The Clorox Company (CLX) Q3 2021 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to The Clorox Company Third Quarter Fiscal Year 2021 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 call Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Thanks Christy. Welcome everyone and thank you for joining us. We hope you and your families are continuing to stay safe and well. I'll start by providing some context to this quarter to give you an understanding of the dynamic environment we're seeing as we begin to emerge from this pandemic. Then I'll have my usual topline commentary with highlights from each of our segments. Kevin will then address our total company results as well as our FY 2021 outlook. Finally, Linda will offer her perspective and we'll close with Q&A. A few reminders before we go into results. We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website at cloroxcompany.com. Today's discussion contains forward-looking statements including statements related to the expected or potential impact of COVID-19. These statements are based on management's current expectations but may differ from actual results or outcome. In addition we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statements section which identifies various factors that could affect such forward-looking statements and the non-GAAP financial information section which include tables that reconcile non-GAAP financial measures to the most directly comparable GAAP measures, both of which are located at the end of today's earnings release which has also been posted on our website and filed with the SEC. To help cut through some of the complexities this quarter, I'd like to share what we see as three important key takeaways. First, we're on track for another strong year. Our FY 2021 outlook continues to project double-digit sales growth. On a two-year stack basis we're also positioned to deliver about 19% sales growth. Second, we continue to see opportunity to accelerate our long-term financial performance. For example, many consumer behaviors that have changed during the pandemic are expected to stick including enhanced hygiene practices. We're leaning into these changes through new growth runways to help Clorox develop into a global disinfecting brand. And third, the pandemic has only reinforced the relevance of our IGNITE strategy priorities which center around people and innovation leveraging technology as a critical enabler. Now, turning to our third quarter results. Our strategy has enabled us to deliver flat sales in Q3 on top of 15% growth in the year ago quarter. Q3 sales reflected about one point of net benefit from July 2020 acquisition that gave us a majority share in our joint venture in Saudi Arabia. On an organic basis sales were down 1%. In our Health and Wellness segment, sales were down 8% reflecting declines in Cleaning and PPD. Sales in Cleaning business declined this quarter from lower shipments in a number of our cleaning and disinfecting products. The lower shipments are a result of demand normalization in bleach and Pine-Sol relative to the year ago period when consumers turned to these products given the persistent out of stocks in wipes and sprays at the onset of the pandemic. Segment results also reflect ongoing supply constraints in our wipes and sprays. Nonetheless, two-year stack growth remains very strong, reflecting a much higher level of consumer demand and household penetration than pre-pandemic, even as we begin to see a return to new normal in the US with a growing percentage of the population vaccinated. As we continue to increase supply in our wipes and sprays, product availability and assortment will improve, which in turn should lead to improvements in shares. We're also excited to be bringing back some of the innovation we've had to pause during the pandemic, including Clorox compostable wipes and Clorox Scentiva disinfecting sprays and wipes. Sales in our Professional Products business were down by double-digits this quarter, due to lower shipments of cleaning and disinfecting products as many businesses remain close during the third quarter relative to the year-ago period. Similar to the trends in cleaning, demand for our consumer-preferred disinfectants, like wipes and sprays remain elevated and consumption continues to be limited by our ability to supply. And as expected, consumption of bleach and other cleaning and disinfecting products has normalized. With continuing category tailwinds, progress in our out-of-home partnerships and a strong innovation pipeline, PPD fundamentals remain healthy. Importantly, we feel good about the prospects of this business. Lastly, within this segment, sales in our vitamins, minerals and supplements business were up in the third quarter, driven by higher shipments of our strategic brands and lower trade spending. Notably, we were lapping a double-digit decrease from the year-ago period, driven by a disruption in our supply chain-related to COVID-19. As noted in today's press release, we recorded $267 million net non-cash impairment charge related to this business, which Kevin will address in more detail shortly. Despite the setback, we're moving forward focused on implementing a refreshed portfolio strategy and incorporating what we've learned since acquiring these brands. There continue to be strong tailwinds in the VMS space. And we have clarity on the path of this business becoming a more meaningful contributor in the long-term. Again, just some brief context before I get into the results in our other businesses. Similar to cleaning, inventory levels in the year-ago period impacted Q3 results, especially in Brita, where we remain supply constrained. With continued elevated demand and supply challenges, several of our businesses in these segments have gone back on allocation. In Household and Lifestyle, consumers continuing to stay at home as well as business closures impact our businesses differently, benefiting some and challenging others. Nonetheless, our two-year stack growth across our segments remain very strong and well above our long-term sales growth targets. Turning to the Household segment. Quarterly sales were up 6% with growth recorded in all three businesses for a fourth consecutive quarter. Grilling sales were up by double-digits in what was a record-setting quarter of shipments for the business. Through strategic collaborations with our retail partners, we've been able to continue to grow household penetration and share. In the past year, we've introduced Kingsford products - Kingsford's products to more than one million new households. And they've invested in their backyard, including buying new charcoal and pellet growth, which will create a lasting tailwind for this business. Our pricing strategy has also led to a less promotional environment, which will reduce pantry loading going forward. And we've improved our product lineup and distribution, making it easier for consumers to find our Kingsford pellet innovation and new flavors of our Kingsford product lineup at even more locations nationwide. All these goodness is helping us build a healthy momentum for this business, which is especially important, as we head into peak – the peak of the grilling season and tough comparable periods. Cat Litter sales increased this quarter, despite lapping consumer stockpiling in the year-ago period. The driving forces behind the business strong performance have been its success in the e-commerce channel and innovation. Fresh Step with Gain continues to do well and build distribution with more innovation planned for Q4. Additionally, the record number of pet adoptions that has occurred during the past year will resonate for years to come as cat parents continue to purchase necessities like litter long after the pandemic has ended. Glad sales increased in Q3, mainly behind lower trade promotion. As a reminder, while we began to see elevated demand at the tail end of the year-ago quarter, heavy consumption didn't occur until late in FY 2020. So Q4 will be a more challenging comparison than Q3. In recent months, we've also seen a significant resin price inflation. To manage those rising costs, we have announced a pricing action on this brand effective in July. As we've mentioned, we'll manage inflationary pressures holistically using all the tools in our toolbox. This approach will allow us to continue introducing innovation that resonates with consumers, which has driven profitable growth for the category for a long time. For example, over the past decade, we've started using higher-quality resin that has allowed us to reduce overall use by 20%, resulting in a stronger bag with a reduced environmental footprint, all while improving our cost structure over time. Our latest innovation Glad ForceFlex with Clorox trash bags has been performing well since its fall 2020 launch. In Lifestyle segment, Q3 sales were flat. The Food business had a double-digit sales increase for a fourth straight quarter behind continued consumption growth of our Hidden Valley Ranch bottle dressings and dry seasonings. This growth was on top of high single-digit growth in the year-ago period. The ongoing trend of at-home meals has driven household penetration to another record high. Our optimism for this business is further fueled by the success of our latest innovation Hidden Valley Secret Sauces and Hidden Valley plant right-based ranch dressing, which has both – have both been performing well. Brita sales in Q3 were down by double-digits, as the category consumption decelerated from its COVID-related buying spikes in the year-ago period. Despite these results, consumption level has remained much higher than pre-pandemic, partly fueled by strong filter replacement. As with wipes and sprays, our supply chains have not caught up with demand in Brita, particularly for filters and impacting our shares and sales. On a positive note, we're continuing to make progress in addressing these supply issues, which has already helped us begin to recover share. Burt’s Bees sales also decreased by double digits, due to the changes in shopping and usage behavior, that have occurred during the pandemic. The business was also lapping the effect of pantry loading in the year-ago period. Mask wearing and decreased mobility have created headwinds in both the lip care and face care segments. Still, the brand has not only maintained, but fortified its position as the number one lip balm. As we prepare this business for improving consumer mobility and consumers returning to cosmetics and colors, we'll be launching towelette innovation in value sizes and the new watermelon scent. These bright spots, combined with the continued growth in online channels, contribute to our confidence in the long-term growth prospects of this business. Lastly, International has its own unique dynamics that sets us apart from our other segments. Unlike the US, most international markets where we operate don't yet have high vaccination rates. As a result, demand for cleaning and disinfecting product, remain elevated. The two-year stack growth rate for this business is about 22%. In our International segment, Q3 sales grew 9%. These results which reflect the combined impact of about seven points of benefit from the Saudi JV acquisition and about two points from foreign currency headwinds are on top of 11% growth in the year-ago period. Excluding the impact of Saudi acquisition, half of all sales growth was driven by the introduction of a new line of Clorox disinfecting wipes, mainly flat packs innovation sourced from our dedicated international supply chain and launched in more than 30 countries this fiscal year. With strong innovation like this and differentiation of our brands in their respective categories, we feel good about the growth runway of this business. Now, I'll turn it over to Kevin, who will discuss our Q3 performance, as well as our updated outlook for FY 2021.

Thank you, Lisah, and thank you everyone for joining us today. We hope you and your families are well. Before I review our third quarter results, let me first address the non-cash impairment charge we reported today. The Better Health, Vitamins Minerals and Supplements business, represents about 4% of total company sales, comprising several small brands, we acquired in two separate transactions. Performance on this business has not delivered on our expectations. The impairment was a result of our updated valuation, which assumes lower sales and profit projections versus our initial expectations at the time of the acquisition, primarily driven by an increased level of competitive activity and the need for more investments to scale these small brands. As a result of our updated valuation, we record a pretax non-cash impairment charge of $329 to lower the carrying values of goodwill, trademarks and other assets of the Vitamin, Mineral and Supplement business unit. Net of a deferred tax benefit of $62 million associated with this impairment, we recorded a $267 million charge to net income or $2.11 per share. This represents about 27% of its initial purchase price. Going forward, we are implementing our refreshed portfolio strategy. We continue to believe in the attractiveness of the VMS space, driven by strong consumer tailwinds and the strategic fit, given our focus on health and wellness. Importantly, we fully expect that our VMS business will be a meaningful contributor to our company results over time. To ensure clarity around the underlying operating performance of our overall business, my comments on the third quarter results will exclude the impact of this non-cash impairment. In addition, my comments will exclude the impact of a onetime non-cash gain related to our Saudi joint venture acquisition. It's important to note, that while the Saudi joint venture is expected to contribute $0.45 to $0.50 to our reported EPS, it includes a $0.60 non-cash gain that we're excluding from our adjusted EPS outlook. Moving forward, in our fiscal year adjusted EPS 2021 outlook, we are continuing to include $0.10 to $0.15 charge, primarily from an ongoing intangible amortization related to the acquisition. Before I review our third quarter results, I'll comment briefly on our fiscal year outlook. As you saw in our press release, we've confirmed our fiscal year sales outlook and provided an adjusted EPS outlook, which excludes a non-cash impact from the VMS impairment in the third quarter, as well as a one-time non-cash gain of the Saudi joint venture acquisition in the first quarter. For perspective, excluding these items, help provide clarity around our underlying operational performance, which is unchanged from our previous outlook. Importantly I'm pleased we're on track to deliver another strong year for our shareholders, targeting a two-year stack of about 19% sales growth, well above our historical financial performance. Now, turning to our third quarter results. Third quarter sales were flat, in comparison to 15% growth in the year-ago quarter, when we saw the initial spike from COVID-19. Our sales results reflect a 5-point decline in organic volume, offset by 4 points of favorable price/mix and 1 point benefit from our Saudi joint venture acquisition. On an organic basis, third quarter sales declined 1%. Our sales results came in largely as expected, although there's certainly variability across our portfolio, which reflects a very dynamic environment we continue to navigate. Importantly, we grew sales in six out of our 10 businesses. Gross margin for the quarter decreased 320 basis points to 43.5%, compared to 46.7% for the year-ago quarter. Gross margin results reflect a pronounced inflationary environment, resulting in 360 basis points of higher manufacturing and logistics costs, including temporary COVID-19 spending, as well as 170 basis points of higher commodity costs, primarily related to the rising cost of resin, partially impacted by the extreme weather events we experienced in the Southern US earlier this quarter. Gross margin also reflects 100 basis points of negative impact from lower volume in the quarter. These factors are partially offset by 140 basis points of favorable trade promotion and 110 basis points of cost savings. Selling and administrative expenses, as a percentage of sales, came in at 13.3%, compared to 15.1% in the year-ago quarter reflecting lower incentive compensation expenses, primarily related to the non-cash impairment on the VMS business. Advertising and sales promotion investment levels, as a percentage of sales, came in at 11%, reflecting continued strong investments across our portfolio, with U.S. spending at about 12% of sales, to support a robust innovation program in the back half of the fiscal year. Our third quarter effective tax rate was negative 1.4%, driven by the impairment charge we took on our VMS business. Excluding the impairment charge, our third quarter tax rate was 23%, compared to 19% in the year-ago quarter, as we lap excess tax benefits on stock-based compensation. Net of all these factors, adjusted earnings per share for the third quarter came in at $1.62 versus $1.89 in the year-ago quarter, a decline of 14%. As you also saw in our press release, year-to-date net cash provided by operations was $893 million versus $806 million in the year-ago period, an increase of 11%. Our strong cash flow was due to profitable sales growth, partially offset by higher tax payments and higher employee incentive compensation payments. Turning to our updated fiscal year outlook. We continue to anticipate fiscal year sales to grow between 10% to 13%, reflecting the strength of our first half results and our ongoing assumptions for moderating demand over the balance of the fiscal year as we move beyond the peak of the pandemic in the US and lap exceptional prior year comparisons. Our assumptions for one point of contribution from our Saudi joint venture offset by one point of foreign exchange headwinds remain the same. On an organic sales basis, our outlook continues to assume 10% to 13% growth. We now expect fiscal year gross margin to be down due to a more pronounced headwinds from elevated commodity and transportation costs. We now expect fiscal year selling and administrative expenses to come in below 14% of sales reflecting lower incentive compensation costs primarily due to our third quarter non-cash impairment on our VMS business. Additionally, we continue to anticipate fiscal year advertising spending to be about 11% of sales, reflecting our ongoing assumption to spend about 12% in the back half to support our innovation program. For perspective, this fiscal year, we're planning to spend about $125 million more versus a year ago to ensure we're leaning into engaging consumers to build lifetime loyalty to our brands. We continue to expect our fiscal year tax rate on a reported and adjusted basis to be between 21% and 22%. Net of these factors, we anticipate fiscal year adjusted EPS to be between $7.45 and $7.65 or 1% to 4% growth, reflecting the continued assumptions I mentioned last quarter, including strong top line performance partially offset by an increasingly elevated cost environment. In closing, I'd like to note that as we transition from the peak of the pandemic in the US, we're navigating a highly dynamic operating environment with the following factors that can influence our results in the near to medium-term. First, category dynamics and consumption trends. As more people get vaccinated and become increasingly mobile in the US, although we recognize different markets are in varying stages of pandemic, we're keeping an eye on short-term changes in these trends as they could cause variability in our top line. That said longer-term, we believe our portfolio will continue to play a meaningful role in addressing consumer megatrends that have accelerated over the last 12 months, which will contribute to higher demand for our products relative to demand levels prior to the pandemic. Second, more pronounced cost headwinds, which we'll plan to navigate with all the tools in our toolkit including opportunities for pricing in key areas of our portfolio. And third, increased production capacity to support ongoing elevated demand. This remains a key priority for us as our teams continue to look for every opportunity to expand our production capacity, while recognizing the ongoing volatility this creates on our extended supply chain. And finally, I'll reinforce that we're on track to deliver another strong year for our shareholders, while keeping our sights set on the long-term. As you saw in February, we raised our long-term annual sales target to 3% to 5%. Based on the early success of our IGNITE strategy and our continued plans to lean in even further with strong investments behind our brands, people, technology, production capacity and of course, our new growth opportunities where we believe we have a right to win. These efforts are all in service of our broader ambition to accelerate profitable growth, to create long-term value for our shareholders. And with that I'll turn it over to Linda.

Thanks, Kevin. Hello, everyone and thank you for being with us today. I hope you are all well. A year ago around this time when the pandemic spiked in the US, we knew we were facing unchartered territory. And as I look back at how we've managed our business to support our consumers, retail partners and communities over the last 12 months what makes me proud is that we stayed true to three things. We embraced our role as a health and wellness company, which helped us prioritize our actions, including ensuring the safety of our people and emphasizing our support for health care workers. We put people at the center taking care of our teammates around the world and staying the course in doing everything we could to serve public health and consumer needs. We were led by our values, with our commitment to do the right thing guiding our strategic choices and actions. Out of all of this, our purpose became clearer. We champion people to be well and thrive every single day. With this in mind, here's what's important for you to take away from today's call. First, our business is well positioned for the future. I'm grateful our consumers have rewarded our team's dedication to serving people and communities around the world. Our business is significantly larger than it was before the pandemic. People have turned to our trusted brands for support, during an incredibly tough year, and Clorox has the most trusted brands in many categories. We see this play out in strong household penetration across our portfolio, with our brands in 90% of US households. We continue to see strong repeat rates across our brands among core and new users versus last year. And as Lisah mentioned, we continue to focus on retaining this larger base of loyal consumers. And of course, this is showing up in our results, including flat sales in comparison to a very strong base in the year-ago quarter. For perspective, it's worth noting that we delivered a two-year stack of 15% total company sales growth in the third quarter. And as Kevin mentioned, we're on track to hit a two-year stack of about 19% sales growth for the fiscal year. My second message is that, we have strategic plans in place to address near-term priorities as we continue to navigate in a very dynamic environment. First, there's more work to be done on improving supply, especially after weather-related disruptions in the third quarter and higher-than-anticipated demand in certain parts of our portfolio. We're pulling every lever available to us to improve supply, including working with third-party supply sources as we continue to run flat out. I'm encouraged by our progress, but our overall supply chain remains a top priority focus for us. Next, we fully acknowledge that market shares for key brands are not where we want them to be. That said, share declines are primarily driven by recent supply challenges. And as we continue to improve supply capacity, we expect to recover market share. We feel good about seeing continued strong consumption and demand across our portfolio relative to pre-pandemic levels. And as Kevin discussed, we're facing stronger cost pressures from critical input costs and a tightening transportation market. One of the four key choices in our IGNITE strategy is to generate fuel to support growth and mitigate inflation. We're taking a holistic approach to address these cost pressures by leveraging a number of tools to support our margins, including margin accretive innovation, net revenue management, pricing through trade reduction, and less price increases and as always a relentless focus on cost savings. My last message is this. With conviction in our purpose and guided by a strategy that makes the most of our strength, we continue to have our sights set on our ambition to accelerate long-term profitable growth. In the past year, we learned that by putting people at the center our IGNITE strategy has helped us to do what we do best, serve people who count on our brands. And we continue to have an opportunity to serve even more people around the world. And as we think about our future, our strategy is proving to be particularly relevant as it leverages significant consumer megatrends that have accelerated because of the pandemic. The latest research still tells us that consumer routines and behaviors formed during the pandemic are expected to persist, including prioritizing health and hygiene, drinking more water, taking vitamins and supplements and spending more time online. What's more the role of home has changed. With many companies pursuing hybrid models for their workforce, we expect more cleaning, more meal occasions and more trash to be generated at home. Our portfolio continues to be in a unique position to play a meaningful role in people's lives and we have every intention of accelerating new growth opportunities to support these trends. Moving forward, we're leaning into our IGNITE strategy with innovation remaining core to our key areas of strength. That means; innovating in our products, especially, larger stickier innovation platforms that deliver superior consumer value and multiyear growth for our business; innovating in consumer and shopper engagement; personalizing experiences for consumers so that we get to know 100 million people by the year 2025; and partnering with our retailers on category vision and leadership to support healthy and profitable categories. The turnaround of our Kingsford business is a great example of how our focus on innovation is contributing significantly to strong category and brand growth. Innovating how we work across the organization through technology that makes us smarter, work faster and in the case of our supply chain enables us to respond more quickly to future demand spikes. And finally, innovating through an ESG lens because we believe in the strategic link between our societal impact and long-term value creation. Here are some highlights in the last quarter. We're 21% of the way toward our goal to reduce virgin plastic and fiber packaging by 50% by 2030. We've achieved 76% of our 100% goal for recyclable, reusable or compostable packaging by 2025. We're introducing a company-wide learning and development program focused on sustainability because ESG integration in our business not only means embedding it in every brand, but also rallying every person behind our efforts. And with ESG embedded into our operations, our brands are not only contributing to our corporate ESG goals, but they're also pursuing meaningful goals that matter to their consumers. As an example by 2030, Brita has a goal to provide clean water access to 0.5 million people in the US facing poor-quality tap water. This speaks to the heart of Brita's brand purpose. Before I open it up for questions, I'd like to echo the important takeaways Lisah mentioned at the beginning of the call. First, we're on track for another strong year. Second, we'll seize the opportunity before us to accelerate long-term profitable growth. Third, our IGNITE strategy has proven its relevance in the face of the pandemic by putting people at the center, emphasizing innovation and leveraging technology to lay the groundwork for the future. Operator, you may now open the line for questions.

Thank you. [Operator Instructions] Your first question comes from Dara Mohsenian of Morgan Stanley.

Hi, guys.

Hi, Dara.

Two things for me. First, one just can you clarify the 3% to 5% long-term top-line growth range from down in CAGNY, can you just clarify specifically what time period is that over? Is that a post fiscal 2022 range? Does it include fiscal 2021-2022? Just trying to understand that? And then second there are a lot of sort of puts and takes as we think about the next few quarters here from a top-line standpoint. In theory more difficult comparisons, COVID cases are dropping off. Vaccine counts are going up. Those are some headwinds, but you mentioned some of the supply chain challenges that you're working on. And you've talked about the greater opportunity in professional and international longer-term, which drove that higher long-term top line growth guidance down at CAGNY. So I was just hoping you could give us a bit of context as you look out here over the next few quarters in terms of some of those headwinds versus tailwinds. Could the business potentially decelerate with the comparisons you're facing, or do some of those positive areas more than offset it as you think about the business over the next few quarters here? I know you're not going to give a specific number, but just trying to think how you guys think through that particularly with some of those longer-term positive top line tailwinds you're thinking of? Does that play out in the near-term, or how long does that take to play out? Thanks.

Sure Dara. And let me start with your first question, or as you mentioned we raised our long-term sales goal of 3% to 5% back in February. In terms of the timing that's part of our IGNITE strategy, which runs through 2025. And Dara how I see that playing out as we talked back in February and we have the same point of view, we expect our sales to be roughly flat in the back half of the year. And that's consistent with Q3. And as we get into fiscal year 2022, our expectation is we're going to be by the back half of the year back to our long-term raised sales outlook at 3% to 5%. So as you know, we've got some tough comps here for the next three quarters. But as we get through those comps by January, we were at this new elevated level. And that's really as we work through the next phase of this pandemic as we see higher vaccination rates, more mobility, we fully expect that we'll see a slowdown in demand for products that's expected. When we get to that new normalized level, we think we're back at this 3% to 5% rate going forward.

Great. That's helpful. And then any context around some of those headwinds and tailwinds and particularly supply chain challenges? Any progress on that front, how much impact could that have from a top line perspective as you think over the next few quarters here?

Sure. I'll take that one. I'll start maybe with the big picture on what we're seeing as definitely tailwinds for us and we mentioned some of this in the script but with a little bit more color. We're definitely seeing consumer behavior trend sticky as we look over the mid to long-term. We're seeing hygiene continue to be that cornerstone of health for folks. And even as people are getting vaccinated and mobility is starting to increase, we're seeing people embrace those new cleaning behaviors as new routines. And they're both doing that inside and out of the home. In the business case, we're still seeing the need for higher disinfection as they welcome people back. But the issue has been depending on the market you're in and certainly we're seeing that in the U.S. mobility has not really increased the point where businesses are fully at capacity yet or even open in many cases. So we're seeing that both as a long-term headwind but as a short-term impact definitely to Q3. And we're looking to the future quarters to see how mobility will improve. I think the other things that we continue to see around people taking care of their health and wellness are persisting. We have a new installed base, for example, with Brita with a lot of people who purchased pitchers over the last period and we're seeing them continue with filter sales in their quest to be healthier and you take on good habits. Digital continues to persist and we think that will be a tailwind for our business as we've invested as you well-know more in digital marketing than the average in our industry leaning into that trend already. And then, of course, our strong position in e-com that we've built over many years and we continue to see that accelerate. And that's up to 14% of our business year-to-date. And then, the role of home continues to be a tailwind. And that was above our expectations in quarter three for sure. But we're seeing people persist, even as people have more mobility, people are eating more at home. And that what hasn't really changed at all, as people who were working from home during the pandemic are continuing to work from home. So we see that in our impact whether that be on our Kingsford business, on our Hidden Valley Ranch business or our trash business there's definitely positivity to that stay-at-home trend. So I think all of those are going to be tailwinds, as we look to the coming months and in the long-term. From a headwind perspective, supply chain has continued to be a challenge. And what we've done is gone after a tremendous amount of sales. We're a much bigger company than we were pre-pandemic. And that means that we have increased the complexity in our supply chain. We have a lot more nodes. We have a lot more third parties helping us. And then, what didn't help this quarter, of course were the weather disruptions that we experienced that caused quite a few force majeures in our products. And although we were managed -- able to manage through it, and deliver our overall commitment from a quarter three perspective, it's something we're watching really closely to see any volatility we have. But the supply chain being more expanded, continues to be something that we're watching, continues to be something that could be a help or a hinder as we look forward.

Great. That's helpful. And if I can just sneak one more in, on the pricing front, obviously you mentioned the Glad increases, potentially opportunities in other areas. Can you talk a little bit about, if you have pricing plans in place across the rest of the portfolio? Is it still being decided? Is it just a matter of when you communicate it? How do you think about pricing, in the rest of the portfolio beyond Glad? Thanks.

Absolutely, so as Kevin highlighted and Lisah highlighted in their scripts, absolutely seeing the inflationary pressure, as I think the entire ecosystem is now across our industry and from a retailer perspective as well. And what we have our sights set on is how, do we get to that long-term EBIT margin goal we have of 25 basis points to 50 basis points, from an accretion perspective. And the way we approach it, is very holistic. We're looking across a robust toolbox to address this, things like margin accretive innovation. And we have a terrific innovation program, that started at the beginning of this year and is continuing as we launch incremental innovations in Q4, net revenue management, pricing and that will include both, list price increases and trade reductions. And then, of course, our relentless focus on cost savings. So we're employing that entire toolbox right now, across all of our businesses. And we're coming from a place of strength in this. Our brands are strong right now. We have never had a higher consumer value measure. Household penetration is strong. We're seeing strong repeats. So we're feeling confident in that. And we're evaluating our ability to take price across all businesses. But I'll tell you, we will be very surgical and targeted in this. We're going category-by-category because we're -- of course we're weighing the broader environment. And we want to be measured in that. But I -- the message I want you to hear is we're looking at it very broadly across our portfolio. And what we're really focused on is executing by category with excellence.

Thank you.

Thank you. Your next question is from Chris Carey of Wells Fargo Securities.

Hi everyone. So I just want to follow-up on, on that line of commentary around pricing. And then, I have a second question. So just on the pricing front, maybe just help us understand, your pricing at Glad, last time that happened it was -- caused volatility on shelf. Now you have competitors that are moving ahead of you. Can you just talk to confidence that that won't happen again this time? And then related to the pricing you did mention that lower promotions I think are going to be a part of how you're getting some net pricing. I think that's what you said. But promos are already at a pretty low level. And so do you anticipate your promotional levels going below peers? And then I have a second question. But the general framework there is, just Glad pricing risk and just -- did I hear that right that you think promo can actually be a source of pricing basically implying that maybe you're not looking at list prices in the rest of the portfolio just yet until we get well into fiscal '22? And then I have a follow-up. Thanks.

Thanks Chris. I'll start. So we have confidence in our brands and the strength right now and that is absolutely inclusive of Glad. And all of the investment that we put in, in terms of incremental advertising, what we put in from an innovation perspective and how consumers have turned to our brands during this time, continue to give us confidence in our ability to take pricing. I think what we're also seeing this time versus what we saw last time is a broader inflationary environment that really is pretty systemic throughout the industry and what everyone is experiencing. So as you mentioned, we've seen competitors move in categories like Glad. I think Glad in particular, I'll just highlight we have already come up with that price increase that's effective in July. But given the volatility and the increases we're seeing in the resin market, we are looking at will we take even additional pricing in Glad based on what we've seen. So again we want to be -- let the cost pressures guide us. We're doing this for the mid to long term but we're seeing extraordinary circumstances in resin right now that are helping us to go faster on Glad. What you should take away on the other brands is not that we are not looking at with price increases. We look at that -- first of all we do that annually as a company to understand our position. But right at this moment, we're looking at that. But what I want you to hear is the way that we do that across the brands needs to be holistic. So some will include those price increases, others will not. And what you'll hear us apply to every business is cost savings. You'll hear us think about how we can have margin accretive innovation across every business, but less price increases we'll be very targeted on, but again evaluating across our entire portfolio. And I think from an on-shelf and a retailer perspective, we're working on category growth plans with them. And we're lapping a very strong period of growth. And as you think about the lower promotion question, what we're trying to do is get to a more normalized state of promotion. And it's still although accelerated versus where it was in Q2, it's still well below pre-pandemic levels. And as we lap that growth there's little incentive to put a bunch of deep discounting out in the system and we're working on growth plans. So that's how we're thinking about the lower promotions in the context of the environment, is that we all have strong growth to lap. And of course, we want to make sure that consumers that we continue to lean into them and invest behind the tailwinds. And that could mean a lower promotional environment. So we're watching that closely and again it will depend on the category. But the overall sentiment would be, keeping it as rational as we can and using promotion for what it's intended for to drive trial and to get consumers to keep us curious.

Thank you for that. Maybe just to close the loop, I mean the last time there was a commodity cycle pricing accounted for several hundred basis points to gross margin. Can you just comment on whether that is a sort of a realistic framework to think about go forward? And then the second question is just, I think if there was one area which surprised certainly relative to our model this quarter was the decline in professional and certainly on a sequential basis. Like I appreciate the cyclicality of the business, but there's also this underlying -- we've heard about all these partnerships that you're signing. And I guess also international came in a little bit light just relative to what we've seen from a lot of other staples companies this quarter. And so maybe I think underlying the question is just the confidence that these two businesses can be contributors to your 3% to 5% longer term growth outlook. Just maybe any puts and takes that you saw this quarter which give you confidence that those businesses can be bigger growth drivers going forward? Thanks so much for all that.

Sure. Hey Chris maybe I'll start and I'll turn it over to Linda as well. On your first question in regard to the impact of pricing, I'd tell you it's too early for us to start providing perspective. We're right in the middle right now of building our plans for fiscal year 2022. And as Linda said we're going to be looking at a number of different levers in terms of how we're going to work to offset the transportation and commodity cost increases we're seeing. Pricing will certainly be one of those levers but we'll be looking at a number of others as well. So, we'll update you on that one as we get further along with our plans in August. In regard to International just a perspective of International as you may have seen volume was down. I think it's worth noting we feel very good about the progress we're making on our cleaning and disinfecting work. And as Lisa mentioned in her prepared remarks, we continue to expand the number of countries we're introducing wipes into and we've added 30 countries now. Specifically, though in the third quarter, one of the challenges we had was in Canada. While we saw growth pretty broadly across our portfolio in Canada and if you're tracking that region, you may know they are now in their third lockdown. And in the Canadian market it's a little different than the US, in their lockdowns for items that are deemed non-essential. If you go into a retail outlet, in many cases, those aisles are blocked off where you can't shop them. And so as an example in third quarter we grew our cleaning and disinfecting business in Canada, but we saw pretty significant declines in other parts of our business. Our Brita business was down over 30%. Our Burt's Bees business is also down by a similar amount because consumers are not able to shop those aisles. Now, right now the lockdown they've announced goes through May 20th. So that has some knock-on effect as we move into our fourth quarter. But we expect as we get out of that lockdown, those businesses will rebound. But by and large, we feel very good about the progress on our cleaning and disinfecting portfolio internationally. And then Linda will talk a little bit about our professional business.

Yes. I think professional is a unique part of our portfolio because it really is tied very heavily to mobility. And if you think about this, it has to really do with the comparison period. So, last quarter three, businesses hadn't shut down by the -- in that point even though we saw consumer takeaway in the retail side for the most part businesses were open. So, we had a very strong comparison period to lap. And in contrast to that this quarter most businesses continue to remain closed. And you have to recall too we have a very established business when it comes to professional. This is not just about the new opportunities, but we've been cleaning these businesses for years and years. It's about 7% of the company before this growing strongly mid-single to high single-digits and so that really had an impact. And I think if you look broader across the professional space, not just ours, they're seeing the same trends broadly in that industry. But if you take a step back the trends continue. The partners that we've had as we brought on in the new out-of-home space continue to see the benefits of offering their guests a clean and disinfected space branded by Clorox and we continue to expand those partnerships and bring new ones on. The two-year stack on this business is up 17% so very strong growth on top of strong growth for many years. And we continue to have conviction in the long term. The reality is consumers need that reassurance that spaces are clean. We know businesses want to provide that to them so they can get back to growing again. And we have a terrific new suite of innovation that we're excited about that's coming in quarter four including expanding our electrostatic sprayer business with both new forms and chemistries. So feel really good about the long term of this business. There's a lot of noise in the short term, as most of the professional spaces out there have encountered, but no change to our outlook for the future.

Okay. Well thanks. Thank you both for all that. Appreciate it.

Thank you. Our next question is from Nik Modi of RBC Capital Markets.

Yeah. Hi, everyone. So Linda, I was hoping you can address something on disinfecting wipes, just two vectors to think about on category growth. So I look at numerators vaccinated shopper data suggest that vaccinated consumers buy rate that disinfecting wipes is dropping faster than unvaccinated consumer. So I was just -- hope you can provide some complex and thoughts around that. And then secondly on market share given this has been a supply-related issue, I mean what's the case that you can make to retailers to get back the space at a point where you feel like the supply problem no longer exists? I mean, is it going to be about marketing support, brand loyalty or basket size place? So any thoughts around that would be helpful.

Sure Nik. Just starting with disinfecting, we continue to see really strong behavior changes from consumers. But we did anticipate to experience as people became vaccinated behavior is changing. And we did see that curve move up slightly. So as people got vaccinated, it just happened a little earlier. And frankly, vaccines happened earlier than we had anticipated. So that's normal. We expected that as we go forward. But the key takeaway is versus prepandemic levels cleaning behaviors are still significantly elevated. And we continue to expect them to be into the future. And we're hearing that from consumers. We're seeing that in their buying habits and continue to feel confident about our ability to -- for these growth areas in cleaning and disinfecting to get us to our 3% to 5% growth rate moving forward. I think as it particularly comes to market share, just to be really clear, we are not happy. Whether it be supply related et cetera, we want to grow share. And that is our goal and we want to do that over the mid- to long term. This really does have -- it's primarily driven with supply, particularly in cleaning and disinfecting. Not only did we have the weather-related issues, but as we talked about the more that we expand our supply chain, the more nodes that it has, the more risk it introduces. And that really impacted our ability to lap a very, very strong period that of course included the depletion of all the inventory across the system last quarter three. As we look forward to supply though, we're optimistic. We've made good progress and we anticipate substantial improvement in the next four months. And we plan to be in stock on most businesses in cleaning including wipes by the end of Q1. And what consumers are already experiencing is better than what they've experienced for the months premium to that. They're going to the shelf and they're finding something from Clorox which is good to see. And then we anticipate being fully in stock across our Cleaning business by the end of Q2. So that includes some things like sprays and some of the other items that are still supply constrained. When it comes to market share moving forward, supply is going to help, but the other thing is innovation. And we have a terrific suite of innovation in quarter four that retailers are really excited about. And that includes reintroducing things that we had to put on pause. Scentiva that was a large growth platform for us prior to the pandemic, we are starting to ship that again. Compostable wipes are also back in market again. And we know they had a strong start prior to the pandemic and we'd expect them to continue. And then, we're also going to be expanding our disinfecting floor mopping business that we had started right at the beginning of the pandemic. And we expect broad distribution on that. In addition, we're launching brand-new to the space innovations, including paper towel wipes, a brand-new Clorox non-bleach all-purpose cleaner, and then building off of our electrostatic business, that's already at over $100 million in sales and launching new forms and new chemistries kind of brand-new to the market. So, a great suite of innovation that we're working with retailers on and that's what we're focused on innovation and growing the category. And that's resonated really well.

That's very helpful. And if I could just -- just one real quick one on vitamins. You talked about you have plans in place. Can you be specific in terms of what exactly you plan to do to kind of turn around the fortunes of that business? Because it seems like the overarching kind of backdrop of that industry is going to look much better than it would have been pre-pandemic just given everyone's focus on self-health and self-care. So any specifics around the strategy would be helpful.

Yes. Nik, why don't I give a little bit of background too? I think that would be helpful then to talk about what we're planning to do just as a backdrop. As Kevin mentioned in his remarks, we bought a bunch of small brands through two acquisitions, three to five years ago. These were small brands very strong in the then fast-growing natural channel. And we expected them to grow consistent with what we're seeing in that broader category, high-single-digits to low-double-digit growth, and of course, getting a shorter time to synergies. The underperformance is related to what we bought. So channel headwinds have been a big component of that. Natural went from plus 8% at the time we bought it to a headwind at negative 5%. And that's only accelerated given the pandemic and what we're seeing in retail consolidation. We're also very heavily weighted in probiotics and that category has been fragmented. It slowed down given the massive amount of people who've been launching probiotics in other forms, in food, et cetera, and then certainly higher competition as people have entered that attractive space. And then, just given the size of the brands that we bought, we realize it's going to take a longer time and more investment to get there. So, what do we do looking to the future? It starts with the fact that we have really good conviction in the strength of the category and the tailwinds that we see from a consumer perspective. Those remain very strong. People are continuing to do things to take care of their health and wellness, and vitamins and supplements are absolutely part of that. So with that, I'll give you what I can talk about in the strategy at a high level and we'll welcome talking about more detail coming up in the future. But what we're really focused on is first making sure that we have the right category knowledge and we feel great about that. We have a better understanding of how the category works and how we need to operate with those small brands in it. We've hired new industry talent that has a lot of experience in this space and they've helped us to get clear on that. And we've refreshed our strategy, and particularly around our portfolio and how we win with those brands moving forward. And so with that, and I know Nik you probably want more details on that, but we'll have more to share later. We fully expect to be able to get to company accretive, sales and profit over the long-term. But we've built in a slow ramp-up period as we think about that, because it's going to take some time to do what we plan to do on these brands and get to a place where they're delivering that type of accretive growth for us as a company.

Excellent. Thank you, Linda.

Thanks, Nik.

Thank you. Your next question is from Andrea Teixeira of JPMorgan.

Linda, on the Glad bag pricing comment, when should we see this flow through? I'm assuming that's fiscal 2022 consideration at this point. I'm curious because as you know it will mark about six months that your large competitor took pricing from what I understand. Is that the strategy now to recover some of that share? And any other categories that -- I appreciate that you don't want to come across as being opportunistic. And I know knowing from the benefit that you had from your strong brands and everything to come across as taking price in the middle of pandemic, but now that we are hopefully coming through high vaccination rates, so when do you think is the time to actually take some of the other categories that are also impacted by transportation cost pressures and commodities to be considered to be taking pricing? And one -- also before you can answer. But just so before the as far as I understood like you think that commentary about having the supply chain normalized and having the cleaning products by -- fully on shelf by the end of the calendar second quarter, would we expect also that international and professional the professional business will be normalized? So that's only the cleaning and you still have the work to do to recover share and capacity on these other segments? Thank you.

Thanks. I'll take those in turn and we'll start with the Glad pricing question that you had. So we announced that price increase to the trade in March and it will be effective in July. And as I said previously, we are though looking at given the continued inflation that we're seeing with resin would we want to take an additional action on Glad. And that we're still contemplating and we don't have news to share on timing on that. But the round that we just announced will be effective in July and then it will pass through. And we'll see retailers change prices on shelf as they do that. As it relates to your broader comment on pricing that really is category specific and it has to do with the timing. These businesses have different seasonal aspects to them. They have different promotional plans. They have different innovation plans. And so I don't have any more to share on timing on any of those categories, but I just want you to take away that we are looking at it across every category. We -- but we will be doing this category-by-category and it really has to do with those dynamics that we're experiencing, and of course, the broader plan. And I also want you to take away what we are absolutely doing on every category right now is cost savings and we're going back. We're pleased to be on track to deliver our cost savings target for the year. And we're looking at what other places could we plus that up across all of our businesses. And then of course, innovation is the same. But as we have more news on pricing we'll share it. But at this point it's Glad and news that we're looking at would there be additional action we'd want to take on Glad given what we're seeing in resin. And then as your question on supply chain, professional has some shared supply chain as does a small portion of international with our US retail cleaning business, but they also have components that are completely separate. But they are largely expected to recover on the same timing that we have from retail. Although, international I would say at this point particularly with wipes given we have a dedicated supply chain, we're not at a point that we're constrained in the vast majority of our International businesses because of that dedicated supply chain.

And any anticipation of like accelerating the growth into other countries? I think you mentioned I think Lisah mentioned 30 countries already. Is there any ramp up or additional places, or you'd say, right now I got the wipes which is obviously the low-hanging fruit. Now I'm going to offer them sprays or other things that may actually accelerate the international growth?

Yes. As we spoke about at CAGNY against our goal to accelerate long-term profitable growth, and get to that 3% to 5% sales range, we anticipate stronger growth from international. And that really is behind building a global Clorox cleaning brand, which we had to start to, but we think we can help serve more consumers around the world. And the idea would be, of course, wipes is an important part of that portfolio, but really looking broadly across the set of cleaning products that we have, strengthening our innovation across the Clorox brand. And that can include things like sprays, like you mentioned that we would be able to do that. So that's exactly what we're looking at as we enter markets, what's the right product lineup and where can we leverage innovation to expand our presence in those markets behind the Clorox brand.

Very useful. Thank you. I’ll pass it on.

Thank you. Your next question is from Kaumil Gajrawala with Credit Suisse.

Hi. Good afternoon, everybody. Good morning for you guys, I suppose. A question on elasticity, obviously, there's a lot of inflation and pricing is coming through across the board. I know there's a – you've got quite a strong view and the consumer research suggests an intent for pretty structural changes of use of products in the home and at the home. To what degree, are you worried about the risk of breaking that trend, or do you feel like you have to be careful about maybe there's an opportunity that can be lost if too much pricing is taken? From a cost perspective, it makes perfect sense to take pricing to cover it. But what are you thinking about from an elasticity perspective and how that may change things?

I'll start. When we look at the strength of our brands, we always focus on consumer value as the measure, we look at to determine the strength of our brands and our ability to take pricing, because of course consumer value is composed of the strength of the brand that we have. It's comprised of the product and how people experience that versus competitive products. And of course, pricing is a function of that as well. And we're looking at that triangle that that forms to say, what is the right mix by category by sub-segment to deliver that right value for consumers and we're always trying to optimize that. So we take that into account as we think about it. Given the fact that, we have higher consumer value than we've ever had since we began measuring it that implies, the strength of our brands that they have ability to take price. And as we strengthen our innovation program, as we've leaned in to spend 11% behind our brands this year, and keep them strong that was one of the questions we've got a lot of is, why would you invest during a time when people want your brands already? And it was about building that brand strength and equity over the long-term. So that we have ability to introduce them to new products, as they demand it, and of course take pricing as we need to. So we're taking that into account. I would say, regardless of pricing, these consumer behaviors are here to stay. Consumers have absolutely shown a willingness to pay during this time to keep themselves safe and well through, all of their behaviors whether that be cleaning, drinking more water et cetera. And also as they start to eat at home, we've seen lots of trends around consumers having meal experiences. They've invested in grills, and they've invested in that long-term behavior. So we feel really good about our ability to do both, which is continue to take advantage of the trends that we're seeing, but also price where it's appropriate to recover margin.

Okay. Great. Thank you.

Thank you. Your next question is from Steve Powers with Deutsche Bank.

Hey guys. Thanks. A couple of questions for me. The first one is just, as we think about the Health and Wellness segment factoring in what you guys are seeing or envisioning as the new normal level of consumption coming out of the pandemic, as well as your improved ability to supply, I guess I'm just trying to gauge, what you think the kind of the average absolute run rate of sales in that segment is likely to be as the new base? You've obviously been running $800 million plus for the last several quarters. And then, this quarter came down below $700 million. And I'm trying to sense, do you think the -- do you think this is the new normal level of consumption? Does it bounce back and meet somewhere in the middle? Just how you're thinking about that as we go forward.

Sure. I think, if you look -- if you -- maybe I'll take a step back and talk about what we're seeing overall and what we've seen in the past because, I think we're operating from a really strong base. I'm not sure, how clear this was in the past. If you take a step back and look at our retail cleaning business, prepandemic that was a place of strength for us. We were growing mid-single digits in both topline and bottom line in the retail cleaning business for a number of years. So if you look at the five-year CAGR prepandemic, that was mid-single digits. So we were starting from a place of strength. And we see that continuing as we move to the future and we see -- building off of that. So if that gives you an idea of what we're thinking about, it will be above the company average is what we're anticipating, given the fact that it's a place where consumer tailwinds are working, where we think innovation is going to play a really big role because consumer needs have changed. And then again, that investment and we've long been investing in the Clorox brand, but we've increased that during this pandemic. And we think it's going to be pretty solid from a behavior perspective, as we move forward as we combine all of those things.

Okay. Okay. I can work with that. I guess shifting gears to gross margin. I guess there are two things here. The depth of what I think your guidance implies for the fourth quarter is something like a 600 basis point -- 600-plus basis point contraction in the fourth quarter if my math is correct. You can correct me if it's not. I guess, what I'm -- what I -- coming that's question number one I guess of this. But the second part is just trying to gauge your sense of urgency of building that back. Obviously, you're taking pricing in Glad, looking at pricing elsewhere as you made clear. But are you -- do you would you be satisfied with kind of a more elongated Glad path of margin recovery, or is this something that you're eager to claw back as we think about the first half of '22? I'm just trying to A, size the level of contraction and then B, gauge your sense of urgency in getting it back.

Yes, Steve, thanks for the question. Two things. On Q4, we don't provide quarterly guidance but what I can share with you is as we said for the full year we expect our gross margin to be down. For me that's likely about 100 bps on the full year basis. And as we mentioned back in February my expectation is it would be down to a lesser degree. As we've highlighted what's really changed for us is while transportation continues to be a challenging market for us. It's really resin that had the biggest impact really driven by the ice storm we saw back in February. When we talked back in February, during our previous earnings call, I had anticipated about 150 bps headwind from commodities in the back half of the year. I think that's going to be closer to 200 bps now in the back half. And you saw in Q3 in our attachments we provided about 170 bps in Q3. I think it will be higher in Q4. And I think it will probably peak in the front half of fiscal year '22 and then we'll start to see some softening. And so I think that's how it's going to play out this year in the near-term. And then your longer-term question on margin recovery, Linda just mentioned it. We are committed to growing EBIT margins 25 to 50 bps over the long-term. And so we're going to continue to aggressively work towards that goal. And as part of that is the actions we're talking about now as it relates to recovering these cost increases, pricing being one element of that, but we're going to be leaning into cost savings in many other areas as well. We'll work to recover margin. And then maybe last comment Steve that might be helpful. If I provide a broader perspective, if you think about our financial performance where we were before the pandemic at the end of fiscal year 2019 and where we're likely in this year on a two-year stack basis that's about a 100 bps increase in gross margin. And so we'll certainly be challenged this quarter and next quarter. If I take a long-term view we've improved the margins of the company about 100 bps over the last two years. And then as I said earlier, our goal is by the time we get to the back half of fiscal year 2022, we are delivering 3% to 5% sales growth. We're expanding margins. We're delivering earnings growth. So hopefully that gives you some perspective on our desire to quickly move through this challenging environment but make sure we're taking the necessary actions to put us on track for our long-term sales and profit goals in the back half of 2022.

No it does. I appreciate it. If I could squeeze in -- just to build on that. I don't think you specified exactly across the Glad portfolio, how impactful this announced price increase is? Is there any quantification you could offer on the actions that you have planned for July? That would be helpful. And then you did something different for Clorox and moving to an adjusted EPS quantification for fiscal 2021. I guess, there's like a -- it sounds like there's a $0.03 to $0.04 amortization charge that is in GAAP, that is not in your adjusted number. And I guess is the intention beyond fiscal 2021 to move to an adjusted, or should we think about as we think about sizing up your fiscal 2022 guidance moving back to GAAP and layering back in that $0.15 for the year? Thank you.

Yeah. Thanks Steve. On the two questions on Glad, I'd tell you think low to mid-single digits pricing action that will take effect in July. And as Linda said we'll evaluate if additional actions are necessary. And then on an adjusted EPS as you said, we introduced it for the first time this quarter. And, Steve, the intent is we really thought this would help as we provide both on a reported GAAP basis, but we also thought adjusted would help our investors as we've had two large noncash charges now. We have the gain in Q1 from our Saudi acquisition and we have the VMS impairment. And so we think giving that additional perspective is helpful. And particularly as you go into fiscal year 2022, continue to use adjusted allows you to have a better understanding of our operational performance as you're able to look past this one-time gain or one-time charge we have this year. So you should expect us to use that going forward.

Okay. Thank you so much.

Thanks Steve.

Thank you. Our next question is from Lauren Lieberman of Barclays.

[Technical Difficulty] versus adjusted, because being a GAAP reporter arguably has been a point of pride for the company right and something that you could also argue contributed to the stock valuation over time. And I know that's a very, very high bar to hold yourselves to. But I'm really -- I mean I get that the impairment charge is this big one-off. But if I remember back in last year's fourth quarter when you introduced the guidance and including the JV gain, you specifically talked about it as being offset by tax and FX in the full year earnings growth. And now you're asking us to switch to adjusted just when we would be looking at fiscal 2022 growth rates. So I'm struggling with really being comfortable with that ask, particularly if you believe there's so much going on with the business. It's really positive and constructive that we shouldn't need to be kind of playing these games. So Kevin, I'd really just love further perspective on that decision.

Yes. Lauren, I wouldn't agree with playing games that characterization. We think that's helpful additional perspective. So to be clear, we'll continue to provide a reported GAAP basis estimate and we will provide an adjusted estimate as well. And again, we think both numbers are helpful and insightful for investors. We have a very large gain in Q1 and a large charge in Q2. We want to make sure our investors can understand our operational performance. To your point, Lauren, there's a lot going on operationally. We want to make sure we can help investors understand that as clearly as possible. So setting those two items aside, we think is another insight to our business. It will be helpful. So that's why we introduced it and why we'll continue to use it going forward in '22. So as we look at our '22 performance, you can evaluate that versus our 2021 performance excluding these two items and really understand I think more clearly on an operational basis our performance year-over-year.

Okay. Thanks. That is very helpful perspective and I appreciate that. And then I did just want to follow-up one more question on market shares. And I know that Nielsen is far from perfect particularly with your strong shares in club and the quick gains you've made in e-commerce over time. But Nielsen does measure something. And when we look at Nielsen, it looks like your share in spray cleaners and in wipes is not just down this year, but is down. If I looked back pre-pandemic that your shares were down pretty considerably, particularly in the spray cleaning category. So I just would like some further perspective there on whether or not there's been some channel prioritization dynamics, whether or not in hindsight there's a sense that maybe you could have invested more and been more proactive in cleaning historically? Because it feels to me like again just looking at the Nielsen and knowing it's imprecise there's a bit of a hole to dig out of on share that's not really related to during the pandemic supply constraints. Thanks.

Hey, Lauren, I'll take that one. Thanks for the question and try to provide some clarity on this one because I know it's really complex. Maybe taking a step back would help on this one just to get clear on what we experienced in cleaning and what we think we drove pre-pandemic, what we're seeing now, which again we're not satisfied with. And then how we see this playing out over the coming months and years as we get to a more normalized state. So first big picture, if we step back and look at our retail cleaning business, it's actually been a great area of strength for us. I mentioned a little earlier that, we had strong growth. So if you look at the five-year CAGR pre-pandemic, we grew that business mid-single digits both top and bottom line. And that corresponded to an overall share increase in home care of two points from fiscal year '13 through 2019. So that was something that we've been investing in. We had been really trying to expand the Clorox brand. We had a strong focus on innovation. We have launched Scentiva during that time. We had done improvements on a broad range of our portfolio. So it's been a nice area of strength for us. I think as you dive into the individual segments, Lauren, you do get to what you said which is there are ups and downs. And sprays is an incredibly complex fragmented category. So while we were winning in a lot of the particular segments that we are strong in, it could be true that in other ones we weren't. And we have a very strong spray business to your point outside of track channels, which is about 50% of our business. So -- in aggregate. So we -- I feel like we walked into this pandemic in a strong way from a Clorox perspective. There's always work to be done in individual segments as you highlighted. But overall, we were winning in Home Care. And as we look to the future I think a lot of those elements are going to continue to resonate, but we're going to ramp them up. One, the strength of that Clorox brand. It's why we've invested so much this year behind that and increased the spending. We're on track to spend across the company another $125 million in advertising and sales promotion this year, why we've ramped up innovation. And I mentioned the innovations that are worth repeating; reintroducing Scentiva, compostable wipes are back on shelf; disinfecting floor mop costs, which is a brand-new incremental category for us to compete in; having new offerings in Clorox sprays that aren't bleach and that's a first for us as well as paper towel wipes and then broadly expanding against our new electrostatic business that we really created from nothing a number of years ago with some partnership. So I feel terrific about what we have in place to continue to meet consumer needs. I am not happy Lauren with where we are share-wise. None of us are, but we feel confident in our ability to get back into that share growth as supply continues, again which is the majority of the issue. But we're laser-focused on that consumer value metric innovation and investing behind the Clorox brand.

Okay. Linda, thanks. I really appreciate that.

Thanks, Lauren.

Thank you. Our next question is from Kevin Grundy of Jefferies.

Kevin?

A bit. But -- so for your outlook now specifically advertising and marketing still 11% of sales, including 12% in the back half of the year. I think as you guys are well aware both of those are historical highs as far as I have going back this is a decade. So on a full year basis on a six-month basis, was there any thought at all about pulling back as commodity costs move higher? I suspect the answer is not a lot given a lot of the discussion around market share, but maybe you can comment on that? And then just confidence on ROI behind the spend given a lot of the volatility that exists around consumption, et cetera. The context here understanding supply-chain constraints have been a problem and one that you're trying to address, but I'm sure the hope would be in principle that market share would be in a better place with advertising and marketing your historical levels. That's probably not going out of much of a limb. And then maybe just, sort of, tying this up longer term is 11% the right number? We don't have to go back very far. And it was 9% of sales. Is it possible this comes in it comes back to 9% which is not, sort of, permanently in the P&L. So maybe some comments there which I suspect you're not making that sort of decision in a vacuum. It's going to be where is market share and whether you're satisfied with it. But not to belabor this because I feel like we've spoken on a lot of it but anything you feel in that would be incremental, would be helpful? Thank you.

Sure, Kevin. 11% for this year was something we had a lot of passion and conviction on given the fact that we're seeing so many people enter our brands. And we wanted to create that loyal consumer base moving forward. And we wanted to give them the right product information that they needed during such a trying time for everybody, but also give them new solutions as people had different challenges to solve. And innovation and advertising play a really important role in that. So for this year, we are on track to spend 11% as you highlighted and we have a strong spend coming up here in Q4. And that is behind the new innovations that we've launched. And I think you'll recall probably from previous conversations that our goal was to double the amount of advertising we spent on innovation this year to welcome people into those new product experiences and create loyalty and trial. As we look forward -- and let me comment on ROI, before I say we move forward. That's something that we're tracking real-time and getting information and insights on. And what I can say is the ROI continues to be very strong and that's why we continue to spend, and we're seeing it translate into results from a consumer-metric perspective. So continue to have incredibly high household penetration. We have household penetration gains across a number of our categories. We're seeing loyalty strengthen. So retention rates growing, repeat rates growing on both core users and new users. We're seeing consumers buying larger quantities more often. So all of the things that we would attribute to to long-term consumer metrics that show the health of the brand, the advertising drives, we're seeing that not only just the strong ROI but those metrics increase that are important to us to talk about loyalty. As we move forward, we don't have a prescribed number whether it be 10% 11%. But what I can say is we're committed to investing in our brands. And we'll continue to optimize what that right level of spending is depending on exactly like you highlighted market shares, depending on the innovation programs we have. But what you should hear from us is we will continue to invest in our brands. And we'll – as we update and give you a perspective for 2022 and beyond, we'll communicate what that exact number looks like. But you heard our continued commitment to advertising as a strong lever to help us get to our 3% to 5% over the long term.

Very good. Thanks and good luck.

Thank you.

And your final question comes from Jason English of Goldman Sachs. And it appears his line disconnected.

Jason one more time. He's not there at all, operator? No?

His line disconnected.

Okay. That's the final question?

Yes.

Very good. All right. Thanks again, everyone. We look forward to speaking to you again on our next call in August. Until then, please stay well.

Thank you. This does conclude today's conference call. You may now disconnect.