寶潔 (PG) 2001 Q3 法說會逐字稿

Good day everyone and welcome to the Procter & Gamble third quarter earnings release conference call. Just a reminder, today's call is being recorded. The rebroadcast, reproduction, or retransmission of this conference call in whole or in part is strictly prohibited without the prior written consent of the Procter & Gamble Company. At this time, for opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer, Mr. Clay Daley. Please go ahead, Sir.

Thank-you. Good morning and welcome to Procter & Gamble's quarter end conference call. A. G. Lafley, our CEO, and Gretchen Price, our treasurer, joined me this morning. I will begin the call today with a summary of our third quarter results. Gretchen will cover our results by operating segments. A. G. will follow with his perspective on the quarter and the steps we are taking to create shareholder value. And now, I will wrap up with our expectations for the April-June quarter. As usual, we will leave time at the end of today's call for your questions, and Gretchen, Tom Hills, and I will be available throughout the day for calls to provide additional perspective as needed. Now on to our third quarter results, which exceeded analysts' bottom line expectations. Sales excluding foreign exchange were flat. FX negatively impacted the top line by 3%. Diluted net earnings per share were 63 cents on the quarter, including $113 million in after-tax restructuring costs. Diluted core net earnings which exclude restructuring costs were 71 cents per share, up 11% versus a year ago and 2 cents above the consensus. This was due to a slightly better performance on operating income combined with higher interest and other income. The Turkish lira ended up costing us 3 cents on the quarter. Volume was down 3% as expected as we annualized a year ago base period that was up 7% on the expansion of Iams to new channels of distribution. The base period also included the selling of a number of new brands, including Physique. The divestiture of Clearasil, our institutional shortening and oils business [sans] Cinch and Spic and Span, reduced volume by 1%. Pricing index was up 3% versus a year ago and a

point higher than the December quarter's increase. Pricing was driven by increases taken last calendar year in laundry, hair care, and paper, and mixed improvement in hair care and skin care. Core before tax operating profits were down 3% versus a year ago or 10 basis points excluding the onetime impact of the devaluation of the Turkish lira assets, operating margins were actually up. These results marked the returned operating margin growth. Within operating margin, core gross margin was about even with a year ago as higher pricing was offset by higher raw material costs and lower volume. While core marketing research and administrative costs were up 10 basis points on lower sales, absolute spending was $75 million lower year-over-year from lower overhead costs. Our effective tax rate on the quarter was 32%, 1% below last year's rate, reflecting the continued benefit from the implementation of our new global business unit structure in Western Europe and Latin America at the beginning of this fiscal year. For the quarter, operating cash flow totaled $1.5 billion, up 130 million versus a year ago. The improvement was driven by continued progress in lowering working capital. Inventory at 61 days was 4 days below the year ago period. As in the December quarter, payables remained at normal levels after being up significantly a year ago. Receivables were sequentially down 5 days versus December. Versus a year ago, receivables were essentially flat. Year-to-date capital spending of 1.9 billion is 165 million lower than the prior year. Spending to date is 6.5% of sales, on track to hit our

capital objective for the year of getting down to about 7% of sales. This lower spending reflects more [choicefulness] on capital funding and tighter management of approved projects. Year-to-date operating cash flow now stands at 3.8 billion. Cash flow productivity for the quarter was 97%, bringing our year-to-date productivity to 58%, still short of our long-term objective of 75%, but well ahead of last year. Now at this point, I will turn the call over to Gretchen who will cover the operating business segments.

Thanks Clay. As expected, external factors challenged our businesses, including continued unfavorable foreign exchange conditions, the economic crisis in Turkey, and higher energy costs. In Turkey, while the lira has now devalued more than expected, our business team is taking the appropriate steps to manage through the crisis. The total earnings impact for the March quarter was in line with our original expectations. The situation remains difficult, but we expect the June quarter to also be in line with original expectations. Across the GBUs, we are making steady progress. Sales of several of our large core brands, including Tide, Pantene, Olay, and Folgers were up strongly on higher shares. Paper sales comparisons improved behind sharper pricing, especially in North America and Western Europe. Snacks and juice beverages began to recover as we have restored merchandising and better in-store display. Profits were up significantly in fabric and home care and in food and beverage. Let me cover these results in more detail by business segment. First, the beauty care global business unit where innovation on core brands continues to strengthen share, sales were down 6% excluding divestitures and a 4-point negative currency effect, sales were down 1%. Profits were up 5% as growth margin improvements and marketing cost efficiency more than offset the effects of lower unit volume and foreign exchange. Pantene, Head & Shoulders, and Olay continued to drive overall beauty care results. On Pantene, we expanded our successful restage of the brand to the UK and Germany in January, to France and the Benelux countries in March. Early results are promising, building of success in the US where Pantene's end-benefit marketing, transformation copy, and full regimen product [_______________] continues to grow share. Head & Shoulders posted broad-based global share in sales growth, and in skin care, Olay Daily Facials and Total Effects moisturizer continued to build share. In the US, we introduced two new

Total Effects products. Total Effects with UV protection and Total Effects daily facials enriched with vitamins and [lipids]. These products are important steps in building total regimen usage and drove US Olay sales up double digits. Next, our health care GBU where new products continue to build top line growth. Sales were up 5% in the quarter excluding minus 3% FX. Sales were driven by double-digit volume growth from some pharmaceuticals and mid single digit growth in oral care. Profits were down 10% versus a high base period, which included the [sale] in our volumes and new channels of distribution. Health care profit excluding the on selling was up double digits. Our drug to treat postmenopausal osteoporosis, Actonel, was a major driver in health care growth. On track globally and in all key geographies, Actonel sales in its first 12 months are expected to exceed $100 million. We remain positive on Actonel's potential in light of its unsurpassed efficacy, excellent tolerability profile, and the accelerated growth of the osteoporosis market. In oral care, we completed the acquisition of SpinBrush, a great product that offers superior consumer value and performance. Priced at 10% above premium manual toothbrushes, SpinBrush provides an excellent brushing experience at a retail price that's one-third that of Colgate's Actibrush. We re-launched SpinBrush under the correct name during the quarter. Shipments were well above expectations. We have achieved a value share of 7% of the total US toothbrush market and a 24-value share of the electric toothbrush market, twice the share of Actibrush. Iams grew to a record highest value share in the US food, drug, mass, and club channels during the quarter. Iams and Eukanuba continued to be the leading overall brands in pet stores, and we expanded our Iams to broader channels of distribution in UK and in Japan in March, the

number 2 and 3 global markets in pet nutrition. Onto the paper business where shares began to respond to sharper pricing. Sales were up 3% excluding negative foreign exchange of 3 points. Profits were up 8% as margin expansion from higher pricing was partially offset by foreign exchange and higher cost, including increases in natural gas and pulp. In baby care, volume in Western Europe increased as we implemented tactical consumer promotion and trade pricing adjustments to improve consumer value. In Japan and Scandinavia, where we have launched our pull-on diaper, shares were up strongly. Volume continued to grow in Latin America by better tailoring our product lineup to meet local consumer needs. In North America, Pampers Premium continued to deliver double-digit volume gains. This was offset by softness in our main line baby dry business as private label manufacturers gained share. As Pampers Premium shows, bringing improved product performance to the market is the key in regaining momentum in baby care. We continue to develop innovation that will apply broadly across all segments of the diaper business. In tissue and towel business, conditions remain competitive. In the US, Downy shares increased in the quarter on the price rollback taken last November was past one month and three months shares up. We are encouraged by these trends since they confirm the brand's fundamental strength when historical price premiums are maintained. In the face of increased price discounting, we have added to an already strong fourth quarter merchandizing plan. We are committed to keeping Downy at price levels that represent good value to consumers. Charmin shipments continue to grow in double digits, driven by strong category consumption and customer support across all channels. In Europe, both Downy and Charmin volume grew strongly, and we achieved high trade support and in-store merchandising from key customers. In feminine care, results were mixed. In Western Europe, shares reached all-time highs above 50% driven by

new copy initiatives including our Alldays Black Thong pantiliners, and increased merchandizing. In North America, tough competitive conditions continued as we rolled back last summer's 4.5% with price increase. The lower pricing is just beginning to show up on the shelf this month. In Northeast Asia, shipments were lower as trade inventories declined ahead of this month's restage of our Whisper pad products. We will be expanding a new more absorbant and comfortable topsheet and new breathable backsheet. We believe both of these initiatives will help restore growth to the feminine care business over the coming quarters. Next, the food and beverage GBU which saw sequential improvement in volume and sales comparisons behind better everyday consumer value. Sales were down 4%. Excluding the divestiture of institutional shortening and oils and 1% in unfavorable foreign exchange, sales were flat. Profits were up 34% on higher snacks pricing and more efficient marketing support spending which more than offset loss contribution from divestitures. North America Folgers drove the improved results. Folgers shipments, sales, share, and profits were all up strongly in the quarter behind the restructured pricing and merchandizing program. This program lowered list pricing and eliminated inefficient promotions to deliver more consistent everyday value to consumers. And last week, we announced that we are exploring strategic alternatives for our Crisco and Jif peanut butter brands. We continue to make portfolio choices to focus on core brands and categories that are growing faster and less commodity like. Finally, our fabric and home care business where profitability increased sharply on higher prices, lower marketing investments, and lower taxes. Sales were down 3% excluding weak currencies that hurt top line by 3 points. Business unit profits were up 23%. Results were mixed by category. In North America laundry, price increases taken last fall to recover higher raw material cost continue

to hold. While competitors did not fully match the increases, Tide and Gain shares were up for the quarter. In Western Europe, shares began to improve behind lower pricing to bring tablets in line with competition. In February, we launched Ariel Liquitabs ahead of [Lever] in the UK. In Latin America, laundry volumes were up, driven by growth in the South Cone. We followed Unilever's price increases in all three countries during the quarter with share gains in Brazil and stable share trends in Chile and Argentina. And in home care, Swiffer [_______________] continues to build overall US market consumption and Swiffer share. Swiffer's value share is over twice that of [_______________]. That completes our brief review of the quarter. Now, I will turn the call over to AG.

Thank-you, Gretchen. We delivered what we said we'd for the third quarter in a row, and our margin comparisons are beginning to improve. Overhead costs are coming down. Capital efficiency is a bit ahead of pace, and our cash flow is up. We continue to make the top portfolio choices, and we are getting more focused on core categories on our leading brands, on our big countries, and on our winning customers, but we clearly have a lot more work to do if we look at the results, I know this company is capable of. All the strategies we choose and the steps we take are designed to get P&G growing again. We can and must get market shares growing more broadly and more consistently. We are making progress. March marks the 20th month in a row of value share growth in the US. Shares on core categories are stabilizing in Western Europe. They are up to a record level on fem care, and they are up on baby diapers. In France, adjustments we have made to trade terms to be more aligned with prevailing business practices drove our volume up double-digit versus a year ago in the March quarter. Latin American shares are up in the [strength] for baby care and hair care, but clearly, we simply have to do more to get market shares growing more broadly and sales and volume growing for the company as a whole. Strong, steady top line growth is what's needed to deliver more consistent operating performance and greater shareholder return. Everything we are doing is intended to create more value, value to our consumers through meaningfully better products, shopping experiences, and usage experiences at the right not the lowest price. P&G brands consumers trust and can count on. Winning consistently with the consumer leads to superior shareholder return. Our plan to create greater value has three legs,

margin improvement, higher asset efficiency, and sales growth. Let me begin with margin. This quarter like last quarter shows increased focus on cost that's beginning to get results. As Clay mentioned, operating margin comparisons are improving. Year-to-date overhead costs excluding Iams and Actonel [failed] support continue to be flat versus a year ago. We're making progress, getting total delivered cost down, reverse options, formula cost teams, supply chain efforts are all contributing to improved margins and reduced working capital. At the end of March, we exceeded our reverse option savings goal of 100 million for the year three months ahead of schedule. While we are making progress, P&G's cost structure still remains a barrier to faster growth. We announced last month that we need to do more to get fully cost competitive and ideally to a cost structure better than our best competitors. We are doing this by expanding the scope of our Organization 2005 restructure. By 2004, we will have reduced P&G's workforce by an additional 9%. Overhead budgets will decline by 10-15%, putting P&G cost equal or better than the best competitive benchmarks. We expect incremental annual savings of 600-700 million. We have made the very difficult decision to further streamline our organization, to enable us to focus more on consumers, on customers, and on competition, to create more value for consumers and for shareholders. Moving on to the second key element in building value, improving asset efficiency. We are doing this two ways. First, reinvesting in current businesses more efficiently and second, making tough choices on our business portfolio. Let me cover both.

First, capital and working capital management. I set a goal last September to reduce capital as a percent of sales to 6% or less in three years. As Clay mentioned, we are well on our way to achieving our year one goal. Working capital is also improving. Investing more efficiently should drive up cash flow productivity and provide more funds to reinvest to drive future growth. That brings us to the second part of the asset efficiency, choosing the right portfolio. I indicated last fall that we would review P&G's portfolio to pursue the most structurally attractive opportunities. We have taken the following steps. First, we focused the company's new business innovation portfolio and business models and on breakthrough technologies with the greatest potential to create major new businesses for P&G. Second, we announced in February, we would form a new limited liability company with Coca-Cola to sell snacks, juice, and juice-based beverages. This provided the best opportunity to grow our Pringles and Sunny Delight brands much faster while allowing P&G more focused to win in its core categories. We believe significant growth will come from the significant distribution expansion and higher margins of away-from-home consumptions of snacks and juice drinks. We are selecting key managers for the new company, and we will be establishing a board of directors. We have received regulatory clearance in the US and continue to develop plans to get this new company off to a very fast start once regulatory approval in Europe is obtained. Third, we announced just last week, we would explore strategic alternatives for our Crisco and Jif brands, including outright sale, joint venture, or the potential swapping of consumer brands. While these brands are both profitable with margins at or above company average, they do

not play a role in future strategic growth plans. These moves help focus our company in categories with leadership brands and attractive growing markets, the ones delivering leading sales growth and returns and creating leadership shareholder value. All these moves represent progress. We have to continue our strategic review of all of P&G's businesses. The third driver in creating value is sales growth. Sales growth is determined by winning the consumer every time they shop. This means the consumer either chooses P&G brands or not and chooses P&G brands in preference to available competitive offerings. Consumers choose P&G brands when they are of better overall value, and P&G products deliver better performance, value, and service when P&G brands are priced right, when P&G brands develop a relationship of loyalty and trust with consumers. Price is an important factor in a consumer's choice. We have seen soft market shares in some of our brands because we have been too aggressive on pricing or because competition has tried to buy short-term market share. We have taken a hard look at our pricing to make sure we are offering consumers better value, to be sure pricing is not getting in the way of sales and market share growth. As a result, we have made tactical pricing changes in several categories and several markets to restore historical pricing premiums and relationships. To be clear, our focus is on profitable sales growth, but we simply have to defend our leadership share positions when required. The consumer value of course is more than just price. Value comes from a consumer's belief in a product's ability to satisfy and even delight, and this is driven by both product performance and branding, and the communication of the brand's benefit. This is the heart of strong brand equity. A lot has been written recently about brand equity and questions raised about the

strength of consumer product brands. Here at P&G, we believe our brands remain fundamentally strong, and I put focus back on religiously and vigorously tracking the health and strength of our brand equities not only in their market shares, sales, and earnings, their ability to command premium pricing, but also in direct and indirect measures of brand equities like awareness, trial, repeat purchase, and loyalty. For measuring the strengths of P&G brand concepts and the power of their product performance, we are comparing P&G brands to the best competitors, and of course, we are measuring the effectiveness and efficiency of all the key elements of their marketing plans to consumers and to customers. In 1983, when I came under the Tide brand, the US market share was below 22. When I left for Asia in 1993, Tide's share was approaching 30. Today, Tide's share is 38. In Canada, Tide's share is 48. So, we believe there is no limit on Tide's share growth. Tide consumers are much more loyal to their brand than another laundry detergent users. Significant percentage of US consumers claimed they are committed to Tide and insist on buying and using this brand. They rate Tide excellent overall. They claim they will continue to buy Tide in the future. So what drives this tremendous loyalty to a laundry detergent? Committed Tide users have gone beyond understanding that product performance is consistently better. These loyal consumers trust Tide because the Tide brand really understands them and their needs. Committed Tide users say Tide helps them care for their families better by making the laundry easier and more reliable because of Tide's consistently better product performance and quality. At P&G, we are committed to creating leading brands like Tide in

all our core categories. To do this, we need to create strong brand equities built on a firm foundation of deep consumer understanding and meaningfully superior product performance, quality, and value. All of P&G's top 15 US brands offer today or will offer in the near future superior overall product performance. 10 of 15 are delivering superior, that's best in category brand equities as we measure them today. The other 5 have equities equal to the best competitor, and of course, we are working to strengthen these equities to best in category. 11 of the top 15 brands have advertising, as we measure it, that builds business when all the [other variables] like media mix and pricing are right. The other 4 needs to get better advertising before we invest in media. We are committed to investing in advertising in both consumer and customer marketing. P&G advertising spending has been at or above 9% of sales in the US for more than a decade, above 12% of net sales worldwide, and consistently above our biggest and best competitors year in and year out. We don't look to marketing support as a source of margin improvement or a way to get pricing right on a sustaining basis. We don't shift advertising and consumer marketing dollars to trade pricing or promotion. We keep the funds separate, and we focus on the consumer and shopper in our customer marketing. Put more simply, P&G advertising, consumer and customer marketing builds trials P&G brands and loyalty to P&G brands. In the end, that's how we measure program effectiveness. As I discussed before, category segmentation and marketplace fragmentation are realities. To be effective today, marketing has to pinpoint the prime prospect and create a strong relationship between target consumer and brand. This is not achieved through any one effort, but through a

variety of tools that can be tailored. We are reinventing marketing in at least four areas to reach consumers more effectively and efficiently, and I want to comment on these briefly. First, we are better targeting prime prospects. We think of Tide as America's detergent, but the majority of Tide sales come from a minority of US households. Concentration of loyal users is common to most P&G brands. By targeting loyal users, by building a relationship with them, brands can deliver their message and their program more effectively and often at a lower cost. Take Gain as an example, our second largest US laundry brand. Gain's heritage is freshness based on it's proprietary and consumer preferred fragrance formula. Gain targets a subsegment of US households that we call [scent expresses]. These consumers rank laundry [scent and] freshness performance as important as cleaning and stain removal performance. Gain uses database analysis in targeting programs to locate and sample these consumers. Gain's brand equity has strengthened over the last several years, year after year, and brand loyalty increased. Its market share has doubled, and 70% of Gain's volume growth has been incremental to P&G's total laundry business. The next part of reinvention, P&G brands are trying to reach consumers when and where they are most receptive. Our television advertising will always be an important part of building awareness and trial. Alternative media can be more effective and as efficient, and can complement a base foundation of TV. We have embarked on a number of experiments on a number of brands with alternate media and with a wide range of direct marketing techniques. The key, of course, is to be able to reach the prime prospect at a time when he or she is evaluating or reevaluating his or her brand

choice. Third, we are expanding category consumption. This isn't really new, because so many of our brands are market leaders, market growth is an important contributor to P&G growth. We have long been leaders in increasing category consumption from creating, [measuring scoops] on Tide to the Downy [ball] and fabric conditioners to individual shampoo sachets for developing markets. Take Downy in the US as an example. Downy's volume has doubled over the past decade by providing consumers the best combination of product performance and value. Performance advantage has driven broader task usage throughout the home, increasing category consumption. When you think about it, Downy has taught America how, when, and where to use paper towels for daily cleanup, and the brand has created relevant emotional connections with consumers through advertising and marketing. The result, high category growth of 5 to 6% per year, strong brand equity ratings, well above competitors, high brand loyalty 2 to 3 times the best competition, leadership market shares. This quarter we continue to build consumption and extend Downy's presence in the home by introducing Downy napkins, which should become the number two napkin brand in value share 3 months after launch. Finally, [customer-co marketing]. We know that more than half of consumers claim they make their final purchase decision in the store. We believe we are leading our industry in shopper understanding and in customer marketing. In March, we [fielded a baby's first] program, one of leading customers. This campaign leveraged P&G's long time alliance with the American Academy of Pediatrics to bring children's health expertise to [this customer's] shoppers. A collaboration of our baby care GBU and our market development organization, the

campaign provided parents with children's health tips and information on how to enroll children in state-assisted health insurance. This is a critical issue to many parents especially here in the US where 7 million uninsured children do not see a pediatrician even though they are eligible for free health insurance. The campaign involved a live satellite media tour, customer advertisements, in-store health insurance applications and information, and of course, [store signage buttons], stickers, radio, and volunteer pediatricians all sponsored by Pampers. The result was a significant increase in Pampers sales for both this customer and P&G, and an excellent return on P&G's and the customer's investment. A major factor in making this event successful was the Pampers brand equity that stood behind the event. This equity, knowing and caring about babies' development has been nurtured over time using vehicles like the Pampers Parenting Institute and our Pampers.com website. These are just a few of the elements in our marketing reinvention plan, targeting better, reaching consumers when and where they are most receptive, building category and brand consumption, [co-customer] market. We intend to [lead] this reinvention of branding and marketing in the first decade of the 21st century, and we will build on the strength of our large global brands whose equities with consumers and customers is still strong and will only get stronger. We will get market share in sales growing again by winning with the consumer. We will do that with brands that deliver superior value and build an enduring relationship with consumers. We will do it by leading consumer and customer meaningful innovation on our product

offerings and our consumer marketing in the way we go to market with customers. In summary, everything we are doing is focused on creating value and winning the consumer value equation on delivering superior shareholder value. Now, I will turn the call over to Clay to provide perspective on the June quarter.

Thanks AG. Now, I'd like to address guidance going forward for the fiscal fourth quarter. First, the top line. We expect sales growth excluding foreign exchange to be up in the low single digits. Volume should be flat up 2%. Foreign exchange should continue to negatively impact the top line by about 3%. As you know after a brief period of strengthening, most foreign currencies have weakened again versus the dollar. In the near term, top line growth is being negatively impacted by divestitures, particularly Clearasil and the institutional shortening and oils business. Pricing and mix should together add about 2% to the top line. Still, we expect volume trends to improve after being down in the last 2 quarters. Volume growth will be led by health care and paper behind a [balanced] base brand growth and new initiatives along with improving trends in fabric and home care and beauty care. On the bottom line, we remain comfortable with the current range of analyst estimates for the quarter. Operating profits should be up at least mid single digits on lower overhead cost and more efficient marketing investment. Importantly, operating improvement will entirely drive EPS growth in the quarter. Nonoperating profit will be down significantly from the year ago period, which included the gain from the sale of [Coast]. Finally, our tax rate for the quarters will be about 2 to 3 points lower than a year ago. This will yield about a 2-point reduction in our fiscal year tax rates, reflecting our new Organization 2005 structure. Yet, we are making steady progress on getting back on track. Sales and volume are improving. Cost savings are beginning to come to the bottom line. [Margin] comparisons are improving. Cash flow is getting

stronger. Capital spending is coming down. Each of these are important contributors to driving increased shareholder value. We continue to focus on driving all of them in our [quest] for consistent, [predictable] top and bottom line growth. Now, that concludes the comments for the quarter. As you know, this discussion has included a number of forward-looking statements. If you will refer to our most recent 10-K and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. AG, Gretchen, and I would now like to open the call up to your questions.

Thank-you, Mr. Daley. The question and answer session will be conducted electronically today. If you would like to ask a question, please press *1 on your telephone keypad now. Due to time constraints and in fairness to all participants, please initially limit yourself to one question, and again, press *1 if you do have a question today. We will go first to Amy Chasen with Goldman Sachs.

Good morning. First question is to AG. Can you give us some idea, kind of initial thoughts on what you expect fiscal 2002 to look like? What some of the key drivers will be? And what some of the challenges that you see?

Amy, I can't do that right now, but I will be able to do it before the end of the fiscal year, I hope. We are going through all of our annual plan submissions for next year. I spent last week in Europe going through the European plans, but it's going to take a few more weeks for us to get through all of them. When I get through them, I will have a better idea of what we can go for.

Do you plan to host a conference call to discuss that, or how do you...

We will have a forum that will communicate that which could be a call or could be some other form.

Okay. Can you then, maybe talk a little bit about how the portfolio review is going above and beyond the things that have already been announced, but where if there are any businesses that you think are doing particularly well or still have some significant challenges? And also as a followup to that, you mentioned at the beginning of the call that P&G has a way to go before getting into a position to do what you think they are capable of. What exactly do you think P&G is capable of in terms of long-term earnings growth?

Okay. Well, on the second question after I get through all of the plans this year in the next few weeks for next year and in an appropriate form, I will be able to talk about next year, and I will also be able to talk about what our capability looks like in the out-years. I am happy to talk about the choices that we have made to date and the one's I feel good about and the one's I feel that we have still got some proving to do in the marketplace. First, I think it's pretty obvious that we have chosen to emphasize health and beauty care, and I feel pretty good about most of our health and beauty care operations right now. In beauty care, I will start there, I feel like our hair-care program is in pretty good shape. Over the last couple of years, we have put together a very strong product program. You have seen what we have done in the marketplace over the last several months. We have picked up a couple of share points. We have taken leadership in the US hair care category. We have got our lead Pantene and Head & Shoulders brands growing. We have got a couple of new brands in the market in Physique, and we are just learning. I think we are doing pretty doggone well in skin care. It's going to be an important business for us. I think Olay Daily Facials and Olay Total Effects are delivering just like we hope they would and without going into all the details, we've got a very fine SK-II business in Northeast Asia,

that's growing solidly on the top line and solidly on the bottom line. So, we are learning our way in skin care, and we like the business. We are doing well in cosmetics right now and Cover Girl has leadership in the US. We have got double-digit growth in Max Factor in Japan. Our lip [_______________] and Outlast lip products are growing rapidly. We have the number one lipstick in Japan. So, I guess if you step back and think about beauty care, I like the growth rates. I like our product programs. I think we are starting to learn how to really bring consumers better products, and I like the branding and the marketing that we are doing with consumers and customers, and I like the structure of the businesses. They are very attractive. Without going through every other business, [_______________] there are a number of health care businesses that have those same characteristics. We had a good year on our cough/cold business this year in the US. We like the Vicks brand. We think it has potential, not only in the US, but worldwide. We are obviously broadening the array of benefits and line of products on our Crest oral care line. We are off to good start with the SpinBrush. Crest White-strips will be in the market, and they have done very well in all the three market testings. We like the Iams acquisition. It's at or ahead of expectations. So, there are a lot of things to like about the health and beauty care businesses. Actonel is off to a great start. We think that market's going to grow. We think we have a very competitive drug, and we think we have a very competitive marketing effort, and we are getting a lot of support from customers and doctors. So, I feel pretty good about health and beauty care. I think you will see us continue to improve our core fabric and home care business.

We like the business. It's been a good business for us obviously, over the years. We still think there is upside share. We have a strong product program. Swiffer is probably our best entry into the home care side, and it really has changed how those tasks are being done, and we think [from] brands like and products like Swiffer and Febreze can transform the home care category. We have obviously been struggling a bit in our baby care, fem care, and family care businesses, but we have the number one baby diaper brand worldwide. We have the number one fem care brand worldwide, and we have the number one towel and bath tissue brand in the US. So, we are not chopped liver, and we are building off a pretty good base. The issue in baby care and tissue towel is we've got to get ahead on leading innovation, you have seen some of it, you have seen the Pampers Premiums and you have seen Downy napkins and Downy in a box and things like this. You are going to see more over the next year. The same goes for fem care. We have just got to get back in the lead on meaningful consumer product innovation. And then the other issue is, we have got to get our capital and cost structures right in tissue, towel, and baby care. We have made some significant investments. We are in the middle of a big investment, replatforming baby care, and of course, we have got to make it more than pay out. We don't want just a payout; we want a good return. So, those are our core businesses. The last one I will mention because we commented on it in the shortening and oils and peanut butter

announcement last week is our coffee business. We like the Folgers brand. It's the market leader in the US. We started this fiscal year with a 7 plus share point advantage versus Maxwell House through the most recent month of shares, that's March. We have now expanded that share advantage to over 13 share points. We have introduced Café Latte; it's doing pretty well. We have got over a 15 share. We think we can get a 20 share of that segment. The two big issues for us are, can we globalize our coffee business? And can we grow it faster? And we obviously have thought about that in the past and are thinking about that now, but those are our core established businesses, and we count on them to grow market share year in and year out in their categories, and then, of course, we are looking for acquisitions and new organic brands and categories to pick up a point or two of growth outside of established brands. So, that's pretty long-winded, but that's kind of a quick round the barn view of our portfolio right now.

Okay. And if I, I am sorry, if I could just ask one last question.

Okay.

On the pulp side, it looks like some people are now expecting pulp prices to bottom at about 500, maybe around the third quarter, and I'm wondering if that happens, how that might change your pricing structure in your paper businesses?

Well, it's really way too early to tell in terms of how far pulp is going to come down? And at what level is it going to stabilize? And so, we are simply reviewing the situation kind of on a week-to-week basis.

And where do you come out at least right now?

Well, we haven't done anything, so I think that's where we come out for now.

Okay. Thanks.

Yeah.

We will move next to Sally Dessloch with JP Morgan.

Yes. Good morning. I wanted to ask a little bit about the fabric and home care business because it looked like there was a bit of an erosion in mix that trimmed about 2 points off the top line and brought sales a little lower than what we were expecting. I wonder if you could elaborate on what caused that and whether you think it's going to continue?

We're deciding who is going to answer this question.

The mix issue, Sally, of course, this is on a global basis, and I think the mix issue can be a factor of a couple of things. First, of course, is where is the business shift regionally, and the issue also becomes a matter of how much pricing improvement did we get.

Yeah. I think there are a couple of things going on. One is, we have been, you have to look at our base period versus our post period, and in our base period in fabric and home care, we had a heavy ship-in of new initiatives during this period, and one of the major initiatives was Swiffer, and we shipped in the introductory tool or implement in addition to the [sheets, and] we moved a lot of that business in the first quarter last year. The other thing that, of course, impacts our mix is what's the strength of our business in developing markets, and we had a couple of good months this quarter in China and in Eastern Europe.

And in Mexico.

And in Mexico. So, that impacts our mix. Our shares are pretty stable in North America. Our shares are still not where we want them to be in Western Europe although in some of the lead markets, we are starting to pickup our fabric and home care business. In UK, we are starting to pick up. In France, as I mentioned in my comments, we are starting to pickup, but I think it's mostly the Swiffer issue and the mix of developing market businesses.

Okay. And I think that for the March quarter, the guidance had been that asset sales would contribute about 7 cents a share?

That's exactly what happened.

That came in? Okay. And I think the guidance had also been for the June quarter, that there might be a penny, it depended on whether something came together, and I wonder if you can comment on that and then remind us what the Coast contribution was in the year-ago period?

Right now, there could potentially be a penny in the fourth quarter, but that's probably about it.

Okay, and that's still not yet announced.

Right.

Okay, and what was the Coast number last year?

Coast 3 or 4 cents.

Okay. And I think that when you talked a little bit about fiscal 2002, you had indicated that we should expect kind of a normal range of 10 to 15 cents, probably closer to 15 cents of gains in 2002 period, but that was before you announced your plans for Crisco and Jif, and I wondered if you would want to revisit that number in light of what you're putting there?

Well, we clearly believe that that 10 to 15 cents is what we call minor brands, and we are being totally consistent in that regard, in that we do expect 10 to 15 cents again next year in minor brands, which are the things that are small, what we have always called portfolio cleanup kinds of items. Well, the Crisco and Jif impacts will clearly be beyond that.

Okay.

And we would expect them to be larger. On the other hand, as we have been very clear publicly, we are not necessarily just pursuing a cash sale of those brands. In fact, we have a preference for alternate structures that could involve some kind of asset swap, could involve some kind of partnership, could involve some other kind of relationship, and that could very well impact the magnitude on how a gain may or may not occur.

Okay. That's very helpful, Clay. Thanks.

We will now go to Wendy Nicholson with Salomon Smith Barney.

Hi. Could you give us some guidance specifically in the fourth quarter for gross margin expansion?

At this point, we think gross margins in the fourth quarter will be about flat.

Okay.

Could be slightly better, but we are saying for conservatism, flat, and so we would expect the operating margin improvement to be on the marketing research and admin line. And, of course, as you know, we are going after the overhead cost reduction and that's where it's going to come in, and we also got marketing efficiencies and differences in marketing launches in base period versus the current year which should have a positive impact.

Is there any way to break out in the operating expense savings? How much is a function of kind of old Organization 2005 [true savings or] reduction in overhead as opposed to marketing spending?

Well, we certainly have a feel for that. Okay? And at this point, our [census] is probably, at least half of it is going to be on the overhead costs.

Okay.

Alright? At least half, maybe more, but it's a little, our overhead costs are coming down very nicely, but of course, it's still early in the quarter, and we don't know exactly how much will hit the bottom line by the time we close the books.

We're obviously, Wendy, going to continue to support our brands and our innovation that we have going to market. Some of it's going to market in this next quarter or in this current quarter.

Okay. Thank-you very much.

Yeah.

We will now go to Merrill Lynch's Heather Murren.

Good morning. A couple of questions. The first one is just on the components of margin expansion in the quarter. Could you talk a little bit about the different elements of that, particularly gross margin? And just a quick follow up on diapers.

Well, the gross margin expansion in the quarter was modest. Okay? And so, I think we would assess the gross margin expansion, as we obviously have a number of things going on in pricing. We have price increases that occurred versus a year-ago period clearly in laundry and cleaning products and in tissue, and we had mix improvements in terms of beauty care in particular that were pricing related. Obviously, we also had a lot of raw material price increases and energy price increases and other cost increases that occurred during this period, and as you know, of late, we have taken some tactical price reductions in a couple of businesses, including Fempro and including [Bounty]. So, I think what we are seeing here is, most of the pricing that we have done is beginning to be annualized, and it's just netting off to relatively little net impact in gross margin.

Okay.

Obviously, we have a Turkey impact too that hit the quarter. We would have been better if it hadn't been for Turkey.

Yeah. The only other thing I'd say, Heather, is in the number of our businesses we are strengthening our mix, and we are clearly strengthening our mix in some of our health care businesses, and we are clearly strengthening mix in some of our beauty care businesses.

As you just continue with your restructuring efforts, do you think that this is something that you might be able to break out for us so that we could get a sense for how much contribution is being made to the margin from some of those programs as they unfold with x number of basis points or something like that?

Well, we are, of course, disclosing savings that we expect to get from both restructuring costs and restructuring savings, and we would expect to continue doing that. Now, to be frank though, very quickly it is going to be impossible for us to know what is coming from, if you will, the old 2005 program and the new 2005 program because particularly on the savings side, those are going to become more fungible. And so, we will probably end up reporting both the costs and the savings of both programs combined.

Okay. Just a followup on baby care. You had mentioned that in the quarter, and we've all seen it, I think the private labels picked up market share, and yet you addressed you think or you suggested that innovation would be the way to address that. And I was curious as to whether you thought that you would be innovating the base product and as a result of that you could keep private labels at bay or whether you feel like you need to make some adjustments through pricing there.

Yeah. That's a really important question, and I would like to comment on it briefly. We obviously watch not only the private label segment, but also the value segment in each of our categories, and you are right, baby diapers is one of the categories where the private label business has improved its market share this year. I guess, the first thing I would say, there are a number of categories I could pick through where P&G actually does very well in categories that have reasonable private labels present. If we do our job right, there is very little, very little switching between our brand and our products, and the private label alternative. The issue and the one you touched on, is very important. We have to bring innovation across our whole line. We can't just do it on the premium diaper. We can't just bring pull-ons. We've also got to continually innovate and update our mainline diapers, and you will see us do that.

Great. That's helpful. Thank-you.

Thank-you.

Catherine Lewis with Morgan Stanley, please go ahead.

Can you talk a little bit more about the sustainability of some of the sequential price trends for the individual segments? It looks like tissue and baby care and beauty decelerated a little bit. What are your expectations as you look out a little further? Could we see some negative pricing in other businesses besides baby care?

That's certainly not the plan. As we've said before, and I think as we said on earlier call, we thought we had at least 80% of pricing modification, tactical pricing changes that we needed to make to get our value equation right, and obviously, we are watching it very closely, but we would still, I think, stand on that comment. Clearly though pricing that has been done will begin to annualize. I mean there have been a number of pricing moves over the last year, and in each quarter, more of those pricing impacts will annualize, and in fact, some of the pricing in mix will still be there. The mix enhancements will still be there, but the price increases themselves will begin to annualize. So, you should see that impact declining [only] in subsequent quarters.

Catherine, our long-term pricing mix is actually up a point, and I really think it's this simple conceptually, where the brand is strong, where we are leading innovation, where the product delivers meaningful consumer value and benefits, there is a lot of evidence in the marketplace that the consumer will pay a premium and that she or he actually gets a better value, rates it as a better value. The cost of a morning facial cleansing with Daily Facials, Olay Daily Facials is significantly higher than the cost of a morning facial cleansing with a bar or soap, but the experience is so much better, the benefits are so much better that the pricing hasn't been a barrier at all. Now, I think obviously some of our businesses, the pricing value equation is tighter than in others. One of the great things about health care and beauty care is that there is more pricing permissiveness, but even then our fabric and home care businesses, and in our baby care and fem care and tissue and towel businesses, when we have the product program right, when we are really strengthening the equities of our brands and doing a great job with our consumer and customer marketing, we almost always can command a premium. There are a very few categories where we can't command a small premium.

Okay, and just one quick followup, AG. On earnings visibility, as you look out, what if anything, gives you a little better visibility than say March when you had preannounced?

Well, I actually think we are getting some better visibility as I said on some of our businesses, health and beauty care, but I also think we are going to get better visibility on our basic cost building blocks, our cost structure, and if we are going to have much better visibility on what we call [_______________] overheads, we are trying to get better visibility on our cost of goods sold or total delivered cost, and we are going to have better visibility on our marketing expense. So, we will have better visibility there. What I think there is still obviously uncertainty in several economies around the world. GDP in the first quarter in the US was quite a bit better than anybody expected, but it was still only 2% growth. Western Europe's taking down their estimates. I think we have to anticipate there will be Turkeys and Argentinas and Philippines every year. That's just life in developing markets. So, the big question mark for us is what's the US consumer going to do in the next 3 to 6 months because that's half our sales and a bit more than half our profits. So, I think in the near term, let's say 6 months' time horizon, there is a fair amount of uncertainty out there. In the longer term, we are trying to create better visibility by getting our cost structure righter and getting our cost more predictable, and I guess that sums it up.

Okay. Thank-you.

Yeah.

Next up is Andrew McQuilling with UBS Warburg.

Thanks very much. Gretchen, in the introduction, mentioned the fem care innovation that's coming. I was wondering if you could talk about the timing of the rollout in the US and Europe and how big a deal this fem care innovation is.

Well, I can't talk about the rollout timing in the US because we haven't announced that yet. I am hesitating here, Andrew, because in the end, how big a deal it will be will depend on the consumer reaction, and I wish we're better at predicting reaction. We have a number of things we are doing. I think, as you know, in the US and in Western Europe, we've gone to market with our clean and dry product which is a fundamental improvement in pad absorbency. We have brought our breathable backsheet and topsheet to Western Europe, and that again is a fundamental performance improvement. And then the other thing that's been going well for us is our liners, and whether they are the colored liners or the thong style or whatever, they are just doing really well. And I guess the last thing I would say is if you've been in markets, you have seen our teen packs in a number of markets, and that's no change in the product, but it is the change in the packaging, in the sizing, and teens like it. So, we are trying to innovate across a broader front on fundamental, basic, core product performance areas. We are trying to innovate by offering sizes and style that fit with what young women and all women want to wear today. And finally, we are trying to innovate in our marketing program, but you are going to see over the next 12 to 18 months, we will pick up an innovation in the fem care category.

Yeah.

And AG, is this innovation specifically, does this have to do with the re-platforming or when will re-platforming innovations come out of fem care?

Re-platforming is virtually done.

Partially done now.

Done in the sense...

Particularly in the developed markets.

Yes, done in the sense that we have got the converters in place, and they are up and running in the developed markets. Now obviously, we will start putting our new programs, and we are hopeful, the whole reason we did this is so that we could accelerate the pace of innovation, and so that we could innovate more broadly.

And just the last one on re-platforming. For the diaper, how long before the diaper North America and Western Europe is re-platformed?

Well, I can tell you worldwide, we have actually re-platformed, I think two more major years of investment. So, we have got...

We have re-platformed diaper lines serving the European markets right now, and that's in fact been one of our sites in Europe that's been our lead site for that re-platforming project. And yes, we're really talking about, really the big push here is in the next 12 to 18 months to get the re-platforming lines in.

That's a way more lines, I mean we have a lot of diaper lines around the world.

Yeah.

And one last one, then I am done. Just on that re-platforming in Europe, would you be willing to tell us when your mainline innovation is coming in Western Europe?

Well, I am sure we have others that would be interested in knowing when our mainline innovation is coming, but we re-platformed Europe first. So, I guess I'd have to say stay tuned.

Yeah.

Thank-you.

Okay.

We will move on to Carol Wilke with Credit Suisse First Boston.

Thanks. AG, I wanted to follow up on something new. You said in response to a question a couple of minutes ago, you mentioned that when you have the product program right, you have the ability to price it, etc. Can you take us through the main business segments and give us an idea which businesses you think you currently have the product program right, which ones you still think need work, and some sort of a ballpark time frame? I guess, what I am trying to get my arms around is last September at the meeting, there was a lot of talk about leading, innovation, etc., but if we sort of look at what's happened since then, we've seen Swiffer Wet, which is an extension, but nothing really big yet in your real big businesses. So, can you just sort of break that out for us, where you see, clearly Olay has done well, but sort of to all the bigger businesses where you are?

Alright. Let me try to shorthand this and summarize it. If you think of our shortest cycle businesses, alright, which I would argue the beauty care is our shorter cycle businesses, right, you don't have large capital investments to make, you don't have long lead times to get the capital equipment in place, you can pretty much run as fast as your R&D program is productive and as fast and as well as your branding and marketing operations run. I think you have seen since the September meeting, a wave of innovation on establishing new brands in hair care, which has resulted in share growth everywhere we have done it, not just North America, Latin America. Okay? Hair care is a big driver of growth in Latin America. It's working across Asia, Japan, China, and [AAI]. It's working in Central and Eastern Europe, in the Middle East, and we are just going to Western Europe now, and the early days are encouraging. You mentioned that Olay, Olay is not an insignificant brand. If we keep on the pace we are on, that could be a billion dollar brand within the next two years, and I think you have seen it there. You have seen it in the facials which we have been expanding just as about as fast as we possibly can. Now, that actually does require some capital, and you have seen it on the whole Total Effects line, and we are already adding to the Total Effects line. We just introduced it last summer, and we are already adding the next items and taking it around the world. You are also seeing it in our cosmetics and skin care business outside the US. So, I think there you are seeing the cycle of innovation, and I won't go through some of the other personal care and beauty care categories, but you are seeing it there. In fabric and home care, it had actually begun in the late summer and early fall, and we pretty much improved the powder products, the liquid products, and we

introduced the tablets, and we got the tablets out a bit ahead of the competitor here in the US, and the issue is, of course, how far can we drive it.

And how big the segment will open up.

Yeah. And how big the tablet segment will be, and I think in fabric and home care, we have a pretty consistent track record for the most part on delivering innovation, and it's not a certain cycle, and you can expect to see that innovation coming on that kind of a cycle. And on Swiffer and Febreze which were two of our biggest new brand on introduction, you have seen a couple of new items I am sure, but you will see more on Swiffer as we expand that franchise. So, I feel reasonably good about fabric and home care and beauty care and health care, as I mentioned earlier. I think you have seen, Actonel was a major launch in the summer, and that's an important one for us because we are learning how to launch a major new drug in the RX business. We have done very well building our established RX drugs. Iams, we basically went from acquisition to full retail expansion about a year ago. Right? And right now we are expanding in the UK and Italy, which are 2 of the 3 biggest markets in Western Europe and Japan, which is a big pet market, the biggest pet market in Asia. So, we moved pretty quickly there. The issues for us, as I have said before, have been in the disposable paper businesses, and we are in the middle of a major platforming on baby diapers. We got the premium product improvement out there which has been building share. We also got our pull-on expanded into Scandinavia and Greece, which are small countries in Europe, but they confirmed that the consumer likes the product, and they built market share, and it just takes time. I don't like it anymore than you do. I am the most impatient person around here, but it just takes time to get those

products through the system and into the marketplace. Fem care frankly, the re-platforming was one issue, but frankly the other issue is, the whole category, in my opinion, went a little bit to sleep, and we were part of that, and we are now coming out of it. There are unmet needs of women, teens, women of all ages, and you are just starting to see that. It's showing up in Western Europe first. We are above up [our] 50 share in Allways in Western Europe. We just had a record share in the last period, and I think that's just a matter of getting it in gear over the next 6 to 12 months, and we will. And then tissue and towel, the issue there really hasn't been the innovation rate. I think our innovation rate has been pretty decent. The issue there is, we expanded pretty aggressively over the last year or two geographically, and that was the major effort for that business. It tied up a lot of resources and a lot of management attention, and we are now in a very competitive situation in our home market in the US. I think we are leading innovation on Bounty with the napkins and the Bounty in a box, and again, you will see us, we can run a cycle of innovations through that business, and you will see us innovating in the year ahead, but summary statement, in the shorter cycle businesses, we have gotten the innovation to the market for the most part. In the longer cycle businesses, the more capital intensive businesses, it has taken us too long, and what we have done in some cases is the competitor has caught us in a different cycle in their innovation, and unfortunately, that could be more of an issue in the paper businesses than it can in the other businesses.

Thanks.

Okay.

We will take a question now from Andrew Shore with Deutsche Bank.

Hi. Good morning.

Good morning.

Hello?

Andrew?

We have lost his line. We will go ahead and move on to Ann Gillin with Lehman Brothers.

Okay.

Hi. Just a question, AG. Can you share with us what you are already seeing where you have been rightsizing the cost structure in terms of the visibility you are getting on sales as you go through that process?

Ann, I want to make sure I understand your question.

Very simply. I understand that innovation is where you are looking to grow the top line.

Right.

But I am also wondering if you are getting any insights as you rightsize, simply because you've had a lot going on and you probably lost the visibility because of the complexities of the cost structure.

Yeah. What I am obviously trying to do is really two fairly simple things with the cost structure. One is to get structured not only right, but more competitively and ideally to have the benchmark cost structure in the relevant category or industry. And the second thing is to get to a cost structure that's much more consistent and predictable. If you think of our kind of business, businesses which are primarily on daily consumables, and these aren't businesses that have tremendous fluctuations in demand. It's fairly consistent demand that you can predict or a demand that you can influence when you bring innovation, whether that innovation is product innovation or whether the innovation is some kind of marketing or other innovation. So, first get the cost structure right, then get the cost structure consistent and predictable, and that means getting into a program where we're not only improving the effectiveness of what we do, but we are continually improving the efficiency of what we do. Once we go through lowering the capital cost structure of our business, once we go through lowering the overhead cost structure of our business, once we get to where we want to be, the job isn't over, it's continuous. We will be continuously trying to improve value for the consumer and value for the shareholder. Our best businesses sit in a position where they have superior brand equity. Okay? The brand is more desirable than the other brand choices out there where we are leading innovation, including product innovation and where we have a cost structure that gives us an advantage. That's the [_______________], and we have got into the [_______________] in more of our businesses

because then it's a lot more fun, then we can be on the offence, then we can lead innovation, then we can focus 100% of our time in delighting consumers and working with customers to build their businesses together.

And I think, we have said that the cost reduction we are doing is needed to right size the organization versus today's sales growth goals, and that we were likely to be able to turn the cash flow and the cost faster than we can turn the top line, and I think that's still the expectation.

Okay. Right, but in terms of having the money to reinvest.

Yes.

It sounds like it's still early days. It's still get the cost right and then [_______________]

Right.

We haven't passed on an investment, Ann, if you think about it. I am not turning them down. I have raised a bar fairly significantly. Hopefully, what you are seeing this year is when you go to market, we are succeeding in market for the most part. Okay, but the bar is a little higher. We are not spending on everything as soon as it gets to the starting gate, but yeah, because we are putting, our choices are criteria driven.

Okay. Alright.

And standards driven, but we are investing when the innovation is there, and it's ready to go to market, we are investing in it.

Just one, sorry, quick question on Folgers. If it ends up being sort of a standalone business left in your operating line in food and beverage, how will you right size that potentially in terms of your go to market without the other food and beverage businesses, number one? And number two, does globalization of that brand involve potentially a partner?

Well, on the second one, who knows, and I can't really comment on that one. On the first one, I think the simple way to think about it is we are just selling one more brand to our customers. It really is. And frankly, it's a hell of a lot easier to sell a leadership brand to the customers than it is to sell a [middling] brand. So really, it's fairly easy to manage the coffee business. It's a well-managed business. It's a business whose share is growing, and it's a business that has actually quite a good cost structure right now. So, I don't think that's going to be an issue. That's not the issue. What they are working on is how do they grow faster?

And we're obviously dealing with the cost structure in the food and beverage area. There are two events that have caused us the need to revisit what is the right cost structure. Number one, of course, is the LLC with Coca-Cola where the LLC will determine where it draws its services from? It could draw them from us, it could draw them from Coke, it could draw them from a third party. We will obviously have to right size our organization depending on how those choices get made, and of course, depending on what ends up happening with Crisco and Jif. So, we are very much tuned into the fact that a portfolio that may include just Folgers will have to have a very different cost structure to support.

Great. Thank-you very much.

Do we have Andrew Shore back?

Yes, we do.

Good.

We will go to him now.

Can you hear me?

Yes.

Yes.

Oh, sorry. I am still having a hard time with that paper cup and string. Anyway AG, can you give us an understanding as to the metrics that you look at, top accounts, big brands, and big countries? How did your top 10 brands do? How did your top 10 countries and your 10 retailers do?

Yeah. Well, the first thing I look at obviously is the market share. Okay? And in recent, in the previous month, okay, the latest month, and in the previous period, we are building our market share in the US. I have got that one sitting in front of me, that's half our business and about half of our big brands. Okay? And I would obviously like it to be on two-thirds or three-quarters of our big brands consistently. Right. Okay? Period in and period out. So, we are short of where I want to be there. And again, Andrew, it falls out kind of as I talked earlier, for the most part, our health and beauty care brands are pretty consistently building share, and our fabric and home care brands have been building share. If you turn to Europe, four core categories are the lion's share of our business. In the most recent period we built share in fem care and diapers. We are not yet building share broadly in laundry and shampoo. We have just introduced the Pantene and Renaissance programs to the [first] markets, and we are seeing improvement in some of the countries, as I mentioned before, in UK and France are notable in laundry. So, again, about half the business is not good enough. When you go around the world fairly quickly, Latin America, we have been growing the business in fabric care and baby care. We have now added a strong third leg in hair care this year, and that's good for us. In Northeast Asia, we were doing very well until the economy went sour in the last few months, and there are obviously problems in Japan, and we are not going to slow up. We are going to keep on trying to build our market share as we bring our spring series of innovations there, and that is one country that will see a fairly significant amount of

innovation in fem care. And then you get to China and Central and Eastern Europe in [____________], we are actually a little bit stronger there. We are building our market shares on more than half of our big brands. So, that's kind of where we stand on the brands. In terms of the customers, the real issue is winning customers. We're obviously looking at the big customers, but we are very interested in other customers who are winning and growing fast, and again, there we do a little bit better. We tend to do better with the customers that are growing, and that's good. When you come to the countries, our issues were primarily in Western Europe, in the big countries. We have done reasonably well in Canada, Mexico, and the US. We were doing very well in Japan until the last few months. We are doing pretty well in China. We are investing significantly in Brazil, but we are building our shares there. So, the issues have been primarily in Western Europe. Russia is having a comeback year. UK and France are starting to turn. Our biggest issues are still Germany and Italy. And we have got to get Germany and Italy turned. They are big countries. They are important countries to us. I think I covered it. Right? Brands, customers, and countries?

Yeah. Thank-you very much.

Sure.

Okay. Thank you all, and as I said at the outset, Tom Hills, Gretchen Price, and I will be available throughout the balance of the day to take any calls for any clarifications of the discussion. Thank-you very much for being with us today.