高樂氏 (CLX) 2006 Q3 法說會逐字稿

Welcome to The Clorox Company fiscal-year 2006 third-quarter earnings release conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded. I would now like to introduce you to your host for today's conference call, Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin your conference.

Thank you. Welcome, everyone, and thank you for joining Clorox's third-quarter conference call. I'm Steve Austenfeld, Clorox's Vice President of Investor Relations. On the call today are Bob Matschullat, Clorox's Interim Chairman and CEO; Larry Peiros, Group Vice President of our Household Group; and Dan Heinrich, our Chief Financial Officer.

We are broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website, thecloroxcompany.com. On today's call, Bob will start by commenting on this morning's announcement regarding Jerry Johnston. Larry will then provide some observations about the quarter, including perspective on the near-term cost and pricing environment. Dan will then review our financial performance for the third quarter, followed by additional detail supporting our Q4 and fiscal-year '07 outlook communicated in our press release this morning. Finally, Larry will wrap it up, and we will open it up for your questions.

On today's call we will refer to certain non-GAAP financial measures including adjusted operating profit and free cash flow. Management believes that by providing insights on these measures we enable 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 supplemental information available in the financial information and results area within the investors section of our website, as well as in our filings with the SEC.

Lastly, 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 versus management's expectations. With that, I will turn it over to Bob.

Thanks, Steve. Good day, everyone, and thank you for joining us on today's call. As Steve mentioned, I'm serving as Clorox's Interim CEO and chairman. For those of you who may not know me, I have been a member of the Clorox Board since 1999 and served as the Company's Chairman from January '04 until January '05. Following that, I have been the Board's presiding director until stepping into fill the interim role. So I know the Company and its executive team quite well.

Now Larry and Dan will provide their comments on the business and financial results in a moment. Before they do, I first want to address three topics -- Jerry Johnston's decision to retire as Chairman and CEO, the Company's leadership, and the overall state of the business.

By now, you have all seen this morning's press release announcing Jerry's retirement. As you know, Jerry had a heart attack on March 1 and was hospitalized for several weeks. I am pleased to tell you that Jerry is at home recovering and continues to improve. I have been speaking with Jerry; and on Monday, he informed me of his decision to retire so he can focus on his recovery and his family.

Everyone at Clorox and the Board is saddened by this decision, but we fully respect it and want only the best for Jerry and his family. Jerry has been a great leader for Clorox and his mark is everywhere on the Company. First as national sales manager and later as general manager, Jerry built the Kingsford business from a small acquisition to a market-leading brand, where it remains today. As President and Chief Operating Officer, he championed the Company's systems and process transformation.

Finally, as chairman and CEO, he renewed the Company's dedication to its people, the consumer, and Company's retail customers. Perhaps his greatest legacy is the Company's passion and focus on the consumer. Today, more than ever, Clorox begins and ends with the consumer and is devoted to making consumers' lives easier, healthier, and better.

Another of Jerry's great contributions is the outstanding senior management team he has assembled at Clorox. I know many of you have met members of Clorox's executive committee during investor conferences and meetings. I'm certain you would agree that Clorox has a very strong leadership team.

Our executive group has considerable company and industry experience and was active in the development of the 2008 strategy and financial goals. Since the 2008 strategy was established, the executive committee has had the responsibility of executing those strategies and operating plans. I have tremendous confidence in them, as does the rest of the Board.

As noted in the press release, the Board has formed a committee to oversee the search for a new CEO, consistent with the way Clorox handled selection of the last two CEOs, and consistent with best practices. The committee will consider internal and external candidates with the broad experience and leadership needed to keep moving the Company forward, to keep driving growth and innovation, and to continue creating shareholder value over the long term.

At this time, we cannot provide specifics about the process, including how long it might take. Certainly it will be a top priority for the Board, and we will move as quickly as we can while taking the time needed to ensure we make the best possible decision. Once a new CEO is chosen, we will notify you via a press release.

Before I turn it over to Larry, who will provide the overall business perspective, let me comment on the health of Clorox's business. In the face of challenges, the largest of which is been unprecedented high commodity costs, the Company has continued to perform strongly. Top-line growth remains near the top or even ahead of our long-term target range of 3% to 5%. The right steps have been taken to overcome near-term margin pressures, including managing through the unprecedented commodities cost environment and successfully executing a number of new product launches and price increases.

Cash flow remains strong, and new product innovation to drive future growth continues to look good. I feel very good about the direction of the Company.

You may remember when the Company shared its financial goals with you in September of '04, we believed we could deliver $3.50 to $4.00 earnings per diluted share by the end of 2008. Although today's financial outlook discussion is focused on the remainder of this year and fiscal 2007, I continue to have confidence that Clorox has ability to deliver earnings within that target range.

Now I will turn it over to Larry who will provide perspective on our third-quarter results and performance.

Thanks, Bob. Good morning or good afternoon to those of you on the call. We feel good about our solid results in the third quarter. Consistent with our outlook, we delivered $0.72 in earnings per diluted share, which includes an incremental $0.03 EPS impact from expensing stock options. We achieved a 7% year-over-year sales growth, all at the upper end of our outlook. All three of our business segments grew sales, while overall volume was flat.

To put these results in perspective, I want to go into more detail in three areas. First, commodities and pricing; second, advertising and innovation investment; and third, the short-term impact of weather.

Starting with commodities and pricing, the good news is that commodity costs have come down sequentially. However, they're still much higher than they were for the same period last year and much higher than historical averages.

We have taken a number of steps to help offset the unprecedented cost increases we face, including aggressive cost savings under our Cut Costs and Enhance Margins program which we call CCEM.

In the third quarter, we also executed a greater number of price increases than at any time in our history on about 40% of our portfolio. I am pleased to report that our pricing execution has gone extremely well, with retail pricing at expected levels and in most cases pricing actions that were followed by competition.

In particular, price increases for our two largest brands, Glad and Clorox liquid bleach, have been executed with excellence, though volume has declined as anticipated and will likely remain down in the near term. Brita has also been a brand that has experienced declines behind our recent pricing actions.

Our models forecast initial drops in volume and consumer purchases following retail price increases. Simply put, it takes consumers a while to adjust to the higher shelf prices and the changes in key price points. This is even more true of brands like Clorox liquid bleach that are often merchandised heavily by retailers at hot prices. While it is still too early to fully evaluate our price increases, we continue to believe the strength of our brands supports these pricing actions. We are confident that consumers will remain loyal to our brands over time, given the strong consumer value and performance that they deliver.

Next, I want to focus on advertising and innovation. Despite the difficult cost pressures, we continue to heavily invest in brand building. Our advertising spending increased year-over-year and is at high absolute levels. We also invested in a lot of innovation this quarter with the launch of major new product in more than half of our business units.

I won't review the entire list, but it includes Clorox Anywhere daily standardizing spray, one of our game changer initiatives, as well as five core growth innovation items including our new Kingsford Sure Fire product. We also began shipping Fresh Step and and Scoop Away cat litters with an activated carbon, giving our cat litter products a step change in odor control.

Ultimately we believe that our brand building investments will pay off as we continue to introduce new products and improve the value proposition on existing products. In the very early going, our calendar year new product results are on track with expectations.

The last issue I want to cover is the short-term impact of weather. Weather negatively affected Q3 results in our charcoal and auto care businesses and was not anticipated in our outlook for the quarter. March weather was unusually poor and is typically the first month of the charcoal grilling season in warm weather states. Warm weather states are big drivers of early season charcoal shipments, and the West Coast alone typically accounts for about 20% of our early season charcoal business.

As you may know, for the month of March California experienced the most days of rain in recorded history; and March charcoal shipments in California were down 40% versus the year-ago quarter. The impact of poor West Coast weather on our charcoal business cost us about 1 full point of total Company volume growth in the quarter. Bad weather continued into the month of April, which has been factored into our revised Q4 outlook.

That's said, over the course of a full season, we generally find that charcoal consumption comes in on track, although there is volatility by quarter. We also remain confident about the Kingsford Sure Fire launch, which will be strongly supported with merchandising and advertising as we move into the grilling season.

One area that I like to spend a few minutes talking about is our flat year-over-year volume performance. This result was not unexpected, but it is not a trend we would anticipate over the longer term, nor a long-term trend we would be very happy about.

While weather impacted our Q3 shipments, pricing is the primary reason why our volume did not grow. Our volume softness is consistent with that which was predicted by our pricing modeling. Further, we look back at historical pricing actions, our brands typically recover as consumers adjust to higher pricing and new price points.

Again, we remain confident that consumers will remain loyal to our brands over time, given the strong consumer value and performance that they deliver. Moreover, our continued brand building investments in advertising and innovation are the means to achieving sustainable volume growth over the longer term. We do expect continue volume softness in Q4 but with lessening impact over time.

Looking forward, we will start shipping a new premium laundry bleach in mid-June. This product, called Clorox Ultimate Care bleach, has been successfully tested in a small market over the past year. The product delivers the power of bleach but is easier to use and is gentle enough to pour directly onto white clothes. It comes in an attractive drain-back measuring cap bottle and represents a substantial trade-up from current regular bleach. Ultimate Care bleach experienced solid results in the test market, and we believe it will make a very positive contribution to sales growth in fiscal '07.

To conclude, we had a solid quarter. Our pricing actions and cost savings initiatives have helped to partially offset unprecedented commodity increases. We continued to invest in brand building. Weather is impacting our results in the short term. We are pleased with our results given the challenges we faced; but we're focused on improving our volume and margin growth over the longer term. With that, I will turn it over to Dan for more details.

Thank you, Larry. I am going to start by discussing our third-quarter results. Then I will provide our fourth-quarter outlook, followed by our initial financial outlook for fiscal-year 2007.

As Larry noted, we're very pleased with our third-quarter results, particularly in light of the ongoing commodities cost pressures we're facing, the impact of pricing actions and spending behind new products, and the impact of weather on our seasonal businesses. On the top line, third-quarter sales came in up 7% compared with the prior-year period.

Sales came in at the high end of our outlook driven by price increases, trade promotion spending efficiencies, volume growth in homecare, cat litter, food, and charcoal, and increased shipments in our Latin America businesses. Note that while charcoal shipments were off from our outlook, they did increase modestly on a year-over-year basis.

Laundry care and Glad volumes declined as anticipated, largely driven by the impact of price increases. Auto care volume also declined due to comparison of the base period, which included our Armor All gels product launch as well as this year's poor weather and early season markets, resulting in slower seasonal inventory builds.

Brita volume declined on a year-over-year basis, driven by price increases on Pour-Thru pitchers.

Gross margin for the quarter was 41.5% versus 41% last quarter and 41.8% in the year-ago quarter. We feel very good about this result given the current commodities cost environment, and look forward to further gross margin expansion in Q4.

Let me break down the 30 basis point change versus the year-ago quarter for you. Commodity costs impacted us by a negative 420 basis points, including higher year-over-year increases for resin, chlor-alkali, and other commodities. Although commodity costs are down from the peak levels, as we anticipated, they are still considerably higher than they were at this time last year.

Substantially offsetting these declines was 210 basis points of gross margin improvement from the net effect of price increases, and about 240 basis points of improvement from our Cut Costs and Enhance Margins strategy. All other factors contributed about another 60 basis points of the decrease, the largest of which was related to manufacturing and logistics variances.

Selling and administrative expense was about flat on a dollar basis versus the year-ago quarter, but lower as percent of sales as the organization tightened its belt to reduce spending. In this high commodities cost environment, we have asked everyone to be very disciplined in their admin spending, and the organization has responded.

On an absolute dollar basis Q3 advertising came in about as expected, although it was slightly lower on a percent of sales basis due to our strong sales growth. On a percent of sales basis advertising spending was a strong 9.7%, while 6% higher on a dollar basis versus the year-ago quarter. Despite ongoing cost pressures, we remain very committed to investing in demand building activities and to supporting new products.

R&D spending was up on a dollar basis versus the prior-year quarter behind our commitment to innovation. As Larry noted, this quarter saw an especially high level of new product introductions; and this reflects our continuing commitment to innovation driven by consumer insights.

Adjusted operating profit before tax grew 9% versus the year-ago quarter. Adjusted operating margin for the quarter was 17.5% compared to 14.2% last quarter and 17.2% in the year-ago quarter. This is the first time we have seen year-over-year adjusted operating profit and margin growth in four quarters.

Adjusted operating margin growth versus a year ago was driven by flat selling and administrative costs, partially offset by slightly lower gross margin and the incremental impact of equity compensation under FAS 123(R).

As anticipated, other expense was $16 million lower than the year-ago quarter, primarily due to prior-year operating expenses related to low income housing investments for which the Company receives tax credits.

Third-quarter interest expense is about $6 million higher than the year-ago period primarily as a result of higher average short-term interest rates.

At about 35%, our tax rate came in higher than we anticipated due to the timing of certain transactions and tax settlements.

Net of all these factors, third-quarter earnings per diluted share from continuing operations were $0.72 compared with $0.75 in the year-ago quarter. As a reminder, the current quarter reflects about $0.03 per diluted share related to equity compensation expensing, which was not included in the year-ago quarter. Additionally, the year-ago quarter included a net benefit of $0.09 diluted EPS from a tax settlement and repatriation of some foreign earnings under the American Jobs Creation Act of 2004 as well as a lower tax rate.

Turning to cash flow, third-quarter cash flow from operations was about $138 million or 12% of sales compared with $58 million in the year-ago quarter. The year-over-year increase was primarily due to an $87 million tax settlement payment in the year-ago quarter.

Free cash flow, which we define as cash flow from operations less capital expenditures, was about $99 million or 9% of sales. Our strong free cash flow results were due to solid earnings, disciplined capital investment, and effective working capital management.

Now I'll move on to our outlook for Q4 and the balance of this fiscal year. Fourth-quarter volume is anticipated to be flat to down slightly due to the lapping launch of the Clorox BathWand system, the near-term consumption impact of Q3 pricing actions, and the impacts we have seen from unfavorable weather that continued into April, affecting early season warm weather markets.

At the same time, we continue to anticipate strong sales growth of 3% to 5% which will outpace volume growth primarily due to pricing. Positively contributing to sales growth are the ongoing benefits of price increases and the benefits of new products, including the significant number launched in Q3. In addition, we're very excited about our new Clorox Ultimate Care bleach, which began shipping in mid-June.

Our fourth-quarter outlook anticipates year-over-year gross margin growth as we continue to anticipate somewhat lower, though still quite, high commodities costs, the continuing benefits of price increases, and strong cost savings coming out of our CCEM strategy. We now anticipate that total fiscal-year 2006 cost savings will range from $105 million to $110 million.

Our fourth-quarter tax rate is anticipated to be about 34% to 35% and probably towards the higher end of that range. This compares with a 32.6% tax rate in the year-ago quarter. As we have previously discussed, our tax rate will vary based on the timing of certain transactions and tax settlements.

On the bottom line, our fourth-quarter outlook for earnings per diluted share is now in the range of $1.00 to $1.06. This reflects the commodity cost environment, which remains at significantly higher levels than a year ago, and continued poor weather in April affecting our seasonal businesses.

As I reflect on Q4, I feel very good about our outlook for driving sales and margin growth, delivering cost savings, and continuing investments behind our brands and our new product innovation.

For the full fiscal year, taking our fourth-quarter outlook into account, our outlook anticipates year-over-year sales growth of 5% to 6% and total earnings per diluted share in the range of $2.98 to $3.04.

In light of all the pressures we have faced this year, we're very encouraged with our outlook for 3% to 5% EPS growth versus the prior year. If you exclude the anticipated $0.14 full-year impact of expensing stock options in fiscal 2006, our outlook would translate to EPS growth in the range of 8% to 10%.

Importantly, we have overcome a lot of cost pressure, generated strong cost savings, continued to invest in building our brands and new product innovation, and we remain very much on strategy. All in all, we anticipate delivering a very solid year.

Let's turn now to our preliminary full-year fiscal 2007 outlook. This is the first time we have provided our initial views on fiscal 2007. All comparisons are on a year-over-year basis. We provided highlights in this morning's press release and, although we are still in the midst of putting all our plans in place, I would like to provide some initial perspective.

As we look to fiscal 2007 there are number of factors to bear in mind. We feel very good about the contributions from our recently launched new products, including Clorox Anywhere sanitizing spray, Kingsford charcoal with Sure Fire grooves, and Clorox Ultimate Care bleach, as well as the new products in our pipeline for fiscal 2007. Our plans for fiscal 2007 reflect continued strong investments to support brand building.

We anticipate continued high levels of cost savings contributing to margin expansion. At the same time it's important to consider the impacts of our FY '06 price increases, our expectations for a continuing high commodity cost environment, and a higher than anticipated tax rate.

That said, our top-line outlook is for sales growth of 3% to 5% consistent with our stated long-term target. We expect sales growth to outpace volume growth, particularly in the first half of the fiscal year, due to the effects of price increases taken in fiscal '06. Core category growth and new product innovation should help drive top-line growth.

Gross margin and adjusted operating margin are expected to grow, driven by the continuing benefits of cost savings stemming from our CCEM strategy, the benefit of price increases -- again, primarily in the first half -- and accretive new product innovation.

Partially offsetting these positive factors is our outlook that commodities costs throughout next fiscal year will stay generally within the ranges we're seeing today, resulting in a year-over-year increase. I will talk more about commodities in a moment.

As I noted in our press release, due to the adoption of FAS 123(R), we estimate an incremental $0.05 diluted EPS impact related to expensing equity compensation. This year two effect is due to the application of the accounting standard, not from any change in our compensation practices. We do not project any material incremental impact in fiscal 2008.

Our FY '07 tax rate is anticipated to be about 34% to 35%, with the understanding it may vary by quarter depending on the timing of transactions and tax settlements.

Our full-year diluted shares outstanding are expected to be about 153 million as we anticipate continuing our practice of, at a minimum, repurchasing sufficient shares to offset the impact of stock option dilution.

We anticipate achieving our debt to EBITDA target of 2.0 to 1 late in the fiscal year, which creates greater flexibility to consider further share repurchases and other uses of our free cash flow to drive shareholder value.

Net of these factors, our outlook is for earnings per diluted share in the range of $3.20 to $3.30.

Our initial outlook for the first quarter of fiscal 2007 is for sales growth of 3% to 5% and earnings per diluted share in the range of $0.67 to $0.73, reflecting significantly higher Q1 commodities cost versus the year-ago quarter, increased advertising to support new products, and a higher year-over-year tax rate.

Let me take a moment to provide you with some added perspective on our view of commodities costs for fiscal-year 2007. During fiscal 2006, we experienced cost increases across a broad range of commodities and energy with resin, chlor-alkali, and diesel seeing significant cost increases.

We saw increasing costs in Q1; we then saw very significant cost spikes in Q2 and early Q3 related to supply disruptions caused by the storms. This was followed more recently by some softening in pricing as supply and demand constraints have eased somewhat, but at price levels still well above historical norms.

As we look out to fiscal-year 2007, we do not see any significant easing of commodities costs versus current levels and anticipate that commodities cost will not move back to historical forms. We anticipate commodities cost to remain above last year's levels in the first half, particularly in Q1.

On a net basis, we are forecasting a modest increase in total commodities costs in fiscal 2007, particularly in the first half, due primarily to contract renewals and increases affecting many other commodities. We anticipate commodities costs will likely remain volatile in FY '07, particularly with the price of oil back up over $70 a barrel, which is a key cost driver for diesel, chlor-alkali production, and many other commodities.

We also anticipate tightened supply and demand conditions will continue to exist in fiscal 2007, especially in the resin markets.

While commodity costs continue to be a challenge for us, I feel very good about the actions we're taking to overcome these cost pressures, including successful execution of price increases, continuing to deliver a strong level of cost savings, launching margin-accretive new product offerings, and controlling administrative spending.

Now let me turn it back over to Larry for wrap up and Q&A.

Before we open it up for your questions, let me take a moment to recap the key points from today's call. First, we're working hard to overcome the cost pressures we are facing through cost savings, pricing actions, and other margin improvement activities. We continue to invest heavily in brand building and innovation, and our strategy is working. We have good momentum behind our new product introductions, and there is more to come in fiscal '07.

Looking ahead to the next fiscal year, we continue to anticipate sales growth within our long-term target range of 3% to 5%. We anticipate gross and operating margin to grow behind our CCEM strategy, and continuing benefit from price increases taken in fiscal '06, and less extreme commodity cost increases, though still higher on a year-over-year basis.

Looking even further out, we remain committed to delivering our 2008 EPS goal of $3.50 to $4.00 per diluted share.

In summary, we feel very positive about our targets for the coming year and confident about our plans for the business. We will be able to provide additional details when we speak to you again in August. Now I will ask the operator to open up the lines for your questions.

(OPERATOR INSTRUCTIONS) Kathleen Reed of Stanford Financial.

First question is, can you just comment if you think right now -- I think you said in your prepared remarks that with volume being flat in the quarter, that (indiscernible) expected but not something you want to see a long-term trend for. I think we also think volume is going to be flattish in your fourth quarter.

How long, I guess, are you willing to let volumes be on the flat side or negatively and be impacted by price? How are you balancing that just in terms of what you just said about the increased raw material environment as well?

I think I would start off by saying we never feel great about flat volume. Obviously we made a very clear choice here to price a majority of our brands in light of the sharp increases in commodities. We do price to the long-term average or what we project to be the long-term average versus short-term spikes; so we're confident we are kind of in the right place on virtually all the price increases we have taken.

Essentially the volume declines that we're seeing are what we would have projected based on our modeling. In fact, if anything, they're a little bit better than what we would have projected in our modeling.

We did have some additional short-term impact in our volume in Q3 because of weather, which was not anticipated. So what I would tell you is that our expectations for volume in Q3 were about flat, maybe a little bit better than what we saw. The difference between our expectations and what we actually saw was really driven by weather mostly and our seasonal businesses.

We would expect the volume softness to continue into Q4. Recall that pricing on about 40% of our volume was taken in January and February; so we're still kind of in early going on these price increases. So we definitely would continue to see some impact in Q4.

As we move down the year, the calendar year, we would expect to see less and less impact. So I would expect to see sequential improvement over the first couple quarters of fiscal '07 and hopefully, start seeing some gains, maybe in Q2 and Q3 and Q4.

That would be the result of two things. Number one would be simply consumers getting more used to the price points and the pricing at shelf, and not perhaps delaying purchases. Secondly, the other activity we're doing around brand building and innovation, which helps the overall value equation, particularly on some of our core products like Kingsford.

Okay, great. Some of the other consumer companies have cited Wal-Mart as an issue, inventory destocking at Wal-Mart and some of the other mass retailers, as negatively impacting volume in the quarter. Can you just address that, if that was an issue for you; or if you think that issue is kind of behind you; or if it really wasn't a factor?

We did look at that issue in some detail, given a lot of discussion around that. We saw some impact in the quarter, but it was relatively minor. Didn't rise to the level of us discussing in our upfront comments.

There was one business where we saw a particularly depressing effect; that was in auto care. But that was really driven by a onetime change to a new distribution system at this major retailer. It is a change we feel very good about; it is actually a change that has been made across most of our other products in the past. Over the longer term it will make us more efficient and help us deliver better in-stock conditions.

So overall, not a big impact on the quarter for us. In the one business where was a bit of an impact, it is a good long-term situation.

Okay, great. Then finally, this is just a quick clarification question; I think for Dan. I think you just gave a good commentary on what you were expecting for raw materials in '07. Did you say, though, that you thought raw materials were improving somewhat for your Q4? I just wanted to clarify that.

We're certainly seeing commodities come off of their post-storm highs, the peaks that we saw early in -- late Q2, early Q3. So we have seen moderation in pricing in Q3. Our outlook does anticipate some further softening of that in Q4.

But we are still at levels well above the year-ago levels; and as we look out into '07, we aren't seeing much in the way of movement on our commodities costs, at least in the downward direction given the conditions that exist in the supply and demand equations, particularly in resin and other things.

We also have -- there's a lot of other commodities versus resin that we have impacts on; and we're certainly seeing across a broad range of our commodities some of the impact. Anything that has an energy component, obviously that is creeping into the pricing.

But we have seen an increase in a broad range of the commodities such as pine oil, chlor-alkali, certainly we have seen it in diesel and others. So we continue to monitor it closely. But it will be volatile probably still over the next few quarters.

So although oil is already over $70 a barrel the resin cycle lags, I think, by a couple months. So is that why you're still seeing a decline, you said, from the hurricane levels from the fall?

The types of resins that we buy are a little less dependent on oil and more on natural gas, which has been volatile but it is at lower levels than it was right after the storms hit. So we are seeing some declines in our resin; but we are seeing, as I say, increases on a broad spectrum of other commodities.

Okay, thanks so much.

William Pecoriello with Morgan Stanley.

My first question, just on understanding the gross margin for cash for Q4 versus Q3, is it mainly this slight moderation in the commodity outlook?

You also upped the full-year CCEM from 90 to 100 now to 105, 110. Are some of those incremental programs helping in the fourth quarter?

Yes, as we look out to the Q4 versus Q3, obviously we have in our outlook some moderation of commodities costs versus Q3 levels, although still very high versus year-ago.

We are going to be a little bit higher on our cost savings. As I said, we are now targeting about 105 to $110 million, so we will have a greater level of cost savings in the fourth quarter. But the level of cost savings we will have in the fourth quarter will be a little bit lower than what we realized in the third quarter.

So those are -- we are going to continue to see the benefits of pricing into the fourth quarter; and we are continuing to try to be disciplined on the administrative spending side.

On those cost savings programs, are those incremental programs you're putting in place? Are you pulling anything forward from future years?

It doesn't represent any sort of acceleration in the programs. Most of the cost-savings programs that we're pursuing now are multiyear programs, like our world-class manufacturing. We have been working on trade spending efficiency now for three and a half, four years. That is continuing to drive benefits. And there is a whole host of other programs.

They come on and off at various points throughout the year, and we still feel very good about the pipeline of savings opportunities. No real acceleration, but I think we have seen some better results in some of those programs.

Then just on the competitive front, you had commented that in most categories you are seeing competitive following. If you could comment on some of the more price-sensitive categories like the bleach, trash bags, and charcoal -- are you seeing the competitors following?

Then in Wal-Mart, any impact from the All bleach rollout? Any impact that is having on your business?

We are seeing competitive following in the categories that you mentioned. In most cases we have essentially retained the same kind of differential. There has been some exceptions to that. For example, in bleach, we have seen the private-label folks follow, but the differential is larger than it has been. However, again, our business is still responding better than our initial models.

With respect to All bleach, we obviously don't have detailed data on All's performance, but we do have very good data on our own performance. I would tell you the impact is not as severe as we anticipated upfront. We're pretty confident that it is not going to have a material impact on our business at Wal-Mart. In fact, our business at Wal-Mart is very healthy on bleach today.

Thank you very much.

Amy Chasen of Goldman, Sachs & Co.

Just following up on that, can you comment on the categories where the competition is not following?

I think there's only a couple. One would be in certainly the Brita area, although we took the pricing on our Pour-Thru segment and we really are very high share in that segment. The other area would be in homecare; we took pricing on our Clorox Clean-Up and Tilex and have not seen similar pricing within those segments of homecare.

Okay, great. Then just on the commodities, it sounds like the commodities currently are worse than you had anticipated maybe three or six months ago. Number one, am I reading that correctly? And if so, are you thinking about taking further pricing action above and beyond what we have already seen?

As we looked at commodities three to six months ago, obviously pretty volatile market, kind of unclear exactly how that would play out after we got through the storm impacts. Certainly we have seen that come down. It came down pretty consistent with our outlook for Q3. And we have included in Q4 some further softening on a few of our commodities.

So I would say it would be difficult to say it is better or worse. It has been volatile. I think now we have better visibility on what we think those impacts are going to be.

As you know, as we have said in the past, we price to the long-term average of what we think our commodities cost structure will be in these various brands. When we laid out our goals for the four years of our financial strategy, we are now seeing probably in excess of $400-plus million of cost pressure over the four years of the plan. The pricing actions that we have taken to date are only recapturing about half of that cost pressure.

We are overcoming the remaining portion of that cost through accretive new products, through cost savings, and some of the other actions we are taking. So certainly, we will continue to monitor the commodities cost picture. I think if you see that ramp up, then certainly we would have to take a look at pricing. We would have to determine whether it may be warranted. But will be based on our long-term view of what we think the cost structures are, and that would be the level that we would price to.

Okay. Just lastly, Accounts Payable were down I think 6 days. Can you just comment on that? It is kind of going in the wrong direction.

I haven't looked at it specifically, Amy. I think it is just mostly just timing of payments and some of the inventory flows that we had. Other than that I don't think there is much else in there.

Okay, thank you.

Chris Ferrara of Merrill Lynch.

I just wanted to ask about the Wal-Mart issue, and I hate to overplay this thing. But as Proctor and Colgate cited it as a bigger deal; you're saying it's not as big a deal, I guess. As you go through and try and figure out whether it will become something meaningful in the next couple of quarters, do you have any thoughts as to why it hasn't hit you? Is it that there's less inventory on the risers for you, or specific to your categories? Or has Wal-Mart just not just tapped on your shoulder yet?

I think I would say that in general our products are very high turn. In general we have already converted to very efficient logistics systems. Overall, I would say there may not be a whole lot of room for reductions in inventory without incurring out-of-stocks, which is obviously not going to help Wal-Mart or us.

I'm sure there will be some potentially additional pressure on inventories. I'm sure that we will continue to work on structural ways to get at inventory reductions. But I think we have worked awful hard to get the best efficiencies we can, and I think that is why we're not seeing a dramatic impact.

I guess I would've thought that you and Proctor and Colgate would all be pretty strong, pretty efficient players to that respect. Can you venture a guess as to why it would hit other players more than you?

It would be totally unfair for me to comment on their performance. Again, we looked at this issue in pretty good detail based on the press on this, and just didn't find a lot there.

That's very helpful. Thanks. I just want to also ask -- I mean, I know the All bleach thing upfront is not a huge things. But I just want to understand what your thought is on the motivation behind it. It doesn't seem like something pushed by Lever, right? So it's not really a core category for them. So why would Wal-Mart do something like that, conceptually?

Again I can't comment on Wal-Mart's part. I don't know who drove it, whether it was Wal-Mart or Unilever or the combination of the two. There has always been an incent for retailers to upgrade their private labels to increase their sales and margins.

I think if you step back and look at the All brand name on bleach and did some consumer research, you would find it that doesn't necessarily bring a lot to the table. Better than a no-name, but it is certainly not anything like Clorox, which is probably the best equity in the laundry aisle.

So I would say it's very consistent with what retailers have done across the board on private-labels, where they try to increase their profitability on their sales by launching premium private labels.

But have you see that before, sort of a pseudo private-label borrowing a brand from another category?

The only example I can think of is White Cloud at Wal-Mart, which was an abandoned brand by Proctor, that I think Wal-Mart picked up and turned into a premium private label. This is pretty old stuff, but that is the only one that I can think of off the top of my mind.

Great, thanks. Then can you just give some specs on the new bleach? Is that sort of -- what is the premium price there, and I guess what is the positioning? How big on, with respect to facings, do you think this thing could get ultimately?

We are pretty optimistic, although we would rank it as a core growth item, based on what our projection of incremental sales is, and not a game changer, although it may turn out to be a game changer because we are pretty optimistic about it.

Overall positioning is basically it is a gentle bleach, so it is a bleach that has a much preferred aesthetic profile versus current bleach. It is a kind of thick, creamy liquid, so it doesn't splash. It has less of a strong odor versus regular bleach.

It comes in a measuring cap drain-back bottle unlike regular bleach, so it offers that convenience benefit as well. It sells for more than double on a cost per use. So roughly speaking, regular bleach would be about $2 a bottle, or 96 ounces; this is over $4 for 90 ounces. So it is a significant premium.

Quite frankly, one of the reasons why we wanted to go to a test market on this one was because of the value equation. Consumers love the product; they respond to it very favorably. The question was -- in the real world would they pay the premium for it? That has proven to be true in our testing.

Thank you very much.

Connie Maneaty of Prudential Equity Group.

I have some questions also on this bleach. You paid slotting allowances for it, or are you just replacing existing facings?

In most cases it would be incremental SKUs. Slotting per se, I would say no, we don't pay slotting. It carries an accrual rate like the rest of the folks, the rest of the products and SKUs in the laundry category. So it accrues incremental funding, but there is not slotting dollars per se.

Okay. The fact that it doesn't splash and is thick and creamy, isn't this like the bleach that you launched maybe -- I don't know; is it five or seven years ago -- that got off to kind of a rough start? What was the name of that thing, that bleach? Do you remember?

Advantage. That goes quite back. There's some similarity. It is quite a different profile. It has a lower concentration of bleach, so the aesthetics are actually much more favorable. You may recall Advantage was never in any drain-back bottle; it was a regular bottle.

The premium, my recollection initially was that it carried something like a 15% premium versus regular bleach.

So some similarities in terms of the thickness of the product and no splashing, but I think considerable differences in terms of the complete aesthetic profile of the product and certainly the packaging, as well as the positioning.

Does the new bleach clean as well as regular bleach?

Yes.

Okay. On the flat volume in the quarter, can you comment on your shares? Were consumers just destocking their pantries or were they buying either other products or private-label?

As you know, we can track shares pretty closely in what we call the tracked channels. We don't have very good share data in the untracked channels, in the Wal-Marts and clubs.

If you look at our categories overall, we are up in about four. Well, we are up in four of eight domestic categories, in terms of dollar share growth; and down in four.

Generally speaking it correlates with the pricing activity. So for example, our share is down in laundry. Quite frankly, we would totally expect that, because we are losing some of the featuring activity in the grocery class of trade, which drives a lot of those untracked share numbers.

I would also tell you over the last several years our results are always better and continue to be better in the tracked universe. I would say that is particularly true again of our Clorox laundry bleach.

So would you be down also then in Glad?

Actually, healthy in Glad; particularly healthy in the trash segment. Even though we have taken I think it's now three price increases over the last two and a half years on Glad Trash, we are still driving and share growth in our trash business behind our ForceFlex launch, which has been an incredible success.

Just to keep this straight, could you tell us which categories you are down in and which you are up in?

Connie, I don't know that we have the entire lists with us here. It is something I can cover with you afterwards. But another category to note would be the charcoal category. As I think both Larry and Dan noted, it was significantly impacted toward the latter part of the quarter, which is really when we typically begin to see shipments rise as weather typically picks up in advance of the grilling season. As we noted in at least the Western part of the country, that just didn't occur this year because of the poor weather.

So we have a lot of optimism behind the charcoal category. We have the new product Sure Fire out. We have a lot of demand building activity behind that, more so than in recent years. But we haven't seen the benefit of that yet because of the whether to date.

So I think if we were to talk about categories that maybe were down and impacted our results, charcoal being down in the quarter was a bit of a surprise.

Okay. One final question, relative to the upcoming hurricane season. Are you bringing in raw materials ahead of the season just in case there is a capacity issue?

As we look at the upcoming season, obviously we are very hopeful it will be a lot less than what we saw last year. Obviously, we went through a lot of learnings in last year's terms in terms of supply assurance, working with suppliers, deployment logistics, things like that. Those learnings have been deployed through the network. Certainly we hope we don't see it, but we're certainly prepared to deal with it.

We obviously have expanded, as I'm sure most have, their contingency planning around what you might need to do around particularly certain commodities and assuring supply. Having said that, I don't think you'll see any significant increase in the level of raw materials that we will be carrying.

Okay, many thanks.

Lauren Lieberman of Lehman Brothers.

On raw materials, it feels to me like your expectations at least for the first half of the year and certainly for the full year of '07 of raw material costs being up is not really consistent with what we are either seeing current spot trends or expectations of our chemicals analysts. We just had a conversation yesterday about chlorine starting to get better, slowly, but starting to get better.

Is the disconnect that I'm sensing, does it have to do with hedging for the first half of the year? So that you are actually giving -- you have got pretty good visibility on actually what you're going to pay?

Certainly, and we don't talk in detail a lot about our contract and hedging, but some of those techniques are in place. So to the extent that those exist, we do have pretty good visibility in what we think those trends are.

We have -- if you look at the resin market certainly we have seen some declines particularly from peak periods on the price per pound of various kinds of resin.

I will tell you though, that there is, with the price of oil back up over $70 a barrel, we have heard about one or two price increases announced in the resin markets. The question always will be to what extent they stick, and how much will stick.

But certainly, I think the fact that there are some announced price increases out there would suggest that there is probably a bias towards the increases, versus coming down.

I think it's going to continue to be volatile. I think the other piece for us is there is a broad spectrum of commodities that are impacted here. It isn't just the resin. But if you look at chlor-alkali and some of the other commodities that we do buy, they are all being impacted. Some of those are on a lag basis, obviously; it takes a while for all of that to work through.

So as we look out, we do see modest increases in commodities costs, but certainly well below last year's levels. But I think it's going to remain a pretty volatile commodity market over the next probably couple of quarters.

Okay. Switching to volume trends, at least by my math, if I take that auto-Brita division, and if I say it was -- rather than being down 15% in volume it was just flat, the rest of the Company total volume would have been up 2.5%.

So my point being auto, Brita, pretty big driver of volume this quarter. Candidly, two categories that at least for me and I am going to guess for most people on this call, not a category we all follow particularly well.

It would be great to get maybe a little bit more perspective there? Auto seems to just -- both auto and Brita are generally pretty lumpy quarter-to-quarter. So other than the comp versus a launch last year in auto, how else should we be thinking about that going forward? Correct me if my math is really wrong, too, please.

I can't do the math quickly in my head, but we did have some disappointing results year-over-year on volume in both Brita and auto care.

Starting with auto care, it was probably about half due to that comparison versus the gel launch in the year-ago quarter. Probably about a third was due to the weather factor, because weather unfortunately affects people washing and waxing their car, as it does their consumption of charcoal. Then about 20% was in this inventory adjustment category we talked about, with respect to that major retailer.

Okay. If I look at those -- sorry, Larry, just if look at those, I can say the tough comp, that is a one quarter issue, really. The inventory adjustment also theoretically one quarter. And weather, we will see what happens?

I will be surprised and disappointed if we don't see positive results in Q4 on volume in auto care. The weather is starting to turn; we're tracking some early consumption reads; we are more optimistic.

We're seeing a little bit better performance in our STP business, which is not an invest business for us but rather an optimized business behind our Saves Gas message, which is mostly a promotional kind of message. That is obviously affected by the high gas prices. So we are optimistic that we will see better results in auto care in the near term.

Okay. Then on Brita?

Brita I would say the story is not as positive. We did take pricing. We also executed some trade spending reduction. So we saw some disappointing results in the third quarter, and I think some of that softness will continue into the fourth quarter.

Okay.

I would mention on both of these businesses we have executed new high-flier strategies. We talked a lot about our high-flier strategies and our focus on consumer insights. Both of these businesses have benefited from kind of the latest and greatest in terms of the process of going through high-flier, and the process of segmenting their consumers very tightly, and targeting our consumer segments very tightly.

You will begin to see that play out in both these businesses over the next several quarters. Probably take some time to take hold, but I'm optimistic it will help both businesses.

Okay, great. Just one more if I can. On Glad, the trash story obviously very, very impressive quarter after quarter. On food bags, is there anything in the pipeline where you bring the ForceFlex level of innovation to that category to jumpstart your volume growth and maybe to give some more support? Because my sense is that it is really the wraps, food bags, and food storage containers that were probably soft this quarter.

Yes, I should say I think we feel very good about our wraps business. We feel good about our container business, and we have a new innovation going up on our container business that we feel very positive about.

The weak spot has been historically the food bag business, and we continue to be a weak player there. We have spent a lot of focus on trying to get a pipeline on that business to deliver innovation over time. I can't talk about what we might do specifically for obvious competitive reasons, but it clearly is a soft spot in the overall portfolio and an area that has had a lot of focus over the past couple of years.

Okay, thanks a lot.

Bill Schmitz of Deutsche Bank.

I just want to start by wishing Jerry, obviously, the best if he is listening. He has done a great deal for the Company and a really good man as well. If he is out there, I wish him the best of luck and hope he recovers quickly. Just a quick question.

He probably is listening.

Good, I imagine he is. Just in terms of the organizational structure going forward, do you still think that Larry will have his group, Beth will have her group, or do you envision changing it around a little bit and have some management changes take place?

Bill, you're coming in a little faint. I'm not sure why. Maybe you can speak up a little bit and repeat your question.

I was just asking about the organizational structure and if you envision any major changes, now that a new CEO is coming in.

This is Bob. There have really been no organizational changes to this point as a result of Jerry's illness and then retirement. The executive committee is doing exactly what they were doing; they are running the businesses. Everything is going along as you would expect, and that is my expectation.

The search process, as you know, will take some time. We are committed to taking the time we need to finding the single best individual to continue Jerry's legacy at Clorox and continue to drive this Company to where we think it can go.

What organizational changes happen as a result of that, I would be personally somewhat surprised if that was at all meaningful in the short term. But that would be up to a new CEO as to what they wanted to do over time. But the organization is functioning very well right now, so I would not expect a lot of change.

Great, thanks. I know it's a little bit specific, but (technical difficulty) and ForceFlex -- I'm sorry, Press'n Seal has been very weak, something like 40% decline in the last month on top of a 25% or 30% decline in the month prior to that. Is there something competitive going on there, or is it just tough times?

Bill, if I understood your question correctly, because again you were a little faint, it sounds like you were questioning recent trends in Press'n Seal. If that is the case, there may be an issue there as it relates to tracked versus untracked channels.

As we look at the total universe of retail consumption for Press'n Seal, it has not changed dramatically, and the business remains at very healthy levels. I don't think there is really anything going on there.

Great, thanks very much.

Joel Altobello of CIBC World Markets.

First question on the 7% sales growth. Did you guys quantify how much of that came from actual list price increase and how much was from more efficient promotional spending?

Joe, you also are a little bit faint. I think your question was how much of our 7% sales growth in the quarter was due to pricing versus other actions. Round numbers, it was about 5 points related to the pricing actions we have taken. And again, that is mostly the pricing we took in January and February, but also there was some carryover effect from price increases taken towards the middle and latter part of last calendar year.

Then the majority of the remainder of the 7 point increase was due to trade spending efficiencies.

Then secondly if I could follow up, just a quick modeling question. It looks like relative to what you guys said in early February, interest expense is actually trending higher than the high end of your range. It is not huge, but it is going to cost you a few cents this year. What is baked into '07 in terms of interest expense?

On interest expense, as we look out, for '07 we are anticipating lower average balances on debt, as we continue to pay down debt from free cash flow over the next few quarters.

It is a little early to call the rates. Our outlook right now assumes probably two more Fed moves over the next couple meetings. So we're expecting higher average rates, lower balances. Our anticipation right now is that it will be below the '06 levels; and in '06 we are likely to come in about $125 million of interest costs. We expect to be below that next year because of the debt paydown.

Okay, great. Thank you.

[Alec Patterson] of [RCM].

Yes, circling back to the disconnect on the raw materials outlook, I guess at CAGNY you guys had updated that or a recent conference, about $400 million of the raw material cost pressures. I guess what I am trying to see is, is there anything new relative to that update that has occurred? Because as you also delineated when you presented that, probably at least half of that was related to resins, in terms of the impact you have received so far.

You can look at the resin markets and you can just kind of see that certainly the first half of '07 should have a relatively easy comparison. So give me a little bit more flavor what is going on here. Is it in the diesel area? Is it some other type of raw materials that are really at work here? Or is it still the same $400 million?

As we look at the $400 million over the four years, there is really no appreciable change into that perspective. We are still expecting that kind of cost pressure over the four years.

But I think if you look at the first-half '07, you have to go back to '06 and understand sort of the pattern of how we were impacted by commodities costs. While first-quarter commodities costs year-ago were up over the previous year, they were still reasonably low prior to the storms. We had the storms hit in September; the impact went into October; we saw the big spike in costs really mid second quarter into the end of the second quarter, continuing into the third quarter.

So when you think about it on a comparative basis, even though our commodities costs in particularly resin have come off of their post-storm peaks, they are still very high relative to historical averages and what we saw in Q1. So that is why we're pointing out that there will be that impact in Q1 and that will continue into Q2. We really need to get into the end of Q3 of fiscal '07 before we're really going to fully comp the peak periods that we have.

The other prospective, again to remind you, it is not just resin. It is across a broad group of commodities, including diesel. Obviously, with the price of oil back up over $70 a barrel there could be continuing pressure on diesel prices.

Is part of it the lag factor in your inventory? That the prices we are seeing on the spot or contract markets are flowing through your P&L 60 to 90 days later, and so there is really a lag factor?

Certainly there is some lag factor based on our contracting and our hedging; and also the inventory effect that you point out. So some of that is going to be in there as well.

Okay. Then just back to the diesel element of this, in your breakdown 60 basis points related to, I think you said, logistics. Is that incorporating the diesel or is diesel in raw material?

60 basis points is all other impacts on gross margin, of which manufacturing and logistics were probably the largest component of it. I would say particularly on the logistics front, diesel was one of the primary drivers of that impact. We still had in Q1, obviously, some deployment impact still residual from the storm that had an impact on that.

Alec, I think to add emphasis to Dan's comments, it really is a broad array of different raw materials we purchased. You have heard us talk about chlor-alkali; it's up over 200% in the last couple of years. There is some indication there is more North American capacity coming on down the road, so maybe you see some softening over time. But near term it is still at extremely high levels.

Pine oil, which is a major component for Pine-Sol for us, which is one of our largest cleaning brands, is at record highs. Linerboard recently hit record highs. Again a lot of these are energy driven, and as we know oil is at a very high level as well.

So I don't -- while we don't want to minimize the impact of resin, as we look forward a lot of these other commodities and raw materials are going to play as big an impact.

Understood, and from our angle, it is looking at what the spot market is saying, and what have you, and trying to factor into that the lag effect between when it flows through your inventory and the process by which you price it, based on your contracts and hedging. So obviously that is what's the harder thing to read here.

So I am trying to get a sense. Is there kind of like a quarter lag, two quarters lag on that sort of stuff? All those materials you mentioned?

You know, Alec, it's difficult to give you any sort of rule of thumb, because how we contract for different commodities, how those things are priced, how they flow through our inventories is pretty difficult to give you any sort of rule of thumb that would suggest this is how it will play out.

Certainly, over the short term, as we said, we have seen prices come down. But we're not seeing a lot of movement off of the levels that we're at today, while spot prices will continue to be volatile.

I will go back to, though, two things that we said before. One is, we have heard about announced pricing in the resin markets; so we're going to need to see how that plays out. Secondarily, I think Steve went through a more detailed litany of all the other commodities and the impacts that we have seen there.

So I think the short answer is while some of it may lag through, it is going to continue to be a very volatile market; and there really isn't an easy rule of thumb we can provide you that would allow you to adjust for that.

Okay. Then just lastly back on charcoal, I wanted to get the number right. Did you say shipments overall in charcoal down 40% in the quarter?

That was in California specifically.

I'm sorry.

So we were trying to basically dimensionalize the weather impact on charcoal. Actually our charcoal business was up in the quarter overall. I would tell you it was up less than we anticipated behind our Sure Fire launch.

As I seem to recall that weather was an issue last year in the March quarter related to charcoal, so I guess it is just a bigger state with bad weather?

There was a little bit of an impact in weather last year, but it was fairly modest. I think the impact that we saw this year, particularly on the West Coast -- and since you're out here, you know -- all the days of rain in February, March, and continuing into April. This is a big early season market for us, and certainly we were impacted by it.

Okay, thank you very much.

John Faucher, JPMorgan.

I just want to second Bill's comments about Jerry, and I hope he is doing well. I tried the new charcoal product; it worked very well. I wanted to sort of follow up again on the gross margin, not to beat a dead horse; but I am going to take a different tack here.

As you look at the charge that you took in the second quarter of this year in terms of the relaunch of the charcoal product, is there going to be anything similar to that or the Glad charge etc. that we have seen over the past couple of years? So, can you give us the outlook for onetime items?

Certainly we did have the Sure Fire launch costs in Q2, and that was a little over $10 million. Certainly that will not repeat as we look forward. That was a onetime impact of the launch.

The Glad charge that we took to close the plant, no plans of anything of that magnitude in fiscal '07. Obviously that was a big adjustment of the supply chain in the Glad network. We took almost in total $40 million in charges for that closure, but I will tell you that we are getting about 15 to $20 million worth of cost savings out of that action. So we were feeling good about the cost savings that it's generating.

We're certainly always looking at other opportunities to streamline costs under our CCEM strategy, but there isn't anything anywhere close to the size of the items that we saw previously.

Okay, great. Thank you very much.

Why don't we take one more question?

Linda Bolton Weiser of Oppenheimer.

I was wondering if you could help me understand. I guess based on your guidance for sales and volume growth in the fourth fiscal quarter, it sounds like the pricing aspect will be less positive. Can you help me understand why that is? Is something anniversarying, some price increases that were made in the prior year period? Or what --?

Yes, Linda, when we look at pricing, we will be -- if you recall we have taken a couple of pricing actions early in the fiscal year, so we're going to start to anniversary those. We will still have, though, the January and February pricing actions that we won't anniversary until we get to Q3 of next year.

So we will see a little bit less of an impact on pricing. But again, our volume outlook right now is flat to slightly down. So pricing will still be a pretty big component of the delta between sales growth and volume.

Okay. In terms of your long-term goals, I guess in the very beginning of the call you reiterated the earnings level that you hope to achieve over the long term. Yet at CAGNY I believe that you said that you may not achieve your long-term margin expansion target.

Can you just explain that? Does that mean you are kind of expecting to achieve higher top-line growth than originally?

At CAGNY what we were talking about again was -- the question was around our ability to expand our gross and operating margins the 3 to 400 basis points that we had originally targeted. Obviously with cost pressure that we have, even offset by the pricing actions we have taken, and a fairly high level of cost savings, I think we acknowledge that we are going to be challenged to be able to achieve that full 3 to $400 million improvement by the end of fiscal '08.

However, as you point out, there are other actions that we're doing that will help what we believe will allow us to deliver EPS in that $3.50 to $4.00 range. The one that you cite, which is being at or slightly above the long-term sales range, which we have done now for a number of quarters.

Certainly, we have been delivering slightly in excess of our targets for cost savings, and we're continuing to look to see if we can overdeliver that. Certainly we continue to look at all of our new products of being accretive to margins, so as those new products continue to help with our margins, that should help as well.

So still going to be a challenge to get to the 3 to 400 basis points of margin improvement; but we still have confidence in the EPS range we're trying to hit by fiscal '08.

Okay, thanks very much.

Before we sign off, let me just reiterate that I believe the Company has solid plans in place for the fourth quarter and next year. The Board and I have tremendous confidence in Clorox's executive committee. I have known this group very well for several years, but I have worked with them now day-to-day extremely closely for almost two months, and I can tell you that I'm extremely impressed with this team. They are focused, bright, dedicated, and driven. I have total confidence in them.

In the face of several challenges, they have simply been doing a great job moving the strategy forward and driving the business in Jerry's absence.

Again, we are sad to announce Jerry's retirement; yet we are extremely pleased that his health continues to improve. We continue to send him our strong support and best wishes. Again, thanks, everybody, and we appreciate your time today.

This concludes The Clorox Company fiscal-year 2006 third-quarter earnings release conference call. You may now disconnect.