寶潔 (PG) 2011 Q1 法說會逐字稿

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 impacts of acquisitions and divestitures and foreign exchange where applicable.

Free cash flow represents operating cash flow less capital expenditures.

Free cash flow productivity is the ratio of free cash flow to net earnings.

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

P&G has posted on its website, www.peg.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.

Please proceed.

Thanks and good morning, everyone.

Bob McDonald and Teri List join me this morning.

I will begin today's call with a summary of our first-quarter results, Teri will cover business highlights by operating segment, and I will conclude the call with guidance for the fiscal year and the December quarter.

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

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

Our first-quarter results marked a strong start to the fiscal year.

We maintained strong volume momentum.

We grew organic sales ahead of market growth, building market share, and exceeded our earnings-per-share growth objectives.

Volume increased 8% on an all-in basis and 7% organically, driven by our strong multiyear innovation program and continued marketing investments.

This is the first time we have delivered three consecutive quarters of 7% or better organic volume growth in five years.

The growth was broad-based with all regions, 16 of our top 17 countries and 20 of our $23 billion brands delivering volume growth versus a year ago.

We are continuing to leverage the innovations we launched last fiscal year such as Pampers Dry Max, Fusion ProGlide, Crest 3D White, and our new Pantene lineup in the US where they were first introduced.

We have also started to expand some of these initiatives to new markets, which create new sources of incremental sales and share growth.

We have already expanded Dry Max to more than 50 countries around the world.

We have continued the global expansion of our best-in-class Pro Health toothpaste formula, we have launched 3D White in Europe, and ProGlide is scheduled to expand to over 40 countries in the next 18 months.

In addition, we have a full pipeline of new products that we are launching this fiscal year, including Crest Clinical toothpaste, Tide Acti-Lift laundry detergent, Gain Hand Dishwashing Detergent and our upgrade to Downy fabric softeners, all of which started shipping in the September quarter.

And we just announced the new Gillette Guard razor launch in India, which is designed and priced to stimulate market conversion from double-edge blades to Gillette shaving systems.

The Guard razor is priced at about INR15 or roughly $0.33, and the refill blades are priced at about INR5 or $0.11.

In our testing with thousands of Indian men, Gillette Guard was a 6 to 1 winner versus double-edged blades, and it delivered important advantages in areas such as safety, trust and value.

We have also continued to expand our existing portfolio into new markets.

In the September quarter, we started the expansion of Febreze air care into Latin America, and we began the launch of the Naturella feminine care brand in Brazil.

Organic sales grew 4%, ahead of market growth rates and in line with our expectations.

Pricing and mix combined to reduce sales by 3%, which is a sequential improvement of 1 point versus the June quarter.

As expected, pricing was a modest production to sales growth, due mainly to adjustments made in earlier periods which have not yet annualized.

Going forward we expect the pricing impact on sales to turn positive as we lap these adjustments.

For perspective, the pricing changes we made to brands such as Duracell, Cheer and the large sizes of Tide will be fully in our base by the end of the December quarter as will many of the structural adjustments we have made in the Central and Eastern Europe, Middle East and Africa region.

Mix reduced sales by 2 percentage points, driven primarily by the differential volume growth rates of developed and developing markets.

Geographic mix accounted for a point of the 2 point mix impact.

In the first quarter, organic volume in developed markets grew 4%, and developing markets grew 12%.

Product mix and price tier mix each affected sales growth by about .5 point.

All-in sales grew 2%.

This includes a 3% negative impact from foreign exchange.

The net impact on sales growth from acquisitions and divestitures rounded to a 1 point help for the quarter.

Global market share is up versus prior year on a past six- and three-month basis.

Share growth in the quarter was broad-based.

We grew share in all geographic regions and held our built share in 13 of our top 17 countries and 17 of our $23 billion brands.

Earnings per share was $1.02, up 5% versus prior year core EPS and $0.01 above the top end of our guidance range of $0.97 to $1.01.

We continue to high investment levels to support our innovation and portfolio moves.

Advertising levels remain strong to drive awareness and trial of our new innovations.

Consumer impressions were up double digits versus last year.

Gross margin decreased 70 basis points, due mainly to higher commodity costs.

Category mix also resulted in lower gross margin as the household care business, which is more cost of goods intensive, grew volume 10% for the quarter compared to 5% growth for the balance of the business.

We again delivered significant cost savings, which contributed nearly 150 basis points to gross margin.

These savings were across all areas of spending, including materials, manufacturing and logistics.

These savings, along with the benefit of volume leverage, largely offset the commodity and mix impacts.

Operating margins declined 10 basis points due to lower gross margin.

SG&A spending as a percentage of sales was down 60 basis points.

Within SG&A, overhead savings and lower year-on-year foreign exchange transaction costs more than offset a significant increase in marketing spending.

The effective tax rate on continuing operations was up 30 basis points versus last year to 28%.

We generated $1.9 billion in free cash flow with free cash flow productivity of 63%.

As expected, these levels were impacted by the reversal of the strong marketing payables increase that we saw in the fourth quarter as we accelerated marketing spending behind innovation launches.

We continue to expect strong cash generation and free cash flow productivity in more than 90% of net earnings for the year.

With this being the case, we continue to return significant levels of cash to shareholders.

In the first quarter, we returned $4.4 billion to shareholders, $1.4 billion of dividends and $3 billion in share repurchases.

In summary, we are very pleased with our first-quarter results.

It was a solid start to the year.

These results provide continued evidence that our overarching growth strategy to touch and improve the lives of more consumers in more parts of the world more completely is working.

Now I will turn the call over to Teri to review highlights of the business segment results.

Thanks, Jon.

As Jon highlighted, topline growth was broad-based across business segments and geographies.

Developing markets continue to lead the growth, which generally results in negative sales mix.

You will see that these trends are driving segment and category growth rates.

Starting with beauty, organic sales increased 3% behind 4% organic volume growth.

Geographic and category mix reduced sales by 2%.

Retail Hair Care unit volume grew in the mid-single digits led by developing markets, which increased double digits.

Global value share was up almost .5 point.

Head & Shoulders volume increased in the mid-teens, and Pantene shipments increased mid-single digits.

In female skin care, Olay unit volume was up double digits, and value share increased almost .5 point.

Shipments of Olay within the Central and Eastern Europe, Middle East and Africa region increased over 50% versus prior year, driven by continued geographic and product portfolio expansion.

Female blades and razors had another strong quarter.

Venus unit volume was up almost 20% with global value share growth of more than 3 points to 42%.

The strong growth is a combination of initiative launches such as the Premium Embrace and Simply Venus disposable razors.

Prestige organic volume declined mid-single digits.

Strength in the SK-II business with shipments up over 20% versus year ago was more than offset by weaknesses in fragrances in Western Europe.

Salon Professional volume was also down as we continued our efforts to streamline the portfolio.

Grooming segment organic sales were up 6% on volume growth of 5% and positive pricing of 1% mainly on blades and razors.

The male blades and razors business grew organic shipment volume mid-single digits.

Fusion unit shipments increased by high single digits, and global value share grew by over 2.5 points.

In the US Fusion blades and razors value share increased more than 5 points to over a 35 share behind the continued strength of the Fusion ProGlide initiatives.

Global Mach3 shipments were up low single digits as strong growth in developing markets was partially offset by the impact of consumers trading up to Fusion in developed markets.

Mach3 volume in China increased over 30% and almost doubled in India with the launch of the more affordable Mach3 razor and commercial initiatives encouraging trade in and trade up.

Male personal care unit volume increased mid-single digits, growing across both the Gillette and Old Spice brands.

Appliances unit volume increased high single digits led by double-digit growth in Western Europe.

Braun dry shaving value share grew over 2% globally.

Healthcare organic sales increased 4% on a 6% increase in organic volume.

Pricing reduced sales by 2%.

Oral Care global shipments increased high single digits.

US unit volume increased high single digits behind the Crest 3D White initiative that launched in March and the Crest Clinical line that launched in August.

US all-outlet Oral Care value share is up nearly 1.5 points to almost 38%.

Oral Care unit volume increased double digits in developing markets with Latin America up almost 20%.

Brazil Oral-B volume grew by a more than 40% behind our Oral-B paste initiatives.

Mexico Crest volume grew almost 40%, and value share increased over 2 points behind the Crest Pro Health and Crest Complete initiatives launched in February 2010.

In India Oral-B toothbrush unit shipments increased over 50%, driven by the Shiny Clean and CrossAction brush initiatives.

Feminine Care unit volume was up mid-single digits with particular strengths in greater China and the Central and Eastern Europe, Middle East and Africa regions, which both grew volume double digits.

China volume growth came from a combination of commercial innovation on our Whisper overnight product, growth of Naturella which launched last March, and geographic expansion into additional provinces.

Personal healthcare shipments were up low single digits.

Developing markets grew midteens.

Global growth of Vicks and PUR more than offset declines in Prilosec.

Snacks and Pet Care organic sales declined 9%.

Organic volume was down 4%, and pricing declined 2%.

Geographic and category mix were a negative 2% impact.

Snacks had a strong quarter, shipping high single digits.

The growth came from the Xtreme and Multigrain Pringles initiatives in the US and emerging market strength where volume increased over 30%.

Pet Care volume was down due to a temporary supply disruption, driven by supply chain restructuring and process improvements and by voluntary product recall impacts.

We expect to resume full supply capacity early next calendar year.

The Fabric Care and Home Care segment increased organic sales by 5%.

Organic volume grew 9%, led by double-digit growth in developing regions.

Mix reduced sales by 2%.

Pricing reduced sales by 2%, due mainly to the value corrections in North America, Western Europe and Central and Eastern Europe, Middle East and Africa that have not yet annualized.

Fabric Care shipments were up high single digits, and value share increased almost have .5 with all regions improving share.

US Downy and Gain laundry detergent both grew shipments double digits.

In developing markets Fabric Care shipments increased in the low teens.

In Mexico Bold more than doubled.

In Brazil Ariel increased more than 50%.

In India strong laundry growth continued with total value share up almost 2 points to a 17 share behind the Tide Naturals initiative and the new base Tide restage to Tide Plus, which includes positive pricing.

Home Care had another strong quarter, increasing unit shipments double digits and growing global value share by over a point.

North America volume was up in the low teens with double-digit growth across all categories and share increasing 2.5 points.

The new Gain hand dish brand, which launched in the US in August, has reached a 5 share in the category as of September.

Simultaneously Dawn hand dish has grown almost 3 share points behind improved execution of marketing and in-store fundamentals.

US Swiffer volume is up high single digits, and share has increased over a point, driven by go to market executional improvements at the shelf.

Home Care developing markets increased shipments double digits led by the Central and Eastern Europe, Middle East and Africa regions with volume up over 30%.

The growth was driven by market recovery and geographic expansion such as introducing Fairy dish care in Turkey, Egypt and Morocco and Swiffer in Israel.

Battery shipments increased high single digits for the quarter.

Unit volume grew across all regions, and global value share was up over .5 point.

Baby Care and Family Care delivered organic sales growth of 5% and organic volume growth of 10% with developing market shipments up close to 20%.

Geographic and product mix reduced sales 3%.

Pricing decreased sales 2% behind prior fiscal year value corrections and temporary merchandising spending increases in North America Family Care to support product initiatives.

Baby Care shipments increased high single digits, and global market share was up over 1 point with all regions growing share for the second quarter in a row.

Developing markets increased shipments double digits versus year ago with much of this growth driven by distribution expansion in countries such as China where Pampers shipments increased about 30% and Brazil where Pampers shipments increased almost 20%.

Developed markets also had a strong quarter.

North America Baby Care value share increased 1 point, and volume was up high single digits.

Europe Pampers and Luvs both had strong growth behind solid retailer support.

Western Europe value share grew over 1 point, driven primarily by Dry Max and was introduced in the UK, Belgium and the Netherlands in June and expanding into 10 additional countries in the region this quarter.

Dry Max, which first launched in North America in March, is currently shipping in over 50 countries around the globe.

Family Care unit volume grew double digits, and value share was up almost .5 point.

Charmin volume increased over 20%, and US all-outlet value share grew over 1 point.

Growth in the US came from product improvements on softness across the portfolio, supported by strong consumer communication in merchandising programs.

Bounty shipments were up mid-single digits behind performance upgrades and the Brand restage focusing on Bounty's clean benefits.

That concludes the segment business review, and I will hand the call back to Jon to discuss guidance for the fiscal year and the December quarter.

Thanks, Teri.

Our guidance for organic sales and earnings per share growth for the fiscal year is unchanged.

Our outlook for organic sales growth remains at 4% to 6%.

Where we land within this range will be driven by two factors -- underlying market growth rates and our ability to grow ahead of market rates.

Based on the strength of our innovation and marketing plans and our share progress to date, we believe we can continue to grow 1 to 2 percentage points ahead of market growth.

Regarding market growth, our organic sales guidance assumes global market growth 3% to 4% for the fiscal year.

This is predicated on developing market growth of 6% to 8% and developed market growth of 1% to 2%.

We saw 6% to 8% growth in developing markets in the first quarter.

The developed markets were at the low end of the range, up only 1%.

We are updating our guidance for all-in sales growth to 3% to 5%.

This range is 1 point higher than prior guidance.

We now estimate that foreign exchange will reduce sales by 1% to 2%, and we expect the net impact of acquisitions and divestitures will be a neutral to 1 point addition to all-in sales growth.

On the bottom line, we are maintaining our earnings per share guidance range of $3.91 to $4.01, which equals growth of 7% to 9% versus prior year core earnings per share of $3.67.

While we have seen some modest improvement in foreign exchange since the beginning of our fiscal year, we are also seeing as we often do an offsetting increase in commodity costs.

We encourage you to consider these countervailing forces as you update your projections for the year just as we do when we provide our guidance.

Also, as we have said on a number of occasions, we provide a guidance range versus a single point estimate for a reason.

We will not chase foreign exchange or commodities or back off on investments simply to deliver a top of range number or an external estimate.

Our actions will continue to be guided by a desire to advance our strategy and by our overriding objective of creating longer-term value for our shareholders.

As far as share repurchase is concerned, we continue to outlook a range of $6 billion to $8 billion for the year.

Moving to the December quarter, we are estimating organic sales growth in the range of 3% to 5%.

We expect all-in sales growth of 2% to 4%.

Within this, we expect foreign exchange to reduce sales by about 2%, and the net impact of acquisitions and divestitures to be a 1-point addition to sales growth.

On the bottom-line, earnings per share is estimated in the range of $1.05 to $1.11.

This compares to a very strong base period in which core earnings per share was $1.10, up 22% versus the prior year.

The base period included very strong gross margin that was aided by favorable commodity costs and marketing spending that was back-half weighted due to initiative launch schedules.

In this year's December quarter, we are seeing commodity cost increases, and we are fully invested behind our innovation and portfolio expansion plans.

I mention these dynamics because it is important for our shareholders to understand the core earnings per share growth guidance of down 5% to up 1% should not be interpreted as an absence of savings or a significant step-up in spending.

To the contrary, the earnings per share growth rate is mainly a function of the dynamics in the base period.

In closing, as I said earlier, we are very pleased with the start of our fiscal year.

Organic volume was up 7% with broad-based growth across our biggest geographies and brands.

Organic sales were up 4%, in line with our expectations, and price mix improved sequentially by 1 point.

Market share continued to increase on a global basis, and we held our grew share in the large majority of our top countries and brands.

Earnings per share was above our expectations, and we continue to fully fund our innovation and marketing programs with our good progress on cost savings.

While we still have more work to do, the solid start of the year is evidence that our purpose-inspired growth strategy is working.

We are touching and improving the lives of more consumers in more parts of the world more completely with the continuation of innovations from last fiscal year and a full pipeline of new innovations and geographic expansions.

We are better integrating in our plans across categories and geographies to operate more fully as one company, and we're simplifying our operations, reducing costs while increasing our productivity, efficiency and agility.

Now Bob, Teri and I would be happy to take your questions.

(Operator Instructions).

Chris Ferrara, Bank of America.

I wanted to ask -- I mean obviously there is a lot of focus on topline, but I just wanted to ask about cost savings.

So you did 150 basis points to gross margin this quarter.

I think about 200 each of the past two quarters.

So I mean if this level of savings is sustainable, it obviously has pretty big implications to the competitive dynamic globally, right, not just promo advertising too.

So I guess the question is, how sustainable is the level of savings you are seeing?

And then what was the prior run-rate before the last few quarters that you guys have disclosed because it probably was not zero.

Maybe it just was not big enough to disclose, but can you just put some context around that and how you would plan to deploy those savings when you think about where advertising is today relative to historical levels?

First, let me comment on the overall levels of savings.

The 150 basis points savings is a cost of goods number.

As you know, our savings program is comprehensive across our various spend areas.

We also had about 60 basis points of savings in SG&A.

So, in total, over 200 basis points in savings.

That level of savings should be sustainable in the near to mid term because of our intentionality of focus in those areas.

And in terms of our desire to -- what are we going to use those savings for?

We will continue to use them to successfully execute our strategy, expanding the geographic portfolio, expanding the product portfolio and investing behind that, while delivering the earnings per share growth rates that we talked about both this fiscal year and on an ongoing basis.

Bill Schmitz, Deutsche Bank.

Can you just talk with maybe a little bit more granularity about how the topline is going to trend as the year progresses?

So I know the volume comps are being pretty tough.

I know you also said that pricing starts to roll off.

So do you envision further price increases?

And maybe just sort of like the pieces to organic growth to get to -- it has to be 5% to 6% growth in the back half of the fiscal year?

Yes, we will be pricing in two areas.

One, where we have a currency devaluation pressure, and we have been executing that relatively successfully.

The other is behind our premium innovations whether that is Fusion ProGlide as that expands globally, Crest 3D White as that expands globally.

And but if you just take a look at the math if you will, if you take our unit sales rates in the first quarter, our actual rates that we delivered, and you bring those out across the balance of the quarter and index them to prior year unit sales growth rates, you will see that on the math alone we picked up 3 points of growth in price mix.

And that is why we continue to be very confident that the price mix gap will narrow.

As I mentioned, most of our price reductions will be annualized by the second quarter.

So you should begin to see the full benefit of this pickup in Q3.

Nik Modi, UBS.

A quick question on category growth.

It was pretty clear that a lot of the promo spending that has been put in the marketplace has not been as effective as a lot of companies I think had hoped and also the retailers had hoped.

And Jon, I'm just curious, when you talk about category growth, especially in the developed world, how much do you think of that category slowdown in the developed world has been due to trade spending?

And can you just give us some context of how we should think about that over the next 12 months?

Well, I can really only contextualize it in the context of our activity and what we are doing.

And we are, as we have said many times, while we are fielding promotions to generate trial on our new brand initiatives, promotion is not a significant part of our overall strategy.

If you look at the percentage of volume that is moving on promotion in the JES quarter compared to a year ago, in more categories than not that number is down.

So, again, I just don't see that being a big part of either our historical strategy or our going forward strategy.

As we have said repeatedly, our program about touching and improving more lives in more parts of the world more completely is supported by the best innovation program we can remember in decades.

And if you look across our results, you can see that that innovation program, as well as the strategy of moving more categories into more geographies and filling out our portfolios up and down, is working.

And promotion spending is not a very good antidote to a strong innovation program.

John Faucher, JPMorgan.

I want to ask a quick question.

You guys talk about profitable market share growth in the press release.

I guess as we look at whether it is -- we look at your overall profit growth on a normalized basis adjusting for the divestiture.

Profit grew slower than both organic revenues and volumes.

So I guess, one, is that just simply a comp issue?

And Jon, you talked about how the marketing and spending comps get easier in the back half of the year.

But can you also talk about how you view that phrase "profitable market share growth," and will that change as we look at the more inflationary raw material environment going forward?

A fair question.

As we talk about, first of all, we structure our plans to deliver in the long-term, and we are currently managing an annual plan.

And, as we talk about profitable share growth, it is in the context of that annual plan.

The base period dynamics have a very dramatic effect as we said when we first provided guidance for this year and as we have continued to say in this call.

So, as we measure ourselves in terms of delivering profitable market share growth, it is really in the context of being on track for the full fiscal year plan, which is earnings-per-share growth, as you know, of 7% to 9%.

If people want to pick on unit profitability this quarter, that is fine.

I just hope they are prepared to celebrates in the third and fourth quarters.

Lauren Lieberman, Barclays Capital.

I'm still trying to recover from that last little bit of excitement.

What I was going to ask about, though, is Beauty Care.

In particular, I'm just still sort of surprised to hear that Prestige is soft.

I know you have specified Western Europe fragrance, but what we are hearing from other Prestige players is actually that things have sort of stabilized.

I know last quarter the answer was well, we were not down as much as they were.

We should sort of be through that.

So my first beauty question is around Prestige.

The second is US market shares in mass.

Maybe too early to really gauge success or not, but it does not look like Pantene is really picking up much ground just yet.

So if you can talk a little bit about dynamics there, that would be great.

Let me start first with Pantene.

The Pantene initial sales results in the United States are mixed.

In the first month of the launch, which was May, Pantene grew value share in the US and in all key retailers.

Both distribution and merchandising support were strong with about six straight weeks of record display levels.

More recently, though, shares are slightly down versus year ago, over the past three months, down about a point or a 94 index versus year ago as we have seen heavy competitive promotional activity following our introduction merchandising period.

We have identified all the key opportunities to get Pantene growing more strongly and are obviously working to improve awareness, trial and feature levels.

We will get it going.

And in terms of your Fragrance question, as our data would indicate, that the past three months market growth rate for the five big markets we track is about flat versus year ago.

The US and Spain continue to contract, a 99 and 96 index respectively, with Germany, Italy and France showing modest growth.

Our share in those markets is roughly flat.

My guess is that, if other companies are portraying a more positive outlook, it may have to do with their geographic footprint and being more exposed in fragrance for instance than we are to Asia and Latin America.

Wendy Nicholson, Citi Investment Research.

And just thinking about how the quarters are going to flow through the year, obviously you are off to a great start with an upside surprise in the first quarter.

But I think what some of us are struggling with is, if volume growth is going to slow sequentially as we go through the course of the year, which obviously it will with tough comps and with the higher commodity prices and it does not sound like you're taking a lot of pricing to offset that, other than the maybe easy comps on the marketing side, to accelerate your core earnings growth through the course of the year sounds like a stretch.

It sounds like the cost savings are going to be sustainable, but they are not going to get a lot better.

Your volume leverage is probably going to be negative.

So, in terms of your confidence in that back half core EPS growth, what is helping you get there and feel so good today?

Well, first, relative to commodities, we have much easier comps on those in the back half.

You mentioned we have -- and you're absolutely right -- that we have much easier comps on marketing.

And I mentioned the math on the price mix dynamic, which will also improve.

I also think that there is -- it is a little bit dangerous to take current volumes and assume that that is on a unit basis the best we can do.

On many of our new initiatives, we are actually supply constrained at the moment.

And so that is another thing that as we relieve those constraints and as we expand those portfolios globally, we think gives us continued upside on volume.

There is a tremendous momentum in the business right now.

We tried to suggest that with the fact that our organic volume growth is stronger than it has been in five years and that we're growing marketshare in roughly 60% of our category and country combinations around the world, and we laid out for you the innovation program, most of which launched in the April through June quarter, and we are in the process of expanding that throughout the world because most of it launched in the United States.

And then on top of that innovation program, we even have newer innovations like Guard in India and others.

So you have this layering of volume growth and innovation that I think bodes well for the year and bodes well for continued market share growth.

Andrew Sawyer, Goldman Sachs.

I would like to get a little more color on the SG&A numbers.

As you look at it as a percent of sales, it is one of the lowest -- maybe the second lowest quarterly number we have seen in the last six or seven years.

Is that just straight productivity, or there is something going on in the timing of ad spend or some of the geographic expansion that is influencing that?

And then I guess secondarily on the margin side, can you talk about how you're thinking about taking list pricing as we see more commodity inflation flow-through, or is that something you're not really evaluating at this point?

Well, relative to SG&A, there are two impacts that are affecting the percent [noise] comparison that you reference.

The first are the overhead savings, which we continue to be, again, very intentional and focused on.

The other is, as I mentioned in my remarks, is a transaction impact from foreign exchange related primarily to Venezuela where we had a hurt in the base period as we translated Bolivares to dollars in an attempt to manage our balance sheet exposures down ahead of the devaluation.

So there both of those that are going on within SG&A.

And I want to avoid, frankly, talking about any specifics on future pricing or how we are thinking about covering commodities.

What I will say is what we have said for a long time.

And that is that when it's important to take pricing, we endeavor to couple that with innovation and would expect to continue to do that.

Andrew, we have been working really hard on developing a cost savings program that continues to produce over a sustainable period of time.

We have talked before that we want to make this $80 billion company that is growing operate like a $10 billion company.

We have been intentional about reducing hierarchy.

We have reduced the number of levels from the lowest in the Company to the CEO from seven to five.

Our 2010 enrollment decreased by about 5000 versus the prior year to about 127,000 through a combination of productivity improvements and divestitures, and we have improved sales per employee by about 4% in 2010.

We have talked about the fact that we are digitizing the Company from end-to-end, and an example we have cited is that Pampers Dry Max, the new Pampers diaper, a lot of the R&D work that was done on that diaper was done virtually using modeling and simulation rather than bench scale prototyping.

We have moved to more global standard systems.

We have cost saved our logistics operation.

I could go on and on, and I think we will have time to do that in the December analyst meeting.

But this is a pervasive program that is having an impact and will continue to have an impact.

Joe Altobello, Oppenheimer.

I just want to go back to the promotion issue for a second.

Is there a difference in your marketing and promotion strategy between the developed and the developing markets as you roll throughout the balance of 2011?

Should we see an abatement in some of your developed markets and maybe an acceleration in the developing world, or is that the wrong way to think about it?

Our promotion strategies are particular to our brands.

So there will not be any difference developing versus developed.

In fact, because of the nature of price promotion where it is retailer, country competitive specific, it really is discrete to a brand category, country combination.

Ed Kelly, Credit Suisse.

Could you talk about the changes that you're seeing at Wal-Mart and the impact that it may have on your business?

And then the second part of that, are you seeing changes in trend by channel in the US?

So a number of retailers have been looking at getting less promotional.

Does that change the way you manage your own promotional strategy at retail?

I was just at Wal-Mart a couple of weeks ago with Bill Simon, and Bill and I and Doug McMillan and others walked stores together.

We are very supportive of the changes that Bill is trying to make in US stores.

Our growth in international has been strong.

And where we would like to see greater growth is in US stores, and we are working hard to help Bill put merchandise items back into actionality, to put new items up at the front end, to get better conspicuousness of those promotion items throughout the store rather than having everything colored blue and yellow.

So we are working real closely with Bill, with Doug, with Mike Duke in order to help Wal-Mart get US sales growing.

Relative to channel shift, we are seeing some channel shift.

Again, it depends upon the category, and it depends upon the item, it depends upon the retailer.

But I would say that the dollar channel is obviously growing faster than other channels right now.

Although, as Jon has said in his remarks, private-label share is flat to down around the world.

So that is probably why you are seeing some abatement in promotion spending.

And, of course, from our Company standpoint, we prefer to see lower to no levels of promotion spending because we would like the consumer to see the very best price they can every single day, and we believe that extreme high lows of promotion spending sometimes erode loyalty to a given brand.

But having said that, we help the retailer execute their strategy, and they are in charge of pricing, not us.

[Darrell Mulsanian], Morgan Stanley.

Can you give us an update on your rollout in toothpaste with the Oral-B brands?

A) how the current markets are performing?

And then B) if you plan to extend into additional geographies in 2011, and what kind of pace we should expect in general for a geographic rollout of Oral-B to more markets over the next few years?

Well, I don't want to give away competitive information, but I can tell you about how we are doing, for example, in Brazil and Mexico in some of the markets.

The expansion of Oral-B paste in Brazil is very encouraging.

Shipment share results are ahead of objective.

While national pace share is about 3.5 points, it is significantly higher in the outlets where we compete with multiple retailers in double digits.

If you look at the outlets where we compete, our value shares are closer to 8%.

We are only in about 30% ECV right now, and we are obviously still expanding that in Brazil.

Our recent share is over 23% in drugstores, which was our original test market.

So shares are growing sequentially period to period, and trial and repeat rates are also trending above target.

Where we launched Crest and Oral-B Pro Health in Mexico, it continues to deliver ahead of expectations.

The national value share is 11.5%, which is up about 3.5 points versus year ago.

In modern retail the value share is at 13.4%, up almost 5 points, and P&G continues to be the manual brush leader in Mexico with shares over 47%.

In Benelux, after 19 months, we launched in February 2009.

Oral-B Pro Health is well ahead of target, the past three months value share averaging 11.3%, up over 3 points from the previous three months, and Belgium is at 13.1%, up 2 points, Netherlands at 9.4%, up 1 point.

Crest Pro Health launch in China, we launched in August of 2009.

It continues to deliver outstanding results.

Volume is indexing at 129, and sales is indexing at 132 versus a pretty challenging goal.

Even more promising, trial and repeat continued to outperform expectation, as well as outperform key competition.

In addition, we have got solid plans in place to continue to leverage Pro Health in China and to maintain the strong momentum.

In Germany Blend-A-Med paste momentum continues led by the launch of 3D White this summer.

Total Blend-A-Med value share continues to grow, reaching 11 in September.

That is up 0.6 points versus a year ago.

In Poland we launched Blend-A-Med Pro-Expert in April of 2010.

This launch enabled us to further extend our leadership in Poland, leading to an all-time high value share of 27.8%.

Both Russia and Turkey launched Pro-Expert nationally in July.

Shipments are in line with expectation.

We don't have share data yet because share in those markets is very limited.

And you did not ask this question specifically, but Crest 3D White is off to a great start in the US with strong retailer support.

After six months in market, 3D White paste has already achieved a 5.8% share in tracked channels, which is more than 5 times ahead of Colgate's launch of Pro Clinical over the same time frame.

3D White contributed to Crest's market-leading value share, which is up 1.4 points to 38.6% in the United States over the past three months.

3D White Rinse and 3D White Pulsar Brush are priced at a premium to Pro Health Rinse and base Pulsar respectively.

So that is a little bit of a tour of the Oral Care world without disclosing future plans.

Then I just would add to that, much like in the broader innovation program where we are leveraging prior launches and we are globalizing those launches, which we are doing in Oral Care as Bob described, we are also bringing a whole lot of new innovation which has not yet affected those market shares.

Crest Clinical, the sensitivity lineup, and a number of other very important innovations still coming.

Connie Maneaty, BMO Capital Markets.

I was hoping to get a little bit more clarity also on SG&A.

As I recall, the last couple of years had some stranded overhead from the divestitures of Folgers and the Pharma business.

Is the change in SG&A right now reflective -- does it reflect the fact that perhaps all that stranded overhead has been dispensed with?

And also, what is the outlook for internal restructuring in 2011, and what was it in the last two years?

Let me answer the last question first.

We have talked about $400 million of restructuring roughly in 2011.

That compares to about $495 million the prior year, $700 million the year before that.

The reason that those numbers were higher in prior years was largely because we were dealing with the stranded overhead issue that you described.

Jon Andersen, William Blair.

Maybe a little more qualitative question.

A concern I hear from some investors is really the organization's ability to manage your change program, bulking up in value tiers, expanding in emerging markets, accelerating cost savings through restructuring.

What would you say to ease concerns related to execution risk or the organization's capacity to sustain these parallel efforts, some of which represent a shift from your historical approach?

It is a good question.

We obviously keep track of that very closely.

One of the things that our purpose-inspired growth strategy has done is it has allowed us to focus the organization on what really matters.

When you talk about touching and improving the lives of more consumers in more parts of the world more completely, it is very discrete, it is very granular, and it focuses everyone in the organization on expanding categories in the countries, expanding vertical portfolios, and expanding into adjacencies, which we may have heretofore not addressed.

That focus results in a tremendous simplification.

And, in fact, we have an effort going on within the Company to simplify.

We are cutting the number of SKUs.

We are changing our business planning process.

And so far, as you can see from the results, it looks pretty good.

Also, if you -- every year the Procter & Gamble Company runs an employee opinion trend survey.

We have done it now for the last 80 years or so.

And the survey this year was a record in all measures.

We had record response rates.

We surveyed more than 110,000 employees worldwide.

That is out of 127,000.

The overall aggregate scores increased for the second consecutive year, and they are the highest we have experienced over the past five years.

The survey content is comprehensive and robust.

We measured 20 categories, including consumers -- including employee pride in Company, an evaluation of meaningful work, feedback on employees personal well-being, and the biggest increase from 2009 was seen in confidence in building unit leadership.

And a large number of employees feel that there is a clear and inspiring vision for the future.

So I think the program is working.

I think employees are telling us it is working, and that is what gives us confidence in the future.

Jason Gere, RBC Capital Markets.

I was just wondering, you obviously got a nice lift again on the spending.

I was just wondering if you can segregate where you are getting better in ROI between the advertising spending and maybe some of the in-store marketing stuff that is in the gross to net, and how you look at deployings in your capital ahead.

I know you are talking about some of the promotional stuff coming back, and advertising obviously has had a nice tick up here.

But I was just wondering if you could provide some context.

Our marketing spend is becoming more and more effective.

Marc Pritchard, our Global Brand Building Officer, and his organization and our marketing organization largely is getting stronger and stronger at getting a higher ROI out of our effort.

A lot of it is inspired by our purpose.

If you think, for example, of our Old Spice brand, Old Spice defines their purpose is to help guys navigate the seas of manhood.

And we think about guys' lives in a larger context than just consuming body wash and deodorants, and this is the power of purpose.

And when you think of our advertising, "Smell Like a Man Man" with the former football player Isaiah Mustafa, you see how we have taken an idea, an insight.

We have turned it into a superior product.

We've turned it into a big idea.

We've turned it into consumer engagement, and we've turned it into a movement.

The insight is that guys want to smell like a man, and deep down all guys are scared that they don't smell like men.

And so what this ad talks about is now you have a product where that insecurity goes away, and you can smell like a man man.

And that is why he says, "Look at your man, now look back at me, now look at your man." And it is such an effective advertising campaign that we are getting impressions that we did not pay for.

There are nearly 200 videos that have been shot over the last few days by people, different people -- Ellen DeGeneres, Alyssa Milano and others.

There is a Twitter campaign that is created because people are starting to ask the Old Spice guy questions.

There's YouTube 20 million times.

So I mean what we have done is we have created a movement, and that movement has a really high ROI because we are not paying for all these impressions.

I was in Washington DC not too many weeks ago to meet with the President, and I opened up the Washington Post I think it was.

There was a political cartoon of President Obama riding a horse backwards asking if he smelled like a man man.

It had something to do with Republicans and Democrats.

But anyway when people parody your ad, you know that you're getting a high ROI, and that is what we're trying to do on all of our brands.

Doug Lane, Jefferies & Co.

Looking at gross margins, they were down 70 basis points as you mentioned, and they were up 50 basis points in June.

So a pretty big sequential shift.

Jon, can you go over maybe the top four or five pressure points as regards to input costs and where you see margin trends over the next several quarters?

Well, we don't -- I'm not going to get into providing a specific margin guidance.

What I will tell you is that, if you look at the base period dynamics on commodities, this was a harder comp than the prior quarter.

Next quarter will be even harder comp, but then it should begin to reverse itself.

The other thing that is important to understand within -- you mentioned the gross margin progress last quarter versus a small decrease this quarter.

As I mentioned in my remarks, a big part of that has to do with mix as well.

With our Household Care business growing volume at 10%, that is a much more -- that is a lower gross margin business.

The rest of our business growing volume at 5%.

So that is also driving that mix.

Having said that, looking at it on an all-in basis, our Household Care business was a very profitable business.

So, from an operating margin standpoint, that is not something that gets us too concerned.

Bill Chappell, SunTrust.

Yes Bob, just a big picture question as we look to calendar 2011.

What is your outlook on the consumer spending both for developed and developing markets, and maybe how has that changed over the past two or three months?

Has it gotten more optimistic, less optimistic or kind of no change?

The way I look at an economic recovery from a recession is that it is always uneven.

You have a couple of months where things look good; you have a month where things drop backwards.

My expectation is the global economy will continue to improve, that we will continue to see the kind of growth we have seen in developing markets.

We said this quarter market value growth where we compete was plus 8 points, and I think we will also see improvement in developed markets.

But I think the improvement in developed markets will be slower and the kind of 1 to 2 points that we forecast is the kind that we will see.

Certainly over the last four to six weeks, there has been negative news in the US economy.

But that is not unexpected because, as I said, recoveries are always uneven.

The risks moving forward are what happens with the state of government intervention around the world as it pertains to free trade as it pertains to taxing and changing of tax structure of multinational companies.

And we are obviously trying to influence where governments around the world come out on those issues.

Caroline Levy, Calyon Securities.

I wonder if you could help on the corporate line just to call out how much Venezuela was a year ago, those trends do you think, because that was such a huge improvement on corporate?

And also just an update on what is going on with blades in the US?

Because it does not really look as if the blade sales have picked up yet, and I'm wondering if you're expecting that to happen?

I will answer the first one, and I will have Bob answer the second one.

The rough impact of the Venezuela item is about $300 million [per] in the base period that is not in the current quarter in terms of corporate.

Talking about blades in the US, the Fusion ProGlide is doing extremely well in the market.

Through September Fusion's past three month all outlet value shares of blades and razors was 35%, up 5.5 points versus a year ago, while the Schick share of blades and razors was flat versus year ago at 16.8%.

The sale of replacement cartridges is probably the best indicator of consumer preference in repeat.

And sale of P&G's Fusion ProGlide cartridges have been at the rate of more than 3 times the rate of the ProGlide razors, while Schick's replacement cartridges are only selling at about one time the Hydro razor sales.

The ProGlide launch is tracking significantly ahead of our awareness trial and repeat goals.

In August ProGlide achieves 76% brand awareness, and this is a full 10 points ahead of our forecast and 11 points ahead of the original Fusion launch.

So it is going very well.

Linda Bolton-Weiser, Caris & Company.

I was wondering if you could comment on how competitors internationally are responding as you move your top innovations and brands into some of these markets?

Can you just generally comment both how regional competitors and other multinationals are responding?

Well, I think what we see is the response that generally we expect, which is the initial reaction of most companies who are challenged by a competitive innovation is to initially price down.

And then, as they face the reality of the lower profitability, they tend to price back up.

And what we are trying to do is innovate and grow market share profitably, and I think the quarter's results suggest we are doing that.

But we have not seen anything extraordinary that we did not expect.

Alice Longley, Buckingham Research.

I just have another question on SG&A.

Could you update us it was guidance on what the add ratio for the year should be for fiscal 2011?

Should it be flat versus fiscal 2010, up or down?

And I'm assuming it is up through maybe the first three quarters and then down in the fourth.

Could you elaborate on that, too.

Your quarterly expectations are accurate.

We would expect for the full fiscal year we would be up a little bit, but significantly ahead in the first three quarters and then, as you said, down in the last quarter.

A number of consumer impressions both through our direct spend, and, as Bob described, as our advertising campaigns get picked up more broadly, we expect a number of consumer impressions to continue to be meaningfully ahead of a year ago.

But even though the total spend will be up, the percent of sales will be roughly the same as it has been historically.

Ali Dibadj, Sanford Bernstein.

Just a quick housekeeping one and then just a broader question.

The housekeeping one relates to your business segment margins being down about 170 basis points, but it being offset by about 185 basis points on a corporate expense line.

Just to get a better sense of how that should trend going forward and you mentioned, Jon, Venezuela, is that all on the 185 basis points or is that hit across?

So just a sense of the negative 170 going forward and the plus 185, so perhaps we can join you in celebrating as that flips.

Then the broader question is, if you look at your results not just this quarter but over the past several quarters, there has been a pretty strong correlation called price elasticity, if you will, between average price down and share growth, sales growth and, in fact, some margin degradation from a business segment perspective.

Look at Fabric Care, Home Care, Baby Care, Family Care.

I'm trying to understand how do you think that correlation breaks?

You clearly have a better outlook in terms of pricing going forward, but then why then do you have so much confidence on the correlation breaking down?

Do you expect that the competitive environment changes from here?

Do you expect the consumer changes from here?

That is kind of the broader question.

The housekeeping question would be helpful as well if you can.

Thanks.

The housekeeping question, we will continue to have that year-to-year health that you're seeing in the corporate line this quarter through next quarter.

But then obviously once we get to the annualization of the devaluation, that stops.

But what accelerates the business segment margin, and that impact will more than offset the impact that you're seeing in corporate that will go away.

And why do we have -- why do we continue to have confidence in that, and what will break the correlation that you have seen thus far?

First of all, the behavior is different.

So we have talked about how in the last three quarters we have initiated more price increases than decreases.

I talked about how percent volume moving on promotion in North America was decreasing versus year ago.

And then you get into the math again on the base period with the more favorable year-to-year commodity comparison in the back half and a more favorable -- significantly more favorable SG&A comparison behind the advertising comp.

But also realize that as this goes on, we are continuing to go back to something that Bob said, we are continuing to simplify.

We are continuing to reduce costs, and that momentum builds as the year goes on as well.

Mark Astrachan, Stifel Nicolaus.

On the market share initiative, I'm curious how you measure the success of the cited market share increases.

Are there specific amounts in each country and region?

And then on an overall basis, at what level do you achieve necessary scale to retain that share?

Well, we measure market share granularly.

We look at market share by SKUs so that we know if an innovation is working.

We look at it on a brand basis, we look at it on a category basis, and then, of course, we roll it up companywide.

The same is true -- we look at it by retailer; we look at it by a country; we roll up the geographies.

For us success is market share growth.

Now when I say that, we hold ourselves to a high standard in the sense that a 0.1 increase or a 0.2 increase is basically flat for us, and we force ourselves to make sure that there is statistical significance in the kinds of differences that we look at.

So before we do any kind of celebration, it has got to be a statistically significant difference at a high confidence interval.

And we look at it obviously on a sequential basis, which helps us understand, is this a real trend or is it not?

And to the point, to the question of sustainability and what share levels you have to get to to be sustainable, in general our approach for years has been and will continue to be trying to be the number one or two player in the market, and generally when you achieve that position, it is sustainable.

I think one of the things that is compelling about this quarter or even the last six months is no matter how you cut the share it is up.

So, in other words, the past six months North America is up, Western Europe is up, Central and Eastern Europe, Middle East and Africa is up, Latin America is up, Asia is up.

The past three months same thing.

North America is up, Western Europe is up by higher amounts, meaning the market share growth is accelerating.

So when you see that kind of pervasiveness of share growth you know that your innovation program is working, you know your go-to-market program is working, and that gives us confidence that we can hold those shares and grow them further in the future.

John San Marco, Janney Montgomery Scott.

I think I heard at least two references to supply constraints today.

Can you talk about your CapEx needs both near and long-term and whether we should expect any change on that front?

For the current year, we expect capital spending to be in about the neighborhood of 4% of sales, consistent with what it has been historically.

We do have an ambitious capacity program that we have embarked on.

We have been doing this for some time.

We have become much more efficient in terms of that program, the capital costs per unit if you will, where the cost of capacity has come down almost by half over the last five years.

But we will do what we need to do to make sure that we are able to serve consumers all around the world.

That may result in some increase in spending in certain years, but generally we should be pretty close to where we have been historically.

As Jon said, our cost per unit in capacity has gone down by about half over the last decade, and we are continuing to make strong efforts to improve the productivity of our capital spending.

For example, this is a great example of operating as one company.

When you build a new factory, about 50% of the cost is the infrastructure of the factory, and about 50% are the operating lines.

And because we are a multi-business unit company, that 50% of the cost and infrastructure gets spread over many more business units as we locate more and more business units in our new factories.

So that reduces the capital requirement.

As we have said earlier, we have got about 19 new factories under construction right now.

About five are starting up, and about five are on the drawing board.

And we expect to continue that kind of pace of capital spending and construction in order to touch and improve lives in more parts of the world more completely.

Before we sign off, we would just like to remind everyone that we will be hosting our 2010 Analyst Meeting here in Cincinnati on December 15 and 16.

If you have not already received the electronic invitation and would like to attend, please give John or the IR team a call.

Thanks for your time this morning, and have a great day.

Thank you for joining today's conference.

That concludes the presentation.

You may now disconnect, and have a great day.