寶潔 (PG) 2010 Q2 法說會逐字稿

Good morning and welcome to Procter & Gamble's quarter end conference call.

Today's discussion will include a number of forward-looking statements.

If you will refer to P&G's most recent 10-K, 10-Q 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.

As required by Regulation G, P&G needs to make you aware that during the call, the Company will make a number of references to non-GAAP and other financial measures.

Management believes these measures provide investors valuable information on the underlying growth trends of the business.

Organic refers to reported results excluding the impact of acquisitions and divestitures and foreign exchange, where applicable.

Adjusted free cash flow represents operating cash flow less capital expenditures and the after-tax impact of the global pharmaceutical divestiture.

Adjusted free cash flow productivity is the ratio of free cash flow to net earnings, excluding the gains on divestitures of our pharmaceuticals business.

Core EPS refers to earnings per-share from continuing operations, excluding certain unusual items.

P&G has posted on its website, www.PG.com, a full reconciliation of non-GAAP and other financial measures.

Now I will turn the call over to P&G's Chief Financial Officer, Jon Moeller.

Thanks and good morning, everyone.

Bob McDonald and Teri List join me this morning.

I'll begin today's call with a summary of second-quarter results.

Teri will cover business highlights by operating segment.

I will then comment briefly on Venezuela and on pricing before providing guidance at the end of the call.

Bob, Teri and I will take questions after our prepared remarks.

Following the call, Teri, [Mark Ursig], John Chevalier and I will be available to provide additional perspective as needed.

We had a very strong quarter with organic volume growing 5%, a 7-point improvement versus last quarter.

While the base period was admittedly a weaker one, this volume progress reflects a strong innovation program supported by higher media [weights] and sharper consumer value.

Organic sales grew 5%, a 3-point improvement versus last quarter and at the top end of our guidance range.

Progress was broad-based.

Five of six reportable segments grew organic sales.

Both developed and developing markets grew organic sales and volume and showed sequential quarter-on-quarter improvement in growth rates.

Foreign exchange added to organic sales, resulting in all-in sales being up 6%.

All-in GAAP earnings per share were $1.49, $0.05 per share above the high end of our guidance range.

The over-delivery was driven by strong top-line growth and by margin expansion.

All-in GAAP earnings per-share were down 6% versus year ago, reflecting the smaller gain on the pharmaceuticals divestiture and the gain on the Folgers divestiture that was in the base period year ago.

The current-period gain on the sale of the global pharmaceuticals business was $1.5 billion, which compares to a $2 billion gain on the sale of Folgers.

Core earnings per share, which exclude one-time items, were up 22%.

Gross margin was up 330 basis points, primarily due to lower commodity costs and our ongoing productivity and cost reduction initiatives.

Operating margin expanded 160 basis points, as higher gross margin was partially offset by higher SG&A.

SG&A increased 170 basis points, due to higher marketing support, the proactive conversion of bolivars into dollars ahead of the Venezuela currency devaluation and the establishment of a reserve for potential legal liabilities.

This reserve relates to ongoing inquiries being conducted by competition authorities in Europe, which we and other companies in our industry have previously disclosed.

The matters being investigated are not recent; they date back many years.

While no final rulings have been made, we have decided to establish a reserve for potential liabilities in a couple of countries this quarter.

The effective tax rate on the quarter from continuing operations was 29.8%.

This was up 450 basis points versus year ago, primarily due to lower audit settlements and foreign tax credits as well as certain nondeductible charges in the current year.

Adjusted free cash flow was strong at $3.1 billion.

Fiscal year to date we've generated $7.1 billion of adjusted free cash flow, which is more than 100% of our earnings excluding gains from the global pharmaceuticals divestiture.

In November Moody's revised its outlook on P&G's AA-minus credit rating to stable, which reflects this strong cash progress.

During the October-December quarter we resumed our share repurchase program, $1.4 billion of shares were repurchase.

We currently expect to repurchase about $5 billion for the full fiscal year.

In terms of acquisitions and divestitures, we announced the closing of the pharmaceutical sales to Warner Chilcott.

This move enables us to focus singularly on winning in consumer health care -- Personal Health Care, Oral Care and Feminine Care -- where we are able to fully leverage our core capabilities as a Company.

Also during the December quarter we announced the acquisition of the Ambi Pur air care business from Sara Lee.

Ambi Pur is a strategic home run.

Its geographic presence complements ours, as do its product technologies.

The strategic benefits Ambi Pur brings will enable us to more quickly expand and strengthen our air care business.

Closing of the acquisition will put us in the air care business in over 80 countries.

The purchase price was EUR320 million, which translates to $470 million on the day the deal was announced.

Based on estimated results for the year ended June 2009, this equates to a sales multiple of 1.2 and an EBITDA multiple of 13.3, which we believe represent good value for our shareholders.

We expect to close the acquisition, panting regulatory approval, during the April-June quarter.

Stepping back, we are very pleased with our October-December results.

Strong volume growth enabled us to hit the top end of our organic sales range.

Solid top-line results, coupled with our cost and productivity efforts, also enabled us to exceed bottom-line expectations.

We generated a significant amount of cash and affected important strategic adjustments to our portfolio.

While we have more work to do, particularly in regards to share growth, on a global basis value shares for the December quarter were slightly below year-ago levels.

Due to time lags associated with reporting the share data, share growth is inherently a trailing indicator.

Share improved sequentially through the quarter and should turn positive during the March quarter.

This is an important measure to us, as it is indicative of whether we are accomplishing our objective of serving more consumers in more parts of the world more completely.

We are accelerating innovation in the second half, increasing marketing support and improving consumer value to profitably grow value market share.

We'll do this while maintaining our focus on cost and cash discipline.

We are expanding our portfolio vertically, horizontally and into geographic white space, but we are also working to constantly improve existing offerings to deliver more value to consumers.

A look at our innovation programs in a couple of key categories over the last two quarters helps illustrate this.

In Baby Care, we introduced our tier three diapers, Pampers Simply Dry, into Spain during the December quarter.

This builds on successful launches in Germany, France, Greece and the UK.

In all four of these countries we achieved record diaper value shares during the quarter.

In our lead market, Germany, we reached our highest-ever diaper value share of 63.4%, up more than 5 share points versus year-ago.

Similarly, the expansion of our tier three diaper called Sleep 'n Play in the Middle East is off to a strong start.

Across the Arabian Peninsula, Sleep 'n Play shipments already represent about 10% of our total business.

In addition to offering consumers more lower-tier options to care for their babies, we are expanding our portfolio and improving consumer value at the top end.

UnderJams, a premium pull-up overnight bedwetter product, just started shipping in the UK, Germany, Austria, Switzerland and Belgium this week.

Launches in additional countries will follow.

And we recently announced the launch of Pampers Swaddlers and Cruisers with Dry Max technology across North America, beginning in March.

Pampers Dry Max is the biggest innovation for the Pampers brand in 25 years.

It's our driest diaper ever and is 20% thinner than our existing product.

Dry Max is a dramatically improved product with clear benefits for baby, mom, retailers and the environment.

The revolutionary Dry Max technology helps lock wetness in for up to 12 hours and a new, thinner core gives babies more freedom to move and to play.

The thinner design allows moms and retailers to carry more diapers in less space.

And because Dry Max is being offered at the same price as existing offerings, it provides a great consumer value.

Finally, Dry Max will positively impact the environment.

If current North American Pampers Swaddlers and Cruisers users switch to Pampers with Dry Max, it will save the weight of 1 billion diapers every three years.

The smaller package will reduce packing materials and the amount of energy needed to transport the product.

So, as you can see, in Baby Care we are expanding the portfolio down and up, expanding our geographic footprint across tiers and dramatically improving our current offerings.

In laundry we are expanding our portfolio horizontally with Tide Stain Release and Ariel Professional and laundry additives and Bounce Dryer Bar in the fabric enhancer segment.

Both innovations continue to exceed expectations.

In our lead market of Turkey, Ariel Professional is over a 25 share.

In the United States, Tide Stain Release shares exceed 10% and year-one retail sales will approach $100 million, while Bounce Dryer Bar shares are nearly 6%.

We are also expanding our laundry portfolio vertically and into geographic white space.

In Western Europe we're innovating in the premium tier with Excel Gel.

Excel Gel is a new-to-the-world gel that gives the best cleaning performance possible and saves energy because it cleans well in cold water.

It allows for controlled dispensing and is consumer preferred by a margin of two to one.

Excel Gel continues to perform well with value shares approaching 10% in the United Kingdom.

Shares are growing in Germany, France and Spain as well.

In Japan, our newest laundry brand, [Serasa], was introduced in September and is off to a strong start.

Serasa is priced at a 15% premium versus the category average and is designed for consumers who want a laundry detergent that cleans well and also provides natural and gentle benefits.

We also introduced Tide Naturals in India and [Hache] in Colombia during the December quarter.

Tide Naturals is priced 30% lower than regular Tide at INR20 for 400 grams of product.

With 75% of the laundry market priced at INR20 or below, this will allow us to reach a much broader spectrum of Indian households.

Hache is a mid-tier laundry brand which complements Ariel's stain removal equity and Bold's softness equity.

In the five months since being launched, Hache has grown to almost 2.5% of the Colombian market.

Finally, we introduced Ariel into Uganda and Senegal during the December quarter.

This follows the launch of Ariel into Kenya during the September quarter and is part of our strategy to dramatically increase our business in East Africa.

In Oral Care we continue to expand our portfolio as well.

Oral-B toothpaste and toothbrush shares in Brazil continue to exceed expectations.

Based on our in-market success, we have initiated the second wave of our toothpaste expansion plan, which will take us beyond the pharmacy channel.

The Oral-B (inaudible) launch in Belgium and the Netherlands is also going well, having achieved an 8% national share since being launched in February 2009.

Crest Pro-Health is off to a strong start in China with initial shipments ahead of expectations.

The equity benefit we've created is positively impacting other parts of our Oral Care business in China.

This is one of the reasons Oral Care shipments in China were up double-digits in the most recent quarter.

The Crest Pro-Health formula is being expanded to other markets around the world.

For example, blend-a-med EXPERT, which uses the Crest Pro-Health formula, was recently launched in Germany and has pushed total blend-a-med value shares to nearly 11%.

In Hair Care we are significantly improving and expanding our Salon offerings with the introduction of Fekkai Advanced.

Fekkai Advanced will be sold exclusively in high-end salons and department stores all around the world, while Fekkai Classic will be launched into mass retail as a super-premium offering.

I could go on, but I think these examples give you a picture of the work we are doing and the investments we are making to expand our portfolio vertically, horizontally and geographically in order to serve more consumers in more parts of the world more completely.

Bob will provide more perspective on our second-half innovation plans at CAGNY in February, and we hope to see many of you there.

So, to summarize, a strong innovation program, increased marketing support, better consumer value, tight cost control and cash discipline have resulted in growing momentum in what was, all in, a very strong quarter.

With that, let me turn the call over to Teri.

Thanks, Jon.

Starting with the Beauty segment, organic sales increased 4%, driven mainly by 3% organic unit volume growth and benefits from pricing.

Retail Hair Care delivered a solid quarter with mid-single digit organic volume growth, led by the Pantene, Head & Shoulders and Rejoice brands.

All three brands grew volume 5% or more for the quarter.

On a geographic basis, China led the Hair Care growth with shipments of the Pantene, Head & Shoulders and Rejoice brands all up 15% or more.

P&G's all-outlet value share of US retail hair care is approximately 32%, up slightly versus prior year.

Skin Care volume was up low-single digits with balanced growth in developed and developing markets.

Global Skin Care value share is up versus prior year to 10% and Olay all-outlet value share of US facial moisturizers is up more than a point to over 45%.

The strong US share progress is due to the success of the Olay Pro-X line, which we continued to leverage.

Personal Cleansing volume increased mid-single digits, driven by double-digit growth in developing markets.

The Safeguard brand was up mid-teens in developing markets.

Volume in the Prestige Beauty business was down slightly, driven by continued market size declines.

Organic volume in the Salon Professional business was down mid-single digits due to the ongoing impacts of the global economic downturn.

In the Cosmetics business, CoverGirl shipments were up low singles and US all-outlet value share was up more than a point to nearly 21%.

The strong share performance has been driven by continued leverage of Simply Ageless Foundation and Exact Eyelights Mascara Innovations that launched last spring.

In the Grooming segment, organic sales were in line with prior year.

Volume was down 2%.

Pricing contributed 4% to sales growth, and product and geographic mix reduced sales by 2%.

In the Male Blades and Razors business, organic volume was in line with prior year levels as mid-single digit growth in developing markets was offset by lower shipments in developed markets.

Greater China shipments were up 20% behind distribution expansion of the Vector system, and India Blades and Razor shipments were up more than 25%, driven by the November launch of the Mach 3 razor.

In developed markets, Fusion shipments grew mid-singles but were more than offset by a mid-teens decline of Mach 3.

Gillette all-outlet value share of the US Male Blades and Razors category was up fairly half a point to over 77%.

Fusion's share of US Male systems is over 45%, up more than 4 points versus the prior year.

Global Fusion shares have grown versus prior year every quarter since being introduced four years ago.

The Braun business continued to be affected by weak category demand, and shipments declined low-single digits.

However, this was a significant improvement in the trends compared to the mid-teens declines over the last few quarters.

Braun's share of hair removal appliances in the US was up a point and a half to more than 24% behind the strength of male shaver accessories.

In Western Europe Braun's share of hair removal appliances was up nearly 4 points to 42% with strong improvement in both male and female products.

Shipments of Male Personal Care products were up high-single digits due to soft results for the TAG brand and increased competitive activity in the shave prep category.

In Health Care, organic sales were up 2% and organic value increased 3%.

The net impact of pricing and mix lowered sales by 1%.

In Oral Care shipments increased mid-single digits with developing markets up high singles and developed markets in line with prior year.

In developing markets Oral-B volume was up 30% in Brazil, driven by the launch of Oral-B toothpaste and related market share gains on toothbrushes, and the brand was up nearly 40% in India behind manual toothbrush expansion.

The Crest brand grew mid-teens in China behind the launch of Crest Pro-Health toothpaste, which is off to a very strong start.

In developed markets solid growth in Western Europe on both the Crest and Oral-B franchises were roughly offset by lower shipments of Oral-B in North America.

Feminine Care volume grew low-single digits as double-digit growth in China and over 30% growth in India was largely offset by volume softness in Latin America following price increases.

In the US, the Always brand grew all-outlet value share of feminine pads by half a point to 59%.

Tampax increased its share of the US tampon market by nearly a point to more than 48%, driven by strong advertising and in-store programs for Tampax Pearl.

Personal Health Care volume increased mid-single digits, driven mainly by a double-digit increase in Vicks shipments due to the early start of the cold and flu season.

Pepto-Bismol and Metamucil also delivered strong volume growth, and the Align probiotic brand continued to perform well in its first year in market.

Align is now at a 25% volume share of the US probiotics supplement market.

These increases more than offset a mid-teens decline on Prilosec OTC volume due to increased competitive activity.

In the Snacks and Pet Care segment, organic sales were up 3%.

Organic volume increases of 1% and pricing of 5% were partially offset by negative product mix.

Snacks volume declined versus prior year, but organic sales were higher due to price increases taken last year with the Super Stack can re-stage.

Pringles has begun to see a recovery in trade support in key national accounts, which had fallen sharply after the price increase last January.

Pringles has now annualized the North America restage in pricing, and the brand expects improved volume trends in calendar year 2010.

Pet Care delivered solid volume growth in the mid-single digits behind the continued strength of the Iams ProActive Health, Iams Premium Protection and Eukanuba Naturally Wild initiative.

P&G all-outlet share of the US Pet Nutrition business is up versus prior year and is approaching 10%.

In the Fabric and Home Care segment, organic sales increased 7% and volume grew 8%.

Home Care led to growth with volume up double digits.

Fabric Care increased high-single digits and [diary] volumes grew low singles.

The strong results were aided by a weak base period caused by the global economic crisis, as well as the effect from the price increases taken in the fall of 2008.

In Home Care, volume growth was broad-based across brands and regions.

The Dawn, Cascade and Febreze brands all grew shipments in the teens, and Swiffer was up mid-single digits.

Geographically, all regions delivered volume growth and developed and developing markets were both up double digits.

In the US, Cascade all-outlet value share is up more than 3 points to 67%, driven by strong marketing and in-store programs designed to increase trial.

Febreze all-outlet share of the US Air Care market is also up more than 3 points to nearly 21% behind the Home Collections initiative, which launched last summer.

Fabric Care shipments were also strong across brands and geographies with all regions and major brands delivering healthy volume growth.

The Gain brand delivered strong volume growth, up low teens, due largely to the weak base period.

Tide shipments were up high-single digits, including strong growth in North American behind the Tide Stain Release laundry additive launch.

Tide Stain Release is fast approaching a 10% value share of the stain removers market in the US.

Tide all-outlet value share of laundry detergents remains above 30% and is down less than a point versus prior year.

The Downy-Lenor global franchise grew volume mid-teens, driven by nearly 30% growth in both Western Europe and Asia behind strong trade support programs and consumer value interventions.

Battery volume was up modestly for the quarter, with North America and Western Europe in line with prior-year levels.

US market size in unit terms recovered somewhat, posting all-outlet growth of nearly 6%.

With volume essentially flat in a growing market, Duracell market share on both a unit and value basis declined more than 3 points for the quarter.

The brand is acting to stem these share losses with consumer value interventions on larger size packs.

The new [upcounted] packs began showing up in stores this month.

Baby Care and Family Care delivered organic sales growth of 8% and organic volume growth of 10%.

Product mix reduced sales by 2% due to a shift toward larger pack sizes.

Global Baby Care shipments were up high-single digits with strong growth in both developed and developing markets.

Pampers shipments were up mid-singles in North America, high-singles in Western Europe and double digits in Asia and the CEEMEA region.

The expansion of Pampers Simply Dry value tier diaper in Western Europe continues to progress well, as Jon mentioned.

Pampers diaper value share in Western Europe is up 2 points to over 56%, and value share in the UK is up more than 4 points to over 62%.

In the US, P&G's all-outlet value share of diapers was up a point to over 38% with both the Pampers and Luvs brands growing market share.

The Pampers' share progress is especially encouraging, since the benefits from the Dry Max innovation won't be fully reflected in market share data until the June quarter.

Finally, Family Care shipments were up low teens due to a combination of consumer value intervention, initiatives launched earlier in the year and a soft base period.

Charmin's all-outlet value share of the US toilet tissue category was up more than a point to 28%.

And Bounty's share of the US paper towel category is up 2 points to over 46%.

That concludes the business segment review, and I'll hand the call back to Jon.

Before I get to guidance, I want to briefly address a couple of items; first, Venezuela.

It has been our practice to maintain a proactive stance towards the conversion and repatriation of the Venezuelan bolivars, in line with current exchange controls, while still holding enough local currency assets to efficiently run our business.

In anticipation of a potential devaluation, we accelerated the conversion and repatriation of bolivars.

That is one of the reasons that SG&A as a percentage of sales increased during the December quarter.

There was a similar impact in the September quarter.

Because we have managed our exposure proactively, any onetime translation impact with the currency devaluation will be negligible.

However, both the top and bottom line will be impacted going forward.

We estimate net impacts over the balance of the fiscal gear will reduce all-in sales by about 1%.

The bottom-line impact is currently estimated at up to $0.05 to $0.10 per share.

A high degree of uncertainty remains in Venezuela.

For example, it's not currently known if enough dollars will be made available at the official rate to preclude the need to enter the parallel market.

In addition, the pricing environment and related consumption impacts are not certain at this time.

So these current year numbers and the ongoing impacts may change.

We are working to respond quickly, but recovery plans will take time to execute.

It's our intention over time to fully restore sales and profit levels seen prior to devaluation.

We've done this historically in Venezuela and in other markets around the world.

We've received several questions recently on price reductions, which I also wanted to address.

We remain committed to delivering good value to our consumers.

In many instances we are able to deliver consumer value through innovations that perform better or at incremental values.

This is the case, for example, with Pampers Dry Max.

Occasionally, however, we need to make targeted price adjustments to deliver sufficient consumer value.

This is typically done for one of three reasons.

The first instance is where we took commodity or foreign exchange-based pricing, and then underlying market trends reversed or, after a period of time, our price gaps versus competition remained outside historical norms.

The targeted price interventions we've made in North America, on laundry large sizes and in tissue/towels, as well as across Central and Eastern Europe, the Middle East and Africa, have been of this nature.

The second situation where we may lower prices is when we are making strategic adjustments to our portfolio.

A good example of this is the recent intervention we made on Cheer.

We lowered Cheer prices 13% in October in order to give consumers a broader range of choices and further differentiate Cheer from Tide.

While it's still early, we are confident this decision was the right one.

We are now looking to reposition Era, which we believe will optimize our laundry portfolio even further.

The final situation where we may lower prices is when competition has initiated pricing or promotional strategies that cause share loss over an extended period of time.

This is the case, as Teri mentioned, in batteries.

To restore our consumer value proposition, we have upsized some of our AA and AAA pack counts in North America.

These pricing interventions are very targeted versus being broad-based.

All of the pricing investments we've made over the past year to improve consumer value represent only about 1% of sales.

Turning to guidance, we've been indicating for some time that second-half earnings growth will be lower than the first half.

The biggest driver of this is incremental marketing investments to support our innovation program, which, as we've mentioned, is back-half loaded.

Second, we expect less favorable year-on-year commodity comparisons.

Third, pricing benefits we've been receiving should continue to diminish as they annualize.

Finally, as I indicated earlier, the impact of the recent currency devaluation in Venezuela will impact second-half results.

So with that background, let me move to specific guidance.

We are increasing fiscal year organic sales growth expectations to 3% to 5%.

This is an increase of 1 percentage point versus our previous guidance range.

The increase is driven by December quarter results, confidence in our innovation and investment program and our expectation for slightly higher rates of underlying market growth during the second half of the year.

Foreign exchange, based on current spot rates, should be flat to up 1%, resulting in all-in sales of 3% to 6%.

Core earnings per share are now expected to be $3.53 to $3.63 per share, up 2% to 5% versus year-ago.

This is an improvement from our prior guidance range of flat to up 3% and recognizes the underlying improvement we are seeing on the business.

We are maintaining our all-in GAAP earnings per share guidance range at $4.02 to $4.12 per share.

The legal reserves, which are not reflected in core earnings per share, are covered within this.

Given the impact of Venezuela and the legal reserves and the significant advancements we are making to accelerate growth, we believe estimates above the high end of our guidance range may be aggressive.

Turning to the March quarter, we expect organic sales growth of 4% to 6%.

All-in sales inclusive of a 3- to 4-point benefit from foreign exchange are expected to be up 7% to 10%.

At this level of sales growth we expect to grow global value share.

Both core and all-in GAAP earnings per share are expected to be $0.77 to $0.82 per share.

In closing, we are very pleased with the progress we're making while acknowledging there is more work ahead of us.

We'll continue to invest in innovation and portfolio expansion.

We remain focused on dramatic simplification and managing cost and cash with discipline to create a sustainable level of support.

We are confident these investments and actions will enable us to serve more consumers in more parts of the world more completely and profitably grow our business.

Bob, Teri and I would now like to open up the call for questions.

(Operator instructions) Wendy Nicholson, Citi Investment Research.

My question had to do with the investment spending you are making in developing markets, because some of the numbers you were reading, kind of 30% growth in one business in China, 20% growth in another business -- I'm wondering if that's a reflection of just a much more buoyant China market generally, and whether you are seeing those types of growth rates in India and elsewhere, or whether you are just spending a ton of money on advertising and promotion in those markets.

As Jon tried to indicate in his remarks about our innovation program, and we feel sorry that we had to cut them short, we had to try to summarize, our innovation program is happening all over the world.

And we're spending behind the innovation program to get the awareness and trial objectives we need to grow market share profitably.

So there really is not an unevenness in our spending country to country or innovation to innovation.

It's spending behind the innovation program, it's spending behind the core business, and that whole idea is to grow market share profitably.

John Faucher, JPMorgan.

Bob, back in late August you talked about getting aggressive in terms of the portfolio.

So it's another six months past then.

Can you give us your latest thinking in terms of time line, your thoughts in terms of where you think you can add -- obviously, very general here.

And do you think you still need to do some major pruning, or do you feel like most of that work has been done?

So sort of just the overall status of the portfolio right now.

Thanks.

I would say we've just started.

As you know, we've turned our purpose, touching and improving lives, into a strategy, touching and improving more lives in more parts of the world more completely.

Jon gave you some examples of how we've been expanding the portfolio vertically, horizontally and into adjacencies, in his remarks.

But we've really just started.

Remember, we've been in China since 1988.

We're only in about 14 categories.

We lead all of them but one.

But the spending per capita in China is only $3 a year on Procter & Gamble products.

That compares to the United States, where we are in over 25 categories, and the per capita spending a year is $100.

So we've got a long way to go, but we've started the journey.

Getting the portfolio right is strategic, and we are working to do that so we can touch and improve more lives.

Not surprisingly, there is a direct correlation between the number of categories we are in, in each country, the market share we have in each country, the profit margin we have in each country and how many lives we are touching and improving and, importantly, the growth rate in each country.

So getting the portfolio right is strategic, and that's our focus.

Lauren Lieberman, Barclays Capital.

I just was struck by how strong organic volume was this quarter.

I know that part of it there, certainly the comparisons help.

But it would be great if you could help us understand what in the portfolio still feels negative.

You went through the list of things that are positive.

What's still really not where you want it to be, where you're still hoping for further reacceleration as we move through the next couple of quarters?

Well, I think one area, Lauren, is clearly the more discretionary categories.

Teri talked in her remarks about the prestige fragrance business, Salon Hair Care and Braun.

We are seeing sequential improvement in the market size reductions for those categories.

But clearly, those are areas that we are not growing at the rates we expect to, longer-term.

Lauren, I would also add that any business that we have that is not growing market share profitably, we are inpatient to get that share growth.

And Jon mentioned that we expect, on a Company average basis, we'll see share growth in the March quarter.

But as we talked, we have to make some interventions to get that share growth.

We talked about the intervention we've made on batteries.

That's an example of an intervention we've made to get share growth.

So our innovations and the marketing behind those innovations, coupled with some of these interventions -- we're hoping to get the majority of the portfolio to share growth by March and we're on our way there.

We're on track.

Bill Smith, Deutsche Bank.

Can you just talk about shipments versus consumption, how that has changed and if you see that improving going forward?

There was not a whole lot of commentary, shipments versus end-user consumption.

Jon talked about cash, Bill, and a lot of the outstanding cash discipline we have has been around our management of inventories, both our internal inventories as well as external inventories with our retail customers.

As a result of that, our shipments in consumption match up pretty doggone closely, and we watch it weekly -- well, daily.

But we review it on a Company-wide basis with the Vice Chairman weekly, and it's running pretty much one to one.

Nik Modi, UBS.

In terms of the top line for this quarter and then as you think about the March quarter, can you just break down how you're thinking about it in context of your algorithm with category growth and white space and share?

If you could just break it down for us, that would be helpful.

Our general objective, Nik, as you know, is to grow our business 1 to 2 points ahead of market growth, which obviously is consistent with an objective of building market share.

We are looking at currently projecting market growth of 2% to 3% for the fiscal year, which is an improvement versus the last time we've all been together, when we were thinking it was about 1% to 2%.

So if you look at that 2% to 3% on the year compared to sales growth on an organic basis of 3% to 5%, I think that gives you the breakdown that you're looking for.

Chris Ferrara, Banc of America.

I just wanted to talk about pricing again.

John, I guess once upon a time we had been talking about pricing hitting 10% of the portfolio.

And you're saying it hit 1% of price overall, or I guess 1% of the top line.

Are there more interventions coming going forward, and do you still feel comfortable with that view that your pricing interventions would only be across 10% of the portfolio?

As you can imagine, Chris, this is a very fluid situation.

We are constantly managing, as you know, our value metrics versus competitive offerings.

And we respond to those on a real-time basis.

So I really don't want to get overly granular on a number.

But the directionality of our commentary, both on the 10% of the portfolio and 1% of sales, I think, still holds.

We're not looking -- in no geography are we leading price declines.

We are responding to gaps that we see and we'll continue to do that.

But I don't think you should expect broad-based pricing activity.

Joe Altobello, Oppenheimer.

I just wanted to square the disconnect between the pretty solid organic growth you guys saw in the quarter and your commentary about shares being down modestly year-over-year.

And then as a follow-up, you mentioned that shares did improve throughout the quarter.

Is that innovation?

Is that marketing?

Or are you starting to see consumers trade up again?

In our prepared remarks, Jon said that shares naturally lag shipments.

And so the shares we are talking about are shares that are a few months old.

We also, obviously, look at scanner data as well as off-take from our distributors.

And that's what gives us confidence in saying that we are making progress in growing market share around the world profitably.

That market share growth is generally coming from places where we are innovating, where we have the right consumer value, where we are doing a good job marketing, getting the trial and awareness that we need of our business, both core business as well as new innovations.

And as we look out, remember we said that the innovation program is getting stronger in the second half.

And that's one of the things that gives us confidence.

And also, as Jon said, that we don't see a large amount of pervasive pricing activity in the second half.

That's what gives us confidence to see that that trend in share growth will continue.

As we have talked before, while there has been some dynamic of trade down -- and I mentioned, clearly, the market size impact on discretionary categories -- we have continued to fare well in the premium portions of the market.

Teri mentioned in her remarks our progress on Olay Pro-X.

The Fusion business, you know, up 4 share points in the last quarter, clearly is indicative of a consumer who is willing to spend for value driven by performance.

And there are other examples.

So it's not one-size-fits-all.

It's interesting, if you go to a country like India, for example, where our Baby Care growth has been very strong, we have mothers with arguably lower disposable income than those of us in the United States choosing to buy disposable diapers rather than having their babies not have any diaper at all or use cloth because they know that that disposable diaper will help their baby sleep through the night, which will aid their development and obviously be better for the mother as well.

I think this idea that this economy is causing everyone to trade down is a little bit overly general and too broadly applied.

Innovation and improving lives is really what is critical for us on a consumer-by-consumer basis.

Andrew Sawyer, Goldman Sachs.

I was hoping to zero in a little bit on the Family Care portion of business.

I think, Jon, you talked about the conditions for targeted pricing reductions in speaking about reversals in foreign exchange and commodities.

Clearly, this is an area where you've gotten very nice returns on your promotional investment, very strong volume growth.

How should we think about the outlook for that going forward with pulp prices having moved back up, polypropylene moving back up a bit, nat gas moving up?

And, how are you weighing the continued promotional investments and the fixed cost leverage you're showing on that versus the higher commodity cost outlook in that division?

In general, obviously, I don't want to comment on pricing strategy in this kind of a setting.

We'll continue to watch this.

Any move that we make will obviously be weighed with consumer value in mind and be made on a comparative basis relative to how other competition is responding.

It's clearly something we are watching, given the commodity cost increases that you appropriately mentioned.

But beyond that, I think it would be inappropriate for me to comment specifically.

Doug Lane, Jefferies & Co.

Just focusing on the Brazil toothpaste, what are your market shares there in the pharmacy channel?

And also is the decision to move beyond the pharmacy ahead of expectations?

Doug, our shares in the pharmacy channel are roughly 20% in Brazil.

And as Jon said, we are now expanding into other channels as of January.

Jason Gere, RBC Capital.

Thinking into 2011, and I know you are just warning people not to get too aggressive on expectations, but I was just wondering if you could talk maybe about the scale opportunity versus the spending algorithm.

Would that prohibit you, as you look forward, getting back towards that long-term 10% earnings growth that you guys have delivered, or do you see how -- you have to see how the innovation and the market growth plays out first before maybe declaring that victory?

As we look forward, obviously there is uncertainty as to what the underlying market growth will be.

But as we said, we have the strongest innovation program we've had over the last 30 years or so.

We have a very clear strategy of getting our portfolio right all over the world.

We want to continue to make the investments necessary to get that portfolio expanded around the world but we are cognizant that we have to do that in a responsible way and deliver the profit necessary.

That's why we're talking about growing share profitably.

Bill Chappell, SunTrust.

A couple one-off things.

On Venezuela, I didn't fully understand.

Had you projected this $0.05 to $0.10 hits in your original expectations, or is this incremental in terms of your new guidance?

And then, also, can you give a little bit more color on the European or the charge taken in the quarter?

Are there any future charges, and just what that pertains to?

Thanks so much.

Let me address Venezuela first.

I wish we had a crystal ball that allowed us to predict things like 100% devaluations, but we don't.

So the $0.05 to $0.10 is incremental to what we were expecting previously.

I'll let Bob comment on the European matter.

Bill, on the European matter, the legal reserve -- we and other companies have previously reported, we've reported for the last three years in our annual report that there had been a number of ongoing antitrust inquiries in Europe.

And the reserve relates to potential liabilities resulting from those inquiries.

As Jon said during his prepared remarks, this reserve relates to a couple of countries in Europe, but there are a number of ongoing inquiries being conducted by competition authorities in Europe, and these could result in additional liabilities.

It's too early for us to reasonably estimate the total amount of fines to which the Company will be subject as a result of these various competition law issues.

Again, it's an industry issue.

Many companies are involved.

These are one-time in nature, and they won't impact our investment in the business.

Ali Dibadj, Bernstein.

I would appreciate, if you would, just a little bit further perspective on your solid organic growth number for this quarter and then going forward, I guess on two dimensions, volume and price mix broadly.

But the first, on volume, I guess -- given the retailer and consumer destocking that we talked about a year ago this quarter, you described it as about minus 3% of volume, how should we see your actual take-away volumes this quarter?

Should we think about it about 3% below what you reported at least, even assuming no restocking?

So that's the volume question.

And then secondly, if you could just give a little bit more granularity -- I understand you don't want to go into too much detail -- but what we should expect going forward for price mix.

Maybe some idea by segment, but at least by US versus rest of world, if you could, along both of those dimensions.

That would be helpful.

Thank you.

Let me start, and then Jon will follow me.

Our Q2 organic sales growth was due to underlying market growth of about 3% -- and again, I'm rounding these off to integers.

Inventory rebuilds, about 2%.

Share growth, as we said, not where we want it to be, about zero.

So about 3% market growth, about 2% inventory rebuild.

The organic volume growth was strong in every region, and that's what drove organic sales to the high end of our guidance range.

But as I said, even with retailer inventories contributing about 2 points, we're watching those inventories and working with retailers all over the world.

As you know, destocking, as retailers do, actually benefits the Procter & Gamble Company because we create and market leading brands.

And the leading brands are usually the ones that end up being on the shelf and end up selling more.

I would just at one point, which is the point of momentum.

So volume -- we were down two points in JAS.

And in this quarter, depending on how you want to look at it, whether it's 5 or 3, it's significant progress versus the prior-quarter growth rate.

And then going forward, we talked about growing the business sequentially.

We are guiding to 4% to 6% organic sales growth with volume ahead of that slightly in the third quarter.

So there may be some inventory impacts, as you cite, but the general trend is continued very positive.

Alice Longley, Buckingham Research.

Just building on that information, could you bring to market growth in the US broadly, Western Europe and developing markets, and also tell us where you gained share and where you lost share among those three pieces?

I'll start with the market share and then Jon can follow.

Basically, we gained market share -- now, again, this is through November.

Remember these numbers lag our shipments quite substantially.

But we gained share in places like Latin America.

Our share was basically flat in places like Western Europe, Asia.

We lost a little bit of share in North America.

And the biggest change was really in Central/Eastern Europe, Middle East and Africa, where the economies commented quite precipitously last year, and as a result we had to take substantial pricing.

And as we take that substantial pricing, our competitors typically do not follow us immediately.

And that's where we lost the largest amount of share over the last three months, through that November period.

In terms of market growth, we are seeing stronger market growth in developing markets than developed markets, obviously not back to the levels that it was.

But China is growing again.

The markets that were most severely impacted by the economic crisis, namely Eastern Europe and the Middle East, have bounced back the sharpest.

And markets like Latin America and India, which really weren't affected by the crisis, continue to grow.

So we are seeing growth in developing markets at healthy rates, albeit below historical levels, and we are seeing modest growth in developed markets from a market standpoint.

Our business split really in terms of volume growth is about 4 points of growth in developed and about 6 points in developing.

Linda Bolton-Weiser, Caris & Company.

In terms of your decision to take Frederic Fekkai into the mass market, it seems to be a trend developing in the Professional Hair Care segment.

Maybe L'Oreal will come out with something.

It just seems like the market is moving that way.

Is that not a threat, long-term, to the Salon channel and the Professional Hair Care in the Salon channel, because the consumer will find the convenience of buying the products at mass?

So can you just explain your decision and whether you think it would impact the Wella business long-term?

Linda, we don't expect it to impact a well a business.

In fact, we introduced a new, more advanced Fekkai for the professional channel before we took the classic Fekkai into retail, just like we have Eukanuba in pet specialty stores and we have Iams in grocery stores.

Our principle as a Company is to have our products for sale wherever the consumer wants to shop, whether that's online, whether that's in the specialty store or whether that's in a professional salon.

And so we are going to continue to do that, but we also recognize we have a responsibility to work with retailers and consumers to differentiate those offerings based upon the consumers who shop in those specific channels.

So you can still buy, you can still get and can still use a professional Fekkai in department stores and in salons, but you will also be able to buy the classic Fekkai in your normal retail outlets.

They are different.

Caroline Levy, Calyon.

My question is around how retailers are behaving and whether you see any differences -- and I'm sure you do, but from the US to Western Europe and then, obviously, in the developing markets.

Are you seeing some changes in behavior, maybe starting with Wal-Mart?

As you can imagine, I've met with most of the major retailers recently.

I think it's a very encouraging environment.

The industry is moving to something we call new ways of working together.

It's supported by people like Mike Duke at Wal-Mart, people like Lars Olofsson at Carrefour, Sir Terry Leahy at Tesco and all of our other partners around the world, which for the first time retailers and manufacturers are going to work together focused on delighting the consumer.

Previously, there was a lot of antagonistic behavior between retailers and manufacturers, so I'm actually encouraged that the new consumer goods forum, which I'm obviously part of, and I helped sponsor the operational excellence group, is focused on new ways of working together where retailers and manufacturers can work together to help reduce cost, provide better value and delight consumers who shop in retail stores.

Thank you for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Good day.