The Clorox Co.'s (CLX) CEO Donald R. Knauss on Q3 2014 Earnings - Call Trancript

The Clorox Co. (CLX) Q3 2014 Earnings Call Corrected Transcript: 01-May-2014


Corporate Participants

Steven Austenfeld - Vice President-Investor Relations, The Clorox Co.

Stephen M. Robb - Chief Financial Officer & Senior Vice President, The Clorox Co.

Donald R. Knauss - Chairman & Chief Executive Officer, The Clorox Co.

Other Participants

Steve R. Powers - Analyst, UBS Securities LLC

Nik H. Modi - Analyst, RBC Capital Markets LLC

Jason M. English - Analyst, Goldman Sachs & Co.

Olivia Tong - Analyst, Bank of America Merrill Lynch

Wendy C. Nicholson - Analyst, Citigroup

Chris Ferrara - Analyst, Wells Fargo Securities LLC

Ali Dibadj - Analyst, Sanford C. Bernstein & Co. LLC

John A. Faucher - Analyst, JPMorgan Securities LLC

William G. Schmitz - Analyst, Deutsche Bank Securities, Inc.

Constance M. Maneaty - Analyst, BMO Capital Markets (United States)

Javier Escalante - Analyst, Consumer Edge Research LLC

Leigh Ferst - Analyst, Wellington Shields & Co. LLC

Erin Lash - Analyst, Morningstar Research


Operator: Good day, ladies and gentlemen. And welcome to The Clorox Company Third Quarter Fiscal Year 2014 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to introduce your host for today's conference call Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin your conference.

Steven Austenfeld, Vice President-Investor Relations

Welcome, everyone, and thank you for joining Clorox's third quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; and Steve Robb, our Chief Financial Officer. We're broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website,

Let me remind you that on today's call, we will refer to certain non-GAAP financial measures, including but not limited to free cash flow, EBIT margin, debt-to-EBITDA, and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available in the Financial Results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today's earnings release.

Please recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Turning to our prepared remarks, I'll cover today's highlights of our third quarter business performance by segment. Steve will then address our Q3 financial results, our updated financial outlook for fiscal 2014, and our preliminary financial outlook for fiscal 2015. Finally, Don will close with his perspective on the business followed by Q&A.

In the third quarter, including the impact of negative foreign currencies, sales decreased 2%. The impact from foreign currencies was particularly acute in Argentina, as well as in Venezuela, where we moved to SICAD I, effectively resulting in a meaningful devaluation. On a currency-neutral basis, sales increased more than 1%, reflecting strong growth in our International and Household segments, partially offset by softness in Home Care, due to a distribution loss and ongoing intense competitive pressures in our wipes business, as well as generally sluggish categories across our U.S. retail business. Volume decreased 0.5% in the quarter.

Our U.S. 13-week market share results show a decrease of 0.3 points versus the year-ago quarter, reflecting ongoing intense competitive activity. While we saw share gains in our Laundry, Burt's Bees and Food business and flat results in Glad, these were more than offset by decreases in our Home Care, Brita, Cat Litter and Kingsford businesses. At the same time, our categories grew 0.4 points in the third quarter, although it was a bit slower than the prior quarter's growth rate of 0.6 points, due to the impact of extreme weather across much of the nation, and category growth remains below our 2020 strategy assumption of at least 1% annual growth. Improving our category trends and market shares is our number one priority right now, which Don will further discuss in a few minutes.

Now let me turn to our third quarter results by segment. Our Cleaning segment volume decreased 5% with sales down 4%, driven primarily by decreases in our Home Care business from disinfecting wipes. As we have discussed, our disinfecting wipes business continues to face an intensely competitive environment, more intense than we have seen in years.

After we achieved a record share a year ago, competitors have become very aggressive in the marketplace, causing us to increase trade spending to even greater levels than we anticipated a few quarters ago.

Volume in our disinfecting products was also impacted by a mild cold and flu season relative to last year. In addition, the disinfecting wipes category has recently seen significant distribution swings among large retailers. During the quarter, we lost wipes distribution with a club customer, while picking up distribution at two other key retailers.

Clorox remains the clear category leader with market share near 50% in tracked channels. And with recently improving share trends, we're optimistic this encouraging trend will continue. We remain committed to supporting this business across our 3D demand building model, including increased consumer promotions, consumer communication across TV, radio and digital, highlighting the value of Clorox wipes versus competitors' products, high levels of quality merchandising, and recently launched new wipes products for glass, tub and shower cleaning.

Our Laundry business experienced volume and sales decreases due to category softness impacting our Clorox 2 Laundry additives. However, we are pleased with share gains in the quarter for Clorox liquid bleach, which was lapping very high growth in the year ago period and has once again surpassed a 60% market share.

Finally, volume and sales gains on our Professional Products business were driven by our healthcare and professional cleaning segments. Looking ahead for the Cleaning division, we continue to expect heightened competitive pressures, which we are responding to aggressively with increased investments to drive brand and category growth.

In our Household segment, volume grew 5% and sales grew 4%. The segment's top-line results were largely driven by increased sales and shipments of Kingsford and Glad products. Our Charcoal business grew in comparison to a weak year ago quarter and was also driven by increased merchandising support to help kick off the grilling season.

That said, Charcoal volume and sales fell short of expectations, as weather was similar to last year, quite poor in much of the country in the third quarter. Top-line growth on our Glad business was driven or due to increased shipments in advance of a price increase and increased merchandising at a number of key retailers.

Advanced purchases of Glad products ahead of our March price increase are likely to reduce shipments in the fourth quarter. That said, we are pleased that we continue to grow share in the higher-margin, premium trash bag segment.

Turning to Cat Litter, volume increased as a result of strong category growth and increased merchandising. Though sales lagged due to unfavorable mix and increased trade promotion spending in the face of heightened competitive pressures. In response, we're looking forward to our August launch of Fresh Step Extreme lightweight, which we believe will provide the lightweight product many consumers seek with the excellent clumping and odor control that Fresh Step consumers have come expect from our premium Cat Litters.

Volume in our Lifestyle segment decreased 1%, while sales decreased 3%. Sales lagged volume due to higher trade promotion spending, primarily on our Food business. Volume gains on our Food business from increased shipments of Hidden Valley bottled and dry salad dressings were more than offset by decreases on our Brita business, due to ongoing category softness and competitive activity. We anticipate having a meaningful competitive response out in the first half of next fiscal year on our Brita business.

Turning to our International segment, volume increased 1% and sales decreased 6%. Sales lagged volume due to 15 percentage points of negative foreign currency impacts across many International markets, notably in Argentina, Venezuela, Canada, Chile, and Australia. On a currency-neutral basis, International sales grew 9%, reflecting very strong gains in strategic growth markets behind innovation and higher brand investments. Steve will provide further details on Venezuela and Argentina in a moment.

With that, for fiscal year 2014, we now anticipate sales to be down slightly, reflecting softness in the company's U.S. retail business and foreign currency declines. On a currency-neutral basis, we anticipate International segment sales to increase and total company sales to grow about 2%. Steve will provide additional detail on factors impacting our sales growth in fiscal-year 2014, as well as discuss our fiscal year 2015 sales outlook.

With that, I'll turn it over to Steve Robb.

Stephen M. Robb, Chief Financial Officer & Senior Vice President

Thanks, Steve, and welcome everyone. So for the quarter, diluted earnings per share increased 5%, despite the negative impact of an effective currency devaluation in Venezuela. In March, we started using the SICAD I rate of VEF10.8 to US$1 to record our Venezuela business operations. The devaluation reduced diluted earnings per share by $0.13. Excluding this charge, earnings per share from continuing operations is $1.18.

With that, let me take you through the details of our third quarter financial results. Sales for the third quarter declined 2%, reflecting more than three points of foreign currency declines and nearly a point of higher trade promotion spending, partially offset by about 1.5 points of pricing, primarily in International and 1 point of favorable mix. Excluding the impact of foreign currencies, sales were up more than 1%.

Gross margin for the quarter came in at 41.8%, a decline of 30 basis points. We delivered $21 million in cost savings or 140 basis points, and about 80 basis points from pricing, primarily in International markets. These benefits were more than offset by 120 basis points of commodity costs, primarily related to resin. As well as a 120 basis points of higher manufacturing and logistics costs, due in part to continued inflation in International markets, particularly in Venezuela and Argentina.

Selling and administrative expense for the third quarter was about 13% of sales, down 80 basis points versus a year ago, driven by a reduction in employee incentive compensation accruals, reflecting anticipated lower year-over-year payouts, consistent with our pay-for-performance philosophy. The total incentive compensation accrual reduction was about $25 million or about $0.12 of diluted earnings per share impact, benefiting several lines on the P&L, including cost of goods sold, selling and administrative expense and R&D costs.

Advertising spending for the current quarter was nearly 9% of sales. Spending in the U.S. remained above 9% of sales, exceeding investment levels in International. On an absolute basis, advertising dollars were lower as we shifted a portion of our demand-building investment in the current quarter to trade promotion to address the intense competitive environment.

Our third quarter effective tax rate of 35.3% on earnings from continuing operations was more than a point higher versus the year-ago quarter, reducing diluted earnings per share by $0.02. The higher rate was primarily driven by the non-deductible cost related to the Venezuela currency devaluation this quarter. For the full fiscal year, we now anticipate an effective tax rate of about 35%.

Net of all of the factors I've discussed today, in the third quarter, we delivered diluted earnings per share from continuing operations of $1.05. Year-to-date free cash flow was $346 million versus $352 million in the same period year ago. This modest decrease is the result of the timing of tax payments, funding of liabilities under certain non-qualified deferred compensation plans, partially offset by lower capital expenditures. Importantly, we continue to anticipate free cash flow as a percentage of net sales will be about 10% for the fiscal year.

In the third quarter, we repurchased about 1.5 million shares of common stock at a cost of about $130 million and we also ended the quarter with a debt-to-EBITDA ratio of 2.2 times to 1 times within our targeted range of 2 times to 2.5 times.

Now, we'll turn to our fiscal year 2014 outlook. As Steve mentioned, we now anticipate sales to be down slightly for the fiscal year, reflecting softness in our U.S. retail business, including lower than previously anticipated Charcoal sales in the second half of the year.

In addition, our outlook continues to reflect more than 2 points of foreign currency declines for the full year, with about 3 percentage points impacting the second half. For perspective, softness in our U.S. retail business is contributing about three-quarters of the decrease in our sales outlook with the Venezuela devaluation making up the balance. Higher year-over-year trade spending in the fourth quarter will also temper sales growth. On a currency-neutral basis, sales are now anticipated to grow about 2% for the fiscal year.

Turning to gross margin, we continue to anticipate gross margin for the full fiscal year to be down slightly, reflecting the margin impact of our updated foreign exchange outlook and continued commodity cost headwinds. All other assumptions about gross margin remain generally the same, including an anticipated benefit of 150 basis points from cost savings, partially offset by about 100 basis points of negative impact from inflation, affecting manufacturing and logistics costs.

We continue to take pricing actions where possible to help offset higher commodity cost and inflation. And as we mentioned in our press release, we increased Glad Trash prices by 6% in March to help offset the rising cost of resin.

We continue to expect our fiscal year EBIT margin to be flat to up 25 basis points, reflecting lower selling and administrative expense as a percentage of sales, driven by reduced employee incentive compensation accruals and the company's ongoing productivity programs.

Advertising spending on our U.S. retail business is expected to be about 9% of sales. With $0.15 of negative impact on the fiscal year from the recent currency devaluation in Venezuela, we now anticipate diluted earnings per share from continuing operations to be in the range of $4.25 to $4.35 for fiscal year 2014.

Now, I'll turn to our financial outlook for 2015. As we noted in our press release, our preliminary outlook anticipates flat sales for the year. On a currency-neutral basis, our outlook anticipates sales growth of 1% to 3%, excluding the negative impact of more than 2 percentage points from currency declines in Argentina, Venezuela, and other countries.

Following the third quarter devaluations in both Argentina and Venezuela, we expect currency declines to be higher in the first half of the fiscal year. These headwinds, combined with intense competitive pressures, may result in lower sales in the first half of the fiscal year, followed by stronger sales in the second half.

Finally, our sales outlook also assumes about three points of incremental sales growth from new product innovation and the benefit of price increases, as well as the negative impacts of higher trade promotion spending and unfavorable mix.

Now, let me make a comment about Venezuela. Our fiscal year 2015 outlook also assumes the ability to increase prices on controlled products in Venezuela where price freezes had been imposed on more than two-thirds of our portfolio for well over two years.

Over the last few years, continued inflation in Venezuela has more than doubled our manufacturing costs. Although it's our desire to continue supplying millions of Venezuelans with the product they use every day, we continue to seek immediate, meaningful and ongoing price relief to address the deteriorating margins and operating losses in that country.

Now turning to EBIT margin; for fiscal 2015, we anticipate margin to increase 25 basis points to 50 basis points, reflecting cost savings of about 150 basis points, some benefit from pricing in International markets and moderated year-over-year commodity costs. We expect these factors to be partially offset by high inflation impacting manufacturing and logistics costs, as well as higher advertising investment.

Selling and administrative expense as a percentage of sales are forecast to be about 14%, which assumes a return to targeted levels of incentive compensation versus the significantly reduced level this year. We also anticipate an effective tax rate of 34% to 35% in fiscal 2015. Net of all of these factors, we anticipate fiscal 2015 diluted earnings per share from continuing operations in the range of $4.35 to $4.50. Importantly, this outlook assumes continued double-digit devaluations in both Venezuela and Argentina.

Looking forward, we're committed to accelerating top-line growth through product innovation and stepped-up investments in our demand-building programs. To fund this, we're going to continue to focus on the things we can control, including leaning harder on our cost savings programs and driving efficiencies to increase productivity.

And with that, I will turn it over to Don.

Donald R. Knauss, Chairman & Chief Executive Officer

Okay. Thanks, Steve, and hello to everyone on the call. Well, as Steve said, we delivered 5% diluted EPS in the quarter even with the impact of the devaluation of Venezuela. That said, we're certainly not satisfied with the results of this quarter. And looking ahead, our top priorities are building our market shares, driving category growth and getting back to the trajectory to achieve our strategy 2020 targets. Those are the targets we shared with you last fall, on the Analyst Day, out here in Pleasanton.

So as we shared with you for several years now, we've looked at our growth strategy in terms of the financial algorithm which rolls up on our U.S. retail business, which represents about 75% of our business. Our Professional Products business, which makes up about 5% and then International, which contributes a little over 20% to overall sales. So, what I thought I'd is give you a look at how we anticipate each of those three legs of our business, contributing to sales growth in fiscal 2015.

So in U.S. retail, our 2020 goal that we laid out for you last fall was growth of 2% to 3% annually and in FY 2015. While, it will certainly be challenging to achieve that, particularly in the first half of the year, we believe we have the plans in place to grow near the low end of that range for the full-year.

In the U.S., as you all know, we face an intensely competitive environment and sluggish categories and the economy continues to be bumpy. Just noting the GDP being basically flat for the first quarter is testament to that.

Now, despite a March uptick in consumer optimism, confidence again dipped slightly in April with consumers reporting less optimism regarding current business and labor market conditions with a proportion of consumers anticipating a drop in income growth, given the increased payroll taxes now for more than the year, and certainly reductions in key government assistance programs like the SNAP program and concerns about healthcare costs

Now, for us, nothing is more important than probably restoring our U.S. market shares and growing our categories. And we're investing heavily to improve our consumer value propositions. So, here's what we're going to do, as we head into - as we are in the fourth quarter, and heading into FY 2015, our 3D brand-building execution is going to focus on harder hitting consumer communications that demonstrate visually and through messaging our superior value to drive desire. I think one testament to that is the new bleach advertising; I think many of you have seen.

Second, superior benefit-oriented packaging and competitive price points at the point of decide. I think an example of that is our new four-pack wipes package that is now out there, touting our benefits much more boldly.

And then lastly, consumer-preferred new product innovation with harder-hitting claims that demonstrate our superiority and would delight our consumers. You'll see new Burt's Bees lip crayons, for example, hitting this summer that are 100% natural.

And this - as I said, those are examples, and we think this approach is certainly working holistically on bleach as we shared with you last fall when we launched the fully integrated 3D plan. We wanted to reinforce the value of Clorox bleach and using innovation to differentiate our products versus private label. And I think you can see with our share results. I think they speak for themselves, having once again surpassed a 60% market share. We were at 60.6% for the quarter the past 13-week period, up nearly half a share point.

The 2020 goal for Professional Products is for 10% to 15% annual growth, and we anticipate this fast-growing business to have another strong year in fiscal 2015, to land within that annual growth range. We continue to believe there are certainly tailwinds in that space and we have a differentiated right to win there as we seek to grow our base business and organically expand through product and category adjacencies.

Now, in International, our 2020 goal that we communicated to all of you was annual growth of 5% to 7%. And in fiscal 2015, this is where we are most challenged because we face negative impacts from foreign currency in numerous markets, as Steve noted, most significantly in Argentina and Venezuela, along with certainly difficult operating environments in those two countries.

We're focusing on the things we can control there, such as preserving cash and reducing costs, while we work persistently with governments in both countries to secure meaningful price increases. And while we expect we can achieve the segment growth goal on a currency-neutral basis, our outlook reflects continued devaluation in both of those countries. It also assumes we'll be able to execute price increases at some level in Venezuela.

Now factoring in these impacts, we project a single-digit decline for our International business next fiscal year, which is the reason we're projecting to fall short of our annual 3% to 5% sales growth target as a company.

Apart from the difficulties in Argentina and Venezuela, our International business remains pretty healthy and we're executing well. We're seeing growth in many markets in and beyond Latin America and our Burt's Bees business outside the U.S. And I think that's why on a currency-neutral basis, we had almost double-digit growth in International.

Now to summarize, we're certainly facing some speed bumps in the year ahead and I believe we're being prudent in our assumptions regarding the headwinds we face. Importantly, we have strong plans in place to address them. First, as we noted, we're investing about one additional point of demand spending to support our brands and turn our market shares around and grow our categories. Nothing is more important and we are keenly focused on ensuring consumers understand the superior value our products offer.

Second, we believe in innovation. We remain committed to our goal for three points of growth from innovation next year. The August introduction of Fresh Step Extreme lightweight builds on the innovation we launched earlier this year, including the new wipes Steve mentioned, Clorox Smart Seeking bleach and Clorox Fraganzia bleach and more.

And third, we're driving improvements in productivity and administrative costs even with increased spending. And finally, we are certainly doing all we can to manage through the challenges in Argentina and Venezuela.

And with that, let's go to your questions.


Operator: Thank you, Mr. Knauss. [Operator Instructions] Our first question comes from Steve Powers with UBS.

<Q - Steve Powers - UBS Securities LLC>: Steve, just maybe as a quick clarifying question to begin with, did you - if I missed it, I apologize. But did you talk about or could you quantify the impact of if you aren't able to get the pricing in Venezuela or Argentina that you've assumed, what the financial impact would be next year in 2015?

<A - Steve Robb - The Clorox Co.>: Yeah. So, what our assumption is for pricing next year, it's about a point of incremental sales growth for the company as a whole. I will tell you that a small piece of that is Venezuela from a total company perspective. So, getting pricing in Venezuela is critical to the health of the Venezuelan business and our ability to continue to produce product for that country and those people. But it's a very small piece of the sales growth that we're counting on next year.

<Q - Steve Powers - UBS Securities LLC>: Okay. Thank you. I guess my real question is more around innovation and the challenges you're facing in categories like wipes and Brita, Cat Litter. Just given how focused you are on innovation, I guess I struggle with how you've seemingly ceded the innovation lead in those categories, opening the door to rivals and/or copycat private label type imitations. I guess my real question is, why weren't those categories better protected or maybe that narrative is incorrect, so if you could just set me straight there, that'd be helpful.

<A - Don Knauss - The Clorox Co.>: Yeah, Steve. Let me start. This is Don. Let's take it one-by-one. On wipes, I don't think we ceded the innovation agenda at all in wipes. I think what we saw in wipes after about a year-and-a-half ago, we hit almost a 60% share, just before the start of the 2013 flu season. We were pounding on competitors pretty good.

And what we saw and basically our wipes issues are focused in two or three customers is we saw an onslaught from private label on pricing. We've always maintained that our brands had the ability to command a price premium and when we're in the 25% to 30% premium range like we are on bleach, for example, and we're gaining share again, we can do that. When we start getting outside that 25% to 30% band, which is exactly what happened to us in wipes, we got hammered.

Now, we've rolled out glass wipes, which are doing quite well, tub and shower. We've also launched just a new four-pack, for example, in our largest customer that's doing extremely well. We're launching a new five-pack in club and we're getting much more declarative in terms of our benefits versus competition on that packaging.

So, I think it's been more of a victim of our own success in wipes and creating a bit of a pricing umbrella, which we are managing now. But I think from an innovation standpoint, in terms of the quality of the wipe getting into different cleaning occasions, like glass and tub and shower, I don't think anybody touches us there. So that's wipes.

On Litter, I think this is again a value issue. If you look at our share loss over the last year, 2 share points, it's all in Fresh Step. Scoop Away, which is our value brand, has held share; in fact, built a little bit of a tick-up in share. And we did get outflanked in innovation, I believe. And I think sometimes we try to be too perfect and perfection is the enemy of progress.

I think the lightweight product that we are coming out with in August is a better product, we believe, than our competitors have, at least that's our consumer testing. It's also only a 12% premium versus its competitor products that are lightweight and are over 50% premium versus regular Litter. So I think we're going to retake the high ground in Litter as well.

In terms of Brita, we are the category in Brita. And again, this was a not so much a lack of innovation although there has been in total - I mean, the innovation we did on on-the-go bottles, for example, has driven us to an 80% share.

And in fact, in the April data that we just got yesterday, we've seen Brita gained share in total again. I think we did get, again, outflanked on a pricing standpoint. I mean, we got up to a 50% premium on our three-pack filters versus private-label competitors. That cannot stand. And right now, we're going back through and looking at how we allocate retail customer marketing funds and trade funds to get more into the cost of goods to lower that price to get it back into a 25% to 30% range.

You're also seeing new innovation from us on bottle on-the-go. We just launched a 34-ounce solid bottle. And you're going to see new pitchers and new filters from us in FY 2015. So that kind of gives you a snapshot, Steve, of how we're trying to launch and reclaim the ground that we've lost, but a lot of this has been because of extremely competitive pricing pressure.

<Q - Steve Powers - UBS Securities LLC>: Thanks, Don. That's helpful.

Operator: We will take our next question from Nik Modi with RBC Capital Markets.

<Q - Nik Modi - RBC Capital Markets LLC>: Hey. Good afternoon, everyone.

<A - Don Knauss - The Clorox Co.>: Hi, Nik.

<Q - Nik Modi - RBC Capital Markets LLC>: Hey, Don. So, two questions for me. Just talking about the wipes distribution losses. My understanding is I've got a very large customer, but their category growth has really real slowed since that transition has occurred. And I'm just curious kind of if you think perhaps you might be able to get back distribution just given some of the category trends? And then the second question is kind of more bigger picture. I've always regarded Clorox as best-in-class when it comes to category management. You guys do a great job of managing the businesses you're in. And I just wondered, just given the top line has been struggling for quite some time -I get the macro environment, I understand that. But it just seems like you could put your capabilities more to use by being a little bit more acquisitive in other categories within the supermarket. And I just - Don I was wondering if you could just philosophically explain kind of how you think about that?

<A - Don Knauss - The Clorox Co.>: Yeah. Okay. Thanks, Nik. Yeah. On the first question, the customer that we lost distribution, and I've lived through this in other companies, it's typically - this is an annual program. We'll see if it - if we can make an adjustment inside that 12 months. But to your point, their category is down in significant double digits.

And interestingly, the distribution that we picked up in another large customer, their wipes category is now larger as a total category in wipes than the other customer. But we don't have an 80% share in that customer. So, we haven't made up totally the volume there. But I think we've not only gained distribution in another top five customer, but we've also picked up in another top 10 - two other top 10 customers some incremental distribution.

So I think it'll play out over the course of the next three to six months as we build that back. We always have hope that we'll be able to go in where we lost the distribution, especially after a six-month check-in with this customer to see. If those trends continue at the current rate, we would expect and hope that they would be open to that discussion. But I think with the distribution we have gained in other customers, and that continues to build. And with the innovation around the four-pack and the new five-pack and glass, et cetera, I think we feel much better about our position.

And in fact, I would say to you, just like we told you folks in October that we would see share gains on bleach again in this quarter, which we delivered on, I think we're confident that you will see share gains again from us on wipes in May and June, as we cycle through this. So feel good about that.

As far as the other thing, Nik, on igniting these categories and getting more category growth, we are pushing harder into adjacencies. Let's take Hidden Valley as an example. We now have the number two brand in pasta kits, for example. We have the number two in sandwich spreads or the number three in sandwich spreads now.

So, our dry dip and dry salad business is growing 14%, 15%. So we are starting to push into these adjacencies and you'll see more of that as we go forward. We're doing everything we can to ignite the growth by looking at adjacencies.

We'll also continue to look at acquisitions that are down the middle of the fairway for us, like we did with Soy Vay. Clearly, that's a small business, but it's really growing at double-digit rates. So, beyond personal care or healthcare, the second priority for us is acquisitions that are in those core categories for us.

<Q - Nik Modi - RBC Capital Markets LLC>: Great. Thanks, Don.

<A - Don Knauss - The Clorox Co.>: Thanks, Nik.

Operator: Our next question comes from Jason English with Goldman Sachs.

<Q - Jason English - Goldman Sachs & Co.>: Hey, good afternoon, folks.

<A - Don Knauss - The Clorox Co.>: Hi, Jason.

<Q - Jason English - Goldman Sachs & Co.>: Hope you all are well. Two quick questions. First, a housekeeping item. I think I heard you when you were talking about fiscal 2015 guidance say that you're assuming continued currency erosion in Venezuela and Argentina. Did I hear that correctly?

<A - Don Knauss - The Clorox Co.>: Yes, you did. We're assuming double-digit decreases in both Argentine peso and the Venezuelan bolivar next year. To be really clear about it, we moved to SICAD I and we expect that it's more of a free-floating rate. It will continue to devalue. So we're not assuming it will go to SICAD II, but we are expecting ongoing devaluation

<Q - Jason English - Goldman Sachs & Co.>: Got it. Sounds like a pretty prudent assumption. Now I want to turn my attention to a category you haven't really talked about, liquid cleaners. It's a category that by our data just looking at the Nielsen numbers, you've been losing quite a bit of share in for a pretty persistent period of time with private label gaining, SC Johnson gaining, P&G gaining. Can you talk about some of the dynamics in that category and what may stem those share losses?

<A - Don Knauss - The Clorox Co.>: Yeah. Well, let me start by saying this, Jason. I think in Home Care, we actually - we've been hit by share losses primarily because of wipes. But to your point on dilutables, in particular, we lost share on Pine-Sol, although there is light at the end of the tunnel. In March, we saw actually a total - in total Home Care we saw a share gain of two-tenths of a share point.

Now I would say this on Pine-Sol. I think what's - we have seen a lot of innovation from Procter on Mr. Clean, and we've seen a lot of competitive pricing from other competitors in that space right from Fabuloso from Colgate.

So clearly, we're focused on innovation around Pine-Sol. You know the Squirt 'N Mop thing, we just rolled out. It's too early to tell how that's going. But you'll see new fragrances from us. You'll see different bottle shapes and sizes down the road from us. But it's clearly going to be - it's an innovation game and it's also a pricing - the same kind of issue I talked about in the other categories where we've let our price gap drift up too much. And that's one of the things we're going to reference.

Now, as I said, I think we feel good about the fact now that Home Care shares in total are growing again and I do think you'll see our wipes shares regain and rebound in May and June. And the dilutable piece is something we're focused on, but with an innovation bend as well as a - looking at our trade spending and how we deploy those funds to get the pricing on shelf right.

<Q - Jason English - Goldman Sachs & Co.>: Okay. Thanks a lot, guys. I'll pass it on.

<A - Don Knauss - The Clorox Co.>: Thanks.

Operator: Our next question comes from Olivia Tong with Bank of America Merrill Lynch.

<Q - Olivia Tong - Bank of America Merrill Lynch>: Good afternoon. Thank you. Quick question first. You talked about the fact that embedded in your fiscal 2015 outlook is your assumption that you will get some pricing. So, you've obviously had a couple of discussions with the government around getting pricing in Venezuela, Argentina. But what's sort of the plan of action if those discussions don't turn out fruitful and pricing isn't an option?

<A - Don Knauss - The Clorox Co.>: Okay. Let me take that, Olivia. We have been in high-level discussions with the government. I think we want nothing more than what the government of Venezuela wants, which is to be able to make a fair profit. And I think they recognize the straits that our business is in and the fact that something has to give, or certainly the business in its current form is not sustainable.

So I think we'll be able to give you a much better update when we get to the August call as we work through these issues with the government. But given the recent price increases they awarded to the Food segment in that country, I think we have some level of optimism that we're going to be able to get this pricing through.

But I want to really be clear for everyone and with our investors that I just want to build this algorithm for you, so that there's no confusion or that there's any conclusion that we're overly dependent on getting pricing in any given market. When we put the top-line algorithm together, we said, look, we've got about 3 points of growth from innovation and 1 point of growth from pricing, and about 90% of that pricing is in International markets.

Now, that gives us 4 points of growth. We've got more than 2 points of currency headwinds in this thing, so let's just round it to about 2.5 points of currency, and that includes these double-digit assumptions on devaluations in Venezuela and Argentina, which, as Jason noted, we think is prudent.

That gets us down to about 1.5 points. The reason we're not coming out with a higher top-line estimate than the flat that we put out there is, given the competitive intensity in the U.S. and the volatility of foreign currency, we don't think it's prudent to promise more to investors than that. So, we may be accused of being somewhat prudent in these assumptions, but we think that's the right way to go.

<Q - Olivia Tong - Bank of America Merrill Lynch>: Thanks. And then you mentioned a couple times about price gaps drifting up too much between you and private label and some of your other competitors.

<A - Don Knauss - The Clorox Co.>: Yeah.

<Q - Olivia Tong - Bank of America Merrill Lynch>: And with that, you've got a fiscal 2015 outlook for 25 basis points to 50 basis points of EBIT margin expansion despite the fact that FX will still be a near term drag. So can you talk about some of the puts and takes within that margin? If you've got to spend more, if you've got to promote and price more, is cost saves coming up to offset that delta or what else is going on in the equation to help offset that? Thanks.

<A - Steve Robb - The Clorox Co.>: Sure. This is Steve. Let me lead off on that. So, it starts with the gross margin expansion. As we look into next year, we, number one, have very good cost savings programs planned, so we feel very good about that. And as Don and as I noted earlier, we also are anticipating about a point of pricing. And we think those two factors are going to be sufficient to kind of overcome inflation and commodity cost increases and should lead to solid gross margin expansion next year. And I think if you let that just flow through the bottom line, and again, we're going to continue to aggressively pursue savings on the SG&A line, we think the combination of those two things should translate into solid EBIT margin expansion.

<Q - Olivia Tong - Bank of America Merrill Lynch>: Thank you.

<A - Don Knauss - The Clorox Co.>: Thanks, Olivia.

Operator: Our next question comes from Wendy Nicholson with Citi Research

<Q - Wendy Nicholson - Citigroup>: Hi.

<A - Don Knauss - The Clorox Co.>: Hey, Wendy.

<Q - Wendy Nicholson - Citigroup>: Good morning or good afternoon. My two questions. First of all, just on Venezuela. I think you've already been taking some pricing on a piece of your portfolio. Is that not correct?

<A - Steve Robb - The Clorox Co.>: Yeah, we in the - about two-thirds of products - a little over two-thirds are under price controls, a third is not. We've been able to get very small limited amounts of pricing in the non-controlled categories historically.

<A - Don Knauss - The Clorox Co.>: And Wendy, one thing I would note, too, that of the pricing that we've assumed for Venezuela next year, almost half of that is carryover pricing that we've already gotten this year.

<Q - Wendy Nicholson - Citigroup>: Got it. Okay. Fine. And then turning to the wipes business; if I'm not mistaken, and I may have a faulty recollection here, but I think you used to do some private label manufacturing for the wipes business for certain customers and then you decided to exit that. But given how private label is gaining share and seems to sort of be a more persistent thorn in your side, I guess number one, does that reflect your loss of control over private label, since you're no longer doing it? And would you entertain bringing that back in-house?

<A - Don Knauss - The Clorox Co.>: Yeah. We didn't do private label on wipes, Wendy. We did private label on Food bags in Glad that we exited about five years ago. So we have never done private label on wipes. I would say that with the tremendous focus on private label in a couple of key customers, what is happening is the category is now slowing to - I mean, the category grew in the last quarter just 0.5% and this was a category that was growing in the mid-singles consistently for quarter after quarter after quarter.

So I think the retailers who have driven this hard are recognizing that it's almost impossible to drive a category forward, if you don't have the 50% share branded guy, who's premium priced driving with you. So I think, as I said, I'm pretty confident as we sit here today that you're going to see our shares rebound there. But I think private label has its role to play, but I think you'll see a resurgence from us as we lap through this last year.

<Q - Wendy Nicholson - Citigroup>: Okay, terrific. Thank you very much.

<A - Don Knauss - The Clorox Co.>: Thanks, Wendy.

Operator: Next question is from Chris Ferrara with Wells Fargo.

<Q - Chris Ferrara - Wells Fargo Securities LLC>: Thanks, guys. Can you I guess characterize the type of competition you're seeing? It's not a new concept; obviously, we've heard that from a bunch of companies this quarter. Obviously you said you're promoting more, but what do you see from competitors? I mean is it your sense that this is just a momentary reaction to weaker volume in the near term? Or are you seeing anything that might make it sound or seem a little bit different from what you've seen in the past?

<A - Don Knauss - The Clorox Co.>: Well, I think, let me start, Chris. I think there are a few things going on. First of all, why these categories in general, not just ours, but across the CPG space, are fairly sluggish, and I think there are few things obviously going on. We talked about the fragile consumer, the fact that wages are stagnant. We've talked about the fact that government assistance programs have been whacked back. We talked about the horrible weather in the quarter, which obviously had an impact on GDP.

I think the other thing is, we've seen a spike in the number of people, 18 to 34, living at home. I mean, six years ago it was 27% of people of that age group living at home with their parents. Now, it's 31%. We think there's about 1.2 million to 2 million households that haven't been formed that should have been formed. You add up all those factors and I think you get sluggish category, so people are chasing volume.

The other thing is you look at the volatility in emerging markets and the currency issues and people are refocused on the U.S. market and driving - trying to drive growth in the U.S. market. So, I think you put all those factors together and you get kind of a perfect storm of events going on. And then if you look at the last year, the pattern in CPG for the previous four years had been a fairly good consistent pattern of pricing and volume was kind of sluggish to declining. Now, you're seeing volume and pricing almost matching up with each other because people are chasing that volume.

And I think that's more of a temporary phenomenon than not, hopefully, as we see the economy pickup. But we are seeing that there's such a lack of pricing in the category because of all those other events that I mentioned. You get a fragile consumer out there, so it's pretty tough. So, I think that's what's going on.

<Q - Chris Ferrara - Wells Fargo Securities LLC>: That helps and actually leads to sort of a follow-up, right, I mean gross margins and I know there's only one quarter left in 2014, but gross margins you're still looking for them to be modestly down. That's unchanged. But there's more pressure, right, and you guys obviously have said you're going to promote more, right? It sounds like pricing may be positive, but it's probably going to be less than you thought it was going to be? And maybe that's wrong but can you talk through that, I mean your ability to sustain that gross margin guidance despite the fact that there seems to be more incremental drags than there are helpers to gross margin?

<A - Steve Robb - The Clorox Co.>: Yes, so for fiscal 2014, as you say, we're three quarters into it, and gross margins in the third quarter were down about 30 basis points. We would expect gross margins to be down modestly in the fourth quarter. I think the difference in fiscal 2015 around gross margins is in commodity costs. Commodity costs are running well north of a point this fiscal year, fiscal 2014. And as we look to fiscal 2015, we think commodity prices are likely to continue to trend up, but not at the level we've seen.

And so then when you take the cost savings programs, call it 150 basis points, and you add to that the point of pricing and the other things that we're doing, it gives us some reason to believe that our gross margins should start normalizing and start building back again. And again, we'll have to get into the year and see how things play out from a commodity standpoint, but that's the assumption we're working with at this point.

<A - Steve Austenfeld - The Clorox Co.>: Hey, Chris, one other thing just to keep in mind is that the price increase we put through in Glad to help offset some of the commodity pressure that Steve just noted, that just went into effect in March. So we'll effectively get about a year's benefit of that going forward.

<Q - Chris Ferrara - Wells Fargo Securities LLC>: Great. Thanks a lot, guys.

<A - Don Knauss - The Clorox Co.>: Thanks, Chris.

Operator: Next question comes from Ali Dibadj with Bernstein.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Hey, guys.

<A - Don Knauss - The Clorox Co.>: Hi, Ali.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Hey. So trying to dig a little deeper in this competitive environment that looks like it's gotten tougher. Clearly, you've mentioned things like the macro environment. Are there other elements, so for example, do you guys have a sense of the manufacturing capacity utilization for the non-wovens, so for the wipes, for resins, that's out there right now? Is that at all driving some of this pressure?

<A - Steve Robb - The Clorox Co.>: Yeah. I think it's probably more retailers looking to lean into private label as a way of getting a little bit more margin than it is excess capacity chasing the system based on what we know today.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Okay. Okay. And then on that, so does it sound like - you mentioned the price gaps in some categories up to 50%, that's not sustainable, totally makes sense. How much of that is you guys innovating over the years versus a quick change by the private label manufacturers and/or the retailers in expanding it downward? How much of it is you guys going up versus retailers taking the prices down in private label?

<A - Don Knauss - The Clorox Co.>: Well, it's interesting, Ali, where we've really seen private label focus is where we have branded shares north of 50%. So, we look at wipes. The most extreme pressure we have seen from private labels has been in bleach, in wipes and in Brita. And each one of those is a brand that has north of 50%-share.

And so, when you have that kind of leadership share, I think that people really think that there certainly is a pricing or margin umbrella created. And I think that's where we've seen the most pressure. So, we haven't seen that same level of pressure, for example, in salad dressing where we even - while we have a leadership brand, it's south of the 25% share.

So, it's really where we have these high share brands that we've seen the pressure. And I think sometimes - and seen in Charcoal as well with a 70%-plus share. So, you think of all those businesses where we have those kinds of leadership shares and I think you just got - we've got to double down and be very prudent that we don't let them create a pricing or margin umbrella where people can crawl underneath them. But I think private label really focuses there because there's not a lot of other branded competitors to focus on. And so I think they obviously believe there's an opportunity there. And certainly on the wipes example and the three-pack filter example on Brita and you look at lump in some of the other things that are going on in Charcoal with private label there. I think that's where you see the focus.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Okay. So this is great because this is something you guys know I struggle with because those categories are where you also have your highest margins and so frankly it's been...

<A - Don Knauss - The Clorox Co.>: I would stop you there and say that's not necessarily true, Ali. If you think about - all right, let's think about bleach, wipes, Charcoal and Brita. Clearly, Brita has high margins. The other three are in the middle of the pack. Food has much higher margins. Burt's Bees has much higher margins.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Okay.

<A - Don Knauss - The Clorox Co.>: So we're not seeing it there. It's really more of the share position you have and the lack of other branded competition in those markets. And I think us just being - needing to be much more watchful about keeping a pricing umbrella narrowed down so people can't crawl underneath it.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Okay.

<A - Don Knauss - The Clorox Co.>: And keeping the innovation up, so we continue to offer new offerings that people want to buy.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Okay. And that's helpful. Thank you very much for the color. Question I did have on - just separate question on professional.

<A - Don Knauss - The Clorox Co.>: Yes.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: If you could give us an update on that, it sounds like that was certainly a jewel in the crown that's growing for you guys for the CAGNY presentation and before that. How is that proceeding, how's the growth going in that category and particularly from a margin perspective, is it still holding in at above company or is it trending downwards?

<A - Don Knauss - The Clorox Co.>: Yeah.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: And if you could also mention because in the M&A discussion a second ago, you mentioned a lot of other core categories. Professional used to always be your number one it sounded like. Has that shifted a little bit from an M&A priority perspective? Thanks.

<A - Don Knauss - The Clorox Co.>: Okay. On Professional, we expect another double-digit growth year out of that business, Ali, and we also expect that trend to continue in fiscal year 2015. The margin structure of that business is actually accretive to the company margin structure. So, we feel good about the margins in that business as well. I think that we just - as you may recall, we talked about it at CAGNY. We just launched the UV light partnership. We think there's a lot of upside in some of these different channels and categories as we drive that business. So, I think we remain very bullish on that business. As far as the - I'll let Steve talk about the acquisition pipeline and the focus there.

<A - Steve Robb - The Clorox Co.>: Yeah. And Ali, you know that one of the things that we really like about this business is the fact that when we look at the categories, it's still fairly fragmented. So we think there's an opportunity to roll up some of these small family held businesses. Certainly, we do that with Aplicare, HealthLink, and then a few years ago, obviously, the Caltech bleach acquisition, which has wildly exceeded our expectations since we acquired it.

And I think we feel like we've got a healthy pipeline of bolt-on acquisitions ahead of us. It's going to take some time to shake these free. They don't always come in when you want and sometimes you have to get into long-term discussions with people, which is what we're doing. But I think we feel very good about the M&A pipeline in Professional Products, and you'll see more activity there over time.

<A - Don Knauss - The Clorox Co.>: And we certainly had a 2.2 times debt-to-EBITDA, Ali. As you know, we certainly got enough dry powder there if we need it.

<Q - Ali Dibadj - Sanford C. Bernstein & Co. LLC>: Thanks very much, guys.

<A - Don Knauss - The Clorox Co.>: Thanks, Ali.

Operator: Our next question comes from John Faucher with JPMorgan.

<Q - John Faucher - JPMorgan Securities LLC>: Yes. Thank you very much. Wanted to sort of continue this theme here, and Don, you've talked a lot about product preference as something that you're really focused on in terms of getting consumer - in terms of getting your products to where consumers really prefer them. I guess as we look at this, you've worked hard on that and yet, is it just that the consumer has changed and that's becoming less important? And therefore, you won't be able to charge the type of premiums that you think that product preference deserves?

And then you also talked a little about the brand investment going up. Can you talk a little bit about some of your marketing mix analysis? It's continued to come up over the years that your ad to sales has moved down. Should we expect a continued shift from that standpoint more toward the trade promotion? And if we do see that, is that permanent price cuts or is that going to be just sort of hitting hard at certain points of the year where you know you need to drive that value equation? Thanks.

<A - Don Knauss - The Clorox Co.>: Yeah. Okay, John. Let me take the second part of your question first. If you look at the incremental spend that we're putting in for next year, the majority of that spend is going into advertising and consumer promotion, not into trade. So we want to get comfortably back into the 9% to 10% range in total for the company and to get back near the 10% level for the U.S. retail business. So that's what we're doing there.

On the preference question, we still think that the 60-40 wins, the superiority of our products is extremely meaningful. I think where we got out of whack a little bit in the last year is these price premiums, there's only so much you can ask from a consumer, especially in tough times. And I think that we did not, especially on high-share brands, we did not stay focused enough on the price point delivery at the shelf. We also did not have packaging that was really hard-hitting visually on what our benefit advantage is versus our competitors. At the end of the day, we've got to be able - as you know, we've got to be able to answer this fundamental question that consumers have. Why should I buy your brand in preference to that one?

And I think while we've got great products in terms of 70-30 wins on Glad OdorShield, for example, and the same thing we have on Hidden Valley. If we let these premiums drift above 30%, we're asking too much, especially in this environment.

So, I think we're going to continue that focus on 60-40 wins. We're going to continue to drive for product superiority, but we're going to be damn sure that we've got these price points relevant to people where we're just not asking them to stretch too far.

<Q - John Faucher - JPMorgan Securities LLC>: Okay. And then one sort of further follow-up on this. One of the things you guys have historically talked about is wanting to focus in categories with more private label. You've talked about that strategically, and I guess this kind of goes back to Nik's question, which is, is that still the right structure - the best structure for you guys to be in longer term? Those types of categories where you guys have big shares with private label.

<A - Don Knauss - The Clorox Co.>: Yeah. I still think it is, John. I think that we still would say that if you gave us a preference to competing against private label versus competing like in Home Care with five different national branded and International branded companies, I think it's - we would say, yeah, we'd still want to compete against private label because - not because they're easier but because they have a more clearly defined unique role. Each has a unique role. We're the innovator; they're the opening price point.

You get into a Home Care situation where you've got four or five other multinational companies; everybody's got the same role. So I think that we want that model. We think that model works and I think we didn't build a 60% share a year and a half ago on wipes and a 60%-plus share in bleach and a 70% share in Charcoal and a leadership branded share in Glad because we can't compete with private label. We've done that very well.

We just got to re-sharpen ourselves in terms of making sure the balance between product superiority and price point is right. And we're getting there. And I think bleach is a good proof point of that and I think you'll see the wipes coming back in May and June, that'll be another proof point.

<Q - John Faucher - JPMorgan Securities LLC>: Got it. Thank you very much.

<A - Don Knauss - The Clorox Co.>: Thanks, John.

Operator: The next question comes from Bill Schmitz with Deutsche Bank.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Hey, guys. Good morning.

<A - Don Knauss - The Clorox Co.>: Hey, Bill.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Hey is there any share repurchase in your 2015 guidance? Because as Don said, I know you're sort of at the low end of our debt-to-EBITDA range.

<A - Steve Robb - The Clorox Co.>: Yeah. We're at about 2.2 times. So, we certainly have dry powder for M&A and we've got dry powder to be able to do share repurchases. What I would say is that, certainly, people should expect that in the outlook, we're going to continue to soak up dilution from stock options. Going beyond that, I think we have look at the M&A pipeline and I think we just have to look at how much excess cash we build up.

As we've said for many years and I think as we've consistently done, if we build up excess cash that we don't need in the M&A environment, we'll go ahead and look for ways to get that back to the shareholders either through the dividend or through share repurchases. But at this point, there's a range of expected outcomes and share repurchases are certainly one thing that we'll look at.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Got you. And then as a follow-up to the M&A question. Are there any opportunities for you guys to get bigger in sort of niche Food categories? Because if you kind of look back the last five years, probably the all star in the portfolio has been Hidden Valley. And you've done such a terrific job extending it. I mean is that something you kind of open up to be on like little small stuff like Soy Vay?

<A - Don Knauss - The Clorox Co.>: Yes. We would be open to that, Bill. And in fact, as you say, we know how to do and compete in that category quite well. I would classify that as down the middle of the fairway for us. So, clearly, that is something we would be interested in.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Okay. Are there any sort of sub-categories that you've targeted as being sort of complementary to the Hidden Valley business or is that too much detail?

<A - Don Knauss - The Clorox Co.>: I think for competitive reasons, I wouldn't want to get into that one, Bill. But clearly, where you're poking at is something that we have interest in.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Got you, great, and then just a last one. I know you still want 3 points of growth from innovation. I know you talked about the lightweight Charcoal. But is there anything else you can talk about that's going to help drive that 3 points, that's already been announced or is about to be announced?

<A - Don Knauss - The Clorox Co.>: Well, I think - yeah, I think - I'll give you another example. The lip crayons for Burt's Bees that are rolling out, we think it's quite a big deal, actually. There's not a 100% that we're aware of. There's not a 100% natural lip crayon for women out there. And as you know, lipstick is such a huge category, and the lip crayon continues to push that Burt's Bees brand into beauty, away from just functionality. So we think there's a big opportunity there.

I think obviously the lightweight litter, we think, is a big opportunity. The Aloha Scent - excuse me - we just launched on Glad, which is doing extremely well, which is Procter & Gamble's number two scent on for Febreze, that carries over mostly into fiscal 2015. And we could go through the list by brand, but I think you're going to see a pretty full package across - every major brand will have news.

I talked about Brita earlier. Bleach, one of the things on bleach that continues to do extremely well - and we're expanding this into new scents is the Splash-less part of our portfolio is up over 3 share points. That's one of the things that's driving our overall bleach share. So Splash-less has clearly resonated with consumers.

Smart Seeking (sic) [Seek] (60:38), it's a little early to tell. A lot of that's carry over to next year. But all these - Smart Seeking (sic) [Seek] (60:45) and Outdoor have added about a share point-plus already. So I think, all in all, we're feeling pretty confident in the pipeline as we go forward.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Great. Thanks. If I can sneak in one quick other one, kind of to John Faucher's question. When you look at kind of the basis testing before you guys do these launches are you seeing that once you launch them that the results are materially worse in this environment than they were sort of prior to this consumer malaise?

<A - Don Knauss - The Clorox Co.>: I'm trying to think of an example, Bill, that would be either worse or much better. I think that the models are still fairly predictive because - and I think the reason is if you look at the category growth, now this quarter was a bit of an anomaly given that we grew 0.4 points all of our categories. But the categories were negative 1.8% in February because of the weather.

If you look at the fiscal year to-date, our categories are growing 1%. I mean the historical average is 1% to 2%. So it's nothing like there's some massive deceleration in these categories. They're softer and we're assuming kind of flat to up 1% next year. But I don't think there's anything dramatic going on. So I don't want to read too much into it. We haven't seen anything in the predictive models on any of the major launches that we've done that would say they're way out of whack.

<Q - Bill Schmitz - Deutsche Bank Securities, Inc.>: Right. Thanks so much.

<A - Don Knauss - The Clorox Co.>: Thanks, Bill.

Operator: And we'll take our next question from Connie Maneaty with BMO Capital.

<Q - Connie Maneaty - BMO Capital Markets (United States)>: Thanks. All my questions have been answered.

<A - Don Knauss - The Clorox Co.>: Okay, Connie.

Operator: Thank you very much. We'll move next to our question from Javier Escalante with Consumer Edge Research.

<Q - Javier Escalante - Consumer Edge Research LLC>: Hello. Good morning everyone there in California.

<A - Don Knauss - The Clorox Co.>: Hi, Javier.

<Q - Javier Escalante - Consumer Edge Research LLC>: How are you? I would like to revisit this issue of the relationship with the retailers. First a clarification, we saw a drop in ad spending in the third quarter. There was a commensurate increase in trade spending in the third quarter.

<A - Don Knauss - The Clorox Co.>: Yes.

<Q - Javier Escalante - Consumer Edge Research LLC>: There was?

<A - Don Knauss - The Clorox Co.>: Yes.

<Q - Javier Escalante - Consumer Edge Research LLC>: Okay. So then the question is, if you can - to the extent that it's not confidential, talk about what exactly was the point of the retailer when you lose distribution for the wipes, you having 80% share? I would like to understand what is the other side of the conversation, why is it that you couldn't get into an agreement that essentially didn't avoid this loss of distribution? That is point number one. And point number two is trade spending overall it seems like there is an increase in the Laundry aisle. There is an increase in Litter because of innovation. And most of these monies are not seen by the consumer. So is this a new normal that essentially the retailers are asking more money just to put the same products on the shelf? Thank you.

<A - Don Knauss - The Clorox Co.>: Yeah. On the first question, let me see how I can answer this for you, Javier. I think what we saw in that case was an offering from a competitor that was on a cost per wipe basis. We thought that we could not replicate that price for other customers. And while we wanted certainly to maintain distribution in that customer where we had been for over a decade and had been doing quite well obviously, being the lion's share leader in share in general, we thought competing at that price level, particularly in a category where there is only 50% Household penetration, we thought that was the wrong strategy for that category.

And we also thought, as I said, that we could not deliver that price point to other customers. And we are a fair and equitable company in terms of allowing everyone to compete. So, we just didn't think we could make it work and we thought it would have channel repercussions that would be serious that we wouldn't be able to deal with.

And we also thought it was wrong in terms of the dynamics in the category that you didn't need to push pricing that low for a product that was on trend and had only 50% Household penetration. So we chose not to go that route and told our story differently at other retailers. And that's why we're picking up distribution at other retailers. So that's the question number one. We thought it was the wrong strategy.

On your second question, we have not seen an increase that I'm aware of in any of our top 20 customers in terms of slotting fees or any other incremental costs. Haven't seen any of that. I think people are getting even more and more everyday low cost, everyday low price, pushing money into cost of goods as most they can. And certainly we have in our top 20 customer set, high-low competitors, as well as everyday-low price competitors.

But I have been out with four retailers the last three weeks across the country, four different major retailers, all in our top 20 and that has not come up at all.

<Q - Javier Escalante - Consumer Edge Research LLC>: And as a follow-up, in the case of the Laundry aisle. Church & Dwight did say that they're going to increase a slotting fee or spending in trade, in the trade.

<A - Don Knauss - The Clorox Co.>: Yeah.

<Q - Javier Escalante - Consumer Edge Research LLC>: And my understanding is, is that there is a situation also with Proctor with regards to Tide Simply with some retailers. So to what extent are you getting kind of like hurt in the crossfire or not? I mean that, I mean, for your Laundry additives?

<A - Don Knauss - The Clorox Co.>: Yes. We haven't really seen that, Javier. We're not really - as you know, we don't really play much in that aisle. Well, certainly, not in detergent, but the Laundry additive seemed to be a separate deal and we certainly have seen no bleed-over into the bleach section. In fact, I think, excuse me, I think one of the reasons our shares are back to over 60% as we are now back to historical levels on merchandising. And we're actually starting to see Household penetration decline slowing in bleach now and dosing seems to be at the right amount. So, we're not seeing that kind of effect on - in our segments.

<Q - Javier Escalante - Consumer Edge Research LLC>: Okay. Thank you very much.

<A - Don Knauss - The Clorox Co.>: Thanks, Javier.

<A - Steve Austenfeld - The Clorox Co.>: Why don't we take two more callers?

Operator: Thank you. Our next question comes from Leigh Ferst with Wellington Shields.

<Q - Leigh Ferst - Wellington Shields & Co. LLC>: Good morning in California. I also wanted to ask about the professional cleaning business. And I'm wondering if the infection rates are going down at the hospitals and other facilities? And if not, if that's still an opportunity for you and if healthcare reform is helping drive demand?

<A - Don Knauss - The Clorox Co.>: Yes. Leigh, on the first part of the question, clearly, the 100,000 people dying every year from hospital-acquired infections is not really moderating very much. At least we don't see a discernible trend down. We do see - in fact, last night, I was watching NBC Nightly News and they had a segment on about MRSA, and MRSA killing itself, I think it was over 23,000 people last year.

So, that opportunity, that issue of public health is still front and center with infection control people across acute care facilities in this country and other countries. So that continues to be a very important opportunity for us and a really important public health issues that we can help resolve. We have seen in tests that we've done, for example, with the Mayo Clinic, where we have greatly reduced those infection levels using our products and the protocols that we recommended. So clearly, bleach is the most inexpensive and effective disinfecting agent against all those bad bugs. So, that we feel good about.

<Q - Leigh Ferst - Wellington Shields & Co. LLC>: And is healthcare reform helping and are the protocols being followed?

<A - Don Knauss - The Clorox Co.>: Yeah, I think it's a little early to tell on that one. I think - I'm not sure that the healthcare reform is going materially affect that business one way or the other. I would say that one of the things that has happened under the Obama administration about three years ago is, federal government Medicare changed their policy that they will not...

<Q - Leigh Ferst - Wellington Shields & Co. LLC>: Reimburse.

<A - Don Knauss - The Clorox Co.>: ...yeah, they won't reimburse hospitals for preventable injuries, right? And they classify these acquired infections as a preventable injury. So clearly, the folks who have to deal with these protocols and infection control in hospitals are much - even more focused on it now, because the expense of one of these, not to mention somebody potentially dying, is massive. So, none of that has changed and so I think it's a very fertile opportunity for us.

<Q - Leigh Ferst - Wellington Shields & Co. LLC>: Thank you.

<A - Don Knauss - The Clorox Co.>: Thanks, Leigh.

Operator: The final question comes from Erin Lash with Morningstar.

<Q - Erin Lash - Morningstar Research>: Hi. Thanks for taking the question. I was wondering if you could speak a little about the Burt's Bees business. And I apologize if I say this wrong, but particularly within the context of how Gud is performing relative to Burt's Bees and that sort of mix?

<A - Don Knauss - The Clorox Co.>: I'm sorry, I didn't hear the last part, Erin.

<Q - Erin Lash - Morningstar Research>: Okay. Just within the context and I apologize if I say it incorrectly, but within the context of how Gud is performing, or Gud, performing relative to Burt's Bees.

<A - Don Knauss - The Clorox Co.>: I got you. Well Burt's, over 90% of our personal care business is obviously Burt's Bees.

Burt's is continuing to perform extremely well. I think this will be our fourth year in a row assuming we continue on forecast for the fourth quarter, our fourth year in a row of double-digit growth for Burt's. The International business now is doing extremely well, north of 25% growth.

Gud is challenged. It's a very small piece, as I said, of the business. The shampoos and conditioners seem to be hanging in there fairly well. I think distribution is challenged on the other items in that business. But clearly, Burt's is the engine that drives our personal care business. And with the innovation we have coming like lip crayons, we're very bullish about FY 2015 for Burt's Bees.

<Q - Erin Lash - Morningstar Research>: Thank you. That's very helpful.

<A - Don Knauss - The Clorox Co.>: Thanks, Erin.

Operator: This concludes the question-and-answer session. Mr. Knauss, I would now like to turn the conference back over to you.

Donald R. Knauss, Chairman & Chief Executive Officer

Yeah. Well, thanks, everyone, for joining us on the call. I would like to just say this, I would like our investors and all of you folks who cover this company to understand that we are focused on three things like a laser, and I wish you take these away. And that is, first, the value propositions of our brands and our categories is centermost in our minds. And I think the one point of incremental spending we're putting in next year is testimony to that. And all of that spending is going to be oriented around the guiding principle of never give consumers a reason to choose another brand. So that's number one.

Number two, we're going to ensure that our cost structure is as lean as possible to provide additional fuel to reinvest in growth. So I think you all know that we have quite a track record on cost savings, and we will redouble our efforts there to ensure we've got the fuel for growth. And third, we're going to ensure that our people, who we think are the best in the business, that they can and are able to focus only on the work that the consumer is willing to pay for and get rid of a lot of this other extraneous work that doesn't really add value to the consumer or to the customer. So we're going to focus on those three things. Certainly, better days are ahead. But with that focus, we believe we can not only deliver on the FY 2015 expectations, but hopefully in our investors' mind and yours exceed them. So with that, we look forward to talking to you in August. Take care.

Operator: Thank you. That does conclude today's conference. Thank you for your participation.

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