The Clorox Company (CLX) Q4 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter and Fiscal Year 2010 Earnings Release Conference Call. [Operator Instructions] 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.

Great. Thank you. Welcome, everyone. Thank you for joining Clorox's Fourth Quarter Conference Call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating Officer of Clorox North America; and Dan Heinrich, 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, www.thecloroxcompany.com. On today’s call, Larry will start with comments on business unit performance, as well as perspective on current category, market share and overall top line results. Dan will then follow with additional color on our fourth quarter and fiscal year 2010 financial performance, as well as our fiscal 2011 outlook. Finally, Don will close with some highlights from fiscal ’10 and implications for fiscal year ‘11. And after that, we'll open up the call for your questions. 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 and debt-to-EBITDA. 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 information. 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. With that, let me turn it over to Larry.

Thanks, Steve, and welcome to all of you on the call. Hey, I’m happy to report that we delivered a good quarter and completed a strong fiscal year in fiscal '10, and we grew volume, sales and share, despite a tough economy, some competitive battles and the Venezuelan currency devaluation. We increased investment demand building activities to keep our brands healthy for the long term while addressing short-term competitive price gaps at shelf. Overall, as we look back at the year, we exceeded our expectations. As usual, I'm going to focus my comments on our top line results, highlighting volume, sales and market share trends. Starting with our U.S. business, consumer takeaway in our categories in tracked channels was down slightly in Q4, similar to what we’ve seen over the last several quarters. In tracked channels, our overall U.S. share was down slightly. Private label sales in our categories actually declined in the quarter, and private label share was about flat. As we have pointed out many times before, tracked channel data can be misleading given that it only accounts for about a third of our total U.S. volume. Further, our volume growth in tracked channels has consistently trailed the growth in the untracked universe. This was particularly true in the fourth quarter as we saw great performance at Wal-Mart, the dollar channel and the home hardware channel. On an all-outlet basis, our 52-week market share through June was up almost half a share point. Said another way, in fiscal '10, more consumers switched to our brands than the competitive set. In our International businesses, market share results are also generally positive. Our dollar share in both Latin America and Canada, our two largest International markets, were up significantly. Volume in the International segment was up slightly. Higher shipments of disinfectant and fragranced cleaning products in Southern Latin America were driven by new product introductions. These increases were largely offset by declines in Home Care products in Venezuela and Mexico and lower shipments of Glad products in Australia due to distribution losses. International sales were up 2%, primarily due to price increases, partially offset by the Venezuelan currency devaluation. Overall, our categories in International markets are generally a bit healthier than they are in the U.S. For the total company, Q4 volume was up 2% with growth in all four of our business segments. Sales growth for the quarter was a bit less than volume at just over 1%. Pricing, primarily in International markets, added about a point to sales growth. Foreign exchange negatively impacted sales by about one point, reflecting more than two points of negative impact for Venezuela and positive foreign exchange in other countries. Sales were also reduced by higher levels of trade spending in support of new products and in response to competitive activity. While there's always differences in performance across our portfolio, most of our businesses are performing well. Let me take you through a few highlights. In our largest category, Home Care, we maintained our strong #1 overall share position. Volume in sales declined, due in large part to modestly lower shipments of Clorox disinfecting wipes. We have now started to lap the year-ago period when consumers’ concerns related to H1N1 drove strong double-digit growth in Wipes and other disinfecting products. On the positive side, Pine-Sol cleaner had another fantastic quarter with strong volume growth and the brand's highest shares in the last two years. In Laundry, Q4 saw improved results versus recent trends. Like Clorox Bleach, volume was about flat versus the year-ago period, and our tracked channel share increased about half a point. We're feeling better about the fundamentals on this business and optimistic about the coming year. On Clorox 2, share and volume declined as a result of competition. However, we are pleased with early results in our new single-dose packs and are now seeing some sequential improvement in our share results. Our Glad business continues to see better results in the trash side of the business, which represents about 2/3 of total Glad. By contrast, our performance on the food storage side of the business remains weak. In Trash Bags, we saw mid-single-digit volume growth with particularly strong increases on our premium trash bags, ForceFlex and OdorShield. Our Trash market share is up significantly behind the innovation on ForceFlex and increased trade promotion investment. Looking forward, we are increasing Trash prices about 5% effective August 2 to compensate for the rise in resin cost. We’re also bringing a great new innovation to the category with a July launch of Glad with Febreze, a new product born of our joint venture with Procter & Gamble. We will invest a direct trial and will also benefit from the existing high awareness of the Febreze brand name. Burt’s Bees had another good quarter with double-digit volume and sales growth. Our Natural Acne Solutions line continues to perform well. Further results are very positive on the July introduction of new lip balm flavors in our body lotion re-launch. Burt's consumption continues to improve, and the International expansion is helping to drive growth. Overall, we're feeling confident about this business. Kingsford Charcoal had a great quarter with record volume and strong sales growth behind our product improvement. We feel very good about the plans we have in place for the rest of the grilling season, including an enhanced Grill and Tailgate at Home program that will be featured prominently on ESPN. In Food, we delivered a second quarter of record shipments of Hidden Valley bottled salad dressing and saw increases in both sales and share. The newly launched Hidden Valley Farmhouse Originals, which expands the brand into flavor profiles beyond Ranch, continues to exceed our expectations. The revitalization of our Hidden Valley Ranch Dry Dips and Dressings has also been a big success. Wrapping up, we feel good about our Q4 results and are very pleased with a strong fiscal year, despite a very tough economic climate and a tough competitive environment. Let me now turn to fiscal '11 and provide some perspective on how we see the business going forward. Overall, we are projecting top line sales growth of 2% to 4% for the full year, most likely at the lower end of that range. There are three key assumptions in our forecast that I would highlight. First, we are confident that we can continue to be competitive in the marketplace and at least maintain, if not grow, our market shares. We have a very solid innovation program in place and anticipate that we will generate about two points of incremental sales growth from new products, the same level of growth we have generated behind innovation in each of the last five years. Second, we are projecting continued sluggish U.S. category growth, given no significant signs of accelerating economic recovery. This obviously moderates our growth rate assumptions, although we are working hard to offset it by focusing on higher growth consumer segments like Hispanic and higher growth retail channels that focus on value. Third, we are now comparing to a base period which includes some very heightened demand for disinfecting products due to concerns around the H1N1 pandemic. It’s far too early to predict the upcoming flu season, but we believe that some parts of our Cleaning business will see declines versus year ago in the first half of the year. Other factors that go into our forecast, including modest net impact from domestic pricing and some international pricing to help offset inflation. Trade spending is forecasted to be slightly down for the full year, although trade spending will likely remain at elevated levels in the front half. The one other area where we do expect to see a material impact in fiscal '11 sales is foreign exchange. We have included a significant net negative impact from foreign exchange in our sales numbers, primarily resulting from the first half impact of the Venezuelan devaluation. To sum up, we feel good about the momentum coming in on fiscal 2010, and we're confident we can effectively manage our business to deliver on our fiscal 2011 plans. With that, I'll turn it over to Dan.

Thank you, Larry, and hello, everyone. We’re very pleased with our fiscal year 2010 results, meeting or exceeding our annual targets for margin, diluted EPS and economic profit growth. For the full fiscal year, we delivered 180 basis points of gross margin and 140 basis points of EBIT margin expansion, a 12% increase in diluted EPS, a 15% increase in economic profit and an 11% increase in cash flow from operations. These are very strong financial results in what continues to be a very challenging business and consumer environment. We executed very well in the midst of continuing volatility, remaining focused on those factors we can influence, namely driving strong product innovation, delivering value to consumers, managing our cost structure, investing in the long-term health of our brands and carefully managing the capital we use in the business. Larry has addressed our fourth quarter and full year sales and market share performance and our sales outlook for fiscal '11. I'd like to focus my remarks during today's call on four key themes reflected in our financial performance for the fourth quarter and the fiscal year. First, we continue to be committed to strong investment in both product innovation and consumer demand-building. Second, we’re very pleased with the progress we're making in improving our margins and expect to make further progress in fiscal '11. Third, we're making some key investments in the long-term health of our global IT infrastructure and our facilities, which will provide a strong platform for growth and cost savings in future years. Finally, cash flow continues to be exceptionally strong, and we're using that cash flow to build the business and create value for our shareholders. Let me take each of these in turn. The first thing I want to highlight is our ability to compete effectively in an extremely dynamic marketplace with strong but flexible support for our brands. We remain firmly committed to investing in the health of our brands. Our investment in both demand-building and innovation are contributing to volume and market share growth. In fiscal 2010, we increased our demand-building investment, which we define as spending for trade merchandising and advertising, by about 10% versus the prior year. This trend continued in the fourth quarter with demand-building investment up about 3%. As we discussed during prior calls, our overall level of trade spending was up for both the fourth quarter and the full fiscal year as we addressed price gaps at the shelf in certain categories, supported new product launches and enhanced our products’ value to consumers. We’re very pleased that these efforts are paying off with an increase in U.S. all-outlet market share, as well as market share gains in International. Advertising spending for the full fiscal year increased by 4% to about 9.4% of sales versus 9.2% in fiscal '09. During the fourth quarter, advertising was down slightly versus the year-ago quarter as we shifted some investment to trade merchandising in certain categories to support our faster growing brands and address some price gaps at the shelf. It is important for us to retain flexibility to adjust our spending levels to address near-term needs while still supporting strong overall investment levels to maintain the health of our brands and drive growth. For fiscal 2011, we anticipate advertising spending will continue to be in the range of 9% to 10% of sales. As we’ve discussed previously, we expect trade spending to remain elevated in the first half of fiscal year '11 with some moderation in the back half of the fiscal year, as we believe commodity cost reinflation will have a dampening effect on some of the competitive activity we're seeing in certain categories. For the full fiscal year 2011, we're planning for total trade spending to be down modestly from fiscal year 2010 levels. Second, in fiscal '10, we made very good progress in expanding our annual gross and EBIT margins. We continue on the path to return to historical margin levels. At 44.8% for fiscal year 2010, we delivered 180 basis points of gross margin expansion, supported by another year of extremely strong cost savings. This significantly exceeded our initial fiscal year outlook for growth of 50 to 100 basis points and comes on top of 180 basis points of margin growth in the prior fiscal year. While fourth quarter gross margin decreased about 100 basis points to 44.8%, this is in comparison to the 370 basis points of growth we enjoyed in the year-ago quarter when commodity market prices dropped sharply. As anticipated, we’re seeing commodity cost reinflation, but we still believe we have the flexibility and capability to grow our margins. We anticipate additional margin expansion in fiscal '11 in the range of 25 to 50 basis points, fueled by another year of strong cost savings. Our ability to drive strong cost savings and to take pricing where warranted by commodity cost increases provides flexibility to drive further gross margin expansion in a moderately inflationary period. Third, our SG&A spending and EBIT margins reflect some key investments we're making in the long-term health of our global IT infrastructure and facilities, which will provide a strong platform for growth in cost savings in future years. Our EBIT margin reflects key infrastructure investments we began making in the second half of fiscal 2010, which contributed to the Q4 increase in selling and administrative expense. As discussed during last quarter's call, we're making investments in information technologies, systems and capabilities, particularly in our International markets, as well as for our R&D facilities. We believe these are important long-term strategic investments that will increase productivity and provide platforms for growth, increased innovation and future cost savings. Our fiscal '10 results and fiscal '11 outlook also include incremental spending to build out Burt's Bees’ International network, as well as inflation related to our other International operations. Given the incremental spending, we expect our selling and administrative spending levels will be in the range of 13.5% to 14% of sales for fiscal '11, a bit higher than our recent history. Finally, cash flow remains very strong, and we’re committed to using that cash flow to build our business and create long-term value for shareholders. Fiscal 2010 free cash flow, which we define as cash flow from operations less capital expenditures, was $616 million or 11% of sales, solidly within our 10% to 12% of sales target range. We applied a portion of our strong cash flow to pay down debt, so we’re now operating comfortably within our target debt-to-EBITDA range of 2.0x to 2.5x. We announced a 10% increase in our quarterly dividend effective July 2010. During the fourth quarter, we also resumed share repurchases to offset stock option dilution, purchasing 2.4 million shares at a total cost of $150 million. During the second half of the fiscal year, we used some of our free cash flow to purchase Caltech Industries to further expand our Away From Home business. For fiscal '11, we’re continuing to target free cash flow in the range of 10% to 12% of sales, though likely at the lower end of that range due to increased spending for the global IT and facility investments I just discussed. For fiscal '11, we currently estimate that capital spending will be in the range of $240 million to $250 million. Pension contributions are anticipated to be in the range of $20 million to $25 million compared with $43 million in fiscal 2010. We plan to use our strong free cash flow to support the dividend increase and fund further share repurchases to offset stock option dilution. We're considering additional debt reduction and open market share repurchases as a further use of free cash flow. In summary, for fiscal '10, we delivered $4.24 diluted EPS. This 12% increase versus fiscal 2009 represents a second consecutive year of double-digit diluted EPS growth on top of the 17% growth in the prior fiscal year. For fiscal '11, we continue to anticipate diluted EPS in the range of $4.50 to $4.65. We currently estimate that our fiscal '11 effective tax rate will be in the range of 34% to 35% with some variability among the quarters. In fiscal '11, we anticipate that our earnings pattern will be weighted more heavily to the second half of the fiscal year as we lap the first half comparison to the benefits of unusually high disinfecting product sales stemming from the H1N1 flu pandemic; the remaining impact of the Venezuela devaluation, which will reduce first half pre-tax earnings by an estimated $25 million to $35 million; and the continued elevated trade spending levels in the first half of the fiscal year with moderating levels in the second half. To sum up, we’re very pleased with the results we delivered in fiscal '10. Strong cash flow and effective invested capital management, a hallmark of our company, continues to give us significant flexibility to invest in the business, support dividend growth and return cash to shareholders. We look forward to delivering our financial goals again in fiscal '11. Let me now turn the call over to Don.

Thank you, Dan. Hello, everyone. I too obviously feel very good about the fiscal year 2010 performance. I think, in particular, what that performance indicates is that we have the right strategy to manage our business effectively in any environment, and I believe our people executed our centennial strategy with excellence in fiscal year '10, and I'm especially proud of their focus on the 3Ds, the three moments of truth we talk a lot about with all of you on Desire, Decide and Delight. Let me just share some examples of that. Our share of voice remains strong in fiscal year '10 behind further increases in advertising to drive consumer desire for our brands. We believe our traditional advertising is becoming more effective and efficient, and at the same time, we're devoting an ever-increasing portion of our advertising budget to digital consumer communications, really allowing us to leverage insights and target consumers more effectively. So you’re now as likely to see one of our brands on Facebook as you are on daytime TV. Now personally, having made more than 30 customer visits around the globe in fiscal '10, I certainly wanted to maintain my focus and commitment to our strategic partnerships with retailers to ensure we are well positioned on shelf at the point of Decide where, I think, as most of you know, most of the consumer purchase decisions are still be made. Now in a challenging sales environment out there, I think retailers are returning to strong national brands to help drive traffic as private label sales are starting to slow. And while private label will always have a role to play, providing opening price points for consumers, I think we’re starting to see a more balanced approach as retailers recognize the difficulty of trying to drive category growth with private label alone, which represents only a fraction of any given category. For example, in Home Care, which is our largest category, private label has less than a 10% share of the category. And I think retailers also appreciate the innovation and 3D execution we bring to our categories, including our really strong capabilities in category advisory services. And I think, for those of you who track the Cannondale surveys, I think that was reflected in our being named #7 among the top 10 strategic partners in the most recent survey. And lastly, in the area of Delight as noted, we achieved our innovation target of two points of growth from new products that are certainly resonating well with consumers. As a reminder, this measures true incremental growth and is net of cannibalization. Now with 47% of our sales this year coming from products with a 60/40 superiority versus competitors, we’re well on our way to meeting the goal we talked to you about a few years ago of meeting 50% of our products with that kind of 60/40 win by 2013. So we obviously aim to go even higher. And throughout the year, our brands received numerous accolades from consumers in the industry. I'd just like to mention two. First, Burt’s Bees was named the #1 green brand in the United States on the fifth annual ImagePower Green Brands survey, which polls more than 9,000 people in eight countries. And this measures all consumer categories from cars to cleaners to catsup. S we feel very good about Burt’s performance in that survey. And then Clorox led the pack and tied its highest score ever on this year’s American Customer Satisfaction Index. For more than a decade, we’ve ranked at the top of this index, which is a measure of the quality of our products as experienced by our consumers and customers. We’re rated within the Personal Care and Cleaning Products category in that survey, and that segment includes Procter & Gamble, Unilever and Colgate. I think the organization's consistent focus on the 3Ds resulted in the all-outlet U.S. and International share gains that Larry talked about, and I think they’re just a few of the reasons I’m proud of the organization's outstanding focus and execution on our strategy in fiscal year '10. Let me take just a minute to recap our performance against another key element of the centennial strategy, one we've talked a lot about with you, and that’s economic profit or EP. EP for the year came in at $433 million compared with $376 million for the prior year, an increase of 15%. So I'm especially pleased that we delivered our double-digit EP growth goal, which we call our true north because it's proven to align with generating shareholder return and value creation over the long term. So as we move into FY '11, we remain committed to our long-term targets in delivering our annual results as Dan and Larry talked about. I'm certainly proud of this company’s consistency in performance in this environment. We delivered in FY '10, and I'm confident in our ability to again deliver in FY '11 and make further progress against our long-term targets. And with that, let me open it up to questions.

[Operator Instructions] We'll go to our first question from Ali Dibadj from Bernstein.

You note that volumes were up, especially with Hidden Valley and Kingsford. I'm just trying to understand, given that those were pretty heavily promoted by retailers like Wal-Mart, how should we think about those volume growth rates going forward and, I guess, some of the impacts on brand equity that you may have seen in those categories?

Ali, this is Larry. I’m not sure I got the last part of your question, impact on brand equity.

Yes. The impact on brand equity and also just on volumes as we think about it.

Hidden Valley has been a success story for a number of years. There was some particularly strong promotion behind it in the fourth quarter, which will be tough to anniversary, but we expect a very robust healthy year on Hidden Valley as we have seen over the last several years. We are the largest advertiser in that category. We’ve essentially overtaken Kraft in that category. We have a quality product that generally is preferred versus the competition. And most recently, we've been launching into some new flavors outside of Ranch to kind of expand the franchise. So definitely no material impact on the brand equity of Hidden Valley, which is absolute terrific equity. And while we may have a bit of an anniversary issue in the fourth quarter, we'll see very strong growth through the year on Hidden Valley. Now Kingsford is always promoted during the season, particularly on the key holidays. I don't think we saw anything extraordinary on Kingsford that we haven't seen in past years. Again, incredibly strong equity on that case with no real branded competition whatsoever. So don't expect any material impact on the equity, and we expect a solid year on Kingsford going forward.

And the only thing I would add, Ali, is if you look at the fourth quarter change in sales on Kingsford and on Hidden Valley, it’s within one or two percentage points of what the full year was. So while we got some terrific support on one SKU in particular, on Hidden Valley, 24-ounce, when you look at that differential, it's not very material at all. So they've had very strong years.

Okay. That’s helpful. Wanted to also just get a sense of a theme we've been seeing really up and down across the board in HPC [indiscernible] (35:57) even, CPG broadly, which says lower advertising spent as a percent of sales. We've seen that from you for a few quarters now and the shift upwards to trade merchandising and really increases for everybody. And I want to just get a sense given your experience in the industry and the very, very close relationship you have with many of your retailers, I’d argue, closer relationships than many companies that are bigger than you even have. What do you think this means for the consumer, for competition out there, for the HPC category broadly? It hasn’t been historically a good sign to see more and more into trade merchandising. I’m just trying to get a sense of how you see that for the overall category for the consumer.

I think the onus on folks like us is always to improve our overall value equation. And obviously, when there's a lot of stress on consumer and a lot of focus by retailers on value, there may be some short-term kind of price gap issues at shelf that you need to take care of. But we're still fundamentally focused on driving value in our brands in both the advertising investment bucket, as well as the innovation bucket. And really, our success over time is measured by how we can do things that aren't price-related or make brands growth that are premium priced like a Kingsford or like a Hidden Valley. So I expect that we're in a bit of a trough here in terms of trade promotion spending given the value cost to consumer and the retailer. I think, over time, that will probably diminish, and I think we'll see more return back to advertising innovation as a way to drive growth over the long term.

Okay. Do you have an update on your M&A prospects going forward showing -- we chatted about Auto Care before. An update would be helpful.

Our focus on M&A remains pretty consistent with what we've said in the past. We’re looking to really build our Away From Home business, which was supported with the Caltech acquisition in our fiscal third quarter, so we continue to look at the Away From Home stop the spread of infection area as an area where we're interested in acquiring either technology, distribution or other adjacent categories for growth. So that probably remains our top priority on the M&A front. We also are continuing to look to build out our International footprint. And I think we've talked in the past. Our initial focus is really on small bolt-ons around the globe and those geographies that we’re already in, but we're also looking at Brazil as a possible new geography to go into. And then third, Natural Personal Care continues to be an area of interest, although our focus right now is really on building out the Burt’s platform.

And Auto Care?

In Auto, as we've said in the past, we're considering strategic alternatives for that business, and we are continuing that. And once we reach a decision on that, we'll certainly let people know.

Our next question comes from the line of Bill Schmitz from Deutsche Bank.

Two things. So Wal-Mart's talking about increasing their assortment. Were you guys impacted at all last year by any of those sort of selective category deletions? And should there be any incremental benefit either this quarter or going forward as they start to bring more selection back into the stores?

I don't guess that there'll be a big change for us. I think we are a bit net positive on some of their assortment changes, in particular in the Trash category. It was positive for us. But overall, I don't think it was a huge change for us, and I don't expect it’ll be a huge change for us going forward.

Okay. Great. And then, just looking at the private label slowdown, which is clearly happening across most of your categories. Do you think that’s driven more by the retailers deciding that maybe the sort of dollar profit per SKU isn’t as good as they thought it was? Or is it really a shift in consumer preferences? So do you think that retailers are driving it? Or do you think consumers are saying, “Maybe I don't really want the private label stuff anymore because I’m feeling a little bit better about the outlook going forward”?

I think it’s some of both. Don talked a little bit about how retailers are getting more balanced in their approach, recognizing that they can’t grow their category dollar sales with private labels. The other side of it is branded products are fighting back. Right? We’re getting sharper on price points. We’re improving the value equation in some way, doing other things to provide further differentiation from private labels to justify our premium. So, I think it’s probably a combination of the two factors.

I think the only thing I’d add to that, Bill, is I’d go out there and talk to -- on those 30 visits, I talked about -- deflation is the biggest concern. So while I think Larry’s right, it’s a bit of both, I think it started with the retailers really recognizing that they were starting to deflate these categories. And it's interesting, if you look at the tracked data, as I know you guys do, and while it represents only about 1/3 of our volume, it’s probably the most heavily developed for private label. That the growth rates for private label for the last 52 weeks were about 1.4 points, and they declined 0.4 as we talked about the last month. But in share gains, when you look at the last year, private label’s up only 4/10 of a share point on all our categories from a 17.7 to 18.1. So I think that's the consumer coming into it and saying, “You know what, as long as the branded guys are giving me a good value.” Price gaps are sharp enough, and when we operate within a 25% to 35% premium, that's usually a good space for us to be able to gain shares. So I think the concerns around deflation from the retailer and then sharpening, as Larry said, the price gaps and picking up the pace of innovation’s helped on the consumer side.

Just on -- I noticed the price increase on Glad, it doesn't seem like resin prices are really creeping up that much, and natural gas is still below $5. So do you have a different outlook than we do about what's going on with resin prices?

So resin prices are definitely up year-over-year, and we're definitely still kind of catching up on our margins relative to resin cost. This is also a smaller price increase than we've taken historically. We typically take a 9% to 10% increase. This is only about a 5% increase. Such as the Glad trash business is strong at this point. We have some innovation out there. We have some new innovation just referring [ph] (42:34) on the shelf that we are very optimistic about. So we're in a very strong position, and we're essentially trying to get cost-justified price increase in the marketplace.

Does anything change because one of your biggest competitors might be DNL Bode [ph] (42:47), and maybe they'll be more rational? Does that by make pricing a little bit easier? Or is that only part of your considerations?

Your guess is as good as ours on that.

Your next question comes from the line of Linda Bolton Weiser from Caris. Linda Weiser - Caris & Company: I just wanted to ask again about the advertising and promo ratio because you talked quite a bit about that. And if you look, going back over a really long period of time, I mean, your A&P [ph] (43:18) ratio in FY '03 was 11.2%, then 10.1%, then 9.9%, then 9.7%, and now 9.4% or whatever. So it's been a long period of time it's been going down. So can you just comment on that? And while we see all the companies putting more toward nontraditional forms of media, your ratio's been going down and other companies have been going up. So can you just talk to that point?

Linda, let me take that one. I'm sure Don and Larry will have some comments as well. I'm not sure it's appropriate to probably go back to your earlier part of this decade to look at what advertising rates were. The years you cite were reinvestment year for Clorox. If you actually went back prior to that period of time, you would see that Clorox's advertising had dropped to the low 8% range. And so in 2002, 2003, 2004, basically the company had to over-invest to get that momentum back. So I don't know that that period's really relevant to the current period. Actually, we've been -- this year we've built our advertising levels and we've also increased our trade spending. So I think as we've talked in the past, we talk about this 9% to 10% range the way we plan for advertising is it's bottoms up budget on what our businesses think they need to maintain the health of their brands, to support new product initiatives and to communicate value to consumers. So we feel quite comfortable with being in that 9% to 10% range on advertising, and we're up solidly this year. As I mentioned, we're up about 10% on both combined ad and trade. Now there has been a shift to trade over the last 12 to 18 months. We've seen increases there. As Larry and Don had both mentioned, getting prices right at the shelf and making sure we're communicating value to consumers and supporting new products is certainly a large part of it.

Couple things I'd add is that I think we've had this 9% to 10% range for about the last three years and I think for the last three years we've been in that range, in fact I think we're up to a little bit more than we were the last two years this past fiscal year. The kind of information we get today on return and advertising is a whole lot better and more plentiful than it was going back five or 10 years ago. So we have a pretty good idea of our ROI on advertising investment in virtually every bucket from television even to major public relations programs. So we feel pretty confident that we're getting a good return where we're investing it. And the last thing I'd say is advertising spending varies immensely between businesses, and sometimes, at different points in time on a given business, but we do spend very differentially by business. As Dan said, it is kind of a bottoms up approach based on whether we have news in that particular business or like a competitive set is doing. But we generally feel very good about that rate of spending, and I think the best testament to that is that we actually built share in a very tough U.S. marketplace, in spite a very constant consumer and in spite of a lot of competitive activity, we actually built share, so that's a good indicator.

The last thing I would add, Linda, is when you look at that spend contrasted to, four to five years ago, when you look at the nonworking side of that spend, typically, the nonworking piece of those budgets is anywhere from 10% to 20% of the overall budget. So in our order of magnitude, that's $45 million to $90 million. We've gotten a lot more efficient in how we compensate our agencies, commercial production and a lot of the other nonworking pieces that make up that budget. So that efficiency could easily add a half a point to what we're really doing with working dollars. So we've gotten a lot better about the non-working side, which you don't have visibility to. Linda Weiser - Caris & Company: That's a good explanation. Can you offer comment on Green Works? Because there seemed to be a lot fewer Green Works SKUs at Wal-Mart on the shelf. And can you comment on how the laundry detergent is doing?

So, overall, I would say Green Works has weakened behind the weakened economy, and the trends are certainly more negative than positive. We are -- we do have detergent on shelves at Wal-Mart and it's performing solidly at this point. So it's hanging on to distribution, and we think we will maintain distribution. So that's an upside for us on that part of the Green Works franchise. We do expect, as the economy returns to more health, that we'll see better health on that particular franchise. But right now, the trends are negative on Green Works overall.

The one thing I would add, Linda, as Larry said, as the economy improves, we certainly think we'll wall better position better now that we've lowered the pricing 30% on laundry and also taken it down on the core SKUs about 10%. The other thing I would say is for the past 13 weeks if you look at the share data, our shares are still in the 42.5 range, they're up sequentially versus the prior quarter, down a bit from the prior year. But we see it sequentially improving. So we think this is a brand that will recover over time. There's still a lot of support from the consumer base, we still think about 20% of the households are really enamored with Natural Cleaning products and as we tighten these price gaps down, we think we've got the best value offering form in the space.

Our next question comes from the line of Joe Altobello from Oppenheimer & Co. Joseph Altobello - Oppenheimer & Co. Inc.: To follow up on the Green Works question. Are you guys seeing any impact from Seventh Generation now launching at Wal-Mart?

I'm sure we'll see some impact. I'm not surprised that Wal-Mart wanted to take them into distribution, given their focus on sustainability. They generally play in a kind of a more niched premium segment of Natural Cleaners than we do. We're priced more like the traditional cleaners and they typically are priced more of a premium to that. We do compete very well against them and other channels. Don just talked about our shares, so we have a substantially higher share than Seventh Generation early channels and I would expect that we can compete with them well in Wal-Mart as well.

The only other thing I'd add to that is that when you look at the -- Green Works is the only product that's certified natural by the Natural Products Association, and that includes Seventh Generation, which I do not believe has been certified by the Natural Products Association. So I think we're going to continue to tout that not only with our customers like Wal-Mart, but also with the consumer. Joseph Altobello - Oppenheimer & Co. Inc.: Got it. I just want to make sure the issues there were macro and not competitive in nature. And then secondly, the price increase on Glad, what's been the competitors' response so far?

We've seen -- some probably [ph] (50:16) will go up actually ahead of us with some more substantial price increases. As you know, private labels were a big customer-by-customer situation. Not clear what the key competitors do in the category. You can probably ask them, but we get very mixed signals from various customers about what they're doing or not doing. Joseph Altobello - Oppenheimer & Co. Inc.: Got it. In terms of new innovation, you guys talked about getting two points of growth again this year from new innovation. Is there any -- maybe two or three products you're pointing at this year that's going to be a big driver of that?

So we have a carryover from last fiscal year of the things like the improved Charcoal protect, the Farmhouse Originals of Hidden Valley, the Booster packs on Clorox 2, the Burt's Berry Burt's [ph] (50:58) launches. Starting in July, we have this Glad ForceFlex with Febreze that we are particularly optimistic about, some other minor product improvements. And then you'll see a slew of launches in January. We typically launch in kind of the July timeframe and then a January timeframe. So there'll be a number of new launches in January that we're not yet ready to talk about publicly but that'll definitely help us in the second half.

We'll go to our next question from Lauren Lieberman from Barclays Capital.

I just wanted to talk a little about promotional activity. Because actually, your -- the price mix number, the price promotion looked a lot better sequentially, which given -- I know Green Works is a small portion of the business, but Green Works pricing down, the Cat Litter pricing down, I was just kind of curious if you guys could comment a little bit maybe on what price was versus promotion? And why sequentially the pricing was so much less of a negative?

A lot of the pricing that you see in our numbers is coming out of the International business as we tried to price to offset some of the currency impacts that we've seen.

Dan, I should've clarified and said excluding International. Because even when I just look at the divisions, it was sort of different sequentially than I would've expected.

We may have to take this on off-line, I'm not sure I can give you an adequate answer. I would say that trade spending does have a mix of what you might term pricing and merchandising built into it. And the example, you said it on Cat Litter, is we were essentially putting heightened trade spending into the marketplace to deal with price and we ultimately decided it was going to be a permanent change and we took a price rollback. So there's definitely some of that in trade spending. Not sure that I have the detail in front of me to actually take you segment-by-segment.

Okay. Maybe, let me try and rephrase because I guess I was horribly unclear. Like if I look at Cleaning, for example, the price mix line was a minus two this quarter. It was minus five last quarter. Household was less than half a point -- about half a point negative. It was 3.8% negative last quarter. So sequentially, it looks like price mix, whether it's promotion or pricing, or whatever it is, is less of a headwind and yet you're talking about the first half of the year next year, promotions still being a pretty big negative. It just didn't feel that way in the quarter when I look at Cleaning and Household division results.

Lauren, this is Steve. You're right, there was less of a price mix impact in Q4. Probably best, though, for you and I to cover this point afterwards because we don't have the detail right in front of us here.

Your next question comes from the line of Jason Gere from RBC Capital Markets.

I was just wondering if you could just put some context around Burt's Bees. I think you said it grew double-digits. Can you just talk about the acceptance in some of the new markets? And I think some of the testing in Europe that's been out there? And just maybe how you're thinking about new market expansion over the next 12 months?

So we're trying to be very aggressive on the International side and expanding into new countries. I think -- I can't remember this...

We're currently in about, call it [ph] (54:38) 20 countries today with a goal to be in another probably six to nine countries by the end of this calendar year. Most of the additional countries we'll be going into in the second half of the calendar year here are primarily Latin America markets, with some additional markets in Europe. So we're definitely growing that franchise aggressively in the International markets.

I'd say the focus domestically is obviously to continue to build up distribution, particularly in the grocery channel, where we see still continued significant upsides given that, by and large, the grocery channel has not embraced the category nearly to the extent that the mass channel has, for example, in creating eight to 12 foot [ph] (55:24) natural Personal Care sections in the mass channel. So we still think there's a lot of upside on the grocery side in the U.S., particularly with the focus on the core items.

Yes, it's very good to see Burt's return to double-digit quarterly growth. We saw that in the fourth quarter and as we look into next fiscal year, we're feeling good about their growth rates. And they do also have a strong new product pipeline. We've seen the Acne, we've seen the Toothpaste launch and they have a strong pipeline for fiscal '11.

I think the other important thing to note about the Burt's quarter was that the sales number and the volume number were almost identical. So it wasn't like we spent a lot of money to get the volume. So we had about 15% sales growth and about 15% volume growth.

And is there reason to anticipate that these trends would slower? We should continue to think about this business is really the growth driver right now, I mean, with your two to four sales target?

It's probably too small to be the biggest huge growth driver. Obviously, it will help. But we do anticipate, as the category gets more healthy that we'll see this kind of growth on Burt's in the coming quarters. And we are seeing a return, healthier growth now in the Natural Personal Care category than we've seen previously.

I think -- just one final note on Burt's because I think even for the full year we grew the volume 5%. In some ways, that's a little understating the real health of the brand, I believe, because when you strip out the kits and gifts [ph] (56:54) business, which is about 15% of the overall brand, that business in particular was hit hard as retailers downscaled over the holidays because of the high ring of those items, and obviously they were reducing working capital. When you strip that kits and gifts business out of Burt's and just look at it as an eaches [ph] (57:13) business, if you will, which is about 85% of the business. That business for the year grew in double-digits. So I think the individual takeaway on that brand with consumers is still pretty robust.

Okay. You talked about economic profit, you talked about company wide. I mean, can you talk about where you saw the biggest changes, maybe 2010 versus 2009? Which segments or brands in particular?

I don't have a breakdown by brand. What I'd say is most solid growth is due to the increase in EBIT in the company, which was mostly across the board. Obviously, International is a little more challenged with the Venezuela situation, and our Household business was down a bit, given the things that we've seen in the Glad categories. But overall, strong EBIT growth that contributed -- our EBIT growth contributed to EP growth. We are also more favorable on invested capital, but it was slightly offset by a tax rate increase. So I'd say it's pretty much across the board and we feel really good about the growth that we did get in fiscal '10.

I would say one segment, or one brand in particular, the Glad business, where the exit of private label and some other promotional businesses really was driven by the EP on that business. So clearly, that had a material impact. But as Dan noted, pretty good performance across the segments and across the brands on driving that number.

And then just a housekeeping question, just on the restructuring charges for 2011, the $20 million to $30 million, I know you called out half in the SG&A -- should we just assume half in cost of goods and the other half on the restructuring cost line?

That's probably a safe assumption for now.

Our next question comes from the line of Chris Ferrara from Bank of America.

Just on the new markets, is there a renewed sense of urgency or an incremental sense of urgency on getting into additional International markets in Latin America? And I guess, what's the game plan? How is this going to play out logistically? What brands? What countries? Can you talk a little bit about that?

Are you speaking specifically -- you're not specifically about Burt's? You're talking in general?

Right. Exactly.

I think the priority now, as we've said with our Tier 1 countries, if you take those 14 countries that are Tier 1, the majority of those are in Latin America. That will continue to be the focus, because if you look over the past three years, you've seen a strong growth both in volume and sales in those markets, so we're going to continue to focus there. As far as both on acquisitions, they would be focused on Latin America as well as Australia and New Zealand. And as Dan noted, the one new country that we have on the top of the priority list would be Brazil. And I think the key issue, obviously, is getting into those kinds of hot markets, whether it's Brazil or China or India. It's not wanting and not willing to overpay for something. So we got to be very disciplined about doing it, but I think we have the game plan forward which is look at #1 or #2 brands number spaces and as a strategy will take on.

That helps, and I know, Don, to your point just there, you have mentioned in the past wanting to be prudent and maybe not pay as high multiple sales as what Burt's ended up costing. Can you talk about the parameters around that? What kind of EP payback period you'd be thinking about to make an acquisition? Some place like Brazil? Just generally speaking, how you're thinking about it?

When we look at the bolt honor tucking [ph] (1:00:55) acquisitions, we're typically looking at a four to five year timeframe. I think if we're looking at something that we believe is more strategic, we give ourselves a little bit more latitude, probably in the five to seven year range would be the ideal, Chris. And the interesting thing about Burt's is when you look at the brands that have been acquired over the last few years, we paid a healthy premium for that business but really, when we look at the mean, the average of about 15 acquisitions over the last three years in that space or related to that space, like Procter's acquisition of Gillette, the average was about $15.6 million and we paid about $16 million. So it really it was a healthy PE, but it wasn't outside the range of what most of the acquisitions during that timeframe were going for.

Just the Away From Home bleach stuff. I'm assuming that's not going to be enough to soak up your cash flow. And I ask that in the context of the fact that you guys are still talking about buying back stock just to offset dilution. Should I think of the uses of cash in terms of Away From Home bleach being the #1 priority? And now you are focusing more on bolt-ons geographically, and we are more likely than not to see repurchases just meant to offset dilution.

Well, Chris, we’re thinking about using more of our free cash flow beyond just offsetting dilution. So we have that under consideration. I think that priorities for use of cash -- certainly supporting dividend growth, offsetting dilution. M&A would be the next priority, and we've talked to spaces that are of interest to us. But those are likely to be smaller bolt-on type acquisitions, so even with that activity, we're likely to have additional free cash flow that we need to decide how to deploy. And we’re under consideration whether we'd use that additional free cash flow to buyback additional shares, pay down debt or do something else with it.

Our next question comes from the line of Doug Lane from Jefferies & Company. Douglas Lane - Jefferies & Company, Inc.: Don, can you follow up on our comments you made earlier in the call about the talk you had with retailers about deflation? I mean, we've seen -- you talk about the mix shift of the club and dollar stores and Wal-Mart, and Wal-Mart's getting apparently more aggressive on their price rollbacks. And I'm just wondering from where we sit today, should we just be baking in negative numbers on pricing for the foreseeable future? Do you think it could get worse? Is there something out there that has some signs of improvement on the horizon? Just really, where is the box taking you?

I think it’ll actually get better. Some of these conversations obviously occurred over the last 12 months, and I think coming out of the calendar year '08 and the first half of '09 when the recession was really grinding on people, I think that the retailers, particularly a lot of our partners on the grocery side, where private label is the most developed, really went hard at using aggressive opening price points on their own brands to get traffic into the stores. And I think what they saw from that, especially in the second half of or the last three quarters of calendar year '09 were some real deflation in the category. So like I said, the arithmetic just doesn't work where -- you can't drive a category by focusing on 10%, 20%, 30% of that category. So we started to see this balance, particularly in grocery shift back into more equilibrium between merchandising support for national brands, as well as their own brands. I think the other thing that people are starting to learn is -- it may seem a little counterintuitive, but during tough economic times, consumers do tend to gravitate to brands they trust because they can't afford to make a mistake. So we saw some of that factor in too. And we’re starting to see -- one month doesn't make a trend, but we're starting to see, even in the tracked channels, sales dollars in our category are starting to grow. For example, if you take the last month, June, we actually saw category growth a little bit north of 1% compared to the last 13 or 52 weeks where it was slight decline. So I think that balance bodes well for everybody, for the consumer and retailer, and I think that deflation will start to improve sequentially as we go forward.

Our last question comes from the line of Linda Bolton Weiser from Caris. Linda Weiser - Caris & Company: I was just wondering with the acquisition of Ambi Pur by Proctor, what happens to that deal that you had made with them to market some of their products under your brands in South America?

No impact as far as I’m aware of.

As far as we know, that contract still holds. So it shouldn't be an issue for us.

It’s a licensing arrangement, so I don’t believe it’s impacted. Linda Weiser - Caris & Company: So do you have products that are on the market now that are being marketed there under your brands?

Yes, we do.

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

Well, I’d just like to thank everybody for participating in the call. Have a great rest of summer, and we’ll look forward to talking to you in November. Take care, everyone.

This concludes today's presentation. Thank you for your participation.