高樂氏 (CLX) 2006 Q1 法說會逐字稿

Good afternoon, and welcome to the Clorox Company first-quarter fiscal year 2006 earnings release conference call. All lines have been placed on mute to prevent any background noise. (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 first-quarter conference call. On the call today are Jerry 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 our website, 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 and results area within the investor section of our website.

On today's call Jerry will start by providing some observations about the quarter as well as a brief perspective on the near-term cost and pricing environment. Dan will then briefly review our financial performance for the first quarter, followed by additional detail supporting our second quarter and full year fiscal year '06 outlook, which was communicated in our press release this morning. Finally, Jerry will wrap up, and we will open it up for your questions.

Before we begin let me remind you that today's discussion contains forward-looking statements. Actual results could differ materially from management's expectations. Please review our most recent 10-K filing with the SEC for a description of important factors that could cause results to differ materially from management's expectations. We will also refer to certain non-GAAP financial measures, including operating profit and free cash flow. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or the supplemental information provided in the financial information and results area within the investor's section of our website and in our filings with the SEC.

With that I will turn it over to Jerry who will briefly recap our first-quarter results.

Thanks Dave, and hello everyone. As you saw in the press release we had a solid first-quarter. Now Dan is going to go into the details in a few minutes, but let me give you a brief overview of the Q1 EPS and topline results. Then I am going to give a little bit about my thinking around the cost environment, the pricing actions we are taking and the overall health of the business.

On the bottom line for the first-quarter we delivered $0.70 in earnings per diluted share from continuing operations. Given the volatility and unprecedented cost environment we've been facing following the hurricanes, we are pleased to have delivered these results. As a reminder, included in these results is the incremental $0.03 EPS impact from equity compensation that began this quarter, as well as the continued accretion from the Henkel transaction due to our year-over-year lower share base. It was partially offset by higher interest costs.

On the top line at more than 5%, Q1 sales increased slightly ahead of the long-term sales target with a meaningful contribution coming from our international business. This strong result follows slightly more than 5% growth for last fiscal year and 6% sales growth last quarter. But I would like to reinforce that we continue to focus on full year sales growth targets since quarterly results can and will vary. Overall our brands are healthy and we're continuing to support them.

Advertising came in at about 10% of sales, and we had a 10% year-over-year increase in R&D spending for the quarter. Our gross margin was down 140 basis points as expected. It continues to be impacted by the increasing raw material cost environment and not fully offset by pricing actions in cost savings. We anticipate further significant cost pressure during the second quarter due to the hurricanes' immediate impact on costs for raw materials, transportation and utilities within our manufacturing operations. As we previously communicated, Q2 will also be impacted by launch costs and reduced shipments in the quarter associated with the new Kingsford Charcoal with surefire grooves that we are launching in January. This new briquette lights more quickly, achieves cooking temperatures faster and it cooks longer than our current product. I feel very good about the news that this is going to bring to the grilling category.

We also feel good about the new product pipeline that we've keyed up for the second half, including our next game change or new item which we will be announcing in the next couple of months. Now as previously communicated, we're taking a number of actions to help mitigate cost increases in calendar year 2006. This includes taking price increases on about 40% of our portfolio in January of this coming year. Specific pricing details are posted on our website. Pricing discussions with our retail customers have essentially been completed. We continue to believe that the strength of our brands supports our ability to take these pricing actions in this environment, and will ultimately deliver a favorable consumer value particularly over the longer-term.

As our outlook reflects, we see the recent cost pressures continuing into the second half of the fiscal year. But we maintained the full year outlook that we communicated a month ago as we anticipate that the benefits of the pricing actions we are taking, plus our ongoing cost savings activities and our brand support will begin to generate improvement in margins in the second half. Now here's Dan, and he's going to provide a little more detail.

Thank you, Jerry. Let me start by providing a few more details about our topline growth. We delivered strong first-quarter sales growth of more than 5%. Sales growth outpaced volume growth by 4 percentage points primarily due to the benefit of price increases on Glad products taken earlier in the year and reduced trade merchandising spending versus the year ago quarter partially due to support for new products in the year ago period. Favorable foreign exchange also contributed about 1 percentage point to the variance. We expect similar variances between sales and volume growth throughout the balance of the fiscal year as we implement additional pricing actions in January.

Nearly every business unit in the Company achieved sales growth in Q1. One of the businesses that declined was charcoal. This business which traditionally realizes sales growth in hurricane affected areas as consumers without power turn to grilling, experienced a decline in September due to the widespread displacement of consumers in the Gulf Coast region following Hurricane Katrina. In addition, following Labor Day, some retailers began lowering their seasonal inventories in anticipation of the Kingsford product improvement in January. We anticipate strong results in charcoal in the second half following the launch of Kingsford charcoal with surefire grooves.

Moving onto the rest of the Q1 P&L, gross margin for the quarter came in at about 42.2% or down 140 basis points versus the year ago quarter and within our expected range. The majority of the decline was driven by increased commodity and diesel costs. Specifically, we experienced a 360 basis point decline driven primarily by increases for resin, core alkali and other commodities and 120 basis point decline due to logistic cost increases in part resulting from increased diesel fuel prices, and increased inventory redeployment following hurricanes. All other cost impacts drove an additional 70 basis point decline, the majority of which was the higher year-over-year charge to gross margin due to the increased investment by Procter & Gamble in the Glad joint venture.

Partially offsetting these declines were 270 basis points in improvement from cost savings coming out of our "cut costs and enhance margins" program, which we call CCEM, as well as about 140 basis points improvement from the benefits of price increases. Selling and administrative spending was higher than the year ago quarter, largely due to the cost of equity compensation, which we began recording in Q1. Since our fiscal year begins in July we are one of the first companies reporting these expenses. Most companies will reflect the impact in calendar year 2006.

Q1 advertising spending was slightly more than 10% of sales reflecting our continued commitment to demand building activities even in the face of cost pressures. As Jerry mentioned, R&D spending was up about 10% versus the year ago quarter as we continue to leverage consumer insights to drive innovation and grow our base business.

For the quarter, operating profit was down about 8% in the absolute and operating profit margin decreased 240 basis points to 16.8% of sales, reflecting the impact of commodity cost increases and the incremental pretax impact of equity compensation. First-quarter interest expense was higher than the year ago quarter as a result of the additional debt stemming from the Henkel transaction and higher short-term interest rates. At about 30% our Q1 tax rate was lower than a year ago due to the settlement of some tax matters. This lower Q1 tax rate had been included in our outlook.

During the quarter we repurchased about 1.6 million shares of Clorox stock at recent stock price levels. As we said, its our practice to offset annual anticipated stock option exercises with share repurchases. Our Q1 repurchases are about half of the stock option exercises we currently anticipate for this fiscal year. We will continue repurchasing shares during fiscal '06 to offset the full year's anticipated redemption rate.

With all that said, earnings from continuing operations were $0.70 per diluted share for the quarter. Total earnings including results from discontinued operations, were $0.71 per diluted share for the quarter.

Now turning to cash flow, net cash used in operations was $59 million in the first quarter compared with $216 million provided by operations in the year ago quarter. The year-over-year decline was primarily due to a $151 million income tax settlement payment. Also contributing to the decline were increased interest payments of $41 million, lower levels of cash provided by discontinued operations of approximately $30 million resulting from the businesses exchange with Henkel and higher inventory values of about $10 million, mainly due to higher commodities costs. Excluding the impact of the IRS settlement the Company generated cash from operations of $92 million. First-quarter capital expenditures were $37 million compared with 27 million in the year ago quarter.

Now I'll move onto our second quarter and full year outlook. On the top line we continued to expect second-quarter sales growth of 1 to 3% versus the year ago quarter when we delivered 9% sales growth. As previously discussed, Q2 sales growth will be impacted by reduced charcoal shipments as retailers prepare for the launch of Kingsford charcoal with surefire grooves in January.

Our second quarter outlook anticipates gross margin and operating margin declines due to commodity cost increases, $10 to $15 million in pretax charcoal launch costs and an estimated incremental $0.03 to $0.04 impact from equity compensation. Our plans anticipate continued healthy advertising and our R&D spending levels to support our brands and innovation pipeline to drive growth. On the bottom line our second quarter outlook for earnings per diluted share from continuing operations remains unchanged at $0.41 to $0.47, reflecting the anticipated impact of commodity and energy-related cost increases during the quarter and costs for the charcoal launch and the equity compensation impact we mentioned.

Obviously cost increases have had a significant impact on our Q1 gross margin and are anticipated to have a negative impact on our Q2 gross margin. In an already high-cost environment the recent storms have further increased cost for raw materials, transportation and utilities in our manufacturing operations. Jerry referenced a number of steps we're taking to help offset the impact of rising costs, including pricing. These actions should help drive margin improvement in the second half of the fiscal year, but will not provide any significant benefit to Q2. For the full fiscal year we continue to anticipate sales growth in the range of 3 to 5%, but anticipate that it will likely be at the higher end of the range due to price increases and the benefits of new product introductions in the second half. We now anticipate that full year gross margin will decline versus the prior year, due to the cost pressures we face. We remain committed to CCEM and we now expect cost savings to come in within a range of 90 to $100 million and likely at the upper end of this increased target range. This equates to approximately 200 basis points of gross margin benefit.

There are also a number of other things we're doing to help mitigate the cost environment. For example, the new charcoal product uses less raw materials which reduces costs. We are continuing to leverage global sourcing, particularly on Glad where we also have a strong business in the Asia-Pacific division. As we already mentioned, we are implementing price increases on a significant portion of our portfolio. At Clorox, when we project the impacts of price increases, we factor in initial volume declines. That said, historically when we have implemented price increases we generally have not seen large effects from consumers trading down to less expensive alternatives. And recent pricing actions have performed slightly better than originally anticipated. We have strong market leading brands that deliver consumer value and performance. We remain confident consumers will come back to buy our brands at historical levels over time.

Now wrapping up our P&L discussion, we continue to project full year advertising spending at around 10% of sales. We continue to anticipate that operating margin will decline on a year-over-year basis due to the declining gross fortune and the incremental impact of equity compensation, including expensing stock options. We continue to assume a full year tax rate of about 34% with the understanding that it will vary by quarter. On the bottom line our outlook for full year earnings per diluted share from continuing operations remains $2.91 to $3.06. Overall we feel comfortable with the estimated ranges for our full year financial outlook. As a reminder, our outlook continues to include contingencies to help offset some degree of further unforeseen volatility. As we look at the second half of the fiscal year, we are excited about the prospects for our new Kingsford charcoal product improvement, our latest new game changer product and other new product launches we've scheduled for the second half.

We will continue to closely monitor and assess the volatile commodities cost environment as well as the anticipated impact of our upcoming price increases. As we get closer to the second half of the fiscal year, we plan on providing further perspective on the financial impact of these activities on the third quarter in the second half. At that time we will also provide further details about our next game changer. So let me turn it back over to Jerry for wrap up and Q&A.

Now as you think about Clorox there is a number of key messages I hope you will take away from today's call. First we are currently facing an unprecedented cost environment. And while we believe the rate of cost increases will moderate in the latter part of our fiscal year from these extreme posthurricane levels, we believe overall costs will remain at higher ongoing levels for the foreseeable future.

Second, Clorox is taking actions to address the cost environment. We feel very good about the execution of our pricing actions. We also remain committed to our CCEM program and we anticipate FY '06 cost savings will likely come in at the high end of our updated target range for the year.

Third, we remain committed to supporting our brands with demand building investments and our innovation plans remain on track. Given our current topline momentum and pricing actions, this is an important time to maintain our investments.

Fourth, overall our brand and businesses are healthy. while we expect to and do experience an initial dip in volume and consumption following retailer implementation of our price increases, we have confidence that consumers will maintain their loyalty to buy our brands over time given the value and performance that our products deliver. This is obviously an area we're going to continue to monitor closely over the next year to eighteen months.

And finally we are staying the course on our 2008 strategy. We are committed to continue to build superior consumer impact capability and to then leverage that to deliver meaningful growth for our brands and categories. We continue to provide our retail customers with value added services to help drive category growth with our brands. That is particularly important in the face of taking price increases. We continue to focus on our CCEM program and combined with price increases we expect to help offset cost pressures both now and in the future. And we continue to improve our people and process capabilities.

So with that I am going to ask the operator to open up the lines for your questions. Operator.

(OPERATOR INSTRUCTIONS) Kathleen Reed, Stanford Financial.

Two questions. First on the volume growth, can you just talk a little bit about the volume growth only up 1% in the quarter? Did that come in a little bit below your own internal expectations? And it sounds like your sales growth for full year '06 is now more heavily geared toward pricing. And I wondered if we were still comfortable with using a 3 to 5% volume number for the full year.

I'm not sure that we have given out any 3 to 5% volume even at the beginning of the year. We talked about the 3 to 5%, and I don't think we have given direct guidance on the specific volume number. But the volume number came in about as we did expect, and it had several dimensions to it. I am going to ask Dan to go through the pieces of that because it was a mixture of three different, mainly three different items there. But the volume came in as we expected. Maybe one of the important things to know is as we make these price increase choices, this is a choice for us, and we are willing to give up some volume to improve both the sales and the margins on these businesses. And so as we look even forward at going into January, we continue to expect to have the volume hit on those places where we have the increases. But offset by the benefits we get from both sales and profitability. Let me have Dan go through the pieces of what was the differential in Q1 between volume and sales.

In the quarter our sales were up slightly more than 5%, and as we noted, volume was up about 1%. When you look at the differential between the two pricing contributed about 100 basis points to that differential. Trade spending contributed about 200 basis points and foreign exchange contributed about 100 basis points. The trade spending component was primarily reflecting the year ago spending levels that we had supporting our ToiletWand and ForceFlex launch. So again about 1 point of pricing, 2 points of trade spending and 1 point of foreign exchange.

Would you expect then like low single digit volume numbers for the full year I guess with the expectation that with your pricing moves in January you would expect -- I guess I am just trying to see if we're expecting any total volume declines for the company or if we are still expecting some positive volume growth.

I think at this point you should be thinking low single digits for the full year would be sort of our target range at this point.

Okay, and second, can you just elaborate I think your cost savings -- your CCEM program is impressive. Could you give us some more information on that and where some of your other specific plans to generate cost savings particularly in your second half or your year?

Let me try to address that. If you look at the CCEM program it has been in place about three or four years now. Last year we delivered slightly over $100 million in cost savings and as I noted we have taken up our cost savings range this year to the 90 to $100 million range and likely to be towards the higher end of that range. A lot of the benefit in our CCEM program is coming out of our world-class manufacturing initiative. We're also getting the benefit from some of the restructuring actions that we took in the Glad network a year ago. We're seeing the benefit of that flow through this year. But there is a host of other programs that we are pursuing, and it includes procurement savings, there is things we are doing on the logistics side. There is things we're doing with our product formulation. We also have more favorable unsalables rates and also reduced revenue efficiency has been a big focus for us for the last couple of years and continues to do so. So a lot of the savings do come out of the product supply area, but there is a lot of other programs that contribute. And we feel good about the progress we've made and expect to make in the future.

Okay. Thank you.

Amy Chasen, Goldman Sachs.

First of all, you mentioned that and the press release says that you are taking pricing on 40% of your portfolio. Earlier in the year you had said by the end of the year, by the end of the calendar year that you would take pricing on 50%. (ph) So can you tell us to date what percent of your portfolio you have taken pricing on?

If you include the January increases, we will have taken between an increase on between 60 and 70% of the overall portfolio.

Okay, so then to date you've only done 20 to 30?

No because some of them overlap. So when we give the percentage of portfolio that we had price increases on both bleach and Glad, we've taken two increases. And so we aren't double counting those when we give you the percentages.

Okay, and so it will be on 60 to 70% of sales?

Yes. 60% to 70% of sales we will have taken a price increase once these increases go into effect in January over the past two years.

And that is only -- right, so you're not -- in other words one price -- this is not one price increase. It is what products have experienced any price increases?

That is correct.

Okay.

And obviously the two biggest categories that we have that are exposed to raw material volatility are our bleach business and our Glad business. And those are the two businesses where you have seen multiple increases, including the ones coming in January.

And Jerry, can you give us an update at your analyst meeting I guess a little over a year ago you said you expected 200 million in cost inflation to sort of temper your outlook over a multi-year period. And then I think you subsequently said 300, and even more recently you said we're reviewing that 300 number, we think it could be higher. Can you give us the latest?

I will have Dan go through at least what our current expectations are, knowing that its still a bit influx in terms of how that will play out over time.

Yes, Amy, when we looked at that we did update our outlook about a month or so ago when we talked about minimum cost increases at least $300 million over the four years of the plan. We were also looking at the pricing component that we were using to offset that increase. And as you know originally we were not anticipating much in the way of pricing. Through about a month ago we were anticipating at least 120 million of pricing over the four years and now obviously that is going to go up because of the January price increases. On the cost side we are seeing continuing pressure. We are likely to be above the $300 million cost level over the four years of the plan. I think the real issue is going to be what do we see in '07 and '08 in terms of do cost increases continue, do they begin to moderate and then in terms of our margin improvement over the plan period, it will also be dependent on how much incremental pricing we may take in the '07 and '08 period.

So when do you plan to I guess just update all your long-term goals given that so much has changed?

We've talked about at least on certain elements of this; we will probably give you updates on that as we go. My view on this at this point in time is that there is still enough uncertainty around what is going to happen with commodities as we go through the balance of this fiscal year, that it would be premature to say that we cannot deliver the 300 or 400 basis points of gross and operating margin improvement. Those kinds of changes in fact can happen over shorter periods of time. Now it is not preferable, and that wasn't how we laid it out in the first place. But it is where we are right now. So I don't think it would be before we get through this current fiscal year. So possibly next summer or fall we may give an update at least on the margin points of that. A little further out than that we would also plan to give a little longer view maybe in the next 18 months -- give a longer view out to let's say fiscal year 10 as to what we think is going to happen both from a top line and a margin and a return EPS and return standpoint. But at this point I am hesitant to move off of this. We need to play part of this out because sometimes there is an overreaction even though this is now more backend loaded than we originally had laid out.

My last question goes back to the volume. Your volume was up 1% this quarter. I understand some of it was charcoal related, but nonetheless on the weaker side. In January you are going to be really stepping up I mean, you are taking some significant price increases on a big percentage of your portfolio, and yet for the full year you expect really volume growth to accelerate. I am not sure I understand that or think that that is realistic.

I am not sure that I would say that if you looked at the full year I just said low single digits on volume so I don't think that is an acceleration.

Low single digits -- all right, fine. That's fair, but let's put it this way. You don't expect it to get any worse and yet you're going to be implementing significantly more in the way of price increases?

Yes, but we've laid out exactly what we think is going to happen, and there are parts of the portfolio that will continue to grow both in terms of volume and in sales. I will give you an example, the charcoal business is likely in the second half to see real volume growth. I think our international business will continue to see real volume growth. So we have parts of the portfolio that we do expect to see volume and that aren't being impacted as much by these commodity issues. And then we will have portions of the portfolio, and the laundry business, the bleach business and the Glad business that will have volume impacts on this. The net of all of that is we still project low single digits on the overall portfolio.

Okay. All right. Thank you.

Linda Bolton Weiser, Oppenheimer.

When we were doing some self checking at Wal-Mart recently we noticed that in the cleaning aisle there were only two price rollbacks that we noticed, one was on Tilex, it was a 4% price rollback, and the other was toilet bowl cleaner with Teflon, an 8% price rollback. Can you kind of talk about why those price rollbacks would be happening in the face of impending price increases?

There is a number of activities that go on when you deal with any one customer in terms of promoting a particular item during a particular period of time. Those rollbacks do last a period of time. But within the overall budgets that we have to do merchandising activity with customers, there are funds to be able to do that. And these rollbacks only last about three months. And so even in the face of all of these things I think you will continue to see some rollback activity, although I don't think it is particularly big activity. But you will still continue to see some rollback activity as we go over the next 12, 18 months.

Just to add onto that you know that Tilex is one of the brands at the rollback. You might have noticed today Tilex is one of the brands we're taking pricing on in January. So again, that is not a sustainable rollback. Because Tilex has bleach as part of its product formulation; its one of the products we are going to take pricing on.

And just on the inventory there was I guess a 13% increase in inventory year-over-year. Can you break down is it that your actual raw material inventory is up or is it just a value of the finished goods inventory, or can you just explain that a little bit?

There is two components primarily in that build. One is charcoal, as we've discussed we're changing out the line to a new charcoal product, and we did see some retailers start to take down their retail inventories. So there's a little bit of build in charcoal but we also are seeing higher average cost for the remainder of our inventories, and that is reflected in those levels.

And finally, another question on your cost savings programs. Can you just remind us or did you say what it was for cost savings in the quarter, in this quarter?

In the quarter, yes, for cost savings it was roughly about $30 million, about 270 basis points contribution to margin.

So I guess I'm just wondering how it works out to be an acceleration in the second half if it looks like it was 30 million. How is it going to be higher? Is your total really going too much higher than 100 million for total year cost savings?

Right now our anticipation is that we will be in the 90 to $100 million range, likely to be towards the higher end. Some of these projects come online and hit at different points. So there is some seasonality just based on when the projects play out. So for the full year, we are still looking for 90 to $100 million in savings.

So it's going to go something like 30/30 20/20?

We're not providing in detail exactly by quarter how it will play out, but we feel pretty good about the 90 to 100 million for the full year.

Okay, great. Thank you very much.

Jason Gere, AG Edwards.

Just a couple of questions. I guess earlier in the week Procter talked about some of the household product categories where I guess there might be a little bit of resistance to some of the line extensions that they actually carry. I was wondering if you could talk about some of the purchases, the trial usage for things like ToiletWand, Bath Wand, Bleach Pen. Certainly I know that you cycled against the launches last year, but I was just wondering if you could give a little color on that.

Yes, I think that there is a little bit of -- let me go back and talk both the ToiletWand and the Bleach Pen. We are now lapping those launches, and so there is some deductions in sales. It just comes from the normal trial activity that did very well, incidentally, on both of those projects. As we now look at the Bath Wand, which was launched in the spring, it is reaching what we call satisfactory levels, but it is behind what we had projected. And I think one of the rationales for that as we are looking and talking to consumers on that, is some issues surrounding price point and trial on that. So we're doing a number of things that are just things that we would do in the normal course. And over time, I expect that that will be a satisfactory launch for us, but it is a little behind what we had expected it to be going in.

Okay. Separately, just adding on to Linda's question before about the cost savings, I mean last year certainly the cost savings seem to be front-end loaded. And here you are not really giving too much color. I mean, if you look to the back-half of the year and you start to get some potentially easier comparisons on the gross margin line, is this really where the cost savings should come in and really start to help accelerate the margin?

Well, certainly we're expecting cost savings to help contribute to the margin improvement in the back half, and we've talked in terms of our total expectation for the year. The specific calendarization of it, I don't know that it is materially different by quarter. Again, we get a little bit of seasonality here, but I don't think it is going to be a huge variance one way or another as we look over the balance of the year.

Just as a reminder, most of these or a lot of these CCM initiatives are much -- they're longer-term multiple-year initiatives. So I think what's really important to us is will we realize the savings through 2008 and beyond on some of these initiatives like world-class manufacturing or the efficiencies we're getting out of the implementation of SAP we completed over a year ago. Exactly how it shakes out by quarter, as Dan said, will vary a little bit, but importantly for us we're on track over the long-term, we believe, to deliver the savings we thought.

And then just the last question, you mentioned in the composition of sales that trade spending was, I guess, up 2% and that was because of last year's heavier investing. But when you look at the price increases that you've taken and even looking towards January, do you think that you're investing enough in promotions or in-store merchandising to drive volume growth, especially when you have consumers who are seeing that just the absolute price is going up, even though private-label is going up as well and some of your peers, but do you think that they continue to see the value of Clorox, or do you think you might need to step up a little bit more on the promotional side just to get some of that volume back?

Jason, that is a good question. I feel very good about the analytics that we do to look at every one of our brands and categories to determine what is the right level of support and what return do we get on those investments that we make on each of those brands and businesses. And as we're looking at it right now, the volume loss that we might get from not accelerating any kind of trade spending like that turns out to be fine in terms of the returns that we get on what spending we do.

So at this point in time, I am not inclined to believe that we need to up our trade spending in any way based on what is going on with consumers, even though consumers are watching their pennies as they go through this period and see lots of higher prices or they see the gasoline prices at $3 a gallon. But we will continue to watch that. At this point, we feel very comfortable with the levels that we're spending and with the pricing we are taking, the returns on that we think are going to be in the right directions.

We also have confidence in the strength of our equities as we manage our business and go over time. And that is an area where we will continue to support, whether it is through innovation or through some kind of other marketing spending.

Actually, I lied. I just had a quick question on your marketshare positions. Do you actually have the marketshare positions for bleach and the Glad business overall, and can you just talk a little bit about the category growth you saw over the last quarter and what your share did relative to the rest of the industry?

Yes, you know what, we have two sets of data, one that we don't share broadly, which is what we look at as all outlet shares. Because we have to get customers -- some customer data in order to get that data, along with consumer panel data that we use. Then for about 40% of the business, we have the IRI data that we use. But the laundry category was down for the quarter and -- I'm looking at the numbers now. Yes, it's down some 5 or 6% for the quarter. And our shares were off modestly for the quarter. And nothing surprising in terms of what we do there in particular that is the class of trade where they do a lot of $0.99 bleach features. And with all the pricing that is taking place, most of that has now gone away. And we are willing to work our way through that over the next year because we think that is the place it should be.

Jason you mentioned bleach is one of the categories you were curious about and I know there has been some external perception that there has been material category declines or share declines in bleach based on what you can see from track channel data. I want to point out that in looking at tracked versus untracked channel data for specific to the bleach category, there is a significant difference this quarter as there are for many of our categories in most quarters. But there was at least a 20 point differential in our shipments between tracked and untracked channels this quarter in the bleach category. So I just want to emphasize looking at the IRI data is not the complete picture particularly in light of the pricing we have taken recently. As we've been saying all along on bleach and Glad for that matter as well, the two price increases we've taken recently have actually been better than we anticipated.

Terrific, that has been very helpful. Thank you.

Bill Schmitz, Deutsche Bank.

I'm sorry to keep beating this pricing horse to death, but just in terms of the volume, do you expect that there is going to be some prebuying which will help volumes in the fourth quarter and allow these price increases?

We try to manage that as carefully as we can. I am not sure we can manage it 100%, but in some cases we allocate because on some of the items we actually have issues surrounding enough production to let people buy out. But we do control the amount that will in fact go out. And so there could -- while there could be a modest change, I don't think it's going to be very material because of the controls we have in place to prevent the buyouts on that.

Another factor to keep in mind is that some of this will be dependent upon just the general holiday season. If the retailers are left with a larger than normal amount of inventory and other more seasonal or holiday related items, they wouldn't even have room to taken a lot of forward buying on these items we are taking pricing on. So to some degree it will be something affected by external factors rather than what we're doing.

And then we kind of talked about this a few months back, but there was a fear that there might be pantry, or pantry deloading as a result of some of these price increases especially on bleach. How is that kind of progressing? Is it better or worse than your expectations, (indiscernible) next price increase (inaudible)?

I think that is a factor whenever you look at your price increases. And consumers have to face new, higher retail prices. They do in fact, change their usage habits from how many bottles do they have in the cupboard or in the pantry. And its playing out about like we expected it to. There is some reduction there in terms of you can see that in the category numbers themselves, but it is not materially different than what we expected. And then it probably will play out a little bit longer because we are taking increases again in January. And so there will be another round of that. But my guess is when we get to next summer people will be back into the normal buying patterns that they've historically followed.

Finally on the international business, is that growth there driven by market growth, marketshare growth or a little bit of both?

It is actually both right now. The categories are healthy in virtually all the countries and particularly in Latin America, the categories themselves are healthy. In addition to that because we've gotten very focused on just a few brands in each of these countries, our shares have gone up pretty dramatically. In particular in the bleach and dilutable cleaner businesses, we feel very good about our share trend, and we've also had some new product activity that has been successful particularly again in Latin America, but also a launch of some Clorox line of cleaners down in Australia.

Thanks very much.

Joe Altobello with CIBC World Markets.

I just had a couple of questions. First in terms of price gaps, where do they stand today in let's say bleach and trash bags, for example?

You know, I'm not sure Joe that I can answer that on the spot here because all I have right now is anecdotal information with specific customers. I actually haven't seen the data rounded up recently like in the last couple of weeks on what the price gap is. I do know that it is what we expected it to be but I don't know the absolute numbers other than some anecdotal or some big customers that I happen to know. For instance, Clorox Bleach liquid bleach is at $1.57 and $1.12 for private-label at one major customer.

So they have gone up, basically?

Everybody has gone up on both private-label and on regular, and it is pretty broad scale that virtually all customers went up, and the private-label went up, too.

And the second question is sort of a technical question, but as you guys continue to raise prices for example if you will have a third price increase on trash bags, two on charcoal, two on bleach, does the change in volumes get bigger or get smaller? As you move up?

You know, Joe I think the problem with answering the question is the category by category decision. And even the amounts we take are sometimes driven by price points on a particular category. And so you may take more or less because of certain price points. And so the variation on a by category basis is pretty significant, in terms of how much volume would go down in one category versus another dependent on the overall category conditions, the competition in the category and the likely price point changes that occur.

And lastly, if I could the Glad restructuring savings, how big is that this year?

We said that is about 15 to $20 million savings on an annual basis.

Wendy Nicholson, Citigroup Investment.

My first question is the volume growth for the second quarter. Did you give guidance as to what we should expect for that?

I don't believe we have given guidance. I think that I will give you some, though, and it is low single digits.

Low single digits?

Low single digits.

How would that be possible given that you have such a tough comp and you've got destocking in charcoal? How can that be up at all?

Again, you have to go down literally by category. Now it also could be flattish, but we expect it to be low single digits based on the variation and still have good growth in international.

Okay, and that leaves me to my second question international you got twice as much of a tough comp in the second quarter as the first quarter. So this 14% growth you saw in the first quarter, what is your expectation for volume growth run rate for the year in the international business specifically?

I think that is probably going to be mid to high single digits in terms of volume growth overall for international as you go through the entire year.

So we've got midteens for the first half and zero for the second half and that gets us to the mid to high single digits for the full year?

You jumped -- I think we are talking volume now, and volume is low single digits for the year.

I am sorry for the international business alone I am looking at.

For the international business the overall volume growth rate is going to decline from the first quarter. But it is going -- but it is still going to be solid growth as we go through the balance of the year that would end up being mid to high single digits.

Okay and then my second question is in terms of the reduction in the trade promotion that we saw in the first quarter, is that just a function of the timing of new product activity in the year ago quarter, or is there a structural change in terms of how you are looking at that line on the P&L? It is something that Colgate and Procter talked a lot about, and I am wondering where you guys are in that kind of growth to net analysis.

No, it is strictly based on the level of new product introduction that we had a year ago. If you recall, we were supporting the ToiletWand and ForceFlex at that point in time. We still had some spending around Press 'n Seal, as well. So it was strictly a function of what we were supporting last year. And as you know, a big component of our CCEM program is trade spending efficiency. We have been at that for a couple years. It continues to be an important piece of our savings program, and it is something that we focused on very closely.

Okay but that 200 basis point delta kind of will go away now that we've got more new product activity in the back half?

I think it's safe to assume that, yes.

Thanks very much.

Alex Patterson (ph), RCM.

Just a couple quick ones. One, on the pricing impact on gross margin, 140 basis points, did I hear that right?

Yes.

Does that include the trade spend, or is that some kind of a net revenue change? And its effect?

The 140 basis points is from pricing. It is a pricing component on the margins.

So the one point contribution to sales growth is turning into a 140 basis points on gross margin essentially?

Yes, that is the way to think about it.

What is happening with the trade -- did I hear it right, trade spend added two points to sales growth, right?

There is a 2 point, the variance between sales and volume there was a 2 point impact from trade spending primarily due to the level of trade spending we had a year ago supporting new products.

Right, so I would think that has a similar effect as pricing on gross margin. Is that not right?

Well, at the end of the day it does create the differential between volume and sales growth, certainly it does contribute.

Okay. Sorry, Dan, I'm just trying to -- it sounds like there was a bigger impact from trade spend reduction year-over-year than there was for pricing. Pricing was 140 basis points alone to gross margins. That mean there was 280 basis point benefit from trade spend?

There was some benefit from foreign exchange though, too.

You had about 200 basis points was trade spending. You do see about 1 point on the top line from pricing. The 140 basis points on the margin line is reflective of the fact that volumes are down. So obviously we're getting sales dollars, and we're not shipping as many cases to achieve those sales dollars. So you have cost savings there. So you have leverage in your margin line from pricing. Now pricing in the quarter it is about 100 basis points. Keep in mind there was a number of pricing actions in the first quarter, and in the quarter that you do launch you do have the effect on volume there that you've got to work through. And then generally it will return over the next couple of quarters.

I'll take this off line. Another question outlook on the other expense income line for the year, I was glad to see there was essentially a nonevent there. Is that going to stay that way for a while, do you think?

That should be for the full year. The main impact we had in the quarter and you will see a little bit of it in future quarters or at least next quarter anyhow is the fact we had the hips (ph) investment that was generating some revenue that was exchanged back to Henkel. So we have one more quarter of that impact including the gain we had in other income in the second quarter associated with that transaction. But other than that I think you should assume it is going to be relatively flat.

April Scee, Banc of America Securities.

My question is another question about price. My understanding is that vendors are basically now going to the retailers, not for the protracted discussions that we've seen in the past, but basically just saying here are the cost increases we are taking. Take it or leave it. And I am just wondering if there is a precedent for that, and if in this type of environment what gives you the confidence in your forecast -- particularly because we don't know what retailers are going to do even if they have signed off, we don't know what a consumer is going to do. So what would it take to I guess fall below the low end of your range for the fiscal year? Thanks.

First of all, I would like you to know that from our perspective that we don't go to our customers and say take it or leave it. We have good discussions about the analytics behind why we took a price increase, and what we believe the new pricing should look like knowing that they have to make the choice on that. Those are very constructive conversations. Now I do think, including us, we're moving faster to actually take these than we have historically. But that's because we're in this unusual environment. So the important point is having the constructive dialogue on an entire category and how you would price the entire category to maximize the results based on this new pricing environment. That is part of what ultimately we do in our analytics to determine what is going to be the consumer reaction to that. And we do sound analysis on what we believe is going to happen when we take those price increases. But the consumer still has to make those decisions. And there could be an adverse consumer reaction to something. But that you deal with as you go along here. But we are just dealing with our analytics and what we expect to happen and then what we expect to happen is then put into our forecast for the full year, including both the volume hits and the sales benefits out of our best analysis and best decisions that come from that.

And at the retailer level do you feel comfortable that all of the retailers are comfortable with the price increases and the level of the price increases that you've taken? And do you have a sense for how that is going to be passed through to the consumer or how much of that is going to be absorbed by the retailer?

I don't think anybody is comfortable with the level of these increases that we are seeing in the marketplace, not just from us, but from all kinds of other manufacturers to retailers. And I don't think retailers are comfortable with it because ultimately the impact is going to be what is the consumer say about this. At this point, though, I think the dialogue is constructive with retailers in terms of looking at what should we do in light of the fact that we are taking these increases, what should we do? And I think that still needs to play out. We, at this point haven't seen 100% pass-through of all the increases that have gone, but retailers are taking the increases and passing them faster than we have historically seen.

That's helpful. Thank you.

(OPERATOR INSTRUCTIONS)

Maybe we just wrap up here if there is no other questions. Let me give a couple of comments on this. We've dealt an awful lot with the specific quarters as we're talking here. But I would like to reinforce this idea that when we look at quarters there can be some volatility in any one quarter and movement in top line or movement in a particular area. But as we look at the forecast that we have for the full year, we feel very comfortable with the range that we've given you and the likely outcomes that would come out of that. Of course that has to play out, but any one quarter, for instance I said the second quarter is going to be low single digit but that could be a range depending on a variety of factors. I am more concerned in terms of looking at the full year and how that will play out. And we feel very good about at least the guidance that is out there and the outlook that we have for this full year.

So with that we will wrap up and thank you very much for joining us.