The Clorox Company (CLX) Q1 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Clark's Company First Quarter Fiscal Year 2011 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference call, Mr. Steve Austenfeld, President of Investor Relations for the Clorox Company. Mr. Austenfeld, you may begin your conference.

Great. Thank you. Welcome, everyone to Clorox's first 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, at thecloroxcompany.com. On today's call, Larry will start with comments on our performance by segment, as well as perspective on current category, market share and overall top line results. Dan will then follow with additional color on our first quarter financial performance, as well as our updated fiscal year 2011 outlook. Finally, Don will close with some comments on the first quarter and the remainder of the fiscal year. 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 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. Lastly, let me point out that restated segment results for fiscal 2010 by quarter excluding the Auto business, which is now reflected as discontinued operations. We hope this information, which is found in the Financial Results area of our website will be helpful as you update your financial models on Clorox. With that, let me turn it over to Larry.

Thanks, Steve, and welcome to everybody on the call. As you saw in the press release, we had mixed results this quarter. Our top line was weaker than anticipated, with a lot of that weakness coming late in the quarter. Q1 volume was down 2%, and sales were down 3%. We are winning our market share but the difficult economy is driving decreases on our U.S. categories. Current quarter sales also were negatively impacted by strong prior quarter retailer merchandising in Charcoal and Food. Further, we saw the expected negative impact from the Venezuela devaluation. On the positive side, we had a record quarter in Clorox disinfecting wipes, despite a very high-based period due to the H1N1-related sales and some modest foreign exchange favorability in countries other than Venezuela. Overall, we were disappointed of our Q1 results and we're focused on improving results for the remainder of the fiscal year. It's usual for me to focus my comments on volume and sales and let Dan provide the detail on the financial side. Starting with our U.S. business, dollar sales and our categories and track channels was down 1% in Q1, and down 2% for the past 52 weeks in all outlets. While our share was down a bit in track channels, we continue to see significant share gains on an all-outlet basis, reflected in the continued shift by consumers to value-oriented retail channels like dollar and club. In fact, we gained our health share in all but one recorded category. Simply put, our brands in the U.S. in the market share basis are stronger than they have been in several years. In International, our market share results were more mixed. Share was up in Canada and about flat in Latin America. In our Clean segment, which includes our Home Care, Laundry and Away From Home businesses, we grew volume 1%. Despite the impact of the H1N1 flu in the year-ago quarter, the segment's volume increase was primarily driven by all-time record shipments of Clorox disinfecting wipes. Also contributing to the higher volume was growth in our Away From Home business, as well as Pine-Sol cleaners. Pine-Sol had another strong quarter, delivering volume in share growth. Laundry volume was down slightly but only due to the prior-year launch of Green Works' laundry detergent. Despite category softness, Clorox bleach volume was up and shares in track channels increased about a point. We're also seeing improvement in our Clorox 2 business with volume and shares flat for the quarter. Sales for the Cleaning segment decreased 1% versus the 1% increase in volume. The difference is driven by increase in trade spending and negative mix. In our Household segment, which includes Glad, Charcoal and Cat Litter, volume decreased 9%, primarily driven by the lower shipment of Glad food storage products and Scoop Away Cat Litter. On Glad, we continue to see better results in the trash side of the business which represents about 2/3 of total Glad. Shipments of trash bags were up in the mid-single digits with particularly strong results in premium, higher-margin, ForceFlex and OdorShield. In August, we executed a 5% price increase in Glad Trash Bags given higher resin costs. Some private label brands have followed although the primary branded competitor has not. Our Trash business remains healthy and continues to build share behind higher-margin premium items. Our Cat Litter business is under pressure right now with some significant losses in Scoop Away as we try and get our value equation right in the face of intensified competitive activity. Also contributing to the segment's volume decrease is lowered shipments of Kingsford Charcoal, resulting from strong prior-quarter retailer merchandising. Sales in the Household segment were down 7%, a bit less than the volume primarily due to improved mix. In our Lifestyle segment, which includes food products, water filtration and Global Natural Personal Care, we grew volume 1%. It was driven by higher shipments of Brita and Burt's Bees products. Burt's had another good quarter with volume and sales growth in the mid- to high-single digits, as the Natural Acne Solutions line, new lip balm flavors and body lotion relaunch, all continue to perform well. Growth in the Natural Personal Care category has accelerated. On the negative side, Hidden Valley was the other business where the Q1 volume and sales negatively impacted by strong prior-quarter retailer merchandising. And some share in this business however, remains very healthy, and we're pleased with the performance of new product offerings. Sales for this segment were up 1% in line with volume with improved mix off-setting the increase in trade spending. International volume decreased 2%, driven by the comparison of a strong year-ago shipments of disinfecting products in response to H1N1 flu concerns, as well as lower shipments of Glad products in Australia. International sales were down 2% in line with volume as the impact of the Venezuela currency devaluation was offset by other favorable foreign currencies and price increases. Excluding all of the impact of Venezuela, International sales would have been up 6%. Let me now turn to our volume and sales outlook for the fiscal year. We are lowering our top line sales projection for the year to flat to 2% growth. There are several key assumptions in our revised forecast that I'd like to highlight. First, we do remain confident that we continue to be competitive in the marketplace and at least maintain, if not grow our market shares. We have a very solid innovation plan in place with new product launches weighted were strongly towards the second half. We continue to anticipate that we'll generate about 2 points of incremental sales growth from new products, the same level we have generated behind innovation in each of the last five years. Second, we now anticipate continued category softness versus our previous outlook that assumes overall flattish category growth across domestic and international markets. This continues to be the single most important factor moderating our fiscal year growth projections. We're working hard to offset it by focusing our higher growth Consumer segments like Hispanic and higher growth retail channels that focus on value. Third, during Q2, we will continue to have very high year-over-year sales of disinfecting products, and it's too early to know how the flu season will unfold. We have a balanced sales projection that includes an assumption that we will have a normal or average-flu season. Final point I want to make in our sales outlook has to do with an expansion of an existing customer pick-up program to our largest retail customer. Under this program, our retailer picks up products at the dock door, and assumes responsibility for delivery to warehouses and stores. The price to the retailer no longer includes the cost of delivery. The net profit and volume impact on us is neutral, but we do lose top line sales as a result of the lower sales price. Our largest retail customer elected to move to this program starting in July. We'll be ramping up to 100% shipments to this customer on this program by the end of the fiscal year. Given the size of this retailer, it does have a material impact on our sales. The sales impact for Q1 was only 30 basis points, but we estimate almost a full point of impact in Q4 and an average 70-point basis point reduction in sales for the full year. In other words, we lose about 70 basis points of top line growth that is essentially, a P&L re-classification and not truly a reflection of sales trends. The combination of all these factors results in the flat plus 2% updated sales growth outlook for the fiscal year. In Q2, we expect that sales could be flat, but most likely down given weaker trends the last quarter of material Venezuela devaluation and a tough H1N1 comparison with the year-ago quarter. To sum up, while our Q1 results were a little bit weaker than we anticipated, we're winning the competitive battle as evidenced by several consecutive quarters of share growth. The biggest challenge for us is the impact of the slow economic recovery on our categories. We are continuing to invest in the long-term health of our brands, the strong consumer communications, innovations, support for new products and a focus on bringing value to consumers. When the economy does recover, we should benefit disproportionately. With that, I'll now turn it over to Dan.

Thank you, Larry, and hello, everyone. As you saw in the press release, we've classified the operating results for the Auto businesses as discontinued operations in our first quarter results, and have adjusted prior-period results to reflect this classification. The net assets of the Auto businesses have now been classified in the balance sheet for the current and prior periods as held for sale. We've also updated our fiscal year 2011 financial outlook to reflect our anticipated results from both continuing and discontinued operations. My comments this morning are based on the re-classified operating results and financial outlook. On our first quarter, volume and sales results, we did see the expected impact from the Venezuela currency devaluation and modestly higher trade spending to address competitive issues. In addition, current quarter volume of sales growth was negatively impacted by strong prior quarter retail and merchandising activities in our Charcoal and Food businesses. Our categories were soft, particularly late in the quarter, which further contributed to the volume and sales decrease. Sales decrease, combined with a slight decline in our gross margins, was substantially offset by a more favorable effective tax rate, which resulted in our earnings from continuing operations to be essentially flat to the year-ago quarter. Larry has addressed our first quarter sales and market share performance and our updated sales growth outlook for the second quarter in the full fiscal year. I'll focus my remarks with some key theme reflected in our financial performance for the first quarter and our updated financial outlook. First, we've increased our level of investment in building our brands, which is reflected in higher market shares, and positions us well as the economic recovery takes hold. Second, lower margins did decline slightly in the first quarter, we expect to increase our margins for the fiscal year, sustaining the strong margin gains we've realized over the last several years. Third, we're making key investments in the long-term health of our IT infrastructure and our facilities, which will provide a strong platform for growth and cost savings in future years. Fourth, cash flow continues to be very strong, and we use that cash flow along with the net proceeds from the sale of the Auto businesses, to support dividend growth, build the business, buy back shares and create value for our shareholders. Finally, we believe we have a fiscal year financial outlook that appropriately balances the near-term impact of soft categories with the longer-term investments we're making to strengthen our brands, drive new product innovation, and build a strong foundation for future growth and cost savings. Let me take you through these things in turn. Our first quarter results reflect a planned increase in demand building investment. Spending was targeted to address competitive activity in our categories, support our brands and drive innovation. While our domestic categories were softer in the quarter, the success of these investments is reflected in our increased market shares. We believe these increases in market share and the strength of our brands position us well as the economic recovery takes hold and our domestic categories begin growing again. Second, we've made very good progress in extending our gross and EBIT margins in fiscal '10, and anticipate that we'll be able to modestly expand our margins for fiscal year 2011. You could see some decline in our gross margin in the first quarter, as we compared against the year-ago period when our gross margin expanded over 400 basis points. For first quarter, most of our gross margin assumptions proved to be accurate. While elevated versus the year-ago quarter, trade spending came in about as planned. Parity cost increased at a manageable rate in the first quarter, and our full year commodity cost increased estimates remains in the $50 million to $60 million range. Our savings in the quarter were about $33 million, was about $27 million of the cost savings reflected in cost of goods sold. Our fiscal year 2011 outlook continues to project total cost savings in the range of $90 million to $100 million, although we now expect to come in at the high-end of that range. For the full fiscal year, we continue to anticipate that our growth in EBIT margins will increase about 25 to 50 basis points. Third, our first quarter selling and administrative spending and EBIT margins reflect key investments we're making in our facilities and global IT infrastructure, which we believe will provide a strong foundation for growth and cost savings in future years. We anticipate elevated selling and admin levels for the fiscal year. Our fiscal '11 outlook for selling and admin continues to include about $25 million to $30 million in incremental IT and facility spending related to these key initiatives. Fourth, our cash flow continues to be very strong. Cash flow from operations in the first quarter, including cash provided by discontinued operations, was $148 million versus $94 million in the year-ago period. Increase was driven primarily by improved working capital and lower pension contributions in the current quarter. At the end of the quarter with a debt-to-EBITDA ratio of 2.4:1, within our target leverage range. Finally used the net proceeds from the sale of the Auto businesses to repurchase shares to reduce EPS dilution from the sale. We also plan to repurchase shares, assets, stock option dilution during the fiscal year. Combining both planned repurchases to assets stock option dilution, and repurchases from the net proceeds of selling the Auto businesses, we anticipate repurchasing about 12 million to 13 million shares of common stock during fiscal 2011. We anticipate that about 2/3 of these repurchases will occur in the second quarter, with the balance of the share repurchases, in the third quarter. Before I turn to our updated financial outlook for the fiscal year, let me address a couple of other points related to the first quarter. Our effective tax rate on continuing operations was 30.9% for the first quarter of fiscal 2011, versus 35.4% for the year-ago period. The lower effective tax rate reflects the benefit of certain tax settlements that occurred during the quarter. For the full fiscal year, we anticipate our effective tax rate on continuing operations will be about 34%, with some variability in the quarter. Our first quarter results include the impact of the Venezuela currency devaluation, which reduced sales by about $29 million and pretax earnings by about $14 million. We continue to anticipate the Venezuela currency devaluation will reduce first-half sales by about 2 points and pretax earnings by an estimated $25 million to $30 million. As a reminder, during the first half of fiscal year 2010, we absorbed nearly $30 million in pretax foreign exchange transaction losses and balance sheet remeasurement charges due to Venezuela currency changes. Year-ago losses and charges were reflected in other expense in the P&L. With the pending sale of the Auto businesses, we've recorded the first quarter operating results of Auto in discontinued operations in the P&L. For the first quarter, the after-tax operating results of the Auto businesses being sold was $16 million, or $0.11 per diluted share compared with $17 million, or $0.12 per diluted share in the year-ago period. Also included in the discontinued operations section of the P&L is the $60 million tax benefit associated with the planned sale. As a result of our decision to sell the Auto businesses, accounting rules require that we recognize our deferred tax asset to reflect the tax benefit we expect to realize on the sale, because the tax basis in the assets being sold is higher than the book basis in the assets. And the rules require that we recognize the deferred tax benefit in the period the assets are reclassified to held for sale, not when a sale actually closes, which is expected to be in early November. Finally, I'd like to provide further perspective on our updated financial outlook for the full year. As noted in today's press release, fully-diluted EPS from continuing operations is anticipated to be in the range of $4.05 to $4.20. Diluted EPS from discontinued operations, excluding the net gain on sale and the deferred tax benefit I just mentioned, is estimated to be in the range of $0.15 to $0.16. Our total diluted EPS outlook range for the full fiscal year, including discontinued operations, but excluding the net gain and the deferred tax benefit, is now $4.20 to $4.35. Our updated total diluted EPS outlook range, includes approximately $0.20 of EPS dilution related to the Auto sale, net of the benefit of transition services revenue and using net proceeds from the sale to repurchase shares. We lowered our fiscal year sales outlook to flat to 2% growth, primarily to reflect anticipated softer categories during the first half of the fiscal year and the increased customer pick up allowance impact on sales, partially offset by a more favorable outlook for foreign currencies. Some of the top line headwinds we faced in the first half of the fiscal year include the remaining impact of the Venezuela currency devaluation, our trade spending levels, and a difficult comparison to the sales lift created by the H1N1 flu pandemic last fiscal year. Despite these pressures, we continue to appropriately invest in demand building, to strengthen our brands and grow market share. Our innovation pipeline remains strong, with a significant percentage of our new item shipping in the second half of this fiscal year. As I've said, we've made very good progress in increasing our growth in EBIT margins over the last several years, finishing fiscal year 2010 near recent historical highs for these metrics. We anticipate modestly increasing growth in EBIT margins for the full fiscal year, we believe that we're well-positioned to be able to improve our margins over time. Our earnings pattern on continuing operations will be weighted more heavily to the second half of the fiscal year, as we lapped the first half sales benefits stemming from the H1N1 flu pandemic, and remain impact in the Venezuela currency devaluation, and the higher first-half trade spending and commodities costs. With that, let me turn the call over to Don.

Thanks, Dan, and thanks, everyone for being on the call today. I think as you've heard from both Larry and Dan, we're keenly focused on maintaining the health of our brands and in this pretty tough environment out there. On average, our categories are soft, and we're disappointed not to have delivered stronger Q1 results. But we're staying in the course. And as we highlighted in May where we've initially put out our outlook, we knew that first half of fiscal 2011 would be a challenge for the year given the impact of the Venezuela devaluation, and then the first-half comparison to the usually high year of those sales of disinfecting products related to the H1N1 pandemic as we've discussed. And also, the anticipated very slow economic recovery. And I think it's clear that all of those factors played out in the first quarter. In analyzing the growth trends of our categories, it's clear that the economy is and will continue for some time, to be a substantial drag on category growth. We do believe though that as the economy recovers, we'll see that better category growth. In the meantime, we're aggressively managing competitive price gaps. We're continuing to invest in the health of our brands with stronger consumer communication, innovation as Larry and Dan highlighted, and support for our new products with a focus on bringing value to the consumer. Our focus on brand building activities is obviously paying off because we do see those higher market shares, probably the best share positions we've seen our brands have in the last several years. So we've managed our business for the long term. Our leadership and business model have proven agility and flexibility for this and I think any kind of environment out there. Looking at the full fiscal year, I believe we're doing the right things to ensure we're in a strong position to continue winning in the marketplace and to strengthen our categories as the economy eventually returns to health. So with that, let me ask the operator to open it up for your questions.

[Operator Instructions] And our first question will come from Doug Lane with Jefferies & Company. Douglas Lane - Jefferies & Company, Inc.: Can you talk a little bit about Green Works, where you stand on progress there? Is the pricing now where you want it? And has there been any major changes in listings for any of the Green Works lines?

So I'd say, overall that pricing has definitely taken hold on both the detergent brand, as well as the Cleaning brands. I would say that we still have an adjustment in our distribution across the lines. And overall, we're seeing some declines that are basically in line with the Natural category. So we're seeing some declines in Natural category. We remain the number one share in the number one share position, but we're declining pretty much along with the category. Douglas Lane - Jefferies & Company, Inc.: And has there been any pick up in the distribution, loss of distribution of any note in the past quarter?

I don't have the exact numbers, but I would suspect there's been some loss and some secondary SKUs, not the major SKUs. I think as we look at the kind of the core SKUs and the impact of the price change, we're seeing some strength, which gives us some confidence that going forward, we can rather discern so to speak. So I think I continue to believe in the core proposition of Green Works. And I think as the economy turns, this is one category that will probably turn disproportionately to the positive.

This is Don. I think the only thing I have to add is, in general, as Larry said, we're seeing this category is fairly flattish to down slightly. I suppose the good news is on the Home Care side of this, which is the original of five SKUs we launched a few years ago. The all-purpose cleaners in the category now, the all-purpose cleaner category which is the major part of that Home Care segment, for us is running at a 104 index, so we're starting to see some life back in that category. And as Larry said, our pricing now is getting close to a 5% to 10% premium. So we think that bodes well as the general economy improves.

And we'll now take our next question from Alice Longley with Buckingham Research.

My first question is about the difference between your volume and sales. So volume was down 2% sales down 3%. Could you take a part of that differential and tell us how much Venezuela was a drag, pricing was a positive and trade spending was a negative?

We got this detailed when the tables in the press release, but if you look at that, you can see that the biggest drag on the sales volume was the foreign exchange from Venezuela, which was just over 2 points. We had some positive impact from FX in other countries, and it was about 0.8 point, and then the incremental pickup allowance was a negative 0.3 points. So Venezuela remains the biggest drag. It was offset a bit by the foreign exchange pickup in other countries.

And how much was pricing a positive and trade mix a negative?

This is Steve. Pricing was up about 1.5, but we're offsetting the net, x Venezuela for the next and then FX hit what Larry described.

Trade spending was up modestly, less than a point.

Right. And then you have the customer pickup allowance.

So trade spending was negative half to a negative one?

Negative half.

And then could you be more clear about how fast your categories are growing here? And again, differentiate the rate between volume and value? Because I'm wondering if the categories are worse in value terms than volume terms. And will the category growth be worse in the second quarter, do you think than the first quarter because you saw that deterioration?

So as we say look, at track channels in the quarter, track channels were down 1%. Unfortunately, all outlet perspective, we only have a 52-week basis. That was minus 2% for the past year, past 52 weeks. If you look within the Q1 results in track channels, you do see some acceleration or the end of the quarter. So the last month of the quarter in track channels was actually down 2%. And the biggest change in terms of category direction was in Home Care, which declined a lot more in the last month of the quarter than it did in the first two months of the quarter.

And do you think that the category growth to all retailers included is worse than in the track channels, again, in this quarter?

Unfortunately, we don't have any real viewpoint on the quarter, on the current quarter as yet. We don't even have October category information in this yet. Based on the slide that we saw in September, and what we're seeing in our first quarter of shipments, we do believe the category softness is continuing. Part of that, maybe driven by the H1N1 dynamic that went on the year-ago period and a couple of our categories.

Maybe I wasn't so clear with my question, so I guess there are two parts to it. In the second quarter, maybe the track channel categories will be down 2% as opposed to 1% is what you just said, I think. But also, if I throw in the untracked channels, which you must have a feel for from your shipments, will category growth be even worse than that negative 2%, do you think maybe?

I can't be that accurate. This is total speculation on my part and we're only a month into the quarter. So I'm guessing we'll see that similar trend to what we saw in the past year in the all of the database, which would be the minus 2%.

And our next question will be from Wendy Nicholson of Citi Investments.

My first question has to do with the change in the distribution strategy, or policy with Wal-Mart. Mine may be out of date, but I think this is the first we've heard of it. So I guess I'm surprised given the magnitude of the pressure on the top line that, that wasn't already baked into your guidance or maybe it was. But it just seems like a big hit so it makes your earnings guidance you gave us yourself, guidance you gave us back in August, really aggressive for the year. But number one, is it worse than you expected? Is it just as you expected? And then second question, just in terms of the change in that shipment pattern, is there any other change in the business? In other words, do you now not control your shelf space, or your shelf place or anything like that since you're not actually in the stores, anything else we have to worry about there?

So it really doesn't change any of the dynamics with respect to kind of the trends in the business. We've had a customer pick a program for many, many years, actually 20% to 30% of our volume was in customer pickup before the expansion of this program. So this is just a matter of where the logistics costs occur in the P&L, and whether it's delivered by the customer, or delivered by us, really no material change in the relationship or the trends of the business.

So the merchandise, or anything like that?

No. It doesn't affect volume at all, Wendy. As Larry said, it's the case of backing out that expense from the invoice. Of course, it comes out of our gross margin hit as well.

This is Dan. In terms of the full year outlook that we previously had out there, this was not factored in, we were still in discussions on this particular change. Now that we have reached alignment with the customer, we've baked it into our full-year outlook. And the pattern, we had two business that shifted to the program in the first quarter, and then the rest of our businesses will shift over in Q2 and Q3 and ultimately will be fully on this program with this customer by Q4.

And are there any other major customers you'd anticipate making the shift towards well?

It's going to be a customer by customer decision. They have to look at the efficiency of taking loads and handling logistics themselves versus what our cost of delivery is. I would say, we think we're awfully efficient on the logistics side and being able to deliver these loads. So different customers would have to look at it, and decide whether it would be advantageous. I think the fact that this program has been out there for a long time, and a lot of our customers have not adopted it, I would suggest that they probably view our shipping cost as pretty efficient.

Just briefly on the International business, and I know you talked about more market share issues, maybe market share trends being mixed in those emerging markets, but it sounds like some of that was by your own choice. It sounds like maybe in Mexico, but the loss of distribution, for example, on the Glide business in Australia, is that something you hope to get back? I'm just wondering, I know you've got targets to get the International business to be a bigger piece of the business but with the volume growth trends we're seeing now, how quick is the fix there?

So I think this is really a situation is really an issue with retailer consolidation and their focus on private label and some distribution losses. So I expect as we kind of go through the snake of having that in our base, we'll see better trends. But I don't know that, that will materially change over the long term.

We do see an opportunity given there are two significant customers in the grocery side of retail in Australia. We did lose some distribution and one, we do see some pickup in the other. So we're obviously trying to balance off the losses in one with the trends in the other. We are seeing some positive results there but I think it's going to take up a couple of quarters to work through that.

If you look at overall on our categories internationally, they are growing. A little bit slower than they have in the past, but those categories are still growing. And even in Australia, with the weakness in the Food Bag business here, we still expect that on an ongoing basis, we'll still grow low-single digits.

And our next question comes from Andrew Sawyer of Goldman Sachs.

Could you give us more context around the Glad pricing situation? And if it doesn't follow, how would you guys think about responding, or adopting to that in light of volumes doubling up pretty well and as you manage price gaps, how would you guys approach that?

So if you look at the prices on shelf, actually our price increase hasn't been reflected very much, you'll see a little bit of an increase in the last month of the quarter, but our prices are actually down in the quarter versus year ago because of previous price decreases that we took. So it's starting to show up now. Our business remains healthy, quite frankly a lot of our growth is probably behind this for Breeze OdorShield launch, which has exceeded our expectations. And so, finally are we ever overcoming any pricing issues but we're selling the premium part of our line versus the bags trash part of our line. So we're feeling very good about the business. We're seeing no signs of fall off because of our pricing as I've said in my script, private labels generally have followed, not completely, but generally have followed. So the only odd one out this point is the other major competitor.

Don, the only thing that I would add is as you look at our FDKT shares, which has always been more challenging for us because a lot of our business has shifted into the more value-oriented segments. In the last 13 weeks, and this is data ending September, we've seen Glad trash bags share increase 1.5 share of up to 34.3, so it's probably one of the strongest share periods we've seen on the business and the shipments are up as we said, in mid-single digits so we feel pretty good about where the brand sits.

I think another factor to keep in mind Andrew, is that in terms of resin, we are seeing reinflation in the resin market. There was a 5% price stand per pound increase. So it was put into the market and it did stick. There's another one announced for $0.04, unclear whether that one is going to stick. So the inflation in resin is certainly there, and I think that could lead to changes in how certain competitors are pricing.

And on the food side, just remind me when you start lapping the big exit on that? On the food storage for Glad?

We pretty much have left the private label exit, and we do expect some more positive trends in the second half because of some other things that we're lapping but the private label actually is essentially out of our numbers at this point.

And anything else we had from a programming standpoint, Andrew, with partnerships on food containers, it's done by end of Q2. So once we get through next month, we're basically free and clear of any of these overlaps.

So the core growth would start to show up a little better then? It should improve

Yes.

A quick one for a Dan, I guess you committed to buying back stock with the proceeds to offset the shared dilution. How are you guys thinking about using the ongoing cash flow now that, that's down to 2.4x or so?

Obviously, we're within our range of 2x to 2.5x. We'll look at whether we might want to do further share repurchases we're in about the $12 million to $13 million. I think it will depend on what the M&A outlook is for us whether we may want to use some of our free cash flow for acquisitions. Certainly we'll not build cash on the balance sheet, so we don't need it for M&A or other aspects of the business, we'll return it. And this year that would likely to be in the form of share repurchases.

Is there anything in the May pipeline that looks interesting at this point?

We continue to look at another, a number of opportunities. I wouldn't say there is anything for size that would be considered imminent, but we do continue to look.

Our next question will come from Ali Dibadj of Bernstein.

Can you give us a sense of -- first off, what's kind of a big surprise on a growth prospective so, in the year you had obviously said 2% to 4% sounds great, it's now yielded to, that's embedding a little bit of an improvement caught 1 to 2 points of FX. So you're really taking it down maybe 3 to 4 points, I'm just trying to figure out what was the surprise -- of course, you have this Wal-Mart, 1 point take away issue customer takeaway issue, can you kind of start talking about that back in May? I just want to get a sense of what it exactly was the bigger surprise I guess.

Let me start, and then Larry and Don can jump in. Just to refresh everybody's memory, our outlook for the full year was 2% to 4%, but we had indicated that we are very likely to be at the low-end of that range. So calling it in 3% to 4% is probably not the right way to look at it. I think you need to look at it as around 2%. We obviously have the customer pickup, incremental impact, which for the full year, will be about 70 basis points. Again, that program was not negotiated when we provided our earlier outlook. It's now embedded in our numbers. I would say the primary thing that's adjusted, that's taken us flat to would be category growth. In our previous outlook, we had expected to be flat to slightly up on categories for the full year. And just given what we're seeing, particularly late in Q1 and early in October, with the more negative trends that we're seeing in category growth, were reflecting those in our outlook. I would say that's the primary change, obviously we've factored in the CPU allowance impact but the primary change is just the softness that we're seeing in the categories late in Q1, into Q2.

I'll just build on that. The surprise really came in September, October and obviously we're working aggressively to analyze what's going. We don't have a full view of the category consumption data, but we're seeing quite a bit of softness. Some of it is obviously related to the H1N1 base period. But it appears to be driven by an overall, dismal economy driving lower category growth or category decline.

And is it at least on inflate shift so far? Is it volume, or price realization, is it both? How should we think about it?

It's more volume-related. Our trade spending was up a bit but not dramatically.

And pricing has come in about where we anticipate it. So it is underlying volume.

I got the tax stuff right there. And what we're seeing across all the CPG at our view, is a very acute price-sensitivity among consumers. so maybe a pricing did come in, but yes, the seeding was a lot worse, is that something you're seeing? Is that something you're going to do some more work on? And I asked that in terms of, now back to your category, they got it even more broadly.

So we look at pricing pretty intensely both relative to competition, there obviously is some potential pricing relationship between our pricing and the category health. But where we choked the most is the growth of private label and lower-priced brands, and as I think you know, private label has eventually flattened out, in fact they're declining it a bit in track channels for us. And all that pricing is the key cause of the price issues. But we look at our price gaps pretty aggressively. We're managing it business by business because it does vary by business. And as you know, we have some businesses that are incredibly healthy with very large price gaps like Hidden Valley, and we have some that are not as healthy like Cat Litter where the price are an issue.

Ali, I think if the price gap management was a real issue, I don't we'd see that kind of share gains that we're seeing. So I feel good about the health of the brands. I think the other thing is we can't get lost in the averages on this category decline. I mean, we have categories that are growing in mid-single digits. I mean if you look at the Natural Personal Care category, it's now on the trend of growing about 7%. So we feel good. That's kind of the canary in the mine for us and in terms of that was discretionary thing we have. On the other hand, we have had up until the most recent four-week period, real softness in the Trash Bag category, where there are probably free substitutes for people as they want to use those free substitutes. Now we're starting to see some vitality come back there, particularly in our business with an innovation like with Breeze. So I wouldn't get lost in the averages, I think we just take it category by category. But certainly from a price gap standpoint, we feel pretty good because of the share gains we're seeing.

To segregate away from the averages, are you expecting things to get better or worse? How should we think about? Are you seeing things that better or worse?

I think again, it's a category-by-category issue. And I think we're certainly -- I think we believe that we're through the worst of it as we get through this quarter and we head into calendar year FY '11. I think a lot of it depends on the pace of innovation, that CPG puts out there. And I think you obviously are seeing that ramp up. We feel very good about the pipeline we've got starting in January. So I think with increased innovation, I think from most manufacturers and the fact that we do believe that the economy is getting better, and not worse, I think we'll start to see it pickup and we don't have the suppression of the H1N1 overlap, we don't have the supression of the Venezuelan overlap, we've got more positive innovation coming, so when you factor all those things in, we clearly think the second half will see more robust top line.

You mentioned Glad, you mentioned Trash broadly as being a place where its been tough. It's there anything you can comment on in terms of rationality of your main competitor there, with the change of ownership? I mean there has been an argument there's a positive saying when this thing goes pack of those private. Now makes it a little more rational, are you seeing any of that? Or is that not the case? Because it sounds like from your current results, it's not the case.

Actually we don't think the deal is closed just yet. I think it closes in November, December. So we haven't seen any change in behavior, but the comp will be your hope.

And our next question comes from Nik Modi of UBS.

Two questions, one is on trade spend. Is any indication -- have we peaked here in terms of trade spending when you looked south across all of your categories, and kind of looked at the most recent data after this quarter has closed? First question. And then the second question is, just on those Wal-Mart topic, what the whole pickup now and we're hearing that category management may come back in-house. Any thoughts on that? And how that could affect your position, given that your category capital and several of your largest categories?

I'll take the trade question, and Larry can address the dry Walter account. On trade, as we said, we're expecting to get trade in the first half of the year with some moderation in the second half. So that continues to be our outlook. I think we're spending as planned in the first half, so we've not increased over the levels that we have planned for. And right now, while there might be a little bit of tune up for trade in the back half, we would still expect it to come down a bit. I'd like to think we've seen the peak in this. Obviously, it's going to be based on what our competitors do in the individual categories. And we'll obviously, manage our price gaps over appropriately and spent appropriately. But at least from an outlook standpoint, we would say we'd see the peak of it, in your words, probably in the first half with some modest declines in the second half.

So just real quick on just to close the loop on that, how much, if you think about your total trade spend pull, how much of that do you think would be kind of locked up in the Trash Bag business. I'm just trying to get a sense that as Pactiv does become a little bit more rational, if that would give you some relief as you are in the first half of the year.

Well, we have to see how it plays out. Part of our thesis in the back half of the year is that rising in commodity costs, including resin, which is start to mitigate some of the competitive activity that we've seen. And certainly, that would apply to the Trash bag category and that branded competitor. So part of what we build for second half is assuming that we see some moderation in some of the competitive activity due to squeezed margins.

So I think the other part of your question was the impact of the customer pickup program that Wal-Mart, and maybe the things that are happening at Wal-Mart. The customer pickup program is essentially a savings opportunity for Wal-Mart. They think they can be more efficient with their logistics network if they pickup all their product revenue than having us sell some of their needs. The transition has gone extremely well. So if anything, this is a big positive for us in terms of the relationship. But it doesn't have really an impact on merchandising activity or category management or the like. I will say that we are more encouraged by what I would term, a change in attitude, a change in strategy at Wal-Mart these days. Our business that Wal-Mart has picked up in the first quarter. We're optimistic, we're optimistic of our Wal-Mart results going forward. I'll let Don speak as we he recently had a top-to-top with Wal-Mart, and you can talk to some of the change in attitude more directly.

I think I feel very positive about what's going on with our largest customer. I think their approach now is back to a very much a win-win philosophy. They know they can't make their numbers without us manufacturers driving, and we can't make our numbers without them as well, as is true with all of our customers. I think just the change in philosophy or going back to the roots of win-win, between manufacturer and retailer is a big help. I also think that they're focused on driving virtually every category to growth, not just selecting categories and classifying them as win categories. I think they're really now looking at categories across the range and saying we've got to win with consumers, period. Just like, I think the manufacturing community feels. So I think all in all, it certainly bodes well for the future.

And we'll take our next question from Chris Ferrara from Bank of America.

I was just wondering if you can I guess kind of help me understand the category decelerations that you're seeing. I guess if you go by category, high-end Trash is doing well, Burt's is doing well, Brit is doing well. It seems like most of your more expensive stuff is doing well. Is it fair or not fair to kind of draw a line between maybe where your categories skew from an economic standpoint? From an income level standpoint for consumers? And think about which categories you're doing well and which categories aren't that way? And then I would follow-up on that.

It doesn't quite cut away. It's exactly why it's logical. Obviously, we're doing incredibly well building in Hidden Valley, with great products, great new flavors, et cetera. We did have a bit of adjustment in Q1 because we have a very strong Q4. But I suppose that's been on fire, so to speak for a number of quarters, even through the recession. One could argue that people are eating more often at home and therefore, that's helped build addressing category and addressing category has generally been a healthier category in our portfolio. But obviously, because we've driven share gains, we've driven disproportionate growth on Hidden Valley versus the category. Trash is a category that we do think has been impacted by the economy. I think Donald reviewed this earlier, where people have alternatives, free alternatives, free trash bags, or simply use less trash bags than they did before if they're pressed for dollars. Cat Litter is a category that's generally been healthier in our portfolio. Where we're seeing some slowdown, again, probably driven by the economy and then people can let their cats out the door, they don't want to fill their cat box with cat litter. So I think it varies the category, I wish it was as simple as saying it's the premium products or the non-premium products. It really depends on some of the consumer dynamics, some positions of our brands within those categories. I hope that helps a little bit.

And I guess what it sounds like, is your innovation working like -- are you getting more or less uptake on your innovation, in sort of the heat of the economic declines you're seeing in some of your categories? Is there an innovation problem right now, or not really?

We've been very consistent in our innovation program for five years running now. We target two to three points of incremental sales from innovation that include both face brands, improvements like the Kingsford Charcoal improvement, as well as brand-new products like the Green Works. And we very consistently have delivered two to three points of incremental sales growth each and every year. I would say there's probably been a bit of a switch toward more brand improvement. In recent years, brand improvement and single hits versus what we use to term game changers. But generally speaking, innovation is still helping us to drive growth even in an attempted economic environment.

And Chris, the only thing that I would add is, I think on this category growth issue, as I was saying to Ali, I think you got to disaggregate this as we're trying to do. And I do think there's a couple of trends going. One is, if there are free substitutes available, as in trash, you're going to see more of a disproportionate hit on that category, unless you've got significant innovation, like we have for Breeze. And I think that's why our Trash business is up mid-single-digits, and gaining share. I think the other thing is if the category has been hit by an extraordinary overlap, you're going to see it as well. The bleach category is significantly down in the first quarter because of the overlap on H1N1 last year. That's a big part of it. So if there's a free substitute available, or there's an extraordinary overlap going on with a material event like the H1N1 pandemic, I think you're seeing that accelerated decline. I think on both those fronts, we're going to work through that fairly well as we get into the first quarter, or the first quarter of the calendar year in '11.

And you haven't seen any -- there's been no temptation internally, I guess you haven't seen any from competitors to ratch it up, the promotional spending in light of this? Or frankly, is it too early in this category slow down that you just starting seeing in the September, or October to even make that assessment at this point?

Purely to assess with this, a real change in behavior in the last two months. But clearly, promotional spending has increased over the last several years in our categories and across the grocery store.

And our next question will come from Bill Schmitz with Deutsche Bank.

Maybe I'll just keep going on the same path here, but you look at the category declines and some of these big categories, how much do you think is it kind of being self-fulfilling? And how much do you think really is consumer? Because it seems like whenever you see a big uptick in promotional spending and a lot of negative and actions, that's when the categories decline. Then you even said your Natural Personal Care business is up 7%, or the category is. Do you think maybe a lot of it has to do with some of the merchandise activity, and not really the underlying consumer demand?

There's clearly an impact, Bill, from that. As Dan said, and Larry I think also, as we get into the second half of the year, we see some moderation in trade spending. I think clearly, that will help because obviously, as you know, there are dollars being sucked out these categories as the discounting those off. And I think everybody is trade spending, most of the manufacturers trade spending over the last six to 12 months has been up in the 10% to 20% range. So I think that does -- it'll start to mitigate. But clearly, those dollars are being taken out of the category. If you look at private label trends in our categories, they're fairly flat if not declining. If you look at the last 52 weeks on private label in the track channels, they're down 1%. If you look at the last four weeks, they're down almost 2.5%, so those declines are accelerating. So any opening price-point focused that retailers are putting on their own brands. And clearly, what the manufactures are spending is sucking some dollars out of the categories. But we do see that opening starting to mitigate as we get into Q1.

This might sound judicious language on the Clorox call, but would you start doing gaining game changers again? It seems like it's been a while. And I think Larry talked about this a little bit, but there really hasn't been any category redefine innovation in probably the last three or four years.

I think we have swung the pendulum a little bit more towards on base brand improvements and switching my terms singles versus triples in home runs. But we've had an incredible amount of success with that particularly the improvements that have come with the cost impairment like what we've done on Charcoal. So we're still gray about what we've done both from a top line standpoint and maybe even more importantly, from a bottom-line standpoint. We continue to have a pretty interesting pipeline, and we do have some pretty big hits, what you might term game changers, in the pipeline. So don't be totally surprised if you see some more of that.

You can call it whatever you like. But I think the other thing is, as we said, just focus on 60/40 blind wins, where we've gotten almost half of our product portfolio with that kind of blind win, given that we still believe the most effective way to reach consumers is word-of-mouth, that is, I think that's had a material impact on our ability to gain share in this environment. So we're not going to take our focus off products' priority. But to Larry's point, the pipeline is pretty robust and we think we've got some ideas in there that could be, under your definition, game changers.

Regarding some of the explainable housekeeping items, for a second? The other line it's 1.7 negative gross margin points in the exhibits, and you have a footnote there. Is that mostly promotional spending in product mix? Or is Venezuela a big chunk of that?

There's a number of items in there. There's a little bit of restructuring, trade has been there, the FX has been there. Probably one of the bigger items in areas is native mix, a little bit of business mix and then product mix.

And that's a lot of that sale addressing, is that fair?

Yes, some of our businesses in Q1 that we saw after '10 via our higher margin businesses, they get a little bit of business mix. But also have some product mix issues, particularly as the consumers increasingly go to the value channel.

And then lastly just on the working capital side, I think you said sales are really soft at the end of the quarter, but then if you look at the cash flow statement, it looks like inventories were down slightly and receivables were up. So why is it trending like that?

Embedded in our working capital is the terms change in our Auto business. So we had changed our Auto terms, to go to more extended terms in that category. So the build you see in receivables was really related to that change. Now with the sale in that business, that impact in working capital goes away.

So when does the deal close?

It's be early here in November.

And our next question will be from Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc.: First question, I guess for Don, on the promo side. If you're right and promo spending does ease, how much of that falls to the bottom-line? Or does some of that get caught up in higher advertising because there is sort of an incentive, if you do get that "savings" to advertise more to try to go to categories more?

Let me start and I'll turn it to Larry. I think it really depends on the category dynamics, Joe, what category we're seeing and what the share trends look like in that category. Because as we said, we're going to at least maintain, if not continue to grow share in our category. So I think it depends on what the competition's doing, what we see as share trends in that category.

I'd build on that.I mean our key metric in terms of building our brand is really this year, right? As long as we're building share, we feel pretty good. And obviously we don't build share everywhere, but in there we're building share. We hung with the kind of the 90% advertising rate for quite a long time. That seemed to be about appropriate in terms of the total portfolio, but it's highly variable by business unit. In some businesses we spend nearly twice as much, and in some we spend half as much. So truly kind of business dependent. But I think the key metric for us is if we're growing share, we're spending sufficiently in advertising. I we're not may want to invest further.

And for an outlook standpoint, our spend in advertising on a percent of sales is about equal fiscal '11 to fiscal '10. Joseph Altobello - Oppenheimer & Co. Inc.: And then just one for Dan as well, the $25 million to $30 million of incremental IT facility spending this year. First, how does that flow throughout the year from quarter-to-quarter? And is there incremental spending as well for next year? Or does that go away?

It's A little choppy on how it flows through. There's probably roughly $4 million to $5 million with that spend in the first quarter. It will start ramping up, particularly on the IT project spending will ramp up in Q2 and Q3. On the facilities side, on the Pleasanton campus, more of that spend will be in the back half of the year, less of it in the front half. There will be a little bit of spillover into our next fiscal year, primarily in the first half where we started going live with our IT conversions on a days basis. So as we start to phase the burn rate, will go down, plus we'll move into the new campus facility in the first half of next fiscal year. So you'll see a little bit more elevated spend in the early part of fiscal '12 but that runs up pretty quickly.

And our next question will come from Connie Maneaty with BMO Capital.

Would you talk a little bit about the new products that are coming in the second half? What you've already shown retailers? And what we should expect in terms of slotting allowances?

Certainly. We're not public with the second half new products as yet. As we said, we do have more products in the second half than we have in the first half. And the first half launches with the ForceFlex, Burt's Bees, and some of the new items for Burt's and the restaging of the moisturizing body lotions. We also have a Hidden Valley sell-a-kit that's currently in one major retailer that will be expanded in the second half. And without being very specific on second half launches, I would say we have several new items in the Home Care lineup. We have new flavors on Hidden Valley Ranch, and our K C Masterpiece barbecue sauce, we have some upgrades on the Brita line. We have at least one line extension on our Cat Litter business, and some other new items on the Burt's line.

And will there be noticeable slotting allowances? Or would you like put that into existing space?

There won't be any extraordinary trade spending support behind timed needs in terms of it sliding.

About Venezuela, could you talk about the tenor of business down there? And of your Venezuelan result, what percent do you attribute just to FX than the other two demand?

Yes. There's two components there. Obviously, we've talked about the impact from the currency devaluation. On base results, Venezuela is a challenging operating environment. The government essentially seized control of the currency market, and they're metering out the amount of U.S. dollars that they allow anybody to convert bolivars into. So we, from an operating posture, had to get pretty selective in terms of which SKUs we'll continue to produce and sell. So we have to look the prioritization of those SKUs, and also any SKU that has a big U.S. dollar commodity input component, we're having to scale those back. So certainly, there is further declines in volume and sales in Venezuela related to this restriction. Now we're still profitable in Venezuela, which I think is the key issue. And I think the team is doing a nice job of managing through what's really an impossible situation. But business will continue to be soft over the balance of this year. I guess the other silver lining is that, we still have leading shares in this market. Historically, it has been a very good market for us. The brands are strong but we're having to make some pretty difficult operating choices given the restriction of the U.S. dollars.

I think the other thing, Connie, to keep in mind is, now with the devaluations and everything we've gone through in that business, it's about 1% of our revenue.

And what exchange rate are you using? Is that the floating rate like the 5.4?

The official rate, the sitting rate as they call it, yes, it's in the midsize.

And our next question will be from Ed Kelly with Credit Suisse. Edward Kelly - Crédit Suisse AG: Is there any difference by retail channel in terms of what you saw in the category weakness towards the end of the quarter? Was that sort of broad across sectors, supermarkets, drugstores, mass, or is it more selective?

Actually, in the quarter, we saw a little bit less of a shift towards valued channels, but I would say we've seen a fairly dramatic shift for over the long term side. I expect the shift to value channels and therefore, category growth and value channels to continue. Douglas Lane - Jefferies & Company, Inc.: And then how are you feeling about inventory levels that we saw currently, especially in an areas like disinfectant products. Because it seems like your Q1 sales were good, but the flu season so far, has certainly been light, which might suggest that maybe there is some inventory floating around there at retail, is that a fair assessment?

So the slice for this is hardest to predict is probably in Wipes. We do have a strong story to our retailers and they believe in it, that if the flu season is intense, you're going to need lots of Wipes. We had a very strong sell in July, very good, August, and we fell off a bit in September, which I think in part was an inventory adjustment. So I think that's the one we are you see some just ups and downs based on people trying to predict the strength of the flu season and trying to predict that there's going to be an H2N2, or some other event that's going to cause incremental demand in the Wipes category. Other than that, I think we're seeing the normal ebbs and flows that we always see. Douglas Lane - Jefferies & Company, Inc.: And then last question for you, the retailers were fairly promotional over, call it, the last year and a half or so, and it feels like there's this recognition amongst on that was erased at the bottom. There was a very low return on the investment that they were making. And it actually looks at this point like the vendors have started to pickup over the past couple of quarters. Are we getting closer to the same type of recognition that the return maybe, is not so great on this site either? And then what does that mean going forward? Are we just looking it at sort of stagnant volume type environment till the consumer improves?

I'll try to answer your question exactly, but let me give it a try. I think that retailers in particular, were very focused on the lower end of the value chain given the economy, particularly the private labels that were obviously priced reported it less. I think that found that it was further weakening their categories results as they were trading people down to an entry price point. I think there's been some pushback of the strategy, and less of a focus on private label. I think the promotions had been a mixed bag for retailers depending on how they've executed. But we have seen some extreme pricing reduction, and some retailers not be as successful as what they thought it might had been. And again, it has not led to the incremental sales or incremental category growth that they thought it would. There's been some reconsideration of those strategies, and more of a focus on everyday value, or lesser discounts when you do promote, rather than the extreme discounts that haven't really led to a lot of success. Does that help answer your question? Douglas Lane - Jefferies & Company, Inc.: But from a vendor standpoint though, I mean it does seem that the vendors are now ramping up trade support. I guess how is the vendor community feeling about the return they're getting on that, and how does that change going forward now?

Yes. I think some of that ramp up implies to the fact that the innovation pipelines are ramping up. So people are going to support new product entries and I think a lot of that is what's going. We're probably see more robust innovation pipelines for most of the branded guys over the -- you're going to see it, certainly you've seen it already. But I think you'll see even more of it as we get into the back half of the first half of the calendar year.

As a company, our focus has never been on extreme discounting, so buy one, get one frees and half-offs has never been part of our trade promotion strategy. So what you see from us is more a focus on either everyday value, or a new DLP retailer, or more frequent promoting at lesser discounts, or tie-ins with other kinds of marketing activity in-store, are more of our focus.

And our next question comes from Lauren Lieberman with Barclays Capital.

I just wanted to go back to the quarter just reported, because what really stood out to me as being a surprise was, how impactful the sequential shipments around and Charcoal and Hidden Valley ranch really were. I feel like, in my memory is that we had a conversation at the back-to-school conference, also on last quarter's call about how impactful was being on that significant rollback was, would it matter? What I need to remember it in the next year's quarter as a comparison issue? And the answer was, it's not that big of a deal. So I just want to get a sense for -- is it a matter of, you didn't have the visibility and then at some point late in the quarter, Wal-Mart just stopped ordering in those categories? I guess I'm just confused where the disconnect came from with those two particular issues.

So let me give you some specifics about Hidden Valley and I don't know quite in the context of response to your question. But obviously in come backs of the entire portfolio it's not a huge impact. But we did see it, a very significant dramatic increase in Hidden Valley behind one of these extreme price reductions at one of our largest retailers or our hidden Valley Ranch. It did grow the business considerably behind that promotion. What was hard for us to decipher was how much of that was true incremental shipments, and how much of that was either loading the consumer pantry, or loading the retailer's inventory. So that kind of played out over the course of quite frankly, JAS. And I would have to say we saw not only in July and August, but we even saw a bit of what we would call a trough in September in Hidden Valley as a result of that promotion. And as I said, Hidden Valley, look at the Hidden Valley consumption overall, it's very strong, continue to be strong in the first quarter. So this is more of an inventory adjustment, maybe a piece of it being consumer pantry, a piece of it being retailer, inventory adjustment versus any kind of health issue on Hidden Valley. And so to respond to your question by saying is that a big deal in Hidden Valley. We would say the brand continues to be very healthy. But there was some inventory adjustment that did have an impact in Q1.

And how about on Charcoal?

On Charcoal, I think more on the issue is a more a wide spread across a number of retailers, particularly in the Home Improvement channel as well. So there is significant merchandising behind Memorial Day and then 4th of July. And so I think that was driven across a number of several channels and a number of different retailers, it wasn't concentrated in any one retailer.

Because there, in our Charcoal business, we've seen some incredibly strong growth in the Home Depot, home hardware kinds of channels. And that played out in spades in Q4, and we saw double-digit, mid-teen kind of growth on our Charcoal business, which is obviously a very big business in a very big quarter to see that kind of growth on and we have similar kind of inventory probably adjustment going on that weekend Q1 results.

When we were at the conference, we had projected some trough. I think the trough was certainly more than we thought it would be.

So how much of this quarter's, the sales disappointment in this quarter was related to those two issues? Those two brands, I should say?

When we look back on our budget, when we put our budget together, in fact, put our initial outlook out in May of five months ago, we're not materially off what we put into the budget. We thought we had some better momentum coming in, but we're within $20 million of revenue and where we put the budget. So it's not I suppose, a material change from what we've already put in.

Because that's actually a good lead into this next part of my question still trying to understand better I guess, the source of that had just come in this quarter in particular just reported. But when I look at the guidance for the rest of the year and knowing now that there's a 70-basis point drag from the change in the customer shipment program, unless you do the very low-end of that sales guidance range where people who were towards the mid or bottom-end of your range for sales growth previously don't need to change anything in the next three quarters. And it's a part of me feeling like this conversation for the last hour is a lot more dire than what we're really talking about numerically.

I don't think we're tracking with you in terms of more dire.

No. I mean like nothing's really changed all that much and I just think this whole conversation is like the categories are terrible, we're all doing great, the categories are terrible. And it doesn't really pull through the numbers.

Lauren, let me try it this way and then I'll come back to it nearly point on a -- our outlook range was 2% to 4% on a full year although we were trying into around 2%. And we're now 0% to 2%, and we've got about 70 basis points from the CPU and the other changes really, the weakness that we saw in some of our categories, again reside was more pronounced in September and October. As we look at first half, second half, the category weakness that we're seeing in the first half is really what we factored in and additional incremental impact on the topline. But as we look out in the second half, for a lot of reasons, yes, we're reasonably encouraged in terms of top line volume. While we all have a CP issue we have to deal with, we'll have the noise of H1N1 behind us and try to figure out and sack the bodies just to whip that meant for category growth in different channels. That'll be behind us. We'll have all of Venezuela through it, so that will be behind us. We won't have any carryover impact on either Food or Hidden Valley, because of some of the retailing. And so as we look out in the second half of the year, I think we feel more positive in terms of what our top line is going to look like. So while we are seeing some categories softness as we've said in September, October, Q1, Q2, right now for the full year, we're not projecting that we're going to see that negative category impact extending out for the full-year. Does that help?

And our next question will come from John Faucher with JPMorgan. John Faucher - JP Morgan Chase & Co: Wanted to follow up a little bit on the deletion guidance, which is if I look at the impact and I realize there's some seasonality in the business, if I look at the impact on the quarter, basically it looks like it's about $0.04 a month. So that would be about $0.48 total and you're really sort of guiding to between the continuing ops piece and the go forward guidance, looks like you're guiding and the net dilution, maybe guiding to about $0.40. So that would imply $0.08 from the buyback but when I look at the order of magnitude and the timing, it seems like the benefit the back half EPS should be more than that, maybe about twice that. So can you breakout the components in terms of that dilution so I get a better handle on it?

Sure, John. Let me see if I can unstack the bodies here for you the... John Faucher - JP Morgan Chase & Co: That's not a good -- I'm not sure if that's the best metaphor to use given the fact your stock stands 4%, but okay.

Well, obviously there's a lot of confusion, so let's see if we can get this right so people can understand it. On September, our forecast for the Auto business roughly order magnitude for the full year was in the $0.55 to $0.58 range, that was sort of the out that we had for the Auto business. That includes the direct cause associated with business. It does not include the indirect costs, the stranded costs that remain. So that's your starting point for the full-year. As you point out, there is seasonality in this business. There is a big spring and summer business here and therefore, you see a pretty significant seasonality in terms of a profit and sales progression of this business. If you start with the $0.55 to $0.58, what we currently estimate that the net earnings of this business from July 1 through the anticipated date of sale. You think for the full year, that represents about $0.16. So that's a benefit that will accrue to us. We're also providing the buyers some services as they transition into their structure, and we think the benefit of that revenue that we'll receive is another $0.04 on the full-year. then we plan to use the net proceeds of the sale to buy back shares. Now, you've seen the progression of what we're projecting for the buyback was about 2/3 of those shares to happen in second quarter with the balance happening in Q3. The benefit of those share repurchases given that pattern, we estimate will be, call it, $0.17 worth of shared benefit in the fiscal year outlook. So when you net all of that together, that comes to roughly the $0.20 dilution that we're projecting for the sale of the Auto business. That's how the math flows in the year and how it flows in the outlook. John Faucher - JP Morgan Chase & Co: And any thoughts on the ability to maybe take away at some of stranded overhead going forward?

Well, certainly we're going to be very focused on that. I guess the good news is with the revenue from the transition services that gives us some runway to get those costs out. So we're going to provide certain level of services for up to 18 months to the buyer and we're working on plans now to get some of that stranded cost out over that period of time. now while we're providing the services, we still need -- the cost to support that will still be there. But certainly, we have 12 to 18 months to work on getting that level of stranded cost out.

And our next question will come from Karen Lamark with Federated Investors.

I'm trying to reconcile your guidance through expectations for margin expansion and better understand a couple of assumptions. With trade spend up at least right now, commodity costs higher, your sales expectations lower. I know you took the cost savings to the higher end, but what are you assuming on price and mix for the aggregate portfolio?

So if you're looking for the full year, again, cost savings $90 million to $100 million, probably at the high-end of that range. Pricing will be a net benefit for us for the year. We have our international businesses pricing to offset some of the inflation and currency impact that they've seen. We just announced obviously the Glad price increase. There's a little bit of negative on the price adjustment we took recently in the Litter business, that an overall basis, pricing will be positive for us. We continue to believe that commodity costs will remain in this $50 million to $60 million range. We think it's in that trading zone. Logistics and Manufacturing, be a little bit of a drag for us for the full year, but it's not a huge amount. We do have a little bit of negative mix in there, again, both a little bit of business mix, as well as channel mix. Restructuring for the full year on COGS is about flat, and we actually, for the full year, expect some modest benefit from trade spending and we still have a little bit of negative from foreign exchange in the back half of the year. So if you net all of the factors and there's a lot of them moving around, but if you net all those factors, we're still in the 25 to 50 basis points. And the way I like to think about it is whether there's lots of moving parts in here, basically, you've got about $100 million worth of cost savings, you've got about 50 to 60 at commodities, and then you throw in a little bit of pricing, was able to create an agro for us we believe will allow us to increase margins about 25 to 50 basis points.

And then just a follow up, with respect to your commodity outlook absolutely not changed, did you originally have a more negative outlook than you thought? And just really trying to get how much legroom you might have in your commodity forecast?

I would say things are not more negative today than what we thought at the beginning of the year. For us, we keep a close eye on oil and resin, chlor-alkali, things like that. Those commodities have been generally trading within the ranges that we'd anticipated for the year. And as we look out over the next couple of quarters, we're anticipating that those commodities will remain in those trading ranges, which is why we're saying with a 50 to 60.

With respect to the sales guidance, excluding the change in the Wal-Mart distribution, you cited a lot of well known and well-acknowledged factors as pressures and it seems a bit odd to extrapolate very recent deterioration in sales and potentially on temporary deterioration sales for the entire year. Especially just given variability around trade programs. So did something else change? Or have you gotten some indication of an upcoming change in distribution with any of your retailers?

I don't think that we've extrapolated into the entire year is going to be as weak as what we've seen very recently. On the other hand, I think we have to take actual results for what's occurred in Q1 into account when we look at the full year. I think as we said earlier, this is not all that dramatically different than what our original outlook was when you take into account they we're losing almost a point in terms of the expanded customer pickup programs. So it's basically about a point difference, maybe a little bit over a point. And it's simply attributable to the actual results we've seen and some category weakness that we're projecting.

I think on the original outlook on category was flattish to up one, and we're saying now flattish to down one. So it's not a massive swing, but it's certainly a big enough swing that's going to influence that topline outlook for us, as we've talked about.

Given your expectations for the top line, does M&A assume higher priority for you with respect to your capital allocation plans?

M&A continues to the have the same priority that we've had for it. We'll focus on a couple of key areas there. We're looking at today and likely to be more bolt on type acquisitions than anything else. So as I said before, we'll generate some good free cash flow this year. If we don't needed it to build the business or for M&A, then certainly we'd look at using our cash to return it to shareholders. So it just depends on how the M&A agenda plays out over the next couple of quarters.

This concludes the question-and-answer session. Mr. Knauss, I would like to turn the call back over to you sir.

Thank you. Well, we appreciate everybody's time today and we look forward to giving you a further update on the business in early February through this second quarter. So thanks, everyone.

And this does conclude today's conference. Thank you for your participation.