漢佰 (HBI) 2024 Q2 法說會逐字稿

Good day and thank you for standing by, and welcome to the HanesBrands second quarter 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to T.C. Robillard, Vice President of Investor Relations. Please go ahead.

Good day, everyone, and welcome to the HanesBrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the second quarter of 2024. Hopefully, everyone has had a chance to review the news release we issued earlier today.

Beginning with second quarter results, we have reclassified our Global Champion business in our US outlet store business to discontinued operations, and we have realigned our segment reporting. This was not contemplated in our initial second quarter guidance back on May 9.

Therefore, second quarter results from continuing operations are not directly comparable to our previous guidance for the current consensus estimate. In addition to our earnings release and FAQ document, we have provided two additional documents today.

One is a supplemental financial package with recast historical financials. The other is an earnings handout that provides an overview of the go-forward business as well as a bridge from second quarter results to our prior guidance. All documents as well as the replay of this call can be found in the investors section of our hanes.com website.

On the call today, we may make forward-looking statements either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially.

These risks include those related to current macroeconomic conditions, consumer demand dynamics, our ability to successfully execute our strategic initiatives, including our restructuring and other action related items, our ability to deleverage on the anticipated timeframe and the inflationary environment. These risks also include those detailed in our various filings with the SEC, which may be found on our website as well as in our news releases.

The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Unless otherwise noted, today's references to our consolidated financial results and guidance exclude all restructuring and other action related charges and speak to continuing operations.

Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP can be found in today's news release. With me on the call today are Steve Bratspies, our Chief Executive Officer; and Scott Lewis, our Chief Financial Officer. For today's call, Steve and Scott will provide some brief remarks, and then we'll open it up to your questions.

I'll now turn the call over to Steve.

Thank you, T.C. Good morning, everyone, and welcome to our second quarter earnings call. Since we last spoke, we've taken strategic actions and made several decisions that will drive a new direction in future for HanesBrands.

As we announced in June, we've reached an agreement to sell our Global Champion business, and we'll use the $900 million of net sale proceeds to pay down debt and further deliver our balance sheet. We also completed the exit of our remaining US outlet store business.

By exiting these lower margin businesses, we have fundamentally strengthened the company, creating a more focused simplified business, one with more consistent top line growth, higher margins, strong cash generation, a wide competitive moat and multiple levers to unlock shareholder value over the next several years.

Before I get into why I'm so confident about the go forward business, I'll briefly touch on the quarter. In addition to all strategic activity in the quarter, our HanesBrands team did a tremendous job operating the business.

We delivered strong second quarter results with better than expected performance from our Innerwear business in the US, strong cash conversion and continued expansion of both our gross and operating profit margin. Given that we moved certain businesses to discontinued operations, which was not contemplated in our initial second quarter guide.

Page 3 of the earnings handout shows the bridge from our results to our prior guide. As you'll see on a total company basis, sales for the quarter were at the midpoint of our guidance range and we were above the high end of our range for gross margin, operating profit and earnings per share.

Now let me turn the discussion to our business on a go forward basis and what HanesBrands looks like post divestiture. HanesBrands is a powerhouse in basics and Innerwear with a global footprint. We're relatively evenly split between men's and women's.

And we operate in a category that is core and essential for consumers. While the pandemic and the current macroeconomic environment have created a period of volatility, long term, we are confident this remains an attractive and stable category.

We own a portfolio of iconic brands that hold the number one or number two market share position in their categories, including Hanes, Bonds, Bali and Maidenform. Our brands are synonymous with comfort and have been trusted by consumers for generations.

We have a proven global consumer-centric innovation process that is driving market share gains, new retail space and is making our brands increasingly the choice of younger consumers. In the US alone, innovation product has contributed over $0.5 billion of sales in the last 18 months.

And our innovation pipeline is full, giving us visibility to new product launches and brand programming into 2026. We have global go-to-market capabilities and distribution scale that is unmatched, allowing us to capture demand wherever the consumer wants to shop.

Our products are available in every channel, including leading retailers that are winning with consumers and through our own direct to consumer offerings. And we have advantaged world-class manufacturing and sourcing operations. This is a powerful asset base and capability that we are already leveraging to further widen our competitive moat to extend our market share lead and to generate consistent top line growth over time.

In addition, we're well positioned and highly confident in further margin improvement. We have the natural recovery of our gross margin and the benefits from our existing cost savings programs, which are driving margin expansion this year.

Beyond that, the divestiture of Champion and the exit of our US outlet stores has created the opportunity to deliver a step-function change in our overall cost structure and improve our operational efficiency. We've identified three key areas and have specific plans in place to further reduce costs.

First, we are resuming our migration to a consistent modern technology platform across the global organization that will enable better business analytics and planning, improve forecasting and drive greater automation.

Second, we're further optimizing our supply chain. With the divestiture as well as the benefits from automation and our SKU management initiatives we're able to exit several manufacturing distribution facilities while maintaining capacity for growth. These actions are expected to further simplify operations, reduce overhead, drive greater utilization and improve customer service and in-stock.

And third, we're attacking SG&A overhead. This is all of the non-revenue generating spend within SG&A. We're creating the right cost structure for a simpler and more focused company. The supply chain optimization and SG&A reduction actions represent the vast majority of the savings, and we expect these two initiatives to be complete by the end of 2025.

We're also strengthening our balance sheet through debt paydown and a focus on driving faster inventory turns with higher margins, lower interest expense and working capital productivity. We're confident we are positioned to generate strong double digit EPS growth for the next several years.

We believe HanesBrands will generate consistent top line growth of gross margin in the low 40% range and operating margin of more than 15% and more than $400 million a year of cash flow from operations.

So in closing, we delivered solid second quarter results in a challenging consumer and apparel market. Through the actions we've taken to exit lower margin businesses, we fundamentally strengthened the company, creating a more focused, simplified business.

We are now even better positioned to accelerate the flywheel of increased earnings growth and faster deleverage of the balance sheet, which provides us with multiple levers to unlock shareholder value over the next several years.

And with that, I'll turn the call over to Scott.

Thanks, Steve. I want to echo your confidence on what the future holds for HanesBrands for the simplified and strengthened business model, I believe, are well-positioned to generate strong shareholder returns over the next several years through a combination of double digit earnings growth, paying down debt and in the longer term, returning capital to shareholders.

As a result of the strategic actions we have implemented a global champion and our US outlet store businesses have been reclassified to discontinued operations, and we had realigned our segment reporting. For recap historical financials, please see the supplemental financial package that's posted on our investor relations website.

For today's call, I'll focus on continuing operations for additional details on the quarter's results and our guidance, I'll point you to our news release, second-quarter earnings handout and FAQ document. Overall, we delivered strong second quarter results.

We saw sequential improvement and top line trends. Operating profit increased 46% over prior year as we return to double digit operating margins and interest expense decreased due to lower levels of debt, all of which drove a 650% increase in earnings per share.

For the quarter, net sales were $995 million. This represents a decrease of 4% versus prior year with 150 basis points coming from FX headwinds and 130 basis points from last year's US hosiery divestiture. On an organic constant currency basis, net sales decreased 1% in the quarter.

Looking at our segments in the US are approximately 90% of the businesses is Innerwear. Sales decreased 1% compared to last year, which exceeded our expectations. While we continue to face a challenging environment with consumer spending headwinds and tight inventory management of select retailers. We're seeing that our strategy is working and we're continuing to win the marketplace.

In the quarter, we gained another 40 basis points of market share in Innerwear as increased marketing investments and product innovation are driving point-of-sale trends that continue to outperform the market. With respect to innovation, we saw strong growth in our Hanes originals and Maidenform M products lines.

And we launched value brief, which is our biggest innovation behind the brand and over a decade. In our international business, sales increased 2% over prior year on a constant currency basis. Australia business, which represents roughly two-thirds of the segment, decreased at a mid-single-digit rate as lingering high interest rates continue to weigh on consumer spending.

But we're not standing still in Australia. Despite the macroeconomic headwinds and the consumers' focus on value, we are continuing to find solutions to drive brand relevance and consumer engagements. For example, we launched our bonds everyday value product, which is an extension of one of our US products. This addressed a gap in our assortment that aligns with the current buying behavior of the Australian consumer while maintaining a strong margin profile.

Touching briefly on our other segment, this segment historically held our US hosiery business as well as sales from a transition service agreement between our supply chain and our previously on European Innerwear business. All the year-over-year sales decrease in the quarter was due to the divestiture of our hosiery business and the completion of a supply chain service agreement.

Turning to margins, we saw significant year-over-year improvement in both our gross and operating margins in the quarter, while simultaneously increasing brand marketing investments by 125 basis points. For the quarter, gross margin increased 525 basis points to 39.8% operating margin increased 430 basis points to 12.7%.

The margin improvement was driven by lower input costs as we have moved past, the impact from peak inflation as well as the benefits from our existing cost savings initiatives. This allowed us to increase brand marketing investments to support growth related initiatives which is contributing to our market share gains.

A good example that underscores the success of our financial strategy with the return on our marketing spend. I was pleased to see the investments we made behind our HanesBrands at one of our largest customers drove nearly 400 basis points of share gains with younger consumers.

Our visibility to input cost and our existing cost savings programs. We're confident that we can continue to expand our gross and operating margins in the second half of the year. And for the incremental cost savings initiatives that Steve outlined, we see a long runway for significant margin expansion in 2025 and beyond.

With respect to EPS, our focus on paying down debt yielded more than $8 million of lower interest expense in the quarter as compared to last year. The lower interest expense, coupled with higher profit margins, drove EPS of $0.15, up 650% to $0.02 last year.

Now turning to guidance. All of my comments will refer to adjusted results from continuing operations and will be based on the midpoint of our guidance range. I would like to point out that with the reclassification of Global Champion and US outlet store businesses to discontinued operations.

Our current guidance is not comparable to our prior guidance given on May 9. That said, and comparing our current full year outlook on an apples to apples basis, our sales outlook is unchanged. However, we increased our operating profit and EPS outlook as we continue to outperform on delivering cost base.

Looking at sales, we continue to expect sequential improvement and a year-over-year sales trends. On a organic constant currency basis, we expect net sales decreased 2% for the full year and 1% for the third quarter.

Turning to operating profit as we've highlighted all year, we have strong visibility to input cost and cost savings on our balance sheet through the rest of the year and into early next year. For the full year, we expect operating profit to increase 36% and operating margin to expand 330 basis points to 11.2%.

For the third quarter, we expect operating profit to increase 34% and operating margin to expand 330 basis points to 12%. But our input cost, visibility and the new cost savings programs we just put in place, we are well positioned for continued expansion of both our gross and operating margins next year.

Looking at EPS for the full year we expect EPS to increase 670% to $0.34. For the third quarter, we expect EPS to increase 650% to $0.11. With our commitment to pay down debt and our outlook for continued margin improvement. We believe we are well positioned for strong double-digit EPS growth next year.

With respect to leverage with the proceeds from the announced Champion sale and internal cash generation, we expect to pay down an incremental $1 billion of debt in the second half of this year. We expect our year-end leverage ratio to decline approximately 1.5 turns year over year and to end 2025 at approximately 3 times on a net debt to adjusted EBITDA basis.

So in closing, we delivered solid second quarter results with sequential improvement in our year-over-year sales trends, strong growth in profit and earnings per share and lower debt. These results underscore our strategic direction and operational strength.

Looking forward, HanesBrands is taking a new direction. Our simplified strengthened business model we are confident in our ability to generate strong shareholder returns the next several years through a combination of double-digit earnings growth and continued debt reduction.

And with that, I'll turn the call over to T.C.

Thank Scott. That concludes our prepared remarks. We'll now begin taking your questions and will continue as time allows. I'll turn the call back over to the operator to begin the question and answer session.

(Operator Instructions)

Jay Sole, UBS.

Super. Thank you so much. Steve, I have a few questions. My first question is about how you feel about the portfolio today after the sale of Champion business. Are there any parts of the business that maybe you could you're considering doing something with or do you feel like the portfolio today is the go-forward portfolio you expect to have over the next few years?

And then, Scott, for you, just you mentioned that the EPS guidance on apples to apples basis went up. Can you maybe give us maybe dimensionalize that a little bit give us an idea of how much it would have went up and what the drivers were? And then lastly, do you have a new target net debt to EBITDA ratio where you want the business to be over the next couple of years Thank you so much.

Sure. Good morning, Jay. Thanks for the questions. In terms of the portfolio, the shorter answer is yes, I really like the portfolio that we have today and on a go-forward basis. When you look at the brands that we have, the markets that we're in, I think we're in the right places where there's opportunity to grow in those markets and the power brands that we have Hanes, Bonds, Bali, Maidenform, they're all top tier brands in their segments, number one, number two position.

And I think they all represent growth opportunities both in their core segments and opportunities to expand beyond. So we have nothing planned beyond what we've just done. We like the portfolio, we like the growth opportunities and importantly, the margin opportunities that come along with it.

Yeah. Good morning, Jay, and thanks for your questions on the on the full year guidance, it's a great question. And let me first say, we're really pleased with Q2 results where we delivered strong results in a tough environment and we feel good about the second half. As you think about the full year outlook and we talked about this in our earlier remarks with the reclassification of Champion in the US stores to discontinued operations.

Our prior full year guidance that was based on total company is not comparable when you look at our updated guidance, that's based on continuing operations. And let me walk you through that and kind of walk you through how that reconciles and how we think about (inaudible) So for sales, we're essentially holding sales flat to up to our prior guide, no change there.

If you consider our midpoint of our guide for sales was $5.41 billion, we had about $1.8 billion of sales between Champion and the US stores. When you back that out, you pretty much arrive right at the midpoint of our current guide of $3.61 billion.

For operating profit and EPS, we've actually raised our full year outlook. Our previous guide the midpoint was $510 million and it included around $120 million of operating profit for Champion and the US stores. So with the midpoint, you factor that in, you arrive about $390 million backing out that profit. Our updated guide for OP profit is $405 million and so we're essentially flowing through the Q2 deep and factoring in some incremental upside in the second half.

So then you also asked about leverage, and we also feel really good about that continued focus on debt reduction we talked about in the earlier remarks. In the back half, we're going to pay down $1 billion of debt. And when you look at that by the end of the year, we're going to be down a turn and a half year over year by the end of this year.

And then looking forward, we're not guiding for '25. But as you think about next year, the margin expansion that we're expecting the continued debt paydown we expect to end next year around 3 times on a leverage basis.

And Jay, just one more thing kind of beyond 2025. We said previously that our range guide is 2 times to 3 times. We've gotten asked the questions previously, is that too high? And what I would say is we're going to get back to the 2 times to 3 times and then we'll step back and evaluate. Is that the right measure going forward.

I think you can probably anticipate would be towards the lower end of 2 times to 3 times, if not lower going forward, but we'll get back into that range. And then we'll evaluate and then talk about where we're going to be.

Fantastic. Very helpful. Thank you so much.

Thank you.

Ike Boruchow, Wells Fargo.

Hi, everyone. Good morning. I guess just two questions from me. We have the guidance for the gross margins, but sounds like you guys have momentum on the cost side into next year. So the gross margin you guys and this year, I guess slightly above [40%], I think is your guide.

Where do you kind of see this new -- with the new portfolio or the adjusted portfolio where is the gross margin structure likely to head? And then just from a growth rate for lack of a better word, the algorithm of this business, how do you see growth, how should we be planning this portfolio to grow relative to the one that you had just recently?

Sure. Good morning, Ike. Thanks for the questions. In terms of gross margin. I think, again, we're not officially guiding for next year. But as I said, we think this business over time will operate in the low 40% range. So there's continued growth to be had there. And that will come from some really strong cost actions that we have been taking and will continue to take.

Obviously, there's still some natural recovery of our gross margin based on input costs that we will continue to benefit from. We've also been very focused on cost savings initiatives that continue to perform for us. And with the inflection point of the divestiture it creates opportunity to go for and for us to look at the business differently.

And we have some new savings programs that we're putting in some of them are powered by the technology platforms that were going to be putting in. And we slowed down that process we're re-energizing that we have opportunities to get better on our analytics, our forecasting more automation in our business that can continue to help us drive costs.

Our supply chain, we're going to take some actions, and that's some from the change in the portfolio, but it's also all the hard work we've been doing on inventory management. Our scale program enables us to move capacity around and take some facilities offline, but still have room to grow.

So we're attacking cost on all fronts that are going to continue to help us grow our gross margin and our OP margin over time as we go forward. In terms of growth, I think the way you should think about this business is a more stable and more consistent growth business as we go forward.

And obviously today, as we sit here, huge headwinds out there. It's a tough business to operate in, but we see this business growing in the low single digits as we go forward. We think we have lots of different growth opportunities that we can go after, including just our core business and getting better at that business.

And ultimately, when we have that level of growth, we're still going to have our operating profit growing faster. Then our sales within OP profit growth, double digit and EPS will grow faster than OP profit at double digit. So there's a flywheel here that we continue to generate.

The P&L it's going to continue to generate cash. We're going to continue to invest in the business. We're going to continue to be able to pay down debt so our interest costs go down. So we'd like the shape of the P&L as we go forward and what that looks like.

What I would tell you and I think it's really important with all the challenges in the economy right now with the consumer, just the broader markets, the margin improvement that we're forecasting is going to happen whether the consumer turns around or not.

And I think it's a really important point for us. We've been talking the last couple of quarters around margin improvement and you're going to continue to see margin improvement from. You've seen that the last couple of quarters, you're going to see that in the quarters going forward. So when we start to talk about gross margin improvement, OP profit improvement, you're -- is this is not a hockey stick idea. This is quarter over quarter, you're going to see improvement on the margin line of things.

Got it. That's helpful, Steve. And then if I could ask one more just on the cotton, specifically the AUC that you guys have on that, there's been a few companies that have been giving a little bit more detail on cotton costs and the flow through.

I think one company yesterday actually said they expect a sizable benefit, but they kind of explained. It is half of that benefit flows through this year and half of that benefit coming next year. Can you kind of comment on that? Does that kind of mirror what you're expecting in terms of how we should expect benefits from those cost from that specific cost item to flow through?

Yeah, sure. Happy to talk about it. When you think about cotton and you think about how it flows through for us, we're -- as you look into next year, we're call it roughly 60% fixed on cotton going into next year. So cotton is relatively low right now.

So we're estimating that would definitely be a tailwind for us as we go into next year. So if some of the other commodities stay all flat, we think we're going to have some cost tailwinds as we go forward based on cotton. So we feel pretty good about our position right now.

Great. Thank you.

Thank you.

Paul Lejuez, Citi.

Hi, everyone, this is Brandon Cheatham for Paul. I was hoping, could you seize the opportunity that you have available on the SG&A line item or give us some direction there. As we think about where you all end up by the end of this year, like how far along are you in the progression of cutting costs there as we think about 2025 and beyond?

Yeah, when you think about on SG&A, Brandon, there certainly is opportunity and it comes in different fronts. One, there's just we can continue to get better in SG&A there's no doubt about that, but it's also tied to the transaction and how we look at the business in total. There's costs that on a company our size, they're kind of in between different businesses.

And we are tackling those businesses costs right now. And there's cost that is going to be coming out as a large chunk of costs in the back half of '24. But it's also going to continue in the first half of '25, that's going to be a tailwind for us in the margin all the way through 2026. So we've got very clear actions. We're starting those actions. We've got very good focus on where the cost is and that's on a global basis.

Yeah. And just one point to add to that, we've clearly talked about the cost savings, right? We're really laser focused on that. But one thing to consider, as you look at our SG&A this year, we are already investing in brand, right?

So when you think about our SG&A structure, we're taking cost out that we have an incremental layer of investments from brands. We're already at 5% of sales this year through our brand investments. So we've majority already got that in the P&L this year. And then as you think about going forward, as Steve mentioned, cost savings is going to be able to drive SG&A down further.

Yeah. So whether it's headcount, whether it's reducing tech applications, consolidating other vendor headcount, we're attacking every aspect of it. And again, you'll start to see that in the back half of this year and will flow through into next year.

Got it. And then if I could follow up, I was just wondering about inventory levels at your retail partners, how as POS is trending? Sounds like you guys are continuing to take share. Are you gaining shelf space with your retail partners? Anything that you can share there?

Sure. The short answer is yes, we are continuing to gain shelf space, both on a permanent basis and on a promotional basis. So when you think about promotions for back-to-school holiday, share of displays on the floor, we've done very well from a share perspective at back-to-school, proud of the team and how the selling actions happen there.

Retailers are being cautious on inventory. There's no doubt about that as is everybody tab. So we think that we're in good shape, POS is tracking relatively along with shipments or say shipments are tracking along with POS.

But the important thing is we continue to take share. And we continue to outperform the market across all our brands across all the categories and segments that we operate in. And we see that continuing as we go forward.

Got it. Appreciate it. Thank you so much.

Thanks, Brandon.

David Swartz, Morningstar.

Yeah, thanks for taking my question. Following up on that last answer. Can you maybe talk about why it seems like your basics business has been depressed for a while? And when you think the sales might bounce back a little bit and return to growth and when in the past, when Hanes has faced a market with kind of depressed demand for Innerwear, what it has looked like when the demand has returned? Thanks.

Sure. Clearly a category has been challenged for a while. It's interesting when you look at the category that over time. Historically, this has been a roughly 1% growth category. And if you look at the business over the last three years, while it has certainly been highly volatile, it's still averaged around 1% if the issues that 2021 was so high. So that's extended the purchase cycle a bit on.

We anticipate in the long term that the category will return to that 1%, roughly a growth rate as we go forward. When exactly that's going to happen, I'm not sure I can give you a great answer on that. But the good news is we are seeing POS slowly getting better, which is encouraging.

And we're also seeing our consumers and retailers are still responding to newness as our innovation continues to work, our media is working, we continue to gain space. Retailers are taking an incremental holiday events. So I think people still believe in this category, and we're leaning in as hard as we can to drive it.

But I think it's going to take some time before it rebounds. Just like the rest of apparel, things are challenging. So I think it'll take a couple of quarters for this category to normalize. But in the meantime, we are very confident that we're going to continue to take share we're going to continue to lean in and we're going to continue to act like the category brand leaders that we are.

Thank you. And you've announced the closure of the outlet stores historically, has that channel been used to clear excess inventory and why is it no longer a part of the business?

Sure. It has not really been used to clear excess inventory there's a little bit that goes through there. But the ramp taking those out of our portfolio is not going to create a how do we clear inventory problem for us going forward. So I'm not worried about that at all.

In terms of the overall, we've been looking at this for some time. And quite frankly, this we've been reducing the number of stores the last couple of years. We've taken probably 20% -- 10%, 20% of our stores out over the last couple of years anyway.

But the way I look at it domestically we are predominantly a wholesaler. That's what we do really, really well. These stores do not have a lot of volume they're not profitable. And as you go forward without Champion as part of our portfolio that takes in additional part of the higher AUR product and profitability out of the network.

And that kind of becomes a tipping point. They were already very profit challenged and they become significantly profit challenged so that Champion. So we thought it was the right time to make this move and to focus on the parts of the business where we're really strong.

Tom Nikic, Wedbush.

Hey, good morning, guys. Thanks for taking my question. I want to follow up on the question earlier about the top-line growth. Should we think of that the low single digits that you're looking to generate? Should we think of that as being driven by shelf space gains or are there also ASP opportunities as you innovate and you have introduced products?

Sure. I think you should think of it is driven by a number of things. Do I think we can continue to just take shelf space and out operate the competition from a service perspective? Yes, we expect to continue to do that.

We are going to continue to innovate. I've been really proud of the team and the innovation that we've delivered over the last couple of years. We have a new innovation process that operates globally and products like Hanes Originals and SuperSoft, Maidenform M have all come from this, and they're working really well and we're doing it globally.

We're moving product back and forth between the US and Australia, and it's making a difference in our business here (technical difficulty). And you're going to see a very robust pipeline of innovation coming from us going forward.

We have visibility after 2026 right now of our big launches. The other thing you're going to see is us expanding our portfolio. We have great brands so where can we take these brands, what adjacent categories can we play and that we're not in today.

One small example of that is what we're doing in medical scrubs right now. We have a early, but nice building business of Hanes and the medical scrubs business. The HanesBrands can play in a lot of different places, and we're going to be smart about adjacent categories that we can go into that are going to be highly incremental.

There's also growth globally, we have -- I think we're in great markets, but some of them maybe are more underdeveloped than they should be. So we're going to have growth from multiple vectors, and we think there's a lot of different areas that can help us get there.

That's great. And if I could follow up with one more, just -- should we think about there being any meaningful difference between the growth rate go forward domestically and international? Thanks

I'm not going to get into what 2025 guide looks like by segment and do that. I would tell you, I'm confident there's growth around the globe for us. The consumer certainly challenge, our Australia business is an important business for us that economy is really struggling right now, do I think that's going to rebound and continue to be a good growth business for us? Yes, I do.

So I think it's going to be balanced around the globe. Some years will probably be higher in one market than others. But we're thinking about the portfolio we have right now the footprint we have right now as able to drive growth pretty consistently in each location.

Paul Kearney, Barclays.

Hi, good morning. Thanks for taking my question. I was wondering if you can comment on what you're seeing in the promotional environment out there and whether you're seeing pricing pressures. And then as we think about going forward, should we think of that return to the 1% growth as price and volume mix or how should we think about the mix of growth going forward in your different regions? Thanks

Sure. Clearly, the consumer is under pressure right now and what we're seeing is consumers are buying around events. So they are looking for promotional pricing right now. Nothing though, that outside of the scope of our guy and outside the scope of our plan and our P&L.

But we are being smart about how we go to market for key events like back-to-school, what we're going to do at holiday to make sure that we're meeting the needs of consumers. But it's not a overly pressure packed promotional environment right now. It's more everyone's be smart about how we can drive volume, how we can meet consumer needs as we go forward.

In terms of growth as I was talking about a couple of minutes ago, I think there's growth across the board in this business. We can continue to take share and take space. We're going to out innovate the competition. We've got great global footprint and brands. We're going to expand into new adjacent categories and make our brands work harder for us.

So we think there's a broad growth opportunity for us. And the key for us is the measure that we're going to hold ourselves to certainly in the short term, probably in the long term, we're going to grow twice the rate of the category. So that's what a category leader should do. That's how we're going to take share. So when the category gets back to that historical 1% growth, you should see us growing at twice the rate of the category.

William Reuter, Bank of America.

Good morning. I have two. So the first you gave the guidance about $400 million of operating profit. You clearly have a lot of productivity initiatives, some of which are technology related. How should we think about your CapEx going forward? And I guess as you -- will it be elevated over the next year or two based on some of these, it sounds like potentially cost savings projects that are kind of special and opportunistic.

Yeah, good morning. Thanks for your question. Let me kind of take that from a different angle. So cash flow, you mentioned the $400 million and let me just kind of speak about cash flow in general. As you think about 2024, our guide is this $200 million and you've got some moving parts here.

You have around $100 million of cash charges for the transaction costs as well as restructuring. So as you look forward, I think a good baseline to think about our operating cash flow going forward is around $300 million. And already talked about before, you got to think about that as a good baseline when you layer in the margin expansion from the cost savings, you got lower interest from debt paydown. It's going to grow from there.

You're going to see and we expect to be in the mid $300 million operating cash flow range for next year and we're going to be the growth from there. You saw what we said, we have a good degree of confidence, high degree of confidence around $400 million-plus of operating cash flow going forward.

As you think about the CapEx, it's going to be up a little bit. You're going to have the technology that we talked about earlier. But again, we feel really good about being able to like we talked about we're going to invest in the business and we can easily with that cash flow support the CapEx levels we need going forward.

All right. That's helpful. And then there are many categories where we're seeing some lower price products that are coming from Asia, often unbranded, and they're going direct to consumer on e-commerce platform. Are you seeing any of that increased competition? Is it impacting your categories at all?

Yeah, we don't think it's impacting us. We are seeing it, we watch closely and I know exactly what you're talking about. Our brands remaining really strong and continue to gain share and all the channels that we're participating in.

So we compete broadly with those products and consumers continue to choose our brands. And I think that is media that which is working, the innovation that we're bringing to market is working. So we're competing in our game and how we compete and that model is working for us right now.

That concludes today's question and answer session. I'd like to turn the call back to T.C. Robillard for closing remarks.

We'd like to thank everyone for joining our call today. And we look forward to speaking with you soon. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.