The Clorox Company (CLX) Q3 2011 Earnings Report, Transcript and Summary

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

Great. Thank you. Welcome everyone, and thank you for joining Clorox's Third Quarter Conference Call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating Officer; 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 7 days at our website, thecloroxcompany.com. On today's call, Dan -- Don will start with his perspective on the current business environment, followed by Larry commenting on current category market share and overall top line results. Dan will then discuss our third quarter financial results and the outlook, both for fiscal year '11 and fiscal year '12. Finally, Don will 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 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 certain tables located at the end of today's earnings release. Please recognize that today's discussion contains forward-looking information. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, let me turn it over to Don.

Thank you, Steve, and hello everyone. What I would like to do today is start by sharing my perspective, as Steve said, on the current environment and our plans going forward. While we achieved our top line growth in our third quarter and we anticipate growth in the fourth quarter, our top line results and outlook reflect the obviously difficult global operating environment and are not as strong as we had anticipated. Our overall gross margin declined in the third quarter versus our outlook for margin expansion beginning in the second half, and although we're pleased with our success in controlling those factors we can control, clearly, we're not satisfied with these results. Without a doubt, the current business environment is challenging. So what I'd like to do is speak for a moment, not about our company or our results, but about broader trends and the factors impacting our categories. We all know consumers have been weathering the most difficult economic period in decades and remain under considerable financial pressure. Against this macroeconomic setting, we continue to see overall weak U.S. category performance that is affecting our entire industry. The U.S. categories in which Clorox participates, experienced 2% growth in 2008. Today, they're declining nearly 2.5 percentage points a more than a 4-point swing. At the same time, sustained high oil costs due to the geopolitical environment, as well as strong global demand, are driving up prices, not only for resin but for substantially all input costs. These significant cost increases are forcing nearly every consumer packaged goods company to take price increases to help offset the margin impacts in their categories. And while we can't control macroeconomic or geopolitical factors, there are many factors that we can and do control. With Clorox, we do have great brands, we've got great people, we have great capabilities, I think as all of you know. And we have the right plans in place to come out of this cycle stronger, to the benefit of our brands, our customers, our consumers, our own people, and we certainly think to the benefit of our shareholders. And my confidence is supported by the following three factors: First, we've been down this road before, and we've weathered it well. Over the last six years, we twice faced significant commodity cost increases, and we were able to generate strong cost savings and take pricing, substantially all of which stuck in the marketplace. Now during the last two commodity increase cycles, we were a bit late to take pricing and ended up slightly behind the curve relative to rising costs and restoring our margins. So we're responding more quickly in this cycle. A true measure of a brand's strength and quality is the price premium it commands. And we've been a price -- a premium price and premium quality leader across our categories for nearly 100 years. So despite the soft category dynamics I mentioned, we have been consistently growing all-outlet share, even through these difficult times. And Larry will talk a little bit more about the share gains in a few minutes. Second, we're focused on driving sustainable growth. We will appropriately balance our short-term plans with our long-term strategy and objectives. We will continue to invest in our future through innovation across the three Ds of desire, design and delight, to build our brands. And in addition, we remain committed to strategic investments to modernize our systems and facilities to support innovation and growth as we noted in the press release this morning. Third, we remain committed to long-term shareholder value creation. We'll do this by supporting our dividend, using the remaining proceeds from our Auto business for share buybacks, investing in inorganic growth through acquisitions and returning excess cash to shareholders. Now as the economy improves and we look forward and beyond 2012, we expect a robust innovation pipeline that will help drive category growth. Our near-term investments in IT infrastructure and R&D facilities will provide platforms for growth and efficiencies. And our strong cost savings programs will continue to contribute to margin expansion, all of which, I believe, will lead to improving results and trends over the longer term. For these reasons, I certainly remain confident in our ability to work through the challenges of the current environment and our future over the next coming years. So with that, let me turn it over to Larry.

Thanks, Don, and hello to everybody on the call this morning. As Don said, we achieved sales growth in the quarter, with sales up over 1% in Q3 after two quarters of 3% sale decline. Volume grew about 1%, a reversal of the 2% decline we experienced in the first half. While these results are encouraging, they are a bit below our internal forecast and reflect the continuing challenging economic environment. Starting with the U.S., our categories are still weak, as consumers struggle with the slow economic recovery and the rising gas prices. Track channel consumption was down about half a percentage point in Q3 versus a little over 1 point over the past 52 weeks. On an all-outlet basis, category consumption was down about 2 points for the past 52 weeks. On both measures, track channels and all-outlet, our category consumption trend is showing some improvement, although the trends are still negative. Our U.S. share result remain strong. We held share in tracked channels in Q3. And on an all-outlet basis, we grew share 0.5 point over the past 52 weeks and held or gained share in 6 of our 7 reported categories. In International, our market shares were a bit mixed, where share up in Canada, but down slightly in Latin America. Categories in international markets are healthier than in the U.S., with positive dollar sales trends. In our Cleaning segment, volume grew 4%, driven by volume growth in all 3 of the strategic business units, which make up this reporting segment. Home Care grew share in shipments behind gains in Clorox Disinfecting Wipes, Pine-Sol Cleaners, Clorox Cleanup and Clorox Bathroom Cleaners. The only significant volume decline was on Tilex. Our Away From Home business grew double digits behind gains in the hospital channel, driven by new products and new distribution points. We also saw a positive shipment growth in our Laundry SPU, with growth on Clorox Liquid Bleach and other laundry products, partially offset by a decline in Clorox 2. Share results for both Clorox Liquid Bleach and Clorox 2 are very strong, but the Laundry category remains weak. Sales for the Cleaning segment increased 3%, a bottom line with the volume growth. In our Household segment, volume declined 3% as declines in Glad more than offset growth in Charcoal and Cat Litter. Glad's volume results were due primarily to declines on trash bags, driven by lower trade spending versus the year-ago period and higher competitive activity. Sales results in our Trash business were far healthier than what was reflected in the volume, but our share was down slightly in tracked channels in the quarter. Our Cat Litter business is improving, with higher shipment behind sharper pricing and the launch of a Fresh Step line extension with extreme odor control. We're also introducing improvements on the base cat litter brands with better odor control formulas on both Fresh Step and Scoop Away. Kingsford Charcoal delivered modest shipment gains and share improved behind increased Super Bowl merchandising. Sales for the entire Household segment were down 3% on track with the volume. In our Lifestyle segment, we grew volume 3%. These results were driven by higher shipments of Burt's Bees products and Hidden Valley salad dressings, partially offset by lower shipments of Brita water filtration products behind slower category growth. Burt's Bees is our fastest growing business unit this year, performing very well in the U.S. and abroad. In Q3, Burt's volume and sales grew double digits behind category growth and innovation, with gains in both the grocery and drug channels. Our Hidden Valley Ranch business grew volume and share behind several new flavors and increased merchandising activity. Sales for the Lifestyle segment were flat, as volume gains were more than offset by unfavorable mix and higher trade spending to support innovation. In our International segment, volume declined 1%, primarily due to lower shipments in Latin America. International sales grew 8%, as the benefit of price increases and favorable foreign exchange rates more than offset the lower volume growth. Before I turn it over to Dan, let me touch briefly on commodities and pricing. As reflected in our gross margin in the quarter, we saw significant increases in raw materials in Q3 and anticipate escalating costs in Q4 and next fiscal year. We have started to move forward on pricing actions, starting with the 9.5% increase across our Glad Trash business effective May 2 and similar increases on several of our food items. We have additional plans in place to take further pricing actions, given the various substantial commodity pressure we are seeing, there's no doubt that this is a difficult time to be taking pricing up given the slow economic recovery and the recent increase in gas prices. However, we have been through these kind of cycles before, and we are confident that careful execution of the price increases and other actions that build brand value will allow us to get through it. The objective is obviously to balance the top line and bottom line, while preserving the long-term health of our brands. In summary, although we had hoped for even stronger results in the third quarter, we're pleased that we delivered growth in a very challenging environment. And with that, I'll turn it over to Dan.

Thanks, Larry, and hello, everyone. Let me dive a little deeper into our results and our outlook. In discussing our financial outlooks for fiscal '11 and fiscal '12, I'll cover 3 key topics: Sales growth, commodity costs and pricing actions, as well as the costs associated with the investments we're making to drive continued efficiency. I'll finish with a brief discussion on our planned use of cash flow. Let me start with fiscal year 2011. We're pleased to have returned to top line growth in the third quarter, although not as strongly as anticipated. As Don and Larry have both mentioned, the economic environment remains challenging and continues to impact consumer demand, but we're seeing some positive trends. In the third quarter, we grew both sales and total company volume, with sales growth slightly outpacing volume growth due to the benefits of pricing and favorable foreign exchange. By pressuring this environment to reduce spending levels, our year-to-date spending on advertising, sales promotion and trade merchandising is up versus the prior year, as we focus on maintaining appropriate price gaps on shelf in supporting the launch of new products. We now anticipate full fiscal year sales to be flat-to-down slightly. We expect a similar result for full year volume. Our updated top line outlook reflects the actual performance for the first 9 months and our revised outlook for the fourth quarter sales growth based on Q3 trends and our plans for Q4. We expect fourth quarter sales growth to be slightly ahead of Q3, but somewhat below our earlier estimates. Turning to commodity costs and other inflationary pressures, we anticipated increased pressure coming into the second half of the fiscal year, and we're seeing it at higher levels than expected. Cost savings and the benefit of price increases earlier in the year helped mitigate the third quarter run-up in commodity costs. However, our margins declined, as inflation accelerated on nearly all commodities we purchased. Similar to our plans to take pricing earlier in the commodity cycle, we're now seeing many of our suppliers accelerate their pricing actions on the commodities we use in our products. Also, higher inflationary pressure, particularly in the international markets, and somewhat unfavorable product mix, including selling larger sizes on some brands, impacted margin in the third quarter. For fiscal '11, we now anticipate gross margin for the full year to decline in the range of 75 basis points to 100 basis points, driven by year-to-date unfavorable mix and recent commodity cost increases, which we now anticipate will total about $80 million to $85 million versus a year ago. These factors are expected to be partially offset by the net benefit of pricing and approximately, $100 million in cost savings. During the third quarter, we continued investing in the long-term health of our businesses to enable growth and provide a foundation for future efficiencies and savings. These include investments to bring international operations onto our global systems platform and an investment in our innovation facilities. These are reflected in our results to date, and the investments will continue into next fiscal year. Even with these incremental expenses, the third quarter selling and admin expense was only modestly up versus the year-ago quarter, as these expenses were partially offset by a decrease in employee incentive compensation costs. With our updated outlook and anticipated remaining share repurchases, which I'll discuss in a moment, we now anticipate fiscal 2011 earnings per diluted share, excluding the goodwill impairment charge on the Burt's Bees business, in the range of $3.85 to $3.95. Let me now address our financial outlook for fiscal year 2012. We expect stronger top line growth in fiscal 2012. We anticipate sales growth in the range of 1% to 3%. On an overall basis, we expect our categories to be about flat for fiscal year 2012, which is an improvement over the negative trends we've seen this fiscal year. We believe the economy will continue to be hampered by high unemployment and gas prices, and many consumers will remain under pressure. Our outlook anticipates sales growth will outpace flat volume, primarily due to the benefit of price increases, which will depress volume growth in the short term. The largest headwind we'll face in fiscal 2012 is substantially increased commodities and other inflationary pressures. Our outlook is for year-over-year commodity cost increases, including diesel, in the range of $160 million to $170 million, with increases across almost all of our commodity inputs, including resins, pine oil, chlor-alkali, soybean oil, liner board and diesel. We expect to offset more than 1/2 of the commodity cost increases to the net benefit of pricing, with a number of the increases implemented early in the fiscal year. We currently estimate about $40 million to $50 million of other inflationary pressures from manufacturing and logistics cost increases. We anticipate cost savings for the fiscal year in the range of $90 million to $100 million. But we do expect to significantly benefit from both cost savings and pricing in fiscal year 2012, given the timing of our pricing actions and the near-term impact on volume, we do not anticipate that we'll be able to fully offset all of the cost pressure we face until fiscal 2013. As a result, we anticipate fiscal '12 gross margins will be down about 25 to 50 basis points. Fiscal 2012 will include continued investments in our IT systems and infrastructure in our facilities. We anticipate about $36 million to $40 million of incremental spending, primarily in selling and administrative expense for these initiatives. We're making investments in information technology systems and capabilities, particularly in our international markets, as well as for our R&D facilities. We believe these are important long-term strategic investments that will increase productivity and provide platforms for growth, increased innovation and future cost savings. The incremental capital spending impact in fiscal '12 from these projects will be about $55 million to $60 million, bringing our total projected range of fiscal '12 capital spending up to $240 million to $250 million. Our R&D facilities improvements will be substantially complete in fiscal '12, and we'll start to benefit from them beginning in fiscal '13. Our IT systems and infrastructure projects will continue into fiscal '13, with a pretax impact in that fiscal year of about $18 million to $20 million. These projects will begin delivering benefits later that fiscal year and end of fiscal 2014 and beyond. Net of all these factors, we anticipate fiscal year 2012 diluted EPS from continuing operations in the range of $4 to $4.10. This range includes $0.18 to $0.20 diluted EPS impact for the IT systems and R&D facilities investments I just discussed. Let me finish with a discussion of our planned use of cash in both fiscal 2011 and 2012. As we've previously communicated, we're using the $680 million in proceeds from the sale of our Auto business for share repurchases. In fiscal '11, through the end of the third quarter, we've repurchased about 7.1 million shares at a cost of $472 million. This amount includes 2.1 million shares repurchased during the first half of fiscal '11 to offset dilution from the exercise of stock options. In the fourth quarter through April 30, we've repurchased an additional 1.15 million shares at a cost of about $80 million. That leaves about $262 million of remaining proceeds from the Auto sale for share repurchases, which we expect to complete before the end of this fiscal year. For fiscal year 2012, we anticipate free cash flow as a percent of sales in the range of 10% to 11%, although we're likely to be in the lower end of the range due to the facilities and IT investments we're making. Our priorities for free cash flow remains supporting the dividend, investing in inorganic growth through opportunistic acquisitions and returning excess cash to shareholders. We're within our targeted debt leverage ratio of 2.0x to 2.5x debt-to-EBITDA. Our priority for excess cash generated in fiscal '12 that is not needed for dividends and acquisitions will likely be used for share repurchases. At a minimum, in fiscal '12, we plan to repurchase shares to offset stock option dilution. In summary, we continue to work our way through a very tough environment. While our current performance and near-term projections remain soft, I'm confident that we'll get through the cycle, because we've dealt these types of challenges before. We have very strong brands, and we're committed to managing for the long-term health of our business. Let me now turn it back over to Don.

Now before we take your questions, I'd just like to reiterate my confidence in our plans and our people and our future. And as I -- I said it in my opening remarks, which Larry and Dan supported through their detailed comments. One, we know how to manage through these inflationary cycles, and we are responding quickly with pricing to help offset the margin impacts; two, we have returned to top line growth, and our share positions have improved, demonstrating the value of our brands to our consumers; three, we see category growth rates improving behind a robust innovation pipeline; four, we're committed to maintaining the health of our business, investing in demand building and longer-term projects in fiscal year '12 to enable growth and provide a foundation for future efficiencies and savings; and fifth, we remain dedicated to long-term shareholder value creation. So certainly, I and the rest of the team are committed to ensuring that we celebrate our 100th anniversary in 2 years with a very strong foundation from which we can build on for decades to come. And with that, I'd like to ask the operator to open it up for questions.

[Operator Instructions] Our first question comes from Chris Ferrera with Bank of America.

I just wanted to ask about the outlook around category growth. I mean, understanding the optimism as you look ahead and you've managed through these types of environments before, but I guess as you think about the potentials that the U.S. consumers, specifically at the lower end, the one that all of you -- Staples company sell to that, that consumer could remain depressed over a protracted period of time, have you considered that possibility in the back of the top line might be just slower over a longer period? And have you worked that into your strategy, and are you doing anything differently in anticipation if that could possibly be the case?

Let me start Chris, and then I'll turn it over to Larry and Dan. I think that when you look at the trends, and we are seeing some sequential improvement in trends. For example, in tracked channels, in the last 13 weeks, we've seen our categories down about a 0.5 a point. Now when you look at all-outlets, they are obviously down approaching 2 points, but we are seeing sequential improvement. The other thing we have reflected on is, in 2008 when oil was hitting north of $145 and with the last time we went to these kind of sticker shock, this kind of sticker shock at the gas pump, we actually saw consumers staple categories stabilize to improve as people spent less of their discretionary funds on going out to dinner, for example, and doing other things. So we saw a bit of a cocooning effect, as people stayed home more -- we think that trend could be very likely to repeat itself. So we have, as I said, seen some sequential improvement, and the last thing I would say is that innovation is the key to this. I mean in this environment, if you can sell $600 iPads, I think we can do a better job of selling our brands as well. And I think the innovation to that is the answer. We have a more robust innovation pipeline. We just kicked off in January, February of this year, and you'll see more of that in '12 and '13 for sure.

I think I would add that I think our assumptions for fiscal '12 are relatively conservative. Essentially, we're seeing a bit of an uptick in trend to basically a slight decline in our categories, and that's essentially what we're projecting in the U.S. for next year. We are expecting some stronger growth in the international market and kind of an overall category growth rate of about flat for next year. So I think that's relatively conservative, given that we're about at that growth rate today. And that obviously, we're starting to index off a negative comps, which should work in our favor. I think what we've been all about for the last several years is making sure that our value equation is right with the consumer. And there's been a lot of basic innovation on our base brands to make sure that we have 60, 40 winners versus the competition, and we're doing the right thing in terms of our advertising to ensure that we have the right value message out with consumers. And I think our focus on that fundamental is what helped us build share over the last several years during tough economic times, and I'm assuming that is what helps us continue to grow share over the future.

Thanks, and I guess on the IT and R&D stuff, what I mean is this is the second year in a row that you guys have called out incremental investments there. I guess what's gone on, I guess, what's triggered the need to throw more money behind that project? And I guess, is it just that you're seeing super high return potential there? Or I guess if you could just flush that a little bit, like why the incremental investment there?

Yes. To be clear, this is not an incremental investment above our original expectations, Chris. This was always the original plan. The biggest piece of the IT investment is our international operations and bringing them up on our SAP platform. We knew that would be a 2.5 year-plus project. We did the initial planning for it last year. If the project started really in earnest in January of this year, so what you're seeing is the build-up in the peak investment in that project, which will peak in fiscal '12 and then taper into '13. So the original investment plans and the timing are pretty consistent, but I just don't think we ever provided you guys with sort of the detail of what the '12 and '13 spending profile would look like. On the facilities piece, that's a -- truly is a onetime investment. We are moving our Pleasanton campus and going to a state-of-the-art facilities for our innovations folks. We'll also have some of our other operations in the new campus. That investment will lead to lower operating costs in the future, but we do have capital and we do have expense monies, which again, started here in earnest, in the second half of the fiscal in '11, and we'll finish off, generally, by halfway through fiscal '12. So again, the amounts we're spending are not different from our original plans. We're just being more complete in what the impacts are going to be in fiscal '12 and fiscal '13?

And I guess just one last one quickly on the share repurchase. I guess I just want to understand the strategy a little bit more, right? Because here you are today, I guess giving a fiscal '12 guidance that's materially below consensus, right? And yet you were -- and your stock was churning at a pretty high premium relative to everybody else. I mean part of that is the icon thing, right? But yet in the beginning of the quarter, you already been buying back more stock at those levels. So I guess is the message that you're relatively price-insensitive on where you're buying back your stock, and I guess -- or is it that you just committed to applying the proceeds of the Auto deal to repurchase, and you're just going to do that over a timeframe and not be price-sensitive. I guess if you could just talk about that a little bit, and then and I'm done.

Chris, I would say we're definitely not price-insensitive. We always have a point of view on what the value of the company is on a DCF and intrinsic basis. Certainly, we believe the prices that we repurchased shares over the course of the year to be a very good value for shareholders, particularly as we look at the prospects for the company and our projections for the coming year. So we think it is a very good investment for the shareholders. As you know, we don't keep cash on the balance sheet, and we don't want to delever the balance sheet from the debt levels that we have today. So we've put in place a ratable repurchase program over the course of -- we started -- we did offset option dilution in the first half. We started the open market purchases in the second half of the year and continued that program. So on a ratable basis, we've been in the market, we'll continue to be the market in the fourth quarter. Again, we have about a little over $260 million left to repurchase, and we'll do that over the balance of the quarter. But we certainly believe that the prices that we've been able to get our shares back, that based on our view, the DCF value of the company, that this is a very good investment for shareholders.

we'll go next to Doug Lane with Jefferies. Douglas Lane - Jefferies & Company, Inc.: Just a couple of questions, can you talk a little bit about the promotional environment out there? It seems like many of your peers are indicating that it's still very difficult, and then handicap-ey [ph] probability of getting the price increases in this kind of a competitive environment. And then from where you sit, which particular categories do you think you have pricing leadership and which ones maybe less so?

So I would say that promotional is kind of leveled off. It's still high, but I don't think it's increasing at this point. And in fact, as we see people take pricing these days, a lot of times, they're also taking a down the rate of trade spending. So I expect that over time, over the longer term, we actually may see some decrease in trade promotion spending. Some of that reflected in higher prices at shelf. In terms of our ability to pass on pricing, again, I think we've been through this before. We're pretty good at modeling the impact of pricing. The models have been very predictive over the course of, unfortunately, a long number of years now and a lot of pricing actions. I think we have credibility with our customers in terms of the impact of pricing. Generally, we do see a volume hit when we take pricing, but our sales are usually about even or slightly up, depending on the category. I'd say in many of our category, we typically are the pricing leader and typically lead the pricing for the rest of the category. I think the place where that's been a bit more difficult has been in the in Glad Trash category, where we have seen different reactions from competitors over time in terms of pricing both up and down. A lot of times, it's just been a pricing issue or a timing issue, of whether pricing has been delayed by a few months and then maybe because we had contracts or agreements in place, whatever. But that's the one category where the competition has initially moved in sync with our pricing actions.

Yes, I think the only thing I would add, Doug, to Larry's comments is it's interesting if you look at our all-outlet share data and you look at the 3 basic categories that we face off with private labels, that would be Laundry, particularly Bleach, Glad and Charcoal. And you look at our all-outlet share gains over the last year, those are the 3 strongest categories of share gains that we've seen. So clearly, I think we have that ability to take price. And I think that over the last 3 years or so, we've taken over 50 pricing actions, and I believe we've only incented 2 of them. So I think we feel fairly good about it. Although this is obviously a very difficult environment to go into this pricing move. But we are seeing, as Larry noted earlier, pretty consistent share gains across the all-outlet universe.

We'll go next to Javier Escalante with Weeden & Co. Javier Escalante - Weeden & Co., LP: I just would like to actually follow up on the pricing strategy, because my understanding is that on Glad, the pricing is mostly on trash bags, and if I have the numbers right, that give you about one point of pricing going into 2012. And you, in the release, seems to be talking about 4 points of pricing, so that -- where does the other 3 points of pricing coming from? Is it -- how much of it is the International business, inflation coming in through Latin America? How much it is pricing in the U.S.? And if you can comment, which categories do you see opportunities for price increases? I mean shall I understand that it's Bleach and Charcoal for the comment that you just made?

Let me try and clarify. So overall, we said, we might see about 400 basis points worth of pricing actions, but that would result in far less than that in terms of top line growth. So essentially, that's offset by the volume declines I just referred to earlier. So because of -- there will be some consumer pullback when we take pricing, there is some reduction in volumes. So the net impact of pricing is probably about a point versus the 400 basis points you've seen in our outlook. And I think that we tried to stipulate that in our outlook discussion in the press release. In terms of where we are taking pricing, based on our current commodity look, we're going to be taking pricing, a vast majority of our portfolio in the U.S., as well as addressing issues in international countries where we either have inflation or FX issues. So there is a chunk of fairly large chunk of our pricing plans that now exist in international markets that may change over time based on inflationary factors and FX. But we have a lot of pricing in the U.S., and it's across most of the portfolio, based on our current estimates of commodities. And obviously, those seem to change on a regular basis, so we may change our pricing plans as we go through the year. But right now, we're expecting pricing pretty much across the portfolio. Javier Escalante - Weeden & Co., LP: But revisiting the Glad price increase, if I may, it seems like this is exactly the category in which you are seeing your competition basically holding back or actually going deeper into promotions, and yet this is the category where you are planning a price increase of 9.5%. So what gave you confidence that you're going -- these price increases is going to gain traction?

So I think if you look at the historical results on Glad, you would see that we have basically been gaining share and driving our business more to the premium segments of trash bags, which is obviously, a trade-up for us, as well as a trade up for our retail customers. And there's been, I think it's a total of 6 price increases now over the last 6 years, and even a decline within that period of time. And so, while competition hasn't always followed closely behind us, I think generally speaking, the pricing actions we've taken have helped preserve now our top line, but certainly our bottom line results. So there's definitely going to be glitches by quarter, and there'll be instances where in a certain account or a certain competitor doesn't track exactly with our pricing actions. But I would argue over the long term, we have done very well managing our overall value equation on Glad and generating a strong top line results and strong share results and pretty good bottom line results.

I think, Javier, the only other thing I would add is on Glad, with that 9.5% price increase. We all think we've got some -- we also think we have some very meaningful innovation in FY '12 and '13 that we would link to that price increase. So we think we're maintaining or improving even our value equation to the consumer.

We'll take our next question from Bill Schmitz with Deutsche Bank.

Can you just talk about the S&A line on the P&L, because obviously, that's been up a couple of hundred basis points over the last 3 or 4 years. And it looks like with the new guidance, it's probably going up again next year. So do you envision that line item coming down, and then is that kind of related to the lower-than-expected volume growth? Or is there something structural going on?

In selling and admin, we have seen a bit of a drift up over the last couple of years on that line, Bill. Some of it is the investments we're making. I think though as you look at our efficiency versus the rest of the peer group, I think you'd still say we're pretty darn efficient on that line. We are elevated this year. Two factors driving it this year. Again, we're starting the incremental investments in IT and facilities. We also have the -- we sold the Auto business, and we still have some of those stranded costs that we're still working against. And so, you'll see a bit of that in fiscal '11 and some of that in '12, as we look to find ways to try to get those stranded costs out. So we do have some level of elevation in our S&A spending. We'll see, probably, my guess is the peak of it in fiscal '12, and then we'll start to see that, that, come back down.

Okay, great. And then, can you just talk about the different growth rates between the scan and the unscanned channels in the quarter, and then maybe for the outlook as well?

So the growth in the -- so we have the total outlet, which is based on a 52-weeks ending, just based on accuracy of the data.

Right, I meant just for Clorox, specifically, not the categories?

Say that again?

Just Clorox, specifically, not the category growth of trends.

The trends have reversed in the last quarter. So we used to see a routinely, dramatically more growth than the untracked universe. In this quarter, it's actually slightly better for the tracked universe.

Okay, and do you think that...

The tracked universe would be grocery and Target. The untracked universe would be Wal-Mart, dollar stores, club stores.

And does that trend probably carry through or what's your outlook there?

I'm guessing we're going to see probably in the near term, probably about even growth in both segments. I don't think we're going to see the outlandish growth in the untracked universe that we have seen. Some of this is driven by results at Wal-Mart, obviously, which is a big chunk of our volume. So depending on how you feel about Wal-Mart's return to growth and we're pretty optimistic on that, we may see more growth in the untracked universe.

Okay. And then just one last, if I could, I noticed that the guidance calls for 2 points of growth from innovation, I mean is there a sneak peak we can get on why it's going to be so robust next year?

So that's about the same number. We've been between 2% and 3% of incremental sales from innovation for about, I think, 6 years running now. And what you're going to see is a lot of the same kind of things you've seen in the past from us, improvements on base brands, which improve our growth on those base brands, as well as some incremental activity in what you might term white spaces. So the recent examples would be the -- we're launching a new bag on our base trash bag on Glad, we're doing a filtering sports bottle on our Brita business. So those are examples -- that's an example of a base brand improvement, an example of kind of new white space for us.

We'll take our next question from Nik Modi with UBS.

Just a quick question, given the weakness in the U.S. market, just curious on how you're thinking about M&A, and is there anything interesting out there? That's the first question. And then just the second quick question is on Wal-Mart, just given the weakness they've had, obviously, you've said that the tracked channels are doing better than the untracked channels, but is it really affecting your overall P&L? Or is it just someone is buying the same product they would have bought at Wal-Mart and an another retailer, if you could just give us some perspective on and whether there's a drag there or not?

Dan, you want to take the M&A one first?

Let me take the M&A question. As you know, our primary focus in inorganic growth has been looking for bolt-on acquisitions in our international markets. Those tend to be episodic. Certainly, if they become available, we'll evaluate them. The other primary focus area is our institutional market, our Away From Home. That tends to be a different channel. That's primarily in acute-care facilities, hospitals. We're still very interested in both building out our product set, building our distribution and getting further penetration in that market. That's where most of the activity is focused today. Those trends will not, independent of what's going on in the economy, do have their own sort of secular trends, and those trends have seen strong growth, even through this cycle. So it's an area that we're still very interested in.

And Dan, is there anything out there that peaks your interest? Or are the multiples still too high? Any perspective just on kind of what you see out there?

In terms of multiples, I think we saw them go up prior to the recession. I think they've moderated a bit. It's the typical story, Nik. If it's a really good property, then you're going to get a high multiple for it. And if it's less attractive, the multiples might be a little bit lower. As you know, we use an economic profit lens on our acquisitions, and that's usually a pretty good filter for us. And we continue to apply that. I would say our, as we look at the Away From Home market, as you know, we did a small acquisition there at a very nice multiple, meaning a lower multiple. So we think there are some opportunities in that space for pretty reasonable multiples to be paid to be able to expand our business there.

So I'll try to address your question on Wal-Mart. I think, first of all, I would say that we feel great about the change in direction at Wal-Mart, I was at their year beginning meeting maybe a month or so ago, and they're clearly focused on getting back to their fundamentals of having great brands at everyday low prices and collaborating again with suppliers in a meaningful way. So we think that bodes well for our future business. There's no question that our categories were particularly weak at Wal-Mart over the last couple of quarters. I think that may have had an overall impact on all-outlet category growth, given that there's such a big chunk of it. They're starting to get healthier. We're actually seeing improvement in our trends quarter-to-quarter over the last couple of quarters. So we're much more encouraged by their direction. But it probably did have a bit of an impact on the overall category consumption in the past couple of quarters.

Yes, I don't think, I certainly don't think, Nik, that we've gotten all of that back by people going into other channels, but I think we -- you certainly see evidence of some of that given how the tracked channel data over the last 13 weeks is -- our categories are down about 0.5 point, which is significantly better than the all-outlet universe, which Wal-Mart is obviously a big piece of.

We'll go next to Ali Dibadj with Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: A few things. One is kind of overarching, and it's just a, I guess, a change in sentiment, it sounds like a change in tone perhaps, since the last time we heard you in this call or even when we were visiting you in Oakland, I mean, then it was more talking about what pricing is going to be up. And we may get some volatility on volumes that we think we can do it effectively. It's going to be very back-half loaded, strongly back-half loaded from a growth perspective, top line growth perspective. We're lapping H1N1, so things could be better. The innovation pipeline will start to bear fruit. And now it just feels, sounds like you're a little bit more cautious. And I can understand why given what we've seen in the release and some of your commentary, but what's different now versus the expectations you had on the last quarterly conference calls or when we last met? What's different from the demand perspective to start out with?

I think, Ali, the major difference, and I would caveat the difference here, by saying, while the growth in the third quarter, the top line growth at about 1.5% was a little bit lower than we expected. It still was about a 4.5 point swing from the first half of the year. But I think the biggest difference from the last call to this call has been the geopolitical events and what's going on in the world economy and the pressure on pricing and what commodity pricing and what that's doing to the consumer. And I think when you're pulling up to a gas pump in San Francisco, you're paying $4.30 for a gallon of gas, I think that's a fundamental shift from where it was 3 months ago. So I think the consumer environment out there has changed in terms of the pressure people are under, and I think that's what you're seeing reflected, putting some of the pressure on the top line.

I think the other factor that you have to think about, Ali, is the rapidity at which people are taking pricing. We used to have, I call it, more run way, particularly as we have lags in contracts and things like that. I think similar to what we're doing in taking pricing sooner in this cycle, we're seeing that with all commodity vendors. They're just moving forward quickly here, and we're not able to get the kind of lags that we used to get in some of our contracting. So I think the costs have jumped up pretty dramatically over a reasonably short period of time. People are pricing that in much more quickly than they have in the past. I think what is different -- oh, and you have to keep in mind $160 million to $170 million of cost pressure that we're anticipating, that's about equal to what we saw back in the peak period we had in 2006. It's a pretty big chunk. What is different though is we're pricing a lot sooner in this cycle. In the last cycle, we probably got down on our margins over 300 basis points, and then it took us the better part of the year and a half or so to rebuild those margins back. While we do expect some softness in our margins in fiscal '12, we don't believe we'll be down in the hole that we were in last time. And therefore, I think what we're doing is pretty prudent. But there's a lot more commodity costs pressure, we're needing to take more pricing to help mitigate that, but we're doing it sooner in the cycle to help mitigate how far down we get. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: So if I could leverage your experience for just a little bit of a broader question, because we're hearing some of the similar things is closer to the tail end of earnings for many of our HPC companies, and we're hearing kind of similar things from people, the cost of commodities were tough, we're feeling some pain here, we're going to take pricing. But, you end up hearing 2 different kind of outcomes, right? One is, "Gosh, we're going to take pricing, and volumes are not going to budge. Why would they budge?" Everything is going to be fine. That I'd argue we're hearing from some of your bigger HPC peers. And then we hear a little bit more about, I guess, sobering, maybe the right word, view from you guys or a little bit more careful view from you guys about what the consumers' pain is under, or what would the pain being afflicted on the consumer for a broader pricing perspective. Just to kind of get your broader insights, as you have such great [ph] relations with your retailers, and you've been in this business for such a long time, I mean how should we think about that? We're hearing very different outcomes, and it sounds like you guys are more cautious on volume. So you're just going to take 4% pricing, but volumes can be 3% or more-ish down. Are there people over-exuberant? Or are you guys being more cautious? Is the truth always somewhere in the middle? I mean, just any insight there would be helpful, because that's not what they see in HPC right now is around pricing power?

I don't know that we can speak for other companies. Again, I would say that I think we have lots of experience taking pricing and dealing with high commodity costs. I think the cautiousness comes from the fact that the economy is in tough shape right now, and consumers are seeing pricing not just on Clorox products, but across all the food products, obviously, gasoline prices. So I think we're launching lots of pricing at a time when consumers are pretty vulnerable to economic reality, and I think that probably tempers our enthusiasm at this point.

Ali, the other thing I would add is -- and maybe the perspective is somewhere in the middle. But I think given the volatility, I don't think that anyone knows. I think that we've all learned some lessons over the last 3 years. This has been the most difficult economic environment we've, all of us have gone through. I do think I would describe our -- I think our outlook on the top line growth is conservative. I think we're trying to be realistic. I think I would edge it to being conservative. But we certainly don't want to create a cost structure around an overly optimistic top line algorithm, and we need to be prudent in that regard. So I think we've got a lot of experience over the last 3 years, and our models have been very predictive on what happens with volume when we take pricing. So I think we've learned those lessons, and that's what that's reflected in the outlook. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: Okay, and then that's very helpful, and then just one last, almost housekeeping-ish question. You said that for next fiscal year, you're expecting currencies flat-to-down one, I think, what's the number, if I can find it, but definitely...

Down one. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: Down one, so less than we would have expected. I mean is there something from a hedging perspective? Are you expecting something would happen in Venezuela? Can you talk a little bit about that, please?

The outlook we have it's the -- we separate our outlook into the direct impact from foreign exchange, and the 1% is roughly further declines that we're anticipating in both Argentina and Venezuela, because those economies continue to be under pressure. We would expect to see declines there. We do have favorability in other currencies. The net impact of that, as we put in our outlook, is about one point. But keep in mind that inside the pricing number that we gave you of 400 basis points, includes a fairly decent amount of pricing in our international markets, including those markets to help to offset some of the foreign exchange. So we tend to gross it up in our outlook and say, it's about one point negative. In fact, there's a fair bit of pricing that we're taking to offset that. It will net to a much smaller impact on the top line. And as Larry said, depending on how foreign currencies move over the course of the next year, will influence how much pricing we take in our international market. So if we see less declines in foreign currencies, we may be taking less in pricing to offset it. So the 2 kind of work, hand and glove.

We'll take our next question from Jason Gere with RBC Capital Markets.

I guess just the first question, thinking about the fourth quarter now, I guess your outlook was just on the organic -- or the total sales 0 to down 1. But I think that implies, also, a still a nice step-up on the organic sales. So I was just wondering if you could comment on maybe some of the innovation that you did set out for the back half of the year. I know Brita has been a little bit tougher, Hidden Valley has actually done better. But I was just wondering, still with the expectations, 0 to down 1, is that the right number, or is that maybe even a little bit aggressive? Will you see that acceleration in organic sales given what you've been laying out in this call?

So I think we expect growth in the fourth quarter, probably about the same pace as what we saw in Q3 or, hopefully, a little bit above that. I think the innovation we have out there is generally the results, pretty much that we expected. Hidden Valley remains strong. We have a bunch of new flavors, kind of expanding into non-ranch flavors in that business, and that's largely been successful. Brita has suffered a bit from a category softness, but we're introducing a new sports bottle. So there's an incremental white space to go after on that business. Charcoal remains a very healthy business. Probably, the biggest wildcard at this point is Glad, given the pricing that we are taking, which is effective at bidding with [indiscernible]. That's probably the biggest wildcard, at least, in the short term. We think that will play out fine over the long term, but there may be some surprises in the Q4 in the Glad business.

Jason, just to be clear, the flat-to-one outlook on sales is the full year. So just to be clear, for fourth quarter, as Larry said, we are probably in that 2% to 3% sales growth range. So it will be stronger growth in the fourth quarter versus what you saw sequentially in the third quarter.

I know, that, I got that, that's why. It seemed a little bit more than just a slight acceleration. So the 2% to 3%. And then, I guess just a separate question thinking about Lifestyle, which obviously has been your fastest-growing brand, the best margins, too. We've seen a step-down in the margins this year, you're kind of hitting that 30% range. And I know you're growing internationally, it takes time to build scale. So I was just wondering kind of the, maybe the near-term and the long-term outlook, just on the margin structure there, when -- can you see that business accelerating? Or do you think it's actually can -- may decline into the high-20s for a while until you get critical mass internationally?

When our -- I'll start then maybe Larry has some comments. When you think about Lifestyle, it's actually some of our highest margin businesses there. So our outlook continues to be very good for prospects in margin. Now certainly in the Burt's business, which falls into that Lifestyle segment, we are investing in the international growth, but Burt's still has very strong margins. I think the impact that you're seeing near term more has to do with the impact of commodity costs, kind of the sequencing and timing of commodity costs versus the timing on when we will take pricing. You do have a little bit of again the investment for Burt's Bees, and then you also have just a little bit of a business mix issue there, because Brita's has been a touch soft, particularly as we saw in the quarter. But net-net, we think that's going to be, continue to be one of our strongest margin segments.

I basically would say the same thing. These are highest margin businesses. They're generally doing well. In the short term, there's some investments, certainly, in Burt's International. There's been a bit of a trade-down in Hidden Valley on some sizing, but some investment behind new products. But I think these are healthy margin businesses that will remain healthy margins.

We'll go next to John Faucher with JPMorgan. John Faucher - JP Morgan Chase & Co: In looking at your guidance for raw materials and then looking at the latest CMAI data, is it safe to say that you're potentially could see more resin inflation, or at least a similar level of resin inflation in 2012 as 2011? And in terms of looking at that, it looks like, particularly for the first 3 quarters of 2012 and then potentially, a little bit of a fall-off as we get into your fiscal Q4, is that the right way to look at it?

You know, resin is the biggest component that's moving in our fiscal '12 outlook. We will probably see almost twice as much increase in resin in fiscal '12 as we're seeing in fiscal '11. Our outlook right now, $160 million to $170 million, that range does accommodate oil trading kind of in the range that it's trading at today. I think a lot of it will depend on where oil trades over the balance of the year and how that translates into the resin market. But certainly, we've seen an acceleration there in resin, particularly as we've got in here in the third quarter, into the fourth quarter and up next year. Also, on a comparative basis, we will see more of that cost pressure in the first half of fiscal '12, because we're comping against lower cost environment in the first half of fiscal '11 versus fiscal '12. So you'll see more of that commodity impact in the first half of the year. We'll moderate a bit in the second half, as we're starting to comp against higher rates. So we'll just have to see. I mean obviously, oil has been very volatile and -- but we're pricing against the outlook that we have today. John Faucher - JP Morgan Chase & Co: Okay. So our data, it showed roughly similar levels, but you're saying, a materially higher level of resin inflation for next year?

Yes, I would say, John, that probably, in order of magnitude, about 60% of the cost increase in fiscal '12 is going to come from resin.

We'll go next to Karen Lamark with Federated Investors.

I want to ask about Away From Home. It sounds like you got some good growth in that unit, and I wonder if you could give us some color on distribution and product gains, as well as any estimate on the channel's growth.

That business grew double digits. The primary focus these days is on the kind of the health channels, hospitals, nursing homes, et cetera. You may recall we made a small acquisition in that space called Caltech. That business has been very successfully integrated, and we've added some additional sales capability as a result of that acquisition, in addition to some existing distribution. So essentially, most of that growth is around filling out our product line around products that disinfect, kill germs, sterilize hospital rooms, as well as getting new distribution points to go into more hospital groups, hospital distribution channels and gaining distribution based on the efficacy of our products, as well as our ability to deal with infection control.

And any estimate on how fast the end market tend to grow?

We're a very small player in a very, very large market space. So we have a lot of headspace. But based on all that we know, those markets are growing at a pretty good clip, probably in the high-single digits, although I wouldn't say that our data sources are incredibly accurate in that space.

I mean just for some perspective, that business for us last year in this quarter grew in the high-single digits, and now it's growing north of 20%. So it's been quite a step, up as we've really increased the size of our sales force to go out there and get our products out with that respective channel and customer class.

We'll go next to Connie Maneaty with BMO Capital Markets.

Can you discuss philosophically or strategically how Glad still fits in the portfolio? Because more often than not, if there's an EPS shortfall, Glad's a big part of it. You know it's exposed to the resin cycle and a lot more private label, and it's now 1/2 the resin. The resin is now 1/2 of the cost pressure you're going to face next year, and the category doesn't ever really grow. I mean at some point, don't ever step back and say, "Well, it's just a trash bag?" So can you discuss how this fits strategically in your health and wellness platform going forward?

Connie, let me start, and I'm sure Don and Larry will probably want to add some comments as well. As we look at the Glad business, I mean we do need to acknowledge it is impacted by, more impacted by the movement in commodity costs. And certainly, oil and resins are a larger component of the costs in that category. It's also a category that does have greater exposure to private label. Our strategies for the Glad business over the last 4 to 5 years have been pretty consistent, and frankly, I view them as reasonably successful. The first strategy was really to get out of the base trash category to use the technologies, whether it came through the joint venture to increasingly move a greater proportion of our volume out of the base trash, where it's relatively undifferentiated and more price-sensitive into the premium end. And I think we've been extremely successful with ForceFlex, now with our OdorShield to being able to trade up into more premium end, which is really where all the economic profit is in the business. We've taken other actions in that business, including exiting the legacy private-label piece, which was actually destroying value. So we've got the benefit of that. And as we look at our IP pipeline, our innovation pipeline over the next few years, actually, Glad is one of our stronger businesses in terms of what we see coming out of the portfolio. And a lot of that technology is based around how do you get further strength in the bag while taking resin out at the same time, and giving the consumer substantial benefit? So I think we've done actually a very nice job of generating economic profit out of the Glad business. And I think the future is, as we look at the innovation pipeline and our share gains and where we want to take the business, I think it looks reasonably good. But there is volatility in the business, I think we've also demonstrated that we've been able to manage through to those commodity cycles. But we do manage through pricing, and a lot of that pricing has stuck in the market. So we obviously know that we will need to take more pricing and are doing so and -- but I think we will come through it okay. And again, at the end of the day, if we're not improving economic profit on the business, then we'd have to look at it and say whether it belongs in the portfolio. But we have been able to increase the economic profit on this business over the last couple of years, and we see further growth even in spite of the commodity cycle we're about to go through.

It may not feel like it, but we actually are getting better at managing the ups and downs by quarter. And by the way, there are some up quarters they are not all down quarters. And for example, this quarter while our volume is down appreciably, our sales is down far less because of pricing and are, actually, our profitability is positive. So we did manage the quarter reasonably well. But there definitely are surprises on Glad that's found in other [ph] businesses, and it's a bit more challenging. I think that to Dan's point is, I think we have our richest new product innovation pipeline on the Glad business right now, and most of that, not only provides innovation to consumers, but also involves reducing the resin content, which will help us from a cost-structure perspective.

Connie, the only thing I would add is, a few years ago, when we did our first -- I did my first analyst meeting in New York, we talked about the Glad business, and we showed economic profit across our brands. And at that time, Glad was not returning above its cost of capital. And as Dan said, we've made a lot of progress. Now that business, in total, is returning above its cost of capital and the premium segment of trash, which is now almost 40% of the total brand, is at or above the company average for economic profit. And so when I look out, as Dan and Larry said over the next 3 years and look at the pipeline, not only in terms of creating more demand for the business but also lowering costs, I think we can continue with our joint venture, continue to drive cost out to the point where we can get close, if not to a low-producing -- a low-cost producer status. If we can continue to take cost out and increase the strengths of these bags, I think that innovation is going to bode well over the long term for the brand.

When you talked about being a low-cost supplier, what are you -- are you measuring that against other branded players or against private label or against what?

To be clear, I'm not talking about a low-cost supplier, because we're always going to spend disproportionately on advertising on this business. I'm talking about low-cost production. I think we can get -- the real key in this business is, can you increase or hold strength while taking out more and more resin. And I think we've got better technology there than anyone. As you can see, evidently, the evidence of that being ForceFlex and OdorShield. So I think that's what we're going to continue to do, is drive cost out of the production side, as we increase the strength of the bag and offer consumers better value.

Okay, then one final question, of the 9.5% increase on Glad, what portion of that do you think will be realized?

Are you talking about the pricing action that we've taken?

Yes.

Will that be a pass-through? That will definitely be a pass-through. I'm not sure exactly what...

Well, I think that you're probably, Connie is talking about the volume impact. I don't know if I can respond specifically to 9.5%, but if you think about all of the pricing across the portfolio we're taking, again, we've got 4-plus points of pricing. And that's probably 3-plus points to offset sitting from volume impact. So you've got about a 75% near-term offset from volume. I would guess at this point, Glad would look similar to that. But over time, as we know the volume impact goes away and the 4 points of pricing generally sticks. And therefore, you get the margin extension at the back end of the cycle, and we would expect that pattern to hold for Glad. And as you know, in Glad in the last cycle, we took 5 price increases. We did roll 2 back with the price increase last August, and now the one we're taking here. We're essentially almost all reinstating the 2 price increases that we had rolled back. So we would expect, that's probably my best guess, as to how that will play out.

And we'll take a follow-up from Javier Escalante with Weeden & Co. Javier Escalante - Weeden & Co., LP: I actually, would like to understand better a comment that was made earlier in the conference call, with regards to how the cost inflation is hitting your P&L. And now kind of like your -- it seems like you mentioned that you're unable to negotiate as long as a price lag as you did in the past. Does this kind of change in pricing power from the suppliers has to do with any consolidation on the vendor base, and this is something structural that in essence, they have more bargaining power vis-à-vis you? That is number one. And number two, kind of like the vice versa, you basically are saying, while they are passing price increases faster, too, also -- we need to pass it faster to the consumer. What happened if oil prices come down because of one of these geopolitical events? Would you expect also that you're new contract allows you to also benefit more quickly from the price declines? Or you're going to be tied up to long-term contracts that are going to be detrimental to you?

Let me try and I think, I will give you a simple answer. I don't think anything has dramatically changed in terms of supplier power or consolidation. I think this is essentially is evolving through a cycle in which there was escalating oil prices and, therefore, escalating raw material prices. And I think we and many companies were a bit behind the curve in taking, being aggressive about taking pricing. And what we're saying is we're trying to get ahead of the curve, and we're seeing the same kind of behavior, and our suppliers are also trying to get ahead of the curve. So I think this is just lessons learned from the past 5 or so years, going through a cycle like this, and just not being patient and being more aggressive about taking pricing to try and offset, oftentimes not completely offset, but trying to offset some of the margin increase.

And I think in the past, what we've talked about is we tried to figure out what the longer-term trend in these categories would be and price to that trend, which means you didn't necessarily move as quickly or as much. I think just given the absolute volatility in commodities, the visibility and being able to figure out what those long [ph] trends are is pretty muted. And so, we determined we need to move more quickly on pricing. If there is a dramatic decline, then certainly, we would look at our pricing, because we want to make sure we remain competitive in the market place. I would remind you though that we took more than 60 price increases in the last cycle, and only 2 or 3 of them were rolled back. So most of those did, in fact, stick in the market. But we would certainly look at what impact on pricing, what impact there would be on pricing, if we saw a dramatic decline in commodities. No one, however, right now is forecasting a dramatic decline in commodities. Javier Escalante - Weeden & Co., LP: No, but that's very helpful. But I guess what I meant with the, if commodity prices come down, do you feel that you're going to be also seeing a reduction? If say that oil prices going down, you're going to see a faster reduction in your input costs flowing into your P&L. So basically, the whole lagging is not only hurting you now, but it's going to be benefiting you if commodities does come down?

But there would be symmetry. So when we had more lags in the contracts, you lag on the way up, you also lag on the way down, to the extent those get shorter. Yes, you would expect symmetry on both sides of the curve.

[Operator Instructions] With no questions in the queue, Mr. Knauss, I would now like turn the program back to you.

Okay, well, thanks, everyone, for your participation, and we certainly look forward to talking with you again in August when we can share our final fiscal year end result, and then we can obviously get more detail into the FY '12 plans and the outlook there. Take care.

This does conclude today's program. We thank you for your participation.