The Clorox Company (CLX) Q2 2018 Earnings Report, Transcript and Summary

Please standby. Good day, ladies and gentlemen. And welcome to The Clorox Company Second Quarter Fiscal Year 2018 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. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Ms. Lisah Burhan, Managing Director of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Thanks, Evan. Welcome, everyone and thank you for joining us. On the call with me today are Benno Dorer, Clorox’ 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. Reconciliations 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 of our website, as well as in our filings with 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. I would also direct you to read the forward-looking disclaimer in our quarterly earnings release, particularly as it relates to the impact of tax legislation. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management’s expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, I’ll cover our Q2 business performance, discussing highlights in each of our segments. Steve will then address our financial results, as well as updated financial outlook for the year. Finally, Benno will close with his perspective followed by Q&A. For the total company, Q2 volume and sales each grew 1%, reflecting nearly a point of negative impact from the sale of Aplicare in August 2017. This is on top of very strong growth in the year ago quarter when volume increased 8% and sales grew 5%. In addition, sales were reduced by about 1 point from the combined impact of retailer inventory adjustment and lower shipments due to transportation carrier capacity constraints, both of which happened late in the quarter. Importantly, though, we saw tracked channel consumptions tracking well ahead of shipments late in the quarter and we do not expect a meaningful impact in the year from these events. I will now return to results by segment. In our Cleaning segment, Q2 volume grew 2% where sales grew 1%. We’re pleased with these results, recognizing that for the segment, it includes about 2 points of negative impact from the sale of Aplicare and that we are lapping double-digit volume growth in the year ago quarter. Cleaning segment topline was led by Home Care, where volume and sales each grew by mid single-digit on top of double-digit volume growth and high-single digits sales growth in the year ago quarter. Growth in Home Care, which is our largest business unit, continues to reflect broad-based strength across The Clorox equity portfolio. This reflects yet another quarterly record for shipments of Clorox Disinfecting Wipes behind double-digit growth in the club channel, as well as from shipments of new Clorox Scentiva products. Consistent with these results, Home Care delivered its 14th consecutive quarter of market share gains. In our Laundry business, volume grew modestly on flat sales, following Q1 when retailers stock up for hurricane-related purchases. Recognizing this, we’re pleased to see continued share gains in Clorox Liquid Bleach behind growth in our premium Clorox Splash-less Bleach, as well as the launch of new Clorox Performance Bleach with Cloromax. Lastly within the Cleaning segment, our Professional Products volume and sales declined driven by the sale of Aplicare. However, the balance of our Professional Products business continues to perform strongly. Turning to Household, Q2 volume was flat and sales decreased 3%, compared with a 12% sales increase in the year ago quarter, with gains in RenewLife more than offset by declines in other businesses. Starting with our Glad Bags and Wraps business, volume and sales declined mainly due to lower volume in the club channel, partially offset by continued strong growth in e-commerce. At the same time, we saw all-time record shipments of our premium OdorShield offerings, reflecting our focus on driving profitable growth in this higher margin segment. On the innovation front, we just started shipping new ForceFlex Plus advanced protection trash bag, our best trash bags yet, which features a reinforced bottom, leak guard technology, superior strength and guaranteed seven-day odor control. In our Charcoal business, volume and sales declined, following a double-digit increase in the year ago quarter. Now as a reminder, Q2 is a relatively small quarter for this business, representing less than 10% of the annual shipment. As we head toward growing season in the second half of this fiscal year, we’re launching a new partnership with Major League Baseball, as well as new advertising. As a result, we continue to feel good about our plans for this business. Cat Litter volume and sales declined, driven partly by lower merchandising in the pet channel and a late in the quarter retailer inventory adjustment. We view these two factors as transitory and do not anticipate them to have meaningful impact on our plan for the full year. The business continues to have strong momentum behind our Fresh Step with Febreze innovation, resulting in a fifth consecutive quarter of market share growth. We’re building on this momentum by launching Fresh Step Clean Paws Low Tracking Litter to address the biggest unmet consumer need in this category behind an exciting new and advanced technology. Finally, turning to RenewLife, volume and sales each grew by double digits and we’re especially excited about the strong progress we’ve made in the e-commerce channel, which is now a significant portion of this business. In our Lifestyle segment, volume and sales each increased 3%. Our Brita business volume and sales each grew by double digits, driven by strong club merchandising, as well as by our Stream pitcher and Long Last filter innovation. We’re pleased with the positive impact our product innovation had in the first half of the fiscal year and remain focused on the long-term health of this business, as we continue to invest in brand building and innovation. Burt’s Bees delivered volume and sales growth in Q2, largely due to all-time record shipments of lip care products, behind strong consumption and distribution gain. While still early, we continue to be excited about the rollout of our new cosmetics line. To conclude Lifestyle segment, food volume and sales declined, partly due to lower shipments of KC Masterpiece barbecue sauce, as well as a late in the quarter retailer inventory adjustment. Positively, overall, Hidden Valley consumptions remained healthy and the franchise continues to deliver share gains for the 12th consecutive quarter. Finally, turning to International, volume was flat, while sales grew 4%, mainly reflecting the benefits of pricing. We continue to focus on our Go Lean strategy to drive margin improvement in our International business, while selectively investing in Burt’s Bees, RenewLife, Laundry and Home Care. Now, I’ll turn it over to Steve, who will provide more information on our Q2 performance and discuss our updated outlook for the fiscal year.

Well, thanks, Lisah. And we’re certainly pleased with our first half sales growth of 2%. Importantly, we are on track to deliver our full year sales outlook of 1% to 3%. Our brands are performing well and we feel good about the promising innovation in the second half. As we mentioned in our press release, we are facing elevated cost from commodities, and the tightening logistics market, which certainly impacted the second quarter and will continue through the balance of the fiscal year pressuring earnings. We believe we’re taking the right actions to address these cost headwinds and build margin over the long-term. Importantly, we are very pleased with these significant expected benefits from Tax Reform. I’ll take a moment to comment on what we’re seeing as a result of Tax Reform before taking you through our second quarter results. As you know, Tax Reform brings significant changes, including the reduction of the U.S. corporate federal income tax rate from 35% to 21%, the adoption of a modified territorial approach to taxation of foreign earnings and the elimination of certain tax benefits such as the domestic manufacturing deduction. The tax law is extensive and quite complex, and we’re still working through all of its impacts, including updates for any changes to congressional, administrative or other policies, guidance or interpretations of the law. Now based on our current understanding of the tax law, we recorded approximately $81 million of tax benefits in the second quarter or an increase of $0.61 to earnings per share, which is the main driver for our second quarter effective tax rate of a minus 3% versus 34% in the year ago period. There are several aspects to Tax Reform that impacted our second quarter tax rate and these include $60 million benefit from the revaluation of our net federal deferred tax liability, $28 million of benefit to our current fiscal year taxable income from the reduction of the U.S. corporate federal income tax rate, these were partially offset by a $7 million one-time transition tax on accumulated foreign earnings net of applicable foreign tax credits. Looking forward, for fiscal year 2018, based on our current understanding and analysis, we estimate our effective tax rate to be in the range of 23% to 24%. Directionally, over the long-term, our tax rate is estimated to be in the mid-20s range. Bottomline, a lower tax rate moving forward is expected to significantly benefit our earnings and cash flows. As a result, we’ll continue discussions with our Board of Directors on how best to deploy the increasing cash to enhance shareholder value, consistent with our cash allocation priorities, including growing our business and returning excess cash to shareholders. For more information, please refer to our 10-Q filing, which will be available later today. Now I’ll take you through our financial results for the second quarter. Second quarter sales grew 1% on top of 5% in the year ago quarter, which includes about 1 point of volume growth and about 0.5 point of pricing, partially offset by over 1 point of unfavorable mix, reflecting strong club channel shipments. As a reminder, second quarter sales were negatively impacted by nearly 1 point from the Aplicare divestiture and about 1 point of combined impact from retail inventory adjustments and carrier supply constraints. Much of this volume is expected to ship in the third quarter. As I mentioned on our last earnings call, we expected gross margin to be under significant pressure in the quarter and it came in at 43%, a decrease of 170 basis points versus a year ago. These included 110 basis points of higher commodity costs, reflecting the hurricane-related pressures we discussed last quarter, as well as 90 basis points of higher logistics costs, driven in part by a further tightening of the transportation market. Importantly, consistent with our strategy, we invested about $8 million or 60 basis points in the future growth and cost savings programs. Second quarter gross margin also includes a benefit of 170 basis points from strong cost savings. Selling and administrative expenses were essentially flat versus year ago, and our advertising and sales promotion expenses increased $12 million versus the year ago quarter to about 10% of sales largely to support product innovation. Net of all of these factors, we delivered diluted earnings per share from continuing operations of $1.77, which includes the $0.61 of benefit from Tax Reform, earnings per share also reflects a reduction of $0.07 related to the incremental consumer demand building investments. Turning to fiscal year-to-date cash flow, net cash provided by continuing operations was $322 million versus $271 million in the year ago period, driven by lower employee incentive compensation payments. As we mentioned in our press release, Tax Reform had no impact on cash flows in the second quarter. Turning to our fiscal year 2018 outlook, as I mentioned, we continue to anticipate fiscal year sales growth to be between 1% and 3%. This includes about 3 points of incremental sales growth from our robust innovation programs, partially offset by nearly 1 point of negative impact from the Aplicare sale. Gross margin for the full year is now expected to be down modestly, reflecting even higher cost pressures related to commodities and logistics versus our previous assumptions. As a reminder, our previously communicated fiscal year outlook already reflected elevated costs, including significant pressures from the recent hurricanes. As a result of our updated assumptions, we now anticipate gross margin to be down in the third and fourth quarters, although not to the extent seen in the second quarter. Turning to our fiscal year 2018 diluted earnings per share from continuing operations, as we mentioned in the press release, we now expect fiscal year diluted earnings per share to be in the range of $6.17 to $6.37, an increase of 15% to 19% versus year ago and above the previous range of $5.47 to $5.67. This updated EPS range reflects an estimated benefit of $0.70 to $0.75 from Tax Reform and our expectations for lower gross margin in the second half. We’ll be taking a close look at reducing selling and administrative expenses, and considering other planned adjustments to help address the pressures on our margins. I’ll close by saying that we believe we have the right strategy in place to work through these challenges, investing strongly in our product and brand differentiation remains our top priority to keep our value proposition sharp. In addition, driving our cost savings and productivity initiatives will also consider additional price increases to support our margins, and we’ll continue to drive our International Go Lean strategy to achieve operational efficiencies. And finally, as I mentioned earlier, as a result of Tax Reform, we are looking forward to partnering with our Board of Directors to review opportunities to deploy cash to further enhance shareholder value. Now I’ll turn it over to Benno.

Thank you, Steve, and hello, everyone. Let me share with you my three key messages for today’s call. First, we feel good about our first half results, execution and business fundamentals. We grew Q2 sales 1% on top of 5% in the year ago quarter, including the full impact of the Aplicare sale and the impacts from late quarter retailer inventory adjustments and transportation constraints. Now importantly with first half sales growth of 2%, we remain on track with a 1% to 3% sales growth target for the fiscal year. We were pleased to see track channel conception tracking ahead of shipments late in the quarter, and more recently, it appears that shipments delayed by carrier constraints have shifted into January. Importantly, execution and business fundamentals remain strong, and we continue to win with consumers and customers as evidenced by the following; year-over-year Household penetration, a critical metric continues to grow. On a 52-week basis at the end of the calendar year, 77% of our brand portfolio is growing or stable Household penetration, up from 46% just four years ago. The majority of our portfolio is also seen by consumers who is providing better value, supported by our strong innovation programs and this is critical in an environment where value is king. And finally, we have strong execution on pricing in the U.S. and international. Second, we’re staying the course in our strategy, as we manage through a tougher cost environment. We remain committed to keep our business fundamentally strong and healthy, which remains job one in the face of higher cost environment in the U.S. We will keep playing offense and we will continue to do that by investing in differentiated products and brands, and with a solid innovation pipeline that aims to deliver 3 points of incremental sales growth in fiscal year ‘18. We will launch several meaningful margin-accretive innovations in the back half of the year, including the extension of our successful Clorox Scentiva platform into the Bathroom and Toilet Cleaning categories, as well as the rollout of Fresh Step Clean Paws Low Track Cat Litter and Glad trash bags (2013) with leak guard to innovations that address the biggest unmet needs in their respective categories with significant new technologies. With strong e-commerce sales and solid returns on investment for marketing, we are investing in demand creation focused on innovation and digital marketing to engage consumers online, and we are stepping up our focus on cost reduction and margin improvements. We’re investing to lower the cost of our infrastructure and enable for us to grow such our new Atlanta West facility, which expands our self-manufactured Home Care capacity. We continue leading into waste reduction across our business to support margin expansion, including with our Go Lean strategy for international. And we’re evaluating additional options to support margin improvement, including price increases, given the commodity cost environment. Third, Tax Reform is a significant and sustained benefit for Clorox shareholders. Our commitment to shareholder value creation is as strong as ever. Our priorities for uses of cash are business growth, including targeted M&A and returning excess cash to shareholders, and consistent with those priorities, we are actively progressing discussions with the Board to put Tax Reform benefits to work for shareholders in an expedient manner. So, in summary, while there are some near-term cost challenges for Clorox and others across our industry, we’re pleased with our first half results and we’re excited by the opportunities Tax Reform benefits bring to our business and to our shareholders. We continue to have confidence in the competitiveness of our 2020 Strategy and we’re optimistic about our ability to deliver growth that’s profitable, sustainable and responsible, as we aim to create shareholder value over the long-term. I’d like to touch on one final and important topic before we go to Q&A, and that’s our CFO transition. As you saw in our press release, Steve Robb has made the decision to retire after 29 years with the company. I know how much of you have enjoyed your interactions with him the past nearly seven years he served as our CFO. He’s led Clorox through strong period of financial performance and during his tenure as CFO, Clorox total shareholder return has climbed 165%, ahead of the S&P 500 and well ahead of the 117% TSR growth for our peer group. We’ve been fortunate to have such a strong leader on The Clorox team these many years. I’ll admit that I’ll personally miss Steve and I am incredibly grateful to have been able to work alongside such an exemplary leader and good friend over so many years. I am equally pleased that Steve in the company’s commitment to leadership development and succession planning has enabled us to appoint such a capable and experienced leader as Kevin Jacobsen as our next CFO. Kevin has been with Clorox for 22 years and has held leadership positions across the company in finance. He’s been actively and deeply involved in the day-to-day finance operations of the company and has worked closely with Steve and the executive team to shape and develop the company’s financial and capital market strategies. He will join us on the call next quarter. We anticipate nothing less than a smooth transition and continuity. And I am pleased to Steve will stay on after March 31st in an advisory capacity through the end of the fiscal year. And with that, here’s Steve to say a few parting words before we go to Q&A.

Thanks, Benno. Well, listen, it has certainly been my greatest privilege to have served as The Clorox Chief Financial Officer since 2011. And importantly, after 29 terrific years at the company, what I appreciate most are the relationships I’ve established with so many people from different areas of our business, and of course, our Board of Directors and exceptional management team. I also very much enjoyed the many discussions I’ve had with you and the rest of the investment community over the years. I’ve always appreciated your insights, questions and certainly your candor. At the end of March, I’ll be pleased to head over the reins to Kevin Jacobsen, a tremendous leader and a friend, who is supported by an outstanding finance organization. Clorox has the right strategy, as well as talented and passionate people who are always committed to doing the right thing for our shareholders and I leave feeling very good about the company’s future. Thank you everyone.

Thank you, Steve. And we’ll now open it up for your questions.

Thank you, Mr. Dorer. [Operator Instructions] Our first question comes from Steve Powers of Deutsche Bank. Please go ahead.

Great. Thanks and congrats Steve. We’ll miss you.

Thank you.

I am feeling actually lonely. There use to be three Steves on this call and now there’s just me so. But we love working with Lisah, look forward to working with Kevin. Hey, so look, we’ve talked a lot about net realized pricing dynamics on these calls over the course of time and the challenges that everyone in the industry is facing right now, just trying to hold on to pricing in the face of elevated competition, and obviously, lots of retailer pressure. I think we see in the results this quarter just with realized price mix down essentially 3% across the core Cleaning and Household segments and in the face of rising inputs, the obvious result is the challenges on gross margin trends that you cited. I guess, so just, as you look forward, what is the revised outlook on input cost trends that’s in your outlook and how confident are you that pricing will be there, if input and transportation inflation surprises yet again on the upside, because it seems to be like a perpetual tension that we are -- that we grapple with on these calls?

Yeah. Thanks, Steve. Let me lead off on this. So, first, our outlook for commodity costs. Just to ground everyone, as I said in my opening comments, we anticipate that gross margin for the full year will be down modestly, included in that is about 1 point of commodity cost headwinds, that’s our best estimate at this point. Now keep in mind, as I indicated on the previous earnings call that includes about $20 million of hurricane-related costs. Those certainly impacted our second quarter. I fully expect it will impact the third quarter, placing downward pressure on margins. But we do anticipate that over time, as we move through the fiscal year that should begin to dissipate. So some of the commodity costs, I think, are probably real and permanent. I think some of them related to the hurricane will likely dissipate. So what are we doing about it? Well, the first thing is, it’s always about growth, profitable growth throughout renovation and we’re certainly feeling very good about our innovation programs and how that’s delivering for the company. The second has been cost savings. As I indicated, we did make some incremental investments in the second quarter to support our cost savings and growth initiatives, and I think, we feel very good about our three-year pipeline of cost savings initiatives. And then, finally, after doing those things, if we need to we’re not afraid to take pricing. We took it on Disinfecting Wipes, it’s still early days, but I will tell you, I think, it’s going well and we feel like we’ve got the strength and health in our brands, that if we need to take pricing to protect margins and continue investing back in the businesses, we’ll do that. So, I think, we remain confident that over the very long-term that we’ve got opportunities to continue to build margin.

Yeah. Steve, this is Benno. Perhaps, one additional comment related to the ability to take pricing, which certainly seems to be an underlying part of your question. As Steve said, as cost continues to rise, we’ll continue to assess additional pricing in the U.S. and international. And notably, we think that our innovation and strong marketing investments put us in a good position to do so. I’d love to share with you some information that I have about price sensitivities, perhaps, as a way to build your confidence and make sure that you can share mine, price sensitivities on our brands today are lower than they were three years ago. And just a reminder, lower is better, over the last two years, price sensitivities decreased by 8%, whereas, importantly, on competitive brands they were up 7%. So that’s a 15 point swing. That’s pretty remarkable, and then, of course, as a result of the fact that we have brands that offer better value that we have invested in the business and that we have innovation. Importantly, also our price sensitivities in absolute are about 25% lower than those of competitors in this space. So when we look at major CPG brands in our and related categories, we compare ours against those and we’re seeing significant benefit again, and that’s of course, because the majority of our brands are seen as better value. So we have a strong track record executing price increases, obviously, we need to make sure that price increases should reassess them are cost justified. But we will certainly take a hard look and think that our brand certainly wants us being cautiously optimistic about taking pricing even in this environment than our Q2 pricing actions certainly has furthered that confidence.

Okay. And just to be clear, the price sensitivities that you’re talking, is that just a measure of elasticity that you look at, what is that exactly?

Yeah. That’s hard data. Those are price elasticities.

Okay.

And comes right out of our Analytics Department supported by an external supplier to make it extra objective so to speak.

Okay. And I guess just to technical cleanup questions probably for you, Steve. It sounds like the consumption is that -- the fact that consumption exceeded shipments, I think, by about a 1 point this quarter, it sounded like from your comments and from what Lisah upfront that you expect essentially that to come back in reverse in the third quarter as opposed to just the absorb, just want to make sure that’s the right message? And then if you could just on the full year tax, it implies I think a tax rate, it implies a higher tax rate in the back half and is your expected go forward. So can you just help us just what the dynamics driving maybe a higher tax than what we’ll see in fiscal ‘19 in the back half of ‘18, that would be helpful? Thank you.

Yeah. Sure. Let me start off, absolutely, late in the quarter we ran into some carrier constraints like I think everybody across many different industries. As a result, we had orders that just didn’t shipped out, it was difficult in some instances to get drivers, we’re taking actions to make sure that this doesn’t repeat in the future. But it’ll be challenging obviously in a tight transportation market. But in short we expect that most, if not all of that volume will come back in the third quarter and we certainly don’t expect any meaningful impact on the full year based on what we know today, and of course, we will need to get through the third quarter to see that. As it relates to the tax rate? Yes, we do anticipate the full year effective tax rate, again based on our understanding of the Tax Reform Act to be about 23% to 24%, you’re going to see a fair bit of variability across the quarters and even the halves, because remember it took a very large onetime gain or adjustment if you will on a provisional basis in the second quarter and we also had to true-up the first half tax rate in the second quarter. So as we get into the second half of the year, you’re going to see difference there and you can probably just model it out. I would have you focus really on the full year tax rate and I would just one more time echo, that’s based on our current understanding of what remains a very complex piece of legislation, but you’re going to have some variability there. The most important thing and I think the biggest take away here, we have historically had an effective tax rate in the 30 -- low 30s to mid-30s and on a go forward we think it’s in the mid-20s. So it’s a really sizable reduction and theist just because more than 80% of our sales are in the U.S. So I think probably relative to many other companies, we will disproportionately benefit. It’s going to help earnings and significantly step up the cash flow generation for the company in the coming quarters and years. And as Benno indicated, that’s why we’re partnering with the Board on things that we can do to enhance shareholder value around that.

Perfect. Thank you.

Next question comes from John English from Goldman Sachs. Please go ahead.

Hey, folks. Jason here but you can call me John if you so choose. Okay. Good afternoon and thank you for the question. One quick clarifying question, the press release you mentioned sort of modest gross margin compression for the year, but in the prepared remarks talking about compression both the third and fourth quarters. I can’t walk away thinking maybe your definition of modest is a bit different than mine. So can you quantify that, what does modest mean?

Jason, I almost want to ask you what your definition of modest is, but let me try this. When -- here is our perspective on gross margin for the year. Recognizing there is fair bit of volatility I think right now in both transportation and commodity markets. We think for the full year, gross margin will be down modestly. What does that mean, probably something less than a 1 point? When -- in particular, when we look at the third quarter and when we look at the fourth quarter, what we believe is that the hurricane-related costs will absolutely pressure margins significantly in the third quarter consistent with I had previously said. But when you look at the third quarter gross margin, it will be down less than you saw in the second quarter. And most importantly, when we look at the fourth quarter based on what we know, we think gross margin will be down but it will be down slightly to modestly, it’s not going to be a large number and the reason for that is we’ll work through those hurricane-related costs. In addition to that, we’ve been making some fairly significant investments in our supply chain to drive future cost savings and as we get into the second half of the fiscal year, you’ll see less of that. It doesn’t mean we’re not investing for the three-year pipeline, it’s just how the investments are folding across the year.

Okay. That’s helpful. Thank you. And then I want to zoom in a little bit more on Glad. You mentioned the price increase you took and I think it was Waste business that sounds like it’s going okay. Can you talk about the traction you’re getting where you took some corrective actions on Glad and I believe when you took those corrective actions, you sort of reference setting the portfolio up from pricing architecture perspective for success on the next wave of innovation you are bringing. Maybe I missed it, but I didn’t hear any comments on the next wave of innovation, can you give us any more color on what’s coming down the pipeline there? Thank you.

Yeah. Jason, thanks. First of all, on the pricing action, as you remember correctly, we said that we’re going to take down pricing at about 40% of the Glad trash portfolio, which is the part of our portfolio that is used by consumers to enter innovation, so that was of strategic importance. We look at that price decrease as to-date the successful and if you look at share results, what you can see over the most recent weeks is that the Glad trash business has returned to share growth. So, for what it’s worth, that is something that we wanted to see and is happening, and an indicator of success. We did comment earlier on innovation on Glad trash that’s being launched right now. It’s our best trash bag yet that we call Glad ForceFlex Plus with advanced protection and if you think about Glad ForceFlex, it’s the strongest bag in the category and consumer preferred, because it has a unique combination of strength and odor control. But the biggest unmet consumer need to-date was leakage protection, you pour food remnants, other things, plastic cups into trash bags, there’s still liquid in it and then that liquid can leak. This is the first trash bag of its kind that addresses that consumer need and gives consumers leakage protection, and it’s another example of a significant innovation, what we look at as game changing innovation, margin accretive game changing innovation, mind you coming out of our Glad joint venture. So pricing and innovation on Glad is a one-two punch, as anticipated and we look forward to seeing this rollout in the market right now, and have every indication that this is going to be another successful innovation on this business.

Thanks a lot guys. I’ll pass it on.

Next question comes from Andrea Teixeira from JPMorgan. Please go ahead.

Hi. Good afternoon. Thanks for taking my question. And I wanted to kind of go narrowing into the commentary about M&A or uses of cash that you added on the prepared remarks, and also in the press release. So I was just wondering what would be the kind of areas that you’re looking for that would make sense in terms of like areas that you want to explore. In the past you have mentioned some of the Lifestyle, which you were successful with RenewLife or could we think about something bigger and more transformational? And Steve, we wish you all the best in the new phase of your life. Thank you.

Well, thank you, Andrea. I appreciate that. Let me provide a perspective. First for all, again, we’re excited by Tax Reform. A couple of things are true from a company investment standpoint. I would say U.S. assets, whether its investments in infrastructure, cost savings projects and even M&A are much more attractive today than they were before this was passed late December. And the reason for that, obviously, is the fact that we’ve got a 14 point reduction of the U.S. federal statutory tax rate and it just means you’ve got more cash flows from all of those projects. So what I feel good about is, we’ve always invested behind our brands, our businesses. We’ve invested to keep that cost savings pipeline healthy. We’re going to stay the course on that. We’re also going to stay the course on being discipline. All of that said, we will continue as we always have to really look for good opportunities for investment. Our focus on M&A remains unchanged. We’re open to anything that’s in the best interest of shareholders. What do we like? We like businesses in the U.S. That’s probably even more true today than it was a few months ago. We also like businesses with tailwinds that are margin accretive, asset light and things that are in categories, where we think we have right to win and could drive shareholder value. So, all of this remains completely unchanged. Now what’s also though as we were starting to build up excess cash and we -- and I think we’ve talked to the investment community and to our Board before about that, we need to start the process of returning excess cash to shareholders. I think Tax Reform just adds to that and so we probably have even more cash to think about returning. And if you look at our cash allocation priorities, the first is to support our business. The second is the dividend and for more than 40 years, we’ve increased the dividend, and so the dividend is the number two priority. The third has been debt and I would just say that our targeted debt-to-EBITDA ratio is 2% to 2.5%. We’re sitting at about 1.7%, 1.8%. I think last quarter it was 1.8%. So we feel good about that in share repurchases. So that’s why I think Benno in his comments and my comments, we have really focused on continue investing for growth, both organically and inorganically, and then look for ways to return cash to shareholders and that’s going to continue to be our focus.

Thank you. So if I can just ask you something about SG&A savings that you talked about as a way to mitigate this discretion on the -- kind of like more on the cost side. What should we be thinking, because obviously you’re increasing and you reached a certain level of investments in E&P, are you looking more on kind of rationalization of your processes, what is exactly that kind of SG&A saving program?

Yeah. Well, we have taken a very disciplined approach for many years to SG&A management. I think before many companies were doing is zero based budgeting we had been focusing on this. What we do is we apply our cost savings methodologies to SG& A as a way of taking out cost that the consumer doesn’t value or they don’t benefit the company and its shareholders in some way and I think we’ve had a nice track record of really bringing that number down below 14%. I just think in this difficult cost environment, we are going to take a look at discretionary expenditures where you can always make choices and whether to spend or not, where it’s not going to hurt the brands, it’s not going to hurt the company or our people. So it will be a continuation of what we’ve been doing, but we’re probably going to lean in a bit harder to that to see how we can mitigate some of the near-term inflationary pressures certainly from these hurricanes. So it’s what any good discipline company I think we tried to do in situation where you’re facing some near-term cost challenges.

Okay. Great. Thank you.

Next question comes from Bonnie Herzog from Wells Fargo. Please go ahead.

All right. Hi, everyone. I am -- I had a question on the $14 million incremental demand driving investments in the quarter that you called out to support your product innovation. I guess I am just trying to better understand how and where this money was spent and was this more one-time investment or do you guys plan to increase your investment levels going forward? And then, historically, when you’ve stepped up demand building investments, how much of a lag has there been between the investment spend and then accelerating topline growth?

Yeah. Thanks, Bonnie. So, first of all, I want to say, so this $14 million are not related to Tax Reform. So this is not an indication of our assessment that we need to step up spending. You will recall that we have stepped up spending already over the last three years systematically and based on strategy, and that’s where it’s very well for us, and we’ve also commented more recently that we’re generally happy with the amount of advertising sales promotion and demand spending in general that we have put in place and that we do not see a need to increase that, based on what we know today that’s still our assessment. So I would look at those $14 million versus year ago as a planned investments that coincides with innovation. This fiscal year we’ve always said that advertising sales promotion spend by quarter will vary, but we’re not taking up our estimate for the total year or for future years at this point, we think we’re pleased with the amount of demand investment that we put in place. So this -- that the bulk of the dollars went after innovation to support speed to shelf and awareness. So there is a time lag behind it. This does not all lead to an increase in sales in the first quarter. We should look at this investment as investment that will benefit the back half, because all of it went into equity building, awareness building, types of things on the various innovations that we’ve launched. Notably Burt’s Bees, and perhaps, Clorox and Scentiva, and the Fresh Step platform being three examples of where we see success and where we feel bullish and where we want to support these innovations with advertising sales promotion. Perhaps, lastly, so I said this earlier, we’ll keep playing offense. We love our strategy, we’re confident in our strategy, we are winning with consumers and customers, and when we see investments just like we saw last quarter, opportunities to invest in advertising sales promotion and in gross margin to support cost savings and projects that will deliver future cost savings. We will do that, because we manage our business for the total year, and for the long-term and not to lend our number for the quarter in a certain place. We will take -- continue to take a strategic approach and these $14 million are part of that.

Okay. That’s really helpful. And I know you’ve mentioned in the past that your focused on the investments is towards the faster growing categories, and one, that you highlighted this morning again is Burt’s Bees, sounds like it’s doing really well and you highlighted lipsticks. So any more color there and how that’s working? And then could you touch on international opportunities and where you’re at with that for Burt’s Bees? Thank you.

Yes. So we continue to like Burt’s Bees and cosmetics is early, but we are excited about this. We started to expand that line in the last quarter. That will continue this quarter. We’re not done per end of December. So it’s a phased rollout that will coincide with retailers shelf reset dates, so Q3 will continue. So I am excited about this, but I also say, I am as excited about the growth that we’re seeing on base -- lip care. Lip balm has seen strong double-digit growth last quarter. Its growing market share and one thing we’ve always done well on Burt’s Bees is to expand into new categories, but do so with discipline and by discipline we mean not compromising on the core business, and that’s of course, why we’ll keep the focus on lip balm up. International continues to be a solid opportunity for us. We’re in more than 35 countries now and we continue to see good success innovating and expanding distribution in many International markets, focus more recently has been in Asia and we’ve commented that we have used the e-commerce platform as a way to enter Mainland China through Alibaba’s Tmall platform and that’s going well, and we think that that has continued potential. So feel good about Burt’s Bees both in the U.S., as well as in International.

Okay. Thank you.

Our next question comes from Kevin Grundy from Jefferies. Please go ahead.

Thanks. Good afternoon and I want to extend my congratulations also to Stephen and Kevin. So, best wishes to both of you. I wanted to point of clarification on the sales growth guidance. So you’re mentioning the 1% to 3% year-over-year sales growth. That includes 1 point track from Aplicare, but the FX guidance and I apologize if I missed this, it was previously a 1 point headwind but the dollar has weakened now, so that should be seemly probably flat or maybe even a little bit of a help. So I was hoping you could comment broadly on your expectations for the company from a volume and price mix perspective, has that changed at all since you last updated your guidance? And then it doesn’t sound like Benno anything has changed from a category growth perspective. You sound pretty encouraged based on what you’re seeing with the POS data, understanding there’s a little bit of a delta there between shipments and the POS late in the quarter, but maybe you could touch on that and sort of wrapped that into this answer as well? Thanks.

Yeah. Maybe I’ll start there and then Steve can answer the first part of your question. Yeah, fundamentals are pretty solid and categories are quite healthy. If you look at the tracked channels, category growth is hovering right at above 1%, that’s unchanged and in line with our expectations and actually quite healthy. And I think you all know that non-tracked channel is where the growth really is. So the growth there is stronger than 1%. So we feel good about where we are on categories. It’s too early to say what Tax Reform will bring, certainly the economy is picking up and if you look at the consumer fundamentals whether that’s consumer confidence, whether that’s unemployment, whether that’s overall consumer spend, they all look pretty good. The question now is will it translate into our categories and we’ll have to see about that. But a stable consumer environment and category environment is good for us and that’s certainly what we’re seeing right now.

And just from sales outlook standpoint, we are thinking it remains fairly unchanged, it’s consistent with what we talked about in the last quarter. We still believe we are solidly in this 1% to 3% range, of course, fiscal year-to-date we’ve got 2%, obviously, we were a little disappointed that we had the carrier transportation and other issues late in the quarter, but that volume will come back in the third quarter based on what we can see. And so I would say, generally, we’re on track, innovation at 3 points looks good, Applicare is pretty much a known you can just do the math on that. Fair enough on FX, you’ve always got some puts and takes on that. We have to see how that plays out for the rest of the year. But when I look at FX, price mix and just all that other stuff, it’s pretty been a much a wash, and again, let’s get to the next couple of quarters, but feeling confident in our sales outlook.

Okay. Thanks. Just one quick follow up, this is on Steve Powers question earlier. Just really succinctly, is your impression now that retailers are more receptive to pricing here is -- it seemed are we waiting for wages to start to come up and more profound way? I mean, clearly, logistics costs are up and fashion costs are up, but the quarters have been what they’ve been for your peers and for you guys from a margin perspective. Have we reached a sort of tipping point here where you do feel like we’ll start to see pricing take hold, maybe not just in your categories, but more broadly? Thanks for the follow up.

I can’t really comment on what’s happening more broadly. I don’t think I am -- it would be wise for me to comment. Taking pricing is not easy these days. But I think if you have market leading brands, if you invest in brand equities, if you have solid category growth, if your brands are performing well, if you have innovation, we feel like the data suggests and I quoted price sensitivities should cost justify that we are certainly assessing whether it’s the right thing to do for us to get back. We have certainly shown on Clorox Disinfecting Wipes last quarter that we can do successful -- pricing successfully. We’ve also shown that we can do that in the past and I would say, certainly, if you think about categories, category growth is important for retailers, pricing often has been part of a successful recipe to grow categories and retailers probably know that. I wouldn’t say it’s easier today, to be honest and it certainly not easy for everybody, but thinking about our fundamentals on the business, it certainly looks like we’re in the best possible position relative to others to do that, should we decide that we will.

Thanks, Benno. Good luck.

Our next question comes from Olivia Tong from Bank of America Merrill Lynch. Please go ahead.

Great. Thanks and congrats to Steve and Kevin. In terms of the discussions that you’re having with your Board about reinvesting some of that tax benefit back, where do you think your deficiencies lie, like can you give us some color into what you’re considering more advertising, more in-store, people investments to build out capabilities, things like that?

Well, again, Olivia, I guess, I would just remind everyone that one of the hallmarks of our 2020 Strategy and what we’ve done successfully over the last couple of years is we’ve significantly stepped up consumer demand building investments. You look at our fixed capital investments, that’s been stepped up to support both growth and cost savings. So I actually feel good about the investments we’ve been making. Of course, we’ll take a hard look to make sure in light of Tax Reform if there’s even more that we can be doing, but I don’t want to leave you with the impression that, because of Tax Reform that there’s going to be a significant shift there, but we’ll always take a hard look. I think the biggest opportunity is to take a hard look at excess cash generation and look for ways to get that back to our shareholders and we have plenty of capacity, both in terms of borrowing capacity, while staying disciplined within our range, as well as just cash flow capacity to invest behind the business. So we’re in a very good spot, because of the balance sheet, because of the cash flows and now Tax Reform to be able to invest for growth, as we’ve been doing, but also return cash to shareholders and those are the discussions we’re having with the Board.

Got it. And I guess, specifically to Cleaning, you mentioned in the -- you mentioned the price actions on Glad, but what about wipes? I mean, because I thought that should have been already started to get reflected in Q2, yet the price mix was -- the price was down in Cleaning. So has that been implemented? What’s the competitive reaction been so far to those actions and do you still expect price to be a contributor in that specific division this year?

Olivia, it’s Lisah. So CDW, Clorox Disinfecting Wipes pricing and Cleaning, this quarter is actually only about a month or so, maybe a little over a month, so we did see some lift. But more importantly though as you see the results of Clorox Disinfecting Wipes, we’re still growing double digits in some channels. So again to Benno’s point, strength of our brands here. I hope that answers your question.

Yeah. It does. Thank you.

Our next question comes from Joe Altobello from Raymond James. Please go ahead.

Thanks. Good morning, guys. So first question I guess for Steve. Just curious if there’s any thought given to sticking out year and calling it an even 30 at Clorox?

Well, keep in mind, it’s been more than 29 years and I am going to stay on as Benno said, as an adviser to this company that I love so much at the end. So I’ll be getting pretty close to that 30-year mark.

Hopefully you get a watch at 30-year mark. And here is my question, I guess, first, did you actually quantify the impact from delayed shipments and the retailer inventory reductions in the quarter?

Yeah. We certainly did that in our opening comments. Our best estimate, of course, this is a little bit challenging to measure, but we think it’s about 1 point to sales growth and so if you think of where the sales came in for the quarter, if you’re looking at the way the quarter was unfolding, we were very much on track to have about an incremental point versus what we reported, but because of some of the retailer inventory adjustments, as well as the transportation challenges, that point never happened, but we think optimistically is likely to occur in the third quarter, so no impact on the full year.

So part of that point should come back we the delayed shipments that obviously should have happened around January?

Yeah. Yeah.

But does the inventory reductions ease, are you seeing that or has that not happened yet?

Yeah. Joe, first of all, Steve reassured me that his 29 years felt more like 30. So, I think, we’ve got that covered. We think that some of it will come back, but not all of it will come back. But, clearly, our brands turn fast and turn routinely. So, typically when inventories get too low, there is an upward adjustment. We think we’re seeing some of it come back, but perhaps, not all of it, but as Steve said, there is not going to be material for the fiscal year and in the grand scheme of things, it’s end of quarter noise, which is unfortunate but a reality, but for the total fiscal year, will be a no factor.

Okay. That’s helpful. And just one last housekeeping item, the $6 million in other income in the quarter, what was that related to?

Yeah. You’re talking about the 6 -- yeah, well, the biggest thing I would say to other income and expense, if you’re talking about our year-over-year change, as a reminder, it was just a $21 million charge that we took in the year ago period, that was a non-cash charge on the Aplicare, that’s the biggest swing, the rest is just small puts and takes.

Okay. Perfect. Thanks, guys. Congratulations Steve. Take care.

Thank you, Joe.

Our next question comes from Ali Dibadj from Bernstein. Please go ahead.

Hi, guys. So I had a few questions. One was just around EBIT margin, trying to help me -- help us quantify how much it actually would be down. So gross margin clearly not going to be positive. I do wonder, maybe you can help as you answer the question talk about the supplier constraints. I mean, how do you do that? How do you release that constraint unless you pay more, I guess, so I wonder whether the gross margin pressure is even greater, so I don’t know how gross margin, obviously, is going to be negative. And on the SG&A, it’s down modestly, so down 10 basis points roughly, I don’t know if that’s modest or another word, but that’s down a little bit, and you’re already below the 14% level, so I don’t know if there’s more room to grow. So, I guess, EBIT margin, couple of quarters ago, you said it’s going to be up, flat and I am just trying to get a sense of how you think about it? How much it should be down given the pressures on gross margin and SG&A, as well as you’re going to advertise a little bit more it sounds like at least in the investment business?

So, Ali, this is Steve. Let me -- you got a couple of questions here. Let me see if I can answer each one in turn. First let me comment about logistics, because you brought up an important point. The logistics market is tightening. In short, there’s just not enough equipment, but more importantly, people to move loads in some routes. So I think our folks very much understand the issue. It’s an industry-wide issue. It’s not just tied to Clorox. I do think that will put upward pressure on logistics costs. We try to reflect that in this outlook. That’s one of the reasons gross margin will now be down modestly. But importantly, we’re also partnering with those companies that we work with to make sure that we’ve got the equipment and the people when we need it at the right time, so that we can obviously get the orders moved out. So not to say that it will be without challenges, but at least in this outlook we think we have properly captured as best we can the incremental cost associated with that and we are making changes in operating plans to ensure good execution as we’ve always had for many, many years. As it relates to SG&A expenses, I would point to two things. One, again, just general belt-tightening, the kinds of things you do when you face near-term cost challenges. I think the other thing is incentive compensation is going to be a bit less, because with these incremental cost pressures, obviously, our margins, gross margin and EBIT margin are going to be less than what we thought and there’s been some impacts, obviously, to earnings. So that will have the effect this year of lowering SG&A a bit as well. As far as EBIT margin, again, I would just circle back to gross margin. I think, again, it’s down modestly or something less than point is probably the right way to think of the year. Long-term, we’re absolutely committed to both gross margin and EBIT margin expansion in the range of 25 bps to 50 bps, but I just think this year with the commodity cost increases, the hurricanes, logistics market is going to be tougher. But, again, that’s why we’re making the long-term investments in innovation, growth and cost savings.

So EBIT margin in line with gross margin, modestly down is how you would think about it?

Yeah. I haven’t provided outlook for that, Ali, as you can see, but I’ll let you do the math. But if you just again, take our 1% to 3% sales gross margin…

Yeah.

… modestly.

Okay.

I think you can probably do the math on the range.

Okay. So then on the 1% to 3% sales, I want to zero in on the negative 3% in Household this quarter aligned with a zero volume as well. I mean the price reductions in the Bags and Wraps was relatively downplayed, I would say, certainly last quarter in our own questioning, but even at the Analyst Day, start off with just one SKU at the Analyst Day and then it was well maybe something else given competitive pressures. And I just wonder whether there’s relief coming or is it just going to spread in terms of pricing, given some of the commentary from before has shifted to where we are today? So more comfort there and I get the market share point, Benno, you raised a second ago, we are okay, market share finally. But what does mean from pricing and competitive pricing as well in that market for that segments specifically?

Yeah. Ali, first of all, on the Glad price increase I want to confirm that there was no change midway to our plans. So and there was nothing related to increasing competitive pressures? So plan price increase on about 40% of the volume, that’s what we did to enable innovation. We executed that well, shares coming back, so we feel good about that. And now, of course, innovation is going to hit in this quarter and we feel great about that. So we feel good about Glad overall. I’d look at the Household segment and I’d just stare at a 12% growth last year and 3% decline on a 12% growth, even though you never want to see segment sales decline. The net of it over two years is still positive and then if I double click on the business, we just talk Glad and Glad is a very important business for us and we feel good about where we are. Litter was affected by said retailer inventory adjustments, but of course, we feel good about the growing shares in litter and the category growth in litter, and now importantly, also significant innovation that’s going to come out this quarter, which is our best tested innovation that we’ve ever had on this business. So we’ve been on a run in litter and we think we can keep going. Charcoal was down, yes, but again, off of a double-digit increase last year and also in a quarter that’s by far the slowest mover given the winter season in that category and RenewLife is up double digits, doing particularly well in e-commerce, for prospective, a year ago, e-commerce on that business was 4% of sales. This last quarter, it was 20% of sales, which shows you that our continued efforts to invest and be a leader in e-commerce are bearing fruit and in 2018 we will be able to add innovation to that business. We are launching a line of non-GMO and organic probiotics, the first of its kind on RenewLife and we’re also launching a kids line for all kids development stages, which is an important consumer need and something we’re excited about. So if I look at the individual businesses and how I feel in the Household segment, I can’t help but feel good and optimistic.

Okay. Last question, do you feel the same about International in terms of the trends there, I mean, clearly, pricing was good, volume was just flat, Asia and Latin America still in a little bit more pain, you had been on this trajectory of improving margins there and a little bit rough for now. How do you feel similarly about International, which does especially Asian and Latin American volumes were less a little bit?

Yeah. I feel not -- that in international, we’re not yet where we want to be. We’ve had number of really solid quarters. This was an okay quarter. But, clearly, cost continues to be challenged, because we’re seeing continued inflation. FX also is still a headwind. We’re looking at Argentina, and which of course, is the biggest -- a big market for us internationally and that recovery in their economy is progressing but requires a lot more time. So, with International, I would say, we’re doing everything that we can control, which is to Go Lean, which is to invest selectively in profitable growth opportunities, save costs, drive business towards higher margin initiatives well. But we’re doing that in a continued very difficult macroeconomic environment and for that business to do, as well as we want to, we need that macroeconomic environment to ease up and we haven’t seen that in Q2.

And Ali, this is Steve, if I can just build on Benno’s comments, as it relates to at least the earnings when you look at the reported decrease, just a perspective. It represents about $5 million decrease to earnings on a year-over-year basis, well over half of that was actually decisions we made in the quarter to step up consumer demand building investments and then the balance was just some of the cost pressures and investments we’re making around Go Lean. So, you have to put that in context as well. There’s going to be variability across margins and profitability in that business. But I do think we’re taking the right long-term actions to keep that moving in the right direction.

Okay. Thanks a lot and congrats again Steve.

Thanks, Ali.

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

Okay. Good afternoon and Steve best of luck. I will make this very brief. I guess the one thing that I wanted to talk a little bit more was on the advertising budget that you’re set for this year. So can you maybe talk -- in the context of the competitive environment, are you seeing anything in any of your categories where you have to shift some of your advertising towards gross to net, is there anything out there that would prohibit that and then just with the rising cost inflation, do you think that you would definitely see the gross to net actually start to come down a little bit, because everyone’s trying to get more price realizations. So I was wondering if maybe you can just talk about where we should be thinking about advertising for the year and relative to gross to net impact that would be in the gross margin? Thank you.

Yeah. So we have, Jason, in the past commented on advertising sales promotion being about 10% of net sales and we think that that’s the right number. I -- again, taxes don’t make a difference to that and the competitive environment has not changed. So we feel like it’s a solid number to deliver our sales growth that we have in our outlook. In terms of trade spend, we have as you know over the last three years stepped it up in particular to support innovation, so that’s strategic spend, some of it was related to elevated competitive activity in certain categories like Wipes. But most of it to support product innovation, so that’s good spend. That’s maybe one where over time, long-term there may be an opportunity for that to perhaps go the other way and go down, because whenever you step up spending, what you do as a next step and that’s certainly been the hallmark for our company is to look at the effectiveness of every single dollar, you learn and then you learn that perhaps there’s opportunity you to optimize and then you optimize. So I think that for the coming fiscal years there’s got to be opportunities for us to optimize that and then either increase the ROI between the existing spending or perhaps take that down, that remains to be seen. But advertising sales promotion, unless something significant happens in the marketplace, is exactly where we want it to be. It will continue to vary by quarter, but for the total fiscal year it’s about in the right place.

Okay. Great. Thank you.

Our next question comes from Lauren Lieberman from Barclays. Please go ahead.

Hi. Good morning. This is actually Shirley Serrao on behalf of Lauren Lieberman. Just wanted to dig a little bit deeper into some of the volume strengths in Lifestyle, I noticed double-digit volume gains in water filters, so just sort of the first positive data point we’ve seen on volumes in that category in a while. So just some details there around initiatives you pursued in the quarter and any early read on some of the innovations that have come through? Thank you.

Hey, Shirley. How are you? This is Lisah. So, Brita, as we said in the scripts, my opening remarks today, it’s really club strength that we saw, and importantly, it’s due to innovation that we have, as you know, we launched our new Stream pitcher couple of quarters ago and recently also Long Last filter innovation and both have really made a difference in the category growth, as well as our shares.

Great. Thank you and good luck Steve.

Thank you. Shirley.

So we will take one more question.

Our next question comes from Jonathan Feeney from Consumer Edge. Please go ahead.

Thanks so much. Steve, Kevin, congratulations. I wanted to first ask two questions. First, Benno, in historical, I know you know a little bit about history of Glad and how these things tend to go, and historically, I’ve noticed in the data that considering the magnitude and surprising magnitude of resin, raw material price increases generally, the cadence of private label price increase seems to be pretty slow. I am wondering how -- historically, how long does it take for pricing to from higher commodities make its way through the category? Just from your past experience, I know you don’t know how it’s going to happen this time, just some perspective on that would be helpful? And secondly, I think, Google Trends has flu searches up 400% year-over-year. I am wondering if historically, flu scares like we have right now have had any major impact on your business. It’s certainly been something you’ve talked about, I think, Steve has talked about at CAGNY several times as a theme for your company and a way of marketing your products. I wonder if you’re having any either interest of retailers or increased takeaway at this point? Thank you.

Yeah. On resin and pricing, Jonathan, so, first of all, we’re not in a coffee industry where we passed through goodness and we take pricing right away. So there is a time lag and it all depends on what price, resin cost plateau we are expecting. So we’re pricing strategically. We’re pricing with an eye on the mid-term and we price depending on future expectations, as well as the actual cost development. So really depends, I can tell you that, we’re looking at where cost is right now, which is certainly elevated, but importantly, we’re looking at where cost is expected to be mid-term over the next six months to 12 months and we need to believe that both of it is going to be up or stay up significantly as a way to justify pricing. We’re able to execute pricing when we execute pricing and certainly we have done that on this business and other businesses in the past, with some lead time, it does require planning with customers and that takes months time. So I don’t think about this is something that is just done in a snap and with a switch of a button. So there is lead time associated with it, because pricing for us is strategic matter and doing it right means giving it some lead time. On flu season, so we think that may have been a tiny a little bit in Q2 but not much. Certainly, Disinfecting Wipes grew almost double digits, high-single digits, double digits in the club channel. We also saw market shares up on Clorox Bleach, which of course, offers disinfecting properties and Clorox Clean-Up spray, which is also a disinfectant. So there’s certainly strength in that our disinfecting category as consumers still look to us to help them with products that help them get rid of germs. But its -- I don’t think that it was materially on Q2, Q3 it’s a little early to say. Typically February, of course, is another peak season. There are typically two peak months in the flu season, that’s November and February, so we’re entering February remains to be seen. What I can tell you is that we’re planning every season with our customers as if it is flu season and we have enough product in store and enough capacity also to be able to fully supply should there be increased demand, but it’s just a little early. But we see what you see it, certainly an elevated flu season and we’re able to react and supply customers and consumers should we need to.

Thank you.

Thanks.

So, I think that’s it. Thank you, everyone, and I look forward to speaking with all of you again in May when we share our third quarter results. Have a good weekend.

That does conclude our conference for today. Thank you for your participation. You may disconnect.