The Clorox Company (CLX) Q2 2011 Earnings Report, Transcript and Summary

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

Great. Thank you. Welcome, everyone, and thank you for joining Clorox's second 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, thecloroxcompany.com. On today's call, Larry will start with comments on business unit performance, as well as perspective on our current category, market share and overall top line results. Dan will then comment on our second quarter results and our updated fiscal year '11 financial outlook. Finally, Don we'll share some closing thoughts before we open it up 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. With that, let me turn it over to Larry.

Thanks, Steve, and welcome to everybody on the call. Consistent with our pre-announcement at January 3, we had a challenging second quarter. Q2 volume was down 2% due to comparison against high H1N1-related sales in the year-ago quarter, as well as weak trends across several of our U.S. categories. These factors were partially offset by higher shipments in Latin America behind new home care products, growth on Burt's Bees due to new products in the healthier natural personal care category and higher shipments of Pine-Sol cleaners and Glad trash bags behind product innovation. Sales were down 3% due to the volume decline, the impact of the Venezuela currency devaluation and higher trade promotion spending. Excluding the impact of the Venezuela devaluation, sales were about flat. Overall, we had a tough first half, but we have reason to believe results will improve in the second half of the year. As usual, I'm going to focus my detailed comments on volume and sales, and let Dan provide the details on our financial results. Starting with our U.S. business, tracked channel consumption in our categories was down just over 1% in both Q2 and over the past 52 weeks. On an all-outlet basis, category consumption was down over 2%. While the share was down slightly in tracked channels, we continue to see share gains on an all-outlet basis, reflecting the continued strength of our products and value-oriented retail channels like dollar and club. In fact, for the past 52 weeks, we gained or held share in all but one of our reported categories. In international, our market share results were not quite as positive, with share up slightly in Canada, down slightly in Latin America, and down moderately in Australia and New Zealand. In our Cleaning segment, which includes our Home Care, Laundry and Away from Home businesses, volume declined 6%. The decrease is primarily driven by lower shipments of Clorox Disinfecting Wipes and other disinfecting products due to the comparison with high H1N1-related volume in the year-ago quarter. Many retailers have stocked up on flu-related products like disinfecting wipes in our first quarter in anticipation of another bad flu season, which has not yet materialized. Pine-Sol had another great quarter, delivering strong volume and share growth. Laundry volume was down, primarily due to category softness. Some of the laundry category softness is due to higher growth in the base period driven by new competition and some H1N1 impact on Clorox Liquid Bleach. Our Q2 track channel shares up on Clorox Liquid Bleach and down only slightly on Clorox 2. Clorox 2 share results are much improved versus previous quarters. Sales for the Cleaning segment decreased 6%, in line with volume. In our Household segment, which includes Glad, Charcoal and Cat Litter, volume decreased 1%, reflecting strong growth in Glad trash bags, offset by lower shipments of Glad food storage products. We continue to see positive results on the trash side of the Glad business, which represents about 2/3 of total Glad. Shipments of trash bags were up in the mid-single digits, with particularly strong volume and share results on premium higher-margin ForceFlex and OdorShield trash bags. Our Glad food storage products declined in the quarter, but we expect to stabilize this business as we have now lapped some key distribution voids. On Cat Litter, our share declined, as we worked to get our value equation right in the face of intensified competitive activity. The price rollback taken last year is now reflected in most retailers, so we expect to see improvement in the second half of the fiscal year. Our Kingsford business has stabilized, following the high volume in Q4 of fiscal 2010 that resulted in excess inventories in Q1. Sales in the Household segment were down 4%, more than the 1% decline due to increased trade spending. In our Lifestyle segment, which includes food products, water filtration and global natural personal care, we grew volume 3%. This was driven by higher shipments of Burt's Bees products and Hidden Valley salad dressings, partially offset by lower shipments on Brita. The decline in Brita is largely due to our year-ago base that was up strong double digits. Despite the recent non-cash charge on Burt's Bees, it remains our fastest-growing business unit and continues to perform well in the U.S. and abroad. In Q2, Burt's grew volume and sales in the low-double digits behind renewed category growth and innovation, with gains in the drug and grocery channels and international markets. The brand is now in total of 30 countries. Our Hidden Valley business returned to strong growth after a soft Q1 due to excess retail inventories. Consumption on these businesses helped our new product offering to continue to perform well. Sales for the Lifestyle segment were up 3%, in line with our volume. In our international segment, volume grew 3%, primarily due to category growth and new home care products in Latin America. These results were partially offset by lower shipments of Glad products in Australia behind distribution losses. International sales declined 1%, as the benefit of price increases was more than offset by the impact of the Venezuelan currency devaluation. Excluding the impact of the Venezuela devaluation, international sales grew 11%. We have now left the impact of the devaluation and expect foreign currency to be modestly favorable in the second half of the year. And now I want to turn to our sales outlook, which remains unchanged from our January 3 press release, and collective plus 1% growth for the full fiscal year. That implies that we will need to grow about 3% in the second half after declining 3% in the first half, and we'll provide some reasons to believe. First, several factors which drove our first half declines are now behind us. The currency devaluation in Venezuela, H1N1 comparisons and the first half impact of fiscal 2010 Q4 shipments on food and charcoal, all had a substantial negative impact on the first half of the year. These factors are all largely behind us. While we continue to anticipate category softness, we are starting to see some signs of category stabilization. Trends in trash bags are improving, and growth in natural personal care is outpacing the traditional personal care category. We're also focusing in higher growth consumer segment like Hispanic and higher growth retail channels. As our categories begin to get stronger, as we believe they will in calendar year 2011, we are well positioned to benefit from our recent market share gains. Second, we are confident that we can continue to be competitive in the marketplace and at least maintain if not grow our market shares. We remain committed to investing in the long-term health of our brands, with strong consumer communications and innovation. Our longstanding focus on brand building and improving value in our brand is paying off with higher market shares. For perspective, in December of 2007, our U.S. dollar share on an all-outlets basis was 26.5%. In December of 2010, we're up 1.4 share points to 27.9%. So we had maturely grown share at our portfolio of premium products, despite the worst recession most of us have lived through. The third reason to believe is that we have a very solid innovation pipeline in the second half, so as the multitude of new products and product improvements across our categories and countries. In the Cleaning segment, we are bringing the power of bleach in more effective forms in the bathroom. New products include Clorox Bleach Gel Toilet Bowl Cleaner, Clorox Bleach Foaming Spray and Tilex tile and grout cleaner in the new pen form. We are also relaunching Pine-Sol of new fragrances and packaging, and offering new fragrances on Clorox Liquid Bleach. In the Household segment, we've been seeing the benefit from the Febreze product improvement in our OdorShield trash bags. We also launched a new extreme odor line extension on our Fresh Step Cat Litter in January. In our Lifestyle segment, the food business will launch new flavors of the Hidden Valley from Ranch Original salad dressing and K C Masterpiece barbecue sauce and marinade. We also plan to launch three new Brita pitcher designs and an on-the-go Brita water bottle. On the International segment, we are launching products in both the disinfecting space and in fragrance cleaners. In summary, we believe there are solid reasons to believe we can deliver our forecast, and we are confident we will see growth in the second half of the year. With that, I'll turn it over to Dan.

Thank you, Larry. Hello, everyone. In today's press release and the one issued on January 3, we've provided updates on the goodwill impairment and again on sale of our Auto business. So, I'm going to focus my remarks today on our second quarter results from continuing operations, as well as our updated financial outlook. As you evaluate our results and our updated financial outlook, there are three key messages that I'd like you to consider. First, as expected, we faced a challenging first half and second quarter, and feel we are managing well through a difficult environment. Many of the top line headwinds we've faced are abating, and we expect stronger top line, margin and bottom line performance in the second half. Second, while we did see some gross margin compression in Q2 and the first half of the fiscal year, we believe we'll see second half gross margin expansion. We have a strong cost savings pipeline and are positioned to take price increases when costs justify to support our margins. Third, our full year financial outlook is based on a plan that appropriately balances the near-term impact of soft categories and commodity inflation, 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 each of these themes in turn. We faced a challenging first half and second quarter, as we lapped most of last year's significant H1N1-related growth and the impact from the Venezuela currency devaluation. We also experienced continued softness in our U.S. categories, and we had to work through some specific category issues. Overall, we believe we're managing well in this challenging environment, and our demand building investments continue to pay off and increase market shares, giving us confidence that we'll benefit as our categories return to growth. In the second quarter, we saw about $18 million of commodity cost increases. Commodity cost increases in the quarter were offset by about $22 million of cost savings in cost of goods sold. Total cost savings in the quarter were about $27 million. Overall, we did see an expected decline in our Q2 gross margin as we compare it against the year-ago quarter, when gross margin expanded by nearly 350 basis points. Contributing to the margin decline were the impacts of business and channel mix; increased trade spending and unfavorable foreign exchange, almost entirely from Venezuela; and normal inflationary pressures in our supply chain, partially offset by the benefit from pricing. Cost savings in the quarter more than offset commodity cost increases. Looking ahead, we continue to believe gross margins will improve in the second half. While trade spending in the second half of the year will be somewhat higher than our previous estimates, this spending will be about equal to our spending in the second half of last fiscal year. And at today's spot rates, foreign exchange should turn slightly positive, with the Venezuela devaluation now behind us. We delivered about $60 million in first half cost savings, and we feel confident about delivering cost savings at or slightly above the upper end of our $90 million to $100 million target range. The key to our margin performance in the second half of the fiscal year and fiscal 2012 will depend on how we manage commodity cost increases. We anticipated total commodity cost increases for this fiscal year in the range of $50 million to $60 million. With recent increases in various commodity prices, we now expect total commodity cost increases in the range of $65 million to $70 million, with most of the increase coming from resin costs. As we've discussed, our margin expansion model can absorb about $50 million to $60 million in annual commodity cost increases before we need to take pricing. With expected commodity cost increases above this range, we're evaluating further price increases, particularly on our products impacted by resin costs. We took a 5% increase in August on Glad trash bags to reflect higher resin costs. Despite some soft categories and muted consumer spending, we believe it's appropriate to consider additional price increases where cost justified. We've successfully taken many price increases over the last four years, and we demonstrated our market leading brands have pricing power and price elasticities that allow us to take cost-justified price increases. We've been able to increase our market shares even with the price increases we've taken. In the second half of the fiscal year, we'll see most of the incremental commodity cost increases in the third quarter, with a much smaller impact in the fourth quarter. We now expect our gross margin to be flat to slightly down for the full fiscal year, but we're essentially keeping our full year gross margin outlook near our recent historical high for this metric. For the full fiscal year, we now anticipate fully diluted EPS from continuing operations, excluding the goodwill impairment charge, in the range of $3.85 to $4. This updated range reflects our current expectations for the top line and margins. This range compares with $3.69 in fiscal 2010 diluted EPS from continuing operations. I believe we have a very balanced and achievable plan for the fiscal year. The plan balances increased demand, building investments in our brands and key investments in our facilities and information system, with strong cost savings deliver solid results. We believe our performance in the second half of the fiscal year will be better than our first half performance. We feel much better about our pricing competitiveness in Cat Litter. Our Charcoal and Food businesses have stabilized and returned to growth after the first quarter trough due to excess retail inventories. Other businesses such as Brita, Away From Home, International and Burt's Bees continue to perform well. Our plans for the second half of the fiscal year include broad innovation, solid trade spending and healthy advertising investments. Overall, we believe we're taking the right steps to drive volume and sales growth in the second half and maintain the long-term health of our brands. Before I turn the call over to Don, I want to reconfirm our planned use of cash from the sale of the Auto businesses to repurchase shares this fiscal year. On January 3, we announced updated timing for share repurchases. During the balance of this fiscal year, we intend to use the net after-tax cash proceeds from the Auto sale of about $680 million to repurchase shares. Depending on the share repurchase prices, we expect to repurchase 10 million to 11 million shares of our stock. This is in addition to the 2.1 million shares we purchased in the first half of the fiscal year to offset stock option delusion. Given the later timing for share repurchases, our fiscal year diluted EPS will be reduced by about $0.05. This impact is fully reflected in our updated EPS outlook range. With that, let me turn the call over to Don.

Thank you, Dan, and hello everyone. We've mentioned several times today why we anticipated a challenging first half and why we believe we'll see stronger results in the second half. And I think if you recall back in May, we actually outlined the challenges we'd see in the first half. That said, I want you to know that I'm certainly not and neither is the team satisfied with declining sales and margins we've seen during this time. And while we can't control things such as the timing of global pandemics like H1N1 or the overall health of the economy, there certainly are a number of things that we can impact. So, rest assured that we're not losing our focus on what it takes to grow our categories and market shares over time, and particularly our focus in market-leading innovation. And in fact, I believe Clorox is in a stronger position now than ever to innovate. And so, before we open it up for Q&A, I'd like to spend just a couple of minutes broadly discussing our innovation strategy with you and why we believe innovation will drive growth for us, not only in the back half of the fiscal year, but next year and beyond. We feel very good about our product innovation track record, and we've reviewed this with most of you over time, but we have delivered two or more points of top line growth for Clorox consistently for the past eight years. And that's a pretty stringent measure, as it only accounts for growth above and beyond the effects of cannibalization. So, it's really a true measure of incremental growth. Now looking over the next two years, I'm confident we can meet or exceed this goal as we continue to build our innovation capabilities with a focus on three areas: Where to play, how to win and how to configure. So, let me give you a little bit of insight into each one of these. First, where to play. We've taken a strategy-led approach to identify where to place spaces such as our Stop the Spread of Infection growth platform, that we believe are fueled by strong tailwinds, with large unmet consumer needs to support growth, and where certainly we have a right to win. And by focusing our discovery efforts globally now, we'll more than double the ideas and projects in our pipeline and increase their scale as well. The second area of focus in building our innovation capability is how to win. We've maintained our focus on using integrated consumer shopper and user insights as the drivers of innovation. We've combined these insights with several proprietary technologies, such as plant-based cleaning agents to create innovation platforms in key areas. Now the combination of our deep insights and differentiated technology results in, we believe, competitive advantage and increases our confidence in the success of innovation going forward. We've also maintained our focus on 60-40 blind wins, and we fully anticipate achieving our goal of greater than 50% of volume from superior consumer preferred products ahead of schedule. And lastly on how to configure. About 18 months ago, we redesigned our approach to innovation to increase our ability to generate and collect ideas from inside the company globally and also outside the company, which has contributed to the doubling of ideas and projects I noted a moment ago. Now recent idea generated internally is Dual Disinfectante, which was launched in Q1 in five Latin American countries under the Clorox and Ayudín brand names. Now this product is the only disinfecting spray that kills germs on both surfaces and in the air. So, it's really a great product in our Stop the Spread of Infection platform. And from outside the company, probably the most recent obvious example, as we continue to drive value from our Glad products joint venture with Procter & Gamble, is having recently introduced Glad OdorShield trash bags with Febreze. In fact, if you look at our premium trash bag segment in the last quarter, that segment was up in volume over 10%. So, as Larry noted, we're seeing strong volume and share gains in our trash business, in part behind this innovation. And we're also focused on flexibility and fast learning to accelerate discovery and development, and we believe we can get new products to market faster. So, as the market leader, clearly, it's our responsibility to bring innovation to drive growth, not only for Clorox, but for our categories overall. With the innovation we're launching and the strong capability we've built to innovate, I really do believe we'll see improvement and build momentum throughout the second half of this fiscal and beyond. So, with that, let me ask the operator to open the lines up for questions.

[Operator Instructions] We will take our first question from Ali Dibadj from Bernstein Investment Company.

A few questions, one is -- this is kind of relaying something that I've been hearing from some investors. We have certainly heard some optimism from you guys before, and whether it be a year ago, whether it be even more recently than that. And sometimes, very respectfully, that hasn't always panned out to be as optimistic as you lay out. It's not always your fault, but we've heard things around H1N1 for a very, very long time, right now in Venezuela, and finally lapping that. We've heard things about innovation. We've heard things about we have pricing power, et cetera, and they always haven't necessarily played into kind of the way you have described it at the time. And listening intently, I'm trying to figure out if you guys are seeing data points in the environment, in the marketplace that actually give you confidence that these things, this time around, may actually work out, and kind of build your confidence, and try to, I guess, help us build our confidence in purely the back half, but even beyond that?

Let me start, Ali, then I'll turn it over to Larry and Dan. I guess it depends on how you judge this optimism. I guess I would look at it as over the last 10 quarters, we have exceeded expectation, I believe, on nine of them. So, I think we pretty well delivered what we said or done a little bit better. I think particularly in this, as we move into the second half of this fiscal year, these headwinds that we've talked about, H1N1 and Venezuela, those cost us almost four points of growth in the first half of this fiscal year, and those are largely behind us. So if you just take that out, Ali, I think you get back to instead of negative three sales into the plus one area. The other thing I would say, as we look at FDKT, or tracked channel data, and you obviously have access to that data as well. As we look at categories like trash, going from negative to the last 52 weeks, or negative 2.5% or in that range, to plus 2%. We look at litter starting to grow. We look at charcoal going from almost 3% growth last 52 weeks, almost 7% growth. And we look at our food business, the salad dressing business also continuing to show positive growth. We are seeing those categories stabilize. And I guess the other thing I would add to you just to give you some confidence is that, Larry talked about innovation pipeline, I think I can safely say that the amount of innovation you'll be coming out starting in the last year few weeks is better than we've seen in the last eight quarters. So, we feel pretty good about that. So, let me pause there and ask Larry or Dan can add any insight.

I think Don has covered most of the key themes, but we are seeing some uptick at in a couple of our categories, particularly Natural Personal Care, and as Don said, trash category. We are obviously going to start indexing off of some low base in terms of category growth, and we should see some improvement there. And we think we are doing things that will affect us positively in the marketplace. The number one thing being in second half innovation, but certainly we continue to support our brands in what we think is a strong level with respect to advertising, and then advertising gets more targeted and more efficient over time as we get into new ways of approaching our consumers through social media and other avenues.

Ali, the only other comment I would add is all negative 3% sales declines are not created equal. If you look at the negative 3% in the first quarter, we were lapping negative 1% from prior year. If you look at the negative 3% we just put out there, that was lapping 5% growth in the prior-year quarter. That was probably the strongest organic growth we've seen in the last two years. So, I think even though it's still minus 3%, it's lapping a heck of a more difficult comp. And with those headwinds behind us, I think you should have some confidence we'll get to those numbers.

Parlaying then as a comment you've before around commodities or then, I guess, new commodities and the belief that we maybe able to take some pricing and we have some pricing power. I mean do you -- what do you guys see in terms of the consumer being ready to take pricing and not run away, i.e. not give a lot of negative volume today? What have you seen that's different? That's an interesting inflection point if you've seen something from an elasticity perspective.

Let me start off. Here's what I think we are seeing different. If you look at our most premium priced brands and products, they're the ones growing most aggressively. So, I'm looking at the consumer now, is kind of a -- it's a two-sided coin for sure. But, those people with higher incomes are clearly back spending money. If you look at the Burt's Bees business, up double digits in volume and sales this quarter. Category is up in the mid-single digits. If you look at Hidden Valley Ranch, volume grew about 5%. If you look our premium trash business, up in double digits, while our base trash business declined 1.5%. What we're seeing is those brands and products that are premium priced, we're seeing some pretty robust growth in those. I think what that says to us, there's still a lot of people out there obviously struggling. And we're going to have to be real sure that on the rest of our businesses that our price gaps are sharp, in that we maintain this 25% to 35% premium. But, to Larry's point, our share position ending in December of '10 are the strongest they have been in three years. So, I think that indicates that the brands are pretty healthy. And with the innovation pipeline we've got now, I think we're pretty well poised.

Well, I guess that confuses me because when I look at your gross margin drivers chart, the footnote says about negative 100 basis points of business and channel mix. So, if it's your more expensive things are growing faster, how are you spacing still that business and channel mix? And how is it going to change going forward, I guess?

On the business and channel mix, let me take that one on. Again, that's just for the one quarter comparing to 5% growth in the year-ago quarter. The businesses that were soft in the quarter that contribute to that, obviously, our Laundry business has been down. It's a higher margin business for us. Our Home Cleaning business was down again, lapping H1N1. That's a higher margin business for us. And then we have Brita that have incredibly high comps in the year-ago period. So, while that brand is still healthy and growing, on a comp basis, we're down a bit there. On the channel side, we certainly see probably a higher growth in our value channels, which is club and dollar, and those tend to have slightly different margins for us, still very profitable, but slightly different margins. And then in International, the markets that have been down are some of our higher margin markets like Australia and New Zealand, with the faster growing ones being slightly lower margins. So, that all kind of contributes in the quarter for the mix. But, that doesn't get to the basic health of each individual category.

Our next question comes from Chris Ferrara from Bank of America Merrill Lynch.

This may be a bit premature, but it seems like the market is looking for above trend growth in 2012. Look, I know the Auto-related buyback is going to drive a much lower share count. It is going to accrue disproportionally to that year. So, you really don't need much in the way of EBIT growth next year to drive much stronger EPS. But, I guess in the past, it's usually been wrong to expect big growth year off of a depressed comp. So, I guess the question is, what's your appetite to let that lower share count flow to EPS rather than find some other reinvestment rate and use it as a cushion? So, what's the appetite to grow above trend for 2012?

Chris, we're still putting our plans together for fiscal '12, and we'll come out with our initial outlook in May. We're obviously trying to balance all those investment choices. Obviously, we're going to continue to invest in innovation. We're going to continue to invest in our IT infrastructure, in our facilities and things like that. So, you are going to see higher expense rates from us in '11, and some of those will continue into '12. Having said that, fiscal '12 will benefit from a lower weighted average share count, as you point out. Consensus estimates on weighted average shares for us in fiscal '11 are somewhere between 137 million to 137.5 million shares. Using that as the base and our plans to buy back shares in the second half of the fiscal year, we should see about a 7% reduction going into fiscal '12 on a weighted average shares. As I think you start for a base of somewhere around that number of lower shares, and then we'll have to build the operating plans for our fiscal '12, and we'll come out with those numbers in May.

And I guess I only asked conceptually, right? I mean the lower share count is tied to something that you did in fiscal '11, right? So if those two, if the auto sale dilution and the share counts were matched up, right, you would've continued to try to commit a double digit earnings growth every year, right? So, I'm just thinking in terms of your appetite conceptually more, because you do have that split from one year to the next year. You're getting hit with all the dilution this year, but next year, you should get the offset to that. And if you don't do that, then it kind of feels like the shareholders will felt all of the bad from the earnings side of the divestiture, but none of the good in the share repurchase if you don't let that buyback flow through to earnings growth. So, I mean, conceptually, is that how you're thinking about it as well?

Well, I think you can say that the share buyback then is going to flow through to the EPS. I mean we are not planning to take that and spend it anywhere. So, if that's your question, that should flow through. The real question is from an operating basis, which is what we're really focused on, from an operating basis, where will we come out with our outlook for fiscal 12? Are we thinking mid-single digits? Are we thinking higher? Those are the plans that we're still putting together, and I would say that would be added on. At least from an EPS perspective, that would be added on to the 7% that we'll benefit from the share count.

I think, Chris, you can safely assume that the share owner should be very well taken care of given that.

Our next question comes from Bill Schmitz from Deutsche Bank.

Just on bleach, is there like a task force out there that's trying to figure out what the heck is going on, because obviously your market shares are up, but for some bizarro reason both in scan channels, and if you look at the panel data, it looks pretty awful out there. So, I mean is there an explanation or is there anything you guys could do to kind of stop the bleeding?

So we're working hard particularly in the liquid bleach side to see to track the business, stabilize it and grow it. We do have some innovation going out on our scented line, which is a significant improvement on the premium part of that business, which has been well received by consumers, and we think will help things. And we continue to focus on kind of two messages with the consumer. One is the better washing your laundry load, and the second message is around germ kill. So, we do hope for some improvement in the longer-term behind those efforts.

Bill, the only thing I would add too is when you look at those bleach number is, again, we're lapping numbers from last year of almost 5% growth in the category due to H1N1 and other concerns about the pandemic. And I think that, that was the strongest growth in the year-ago quarter we've seen in a long time. So, we are lapping an extraordinary comp. The other thing is, I think we've surrounded the problem in the sense that we know one of the fundamental issues we have on that business is dosing, where people don't quite know how to handle HE washing machines. We think we've got a fairly simple packaging change that could help in that as we go into the next year or so. So, we think we understand the issue, and I think the innovation Larry spoke of will help stem it. But, we know we're lapping an unusual comp. We've got good innovation coming on the basic side in terms of fragrances and then we'll have more news to come to address this dosing issue.

I don't know if this all-outlet panel data from IRI is right or wrong, but I pulled a bunch of the Wal-Mart stuff, not just your categories, but broadly across the industry, and it looks like a disaster. I mean like losing mass amounts of market shares, some categories down in the high-teens. I mean, is that going to fit with what you guys are seeing? And if so, how long do you think it will last?

Our results are definitely softer in Wal-Mart than the rest of our customer portfolio. There's definitely have been some executional issues among the partnership at Wal-Mart. A lot of that is their switching strategy away from some of the things they did over the last several years, around both pricing, as well as assortment on shelf. That's all changing as we speak. We're quite frankly excited about their new direction, which is essentially going back to their core of offering branded products at every day low price. We think that will again adjust, but the road to get there is fairly been a little bumpy for us and many others.

I mean, are they also talking about smaller pack sizes? So, shouldn't that in theory help your margin per unit also?

I've haven't heard particularly smaller pack sizes, they do have an approach to opening price points in categories to address the very low-income consumers. And sometimes, that translates to a lower pack size, but it doesn't always translate that way.

Our next question comes from Lauren Lieberman from Barclays Capital.

I just wanted to talk a little bit about profitability in the Lifestyle segment. I know you put a little note about it in the press release, but it was sort of striking that it was the one business with positive sales growth, but enormous margin degradation and profits down from some 15% or something. So, can you talk a little bit about what's going on in that business?

We did made some choices around advertising. So, we did increase our advertising suddenly in the quarter, having to deal with various timings of new product launches and other things. There is some higher admin, some higher manufacturing cost for a variety of reasons, and they're kind of numerous. It's not like one big element was driving our cost structure up, but there is some kind of one-time things in the manufacturing logistics area that cost us quite a bit in the quarter. Overall, cost savings did offset commodities, so it wasn't an issue with commodities. And I think that probably the quarter is a bit of an aberration versus the average. And I don't think that you should see that kind of earnings decline play out over a longer period.

So the majority of it really, then it sounds like it was the admin and manufacturing, not the advertising, it's more one-time type of items?

Yes, correct.

Yes, that's right. The other thing, Lauren, just to realize on the admin side of this is, Burt's Bees when we bought it was in five countries. We are now in 30 countries. So, there are some investment obviously in building out the international footprint on Burt's. That manifested itself in that quarter. But, as Larry said, I would consider that an aberration, and I would consider it a lot of one-time things hitting that quarter.

And then another thing on cost structure, just on SG&A, and I know in the last couple of years, you guys have opted to absorb restructuring costs and the IT investments and so on. But, now I think SG&A or selling and admin really is up 150-plus basis points over the last couple of years, yet this quarter it was down. So, when do we start to see that trend reverse? I mean can selling and admin come back down to prior levels? I know everyone spends a lot of time talking about your gross margins being at "peak levels," but selling and admin creeped up at the same time. So how do you see two playing against each other as we move forward?

I think the short answer is over time, we would expect to see some declines in our admin as a percent of sales. To your point, we have been investing in a number of things over the last four to six quarters. We're down a little bit in the quarter, but that has to do more with timing of the spend than anything else. My sense is, Lauren, we're going to be elevated on our SG&A spending certainly in the back half of fiscal '11 and into probably, the front half of fiscal '12. And that's primarily related to the peak of our spending on our IT, particularly our international IT project, which we start our first wave of go-lives in August, and then the rest of the waves are phased in. And then our move of our R&D facilities from our old campus in Pleasanton into the campus happens in the fall. So, we're going to have some peaks there. We do need to knowledge that we do have some stranded costs associated with the sale of the Auto business. So, I don't know that we'll be able to get all of those out, and we're certainly working in getting some of those out. But, I don't know that we'll fully return to some of the lower levels that you saw in admin, call it 18 to 24 months ago. But, we think these investments are really going to pay off. Certainly, on the IT front, getting our international businesses on our SAP platform presents lots of future cost savings ideas that will keep that pipeline healthy, and we'll certainly be operating at lower overhead costs associated with our R&D activities with the new campus.

And with the future cost savings ideas, then do we get in, let's call it, 12 months from now, more of a discussion where, they don't call it CCE anymore, but it's more of an ongoing cost savings program where you're not needing to absorb charges in the P&L to deliver those savings?

It's possible depending on the mix of projects that we are going after. We are making investments. As we've talked about in the past, we always provide for $20 million to $30 million of pretax money, whether that's charges for asset impairment or higher SG&A, or other things that we need to invest in to be able to keep our pipeline healthy, my guess is we'll continue to provide this $20 million to $30 million a year, because that's the seed money for driving this cost savings pipeline in this $90 million to $100 million level. So, we've come out of the investments over the last couple of years like consolidating our home cleaning manufacturing to Atlanta hub, closing some of our other plants. Those are all coming online, and we're seeing the benefits of those investments in this $90 million to $100 million that we're delivering this year. We're now making the advanced investments in our IT, in infrastructure in international, which will drive a pipeline of savings over the next several years, and similarly, our R&D facilities. So, I think it's just prudent to have the $20 million to $30 million a year, it's in our base. I don't see it needing to go up at this point, but it's just in our base, and it's the seed money that keeps our cost savings pipeline healthy.

And just if I can follow up, one last thing, which is maybe a little off-color, but you beat your pre-announcement pretty handily. Can you just comment maybe on how that happened. Should you waited a week to kind of finish going through closing the books process, because in certain respects, was much to do about nothing.

I assume you're referring to EPS continuing ops before the charge?

That's right.

We were out with, I think, a $0.57 to $0.63 range on the January 3 release. We could have always waited I guess for a while, but we felt it's necessary to get the announcement out related to the impairment charge. So, that was really the primary driver of the timing of the announcement. We ended up probably up about $8 million to $10 million on a pretax basis versus where we thought we would be. It's just a lot of little things, frankly. Our administrative spending until we get done fully closing the books and closing off the accruals, you don't know quite where you're going to come out. But, we're slightly favorable in admin. On our transition services arrangement with the selling the Auto business to Avista, we're a little bit higher than our forecast there. When we close out our ad spending for the quarter, we ended up being slightly favorable there. We did see sales come in slightly at the lower end of the 3% to 4% range that we're projecting, and we had a little bit of higher gains on some asset sales that we're doing in the quarter. So, all that kind of adds up, kind of onesies twosies all over the place and added up to about the $8 million to $10 million. But, I would not have wanted to wait any longer in getting the announcement out on the impairment.

Our next question comes from John Faucher from JPMorgan. John Faucher - JP Morgan Chase & Co: To follow up on Lauren's question, I get the impression that as you guys pre-announced the second quarter that what you were expecting was pretty notably below where consensus had settled out. And so, aside from the $0.05 from the lower buyback, can you talk about the rest of the change in your guidance? Because it seems as though the business is getting a little bit better. You probably came in a little bit ahead of where you thought you were going to come in ahead for the second quarter. So, can you talk about what the rest of the delta is as we look at the back half?

As I look at our back half outlook, if you think about front half, back half, I guess, we had an EPS range of $4.05 to $4.20 prior to coming out with the announcement. There's about a $0.05 impact on the EPS related to the timing of share repurchases. Again, that's just a fiscal '11 back half impact. We'll get the full benefit in fiscal '12. So, you've got about $0.05 there. The other primarily driver is the fact that we're coming off slightly off our margins at least for the full year, and that's really reflective of the impact that we've seen in the first half of the year and slightly more commodity cost pressure in the second half. So, we were originally thinking we'd be up slightly, call it, 25 to 50 basis points of margin. We're now saying that's going to be about flat to down 50 basis points. And then obviously, we lowered -- on the January 3 announcement, we've lowered the top line outlook by, call it, about a point if you're using the midpoint of the ranges. So, bringing down, tucking down a little bit the outlook for sales growth in the year, combined with a little bit on the margin line, that kind of adds up to, call it, the other $0.15 that we took the outlook down. John Faucher - JP Morgan Chase & Co: And how much of that do you think is the timing-related things that you talked about sort of as you closed off the quarter? Is that a big chunk of it?

No. Again, I kind of looked through the four or five extra cents that we've delivered in the quarter. I mean, they do drop to the full year... John Faucher - JP Morgan Chase & Co: That's what I'm saying. I'm trying to figure out sort of exactly how much your change in the back half versus what happened in the first half. So, do we take some of that upside versus your guidance range in this quarter and say, Okay, that's expensive that maybe would've hit in the back half otherwise?

There's not much of expenses that hit in the front half that are any sort of pull ahead into the first half. So, I mean, I guess the $0.04 to $0.05 is obviously in our outlook. That drops to the full year, but it's more operating that we're looking at in the second half, and I think that kind of all adds up to the $0.15. The trends that we're looking at again versus our previous expectations, again, slightly down on our margins and slightly down on the top line. And those are the two biggest drivers, at least, in the second half. But, we do anticipate better performance in the second half.

Our next question comes from Linda Bolton-Weiser from Caris. Linda Weiser - Caris & Company: Sorry to explain this, but in the quarter, I mean, there was a $12 million other income item. And I realize that in the prior year, the other expense wasn't related to Venezuela. But, what was the $12 million other income in the second quarter?

Linda, a lot of that is just kind of a miscellaneous things that you'd normally expect to see in income. Specifically, if you look at the swing, that's about, I guess, a $30 million swing quarter-over-quarter. Call it about $19 million to $20 million of that was Venezuela. So, that explains a big chunk of it. The other things that we record in here would be things like mark-to-market changes on derivative contracts that don't qualify for hedge accounting. That probably was a benefit of, call it, $2 million in the quarter. We sold some fixed assets during the quarter that's kind of on a normal flow basis. We have closed a couple of plants over the last several years, and some of those properties were sold. That probably benefited us about $2 million. We have some interest income in here. We also record our equity and income of joint ventures, which probably contributed an extra $1 million there. We have some low-income housing projects that have run their course on tax benefits, and we're starting to dispose of them, and that created some revenue for us. And then finally, we had the TSA, the transition services revenue, from Avista that flows through that line. So, if you add all that up, it kind of adds up to the change. And so its lots of little stuff that flow through there. I would say if you're trying to model this for the second half, we certainly won't expect to see that big of an other income line in the second half. Probably, you ought to assume that second half of fiscal '11 on this line will look an awful lot like the second half of fiscal '10. Linda Weiser - Caris & Company: And can I also ask you about just more on the gross margin. It just it seems to me that -- I mean, the gross margin that you reported in the quarter was weaker than when you communicated earlier in January. I mean, did it come out weaker than expected because of commodity cost increase that really escalated, or was it the trade promotional aspect of the mix? Or what made it come out worse than you kind of had expected?

I'd say, Linda, most things were pretty close to our forecast. I guess the one area I would point to that was probably a little bit worse than what we had thought would be in the mix, the business and the channel mix. You never quite know where you're going to come out until you fully close the books on it. But, I would point to that as being slightly more negative than we had in our outlook. But, I wouldn't say it was a huge mover of it. But, yes, we are down just a touch where we thought we would be, and I would attribute that to business and channel mix.

Our next question comes from Jason Gere from RBC Capital Markets.

I guess just the first question, and I know you've given us some breadcrumbs here, but as we look out to the next two quarters, and just so we don't have another instance with the second quarter where the expectations get too high, can you kind of just piece in terms of a bottom line perspective for modeling purposes, the earnings growth should have been a lot stronger in the fourth quarter than the third quarter? I know you're saying gross margin in the third quarter will probably see the brunt of the commodity costs and maybe the fourth quarter sees more of the innovation. I'm just wondering if you could conceptualize that for us.

Yes. I'm probably not going to -- you may not like it. I can't help you much on the Q3 and Q4. I'd probably talk more the second half and full year. So, certainly, we're projecting more margin improvement in the second half versus the year-ago period. I would say margins will be a little tighter in Q3, because as we pointed out, we'll probably see more of the commodity pressure sitting there. Trade will probably be, call it, flat in the second half to what we spent in the year-ago period. So, the positives that we'll see the second half is certainly we're projecting volume and sales growth in the second half. We think our business mix, which did impact our margins in the first half of the year, we expect that to get somewhat better. We expect foreign exchange to be, if you look at spot rates today and project those out, since Venezuela is behind us, we expect some favorability there. We will be up somewhat in our selling and admin spending because of IT and facilities. However, that's always been in our outlook. So, I don't know that, that's going to be a significant mover. So, that's kind of how we're looking at the second half.

And then just the second question really on the innovation. I know you're saying this is the strongest innovation maybe in eight quarters. But, can you talk about how much of the innovation is really going to be behavioral changes that the consumer is willing to take right now. It's there any price that's related to some of this innovation? And will there be any, I guess, any changes in inventory levels just for the third -- between third and fourth quarters, just for any buy-ins for the new innovation?

So, I would categorize this innovation as what we would term core growth kinds of innovation, so very solid improvements on existing brands, or incremental line extensions. So, nothing here which we would term an all-data game changer that requires a whole new consumer habit, which means the risk around them and our ability to project what they will deliver is a lot more accurate than it would be in a more game changer kind of situation. And the good news is it's a fairly broad portfolio. So, really every segment in almost every business get some type of innovation going out in the second half, and a lot of it is pretty exciting new kinds of things within our categories and a few adjacencies like the scented lip balms on the Burt's business.

And on the inventory question, just address that. Most of the starter ships on a lot of these products is in January, February. So, most of the inventory builds associated with that are reflected really what you see in inventories in the second quarter. So, we shouldn't see a material move in inventories associated with new products. We do have a little bit of inventory build related to a change in our information systems that will happen in the fourth quarter. We're replacing some of our production planning systems. And so, we're building a little bit of safety stock associated with that cut-over. But most of that should bleed out by end of fourth quarter.

Jason, the one thing that I would add is, I mean, one of the items I think that we are particularly excited about and interested in is the Brita on-the-go bottle. And while it's not asking the consumer to change his or her behavior, it certainly takes advantage of changing behavior out there as people move away from bottled water. For the first time, we can get a Brita on-the-go bottle with a filter build-in so that you don't have to carry bottled water around. That one looks particularly exciting to us.

So, this is a portable water bottle with the Brita filter included.

Our next question comes from Tim Conder from Wells Fargo.

Just a couple of questions, mostly surrounding margins and promotions going forward. If we look at litter, garbage and lawn bags and bleach in general, we are kind of seeing the promotion sort of trough in September and in many cases, period end, but they've really accelerated both for the category and yourselves into the data through the end of January. And I just kind of wanted to get a little bit more color or explanation, are you saying that the promotions on a year-over-year basis in the back half of FY '11 will mirror what you saw in the back half of '10? And if so, is that incorporating the sort of accelerating trend that we're seeing here of late in these key categories for you?

Actually, if anything, overall promotional spending is kind of coming down across our categories, particularly driven by lapping some of the innovation that occurred in the Laundry category. And we expect our trade spending will be about flat to what it was a year ago in the second half. It kind of remains in some elevated levels versus historical trends but versus year ago, we expect it to be flat and we expect that will meet the needs of the business in the second half. So if anything, we're seeing a deceleration in terms of promotion.

So, decelerating rate of increase and then flat you're looking for in the back half of '11 versus '10?

Correct.

And then just again to clarify on a go-forward basis, your annual anticipated cost savings from ongoing various restructuring, I think you talked about the cost of those restructurings would kind of hold in the $20 million to $30 million per year range, but then the anticipated benefits that you'll have going forward to offset commodities and other issues just to revisit that number, if you could.

Certainly, and again, for fiscal '11, we are anticipating the official range is $90 million to $100 million. I think we're on track to be towards the higher end of that range, if not slightly above for the year. So, we feel good about it this year. And the $20 million to $30 million spend that we have in the system this year to support cost savings is probably around the middle of that range. As we look forward, our pipeline of cost savings ideas and the future investments that we'll make, we feel pretty comfortable about continuing our $90 million to $100 million in annual cost savings certainly as we look out in fiscal 12 and also beyond.

Our next question comes from John San Marco with Janney Capital Markets.

The zero to 1% sales growth, does that include the normal 2% net lift you talked about from innovation, or are you assuming something higher in your budget?

No, the innovation is built into our numbers.

And then I know you've spent a lot of time on the call today addressing your cause for confidence on the top line, including what sounds like a much more robust second half innovation program. I was hoping you could sort of deliver the same color about your gross margin progress in the second half, which is dramatically better than the second quarter. Can you just crystallize why you're so confident, and then also maybe where the variance in that budget come from, and then what could go wrong?

Let me try to address first half and second half. So in first half, obviously, we've got hit by some pretty negative foreign exchange, primarily Venezuela. So, that is behind us. And again, spot rates today, we would expect foreign exchange to be a slight positive for us as we look into the second half. We continue to have strong cost savings pipeline, and if we're able to be at the high end of our range or slightly above it, that will be a slight positive for us on margins in the second half. We'll continue to get the benefit of pricing. Glad took a pricing action on August. We'll continue to get that benefit. International has been taking pricing as well. Those benefits will continue into the second half. And we're already starting to anniversary price rollback that we took in the year-ago period. So, that drag will go away from us. On logistics and manufacturing, I think the inflationary rates are about the same in the first half, second half. And as I mentioned a little bit earlier, we are anticipating more favorable business and channel mix as we enter the second half. So, the wildcard on margins is obviously commodities. We are showing that, that's going to tick up a bit from our previous expectations. We'll continue to look at pricing. But for now, we're going to be a little bit higher on margins. So taking our outlook from, call it, up 25 to 50 basis points to flat to down 50, really is reflective of, primarily reflective of the performance we had in the first half of the year and then just slightly higher on commodities expectation in the second half. But, we still expect to finish the full year at an average gross margin that's pretty close to our historic high. And then the question will become as we develop our outlook for fiscal '12, what is our outlook for commodities as we enter that year, and what might we need to do in pricing.

Our next question comes from Connie Maneaty from BMO Capital.

Could you describe for us what -- how much resins now account for the -- how much of the cost of goods resins are now versus what they were before you sold the Auto Care business, and if you believe you're more or less exposed to the resin cycle?

Connie, the total exposure to resin is minimally impacted by the Auto business, so there's really no material change there. We've talked about commodities, kind of key commodities being about 15% to 20% of our total cost of goods sold. And depending on where the price of resin is, it moves within that range.

So you mean all of your commodities are 15% to 20% of cost of goods, not just resin, right?

No, it's primarily the resin components. The energy resin component sits in the 15% to 20% range.

Connie, as we've said in the past, all commodities and all manufacturing materials is the great part of which our commodity driven, probably represent around 55% to maybe 60% of our cost of goods.

And could you give us an update on what's going on with Green Works? Is it a key focus these days? Is it being de-emphasized? How's it doing?

So, we are actually pleased because where Green Works has established itself we're starting to see some positive trends, so we continue to have passion for the opportunity. And obviously, suffered quite a bit in the economic downturn, but we're seeing some positive results, and we're encouraged by that. I wouldn't say that we're heavily spending behind it. It's more of a targeted effort, particularly in social media channels and word-of-mouth to the right target audience, and to much more targeted approach than we took initially, but we're encouraged by some of the positive signs we're seeing.

Connie, I would add that one of the key drivers I think in this business going forward is we are working very hard to get our price premiums on Green Works down to the 5% to 10% range versus the 20% to 25% range when we first launched. I think if we can get our price points down in that range as the economy improves, we'll really start to see some resurging in that brand. I mean, still it's the number one natural household cleaning brands. We feel very good about that. And if we get this pricing down where people can buy a natural alternative at near the price of the traditional cleaner, we'd feel very good about the long-term prospects of the brand.

How far along are you in that process?

Well, we're getting it down on the sprayable cleaners. We've certainly getting it down in the laundry detergent area. And the dilutable piece has basically gone away. And so in spray cleaners, which are the bulk of the household side, we're getting it into that range. Into the light-duty liquid dishwashing soaps, it's still more in the 15% to 25% range. And laundry, it's getting down into the 5% to 10% premium versus other premium detergents.

So, it sounds like most of the work has been done in those pricing changes?

We're getting it down they are fairly close but we've got more work to do. But, we're getting smarter in how to reformulate these products and still keep the natural component to it.

And just one final question, on the new cat litter, what kind of premium prices is it going out that?

It's part of our Fresh Step line, which is premium, but it's parity to the rest of the line.

Our next question comes from Andrew Sawyer from Goldman Sachs.

I've got a quick question on the Burt's write-down, and I just wondered if that in any way changes your approach to market or approach to M&A strategy, and also are there any learning to take away from that?

I think we're still very bullish on that business, Andrew. And I just think obviously in the context of the recession, we paid too much for the business. And the first year we owned it, we were actually ahead of our valuation model when the recession hit, we went from over 20% top line growth to the low-single digit. And that growth rate held for about 15-plus months, which simply got us off the track on our 10-year valuation model. We just couldn't make up the ground. Having said that, the last six months, we are back to double-digit growth on that business. The brand is gaining share. And as I said, I think to Lauren, we are back now in 30 countries, and a lot of those are small flags being planted. But, we feel very good about the prospects. I mean international side of Burt's grew over 40% in the last quarter. So, the business is our fastest growing business. We still feel great about the category and really great about the brand, and it just getting caught up in the recession, we paid too much for.

Andrew, from a perspective of how to think about M&A, we knew we acquired Burt's that it was mostly a revenue synergy play. And those tend to have higher risks, because as you know, many acquisitions you're able to pay for a large part of the premiums through cost savings. That wasn't the case here. We were willing to step out that extra ring for this brand because of the nature of the brand, the nature and growth of the category, and the ability to take this brand global. So, obviously, none of it had foretold two years the worst recession and 75 years, which put a dent in the business. But, as Don said, we still feel very good about this particular brand. But, from an M&A perspective, certainly, we'd like to do transactions where more of the premium would be based on cost savings versus relying heavily on revenue synergies.

A quick one on a different topic. Just channel mix impact, I never really heard from you guys before, are you structuring lower gross margin in dollar in club stores, and is that a function of what products you sell in? Or is there lower operating expenses that offset that? Could you just frame that up a little bit for us?

I would say we are not materially different in a dollar channel versus the rest. And even within club, you have to look at the specific item that we're offering club to see there's a difference. But generally speaking, margins are a little bit lower in club because of value sizing, bigger sizes at value prices.

So, when you guys breakout channel and product mix, most of that was product mix then?

While the impact in Q2 is business mix as well because our higher margin businesses were lapping H1N1 and those categories have been weak.

But, I'm just saying the channel component of that was small?

Smaller than the category component, yes.

The next question comes from Alice Longley from Buckingham Research.

My question is probably housekeeping. Just to try to do the weighted average here. I'm assuming that your sales in the U.S. overall were down about 4%, with volume down 3% and price mix negative 1%, is that correct? Putting three the segments together?

I'm sorry, Alice. Can you repeat the question?

I'm trying to figure out how much your sales in the U.S. altogether putting the three segments together were down in the quarter? And I'm guessing they were down about 4% with price mix negative 1% and volume negative 3%?

Down 4% is about right. I probably have to follow up with you on the specific drivers with the overall U.S. versus international business. I can do that after the call.

And if it was negative 4% and you said your categories all retailers included were down 2%, why are you saying that you gain share?

I don't have the sales number.

Well, you just said your sales were down 4% and your categories were down 2%, you said earlier. So, that sounds like you lost share. Maybe you mean you're just gaining share on a 12-month basis, or something like that?

No. The share gains are on a 52-week basis, all-outlet. We actually did lose a little bit share in terms of the quarter end tracked channels. Unfortunately, we don't have an all-outlet number. But based on what we know, we think we've also gained share on an all-outlet basis in the quarter.

Plus the difference is our sales number versus consumption it's going to those retailers' channels, which is what the shares are judged on. So, the consumption was a little bit higher than our sales decline.

I thought you said at the beginning of the call, that all your categories all-outlet together were down 2%, not just tracked channels. You said your categories were down 1% tracked channel basis and then down 2% all retailers included.

As Larry said, we only have all-outlet data on a 52-week basis. So, maybe mixing 52-week discussion versus a quarter.

You're comparing retail sales to our sales, and inventory impact. So, it's a little hard to translate all those numbers in a quarter. We're happy to get back with you and try and work through those mechanics.

Our next question comes from Chris Ferrara from Bank of America Merrill Lynch.

Can you give the EPS impact of Venezuela in fiscal '11? If you can include translation and transactions, do you guys have that for '11? What you think it will be anyway?

I don't know if I have it on a forecast basis handy. I think the Venezuelan impact, Q2 impact was probably about $0.08 to $0.09, I think, and probably a similar number in the first quarter. So, we would not expect to see that in the second half.

Chris, as Dan noted, probably $0.08 to $0.09 in each of the first two quarters, so you're approaching $0.20. You would have seen a similar impact in the last half of last year. And the last year, we also, at least in Q2, we had the FX exchange losses as well. For fiscal '11, you're probably about $0.18 to $0.20 impact with all happening in the first half of the year.

And that is translation and the transaction drag that you feel as you try and to bring money in there, is that right?

It's both impact, yes.

It will be both combined, Chris.

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

Thank you. Well, as we know that during the last hour of Q&A and the presentation, the economy obviously remains very challenging, but I do think that to reiterate, you think a lot of these headwinds we have faced are, as we noted, beginning to abate. And we do feel good about the second half. And not just the innovation pipeline that we have for the top line, but we also feel very good about the cost savings pipeline. And we'll continue to build that out as we talked about FY '12 in the May call. So, we look forward to speaking with all of you again in May. We'll discuss the third quarter results, and then give you the initial outlook for FY '12. So, thanks everyone.

That does the today's conference. We thank you for your participation.