Good day, ladies and gentlemen, and welcome to The Clorox Company Third Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] As a reminder, this 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.

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; and Steve Robb, our Chief Financial Officer. We're broadcasting this call over the Internet, and a replay of the call will be available for 7 days at our website, thecloroxcompany.com. Let me remind you that on today's call, we will refer to certain non-GAAP financial measures including, but not limited to: free cash flow, EBIT margin, debt-to-EBITDA and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today’s press release, this webcast's prepared remarks or supplemental information available in the Financial Results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today’s earnings release. Please recognize that today’s discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. So with that said, I'm going to cover the highlights of our third quarter business performance by segment and then turn it over to Steve to address our Q3 results, updated outlook for fiscal '13 and our preliminary outlook for fiscal year '14, which begins in July. Don will then close with his perspective on the business, followed by a question-and-answer session.…

Thanks, Steve, and welcome, everyone. We anticipated the second half of fiscal '13 is going to be more challenging as we face difficult comparisons versus a year ago and foreign currency declines. But as Steve mentioned, we had unusually cold weather in late March, which reduced our Charcoal sales by 14% versus the year-ago quarter and volume by more than 20% in the month of March alone. This impacted total company sales by 1.5 percentage points, gross margin by 30 basis points and earnings per share by $0.06. While we continue to feel good about the long-term prospects for our Charcoal business, the impact from poor weather will affect the category and our total company results for the fiscal year. Now I'll provide more depth on our third quarter results, our financial outlook for fiscal '13, as well as our preliminary outlook for fiscal '14. We delivered 1% sales growth on the quarter on top of a strong 7% sales growth in the year-ago period. Our sales results were driven largely by the benefit of price increases, offsetting the impact of 1.5 points from lower Charcoal volume and nearly 1 percentage point of unfavorable foreign currencies, particularly in Argentina and Venezuela. As you know, Venezuela devalued its official currency by more than 30% on February 8. And Argentina, our largest business outside of North America, has seen its currency decline significantly for the last several years. Excluding these factors, our results for the quarter were solid, with sales increasing 3% and we continue to feel good about our fiscal year-to-date sales growth of 3.8%. In the third quarter, gross margin declined about 20 basis points from 42.3% of sales in the year-ago quarter to 42.1%. Higher manufacturing and logistics costs impacted gross margins about 250 basis points. This was largely…

Okay. Thanks, Steve, and hello, everyone on the call. Before I open it up to questions, just let me give you my point of view on the year-to-date results and what we're seeing with the consumer out there and also the outlook we provided today. So I'd say about the full year, we feel good about the year-to-date performance, even with the impact of the headwinds that both Steves talked to you about -- that we faced in this quarter. I think 3/4 of the way through this year, we've delivered about 4% sales growth, about 60 points -- basis points of gross margin expansion and about 6% diluted EPS growth. So we feel good about that performance. And although we've tightened our FY '13 sales outlook to the lower end of the range as we head into Q4, we're pleased that we're still targeting solid top line growth for the year, even with the negative impacts from foreign currency and the -- obviously, the weather-driven declines in our Charcoal business. When we saw a 23% decline in the category in the month of March -- we've never quite seen a category decline like that in a major category of ours. So importantly, we continue to anticipate in achieving our target range for EBIT margin growth as well as the EPS growth that we've talked to you about. I also believe we're being prudent in our assumptions regarding some of the headwinds out there. Our outlook takes into account the operating and consumer environment, the economic challenges we anticipate continuing in Venezuela and Argentina, which Steve just went through, and the softness in our Charcoal business, which has continued into April. Today's outlook reflects our view that the economic recovery continues to be bumpy despite an uptick in optimism in…

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

I wanted to try to tease through some of the stuff that -- like some of the moving parts for the quarter that may or may not be recurring, right? And I guess, can we start out with the -- like the $50 million to $55 million for IT infrastructure, what was that number? I guess that's still the full year number for '13. And what was it in Q3, if you have it? What was the breakout of COGS and SG&A?

This is Steve. What I would say is our outlook continues to anticipate about $50 million to $55 million for that. It breaks out pretty evenly across the quarters with a little bit more in the back half. But generally, it's pretty even is what I would say. And as you look to fiscal '14, as we've talked before, we do anticipate the typical numbers, we'll call it $20 million to $30 million that we typically set aside, will return to more of a normalized rate.

And Chris, majority of that was in selling and admin expense. There's a little bit that runs through R&D, a small amount to go through Other Income. But for the most part, that's in selling and admin, which is, again, enabler to our selling and admin expense reductions next year.

Got it. And then on Venezuela, what was the -- can you talk about what the hit was for -- like, break out the balance sheet remeasurement versus ongoing, if that's possible, what it was in the quarter. And I think you said it was $0.02 for the quarter, but I'm not sure if that was the remeasurement or ongoing. And like how do I think about that? And is $0.05 to $0.10 -- I think you said that's still number of the drag baked into the '13 number. Does that make sense?

Yes, it does. So let me try to help you understand it. So a couple of things. The balance sheet remeasurement piece in the third quarter was approximately $0.02. Now that's probably less than what people might expect because there was actually a 30% devaluation in the bolívar. But I would just remind everyone that we were using the SITME to translate our financial statements. That had a rate of approximately 5.7. So when it went from -- to 6.3, we also experienced about a 10% devaluation. So that's why it was only a $0.02 devaluation, a little bit less than we were anticipating. Now what I would say is that the $0.05 to $0.10 that we set aside in our outlook is still the right number because while the balance sheet remeasurement came in a bit less, unfortunately, inflation continues to ramp up in that country and we're continuing to experience stringent price controls, which is really compressing our margins. So we've got the $0.05 to $0.10 for fiscal '13. It's the right number based on what we have seen fiscal year-to-date, and certainly what we expect. And we've also set aside a similar amount for fiscal '14 of $0.05 to $0.10. But that $0.05 to $0.10, again, is to cover price controls, inflation, really, the impact that's coming through on the margins as well as just economic uncertainty. What we have not built in is an additional devaluation of the bolívar beyond what we've already seen.

Got it. And I'm sorry, just one last one. The -- I know, obviously, the weather hurt you. But cold and flu probably helped you right through up double digits. Do you have a quantification for what that benefit might have been?

Why, I think, Chris, that we saw some help in January from the -- from the flu issue we had in November, December, really dissipated fairly quickly after mid, late January. And I think that was one of the drivers behind the 10% volume growth that Steve talked about. In January, we saw that, but it quickly dissipated. And then we got into this unusually cold weather from mid-February on through March.

And we'll take our next question from Wendy Nicholson with Citigroup.

My question goes sort of to the heart of the Charcoal issue, which is not to be overly critical, but I am wondering if it was maybe more of a year-over-year comp issue as opposed to a weather issue. Because I went back and looked at your transcript from third quarter of last year, and you talked about high single-digit volume growth in Charcoal, which just doesn't show up in the Nielsen data for category growth. And I know we don't see all of the channels in the Nielsen data, but I still wonder if maybe we just all had our expectations not set right, given the tough comp. But sort of - I guess, more broadly speaking about Charcoal, the category growth there has been so sluggish on an annual basis for so long. And even with all your spending, your market shares have been under pressure. So I know when you sold the Auto Care business it was a really tough decision, but it was kind of the right thing to do. Do you think that the Charcoal business still has a place in the portfolio given how slow growth that is? Are the margins that good that it makes sense to keep it? So if you could talk about it a little bit more, just not -- I don't really care about the quarter so much, but just longer term about the business, that would be great.

Yes. Wendy, it's Don. I think it still plays a key role in our portfolio. I think it's, obviously, the highest share brand we have at almost 75 share. I think you'll start to see share building back again. We already saw in April where we're picking up some share again. I think the sluggishness in the category has been more related to the pricing we've taken, and there's no pricing planned for this upcoming year. So I think we'll start to see these consumption trends turn around a bit. I also think that there was some dislocation in some of the key customers that are not measured by the Nielsen data as well. When you look at the home improvement centers, I think a lot of people had significant investments in the category last year, drove some very high consumption. Plus, we obviously had the warmest March in about 115 years last year, which kicked off the season. So there was some unusual stuff going on that I think is transitory and will even out over time. But I do think the brand at a 75 share with very healthy margins and with the fact that I think we've got a number of retailers now that, for the medium to long term, really see this as a key brand in meal solutions. And I think we are making progress on making this more than a 4-month business. So I think given all those measures, the fact that we're seeing significant tie-ins between Hidden Valley and KC Masterpiece and Charcoal, it gives us a lot of credibility with retailers to be part of the solution around meals. So I think it does play a strategic role in the portfolio, and I think you'll start to see that consumption trend change.

The one other thing I would add, and I know you've heard this before, but internally, as we look at this category, I mean, it is really unique in that it's -- again, just us and private label competing. We have 100% share of voice and we've got fantastic relationships with the retailers on this to where it's a category that just has great dynamics, and they're very hard to find. So I think with that, we've got a lot of positives this early cycle [ph].

It's hard to quantify all the tailwinds we get off it, Wendy, on other brands that we link it to. So it really does play an important strategic role.

And is it both -- it's accretive on both the gross margin and on the EBIT margin line, is that right?

It's got gross margins that are fairly consistent with the company average. And I would say that the EBIT margins look particularly good, and it's a business that throws off a lot of cash. So from an economic standpoint, it's actually a very attractive category and we've gotten good shares.

We'll take our next question from John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: We've heard some companies talk about the fact that volumes don't seem to be responding to what may be a heightened promotional environment or at least less pricing growth in the categories, as raw material inflation has lessened. Can you talk about sort of what you're seeing and whether that's gotten better over the course of -- the first couple of months of the year? Are you seeing consumers respond to promotions? Or is it just sort of a tree falling in the woods at this point?

John, I think if you exclude the Charcoal issue we had, volumes were actually up 1% in the quarter. And with categories flattish, that doesn't sound too bad to us. So there's a little bit of vibrancy there on volume. We had 2% volume growth last year. So it's not like we're seeing this 2%, 3%, 4% bleed off in volume. We've got some stability there in volume. So we're seeing actually trade spending come down modestly, and I think that's one of the reasons, if you look at the last 5 -- if you look at the last 6 quarters in the Nielsen data now that measures 81% of our volume. 5 of those quarters were growing in the 1.5% to 2% range in dollars. And then, obviously, this last quarter ending March 24, it was flattish to down 0.2 point. There was certainly pricing in those quarters. I don't think you're going to see much pricing over the next 6 to 12 months. And I think that may bode better for a little bit more stability and maybe a little bit more growth in volume. John A. Faucher - JP Morgan Chase & Co, Research Division: Okay. So you don't see anything that would make you think that the volumes aren't going to at least rebound somewhat at this point?

I think we'll see volumes very stable. Like I said, if you exclude Charcoal from this quarter, we were up 1%. If you look at the last year, we were up 2%. I think as -- I don't think you're going to see much pricing in the CPG sector in the next 6 to 12 months, as I said, because we take pricing based on 2 principles. One is we've got commodity cost we have to recover or we got significant innovation that warrants a price dislocation. Well, we've got some good innovation. If any -- if you see any pricing from us, it will be hooked to innovation, just like we did on the spray bottles that we just launched a couple of months ago. But when you look at the base brands and our plans for next year, there's virtually no pricing in there in the United States because there's not enough commodity pressure to justify it. So I think with that lack of pricing and with the heavy investment of 10%-plus on advertising and promotion in the U.S. that we're going to do, I think we'll see a little bit of vibrancy, certainly some stability in volume.

Our next question comes from Bill Schmitz with Deutsche Bank.

Can you just talk about what your percentage of growth is in new products year-to-date and maybe some of -- like maybe what some of the products are?

Bill, this is Steve Robb. Let me lead off on this one. I don't want to break it down but I would say they were very much on track to get to the 3% incremental sales growth from our new products, and it's been pretty consistent. We've got the bleach, as you know, we've been rolling out regionally and we've really completed that rollout in the third quarter. And we've got our SMART TUBE technology that we're pretty excited by. It's kind of the first real innovation in spray cleaners in a long time, and that came out in the third quarter. So I would say by the end of the year, we should have an incremental 3 points of sales growth.

Yes. Bill, if you tick down through the categories, I think and you look at -- this is a year-to-date number, not a quarter because I think you can get messed up looking at just a 13-week period. But if you look at Home Care, for example, very strong growth in Home Care, almost 6% year-to-date and a lot of that obviously coming from Wipes, some tailwind behind, obviously, the flu issue that we had in the fall. When you look at Laundry, Steve talked about the compaction thing. We've seen some growth there over the course of the year. So we're positive on Laundry for the full year, obviously, not in the quarter. If you look at Glad, we've seen strong growth from Glad, with some of the innovation around ForceFlex and OdorShield. If you look at Food, Food's up in the mid -- low mid-single digits. Again, sandwich spreads, some of the other flanker line items off of -- that we've launched off of Hidden Valley have been well received. And Burt's, I mean, Burt's had another double-digit quarter. And I think, if you look at the innovation around lip shimmers, lip wands, I think the team is doing an exceptional job there. So if you look at this 4% growth year-to-date, as Steve said, we're well on track to getting 3 points from new products, and the rest of it is a little bit of pricing.

Great. And then it seems like for at least 2 to 3 segments, you cited higher logistics and manufacturing costs, some of which are nonrecurring. And what are those and kind of what's driving the inflation there?

Yes. So if you look at the quarter, we had about 250 basis points of gross margin compression associated with higher manufacturing logistics. A good percentage of that is just inflationary pressures on wages and benefits, and a lot of that is coming out of our International markets where, as you know, we're just really struggling to get pricing through given the government restrictions. But some of this is onetime costs for investments we're making, like the SMART TUBE technology, the concentrated bleach and those things. And we would expect some of that to anniversary off as we cycle through the numbers. And then there was also a little bit -- it's not large, but there was some in our Charcoal business. Unfortunately, in Charcoal, basically, you produce a lot to get ready for the early season. The production was going full steam, but when the shipments were down 23% in March, we incurred more warehousing costs, more logistics costs and those kinds of things. I would expect next year we'll be able to anniversary some of that. But that did cost us about 0.3333 point in margin.

We'll take our next question from Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: I just want to go back to -- your consumer, and I think Don, you touched on a little bit of this earlier, but what did you guys see in the quarter in terms of the continuing shift toward larger sizes, so much shopping trips and more deal-conscious consumer overall?

Yes. I think it's interesting. We monitor, obviously, social media. The primary issue that was most chattered about -- well, there were 3. The primary one was weather, cold weather. We saw the most chatter in social media about that, whether it was tweets or Facebook. The second one was around managing budgets and around payroll tax increase and delayed tax returns and higher gas prices and people having to really stick to a budget. The third issue, and this dissipated quickly after early mid-January, was the flu. So I think, Joe, we've got a continued consumer who's very pressured week to week. I mean, that hasn't really changed. And I think what has changed is we have these 5 quarters in a row of about 1.5% to 2% category growth, and then bam, we hit this point -- negative 0.2 in the latest quarter. And I think a lot of that, obviously -- there's all of those factors influencing that, higher payroll taxes, gas prices, et cetera. The weather was also a big piece of that. So I don't know that a lot's changed. I wouldn't -- I certainly wouldn't read too much into one quarter of category slowdown here. I think that we've had 15 months of pretty good growth. But I do think, to John's earlier question, that once this -- once we see more mitigated pricing in the next 6 to 12 months, maybe we'll see a little bit less category growth in dollars and a little more stabilization in category around volume.

And just building on Don's comment, the one thing I would point out is unfortunately, if you follow the news, the weather is particularly bad in April as well. So not only did it impact us in March but it is continuing to impact us, primarily on the Charcoal business in April. We're hoping May and June will be better as we get into the primary consumption period, but it is something, as Don says, we're hearing a lot about it from consumers, and we're watching this very carefully.

We saw this pattern 2 years ago where we had an April -- a bad April on Charcoal and made up most of the difference in May and June. I mean, May and June are the pivotal months. That's when about 1/3 of this Charcoal business is done, so that, obviously, behind Mother's Day and Memorial Day kicking into the season. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Okay. That's helpful. And just switching gears to commodities. You mentioned that you expect next year commodities to be about 100 basis point drag on the gross margin. This year it's been relatively benign. You did talk about resin. Could you talk about that in a little more detail and maybe how many of your commodities -- how much of your commodities have you locked in at this point?

Yes. So let me start with resin. In fiscal '13, current fiscal year, we've actually seen resin prices decline on a year-over-year basis, and that's actually been good news for us because the lower resin prices have enabled us to offset higher commodity prices in other commodity groups so that net-net, it's been a fairly benign environment. As we look forward to fiscal '14, we're anticipating energy will trade in the range of $90 to $100 for oil. We do anticipate that resin will begin coming back up again. And so what you'll see is modest inflation in packaging materials and chemicals, plus slightly higher resin pricing. And when you bring it together, we think it's about a 1 point drag overall to the commodity environment. The only thing we know here is that, as you're well aware, commodities are very -- they can move a lot. They're volatile. So you could see some variability across the quarters associated with this, and we'll just have to get into the year and monitor it.

And Joe, as it relates to how much of the costs are locked in, I think we mentioned in the past that where we have options to hedge some things like soybean oil, corn and others, we generally did try to get some predictability in that through hedging. But the reality is it's a relatively small percentage of our commodity buy. So most of our commodity buy, although there may be delays as to when it filters to the P&L, were going to be subject to market movement.

Will take your next question from Ali Dibadj with Bernstein Research. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: I know we talked a lot about kind of Charcoal impacting the top line volume. But I did want to go a little bit deeper on the Cleaning segment. You mentioned -- we all kind of saw the flu season being quite strong, concentrated bleach should have helped. And look, I understand Clorox 2 hurt. But how big of an impact could that have been because we've been hearing about Clorox 2 hurting for years now. So I'm just trying to get underneath and see are there other big things that you think drove -- you touched on private label merchandising, and again to try to tease out what -- kind of a consistent thing we need to worry about? Or is this just a short term blip? Because some us believe the volume number was a little bit disappointing in that as well.

Yes. I think, Ali, let me start and Steve can jump in. On Clorox liquid bleach, I think we saw this pattern 12 years ago when we went through the first round of compaction. And we saw -- it took a while for consumers to adjust. I think we're seeing some decent category growth. But primarily, the issue we have is in a handful of customers. Like Steve pointed out in his talking points before we got into the Q&A, we've seen 15 of the top 20 customers share position improve in the last 4-week period. We've seen at least over half -- if you look at the 13-week period, we've seen at least over 1/2 or more of the top 20 customers gaining share, our CLB gaining share. So I think we're seeing some sequential improvement. We have an issue in a couple of key customers, and it really results from this. And it's -- on the one hand, it's a double-edged sword. It's helping drive the category significantly but it's not helping us specifically right now. Let me explain. When the pricing was held -- we took pricing about 1.5 years ago, and Walmart held that pricing. I think Walmart, obviously, using national brands to drive traffic as they've gotten back on track with their more historical growth records -- or growth rates. As they held that pricing, it certainly put downward pressure somewhat on the industry in general. But what it also did was it depressed the penny profit that some retailers are obviously making on Clorox liquid bleach relative to private label. So that's one of the issues that we've been addressing most recently. And I think that's why we're seeing 15 of the top 20 now pick up some share as we try to get back to -- either through special packs or different merchandising events, different higher value SKUs that private label can't replicate, whether it's Splash-less or different scents, outdoor, different ways of -- gel bleach, so different ways of changing the mix up so that when you look at the profit picture on Clorox liquid bleach, it looks favorable. So that's the issue we're addressing. As I said, I think we're getting the majority of the top 20 now moving in the right direction but that's been the central issue is it's really -- it's not so much that the consumer poll of Clorox liquid bleach or private label bleach, it's the shifting of merchandising support inside some of these key retailers to more private label because of the penny profit issue. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: And are you losing shelf space because of the concentration now? Or do you anticipate to do so before -- because that was one of my [indiscernible] as being...

Yes. If you look -- as you look at the top 20 customers, we have -- the category has not lost shelf space in any. In terms of our shelf space, I'd say maybe 1 or 2 of those 20 we've lost shelf space. In the others, we've either held or gained. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay, cool. So slightly different topic. If you could talk a little bit more about what you think the right level to ad spend is. Even 9% is actually quite low versus -- if you have a kind of historical -- I totally get there's kind of this natural downdraft from categories, Away From Home, as an example, or International mix. Do you think that this is the right level? And to pile on to a flavor of an earlier question, we've been hearing from a lot of CPG companies that it's getting tougher to grow, more expensive to grow. Are you sensing that?

Yes. Well, as far as the right level, Ali, I would say it this way: we spent 10.3% on U.S. Retail in the quarter. I think you'll see that level between 10%, 11% continue into FY '14. And again, I know you've heard this before but just to reiterate, we've got brands like Hidden Valley that are spending significantly above that level. We've got brands that, because of their unique share position like Charcoal with a 75 share that's been well under 10%, the dynamics of the category don't merit that kind of spend. So in those categories where we see competitive intensity, we're spending well north of 10%. And I think we've got a kind of a unique mix given the eclectic nature of our portfolio, where we don't have to spend at the same level. You can get kind of lost in the averages. So I think 10% to 11% in the U.S. is an appropriate level. And I think as we go forward, that's the level you'll see from us. And I do think there is downward pressure, obviously, from some of the International markets. It doesn't make a lot of sense to spend a lot of money in Argentina or Venezuela at this point because we can't -- we're not going to spend a lot of money creating demand for products where we have modest margins, if any margin. So I think that dynamic continues to play into '14, but I do think 10% to 11% is the appropriate level in the U.S, and our eclectic portfolio, I think, says that's a pretty good rate to spend at. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Great. If I could just lob in one last one about Green Works. There's been a lot kind of discussed and written about that. You guys -- social network [indiscernible] Can you talk about the strategies there and the pretty large price reduction that accompanies that relaunch?

Yes. Ali, the relaunch is really anchored into one central idea, and the idea is green for all. And the idea of lowering the price to get it more competitive with traditional cleaners in general is this thought that you don't have to be wealthy or an environmentalist to have access to natural products, natural cleaning products. So that's kind of the central thought because if you look at our -- the competitive set and that it's more targeted to niche and elite or more wealthy consumers and, obviously, in channels that tend to be more oriented to those who are probably more financially well-off. So our whole focus here is "How do we get this more broad based? How do we get access to natural cleaning products for everybody?" So that's the key point. Now having said that, I mean, Green Works is, at this point, less than -- it's about 1% of the company's revenue. We do think there is some upside, obviously, in getting some of these retailers who have cut distribution on Green Works over the last couple of years, as the sustainability focus waned in a number of retailers. We think there's a real opportunity as this pricing comes down. And we're really -- we haven't changed our margin structure on the products as we've taken the pricing down. We've reengineered the products. We've kept the natural percentage at the 98% to 99% range, which is the most natural in the space. But we've reengineered the products. So we've learned a lot. And so we kept the margins about where they were while lowered the prices. So I think we've got another shot at this thing in terms of repositioning it as a real mainstream cleaner.

Will take our next question from Lauren Lieberman with Barclays.

First, just want to follow up on SG&A. I know you mentioned both the lower IT spending but also the compensation expense. Can you just maybe give us a little more granularity on how those 2 add up? In particular, I'm thinking about the next year, when I need to model this quarter, thinking about how the compensation expense could impact the comparison.

The -- that's a tough one. What I would say is that the compensation accruals in fiscal '12 in the same period were much higher than what we've got in fiscal '13. And so that's why you're seeing a change. And that accounts for a good piece of the change in the SG&A, call that 1/3, maybe a bit more. You've also got a pretty good chunk because we're starting to lap some of the IT-related investments and other things in there. I can't -- it's very difficult to comment on compensation accruals for next year because it really depends on how we perform relative to the goals we have for sales, as well as for economic profit growth. I would just say that as you think of the SG&A outlook for fiscal '14, this year, we think we'll be about 14.5% of sales. Next year, we fully expect to be less than 14.5% of sales and it's one of the things that should contribute to the EBIT margin expansion of 25 to 50 bps that we're projecting at this point.

Lauren, if this helps you, I think those -- the accruals on comp are still a little bit above average. So there's not like there's some drastic change in the accruals versus where we have been. So we're not -- it's not a significant amount. As Steve said, it's about 1/3 or so, but it's not a significant amount in absolute dollars.

Okay, that does help a lot. And then -- so then really the rest of it is the comparison on the IT and R&D investment.

So I think IT and R&D are the biggest ones that I think we're seeing. But we also have some productivity initiatives that we're putting through to lower the SG&A expenses as well. So it's really all of those things combined. Again, you're going to see variability in SG&A across the quarters, depending on how International inflation plays out. The anniversary-ing of all of these onetime investments we're making, and certainly compensation accruals, as you get moved through the year, can move the number up and down. But the key is to focus on the full year. And for the full year, we would expect to be less than 14.5% of sales. We think there's good traction there. And long term, I would say long term, being over the next 24 months, we think we can get this number to 14% or less. And just recognize there'll be some variability across the quarters here.

Okay. And then just a quick follow-up on bleach. So you did -- I wanted to ask if you completed the rollout of the third region for compaction, if that was completed this quarter.

Yes, we finished it, Lauren, at the end of March.

Okay. So that also -- great, so when we think about just the bleach performance in the quarter, and I know you already talked about starting to see shares moving in the right direction from here anyway. But that still would have been a positive dynamic for volumes in the quarter, right?

I think it's mixed. I think the conversion went about as we expected or within the -- private label followed and the -- I don't think -- it didn't certainly hurt the top line, but I wouldn't say that it was a big growth driver.

It wasn't much of a growth driver in the sense, Lauren, that the last region, which was the West Coast, the retail makeup and the section sizes on the West Coast are fundamentally different than the first 2 regions we rolled out, particularly through the Midwest part of the country and the Southeast, where we see larger store footprints, larger bleach categories, where the category development indices are higher on bleach. So it wasn't -- we didn't see as dramatic a boost on the West region as we did in the center part of the country, if you will, and the Southeast because the store footprints are just different.

I would point out, importantly, we are starting to see the cost savings flow. We certainly picked up a little of that in the third quarter. But by the fourth quarter, as we anniversary some of the onetime conversion costs we've been talking about, that's one of the reasons, we believe that we should see solid gross margin expansion in the fourth quarter, because we're going to lap those investments and start to enjoy some of the cost savings.

We'll take our next question from Greg Hessler with Bank of America.

I think you guys had a $500 million note that matured in March. And I believe it was on the last earnings call where you may have mentioned that you plan to address that with a combination of cash and short-term borrowings. Is that kind of how that played out? And if you did use some short-term borrowings, do you plan to refinance that?

Good question. Yes, we did exactly what we said we were going to do. We used a combination of cash and short-term borrowings in the commercial paper market, which, as everybody knows, has very attractive rates to pay off the $500 million. We'd also prefunded at the last time we had issued debt in the fall. We had prefunded, so we had extra cash built up to cover for it. And at this point, we have no additional plans to bring any additional debt to market. We feel good about the debt structure that we've got. In calendar '15, we'll have more debt that will be maturing. And at that point, we'll take a look at what we want to do.

Our next question is from Connie Maneaty with BMO Capital.

I also have a question on bleach. And that is -- we look at 4-week data and don't normally make much of it because it's a short period of time. So if Clorox liquid bleach is gaining share, and I guess you said 15 of 20 accounts, does that mean that you have regained shelf space -- is that what gives you confidence here?

Connie, just to be clear, the 15 out of 20 reference is that in the 4- to 5-week data, 15 of the top 20 customers have improved market share results versus the quarterly data. They aren't necessarily all increasing yet, but they're better than they were at the 13-week period.

And what do you attribute it to, though?

I think part of it, Connie, is getting back into the merchandising cycle. That's a big driver. I mean, this business does have, obviously, a strong base but it also has merchandising support that's critical, either on a quarterly basis or a couple of times a quarter. So I think it's just getting back into the merchandising cycle and not letting that cycle get too much tipped to private label.

Okay, great. And then one -- just one follow-up on Venezuela. If the ongoing impact from inflation and the lack of pricing power is $0.08 in the June quarter and you've got $0.05 to $0.10 built in for fiscal '14 -- most of that, I assume will be in the first 3 quarters. If it's $0.08 now and $0.10 over the next 3 quarters, why would the conditions there improve?

Let me try to explain it like this. In fiscal '13, on a full year basis, we set aside $0.05 to $0.10. Of that $0.05 to $0.10, about $0.02 will be used to cover the balance sheet remeasurement that occurred in the third quarter. The balance will be used across the quarters to reflect the fact that we had a business that was once profitable, and we've had significant margin compression. And so the business has gone from profitability to breakeven to slight losses. And really, that's what's consuming the fiscal '13. As we look forward into fiscal '14, unfortunately, we don't see the situation getting better in the short term. So we are projecting losses in our Venezuela business in fiscal '14. And the $0.05 to $0.10 is really designed to cover for those losses as well as some challenges in our Argentina business as well. So I think that it's likely to spread across the full year, although the exact amount depends on what the government does with pricing in terms of letting companies take pricing. And then the only unknown piece that we have right now is whether there's going to be another devaluation. And if so, when and how much. And that is completely uncertain given the situation in there, and we need more time to assess that.

Yes, our assumption, Connie, is on the operating environment there and the reason we've set this $0.05 to $0.10 aside, again, in '14 is we're assuming that there's going to be no relief on these price controls. And as Steve said, that just compresses your margins to basically nothing at the gross line. So we're trying to assume, if not the worst, I think a fairly realistic scenario that says this isn't going to get better in '14 and we better be prepared for it.

Yes, I guess my question is why it's only $0.05 to $0.10. If the impact is $0.08 in the June quarter, why isn't it more like $0.10 to $0.15 next year?

Yes. I'm sorry, I'm not following the $0.08 in the June quarter. The $0.05 to $0.10 for fiscal '13 is a full year number, okay? Of which $0.02 occurred in the third quarter and the balance has been -- is going to occur over a series of quarters, which should be Q1, Q2, Q3 and Q4.

Oh, okay. Great, I needed that clarification.

And I would also just say, being completely transparent with our investors about this, is we will be challenged in the first half of the fiscal year, unfortunately, because of the situation in Venezuela and Argentina. So a combination of foreign currency headwinds and a very difficult economic environment will continue to be a drag on both top line growth for our International business as well as profitability. So we think we're taking the right actions to mitigate the impact associated with this, including rightsizing our advertising investment. But obviously, this is a challenging situation.

Yes. And that's why in addition to the $0.05 to $0.10 on this Venezuela and Argentinian issue, that's why we also took 1 point of sales growth against the -- we would have come out with $0.03 to $0.05 on a currency-neutral basis but we came out $0.02 to $0.04 in the outlook because we wanted to recognize that Argentinian devaluation, which has slowly eked out over time. It's not like the government is taking a formal action like the Venezuelan government.

We'll take our next question from Erin Lash with Morningstar.

I wanted to talk about the Cat Litter business. You mentioned in the press release that Cat Litter shipments declined again this quarter, reflecting the price increase you took about a year ago. Obviously, price increases, you've mentioned that you tend to take those reflecting commodity cost increases and that sort of thing. Is there any -- I guess, do you feel that taking the price increase on Cat Litter was a good thing? Or what, I guess, is your strategic direction for that business given the challenging volume metrics that you've seen recently?

Well, I think, Erin, actually on the Cat Litter business, if you look at the quarter, while we saw some volume compression, we saw NCS, or net sales growth in the mid-single digit. So it looks like it's starting to recover, and that's certainly a sequential improvement. For year-to-date, we're up a little over 1% in sales. So we're almost triple that rate in the latest quarter. So I think we're starting to get some traction there. And if you look at the category, the category growth on litter, if you look at the last 13 weeks, and this is data ending in March, you're looking at 5.5% dollar growth. And while we have lost some share, we're starting to see some sequential improvement as we go into -- as we go -- I think we'll see some improvement as we go into April. So we're seeing some decent sales growth now, certainly at a higher rate than we saw year-to-date in the latest quarter.

That's very helpful. And then just one other question. You talked on the call about the challenging economic environment and consumers being under pressure at home. And I was wondering if you could talk kind of about the different channel shift that maybe you're seeing and how you fill your positions in various channels that consumers -- a strained consumer may be shopping in now more so.

I'm sorry. Let me just clarify something, Erin, before we get into that question. The year-to-date number on Litter is actually north of 3%. So we've got a pretty good number year-to-date on that. So could you go back to your question, though, again?

Yes, yes. You talked about the fact that the consumer spending environment in the U.S. remains challenging. And so I was just wondering if you could talk about any of the -- any channel shift that you might be seeing from the consumer perspective.

Yes, one thing -- couple of things we're seeing. One is, and this is from panel data that we have, that fill-in trips are increasing and fill-in trips -- this is defining a trip as less than 15 or less items during the purchase. Fill-in trips now are 85% of the shopping trips that are out there and accounting now for almost $0.50 spent, so we're seeing -- that's clearly a change from, say, a couple of years ago. So people hopping around different channels, cherry-picking, if you will, and reducing the purchase size when they're hitting these channels. We're still seeing gravitation to value channels, whether it's the dollar channel, which has slowed a bit, as -- certainly as our largest customer has gotten more competitive in the last 15 months to 18 months. But we still see the club channel, the dollar channel and the mass channel continuing to really be fairly robust compared to the traditional grocer.

We'll take our next question from Javier Escalante with Consumer Edge Research.

I would like just to talk about your fiscal '14 guidance, the 25 to 50 basis points EBIT margin improvement, which is very similar to your -- it's kind of your default target. But you have already 25 basis points at least of margin expansion, which I believe is a sure thing because it has to do with the ramp-down of the IT and R&D spending. And it seems to me that you are less inclined to bake in gross margin expansion in 2014. And I wonder whether this is being conservative or you feel that you are taking too much pricing and given the consumer environment, you don't see enough justification to try to pass through the commodity increase of 100 basis points that you are calling for in your gross margin. So if you can help us understand whether there is a change in the business model, how you're going to drive earnings in 2014, meaning more from SG&A, less from gross margin expansion going -- at least for the full year.

So Javier, this is Steve. So first, let me say that we feel very good about the 25 to 50 basis points is our plan to expand gross margins, consistent with our long-term outlook. So it is certainly not a default position. So as you think about our EBIT margin expansion of 25 to 50 basis points, there's a couple of reasons why the gross margin will be a bit more challenged next year versus what you might expect over the longer term. And really, the biggest thing I would point to is our International business. We would like to take more pricing in Venezuela and Argentina. Unfortunately, we can't. And so right now, we've got good plans to expand gross margins on the U.S. side of the business. But the challenge is is we're really struggling to be able to take pricing internationally. And certainly that's placing a drag on the gross margins versus what you might expect to see on an ongoing basis. Now that said, we continue to believe we have leverage on SG&A, and we've got good plans to drive productivity improvements and cost savings and, as you say, anniversary some of the infrastructure-related costs. So we do think that SG&A will drive more of our EBIT margin expansion in fiscal '14. I think longer term, you would expect that both gross margin and EBIT margin should grow together. But we do have some unique challenges that we are facing into fiscal '14.

But as this commodity increase that you are calling, right, that you have great visibility because of your long-term buying programs, you're saying that your fiscal '14 does include already price increases? So if it does include price increases, why your gross margin are going to be still below those that you had in 2011? Why is it that it is difficult to come back to higher gross margin?

You may have missed this earlier. But what I said is if you look at the U.S. business, which is 75 -- U.S. Retail business, which is 75% of the company's mix, there's virtually no pricing in that next year. So if there's any pricing at all in the P&L, there may be some modest pricing in International outside of Venezuela and Argentina, where we can take no pricing -- so virtually no pricing. So there's very little, if any pricing, in the P&L. I think that's the change. When you're looking at commodities up 100 basis points and other inflation up about 100 basis points and you're looking at cost savings at about 150 basis points, we've got a very modest build in there from pricing, which I think is prudent and/or from mix improvement. So that's kind of your offset. You've got a couple of hundred basis points of pressure and a couple of hundred basis points potentially of offset. So you're basically in this flattish area. And I don't know if I'd define that -- I don't know if I describe that as conservative. Perhaps it is. I think I'd describe it more as realistic at this point.

No, I understand. I mean, you mentioned that the consumer environment, I just was trying to see whether you have built price increases in the U.S. or not given whether this level of inflation in itself at limbo, that it's hurting but it's not enough to justify a price increase to retailers. That's what I meant.

Yes. And I think the way you just said it is the right way to think about it, Javier, that we don't think, given where commodities are, that it warrants a price increase for the most part and going into retailers and trying to persuade them. Unless we have a particular innovation that warrants it, then I think we're pat and saying no, we're going to -- we're really going to focus on holding -- really focusing on price value.

We'll take our next question from Jason English with Goldman Sachs.

Quick housekeeping item. Did I hear you lower your CapEx guidance for the full year to $180 million?

You certainly did. We brought the CapEx down to about $180 million. And it really is just a reflection in part of lowering some of our spending expectations for International, given some of the dynamics in that market. And we're also just tightening up the spending to try to get that free cash flow back to where we think it needs to be, which is around 10% to 12% free cash flow as a percentage of sales over the long term. And this year, we think we'll be right around 10%.

Okay. So you're kind of curtailing your CapEx a bit. You're not buying back many shares and you're starting to see the option creep as a result and you're running down net debt. How should we think about your use of the balance sheet going forward?

I would say we're pretty consistent in our uses of cash. We've been focused on, obviously, supporting the organic growth of the business and paying off the $100 million approximately that we invested for the bolt-on acquisitions. We're going to continue to look to support the dividend and the growth of the dividend. That will be something that people should expect.

Yes. I think if I could just jump in on that one, Jason. I think we have our board meeting coming up in 2 weeks, and this is the traditional time of the year where we'll revisit the dividend with the board. So you should expect some news come out of that board meeting in a couple of weeks.

And then we've also been focused on, as we've talked for a while, not just the infrastructure investments in terms of funding those, but also paying the debt down. We were above our debt-to-EBITDA ratio for quite a while. We've gotten that down into, call it, the lower end of the debt-to-EBITDA ratio. So I think the good news, as we anniversary the infrastructure investments, the debt is back down to more normalized levels. Our expectation is we'll probably start building up on cash. And to Don's point, consistent with what we've done for many years now, is we'll look to get that back to our shareholders in some way that makes sense. Certainly we'll take a hard look at the dividend in partnership with the board. And I think at some point, we'll go back and look at share repurchases as a way of returning cash back to our shareholders. But again, that's one of the benefits of the company as we do throw off a lot of cash, and I think our options will open up as we go forward over the next 12 months.

So I should not interpret this as you guys building a coffer to go out with more aggressive M&A?

We will continue to focus on bolt-on acquisitions that we can fund out of cash and commercial paper. That doesn't mean that we're -- we can't let the debt-to-EBITDA ratio go down to the lower end of the range or even slightly below to build up some dry powder. But at the end of the day, if we don't foresee a need in use of the cash, over time, we will look for ways to get that back to our shareholders.

But just to be clear, Jason, I think you're correct and there's -- what I want to be declarative about is we're not looking at any transformational acquisition. As Steve said, what we're talking about here is bolt-ons like we've done over the last couple of years. So just to be clear on that point.

We'll take our next question from Chris Ferrara with Bank of America.

I'll try and keep it quick. Just back to trying to size the order of magnitude of the weather-related hit to the Charcoal versus the benefit you got in cold and flu. Look, I mean -- if you look at scanner data sales, right, it looks like the amount you lost year-to-date in dollars year-on-year on Charcoal is a little bit lower than the amount you gained in things like Disinfectant and Wipes. And I guess I'm just trying to understand, is that right? Like what's your take on that? Is that the wrong way to think about it? Like why shouldn't I think of cold and flu as as big a benefit to the quarter as maybe the Charcoal weather-related hit was a detriment?

Disinfecting Wipes business was certainly up -- it was up nicely. I think as we said at the beginning of the call, the Charcoal, unfortunately, was down pretty significantly. So from the sales standpoint, you -- fair enough, you got Disinfecting Wipes up, you got Charcoal down. I would say, however, from an earnings per share standpoint, this is really important because we missed the consumption period in March. And unfortunately, April has had some pretty poor weather, and we're missing some consumption there. That the $0.06 of diluted earnings per share impact that we saw in the quarter, that will fall through to the full year. So I think there's some put and takes in the quarter. But...

Let me say it this way to you, too, Chris. I think if you look at other sales growth, forget the scanner data for a minute, looking at what drives the P&L, if you're looking at the hit from Charcoal in sales in the quarter, it was double the gain in Home Care for the quarter. So that -- we like -- to Steve's point, 1.5 point of growth for the entire company is about $20 million in the quarter. So when you look at that, it was -- that was double the gain of Home Care. So Home Care did not offset.

And we'll take our final question from Jason Gere with RBC Capital Markets.

Just 2 questions. I have a housekeeping and then more strategic. The housekeeping is, I'm not sure if you broke down the difference on the sales line between price and mix for the quarter, if you could talk about that and maybe the trends, how that -- maybe that was influenced by Charcoal. And then the more strategic question is, when you look at the organic sales numbers that you guys have been delivering, if you look at last quarter, where, obviously, you delivered a very high number on a very tough comparison. For the most part, you guys have been averaging between 3% and 4%. So I'm just wondering if, internally, you guys ever think about especially with category growth still in that 1% range. Is it more prudent to go with a long-term or at least a near-term sales target of more like 2% to 4% rather than a 3% to 5%? And just considering your geographic mix how it's in there, given 2% to 4% for being a predominantly U.S. company is not too shabby. But I was just wondering about -- I'm not saying the expectation is too high for yourself.

Yes. Well, let me start on this, and then I'll let Steve jump in. I think that when you look at the way we built that 3% to 5% up over time, it was always based on 2 points of growth from new products, 1 to 2 points from category and then 1 point or so from pricing and/or mix. So that got us into this 4% to 5% range. When the categories collapsed a bit a few years ago, and it went from growing 1 to 2 to being basically flat to down 2, we said we've got to redouble our efforts on innovation. So this year we should deliver another year of 3%-plus in innovation as we did last year. So we think we've made up the slack of the categories going down to more of a 1% level. So if you take 1% from category, 3% from new products and any pricing or mix improvement, we should be in this 4% to 5% range. Now that's currency neutral. It was always predicated on being currency neutral. If there's more significant currency headwinds in there, then that, obviously, takes off from that. So that's the real wildcard in this. If not a currency-neutral basis, we think 3% to 5% is appropriate. 2% to 4% is more appropriate if we're going to get 1 point of headwind out of FX.

And then just on your question regarding price/mix, price/mix in the third quarter was about 2 points. So 2 points positive. And to Don's point, 2% to 4% is the right outlook to be using for fiscal '14 given the foreign currency headwinds and given the fact that it's likely we'll have less pricing in part because of price controls and in part because in the U.S. Retail business we're likely to take less pricing, unless we see some major shift in the inflationary environment.

The only other thing I would add to that is if you look at some of the growth engines of the company right now, and albeit they're a bit smaller, Burt's Bees, for example. The margin structure of Burt's is significantly better than the company average. If you look at our Healthcare business, which is also growing in double digits, that is slightly better than the company average. So you look at that and you start to say, "Maybe there's a little bit of mix tailwind in here as well." So that's why we felt confident that would -- on a currency-neutral basis, 3% to 5% was still appropriate.

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

Yes. Well, just to -- just thanks to everyone for attending the call. Like I said, I think we feel good about the quarter given the headwinds we've experienced, and certainly about the year-to-date performance. So we will certainly get back to you, obviously, in August. We look forward to that discussion. And then later in the year, in October, when we host the -- all of you out here. Thanks, everyone.

This concludes today's conference. We thank you for your participation.