高樂氏 (CLX) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to The Clorox Company fourth-quarter and fiscal year 2015 earnings release conference call.

(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, Stephanie. Welcome everyone and thank you for joining Clorox's fourth-quarter conference call.

On the call with me today are Benno Dorer, Clorox's CEO, and Steve Robb, our Chief Financial Officer. We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website, thecloroxcompany.com.

Let me remind you that on today's call we will refer to certain non-GAAP financial measures including but not limited to free cash flow, EBIT margin, debt to EBITDA and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations.

Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or 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 management's 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.

Turning to our commentary there are three key messages we'd like you to take away from today's call. First, we're very pleased with our Q4 and fiscal year 2015 performance, reflecting our efforts to accelerate growth and to do so profitably.

Second, our base is as healthy as it has been in recent memory and we're investing behind our business. At the same time there are a few factors we anticipate will somewhat moderate fiscal year 2016 growth in comparison to fiscal year 2015.

Third, we believe our outlook for fiscal year 2016 presents a balanced view. It appropriately accounts for current strengths, opportunities and a few challenges.

With that I will cover highlights of our fourth-quarter business performance by segment. Steve Robb will then address our fourth-quarter and full-year financial results as well as our financial outlook for fiscal year 2016. And finally Benno will close with his perspective on the business followed by Q&A.

In Q4 sales grew 4% driven by volume growth of 3% and the benefit of price increases, partially offset by 2 points of negative foreign currency. All major currencies were down double digits due to the strong US dollar with the Argentine peso having the greatest impact.

On a currency neutral basis fourth-quarter sales grew 6%. For the fiscal year volume grew 2% while sales climbed 3%. On a currency neutral basis full-year sales increased 5 points, reflecting solid growth in the US behind improving category growth rates and 3 percentage points of growth from innovation as well as growth in international excluding foreign currency headwinds behind price increases and higher shipments.

This is the fourth consecutive fiscal year we've delivered 3 points of growth from innovation. Driving improved category trends and marketshares has been a top priority for us and in Q4 our US marketshares increased three-tenths of a point versus the year-ago quarter, our largest market share gain in four years.

Six of our eight US business units increased market share versus the year ago-quarter with laundry, home care and charcoal achieving the greatest gains. And our categories grew 2.8% during the quarter, the strongest rate in several years.

With that I will review our fourth-quarter results by segment. In our cleaning segment Q4 volume grew 7% and sales increased 9% with sales up strongly in each business unit. Home care, our largest domestic business unit, was supported by double-digit growth of Clorox Disinfecting Wipes driven by increased investment in demand building including high levels of quality merchandising support highlighting the value of Clorox Wipes versus competitors' products.

By fiscal year end home care had achieved 14 consecutive months of market share gains. Laundry sales increased mid single digits driven by our February 2015 price increase on Clorox liquid bleach and in June, just a few months ago, we introduced Clorox bleach crystals and solid packs. These non-liquid products provide the power of Clorox bleach in a convenient form for consumers with no spilling or splashing.

Overall, our bleach share for the quarter was flat with gains on Clorox splashless bleach offset by declines on our regular incented bleach products. Splashless bleach is the fastest-growing part of the bleach category and Clorox's share in this premium segment is a seven times that of the combined private label offerings.

Finally, strong volume and sales gains in our professional products business were driven by higher shipments of our base healthcare products as well as professional cleaning and food products. In our household segment fourth-quarter volume increased 2% and sales grew 4% driven by high single-digit volume gains in our bags and wraps business. Premium trash bags continued to be a real contributor behind innovation on our OdorShield lineup and new Gain scented trash bags that had strong early success.

These innovations supporting consumers' desire for value-added trash bags as well as price increases taken last calendar year helped drive higher sales and a meaningful market share gain in the quarter.

turning to cat litter, volume increased slightly driven by our Fresh Step brand while sales and market share declined as a result of continued competitive pressure. We've been investing more aggressively to communicate our excellent clumping and odor control benefit and to bring innovation to market. Fresh Step Lightweight Extreme launched in August of last year continues to grow behind its promise to eliminate odor for 10 days and a money back guarantee.

Our charcoal business volume and sales declined slightly following very strong double-digit growth in the prior quarter. Looking at the combined quarters, Q3 and Q4 delivered all-time record shipments on charcoal and our business realized strong share gains in Q4. That said, we are now lapping another double-digit quarter from a year ago as we anticipate shipment declines in charcoal in the first quarter of fiscal year 2016.

In our lifestyle segment volume and sales were flat as strong mid single-digit volume and sales gains in Burt's Bees were offset by slight volume declines in our Brita and food businesses. Gains in Burt's Bees were driven by the renewal of face care line introduced a year ago and ongoing strength in facial towelettes.

Turning to international, volume was up 2% and sales were flat, reflecting the impact of unfavorable foreign currency exchange rates. Excluding the impact of foreign currencies sales for international grew 11%. In the quarter international grew overall share with strong gains in bleach, surface cleaners and cleaning utensils.

Now I will turn it over to Steve Robb to provide more detail on our fiscal year 2015 performance and our outlook for fiscal year 2016.

Thanks, Steve, and welcome everyone. We delivered strong results for the fourth-quarter and fiscal year 2015 with our domestic businesses delivering fiscal year sales growth at the upper end of our long-term US target of 2% to 3%.

In addition international delivered strong sales increases on a currency neutral basis behind higher volume and well executed price increases to mitigate inflationary pressures. Importantly, the strength of our total Company results led to a record year of free cash flow reflecting solid top-line growth and margin expansion in fiscal 2015.

Now I'll turn to our financial results for the quarter. In our fourth quarter sales grew 4%, with volume and pricing contributing a combined impact of nearly 6 points, partially upset by 2 points of unfavorable foreign-exchange rates.

Gross margin for the quarter increased 270 basis points to 45.6% reflecting 160 basis points of cost savings, 110 basis points of pricing benefit and 100 basis points from favorable commodity costs. These factors were partially offset by 80 basis points of higher manufacturing and logistics cost.

Selling and administrative expenses as a percentage of sales increased 2 points to 14.2%, primarily from higher performance-based incentive cost consistent with our pay for performance philosophy. This compares to an unusually low 12.2% of sales in the year-ago period when incentive costs were lower due to the Company's results falling below target.

As a reminder the largest impact from the higher incentive cost is reflected in selling and administrative expenses. But it's also included in higher cost of goods sold and research and development expenses.

Advertising investment for the quarter was close to 10% of sales, reflecting support for our domestic brands and categories and nearly 11% of US sales partially offset by reduced spending in economically challenged international markets. Importantly, we were pleased to see that our brand investments are paying off in strong category growth with increases in six out of eight US categories.

Net of all these factors we delivered diluted earnings per share from continuing operations of $1.44, an 11% increase versus the year-ago quarter driven largely by strong sales growth and margin expansion. In addition, the sale of real estate assets by a low income housing partnership contributed a one-time benefit of about $0.06 to diluted earnings per share.

Now I'll turn to our results for the full fiscal year. Sales grew nearly 3% with volume and pricing each contributing a little more than 2 points, partially offset by more than 2 points of foreign currency declines. On a currency neutral basis sales grew 5%.

Gross margin for the fiscal year increased 90 basis points to 43.6% compared to 42.7% in fiscal year 2014 driven primarily by 140 basis points of cost savings and 110 basis points of pricing. These factors were partially offset by 110 basis points of higher manufacturing and logistics cost.

Selling and administrative expenses as a percentage of sales increased 0.5 point to 14.1%, primarily from higher year-over-year incentive cost. Overall expenses were in line with our expectations for fiscal year 2015 and consistent with our long-term target of about 14% of sales. Advertising spending for the fiscal year was more than 9% of sales with domestic spending at about 10% of US sales.

For the fiscal year our effective tax rate on earnings from continuing operations was 34.2% versus 34.6% in the year-ago period. Net of all of these factors, our fiscal year diluted earnings per share from continuing operations was $4.57 compared with $4.39 in the year-ago period, an increase of 4%. Fiscal year 2015 free cash flow was $733 million compared with $649 million in the year-ago period, an increase of 13% and this is the highest level we've delivered in more than 10 years.

As we mentioned in the press release we've repurchased about 4 million shares of our common stock at a cost of about $434 million in fiscal year 2015 to offset stock option dilution. We also increased our dividend by 4% in the fourth quarter. At the end of fiscal year 2015 our debt to EBITDA ratio was 1.8 below our target range of 2 to 2.5.

Now I'll turn to our fiscal year 2016 outlook, as we mentioned in our press release we anticipate sales growth in the range of flat to 1% which takes into account several factors. First, we feel really good about the progress we're making in our US business. We're also confident in the strength of our innovation program which we anticipate delivering about 3 points of incremental sales growth.

Second, we plan to increase trade promotion spending to support our brands including managing price gaps following the two price increases on Glad trash and bleach taken in the last 18 months.

And third, we anticipate fiscal year sales to be negatively impacted by several factors in international including continued slowing of international economies and about 3 points of foreign currency declines but with about half is anticipated from a significant devaluation of Argentina's currency. In addition, we plan to reduce our international demand building investments in economically challenged markets which will also impact sales growth.

Turning to margin, we anticipate gross margin to be about flat for the fiscal year as the benefit of cost savings, pricing and somewhat lower commodity costs are expected to be offset by inflation impacting manufacturing and logistics costs. Other moderating factors include higher trade spending and foreign currency declines.

As a reminder, declining foreign currencies negatively impact both our top-line results and margins, particularly in markets where we pay for input costs in US dollars. We do anticipate selling and administrative expenses to be slightly below 14% of sales in fiscal year 2016. We also expect EBIT margin expansion in the range of 25 to 50 basis points, reflecting flat gross margins and lower selling and administrative costs.

We project our fiscal year 2016 tax rate on earnings from continuing operations to be between 34% and 35%. Net of all of these factors we anticipate our fiscal year 2016 outlook for diluted earnings per share from continuing operations to be in the range of $4.68 to $4.83.

In closing, I feel really good about the strong finish to the fiscal year. Incremental investments behind our brands are paying off in category growth and market share gains across several brands. In addition, our team drove operational efficiencies, resulting in another year of strong cost savings allowing us to expand our margins.

In fiscal 2016 we expect to face continued headwinds particularly in our international business. However, we've managed through these challenges before and I'm confident in the plans we have in place including leaning into our pipeline of cost savings programs. Importantly we remain committed to using our strong cash flow to invest in driving growth and return excess cash to our stockholders.

With that I will turn it over to Benno.

Thanks, Steve. Good morning and good afternoon everyone. As Steve Austenfeld noted when he opened the call there are three key messages we have for you today.

First, I feel particularly good about our Q4 and fiscal year 2015 performance. In the face of a challenging economic environment Clorox's people have really stepped up to drive results. We're accelerating growth and we're doing so profitably as evident in the strong top- and bottom-line results we reported today.

And as Steve Robb noted in fiscal year 2015 we generated the highest level of free cash flow in more than 10 years. Our increased demand building investments are paying off in category growth and market share gains with Q4 market share growth the highest it has been in four years from strong contributions across most of the portfolio.

And we're making good progress against our strategy 2020 accelerators. I believe that they will continue to create value to drive profitable growth in the years to come.

Two standout examples from fiscal year 2015 of how we're accelerating portfolio momentum, our e-commerce and US Burt's Bees businesses where we stepped up our investments to drive strong double-digit sales gains. The second, our outlook reflects a very healthy base business but also the reality of an increasingly difficult international environment. As you think about our fiscal year 2016 outlook please consider the following.

Our strategic choices are working for us in the marketplace and we feel very good about our US business which is fundamentally very healthy. At the same time in our international business, foreign exchange headwinds are strong across all major currencies with recent double-digit exchange rate declines and international economies are slowing. In response we've made the conscious decision to reduce spending across much of our international business and accept somewhat slower growth in those markets as we focus on rebuilding our margins.

Third, our outlook is balanced, reflecting our view of strengths, opportunities and challenges. We'll continue focusing on our accelerators which are working so well for us, including driving demand in our core business as well as trial of new products behind a strong innovation program, supported with increased US advertising, sales promotion and trade promotion spending.

Our biggest challenge in near-term really is our international business as we've discussed today. Longer term I feel very good about the prospect for this division.

We have leading brands that are growing market shares and we have promising growth platforms, including Burt's Bees which is now in a large number of countries. So when the foreign exchange headwinds subside and international economies improve I do believe our international business will be in a solid position to benefit.

And with that let's open it up for your questions.

(Operator Instructions) Steve Powers, UBS.

Great, thanks everybody. I guess Benno and Steve you been calling for the elevated trade spending now for a few quarters and we've been a little slow to see it.

I think that helps explain the gross margin strength this quarter which is clearly a good thing but your guidance implies that you still expect to see it eventually. Can you talk about why we maybe haven't seen it as much as you had anticipated so far and why you're not more encouraged looking ahead to 2016?

So Steve, we actually have seen it. We in fiscal 2015 we actually stepped up our total consumer demand building investment and included in that was a step up of the trade promotion spending. So we're certainly leaning in and you've seen that in fiscal 2015.

For fiscal 2016, particularly in the first half we are going to continue to lean into the trade spending really to do two things for us. First, to drive trial of our new products because we know if we can get trial we generally do well with repeat on those new products. And then second is just to support retail executions.

So we have been stepping up the investment. We're going to do a bit more because it's working for us and the payouts look good. But it is flowing through the P&L.

Okay, and then competitively have you seen pretty much what you expected to see or has it been a little bit more benign than you expected?

I would say competitively, Steve, we're seeing what we said we would see. We're certainly spending into our price increases in bleach and in Glad where we feel like that's justified.

But as far as competition is concerned what we've said before is that it's somewhat elevated compared to historical levels but I would say that it's somewhat elevated, certainly not very elevated. And that's playing out as we anticipated.

Okay. And then a question on free cash flow which was obviously very strong this year again and you finished the year below your target leverage ratio, so two questions on that.

First, this year the rate of CapEx spending relative to sales was quite low versus history. Do you see that as sustainable or do you see a step up there as you look out whether 2016 or beyond?

And then with respect to the leverage ratio itself is there any step up embedded in guidance there? And if you were to step it up how would you prioritize between incremental repurchases, bolt-on deals perhaps in the professional space, etc.?

Okay, so let me start with the first question on capital expenditures. Historically we've spent at the level of depreciation and amortization and I think that's still the right level for the Company over the long term.

It has been a bit less than that over the last two years as you pointed out and that was a conscious decision on our part after we'd made some pretty significant investments to rebuild R&D facilities, put SAP into the Latin American business. But I think for long-term modeling certainly how we think about it is CapEx should run in line with depreciation and amortization.

In terms of the priorities for the use of cash, these remain unchanged. The number one goal is to accelerate top-line growth profitably and we think we've got plenty of cash to do that but we would like to do that organically. Second is we're still committed to bolt-on acquisitions through our M&A efforts.

It's been more challenging over the last couple of years. But we're cautiously optimistic we'll get some traction on that over the next year or two.

The dividend has been very important to many of our investors. And so we've been prioritizing returning cash through that dividend over the last couple of years. And I think you'll see us continue to do that.

Then if we've got excess cash that's pooling up again as we've done for many years either through the dividend or share repurchases we'll look to get it back. So no change to capital allocation for the Company. It will continue to be disciplined and consistent with the priorities that we've outlined before.

Okay. And just to clarify, so no step up embedded in guidance?

I think what we've said for a long time is again the long-term debt to EBITDA we think 2 to 2.5 is in our sweet spot. Not afraid to let that go down a little below the 2 to 2.5 to build up dry powder for M&A but we're also not afraid to let it go a little bit above 2.5 for some period of time if we've got good opportunities. So I think you'll see that number move around overtime depending on the opportunities.

Great, thank you.

Chris Ferrara, Wells Fargo.

Good afternoon, guys. So I guess back when you introduced the 2020 strategy the number you gave on promo spending I think was 100 basis points incremental. And so I guess following up a little bit, is 100 basis point still the number that you guys expect based on the returns you've seen and I guess how far of the way through that are you if you're willing to quantify that at all?

Chris, good afternoon. So first of all what we said is indeed we would like to spend 1 percentage point of sales over time behind our brands.

We've also said that that spending can move around, certainly move around by quarter but also move around by bucket. So in some cases it could be advertising, it could be sales promotion, it could be innovation supports, it could be a trade promotion or pricing, really where we see the ROI is we're pretty disciplined in how we measure ROI and how we spend our dollars depending on where we get the greatest return.

That is still the right number. Originally when we started this strategy 2020 journey we thought that we would step into that over time and we certainly saw an opportunity over the last fiscal year to step into it faster which we have in the back half. So this 1 percentage point increase is still the right target.

It's working, certainly as you've seen in top-line growth, as you've seen in share growth. But it's also working given that as you know we're interested in profitable growth so we see it flow through in the bottom line. So we're staying committed to it and it's still the right number.

Okay, thanks. And I guess just pushing a little bit on the commodity piece or the gross margin piece, so you're saying flat gross margin. I guess pricing is positive which I'm guessing is inclusive of higher expected promo spending.

Commodities are positive and you're not seeing by very much. I guess cost savings if you continue to do what you've been doing it will be pretty good.

I guess how bad will manufacturing and logistics be into fiscal 2016? And I guess could you talk about that in light of the fact that it was only an 80 basis point drag, and I say only because it's been obviously much bigger than that. So I guess is that trend as a follow-up question to that and will it be a little more manageable going forward? Thanks.

Good question. As we said we believe that our gross margins will be about flat but you will have some variability across the quarters. A couple of things.

What's working for us, our cost savings programs continue to perform well. We're very pleased with the in-market execution of the price increases that we've taken and we'll continue to look to take pricing particularly in the international markets which as you know has higher rates of inflation.

I think and commodities will likely be a tailwind certainly for the first half of the fiscal year is what we're modeling. The things that will mitigate a lot of this, to some extent manufacturing and logistics was about 110 basis points for the full year this year and I think it's likely to continue to be a headwind for some time for us.

FX is a big issue because that puts a drag on the margins. And then finally as we indicated a few minutes ago we are going to step up our level of trade promotion investment behind these new products in retail execution. So when you net all of those things together we think gross margin will be about flat.

Here's what's important to remember. We've got a good plan in place to drive EBIT margin expansion in fiscal 2016, so we are targeting 25 to 50 bps of EBIT margin expansion. And we feel like we're very much on track to deliver that for the full fiscal year.

Okay, thanks guys.

Olivia Tong, Bank of America Merrill Lynch.

Great, thanks. First just on, a little bit on the guidance because the operating expense comps were a lot tougher in the first half than the second half with the spending and the delta in incentive comps during the second half. So as you think about the cadence of earnings as fiscal 2016 progresses would you expect to follow a similar pattern to last year or revert to something more in line with historicals?

So you're asking me what our first-half outlook is versus our second-half? So I'm going to reference back we do provide a full-year outlook. I think there's a couple of things, though, I will point out about the first half just as quick reminder.

As you think of the sales growth in the first half we do need to anniversary some pretty strong charcoal growth numbers in the first quarter of a year ago, so that's an important thing to keep an eye on. The second thing is you might recall we had the Ebola and other concerns in the second quarter, so we're certainly going to have to lap those numbers and we're watching foreign currency pretty carefully. But beyond that there's going to be puts and takes across the quarters and I think we're going to hold to the full-year outlook at this point.

And keep in mind we're one month into the fiscal year. So I think we need a little more time before we start providing more detailed color.

Okay. You had mentioned in your prepared remarks that you're managing price gaps in bags and bleach. Can you talk a little bit more about that?

Yes, certainly we taken increases obviously on bleach and Glad, both of which have gone fairly well for us, although I would say that historically particularly on the Glad business we have spent some of the money back and that's certainly what we're doing. And historically more than 50% of the resin savings have been spent back in the market and we're doing that. We're spending probably a bit more.

So I would say on balance both businesses are doing well from a marketshare standpoint. We're pleased with the execution. But not unexpectedly we're having to spend some of that back to manage the price gaps which are pretty consistent with what we would expect.

And Olivia, one thing I would just add is more broadly that part of the strength that we're seeing on the top line we certainly think is because we're very focused on delivering value to consumers. So this focus on value is playing out and while value is more than just pricing we're certainly always monitoring the price gap and we've got good processes in place making sure that our price sensitivity is where it needs to be and always following a price increase you want to be extra mindful of that and our remarks spoke to that.

Got it. Thanks, and if I could just follow up with one more question on Burt's Bees. It's been a great growth driver for you behind innovation.

Is there opportunity to expand that to even more categories, perhaps even into household? Because it seems like you've branched out in terms of licensing the brand a little bit, so just curious how you think about the opportunity there. Thanks much.

Yes, thanks Olivia. On Burt's Bees like you said really nice success with double-digit sales growth in fiscal year 2015 which has really been strong, also compared to previous years as we stepped up investments.

Three growth pillars, first of all just continued growth opportunities on the base businesses, the categories that we're already in in the US, in Canada given that we're seeing opportunities that we have for the first time taken advantage now in fiscal year 2015 through TV advertising to just grow awareness and trial on the base. And we think that there's a lot of space in this first growth pillar.

Second growth pillar, getting into new categories; third growth pillar in international. As for new categories, yes, there still is a lot of opportunity. And one thing that we will be doing in the front half that goes exactly after this opportunity is later on in the first-half launch color lipsticks, so this is our first foray into lipsticks.

It's a category where there is a sizable consumer need for natural products and we have a wonderful product out there both in terms of product performance as well as it terms of packaging that we think is highly differentiated. And we have started to engage our customers in this opportunity and are getting a real enthusiastic response. So that's the next one up where we feel like we can make a significant dent in a new category but like I said, over time there should be additional opportunities to get into new categories beyond this.

Ali Dibadj, Bernstein Research.

Hi guys, I want to drill down a couple of things, a few things. One is so given the spending you're describing it sounds like we should expect next year to be more of a volume driven year that a pricing driven year, at least net price kind of like this quarter. Is that fair?

Well certainly given foreign currency headwinds, yes, I think you're going to see volume obviously outstripping sales growth just because of that.

Organic I mean.

Perhaps, Ali, with the exception of international of course, where volumes may be somewhat under pressure and where we'll continue to do the best we can on pricing to offset FX and cost inflation headwinds.

So I want to bring that to your gross margin guidance a little bit because it is going to be a little bit more volume driven, at least organically. And it reiterates some of the questions earlier, but if pricing is up, volume leverage you're going to get, commodities are a help, cost savings help, and you mentioned the offsets of that are effectively some trade spend, which is only going to be about half of commodities, you really only have FX as the last bucket. And you can make estimates and slice this either way but it feels like you're talking about several hundred basis points of gross margin impact from FX.

I don't know if that can be right. So within that FX can you disaggregate that a little bit, give us some thoughts on why you think it's that bad?

And particularly you mentioned the release that you're believing there's going to be Argentinean deval there, that's different than a lot of other companies we're hearing from. So a little bit more detail on that, in particular the offsets particularly around FX would be helpful. I can't get there the way you're describing it.

Okay. Well I'll let you do the math but the three things that we would point out are number one, the fact that we are going to invest more in the business. That will come through trade spending and in the short term that's depressive to gross margin, over the long term as you drive trial and repeat it's a good thing.

Manufacturing and logistics costs which does impact us probably a little bit more than other companies because we tend to run heavier loads and longer lanes, so that will be some pressure. And then again foreign currency obviously is going to continue to be a drag including Argentina.

Let me spend a minute on your question regarding Argentina. Because I recognize that we're probably a bit unique in terms of putting this into the outlook. But we think it's prudent to put this into the outlook, and why is that?

Well number one, inflation rates as we all know in Argentina are running well ahead of a lot of other countries. Number two, we have not seen a devaluation in that country for quite some time. And most of the leading economists are actually projecting that there will be a major devaluation sometime in the next year or so.

Third, and this is a very important point, one of the leading indicators of a devaluation is the difference between the parallel rate and the official government rate. And that has been widening pretty consistently and Argentina for some time. So for all those reasons we do think a devaluation in Argentina is likely.

Obviously the timing and the amount is very difficult to call. But we wanted to call that out and put that in the outlook because we thought that was important for people to understand. And we'll need to get farther into the year and see how that actually plays out but we do think there's a real risk for this Company and probably for other companies in Argentina.

You guys have been ahead of the game on Venezuela, so I guess we'll watch this one on Argentina. One last question on the lifestyle segment, obviously a little bit tougher this quarter, dressing and sauces and Brita continues for a little bit.

And as both an issue on top line and margins, trying to get a better sense of whether we should expect the historical positive margin mix you were getting from that category to come back? Or do you believe that you're still going to feel some pressure in that category, top line and also margins will be pulling back?

So I would say that when you look at that segment and you're looking at businesses like Brita and Burt's Bees and food they have very attractive margins. So there's no change to that; as those businesses deliver growth that will give us a bit of a tailwind from a margin standpoint, so continue to feel good. The fact that the margin was down a bit in the fourth quarter not concerned.

We're spending a bit more behind Burt's Bees. We've got the lip color launch that Benno talked that's going incredibly well. So it was a conscious decision on our part to invest a bit more in that business.

And from a top-line growth standpoint I think we continue to feel very good about Burt's. For the full year it was double-digit grower. The Brita business has been a bit of a drag on the business but I was very pleased to see in the fourth quarter we actually had some positive growth on Brita.

And so I think some of the actions we're taking are starting to get traction. And again Hidden Valley Ranch continues to perform well but we did struggle a bit with KC Masterpiece and that hurt us a bit in the quarter. So on balance, feeling very good about the segment and the plans that we've got in place for those businesses.

Okay, thanks very much.

Joe Altobello, Raymond James.

Hey guys, good morning. Just want to clarify something you said earlier, Steve, regarding the increased promo to address price gaps in both bleach and trash bags.

You've mentioned in the past that you did expect some volume impact from that. Has that been going as you expected or is this to address something that's gotten worse than your model had predicted?

Yes Joe, this is Benno. Good afternoon. So I would say if we take those in turn in laundry that's gone about as expected. The category has actually done very well.

The category has done, has been at its best since we started lapping the compaction a few years ago. So feeling really good about that and I would call it about in line. Share continues to grow, so that is expected.

Glad I would call that better-than-expected with strong sales growth but also strong volume growth. And I would associate that with really strong starts behind our Glad OdorShield Febreze with Gain scented trash bags that have helped us grow not just dollar share but also volume share in the last quarter.

And we're certainly continuing to invest in that because we have a lot of momentum in that. And in Q1 we'll double down on innovation and we will launch for the first time Glad with Clorox trash bags and what that is is a new premium trash bag with an antimicrobial agent embedded in the drawstring and we think that that will continue to extend the string of nice successes we've had behind innovation in the category. So Glad certainly going better than expected and we're investing behind the momentum.

Got it. Okay. And in terms of the cleaning segment you mentioned up 9%, obviously much bigger than what we were looking for, most of that coming from wipes. Was there merchandising activity that may have pulled forward some demand there or was that a real number essentially?

Yes, Joe, if you look at cleaning the strength actually has been in all parts of the business. Certainly wipes has been up double digits and I would say that we're certainly investing in merchandising but as we invest in merchandising it's behind innovations and it's to drive trial.

Because as you'll recall the household penetration in this category is still at or about 50%, so I look at that as glass half-empty I guess. And there's still an opportunity to keep driving impulse purchases and household penetration that way.

But also Clorox cleanup sprays and toilet bowel cleaners and those are significant businesses. They were up double digits in sales in the last quarter, so I feel like the homecare strength is relatively broad-based and also fueled by a relatively strong innovation program.

Bleach we talked was up, Clorox 2 grew share significantly and that's been a departure from previous trends and we're feeling good about that business. And also our professional business displayed really solid growth. So in a nutshell I'm feeling good about the momentum across all of cleaning.

We'll keep investing in profitable growth. Certainly results at this point are particularly strong and I would be cautious to say that we should expect a continuation of trends like it. But I like where we are and I like where we're going.

Got you. And just one last one if I could in terms of splashless bleach. Obviously it's a big margin driver for you guys.

How big could that be if you look at crystals and the solid packs in terms of a percentage of the overall category? Thanks.

Tough to quantify in percentages, certainly, but as you know we are very focused in bleach not just to drive market share but to drive quality of market share. What we mean by that is to keep shifting the business towards value-added segments.

Splashless is the star right now. The scented bleach segment falls into that category as well and this quarter we will launch bleach packs and bleach crystals, a premium product innovation that gives consumers the performance of Clorox bleach in a more convenient form that's easy to dose. So we feel like there is significant upside and the consumer is responding to those value-added innovations and we'll keep driving that.

Great, thanks guys.

Bill Schmitz, Deutsche Bank.

Yes, hi, this is Faiza calling in for Bill. So I just had a couple of questions.

One, it sounds like you're moving some dollars from the A&P line to trade spending. So one, is that fair and two, is that because you are reducing spending in international markets or is it across the globe? And is that because you're finding that the ROI is better on trade spending than on A&P?

Yes, what we said is that we will spend an additional percentage point of sales and we said that those dollars will move around, so you will always see shifts between quarters. Within advertising and sales promotion if you look at advertising, sales promotion is actually up, so we are spending incrementally in trade but that spending is incremental to advertising and sales promotion and not replacement to advertising and sales promotion.

What we are certainly doing within advertising sales promotion is shift from international where the returns in some countries right now are clearly lower and we're not interested in investing in not profitable volume. And those dollars go into the US where we are seeing nice return and where you see that deliver strong growth in businesses like Burt's Bees but also homecare.

So trade is incremental right now to advertising sales promotion. That's probably going to be here to stay for a little while at the somewhat elevated basis, but we're also continuing to be very committed to advertising and sales promotion spend as is evident in the fiscal year results, and we like the return in that area as well.

Okay, but it sounds like for next year to make the guidance work with the flat gross margin and S&A slightly below 14 points, it sounds like the ratio is going to go down next year for fiscal 2016.

You know, Faiza, again what we would really focus on is the fact we do have a plan to get to the 25 to 50 bps of EBIT margin expansion. A good chunk of that is going to come from lower S&A costs, in part because of the productivity efforts that we put in place in the Company and in part because we expect to normalize our incentive compensation cost. So I think that will be the biggest single contributor.

As a company as Benno indicated, we're going to continue to invest and invest a bit more heavily in consumer demand building investment, but the mix across the quarters can move between advertising as well as trade.

Okay, great. And then just wanted to ask again about wipes. So I know the sell-through data has been really good. Can you just talk a little bit more about -- I know there's been a lot of innovation there also, but how sustainable -- how should we think about the wipes category going forward?

So the wipes business has been a growth driver for us for a while, and I'm confident that it can and will be going forward. And the way we're going to drive growth is, one, a focus on delivering superior value to the consumer. We have a consumer preferred product and we're making clear to the consumer that they are aware of this value superiority. And we're certainly investing very strongly in advertising sales promotion and also in trade promotion, like I said.

Then two, innovation. And one innovation that's done particularly well for us over the last six months is the wipes with the micro scrubbers for particularly tough tasks, and we're certainly driving that innovation through spending that creates awareness and trial. At the end of the day, while wipes is on trend, we've talked to many of you in the past about consumers moving towards cleaning in the flow occasions that don't disrupt the flow of the day. And wipes are the preferred product form to meet this consumer need.

So there's a tremendous consumer tailwind. And with the market share of back at about 50% we're really poised to capitalize on that trend. So we see tremendous opportunities for continued growth in this segment.

Great, thank you very much.

Jason English, Goldman Sachs.

Hey, good afternoon folks. Thank you for the question. I wanted to follow-up on the line of questioning around gross margins first, and I apologize if you answered this, I'm trying to multitask a little bit, but to Ali's question we get to similar math.

You try to bridge the assumption and there's a hole of around 200 basis points or so in your gross margin guidance. Is that really the magnitude of FX pressure you're expecting or is it maybe the commodity assumption? Commodity is clearly inflected into a tailwind this quarter. What are you assuming on a go-forward and why shouldn't we expect that tailwind to continue to build?

So I don't know if I can bridge it all the way although I will say 2 points of gross margin drag associated with FX seems a bit large. So let me try to clarify on that.

Second, there may be a difference in commodity assumptions. Again, I don't know exactly how you're modeling the math. But I can tell you that we do expect to get a modest commodity tailwind certainly in the first half of the fiscal year but we are expecting energy prices to begin strengthening in the second half of our fiscal year and that will start to mitigate some of that tailwind. So again we're expecting a very modest tailwind from commodities at this point and maybe that's one of the differences.

And that assumption on energy is that just because it seems like a prudent assumption or are you seeing anything that would lead you to believe at least in terms of derivative products like resin they will indeed be firming?

You know, when you're dealing with things like resin it's always a factor of obviously supply and demand which is the biggest single determinant. And in that respect it's reasonably tight out there.

And then of course energy prices which good people can debate it but I think what we have read and what we have heard is probably next calendar year you'll start to see those markets come into balance a little bit more. As a result that should push back up on energy prices somewhat. And so that plus a tightening supply-demand environment is a reason we believe that the markets will firm.

We also saw a price increase in resin actually in May of this year. So we've even seen the early signs that the market is still firming up. To be clear still down versus a year ago but starting to firm up a bit.

Thank you, that's helpful. Now a quick housekeeping question. The volume strength in cleaning this quarter was very pronounced.

Certainly much more than what we would expect to see with some of the scanner data, so was this a matter of just shipments maybe tracking ahead of consumption? Is there some destocked risk to be wary of as we head into next year or was there something that happened outside of scan channels? Like I know you lost a customer over a year ago, did you get that back or are there any other factors that we should be considering there?

You know I would suggest, Jason, the one thing you probably can't see through scanner data is our professional products business because that's obviously all non-retail. So the strength in that business I think probably helps drive some of the volume strength in the quarter and you're just not able to pick that up.

All right. That sounds good. You're not worried about any sort of shipments ahead of consumption or excess inventory to run off then?

No concerns based on what we've been able to see.

Good stuff. Thanks, guys.

Jason, the one area certainly and we've covered this but I want to make sure that you guys all register that certainly is charcoal where we did have a very strong Q1 of last fiscal year and where in contrast the weather this year, Memorial Day and beyond, has been mixed. So there's a chance for lower shipments in Q1 this year but in cleaning it's been a clean quarter, no pun intended.

Right on. Well let's all hope for good weather ahead. Thanks guys, I'll pass it on.

Erin Lash, Morningstar.

Thank you for taking the question. I just wanted to talk about the cat litter category for a second. I think you said that the new product innovation that you have brought to market last August obviously continues to struggle or maybe hasn't turned the category from your perspective around as much as you had hoped.

Where do you see or what is your strategic intent to drive improving sales and market share? I know you said volumes were up slightly I think in the quarter but how do you turn around the sales and market share? Is it more just the competitive landscape or are there sectors within your control that you feel you can adjust to drive improving performance in that category?

Yes, Erin, thanks for that. So that's a business that we like. It's on trend and category growth is strong.

It's a business where historically we've done very well but clearly at this point it's one of the two businesses that's not growing share. Frankly if you look at the last four- to five-week share period it's the only business that is not growing share. So not happy where it is and my message on the business really is unchanged compared to what we said last quarter.

We're not after buying share back. We want to earn share back and what that requires is strong innovation. The competitive landscape in this category has changed.

It is a very competitive category and it does require more and more frequent innovation in the category. We're feeling good about lightweight litter which as you noted was launched last year and that's going nicely and we're investing behind it. But it does require more significant innovation.

And what we've said before is that innovation will come in the back half of this fiscal year and that's exactly what will happen. So I do think that it will take until the back half until we will see shares materially improve but I'm confident that that's going to happen based on what I know about this innovation. And we'll certainly let you know more once we can talk about it in one of the next-quarter earnings releases.

Thank you, that's helpful. And then I just had one follow-up on the international business. Obviously growth has slowed around the world and you've highlighted that.

Clorox has also been very outspoken that they're only going to play in markets where they feel they have a competitive edge. So I guess as you look across your international landscape do you feel that there are opportunities to maybe rationalize where you're playing or is it more just a factor of macro growth coming back and then you're positioned to benefit? Thank you.

Erin, it's the latter. We're overall happy with our portfolio in the US and beyond.

To international, sales grew 11% on a currency neutral basis in the last quarter and in fact we're gaining market share in international. So that should tell you that we have strength, we have strong brands that people like. Because of the macroeconomics that strength is not translating into top line that we can count on and bottom line.

Fiscal year 2016 is going to be another tough year in international, again driven by macros, in particular of course FX as we expect 3 points of headwind. But in the long run it has to expect that the fundamentals, the macros improve and then I'm confident that we're poised to benefit from that.

Thank you, that's very helpful.

Lauren Lieberman, Barclays.

Thanks, just two quick things. One was to follow up on the professional products comments, are those contract wins so the increased volume in this quarter should be sustainable going forward, or is it sell-in for a new relationship?

I think it's broad-based. We're seeing our food service business has actually done quite well, the JanSan business continues to perform well. And we're continuing to expand in the healthcare, just bringing on new items into distribution but just picking up new contracts as well.

Lauren, one thing that is sometimes overlooked is that in our professional business e-commerce actually is a significant growth driver as people buy in particular through office supplies customers. So there's nothing unusual in the professional segments. We're seeing good strength across all segments as Steve noted.

Certainly also as we've said earlier in the call Ebola is something that we're anniversarying later this fall. And that's a watch out as we think about the professional business for this fiscal year certainly in the front half. But in general what we've said is that the professional business is a growth driver for us as a Company and we feel good about the progress and the prospects.

Okay, great. And then the second thing was just the other income in the quarter, really for the year, I know it's hard but what do you think is the best way to think about that for next year?

Well, keep in mind there is some one-time items that flow through fiscal 2015, things like the sale of the low income housing partnership assets in the quarter. So to the extent that you're seeing some one-time benefits come through we would not project those forward.

Okay, so best to I mean traditionally I model that line flat, but that can yield some pretty significant differences but that's not the way it goes.

Flat is probably not a bad estimate, again, because the items that occurred in the first quarter of fiscal 2015 where we made some changes but also in the fourth quarter those things we're going to anniversary out.

Okay, thank you so much.

This concludes the question-and-answer session. Mr. Dorer I would now turn the conference back to you.

Yes, thank you. Let me sum this up.

We're pleased to have delivered a strong fourth-quarter and fiscal year 2015 financial performance, reflecting our efforts to accelerate growth profitably. Our business is fundamentally healthy and our outlook presents a balanced view of our strengths and the challenges and opportunities we see in the year ahead for our business. So thank you.

This concludes our conference. Thank you for your participation.