寶潔 (PG) 2014 Q1 法說會逐字稿

Welcome to Proctor & 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 adjusted free cash flow to net earnings.

Any measure described as core refers to the equivalent GAAP measure adjusted for certain 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.

Before we get to the results, I want to start with a few housekeeping items.

Consistent with our emphasis on productivity, as well as our focus on annual versus quarterly planning periods, A.G. Lafley and I have decided to apportion our efforts on P&G investor communications as follows.

A.G. will lead our fiscal year-end call, providing perspective on the year we've just completed, and outlining our priorities for the new fiscal year.

A.G. will represent P&G at our most significant investor events each year.

This year, those will be the Barclays Back-to-School conference and CAGNY.

And, he will lead the annual shareholders meeting each October.

I'll head up the non year-end quarterly calls, and the remaining investor conferences.

We will both continue to meet on a one-on-one basis with current and with potential investors.

We'll continue to involve other key executives in investor meetings and conferences as we have in the past.

Our objective is to provide shareholders the information they want and need in a more productive manner that is consistent with our business planning approach.

One last announcement, John Chevalier, who heads up our Investor Relations practice, will report directly to me.

John was previously reporting into our Treasurer, Teri List, who is now at Kraft Foods.

John joins me on the call this morning.

Let me move now to our first quarter results.

All in, sales grew 2%, including a 2 point headwind from foreign exchange.

Organic sales grew 4%, putting us on track to deliver 3% to 4% organic sales growth for the fiscal year.

Organic sales growth was driven by strong organic volume growth of 4%.

Pricing and mix were both neutral to sales growth for the period.

Organic sales were in line or ahead of year ago in all reporting segments.

Organic sales were up low single digits in developed markets, and high single digits in developing markets.

P&G global value market share was around 20% for the most recent three-month period.

We held or grew global market share in businesses representing about two-thirds of global sales.

Moving to the bottom line, all in earnings per share were $1.04.

This includes $0.02 of non-core restructuring costs.

Core earnings per share were $1.05, down $0.01 versus the prior year.

Foreign exchange was a $0.09 per share headwind.

On a currency neutral basis, core earnings per share was up 8% for the quarter.

Core operating profit margin declined 70 basis points, as solid organic sales growth and 200 basis points of cost savings were offset by foreign exchange and gross margin mix impacts.

Core gross margin was down 130 basis points.

Strong cost savings of 160 basis points and volume leverage were more than offset by geographic and category mix of 140 basis points, foreign exchange of 80 basis points, higher commodity costs and higher manufacturing start-up costs versus the prior year.

Core SG&A costs decreased 60 basis points, driven by overhead cost savings of 40 basis points, marketing spending efficiencies, and volume leverage.

These benefits were partially offset by foreign exchange, general wage inflation, and reinvestments in innovation and go-to-market capability.

The effective tax rate for the quarter was 23.8%.

The combined impact from tax, interest expense, interest income, non operating income and outstanding share count was essentially neutral to core earnings-per-share growth.

We generated $1.3 billion in free cash flow in the quarter, repurchased $2.5 billion in stock, and returned $1.7 billion of cash to shareholders as dividends.

Free cash flow was reduced by a discretionary cash contribution of nearly $1 billion to our German Defined Benefit Pension Fund, which is reflected in the change in other operating assets and liabilities line on the cash flow statement.

Free cash flow productivity was 43% for the quarter, including a negative 32 point impact from the pension contribution.

This contribution was included in our projection of about 90% free cash flow productivity for the fiscal year.

Overall, we remain on track with each of our fiscal year objectives.

We're focused on four important areas to drive continued improvement in our results.

Value creation, for consumers and shareowners, is our top priority.

Operating TSR is our primary business performance measure.

Operating TSR is an integrated measure of value creation at the business unit level, requiring sales growth, progress on gross and operating margin, and strong cash flow productivity.

Operating TSR drives focus on core businesses, our leading, most profitable categories and leading, most profitable markets.

Our strongest business unit and total Company positions are in the US.

We need to continue to ensure that our home market stays strong and is growing.

We'll continue to grow and expand our business in developing markets with a focus on the categories and countries with the largest sizes of prize and the highest likelihood of winning.

Developing markets will continue to be a significant growth driver for our Company.

We'll continue to focus the Company's portfolio, allocating resources to businesses where we can create the most value.

We will continue to exit businesses where we determine that potential buyers with different capability sets can create more value than ourselves.

Consistent with our focus on operating TSR, we're continuing to push forward with our productivity and cost-savings efforts.

We made good progress over the last fiscal year and a half, we have strong plans for fiscal 2014, and are working to accelerate fiscal 2015 plans into 2014.

Versus a target run rate of $1.2 billion, we're planning more than $1.4 billion of cost-of-goods savings this fiscal year, across materials, logistics and manufacturing expense.

We expect to improve manufacturing productivity by at least 6% this year.

We're up more than 8% fiscal year-to-date.

We're continuing the work on North American and European supply chain redesign to lower costs, reduce inventory, and improve customer service.

This work will require additional investment in both restructuring and capital, but should generate very attractive returns.

We'll communicate more details as plans are finalized.

We will deliver our 2014 enrollment reduction goals, and then work to accelerate role reductions planned for fiscal 2015 into 2014.

There are several teams supported by external advisors and benchmarks, working in parallel on plans to deliver these reductions.

The teams span business sectors, market development organizations, and corporate functions.

We'll be working to consolidate individual team plans into one overall Company plan by the end of the calendar year, and plan to discuss key elements with you at the CAGNY conference in February.

We continue to drive marketing ROI improvements, through an optimized mix of advertising media, greater clarity of messaging, and greater efficiency in non-advertising marketing spending.

We expect absolute marketing spending to increase this year, but marketing as a percentage of sales to decline modestly versus the prior-year level.

We are committed to make productivity a core strength, and a sustainable, competitive advantage.

We'll continue to strengthen our innovation efforts.

We aim to be the innovation leader in every product category where our brands compete.

Near-term, we are shipping major innovation upgrades across the entire baby care line in North America, providing superior dryness, comfort and fit, particularly overnight, to better deliver what moms want for their babies.

The Ariel Pods launch in Western Europe is tracking well above expectations.

Consumption trends on Tide Pods have accelerated even further in the US behind new trial building merchandising.

We're continuing to see strong growth in our new oral care expansion markets, and are experiencing significant growth behind the expansion of our 3D White innovation.

We're delivering strong market share gains in the US deodorant category, behind the Secret stress sweat innovation, and on Old Spice as we launch new scent collections and commercial campaigns.

We're also strengthening our share position in the US battery business, behind the Quantum innovation and recent distribution increases.

P&G battery value share is up nearly 1.5 points for the past three months.

In Family Care, our recent Bounty upgrades were recognized in external product testing.

Bounty had the top three products in the tests, including a landslide victory for Bounty DuraTowel over all other products.

Recent product packaging and commercial innovations on Pantene are driving strong growth in the Latin America and Central and Eastern Europe Middle East and Africa region.

Pantene shipments were up double digits in both regions for the quarter.

Next, we're improving execution and operating discipline.

We simply have to execute better, more consistently, and more reliably.

It's not about exhorting the organization to do better, it is about rigorously following tried-and-true work processes that deliver results.

It's only airing high ROI advertising.

It's disciplined initiative launch qualification and planning.

It's about staying ahead of changing regulatory standards to ensure we maintain the full supply capability.

It's about everyone playing their position, and playing it well.

Our progress in operating discipline and execution is beginning to be recognized.

In the most recent Advantage Monitor US customer survey, which rates retailer satisfaction with their suppliers, P&G improved its overall ranking from the middle third of the 40 suppliers evaluated to the top third, with significant improvements in areas which such as category development, and shopper insights.

Our goal is to be number one, and our focus is on translating this improved operating performance into better and more consistent top and bottom line results.

Last, we're making strategic investments in innovation and go-to-market capabilities.

The budget increase in R&D will enable us to strengthen our near and mid term innovation pipeline.

Our go-to-market investments are primarily focused on improving sales coverage in our fastest growing markets and fastest growing channels.

We believe that the focus we're bringing to these four areas, operating TSR, productivity, innovation, and operational excellence, will enable us to continue to improve results.

Which brings us to guidance.

We're we reconfirming 2014 guidance, top line, bottom line, and cash.

We're maintaining our organic sales growth range of 3% to 4%.

Achieving organic sales growth in the upper half of our target range would result in modest, overall market share growth.

Foreign exchange is expected to be a sales growth headwind of about 2 points, which leads to all-in sales growth in the range of 1% to 2% for the fiscal year.

On the bottom line, we're maintaining our forecast for core earnings-per-share growth of 5% to 7%.

This translates to constant currency core earnings-per-share growth in the range of 11 % to 13%.

On an all-in GAAP basis, we expect earnings per share to grow approximately 7% to 9%.

This range reflects some lower non-core restructuring costs in fiscal year 2014, versus the prior year.

First half core earnings-per-share growth will likely be flat to slightly down versus prior year.

Second half growth will be much stronger.

Our second half forecast is not based on a significant deceleration in organic sales growth.

The second half earnings growth increase is driven by foreign exchange and cost structure.

Foreign exchange will be a significant headwind in the first half, but will moderate in the second half at recent spot rates.

We estimate that about 70% of the fiscal year FX impact will be in the first half of the fiscal year.

We're also annualizing operating impacts from last year's Venezuelan bolivar devaluation in the second half.

There are several second half cost benefits.

Manufacturing start-up costs will largely annualize in the second half of fiscal 2014, and productivity savings will build throughout the year.

As you prepare your sales and earnings estimates for Q2, there a few items you should keep in mind.

Recall that the second quarter base period includes a $0.07 per share one-time gain from the sale of the Western European Bleach business.

We expect the foreign exchange headwind for Q2 to be similar to the impact we saw in the first quarter.

We're expecting a heightened level of competitive promotional spending, ahead of our product initiatives launching early next calendar year, especially in North American fabric care and beauty.

We expect to deliver another strong year of about 90% free cash flow productivity.

Our plans assume capital spending in the range of 4% to 5% of sales, and share repurchase in the range of $5 billion dollars to $7 billion, continuing to deliver on our commitment of cash return to shareholders.

In addition to the assumptions included in our guidance, we've continued to be very transparent about some key items that are not included.

Foreign exchange continues to be very volatile.

Rates improved somewhat in September and October, largely reversing the large negative move we saw in late July and August.

But this could quickly change.

The guidance we are reconfirming today is based on mid October spot rates.

We're closely watching the unrest in Egypt, which is a large business for us and a base of export for the balance of Africa.

Venezuelan price controls, access to dollars for imported products and devaluation present risks, as do import restrictions and price controls in Argentina.

Finally, our guidance assumes no further degradation in market growth rates.

We continue to operate in a volatile environment, with the uncertainty in foreign exchange, decelerated market growth rates, and a rapidly developing policy environment.

Against this backdrop, we have good market share momentum, a number of strong innovations coming to market over the balance of the year, and savings from productivity improvements that will continue to build.

Our first quarter results were in line with what we expected, putting us on track to deliver our goals for the fiscal year, enabling us to make progress toward our long-term growth objectives.

We're making targeted investments in our core business, the most promising developing markets and biggest innovation opportunities, and are aggressively driving the productivity and cost savings.

Above all, we remain focused on value creation for consumers and for our shareowners.

That concludes our prepared remarks.

As I reminder, business segment information is provided in our Press Release and will be available in slides which we've posted on our website www.pg.com following the call.

I'd be happy now to take any questions.

(Operator Instructions)

Bill Schmitz, Deutsche Bank

Two quick ones.

China, it seems like business is doing pretty well marketshare-wise everywhere in the world except for China.

But if you look across categories, at least in the Nielsen data we have laundry, diapers, toothpaste, it seems shares are under quite a bit of pressure recently.

So wondering kind of what's going on there and what the plan is to kind of fix that?

And the second thing is, and maybe I'm making a huge deal about this, but this influx technology on the packaging side, could that be a game changer going forward in terms of how you make and buy bottles and give you a pretty neat competitive cost structure advantage?

Way to get two questions in.

First of all, China, volume market share was essentially flat in the quarter.

We did lose a little bit of ground on value share, though that continue to build sequentially -- it has continued to build over the past 12, 6, 3 months.

So we're reasonably comfortable about our position there.

We've got a very strong innovation program coming in the back half of the year, and expect China to continue to be a significant source of growth for us.

On influx, this is something we actually talked about out at CAGNY.

It's a disruptive proprietary breakthrough in the packaging area, and when rolled out across our businesses is should deliver about $150 million in cost savings per year.

And will allow us to avoid about $50 million in capital expenditures annually.

It will also bring significant sustainability benefits.

It could reduce resin usage by over 100 million pounds per year, and eliminate energy usage by over 250 million kilowatt hours.

And finally, we're hopeful that this breakthrough will allow us to reduce our time-to-market for a package development by up to 50%.

So, it is something that we're excited about, and should benefit from.

John Faucher, JPMorgan.

Hi, good morning.

Wanted to talk a little bit about the FX, the negative FX leverage you're seeing here in terms of from the top line to the bottom line, and particularly how you're manufacturing footprint is impacting that, and whether that's a big transactional hit as you're importing products into countries like Brazil.

And then tie that in, I'll try to make this two questions, it's actually one question.

Can you talk a little bit about the plan for local manufacturing?

You've got a lot of start-up costs there.

When can that go to being a real benefit as you look at not just your manufacturing costs but also the ability to be more flexible when you're manufacturing locally?

Thanks.

So, you're absolutely right, John, the dynamic on foreign exchange and the divergence between the top and bottom line impact.

That disparity is primarily driven by very large currency moves in countries that have a significant dollar and euro denominated cost structure for imported materials and finished product.

Just for perspective, Japan and Venezuela, which both fall into that category, account for more than 40% of the FX-related profit hurt on the quarter.

And you're also right that as we're able to localize more of the manufacturing, not only will we save a significant amount of money, but we will reduce, will essence be operationally hedged more on the bottom line.

Timeline, we're bringing on a number of new facilities currently, as is reflected in the start-up cost figures that we have been discussing for the past couple quarters.

I would look at that to yield benefits more in our next fiscal year.

Dara Mohsenian, Morgan Stanley

So first, just a detailed question.

Can you tell us how much US organic sales growth was in the quarter and emerging markets?

And then the real question is, I just was hoping you could characterize the pricing environment you're seeing right now, both in the US and around the world?

Clearly, you've made significant market share progress, but you did highlight you expected heightened competitive activity going forward.

So, should we expect pricing to deteriorate a bit going forward in the balance of the year?

And do you view heightened competitive activity as a big threat at this point to your market share progress?

Okay, so first on US growth rate organic sales was about 2%.

And that's also consistent with the total developed market growth rates, which were low singles.

Developed markets grew about 8%.

On pricing, let me say a couple things.

First, relative to history, including the last quarter.

If you look at price, inclusive of promotion, it was neutral to organic sales growth on the quarter.

If you look further back, price inclusive of promotion has been neutral to positive for 11 consecutive quarters.

It's been neutral to positive for 9 consecutive years.

We would much rather invest $1.00 in innovation and equity, or equity, because those benefits are proprietary and sustainable.

Promotion, price discounting, there's nothing proprietary about it and typically not sustainable.

If you look at our promotion, the percentage of sales that moved on promotion in the July/September quarter it was down versus year ago, not up.

So that's the past.

As we look forward, it's important that while we'd rather spend money on innovation and equity, it's important we be competitive from a promotion standpoint.

We are not going to be ones that are going to lead promotion escalation, but we will be competitive.

We do have a period coming up in the next quarter here that precedes pretty significant initiative launches for us.

And, it's not atypical in that environment that we see a little bit of an increase in promotion from the competitive set trying to load consumers ahead of our initiatives.

So, we do expect that environment to tighten over the next three months as we head into our big initiative launch, again that's not something that we'll be leading.

We'll continue to focus on innovation and equity.

Wendy Nicholson, Citigroup.

Hi.

On the gross margin, I know you don't want to give too much specifics in terms of the full-year outlook, but I assume some of the manufacturing start-up costs are going to fall away.

So, can you, hopefully anyway, can you comment over the full course of this year whether you expect gross margin to be up or down?

Thanks.

Certainly we'll sequentially improve, and should be positive certainly by the fourth quarter, late third or early fourth quarter.

We'll have to see where it nets out total year.

I honestly don't think that much about that.

But we do expect to, for gross margin progress, to turn positive by the end of the year.

Lauren Lieberman, Barclays.

Thanks, good morning.

I wanted to ask a bit about beauty margins.

They were up so significantly in the quarter, and was curious what was driving that if it was a change in the allocation of resources or holding back as you sort out plans for skin care?

So questions around that.

And then coupled with that, was in your prepared remarks, John, when you mentioned the heightened promotional environment expected in the second quarter ahead of initiative launches, you actually mentioned not just fabric care but also I think you said beauty.

And that was news to me if there was something significant coming in beauty.

So if you could talk about that, it would be great.

Thanks.

Thanks, Lauren.

A large part of the quarter-to-quarter variability and profitability in beauty is being driven by initiative timing.

And we have, as I mentioned the prepared remarks and as you referenced, we have a strong slate of initiatives coming to market December through March in beauty.

The specifics are not items that we've disclosed yet, and we'll do that as we get closer to the events themselves.

But there is significant innovation coming.

The other thing that's impacting quarterly variability, which is a great thing, is real progress on productivity within the beauty business.

They're working that as hard as anybody, and are frankly doing a great job.

Chris Ferrara, Wells Fargo.

Great, thanks.

I just wanted to ask about Tide Simply.

So relative to Charmin and Bounty Basic, it looks like the price gap there between the premium and the mid tier segments in those respective categories is much wider than or not as wide as in laundry.

That's a laundry premium Tide versus the baseline is a very, very large gap.

So the gap between Tide Simply and premium Tide is likely to be wider than what it is between Bounty and Charmin Basics and than those mainline products.

So I guess the question is, can you use those two as a benchmark?

And how do you manage that?

And is the thought process even correct there?

Well it ultimately comes down, Chris, to strong consumer segmentation and benefit alignment against those segments and the benefits that they're seeking.

And, it's more about that than it is about relative price point.

And as you can imagine, we've been working this for some period of time, as you know, and we've been working very hard to ensure that the offering is very attractive to the consumer segment that we're targeting, and is less attractive to the Tide, the current Tide consumer, which we believe we've achieved.

And that is more of the mark of success on things like Bounty Basic, Charmin Basic, Luvs versus Pampers.

It's that the consumer segmentation and benefit alignment with their needs that drives success.

Ali Dibadj, Bernstein

So two things.

One is I first want to follow-up on the language in the Press Release in your prepared remarks about the $0.07 I guess now one-time gain you asked us to include in your core last year, although it sounds like it was smaller than $0.07 last year.

Are you -- I'm just a little confused.

Are you know asking us to restate that and take out the $0.07?

Or, what do you want us to do with that?

And then the other question I had is about the 200 basis points that you're saving this quarter, obviously that's good.

Is that enough relative to what your competitors are doing?

It certainly sounds like you're going to be ramping up that savings number.

How much higher do you think it ramps to, and for how long?

Thanks.

First, relative to the $0.07 gain, what we're asking you to do is just simply be aware of it.

We're just providing that as an awareness point.

What you do with that is obviously your call, but we like people not to be surprised, and that's simply why we're calling it out.

It will be in our core numbers in the base, and will be reported as part of our core comparison.

So we're not restating anything here.

On savings, look, there's no amount of savings that's enough.

Now there is an amount of savings that's too much when it starts cutting into capabilities for growth and those kinds of things.

But look, we're going for everything we think is feasible and then asking ourselves, is there more after that?

And, I'm not going to speculate on the ultimate amount of savings, but I think as you've seen both last year and this year, generally we're exceeding as opposed to under-delivering our savings targets.

Last year, we had $1.2 billion in cost-of-good savings, that's about what we need to deliver the $10 billion objective this year.

So far, we're at $1.4 billion.

Last year, we significantly over-delivered the SG&A enrollment, and this year we're committed to deliver our 2014 target and work to accelerate 2015 into 2014.

And we really want to make this, as many of us have described before, an ongoing part of our business model, our culture, our ethos.

And, I think there's a lot of possibility to the extent that we're able to accomplish that.

Connie Maneaty, BMO Capital Markets

Good morning.

I remember when A.G. first came back, he was talking about the cost structure in some parts of the developed world still being too high.

I'm wondering where you stand on what sounded like it would be another more traditional type of bricks and mortar restructuring program that would run concurrently with the productivity initiative underway?

Thanks, Connie.

That's what I was referring to in our prepared marks relative to supply chain redesign in both North America and Western Europe, which is underway.

It's in process, and we'll talk about it more as we finalize our plans.

But that is a significant opportunity to both reduce cost, improve cash through reduced inventory, and importantly, improve customer service.

And we're pretty excited about that opportunity.

Basically, our supply chains in both of those markets have come about over years and through a number of acquisitions.

And, this is an opportunity to step back and say, if we were doing this over, how would we do this?

What are the right levels of aggregation in terms of number categories that are produced at a site?

What are the right locations?

How do you think about distribution opportunities serving existing customers and new customers?

And so, we're pretty excited about that opportunity, and we will bring more information to you as we finalize those plans.

Jason English, Goldman Sachs

Good morning, folks, thanks for the question.

I wanted to come back to beauty.

You talked a little bit about the innovation slate coming up in some of the margins expansion.

I wanted to drill down on the organic sales growth.

You were showing signs of acceleration and the year-end, we've seen deceleration despite the easy comp, and it also stands in contrast to what looks to be in terms of the US consumption off take accelerating trends.

Can you help us understand what drove the deceleration and whether there's anything transitory behind it?

And maybe what's working and what isn't within that segment?

First of all, this is a very competitive category.

It's a category where I will readily admit we continue to have more work to do.

So we're not yet where we want to be on this business.

There are pieces of it that are working very well.

Our personal [funding] business was up high single digits on the quarter.

Our cosmetic's business is doing extremely well.

Our deodorant's business is doing extremely well.

I mentioned Pantene in several parts of the world that's doing well.

We continued to need to make progress on North American Pantene, on [Away], and we need to make progress on our salon professional businesses.

So those are the strengths and weaknesses, as it were, and we're fully focused on maximizing the opportunity behind the strengths and addressing the opportunities.

Olivia Tong, Bank of America Merrill Lynch.

Thanks a bunch.

I wanted to talk a little bit about the share improvement.

Obviously it continues.

Where do you think that, that can top out at?

Well, as I've said several times on this call, we are in a very competitive market.

Our expectation is that we can -- when we get everything working, we should be able to build a little bit of share each year.

We're never going to be in a position where 100% of our business is building share at any given point in time, that's just not a realistic scenario in the very competitive industry that we compete in.

We've talked about targeting two-thirds to 70% of the business, growing share holding or growing share at any point in time, and that's the level that leads to modest share growth on an annual basis.

And so that's what we're targeting.

Javier Escalante, Consumer Edge Research.

Good morning, John and John.

Question again on the gross profit or gross margin side.

To what extent a lot of it what is happening has to do with the mix that -- the category mix in which basically the fabric and baby care our the two [UBUs] that are leading the growth.

And in that context, knowing that beauty and grooming are a challenge, could you help us understand health care?

Why the deceleration beyond the recall of the pet food product?

Thank you.

So you're absolutely right, Javier, in terms of the drivers of part of the gross margin pressure.

There's about 140 basis points of mix impact within that gross margin comparison.

About half of that, approaching half of that, is the product mix.

Exactly what you referenced, which is faster growth in lower gross margin businesses like fabric care and our paper businesses.

And slower growth in some of our higher gross margin businesses.

In terms of health care, the real impact on the quarter was the recall on pet.

The good news there is we're back up manufacturing full speed, a perfectly great product, and so that should be in the past.

Joe Altobello, Oppenheimer

Thanks, good morning, guys.

Just in terms of the portfolio, I think one of the things that A.G. has tried to hammer home in the last three or four months has been that Proctor needs to be more focused, and I think the word he's used a number of times is choiceful.

And so, on that point, can you give us an example or examples of businesses where you believe you're under investing right now and where you're over investing?

And also, could you see yourself doing something like Unilever has done in the past or like Kimberly Clarke has done more recently, where you actually pull out of certain geographies or categories in whole?

And also, in terms of a housekeeping item, you mentioned that you're [held] to gain share in two-thirds of your business, I think I was a global number.

What was that number in the US?

Thanks.

Thanks, Joe.

The two word choices that you'd provided are accurate, focused and choiceful, and that's what we're all working to do here.

Obviously, you can appreciate from a competitive standpoint, why I wouldn't want to lay over many cards right here in terms of where we'll accelerate an investment or decelerate investment.

But it is very much, as I said in our prepared remarks, a focus of ours, which is flowing investment to the areas, both businesses and geographies, where we believe we can create disproportionate value.

And looking real hard at businesses where we're struggling to create value and looking to see if somebody else could potentially create more value than us.

We have pulled out of regions in the past, we used to be in Asia in the tissue towel business.

We used to be in Western Europe in the tissue towel business, and we're largely a North American tissue towel business.

And that was all driven by our assessment of our ability to create value in that industry, which we viewed as low potential.

So those are things, both categories and geographies, that we'll continue to look at.

And as we always have done, whether it's pharmaceuticals or Folgers or snacks or the Western European tissue towel business, where we determine that we can create more value on any business in a divested context, and there are two pieces of that.

One is, what our prognosis is going forward, the other is obviously we're not going to exit businesses in a value dilutive manner, and so we need to have somebody who's willing to monetize some of that value they can create for our shareholders.

Bill Chappell, SunTrust.

Morning, thank you.

John, you had talked this morning on CNBC about Europe and kind of moving sideways, and I was just wondering if maybe you could give us a little more color there?

Because, as you alluded to, a lot of other companies are seeing I guess pockets of growth in certain areas, and didn't know if it really is just straight sideways or if there's any sign of hope or kind of maybe just any color you have would be great.

There are definitely areas that are stronger within Europe, I'm not telling you anything you don't know.

Northern Europe is certainly stronger than Southern Europe.

Southern Europe continues to be a real struggle.

And there are markets that are pockets of hope, if you will.

But, I want to step back on the whole Western European thing for a second.

Changes in Western Europe in the consumer products category space have never been dramatic, and they continue to not be overly dramatic.

Growth tends to oscillate between minus one and plus one, and it's a good year when it's plus one, and it's a bad year when it's minus one.

And we're not seeing significant departures from that aggregate picture.

And so, it continues to be an environment where we think we can build sales, we believe we can build profit and create value, it's an area that we're focused on.

But I -- we just don't see a rebound to date.

Jon Andersen, William Blair

Good morning.

I'm interested in asking about new channels, specifically the online channel.

How important is the online channel to you today?

What role does it play going forward?

And, are there distinct advantages to Proctor from selling online?

And I'm thinking of things like increased consumption, reaching more consumes, or perhaps it's more profitable to sell through that channel.

Well we want our products to be available wherever, whenever, and however consumers want to shop.

And, there is certainly a segment of consumers in some categories that want to shop online, and we'll work to be available for them.

The amount of our business that's currently in that channel varies by category.

Still, as you would expect, the vast majority of our products are sold in traditional channels.

And, I think it's -- the channel offers several advantages, and several disadvantages, just as our other channels do.

It's a very effective way to target consumers, both from a marketing standpoint, and then conversion purchase.

So we'll continue to look at it from that standpoint.

But we really want to be present and viewed as best-in-class in each of the retail channels.

Mark Astrakhan, Stifel

Thanks, and morning, everybody.

Do you think the competitive environment is getting better or worse relative to your expectations?

And I say this in context of some what I thought relatively provocative comments by your large competitor yesterday that have plans to rebase cost to fund investments.

And sort of related to that, how do you think about the spending between promotional allowances and real advertising spend?

I know you had mentioned that as a percentage of sales it would be up, but up less so absolutely as percent.

Now that's true of our aggregate marketing expense.

Promotion expense in the July/September quarter in terms of, sorry, the percentage of our sales that moved on promotion was actually down 7% versus year ago.

As I said, if you look at the total industry, it was about flat versus year ago.

So there are certain categories, certain items, certain competitors where there may be an escalation on promotion, but it's not a broad characteristic of the environment, at least as we've seen it to date.

Alice Longley, Buckingham Research

Good morning.

A housekeeping question, and then something else.

Can you update us as to your category growth rates in emerging regions and the US?

And then, could you break out the 2% organic sales growth that you had in the US in terms of volume mix and price?

And then my other question is, the 140 basis point negative hit to gross margins from mix, are you expecting that to lessen as you go to the year and maybe be cut by half?

Is that a significant part of the gross margin improvement you're expecting?

Thank you.

Thanks, Alice.

In terms of market growth rates, broad strokes we see 1% growth in developed markets, about 7% in developing markets and aggregate.

That ranges from, developing markets range from mid-single digits to low double digits, depending on the region.

And the developed markets range anywhere from 2% market value growth in North America to about a 1% decline, consistent with what I was saying earlier, in Western Europe.

Relative to the 140 basis points mix impact and how that evolves going forward, as I mentioned, in my response to Javier, about half of that is geographic and about half is product.

And I would hope that over time as we get our beauty business growing at market growth rates, the product portion of that would largely dissipate.

I do expect we'll continue to have disproportionate growth in developing markets, and we're not yet to the point terms of economic development where those margins will be equal to the balance of the rest of the world.

So we will continue to see some drag on mix from a geographic standpoint.

Michael Steib, Credit Suisse.

Good morning.

I was wondering if you could give us some more detail on the volume decline in the grooming segment.

Is that largely due to category weakness, did you suffer some share losses?

Thanks.

The category in the last three months was about flat, I think it was a 99 index.

We did lose a little bit of share in the last quarter, that was primarily driven by disproportionate growth in the disposable's section of the business where we are less well-developed.

The encouraging piece of it is though that fusion continued to grow share, and that's a good thing long-term.

And if you look over longer periods of time, last year for example we built share in blades and razors, and I would expect that would be more characteristic of the situation going forward.

Caroline Levy, CLSA.

Good morning.

John, if you could just go back to the North America share question, I don't think we got an answer.

Just if you could give directionally were things were strongest and weakest, and specifically in cleaning materials.

So Tide Pods, if you could just break out what happened on the Pod side versus the liquid laundry side.

Thanks, Caroline, for giving me a chance to recover there.

On multi-part questions, my feebled memory sometimes gets the best of me.

In North America, we're holding are growing share in businesses representing between two-thirds to 70% of sales, so that continues to hold up very nicely.

I actually don't have segment level in terms of Pods versus liquids versus powder, shares in front of me here, but please feel free to call John or Katie or Brian during the balance of the day, and they can get you that information.

Well, we have no other questions at this time.

Thank you, everybody, for joining us this morning.

As I mentioned earlier, we're reasonably happy with our first quarter result in terms of its relation to our expectation.

We know we still have more work to do.

We're determined to do that, and we look forward to connecting with each of you soon.

Thanks a lot.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation, and you may now disconnect.

Have a great day.