高樂氏 (CLX) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Clorox Company fourth quarter and fiscal year 2011 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 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.

Great. Thanks Kevin. Welcome, everyone, and thank you for joining Clorox's fourth quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating 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 7 days at our website, TheCloroxCompany.com.

Let me remind you that on today's call we will refer to certain non-GAAP financial measures including but not limited free cash flow, EBIT margin, and debt to EBITDA. 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, prepared remarks or supplemental information available in the financial results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today's earnings release.

Please recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from managements expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The Company undertakes no obligation to publicly update or revise any forward-looking statements.

Today, Don will start by sharing his perspective on our fourth quarter and fiscal year '11 results and the current business environment. Larry will then discuss our top line results for the quarter, followed by Dan who will review our financial performance and outlook for fiscal year '12. Don will wrap up with his perspective on fiscal '12 before we then take your questions. Lastly, as a reminder, unless noted, our financial results exclude the impact of the non-cash second quarter goodwill impairment charge.

With that let me turn it over to Don.

Thanks, Steve. Hello, everyone. Thanks for joining the call. As noted in the press release, we delivered strong fourth quarter results and I look forward to discussing those with you in detail. But before I turn to our discussion of the quarter, however, I'd like to take a minute to address the Icahn Enterprises proposal. As you know, on July 20 we received an unsolicited conditional proposal from Icahn Enterprises to acquire Clorox for $80 per share. Now, our Board of Directors, in consultation with our independent legal and financial advisors, carefully considered Mr. Icahn's proposal and concluded it substantially under values the Company and is not credible. We don't intend to comment further regarding the unsolicited proposal at this time, as the purpose of this call is really to discuss our earnings results and our financial outlook for FY12.

So with that let me turn to our results. We delivered strong fourth quarter results with 4% sales growth and 20% increase in diluted earnings per share. Now, as we noted throughout fiscal 2011, we anticipated achieving higher growth in the second half of the year versus the first half, and we delivered it. Returning to solid sales, profit and EPS growth in that period. In fact, we delivered the second half sales growth of 3%, second half net earnings growth of 6%, and second half diluted EPS growth of 11%. Now, as I look back on fiscal 2011, the external environment was certainly characterized by a slow economic recovery, declining US categories and rising commodity costs. I think we're all familiar with those trends. With that in mind, I feel very good about our organization's demonstrated ability to effectively manage our business and successfully execute our centennial strategy and deliver results.

We talked a lot about our 3D capabilities. And those capabilities around Desire, Decide and Delight have never been stronger and I think they're reflected in our all-time high US all retail outlet market share results. We achieved a 27.9% share, and that's up higher than any of our brand competitors and we feel very good about that result. In the area of Delight, in fiscal year 2011 we again exceeded our innovation target of 2% of incremental sales from new products and packages, coming in at 2.8% of incremental sales. And now with 48% of our sales coming from consumer preferred products versus the competition, we're on track to meet or exceed our 2013 50% consumer preference goal a full year early.

Now, our market share and innovation performance in FY11, I think, demonstrates the strong capabilities that Clorox brings to our portfolio of leading brands. And although our products are found in many different aisles of the store, we ship our products to the same customer set on the same trucks and through the same warehouses. We leverage our deep capabilities in consumer and shopper insights to identify consumer needs and then solve for them with outstanding innovation across the portfolio. And I think, as you're all familiar too, we also use best-in-class cost savings capabilities and methodologies across all parts of our portfolio. As a proof point, in FY11, this led to more than $100 million in cost savings for the 10th consecutive year. And all of these capabilities have led to our strong portfolio-leading brands and helped us achieve our top tier EBIT margins among our peer companies.

Finally, as I look back on FY11, I'm certainly pleased about the substantial cash we were able to return to stockholders as a result of our strong free cash flow and proceeds from the auto care business. Just for perspective, in 2011, we returned $650 million(Sic-see press release) to stockholders through share repurchases, and we returned $303 million in the form of dividends. So in total we returned nearly $1 billion in cash to stockholders in FY11. And in May we announced an increase in our quarterly cash dividend from $0.55 to $0.60, a substantial 9% increase. So, to sum it up, I'm certainly proud of our success in executing our centennial strategy creating value for our consumers and our customers and our stockholders. We grew market share in our categories, launched innovation to capitalize on the consumer megatrends we've talked a lot about to all of you. And we've effectively managed the business to increase profit and return significant cash to our stockholders.

And with that let me turn it over to Larry.

Thanks, Don. Good morning or good afternoon to everybody on the call. As Don said, we had a strong Q4 with volume up 2% and sales up 4%. This is the best sales growth we've seen since Q2 of last year and it was driven by base brand growth and new product innovation. Advertising support was up double digits. Sales was up in all 4 of our business segments. All in all, these are very solid results in what remains a very challenging economic environment.

Share results in the US were also strong, although our categories are still recovering. We held share in track channels in Q4. On an all retail outlet basis, we grew share by 0.5 points over the past 52 weeks, and held or gained share in all of our categories. We have now recorded more share growth over the past 3 years than any branded competitor or private label in our categories. And our total Company share is at an all-time high of 27.9%, up 1.4 share points since fiscal 2008.

Category consumption in track channels was down about 1 percentage point in Q4, similar to the trend we've seen over the last year. On an all retail outlet basis, category consumption was down about 2 points for the past 52 weeks. Over the last several quarters we have seen some improvement in our all outlet category trends, although they remain impacted by the weak economy.

And International market share results were more mixed, with share down slightly in Latin America and about flat in Canada. Categories in international markets are healthier than in the US, with both positive volume and dollar share trends.

Turning to our Cleaning segment, volume grew 4%, driven by volume growth in our home care business and our away-from-home business. Pump care share and shipments grew behind gains in Clorox Disinfecting Wipes. And successful new product launches on Pine-Sol, Clorox bathroom and toilet bowl cleaners and Liquid-Plumr. We saw very robust growth in our away-from-home business, which grew double digits behind gains in the hospital channel, driven by both new products and new distribution points. The laundry SBU was the only business in the cleaning segment that had volume decreases, and it remains a challenged category. Both Clorox Liquid Bleach and Clorox 2 have grown share substantially on an all retail outlet basis, but share gains have been offset by the soft category. We have 7 new plans in place to address the decreases on bleach, and longer term we will be launching some meaningful innovation to drive brand in category growth. Sales for the Cleaning segment increased 3%, but bottom line was the volume growth.

In our Household segment, volume grew 2% driven by double digit gains on cat liter, offset by a modest decrease in charcoal. Cat liter grew volume and share behind shopper pricing and the launch of our Fresh Step lining with extreme odor control. We also improved our base cat liter products with new formulas of both Fresh Step and Scoop Away. Kingsford Charcoal was down modestly in the quarter driven primarily by comparison to a strong year-ago quarter with some extraordinary merchandising. Share results on charcoal remain positive. Glad volume results were flat, reflecting the impact of our recent May trash price increase. Thus far, pricing in the trash category has played out as expected with competitors following. Although our Glad volume was flat, sales were up sharply and we grew our track channel share of trash bags during the quarter. Sales for the entire household segment were up 1%, about on track with volume.

In our Lifestyle segment we grew volume 3% with volume gains in all 3 business units that make up the segment. Brita was up mid single digits and also gained share in the quarter. Hidden Valley salad dressings were up modestly on top of a record year-ago quarter, driven by heavy merchandising. Burt's Bees delivered solid Q4 volume on top of double digit gains in the year-ago quarter. On the full year, Burt's Bees was our fastest-growing business unit, with double digit sales growth. The natural personal care category remains healthy with 7% growth over the past 52 weeks. Sales for the entire Lifestyle segment were up 5% in Q4, ahead of the 3% volume gain due to pricing and mix.

In our International segment volume was up slightly but sales were up 9% due to price increases and favorable foreign exchange rates.

Let me now touch briefly on pricing, a topic which we get a lot of questions about. As we discussed in our last conference call we included some aggressive pricing moves in our fiscal '12 plans given the dramatic escalation in commodities. We're taking price increases earlier in the inflationary cycle than we have previously, given our desire to stay at pace with commodity inflation. I already mentioned the early results behind our Glad trash price increases implemented in May. The bulk of our fiscal '12 price increases takes place this month and include increases on Clorox Bleach, Hidden Valley Salad dressings, Brita pitchers and many of our home care products. Thus far our pricing actions have gone as expected, and we have already verified that competitors, including private label, have matched our pricing in most categories. While we undoubtedly will see bumps in volume impact in the first half of the year we have confidence in the power of our brands and in our ability to effectively manage pricing. Over the last 5 years we've executed over 50 price increases, and 95% of them are still in the marketplace. Pricing will have a near-term dampening effect on volume but we anticipate it will contribute to sales growth for both our brands and our categories.

On the innovation front, we are excited about the new Brita on-the-go water bottle launched in Q4. And the new base trash bags on Glad we launched last month. The Brita water bottle is thus far meeting expectations and is largely incremental to the business. New Glad trash bag breakthrough patented technology did deliver a stronger consumer preferred bag that uses less plastic. This is the first major innovation on base trash bags since we purchased the brand back in 1999. It is a similar step change in performance at the lower end of the category, as ForceFlex was on the premium side. And as you know, ForceFlex provided us with significant share gains in that segment.

We've also installed new equipment in our plants that pack the beds tighter, allowing us to significantly reduce carton sizes, lower raw material costs and increase retail shelf inventories to reduce out of stocks. Our overall fiscal '12 innovation program is robust. We will be launching other new products later in the year and we'll be able to share that information with you at a later date.

Turning to our sales outlook for the year, we continue to feel confident in our 1% to 3% sales outlook for fiscal '12. Most of the sales benefit from our pricing actions will be offset by volume losses in the short-term, but our innovation program and brand building efforts will drive growth. We expect our US categories to decrease slightly and our international categories to maintain their stronger growth trends. At this point we also anticipate similar growth trends in the first half and second half of the year.

With that I'll turn it over to Dan.

Thank you, Larry. And hello to everyone on today's call. I'd like to provide some additional perspective on our fourth quarter and fiscal year 2011 results and our financial outlook for fiscal 2012. As you evaluate our results and assess our financial outlook, there are 4 key themes I'd like you to consider. First, we had a strong finish to the fiscal year that was marked by increasing commodity costs in a very challenging economic environment. Second, we successfully managed through 2 significant cost inflation cycles in the recent past. And with our pricing actions, new product innovation and strong cost savings, we were able not only to recover margins but also increase them. As we enter the third major inflationary cycle in the last 6 years, we believe our effective cost-savings initiatives, combined with the benefits from pricing and new product innovation, should again allow us to manage our margins effectively through the cycle. Third, despite the inflationary pressures we face, we remain committed to strong demand creation and investment levels, as well as investing in our information systems and facilities infrastructure to provide platforms for future growth and cost savings. And fourth, our improved second half fiscal year 2011 performance provides us with a solid base of momentum as we enter fiscal year 2012, which gives us confidence in achieving our financial outlook.

Starting with my first theme, we continue to manage well through a difficult environment. We had a solid finish to the fiscal year despite significant commodity cost inflation in soft categories. As Larry and Don both mentioned, we delivered good volume in top line growth in the second half of the fiscal year. Continued to expand our leading market shares. Successfully launched consumer-preferred new product innovation. And implemented several price increases. We continue to execute well in this volatile environment, focusing on those things we can control and maintaining flexibility to respond to those factors we can't control. As we discussed in our last call, coming into the second half of fiscal year 2011, input costs were accelerated on nearly all the commodities we purchased. This inflationary trend bore out pretty much as we expected, and our gross margin decreased about 80 basis points for both the fourth quarter and the fiscal year. On a full year basis, commodity costs came in about $90 million higher than the prior fiscal year. That ended up being more than double the cost inflation we thought we would experience as we entered fiscal year 2011.

Turning to my second theme. We successfully managed through 2 previous major commodity cost increase cycles. And with the benefit from cost savings and price increases, we've emerged from the cycles with even higher margins. Looking at the current environment in a broader context, we're now in the midst of the third significant commodity cost increase cycle in the last 6 years. The first after Hurricane Katrina, and the second was in 2008 to 2009 period when oil ran up to over $145 per barrel. In both cases, we saw some initial growth in operating margin compression. But as those previous cycles played out, we were able, through effective management of our commodity inputs, with significant contributions from our cost-savings initiatives, the margin benefit of consumer-preferred new product innovation, and the power of our leading brands to take pricing, to not only recover but actually increase our margins as the last cycle came to a close. In fact, following the last inflationary cycle, we achieved a recent historical high gross margin of 44.3% in fiscal 2010.

We entered the third inflationary cycle in calendar year 2010. We believe that our cost savings program, which delivered about $110 million of savings in FY11, combined with taking pricing earlier in the cycle, should allow us to begin recovering our margins as early as the second half of fiscal 2012.

Let me give you a few more details on fiscal 2012. We continue to anticipate significant year over year commodity cost increases. While spot market prices have come down a bit off recent highs, commodity prices are volatile and remain quite high. We now anticipate a year over year increase in commodity costs of about $140 million to $150 million, with increases across most of our commodities basket. We also continue to estimate about $40 million to $50 million of other inflationary increases in cost of goods sold, primarily related to manufacturing and logistics. For the full fiscal year, we expect to substantially mitigate the gross margin impact of cost increases with strong cost savings in the range of $90 million to $100 million, and the benefit from broad global pricing actions. As we noted in May, we expect our pricing actions to add at least 400 basis points of benefit on the sales line, offset, to a great degree, by lower volume, particularly in the first half of the fiscal year as consumers adjust to the new prices. Cost savings are expected to be realized about evenly across the quarters.

Due to the expected timing of cost increases and the sequencing of cost savings and price increases, we anticipate our gross margins will be negatively impacted in the first and second quarters. We anticipate about $85 million to $90 million of the commodity costs increases and about $20 million to $25 million of the other inflationary increases in cost of goods sold to hit in the first half of the fiscal year. Based on these differences in timing between cost increases, cost savings, and pricing benefits, we anticipate a 150 to 175 basis point decline in our first quarter gross margin. We expect the negative impact on gross margin in the second quarter will be substantially less than the first. And we anticipate margin expansion in the second half of the fiscal year. For the full fiscal year, we now expect our gross margin to be about flat.

Continuing on my third theme, we remain very committed to 3D demand creation investments, as well as investing in our infrastructure to provide platforms for future growth and cost savings. Throughout fiscal year 2011, we increased our demand-building investments to drive growth. Our strong 3D innovation program and our investment in consumer demand building, including increase in fiscal year advertising spending to 9.6% of sales, contributed to our market share gains and the improved top line results in the second half. In FY11 we also increased investment in our global information technology systems, our innovation facilities, and expanding our Burt's Bees international network. Even with these increased investments, our fiscal year 2011 selling and administrative expense and EBIT margin came in at about flat for the year, as these investments were partially offset by cost savings and a decrease in employee incentive compensation cost. We're continuing to make strategic IT facilities infrastructure investments in fiscal year 2012 with about $36 million to $40 million of incremental spending and selling and administrative expense. We anticipate about $18 million to $20 million of spending in the first half of the fiscal year, with that amount slightly more heavily weighted to the first quarter. FY12 capital spending associated with the IT and facilities investments will be about $55 million to $60 million. As a result of these investments, our projected FY12 capital spending range is $240 million to $250 million compared with the $228 million in total capital spending in FY11.

Concluding with my fourth theme, our fourth quarter results and solid overall second half provide a solid foundation for delivering our financial outlook for fiscal year 2012. It's not going to be any easier, especially in the first half. But we've been through these cycles before and we're confident in our ability to successfully manage through these kinds of challenges. We provided our initial fiscal year 2012 financial outlook for sales growth and diluted EPS on our May call. That outlook, which remains unchanged, is for sales growth of 1% to 3%. And diluted EPS from continuing operations in the range of $4 to $4.10. This diluted EPS outlook range includes $0.18 to $0.20 of expense related to our IT and facilities investment.

Our initial fiscal year 2012 gross margin outlook was for a decline of 25 to 50 basis points. As I just mentioned, we now expect our gross margin will be about flat for the full fiscal year, with significant variability among the quarters. As I noted before, about two-thirds of the anticipated commodity cost increases should impact the first half of the fiscal year, with the other expected inflationary pressures on cost of goods sold about evenly weighted across the quarters. The anticipated benefits from our cost savings initiatives should also be realized about evenly across the different quarters. We should begin to benefit from FY12 price increases in the second quarter with substantially more benefit in the second half of the fiscal year.

Given the different timing of these factors and the seasonality in our businesses, we anticipate earnings variability across the quarters, with our diluted EPS pattern weighted more heavily in the second half. In fact, we anticipate about 35% to 40% of our diluted EPS from continuing operations in the first half of the fiscal year. In particular, the first quarter will be a tough comparison with the year-ago quarter. This anticipated earnings pattern for fiscal '12 is similar to fiscal year 2011 where we delivered about 40% of our diluted EPS from continuing operations excluding the goodwill impairment charge in the first half of the fiscal year.

Before I wrap up, I'd also like to comment on cash flow. For the last 5 fiscal years through FY11, we've averaged approximately 10% free cash flow as a percent of sales per year. In FY11, free cash flow was $462 million or about 9% of sales, a bit below our annual target range for the factors discussed in our press release. Our outlook for FY12 free cash flow remains about 10% of sales, consistent with our historical level of free cash flow generation. In FY11 we used our free cash flow plus about $520 million of the auto business sale proceeds to repurchase about $655 million of Clorox stock. The Company is not currently repurchasing shares. However, we hope to complete the full amount of our share repurchase plan in FY12. Our long term commitment to capital return remains unchanged. If we don't need the cash to invest in the business for growth, we remain committed to returning excess cash to the stockholders through dividends and share repurchases.

In summary, we believe we've managed our businesses effectively during the year characterized by a slow economic recovery, stocked US categories and rising costs. We're pleased with our fourth quarter results and solid overall second half performance which give us good momentum as we enter fiscal year 2012.

With that, here is Don to wrap up.

Just building off Dan's comment about the momentum going into '12, I certainly feel confident about our plans for fiscal year 2012 and the outlook we provided in May and reconfirm today. Now, just to summarize what makes me so confident about our plan and our prospects for continued growth and value creation. First, our brands have never been stronger, as evidenced by the market share trends that Larry took you through. And that certainly gives us confidence in our ability to maintain our brand leadership, even as we take price increases across most of our portfolio. And as Larry noted, 95% of our price increases over the last 5 years have stayed in the marketplace. And we've gained share despite those price increases.

Second, we've seen resurgence in our top line across nearly all of our business units, reflecting some of the strongest domestic growth in our sector. This gives us momentum as we move into FY12, and we have a strong new product pipeline tee'd up for the year, with customer feedback indicating it's one of the most robust innovation plans out there. And third, our unparalleled track record of driving efficiency through our highly effective and proven cost savings program which has delivered about $100 million or more in annual savings since 2003. And certainly will help us offset any anticipated commodity cost increases. So at the end of it, I believe we have the right people, the brands and the capabilities to successfully execute our centennial strategy, and keep achieving our financial targets and fuel sustainable growth to really enhance shareholder value. Now, to that point, we have consistently delivered long-term growth in earnings before interest and taxes and total stockholder returns. As you look over the last 3 fiscal years from July 1 of 2008 until June 30 of 2011, we've delivered total stockholder returns of 43% versus 10% for the S&P 500 and 34% for our peer group. Our cash flow performance, as Dan noted, has been a hallmark of this Company, and we've delivered 10% free cash flow as a percent of sales on average annually for the past 5 years. And finally, since the beginning of fiscal year 2006, we have returned $2.6 billion to stockholders in the form of dividends and share repurchases. We've increased total annual dividends paid to Clorox stockholders every year for the past 34 years, having doubled our dividend from $1.20 to $2.40 per diluted share in just the past 5 years.

Before I turn it over to the Operator to open the lines for your questions, I'd like to confirm that the purpose of today's call is to discuss our earnings results and outlook. And we will not be taking questions regarding the Icahn Enterprises proposal or our Board's response.

So with that, why don't we open it up to questions.

(Operator Instructions) Wendy Nicholson, Citi Investment Research.

There was a lot of color there in terms of the guidance, so I apologize if I missed this. But basically you came in at the high end of your guidance, or the implied guidance, for the fourth quarter. And yet you're keeping the outlook for 2012 the same despite the fact that the outlook for the commodities isn't as bad, and gross margins are supposed to be better than you'd expected. So what's the offset? Is it less cost savings, is it more advertising spending? Why didn't the full year guidance for 2012 go up?

Hi, Wendy. This is Dan. We obviously every quarter look pretty thoroughly at our plans for the coming quarters and the year. We just launched our initial outlook in May and we're only about 30 days or so into the fiscal year. We evaluate anything that's changing. Our outlook on commodity costs, advertising, pricing, projections of volume, cost savings, and various actions that we might take. So we evaluate all those factors, including the amount and timing of share repurchases. So while we are seeing some favorability at least initially in terms of what we're expecting for commodities for the full year, as we evaluate all the other changes in the outlook, we've concluded that the $4 to $4.10 range is still appropriate for us for fiscal '12.

And then specifically on the gross margin guidance, the change relative again to last time, is that solely a function of your outlook on commodities or is there any change there in the expectation for how much promotional spending you'll be doing?

No real changes to plans for promotional spending over the course of the year. It is primarily related to our updated view on commodities.

Chris Ferrara with Banc of America.

Similar question, on the top line, so 1% to 3% is the guidance, pricing still plus 4%, volume flat. What's going the other way? I guess mix and FX, in some way. But can you just put a little color on that?

Pricing is really the wild card in terms of the full year. We do expect that the sales trend will be about the same first half and second half. But as you will recall, our first half last year was pretty weak. We were down about 3%, and the second half is much stronger. So what we're indexing off of is quite different. So I would say essentially what is reflected in our volume outlook is really largely the impact of pricing. FX is a minor at this point, a minor piece of the pie.

I'm sorry if I'm being dense. The sales guidance at the mid point is plus 2% for the full year, right? And you're saying pricing is plus 4% and volume is flat? The math doesn't tie together. If pricing is negligible, does it mean mix is expected to be negative too?

There's also the impact of innovation which we expect will be 2 to 3 points of incremental sales growth.

Keep in mind, I'm not sure if you got it -- this is Dan. I don't know if you have it in your analysis, but as you know, whenever we take pricing, it has a depressive near-term effect on volume. So at least on the top line in the early phases of pricing, the rate benefit gets washed out to a substantial extent by the impact on volume. And then as consumers adjust to the prices over time, we see that volume return.

Okay, now I can follow-up on that offline. The other one -- and I'm sorry if you did this also already -- but on commodities, what got better? Was it the polyethylene, the crude-based stuff that brought the forecast down?

The biggest component that we have in our commodity base is obviously resin which is tied to the price of energy and oil. And so we're projecting a little bit more favorability in resin over the balance of the year. That's predicated on oil remaining in the trading range that it has been in recently. So again, if we do see a spike in that, we might have to revisit that assumption. But the biggest change in the commodity basket was resin.

Great. And just finally, I think you guys said briefly that, I think Larry you said that you do see some improvement in categories, or some reason to think there's improvement coming. Maybe I got that wrong but if not can you elaborate a little bit on that, what you're seeing?

So if you look at the all retail outlet consumption numbers, on a 52 week ending basis over the last 3 quarters, there's a bit of an uptick in terms of the rate of decrease. In other words, there's less decrease this quarter than there was last quarter, and there's less decrease in that quarter than there was the previous quarter. So we're seeing some sequential improvement in terms of the trend in the all outlet data. Still obviously negative and still affected by the economy but there is a bit of a tick up which gives us some encouragement.

Tim Conder with Wells Fargo.

Gentlemen, just continuing on the pricing front. Are you worried that as the commodity costs do come down, will you get some pushback from the retailers? And then with the consumers given the recent data over the last couple weeks for the overall economy here, and in some of the international markets that you compete in? Are you concerned that the consumers will be a little less hesitant? Plus also retailers will say the commodities have come in, so let's maybe back off on the price increases, especially (inaudible).

Commodities have come down in terms of what we think the increase will be year-over-year. But the commodities are still up dramatically versus year ago. So there's still a pretty compelling case for taking pricing on our brands that really hasn't gone away very significantly. So I don't see a concern there. Obviously, we're very concerned about consumer response in this economic environment to pricing. The good news is we're being matched by competitive set. The good news is we've been through these kinds of cycles before and we've proven that our models are very predictive. And with things like innovation and brand building efforts, we can weather the storm. But that clearly is the biggest concern we have around pricing, is the ultimate consumer reaction.

This is Don, Tim. The only thing I would add to that is, with Larry's last comment about innovation. I think when you look at our innovation pipeline, those items that we teed up for the trade in the first half of this fiscal year, and then what we are going to launch in January, we feel very bullish about the innovation pipeline. Which in an aggressive pricing environment really helps when you tie those price increases to substantial innovation.

And gentlemen, on the cash flow front, can you just refresh us again, as the IT spending starts to fall off and some of the other investments you've been making last year and here in fiscal '12, the timing and the underlying run rate on your CapEx, after you back off, as those other investments complete themselves.

Sure, let me just run through the comparatives. If you went back the last 3 or 4 our years you would see our CapEx used to be right around $200 million to $210 million roughly, about equal to depreciation and amortization. Were elevated in fiscal '11 at $228 million, primarily related to IT investments. And then we're expecting a range of $240 million to $250 million in fiscal '12 driven by both additional IT investments and facilities. We're expecting to see that start to come back down as we enter into fiscal '13. In fact, we would expect we'll have a little bit of tail of the IT investments in '13 but over the 2013 to 2014 period, you should see us get back to about that $200 million to $210 million CapEx spend level.

Ali Dibadj with Sanford Bernstein.

So understanding that you don't necessarily want to talk about Icahn directly, there were certainly pieces of the prepared remarks that were a little bit defensive or self laudatory. So even if you don't want to talk about that situation specifically, I want to understand, the markets telling us that you're worth something like $70, there was a bid out there, let's say, that says you're worth $80. You guys think you're worth a lot more. And I just want to understand what you think you're actually worth, or at least what you think the market is missing in terms of how we value your Company.

This is Dan. We're not going to comment on our point of view regarding how we value the Company, or how we think about the Company. So what I would point to is, again, why we think we can generate shareholder value over time. The investment pieces, why we think we're a good investment. And that gets back into our strong brands and capabilities, our track record of generating cash flow, our 3D ability to innovate. All those factors are part of why we think we're a very good investment for investors but we're not going to speculate or comment on any point of view regarding the value of the Company.

You certainly have one, and it sounds like it's above the price point you are right now. But you're not manifesting it by buying back stock. So can you talk a little bit about what precluded you to do so, whether it was an exploration of strategic alternatives? What else was going on because your actions are different than what you're telling me.

I and comment on specifically the facts and circumstances that led to our decision to stop share repurchases. And so it has nothing to do with our view of the value of the Company. It has to do with other factors and we just simply can't comment on those factors.

I would just add, Ali, as Dan said, we plan on completing the share repurchase in FY12. So we still have those plans in place to do that. And as far as the self-laudatory comment, I think we're just trying to put the facts out there about what we've achieved over the last 3 years.

Okay, can you just help me understand why you can't comment? This is obviously something that's important to investors. Why you can't comment specifically on why you couldn't buy back stock?

Like I said, our plans are to continue to buy back stock. We exited in that window. We're planning to complete our share repurchase in FY12, as we noted before.

But your plans were finished already. So I'm just trying to understand what changed. And I understand that there are things going on with this bid but those all happened in July, at least the most recent stuff happened in July. So those strategic alternatives that you're looking at.

Again, Ali, you can keep probing but we're not going to comment on our point of view on valuations of stock. The only thing I'll say is that -- we're just not going to comment on it, sorry.

Edward Kelly with Credit Suisse.

Your largest customer's having a very difficult time driving sales growth. In fact, their traffic is negative. There's been a lot of speculation about them pulling the pricing lever to try to fix the issue. To me it just seems like it's hard to pass, or it would be harder to pass through pricing in this type of environment with that customer feeling those types of pressures. So can you walk us through how this all plays out and basically how that negotiation goes?

So that particular customer has never been a fan of price increases. And so we always provide a thorough discussion about the recent protecting pricing obviously based on largely raw material cost increases. I would not say it's been a particular issue with either that retailer or other retailers this time around just because pricing is so rampant in the marketplace. A lot of the commodity pressure we're feeling are even more acute in some of the food categories so retailers are seeing a lot of pricing. Obviously none of us like the inflationary effect of that. That's reality, and given that our pricing is based on sound economics, they've been accepted by all retailers at this point.

The only thing I would add-on that as far as our largest retailer goes is that their focus to returning to the basics of getting the assortment back where they want it, getting some of the executional details at the store level righted, I think they are certainly going in the right direction. And I think, as you look at all of our retail partners, they're getting the same kinds of cost pressures on their brands that the branded manufactures are seeing. So while no one likes these price increases, I think everyone has to take on a cost justified basis the right level of pricing. And again, I would just add that that's caused us to really step up the pace of innovation. And I feel very good about linking a lot of that pricing to innovative products.

Okay. And just maybe a broader follow-up. But you talked about a few cycles of inflation over the last few years. The consumer seems to be a little bit different today. How does the elasticity that you're assuming within your numbers compare to historical trends?

Generally speaking, it's not materially different. There are a few categories where it's changed but, generally speaking, we haven't seen huge changes. And, quite frankly, this is a larger value equation. And the reason why I think Don keeps coming back to innovation is that news on products, or products that are more convenient or better working help the value equation. So they help offset the negative impact of simply the price.

And I think the thing that we take comfort in, and confirm the direction we're taking, is the fact that we've gained more market share than any of our competitive set during this period says to us we're on the right value delivery for our consumers. So if we weren't gaining share, I'd probably have a different answer for you. But the fact is, we're gaining share at a faster clip than any of our branded competitors, and we think consumers are voting with their wallet and saying -- You guys are delivering value.

The other thing I'd say is pricing is a brand by brand, category by category situation. Elasticities does vary quite a bit by business and by category. And obviously our innovation plans vary by business and category over time. So we always look at these things very specifically in terms of what we do by brand.

Linda Bolton Weiser with Caris.

If my math is right, you're going to have, I don't know, maybe a 5% diluted share count reduction year-over-year in FY12 for the full year. Maybe you'd like to take a stab at giving some guidance on the share count. But if that's the case, with your EPS guidance the way it is, it's really not a projection for very much operating profit growth in FY12. And you didn't really have any operating profit growth in FY11. In fact, a slight decline, it looks like. So what is it that you could do differently? You've mentioned you've taken pricing earlier in the cycle. Is it still on the pricing side doing more sooner or what is it that you need to do to actually get operating profit growth in your Company?

I think you also have to factor in the $36 million to $40 million of spending, expense spending, we're doing against IT and facilities. And you can take a point of view whether that's a one-time investment or ongoing. We would view it as one-time. So we made that choice. It would be easy to kick that can down the road and say -- Gee, things are tough right now, let's not make that investment. But we think that's a good investment to make for the Company because it will allow us to drive future cost savings and efficiency, and provide platforms for growth. So you've got to keep in mind is that $35 million to $40 million that are in there. Obviously when we're going from $90 million of commodity cost pressure to $140 million to $150 million that's a big impact. We will see the vast majority, or a big portion of that impact, in the first half of the year. But our projections right now as we look at it on cost savings, our pricing and everything else, we believe we're taking the right actions to be able to weather through the impacts of those cost increases and to start to see margin growth in the back half of the year.

Bill Schmitz with Deutsche Bank.

Just in terms of the corporate spending line on the segment detail, is that a run rate or is that an anomaly in the quarter do you think?

Say again, Bill.

The corporate overhead piece, so the dramatic reduction in the corporate line on your segment reporting that came down about $30 million year-over-year. Is that the new spending level or is there an anomaly in the quarter?

Let me talk, and a lot of what goes on in SG&A does end up in the corporate segment. So let me just talk about our SG&A levels. If you look at SG&A for the full fiscal year, we ended up at about 14%. I think historically we've been more around the 12.5% to 13% level. We're elevated up around the 14% level. It has to do with our IT. It has to do with our facilities investments. But we also have lower incentive compensation in the year. So part of what you see in the corporate segment, and the reason you don't actually see a bigger increase in selling and admin, is really due to lower incentive compensation cost for fiscal '11.

Now, as you think about fiscal '12, the right range for selling and admin is in the 14% to 15% range. We are a company that pays for performance. And again, while we feel good about the second half of fiscal '11, we did hit our stretch targets in our incentive compensation programs and therefore there's lower incentive compensation expense for fiscal '11. Assuming we're able to hit our targets for fiscal '12 we should see a return to more normal incentive compensation levels for '12. S o again I think 14% to 15% would be the right range for fiscal '12.

And that includes the stepped up IT investment?

That does. That would include that, as well.

Yes, at that level, Bill, that 14% to 15%, it should still keep us in the top third of our peer set in terms of efficiency around SG&A.

Okay, great. And then just on the Bleach business are you still seeing consumers under dosing and is there a time frame for volume to kind of pick up there?

So we've been out with dosing messages, I think you know. We haven't picked up any material changes yet but it's something we continue to focus on. Some of the longer term innovation will also, I think, address the innovation story as well as broader use of bleach.

I think the other thing, Bill you'll see is a new advertising campaign on bleach which gets at the younger generation and increasing awareness and usage among that cohort. And also, as Larry said, there's some innovation around new products that really make it much more convenient and easier to dose an HE machine where there's a particular problem given the small trays that most HE machines have. So you'll see some new products very quickly here that address that, as well as new advertising.

And is that business still about 10% of sales?

About, yes.

And then just lastly, was there a dramatic difference in the tenor of sales growth throughout the quarter? Because it seemed like for everybody, the scanner and all the data was directionally right, that April was pretty bad and then it got progressively better and actually left June pretty solid?

I don't think our trends were inconsistent with that, which is interesting given that consumer spending in June on a macro sense was down. But our trends weren't inconsistent with that, Bill.

How about July so far? How is it looking?

We're on track.

Alice Longley with Buckingham Research.

I'm just trying to clarify the price and volume guidance for the first half. I think you said that pricing would be up more than volume is down in the first half. Is that also true for the first quarter?

Alice, this is Steve. As we see it right now, there is no material difference among the halves of the quarters in terms of impact from pricing and volume. And again, just to reiterate, we're expecting to get round numbers about 400 basis points of benefit from pricing. And a good portion of that will be offset with volume losses as consumers adjust to those higher prices. Now I think echoing back to, I think it was Chris's question as well, 400 basis points of benefit from pricing but you end up closer to flat, maybe slightly up, on volume. And that's included, then, in our sales outlook of 1% to 3% on the year.

But in the first half we may have something like 1% organic sales growth, so we have price up 3% and volume down 2%. Is that the right way to think?

I wouldn't want to give you a specific number or range but Larry mentioned in his comments, at this point we don't see a material difference throughout the year in sales growth quarter to quarter or among the halves. It will certainly be different but nothing like what we saw in fiscal '11 where we had some prior year comparisons that made sales growth a little bit more choppy through the year. The best we can tell you right now is it will be pretty consistent.

Okay. And then internationally, should we expect stronger growth offshore excluding currency than we've had for the last couple of quarters where volume has been flat and pricing has been 2% to 3%? Or is that what we should be using for fiscal '12?

No, I expect stronger volume results in current fiscal year.

And why mainly is that?

The categories continue to grow both from a volume standpoint, both from a sales standpoint. Again, we focus on innovation in the US, but a good portion of that plays out in international markets, as well. So we have a stronger innovation program this year in international than we did previous year.

But volume may be up low single digits internationally or stronger than that?

It's probably in line with the rest. So I don't think we'll see a dramatic difference between US and international this year.

Patrick Trucchio with BMO Capital markets.

My question is on the IT spending. Do you expect to benefit from the investments in fiscal '12 or is that a fiscal '13 event? And would the savings from it be included in your annual run rate or would it be incremental to that? Thank you.

Yes, phase 1 of the project on the international SAP will go out in '12. It will probably be fiscal '13 before we start to see meaningful benefit from that investment. And it will be included. This is how we keep this $90 million to $100 million-plus in cost savings going, is the investments that we're making this year are the ones that throw off the cost savings in 2 to 3 years. So yes, we will report the cost savings as part of our normal cost savings reporting.

[Rima Kapadia] with Barclays Capital.

It's actually Lauren Lieberman. So first question was just on the cost savings. Not to take anything away from the track record of at least $90 million to $100 million a year. But 1 question I'd had looking into 2012 is that a lot of other companies have broadly said needing more of a balance between pricing and cost savings is a way to offset inflation. Meaning they've stepped up their cost savings programs in the face of greater inflation. And for you guys it's been more -- This is what we do annually. So any thoughts around maybe why. Is it just that you maybe are run more efficiently as it stands, so it's less easy to find stuff to cut around the edges on a short-term basis?

Lauren, we've got a long track record of cost savings. And you'd have to go back years ago to say the low-hanging fruit was cleared out. So most of the projects that we have these days are multi-year in nature, they require investment funds. We manage our cost savings pipeline just like we do our new products. We look out 2 to 3 to 4 to 5 years. We go through our cost savings ideas, we look at which ones we want to invest in, which ones have the biggest return. And then we make those choices. And so, in any 2 quarter basis, first of all, in every project we try to get it to get the cost savings as quickly as we can in that particular project. But we do so with a lens to make sure that we're not sub optimizing the total cost savings we can get from the project, trading off speed to savings versus maximizing the savings or jeopardizing the sustainability of those savings.

So to say that we could suddenly, because of the multi-year nature and the investments required, suddenly move up our cost savings $20 million to $30 million to $40 million, the short answer would be no. That's not how we manage, that's not how we invest. What we are really looking for is the sustainability over time. And we also have this $20 million to $30 million that we set aside each year to invest in these projects. Obviously this year we're elevating it a little bit for IT and facilities to help enhance that. But we allocate that out to the highest return projects. So we feel really good about our track record. But given the multi-year nature it's pretty hard to say we could meaningfully move the number quarter to quarter.

That makes sense. And then a housekeeping thing. When you guys give the components of gross margin in that bridge, and you talk about pricing, is that pricing benefit net of volume? Is it the same way you're talking about pricing on the top line or is it just the pure price?

Lauren, the roughly 400 basis points we've talked to of pricing benefit, that's a rate benefit in the sales line. So again, we're indicating that from a sales perspective we're going to offset a good portion of that with lower volume as consumers adjust. On the gross margin line, round numbers, you're only going to see about half of that benefit just by the nature of sales versus gross margin or gross profit, if that makes sense.

I'm sorry, I meant when I look at, say, this past quarter, I forgot what the number was, 80 basis points or something, that is really just the pure pricing piece. It's not net of any volume. Because you guys have also talked about pricing, a net 1% benefit to the top line because you're baking in the elasticity when you talk about it.

Correct. At the margin line, it's a net benefit.

Lee First with Wellington Shields.

My question has to do with the second half. It seems like there's a little bit of a leap of faith that you're asking from us. Could you give us an example of one of your innovations or one of your pricing moves that you think is going to not benefit you until the second half of your fiscal year so we can just get a better understanding of how that plays out?

It's really more of a timing issue than anything else. So pricing takes effect, for the most part, in August kind of timing. So we've already cut off part of the year just in terms of when it actually gets in the marketplace. And then depending on when competitors match and how quickly they match, and how quickly that's reflected in retail, because you typically have a bit of a lag. So typically the pricing plays out in terms of what gets into the marketplace and what gets into consumers heads over the course of a few months. And so the real impact is really in the second half of the year versus the first half of the year. Does that address your question?

In terms of the innovation, we're just adding innovation as we go through the year. So we have essentially a bunch of innovation that goes out in July and a second staging innovation in the second half of the year.

Okay. And in terms of pricing, I think you said that you're seeing a good reaction in terms of the prices being followed. But you are expecting to lose some volume. Could you tell us if there's much disparity between the price and the volume market share, and if you're willing to give up volume market share for value market share?

Generally when we see volume declines in pricing, and others take pricing in the category, we see category declines. So in a perfect world, if everybody takes pricing at the same time, the relative pricing stays about the same. Volume in the category goes down but our shares is essentially preserved. That's in a perfect situation. And generally speaking, in most categories we're seeing competitors match. And, again, it may take some time to get reflected on the shelf. But we're seeing matching. Are we willing to take volume share reclines for pricing? Certainly in the short-term that's an effect that we often see, and the answer to that is yes.

In the interests of time, why don't we take 1 more question. For any of those of you who still may be in the queue, I encourage you to call our IR team afterwards and we would be happy to address any remaining questions.

[Prio Origuta] with Barclays Capital.

I was just wondering if you could provide some update on your thinking around targeted capital structure, balance sheet management. For some time now, you've prioritized the high BBB rating and investment grade. Has your thinking shifted at all over the near term here?

Our targeted capital structure, at least as we think about debt to EBITDA, we've said pretty consistently that we like to operate in a 2.0 to 2.5 times debt to EBITDA, and that really remains unchanged. I think we finished the year fiscal '11 just slightly below 2.3 times debt to EBITDA. I think we have a good balance of dividends versus share repurchase in our mix. We would even like to stay in that 2 to 2.5 times even with acquisitions. So I think we're pretty comfortable there. It's not to say we wouldn't go above 2.5 if we saw a good opportunity from an inorganic growth standpoint. But I think from an operating basis we're comfortable with that kind of debt structure, debt to EBITDA. And obviously we're still fully committed to returning any capital we have in the business that we don't need in the business.

So with that, thanks everyone for joining us on the call. And we certainly look forward to speaking to you again in the fall when we share our fiscal first quarter results. So take care everyone. Thanks.

Ladies and gentlemen, that does conclude today's call. We do appreciate everyone's participation.