of the year, that will be more evident as the year-over-year commodities pressure is not as great.

Connie, keep in mind the Glad price increase just went in in February, so in the second half of next fiscal, we will be getting the full-year effect of that, as well as the effect of the Clorox branded product price increases in July. We also will not have the continuing impact on our gross margins from the Glad restructuring charge.

If I could just ask one final thing? I think the cost savings you're pumping out in every quarter is pretty extraordinary because it just never seems like -- you always seem so lean to start with. What are the projects for fiscal '06, the cost savings projects -- are going to create this ongoing stream?

Connie, it's a lot of the same programs that we will continue to benefit from. The nice thing about the cost savings program is that it creates a base that continues to contribute year in and year out in areas that we continue to increase efficiencies, such as direct plant shipment, our unsalables program, all of the programs you've talked about. Probably the biggest step change that we're looking at over the next couple of years is accelerating the benefits of what we call our lean manufacturing initiative, which I think you've heard us talk about in the past; it's the efficiency of our manufacturing operations as well as what we refer to as the delta value capture, which is the productivity that we expect to receive from all of the systems investments and process investments we've made over the last couple of years. So again, we continue to remain pretty excited about our ability to generate that level of cost savings over the next couple of years.

Certainly is not just cost savings too. This idea of enhancing margins -- because as a part of that whole initiative CCEM now is that we include the benefit to margin that comes out of things like trade spending efficiency, which we still see as an important lever and an important opportunity as we move forward.

Thank you.

Joe Altobello with CIBC World Markets.

Thanks. Good morning. On the bleach price increase, how much of that do you guys expect to actually realize and how much, in terms of promotional spending, do you actually intend to get back to the trade, at least initially?

In the early going, you have some merchandising activity that is protected through some period of time and so I think it probably -- you don't get the full benefit of this thing until you get towards the latter half of the calendar year or toward the end of the first half of the fiscal. At that point in time, we expect to realize the full benefit of the price increase that we've laid out here.

Offset by some volume decline I imagine?

Offset by some volume decline, that is correct.

Okay. Then secondly, these three seasonal businesses that you said were impacted by the weather, their margin structure -- how does that compare to the Company overall? I guess what I'm trying to ask is how much of the gross margin operating margin in the quarter was impacted by the sales and volume declines at those three businesses?

Yes, I don't know if I have the details of how much it was impacted, but they are -- I think I mentioned earlier they are higher margin businesses than some of the businesses that grew faster, both on the gross and the operating line. So impacted it, but we do have the details of exactly how much was it as a factor in that gross margin. The gross margin -- you have puts and takes on these things all the time. The gross margin line still came in about what we expected, but we -- this did in fact impact it from a category-mix standpoint.

Okay, great. Thank you.

Ann Gillin of Lehman Brothers.

Good morning. Just more of a conceptual question -- I'm just thinking about all of the work you have done to implement systems, which typically raises visibility and yet it just feels like there continues to be some variability in the numbers around one-off items, if you will. I'm thinking about low income housing and the like. I'm just wondering if we are kind of through a cleanup period after all of these implementations or how we can think about that consistency goal that you have, Gerry, going forward.

I hope we're through the majority of these things. We knew that fiscal year '05, even in light of Henkel, was going to be confusing to some degree and complicated in terms of getting through it. As a part of all of the 404 work and everything else that everybody's doing, you look under every rock to try to make sure you've got everything moving in a direction that it will be easier to look at these things and the comps will be -- I think we're through the majority of these things. The only issue would be is there's things I don't know or that we don't know at this point in time. There doesn't look like there's any big material things. Having said that -- and I just want to be cautious that we're going to try to be as visible -- when we find out about these things or if there's an opportunity to take advantage of something -- that we will try to be as visible out there as we can be. It's certainly been a challenge, though.

We continue to be very pleased with the system implementation that we've done, the process changes that we've made, and we're starting to benefit from those, so we feel very good about the visibility that those systems and processes give us into our core business. We have obviously been impacted this year by a couple of items. Obviously, we have the American Jobs Creation Act, and that has created some variability, really some opportunity for us and we've taken advantage of that and that does impact the numbers. We obviously had the IRS settlement. We're actually very pleased to have that behind us. That's been a lingering issue and so obviously, when you settle, you have the effects of that, but for some of the variability that we've had, it's for those types of reasons. But we continue to feel good about the process and systems that we have in place and the visibility that we do have into the business, but there will still be some level of variability in the business. We've talked, this quarter, about the impact that weather can have and different things. So, we feel good about the systems and processes and we hope a lot of this is behind us.

Okay, I guess, Dan, I hear exactly what you're saying around some of the one-off items, but when you talk about low income housing, that's been on your books for a long time, so that sounded like a cleanup. I'm not clear that I understand why performance unit accruals occurred after your last guidance on 4/20. So there is more variability, it feels, recently than not. But I'll leave it at that.

Then if we could just go to the 18 million that someone asked earlier, you explained 13 million from low income, feels like you explained about 2.5 from Glad restructuring. What's the rest of the 18 million?

The 18 million related to which --?

I'm sorry, other expense. It was a substantial delta this quarter.

Right. There's also, in the other income expense, there's also the HIbSA impact, where we had HIbSA earnings in the year-ago quarter, that obviously because of the exchange of that business, or that investment, we don't have this year; and that was I think in excess of $3 million for the quarter. And then there's other small puts and takes in there, but I think those are the main items.

Okay, thanks. And then just if I could just jump to commodities. I understand why you are cautious around commodities overall. It does feel, though, like a real key commodity in resins, peaked already for you. I know you don't want to go out there with a prediction because it would be horrible to see that reverse. But it just feels like there should be a little bit of relief in sort of what's going on in the commodity market rather than it sounds like you're a little more worried; am I missing something?

I think you get the same information as we get in terms of what's going on in the marketplace, but the reality is we still have to comp an awful lot of this that's going on and that has a time period that we're going out with. And plus, it still deals with the specific arrangements we have with the various suppliers. And so I don't know that we've gotten more negative at all. I think that there may be a light at the end of the tunnel as particularly as we get into the second half of fiscal year '06 that we could -- in which it appears that we'll be able to offset any continuing commodity pressure, which I think there still will be some by our cost-savings pricing activity that go on.

Okay. And then just last question, Gerry. Even with all this pressure, I think something that you've continued to do is really invest around the top line. Is the word out within Clorox that that is still the number one driver, even if EPS takes the hit?

I think you probably have seen this in this year. We've continued to invest in our brands. We've continued to deliver innovation. The innovation pipeline that is currently there for '06 and '07 is intact, in terms of the products and initiatives that we're supporting that will deliver what we think is the appropriate contribution to our top line. I still believe that, and continue to push with our organization, that our core brand growth is still a source of growth that I think is critical. And I think that you're going to see over the course of the next year that there's some initiatives in our core brands that are pretty interesting. So I always use the word profitable growth when I talk to the organization, but growth is certainly a key part of our overall long-term strategy behind the consumer.

We'll take profitable. Thanks, Gerry.

Chris Ferrara, Merrill Lynch.

Hi. Not to beat the raw materials thing to death here, but the gross margin target for Q4 of down 200 to 250, I'm just trying to understand, is the commodity detriment in that quarter expected to worsen sequentially for you? Because you've got to be getting at least 100 basis points from the Glad price increase being fully implemented in the quarter. Or is that bad math?

I think directionally, Chris, you've got the factors correct in that I don't think Q4 looks materially different than Q3, with the exception that we get a full quarter's benefit or what should be mostly a full quarter's benefit from the Glad price increase taken earlier this year. And that's why the expectation is just slightly more favorable than what we saw in Q3. Absent that, I don't think there's any other material differences.

Okay. And does the '06 outlook fully incorporate the bleach price increase going through fully? And I guess, Gerry, you said getting through by the end of the calendar year and being completely in the numbers, is that all wrapped up in the guidance?

That's all in the guidance. You don't get all the immediate benefits the day you go out with the price increase. It takes a little bit of time for all of it to take place. But by the second quarter and into -- certainly into the second half, you get the full benefit of that.

And relative to other recent price increases, like say Glad, how do you feel about bleach? Is it one that you sit there and you kind of wait and hope that you see a good reaction? I know it's partially implemented. But how do you think about this relative to other ones that you've seen?

I think it's about -- it's obviously an important one because this is a brand that's very responsive from a consumer standpoint to the value proposition. And we've done an awful lot of things on that business, including some improvements we're making in the scent. The whitening formula, which is an improvement -- a patented polyacrylate formula, which does a better job against yellowing. And I think we've done a number of things to make sure that the combination of the pricing and the value proposition, that it works out. The other factor is going to be what's the other player, which is private label; what will the price gap be as we move forward? And how will consumers react to generally higher pricing into the category? All of that is in our guidance in terms of the thinking around that moving forward.

Do you think the innovation allows you to sustain a greater price gap than you have today?

Let's play that out. I'm not sure yet. I would not describe that that's in our forecast.

And then just one last one. Gerry, you mentioned I know on '08 on the target, I think you said you're not backing off the 22 to 23 margin. Obviously, that's only 100 basis points below what you said for the '08 target in the meeting. But it didn't sound like an official new target. I guess, what would be baked into the 22 to 23 with respect to commodities if that is what you're thinking? Is that merely a flattening of commodities that have been so far obscuring underlying cost savings? Or do you actually need commodities back up to get to say 22, 23?

Let me make sure you know that we haven't backed off our absolute target from September. We did restate the target because of the Henkel transaction. That lowered the base and it's the only forgiveness I ask, is that the businesses that we had that we no longer have don't burden us with an extra 100 points of operating goal. The target of 300 to 400 basis points both on the gross and operating margin line are still intact; it's just that we're starting from a lower base point when restated for the Henkel business. Maybe, Dan, do you want to talk about the key elements of getting to that operating profit on the '08 timing?

Again, we are still looking for the 3 to 400 basis points over the four years of the plan. Obviously, we've seen a high level of commodity cost pressure really over the first 18 months of the plan. We are taking pricing to offset some of that. We're clearly on track with our cost savings to hit the goals that we've set for ourselves.

In terms of actually achieving the '08 target, we'll just have to play out and see where commodities, do they begin to moderate, when do they moderate? And are there any other additional pricing actions that we might be able to take? Or is there additional cost savings that we may be able to dial up or perhaps accelerate to get there sooner? So I think there's still a fair number of levers that we need to look at it to achieve it. I think what you're hearing from this team is that we're still fully committed to the 3 to 400 basis point improvement through '08.

Wendy Nicholson, Citigroup.

Hi. I just want to follow on that operating margin target because I guess when I look at the trends in gross margin versus operating margin, your gross margin has obviously come down a lot more over the last two years than your operating margin. So it seems like we are in fact seeing real benefits from your cost-cutting initiatives. And that's great. But the bad news I think is when your gross margins go back up, maybe there's not all of the windfall of operating expense savings, because we've already realized some of them. So if you're going to hit that 22 to 23 number, that means like 150 basis points of improvement in each of '07 and '08, and that just seems awfully, awfully high. What am I missing?

Again, Wendy, as I look at '07 and '08, obviously I think you're probably looking at the level of improvement that we would need to achieve in the '07 and '08 period. I believe if you look, if you think on the gross margin line, the improvements that we believe we can drive through that period, combined with the efficiency on the SG&A line, which we don't think is going to change. I think if we can continue to improve our gross margin, we should be able to maintain a level of our SG&A as a percent of sales and be able to drive the bottom line, the operating margin improvement in '07 and '08. I think the key issue for us will be what is the pace of commodities over the next 12 to 18 months and what other actions can we take to drive that? So I'm not terribly concerned about the operating cost line. It's really in the gross margin line that we need to drive the improvement.

But isn't it fair to assume too, and I realize you're just now taking the price increase, but I thought the way the business has worked historically is you take a price increase when costs are high but then often when raw materials come down, correct me if I'm wrong, but I thought you've actually taken a price cut on things like Glad and bleach. So if we are looking out three or four years, are you thinking that the price increases you've taken on Glad and you're about to take on bleach actually remain intact over that longer term?

Absolutely. And I would not describe how we have done those things. Now there may be marketplace events in which we've spent extra money or something going on in a particular point in time. They were not driven by a commodity environment at that time. We do look at the ability to sustain continuing improved margins on our businesses based on this pricing action. But the trade spending things will vary based on short-term kinds of activities that you might want to consider. But I'm pretty confident about it that we only take the pricing if we intend to sustain it over time, unless there's some material change in commodities that occurs. We think there's a pretty permanent higher level. We haven't recovered all of that though at this point in time.

And then, but my last question just with regard to that pricing, in your forecasting for fiscal '06, have you in your own minds budgeted a deceleration or a declining volume growth figure, thinking that maybe some of that higher level of pricing will put off consumers and you'll see shrinkage in consumption in those categories? Or do you not think that would happen?

No, absolutely. In fact, we do a lot of modeling when we're looking at the pricing scenario and hopefully we've taken an appropriately conservative view of what is the consumer reaction going to be to that. And in that is our assessments of what's going to happen with volume over -- as a result of those category changes. So when you see a target of 3 to 5% on the sales growth line, the volume line is going to be lower than that.

Okay, terrific. Thanks.

Jason Gere, A.G. Edwards.

Hi. Actually, shifting gears, no pun intended, talking about the BathWands, I know that you said that it's been out for one month of kind of data out there, but I was wondering when you look at ToiletWand and you weren't the first to market, but you are one of the two remaining players out there, now you look at BathWand, P&G has a two-month lead-time on you. And I know in some of these game changes, you've gone up against P&G in the past with ReadyMop versus Swiffer. I was just wondering, how are you taking the approach this time around going to market in terms of your marketing, advertising, etc.? And I'll leave it at that.

Yes, I think if you looked at ToiletWand, I think that the number of products that were launched in that space -- and there was a number of them -- was a pretty specific usage in terms of what you were trying to accomplish. And so the products, they all performed in different ways and they may have different consumer angles, but the task that was at hand was pretty specific and similar for all the products. I think when you look at the BathWand and the competing entry, we don't look at these as being as directly competitive as the toilet cleaning products. Our BathWand is clearly aimed at toilet and -- I'm sorry, bath and shower cleaning, and the competing product is aimed at a broad variety of tasks.

I think that independently, as we look at sort of as consumers think about these things, I'm not sure they're going to be as directly competitive as a lot of products we've had including the ReadyMop in the past. ReadyMop versus Swiffer in the past. So as we look at this, we've got pretty specific plans that are planned by our customers. We've got our advertising that we think is going to be effective in generating trial. And for me it's not as direct a competition in terms of consumers as a lot of the other products that have been launched in the past.

I mean does it make you nervous that when P&G first came out, they already slapped a $3 coupon on their product and they've done a vast amount of television media spending with the product? And I know typically with a new category like this, any time that a big competitor can come out and do that type of spending, certainly it helps share a voice for you guys. But I was just wondering just in terms of your thoughts here.

I think the biggest challenge -- I think the thing is isn't the competitive activity that might go on between two competitors and those things are a normal course of business for people. We've competed with SC Johnson, Reckitt, Procter & Gamble and everybody else, and we've had some failures, we've had some big wins against all of them. Ultimately, we really have changed our entire focus on our innovation program and it's about building categories. And when we look at both of the entries into this space right now, this is a category-building kind of activity and that's how we are approaching it. We feel very good about what the outcome can be with that.

Okay. And then the last question, and I'm not sure if this was asked before, but in terms of the Glad pricing that you took a few months ago, of that 13%, how much actually went through in terms of net against maybe some stepped up promotional spending because some of your competitors were also remaining a bit competitive there?

Jason, I think what you're going to find is that from our standpoint, we don't (ph) realize the full benefit of the price increase, I think as we've said before, when we take price in (ph), we take price in. What we don't know and we have better insight now, but there's still some time to play out is what actually happens at the store shelf. So retailer by retailer, what do they choose to do with our 12 to 13% increase on Glad to them? What do they choose to do with the competitive products? What do they choose to do with their own private-label brands? We have some general insight into that now a couple of months after the price increase. But there's still some room there for that to play out.

Actually, right now we feel pretty good about sort of how it's playing out. I will tell you though, only about two-thirds, at least from what we've read so far, only about two-thirds of the retails have actually gone up on the competing products, our product and the competing products. So you haven't got the full effect of this thing. Where we have seen the prices on both go up, we're satisfied with the results that we're seeing right now. And there may not be as much volume downside based on an early read as we might have originally predicted, which is why we're bumping up our expectations a little bit. It still needs to play out over a longer period of time.

Okay, but you feel more comfortable with the private-label increase on bleach now, considering that -- I'm sorry, the price increase on bleach, considering that private-label was up about 9% as well?

We'll see what retailers do and how it plays out in the real marketplace. If in fact the price gap remains constant over time, we feel pretty comfortable with what the outcome is likely to be and with our assessment of what volume implications there would be over time.

Linda Bolton Weiser, Oppenheimer.

Thank you. Just to revisit the idea of the shortfall in sales regarding -- relative to your expectations due to the seasonal businesses, what percentage of the quarter's volume shifts in the last two weeks of the quarter?

I don't think that it was -- we could probably get the data. I don't think it was substantially larger in the last two weeks than it was in the earlier parts of the quarter. Our third quarter doesn't have big swings. Fourth quarter has more because you really are dealing with more of the impact of seasonal businesses later in the quarter. But third quarter, generally, there's not a big switch between the weeks in the quarter. Maybe modestly, but not a lot.

Okay --

We could actually probably give you the specific data, but I don't have it at my -- handy right here.

Okay. And just on the issue of innovation, can you comment on some of the older game changer type products, like I guess for example, Clorox ReadyMop, and whether it's meeting your expectations over the longer term here, in terms of repeat on refill purchases? Is the consumer sticking with these razor and razor blade-type products?

I think that's an interesting question. If you go back and looked at all of the game changers, the six or seven game changers that we've had in the last several years, including disinfecting wipes, five of the six major game changers so far, and remember some of them are still early in marking (ph), so it's probably too early to really assess the long-term impact of these things, but five of the six game changers that we've launched have met expectations. ReadyMop has not met expectations. And it is at this point in time, it is a downside on sales as we move forward. We're no longer supporting it, and that it wasn't a very good proposition from an economic standpoint. On the other five, we're feeling very good, including game changers before ReadyMop and game changers after ReadyMop.

Okay, thanks, Gerry.

Alec Patterson, RCM.

Try and make them quick. The option expensing you said is flowing through the S&A line. So I wanted to just get a sense that on the '06 S&A running up with sales, that's pro forma for the options?

I'm sorry, could you ask the question again?

The options expense, I thought you said it was going to flow through the selling and administrative line, correct?

That's correct, yes.

And then I believe you said on '06, you're expecting your operating expense components to move more or less in line with sales, so that's inclusive of the options expense factor?

Alec, I think the reference made earlier in terms of operating margin moving in line with gross margin and the SG&A components effectively being flat is really a comment over the call it the four-year plan. Clearly for fiscal '06, as we adopt the rules around options expensing, selling and administration costs will increase versus this year. So that needs to be factored in.

Yes, I think that's a good point, is that this -- we will not treat it as a pro forma. And it is in fact going to be a GAAP, and there will be an increase in that area as there will be for every other company.

As they phase in.

Right, right. No, of course. But a onetime step-up and then we're moving --

It's a onetime step-up, and then -- but constant on the balance of all the SG&A items.

Okay. The other question is, as you mentioned, your cost of goods more or less came in with expectations. And in regard to the raw materials component, that 320 basis point negative hit, I'm just trying to get a sense how much you came in line with your expectations because that 320 basis points is more of a result of the supply contracts you've put in place as opposed to the inflation and the ups and downs in inflation on commodities.

Yes, it's a function of what we are agreeing to pay for on those commodities from suppliers versus the absolute cost of commodities out in the real world, yes.

So in other words, you do feel like you have a good handle on where those raw material costs are trending because you --

Yes. Yes.

Very (ph) importantly, Alec, to your comment around mirrored or it was pretty close to our expectations, when we last gave guidance or an outlook on the quarter for Q3, that was in early February. So we are already a month into the quarter and we had pretty good insight at that point in terms of how the costs were trending. Again, as we look into fiscal '06, we're obviously -- there's a little bit more uncertainty just because these markets have been more volatile. But we are importantly still assuming that costs do increase on the commodity front throughout the fiscal year.

But you do have some essence of where they're going because of the contracts you've worked out?

Oh, sure.

Okay. Last question. You've been talking about the trade spend efficiency from the various enterprise systems you put in place. But there is still a fair amount of promotion that goes on out there. Have we yet to see the benefits, specifically to the top line, see the benefits of these systems at work on trade promotion spending?

Yes, maybe I'll let Dan speak, but we've clearly seen the benefits of some of the efficiencies. I still think we're in the early going in terms of that because it's actually beyond just the systems piece. There is also a training -- I mean a policy implication, a training implication; so there's a number of areas that go on there. But we've delivered a fair amount of efficiency so far and that will in fact show up on our top-line sales growth. But I would call it continuous improvement over the horizon of the strategy period versus some big whack at one point in time.

Clearly, the efficiency is there, but you also have to realize that we've been supporting a lot of new product innovation through the marketing support we've launched two game changes this year; we've had a number of core growth items. So, obviously, within our results on the top line, we're going to reflect the marketing investment we're making behind a period of relatively high innovation.

I have to imagine your growth in that is pretty big or at least dollars. Thus, going forward, your sales trends are going to be impacted by the success or not of this trade spending efficiency program. Should we look to expect some sales growth benefit from this?

Yes, I think that that would be one of the objectives and it's part of the overall objective we have for our business is -- and it will show up in the sales line improving over time. But that's in our projections for the overall strategy and the overall time period.

Okay. And lastly, just to echo Ann's question and I think your comments, it does seem like '05 has been a major balance sheet, cash flow cleanup year. And so '06 and beyond, we really should expect that a lot of this has been looked at and done?

Again, as I look forward into '06 and '07, it's never say never, but we're not anticipating significant items that would come through. We've had a handful of things that have come through this year, some of which are triggered by law changes, some of which have been triggered by the settlement. The performance unit programs, again, that's based -- we vest those or we accrue those based on total shareholder return. And when we get to the level where we believe it's likely that they're going to vest, we recorded it in that particular period, which is what occurred this quarter.

But there is still some play out of the things we've already told you about that will actually occur at later periods, including the AGCA (ph).

Yes, that's a good point. We still have some repatriation tax effect that will impact us next year.

Another thing that would play into next year would be Procter's incremental investment in the Glad should (ph) be made in January, will obviously be an incremental impact in the first half of next fiscal relative to the first half of this last fiscal year.

Okay, great. Thank you very much.

I think we're going to cut it off now. I appreciate everybody dialing in today. Again, I'm going to repeat that I feel good about the overall health of our business. I feel good about the strategy. I feel good about the way our people at Clorox are working very hard to offset this commodity environment and we're committed to try to continue to improve our predictability and visibility and continuity on this business over time. Thanks a lot.

This concludes today's conference call. You may now disconnect.