Good day, ladies and gentlemen, and welcome to The Clorox Company Third Quarter Fiscal Year 2017 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. 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 Benno Dorer, 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 seven 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. Company undertakes no obligation to publicly update or revise any forward-looking statements. So with that, we'll now turn to our prepared remarks. I'll cover our highlights of our third quarter business performance by segment. Steve Robb will then address our financial results and outlook, and then finally, Benno will close with his perspective. And then we'll open up the call for your questions. So let me start with our top line results. In…

Well, thanks, Steve, and welcome, everyone. We're pleased to deliver another strong quarter of both volume and sales growth. And importantly, as we indicated in our press release, we're on track to deliver solid sales and earnings growth for the full fiscal year. Now, turning to our financial results for the third quarter, third quarter sales grew 4% reflecting 7 points of volume growth, including nearly 3 points of volume contribution from the Renew Life acquisition and 1 point of benefit from pricing in International, mainly in Argentina. These factors were partially offset by nearly 3 points of unfavorable mix and over 1 point of higher trade promotion investment to support our innovation programs. Gross margin came in at 44%, a decrease of 130 basis points, compared to a 210-basis point increase in the year-ago quarter. As always, we provide details on our gross margin drivers in a supplemental schedule that's a part of our earnings release. What I'll focus on now is our perspective on third quarter results, and what we're anticipating for the full year. Third quarter gross margin was lower than anticipated, primarily from the impact of negative mix in our Charcoal business and strong performance in the club channel across multiple businesses. All other assumptions for third quarter gross margin played out as we anticipated. Turning to the full year, we anticipate fiscal year gross margin to decrease modestly, reflecting ongoing inflationary pressures, firming commodity prices, unfavorable mix, and negative foreign currencies. In addition, fiscal year gross margin reflects higher trade investments to support product innovation. These factors are expected to be partially offset by the benefit of cost savings and pricing. Longer-term, improving gross margin continues to be a priority, and we certainly feel good about our strong track record of delivering meaningful cost savings…

Thank you, Steve, and hello, everyone, on this 104th birthday of The Clorox Company. As I round out our prepared remarks, there are three things I want to share with you today. First, we're pleased to have delivered continued strong volume and sales growth this quarter in an environment where growth is so hard to achieve. This was our fourth consecutive quarter with 7% or greater volume growth. Our focus is first and foremost on the health of our core business by offering superior value to consumers behind strong brand investments and innovation. And the robust innovation we launched in the first half continued to be a key driver of volume and sales growth in Q3 with several new products off to a strong start, including Clorox Scentiva wipes and sprays and Brita Stream pitchers. And with marketing support now turned on for most of our new products including Hidden Valley Simply Ranch and Kingsford Long-Burning Charcoal, we feel good about the outlook for innovation in our fourth quarter as well. We also continue to feel good about Renew Life, which contributed two points to sales growth this quarter. Yesterday marked the one-year anniversary of the acquisition of this business, and I'd like to take a moment to recognize all the people across our company who have made the integration of this business so smooth and successful and who are driving distribution and market share. In Q3, our International business also continued the upward trend we started to see in Q2. We delivered another quarter of strong profit growth with our Go Lean strategy behind price increases and cost savings which include the sales of a distribution facility as our team continues to focus on improving profitability. The next point I want to emphasize is that we continue to have…

Thank you, Mr. Dorer. We'll go to Kevin Grundy with Jefferies.

Hey. Thanks for the question. Good afternoon, guys. First question, Benno, just on the guidance for the year, organic sales growth now. So it looks like the midpoint of your guidance implies about 2.5% growth at the midpoint, but given about 3.5% year-to-date, it would seem to suggest a deceleration about half a point of growth in the fourth quarter. So, if you could just confirm that and some of the drivers behind it? And then related to it, of course, there's been a lot of discussion, some of which you touched on, with some of the weakness that we're seeing in the U.S. in a difficult retail environment. Can you talk a little bit about what you're seeing in April? The Nielsen data we're looking at suggests that industry growth for you has gotten a little bit better but still negative, so maybe you could comment a little bit on what you're seeing so far quarter-to-date? And then what's implied in your guidance for industry growth here for the balance of the year. Thanks.

Kevin, this is Steve. Let me start off. You've got a couple of questions there. First, in terms of our sales outlook for the year, as we said in the press release and our opening comments, we anticipate 3% to 4% sales growth for the full fiscal year. And I'm certainly very pleased that we're at the upper end of that fiscal year-to-date. I think as you look to the fourth quarter, a couple things I would point out. Number one is we're going to begin the process of lapping the acquisition of the Renew Life business. That, for the full-year, is expected to deliver about two points of incremental sales growth for the company. But again, we'll start lapping that as we go into the fourth quarter. We're also going to start lapping the expansion of Clorox Disinfecting Wipes into a major club store customer in the fourth quarter. So I think on balance, when you run the math, we'll see where we come out. But it's possible as we start to anniversary that, the growth could be a bit lower in the fourth quarter just because we're anniversarying some of those items. I'll let Benno take your next question.

Yes. So on categories, look, in Q3, our U.S. business was up 9% in volume. And that's, I would say, puts us, you know, in a position to be well positioned relative to our competitors. Shares are steady. Volumes in our categories are steady and, frankly growing, so the categories remain quite healthy. And I would call our business in the U.S. on track. What we're watching per our introductory remarks is category value as consumers migrate towards more value and as retailers compete with each other more based on pricing. And that's something that we're certainly focused on, and we're also focused on non-track channels. A lot of the growth right now comes from non-track channels and that business, frankly, is very healthy as we think about eCommerce, as we think about club, home hardware, the institutional channel, dollar, new channels, convenience stores, others. We feel like we have a tremendous amount of growth opportunity in non-track channels that we're taking advantage of. So I would call our categories quite healthy and, frankly, resilient. What we need to make sure is that the volume growth that we're seeing in our category continues to translate into strong dollar growth and we're doing that by investing in the more profitable parts of the portfolio and the higher dollar ring parts of the portfolio, which includes innovation, and we're doing that by maintaining the strong brand investments that we have started to put in about two years ago. So all-in-all, I would say in a very difficult environment, the business remains on track, and the categories are, frankly, quite steady.

Okay. Thank you.

Thanks, Kevin.

We'll go next to Olivia Tong with Bank of America Merrill Lynch.

Great. Thanks. Just following up on that, I mean, you guys obviously continue to drive strong volume growth, but it is coming now with the help of even more in price promo mix. So I guess two questions. First, is it really driving any incremental consumption by consumers or any new consumers into the category? Not just for you, but also for the category as you think about the retail, the pressures from retail? And is there any concern that all this promo is really just pushing consumers to stock up more and that it'll come to sort of hurt later on? And then, second, what happens now that raw material prices are going up? How do you think that's going to impact promotional levels for both you and your competitors?

Yes, thanks Olivia. A lot packed into those questions. So first thing, what we said is that price, our trade promotion dollars which clearly have been tracking up in line with what we've communicated in the past, they're going after two things. First of all, there are a selected number of categories where we are responding to an increase in competition, and I would say Wipes and Glad trash are two examples where we're responding in kind to make sure that our categories and our business remains healthy long-term. We've also said that we're not afraid to do that even if it hurts the profitability of one quarter because we're putting these spending plans in place with an eye on the long-term health and profitability of the business and we continue to do that. That's something that we're doing quite well. The big buckets of where our trade promotion dollars go is innovation, and we've also said in the past and continue to believe that these are strategic investments that build our brand equity because they increase speed to shelf and because they get these innovations off the ground. As you know well, we have a lot of innovation and an environment that is clearly innovation starved, and we're leveraging that. And as a result, several of the innovations, as we've indicated in our introductory remarks, like Clorox Scentiva, like Brita Stream, like Kingsford long-burning charcoal, like also the Clorox Fuzion in the institutional channel are doing really, really well. And that, of course, bodes well in the long run. To your question as to whether this will have a long-term positive impact, beyond the innovation that it helps, I would ask that we perhaps look at household penetration. As you know, we're very much focused on driving household penetration.…

Thanks. Appreciate the color, Benno. Just one follow-up. I noticed on your price sheet that there's no raw materials-related pricing plans yet. Is it just not enough yet to warrant a move? Or is that just a function of all the factors within the environment that we're talking about right now?

I think it's just very early, Olivia. Keep in mind, we've been enjoying tailwinds for actually a couple of years now and we just started to see the headwind in this quarter, and I think what we'll need to see is sustained increases in raw material pricings for some period of time at a level that's high enough to justify pricing. So I think this will take a couple of quarters to see if the trend continues to play out this way. I think what's important to note, though, is we've got leading brands. They're very strong. So as we've experienced before, if, in fact, we start to experience a real margin squeeze associated with this, we're not afraid to take pricing. It sometimes means we lose a little volume in the short term; it tends to come back, but we're not afraid to take pricing to protect the margins, but this is the first quarter of headwind, so I think we need a few more quarters to see how this plays out.

Great. Thanks, guys.

And we'll go next to Bonnie Herzog of Wells Fargo.

Thank you. Hi, everyone.

Hey, Bonnie

I had a follow up to some of the commentary around the club-channel. How should we think about gross margins as you start to lap some of the distribution gains there? And then, separately, can you give us a sense as to how your new Scentiva products are impacting your gross margins?

So maybe the Scentiva first. The large majority of our innovation is margin accretive to their categories, and we should be thinking about Scentiva as one of the products that falls into that camp, and, as we've noted, that's off to a really nice start both in wipes as well as in sprays, and we're pretty bullish about this being a future innovation platform. Now, the club business, what we've noted is somewhat of a trade-off. Some margins generally are a bit lower than our average margins, but it's better to be in club than club shoppers buying your competitors in that channel, and being the only game in town on wipes in club has certainly been a very good initiative for us that's importantly been instrumental in the wipes business, gaining access to full points of incremental households over the last year since we started being back in club. So feeling good about being in club, but we have now, in Q4, fully lapped that distribution and certainly what Steve had noted is that the club business, the particular strength that we've had, in particular, also driven by wipes, has been somewhat of a headwind for us margin-wise, and we have now fully anniversaried that, and that's certainly something to take into account as we think about margins for our business going forward.

Okay. Thanks for that. And then I was hoping to get a little more color on your trade promo spending that pressured your gross margins in the quarter. How much of the increase is due to investment behind innovation versus in response to competitive pressure? And then curious, how much pressure are you guys getting from retailers to possibly share in some of the price investments that they've been making? And, I guess, I'm getting the sense that this must be intensifying.

The split question first, Bonnie. I don't know that we break that out for you, but, like we've said earlier and like we said in the past, it's a mix. More broadly speaking, our focus is on supporting our innovations, and I would like to remind everybody that trade promotion doesn't necessarily mean pricing. It can go into displays and other value-added activities, which is certainly our focus, but then there are a few categories, and we've in the past noted wipes, Glad trash, and also cat litter, which is doing really well, where the competition is quite intense, and where we're responding in kind to some of our competitors' activities. So I would say it's a mix. On the pricing activity that you mentioned, we have a fair and equitable pricing policy, which means that all retailers qualify for the same pricing, and we do not favor any retailer, big or small, on that. So if retailers choose to make price investments on our brands, we are not supporting that because, again, we're handling our business with a long-term eye on profitability, we'll treat all customers fair and equitably, and we also know that most of our brands don't see an increase in consumption if pricing is lower so we're certainly focused on protecting the pricing integrity of our business and because we're category managers for most of our categories with most retailers and we're advising retailers on their strategies on how to grow our categories profitably, that's certainly a component that we're very focused on and that we're stressing in all our conversations that we have with retailers.

All right. Thank you.

And we'll go next to Andrea Teixeira of JPMorgan.

Hi. Thank you. Good afternoon. I just want to – and I'm sorry to go back to the same questions that we are all asking. I mean, in terms of your top-line growth, which obviously was quite impressive in this competitive environment. But – so could you help us bridge the kind of channel neutral, if you will, of this promotion, let's say? Or is it mostly because you've gained distribution? So you've got all this volume and you've gained distribution not only at Costco or online or more shelf space in some of the categories where you're gaining market share? Or you have more innovation? So I was just trying to see on a same-shelf-space basis or a same-door basis, how much more spending are you incrementally having in promotions? So how much of that is – or are you seeing that coming off of a quarter and you're seeing that intensifying, going back to Bonnie's question, as you go into a more difficult environment? Thank you.

So, Andrea, I mean, clearly if you think about the – let's talk volume growth. So a lot of the volume growth clearly is in non-tracked (40:02) channels, but that's because consumers are increasingly buying in non-tracked (40:06) channels. And we realize you guys don't see that, but what it speaks to is the strength of our business in those channels and that's not by happenstance but that's because we're investing in innovation, we're investing in assortments and we're following the consumer. If you think about where the growth is, it's in eCommerce. eCommerce fiscal year-to-date is up 30%. If you think about where the growth is, it's in club because consumers migrate towards club. Why? Because club offers better value and we're driving a lot of growth because we have strong brands. Home hardware is the same. If you look at the home hardware channel as is well publicized, it's doing really well, and we're investing, and that's delivering strong returns. If you think about Professional Products, which again is up 7% off of 17% in the year-ago quarter, we're investing in that channel. The dollar channel, if you think about what we said in the past about our focus on $1 SKUs which we have launched last year and which are contributing about 0.5 point of growth to our company, that speaks to the consumer trend of affordability which we're addressing very, very well. So we are focused on driving our categories and our brands the right way and with a long-term view. And as a result, we're driving growth in those channels through certainly strong investments in things that drive our brand equities in expansion of assortment, in innovation, and in overall health of both new SKUs as well as existing SKUs, but the right way and with the long-term view. So that is what's happening here, and that's what's driving the growth that we've had. You've noted that we have growth in an environment where few companies do, and that is deliberate and based on strategy.

No, that's helpful, Benno. But just on the existing, let's say, the Walmarts, the FDM, you're still – you're not worried about like the level of inventory. You don't see that they're overstocked relative to the consumer take-away.

First of all, always worry about Walmart. They're 26% of our business, so we always focused on making sure that that business is healthy, which it is. And frankly it's been healthy for a long time and we feel good about that. Why is it healthy? Because we're doing exactly what I just said. We're investing with them in activities that drive category growth, and we're keeping our value sharp on our brands through innovation and brand building, and we're rewarded by Walmart for that. Walmart's very good at operations, of course, and very good at managing their inventory. A lot of it is done electronically, so we have not seen an uptick in inventories. We have not seen anything unusual there. So our business with Walmart and other customers is pretty sound, and we're working with them to keep it that way.

Perfect, Benno. Thank you very much, and congrats.

Thanks, Andrea.

We'll go to Ali Dibadj of Bernstein. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Hi, guys. A few questions. One back on gross margin, clearly, a little bit weaker. You've talked through commodities, manufacturing, logistics, as well as mix now and, of course, trade spend. And if you take gross margin and you correlate it to your stock price, it actually ties very much to your stock price, at least historically it has. So if your gross margin goes down, your stock does as well. So what's your outlook on each of these dimensions, especially on the mix and trade spend drivers of gross margin? Because it certainly sounds from discussion set (43:51) that the ability to take price will be a little bit more curtailed going forward. So if you can talk about, particularly, around mix and trade spend which you do have an eye into, that would be helpful.

So, Ali, as you know, in August of every year, we provide our outlook, and we'll certainly do that this year and provide you an outlook for fiscal 2018. I can give you some directional indicators, at least, based on what we know today about gross margin. First, I would just say that we do believe we have plans in place over the long-term to expand gross margins, not to say that you can't have variability across the quarters or even years. Of course you can. But we feel good about our plans. That said, our cost savings, we continue to feel like we've got a very healthy pipeline and we target to get 150 bps of margin expansion. That's all in. Some of that goes to gross margin, some goes to other lines, but we're feeling good about that. Pricing is an area we're keeping a sharp eye on. As you know, and as you can see in our web attachments, we've been taking pricing primarily in International, it's working. And I think you'll likely see us continue to take pricing in International and we'll have to make a determination at a future date whether pricing is – makes sense and it's cost justified in our U.S. business but certainly over the long-term with the strength of our brands, we're not afraid to take pricing if we need to. Commodity prices, as we have said for some time, I think that's going to turn into a headwind, and I think it will likely continue to be a headwind at least for the next few quarters, absent some event that we can't see, so started in the third quarter. I think you'll see it continued to be a headwind through the fourth quarter and beyond. And then I think everything else, manufacturing, logistics, you'll have some ups and downs across the quarters but you'll continue to have headwinds. As it relates to trade spending, we have – I do want to point out that we stepped that up pretty significantly in the third quarter. This was long planned. This is something we built into our plans at the beginning of the year. This is not in response to recent events. And this was really designed to do innovation. And I would also just call out that we're trying to better balance our third quarter and fourth quarter spending, so while third quarter advertising and trade spending was up significantly, and for good reason, fourth quarter, I think, you'll see those numbers come down a bit versus the year ago period. And again, that's a conscious choice on our part. So in short, feel good about the margin expansion plans. Just seeing variability across the quarters, but I think we've got good plans and we're executing well.

And, Ali, building on this point, just putting gross margin into perspective, I think what we said, clearly, the 130 basis points versus a year ago is something that we have discussed. But versus two years ago, it's up 80 basis points. Versus three years ago, it's up 190 basis points. So hopefully that puts one quarter into perspective. As you know, we manage our business for the long-term. I would add to Steve's point on pricing that while, clearly, taking pricing in an environment like this is not easy, we do know that we still have pricing power. Pricing sensitivities are about the same as they were one year, two years, three years ago. So that feels good. And we also know that the majority of our sales enjoys a perceived value superiority by our consumers, which again speaks to the fact that we have an opportunity here should we need it down the road. And we're perceived to have superior brands because we have innovation, because we put investments in, and because we have a disciplined pricing that keeps price points sharp. So we have a toolbox to grow gross margin even in a more difficult environment, clearly. Ali Dibadj - Sanford C. Bernstein & Co. LLC: That's helpful. And just in terms of, kind of, related to that and the drivers of top line growth you have seen so far, clearly, it's been price and volume the past several years. As you go forward, it does seem like your ability to take price might be a little bit curtailed, given everything we've all talked about from an Aldi, from Amazon, from Walmart in terms of not just pure pricing pressure but increased private label, right, whether Aldi is successful or not, Walmart's ramping up private label. Aldi, if it is successful, will ramp up private label. Clearly, Amazon RFP'ing on private label across the board. And you guys are quite prone to that and you have been historically successful, but the price gap has no option but to expand between private label and you despite all the innovation that you're going to be doing and you have been doing. So I just wonder, from the drivers of top-line growth perspective, is price going to be an element of it going forward? And in particular, within the past year, obviously, M&A with Renew Life and distribution growth on wipes have been greater drivers than underlying growth. Are there more opportunities there that you think M&A-wise and distribution potential that could overshadow some of the past difficulties that I'm suggesting on price? Thanks, guys.

Yes. A lot packed in there. I would say, I don't know that our drivers of sales growth going forward will look dramatically different than what they look like in the rearview mirror. It is innovation. Innovation is margin accretive. Innovation tends to be more at the higher end of the spectrum. It is, therefore, trade up. It is shifting the investment mix towards faster growing categories; digestive health, of course; natural personal care, the institutional channel, e-commerce. We have systematically shifted our investments towards those more profitable, faster-growing areas of the business, and those will all continue to yield results as you've taken away from our previous remarks. Our categories are quite healthy. There is a slight downward pressure on pricing, but as retailers clearly also become sharper and will compete with, or will try to inoculate themselves against discounters, what that will do is it will take categories further down, and what you need, therefore, is you need premium price market leaders, and, as you know, more than 80% of our portfolio is a premium-priced market leader, and we expect that to be frankly an opportunity for us in the marketplace. I followed discounters for 25-plus years when it all started in Germany, and what's happened is an increasing bifurcation in the marketplace. Market leaders win; private label wins; number three, four, five brands, most of them medium-priced in categories, lose their reason for being because they're trade down from premium brands and because they are trade away profit-wise from private label. So I look at that frankly as certainly something that we're watching, but mainly also an opportunity for our brands because retailers then, in the future, more than ever will need premium-priced brands, strong brands, backed by innovation to grow categories. Private label does not grow categories. So I look that as a good thing for us, and frankly, somewhat of a tailwind. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Okay. Thank you, guys.

We'll go next to Jason English of Goldman Sachs. Jason English - Goldman Sachs & Co.: Hey, guys. Thanks for squeezing me in. Benno, you mentioned in your prepared remarks the strong volume growth four quarters in a row, the penetration gains. It's definitely impressive, but it's clearly coming with a pretty hefty price tag in terms of the price-mix drain. Is that just the reality we're living in today? To chase this type of growth, we're going to have to suffer that price-mix degradation? Is it something that's a bit more transitory? And why shouldn't we be concerned that that price-mix line is building as a more substantial negative at the same time, that the commodity inflation has inflected, as you point out, likely going to continue to climb from here?

Yes. I mean, the best way, Jason – thanks for the question. I would answer this it that (52:14) let's keep focusing on the long-term. Any given quarter, sometimes our numbers are up, sometimes they're down, but if you look at the fiscal year, we've driven 3% to 4% sales growth, 7% to 9% earnings growth this environment. It's the third consecutive year of really solid value creation for our shareholders, and that's perhaps something I would keep in mind. What it tells you is that we are not afraid to make choices within any given quarter that allow us to profitably grow the business with the long-term eye on it, and that's all there is to it, and we're doing it the right way by focusing on the ROI on our spending, by focusing on penetration and market share, by focusing on innovation that is margin accretive, and will provide for future growth, by focusing on driving faster-growing categories. It's disciplined, it's strategic and it's with an eye on the long-term. Is it more difficult to grow the business profitably when commodities costs are up and when retailers like to compete with each other? Yes. But I'll also tell you that our track record of competing in this environment is frankly pretty formidable, and if you look at the financial crisis or other situations like this, again, this is not new. We have done this pretty well. And you know what? It is time for us is to activate some of the things that we've done pretty well in the past. Some of them we've talked about today. Our costs savings program continues to be very strong. Our focus on investing in the premium ends, more profitable ends of the business is working. We talked about pricing in international and should we need it over time, perhaps in the U.S. SG&A productivity. There's a lot of things that we're doing that we can continue to activate in the future so that I feel pretty confident in our ability to add value to our shareholders in a meaningful way in the long run. Jason English - Goldman Sachs & Co.: That's helpful. One other way you've add some value and driven some growth is through some pretty smart acquisitions in the last couple of years, or at least they seem to have been. As you think about the pipeline out there, the market environment, are there opportunities out there that you see to go out and buy more?

Hi, Jason. This is Steve. I would say, we're always looking at our pipeline, and it still remains more of a seller's market than a buyer's market, but we're actively looking at lots of different opportunities in different spaces. But our number one priority will continue to be driving organic growth, healthy growth on our base business. But to the extent that we can find, not just good businesses, but good deals at attractive prices, we certainly have plenty of cash flow and available resources to be able to execute on it. But it's pretty hard to plan for that. So we work it all the time, but our number one priority is to keep driving hard against our base business and keep that innovation pipeline healthy. Jason English - Goldman Sachs & Co.: Very good. Thank you, guys.

Thanks, Jason.

We'll go next to Jonathan Feeney of Consumer Edge Research.

Thanks very much. Benno, you made a comment earlier in the call about you're a one-price company. I know there's some relevant rules and legislation about that that everybody has to follow, but I know you're also free to set certain volume or dollar-level incentives for sizes of the shipments or whatever that functionally give some customers, everybody to get the opportunity to do a lot of volume, but functionally, give some customers have a better chance of getting to those volume incentives than others. I guess my questions are, are you saying that Clorox doesn't work that way? That in fact your volume – you'll offer the same levels of price that (56:16) will offer those incentives at different levels? And does maybe trying to – does it ever happen that trying to work with the needs of one retailer, as far as volume incentives and shipments, lead to unintended consequences across other areas? And my second question is just about e-commerce. Is your share in e-commerce approximately the same as your share offline in the categories where you do participate? And can you give us a sense how big that is of your business? I didn't hear that before. Thank you very much.

Yes. Thanks, Jonathan. So, first of all on a pricing policy, we do not comment on specifics on the price policy and certainly not on specific conversations that we have with retailers. All I can do is reiterate that our pricing policy is fair and equitable, and all customers have the ability to qualify for the same pricing. On e-commerce, we don't have good and reliable share data, I will say, so the industry is still working on that. What we do know is that the business is up 30% fiscal year to date. In Q3, for instance, the business with our largest customer in e-commerce is up 75%, which tells you that trends are quite healthy. And for the first time, e-commerce now is north of 3% of sales in our company. What we have said is that we would like this business to be $300 million in size by the year 2020, and we're frankly slightly ahead of that and working towards upsides against that goal. So feeling good about e-commerce. Why? Because our capabilities that we have translate very well, because we have leading brands that matter to consumers in the e-commerce space and because we have, frankly, started talking about e-commerce years ago when this wasn't a hot topic in our industry just yet. So we feel like we've built a competitive advantage that we're putting to work now.

Thank you very much.

And we'll go next to Faiza Alwy with Deutsche Bank.

Yes. Hi. Thank you. So I just had two questions. One is on Burt's Bees. So I know the business declined because of the prior-year comp, but can you talk about the consumer take-away trends in that business? And then secondly, I just wanted to ask about the other income. So I know there's $10 million from the gain on sale that you had talked about. What's the incremental $6 million? Thank you.

So, Faiza, let me take the second part of your question first. So for other income and expense, as you can see, it's a pretty large change. The biggest driver is what we communicated in the previous earnings call, which is we sold a piece of real estate in Australia as a part of our Go Lean operations in International, where we're trying to not just build margins and improve productivity, but take a little bit more of a go asset-light model. So that threw off again a little bit more than $10 million. The rest is a lot of puts and takes, just a lot of small items that collectively add up to a number. So there's not much more to it than that.

Yes, and on Burt's Bees, Faiza, welcome. We have in Q3 lapped the lip-color launch a year ago, which was a particularly big innovation that we launched in Q3. So we went up against not only double-digit volume growth in Q3 of last fiscal year, but also double-digit volume growth in Q2 of fiscal year 2017. So the reality is we're beginning to lap tougher quarters, double-digits growth quarters, but the reality also is that we continue to feel very good about this business. We're continuing to grow market share. The core lip business displayed record-high shipments in Q3. We're supporting innovation with advertising in Q4. And importantly, we're going to launch significant innovation later in this calendar year. So the way to think about it is that our innovation timing this year is different from the innovation timing last year and what that will lead to, and clearly has in Q3, is unevenness quarter-by-quarter versus year-ago. But in the long run, we feel good about this business. It's on trend. The brand is doing well. And as you know, we, in part, also like this business because it's a nice margin trade-up for the company

Thank you.

And we'll go next to Lauren Lieberman of Barclays.

Thanks. I just had a kind of housekeeping type question. On Charcoal, so you specifically mentioned that not just the weather but also that there was a negative mix dynamic within Charcoal this quarter, because of the lower growth of the higher-margin items in the portfolio. Is that because you weren't supporting it as much ahead of the Kingsford, the new launch that's really getting the full support in the fourth quarter?

Yes, perhaps. Thanks, Lauren. Just quickly on Charcoal, sales down in Q3, right, after double-digit growth in Q2 and also in the year-ago quarter. Slower start to the grilling season, weather-related and we're certainly watching the weather also in Q4. But the comment that we made on Match Light and the higher-end product is related to merchandising. So I don't know that I would read anything strategic into that. But as there was less merchandising, as the weather was weaker in Q3, that particular part of the business was certainly affected. We've also noted that we are launching, and that was towards the end of Q3, premium priced and margin-accretive innovation with the new Charcoal that we call long-burning that burns 25% longer. And that's off to a nice start, and we're feeling good about that. So that should contribute to hopefully better results in Q4. Again, this is the main quarter for Charcoal, and it's not over until it's over, depending on the weather. But we certainly feel good about the partnership that we have with retailers on the marketing and merchandising side on this business.

Okay. Thanks. And then just lastly, it's interesting this is probably the one call that I've been on so far this earnings season where there wasn't a discussion of the consumer environment and where did he or she go in the first quarter of the calendar year and so on. So if you could comment on what you're seeing in terms of consumer behavior, consumer demand, because it sounds like your concern at this point is more about retailer-driven – competition in the retailers, and, thus, deflation in the categories driven by retailer competition, and maybe of what that trains the consumer to do, or pantry loading, and future impact, but less about the consumer themselves. So anything you can offer would be wonderful.

Yes. That's spot on and well summarized, Lauren. Again, the best way to look at it is if you look at category volumes and you compare them versus a year ago, they're up. But they're not up more versus a year ago, which suggests that I don't see any reason to believe that there's pantry loading going on, but categories are up modestly, and they were about a year ago. So, fundamentally, the consumer hasn't stopped shopping our categories. They continue to shop our categories, but they're paying slightly less for it, and that's driven by consumer migration towards value channels, clearly, where we're doing particularly well, as it's well documented, but it's also driven by retailers and the competition and perhaps the anticipation of the discounter expansion. So that's something that we have prepared ourselves for a while, and that's why we've continued to talk about our focus on value as the core of our strategy through innovation, through brand building, through investments, through pricing, through dollar SKUs, all those things that are well documented. Those we believe are continuing to be the right ones. So that we don't see a consumer malaise, but what we need to make sure is that our consumer volume will continue to lead to consumer-dollar growth in our categories, and that's what our discussions with retailers are focused on.

Okay. That's great. Thank you so much.

Thanks, Lauren.

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

Yes. Thank you, and in closing, I am pleased with our continued top-line momentum and strong earnings growth this quarter, and we're certainly on track to deliver solid sales and earnings growth for the fiscal year. Our Strategy 2020 continues to work, and we believe it remains the right one for Clorox to create value for shareholders over the long run. We look forward to speaking with all of you, again, in August when we share our fourth quarter and year-end results and our outlook for fiscal year 2018. So thank you, and have a good day, everyone.

And, again, that does conclude our call. Thank you for your participation. You may disconnect at this time.