寶潔 (PG) 2014 Q3 法說會逐字稿

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  • Operator

  • Good morning and welcome to Procter & Gamble's Quarter End conference call.

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

  • If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the Company's actual results to differ materially from these projections.

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

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

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

  • Free cash flow represents operating cash flow less capital expenditures.

  • Free cash flow productivity is the ratio of 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.

  • Jon Moeller - CFO

  • Thanks and good morning.

  • Our January - March results came in as we had expected, keeping us on track to deliver our fiscal year objectives.

  • All-in sales were unchanged versus the prior year, including a 3-point headwind from foreign exchange.

  • Organic sales grew more than 3% in a very challenging macro environment, with significant market-level events in places like Venezuela, Argentina and the Ukraine, declining levels of market growth in both the developed and developing world, and weather-related issues in North America.

  • Organic sales were at or above prior-year levels in each of our five reporting segments.

  • Organic sales growth was driven by strong organic volume growth of 3%.

  • Volume was at or above prior-year levels in each of our five reporting segments.

  • Pricing added 1 point to sales growth and mix-reduced sales growth by 1 point.

  • Fiscal year to date, we've delivered between 3% and 4% organic sales growth, leaving us on track to deliver 3% to 4% organic sales growth for the fiscal year.

  • Marked quarter all-in GAAP earnings per share were $0.90.

  • All-in earnings per share include approximately $0.04 per share of non-core restructuring charges and $0.10 per share of non-core balance sheet revaluation impacts resulting from foreign exchange policy changes in Venezuela.

  • Core gross margin declined 110 basis points.

  • Cost savings of 200 basis points, pricing, and volume leverage were offset by product, category, and geographic mix of 150 basis points, foreign exchange headwinds of 100 basis points, and higher commodity costs.

  • Core SG&A improved 130 basis points, driven by marketing efficiencies and overhead productivity savings.

  • Importantly, therefore, core operating margin increased 20 basis points.

  • Core earnings per share grew 5% to $1.04, leaving us on track to deliver 3% to 5% core earnings per share growth for the fiscal year.

  • Foreign exchange was a $0.12-per-share headwind for the Company on the quarter.

  • Excluding foreign exchange, core earnings per share grew 17%.

  • The effective tax rate on core earnings was about 20%.

  • Tax accounted for roughly $0.03 of earnings per share benefit on the quarter versus the prior year.

  • We generated $3.2 billion in free cash flow, achieving 119% free cash flow productivity and remaining on track to deliver free cash flow productivity of about 90% for the fiscal year.

  • As planned, we returned $1.7 billion of cash to shareholders in dividends.

  • We also announced a 7% increase in our dividend.

  • P&G has now been paying a dividend for 124 consecutive years, since its incorporation in 1890.

  • This is the 58th consecutive year the Company has increased its dividend.

  • We repurchased $1.5 billion in stock, bringing year-to-date share repurchase to $5.5 billion.

  • Stepping back, we are satisfied with our top line growth, particularly against the difficult macro backdrop.

  • Constant currency earnings progress was very strong.

  • We are reliably converting earnings to cash and are building on our strong track record of cash returned to shareholders.

  • As we move forward, value creation for consumers and shareowners remains 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, margin progress, and strong cash flow productivity.

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

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

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

  • The actions we've taken over the past two years to restore consumer value, expand our vertical product portfolios and horizontal regimens, and lead innovation have enabled us to restore value-creating share growth in more parts of the business.

  • We still have a lot more work to do; and the competitive environment is intense, which leads to choppy results on a quarter-to-quarter basis, but we are making steady progress.

  • 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.

  • This is where the world's babies will be born and where more new households will be formed.

  • Developing markets will continue to be a significant growth driver for our Company this year and for years to come.

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

  • Over the past six years, we've exited businesses that have accounted for over $6 billion in sales, including coffee, pharmaceuticals, snacks, kitchen appliances, and water purification.

  • Last quarter, we announced our exit from the bleach business; two weeks ago, we announced our plan to exit the pet food business.

  • Mars will buy our business in the Americas and several other countries.

  • We expect to sell the European business to a different buyer.

  • The $2.9 billion purchase price Mars has agreed to pay for the non-European business represents a 1.8 times multiple of sales and an 18X multiple of EBITDA on an average of the past two years' sales and profits for the global pet food business.

  • We will begin the process of selecting a buyer for the European business in May; early interest in this asset is strong.

  • We'll 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 are continuing to drive productivity and cost savings.

  • We've made solid progress over the last fiscal year-and-a-half.

  • We have strong productivity plans for FY14, and we are accelerating some FY15 savings into FY14.

  • Versus our target run rate of $1.2 billion, we are now forecasting about $1.6 billion of cost-of-goods productivity savings this fiscal year across materials, logistics, and manufacturing expense.

  • Versus a going-in target of 5%, we expect to improve manufacturing productivity by at least 6% this year.

  • We are up more than 7% fiscal year to date.

  • At the CAGNY conference, we announced the complete redesign of our end-to-end supply chain in North America.

  • We operate 35 manufacturing facilities in North America today, only 6 of which are multi-business or multi-category.

  • We are consolidating operations into multi-category sites located closer to the customers and consumers we serve, allowing us to respond quickly to their needs and provide better service at the best possible cost.

  • We are examining the potential for similar improvements in Europe.

  • At the same time, we are converting to common manufacturing and technology platforms for faster innovation, qualification, and expansion.

  • We're designing supply systems to allow for more online product differentiation and customization.

  • We are also transforming our distribution operations, consolidating customer shipping and product customization operations into fewer distribution centers, which are strategically located closer to key customers and key population centers, enabling 80% of the business to be within one day of the store shelf and the shopper.

  • All of this will drive step-change improvement and responsiveness, reducing out-of-stocks, taking down inventory, and lowering cost.

  • It will leverage the scale and scope of our production and distribution network in a way we've never done before.

  • Savings from this transformation will accrue over three to four years and should be in the range of $200 million to $300 million annually, which will be incremental to the $6 billion of cost-of-goods savings we have previously communicated.

  • We expect additional top- and bottom-line benefits from improved service levels.

  • Turning to overhead, we've exceeded our FY14 non-manufacturing enrollment reduction goals and have accelerated over 1,000 role reductions originally planned for FY15 into 2014.

  • Through March, we are down 8,000 roles, or 13%.

  • Our stretch objective is to get substantially to our end 2015 objectives by the end of 2014.

  • This would put us close to or within the 16% to 22% reduction goal we've established one to two years ahead of target.

  • Underpinning this progress are some important and fundamental changes in our organization structure and focus.

  • We've organized into four industry-based sectors, or global business units.

  • The businesses in each sector are focused on common consumer benefits and needs; they share common technologies.

  • They partner with common customers and common trade channels, and they face common competitors.

  • These sectors, or global business units, are big enough for scale and small enough to stay in touch with consumers and markets and move with the agility and flexibility to consistently grow value.

  • We've made a significant clarification in roles and announced a significant de-duplication of effort between the GBUs and the go-to-market operations.

  • GBUs will create, design, manufacture and market our brands and products.

  • They will be the focus of brand-building at the global, regional, and local levels.

  • Brand franchise-building resources will be in the GBUs.

  • We've changed the name of our go-to-market organizations from MDO to SMO, Sales and Market Operations.

  • This is more than a name change.

  • It clarifies the work SMOs need to do and the work they do best: superior, effective, and efficient selling, distribution, shelving, pricing execution, and merchandising every day/every week in every store.

  • Selling resources will be concentrated in the SMOs.

  • We are aggregating the SMOs to be more logically focused on the consumers, channels, customers, and markets we serve.

  • We are merging Western, Central and Eastern Europe into one European organization.

  • We are merging India, the Middle East, and Africa into one IMEA region.

  • We are more fully integrating Greater China, ASEAN, Australia, New Zealand, Japan, and Korea into one Asia SMO region over the next year.

  • Within the SMOs, we will aggregate countries at a higher level, reducing the number of geographic country clusters to about 25, a 20% reduction versus today.

  • Back in the GBUs, we are moving from four desegregated brand-building functions -- design, consumer and market understanding, communications, and marketing -- into one integrated brand-building or brand-management organization.

  • We've embedded resources that are required to win in the GBUs and SMOs, reducing the size of the standalone support functions, flowing those resources to work, and outsourcing more of their activities.

  • The changes I've just described are significant.

  • They will reduce interfaces and transaction costs, clarify who is accountable for what, de-duplicate effort, and simplify operations.

  • These changes will enable us to operate with more agility and speed, to operate with clearer accountability and effectiveness, and to operate at a lower cost.

  • It will also enable further enrollment reduction.

  • Moving next to marketing expense, we continue to drive marketing effectiveness and productivity through an optimized media mix with more digital, mobile, search, and social presence; improved message clarity; and greater non-advertising marketing efficiency.

  • We expect marketing spending to come in below prior-year levels, due to productivity improvements in non-working marketing and advertising costs.

  • Importantly, the overall effectiveness in the consumer impact of our advertising spending will be well ahead of the prior year.

  • While acknowledging the progress I've just described across cost of goods, overhead, and marketing, you may be asking yourself -- Where have all the savings gone?

  • This year, a disproportionate number of them have gone to offset FX.

  • We have leading positions in some of the markets where currencies have softened the most: Japan, Venezuela, the Ukraine, Russia, and Turkey.

  • As I mentioned earlier, January to March earnings per share would be 17% ahead of year ago on a constant currency basis.

  • Year to date, constant currency core earnings per share is up 11%.

  • Partially as a result of devaluation, we are seeing significant wage inflation in developing markets, which we also need to offset.

  • And we're making targeted investments in innovation and in selling coverage to drive growth.

  • The majority of the offset, though, has been FX, which hopefully will annualize and will be functionally offset by pricing.

  • As more savings come online and we see several more years of significant opportunity, we will get a greater percent reinvested in growth or brought to the bottom line.

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

  • We are equally committed to maintaining innovation leadership in our industry.

  • Innovation and productivity are the two most powerful and sustainable ways we can drive value creation for consumers and shareholders.

  • The IRI pacesetter results for calendar year 2013 demonstrate our commitment to leading innovation.

  • P&G launched 7 of the top 10 non-food, US consumer product innovations in 2013, with Tide Pods topping the list.

  • In addition, six P&G innovations were included in their list of rising stars.

  • Innovation is creating value and building cumulative advantage in the fabric and home care sector.

  • Our breakthrough in proprietary three-chamber unit-dose laundry technology, launched as Tide Pods, Ariel Pods, and Gain Flings, has reset the delightful consumer-usage experience, product performance, and convenience bar.

  • Unit-dose detergents are currently available in over 20 markets around the world and have generated well over $1 billion in retail sales.

  • The recent launch of Gain Flings has gone extremely well, reaching nearly a 3% value share in the US laundry category in just two months.

  • Unit dose now represents 11% of category sales, of which we have an 80% share.

  • The balance of the fabric-care innovation bundle that we launched in North America in February is also off to a good start.

  • In-store execution of Tide Simply Clean & Fresh has gone very well.

  • Total Tide share was up more than 0.5 points over the past three-month period, an indication that so far, Tide Simply Clean & Fresh is attracting incremental users to the brand.

  • Improved scents and new sizes of Downy Unstopables and Gain Fireworks in-wash scent beads have helped accelerate growth in this new product segment.

  • The broad range of baby care innovations launched in the US last fall continue to deliver excellent results.

  • Nearly every diaper across all sizes and price tiers was improved to deliver better absorbency, comfort, or design.

  • Overall, P&G US baby care share is up 2 points, with share growing in 90% of retail customers.

  • This has led to our largest market share in the past 20 years, enabling us to retake market leadership from Kimberly-Clark.

  • The extension of the Swaddlers forum into sizes 4 and 5 has been particularly successful.

  • Swaddlers share is up 3 points to a 10% value share of the US diaper category.

  • At the CAGNY conference in February, we announced that we would be launching two new innovations in blades and razors.

  • The first was the launch of Gillette Body, which is doing well.

  • The second and more significant innovation will be announced asked Tuesday, April 29.

  • Men have told us they prefer the new innovation two to one, versus the best-selling razor in the world.

  • More information will be coming to you soon on how you can watch the unveiling of our newest male shaving system.

  • Product innovations like the one I've just described in laundry, baby care, and grooming are critical to driving strong, sustainable top line momentum, and delivering superior consumer value.

  • We're also working to improve execution and operating discipline.

  • We are seeing this improvement play out in the supply chain and the execution of innovation launches in stores and in the effectiveness and efficiency of our marketing programs.

  • We are performing better, but there is still more to do.

  • Operating discipline and execution have always been and must continue to be a core capability for Procter & Gamble.

  • We believe that the focus we're bringing to these four areas: operating TSR, productivity, innovation, operational excellence, along with targeted reinvestment, will enable us to continue to improve results, even as we work to address several remaining opportunities.

  • We remain on track to deliver our 2014 guidance, top line, bottom line, and cash.

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

  • Foreign exchange is expected to be a sales-growth headwind of 2 to 3 points, which leads to all-in sales growth of approximately 1% for the fiscal year.

  • We are maintaining our forecast for bottom-line core earnings per share growth of 3% to 5%, offsetting stronger headwinds from foreign exchange and softer market growth rates with productivity savings.

  • We currently expect foreign exchange to be roughly a 9-point headwind to core earnings per share growth.

  • As a result, our guidance translates to constant currency core earnings per share growth in the range of 12% to 14%.

  • Recall that with the planned sale of the pet care business, we're restating pet care earnings from continuing operations to discontinued operations.

  • This will reduce core earnings per share by approximately $0.03 and $0.04 per share, for FY13 and FY14, respectively.

  • All-in, earnings per share growth remains the same.

  • We've included a table in the press release this morning, which provides an estimate of the quarterly restatements.

  • Please pay attention to this when you adjust your models, as the impacts vary across quarters.

  • On an all-in GAAP basis, we now expect earnings per share to grow approximately 1% to 4%.

  • This range reflects the non-core impacts from foreign exchange policy changes in Venezuela; approximately $0.15 of non-core restructuring costs in FY14; and the restatement of pet care earnings into discontinued operations in both the current and prior fiscal years.

  • The fourth-quarter earnings growth that's implied within our guidance is driven by a combination of operating growth, driven by productivity savings and devaluation-related pricing; a lower tax rate of about 21% on core earnings; and $0.03 to $0.04 of small brand divestiture gains.

  • We expect to deliver another 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 of about $6 billion.

  • In addition to the assumptions included in our guidance, we want to continue to be very transparent about some key items that are not included.

  • The guidance we are reconfirming today is based on last week's FX spot rates.

  • Further currency weakness is not anticipated within our guidance range.

  • We continue to monitor unrest in several markets, the Middle East, for example, and Ukraine.

  • 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.

  • Our year-to-date results are in line with what we expected to deliver, putting us on track to deliver our goals for the fiscal year and make progress towards our long-term objectives.

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

  • Against this backdrop, we've maintained a top line growth and improved constant currency operating earnings growth.

  • We launched a strong round of innovation in the third quarter, and have significant new innovation coming in the fourth quarter, which will be complemented by further savings from productivity.

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

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

  • That concludes our prepared remarks.

  • As a reminder, business segment information is provided in our press release and will be available in slides, which will be posted on our website, www.PG.com, following the call.

  • I'd be happy now to take any questions.

  • Operator

  • (Operator Instructions)

  • John Faucher with JPMorgan.

  • John Faucher - Analyst

  • Thank you, good morning.

  • Jon, as we look at the cost saves, particularly on the gross margin line, they're not really flowing through at this point.

  • Obviously some of that is the big transactional impact, but you've also got this very big mix impact, which is really offsetting a lot of the work you are doing there.

  • How should we think about that over the next couple of years?

  • Is this going to continue to be a massive drag?

  • Should it dissipate as you get more local manufacturing in place?

  • Give us a little bit of an update there.

  • Thank you.

  • Jon Moeller - CFO

  • There are two things, as you rightly pointed out, John, and as we talked about in the prepared remarks, that are offsetting the cost savings on the gross margin line.

  • One is FX, which is significant.

  • Hopefully, that annualizes.

  • And as I mentioned, we are committed to price where legally allowed, to help mitigate that effect, as well.

  • So, hopefully, that portion of the dynamic dampens going forward.

  • The other dynamic, as you rightly point out, is a mix dynamic, which has two components.

  • One is -- two primary components.

  • One is a category component.

  • In the quarter we just completed, we had a great quarter of growth, both volume and sales in our fabric and home care segment, which is very profitable overall, but which does have lower gross margins than the balance of the business.

  • By contrast, we had relatively soft quarters in our healthcare business and our grooming business, which are higher gross margin.

  • I look at that as one quarter's impact; I don't think that that sustains itself going forward.

  • Some quarters it will be positive; some quarters it will be negative.

  • The second component of that is the geographic component made up, as you all know, by faster growth in developing markets, which have a lower gross margin.

  • That impact will continue to exist.

  • I don't see a scenario in the near-term where developed markets grow faster than developing markets.

  • We will make progress on the margin in developing markets as manufacturings localize as we build scale, but, it's going to continue to be a component of drag.

  • Do I think we can get to a place where this mix dynamic is only partially offsetting cost savings, such that we are growing gross margin?

  • Absolutely.

  • And I expect that absent another big foreign exchange event, that would characterize the future.

  • Operator

  • Dara Mohsenian with Morgan Stanley.

  • Dara Mohsenian - Analyst

  • Hi, good morning.

  • I was hoping you could discuss the sustainability of the gap between organic sales growth of 3% to 4% this year and the local FX core EPS growth of 12% to 14%, particularly with the negative geographic gross margin mix impact.

  • Do you think that [gap] is sustainable as you look out to next year and longer term?

  • Then on a related note, I know you're not going to obviously give guidance on EPS next year, but given as a Company you've had some difficulty hitting the initial EPS targets over the last few years, I'm just wondering if, conceptually, there might be more of a need to bake in some conservatism, as you said, guidance going forward, particularly given the world seems more volatile and there have obviously been a lot of and external issues that have pressured results.

  • And could going forward, and if that's part of your thought process as you look to next year's guidance?

  • Jon Moeller - CFO

  • Thank you, Dara.

  • In terms of the spread between organic sales growth and constant currency earnings per share growth, if we're successful in delivering, basically, the $2 billion of savings per year that are implied in our $10 billion, five-year goal, that by itself is 11 points of earnings-per-share benefit.

  • So, you add that to 3% to 4% organic sales growth, and you are in the ballpark of the spread that we are talking about for this fiscal year.

  • We have no intention of letting up on our cost savings and productivity effort and see several years of significant savings ahead of us.

  • So I think that relationship is representative of the work that's going on.

  • How much of it actually gets to the all-in bottom-line numbers will be a function of FX and also a function of some degree of reinvestment as good opportunities present themselves.

  • In terms of the philosophy on guidance, obviously, we haven't spent a lot of time focusing on next year yet.

  • But, in general, what we are going to try to continue to do is be incredibly transparent, or as transparent as we can.

  • So, if you look at the year that we just went through, the one reduction in guidance we made midway through the year was due to currency in Venezuela.

  • The way we handled that in the initial forecast of the year was by communicating that we didn't have anything assumed in the numbers.

  • We didn't know when or what the devaluation was going to be, and we wanted to provide full transparency, so that you and others could, in essence, use your own understanding and knowledge to come to an informed point of view of what you thought the result was going to be.

  • So, at minimum, we will continue to be very transparent, tell you what's in, tell you what's not in.

  • Generally, we like making our goals.

  • We don't like not making them, and that will be reflected in our approach, as well.

  • Operator

  • Wendy Nicholson with Citi Research.

  • Wendy Nicholson - Analyst

  • Could you talk a little bit more about the comment that marketing efficiencies helped generate all that SG&A leverage?

  • How much of that was a shift from advertising to promotion?

  • How much of that is just part of AG's long-term, hey, we want to lower advertising by 100 basis points.

  • Is there a risk that in some of these categories, given how competitive the market is, is it a risk you are under investing?

  • Or, maybe just comment on all of that.

  • Thank you.

  • Jon Moeller - CFO

  • Sure, Wendy.

  • So, the SG&A offset to gross margin, which resulted in operating margin accretion, is driven by both overhead productivity and marketing effectiveness and efficiency improvements.

  • Within marketing effectiveness and efficiency, a significant portion of that is a reduction in non-working dollars, tighter operations, if you will, and the design and creation of marketing programs.

  • Another big portion of it is the work I mentioned to get to more effectively target consumers through new capabilities that are available; to use new forms of media and consumer engagement; to generate more effective communication, as well as more efficient communication with our targeted consumers.

  • So, it's really all of that.

  • As I tried to say in the prepared remarks, we are very focused on ensuring that the overall impact of our advertising program, the number of consumers that we are reaching, the quality of that interaction grows, does not decline.

  • I think there's -- we are at a point where simply looking at dollars is just not representative of the strength of a marketing program and a rapidly changing marketing landscape.

  • We do, to your question of under investing, that is something that we look at very carefully.

  • There have been some categories this year where we've reduced spending as the year has gone on, and there has been some categories where we've increased spending as the year has gone on.

  • We are not going to under invest, but we are going to be effective and efficient in our investment.

  • Operator

  • Bill Schmitz with Deutsche Bank.

  • Bill Schmitz - Analyst

  • Great, thank you.

  • Good morning, everybody.

  • A couple questions: first one is can you just break down the growth in emerging markets versus developed markets?

  • And then, I know we very rarely talk about it, but can you talk a little bit about family care?

  • Because I think they are your second and third largest businesses in the US, and clearly, that slowed quite a bit.

  • I know you cited some competitive promotional activity, but maybe the outlook for that business and how you respond to it.

  • Because it is, obviously, a decent chunk of the US business.

  • Thank you.

  • Jon Moeller - CFO

  • First of all, the breakdown between developing and developed, developing in the quarter was plus 5; developed was plus 1, leaving you with the total of plus 3.

  • In terms of family care, you rightly pointed to the issue, Bill, which is heightened competitive activity as reflected in the amount of promotion that's going on in the category, primarily driven by Georgia-Pacific.

  • I'm not at liberty to talk about future actions that we might take, but I will assure you that that's a category that we intend to be competitive in, and will be.

  • Operator

  • Chris Ferrara with Wells Fargo.

  • Chris Ferrara - Analyst

  • Thank you.

  • First, real quick, Jon, I think you mentioned that there were gains coming in the fourth quarter, I think you said 3 to 4 points.

  • I just wanted to confirm that.

  • But the real question is, look, obviously you faced a ton of headwinds this year, and when you talk about productivity, you guys are using the term pull forward of savings.

  • You brought fiscal 2015 savings into 2014.

  • You are almost at your 16 to 22 target on non-manufacturing roles.

  • Can you talk about what that leaves for 2015?

  • What do you need to sustain that pace of productivity?

  • Do you need some of the supply chain stuff to start to come through, or do you still see incremental runway from the blocking and tackling savings that you are doing already?

  • Thank you.

  • Jon Moeller - CFO

  • First, on the small brand divestiture gains in the fourth quarter, those should be between $0.03 and $0.04.

  • Those are things we've talked about before, which is primarily the closure on the bleach sale, which we announced at CAGNY.

  • That isn't a certain event.

  • We are going to have to wait to see how the regulators proceed.

  • I think it is a certain event in terms of it eventually happening, but the timing of it is uncertain, but that's what's assumed in those numbers that I gave you.

  • In terms of productivity going forward, as I mentioned, I see -- we see, several more years of significant productivity opportunity.

  • I wouldn't take the acceleration of savings into last year or this year as an indication of reduced savings potential next year or the following year.

  • I can assure you that as our leadership team discusses this topic, that's not the mindset that we have.

  • So, I would expect similar levels of savings for the foreseeable future.

  • Operator

  • Olivia Tong with Bank of America.

  • Olivia Tong - Analyst

  • Great, thank you.

  • Appreciate it.

  • First, is it possible to parse out the impact of mix in -- from a country perspective versus the category perspective, considering that you think that the country will continue to be the case is developing grows faster than developed, versus the category, which may ebb and flow over time?

  • Then, can you also update us on the percentage of market share that you are holding or gaining in overall and also for the US?

  • Thank you.

  • Jon Moeller - CFO

  • In terms of the components of mix, it's about half and half, Olivia, between the two drivers that you cited, and, of course, that varies quarter on quarter.

  • But think of it as roughly 50-50.

  • Then, I am drawing a blank, percent -- the market share question, sorry.

  • We are about flat on the quarter.

  • We grew 3%, a little over 3%.

  • The market is growing about 3%, and that dynamic is true on an aggregate basis both globally and in the US.

  • Operator

  • Nik Modi with RBC Capital Market.

  • Nik Modi - Analyst

  • Thank you very much.

  • A quick clarification, Jon, the organizational design changes that you talked about, is that a function and output of what Jorge Uribe was working on?

  • And if there's any more work to do in that area.

  • The actual bigger picture question is, can you give us an update on the OTC business?

  • And it seems like a scalable business where P&G can win with their brands.

  • Any appetite for M&A?

  • I know there's a lot of assets out there that potentially could get unlocked for purchase.

  • Just wanted to get your philosophical viewpoint on that.

  • Thank you.

  • Jon Moeller - CFO

  • Sure, Nick.

  • First, as it relates to organization design, some of the changes that I talked about are very much a product of the work that Jorge Uribe and others have been leading.

  • Most of that is just being put in place now or in the summer.

  • I fully expect that as that happens, not only are operations going to improve as a reduced duplication and increased clarity of accountability, but I expect that we will identify additional opportunities from those new ways of operating.

  • That's very much what we saw when we set up the sector organizations a year ago.

  • We had an estimate for savings that could be possible, but as we got into it, it became clear that there were additional savings possible.

  • So, this is, again, something we are going to keep grinding away at, day after day, week after week, and create an organization that's not only more efficient, but is more effective, that has a broader range of job responsibilities, and is a funner, easier place to work.

  • Operator

  • Ali Dibadj with Bernstein.

  • Ali Dibadj - Analyst

  • Hello.

  • I did want to go back to a few things.

  • One is on the negative 75 basis points, roughly, of the mix element on gross margin that should dissipate.

  • Can you give us a sense of over what time frame you think that will happen, given all the investments you are making to grow the categories, but also, frankly on the geographic piece as well, of opening your plant, et cetera, like the one in Brazil?

  • The second thing is, you mentioned in the release, let me just find -- it says, in the beauty sections that sales declines in salon and skin care are comma primarily in Asia.

  • Does that mean you are getting better skin care stability in the US?

  • And then the last question is, I want to understand better the grooming negative 4% mix that we saw in the quarter.

  • Thank you.

  • Jon Moeller - CFO

  • Okay.

  • Let me first -- and I apologize, Nick -- I breezed by the second part of your question.

  • Let me go back to that first and then come back, Ali, to you.

  • And if I continue my trend this morning of forgetting the second parts of questions, you can remind me what they were.

  • Nick, in terms of OTC, it is a space that we like; it's certainly, demographically advantaged.

  • It's an area that we feel we have strength in, within select product treatment areas.

  • As we've said for several years, it is a place that we would consider adding to our business, both organically.

  • Clearly, the type of joint venture has enabled us to accelerate our progress internationally quite significantly.

  • We added the new chapter asset recently.

  • So, it is a space that we will continue to look for opportunities in.

  • But, we are also going to be choice-full and value driven as we pursue and evaluate those opportunities.

  • Ali, on the glide path for mix, the developing-developed split is so much informed by foreign exchange.

  • There is a constant FX cost differential.

  • I would say that's -- I think we've talked before, probably a 3- to 5-year glide path; it's not overnight, but we will get there, just as we have in China, just as we have in Russia, just as we have in Saudi, and places where we've been operating for longer periods of time.

  • But how much of that actually gets to the bottom line is going to be a function of FX, which is why I hesitate to say definitively, it's going to be X period of time.

  • The second piece on skin care, we had a reasonably good quarter on both US skin care, which was up mid-single digits, and on US Pantene, which was also up mid-single digits.

  • We continue to have opportunity in Asia, and I wouldn't say that we've necessarily fully rounded the corner on either US skin care or US Pantene, but certainly are making significant progress.

  • Then, on Gillette mix, a large part of that is geographic, as you are probably well aware.

  • We have some category growth challenges in the US, so the size of that market is down, and that's the most profitable piece of the business.

  • That's something that as category leaders, we are responsible for managing and we are actively doing that.

  • We certainly like the position that we start from in that task.

  • We have 70% market share of the most profitable segment, huge levels of consumer loyalty, very high, especially relative to other participants in the category, net promoter scores.

  • We offer, really a significant value to consumers.

  • A man can use Gillette Fusion ProGlide for a cost of about $1 a week, and for that, he gets uncompromised quality from a brand that's spent over a century developing the best shaving products for men.

  • We have significant innovation coming to market in the shave care space as well, which help both market growth and mix going forward.

  • We have launched the body product that we talked about at CAGNY, and on the 29th of April, we will be revealing the next major innovation for Gillette.

  • And while I can't give details of that today, all of that will be revealed on the 29th.

  • What I can tell you, what men are telling us, which is that they prefer this product two to one, versus the world's best-selling razor currently.

  • So we are active in terms of managing the category challenge in the US, and are excited about some of the innovation that we are bringing to bear to do that.

  • Operator

  • Michael Steib with Credit Suisse.

  • Michael Steib - Analyst

  • Good morning, Jon.

  • You mentioned earlier that emerging market growth I think in the quarter was 5%, if I understood that correctly.

  • From memory, I think it was 8% in the last quarter.

  • Could you just tell us where you are seeing most of that -- the majority of that slowdown, please?

  • On that note, could also provide us an update on the growth that you are seeing in China, please?

  • Jon Moeller - CFO

  • Well, China continues to be a very attractive market; we've grown that business 50% over the last three years.

  • Quarter to quarter, there can be some chop, but it continues to be a very attractive market for us.

  • Market growth, in general, in developing markets, has slowed by 1 to 2 points over the last six months, and that's what explains most of the slowdown that I mentioned in our developing market business.

  • Fiscal year to date, we are high singles, call it 7%, and so the 5% is 2 points lower than that.

  • If you look at share as a measure of whether we are holding or losing ground, we built share in Brazil by more than 0.5 points.

  • We've built share now there for 22 consecutive quarters.

  • We built share in India, where we've grown double digits now for 47 consecutive quarters.

  • We built a modest amount of share in Russia.

  • China, frankly, is very hard to read shares at the moment.

  • There is a significant channel ship that's occurring, for instance, to e-commerce, where we are doing very well from a share point, but which Nielsen doesn't measure.

  • We have wholesalers that are shifting from Nielsen-measured retailers, as their source of volume, to non-Nielsen measured distributors.

  • So, it's a bit complex.

  • Again, it's a business we feel good about.

  • We've got good innovation coming to market there.

  • We just launched a premium diaper, which in its early days has done extremely well, taking market leadership in three out of the four major e-commerce platforms for diapers in China and its early entry period.

  • So, as I said in our prepared remarks, I expect developing markets will continue to be a disproportionate source of growth across the board for many years to come.

  • Operator

  • Jason English with Goldman Sachs.

  • Jason English - Analyst

  • Good morning, thank you for the question.

  • Two questions: first, a small housekeeping item.

  • Can you give us a sense what sort of gains you expect in the pet care business once it's sold, as we think about modeling into next year?

  • Back to my other question, I want to go back to the organizational changes that you talked about in prepared remarks and a little bit in Q&A.

  • I get the cost-efficiency benefit of reducing role redundancy in emerging countries into fewer SMO clusters, but I was hoping you could help me on your agility comment.

  • How does further centralization and decision-making in an already heavily centralized organization make you more agile?

  • As you move forward with this, how do you ensure that local execution doesn't falter?

  • Thank you.

  • Jon Moeller - CFO

  • Good question.

  • First, relative to the gains, I think if you go back to the press release we issued when we announced the sale, we said we expected very little impact, positive or negative, from a one-time gain standpoint from the sale of the pet business.

  • And John can give you more specifics there later today, but generally, it shouldn't be a major impact.

  • In terms of the organization question, I think there's a couple things that we can do a better job explaining.

  • One is there seems to be a notion that when we talk about global business units, that by definition, moving work in to global business units centralizes that work and moves it to a global level.

  • And I understand completely why one would have that conclusion; because when we describe it, that's what it sounds like.

  • But, that's not what happens.

  • We have GBU resources, at a global level, at a regional level, at a local level.

  • We have brand managers at a global level, at a regional level, at a local level for each of our major product lineups.

  • So, what we are trying to do is just clarify that the work of brand building belongs with those people, locally, regionally and globally.

  • It shouldn't be done by other organizations in addition to those resources.

  • We need those resources focusing on one of the most strategic things we do, which is sell and build joint value creation with our customers.

  • You can imagine, if you have two different organizations working on the same thing, from an internal standpoint, how that can create a lot of complexity.

  • If you are in an executional role in the organizations, it's hard to know what to execute when you are getting multiple sources of direction.

  • So, clarifying this, de-duplicating it, should have both, I think, cost opportunity associated with it, as well as enabling us to be more agile, be clearer, be more decisive, be quicker, in terms of the actions that we take.

  • To date, in the last roughly two years, we've reduced the number of overhead roles by 8000 people.

  • We've done that without significant businesses disruption, without significant organization disruption.

  • That doesn't mean it's all been easy, but it gives us confidence that we can continue to improve here, without being overly concerned about business disruption.

  • Operator

  • Steve Powers with UBS.

  • Steve Powers - Analyst

  • Hi, John.

  • Good morning.

  • Regarding your North American and potential Western European supply-chain restructuring programs, do have any estimates for the costs, whether cash or non-cash associated with those programs and the $200 million to $300 million in savings you mentioned?

  • How should we expect them to flow over the three- to four-year life of the program?

  • Will they be non-core charges, elevated CapEx, will they show up in other areas, et cetera?

  • That's my main question.

  • Then if I could tag on one more, which is related to taxes.

  • I think your -- the quarter and your guidance for next quarter imply a tax rate for the year in the 21% to 22% range, if my math is right.

  • I wanted to get your update on what -- whether you think that rate is sustainable going forward, and what the risks are in either direction, to the more normalized tax rate as we look ahead?

  • Thank you.

  • Jon Moeller - CFO

  • On supply chain, there will be costs.

  • There will be capital.

  • Those will be significant, though, obviously, we wouldn't do this if we weren't earning a significant return on those.

  • We'll try to detail those for you at some level when we provide guidance for next year.

  • As I mentioned earlier, we are still working through -- we're in the exploratory process of this in Europe, and we'd like to come to you with a total package, which we will do as we provide guidance for the year.

  • But you can -- within that, though, capital spending, I don't see going -- I see it staying in the 4% to 5% range as we execute this program.

  • We will work -- continue working very hard on working capital reduction as an offset to this.

  • We've been able to do that successfully in the last three or four years with our whole build-out program in developing markets, really maintaining our free cash flow productivity targets, despite somewhat higher capital spending.

  • And that is certainly the objective going forward.

  • So I wouldn't consider it net of major change to the cash profile of the Company.

  • There will be some cost to execute it.

  • Some of those will be non-core, some of those will be core, and we will provide more context with guidance.

  • Tax rates on the year, based on everything we know today, should be 21%.

  • We still have a quarter to go, so that can change, but that's what we are seeing currently.

  • This is going to continue to be a bit lumpy as we go forward.

  • You are going to see quarters where it's going to be lower than that; you're going to see quarters where it's going to be higher than that, and that's a function of geographic mix, as you can appreciate.

  • It's also a function of the timing of audits and reserve establishments and reserve reversals, et cetera.

  • We try to provide disclosure on the big chunks of that within our financial disclosures in our statements.

  • In terms of what can -- what are the major drivers that could affect tax rate going forward, clearly, again, geographic mix can affect it.

  • That should be, generally, a net positive as we go forward, assuming that developing markets continue to grow faster than developed markets and there are lower tax rates in developing markets.

  • The other change, of course, that is unknowable, and can affect us either positively or negatively, is our policy developments, both in the US and overseas.

  • What I'll say though, is in general, there seems to be a lot of competitiveness on the part of governments to maintain business-friendly status in a slowly growing economy.

  • I think it would be somewhat unlikely that there would be a major adverse event that would affect our tax rate significantly.

  • Of course, that's completely unknowable.

  • Operator

  • Connie Maneaty with BMO Capital Markets.

  • Connie Maneaty - Analyst

  • Good morning, I just had a question for clarification on the supply-chain savings.

  • I think you were talking about $200 million a year.

  • Could you say if that is only for North America and when you would expect it to start?

  • Jon Moeller - CFO

  • The $200 million to $300 million range I gave you, which is a very rough range at this point, is inclusive of our early thinking on Europe.

  • So it's North America and Europe.

  • We will start seeing some of those savings next year, particularly the distribution-related savings as we consolidate distribution and customization centers into fewer distribution centers located closer to customers.

  • That's a relatively smaller portion of the overall savings, which will accrue -- the major savings should start accruing in the three and four years from now.

  • So it's something that we are changing our footprint so dramatically that we want to do it in a very disciplined, organized way to avoid business disruption.

  • The savings will be significant, but they will be -- they are not immediate.

  • Operator

  • Javier Escalante with Consumer Edge Research.

  • Javier Escalante - Analyst

  • Thank you.

  • Good morning, everyone.

  • I would like to come back to the emerging market negative mix issue.

  • Basically, if you can help us, Jon, at least have an average emerging market gross margin and operating margin figure.

  • And also, more philosophically, you have over $30 billion in sales in emerging markets, which is -- these are much bigger than most of your competitors combined, and essentially, you have lower profitability.

  • The question is, is it because you are leading with the wrong categories, leading with categories that have low margins, as opposed to leading with categories like beauty or healthcare?

  • And essentially, you are doubling down in the negative mix by leading with the legacy businesses, which is detergent and some paper, as opposed to the high-volume businesses: beauty, healthcare, and grooming?

  • Thank you.

  • Jon Moeller - CFO

  • Thank you, Javier.

  • We will give you some better gross and operating margin breakdown relative to Company average for developing markets as part of our guidance for next year.

  • The reason I'm not giving that to you right now, is because it's all changing, as we put in pricing for FX, et cetera.

  • I'd like to get to a more stable situation so I can give you something that's actually useful, but I understand the need and we can provide something that hopefully will help there.

  • In terms of our developing market business profitability, it's really a tale of two cities.

  • In markets where we have been for extended periods of time, where we've developed the scale to justify localization of the supply chain, where we've built local organizations, and where we've developed significant relationships with our retail partners, we have very good margins.

  • In many cases, at the Company average, in some cases, above the Company average.

  • So I've mentioned markets before like Russia, like China, like Saudi.

  • There are a number of examples.

  • Take China as an example, that's not only our second largest market in terms of sales, it's our second largest market in terms of profit.

  • Obviously, it's a very profitable situations there.

  • I think that is more what needs to occur than altering the mix of product categories in the markets where we're earlier on in our journey, like Brazil and like India.

  • We need to get the cost structure, we need to get consumer usage of our premium products, which is happening -- it happened in China, it clearly happened in Russia.

  • It's happening right now in Brazil, a little bit less so in India.

  • Those are the kinds of things that will enable us to get margins to a place -- and I'm very confident we will get to, which is somewhere close to -- somewhere close, a little bit below the Company average.

  • Your point on other categories is an important one.

  • I mentioned earlier that we are really through the joint venture (inaudible) for the first time, building out our healthcare business, which is very high margin, across the globe, including developing markets.

  • We've talked before about the Vicks expansion in Russia and Eastern Europe.

  • We have some things going on in Latin America.

  • We will continue to -- where there are smart value-creating opportunities, expand, not just the paper and detergent businesses, but also the beauty and healthcare businesses.

  • Operator

  • Joe Altobello with Oppenheimer.

  • Joe Altobello - Analyst

  • Thank you, good morning, Jon.

  • First question is in terms of the innovation strategy and how you are seeing it right now.

  • Given that we've seen you go down market recently with Tide, and also up market, it sounds like in blade razors, will the emphasis still be on moving up market going forward and staying true to what has been a very successful trade-up strategy for you guys?

  • Or given the environment, do you think the innovation going forward will be a little bit more balanced between mid-tier and premium price points?

  • Secondly, in terms of the outlook for next year, I know it's very early, so I'm not going to ask for guidance here.

  • But given that you are going to be anniversarying the FX headwinds and given that the manufacturing startup costs are behind you, what do you see as the biggest headwinds for you guys in fiscal 2015?

  • Thanks.

  • Jon Moeller - CFO

  • In terms of innovation, we will continue to pursue a balanced innovation strategy.

  • If you just think about the laundry bundle in North America now, it has lower price components designed for consumers for whom price is a bigger part of their personal value equation.

  • It also has some premium lineups.

  • We generated more new sales on Gain Flings than we did on Tide Simply Clean & Fresh in the last quarter.

  • Our innovation decisions are going to be guided by consumers, their needs and wants.

  • It's less about price point than it is about value for a particular consumer.

  • Value, as you know, is a combination of pricing and product efficacy, consumer experience, our communication of that experience, et cetera.

  • We are going to be continue to be focused on consumers with whom we can create value and to whom we can provide value.

  • Relative to headwinds going forward, I think one of the biggest headwinds is market growth, both in developing and developed markets.

  • The good news is we have a say in that and we can create growth with innovation by trading in consumers in many markets, trading consumers up in other markets.

  • But that is challenging and in a 3% growth world, and that's just a reality that we are going to have to adapt to.

  • It is part and parcel of the combined productivity and innovation strategy.

  • Those are the two things that are required to win in a slower growth environment and the two things we are committed to deliver.

  • Operator

  • Bill Chappell with SunTrust.

  • Bill Chappell - Analyst

  • Thank you for the question.

  • Want to go back to the divestiture of the pet business, and I think if we go back a few years with the divestiture of the coffee business, the plan was to take the process and reinvest in actually restructuring and try to offset some of the dilution.

  • In this divestiture, there is just for general and corporate purposes.

  • Just trying to understand at what point $2.9 billion, $5 billion, is there a philosophy change in terms of reinvesting some of this money back into the business or reinvesting it into share repurchases or a thought?

  • This doesn't seem to be one of the smaller divestitures you've done over the past few years.

  • Jon Moeller - CFO

  • A couple of things, here.

  • First of all, the $2.9 billion becomes $2 billion once we pay Uncle Sam.

  • That's the amount of cash that we are looking at, at this point.

  • Really that's cash that we will earn next fiscal year when the deal is likely to close.

  • Buyers have a nasty habit of not paying you until they of have certainty on ownership of the asset.

  • We will build that cash into our planning for next fiscal year.

  • We will be very clear with you how we are intending to use that.

  • Relative to the Folgers situation, there are two things that are different with regard to restructuring.

  • The first is that Folgers was much more dilutive than pet is going to be, and so the need was greater from that standpoint.

  • Second, at the time we announced Folgers, we didn't have a non-core restructuring program, and so, we chose to increase restructuring to accommodate that objective.

  • We have a fairly robust restructuring program right now.

  • We are not capped or limited.

  • If there's more opportunity to generate return and create value, by all means, we will.

  • Again, this is a next-year cash flow, and we will get back to you with the use of that cash, as we describe plans for next fiscal year.

  • Operator

  • Alice Longley with Buckingham Research.

  • Alice Longley - Analyst

  • I have just a couple leftover housekeeping questions: your 1% organic growth in the developed regions, can you break that out in terms of volume, price, and mix?

  • My other question is, when you give us your EPS growth adjusted for currency, could you explain more what you take out to get to that number?

  • Do you take out the pricing that you are getting in emerging regions as an offset to currency?

  • Do you take off all of the cost benefits, the local cost benefits you're getting as a result of currency, as well?

  • Thank you.

  • Jon Moeller - CFO

  • Developed market organic sales breakdown, we had 2% volume growth in developed markets, a minus 1 point price-mix dynamic, getting you to 1% organic sales growth.

  • So, that's the breakdown there.

  • The currency numbers do not include pricing.

  • They do include the total transaction impact on the cost structure, so if there are local cost benefits, that's in the currency number.

  • We just take our currency exposures on the rate of change, and that's the number we are providing.

  • Operator

  • Mark Astrachan with Stifel.

  • Mark Astrachan - Analyst

  • Thank you and good morning.

  • I wanted to clarify a couple of things: on the North America beauty business, was there any benefit from restocking from destocking a year ago, six months ago?

  • Then, from the slowdown in developing markets, any commentary there about whether the categories or a category specific has become more promotional as a result of the slowdown?

  • Jon Moeller - CFO

  • I think the beauty organic sales numbers are representative of the state of the business.

  • I don't think they include any one-time, significant one-time impacts of any sort.

  • I think you should look at them as decent numbers.

  • Relative to promotion levels, we are seeing increased promotion in North America in a few categories.

  • We talked earlier about the family-care category, where we have seen some increased promotion.

  • We've seen increased promotion, not surprisingly, in response to our laundry innovation launches in North America, and we've seen increased promotion relative to -- in response to our innovation in the hair care space.

  • But, we look at those, generally, as temporary in nature and it's not, as I've said many times before, promotion is not high on our list of strategic choices to grow business.

  • So it's certainly not a dynamic that we are going to be encouraging.

  • If you look at price mix inclusive of promotion, from the last quarter, it was a positive impact.

  • On a global basis, it's been a neutral-to-positive impact for 13 consecutive quarters.

  • It's been a positive impact for the last nine years.

  • We are going to try to compete on the basis of innovation, make sure the base price of our product is as sharp as it can be as a result of our productivity efforts.

  • We will need to be competitive on promotion levels, but it's not a dynamic that we're going to drive.

  • Operator

  • Jon Andersen with William Blair.

  • Jon Andersen - Analyst

  • Good morning, Jon.

  • You mentioned a significant shift to e-commerce in, I think, referring to China that you're seeing.

  • But I guess -- I suspect you are seeing a similar shift in, perhaps, developed markets, as well.

  • Should we think about this as a net positive for P&G and manufactures in terms of reach, your ability to target consumers, even profitability?

  • If you could discuss that opportunity and any plans you have to capitalize on that channel shift over time?

  • Jon Moeller - CFO

  • We want to be available for consumers wherever they want to shop, and that includes the e-commerce space.

  • Jon, you mentioned some very attractive aspects of that space.

  • One is the ability to target -- to more narrowly target consumers, more effectively target consumers, and that is certainly relevant.

  • There's also an opportunity to provide, sometimes, some more information as E, in general, becomes what we're calling the zero moment of truth, and sometimes it's the zero and first moment of truth.

  • In general, e-commerce shoppers are -- represent a more attractive demographic.

  • We are seeing larger basket sizes in some of the e-commerce channels than in bricks and mortar, not always, but in some cases.

  • We are working very hard to ensure that our share of both sales and profits is at least as good as is the case in more traditional retail channels, and that currently is the case.

  • This is a channel that's been evolving fast and will continue to change significantly in the next three to five years.

  • It's something that we need to and intend to be a significant part of.

  • Operator

  • Caroline Levy with CLSA.

  • Caroline Levy - Analyst

  • Good morning, Jon.

  • It's on margins.

  • I'm just looking at the EBIT margin expansion in beauty and grooming, and I'm wondering if, going forward, you believe you'll be able to sustain that.

  • Or if you actually see some pickup in margins and the other divisions.

  • Jon Moeller - CFO

  • Well, I think sustaining 17% earnings growth, which is what you see in the beauty segment in the last quarter, is not an objective we would have.

  • We are happy with that growth.

  • We want, over time, to achieve more balance between that top-line and bottom-line, while still delivering a very strong bottom line.

  • The bigger margin improvement opportunity, I think, comes as we do three things: one, get the higher-margin categories growing at their rate of category growth, and that includes beauty; two, improve our margins in developing markets, as we've talked about with several of you this morning; and third is continue focusing on growth behind innovation in developed markets, where we have higher margins.

  • That's -- all three are very much a part of our thought process and activity system, presently.

  • Operator

  • Ladies and gentlemen, that concludes today's conference.

  • Thank you for your participation.

  • You may now disconnect.

  • Have a great day.